Friday, March 29, 2024

Scales’ sweet taste of success

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Diversified agri-business Scales Corporation has set another earnings record and achieved a major strategic target four years ahead of schedule.
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The group’s Mr Apple and Fern Ridge businesses picked more than half a billion apples last year from their own orchards, selling them to more than 150 business customers in 40 countries.

These made up 3.55 million cartons, a figure targeted for the 2020 year. Another 1.18m cartons from outside growers were exported by the group.

The profit after-tax for the year ended December 31, 2016, was $38.2m, up 6% on a year earlier, and the underlying operating profit (Ebitda) was up 11% at $67.9m, with outstanding returns from Horticulture and also the Food Ingredients division, chairman Jon Mayson said.

The after-tax figure reported to the NZX included $406,000 in downward adjustments under international accounting rules. Operating cashflow was $41.3m, compared to $49m the year before.

The Hawke’s Bay-based Apple business provided 64% of the operating earnings, at $45.3m. There was a significant increase in export volumes, because of a high “pack-out’’ rate with good colour, size and taste qualities, managing director Andy Borland said.

Average prices were also slightly higher than a year earlier, with a higher premium variety mix and higher pricing for traditional varieties.

The ratio of own-grown premium fruit ‑ high-colour Fuji and Royal Gala, Pink Lady and New Zealand Queen ‑ has increased markedly, to 1.65m cartons last year from $1.03m in 2014. Traditional varieties, including Braeburn and standard Royal Gala, have grown to 1.89m from 1.71m over the same period.

Mr Apple’s newest variety, Dazzle, was launched in December with its bright red cover and sweet taste aimed at the Asian market.

Asia and the Middle East has become the largest market segment for the group, as it is for the Longview orchard and packing business acquired during the year.

This market trend has developed rapidly.

In 2014, Asia-Middle East took 37% of exports, Europe 36%, North America 8%, and the United Kingdom 19%. By 2015, Asia-Middle East was at 53%, Europe 29%, North America 5%, and the UK 13%. The numbers for last year were 53%, 30%, 7%, and 10% respectively.

The Food Ingredients business had underlying Ebitda of $9.2m, a 22% increase over the previous year. The gains were spread across the Meateor pet food operations and the juice concentrate Profruit operations.

The strong markets for agriculture produce helped the other divisions, but meant less storage time for product in Scales’ coldstores round the country, so that operating earnings in the Storage & Logistics business was consistent with the previous year at $16.2m.

While the coldstores were held back, the Liqueo bulk liquid storage business and the Scales Logistics freight-forwarding business traded strongly, Borland said.

In his outlook for the current year, Mayson said apple indications were positive as picking begins, with good colour, sweetness and size qualities. Production is expected to be similar or potentially higher than last year, helped by the Longview production and ongoing orchard maturity.

Some foreign exchange headwinds are likely, but the group does have hedging cover. Ebitda guidance has been confirmed at between $55m and $62m for the year.

At balance date, Scales had total assets of $330m, and total liabilities of $115.5m. Borrowings were about $34m, so the balance sheet was very strong. Interest costs for last year were covered 22 times by the Ebit earnings.

Earnings a share for the year were 27c, and shareholders received 14.5c in dividends.

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