Seeka Limited (SEK) Earnings Call Transcript

Welcome, everybody. I'm Michael Franks, CEO here at Seeka. Chair has delegated the role to open the meeting to me. And so it would be my pleasure to invite Turi Ngatai to come up and bless our meeting. Thanks.

[Foreign Language] Now I'm going to translate that. I find it difficult to translate the English. So what I've said. Greetings to everyone here today. Greetings to the Great One who looks after us. Greetings that the [ Ewis ] and the tribes whose land this belongs, acknowledge them. Acknowledgment to all those who've passed in the last year,from the family and from the [indiscernible] of the company of Seeka. Acknowledgment to our leaders, to the council, the Board Chair, to the Tumuaki, the CEO, to the kaiho too, the executives and all the family and followers and shareholders of Seeka. The land has produced and our efforts have borne fruit. Therefore, let us be happy, be thankful and celebrate. [Foreign Language]

Thank you, Turi , and thank you, Michael, for that introduction. It is my pleasure to welcome you all here today. Good afternoon, and welcome. My name is Hayley Gourley, and I am the Chair of Seeka, and it's my privilege to welcome you to this special shareholders meeting today and stake update -- stakeholder update, sorry, of your company. I also take this time to acknowledge and welcome those who are joining remotely and online. Welcome to you as well. And I welcome our various business partners and supporters and professional advisers who help out throughout the year for Seeka. So we have Harmos Horton Lusk, Tompkins Wake, our banking syndicate that consists of Westpac New Zealand, Rabobank, ASB, BNZ and Westpac Australia, our auditors, Grant Thornton, and a representative from the New Zealand Shareholders' Association as well. For those of you who are in attendance, it would be helpful if you could please turn your phones to silent. And please also note the exits to this auditorium. There's actually a lot of them given the shape of the room. And if we do need to evacuate, please make your way out to the car park as is expedient. Hopefully, we won't need to do that. And there will be a designated Seeka person or several of them around to help with that in terms of designating where you go. In terms of the formalities, the Company Secretary has confirmed the Notice of Meeting was sent to all eligible shareholders. And we have a quorum, and accordingly, I declare the meeting open, and we will proceed. In terms of the meeting and the agenda, we will run through this agenda. And following my introductory remarks and introduction, I'll hand over to Michael for Chief Executive's report and update before proceeding to the resolution and then any questions and general business that will follow. We do hold in terms of the meeting the following proxy votes that have been exercised or will be exercised through the meeting. So you can see the proxies that are held there on that slide. I won't run through those numbers. In terms of my introduction as Chair, it is my pleasure to be able to chair this first meeting with our shareholders and alongside the Board of Directors following my appointment as Chair back in August. And it is certainly a pleasure. And I've appreciated the support of the shareholders over the past almost 2 years since becoming a Director of Seeka. And then I also appreciate the support of my fellow directors and the appointment of Chair back in August. I'd also like to take this opportunity to publicly thank Mark Dewdney as a fellow director and immediate past Chair for his wisdom and experience and guidance through his time on the Board and acknowledge his resignation today, having certainly provided a lot of support through that transition and handover period and wish Mark all the very best in his new role from December as Chair of Tatua, a company he has been long associated with. So we certainly wish you all the best from the Seeka family, Mark, and thank you for that. In terms of as your Chair, I'm looking forward to continuing a successful stewardship of the Seeka business and the wider Seeka family and stakeholders and representing your interests and ensuring that the success can be continued and that growth and success continues to provide rewards for all. That's certainly the intent. So I look forward to doing that and learning more about the business as we go forward and certainly engaging with stakeholders at every opportunity. Thank you for that. In terms of our business, it is a very broad business. We have clearly the large part of the business and the core part of the business, providing those orcharding services to the kiwifruit community in the post-harvest perspective but also beyond that and increasingly growing, processing, supplying into a wider variety of markets, both domestically and internationally. And I think you can see there just in terms of the various 5 components of the Seeka business that it is perhaps more diverse than people might first think at first glance. And we do see -- continue to see that growing produce basket that clearly has a very large kiwifruit component, but is increasingly becoming diversified and providing more produce to a greater range of markets over time. And we look forward to continuing that. It was our pleasure and on behalf of the Board and management for the hard work that's gone into the first half of this financial year 2026 and the half year results that we were able to announce a couple of months ago now. So just a quick recap on those, and I know Michael will provide a more fulsome update shortly. But we were able to announce a net profit before tax at $62.6 million, it was up 5%. It has been extremely pleasing to see the results coming through from investments in automation and technology that's really driving that efficiency across the business and I think enhance the range of possibilities as to what that efficiency can actually do in future for the business as well, given that we are now well down the track of understanding the impact that, that can have. Accordingly, earnings per share were up 19% at $1.07, and we were able to significantly reduce our bank debt further. And I think that certainly put the company in a very good position now with a very solid balance sheet to be able to move forward from here alongside, of course, achieving our sustainability milestones, and some of that is the efficiency being driven but also the other reductions that we've been able to achieve across the business in terms of emissions, and we look forward to continuing to do that as well. Most recently, I'm very pleased to announce the new capacity investment that is taking place in Gisborne. And this is really acknowledging that there are many parts to the business regionally in New Zealand, but Gisborne has been an area that does provide more opportunity and has been challenged in terms of some of the logistics around fruit in Gisborne and to be able to invest there and have the efficiencies as part of that investment as well as the opportunity to do more, both in kiwifruit and other produce in Gisborne is really a key part of that investment. So management are now proceeding full steam ahead to have that up and running ahead of the coming season. So again, a good indication of that ability and willingness to invest where it makes sense and where it can provide returns to stakeholders and shareholders alike. Accordingly, last month, we also took the opportunity to update our full year guidance for this current financial year. And today, we reconfirm that guidance as being unchanged from what was announced last month, forecasting full year net profit before tax between $41 million and $45 million. So that was a slight lift last month, and we do confirm that again today. It is very slightly down on what was that record 2025 year but still an extremely pleasing range of guidance to be able to have at this time of the year and looking ahead to the end of the year, but with the majority of the season clearly now behind us. in terms of where we're at. It's now my pleasure to be able to hand over to Michael, who can provide a more in-depth update on where we're at from a company point of view and also elaborate a little more on that guidance of what's happening as well. So Michael, I'll hand over to you. Thank you.

Thanks, Hayley. Thank you very much. Just to update you, we are largely now loaded out, all but done for the current year for New Zealand kiwifruit crop, well under 100,000 trays left in store. And it's been a harder year, but we're very satisfied with the results. So just to go back a little bit in terms of the 6 months results, the kiwifruit crop was down after the exceptional year we had last year, 45.4 million Class 1 trays packed in New Zealand. And so we had lower volumes for both the Orchard and the post-harvest business. And Australia was also down. It's actually very hot in Australia. So as I look back over time and look into history, I've got up here and explained it's been too hot. It's been too wet. It's been too dry. It's been too hot. It's another hot year, but we're pretty confident about what we're doing over there. It's good to be a bit more patient. We've delivered excellent operational performance. I think our growers are reasonably happy with the harvest, to be honest. I haven't had too many people telling me we had problems. The queues weren't long. There was efficient harvest management. And actually, we've delivered excellent quality fruit to the market, although we've had to rework a bit more than we might have normally had to do. We're delighted with what Reemoon has brought to the company in terms of capability, in terms of automation. Our strategy of having an array of highly automated packhouses adjacent to where the fruit has grown has been transacted and has been furthered with our investment to go into Gisborne. Certainly, our intention now comes back to the center as we work out our capacity plans here in Te Puke going forward. All of our business units had positive earnings contributions. And we were also likewise delighted with our SeekaFresh business, our market-facing business in Auckland has done a great job. You may not be aware, but we have an emerging array of new and alternative produce varieties that we're handling. Citrus, big player in citrus more recently. Avocados is continuing. We are now a packer and exporter of persimmons and kiwiberry continues. And in conjunction with Freshmax, we've -- it's been a very, very successful category for ourselves and in particular, for our growers. Highest orchard gate returns in the company have been achieved with our kiwiberry variety, highest orchard gate return in case you're interested, more than $600,000 a hectare to the gate. So amazing really. Lots to be happy with, lots to improve. In terms of our actual financial results, $305.5 million for the 6 months was slightly down in the year before. Our crop was down 4%. New Zealand kiwifruit crop was down 4%. Our EBITDA earnings before interest, tax, depreciation and amortization, up 3% at $86.3 million. The numbers are becoming real now. The automation gains that we've achieved with the new automation put in place, new citrus machine in Northland, new fully integrated Reemoon kiwifruit packing machine in Kerikeri, a new partly built Reemoon machine at Huka Pak. It doesn't have the automation around it for last season. It will have for next. All of that has actually delivered excellent margins, excellent throughputs and reduced the amount of labor that we have in every tray that we pack. Profit before tax, $62.6 million, as Hayley said, up 5%; lower debt, lower finance costs, but actually good improvement in operational earnings. And we have a capital management strategy in place. And today, actually, the Board considered that. And at some point in the future, we will share it with our investors. In terms of the balance sheet, $591.9 million in capital employed, up 5%. We have continued to invest in automation across the business. We are investing in seasonal worker accommodation in Australia. And so you know, half funded by the Australian government. We've had a stronger New Zealand dollar, which when we bring it back to New Zealand dollars has increased our earnings here. We've got the revaluations in the book from last year's December reval process that we go through. And we had $1 million of license held for sale that was transacted after the 6 months. So sub substance now on that balance sheet. In terms of bank debt, $119.8 million continues to decrease over the same time last year and well down on 2 years ago. That's why we put the $51.1 million there. So you can see that we've reduced it over the 24 months. We have voluntarily suggested to the banks that we needed to have lower debt facilities. And so at $184.0 million facility is down by $20 million than what we had before. No point in having it. No point in paying for it if you're not going to use it. And we can put it back in place if we need it. So we did that voluntarily. In terms of the leverage ratio, EBITDA to debt, 1.22x is well in a safe place. It's within the range the Board has set for us. And likewise, we're comfortable with that as well. Earnings per share for the 6 months at $1.07. Understanding that we earn most of our earnings in the first 6 months, we are a seasonal business. We have paid out $0.50 in shares over the 12 months, June to June. We're paying $0.20 today. So if you didn't know that, you're either getting them in shares through the dividend reinvestment plan or you're getting it in cash. And just to remind you, the shares that are trading today at $5.16 have an asset backing of $7.12 for every single share that's out there. And we go through a process every December and every reporting date to make sure that the assets that we're carrying on our balance sheet are at fair market value. So just a little point I'd make to you. In terms of our orcharding business headed up by Barry Penellum, currently overseas actually in the U.S. looking at automation for orchards in case you didn't know, 39% of the fruit that we handle in our post-harvest business has been grown by us and some for another. Excellent orcharding results across the Board. We got a great team of people, but we were affected by the lower yields than we had last year. So $63.6 million in revenue was down 8% on the same time last year, $8.1 million in EBITDA, down 16% and our EBIT at $6.3 million was down 20%. The yields were down. They were down across all of our suppliers, else the same. And so -- and understanding that we are orcharding across all regions in New Zealand, not just here in Te Puke. We are still investing in orchards with [ Karnoa ] and [ Ewie ] up on the East [indiscernible], those orchards have yet to come into full production. Each year, they take another step forward. And of course, when you look at metrics like return on capital employed, you've got to take that into account because we've invested ahead of the crop. And when you're on orchard, you do that. And so the crop will come into the future and go into your post-harvest business. In terms of our post-harvest business, this is our hotel for fruit, not just kiwifruit in New Zealand, persimmons, avocados, citrus, increasing range of crops using the same asset, generated 68% of our revenue in the first half of this year. $206.6 million, up 1%; $83.2 million in EBITDA, up 6% on the previous corresponding period; $73.3 million in earnings before interest and tax, up 7% in the last year. Team has done a great job right across the business, supported by our contractors and our growers and our own orcharding staff, but really very good. And they've deployed new technology. The Reemoon gear has been excellent. The loss rates across that machinery that we've got at Huka Pak, in particular, and our organic fruit is unbelievably good, excellent, along with our offshore fruit quality. So it shows you the power that we've unleashed. We're learning how to drive it. We've got excellent people, and we're pushing on and doing more of it. Post-harvest assets at $450.4 million is significant, 66% of the business there in one part of our segment. Paul Crone heads that a bit up, and I should have said that at the beginning, he is sitting here somewhere. In terms of SeekaFresh retail services operation, this is our market-facing business led by Kate Bryant, also supported by the delicious nutritious food company, the DNFC, which is headed up by Jim Smith. It's where we connect out to the market. This is our market-facing business. Wholesale marketing in Auckland, really what it's about importing and produce. And it is a business that's got some momentum behind it. $12.7 million in revenue is up 12% on the first half of last year. $2 million in EBITDA is up 28%; $1.4 million in EBIT, up 39%. This business has got momentum. Second half of this year, we've actually added citrus to that category. We're probably more than 20% in New Zealand citrus industry now. So it's an amazing business. It's got great momentum. We've also launched Luvo, the avocado oil brand. It's part of our recovery process, value recovery process happening in the business. We've launched it. It's going out. This product used to go to waste. We're actually using it to manufacture oil. We've established a retail brand. We are now pushing it out into sales along with our Kiwi Crush business, and it's picking up. It's getting momentum. It takes a while for retail customers to do their category reviews and therefore, get you onto their shelves. But increasingly, we are signing more and more customers. And recently also signed [ First South Island, ] and so we're now arranged in their stores in that part of the world. As category reviews happen, we will get more sales. And look, in a few years' time, we will be very happy with what we've established. In terms of our Australian business, a fully integrated business in that part of the world. Most of the produce that we grow there is sold within Australia. It is led by Jon van Popering. It's a fully integrated orchard to market business. Kiwifruit, European peers, Asian peers, jujubes and plums are the main categories that we're involved in. $22.2 million of revenue is the same as last year. $4.5 million in EBITDA is down 29%, which really reflects our volume being reduced in terms of it was a very hot year to grow there. $2.9 million in EBIT is down 40%. It was hot, and we weren't quite prepared to it as we might have been. We are now preparing ourselves for a hot year this year, too. But we've got orchards in Australia that are coming into production, and we've got more canopy tied down this year. The orchards are taking another step forward. So I hope that our patience is rewarded because I'm confident that next time we report these numbers for next year's harvest will be much better. Focus for 2027. Well, as always, we want to deliver excellence, delivering operational excellence through strict planning, contingency planning, understanding what we're doing. And of course, we want to -- and we are focused on delivering excellent financial results. We are pushing for more automation, new machines going into Gisborne. Just in case you didn't realize this, traditionally, it takes 18 months to order a machine and get installed. And with Reemoon, we can do it in 3. So it is unbelievably fast and what we've got with them is really very good. Capacity increases are being considered now to meet demand for our services, and our intention is back here back in Te Puke. We continue to review, look at, think about our capacity and automation plans. They are constantly in revision. And we have a capital management strategy in place that has been reviewed by the Board will be refined a bit further and at some point shared. We are driven to ensure that we reward our shareholders with excellent returns in what is a very competitive environment with some inflationary pressures. So that's it from me. I'm happy and relieved to hand it back to the Chair.

Thank you for that update, Michael. I appreciate that. So now we move into the formal part of the business. Moving towards the resolution that was outlined in the Notice of Meeting. There will be an opportunity for shareholders to ask questions on this resolution and then a further opportunity to ask more general or business-related questions at the end of the meeting as well. As is our normal practice, a poll will be held on the resolution. And shareholders in the room, you should have received your shareholder voting card on arrival from MUFG at the entrance. If you didn't and you wish to vote, then please make your way to the registration desk now to receive that voting card, and they will assist you. So we will also talk through for those people online how to vote online as well. In terms of the resolution, it is outlined in the Notice of the Meeting that Seeka does intend to undertake an issue of shares to its growers under the Grower Loyalty Share Scheme. This scheme rewards loyal growers who supply all of their fruit to Seeka over a 3-year period. So that's a 100% supply of fruit from those growers. This loyalty benefits all shareholders by securing fruit supply in what is a very competitive post-harvest environment, as Michael mentioned. The intention of the scheme is to incentivize growers to provide a longer-term supply commitment, which helps us to make decisions, particularly around things like capital expenditure, investment and capacity and those types of decisions. The share scheme will operate in the same way as the prior share schemes that were issued in 2024 and in 2019 as long-standing shareholders will recall. The scheme offers a maximum number of 1.5 million shares issued at a share price over a specified period. The maximum loan is $9 million. And should the share price go beyond $6 per share, then the number of shares issued would be pro rata down. As the shares are issued at the current market price with no discount applied, there is a limited loss in value to shareholders. The resolution itself, I now propose the following resolution that Seeka issue up to 1.5 million new ordinary shares in Seeka at the issue price described in the explanatory notes pursuant to the Grower Loyalty Share Scheme described in the explanatory notes and further make loans of up to a maximum aggregate amount of $9 million as described under the heading loan in the explanatory notes to fund the issue price of the shares referred to in point A. I would like to remind shareholders that if you vote in favor of the resolution that you will be ineligible to participate in the scheme. It's a very important point. At this point, I'd like to see if there are any questions from shareholders on this resolution that they would like to raise now. Just checking if there are any questions from shareholders in attendance online?

No, there were no questions online.

No. Thank you. Okay. On that basis, then I will ask the registrar, MUFG, to move through the room and they will collect those voting cards. For those shareholders that are online, you can now submit your vote if you haven't done so already. Voting will be open until 5 minutes after the conclusion of this meeting. And for those of you online, there is a slide now that just explains what to do in terms of on your screen to cast your vote using an electronic means. You will need to obtain the voting card beforehand electronically through the online meeting platform, and you will be asked to enter your shareholder or proxy number to validate. Please then mark your voting card in the way you wish to vote by clicking For, Against or Abstain against the resolution on the voting card. And then once you have done that, you need to actually click on Submit Vote. I think that last piece is probably the most important to submit the vote. And then we will be able to collect those votes. Okay. The results of -- as I mentioned, voting will remain open until after 5 minutes after the conclusion of this meeting, and the results of the vote will be announced via the NZX. The resolution in the Notice of Meeting is an ordinary resolution and therefore, must be approved by a simple majority of the number of votes cast. So that will determine the outcome of the resolution. Okay. Thank you for that. I'd now like to move on to the final part of the meeting, and that is the general business and to really provide shareholders the opportunity to ask any questions of myself or of Michael. And are there any questions from shareholders? Please?

This is Chris [indiscernible]. I noticed one thing that we can't change [indiscernible] impact of climate change...

Sorry, just microphone.