Thursday, March 28, 2024

Apples sweeten Scales’ record profit

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An impressive effort in its Horticulture division has contributed to Scales Corporation’s record profit. Full-year 2015 financial results released on Thursday showed a net profit 87% above its IPO forecast, and 112% above the full-year 2014 result.
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Among other achievements, Scales achieved more than $300 million revenue for the first time in its history, and 68% of the revenue was earned from export sales.

Christchurch-based Scales Corp comprises three operating divisions – Horticulture, Storage & Logistics and Food Ingredients. While all three contributed to the overall profit, Horticulture performed exceedingly well.

Horticulture Ebitda increased from $23.9m in 2014 to $40.0m, an uplift of 67% for the year.

“This improvement in profit was largely a result of an excellent performance from our premium varieties,” Scales managing director Andy Borland said.

“During the past five years especially we have made significant investments in our premium varieties and brand positioning, including Mr Apple, Diva, Fern Ridge Fresh and other brands.

“Improved premium varietal mix, especially higher volumes of New Zealand Queen and Diva, coupled with continued strong demand for our premium apples contributed to the NZ dollar FOB pricing for premium varieties increasing by 15% in 2015.”

Underpinning the strong result in Horticulture has been the implementation of a strategy focused on optimising varieties and market mix.

This has included investment in varieties that are sought-after by customers in Asia and the Middle East, and redirecting volumes away from the lowest-yielding markets, or redeveloping the lowest yielding varieties.

The appeal of expanding into Asian markets has been clearly identified.

In the 2015 year, 53% of all Scales Horticulture revenue was generated from sales in Asia – up from 36% in 2014.

Scales anticipates this will increase to 56% in 2018. As a result there has been a decline in reliance on traditional markets – the United Kingdom is expected to contribute 12% of export revenue by 2018, down from 19% in 2014.

The development of premium apple volumes is expected to continue as orchard redevelopments continue.

Volumes of NZ Queens, highly sought-after in Asian markets, were up 60% to 214,000 TCE. This trend will increase over the next two years as fruit from orchard redevelopments in 2011-12 reach full production.

The positive outlook for apples expressed in the Scales’ result follows positive sentiment towards the sector in recent months.

A note from ANZ at the end of 2015 identified the NZ pipfruit sector to be experiencing a purple patch based on, among other things, a shift to a more vertically integrated structure, the development of exclusive varieties with trademarked intellectual property, and proximity to Asian markets delivering price premiums.

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