Costa Group’s Shares Plunge Post The Announcement Of 1H FY2018 Results

Costa Group Holdings Limited (ASX:CGC), a company from the food, beverage & tobacco industry group which is engaged in the growing, packing and marketing fresh produce announced its 6-month financial results ended 30 December 2018.

During the period, the company generated revenue of $478 million, down by 2.4% as compared to the previous corresponding period (pcp). EBITDA before self-generating or regenerating assets (SGARA) during the period was down by 42% to $35.3 million as compared to the previous corresponding period. The company made an NPAT-S worth $8.5 million. The statutory net profit after tax by the end of the period was $4.3 million. Costa Group declared a fully franked dividend of 5 cents per share.

The fall in the profit was driven by several factors which included the bringing of African Blue on the balance sheet as it has significant ownership. The other reason was the additional pre-harvest farming cost investment due to increased global footprints.

Produce segment

The Product segment reported a fall in the revenue by 4.3% as compared to the first half of FY2018 which was caused by the lower biennial citrus production.

Mushroom category

Under the mushroom category, the business was able to meet the financial target in spite of variable compost quality in the earlier period, which created a negative impact on the production volumes. The period also reported prolonged dry weather which increased the cost of straw, the influence of which could be seen when the inventory gets replenished.

Berry Category

The blueberries generated a mixed performance during the period. The product volume of blueberries was strong during the period in the Corindi, New South Wales farm. However, the production volume was lower from the end of the Far North Queensland (FNQ) season. The overall market realization was slightly above expectations.

The Arana premium blueberry attracted a 23% premium on 200g special packs and a double-digit premium in wholesale. The raspberries contribution remained disappointing during the period.

Citrus Category:

Due to the ‘off-year’ biennial fruit production cycle, the contribution from the citrus category was significantly below than prior year. The lower quality towards the end of the harvest significantly impacted the sales price realization in November and December.

Out of the 73% packed volume for 2018, Japan remained the largest market taking 40% of total exports. It was followed by the US, New Zealand and China. It is further expected that the exposure to the Korean market will increase in 2019 as a result of reduced tariffs under the Australia – Korea Free Trade Agreement.

The upgradation of the Murtho packing line has delivered expected productivity targets. Still, major automation works at the Renmark packing facility is scheduled to get completed ahead of the 2019 season.

Tomato category:

In the tomato category, an excellent production of snacking/cocktail varieties was met by weaker retail channel where more products were sold through the wholesale markets. As a result, an overall price realization was lower during the period.

Avocado category:

The major production of avocado for Costa was through the Northern New South Wales (NNSW) farms. The residual volume of avocado came from the Queensland (QLD) farms. There was an increase in the third-party volumes marketed by Costa by 14% on pcp. There was additional expenditure which was undertaken for nutrition and health programs to ensure maximum tree health for future yield.

CF&L segment

The period reported a solid trading outcome under the Costa Farms & Logistics, with good chemistry between supply and price opportunities, which optimized the trading margin across the three wholesale operations in Vic, SA and QLD.

Segment Performance - International

In Morocco, the harvesting period would take place in the first half of the CY2019, which would require pre-harvest cost investment from July to December. The development of flower and crops demonstrates the recovery from yield shortfall from the prior season.

In China, Raspberry harvesting is in line with the expectations. However, the volume was lower than last year due to the timing of the 2nd harvest cycle.

On 27 February 2019, the company announced the resignation of Mr Kevin Schwartz as the non-executive director of the company and appointment of Dr Jane Wilson as an independent non-executive director.

Outlook :

Costa has transitioned its financial reporting to the calendar year reporting. The company would continue to make substantial progress for both the near and long term across the five core Australian categories. As per the crop performance and weather conditions at this point of initial stage, the company expects that there will be an increase in the NPAT-SL in 2019 by at least 30%.

Since its inception, the stock has generated a return of 151.39%. However, in the last six months, the stock generated a negative return of 27.41%. At present, the shares of CGC are trading at A$5.305 (AEST: 3:30 pm, 28 February 2019), down by 2.302%. The company has a market capitalization of A$1.74 billion with approximately 319.94 million shares outstanding and a PE ratio of 15.070x.

Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.