Record returns delivered to New Zealand kiwifruit growers

MEDIA RELEASE – 28 May 2013

Record returns delivered to New Zealand kiwifruit growers in the shadow of Psa

Zespri’s annual results for 2012/13 show the highest-ever average Orchard Gate Return (OGR) returns of $51,153 delivered to New Zealand kiwifruit growers. However, the record result comes as the impact of Psa on individual orchards continues to be felt across the industry.

A highlight of the year’s returns was the performance of the Zespri Green category, which accounts for around 70 percent of Zespri’s exported volume. Average per-tray Green returns increased by 21 percent from 2011/12 to $4.62, their highest level since 2003/04. This strong result flowed through to Zespri’s highest-ever average returns per hectare for Green growers of $37,959.

Zespri chairman Peter McBride said the record Green OGR results were a consequence of a strong focus by Zespri on lifting Green profitability in recent years, combined with improving performance both at orchard and post-harvest levels.

“This has been a team effort and is particularly pleasing in the context of deteriorating foreign exchange rates in Zespri’s key markets,” Mr McBride said.

“Strong underlying demand created by over a decade of investment in the Zespri brand has delivered a substantial competitive advantage and premium to New Zealand growers, which – in turn – earned $1.10 billion in export earnings for the New Zealand economy.

“Delivering the highest Green per-tray OGR for ten years is particularly impressive, considering the operating environment in 2003 was considerably more favourable than today, in terms of foreign exchange rates and a much smaller volume – 49.9 million trays in 2003/04, as compared to 71.4 million trays last financial year,” said Mr McBride.

More than half of Zespri-supplying growers now hold licences to grow Zespri Licenced Varieties, diversifying the industry from its traditional Hayward (Green) focus to a broader product portfolio.

Zespri Gold returns per hectare for 2012/13 were $101,973, up 12 percent from the previous year’s return of $90,911. Organic Green returns per hectare were $34,846, down 2 percent from $35,527 in 2011/12, while the first year of recorded Green14 returns were $18,916 per hectare.

Mr McBride also welcomed an outstanding performance in the China market, with volumes sold up 9 percent to 10.04 million trays and market returns up 21 percent compared with 2011/12, to $117.3 million, or 11 percent of Zespri’s total market returns.

“It is well known that we have been dealing with some challenging issues in China, including transitioning to a new management team and improving our business practices – but we have been determined to make that transition without disrupting the business. This result suggests our management, together with our new import partners, are achieving both our change management and sales objectives.”

Other highlights of the 2012/13 annual results include:

· Zespri Kiwifruit continued to attract a significant premium over competition in the market, due to the long-term investment in the Zespri brand.

· Excellent quality fruit drove very strong repeat purchases by consumers.

· Around half the new SunGold (Gold3) crop was sold in Europe with an excellent response from consumers and customers.

“The high New Zealand dollar continues to cause a significant impact on our business – costing each grower on average 43 cents per tray this financial year relative to the previous year – and it’s unlikely that short-term relief is in sight,” Zespri Chief Executive Lain Jager said.

“The cohesion of our integrated industry structure has enabled Zespri’s three-year hedging policy, which has delivered a direct benefit to growers of $73.2 million in the 2012/13 season,” Mr Jager said.

Due to seasonal and Psa impacts, the volume of Zespri Kiwifruit sold fell by 5 percent in 2012/13 to a total volume of 110.1 million trays, with New Zealand-grown supply at 101.3 million trays and Zespri global supply at 8.8 million trays. Global kiwifruit sales revenue decreased by 4 percent to $1.56 billion from $1.62 billion in 2011/12.

New Zealand-grown fruit and service payments (including the loyalty premium) decreased by 2 percent from $980.4 million in 2011/12 to $959.1 million.

“The impact of Psa has significantly impacted on Gold volume. Gold sales were down 16 percent in 2012/13 to 24.6 million trays, from 29.1 million trays the previous year. This impact will be even more pronounced in 2013/14, with Gold volumes down to around 13 million trays for the year. We expect Gold volumes will begin to recover after the 2013 season with around 1,860 hectares of the Psa-sensitive Hort16A canopy grafted over to the more Psa-tolerant Gold3 in 2012/13, and around 2,320 Gold3 hectares in total around the country.

“Growers have taken very determined actions to recover from the impact of Psa by grafting across to Gold3 and other more Psa-tolerant varieties and changing their management practices to cope with the disease.

“While we have some confidence that we are making good progress to recover from the disease, biological systems are complex and we need to get through the coming winter and spring periods in good order and see the new Gold volumes materialise next season, before we can really say the Psa recovery pathway has been a success,” Mr Jager said.

Corporate result

Zespri’s net profit after tax for the year was $7.6 million, compared to $20.5 million in 2011/12. When adjusting for the impacts of funding for Psa, the like-for-like comparison sees profit reduced from $16.4 million to $10.7 million. These results also include the full provision for the court-imposed penalties and fine in respect to the China Customs investigation.

The Board has announced an intention to declare a final dividend of 1 cent per share to take full-year dividends paid to 5 cents per share.

2013/14 indicative returns (per tray)

POOLS (FRUIT CATEGORIES)

2013/14 Indicative

2012/13 Final

Orchard Gate Return per tray

Zespri Green

$4.20 - $4.70

$4.62

Zespri Organic Green

$5.70 - $6.20

$6.18

Zespri Gold

$10.50 - $11.20

$10.45

Zespri Green14

$7.00 - $8.00

$6.65

· Foreign exchange (FX) rates will continue to affect returns across all pools.

· The reduction in base packing costs across the post-harvest sector will continue to contribute to an increase in return for all pools.

· The smaller profile of Green fruit will challenge Green returns.

· The significant drop in Gold volume underlines a strong return, despite the negative FX impact.

· Green14 projected to have a small volume increase on 2012, with Japan increasing its volume from last season.

· The organic category will continue to focus on the key markets of North America, Europe and Japan.

ENDS

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