Financial Decision Making in New Zealand's Seafood Industry

This report evaluates and analyses the working capital requirements, capital budgeting techniques and future investments etc. for two of the significant players in the said industry, namely, Sanford Limited and Moana New Zealand. The report includes an overview of New Zealand's seafood industry, performance analysis of Sanford Limited and Moana New Zealand, ratio analysis, and financial decisions. The report also covers the operating environment for Iwi/Māori organisations.

Assignment – Financial Decision Making
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Lecturer’s Name

Table of Contents
New Zealand’s Seafood Industry – An Overview..................................................................................3
Sanford Limited.....................................................................................................................................3
Ratio Analysis:..................................................................................................................................4
Moana New Zealand..............................................................................................................................5
Ratio Analysis:..................................................................................................................................5
Financial Decisions:..............................................................................................................................6
Sanford Limited.................................................................................................................................7
Moana New Zealand..........................................................................................................................7
Operating Environment for Iwi/Māori organisations:............................................................................7
Economic and social environment.....................................................................................................7
Legal Environment / Taxation System...............................................................................................8
Accounting standard and reporting system........................................................................................8
Iwi/Māori value in business (i.e. Tikanga).........................................................................................8
References...........................................................................................................................................10
Appendix.............................................................................................................................................12
1. Calculation of Ratios:..............................................................................................................12
2. Ratio analysis of Sanford Limited based on financial performance (Consolidated basis) of past
five years.........................................................................................................................................12
3. Ratio analysis of Moana New Zealand based on financial performance (Consolidated basis) of
past five years..................................................................................................................................13
4. Cash Flows and Working Capital analysis of Sanford Limited................................................14
5. Cash Flows and Working Capital analysis of Moana New Zealand.........................................14

New Zealand’s Seafood Industry – An Overview
New Zealand entails a total territorial water space also known as EEZ (Exclusive Economic Zone) of
4.4 Mn Sq. Km, which is 4th biggest globally thereby framing the country as a superpower in ocean
space. In absolute terms, the coastline is spread across approximately 15,134 kms (Seafood New
Zealand, 2017).
New Zealand accounts for an approximate 600,000 metric tonnes production of seafoods (excluding
aqua-culture) every year an employs more than 13,000 dependent work force. In 2017, the total
exports of seafoods accounted for NZD 1.8 Bn and in absolute terms accounted for ~127,760 tonnes
(Seafood New Zealand, 2017).
This report evaluates and analyses the working capital requirements, capital budgeting techniques and
future investments etc. for two of the significant players in the said industry, namely, Sanford Limited
and Moana New Zealand.
Sanford Limited
Since its inception in 1881, Sanford is eyeing to be “Best Seafood Company in the world” on back of
its rich experience of more than 130 years. Sanford’s prominence in the area of holding (fishing area)
at ~23% New Zealand’s quota of the fishing waters along with 211 aquaculture farms and 49 fishing
vessels, frames the company as New Zealand’s biggest consolidated seafoods business (Sanford
Limited AR, 2017).
Sanford Limited operates in New Zealand, Australia and China, furthermore, the company exported a
total of ~3498 containers in 2017. For the year ended 30th September 2017, Sanford posted an annual
revenue of NZD 478 Mn, indicating a y-o-y growth of 3.12%. However, despite of an average
decrease in cost of sales of the company by ~1.66% in past five years (2013-17), the overall increase
in revenues are flat at CAGR of ~0.82% during the said period (Sanford Limited AR) based on
several inferences quoted by NZherald (2018) in its news article NZ dollar sinks to two-year low
against pound.

420
430
440
450
460
470
480
490
-
5
10
15
20
25
30
35
40
462.64
452.42
444.29
463.47
477.94
20.40 22.36 24.44
37.81 37.48
Sanford Limited Performance in past five years
Revenue (In NZD Mn) PAT (In NZD Mn)
Source: Sanford Limited Performance over previous five years (Sanford Annual Reports)
On the other hand, due to increasing efficiency in operations the company has witnessed a significant
growth in its profitability measures namely, gross profit, operating profit, PBT and PAT all increasing
by a CAGR of 11.89%, 23.87%, 15.36% and 16.42% respectively during the period 2013-2017
(Sanford Limited AR).
Ratio Analysis:
On the profitability front (Ratio Analysis), the company witnessed a drop in in net profit margins
from ~8.16% in 2016 to ~7.84% in 2017 mainly because of relatively higher growing cost of sales at
~4.25% as compared to growth in revenue at 3.12% annually (Appendix 2) based on
recommendations given by Investopedia (n.d) in Profitability Ratios.
Company has reduced its current ratio from 2.81 in 2013 to 1.22 in 2017, indicating its inefficiency
in maintaining the working capital during the said period; accordingly, the quick ratio has also
decreased from a healthy 2.09 in 2013 to 0.86 in 2017 based on inferences stated by MorningStar Inc.
(n.d) in Liquidity Ratios. In capital structure, the debt-equity ratio is maintained below ~0.3 times,
indicating stable operations backed by equity and neglecting the impact of debt, thereby creating more
value for their stakeholders (Appendix 2).
Coming over to turnover/efficiency ratios, Sanford Limited has maintained a healthy asset turnover
at over 3 times consistently. However, the company has witnessed a fixed asset turnover ratio around
~0.7 times, indicating a working capital driven operation as these recommendations are quoted by
Drake in Financial Ratio Analysis. Furthermore, the working capital turnover has witnessed
fluctuations during the past five years (mostly positive), ranging from lows of 2013 at ~5.53 times and
highs of ~32.61 times in 2015, presently, in 2017 the working capital turnover is pegged at ~17.91
times based on the propositions made my EduPrestine (2014) in Ratio Analysis – Turnover Ratio
(Appendix 2).

In returns related ratios, the company’s returns on capital employed to its stakeholders has been
increasing consistently from ~4.06% being the lowest in 2013 and ~6.91% being highest in 2017.
Similarly, the return on assets is also increasing consistently from 0.029 times in 2013 to 0.046 times
in 2017 (Appendix 2).
The Du-Pont Analysis primarily considers three ratios for analysis namely, profitability, efficiency
and capital structure. In profitability front, the net margin ratio has been increasing consistently during
the past five years except in current year 2017. In absolute terms, the net margin has increased from
~4.41% in 2013 to ~6.78% in 2016 (being the highest during the period) and experiencing a slip in
2017 to settle at ~6.51% (Appendix 2).
The efficiency ratio has been slowing down during the past five years from 3.6 times in 2014 to 3.28
times in 2017, indicating decremental efficiency in its operations. Lastly, the financial leverage has
been flat during the said period ranging between 1.38 times to 1.46 times in 2013 to 2015 respectively
(Appendix 2).
Moana New Zealand
Moana New Zealand, the biggest seafood’s company owned and operated by Maori community
procures and produces premium fisheries from the territorial waters of New Zealand. Moana entails a
vivid product portfolio including product lines namely, Abalone, Fin Fish, Lobsters and Oysters. The
company has recently got into partnership with WWF – New Zealand, for deploying premier
operational mechanisms to drive practices which are both environment friendly and sustainable in
nature as quoted by Moana New Zealand (2017) in its integrated annual report.
For the year ended 30th September 2017, Moana New Zealand posted an annual revenue of NZD
~152 Mn, indicating a y-o-y degrowth of ~14.1%. The recent year’s y-o-y degrowth has been the
primal reason for flat CAGR degrowth of ~0.03% during the past five years; alas during the period
2013-2016 the company has witnessed a CAGR of ~5.15% in its revenues.
135
140
145
150
155
160
165
170
175
180
-
5
10
15
20
25
152.36
162.30
174.92 177.13
152.17
6.04
21.96
15.96
19.42 19.26
Moana New Zealand Performance in past five years
Revenue (In NZD Mn) PAT (In NZD Mn)

Source: Moana New Zealand Performance over previous five years (Moana New Zealand’s integrated
Annual Reports)
On the other hand, due to the restructuring of the capital structure in 2017, the company did witness a
degrowth in its profitability measures namely, gross profit, PBT and PAT all diminishing by a y-o-y
of 11.56%, 5.76% and 0.82% respectively. However, apart from the degrowth experienced in 2017,
the company’s profitability measure namely PAT surged by a staggering ~47.59% during the period
2013 – 2016 (Moana New Zealand Integrated AR).
Ratio Analysis:
On the profitability front (Ratio Analysis), the company witnessed an increase in in net profit
margins from ~ 10.96% in 2016 to ~ 12.66% in 2017 mainly because of an abnormal increase in other
incomes by ~ 1222.87% as compared to degrowth in revenues at -14.09% annually (Appendix 3).
Company has reduced its current ratio from ~0.93 in 2013 to ~0.66 in 2017, indicating its reiteration
of objectives to work for the Maori community (primary stakeholders) and create value for them;
accordingly, the quick ratio has also decreased from a healthy 0.70 in 2013 to 0.51 in 2017. In capital
structure, the debt-equity ratio is maintained below ~0.2 times, indicating stable operations backed by
equity and neglecting the impact of debt, thereby creating more value for their stakeholders (primarily
the Maori community) (Appendix 1).
Coming over to turnover/efficiency ratios, Moana New Zealand has maintained a healthy asset
turnover at over ~4.5 times throughout the period of 2014 – 2017 (Appendix 3). However, the
company has witnessed a fixed asset turnover ratio of even lower than ~0.4 times, indicating a
working capital driven operation which is in line with the industry standards prevailing and as stated
by Ministry of Business, Innovation and Employment [NZ] (The Investor’s Guide to the New Zealand
Seafood Industry, 2017).
In returns related ratios, the company’s returns on capital employed to its stakeholders have been
inconsistent ranging from lows of ~0.43% in 2013 and to highs of ~3.59% in the subsequent year i.e.
2014, further the current ROCE is pegged at ~ 3.14% in 2017. However, the return on assets have
been flat throughout the research period ranging from 0.030 to 0.042 (Appendix 3).
The Du-Pont Analysis primarily considers three ratios for analysis namely, profitability, efficiency
and capital structure as stated by Isberg in The Credit and Financial Management Review. In
profitability front, the net margin ratio has been inconsistent during the past five years ranging from
lows of ~ 1.49% in 2013 to highs of ~ 5.32% in the subsequent year, with currently settling down at ~
4.41% (Appendix 3). -
The efficiency ratio has been flat during the past five years oscillating between 4.47 and 4.63,
indicating stable efficiency in its operations. Conclusively, the financial leverage has been flat during

the said period also ranging between 1.24 times to 1.29 times in 2013, 2017 to 2014 respectively
(Appendix 3).
Financial Decisions:
The Financial decisions entails a detailed introspection of a company’s performance and position, in
other words, critical analysis of financial statements is mandatory for making feasible financial
decisions. The primary step to be considered while ascertaining any financial decision for a proposal /
investment, is to estimate the value of organisation based on its projections of future cash flows and to
look into the present scenarios like inventory, receivable and payable management. The biggest
challenge while doing any financial decision is to project the exact values of cash flows arrising in the
future. The analyst is required to analyse and study the relevant future cash flows, their degree of
uncertainty and the relevant values of these cash flows taking into consideration all the uncertainty
associated with them (Drake, Capital Budgeting Techniques).
The financial decision’s comprehension of the selected two cases are mentioned as under:
Sanford Limited
Sanford Limited has maintained its current ratio during the period 2013 – 2017 with the range
between 2.81 times to 1.12 times, indicating that the current assets are more than current liabilities
through which it can be concluded that the company is able to pay its current liabilities without further
infusing fresh capital based on the statements made by Wilkinson (2013) in Working Capital
Analysis.
Based on the facets drawn forward by Brycz and Pauka (2012) in Analysis of Cash Flow Statement,
we come over to the net cash flows from operations which have been steady in the range of NZD
~32.47 Mn to NZD ~54.97 Mn, which indicates that the company enjoys steady cash flows from its
operations.
Based on above findings, it can be inferred that the company has the capacity to invest in expansion
plans without worrying about capital structure as that too is not a concern (Appendix 4).
Moana New Zealand
Moana has been suffering with negative working capital, as a result of which the company has to
infuse fresh capital every year in order meet their current liabilities which are to be paid off within
one year. Furthermore, the current ratio of the company has been low consistently below 1, indicating
a negative working capital.
Moreover, the net cash flows from operating activities have been flat during 2013 – 2015 period at
around NZD 10 Mn, but thereafter during the period 2015 – 2017, the cash flows have increased by
an outrageous CAGR of ~39.87% (Appendix 5).

Based on the above findings, it can be inferred that although the company does have a favourable
capital structure (Debt to Equity) but amidst concerns of negative working capital, the company is not
in a capacity to invest in expansion or new plans.
Operating Environment for Iwi/Māori organisations:
Economic and social environment
The Maori economy as per MBIE is projected to experience an augmented growth going forward.
With factors like population of 723,500, of which 70% is relatively young as compared with that of
non-Maori which are at 50%. Moreover, the Maori organisations are expected to infuse NZD 1.5 Bn
to NZD 2.0 Bn per year for 20 years. In absolute terms, New Zealand is projected to grow by more
than 3% annually as stated by Ministry of Business, Innovation and Employment [NZ] (Maori
Economy Investor Guide, 2017).
The Maori controls ~50% of the total fishing area (quota) along with holding ~1.4 Mn hectares of
land, with more land being possessed by private parties. Furthermore, the Maori economy, both
historically and currently has been growing faster than the country’s GDP, as a result of which the
Maori economy has experienced more than 5% growth rate in their assets and incomes, which could
have a projected increase in their asset value from current NZD 50 Bn to NZD 100 Bn as stated by
(MBIE, 2017).
In case of Sanford and Moana, both enjoys a stable and progressive economic and social environment
for their business operations.
Legal Environment / Taxation System
In taxation domain, the Iwi/Māori organisations have to abide with the taxation laws just like any
normal taxpayer and have to pay a tax of 17.5%. Further, Iwi/Māori organisations are required to keep
accounts of their organisations for seven years. Furthermore, these organisations are required to abide
with certain special tax laws as stated by Inland Revenue Department [NZ] (2017) which are
mentioned as under:
 Maori authority credit account (MACA)
 Attaching credits to distributions
In our two cases of Sanford and Moana New Zealand, both the companies abide the taxation
environment prevailing in the universe, which they have also mentioned specifically in their annual
reports.
Accounting standard and reporting system
The reporting framework for Iwi/Māori organisations is just like with other organisations which
requires the reports to be presented in accordance with International Integrated Reporting Council

(IIRC), Integrated Reporting Framework and the newly launched Global Reporting Initiative (GRI)
Standard 2016.
Both Sanford and Moana New Zealand have prepared their reports in accordance with the above-
mentioned frameworks in order to create greater transparency in showcasing their operations.
Iwi/Māori value in business (i.e. Tikanga)
As stated by Harmsworth (2006) in Investigating key Mäori business characteristics for future
measures: Thinking Paper, the Tikanga / Principles / Kaupapa are implemented by Maori
organisations at various levels. With some believing it to be transforming and evolving while on the
other hand, some have opinion of pessimism.
However, it must be duly noted that the Maori organisations never had a motive of commercial
business but apparently in modern era they are responsible for taking care of the business assets
namely, farms, fisheries quota, aqua culture, vineyards etc. Maori businesses are generally mandated
to function inside the purview of double contexts of New Zealand’s legal systems and within its own
values followed in business (Tikanga) as Thorndon stated (2003) in his paper Māori Economic
Development.
In both the case of Sanford and Moana the values, the Tikanga is adhered with by incorporating
numerous policies since the very inception of business itself.

References
Seafood New Zealand – Key Facts. (2017). Retrieved from
https://www.seafoodnewzealand.org.nz/industry/key-facts/
Sanford Limited. (2017). 2017 Annual Report of Sanford Limited [PDF File]. Retrieved from
https://www.sanford.co.nz/investors/reports-1/company-reports/2017/2017-annual-report/
Ministry of Business, Innovation and Employment. (2017). The Investor’s Guide to the New Zealand
Seafood Industry 2017 [PDF File]. Retrieved from
https://www.mbie.govt.nz/info-services/sectors-industries/food-beverage/documents-image-
library/folder-2017-investors-guides/investors-guide-to-the-new-zealand-seafood-industry-
2017.pdf
Moana New Zealand. (2017). 2013 – 2017 Integrated Annual Report of Moana New Zealand [PDF
File]. Retrieved from https://moana.co.nz/news/integrated-annual-report-2017/
Drake, P. (n.d) Capital Budgeting Techniques [PDF File]. Retrieved from
http://educ.jmu.edu/~drakepp/principles/module6/capbudtech.pdf
Ministry of Business, Innovation and Employment. (2017). Maori Economy Investor Guide 2017
[PDF File]. Retrieved from http://www.mbie.govt.nz/info-services/infrastructure-growth/maori-
economic-development/documents-image-library/maori-economy-investor-guide.pdf
Inland Revenue Department [NZ]. (2017). Māori authority tax rules [PDF File]. Retrieved from
https://www.ird.govt.nz/resources/a/a/aa7831bd-4ff3-41ac-901e-97ddd38feded/ir1202.pdf
Harmsworth, G. (2006). Investigating key Mäori business characteristics for future measures:
Thinking Paper [PDF File]. Retrieved from
https://www.landcareresearch.co.nz/__data/assets/pdf_file/0007/77047/2_1_Harmsworth.pdf
Thorndon, H. (2003). Māori Economic Development. Retrieved from:
https://nzier.org.nz/static/media/filer_public/de/31/de315bcb-3188-4760-b21d-
348382149aa0/maori_economic_development.pdf
Wilkinson, J. (2013). Working Capital Analysis (The Strategic CFO). Retrieved from:
https://strategiccfo.com/working-capital-analysis-2/
Isberg, S. (n.d). The Credit and Financial Management Review [PDF File]. Retrieved from:
https://home.ubalt.edu/ntsbisbe/fin640/dupont.pdf
Drake, P. (n.d). Financial Ratio Analysis [PDF File]. Retrieved from:
http://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf

Brycz, B., & Pauka, M. (2012). Analysis of Cash Flow Statement [PDF File]. Retrieved From:
http://www.dbc.wroc.pl/Content/22740/Brycz_Pauka_Analysis_of_cash_flow_statement.pdf
EduPrestine (2014). Ratio Analysis – Turnover Ratio. Retrieved from:
https://www.edupristine.com/blog/ratio-analysis-turnover-ratio
MorningStar Inc. (n.d). Liquidity Ratios. Accessed from:
http://news.morningstar.com/classroom2/course.asp?docId=145093&page=4
NZherald (2018). NZ dollar sinks to two-year low against pound. Accessed from:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12122969
Investopedia (n.d) Profitability Ratios. Accessed from:
https://www.investopedia.com/terms/p/profitabilityratios.asp

Appendix
1. Calculation of Ratios:
Ratios Formula
Profitability
Net profit PAT / Revenue
Operating profits PBT / Revenue
Liquidity /Short term solvency
Current ratio Current Assets / Current Liabilities
Quick ratio (Current Assets - Inventories) / Current Liabilities
Turnover /Efficiency
Assets Turnover Revenue / Average Current Assets
Fixed Assets Turnover Revenue / Average Fixed Assets
Working Capital Turnover Revenue / Working Capital
Capital Structure / Long term
solvency
Debt/ Equity Non-Current Borrowings / Shareholder's Funds
Returns related
Return on Capital Employed (PAT + Finance Costs) / Capital Employed
Return on Assets PAT / Average Total Assets
Return on equity PAT / Shareholder's Funds
Du Pont Analysis
Return on Equity PAT / Shareholder's Funds
Profitability PAT / Revenue
Efficiency Revenue / Average Current Assets
Capital Structure Total Assets / Shareholder's Funds
2. Ratio analysis of Sanford Limited based on financial performance (Consolidated basis)
of past five years.
Ratio Analysis
2013 2014 2015 2016 2017
Profitability
Net profit 4.41% 4.94% 5.50% 8.16% 7.84%
Operating profits 6.30% 7.01% 8.24% 11.58% 10.81%
Liquidity /Short term
solvency
Current ratio 2.81 2.25 1.12 1.56 1.22
Quick ratio 2.09
1
.60
0
.80
1
.18
0
.86
Turnover /Efficiency
Assets Turnover 3.60 3.56 3.45 3.28
Fixed Assets Turnover 0.70 0.70 0.73 0.72
Working Capital
Turnover 5.53
6.7
0
32.6
1
9.1
3 17.91
Capital Structure / Long

term solvency
Debt/ Equity 0.27
0.2
9
0.1
7
0.2
2
0.1
7
Returns related
Return on Capital
Employed 4.06% 4.58% 6.52% 6.84% 6.91%
Return on Assets 0.029 0.032 0.049 0.046
Return on equity 3.68% 4.10% 4.77% 6.78% 6.51%
Du Pont Analysis
Return on Equity 3.68% 4.10% 4.77% 6.78% 6.51%
Profitability 4.41% 4.94% 5.50% 8.16% 7.84%
Efficiency 3.60 3.56 3.45 3.28
Capital Structure 1.38 1.43 1.46 1.43 1.43
3. Ratio analysis of Moana New Zealand based on financial performance (Consolidated
basis) of past five years.
Ratio Analysis
2013 2014 2015 2016 2017
Profitability
Net profit 3.96% 13.53% 9.13% 10.96% 12.66%
Operating profits -5.81% 15.12% 9.62% 12.05% 13.22%
Liquidity /Short term solvency
Current ratio 0.93 0.85 0.95 0.85 0.66
Quick ratio 0.70
0.
66
0.
72
0.
67 0.51
Turnover /Efficiency
Assets Turnover 4.62 4.47 4.63 4.58
Fixed Assets Turnover 0.34 0.36 0.36 0.30
Working Capital Turnover
-
59.82 -24.08 -82.35 -27.38
-
10.00
Capital Structure / Long term
solvency
Debt/ Equity
0
.16 0.18 0.18 0.17
0.
14
Returns related
Return on Capital Employed 0.43% 3.59% 2.53% 3.09% 3.14%
Return on Assets 0.04 0.03 0.04 0.04
Return on equity 1.49% 5.32% 3.91% 4.61% 4.41%
Du Pont Analysis
Return on Equity 1.49% 5.32% 3.91% 4.61% 4.41%
Profitability 3.96% 13.53% 9.13% 10.96% 12.66%
Efficiency 4.62 4.47 4.63 4.58
Capital Structure 1.24 1.29 1.28 1.28 1.24
4. Cash Flows and Working Capital analysis of Sanford Limited.
Particulars (In NZD '000) 2013 2014 2015 2016 2017

Working Capital 83,613 67,571 13,626 50,783 26,681
Net cash flows from operating activities 38,613 32,478 54,969 34,372 50,280
Net cash flows from investing activities
-
15,359
-
16,392
-
6,208
-
36,788
-
36,714
Net cash flows from financing activities
-
15,384
-
21,256
-
83,254 1,064
-
11,930
Net (decrease) / increase in cash held 7,870
-
5,170
-
34,493
-
1,352 1,636
5. Cash Flows and Working Capital analysis of Moana New Zealand.
Particulars (In NZD '000) 2013 2014 2015 2016 2017
Working Capital
-
2,547
-
6,741
-
2,124
-
6,469
-
15,214
Net cash flows from operating
activities 10,899 9,134 9,897 15,091 19,363
Net cash flows from investing
activities -18,490 -17,761 -904 -11,677 5,002
Net cash flows from financing
activities 6,743 9,816 -11,415 -4,385 -22,737
Net (decrease) / increase in cash held -848 -2,422 1,189 -971 1,628