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Scales doubles profit as more premium apples sold to Middle East, Asia

Thursday 25th February 2016

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Scales Corp, New Zealand's biggest apple exporter, more than doubled annual profit as its horticulture unit reaped the benefits from selling higher value apples to key markets.

Profit jumped to $38.9 million, or 27.9 cents per share, in the 12 months ended Dec. 31, from $18.4 million, or 14.3 cents, in the year earlier period, the Christchurch-based company said in a statement. Revenue increased 14 percent to $301.4 million.

Scales has invested in apple crops that are sought after by customers in Asia and the Middle East, where the sweeter, redder varieties fetch a premium price on average 55 percent higher than traditional varieties. The company exported 40 percent more premium trays in 2015 and boosted sales to the Middle East and Asia to 53 percent of its total from 36 percent, helping boost the company's gross profit margin to 36 percent from 31 percent.

"During the past five years especially we have made significant investments in our premium varieties and brand positioning," said managing director Andy Borland. "It is pleasing to see that investment deliver both a material increase in volume and price during FY2015."

Scales retained its 2016 annual forecast for earnings before interest, tax, depreciation and amortisation of between $48 million and $55 million. The company increased ebitda 71 percent to $66 million in 2015, ahead of its December forecast for $60 million to $63 million, and its prospectus forecast of $41.2 million.

Its shares fell 1.2 percent to $2.40. Prior to today, the stock has gained 63 percent over the past year, ahead of a 2.1 percent gain for the S&P/NZX All Capital Index over the same period.

While picking has yet to begin for the season, the current orchard performance and fruit quality indicate another strong crop which could potentially be as high as 2015, the company said. The size and varietal mix are expected to be favourable and the market dynamic for Asia and the Middle East remains supportive, it said.

In 2015, the company's horticulture unit boosted pre-tax profit 89 percent to $40.1 million as revenue lifted 12 percent to $178.1 million. The price for premium apple varieties lifted 15 percent to $37.80 a tray while prices for traditional apples remained stable at $24.40 a tray. Lower shipping costs, due to closer markets in Asia and the Middle East and declining freight rates, also helped as did more favourable currency rates, the company said.

Scales said 314 hectares of its orchards were redeveloped into premium apple varieties between 2008 and 2015, equating to 30 percent of its planted orchard land. Over the next two years, the company expects to see large increases in premium volumes as the peak in orchard redevelopment over 2011 and 2012 comes into full production, lifting export volumes.

Its storage and logistics unit increased pre-tax profit 47 percent to $11.3 million as revenue advanced 6 percent to $95.6 million. The coldstore unit benefited from seasonal timing, as a late start to the food production season in 2014 shifted some volumes into 2015 and its Auckland coldstore opened in November to stronger than anticipated demand. Its logistics unit improved margins and gleaned a higher contribution from the air-freight division, Balance Cargo, as demand for export apples, stonefruit and dairy produce helped increased airfreight tonnes managed by 79 percent to more than 2,800 tonnes.

The food ingredients business lifted pre-tax profit 42 percent to $7.2 million as revenue gained 30 percent to $48.6 million. Its Meateor unit increased the amount of pet food ingredients sold by 23 percent to 20,220 tonnes as it benefited from trans-Tasman procurement.

In January, the company paid a 6.5 cents per share interim dividend and a special dividend of 4 cents for the 2015 year. It said today it expects to declare a final dividend of 6.5 cents in May, with payment in July.

Net debt declined to $16.2 million from $40 million the previous year.

The company's shares are rated a 'buy', according to two analyst recommendations compiled by Reuters.

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