Exchange Rate hits ZESPRI Results
World leading kiwifruit marketer ZESPRI had a tough year all round in 2005-06, both in the markets and on the orchard.
While the grower-owned company has reported a full year net profit after tax in line with last year at $26.4 million, a
strong New Zealand dollar, higher freight costs, another record crop and variable fruit and storage quality issues ate
into sales, fruit and service payments and orchard gate returns. ZESPRI is New Zealand's single biggest horticultural
export earner, with about 60 percent of market returns earned in Euros, 32 percent in Japanese Yen and 8 percent in
other currencies, including US dollars.
"While we realised hedging gains of $25.6 million from pro-active foreign exchange risk management, overall returns were
eroded by about $61.4 million. Growers felt the brunt of the New Zealand dollar's strength in lower returns," ZESPRI
Group Chairman Craig Greenlees said.
Global kiwifruit sales finished the year down 3 percent at $991.1 million, despite record sales volumes and robust
pricing in local currencies in key Japan and Europe markets. ZESPRI reported solid performances in Korea and Taiwan, a
later and longer selling season and a stronger than anticipated season's close, with a total of 84.7 million trays
shipped, up 4 percent.
"The integrated system and structure and ZESPRI™ brand provided the flexibility to shift fruit between markets to
maximise returns and contain quality problems," Mr Greenlees said.
The global procurement unit, ZESPRI Global Supply - formerly ZESPRI Fresh Produce - sold significantly higher volumes of
offshore-grown kiwifruit but returned a small loss after a one-off final payment to Kiwifruit International Ltd on
conclusion of its underwrite agreement.
"Extending our 12 month supply capability is a priority, along with further improving fruit quality, taste and supply
chain efficiencies," Mr Greenlees said.
ZESPRI's fledgling ingredients business Aragorn made a small surplus of $231,000, while the sale of a 15 percent holding
in American distributor David Oppenheimer netted a profit of $2.8 million before tax.
"The company's overall performance was very creditable, but it did not translate when converted back to New Zealand
dollar returns to grower shareholders. We work for and on behalf of growers so all our decisions and strategy must
always be based on what is best for the business and our growers. We know that ZESPRI's performance will ultimately be
measured on the basis of fruit returns," Mr Greenlees said.
Fruit and service payments fell 7 percent and orchard gate returns were down 20 percent for GREEN, 14 percent for GOLD
and 10 percent for ORGANIC. The Board intends to pay out 100 percent of available profits in recognition of grower
shareholders' cash flow pressures from lower fruit payments, and in light of the company's strong financial position,
cash flow and anticipated capital needs for the coming year.
The company intends to declare a final dividend in August of 60 cents per fully paid share, in addition to the February
interim dividend of 50 cents per share bringing the total dividend to $1.10 per share from the results of the financial
year ended March 31, 2006. The Board expects to revert to a 40-60 percent of net profit after tax dividend policy in
future.
A further 45 cent special dividend per share was paid in December 2005 as net proceeds from the company's share issue
and share buyback, which achieved much closer alignment between ownership and production to protect the integrated
production and marketing system and grower ownership and control of the business.
ZESPRI's equity finished lower at $72.8 million from $77 million in March last year after payment of the $10.8 million
special dividend.
Mr Greenlees said the outlook was cautiously optimistic for the future, with indications of a good start with initial
shipments away early and some respite through a weakening New Zealand dollar.
ZESPRI's Annual Report containing a full review of the 2005-06 financial and marketing performance as well as strategy
forward, will be available in late June.
ends