New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Scales<br>Hard-Core FY21 Result</h2>
<h3>RESEARCH&nbsp;INSIGHTS</h3>
<p>Scales (SCL) reported record revenue within a strong FY21 result, largely driven by outperformance in the Food Ingredients division. This was supported by stable performances by both the Horticulture and Logistics divisions. SCL has made no changes to its FY22 guidance, with an expected decrease in NPAT in FY21 predicated on the assumption that there will be a degree of normalisation for global pet food demand, impacting the outlook for the Food Ingredients division. SCL has yet to see any signs of improvements in global supply chain challenges but remains relatively well placed given its own in house Logistics division. ​​​​​The market remains expectant around news of any further potential M&amp;A activity with the company currently boasting over NZ$120m of cash on its balance sheet and looking to identify further growth opportunities in the US Food Ingredient's market. SCL remains a stable business, exhibiting a range of high quality products and led by an experienced management team focussed on disciplined capital management and growth of returns metrics.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
</div>
<div>
<ul>
<li><strong>Earnings</strong>:&nbsp;FY22 NPAT marginally increased from NZ$35.0m to NZ$35.2m vs guidance of NZ$30.5m to NZ$35.5m</li>
</ul>
</div>
<div>
<h3>Strong divisional performance across the board</h3>
</div>
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<p>All three of SCL divisions reported a solid FY21 performance, with Food Ingredients particularly strong driven by the sustained global demand for pet food. Divisional EBITDA of NZ$35m comfortably exceeded&nbsp;the company's long term target of NZ$25m (Forbarr&nbsp;FY21 forecast of NZ$28m). The Horticulture division also performed above expectations given a number of challenges faced during the year. This included&nbsp;volume disruption caused&nbsp;by extreme weather conditions, on-going orchard redevelopment and a -14% reduction in&nbsp;the RSE workforce during the key harvest period vs 2020. Much of the impact felt&nbsp;from these challenges was&nbsp;offset by stronger market pricing. Prices were supported by 1) growing diversification of geographic sales, 2) a wide range of apple varieties, and 3) the introduction of new, sweeter, varieties such as Dazzle.&nbsp;The Logistics division saw EBITDA return to its previous FY18 high of NZ$5m&nbsp;with both external customers and internal divisions&nbsp;utilising&nbsp;its strategic positioning&nbsp;in light of on-going supply chain issues.&nbsp;</p>
</div>
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<h3>Automation and long term planning targeting long term margin improvement</h3>
</div>
<div id="m_-4722525241997118930i4xlr">
<p>During FY21 SCL also commenced its multi-year&nbsp;packhouse&nbsp;automation project with the goal of improving its longer EBITDA margins in the Horticulture division. While we believe it may take a number of years to translate into&nbsp;material cost savings, we do expect this to help SCL offset additional wage pressures&nbsp;and improve the aggregate efficiency of&nbsp;SCL's&nbsp;operations. The first phase during FY21 saw automation of the&nbsp;Whakatu&nbsp;packhouse, which led to reduced power consumption and improved efficiency around the handling of fruit, transport and emissions. The company has also redeveloped over 35 acres of planted orchard during 2021 with a view&nbsp;to drive intensive planting techniques in order to better enable pruning, thinning and picking efficiencies.&nbsp;</p>
</div>

Scales Hard-Core FY21 Result
RESEARCH&nbsp;INSIGHTS
Scales (SCL) reported record revenue within a strong FY21 result, largely driven by outperformance in the Food Ingredients division. This was supported by stable performances by both the Horticulture and Logistics divisions. SCL has made no changes to its FY22 guidance, with an expected decrease in NPAT in FY21 predicated on the assumption that there will be a degree of normalisation for global pet food demand, impacting the outlook for the Food Ingredients division. SCL has yet to see any signs of improvements in global supply chain challenges but remains relatively well placed given its own in house Logistics division. ​​​​​The market remains expectant around news of any further potential M&amp;A activity with the company currently boasting over NZ$120m of cash on its balance sheet and looking to identify further growth opportunities in the US Food Ingredient's market. SCL remains a stable business, exhibiting a range of high quality products and led by an experienced management team focussed on disciplined capital management and growth of returns metrics.&nbsp;

What's changed?&nbsp;



Earnings:&nbsp;FY22 NPAT marginally increased from NZ$35.0m to NZ$35.2m vs guidance of NZ$30.5m to NZ$35.5m



Strong divisional performance across the board


All three of SCL divisions reported a solid FY21 performance, with Food Ingredients particularly strong driven by the sustained global demand for pet food. Divisional EBITDA of NZ$35m comfortably exceeded&nbsp;the company's long term target of NZ$25m (Forbarr&nbsp;FY21 forecast of NZ$28m). The Horticulture division also performed above expectations given a number of challenges faced during the year. This included&nbsp;volume disruption caused&nbsp;by extreme weather conditions, on-going orchard redevelopment and a -14% reduction in&nbsp;the RSE workforce during the key harvest period vs 2020. Much of the impact felt&nbsp;from these challenges was&nbsp;offset by stronger market pricing. Prices were supported by 1) growing diversification of geographic sales, 2) a wide range of apple varieties, and 3) the introduction of new, sweeter, varieties such as Dazzle.&nbsp;The Logistics division saw EBITDA return to its previous FY18 high of NZ$5m&nbsp;with both external customers and internal divisions&nbsp;utilising&nbsp;its strategic positioning&nbsp;in light of on-going supply chain issues.&nbsp;


Automation and long term planning targeting long term margin improvement


During FY21 SCL also commenced its multi-year&nbsp;packhouse&nbsp;automation project with the goal of improving its longer EBITDA margins in the Horticulture division. While we believe it may take a number of years to translate into&nbsp;material cost savings, we do expect this to help SCL offset additional wage pressures&nbsp;and improve the aggregate efficiency of&nbsp;SCL's&nbsp;operations. The first phase during FY21 saw automation of the&nbsp;Whakatu&nbsp;packhouse, which led to reduced power consumption and improved efficiency around the handling of fruit, transport and emissions. The company has also redeveloped over 35 acres of planted orchard during 2021 with a view&nbsp;to drive intensive planting techniques in order to better enable pruning, thinning and picking efficiencies.&nbsp;


Scales Corp Ltd

Scales: Hard-Core FY21 Result