Scales - SCL

[Getty]

I think they have looked at a lot of things. But they are very conservative and seemingly afraid to pull the trigger. I applaud their discipline but they also need to think outside the box and forget the days of buying things for 8x ebit. Maybe they need a shake up and some fresh advisors, otherwise give the money back. Id rather they did some serious regrafting, land acquisition, or expansion into other horticulture (avadado, cheries, lime, even kiwifruit) if they cant acquire something sensibly

Seeka, SEK is a gift at current price, would be a tidy fit into Scales.

[Louloubell]

A golden run. I wonder if they are close to spending some of their money

[Muse]

A golden run. I wonder if they are close to spending some of their money

* our money *

Yes hope so. Assume the run last few days based on loosened RSE rules?

[Louloubell]

From $4.40 six weeks ago to $5.70 now

[Muzz1234]

Hopefully it's money spending on acquisition imagine they'll be looking forward to getting more rse workers in to give them some guaranteed workers who can't go elsewhere

[Muse]

From $4.40 six weeks ago to $5.70 now

Craigs Investment Partners wondered out loud this morning if it was due to a global rerating of petfood businesses

"SCL has been on a tear of late...difficult to know the driver other than sentiment towards its petfood business which is hotter than crypto at the moment following the extraordinary sale price for south island based vertically integrated petfood brand Ziwi which sold for 28x trailing EBITDA....move over infrastructure - petfood appears the most sought after asset class."

What is interesting to me is Scales does own a large petfood business but doesn't really promote it in a way the market will ascribe value to it in the sense buyers will when a business is being sold. Also based on my understanding Scales petfood business is a JV in its meator food with its main supplier and then a majority shareholder in USA based shelby. Perhaps scales would be better to try to vertically integrate on its own. broaden its supply based, consolidate 100% control over both assets, and creap out of MDM to a branded product. Promote that loudly and proudly and would get a massive re rate. and probably an offer to buy it - but would prefer is scales didnt sell given they don't seem able to acquire in this market.

[Muzz1234]

Not being able to aquire anything definitely something they're good at investing in or starting pet food business would be perfect for these guys when they have got access to all raw product they could hope for give them an advantage before they started

[Sideshow Bob]

There is a big difference between a commodity ingredient business, and a consumer-facing branded petfood business.

Undoubtedly, raw material is going to become more important - even in NZ with pressures on farming - regulation, social and environmental. Meateor have taken steps in recent years to strengthen their hand in raw material supply - ie JV with Alliance meaning they get a large chunk of raw material, acquiring part of Shelby for US distribution and also buying/closing the WE plants to take out a competitor.

Petfood has also gotten more on to the radar of red meat processors in recent years. Gone are the days when everything was rendered - now just the last resort. Much more is saved to pet material (or other uses), much more valued and is an increasing component of what they pay farmers. I think red meat processors will continue to become more involved in petfood space in one way or another - rather than just traditionally being hands-off sellers.

The good aspect with the likes of the sale of Ziwi and K9 (Natural Petfood Group) is that they weren't bought to do the status quo volumes - but to expand their business (Ziwi have their new Napier plant being built). From an NZ perspective, it will mean more is processed onshore here, compared to frozen raw material going into a container to be processed in the US. There are other factories also being built/expanded in NZ that will process more raw material (typically for their foreign owners).

The value ascribed to Ziwi and K9 is in the brand, and the sales/cashflows/profits they can generate off the brand. Difficult to compare with Meateor, as while in the same broader industry and a strategic and important raw material supply - it's a different kettle of MDM. Lesser risk, no investment to build a brand but more difficult to attain a large/sustainable margin that branded products offer. Going forward I think it will be about what is the best strategic use of that raw material.

[Sideshow Bob]

Shipping problems, especially for apples and petfood.....


Market update - NZX, New Zealand’s Exchange

The directors of Scales Corporation Limited (NZX:SCL) have declared a fully imputed interim cash dividend for the 2021 financial year of 9.5 cents per share, to be paid on 14 January 2022. The directors reiterate their commitment to paying an annual cash dividend level of no less than 19 cents per share whilst the company holds Net Cash, although at a level no greater than actual Underlying Net Profit Attributable to Shareholders for each year.

With regard to Guidance for the twelve months to 31 December 2021, directors advise that Underlying Net Profit is now expected to be at the upper end of the previously advised range, of $32.0 million to $37.0 million (which implied an Underlying Net Profit Attributable to Shareholders range of $23.5 million to $28.5 million). This is mainly due to the continued strong performance of the Food Ingredients division.

Managing Director Andy Borland says “The 2021 year has been another challenging one across the Group. Consequently, it is very pleasing to positively update our forecast financial result for the year. Scales continues to benefit from our diversified nature and, in particular this year, from the strategic advantage that Scales Logistics brings to the Group”.

“Whilst 2021 has seen the continuation of disruption to domestic and international operations, Scales’ diversification has helped mitigate this disruption. We have also continued our dual focus on stabilising margins in Mr Apple and the wide-ranging growth initiatives within Food Ingredients. At Mr Apple, the latest phase of orchard redevelopment, predominantly into the Dazzle variety, was completed, and the new cool store adjacent to the Whakatu packhouse was fully operational. The multi-year automation project also commenced. For Food Ingredients, a number of initiatives to further extend our range of services and products are being pursued. Other investment opportunities, both within our existing business sectors and externally, continue to be reviewed.

Looking ahead to the 2022 financial year, directors will now provide full year Guidance based on Underlying Net Profit Attributable to Shareholders, ensuring consistent earnings per share comparisons for each year. The Underlying Net Profit Attributable to Shareholders Guidance range for 2022 of $23.5 million to $28.5 million is at the same level as 2021 initial Guidance.
In providing Guidance for 2022, directors note:

• Selling prices within the horticultural division are forecast to be generally consistent with 2021;
• In addition to the increased costs for logistics incurred during 2021, the Group will incur further significant shipping cost increases. Whilst some of these increases will abate over time, there will be an additional negative impact for 2022;
• The on-going shortage of labour across the agri sector, reiterating the importance of Mr Apple’s automation project;
• The Group has again assumed that the current initiatives within the horticulture industry to source seasonal labour will be sufficient to meet requirements;
• It is also assumed that businesses will continue to operate on a business-as-usual basis, considering the current COVID-19 settings in New Zealand;
• The Group will continue to focus a material level of capital expenditure on gross margin improvement initiatives within Mr Apple for the 2022 year;
• The Guidance range implies:

i. an Underlying Net Profit range of between $30.5 million and $35.5 million; and
ii. an Underlying EBITDA range of between $62.0 million and $67.0 million.

Both ranges are in line with initial Guidance for 2021.

• A further update will be provided as part of the 2021 year-end announcement, scheduled for February 2022.

[Muse]

Shipping problems, especially for apples and petfood.....


Market update - NZX, New Zealand’s Exchange

The directors of Scales Corporation Limited (NZX:SCL) have declared a fully imputed interim cash dividend for the 2021 financial year of 9.5 cents per share, to be paid on 14 January 2022. The directors reiterate their commitment to paying an annual cash dividend level of no less than 19 cents per share whilst the company holds Net Cash, although at a level no greater than actual Underlying Net Profit Attributable to Shareholders for each year.

With regard to Guidance for the twelve months to 31 December 2021, directors advise that Underlying Net Profit is now expected to be at the upper end of the previously advised range, of $32.0 million to $37.0 million (which implied an Underlying Net Profit Attributable to Shareholders range of $23.5 million to $28.5 million). This is mainly due to the continued strong performance of the Food Ingredients division.

Managing Director Andy Borland says “The 2021 year has been another challenging one across the Group. Consequently, it is very pleasing to positively update our forecast financial result for the year. Scales continues to benefit from our diversified nature and, in particular this year, from the strategic advantage that Scales Logistics brings to the Group”.

“Whilst 2021 has seen the continuation of disruption to domestic and international operations, Scales’ diversification has helped mitigate this disruption. We have also continued our dual focus on stabilising margins in Mr Apple and the wide-ranging growth initiatives within Food Ingredients. At Mr Apple, the latest phase of orchard redevelopment, predominantly into the Dazzle variety, was completed, and the new cool store adjacent to the Whakatu packhouse was fully operational. The multi-year automation project also commenced. For Food Ingredients, a number of initiatives to further extend our range of services and products are being pursued. Other investment opportunities, both within our existing business sectors and externally, continue to be reviewed.

Looking ahead to the 2022 financial year, directors will now provide full year Guidance based on Underlying Net Profit Attributable to Shareholders, ensuring consistent earnings per share comparisons for each year. The Underlying Net Profit Attributable to Shareholders Guidance range for 2022 of $23.5 million to $28.5 million is at the same level as 2021 initial Guidance.
In providing Guidance for 2022, directors note:

• Selling prices within the horticultural division are forecast to be generally consistent with 2021;
• In addition to the increased costs for logistics incurred during 2021, the Group will incur further significant shipping cost increases. Whilst some of these increases will abate over time, there will be an additional negative impact for 2022;
• The on-going shortage of labour across the agri sector, reiterating the importance of Mr Apple’s automation project;
• The Group has again assumed that the current initiatives within the horticulture industry to source seasonal labour will be sufficient to meet requirements;
• It is also assumed that businesses will continue to operate on a business-as-usual basis, considering the current COVID-19 settings in New Zealand;
• The Group will continue to focus a material level of capital expenditure on gross margin improvement initiatives within Mr Apple for the 2022 year;
• The Guidance range implies:

i. an Underlying Net Profit range of between $30.5 million and $35.5 million; and
ii. an Underlying EBITDA range of between $62.0 million and $67.0 million.

Both ranges are in line with initial Guidance for 2021.

• A further update will be provided as part of the 2021 year-end announcement, scheduled for February 2022.

Good result for this year - soft (as always) guidance for the next. Very conservative management team - they tend favour baseline/average assumptions in lieu of recent prices, but that's appropriate given the volatility of the sectors they play in. Almost always beat guidance or meet the upper end.
It's good they own their own freight forwarding operation. I just wished they moved a bit faster on acquisitions particularly in pet food - with less bloody JVs taking. Minority share of npat getting a bit big.