Sanford Limited · NZX:SAN
Sanford — Investor Day (June 2022)
70 slides from Sanford's investor day presentation, Jun 21, 2022
Slide 1: Sanford Strategy Refresh
SANFORD STRATEGY REFRESH - FIVE YEAR STRATEGIC DIRECTION - 21.06.22
Slide 2: Welcome
WELCOME
Slide 3: Your safety in the event of an emergency
YOUR SAFETY IN THE EVENT OF AN EMERGENCY • All Evacuation Alarms must be treated as genuine • Follow all Emergency Warden Instructions • Evacuate immediately via the closest Emergency Exit to the nearest Muster Point • Leave everything behind • Remain at the Muster Point until the ‘All Clear’ is giv
Slide 4: Disclaimer
DISCLAIMER Important Notice This presentation contains not only a review of operations and information about Sanford Limited (the Company), but also contains some forward-looking statements about the Company and the environment in which it operates. This disclaimer applies to this presentation and a
Slide 5: Agenda
AGENDA Presentation: • Why Sanford • The strategic context - global to local • Our strategic response - priorities and strategic initiatives • Financing our strategy • Questions Lunch and informal Q&A: • Walk and fork menu • Meeting key Sanford leaders 5
Slide 6: Why Sanford?
WHY SANFORD? New Zealand’s oldest and largest seafood company and the only fully integrated seafood business, operating in: • Wildcatch • Greenshell Mussels • Salmon 6
Slide 7: Key messages
KEY MESSAGES Sanford has: • A clear pathway to pre-Covid profitability and beyond • The ability to fund capital requirements while restoring a dividend • A balance of protecting cash flow from wildcatch while investing for growth in aquaculture • A plan for investment in systems and processes that w
Slide 8: Thank you
THANK YOU • We thank our shareholders for their commitment to Sanford. • We are confident we have the right structures and people in place to deliver on our goals. 8
Slide 9: Our vision and strategic principles
OUR VISION AND STRATEGIC PRINCIPLES
Slide 10: Covid context
COVID CONTEXT The impact of Covid-19 was particularly pronounced for seafood, with 70%+ of global seafood consumed out of home. But, global demand is now back (slightly above) pre 2019 levels. 10 Data source: Open Table state-of-the-industry, sample of 20,000 restaurants
Slide 11: Strategy on a page
STRATEGY ON A PAGE STRATEGIC INITIATIVeg 4 food (oer qarig, Sc a oe? egtionl nutritious -, % vafy Ensure the welfare, growth & & oo od, fro Say Improve value utilisation of entire fulfilment of our people - rv RS ny 4, ey fish and eliminate waste economic, physic R ey, %, 2 %u, Sp emotional s Highly
Slide 12: Strategy on a page
STRATEGY ON A PAGE WIEV pe NG CARE PASSION INTEGRITY “OceTue®
Slide 13: Strategy on a page
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Slide 14: Strategy on a page
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Slide 15: Strategy on a page
STRATEGY ON A PAGE STRATEGIC INITIATIVeg 4 food (oer qarig, Sc a oe? egtionl nutritious -, % vafy Ensure the welfare, growth & & oo od, fro Say Improve value utilisation of entire fulfilment of our people - rv RS ny 4, ey fish and eliminate waste economic, physic R ey, %, 2 %u, Sp emotional s Highly
Slide 16: Five year target
FIVE YEAR TARGET 16 The above are targets only. Actual performance will depend on a range of variables, some of which are outside Sanford's control. Investors should refer to the disclaimer on page 4
Slide 17: Target: improvement by segment
TARGET: IMPROVEMENT BY SEGMENT 17
Slide 18: Divisional growth targets
DIVISIONAL GROWTH TARGETS Pre-Covid FY21 Act FY26 Target Avg 18
Slide 19: Profit to become more diversified
PROFIT TO BECOME MORE DIVERSIFIED 19
Slide 20: The context
“—"——s THE CONTEXT pa [ZA ae v Ind ga SANFORD
Slide 21: Context – global demand growth
CONTEXT – GLOBAL DEMAND GROWTH an all-time Global demand for aquatic foods predicted to Growth of the world population from 1950 to 2050 nearly double by 2050 • Human population growth is expected to grow from 7.9 billion today to 9.7 billion in 2050* • Projections to 2050 suggest a future need for
Slide 22: Context – prices
CONTEXT – PRICES • UN’s Food and Agriculture Organisation estimates a 22% increase in the average price of internationally traded fish by 2030, relative to 2018 • Aquaculture will continue to be the driving force behind the growth in global fish production • Overall, farmed fish prices will climb 24
Slide 23: Context – the New Zealand picture
CONTEXT – THE NEW ZEALAND PICTURE • New Zealand's Exclusive Economic Zone is the fourth-largest in the world • New Zealand is globally recognised as a world- leader in sustainable and innovative aquaculture management • Our seafood industry is very small internationally – less than 0.5% of the globa
Slide 24: Context – our offering: beautiful New Zealand seafood
CONTEXT – OUR OFFERING: BEAUTIFUL NEW ZEALAND SEAFOOD Sanford is well placed as a sustainable, New Zealand company • 31% of fish populations in the world are overexploited (overfished, UN FAO) • When managed by good science fisheries do well - The New Zealand fishery is managed by good science • New
Slide 25: Context - growth will come from aquaculture
CONTEXT - GROWTH WILL COME FROM AQUACULTURE • Aquaculture will need to continue to grow Global fisheries production 1980-2022 to meet the growing needs of the global human population • Aquaculture production worldwide has undergone a transformation from labour- intensive farming methods to greater m
Slide 26: Context – wildcatch remains our engine room
CONTEXT – WILDCATCH REMAINS OUR ENGINE ROOM • Our wildcatch offering will continue to be in demand • Wildcatch is the foundation of our business • 60% of our sales volume in H1 2022 • We have scale and experience • Sanford holds 19.8% of New Zealand’s fishing quota* • A significant commodity compone
Slide 27: Context – our strengths
CONTEXT – OUR STRENGTHS • Our size – nimble by global standards, large and with scale by New Zealand standards • Reputation • Excellent products • Diversity of products, markets and channels • Large sustainable quota holdings • Aquaculture water space access • Prudent debt management • History and e
Slide 28: Context – conclusion
CONTEXT – CONCLUSION • More people eating more fish at a higher price • New Zealand is very well placed • - Secure regulatory environment • - Sustainable wildcatch • - Commitment to aquaculture • Sanford is positioned to benefit • - Significant quota holdings • - Integrated mussel business • - Salmo
Slide 29: Our strategic priorities
OUR STRATEGIC PRIORITIES
Slide 30: Strategy on a page
STRATEGY ON A PAGE STRATEGIC INITIATIVeg 4 food (oer qarig, Sc a oe? egtionl nutritious -, % vafy Ensure the welfare, growth & & oo od, fro Say Improve value utilisation of entire fulfilment of our people - rv RS ny 4, ey fish and eliminate waste economic, physic R ey, %, 2 %u, Sp emotional s Highly
Slide 31: Sustainability
SUSTAINABILITY We are committed to a sustainable future for our business and stakeholders, our people, customers and communities. Our mission: To sustainably grow shareholder value. 31
Slide 32: Sustainability
SUSTAINABILITY Climate New Zealand sector-wide climate adaptation strategy (2021-2030) has set a target to reduce operational carbon emissions by 25% by 2030. To be achieved through: • Vessel efficiency improvements • Operational improvements - more efficient boilers, waste treatment systems and mod
Slide 33: Sustainability
SUSTAINABILITY Going forward: • TCFD (Task Force on Climate Related Financial Disclosures)/NZCS (New Zealand Climate Standard) • ESG platform / database • Supplier engagements – Code of Conduct • Continued focus on partnerships, transparency, engagement, community work 33
Slide 34: Sustainability in everything we do
SUSTAINABILITY IN EVERYTHING WE DO
Slide 35: Strategic priorities
STRATEGIC PRIORITIES 35 . gertood leader He Wait i . nui . go? *e98™ ritious foog Me, 42 6% “On er Highly Valued 929 Community (()) Partner Enabling ° Healthy Oceans and Ecosystems Safe and / vie CARE Performing PASSION Workplace INTEGRITY / Operational Excellence Customer Partner of Choice ro Susty
Slide 36: Our strategic priorities
OUR STRATEGIC PRIORITIES 1. GROW SALMON 2. GROW MUSSELS 3. SUSTAIN DEEPWATER 4. TURNAROUND INSHORE
Slide 37: 1. Grow salmon
1. GROW SALMON • Global growth in aquaculture required to support increasing global protein demands • New Zealand produces King Salmon making up only 0.7% of the world's total farmed salmon. Most salmon producers globally farm Atlantic Salmon • Investment is to expand current volumes from 4,800 GWT
Slide 38: Salmon – growth pathway
SALMON – GROWTH PATHWAY SALES • Increased margins from branding and portioning BREEDING PRODUCTS • Developing RAS • BGB brand expansion hatchery in Southland from 45% to 75% • Better controlled • New formats and environment export markets • Smolt grows to a larger size before farm transfer PROCESSIN
Slide 39: Building sustainable competitive advantage - salmon
BUILDING SUSTAINABLE COMPETITIVE ADVANTAGE - SALMON Farming Processing Sales/Marketing 1. Unique farming location 1. Ageing processing factory 1. Premium raw material FROM 2. Legacy hatchery at Kaitangata 2. Partial automation and 2. Strong local market with minimal 3. Brood and smolt farm in BGB su
Slide 40: 2. Grow mussels
2. GROW MUSSELS • Price and volume recovery anticipated over FY22/23 following Covid-19 pandemic • Global growth in aquaculture is required to support increasing global protein demands • Greenshell mussels are native to New Zealand • Investment to grow volume - 35,000 GWT to 55,000 GWT (57% increase
Slide 41: Mussels - growth pathway
MUSSELS - GROWTH PATHWAY SALES • Maintain diversified markets • Grow smaller markets to optimize value HATCHERY • Deliver hatchery output PRODUCTS • Minor expansion to • Diversify product range existing hatchery • Develop new products to • Planning underway for meet retail demand major expansion or
Slide 42: New marine extracts centre
NEW MARINE EXTRACTS CENTRE • Construction began in November 2021, scheduled for completion and commissioning before year end 2022 • Interim collagen manufacturing facility has been in production from March 2021 and has exceeded production targets throughout the year, converting low value hoki skins,
Slide 43: Building sustainable competitive advantage - mussels
BUILDING SUSTAINABLE COMPETITIVE ADVANTAGE - MUSSELS Farming Processing Sales/Marketing 1. SPATnz hatchery 1. SI & NI processing facilities – high 1. Customer base largely at FROM 2. Geographical diversification use of manual labour importer level with value chain 3. Split between Sanford 2. Partial
Slide 44: 3. Sustain wildcatch
3. SUSTAIN WILDCATCH • Wildcatch is the engine room of Sanford’s business and funds our growth • In addition to the three priority investment areas there is significant investment required over the next five years to keep the deepwater fleet operating and up to standard • Vessels are required to hav
Slide 45: 3. Sustain wildcatch - scampi
3. SUSTAIN WILDCATCH - SCAMPI High value species contributing higher revenue and gross margin per kg than other wildcatch • Sanford fishes 51% of total NZ ACE (Annual Catch Entitlement) • Scampi fleet is end of life (average age of 35 years), increasing maintenance costs and down-time and second-han
Slide 46: Building sustainable competitive advantage - deepwater
BUILDING SUSTAINABLE COMPETITIVE ADVANTAGE - DEEPWATER Fleet Processing Sales/Marketing 1. Quota Management System globally 1. High level of automation on vessels 1. Predominantly FROM recognised sustainable fishery 2. Processing challenged by technology commoditised trading 2. Great balance of comm
Slide 47: 4. Opportunities in inshore
4. OPPORTUNITIES IN INSHORE • Due to significance, strategic priorities have been Salmon, Mussels and Deepwater • Now turning to opportunities in inshore where we can improve • These include:- • Consolidation and collaboration for processing • Additional utilisation of inshore vessels (in good state
Slide 48: Building sustainable competitive advantage - inshore
BUILDING SUSTAINABLE COMPETITIVE ADVANTAGE - INSHORE Fishing Processing Sales/Marketing 1. Bulk traditional trawl dominant 1. Auckland facility doesn’t fit current 1. Low margin delivery across the FROM 2. Under utilised assets business model total catch 3. Strong position on quota package 2. No aut
Slide 49: Strategic initiatives
STRATEGIC INITIATIVES 49
Slide 50: Strategy on a page
STRATEGY ON A PAGE STRATEGIC INITIATIVeg 4 food (oer qarig, Sc a oe? egtionl nutritious -, % vafy Ensure the welfare, growth & & oo od, fro Say Improve value utilisation of entire fulfilment of our people - rv RS ny 4, ey fish and eliminate waste economic, physic R ey, %, 2 %u, Sp emotional s Highly
Slide 51: Financing our strategy
‘FINANCING O UR eh SANFORD
Slide 52: Financing our strategy
FINANCING OUR STRATEGY • Operating cashflow • Existing debt facilities • Not intending to raise equity 52
Slide 53: Hurdle rates for investment
HURDLE RATES FOR INVESTMENT • Different hurdle rates are used for investments with different risk profiles (using the company WACC plus a risk premium) • Hurdle rates vary according to the risks associated with the activity (such as volatility), and the duration and nature of investment • Hurdle rat
Slide 54: What will it cost?
WHAT WILL IT COST? PRIORITISED CAPEX SPEND • Five-year capex (growth and maintenance) estimated to be between $300m - $395m • Focus of aquaculture growth is salmon and mussels • Scampi vessel replacement – best performing deepwater catch with some growth opportunities – timing to be determined • Pro
Slide 55: Prioritised capex spend by division
PRIORITISED CAPEX SPEND BY DIVISION • 2022 capex forecast between $50 -$60m • Mixture of growth (40%) and integrity capex (60%) 55
Slide 56: Sancore
SANCORE • Investment in a new operating and ERP system critical to support growth plans and reduce risk • Spend to date is $23m and remaining spend for calendar year 2022 of $12m • Manual and aged, unsupported systems need replacement. Increased efficiency and improvements in data accuracy • The inv
Slide 57: Funding the expansion
FUNDING THE EXPANSION Net Debt ($m) 200 • The capital requirements over five years will mainly 180 184 181 be funded out of operating cashflows and debt 160 179 176 158 $m 140 • In addition, $52.7m of funds received from the sale 138 120 of the crayfish quota will be used to invest in higher 126 100
Slide 58: Dividends
DIVIDENDS • No interim dividend announced for 2022 • Intention is to return to regular dividend as soon as practicable • Strong likelihood a modest final dividend will be payable after the full year result announced at the end of the FY22 – subject to performance 58
Slide 59: High level financial targets – FY26
HIGH LEVEL FINANCIAL TARGETS – FY26 Target Measure Net Debt / EBITDA 1.5x to 2.25x Gearing (debt/debt + equity) Less than 35% Gross margin % 17% - 25% Adjusted EBIT $85m - $105m Adjusted EBIT CAGR FY21 - FY26 30% - 35% 59
Slide 60: Risk mitigation
RISK MITIGATION Risk Managed by… Geopolitical • Diversity of markets • Strong customer relationships • Fewest layers possible in customer relationships Labour • Increasing hourly rates • Build employee engagement • Recruitment drives, including working to attract overseas talent • Accommodation offe
Slide 61: Risk mitigation
RISK MITIGATION Risk Managed by… Cost inflation and interest • Long term fixed rate interest hedging rate rises • Fuel hedging • Alternative feed supply. Optimising growth rates Regulatory change • Engage with industry representation on legislative submissions • Active engagement with regulators and
Slide 62: Looking forward wrap-up
LOOKING FOWARD WRAP-UP
Slide 63: In conclusion
IN CONCLUSION Sanford has: • A well placed portfolio • From a country that manages its seafood resource well • In a world where there is growing demand for our products 63
Slide 64: In conclusion
IN CONCLUSION Sanford has: • A clear pathway to pre-Covid profitability and growth • The ability to fund capital requirements • A balance of protecting cash flow from wildcatch while investing for growth in aquaculture • A plan for investment in systems and processes that will help drive our journey
Slide 65: In conclusion
IN CONCLUSION Sanford has: • A target range of $85 - $105 million for Adjusted EBIT by 2026 • The intention to return to paying a dividend, starting with a modest final dividend payment at the end of this financial year • The ability to fund our capital initiatives via operating cashflow, existing d
Slide 66: In conclusion
IN CONCLUSION Sanford is investing for growth in three clear areas: 1. Mussel growth to $32-$45 million of Adjusted EBIT by 2026 2. Salmon growth to $32-$41 million of Adjusted EBIT by 2026 3. New scampi vessels to secure our foundations and enable growth 66
Slide 67: In conclusion
IN CONCLUSION Opportunities exist for further growth and/or to sustain profitability: • Wildcatch fleet investment • Inshore area rebuild • Customer partnerships • SanCore • An ongoing commitment to people and sustainable practices 67
Slide 68: In conclusion
IN CONCLUSION SANFORD
Slide 69: The Sanford leadership team
THE SANFORD LEADERSHIP TEAM THE EXECUTIVE Peter Reidie, CEO Paul Alston, CFO Andre Gargiulo, CCO Peter Young, (Acting) COO Karen Duffy, CPO Louise Wood, CSCO Colin Williams, GM Fishing SENIOR LEADERS Stuart Houliston, GM Finance Hardeep Kang, GM Food Safety and Quality Richard Miller, GM Salmon Blai
Slide 70: Questions?
S SANFORD QUESTIONS?