Food Results: Select Harvests, Costa Group

By Glenn Dyer | More Articles by Glenn Dyer

Mixed results from two listed food companies, Select Harvests (a lower profit on lower sales of almonds and related products) and Costa Group, the fruit and vegetable grower and major supplier to Coles.

Select Harvests will probably see a weaker result for the year to this June, but Costa upgraded its full year’s guidance. Both had mixed experiences with demand and supply, and Costa has moved to deepen its involvement in the supply of the increasingly popular avocado.

Costa said yesterday that underlying first-half profit rose 14.5% $28.6 million after a solid rise in revenue for six months to the end of December. Revenue was up 9.8% to $489.4 million, with CEO Harry Debney calling out citrus and tomato as the strongest performing categories.

“These results are indicative of a strong 1H FY2018, with our citrus category continuing to make a stand-out contribution, fuelled by growing export demand across our key markets including Japan, USA and China,” Mr Debney said in a statement with the results filed at the ASX yesterday.

"Tomatoes also made an excellent contribution boosted by the snacking segment’s performance."

Costa Group said it now expects full-year underlying profit to grow by about 25%, compared to previous guidance of at least 20%.

That includes a contribution from Moroccan berry grower African Blue.

Costa lifted its shareholding in African Blue during the period to 86% in a $68.5 million deal that prompted the revaluation of its existing 49% stake that in turn saw a $40.1 million non-cash gain on the revaluation. That saw a statutory profit for the half of $66.2 million.

Costa Group said full-year earnings will be weighted to the second half due to the timing of the avocado harvest, but it expects a small hit in the subsequent six-month period due to hail damage at its central Queensland avocado farm.

The company said hail stripped the young trees at its 38-hectare Kumbia farm, and that it would take approximately two years to regain full tree health. Costa Group noted that central Queensland production for the most recent avocado season was about 40% below expectations across the industry, and that the West Australian crop was also lighter.

Costa also announced on Tuesday the acquisition of Costa Avocados on the mid-north coast of New South Wales, in a deal that will be backed by Macquarie Agricultural Funds Management – Coast will lease the farm for 20 years from Macquarie, which has also backed the acquisition of another farm, called Burness.

"As a result of these acquisitions Costa will, on completion of the Coastal Avocados acquisition, have a production and supply footprint stretching from February through to December. We are now well under way to executing our strategy to build avocados into our fifth core vertically integrated produce pillar and to ultimately achieve 52 week supply," Mr Debney said.

The company raised its interim dividend by a cent to five cents, a share fully franked. Costa shares rose nearly 10% to $6.85 yesterday, an all time high.

Meanwhile almond producer and processor Select Harvests has revealed a fall in revenues and a flat net profit for the six months to the end of December. The company said a smaller-than-expected 2017 harvest saw revenue for the six months to December 31 fall 9.2% to $112.9 million, from the $126.5 million recorded for the previous corresponding period.

Reported net profit after tax was down 46% from $11.6 million for the same reporting period last year. But the company said that after adjusting for variations in the yield and price for the 2016 and 2017 crops, the normalised half-year profit after tax was $7.1 million, down 17% from $8.5 million the year before.

The company chopped interim dividend 50% to 5 cents a share from the 10 cents a share paid a year ago.

Select Harvests managing director Paul Thompson said the company’s result was “extremely sensitive” to crop size and price.

“Every 2000 additional tonnes delivers $1.5 million EBIT and every $0.10/kg movement in the almond price delivers a $1.4 million EBIT”.

The impact of the lower crop estimate led to higher costs a tonne during the reporting period (because of fixed costs were applied across a smaller harvest). Energy, crop protection and pollination costs also increased year-on-year.

Not helping were continuing problems with the company’s new almond processing plant, called Project Parboil which has been plagued by “configuration and operational issues”, leading to lower output.

The plant in northern Victoria has so far been a loss-making venture and has affected the company’s half-yearly earnings before interest and tax. On top of this the company’s The Victorian company’s electricity cogeneration plant is also behind schedule. It’s designed to use by-products and orchard waste to generate cheap power, but is now expected to be operational by April.

Revenues for Select Harvest’s food division fell 11% to $69.3 million due to a loss of market share for its Lucky-branded products after Coles’ introduction of its own-brand nut range.

Harvesting of the 2018 crop at Select Harvests’ orchards in South Australia began two weeks ago. Mr Thompson said it was difficult to gauge the impact on crop yield from frosts in October last year, but as a precautionary measure a crop size of 15,000 tonnes has been forecast, 5% less than previously forecast yields.

But offsetting this weak news is the continued strong global demand for almonds where a rise in prices has beren forecast. That could rise even further afer a frost was reported in California, the world’s leading source of almonds.

The were down nearly 3% yesterday at the close at $4.731.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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