Seeka a listed New Zealand produce handler, has entered into a conditional sale and lease back of three of its Australian owned kiwifruit orchards – Austral, Lakes and Hayward. The orchards with a total land area of approximately 199 hectares has sold for AUD$26.5m subject to the approval of the Foreign Investment Review Board with a lease back for up to 30 years with two initial terms of 10 years followed by two terms of 5 years. The sale price is for the orchards with a separate additional component to lease water shares required for these orchards.
The sale by Seeka follows its strategy to investigate selling the orchards and leasing back, with the proceeds to be used to repay debt and accelerate further kiwifruit orchard developments in Australia. The properties had been widely advertised publicly in Australia earlier in 2019.
Michael Franks, Seeka Chief Executive advised that Seeka was satisfied with the sale and the project team has done a good job with the sale. The transaction introduces a new partner to the company and releases cash for debt reduction and to complete further developments. Seeka has not advised the market of the earnings impact from the transaction as the implications of NZ IFRS 16 Leases is still to be considered and would be advised to the market when the sale went unconditional – expected in the second half of 2020.
Market update and guidance
Seeka operated as an essential business throughout the COVID-19 containment period with the kiwifruit harvests across New Zealand and Australia drawing to a close in the next two weeks.
The effects and costs associated with COVID-19 have been significant together with very dry growing conditions in New Zealand and Australia lowering crop volumes. SunGold volumes whilst ahead of 2019, are behind expectation and Hayward [Green] volumes are expected to be below last year and expectations. This being the second year of lower yields and volumes for Hayward in New Zealand.
The Company has responded well to the challenges of harvest, COVID-19 conditions, the withdraw of maturity testing services to the kiwifruit industry by Eurofins, and the shortage of labour.
The Company’s operational earnings are expected to be significantly lower through lower margins, additional costs and lower volumes in the current year.
Seeka has continued to innovate to achieve efficiencies; to continue its strategy of divesting Northland orchards; and has implemented its sale and lease back strategy in Australia.
These initiatives when completed are expected each to positively impact profit.
The company having considered its current year performance and, while anticipating the completion of its divestment transactions, expects earnings before tax to be in the range between NZD$9m and $11.0m for the full 2020 financial year compared to NZD$9.8m in the previous corresponding period.
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