The Costa Group Holdings Ltd (ASX: CGC) share price will be in focus this morning following the release of the horticulture company’s half year results.
How did Costa perform in the first half?
Costa was finally back on form during the first half of FY 2020 and delivered solid revenue and profit growth.
For the six months ended 28 June 2020, Costa posted revenue of $612.4 million. This was an increase of 6.8% on the prior corresponding period.
Thanks largely to a strong performance from its international business, which offset weakness in its Produce segment, Costa’s earnings before interest, tax, depreciation, and amortisation before self-generating and regenerating assets, leasing, and material items (EBITDA–SL) grew at a quicker rate.
Costa reported first half EBITDA–SL of $93.7 million, up 13.7% from $82.4 million during the prior corresponding period. This comprises EBITDA-SL of $62.1 million from its International segment (up 98%), EBITDA-SL of $28.6 million from the Produce segment (down 40.5%), and EBITDA-SL of $3.1 million from the Farms and Logistics segment (up 1.4%).
As a comparison, according to a note out of Goldman Sachs, it was expecting EBITDA-SL to come in at $108 million for the half.
On the bottom line, Costa reported a net profit after tax–SL of $45.8 million. This is an increase of 12% on the prior corresponding period.
In light of this return to form and a better than expected net debt leverage of 1.66x, the Costa board has declared a fully franked 4 cents per share interim dividend.
Management commentary.
Costa Group’s CEO, Harry Debney, was pleased with the company’s performance in FY 2020.
He said: “Our international segment performed strongly over the half, with significant improvement in EBITDASL, reflected in growth of 98% compared to the first half CY19. The major northern Morocco harvest cycle returned to normal timing and yield from all of our China farms was exceptional.”
“The continued impact of CY19 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,” he added.
The chief executive notes that its citrus orchards are performing well in respect to size and yield, despite facing a number of challenges.
He commented: “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.”
Outlook.
No guidance was given for the full year, but management appears positive on its prospects.
It notes that Australian market conditions across its portfolio are showing sizeable improvement and expects it to drive increased earnings into the second half.
It also advised that strong export and domestic demand and pricing in citrus, together with increased second half harvest timing, should be supportive of an improved outcome.
Management concluded: “Over the next three years given all major capex will be in place, this along with continued innovation will be the platform to drive quality, yield growth and shareholder returns. This is supported by strong balance sheet and cashflow generation, placing the company in a position to continue growth as a low cost producer, while capitalising on opportunities as they arise.”
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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