Ex-Fonterra Suppliers Face Stricter Share Sell-Down Requirements
Dairy farmers, still holding onto their Fonterra shares despite switching milk supply elsewhere or exiting the industry, now face a stricter share sell-down requirement.
The sharp increase in volume and late start to the season put pressure on pricing, with returns falling to $4.36 per tray ($5.13/tray in 2015-16), he told the annual meeting.
However, high average yields of at least 12,000 trays enabled the industry to achieve average returns per hectare above $50,000 for the third year in succession ($53,555 in 2016-17, $56,673 in 2015-16).
Zespri had a record season with global sales up 19% from last season to $2.26 billion from exceptionally high yields.
Net profit after tax grew from $35.8 million to $73.7m and earnings per share grew from 29 cents to 61 cents. Underlying earnings per share, which exclude licence income and the effect of the China legal provision, grew from 17 cents to 21 cents.
Jager says overall Gold sales increased by 48% to nearly 48m trays.
“We achieved an increase in average OGR (orchard gate returns) per tray from $8.21 to $8.64 with average OGR per hectare increasing from $71,080 to $98,838, driven mostly by vines coming into production as we recover from Psa.
“This result reflects strong market support for SunGold and we can be confident there is strong growth to come from this exciting new product.”
The Zespri global supply business sold 16.6m trays, driven by a 46% increase in Gold sales. Total sales revenue was $216m, up from $184m in 2015. Profit before tax increased to $11.9m versus $10.4m in 2015.
“Growth in ZGS production is expected to be a significant driver of corporate income in the years ahead. Moreover, optimism in the growth potential of SunGold is strong, and fulfilling demand necessitates the expansion of 12-month supply of SunGold.”
Jager says 12-month supply is critical to Zespri’s ability to optimise SunGold growth and Zespri’s brand strength globally. If Zespri does not supply, its competitors will, and offshore production of SunGold is significantly lagging demand.
“The challenge should rightly be about whether we should go faster with offshore supply rather than slower.”
Chairman Peter McBride said 2016 was a remarkable season of record yields and the largest-ever NZ crop.
Zespri’s net profit after tax more than doubled from $35.8m to $73.7m, mainly due to licence revenue from the SunGold tender in 2016.
Zespri paid investors a full year dividend of 25 cents a share.
In the 12 months to March 31, Zespri’s share price rose from $1.82 to $4.
The share price was $5.80 post dividend.
“There is currently a high level of confidence in the NZ kiwifruit industry and this is reflected in strong asset prices including orchard values and Zespri shares. On the one hand these strong asset prices are very positive and a rational reflection of strong industry performance following the recovery from Psa.
“On the other hand it is important that I note that the business of exporting NZ kiwifruit remains, as it always has done, exposed to significant risks.”
Zespri is aware of the judgement and balance required in its approach to additional licence release of SunGold. The two 400ha tranches of SunGold licence released in 2016 and 2017 attracted strong demand and as a consequence high bid prices.
“Our current plan is to allocate a further 1200ha in 400ha tranches during 2018, 2019 and 2020, in light of the continuing strong demand outlook,” says McBride. But he emphasised that the Zespri board is not locked into this plan. It will be reviewed each season and adjusted according to product demand and performance.
