Orchard optimism follows tough times
Turners & Growers has had to make big writedowns in the value of its Nelson orchards for the second consecutive year, but chief executive Geoff Hipkins hopes they are at an end, with market prospects looking brighter.
Bruised by $29 million in asset writedowns, the fruit and vegetables marketer posted a full-year loss of $15.3m for 2012.
The loss, although deep, was an improvement on the previous year's $18.9m deficit, also a result of asset writedowns, and better than the $16m to $19m loss it forecast in December.
The NZX-listed company, three-quarters owned by German firm Baywa and a major employer in Nelson through its Enza businesses, said revenue for the 12 months to December 31 rose 3.7 per cent to $669.1m.
The $29m in asset writedowns followed a lowering of the value of its apple orchards, "reflecting the current pessimistic view of the industry's environment and economic conditions . . . including risk of lower yield and the predicted strength of the New Zealand dollar", it said.
The company also wrote down the value of its kiwifruit orchards affected by the disease Pseudomonas syringae pv actinidiae V. In total, its growing operations lost $22.8m.
Mr Hipkins would not say by how much it had revalued downwards its Nelson pipfruit holdings, which include a 200-hectare orchard at Riwaka run by subsidiary Inglis Horticulture and a 40ha joint venture with Wakatu Incorporation near Motueka. However, it was "significant".
It follows a $15.8m writedown in 2011, when Inglis Horticulture posted a net loss after tax of $22m and saw its value cut to $19.5m.
Mr Hipkins said Inglis Horticulture had had another difficult year in 2012 because of low yields and the high cost of combating the highly infectious bacterial disease european canker.
The extra cost of sprays and labour had pushed up orchard costs by well over 10 per cent, which had contributed to the writedown, he said.
While there were still disease hot spots adjacent to the orchard to contend with, "fingers crossed we are on top of it", Mr Hipkins said.
"We certainly have been more vigilant and the orchard team has been very focused on controlling canker."
It was difficult to say if the disease would continue to cost the company more, but the hot, dry summer had helped reduce it, he said.
There had been no major changes to the orchard, dominated by high-density plantings of jazz and envy varieties, and Inglis Horticulture remained a significant investment, to which the company was fully committed, he said.
"We have taken significant balance-sheet pain, that's for sure . . . and we hope to get a much better season this year."
In its favour, growing conditions had been much better, which should produce higher yields and bigger fruit, he said.
Also, market prices were looking very promising, with strong demand for the company's fruit grown in Italy, France and Washington state.
A global shortage of some varieties should keep prices high, but high exchange rates were again likely to cut into returns, he said.
It was too early to say whether the company could improve on last year's modest increases in returns for jazz and envy, the first after several losses.
"We are still pained at these very high foreign-exchange rates."
They also meant it was more difficult to take foreign-exchange cover, he said.
Meanwhile, Turners & Growers said trading in its export segment had been robust last year, with lower volumes but better returns achieved in pipfruit exports. That was because of a higher export quality yield from growers and a shift towards higher-value varieties.
However, profit for the export segment fell 61 per cent to $2.9m, primarily because of a $1.9m bad-debt provision relating to its Hong Kong agent and the impairment of kiwifruit plant variety rights held by the group.
In its domestic business, the company said an oversupply of imported produce weighed on prices and earnings, dragging profit down 70 per cent to $1.5m.
Its EnzaFoods operations in Hastings and Nelson performed well, lifting profit from $2.7m to 3.3m, despite deteriorating market conditions for apple-juice concentrate.
Mr Hipkins said sales of its fruit ingredient products continued to grow, justifying its decision to move away from commodity concentrates to higher-value processed products and to build a new factory in Hastings.
"Looking at our forecast demand, we are optimistic we will have to spend to create additional production capacity in Nelson in the near future."