Announcement
MEETING: SAN: Annual Meeting Chairman's Address
02:00pm
SAN
13/12/2019 14:00
MEETING
NOT PRICE SENSITIVE
REL: 1400 HRS Sanford Limited (NS)
MEETING: SAN: Annual Meeting Chairman's Address
13 December 2019
Sanford Limited 2019 Annual Meeting
Mr Paul Norling
Chairman's Address
(Slide 1)
On behalf of my fellow Directors I am pleased to personally present to
shareholders today our report for the year ended September 30, 2019.
(Slide 2)
I do trust that you have all had the opportunity to read our Annual Report
which continues to receive acclaim and which provides a relatively extensive
account of management's work and the company's progress over this past 12
months. While I will obviously talk about our financial results and summarize
the major accomplishments and issues for the year, following this I also wish
to take some time to retrace our steps over the past 5 years and the changes
that have occurred in the company's operations, over that time.
Volker Kuntzsch, our CEO, will then cover, in much greater detail, the
activities and progress that management have made (and are continuing to
make) with the company's activities over these past 12 months in particular,
as well as other matters of interest to you
(Slide 3 - Review)
REVIEW OF THE 2019 FINANCIAL YEAR
I will commence with a summary of our financial results and outcomes.
- Our GAAP compliant Net Profit after Tax was $41.7 million, which is
slightly down on our FY18 result of $42.3million, the modest reduction being
largely attributable to non-trading items.
- The Non GAAP compliant methodology of measuring Adjusted Earnings before
Interest and Tax (i.e. the Underlying operating profit) saw this measurement
at $64.8 million which is in line with the FY18 number of $64.7m.
- EBITDA increased by $1.3m to $85.7m from $84.4m in FY18
- Sales Revenue of $545m (or $558m. on a Like for Like basis which was 8%
higher than 2018) on sales volume of 115,000 GWT which was 5% less volume
than the previous year - the higher Sales Revenue number on 5% less volume is
a very encouraging trend and underscores the effectiveness of our value add
strategy.
- Group borrowings reduced to $139m from $155m in FY18 which will assist fund
the company's necessary and on-going capital investment programme.
(Slide 4 - Wildcatch, Mussels & Salmon)
As stated in our Annual Report, our overall Underlying Operating Profit (or
Adjusted EBIT) was somewhat disappointing as it again did not meet the
expectations of both the Board and management. The reason for this was
largely attributable to matters relating to the performance outcome of our
Wildcatch business which faced challenges, while our Mussel and Salmon
businesses both finished the year with very strong results when compared with
FY18 - Mussel's operating profit contribution being up 69% and Salmon's Like
for Like operating profit contribution being up 62%.
Our Wildcatch business is the extremely important core of our extensive
fishing and aquaculture assets and comprise approx. two-thirds of our balance
sheet asset value. Headwinds encountered this past year included a
sub-optimal vessel fleet performance, some effects of climate change - we
also encountered some challenges with crewing issues in our Deepwater fleet.
Management have a major focus on operational supply side issues and have also
made valuable progress with product quality and further enhanced processing,
as well as completing a review of our 'on land' processing footprint in the
South Island.
As shareholders are aware, we are in the challenging but very satisfying
process of also transforming the product supply side of our three
differentiated businesses into the provision of higher value products
wherever we possibly can while at the same time moving up the value chain to
get closer to our end consumers i.e. streamlining our supply chain, as we
seek to provide as much of our sales volume in a pristine and value enhancing
format and through less intermediaries. This strategy also involves branding
and sales channel strategies as well as some re-balancing of our
international geographic marketing focus. We are pleased with the results
that have been achieved to date but there is a not insubstantial operating
cost to these changes which is also part of the reason for our flat profit
performance.
Our reduced debt level and consequential balance sheet gearing is pleasing
but necessary as we enter the second year of two, where we have committed to
a capex investment program of $120m for the 2019 and 2020 financial years -
only $38m of that sum was invested during FY19 so there will be a substantial
catch-up spend in FY20 which is already underway.
(Slide 5 - Divestments & Reviews)
MATTERS OF NOTE DURING 2019
During this past financial year, the company also took a number of actions of
strategic significance - they are:
- We completed the sale of our 50% shareholding in Weihai Dong Won Food
Company Limited (WDWF) - a seafood processing company located in Weihai which
is situated in the province of Shandong, China and is the closest Chinese
city to South Korea. We joined the company and its operations in 2004 in
partnership with our long standing and respected charter fishing partners
Dong Won Fisheries Co. Limited of South Korea. With our strategic direction
for the future clear, our continuing shareholding in the company was not of
the importance that it once was so we sold our 50% interest to Plenus Company
Ltd of Japan - an extensive seafood restaurant operating company which has
some 2900 locations throughout Japan. As part of the sale terms, we continue
our relationship with WDWF with an on-going supply agreement for our species
supplied to that entity.
- In March of this year, we then sold our Pelagic fishing business based in
Tauranga to another Tauranga based pelagic fishing company. We saw little
opportunity to add any significant value to these pelagic species on an
on-going basis and the sale was therefore appropriate from our viewpoint as
it was for the purchaser who was able to achieve economic scale as a
consequence.
- Our Australian operations based in Melbourne have traditionally
under-performed from a strategic and financial viewpoint. Management has
therefore undertaken a full review of the best way forward for Sanford in the
Australian marketplace and now has - either in place or committed - the
requirements to greatly enhance our presence and financial performance in
that nearby substantial market.
(Slide 6 - Marine Extracts Facility)
- The final strategic initiative that I wish to highlight is the announced
intention to build a 'state of the art' Marine Extracts and Innovation Centre
in Blenheim - a $20m Capex spend and a very progressive initiative which will
greatly reinforce Sanford's move beyond food into the nutraceutical space and
other potentially very lucrative marine based products. This initiative holds
great promise for the future of the company and we already have a toe-hold in
this space with Enzaq which we acquired some two years ago.
Management are also undertaking a major program (dubbed 'Sancore') to
comprehensively up-date the company's management and financial information
systems and IT capability. This is a well overdue and a necessary
infrastructure requirement involving a significant planning process - that is
already well underway - to be followed by a consequential capital investment.
(Slide 7 - Health, Safety & Wellbeing)
HEALTH, SAFETY AND WELLBEING
The company and all of our people are still recovering from the shock of
Steffan Stewart's accidental death on the San Grant which occurred on
November 14 last year. I must say, however, that the manner in which our
staff - from the CEO and his executive management team right down through the
organisation - responded to this tragedy, was truly moving. The level and
extent of care and support provided to all affected by this terrible event -
in particular to Steffan's family as well as his workmates at sea and at our
Deepwater fishing organisation based in Timaru - was of the highest order.
While we all sincerely wished that this accident had never occurred, we can
none-the-less feel proud as to how our people responded in this darkest of
times and is a clear illustration of how our people care about each other.
The health, safety and wellbeing of our people is our highest priority and
the CEO will want to discuss this with you during his presentation. As a
result of its importance and focus in the business we are not surprised that
the number of Near Misses reported over the past year increased by some 37% -
the easier thing for people involved in such instances is to get on with what
they are doing and not take the time to follow the required processes. By
doing so, however, enables the organisation to take whatever steps are
appropriate to avoid such occurrences in the future, not only at that site
but right across the company. Having said that however some of our Health and
Safety stats for the year are disappointing and we know that our Health and
Safety people throughout the organisation are already working harder to turn
this latest year's numbers around and down.
(Slide 8 - Changes 2015)
CHANGES OVER THE PAST 5 YEARS
As already mentioned, I thought it might be of interest to reflect on and
summarize some of the meaningful changes that have occurred in the company's
shape and operations since adoption of the company's revised strategy in
2014. I will commence from the FY15 year and roll forward.
FY15.
- In the 2015 year, the company's international purse seining (IPS) operation
which focussed on catching skip jack tuna in the Western and Central Pacific
was closed down and sale of the three boat fleet commenced. Operating
profitability was problematic, the catch was commodity and sustainability of
the resource was debateable given the resource management approach adopted by
some of the Pacific island nations.
- The year also saw the closure of our Christchurch mussel processing
facility and our mussel processing consolidated on our Havelock plant with
its automatic mussel opening technology. Mussel supply and product pricing
being the dominant reasons.
- The introduction of a new logo and tagline represented a clear shift from
resource extraction to food production and customer service - and at a
similar time we adopted the ambitious vision to become 'The Best Seafood
Company in the World"!
(Slide 9 - Changes 2016)
FY16.
- Our South Korean charter fishing partners who collectively operate three
vessels in conjunction with Sanford, successfully reflagged their vessels
aligning all of their practices with New Zealand laws and regulations, and
our company policies. These vessels continue to play an important role in
Sanford's overall catch plan activities.
- We took delivery of the San Granit from its previous Norwegian owners -
this Deepwater factory trawling vessel being the largest in our fleet at 67
metres. After some not inconsiderable challenges, I am pleased to say that
the Granit is now performing well.
- We also commenced our 'Focus on Fresh' product initiative in 2016. This has
caused us to be acutely aware of our supply chain efficiency as we now
produce 9% of our total sales volume in the fresh format delivering it not
only throughout NZ but also into Australia, Hong Kong, Japan and the U.S. In
this latter market our opportunity has been progressively enhanced with
direct flights to big population cities of Houston, Chicago and next year to
New York, which are additional to the two Californian destinations of L.A.
and San Francisco and, of course, also to Hawaii. Additional impetus to this
important initiative has come from the 2018 opening of our revitalised
Auckland Fish Market and the great opportunity that this provides to present
our pristine fresh product direct to our consumer customers.
- Spatnz, a Primary Growth Partnership between the Ministry for Primary
Industry and Sanford, had been operating for a year and was developing the
selective breeding of nature's best specimens of Greenshell mussels with
impressive results
(Slide 10 - Changes 2017)
FY17.
- Our Big Glory Bay brand was launched with its major focus on King Salmon
from Sanford's salmon farm located in that bay on Stewart Island.
- Following the development of a more focussed sales channel and customer
strategy, Sanford delivered a strong performance in the China market driven
mainly by high end species including fresh King Salmon, Toothfish and Scampi.
- Sanford took another step in the Innovation space with the acquisition of a
small Blenheim based company Enzaq as we sought to add further value to our
Greenshell mussel business in the field of nutraceuticals. Simultaneously
plans were developed to markedly increase production (which occurred) and to
assess this as a base to push further into this innovation growth
opportunity.
(Slide 11 - Changes 2018)
FY18.
- The phenomenon of Climate Change really started to bite and is now judged
to be the most significant risk facing Sanford - its effects were felt across
all three of Sanford's major businesses.
- Innovating 'beyond food' increasingly became a focus - examples being
collagen from Hoki skins and the November 2018 launch of Sea to Me brand and
its nutraceuticals range as well as extensive market research into demand
probabilities.
- A complete revamp of the Auckland Fish Market was initiated in FY18. The
substantial upgrade included eight eateries and a revitalised fresh fish
market subsequently renamed 'Sanford and Sons - Fishmongers' - this
redevelopment has become a popular Auckland eating and tourist destination.
- Precision Seafood Harvesting technology was now having a substantial
influence on our fresh fish quality via this innovative new catching method -
this was ideally timed for our redeveloped Fish Market and management's
marketing push into high end restaurants who embraced the excellent product
quality.
(Slide 12 - Changes 2019)
FY19.
The matters of note I highlighted earlier in my report - namely:
- Sale completion of our 50% interest in Weihai Dong Won Food Company Ltd in
China.
- Sale of our Tauranga based pelagic fishing business.
- A major refocussing of our Australian business.
- The announced intention to build a Marine Extracts and Innovation Centre
facility in Blenheim.
- As well as the Sancore company-wide major IT upgrade.
(Slide 13 - Broader Changes)
On a wider and more general note of reflection, the company has focussed a
very substantial amount of attention over the past 5 years to the vitally
important responsibility of the health and safety of our people. This has
involved extensive attention from the top level of management (with continual
oversight by the Board) right down through the organisation via training,
audits and the hiring of specialists throughout the organisation. We were
therefore pleased to have our employees' and share fishermen's affirmation
regarding the level of importance of this issue within Sanford - it is a
continuing journey that will never end as we seek to continually improve.
A further issue of considerable importance relates to the very substantial
progress that we have made in the extent and transparency of information
provided in our reporting. This has been welcomed by our shareholders and the
market generally, and Sanford has been recognised with the receipt of a
number of Australasian and international awards for our Annual Report over
recent years.
The one final matter that I wish to reflect on, is the topic of
Sustainability. This is extremely important to Sanford as we, amongst others,
have the responsibility of caring for and enhancing our fished and farmed
resources for future generations - we take this responsibility extremely
seriously. In this regard I believe that Sanford - under the leadership of
Volker Kuntzsch our CEO - leads the New Zealand seafood industry in its
thinking and actions in this crucially important space and you all can take a
great deal of comfort from that, on behalf of your children, grandchildren
and generations beyond.
(Slide 14 - Broader Changes contd.)
That concludes my reflections - both specific and general - of the more
notable changes undertaken over the past 5 years. There are, of course, a
myriad of other important advancements that management has also instituted
which have resulted in the considerable and planned strengthening of the
company's base of operations. From this base will flow an acceleration in the
company's profit growth from that of the last 3 years, which however will
require a continuing level of capital as well as operational expenditure as
Sanford ambitiously seeks to become 'The best seafood company in the world'.
(Slide 15 - History & Future)
Now for a few concluding remarks.
As I have said previously, in New Zealand terms Sanford is a company that has
a great history but, in my opinion, potentially an even greater future. The
marine resource accessible by your company is probably unparalleled globally.
NZ's Exclusive Economic Zone of approx. 4.4 million square kilometres
provides a terrific resource that is world leading in its resource management
structure and provides such a wonderful and extensive array of high-quality
wild catch fish species. Add to that our marine environment where we can farm
and grow the outstanding King Salmon species as well as the unique Greenshell
mussel with all its qualities. Then there is the wonderful 'provenance' story
that backs and enhances our developing branded and increasingly higher value
seafood products. And last - but not least - the emerging potential of our
marine environment to provide 'beyond food' products backed by a bold but
well-reasoned innovation focus. This is what Sanford is developing, and in
our CEO Volker Kuntzsch's words 'this is exciting'!
And furthermore, if we are successful with our efforts to encourage
meaningful industry collaboration with, for example, catching and processing,
that could provide an additional bonus in these major cost areas.
Yes, there is the emerging real challenge of climate change - and while this
has had an effect on our last couple of years' results, already we are
starting to find or develop ways of mitigating some of these effects. And as
time goes by, I believe that the company and the industry, will be able to
enhance its mitigation strategies and effectiveness further.
(Slide 16 - Distinctions & Recognitions)
RECOGNITIONS AND AWARDS.
As I think it is appropriate, I now wish to take a moment to mention that
your CEO, your incoming Chairman and separately your Board as a whole have
all received notable recognition over the past year:
- Firstly to our CEO Volker - while some of you may already be aware, it
gives me great pleasure to inform you that Volker was recently announced as
the winner of Rabobank's 2019 Leadership Award for Agribusiness. Rabobank is
recognised as the leading international bank to the global food and
agribusiness sectors so this award is indeed a prestigious one and recognises
the pre-eminent leader's contribution in these industries across both
Australia and New Zealand. Not being satisfied with just one award, he was
then selected as one of only three finalists in the Deloitte's Top 200
Companies in New Zealand, for the NZ Chief Executive of the Year award. While
Volker was headed off by another outstanding candidate for the Award, his
selection as one of only three finalists from the top 200 NZ companies was
certainly a highly meritorious recognition. So we congratulate Volker on both
these achievements which obviously reflect outstandingly well on him
personally but also on your company as a whole.
- It also gives me great personal pleasure to recognise and acknowledge your
incoming Chairman, Sir Robert McLeod who was appointed a Knight Companion of
the New Zealand Order of Merit for his services to business and Maori in the
2019 New Year's Honours List. We congratulate Sir Rob on this exceedingly
well deserved public recognition as he has been a stand-out example in
everything he has done in his professional and other capacities during his
business lifetime. He has undertaken so many roles in business in New Zealand
and Australia, on numerous Government Taskforces as well as leading many
Maori entities that there are too many to even contemplate covering. We were
delighted when Sir Rob agreed to join the Sanford board in 2016 and I know he
will do an outstanding job for all stakeholders in his capacity as Chairman
of your company.
- Finally and for completeness, I should mention that your Board was also
recognised (in the early part of the 2019 financial year), again in the
Deloitte Top 200 Companies Awards, with the Excellence in Governance Award.
The members of the Board were understandably pleased with this recognition.
So it is satisfying and very pleasing that your company leadership and
governance group has been recognised in the manner mentioned and in this
regard I am sure you would all wish to join with me and say to Volker and
Sir Rob and my Board colleagues, congratulations and very well done to you
all.
(Slide 17 - In Conclusion)
On a more personal note, as I retire from the Board following today's
meeting, I wish to say that it has been a privilege to be associated with the
commencement and progression of the transformational journey that this iconic
New Zealand company is undertaking. In this respect, however, while we have
in place or instigated many of the foundation 'building blocks' to realise
this company's potential, there is still a meaningful part of the journey yet
to traverse. This will require continuing investment in opex and capex to
fully realise this potential and, of course, it is in fact a journey that
never ends! It is called continuous improvement!
(Slide 18 - Thank You)
Finally, I would like to thank and wish my successor as Chairman (Sir Rob
McLeod) and my Board colleagues, together with the executive management team
(and indeed all the people in the Sanford team) led by Volker, all the very
best for the future success of the good ship 'Sanford' and all that sail in
or with her.
Thank you.
End CA:00345994 For:SAN Type:MEETING Time:2019-12-13 14:00:27
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