The world’s third largest almond growing business, Select Harvests, is blaming stiffening competition from supermarket house brands and delays in commissioning new processing infrastructure for a 17 per cent slip in its half-year profit.
Poorer than expected yields a year ago also contributed to flatter earnings growth.
The nut growing, processing and marketing business’ normalised net profit after tax for the six months to December 31 was just $7.1 million, compared with $8.5m the previous year.
However, Select is reporting early signs of good crop quality from this year’s almond harvest now underway, after a nervous end to the season.
Some of the company’s NSW orchards were hit by unexpected spring frosts.
Based on yields from young trees now being harvested, Australia’s biggest almond farming outfit is now quietly confident it will exceed earlier expectations of a 15,000 tonne crop – potentially about 15,800t.
Last year Select harvested 14,100t.
The bigger yields have helped it forecast a significant improvement in second half-year performance.
As the last couple of years have reinforced, we operate in a volatile commodity market and to prosper we need to thrive in all parts of the almond price cycle
Every 200t increase in yield added $1.5m to earnings before interest and tax (EBIT), while every 10 cent price rise was worth $1.4m, said managing director Paul Thompson.
He said the fundamentals for demand also remained “extremely strong”.
The Almond Board of California’s January report showed its year-to-date shipments up 10pc and uncommitted inventory down 12pc.
Markets were currently above $8 a kilogram.
Select tips the new season almond crop to fetch between $7.60/kg and $8.20/kg, based on an Australian dollar averaging US77 cents.
“As the last couple of years have reinforced, we operate in a volatile commodity market and to prosper we need to thrive in all parts of the almond price cycle,” Mr Thompson said.
“To this end, we have undertaken a comprehensive analysis of our business and have identified $6m of cost savings which will be delivered this year.”
Domestic market competition
However, he said Select’s food division had faced domestic market challenges in the past six months including expanding house brand activity by retailers and increasing competition, which were impacting on its brands, notably the Lucky range.
Select was countering the domestic challenge with expected growth in its exports, although these were still small.
“The export market remains buoyant with significant opportunities in North and South-East Asia, offering opportunities to grow consumer branded categories, and industrial/commercial markets,” he said.
On the processing front, the company’s new value-added parboiling plant at its site in northern Victoria had encountered “a number of configuration and operational issues leading to outputs being below the assumed business case”.
Despite the delayed delivery and increased cost, this project remains an attractive investment
Changes had since significantly improved production efficiencies crushing, blanching, slicing and packing raw and lower grade almonds.
A new electricity cogeneration plant, designed to convert nut and orchard waste into low-cost energy was also behind schedule, but due to be fully operational in April.
“Despite the delayed delivery and increased cost, this project remains an attractive investment, given the increasing energy costs and risks of supply outages in regional Australia,” Mr Thompson said.
Select’s reported drop in profit was actually much more stark if based on an initial $11.6m result in the first half of 2016-17, but was revised due to variation in previous estimates of crop yields and price for the 2016 and 2017 crops.
After taking into account these adjustments, its normalised EBIT was $13.2m against $13.4m for the same period in 2016-17.
Select Harvests remained confident about its business fundamentals.
Mr Thompson anticipated a significantly improved second half performance driven by the potential benefit of improved almond yields, quality and pricing, lower interest costs as a result of our improved debt position.
Other contributing factors would be improved performance from the parboil value-adding investment, the cogeneration plant, increased exports and further cost saving initiatives expected to deliver at least $6m in annual savings.
Select Harvests will pay an interim dividend of five cents a share.
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