Costa rebounds from drought with half-year profit up 12%

Costa has delivered a 12 per cent rise in half year profit after recovering from drought and a near doubling of its international division.

Costa Group CEO Harry Debney. Picture: Aaron Francis

Costa Group has declared it has recovered from severe weather and drought, labelling it a “historical” issue, recording a 12 per cent rise in half-year profit to $43.4m.

The fruit and vegetable grower and wholesaler said drought, which broke earlier this year, had wiped about $15m off the earnings of its tomato and berry crops in the six months to June 28.

But chief executive Harry Debney said since May crops had recovered to a “full yield”, with new raspberry crops at Corindi in NSW coming on stream from mid August and a blackberry crop expected in mid October.

“The continued impact of calendar year 2019 adverse weather and drought conditions affected our first half CY20 results for our Australian operations. However, these historical conditions should have no material impact in 2HCY20 or beyond and there is broad based forward momentum in demand and pricing over our Australian portfolio leading into the second half of CY20,” Mr Debney said.

“We have been impressed with the relative performance of our citrus orchards in terms of fruit size and yield, especially given the circumstances where industry harvest volumes have been impacted due to previous heat events.

“Also, strong export and domestic demand, together with improved pricing levels are expected to continue to season end”.

Overall revenue firmed 6.8 per cent to $612.4m for the half-year, with Costa recording a strong performance from its international division, which reported a near doubling in earnings.

Its volatile Morrocan berry business returned to a normal cycle, Mr Debney said, while China also delivered a strong performance, despite not escaping the reduced demand from COVID-19.

“The major northern Morocco harvest cycle returned to normal timing. The impact of COVID-19 in the UK, Europe & Morocco adversely impacted the main season, however good yields and quality resulted in financial performance well ahead of CY19,” Mr Debney said.

“The first harvest from our southern Morocco 90-hectare footprint at Agadir was very promising in terms of timing and price realisation.

“The early harvest in China was affected by supply chain restrictions and poor demand from the intensive COVID-19 restrictions. This normalised for the main cropping period with positive results.”

Mr Debney said labour shortages in China has a result of COVID-19 restrictions had been resolved as Beijing gets on top of the pandemic, while the company had adopted stringent COVID safe measures across all of its farms and warehouses, including temperature testing.

“There were some early season challenges in our China operations with respect to labour and supply chain, however these were largely resolved before the main season.

“Our Moroccan operations faced a more volatile environment with the situation in Europe and the UK resulting in higher freight costs and some demand/pricing challenges.

“Labour needs have been met to date, including visa extensions for seasonal workers already in Australia. We expect to also meet labour needs in second half of CY20, assisted by restarting of Seasonal Worker Program.”

Costa Group will pay a dividend of 4c a share on October 8.