Costa Group defers interim dividend amid doubts over a $2.3bn takeover

Fruit & veg grower Costa Group has deferred the payment of an interim dividend amid uncertainty surrounding a $2.3bn takeover bid from a US private equity firm.

Costa Group says a deteriorating outlook for citrus fruit quality and volumes this year is likely to result in a $30m hit to full-year earnings.

Costa Group has deferred the payment of an interim dividend to investors amid ongoing uncertainty surrounding a $2.3bn takeover bid from US private equity firm Paine Schwartz Partners.

Releasing its interim results on Thursday, the fruit and vegetable grower told shareholders the company had made the decision to defer any payout until it had “more clarity in relation to the outcome of these discussions”.

It expects to provide an update on negotiations in mid-to-late September.

Pressed on the dividend decision by analysts, Costa chief financial officer Wayne Johnston said the board had made the decision to defer the payment of a dividend until it had received a binding proposal.

“Clearly we don’t have that binding proposal, and as implied by the ASX release and also today’s commentary, we may not receive a binding proposal so we’ll just have to see how that plays out,” he said.

“The board will consider a dividend at the appropriate time. There’s no hidden messages other than it’s appropriate for us to see if there was to be a binding proposal, and the structure of that proposal, before we consider what we do in relation to a dividend to shareholders.”

Costa confirmed in July that it had received a non-binding, indicative offer of $3.50 a share from PSP, which currently holds a 14 per cent stake in the company.

However speculation is mounting that PSP has cooled on the proposal, in part due to a deteriorating outlook.

On Thursday, Costa said it expected to take a $30m earnings hit due to poorer citrus fruit quality and volumes this year, but its full-year result is still likely to come in ahead of the previous year.

The company posted a 7.2 per cent increase in EBITDA-S (EBITDA before the fair value movement in biological assets and material items) for the six months to July 2, to $150.2m, on the back of an 8.7 per cent increase in revenue to $770.7m.

Normalised NPAT of $37.8m was down 6.2 per cent on the previous year and largely in line with consensus estimates, while statutory NPAT came in at $31.7m, down from $37.9m in the previous year.

The company said full-year EBITDA-S was likely to come in ahead of 2022 despite the negative outlook for its 2PH citrus business.

“Despite early 2PH citrus season fruit being well received in export markets, there has been a disappointing deterioration in outlook for later season fruit quality contributed to by CY22 weather impacts,” the company said.

“Together with southern region volume downgrade and La Nina overhang contributing to fruit size being below expectations, full year EBITDA-S impact is currently estimated at $30m.

“The contributing factors are considered non-structural with the ongoing health and productive capacity of the trees unaffected.”

Costa’s international segment, comprising berry operations in Morocco and China, delivered 32.8 per cent revenue growth, which helped to offset a mixed domestic performance.

The domestic grape harvest was well down on the previous year, resulting in a $9m hit to first half earnings, while slowing demand for tomatoes was also a drag on the company’s performance.

It was partly offset by sales growth for berries, avocadoes and bananas.

Mr Johnston said higher input costs were also a challenge in the first half of the year, particularly for chemicals and fertilisers, domestic freight and packaging.

“Domestic freight is challenging for any major users of it,” he told analysts.

“The consolidation that’s gone on recently, and certainly the withdrawal of Scott’s (Refrigerated Logistics) from the refrigerator space probably means for at least the next 24 months we’re not expecting any real relief around pricing in that space.”

Costa shares were trading 0.3 per cent higher on Thursday at $2.92, still well shy of PSP’s current offer price.