Release Date: February 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Scales Corp Ltd (NZSE:SCL, Financial) reported underlying NPAT attributable to shareholders of $19 million, at the top end of guidance.
- The Global Proteins division produced a strong underlying EBITDA of $54.5 million.
- Horticulture division achieved a robust underlying EBITDA of $14.8 million despite Cyclone Gabrielle.
- Logistics division delivered a solid underlying EBITDA of $4.3 million despite lower volumes and trade route issues.
- The company has made considerable strategic progress in Global Proteins, including the commissioning of the Meateor Australia plant and the first processing line at Esro Petfood.
Negative Points
- Reported NPAT attributable to shareholders was significantly down at $5.2 million due to goodwill impairment and asset write-downs.
- Revenue decreased by 9% to $565.4 million compared to last year's record revenue.
- Underlying NPAT and EBITDA were below last year at $38.4 million and $67.5 million, respectively.
- The Horticulture division faced lower volumes and revenue due to Cyclone Gabrielle.
- Global Proteins experienced a decrease in petfood ingredient volumes due to customers returning to lower pre-COVID inventory levels.
Q & A Highlights
Scales Corporation Ltd (NZSE:SCL) Earnings Call Highlights
Q: Can you comment on the de-stocking with customers in Global Proteins and how you see this phasing through the year?
A: Andrew Borland, Managing Director: We anticipate normal patterns returning by mid-2024. The COVID effect led to increased pet ownership, but trends are normalizing. The de-stocking is not specific to any one product but is an overall trend. Our main customers' premium products are still growing strongly.
Q: On the margin front for Global Proteins, can you comment on the drag of the Meateor plant and Esro?
A: Andrew Borland, Managing Director: We expect these businesses to contribute more significantly by the last quarter of this year. The Melbourne plant is operational but building up volumes, and the Esro plant in Europe is ongoing under construction, expected to be more efficient by October.
Q: Regarding Horticulture, can you talk through the basis of the volume assumptions for the year?
A: Andrew Borland, Managing Director: Older varieties are struggling in Europe, leading to more redevelopments into premium varieties like Dazzle and Posy. We don't expect to reach prior volume targets, but premium apple results should compensate for the loss in volume.
Q: Are you expecting to return to growth in Global Proteins in 2024?
A: Andrew Borland, Managing Director: Growth is more likely to come through in 2025. The rebalancing should be finished by mid-2024, and full operational rhythm in Australia and Esro Petfood will contribute to growth. We expect reasonable growth from 2025 onwards.
Q: Can you elaborate on your assumptions for pricing in Horticulture for 2024?
A: Steve Kennelly, CFO: We assume end market pricing will be slightly down on 2023, in the single figures. Freight costs are coming down, but wage rate increases are still a factor.
Q: What is the outlook for Shelby specifically in Global Proteins?
A: Andrew Borland, Managing Director: The outlook is slightly down due to inventory rebalancing in FY '24. However, we anticipate a turnaround and pick-up later in the year.
Q: How do you expect Meateor New Zealand to perform in FY '24?
A: Steve Kennelly, CFO: We expect it to be a transition year, normalizing to more traditional trends. The full impact of rebalancing will be seen in 2025.
Q: Is the risk of tree death in Horticulture due to flooding behind you now?
A: Andrew Borland, Managing Director: We are optimistic that the risk is behind us. The trees look fantastic and have a good crop, showing resilience despite the cyclone's impact.
Q: Are you exploring new forms of distribution for apples in China?
A: Andrew Borland, Managing Director: Our apples are sold through various avenues to the consumer, including online auctions and direct distribution facilitated by our customers in China.
Q: What kind of pressure are you seeing on your products in China due to economic challenges?
A: Andrew Borland, Managing Director: Demand for our premium varieties like Posy and Dazzle remains strong, indicating resilience despite economic challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
