American berry giant Driscoll’s has taken a small stake in Australia’s fresh food company Costa Group (ASX:CGC). Media reports said Costa confirmed Driscoll’s had acquired shares but the holding was less than five per cent.
The Sydney Morning Herald reported Costa CEO Harry Debney saying the two companies had a relationship that went back “a number of years”. He said Driscoll’s and Costa had a joint venture marketing operation in Australia and a marketing and production operation in China, which was established in 2016.
Costa Group licenses Driscoll’s raspberries, strawberries and blackberries to be grown in this country as part of the Australian JV.
Costa is Australia’s largest fruit and vegetable producer, but 2019 was its annus horribilis with four profit downgrades and a share price that plummeted from a high of more than $7 in November 2018 to a low of $2.66 in November 2019. On Tuesday (28 January), it closed at $2.86, after news broke of Driscoll’s investment.
In Food & Drink Business’s Top 100 Food and Drink Companies Report 2019, Costa Group dropped dramatically, from #27 to #45 with a 54.46 per cent revenue drop. That was in part due to its reporting period being six months, but in a trading update on 18 October, it said “previously foreshadowed challenges facing the company had continued to crystallise”.
On 28 October, it revised its May earnings guidance, from estimating its 2019 earnings before interest, tax, depreciation and amortisation margin-self-generating and regenerating assets (EBITDA-SL) was likely to be $140 million to $153 million to $98 million.
It also launched a pro-rata entitlement offer to shareholders in a bit to raise $176 million to repay debt. Costa offered $2.20 a share via a one-for-four entitlement offer to existing investors.
CFO resigns
On 23 December the company announced its chief financial officer Linda Kow had resigned. Debney noted her significant contribution over almost 10 years.
“Linda has been with the business through various iterations, including family ownership, private equity and public ownership. During this time, Linda has played a major role in helping to transform and build the Costa business and establish its current growth trajectory,” he said.
Impact of summer 2019/20 fires
In early January Vitalharvest Freehold Trust (ASX:VTH) reported bushfires in southern New South Wales had impacted its Tumbarumba berry farm, which accounts for six per cent of its berry plantings. Vitalharvest owns Australia’s largest citrus and berry portfolio and leases them exclusively to Costa Group.
It is understood plants were not impacted, but the packing shed, packing equipment and several vehicles were damaged.
Ongoing weather and water challenges
In its weather and water update in late December (2019), Costa Group said the continuing severe dry and hot conditions in northern New South Wales had required careful crop management at its Corindi berry farm for several months. There was no significant rain in spring or early summer, it said.
“Due to the rainfall forecast at Corindi being lower than the average for the remainder of the 2019 year, it has been decided to remove a significant part of the current annual raspberry crop and early prune some of the lower value blueberry varieties to conserve the priority crop,” the statement said.
It expected good crops from its Tasmania and Far North Queensland plantings as the regions were not affected by drought.
The company had put a hold on the construction of its 10-hectare glasshouse in the New England region of northern New South Wales pending improved water security in the area.
Costa’s operations include 4500 planted hectares of farmland, 30 hectares of glasshouse facilities and three mushroom growing facilities across Australia. It has strategic foreign interests, with majority owned joint ventures covering six blueberry farms in Morocco and four berry farms in China.
