Sanford : 2024 Interim Report

I N T E R I M R E P O R T 2 0 2 4

SANFORD INTERIM REPORT 2024

SALES REVENUE

$276.0m

• 1%
  HY23: $277.6m

OPERATING CASHFLOW

$8.3m

• 39%
  HY23: $13.5m

17.3EPS cps

• 45%
  HY23: 11.9 cps

-

H I G H L I G H T S

-

FOR THE SIX MONTHS ENDED 31 MARCH 2024

ADJUSTED EBIT 1

$38.5m

• 45%
  HY23: $26.6m

INTERIM DIVIDEND

5.0 cps

▼ 17%

HY23: 6.0 cps

CATCH & HARVEST

54.3k GWT2

• 3%
  HY23: 56.1k GWT

NPAT

$16.2m

• 46%
  HY23: $11.1m

NET DEBT

$220.5m

• 20%
  HY23: $183.6m

CUSTOMERS

Greater than 530

1. Adjusted Earnings Before Interest and Tax (EBIT) is reported EBIT adjusted for impairment, restructuring costs, software as a service (SaaS) expenditure and other one-off items.
2. Greenweight tonnes (GWT).

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SANFORD INTERIM REPORT 2024

BUSINESS HIGHLIGHTS AND NOTABLE EVENTS

				-
		B U S I N E S S H I G H L I G H T S
			A N D N O T A B L E E V E N T S
				-
WILDCATCH	SALMON
Benefits from sale of North Island	Strong performance,
inshore Annual Catch Entitlement	with high pricing and
(ACE) helped offset deepwater	growing global demand
catch challenges
REFRESHED BOARD
ADJUSTED EBIT RESULT	AND MANAGEMENT
Strong earnings uplift	Appointment of two new
driven by strategic initiatives	Directors adding further strength
and helped by robust pricing	to the Board. David Mair appointed
across key species	Managing Director from
			01 May 2024

MUSSELS

Significant improvement over prior half year with operational improvements and good in-market conditions

DIVIDEND PAYOUT

Payment of 5.0 cents per share payable on 18 June 2024

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CHAIR AND MANAGING DIRECTOR REPORT

-

C H A I R A N D

M A N A G I N G D I R E C T O R

R E V I E W

Unfortunately, the commoditisation of some nutraceutical products has led to a challenging performance in our 50% held Two Islands investment. As a result, Sanford has written down the value of this business by $3.3m.

Overall, the Directors are pleased with the financial improvements but acknowledge there are still opportunities to further lift Sanford's performance.

Challenges remain in the marketplace,

SANFORD INTERIM REPORT 2024

Sir Robert McLeod

CHAIRMAN

David Mair

MANAGING DIRECTOR

-

1H24 OVERVIEW

Our first half result is pleasing with our highest recent half-year adjusted EBIT and a positive outlook for the full financial year. Pricing on key species such as salmon, scampi and mussels have supported this half-year result. The sale of the North Island inshore ACE business has also added a new stable revenue stream.

FINANCIAL PERFORMANCE

Our primary commercial goal remains improved performance, driven by increased revenue, higher margins and cost efficiencies. We are making progress with an adjusted EBIT of $38.5m, a 45% increase on the prior first half year, as well as a 46% jump in profit after tax.

Our improvement has been driven by a continuing strong performance from the Salmon business; an improving Mussels result; and a positive result for the inshore business following the sale of the North Island inshore ACE and related assets in October last year.

Gross margin increased from 21% to 25% due to favourable pricing across an array of products and a more targeted sales mix.

Net debt increased to $220.5m as at 31 March 2024 (from $183.6m pcp) reflecting capital expenditure of approx. $24m and funding of increased inventory in the period.

Profit after tax was up 46% to $16.2m and includes a $1.0m gain on the sale of assets as part of the Moana transaction, as well as being helped by a reduction in IT implementation costs post the rollout of Sancore (Sanford's new IT system).

We continue to invest in initiatives to support growth, including the new scampi vessel, which is due to start sea trials in early 2025. Early-stage sales of marine extracts are now gaining traction but are not yet at desired performance and profit levels.

including seasonal impacts on our catch and harvest volumes, as well as economic conditions driving cost inflation.

INTERIM DIVIDEND

The Board is pleased to have declared an interim dividend of 5.0 cents per share.

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SANFORD INTERIM REPORT 2024

CHAIR AND MANAGING DIRECTOR REPORT

BUSINESS PERFORMANCE

Salmon

	HY22	HY23	HY24
Revenue $m	42.8	46.5	55.0
Profit Contribution $m	12.2	17.7	23.3
Sales Volume k GWT	2.9	2.5	2.5

The Salmon business continues to excel, with the investment in oxygenation equipment and new netting enabling Sanford to keep mortalities at low levels and helping meet growing global demand for our high-quality salmon, despite more varible climatic conditions.

Pricing remains strong and margins have further improved as the business focuses on product mix, smart farming and cost management.

Revenue was up 18% on pcp, with a profit contribution of $23.3m, up 32%.

Mussels

	HY22	HY23	HY24
Revenue $m	50.5	55.6	64.8
Profit Contribution $m	0.8	2.1	9.2
Sales Volume k GWT	16.5	14.4	14.7

Robust pricing and demand have continued for Sanford's GreenshellTM mussels, with a sales shift towards higher margin half shell product.

The labour and productivity challenges experienced in the prior year have been mostly resolved, however, as previously advised, low seeding, particularly in Coromandel in 2023, is affecting 2024 volumes. Low seeding and spat volumes are an industry challenge and the quantum of this impact will become apparent in

18 months' time. Sanford's earlier investment into the SPATnz mussel hatchery provides around 20% of Sanford's requirements, helping to mitigate some of this risk.

Early-stage sales of marine extracts are now gaining traction and the facility is operating more effectively. However, the opportunity remains challenging and is an area of focus for the company.

As indicated in our last annual report, we have introduced flex capacity to match mussel conditions and are considering several options to improve processing efficiency and reduce costs, particularly in the North Island.

Financial performance for the Mussels business is improving and results were above the prior year. Mussels revenue was up 16% on pcp, with a 338% increase in profit contribution to $9.2m.

Wildcatch

	HY22	HY23	HY24
Revenue $m	141.1	153.2	139.5
Profit Contribution $m	24.5	25.1	26.6
Sales Volume k GWT	29.3	28.9	25.3

The Wildcatch business overall delivered a slightly improved profit result, with the sale of the North Island inshore ACE in October 2023 creating an annuity-like revenue stream and driving a turnaround.

Deepwater fishing remains the primary revenue generator for Sanford. Overall catch volume was down 11% compared to the prior half-year, partially offset by strong pricing in our most profitable species, scampi.

Planned maintenance saw two vessels in dry dock for a total of 10 weeks, affecting hoki and orange roughy catch. In addition, reduced US demand for New Zealand orange roughy is impacting export demand. The squid catch remains challenging across the industry, as was

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SANFORD INTERIM REPORT 2024

CHAIR AND MANAGING DIRECTOR REPORT

the 2023/24 toothfish season. Lower scampi volumes, due to an unplanned vessel outage and reduced scampi quotas, were mostly offset by higher pricing.

The integrity capital investment programme is ongoing as we continue to update our fleet and infrastructure. The build of Sanford's new scampi vessel remains on track and is expected to be operational in early 2025. This will allow us to fish for longer in the sub-Antarctic conditions and provide superior engine efficiency and fishing capability.

While revenue was down 9% on pcp, profit contribution increased by 6% to $26.6m.

The build of Sanford's new scampi vessel remains on track and is expected to be operational in early 2025. This will allow us to fish for longer in the sub-Antarctic conditions and provide superior engine efficiency and fishing capability.

-

BUSINESS STRENGTH

New Leadership and Refreshed Board

We were delighted to recently announce that current Director, David Mair, would be taking up the Managing Director role from 01 May 2024. He remains on the Board as Executive Director.

David has significant leadership experience and has received several top leadership awards. He was Managing Director of NZX- listed Skellerup Holdings Limited from

2011 until earlier this year and has been a Sanford Director since November 2022.

The Board would also like to thank Sanford Director, Craig Ellison, for his excellent service as Acting CEO since August 2023. Craig remains on the Board as a non- independent Director.

We were pleased to welcome both John Strowger and Tom McClurg to the Board in the last six months. Both are experienced Directors who bring value to the Sanford Board's discussions and strategic oversight.

Our People

Our organisation comprises passionate, experienced and expert individuals who are committed to the delivery of high-quality products, excellent customer service and sustainable growth for our company.

On behalf of the Board and management, we would like to acknowledge and thank them for their efforts. We continue to invest in training and development and the creation of career pathways for

our people.

Sustainability

We continue to advocate for sustainable, commercial fishing and farming practices and use robust science and data to inform our commercial decisions on how to sustainably operate at as best optimal level as we can.

We are focused on reducing our carbon footprint and continually look for opportunities to improve our efficiencies and reduce emissions.

OUTLOOK

Our primary commercial goal remains improved profitability and increased returns to shareholders.

Sanford is moving forward with an experienced Board and leadership team. The new Government is supportive of the seafood and fishing industries which will assist with our growth aspirations.

Following a healthy first half result, we expect a more moderate second half performance in line with capacity and market conditions. We remain on track to deliver another improved year-on-year performance in FY24.

Thank you to our shareholders for your continuing support.

Sir Robert McLeod

CHAIRMAN

MANAGING DIRECTOR

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GAAP TO NON-GAAP RECONCILIATION

Sanford's standard profit measure prepared under New Zealand GAAP is net profit. Sanford have used non-GAAP measures when discussing financial performance in this document. The Directors and management believe that these measures provide useful information as they are used internally to evaluate divisional and total Group performance and to establish operating and capital budgets. Non-GAAP profit measures are not prepared in accordance with NZ IFRS (New Zealand equivalents to International Financial Reporting Standards) and are not uniformly defined, therefore the non-GAAP profit measures included in this report are not comparable with those used by other companies. They should not be viewed in isolation or as a substitute for GAAP profit measures as reported by Sanford in accordance with NZ IFRS.

DEFINITIONS

EBIT: Earnings before interest and taxation.

Adjusted EBIT: EBIT adjusted for net gain on sale of property, plant and equipment and intangibles, impairment, restructuring costs, software as a service (SaaS) expenditure, other one-off items and gain from surrender of lease.

Adjusted EBITDA: Adjusted EBIT before depreciation and amortisation.

SANFORD INTERIM REPORT 2024

GAAP TO NON-GAAP RECONCILIATION

	6 Months	6 Months	12 Months
	ended	ended	ended
	31 March	31 March	30 September
	2024	2023	2023
	$000	$000	$000
Reported net profit for the period (GAAP)	16,154	11,109	10,011
Add back:
Income tax expense	9,833	4,409	7,471
Net interest expense	9,200	5,849	13,522
EBIT	35,187	21,367	31,004
Adjustments:
Net gain on sale of North Island inshore assets	(964)	-	-
Net loss/(gain) on sale of property, plant and
equipment and intangibles	6	(15)	(35)
Impairment of investment in Two Islands
NZ Co Limited	3,333	-	-
Restructuring costs	659	341	5,544
Other one-off items	257	31	947
Software as a Service (SaaS) expenditure	-	7,074	12,714
Impairment of assets	-	-	1,418
Receipt from surrender of lease	-	(2,200)	(2,200)
Adjusted EBIT	38,478	26,598	49,392
Add back:
Depreciation and amortisation	17,542	15,529	32,142
Adjusted EBITDA	56,020	42,127	81,534

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INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 MARCH 2024

CONSOLIDATED CONDENSED INCOME STATEMENT	9
CONSOLIDATED CONDENSED
STATEMENT OF COMPREHENSIVE INCOME	10
CONSOLIDATED CONDENSED
STATEMENT OF FINANCIAL POSITION	11
CONSOLIDATED CONDENSED
STATEMENT OF CASH FLOWS	12
CONSOLIDATED CONDENSED
STATEMENT OF CHANGES IN EQUITY	14
NOTES TO THE INTERIM FINANCIAL STATEMENTS	16

SANFORD INTERIM REPORT 2024

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SANFORD INTERIM REPORT 2024

INTERIM FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 31 MARCH 2024

		Unaudited	Unaudited	Audited
		6 months ended	6 months ended	12 months ended
		31 March 2024	31 March 2023 30 September 2023
	Note	$000	$000	$000
Revenue	3	275,978	277,578	553,397
Cost of sales		(207,350)	(220,643)	(444,760)
Gross profit		68,628	56,935	108,637
Other income	7	3,490	4,335	7,500
Distribution expenses		(6,515)	(6,703)	(14,762)
Administrative expenses		(19,464)	(18,175)	(37,877)
Other expenses	8	(10,979)	(15,175)	(32,744)
Operating profit		35,160	21,217	30,754
Finance income		605	532	958
Finance expense		(9,805)	(6,381)	(14,480)
Net finance expense		(9,200)	(5,849)	(13,522)
Share of profit of equity accounted investees		27	150	250
Profit before income tax		25,987	15,518	17,482
Income tax expense		(9,833)	(4,409)	(7,471)
Profit for the period		16,154	11,109	10,011
Profit attributable to:
Equity holders of the Company		16,166	11,088	10,016
Non controlling interest		(12)	21	(5)
		16,154	11,109	10,011
Earnings per share attributable to equity holders of the Company during the period (expressed in cents per share)
Basic and diluted earnings per share (cents)		17.3	11.9	10.7

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SANFORD INTERIM REPORT 2024

INTERIM FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 MARCH 2024

Profit for the period (after tax)

Other comprehensive income

Items that may be reclassified to the income statement:

Foreign currency translation differences

Change in fair value of cash flow hedges

Deferred tax on cash flow hedges

Cost of hedging gains recognised in other comprehensive income

Deferred tax on cost of hedging

Items that have been reclassified to the income statement:

Amount of treasury share cost expensed/(recovered) in relation to share-based payment Cost of hedging gain

Deferred tax on cost of hedging

Other comprehensive (loss) income for the period

Total comprehensive income for the period

Total comprehensive income for the period is attributable to:

Equity holders of the Company

Non controlling interest

Total comprehensive income for the period

Unaudited	Unaudited	Audited
6 months ended	6 months ended	12 months ended
31 March 2024	31 March 2023 30 September 2023
$000	$000	$000
16,154	11,109	10,011
70	607	183
(1,239)	34,269	34,270
347	(9,595)	(9,596)
-	544	440
-	(152)	(123)
-	60	(143)
(293)	-	-
82	-	-
(1,033)	25,733	25,031
15,121	36,842	35,042
15,133	36,822	35,047
(12)	20	(5)
15,121	36,842	35,042

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