One Stock from Primary Sector Amidst These Uncertain Times

This primary industry player has proven its resilience over the past years. This company has consistently maintained its margin and has managed to sail through the uncertainties in the broader industry over the past few years. This company has a robust financial position and the company’s businesses were also classified as essential. It also needs to be noted that the stock has delivered a return of ~16.42% in the span of just 6 months.

Scales Corporation Limited (NZX: SCL)


  • Robust financial position might help the company moving forward and it has diversified geographical as well as operational businesses.
  • SCL’s businesses were classified ‘essential’ and there was rapid as well as effective adjustment towards new market conditions.
  • SCL also mentioned that uncertainty remains for the full-year result.

Scales Corporation Limited (NZX: SCL) happens to be a diversified agribusiness company. It comprises three operating segments i.e. Logistics, Horticulture as well as Food Ingredients. The company was founded in 1897.

As shown in the below image, North America is the biggest market for the company and contributes 32 per cent to the total operating revenue.

Key Data (Source: Company Reports)

Over the time period of FY15 to FY19, the company has grown its revenue to $484.6 million from $301.4 million. During the same period, the bottom-line increased to $118 million from $35.9 million. The company registered CAGR of 34.65 per cent over the period of FY15 to FY19 in the bottom line.

The company now looks for organic growth opportunities that could strengthen the existing business units. The company desires to find new investment opportunities in various sectors where it can add value or enhance existing business with the help of capital resources, agribusiness experience and/or export network, especially in China.

Financial Performance (Source: Refinitiv (Thomson Reuters))

Horticulture Remains the Company’s Largest Division

The Horticulture division is the largest division within the company and comprises:

  • Mr Apple: The country’s largest vertically integrated grower, packer, and marketer of apples located in Hawke’s Bay. It also stores, packs as well as markets apples on behalf of various external growers in Hawke’s Bay and markets on behalf of the external growers in Nelson.
  • A 73% stake in Fern Ridge, a fresh produce exporter in Hawke’s Bay.

The company’s presence in the Middle East and Asia continued to grow, with sales accounting for 66% of all exports in 2019. Mainly, sales to China increased strongly during 2019. More than 560 million apples were picked from Mr Apple’s planted apple orchards in 2019 season from about 1,158 hectares of Mr Apple’s planted apple orchard.

Key Data (Source: Company Reports)

Food Ingredients Division

This division of the company is responsible for converting agricultural by-products into valuable food commodities. This division changed substantially during 2018 and 2019 due to the acquisition of a controlling interest in Shelby in December 2018, and the sale of 50% of Meateor NZ to Alliance in March 2019

The total volume of petfood sold by the Meateor group in 2019 jumped by 282% on the Y-o-Y basis, and Profruit’s 2019 sales volumes were in line with 2018. The company’s strategy for Food Ingredients revolves around being the key provider of petfood ingredients to the wide range of the international brands.

Logistics Division

The company’s Logistics division changed substantially during 2018 as well as 2019 primarily because of the sale of Liqueo in the month of August 2018 and sale of Polarcold, that settled in the month of May 2019.

The division now includes:

  • Scales Logistics
  • Balance Cargo

SCL Steered Through Global Pandemic

For the six months ended 30 June 2020, the company reported Underlying NPAT of $29.2 million, down by 3.2% Y-o-Y. Underlying EBITDA stood at $44.4 million, down by 6.3% Y-o-Y.

The horticulture division delivered an underlying EBITDA of $32.4 million, down by 21.5% Y-o-Y. The food ingredients segment delivered an excellent first half result, with Underlying EBITDA of $11.0 million as compared to $5.1 million in 1H FY 2019. Notably, impact of virus outbreak on the broader industry happens to be unclear.

The logistics division witnessed steady performance. Notably, freight volumes were helped from the exposure towards agribusiness customers.

Divisional Performance (Source: Company Reports)

Future Prospects

The company stated that uncertainty is there for the full year result. Its full-year underlying net profit is anticipated at the bottom end of the previously advised guidance of $30.0 million-$36.0 million. It was also mentioned that initiatives with regards to the investment opportunities are impacted by the inability to travel.

Key Risks

The company is exposed to financial risks arising from changes in climatic conditions, market prices and the value of the New Zealand dollar. The company’s activities expose it to credit risk, which refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group.

The company has been managing liquidity risk by maintaining adequate reserves as well as banking facilities, by tracking forecast and actual cash flows and matching maturity profiles of financial assets as well as liabilities.

The stock of Scales Corporation Limited has ended the session at NZ$4.890 per share, reflecting a decline of 0.20% on September 25, 2020.



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