Seeka Limited (SKLTF) Earnings Call Transcript & Summary

Good afternoon, everybody. Welcome to this analyst briefing update for Seeka's unaudited 6 months results to the 30th of June 2025. Thanks very much for coming online. Welcome to you all. Those of you from New Zealand and from at least one overseas who's bothered to come on to the call, thanks very much for your interest and taking the time out to join us. Team is very pleased with the results. We're very happy that we are able to report record results for the 6 months. And likewise, we've had a successful operational start to the year and thankfully, a safe one. And so let me get into our business. Material is somewhat easier to work with than it was 2 years ago. I'm going to take you through the 6-month highlights, talk a little bit about our balance sheet, go into some detail around our operating segment performance, talk a little bit about our forward focus, and then we'll be happy to take any questions that you might have or like to ask of us at the end of the session. If it all goes to time, we should be done within the hour. So just to give you some idea how long it should take. To the highlights. Well, firstly, we've had a record volume of kiwifruit handled in New Zealand and Australia, 47 million, actually 47.1 million Class 1 trays in New Zealand, up 10% on the 43 million last year; 2,200 tonnes of kiwifruit in Australia, which is similar to last year. But look, we're very happy with how our Australian orchards and business is looking. Those volumes have underpinned our performance. Revenue at $308 million is up 8%. We'll talk more about that in a minute. EBITDA, earnings before interest tax depreciation and amortization, $83 million. Our profit before tax at $59 million. Our earnings per share at $0.90. Both of them -- all of those numbers are records for the company. We have delivered excellent operational performance in the eyes of our customers. We've received excellent fruit quality from our growers, and we're very delighted to have that added to our efficiencies by having good fruit. We're focused on efficient harvest management. Our growers are very -- seemingly very happy with the results that we've given and the performance that they've had through harvest and indeed, the fruit handling to date, and we've delivered exceptional quality across all produce to the markets. So generally, we're actually quite pleased and satisfied with where we're at. Net bank debt, $131 million is down $40 million on a year ago, largely driven by cash flow generated from within the business. In addition to that, we received $64.8 million in July and the normal course of business, further lowering debt. And we have built balance sheet resilience. Our leverage ratio is hitting in the right direction, and we're within the range that the company has set itself, and we are managing sensibly down towards the 1.5 to 1 level. In saying that and focusing on debt reduction, we have continued to invest in our core business. We have got automation projects underway in Kerikeri and Huka Pak, introducing the new Reemoon packing technology to the industry and the business. We have got our program maintenance system running. We are investing in core assets, including our switchboards and plant rooms, which has the benefit to the company of lowering our risk profile and benefiting us with lower insurance costs. So a number of aspects that we're very happy about in the first 6 in the financial results. And a bit more detail, $307.9 million in revenues, up 8%. Our gross profit at $96.8 million is up 22%. Our EBITDA at $83.5 million is up 22%. Our profit before tax at $59.4 million is up 32% on the previous corresponding period. And our net profit after tax at $37.8 million is up a flattering 121%, but noting that in the previous corresponding period, we had the adjustment for the deferred tax going through adjusting for the inability to deduct depreciation on nonresidential buildings after tax. And so that washes through last year, and now our comparative looks relatively good. All of those numbers are records. Looking at the graphs, just to help you out, a higher graph on the right-hand side is better. And so the trend has gone up in revenue and in trays. You can see they follow each other. Our EBITDA has gone up a healthy amount, $83 million compared to $68 million last year. Our profit before tax from $45 million to $59 million, and profit after tax from $17.1 million to $37.8 million. Total assets now in the company at some $655 million. In terms of our operating segment performance. In terms of our orcharding business, $9.7 million EBITDA, reflecting better yields from orchards and 19.1 million trays in total and a strong focus on costs and efficiencies. Post-harvest EBITDA, $78.5 million is up from $69.3. Good focus on efficiencies. Volume cures a number of sins and actually allows us to go faster, better, smarter. And we've had full labor. And all of those things have contributed to being able to make better margins in our business. Retail Services business, Seeka Fresh. EBITDA at $1.5 million compared to $1.1 million last year. This business is stepping up and stepping along. It won't be radical changes in this business. There's a deliberate business strategy underway in this part of our world. And so long as it's constantly making steps forward, we are satisfied, and we're very happy with where it's at. Of course, in Australia, a much better growing season in Australia overall. Total volumes are up. EBITDA at $6.4 million is up on $4.9 million last year. We're happy with the thousands of tonnes, the volume of fruit overall that we've handled, 5,700 tonnes of all varieties of fruit. Team is going well there. And importantly, the new developments that we're working on in Australia that we're growing, particularly in kiwifruit, have actually taken a big step forward in the growing season. And so we're looking forward to those orchards yielding and improved volumes next year. In terms of capital management, and looking at our balance sheet, $3.7 million of increase in capital employed on the half year last year. $17.3 million increase in right-of-use leased assets over the same time last year, reflecting some cool store developments that have happened for us with extended leases. And when the orchards that we lease in Australia was sold from a third party to another third party, we extended those leases, and it has an impact with our right-of-use assets. $8.9 million decrease in assets held for sale is now 0. We sold the one last orchard that we had in Northland that has gone. We've sold it and realized it. I think we reported that last time. The Sharp Road accommodation facility that we had been proposing to sell is now retained in the balance sheet. While we might sell it, we will not sell it at any cost. And so the bids that we had for that facility were much higher than the cost of debt, much higher. And so we thought it was much more sensible to hold and retain that and fund it from within the business. Capital employed in the company now $562.7 million. Continuing with the balance sheet. Net bank debt $130.6 million at the end of June is $40.2 million lower than the same time last year, and we banked that extra emolument in July, $64.8 million. Our banking facilities at $201 million with the banking syndicate. Importantly, our EBITDA multiple surrogate for leverage ratio, 1.57:1. Our EBITDA multiple at pre-IFRS 16 leases, 1.76:1. Both of those ratios better than they were last year and much healthier than what they were 3 years ago. And so I think we are reasonably satisfied that we are making strong progress in building a resilient balance sheet by lowering debt, focusing on profit. EPS, earnings per share and dividends. Earnings per share for the 6 months, $0.90, are up from the $0.41 last year, noting the deferred tax effect and taking that $0.41 down from where it should have been. We've declared a $0.15 dividend. The Board has -- the directors have decided it's sensible to make a distribution at this time that we paid on the 15th of October to all shareholders on the register at the record date of the 18th of September. Our asset backing -- net tangible asset backing at $6.44 is up 9%. And so still some distance between that and our current share price, although there has been some share price appreciation more recently. As a result of everything that we're doing and we were at the -- we've updated our guidance, we do give guidance in the first -- earlier in the year. But of course, when we give that first guidance, there are some uncertainties in our earnings. We're not sure about what's happening with the fruit in store. We've still got fruit to sell in Australia. We've still got a number of operational initiatives happening in the company. And so the first forecast that we gave to the market was between $33 million and $37 million at a profit before tax level. As time has gone on and we've got more certainty about how the variables are working through, we're pleased to upgrade that guidance to between $35 million and $39 million. Some variable still to go in the year, and we will update the market should there be any significant movement again. At this point in time, that's our best -- sorry, our best estimate and forecast for the current year's earnings at the profit before tax level. Running into the operating segments. Orchard operations headed up by Barry Penellum, gross kiwifruit, avocados and kiwiberry in New Zealand, leasing and managed long-term lease developments. Our revenue of $69.4 million, up 22% on the previous corresponding period, reflecting greater fruit volumes as orchards. EBITDA at $9.7 million is up nearly 200%. We've grown 19.1 million trays in that part of our business. SunGold yields are up 7% and Hayward yields up 10%, and that largely is the effect of it. We've had some outrageously good performances in some of the very good orchards that we've got. It's been an exceptional growing season in the kiwifruit industry. Our own orchard division, top 10, 20 -- sorry, top 20 SunGold orchards exceeded 20,150 trays per hectare. Our top 20 Hayward orchards exceeded 15,250 trays per hectare, truly remarkable performance from the team. And while we can't predict what next year's forecast is going to be, it's too early, we've had very good winter chill in nearly all regions, which increases the probability that we could do it again. There's no certainty in this game. It's a horticultural business. But having good winter chill is putting wind in your sails and putting the wind at your backs. And so it's better to start well than not, and seemingly, we have. Post-harvest operations head up by Paul Crone. It really coordinates the harvest packing, cool storage and shipping of kiwifruit, avocados, persimmons and citrus to the orchard owners in New Zealand. A number of those products are packed on contract at third-party marketers, but the bulk of it is packed to be marketed by Zespri. Revenue of $204.6 million is up 6%. EBITDA of $78.5 million is up 13%. We had growth in kiwifruit volumes. Total volumes of 47.1 million compared to 43 million last year, and then 2 years ago, 29.8 million. A remarkable bounce back. And alongside that, we have been investing in automation. Automation that we made previously and investments made previously have delivered for us in the current year and driving efficiency gains and margins, and we are continuing to make sensible automation investments now to further reinforce those margins as we go forward. So good numbers, much nicer than it was 2 years ago. SeekaFresh Retail Services business is headed up by Kate Bryant. It really handles all of the fruit that we don't supply to Zespri. We're marketing Class 2 kiwifruit, avocados and kiwi berries. We are importing fruit to New Zealand and selling it. We're exporting fruit from New Zealand and selling it. And of course, we've got Kiwi Crush and the selling operations at DNFC. $1.5 million in EBITDA is up 39% on the PCP. So low investments in this part of our business. Strong performance of kiwiberries, Kiwi Crush, avocado, banana sales. Look, it's all gone reasonably well. And we've got good yields. Acquisition of the Northland avocado and olive oil business, which we purchased from Olivado and liquidation sets the business for future growth. It might take us a year or 2 to get those into profit. We will patiently build the business and focus on it, but it does add a dimension here in this part of our business structure for future growth, albeit on a small scale and actually with quite low investment. So yes, we're pretty happy, to be honest. In terms of Australia, fully integrated growing packing and retail in kiwifruit, European pears, Asian pears, plums, jujube on owned and leased orchards and largely in Shepparton. Revenue of $22 million is up 14%. $6.4 million in EBITDA is up 32%. Volumes were up across the board; kiwifruit pretty stable, just down 2%; but pretty much the pears are up. We've got investments in Australia and new development orchards there, which have taken a step forward. The crop protection program in Australia has done particularly well. We're pretty happy with how the orchards are developing, and we have growing confidence that they will come in for us and develop future orchards going forward. That business is headed up by Jon van Popering. In terms of our forward focus. Well, really reasonably quiet. We're focused on completing a successful year in every respect that the word successful means, financially successful, operationally successful and safe. And so we are doing that in earnest. Big load out weeks we're in at the moment. So the team is under a bit of pressure fulfilling our market orders. We are focused on delivering our automation programs. We are focused on the 2 new machine installations that we've got going on, one in Northland with Reemoon with new citrus machine and a brand-new kiwifruit machine; 2 down here at Huka Pak at Mount with a new Reemoon packing machine fully automated, which will handle our organic crop as well as some conventional. We are looking at other opportunities in the business around automation with the potential to trial fully lights-out cool store, which we intend to have a trial running later this year, all things being equal. In doing all of that, our focus and our goal is to maintain a resilient balance sheet to continue to have a stable and perhaps decreasing leverage ratio and not to increase the leverage ratio significantly. And of course, it's in our DNA. We are focusing on our earnings growth. We are conscious that the market is looking for us to do that. We've made great steps in the last 2 years along that pathway. We understand it's going to continue. We are in an inflationary period with items like electricity and packaging. But in spite of that, fundamentally, we're looking at bottom line earnings growth regardless of that. So that is the end of the of the presentation and our analyst briefing to you. But we're happy to take any questions we might have. And seemingly, Nicola Neilson, our CFO, who's with me; and Nick Reynolds, the Group Financial Controller, are alongside here. We'll take the questions and one of us will answer. No questions?

So we have a question from Trevor. Congratulations on the strong result. My question is in relation to the Australian segment. To what extent is the sales mix between domestic supermarkets and exports driving the volatility in Australian profits? And as production volumes increase, at what scale of production do you expect operations to consistently deliver year-on-year EBITDA growth?

So look, I think that's a very insightful question. So let's start by saying that so I can catch my breath and think of how I'm going to answer it. Our profit in Australia is largely driven by kiwifruit. The other products that we grow, the other varieties that we grow there, some of them make money in 1 year and don't the next and tend to offset each other. So our profits are largely around what we do in kiwifruit. In the other parts of the business, the other parts of the varieties that we grow largely deliver us a viable business which it gives us continuity of staff and employment and cost recovery. And so building a less volatile business in Australia is around building a bigger kiwifruit business because we know and believe we can make money doing that. We have 100 hectares or thereabouts in production at the moment. We have 67 hectares coming into production progressively from this year, but really in earnest from next year. And so my answer to you about how do we get a more resilient and less volatile business in Australia is about getting those kiwifruit orchard developments into production and getting the volume up. We've got excellent demand. Most of the fruit that we grow in Australia is sold in Australia. We only export for capacity. This year, we exported something like 3 or 4 containers, which is nothing really because we've got a good fruit market in Australia, which optimizes the sales. We've got excellent export demand if we want to take it up. But at the moment, our focus is on maximizing what we've got local.

You mentioned that there are some variables that may affect the end-of-year profit guidance. Can you talk to what some of those variables are and what the potential impact would be?

So there are some variables that will impact our profit guidance, but they're not necessarily all negative. And so we need to see how the fruit that we've got in store still will perform. We've got about 18% of the fruits still in store today, although we are loading up big volumes this week and next. And over the next 7 to 10 weeks, we will largely be heading towards completion. So it's not too long to go. If the fruit performance continues to be good, then there will be some upside in the guidance. And if the fruit performance is not so good, well, then there could be some negative in outperformance. We are also still selling through our Asian peers in Australia and some of the European peers. And so if they don't sell as expected and we're reasonably conservative with our expectation, they could impact us, or if they sell better, then we have some positive impact. We're happy with the current guidance range at the moment. And if our forecasting process, which is reasonably disciplined and carried out monthly, shows us some variation, we'll advise the market and the investors immediately.

From David at Craigs Investment Partners. What is the current packing capacity? And how will the automation projects in Kerikeri and Huka Pak increase that capacity?

Okay. In terms of capacity, it's a bit of a moving piece because it does depend upon shipping and timing of shipping. So we load in and ship out and load in and ship out. And so the current cool store capacity is between 50 million and 52 million trays, a number that is in that range we imagined. So we've still got a little bit of upside in our capacity footprint now. The investments that we've made to date isn't so much around capacity, it's about efficiency. How quickly can we handle that fruit with what labor component do we need to handle that fruit to put it in store. And if we can -- and our focus has been, if we can do it faster, better, smarter, taking costs out and there's a payback for us, then there's a positive investment. We are looking at our cool storage. We are thinking about it. We move fruit around now because where we've got capacity may not be where we've got demand. And so we currently move fruit around to optimize our cool stores all the time, and sometimes we manage our harvest to our capacity. So look, the true number is 50 million to 52 million. We're constantly looking at options to -- around capacity. But in anything we do, it will not be jeopardizing our balance sheet resilience.

Can you speak further to the impairments of $1 million expense for the half year?

So we have -- in our impairments for the half year, we've got -- some of it is writing off the old equipment that we had in place that we've replaced with the new Reemoon machines. What else have we got there? Nicola, you better to answer that than me.

We had some write-offs of some older pear varieties that we cut over into new developments.

Yes, that's right. And so in Australia, part of what we've been doing is balancing our crop supply to what the market demand is. There's no point in growing a crop volume beyond what the market wants to efficiently take. And so in regard to that, some of the heirloom pears in Australia we've cut out, and there's been an impairment as part of it as we reset.

No further questions.

I'll just give you a few minutes before we round up to see if there's any last questions in the mix.

We have just had another one come through. So within orcharding, are you able to disclose how many hectares are currently in production?

Well, we have those numbers here, but in the analyst pack which has been distributed, if you just divide one number by the other, you've got the hectares. That's right, isn't it? That's right. So the numbers, they're actually there, you just got to calculate it. You can answer, if you like.

So just to provide a bit more of a breakdown. In managed hectares, we've got around 1,100; short-term lease, we've got about 300 hectares; and then our long-term lease book, we've got just over 100 hectares with all of those and what we call full production now, although they will be progressively increasing in volume as they come into mature varieties.

We have 60 or 70 hectares of Hayward orchards and ventures in Kerikeri that are coming into production progressively for the next year. So it gives us some upside for our Hayward crop, which is useful for us from a capacity perspective because it comes in after [ gold ]. Someone held the hand up so -- online. Did you see that? All right. Well, it might have been a phantom hand. All right. So there being no other questions, thank you very much for taking the time to come on to the call. Thank you very much for your support. We've pretty much outlined the 6-month results in some detail. We've given you some insight to what we think the guidance is going forward. Hopefully, we've also given you some insight to management and the company's attitude to what happens next. But in the meantime, thanks very much. We're pleased to have your support. Thank you very much for that, and we'll let you go. Thanks very much coming along.