Scales expects lower earnings after Covid-19 market disruption

Apple exporter Scales says Covid-19 will affect its earnings in 2020. Photo / Hawke's Bay Today

Scales Corp, New Zealand's biggest apple exporter, said its underlying earnings for calendar 2020 would be towards the bottom of a $30-36 million range due to disruption in key markets resulting from the Covid-19 pandemic.

The company, which is also involved in food ingredients and logistics, said the mix of earnings between business divisions was forecast to change meaningfully from the previous year, when it reported an underlying net profit of $35.8m.

"The 2020 results for all divisions have been influenced by the impact of Covid-19 on international markets, which are expected to revert back to previous benchmarks as markets adjust to the new conditions," the company said in the notice to the NZX.

Horticulture division earnings from Asia and nearer markets were expected to revert to historical levels next season as sales of the China domestic crop revert to normal flows, it said.

Scales said all its business units continued to operate successfully, within Covid-19 protocols, for the first six months of the year.

"While operations within New Zealand have been able to operate effectively, sales rates and pricing in international markets have been more variable and, as a result, earnings for the full 2020 year are forecast to be impacted," it said.

Scales said the 2020 apple harvest was completed with a total pick of 5.1 million tray carton equivalents (TCE), equal to the previous record in 2018.

To date about 95 per cent of the crop harvested had been packed and export packout rates are now forecast to be 80 per cent, in line with rates for previous years and matching previous record volumes of own grown export volumes.

Scales had access to adequate resources to cover harvest, packing, cool storage and shipping, and operating costs per TCE have been maintained at the levels close to the previous year.

Based on returns to date, EBITDA earnings for the horticulture division for 2020 were forecast to be materially below the previous year's $39.7m.

Conversely, global demand for the food ingredients division and for pet food in particular have continued to remain strong.

"Significant trading opportunities have been captured by Shelby in the US, where market disruption from Covid-19 has also been high," it said.

"While demand for the second half of the year remains uncertain, results for the first half will be materially above the same period last year.

In 2018, Scales bought a 60 per cent interest in Shelby JV LLC, one of the largest independent buyers and processors of ingredients for the petfood industry in the US, for US$23m ($34.7m).

Scales shares last traded at $4.99, down or 26c or 5 per cent from Friday's closing level.

The company is due to release result for the six months to June 30 on August 26.