Investors tiptoed into the shares of out of favour fruit and vegetable producer Costa Group yesterday after it confirmed the shock downgrade warned of in an update issued in early January.
Costa said yesterday it earned has a statutory net profit of $4.3 million for the six months to December, down $70 million on the prior corresponding period thanks to a range of factors including a smaller citrus harvest and “subdued” buying of tomatoes, berries and other produce in December.
Despite the weak result, the company is maintaining an interim dividend at 5 cents a share.
The company confirmed that its $8.5 million net profit before material items and amortisation was “below plan” by about $3.5 million.
Earnings Before Interest, tax, Depreciation, and Amortisation (EBITDA) before SGARA and material items and amortisation (EBITDA-S) was $35.3 million and down 42% on the prior period.
Costa’s total revenue for the December half fell 2.4% to $477.6 million, was well ahead of consensus expectations for revenue of $433 million.
“The six-month financial period to December has delivered a lower profit number than expected,” said Costa chief executive Harry Debney in yesterday’s statement.
“As previously disclosed, Costa is changing its financial year end to calendar year reporting due to the ever-increasing proportion of the company’s earnings occurring in the first half of the calendar year,” the company explained yesterday.
“Accordingly, earnings for the six-month period to December were expected to be considerably lower than the prior-year inclusive of factors relating to consolidation of African Blue as a result of majority ownership, the citrus crop biennial cycle (‘off year’) and seasonality of production occurring in the January-June period.
Costa said its raspberry contribution was disappointing, and its citrus crops were in an off-year as part of its normal biennial fruit production schedule.
The company also said buying majority ownership of Moroccan blueberry producer African Blue also hurt its balance sheet in the half year.
On the plus side, Nangiloc Coligan Farms in northwestern Victoria, which Costa bought last year for $50 million, had produced an initial harvest that exceeded Costa’s acquisition.
Costa is looking to export Afourer mandarins and navel oranges from the 567-hectare farm in the Sunraysia region.
Costa also expects to export more produce to South Korea as tariffs are further reduced as part of the 2014 Korea-Australia free-trade agreement.
Costa said it will be growing a new truss tomato variety that should offer better shelf life and yield.
It is also building a 10-hectare high-tech greenhouse in Guyra, NSW, for growing specialty and snacking tomatoes.
The shares rose 4.4% to $5.43. They were trading well above $7 when the profit downgrade was revealed on January 9. They fell that day all the way to $4.91, so the recovery has been slow.
