Australia’s largest fresh produce grower-packer-marketer, Costa Group, announced an exclusive non-binding agreement with leading agricultural investment group Macquarie Agricultural Funds Management to explore M&A projects during its 2016 AGM yesterday (17 November).
Together the firms will "jointly investigate compelling merger and acquisition projects in farmland, biological assets, water and infrastructure assets", according to Costa CEO Harry Debney. “This will extend our capacity to gain significant economic benefit for our shareholders,” he said.
At the meeting Debney also announced the winding down of Polar Fresh operation: a joint venture between Costa and Swire Cold Storage which provides management services to a number of distribution centres for the Coles Group.
The venture was not profitable enough, and lacked significant synergies with Costa’s strategic direction, Debney explained.
Debney added that Costa Group’s current financial year has started positively, without experiencing any adverse weather events that have affected large parts of Australia in recent months.
“We expect our earnings to be weighted toward the second half of the financial year due to the seasonal timing of international operations and our growth initiatives,” Debney said
Due to a “favourable operating environment” for the four months of FY2017, the company has upgraded net profit after tax guidance by 15 per cent, inclusive of China start-up expenses.
Costa's total pro forma revenue for FY2016 came in at A$809m, an 11.8 per cent increase on fiscal 2015, while pro forma post-tax net profit grew 28.4 per cent year-on-year to A$49.3m.
On the Australian production front, revenue grew 18.7 per cent in FY2016 across its core produce categories – mushrooms, berries, citrus and tomatoes – with sronger citrus and mushroom sales helping to outweight the impact of lower tomato and banana pricing.
The berry business continued to lead the growth, with 76ha of new protected cropping berry plantings completed across Tasmania, Western Australia, Far North Queensland and New South Sales. As of FY2017, Costa expects more than 50 per cent of its blueberry production to come from outside of the main production period of August to December.
"We're the only blueberry grower in Australia with this capability and it gives us a significant advantage over our competitors with a full 12-month blueberry market offer," said Debney.
Berries drive international expansion
In addition to its Australian production, Costa has berry-focused joint ventures in North Africa and China, while also licensing its varieties worldwide with Driscoll’s.
At the end of FY16 the group’s African Blue project in Morocco had 208ha planted across five farms, including 13 hectares of substrate production, and had achieved a 76.6 per cent increase in sales on FY2015.
“Preparation of the recently acquired expansion land is well in hand with 66ha of new crop to be planted in calendar 2017,” Debney said.
“New Costa trial varieties are also being tested in Morocco, with the joint venture continuing to self-fund its growth in addition to payment of dividends to shareholders.”
He highlighted the China joint berry farm completed its first raspberry harvest in early 2016, and the first blueberry harvest was due to occur in December to April FY17.
“Response to date from the market, while admittedly based on small volumes, has been extremely positive,” he said. "A second farm in China is also being established in Manlai near the Burmese border where both blueberries and raspberries will be grown."
“Our investment in China is a long-term proposition requiring effort and patience to establish our footprint not only in China but also the wider Asian marketplace. However, it is clearly one with very large potential.”
Expanding production in Morocco means that significant volumes of Costa blueberry varieties are now available across the UK and continental Europe, said Debney. The licensing of its varieties in Morocco and throughout the Americas has created a lucrative royalty stream, he noted, with more than 800ha of Costa's vartieties now planted in the Driscoll's programme across the Americas.