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Scales lifts 2016 annual profit 6% on business expansion, international demand

Tuesday 28th February 2017

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Scales Corp, New Zealand's biggest apple exporter, boosted profit 6 percent as it benefited from expanding its business.

Profit increased to $38.2 million, or 27 cents per share, in calendar 2016, from $35.9 million, or 25.7 cents, in 2015, the Christchurch-based company said in a statement. Revenue rose 24 percent to $373.9 million. The previous year's results were restated to reflect a change in accounting policy for its apple trees. 

Scales last year acquired Hawke's Bay apple grower, packer and marketer Longview, secured China Resources Ng Fung as a strategic 15 percent shareholder, improving its network and access to the Chinese market, and lifted its shareholding in apple marketing business Fern Ridge produce to about 73 percent. Its growth helped elevate its status on the stock exchange, moving it into the benchmark S&P/NZX50 Index, making it more visible to investors. The company picked more than half a billion apples during the year, lifting the volume exported and the average price as it benefited from favourable international demand. 

"Our horticulture and food ingredients divisions produced excellent results, whilst our storage and logistics division produced another consistent outcome," chair Jon Mayson said.

Its shares rose 0.6 percent to $3.52, and have surged 56 percent over the past year.

The company lifted earnings before interest, tax, depreciation and amortisation 6.9 percent to $67.3 million. Mayson reaffirmed ebitda for the 2017 year of between $55 million and $62 million, saying apple picking had recently begun and early indications were positive with very good sweetness, colour and fruit size.

Scales had previously warned that ebidta would decline in 2017, reflecting earnings from Longview and lower budgeted yields and revenue from its Mr Apple unit.

In 2016, the company's horticulture unit boosted pre-tax profit 9.1 percent to $39.1 million as revenue jumped 29 percent to $230.1 million. The company said it lifted volumes of premium apples by 14 percent, with the NZ Queens variety favoured by Asian markets up 60 percent, while overall volumes of its apples increased 12 percent. It launched the large red sweet Dazzle apple variety in December, and has further developments pending. 

The food ingredients business lifted pre-tax profit 19 percent to $8.5 million as revenue increased 20 percent to $58 million. Its Meateor unit increased the amount of pet food ingredients sold by 14 percent to 22,971 tonnes. Its Profruit unit sold 5.7 million litres of juice concentrate, down from 6.1 million litres the previous year because less fruit was rejected during the grading process.

Meanwhile, pre-tax profit at the company's storage and logistics unit slipped 4 percent to $10.9 million. Scales said the coldstore business performs better in slower markets and was impacted by product moving quickly through the supply chain to market, as well as a slower start to the 2016/17 cropping season in the fourth quarter.

Managing director Andy Borland said the company planned to review its activities to see if there were opportunities it should be pursuing to enhance coldstore asset returns.

The company's net debt increased to $34.6 million from $16.2 million the previous year.

"This low level of gearing places us in a strong financial position with capacity to finance future growth opportunities that may present themselves," Borland said.

Scales expects to declare a final dividend for the 2016 year in May, with payment in July.

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