Fruit and vegetable grower Costa Group is forecasting a lift in earnings but net profit to be again weaker as inflation bites

The major fruit and vegetable grower warns inflationary pressures across transport, fertiliser and shipping will remain elevated.

Costa Group is facing favourable growing conditions across many of its regions but has warned inflationary pressures will remain elevated in 2022. Picture: Chloe Smith.

Fruit and vegetable grower Costa, which has farms from north Africa to Queensland, said early season demand for citrus has remained positive and early yields, quality and pricing strong, but earnings in 2022 would be tempered by continued elevation of transport, fertiliser and shipping costs.

In a trading update the company said it expected full-year 2022 earnings to be higher by around $5m but net profit $6.4m lower, notwithstanding no material impact on cash earnings.

It would mark the fifth year of falling net profit and follows years of profit warnings for the leading horticultural company which has seen its revenues and earnings shaken by poor harvests, adverse weather conditions and at times subdued demand for its range of fresh produce.

For 2021 Costa, whose harvests include blueberries in China and Morocco, avocados and mushrooms in Australia and citrus across Queensland, posted a 4.9 per cent lift in revenue to $1.22bn and a 22.6 per cent fall in net profit to $52.22m which included a number of material items.

Underlying net profit for 2021 rose 16.2 per cent to $64m.

Addressing shareholders at the company’s annual general meeting on Wednesday, Costa chief executive Sean Hallahan said last year’s $231m acquisition of 2PH Farms, a Central Queensland based citrus grower, was integrating into the broader business as planned and would add to earnings this year.

Mr Hallahan said to date only around 1 per cent of its total citrus crop had been harvested with the majority of the citrus crop harvested in the second half of the calendar year.

He said forecast calendar 2022 operating and growth capital expenditure is expected to be in line with previous guidance while previous guidance for depreciation and amortisation expenses of circa $130m and interest costs of circa $38m remained consistent with current expectations.

With respect to tax rates, there are no changes to the effective income tax rate of 30 per cent for Australia, 20 per cent for Morocco and nil for China.

However, inflationary pressures continued to be felt across the business.

“With respect to supply chain costs and inflation, consistent with 2021 it is expected that transport, fertiliser, packaging and export shipping costs will continue to be elevated across calendar 2022,” he said.

“At this point, domestic pricing is strong, and the company is working to mitigate the impact of the higher costs through increased domestic and export pricing.”

Turning to current production outlook, Mr Hallahan said Costa’s international berry operations, consisting of China, Morocco and genetic licensing, have overall performed well.

“China has delivered another strong performance, with record production volumes. Arana (blueberry) jumbo pricing continues to attract a premium, and further highlights the competitive advantage of Costa’s world leading blueberry genetics and IP.”

Recent Covid-19 lockdowns in major tier 1 cities in China presented challenges for the final part of the harvest season which is due to be completed by the end of May, he added.

“During this final period of harvest, sales of product continued, however pricing has been below forecast, due to supply chain impacts necessitating the sale of product into other markets at a lower price.

“The Moroccan blueberry crop saw favourable pricing across the first quarter of this year, while cooler weather conditions contributed to some delayed crop timing coinciding with the Spanish blueberry crop and affecting pricing over the final part of the season which is due to be completed by mid June.”

The berry season in Tasmania had performed well versus last year, the far North Queensland berry season had begun strongly with volumes expected to be positive on the prior year.

“Snacking volumes year to date are ahead of prior year and category pricing has been positive with strong demand for truss tomatoes,” Mr Hallahan said.

Originally published as Fruit and vegetable grower Costa Group is forecasting a lift in earnings but net profit to be again weaker as inflation bites