Strong international earnings growth buoys drought-affected Costa

Strong international earnings growth buoys drought-affected Costa

The effects of drought, bushfires, and a global pandemic on fruit and vegetable grower Costa Group's (ASX: CGC) results were offset by the major growth of international sales during the first six months of 2020.

International earnings nearly doubled, contributing to revenue growth of 6.8 per cent to $612.4 million.

According to outgoing Costa Group CEO Harry Debney the company's international segment was assisted by its northern Morocco harvest cycle returning to normal timing, and "exceptional" yield from the company's Chinese farms.

The COVID-19 pandemic in the UK, Europe and Morocco did impact Costa's main harvesting season, but good yields and quality resulted in financial performance ahead of CY19.

In addition, Debney says drought and bushfires did hurt the company in the first half of the year, but these impacts are unlikely to be a drag on the company going forward.

"The continued impact of CY19 adverse weather and drought conditions affected our first half CY20 results for our Australian operations," says Debney.

"However, these historical conditions should have no material impact in 2HCY20 or beyond and there is broad based forward momentum in demand and pricing over our Australian portfolio leading into the second half of CY20."

"We have been impressed with the relative performance of our citrus orchards in terms of fruit size and yield, especially given the circumstances where industry harvest volumes have been impacted due to previous heat events."

Debney also says the company expects strong export and domestic demand, together with improved pricing levels, to continue to season end.

The group's broader produce segment was impacted by drought and a bushfire in Tumbarumba, NSW, but those are now mitigated.

Further, COVID-19 costs and a later start to the citrus season put a dent in the group's earnings, however there is broad based forward momentum in pricing and demand leading into the final six months of 2020.

The company saw particular success with its mushroom products, reflective of consumers cooking more at home and a cooler Autumn and Winter compared to CY19.

COVID-19 also had a positive effect on pre-pack mushroom demand as customers favoured packaged products.

By the end of the year Costa anticipates it will be the largest avocado grower and marketer in Australia.

"This achieves our goal of being the number one player in the category and comes after only having established avocados as our fifth vertically integrated core produce pillar in 2017," says Costa Group.

"We also expect to exceed 1 million trays of our Lovacado brand marketed in CY20."

Overall the company, which reports on a calendar year basis, improved earnings by 13.7 per cent to hit $93.7 million for the half year, and a net profit after tax of $43.4 million.

Costa's future growth is expected to come from the construction of 10 new hectares of glasshouse and nursery at Guyra, NSW.

Additionally, a new mushroom facility in Monarto, South Australia, was fully commissioned in July, with only auxiliary works remaining to be completed.

In Morocco, an additional 23 hectares have been planted, and a plan is in place to undertake further plantings to take advantage of early season crop timing.

Based on strong Australian market conditions across Costa's portfolio, the company expects a sizable increase to its earnings in the last six months of 2020.

Shares in Costa Group are up 8.45 per cent to $3.21 per share at 11.35am AEST.

Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.

Business News Australia

Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support

Advertisement

Related Stories

John Poynton the latest Crown director to resign, wage theft under the microscope

John Poynton the latest Crown director to resign, wage theft under the microscope

The exodus of Crown Resorts' (ASX: CWN) board continues today...

Aussie startup GreaseBoss accepted into prestigious Y Combinator program

Aussie startup GreaseBoss accepted into prestigious Y Combinator program

The founders of Australian lubrication management system startup ...

750,000 CommBank customers sent notice to join "junk" credit card class action

750,000 CommBank customers sent notice to join "junk" credit card class action

More than 750,000 Australians will receive notice from the Federa...

Investors like what they see under Healthia's skin, boosting its value to $185m

Investors like what they see under Healthia's skin, boosting its value to $185m

Allied health company Healthia Limited (ASX: HLA) has almost doub...