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Thursday 30 June 2022

Scales sees profit squeezed after “challenging, disruptive” FY20

26th February 2021 By Bridget O'Connell | | @foodtickernz

Scales Corporation has delivered on guidance posting an underlying net profit after tax of $33.8m for the 12 months to December 2020 – down 7% from 2019 – in what it described as a “challenging and disruptive year”.

The Christchurch-based company, which spans horticulture, logistics and food ingredients, saw revenue dip 3% to $470.7m, while underlying EBITDA rose 2% to $53.9m powered by a strong performance from its food ingredients division.

Reported NPAT was $26.6m down from $121.6m, although the earlier period was when the company booked significant profit from its $70m sale of cold storage company Polarcold and around $20m from its Meateor joint venture deal.

The challenges and disruption seen in 2020 featured again in the early months of the current year, with inclement national weather events over the key growing period hitting its Otago stone fruit and Tasman apples, and continued global supply chains disruption adding to costs.

As a result, Scales downgraded its FY21 guidance, with underlying net profit guidance for the group now expected to be between $27.5m and $33.5m, implying an underlying EBITDA range of between $46.5m and $53.5m.

Despite various challenges in 2020 – Covid and otherwise – there were bright spots at the diversified agribusiness group.

Its food ingredients division delivered a 71% leap in underlying EBITDA to $23.1m, which chief executive Andy Borland called an “exceptional performance” and a “considerable step” towards its long-run EBITDA target of $25m.

“The division took advantage of the growing global petfood market, whilst also benefiting from its geographical and protein diversification strategies,” he said.

“Volumes of petfood ingredients sold increased by 4% compared to FY19 and the division continues to take advantage of market growth through the addition of a new toll processing facility in the United States.

He added that Scales continued to pursue organic and external growth opportunities to diversify and expand its geographical reach, product range and protein offering for this division.

Scales’ logistics division also contributed to earnings, with underlying EBITDA up 4% to $3.4m despite activity impacted by global supply chain disruptions.

It was the company’s horticulture division, which included apple growing, packing and marketing business Mr Apple, as well as Fern Ridge Produce, that had the worst year. It dragged earnings down with a 21% drop in underlying EBTDA to $31.4m.

At Mr Apple, Borland said disruption to global supply chains and the influence on consumer behaviour as a result of global Covid-19 lockdowns impacted each market differently.

“Whilst Asia and the Middle East were adversely impacted, partially also due to the overlap of lockdowns and the Chinese New Year sales window, sales to Europe and the UK remained firm,” he said.

During the year the group completed phase 2 of its orchard redevelopment programme, with over 140 hectares having been redeveloped between 2018 and 2020, predominantly in the high-value Dazzle apple variety.

“Mr Apple is focused on opportunities to maintain or improve current margins. The completion of the new Whakatu coolstore, expected to provide operational and logistics efficiencies, is an example of this,” Boorland said.

“Acknowledging that the environment for the availability and cost of labour has changed, the company intends to accelerate further automation initiatives, particularly in post-harvest operations, during FY21.”

During the year, Scales declared a dividend of 19c a share and it expected to declare a final dividend in respect of FY20 in May, with payment in July. 



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