Scales revenue up but profits down as bad weather hits orchards

Scales Corporation [NZX:SCL] has pulled in its highest revenue yet but profits were down on the year before after a difficult growing season.

The Christchurch-based agribusiness group reported revenue of $399 million in the year to December 31, 7% above 2016.

Its underlying earnings before interest, tax, depreciation and amortisation (ebitda) was $62 million, at the top end of December guidance of $55-62 million. Ebitda in the previous year was $67.3 million.

Its net profit was $31.8 million, 16.7% down on the $38.2 million the year before. Earnings per share came to 22.6c, compared to 2016’s 27.4c.

Scales chairman Tim Goodacre says he is satisfied with the result, in light of a challenging growing season and competitive trading conditions.

“As reported in our half-year results, the Hawke’s Bay region experienced a difficult growing season. However, the horticulture team produced an overall export volume consistent with the record 2016 crop and an export packout percentage also in line with the previous year.”

The company’s horticulture division produced underlying ebitda of $38.9 million in 2017, down from 2016’s $45.3 million.

Profitability was affected by a slight reduction in the weighted average sale price, after record 2016 prices, and an increase in on-orchard costs due to bad weather.

Volumes of its Mr Apple brand were reduced by 5%, although overall export volumes sold were maintained at 3.55 million TCEs (tray carton equivalents).

Chief executive Andy Borland says the company is investing in new plant variety rights for its export markets, with new varieties to be launched this year as its orchards are redeveloped.

Scales’ storage and logistics division saw ebitda rise 18% over the year to $19.1 million, with its cold-stores pulling in 24% more earnings than the year before.

Its food ingredients division, which includes pet food, generated underlying ebitda of $8 million, less than the $9.2 million in 2016.

There was $13.5 million invested into the business during 2017, with net debt at the end of the year of $40.8 million.

The board retained its guidance for 2018 ebitda of between $58-65 million.

“Apple picking for the 2018 crop has recently begun, slightly ahead of normal harvest times. In spite of the wet weather experienced by the region, early indications are positive,” Mr Goodacre says.

“We anticipate the storage and logistics division will build upon its 2017 result and that volumes will continue to grow within the food ingredients division.”

Scales declared dividends of 19c a share during the year, with a final dividend to be declared in May, with payment in July.

Its shares last traded at $4.54 and have risen 30% in the past 12 months.

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