Scales lifts 2016 annual profit 6% on business expansion, demand

Scales Corp, New Zealand's biggest apple exporter, boosted profit 6% as it benefited from expanding its business.

Profit increased to $38.2 million, or 27c a share, in calendar 2016, from $35.9 million, or 25.7c, in 2015, the Christchurch-based company said in a statement. Revenue rose 24% to $373.9 million. The previous year's results were restated to reflect a change in accounting policy for its apple trees.

Scales last year acquired Hawke's Bay apple grower, packer and marketer Longview, secured China Resources Ng Fung as a strategic 15% shareholder, improving its network and access to the Chinese market, and lifted its shareholding in apple marketing business Fern Ridge produce to about 73%. Its growth helped elevate its status on the stock exchange, moving it into the benchmark S&P/NZX50 Index, making it more visible to investors. The company picked more than half a billion apples during the year, lifting the volume exported and the average price as it benefited from favourable international demand.

"Our horticulture and food ingredients divisions produced excellent results, while our storage and logistics division produced another consistent outcome," chairman Jon Mayson said.

Its shares rose 0.6% to $3.52, and have surged 56% over the past year.

The company lifted earnings before interest, tax, depreciation and amortisation 6.9% to $67.3 million. Mayson reaffirmed ebitda for the 2017 year of between $55-62 million, saying apple picking had recently begun and early indications were positive with good sweetness, colour and fruit size.

Scales had previously warned that ebidta would decline in 2017, reflecting earnings from Longview and lower budgeted yields and revenue from its Mr Apple unit.

In 2016, the company's horticulture unit boosted pre-tax profit 9.1% to $39.1 million as revenue jumped 29% to $230.1 million. The company said it lifted volumes of premium apples by 14%, with the NZ Queens variety favoured by Asian markets up 60% while overall volumes of its apples increased 12%. It launched the large red sweet Dazzle apple variety in December and has further developments pending.

The food ingredients business lifted pre-tax profit 19% to $8.5 million as revenue increased 20% to $58 million. Its Meateor unit increased the volume of pet food ingredients sold by 14% to 22,971 tonnes. Its Profruit unit sold 5.7 million litres of juice concentrate, down from 6.1 million litres the previous year because less fruit was rejected during the grading process.

Meanwhile, pre-tax profit at the company's storage and logistics unit slipped 4% to $10.9 million. Scales said the coldstore business performs better in slower markets and was impacted by product moving quickly through the supply chain to market, as well as a slower start to the 2016/17 cropping season in the fourth quarter.

Managing director Andy Borland said the company planned to review its activities to see if there were opportunities it should be pursuing to enhance coldstore asset returns.

The company's net debt increased to $34.6 million from $16.2 million the previous year.

"This low level of gearing places us in a strong financial position, with capacity to finance future growth opportunities that may present themselves," Mr Borland said.

Scales expects to declare a final dividend for the 2016 year in May, with payment in July.

(BusinessDesk)