Sanford sacrifices dividend as profit falls 46pc due to Covid-19

Thursday, 12 November 2020

Sanford is New Zealand's largest fishing company.

Sanford is nixing payment of a final dividend payment to shareholders after its annual profit was almost halved as demand for its premium seafood slumped when restaurants and cafes closed because of the coronavirus pandemic.

New Zealand’s largest fishing company on Thursday confirmed its earlier forecast that after-tax profit had fallen 46 per cent to $22.4 million in the year ended on September 30.

The company has decided to hold onto its cash instead of paying a final dividend, citing uncertainty about the impact of Covid-19 and the need for cash to reinvest in its assets.

That means shareholders received just 5 cents of dividends for the 2020 financial year, paid from first-half profits, compared with a total of 23c for the 2019 year. The board would re-establish dividends when the company performance improved.

Sanford operations span wild catch fishing and mussel and king salmon farming.

However, the path to profits takes time, with about two years needed to grow mussels and salmon ready for harvesting, meaning the company was left with excess stock when restaurants and cafes suddenly closed during the pandemic.

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Sanford had plenty of supply last year but demand was weaker, hurt by Covid-19.

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“Because of Covid-19, more stock than usual has gone to inventory,” chief financial officer Katherine Turner said.

While product supply was “particularly good”, weaker demand meant inventory was 38 per cent higher in volume, and 100 per cent higher in value, she said.

The value of the company's seafood inventory rose to $74.8m from $37.6m, mostly due to increased volumes of stored mussels, salmon and hoki.

Sanford’s inventory levels climbed as lockdowns in its key overseas markets hurt the restaurant trade.

“The pandemic’s impact on food service also meant that high-value products were less in demand, reducing our margins further and increasing our cost base,” she said.

Turner said that despite the challenges, Sanford’s balance sheet and liquidity remain robust, with a gearing ratio at 31 per cent compared with 24 per cent in the previous year.

“We will continue to make careful choices as we manage our asset rejuvenation programme, balancing investment needs with cashflow realities,” she said.

Sanford says online sales have grown exponentially.

Sanford has closed its Tauranga plant, reducing its processing sites to six. Its staff numbers fell to 1387 from 1453 and it has put hiring on hold, with a lower level of discretionary spending to continue in the first half of the new financial year.

The company cut its capital spending last year to $48m, down from a forecast of about $80m before Covid-19, and expects to spend between $45m and $55m this year.

Net debt rose 41 per cent to $184.3m, while operating cashflow fell 61 per cent to $18.8m, although this is expected to improve as the company sells down inventory.

The seafood industry was hit hard by Covid-related restaurant closures, with more than 70 per cent of all seafood produced globally consumed outside the home. Lockdowns hurt Sanford in its key markets in China, the United States and Europe.

“In the past, if one territory experienced weakness, other markets might be strong,” acting chief executive Andre Gargiulo said. “This time, we were seeing all of our markets impacted in waves – just as one settled down, others would shut down.”

Sanford acting chief executive Andre Gargiulo says the outlook for this year remains “volatile and challenging”.

Sanford has been striving to move away from lower-value commodity markets, which makes up the bulk of its revenue, and into higher-value consumer markets.

Gargiulo said Sanford had sped up its plan to target consumers and this would give it a path to increased profitability in 2021.

He didn’t provide a profit forecast, saying the coming year remained “volatile and challenging”. The company was focused on learning to live with the current situation, he said.

“There is still a high level of unknown and unpredictability in the global markets and the domestic market to some extent,” he said.

Gargiulo said Sanford now had six months’ experience of the Covid-19 environment and was quicker to respond to changing consumer trends in big bricks-and-mortar retail and direct-to-consumer channels, with its online sales growing “exponentially”.

Sanford had previously been reliant on the food-service industry, involving high-margin sales to overseas restaurants. However, this area was hit hard by lockdowns, with North American sales down 30 per cent last year due to Covid-19.

Gargiulo said the company was now seeing encouraging volumes in the retail market domestically and in Australia.

“Our ability to get to those markets at a cheaper rate can offset some of the losses we are making from a food-service perspective,” he said.

He said one of Sanford’s biggest challenges was being able to respond quickly when Covid-19 first struck, given the high level of rigidity in its fishing and processing assets.

“What we are and have been able to do over this time is to start to look at areas of our business where we can change processing and vessels, what they catch and when.”

Sanford was also looking at working more closely with others in the industry, he said.

Chairman Sir Robert McLeod said the board was making good progress in its recruitment for a new chief executive to replace Volker Kuntzsch, who resigned in September after seven years leading the company.

Kuntzsch was paid $2.12m last year, which comprised his base salary, a vehicle allowance and an incentive payment of $132,375 related to the previous year.

Sanford shares fell 3.8 per cent to $5.04 each at mid-afternoon on Thursday. They have dropped 36 per cent this year.