Scales Corporation Limited (SCL) Earnings Call Transcript & Summary

Thank you for standing by. And welcome to the Scales Corporation Full Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Andy Borland, Managing Director. Please go ahead.

Thanks, everybody. I'd like to walk you to the Scales full year results announcement for the year ended 31 December 2025. With me is Steve Kennelly, Scale's CFO; and Geoff Smith, Scale's Chief Operating Officer. Earlier this morning, we lodged our results with the [ NZX, ] including a presentation pack that we'll base our comments on during this call. We'll run through the slides, and then we'll take questions. If you have further questions after the call will be available for the rest of the day. Our agenda, as shown on this slide, we'll go through the Slide 2, the FY '25 results and performance followed by our outlook for FY '26. First, a summary of FY '25 results. I'm pleased to announce that the group delivered record results across all earnings measures, underlying EBITDA was $137.6 million, an increase of 50%. Underlying NPAT attributable to shareholders was $61.8 million, an increase of 82% and reported NPAT attributable to shareholders was $101 million, an increase of over 200%. There were strong performances across all our divisions. Auto culture produced an outstanding result. There was strong performance from global proteins and another record result from logistics. We'll go into more detail on the following slides. A few of our key numbers are highlighted here on Slide 6. A couple of items of particular note, revenue was $900 million, an increase of 54% and Mr. Apple exported 3.7 million TCEs of its own grown apples, which is up 21% compared to 2024. I'll now pass over to Steve to run through the financial results for the year.

Thanks, Andrew. As Andy mentioned, the group achieved greater results across all its performance measures driven by the growth strategies across the divisions. There was also a positive impact from our increased shareholding in our joint venture businesses. . You'd also note that our prior year comparatives have been restated, which is due to an increase in inventory valuations in FY '24 of approximately $6 million. The net impact of this restatement and an underlying NPAT attributable to shareholders level was around $200,000. Our 5-year performance for underlying NPAT attributable to shareholders underlying EBITDA and revenue, as depicted on Slide 9, showing the increases in those measures compared to prior years. As Andy mentioned, there was growth in underlying EBITDA across each of our 3 operating divisions. Total proteins generated a solid result with Shelby, Meateor Australia, Meateor New Zealand of Fame International performing particularly well. [indiscernible] continue to progress through its start-up phase. The Horticulture division produced an ounce sustaining results through increased volumes, prices and improved variety mix. Its result was also enhanced by the acquisition of the Boots in FY '24. And lastly, logistics produced another record result driven by a significant increase in volumes. Our regional performance is summarized in the table on Slide 11. In addition to its 33% increase in earnings, the Horticulture division also generated a pleasing increase in underlying EBITDA margin. And before year underlying EBITDA for each of the divisions is shown on Slide 12. As you can see, the prior year comparatives for Horticulture have been restated, but there was no restatement for either global proteins or logistics. The group's overall financial position in net debt reflect the investments made in Global ratings joint venture businesses during FY '25. However, our financial position still allow us with further investment opportunities. The most significant cash outlay last year were those required for our joint venture investments. Other significant expenditure included dividend payments, including those to minority shareholders and CapEx. I'll now hand back to Andy.

As we've already touched on, 2025 was another successful year for transactions and increased investments in Shelby, Meatero Australia, Payment International and ANZ exports. Let's take the Shelby investment tax shareholding to 67.5% and ANZ exports to 85% with Meatero Australia and fame International now being fully owned. Due to these investments, we've increased the global proteins FY '27 underlying EBITDA target from $70 million to $85 million. The benefits of these increased investments are noticeable in the division's overall results with increases in revenue, underlying EBITDA and underlying EBIT compared to last year. There also increases in both pet food ingredient volumes and edible proteins volumes of 9% and 10%, respectively. In terms of the business within the division, Shelby had a solid performance whilst it has transitioned to a new toll processing facility, Meatero Australia and Meateor New Zealand performed significantly ahead of forecast with margins up on expectations. Time and International had a strong performance, increasing sales to both Southeast Asia and U.S. markets and to continue to move through its start-up phase whilst also transitioning to a new processing facility. Revenue and margin per kilogram of volumes sold within Petfood ingredients business have been influenced by changes in business mix, which resulted in a small decrease in revenue per kilogram. However, improved margins across Meateor New Zealand, Meateor Australia and Esro resulted in an increased underlying EBITDA per kilogram. There has been excellent progress on the 9 key strategic projects that support global Protein's growth target as new processing plants in the United States increased volumes and the Netherlands facility producing is producing high-quality product. The U.S. blending project is operating successfully in the first U.S. and plant collection calls calling system is functioning well. Pleasingly, to seek a new end plant collection and calling system in the United States was commissioned in December 2025, which was ahead of schedule. In terms of ongoing projects, we're currently establishing a joint venture to trade fresh and poultry in the U.S. and a feasibility study for a second European site is progressing and we're close to finalizing the options for additional processing capacity in New Zealand. Each of these initiatives are expected to contribute positive global proteins earnings target and future periods. Turning to horticulture. As previously mentioned, 2025 was an exceptional year for the horticulture division with increased volume, higher average prices and an increased proportion of premium variety volumes such as dazzle and posing. The addition of the Bostock orchards helped to fast track these factors. Proper continued to perform extremely well, delivering another excellent performance aided by strong sales prices in its export markets. The trading business, Fern Ridge Fresh, also had a very strong year. Mr Apple's own grown export volumes increased 21% compared to last year and with external grow volumes increasing 49% helped by very good growing conditions and the integration of the Bostock orchards. Premium ample volumes accounted for 74% of week sport apples sold, a slight increase on last year was significant growth in Dasan posing apples. Sales into the Asia and Middle East market also grew compared to last year with marketing, sales, promotions and customer support in these key markets, supporting the volume increases. I'll touch on those activities soon. As I've mentioned, [indiscernible] delivered an excellent result with whilst volumes of juice concentrate sold returned to a more normal level. Slide 22. The graph on the left of this slide illustrates the level of increase in premium Apple volume sales last year. You also see that 2025 booms are significantly higher than all previous years, 16% increase higher than 2021, which was our previous record year. The graph on the right shows the upward trend of the proportion of premium apple compared to traditional apple sales. This aligns with our strategy, positioning us in the right direction to meet our target premium volume percentage. The forecast percentage of premium variety apples is depicted on the current Slide 23, along with our forecast volumes. In addition to integrating the Bostock orchards and continuingly our orchard redevelopment program. We're continuing to develop new exciting premium varieties, which have been grafted onto existing trees and are expected to supply a new phase of growth. We achieved increases in pricing for both our premium traditional variety apples. This was helped by strong demand for apples in our key markets and by the Bostock which performed ahead of our initial expectations. Favorable exchange rates were also a positive factor. Pricing also benefited from targeted marketing and promotional activity, which leads me nicely on to the next slide. A selection of consumer marketing activities carried out by our Mr. Apple team are shown on this slide. This included relaunching our T-mall store, the Alibaba business business-to-consumer online marketplace, launching Mr. Apple channels on Red note and Douyin to Chinese social media and e-commerce platforms, continuing to provide dazzle sponsorship of activity of active events. We continued with metro advertising in Shanghai, Guangzhou and Taipei to reach busy commuters and launching a store locator on Mr. Apple's official WeChat page to help consumers find their apples with their retail partners. The team more than doubled Mr. Apple's branded presence in retail stores across Southeast Asia markets, increased its in-store point-of-sale material team filed and triplets in-store sampling sessions. Moving on to logistics. For the second year running, Scales Logistics produced a record result while both ocean rate and air freight volumes were up on last year, airfreight showed significant 81% increase due to strong volumes from the dairy sector and a positive cherry season. The division also benefited from strong ample volumes out logistics scales logistic to produce a 21% increase in revenue and a 10% increase in underlying EBITDA. Moving on to capital management. Our overall group ROCE was 14.6% compared to a restated 14.3% last year and our group target of 12.5%. Water culture and logistics produced excellent increases in returns whilst global proteins ROCE was impacted by the investment in Meateor Australia, Payment International and ANZ exports. As is the nature of the business, the Horticulture culture division accounted for the majority of CapEx during the year. Projects of note included the ongoing orchard redevelopment program and our new high-pressure Apple washer Pocket [indiscernible] both of which are expected to improve margins. In addition, we've undertaken a significant upgrade to the RSE accommodation of Mr. Apple. This investment included additional portions sleeping and dining rooms as well as additional furniture and whiteware. Other significant pieces of CapEx included the second in-plant collection and cooling system in the United States, as mentioned earlier. Now on to sustainability. Sustainability continues to be a key focus for us. And during 2025, we completed a refreshed double materiality assessment in order to understand our stakeholders' priorities. In terms of people, we undertook an engagement survey for all our New Zealand businesses with our plan to being to roll this out globally in 2027. We continue to integrate health and safety and well-being into our businesses and have developed an improvement road map covering the next few years. In terms of environmental projects, we're looking forward to releasing our climate statement in April, which will be our third report of this nature. During the year, an insurance exercise was undertaken to confirm a Scope 1 direct and Scope 2 indirect greenhouse gas emissions data and the analysis of Scope 3 raw material emissions was progressed. And our region generative planting trials that Mr. Apple which aim to restore soil health increased by diversity and enhanced ecosystem function has continued. And pleasingly, these show early indications of improved soil health and fruit quality. We look forward to sharing more details of these and other projects in the Sustainability section of our annual report as well as in our climate statement. Moving on to governance. At last year's Annual Shareholders' Meeting, or and [indiscernible] signaled his intention to retire from Scale's Board prior to the end of his current term having secured a replacement director Alan retired in October last year. Alan was a major contributor to Scale's governance program serving on the Board for over 11 years. Not only was the Chair of the Audit and Risk Committee Management Committee, but he also chaired the due Diligence Committee as part of Scale's listing process. With this accounting and finance background, he provided excellent financial knowledge and wise counsel. In Alan's place, we're pleased to welcome Paul Monroe Board in October last year. Paul also has a significant accounting and finance background as well as the extensive governance experience from a wide range of public and private entities. We also announced that Steve Kennelly is stepping down as CFO in May of this year with Ben Washington replacing them. Steve has been with scale since 1993 and a variety of accounting and finance roles being appointed as CFO and Scales CFO in 2011. However, we are pleased to say that Steve isn't leaving us completely, he'll take up a new role as Company Secretary. And we're pleased to welcome Ben Washington and Steve's place. Ben will start in June, joining us from KMD brand we held several senior leadership positions, most recently as CFO of Cat Mando. Lastly, our outlook for 2026. In terms of the overall group outlook, we're pleased to confirm our previously advised guidance range of underlying NPAT attributable to shareholders of between $50 million to $55 million. Underlying NPAT and underlying EBITDA also remain as previously advised. In terms of the divisions, we expect global proteins to continue to perform strongly and realize the benefits of increased joint venture investments and horticulture picking and packing startup for the 2026 apple season with a crop of around 3.5 million TCEs forecast. Pricing is expected to be positive, impacted by a number of factors, including favorable foreign exchange rates. Broker is currently experiencing positive demand -- we expect Logistics to continue to contribute positively and are pleased to note that it's continued to experience strong year freight demand in the year-to-date. We're happy to take, obviously, questions from now on.

[Operator Instructions] And the first question comes from the line of Rob Morrison with Craigs.

Congratulation's on a record result and best of luck for the new role, Steve. I'd like to start off good. I'd like to start off. So obviously, the UNPAT to shareholders next year is down a fair amount, and it looks to be driven by normalization of horticulture. So I'd like to assess how sustainable the horticulture gains are. And kicking off with that, I know we've got a few headwinds what are the headwinds, one of them is some of the lands going to be redeveloped in [indiscernible] orchards? So what reduction in land area are you assuming for next year roughly?

Look, none really. We've been able to work through the process of the redevelopment without material reduction in production, if you want to call it that, because don't forget this new redevelopment we've done in prior years is coming on to maturity.

Yes. No, that makes sense. And so then there's this 5% guided fall in volumes. So I guess, therefore, you're assuming about a 5% fall in yield per hectare. So it's driven by folding yields, right?

Yes. Look, we used sort of a rolling 5-year average model for our yields, and it's proven to be pretty reliable. And so I mean, last year was a significant crop in terms of yield per hectare. So this is probably just a normalization to how we normally predict our yield.

Yes, yes, that makes sense. I guess yes, I'm not too sure how one season would inform the other, but put another way, Put another way, so the harvester started in late Jan. And I know it's really early days, but the exports are tracking very strongly. So to date from what you've harvested, are you seeing this assumed reduction in yield?

Probably not, but as you rightly pointed out. Rob, there's a long way to go. We don't try and sort of forecast our results until we've got a lot more certainty. And it is just still at the end of February.

Yes. Enough. Fair enough. And just a little bit more color on the pricing. So you said you've assumed positive pricing for Hort. And I think the premium varieties have been growing high single digits over the past 5 years on average. So would you be assuming high single digits again? Or does that normalize to something like inflation?

Yes. Look, we generally -- I mean, we've obviously cognizant of a currency cover we've got. We're cognizant of how the markets are going and color and size are also contribute. So the size is down slightly this year compared to last year's bumper crop. So that might have a small impact on pricing as well. But at this early stage, we are pretty positive about how the markets are going.

Excellent. I'm pleased to hear that. That's all super helpful. Just transitioning to global proteins. So the second implant collection and cooling system in the U.S. has been commissioned ahead of schedule. And obviously, that was the key driver of the big uplift in Shelby in FY '26. But I note that you've kept Shelby guide -- or the implied guidance for shall be flat. How should I reconcile that? Is there a bit of weakness elsewhere? Or is it just conservatism?

I don't know if we've actually guidance for Shelby, have with guidance for global proteins. And we do see a bit of a positive uptick in the U.S. I mean -- there's no mucking around with tariffs. So that's a big plus for the CIB business. But yes, look, we're seeing a positive uptick just through the normal trade but the increase in net volumes coming from the new plant as well.

Okay. But just -- so just on the Shelby, you can kind of work it out because you guys guide to NPAT and then also NPAT to shareholders? I mean kind of see what the payments to Shelby are and then use the percentage ownership you have on that to work it out.

Yes.

But so just -- it sounds like maybe things are tracking a bit more positively than you thought when you gave guidance in December for Shelby. Is that right?

Yes, possibly. And yes, well done for spotting that.

I'll squeeze 1 more in, if I may. Sure. Cool. So [ Tyson, ] obviously, a massive meat processor in the U.S. They shut down this big plant in Lexington. And it looks like that's about 5% of daily U.S. cattle slaughter, but it's kind of in your neighborhood. And obviously, that 5% will be magnified quite a bit for that area. So long story short, it looks like that would be a decrease of supply. Are you expecting to see some pressure on Shelby margins from that going forward?

No, look, we generally can replace supply. I mean supply for beef in America is tight. The cattle killer is down across the board that's pretty well known. So it's -- we're, I guess, having diverse product range even what's in beef, like the various of categories and MDM, we can sort of move around, if you like, and be quite flexible to source product from either other plants or the different hearts and other organs so it's certainly -- yes, we did notice at that planted shut, but we're not seeing it impact their financial position role at the moment.

Cool. That's wonderful. Congratulations again.

The next question comes from the line of Guy Hooper with Jarden.

Yes. congrats on was a really strong result. Can I just pick up a little bit more on the guidance settings and how you set that initial guidance, particularly within order culture -- so if you assume sort of an average 5-year for the yields, what sort of -- what goes into the pricing assumptions that fee guidance?

Yes. So in market, as Andy said, we use a rolling average. So there's probably a little bit of normalization in market prices assumed. The team we've got tailwind and FX, and we think [indiscernible] probably be the same. So that's the sort of -- the net picture crops.

Okay. And when you say logistics expectation is to contribute positively for FY '26, is that -- are we to assume year-on-year growth -- can you sort of talk about where that might be coming from, especially if we assume normalizations and sort of yields? It's sort of talk in sea-freight here in say logistics.

Sorry, if you're talking to Logistical the cost of freight, we would see that being pretty similar to last year. Yes.

Yes, sorry. I mean the logistics business?

Yes. So look, sorry, look, we can see some reasonable growth coming in that business. It does -- there is -- the cherry season is not as good as this year has and wasn't as good as last year. But there's other products that are looking quite strong that will offset that. So we would like to see, yes, the business we expect to see some good reasonable positive growth in the earnings.

Yes. Could you just maybe talk a little bit even a sort of high level, what run rates are looking like what some of those global proteins divisions, it looks like, as you say, Australia has really ramped up to the back end of the half and then Shelby was flat year-on-year, but you had some sort of transitioning going on. Can you sort of talk about the moving parts with some of those different businesses.

Look, I think there's sort of a bit of change within the various areas, but look, pretty positive overall. We're sort of seeing good trading performance out of the fame and international business. Clearly, the pet food out of Australia had the tariff impact. So we're working through that. I mean that just -- we believe the latest announcement there, 10% is going to 15, but we're having pretty positive discussions with our customers already on that. And yes, look, Shelby is a fantastic business that -- and it's got a little bit of growth coming this year having had very, very good performance over the last 3 years.

Okay. And maybe just one last one for me. I think part of the rationale from going earlier on acquiring the additional stakes in the Aussie JVs was just around better alignment and getting, I suppose, fast tracking some of the opportunities that you saw. Can you talk a little bit about how those are playing out and what those might look like?

Yes. I think there's just a bit more able to be slightly more collaboration between Meateor New Zealand and Meateor Australia. There's a bit -- we're able to support each other, slightly better. I mean, what they were working together anyway. So it was sort of an incremental change there. On the other side of the trading business, again, it was just good to get the continuity there of the business and the relationships back to Meateor or Australia as well with the mid companies. So we felt like it was a good move to bring that under the green plan, if you want to call it of where we're heading with this global protein saying in the end, we want to have a global footprint possibly with the same brand.

The next question comes from the line of Matt Montgomerie with Forsyth Bar.

Start on the global protein project on the slide deck that you've presented today, it looks like there's a few changes, so I might ask sort of a 3-part question to start. So firstly, on the second end plant cooling system in the U.S., noting ahead of expectations. Maybe just how that's come about? Is that better market demand generally for Petfood in the U.S.? Or is it customer-specific pull forward of demand and secondly, on Europe, I know you've paused the feasibility study there, just any comments you could give. And thirdly of the establishment of a JV in the U.S. is new information today. So just any more color you can give there?

Yes. Look, on the second and last calling, it was just got it was the equipment was put in slightly here to schedule. So that got us off to a positive start. We really only -- we were forecasting a start from the first of Jan, and that hit the ground running, if you want to call it that, but that was just positive. I'll do the fish and poultry first got the second question already. Europe yes, look, we continue to investigate the second plant in Europe, but it has taken us longer to get the transfer out of -- remember, we started in [indiscernible] in Belgium. So we've gone back to the Netherlands, which has been a net positive move because we're right beside our business joint venture partners, facility there. So that is -- Europe is taking longer to get to where we want it to be, but we're still very positive about it, and we are still investigating the option of a second plant up there. On the fish and poultry, we just sort of teamed up with a younger chef who's been in the industry with a sort of a supporting team and ourselves and [indiscernible] from Shelby and Michael Turney's guys named have done a 3-way joint venture to get us started trading in fish and poultry. Obviously, we've looked at various different avenues to get into that sector. And we're just, I guess, taking it slowly. It was virtually a start from scratch business and just getting us to understand the dynamics a bit more of processing well trading at this stage, both for share and poultry.

And just on the last part there, Andy, so it won't be material in FY '26 and maybe not even '27, '28 is sort of?

It's a slower Yes. it's a good way for us to get -- work with these guys and ultimately, it will be good business, no doubt.

Then just on prop in FY '25, sort of appreciate you've given us volume numbers. But I might have missed it, but I can't see what the EBITDA impact contribution was in FY '25?

Yes, same as the prior year there.

Okay. Perfect. Okay. And then just on horticulture, maybe I'll try to ask Rob's question in a different way. So I think if we go back 12 or 18 months or so ago, we were talking about maybe $55 million in EBITDA post IFRS, including [ ProFrac, ] you've obviously just done $65 million. Is it fair to assume or maybe glean that number that you gave us a year or 2 ago is possibly on the conservative side if we look out 2 or 3 years and sort of normalized conditions.

Possibly. Possibly conservative. But we do -- we haven't moved our modus operandi of assisting, of forecasting that business. Yes. So it's -- obviously, we'd like to get the yield right and the markets and the pricing remain positive. But yes, we still have a long way to go in this season.

Yes. No, that makes sense. And then, Steve, one for you. Just on the net debt I suspect myself and the other analysts maybe just missed it at the time of the Australian acquisition, but your debt came in meaningfully higher than what at least I was expecting. And it looks to me the some debt acquired with the [ Sanmen ] acquisition. Is that just like a working capital facility. And is there reason any seasonal component to it and then maybe if you could try to give us a steer on where you think net debt will be FY '26 on your current guidance?

Yes. I think in the pack we released when we did the acquisition, we were guiding to 57 net debt. We've ended up at 84. And yes, you're right. It's a in working capital. So there was a increased level of trading towards the end of the year. And working capital respond to that. It's already started to work its way sort of back out and it wasn't only in the payment of meditative business. We had slightly elevated levels at Mr. Apples as well. So as far as a guidance for the end of this year forecast currently would say something around $60 million. But yes, we still got a bit of work on that.

That makes sense. And then, Andy, just one on Shelby revenue in FY '27. And this is just sort of circling back to the initial targets you gave us a couple of years ago now, which I think was $330 million in revenue in FY '27, and that was basically all Shelby revenue, obviously, because of the ownership at that point. Is that still roughly the right number we should be thinking about? Obviously, it sounds like the project has been going well. You're guiding to solid growth in Shelby this year.

Yes, I'm probably not as close to the revenue number is perhaps you're spotting there specifically. But I think on our target -- revised target of $85 million EBITDA in 2027. We've that's been restated post the Aussie transactions, and we remain confident about that number. And Shelby's got -- as you've spotted a contribution to that growth. but we remain confident about that the assumptions there.

Yes. Yes. Do you think -- is there a world in which you do it in FY '26, like you're guiding to a pretty strong Shelby growth sounds like the old business is going well. And then there is a pretty small contributors now?

As February, Matt.

Thank you. There are no further questions at this time, and I now hand the call back over to Mr. Borland for closing remarks.

Yes. Look, thanks very much, everybody, for participating in the call and your support. Yes, we're obviously very pleased with the results and proud of the team's effort the globe. So yes, thank you. And happy to have calls later if anyone's got anything else to discuss. Thank you.

Thank you. This concludes today's conference. We thank you for your participation, and you may now disconnect.