Ngāi Tahu Seafood

The year in review was Ngäi Tahu Seafood's firstfull year trading under its new strategy following a time of review, dislocation and restructure. Amid a globally challenging environment we reported our best ever trading result of $12.1m (a 12% increase on the previous year's figureof $10.8m) however exchange rate volatility and one-off non-trading payments significantly reduced our net surplus to $4.6m

Ongoing volatility in the world economy and the impact of this on our key markets has proved to be exceptionally testing for Ngāi Tahu Seafood (NTS) over the past months.

Fluctuations in the exchange rate of between US$0.75 and US$0.50 in the New Zealand dollar over the past 12 months have resulted in foreign exchange hedging causing trading losses in excess of $6m. The impact of which has been a reduced net surplus of $4.6m down from $12.7m in the previous year. This issue has been addressed with a review of the foreign exchange policy and the level of the residual cover book now aligned with the true foreign exchange exposure of the business. A number of non-core and historical issues have resulted in one off payments of around $1m. They have now been addressed and while they have impacted heavily on the FY09 they are not recurring.

We have remained focused on striving for greater operating efficiency and have achieved considerable progress on a number of our strategic initiatives including the divestment of non core assets and re engineering the kōura supply chain. We will continue to seek improvement in the performance of our seafood assets and are currently working on a group wide seafood strategic review.

Niche Species

The decision to shift the operational focus, to niche species such as kōura, pāua and tio has been a positive development for the company.

Kōura

Kōura continues to be a key profit earner and contributed over 50 per cent of our trading revenue in 2008. China continues to be the key market for live kōura exports and appears to be less affected by the global crisis. Unfortunately the kōura industry is no longer witnessing the high New Zealand dollar equivalent prices enjoyed over the previous two seasons. To ensure our long-term reputation as a supplier of premium product we initiated a review of the supply chain with a focus firmly on how we can improve kōura quality and cool store efficiencies to strengthen our brand. This review was very successful and will lead to an estimated $400k (5%) trading profit increase in the FY10.

It is important that we acknowledge the outstanding efforts of our fishers in endorsing the drive for delivering a quality product.

Pāua

Pāua while contributing 13 per cent to trading revenue has been most affected by the recession. Further, the re direction of Australian live abalone into markets that are directly competing with New Zealand canned product has led to a reduction in both price and demand.

Tio

We are particularly pleased with progress in the tio area. This year we have reinitiated the processing of tio at our plant in Bluff, which, has supported a significant increase in seasonal employment. In addition we have formed a strong relationship with Awarua Tio Development, which has provided a platform for a sustainable business model for the future. The 2009 season exceeded expectations with strong catch rates and good quality product and a firm market despite the domestic recession.

Wetfish Ace Trade Strategy

In line with our strategic direction, we have reduced our involvement through the full wetfish value chain and are focusing instead on a substantially de-risked quota leasing business model.

We have negotiated quota leasing arrangements with aligned third parties conditional upon those parties continuing to support Ngāi Tahu fishers and providing them with on-going access to quota and viable catch plans.

While our Operating EBIT from wetfish was up fractionally at $3.5m (FY07/08: 3.4m), this was delivered with reduced risk exposure and management resources. These quota lease returns of $3.5m are also in place for the FY10 providing us with a source of stable low risk cash flows.

Looking Ahead

Through prudent management and the development of sound strategic initiatives we have continued to make excellent progress in establishing ourselves as an efficient and profitable seafood company despite the challenges faced over the past years.

We now have a strong sustainable operating platform and are in a great position to continue to create and grow wealth for Ngāi Tahu whānui.

Looking ahead our focus remains fixed on growing our presence globally as a supplier of top quality product.

Sustainability and the health of our fisheries play a significant role in the industry's long-term future. As the iwi fishing company we aim to be an influential participant and a leader within industry stakeholder groups to ensure ongoing viability. It is also our intention for greater engagement in the customary interests of Ngāi Tahu whānui to encourage dialogue and collaboration on important issues such as mataitai.

We also remain focused on succession planning and long-term alignment with our fisher base. Having secure, enduring and positive relationships with our fishers is commercially advantageous and highly beneficial for NTS. Over the past year there has been significant progress made on the Murihiku Fishers Project with a development pool of 12 emerging Ngāi Tahu fishers in the Murihiku kōura sector. This is the first step in a long-term plan to form enduring relationships with our Ngāi Tahu fishers and identify opportunities for growth and business security.

Succession planning for our other species is a commercial imperative and we will continue to address this as a strategic priority. Any initiatives must be mutually beneficial for Ngāi Tahu Seafood, Ngāi Tahu fishers and the wider iwi interests.