Scales to buy Hawke's Bay apple grower Longview

Scales Corp has agreed to buy Hawke's Bay apple grower, packer and marketer Longview Group Holdings for $20.5 million, adding capacity to sell fruit into the fast-growing Asian market.

The Christchurch-based company's Mr Apple subsidiary will buy 100% of the Longview shares and 22 hectares surrounding a cool store and packhouse, expanding Scales' total planted apple orchard by 85ha, with a further 30ha of bare land for development.

The deal will immediately lift earnings per share 4% in the 2017 financial year. Scales has previously forecast 2016 net profit to be between $29.6 million, or 21.1c per share, and $34.6 million, or 24.8c.

"Our strategy is to become the preferred supplier of apples within the Asian region," managing director Andy Borland says. "Longview's focus on near markets makes it a highly compelling addition to our existing operations."

New Zealand's biggest apple exporter doubled its annual profit in 2015, selling higher value products to key markets in Asia and the Middle East, beating the forecast in its 2014 prospectus.

That's not expected to be repeated this year with a more ordinary harvest tipped, an absence of insurance proceeds from a hailstorm last year and some provisioning for reduced use of its cold store network.

Longview sold 62% of the 530,000 tray carton equivalents it manages to Asia, and was recognised by the China Fruit Marketing Association as one of the top 10 fruit brands imported into the world's most populous nation in 2016.

The majority of the Longview orchards are leased under long-term arrangements, and the Hawke's Bay company also operates a 10-year old packhouse and cool store, with an extension to the cool store added last year.

"The packhouse provides us with increased post-harvest capacity which we expect to fully utilise by 2020 through the ongoing maturity of redeveloped Mr Apple and Longview orchards," Mr Borland says.

"In addition, the Longview post-harvest infrastructure is close to existing Mr Apple operations and is expected to yield a number of operational efficiencies and improvements, including opportunities for improved packhouse specialisation and other revenue and cost synergies."

Scales says the acquisition is "a critical addition" to meeting its goal of becoming Asia's supplier of choice by lifting its apple crop, giving it access to post-harvest infrastructure due to its own nearing full capacity, and providing a strong brand in the region.

The deal will be funded through cash and debt and is expected to lift Scales' debt position at the end of the year to $30-35 million. 

Longview has 14 shareholders, the biggest of which is the founding Caccioppoli family's Caccioppoli Orchards with 21%. The Caccioppoli family's packing business was merged with a Hawke's Bay growers collective in 2005 when the original packhouse burned down. The Caccioppoli family also sold the 22ha of orchards to Scales.

The deal is scheduled to be completed on Nov. 7.

Scales shares last traded at $3.10, and have gained 29% so far this year.

(BusinessDesk)