Lower European apple prices bite into Scales profit

Photo / Glenn Taylor

Scales Corp, the listed fruit and vegetables logistics company, said first-half profit fell 22 percent from a year earlier, reflecting lower apple prices and the one-off costs of its NZX listing.

Profit was $20.6 million in the six months ended June 30, down from $26.4 million in the same period a year earlier, the Christchurch-based company said in a statement. Sales rose 3.4 percent to $150.2 million.

Scales debuted on the NZX in July at $1.60 per share. Of the $148 million worth of shares sold, $30 million was new capital to be used to reduce debt, while private equity firm Direct Capital sold into the offer, reducing their stake to 20 percent from 84.2 percent. Shares of Scales last traded at $1.53, and have fallen 4.4 percent below its offer price.

The company is New Zealand's largest apple exporter and also owns businesses across the primary sector, including sea and air freight services, cold store operations, and food ingredients, pet foods and juice concentrate businesses. Last year the company lifted annual profit 50 percent to $20.4 million, on the back of rising Asian demand for apples.

"We are continuing to develop our presence in Asia and other near markets, aided by the fact we expect premium variety apple plantings to yield increased volumes for 2015," said managing director Andy Borland. "Together with a group of other primary sector New Zealand exporters, we are establishing ServeCo, a collaborative venture based in Shanghai which is designed to assist the partners' trade into China."

The company is boosting its cold store network's capacity by 16 percent, building an 8,700 square metre Polarcold plant at the Ports of Auckland inter-modal freight hub at Wiri, South Auckland. Fonterra Cooperative Group had already signed on to use half of the space, Borland said, which is expected to be complete in the third quarter of next year.

Its horticulture segment, which includes its Mr Apple business, orchards, and fruit packing and storage businesses, increased sales 1.9 percent to $90.1 million in the six months, while operating earnings slipped 11 percent to $23 million. Scales blamed a drop in European apple prices for the decline, which it said was partially offset by higher volumes, with its Mr Apple final export volume 7 percent above forecast, and higher early season prices.

Storage and logistics increased sales by 4 percent to $61 million, while profit slipped 7.7 percent to $7.9 million. Sales in its food ingredients business rose 12 percent to $18.8 million, for a 3.4 percent gain in earnings of $2.8 million.

Improved operating cash flows meant Scales halved its forecast net working capital facility to $11.2 million, reducing forecast average prospective net debt to $38.2 million, below its prospectus forecast of $44.1 million, it said.

In its offer documents, Scales forecast net profit to fall to $15.9 million in 2014, before rising to $20.8 million in 2015.

"We have hit out targets and expect to remain on track to meet the prospectus guidance for the full-year result," said chairman Jon Mayson.

According to its prospectus, Scales expects to pay a dividend of between 9.4 cents per share and 9.6 cents per share, implying a gross dividend yield of 7.2 percent to 8.2 percent, for the 2014 financial year, and between 10.5 cents to 10.7 cents per share, for a gross yield of 8 percent to 9.1 percent, the following year.