Australia: Profits more than double at Costa Group in FY2017

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Australia: Profits more than double at Costa Group in FY2017

All produce categories exceeded targets for leading Australian fruit and vegetable company Costa Group (ASX: CGC) in the 2016-17 financial year, with net profit after tax more than doubling to AUD$57.7 million. 

In its results announcement, the company highlighted produce segment revenue rose 9.4% to AUD$786.2 million, while total transacted sales were above AUD$1 billion.

Milestones included a 55% uptick in blueberry production and a 47% increase in sales for the international segment, mainly consisting of berry production joint ventures in Morocco and China as well as licensing for blueberry genetics across the Americas and Africa.

"Our core produce categories have delivered solid performances for the year having all exceeded their targets. It is yet further evidence of the strength in diversity of our portfolio, which is now also being reinforced by our strategic avocado acquisitions," said CEO Harry Debney.

The group is forecasting 10% growth in net profit after tax (NPAT) pre self-generating and re-generating assets (SGARA) in the 2018 financial year, and in general is targeting double-digit earnings growth across a three-to-five year horizon.

In the current financial year Costa expects to see "a number of produce categories" consolidate their positions and establish a longer term growth platform, including blueberry substrate production at Corindi, New South Wales and mushroom capacity expansion.

The latter is key as the group highlighted mushroom sales in FY2017 were mainly constrained by production operating at full capacity, but the Monarto facility expansion is expected to service the category's positive demand. 

Additionally in mushrooms, Costa has continued a shift from wholesale to retail sales, where the group now sells approximately 80% of its product.

The company highlighted that due to the seasonality of avocados and further expansion in China and Morocco, earnings will be further weighted towards the second half of FY2018.


The company said its Corindi operations accounted for a significant portion of the rise in blueberry production, reflecting recovery from the previous year's hail events while benefiting from a longer growing season.

New volume also came from the expansion of plantings in Western Australia and Far North Queensland, as well as the Lebrina, Tasmania farm acquired in August, 2016.

"Although average blueberry pricing was marginally lower than FY2016, it was a pleasing outcome, given the significant additional volume which is also reflective of the contribution that our shoulder seasons (which occur between November and June) are now making to our overall performance by enabling 52 week production," Debney said.

The group said raspberry production was impacted by cooler weather in Tasmania, delaying the crop and reducing overall yield and quality. North Queensland volumes were below expectations due to crop timing and some pest pressure.

Following on from the first plantings (five hectares) of new blackberry varieties in FY2017, the group is set to plant 10.7 hectares over the course of the current financial year.

The major expansion and upgrade of the Davenport Tasmania Berry Distribution Centre is well progressed and is expected to be completed for the start of the summer season. A doubling in capacity of the modified atmosphere facility has already been completed, allowing for storage of up to 400 metric tons (MT) of blueberries.

The group described the first year of berry farming operations in China as positive with a "modest profit". Yields and market reception in the JV's China-grown blueberries were favorable with strong demand for larger sizes.

The African Blue joint venture in Morocco saw an increase of 50% in sales volume - another "robust result, despite hot weather at the end of the season impacting quality", the company said.


Costa said a combination of yield, price and quality led to a strong performance in the citrus category. Even though the 2016 season was light, the group said Navel oranges were at optimal size count and mandarin values were strong.

The 2017 calendar season is expected to produce more than 100,000MT.

In June this year, a AUD$3.3 million upgrade was completed at the Navel orange packing facility in Murtho, South Australia, with a world's best practice for citrus sorting and packing that is expected to deliver production savings over the 2017 season.

"We have continued to build our market leading position in citrus export markets, including Japan, the United States and New Zealand. This is illustrated by the fact Costa supplied 47% and 40% respectively of total Australian citrus exports to the Japan and United States markets during the 2016 season," Debney said.

Other crops

Costa Group added tomato pricing recovered from the challenging market conditions experienced in FY2016, with the average price up 21% while Truss tomato prices tracked higher still due to a shortage sparked by Cyclone Debbie in the main Queensland field growing regions.

Demand for snacking and cocktail tomatoes also benefited with the category now making up aroudn 70% of the company's production area.

The group's avocado business received a significant boost in FY2017 through the purchase of Avocado Ridge in Childers, Queensland, bringing production and trading activity into the business.

Due to the biennial bearing nature of avocados, the 2018 season is expected to be a heavier crop.

"During FY2017 we began to execute our strategy to become the market leader in avocados with the acquisition of avocado farms in Queensland. In parallel Costa has also expanded its avocado marketing volumes by circa 30% which has further enhanced our offering in this category," Debney said.

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