Thursday, March 28, 2024

Apple grower stalks improved earnings

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Apple grower Scales Corporation starts the new year with a new Hawke’s Bay acquisition and access to a new bright red apple variety targeted at Asian markets on top of another earnings upgrade.
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The listed agribusiness group achieved a 46% return, including dividends, for shareholders last year and has an early 2017 dividend to look forward as well as a rosy outlook.

The early-December profit upgrade followed a season of big sales volumes and strong prices for its biggest subsidiary, the Mr Apple business.

The operating earnings (Ebitda) for the year ended December 31 were now expected to be $66 million to $69m, up from the earlier estimate of $55m to $62m. The expected earnings would also be a solid gain on last year’s Ebitda of $61.4m.

Apple yields from the Hawke’s Bay subsidiary Mr Apple were above budgeted levels and were pretty much sold out ahead of year-end, group managing director Andy Borland said.

The newer Fuji and Diva varieties had sold very well into Asian markets and his “old favourite” Royal Gala had been a big part of the growth.

“It’s our biggest variety by volume and it ate incredibly well this year so the quality was there and there was strong demand around the world.”

Scales’ other two divisions, Storage and Logistics and Food Ingredients, also had good years, with a record likely for the Food business.

Ahead of year-end, the directors announced an 8c a share interim dividend, paid on January 18, well up on the 6.5c equivalent dividend last year.

The after-tax profit for the year was expected to be between $37.2m and $39.4m, again well up on the previous guidance, and fairly similar to the actual 2015 figure of $38.9m.

Scales had a history of under-promising and over-delivering, leading to suggestions it was over-cautious in its forecasts but Borland said the agri-business group was dealing in biological assets subject to variable weather so preferred to be realistic in its budgeting.

“We just like a number that we can be confident in.”

For 2017, it now forecast Ebitda in the $55m to $62m range, with lower budgeted volumes and revenues from Mr Apple.

“That market is a long way off and we think the world is a bit tighter than it was so we have to wait and see,” Borland said.

This year would feature volumes and earnings from the new $20.5m Longview orchard and brand acquisition in Hawke’s Bay plus expected retail gains in China from the relationship with shareholder China Resources.

Longview came aboard in early November and was expected to increase group earnings share by about 4% this year. It brought in another 85ha of orchard land and 30ha of land for planting. It had been classed by the China Fruit Marketing Association as one of the top 10 brands of fruit imported in 2016. The business also brought increased post-harvest capacity for the group.

Offsetting the positives, the fall in sterling since the Brexit vote in June was a negative. Britain was a big market for Mr Apple. The group had been well-hedged ahead of the latest selling season but next season would be different at current cross-rates.

Looking ahead, Mr Apple was also part of the group launching the new Dazzle apple variety, developed in New Zealand. It was a big, red, sweet-tasting fruit targeted at the Asian market.

It was described as one of the biggest apple variety launches since Royal Gala decades ago and was expected to provide about a million cartons of sales by 2028. All NZ growers would be able to grow the fruit and all fruit exporters would be able to sell it.

Scales shares ended 2016 on the NZX at about $3.36, after starting out at $2.30. Sharebroker CraigsIP said the group’s recent results were stunning and it had a 12-month price target of $3.50 a share.

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