March 6, 2017

Australian almond grower Select Harvests announced, as part of its Half-Year Ending December 31, 2016 – Results Presentation Report, that the company has agreed to acquire Jubilee Almond Orchards located in South Australia, and a 22 percent stake in Laragon Processing – an almond hulling and shelling facility, for a total consideration of A$26.5 million.

Select Harvests, which sells brands including Lucky, Sunsol, and Soland, has grown to become one of the largest nut producers in Australia. After posting record breaking profits in 2014, the company went on to acquire three properties and water entitlements located in Victoria and Southern Australia for A$59 million – two operating almond orchards: Amaroo, with 2,046 acres, and Grewal with 435 acres. The third was a greenfield property consisting of 1,600 plantable acres, for a total of 4,460 acres.

In 2015, the company announced it was exploring funding options to drive the plant-out of orchards on these properties, including sales and leaseback arrangements.

“We are looking for long-term investors of around 20 years and we are looking to use their lower cost of capital,” said Managing Director Paul Thompson at the time. “It is similar to a building development. Similar things have been done in the wine industry in Australia and in the US.”

Jubilee and Laragon

This latest acquisition of the Jubilee Orchards includes 792 acres of bearing trees, 355 acres of non-bearing trees, and 1,135 ML of water entitlements. The property produces Fritz, Peerless, Price, Nu Plus Ultra, Carmel, and Nonpareil varieties of almonds, and is expected to lift Select Harvests’ production volumes by 1,400 tons per year. And although the company notes that the 2017 harvest is two to three weeks behind the usual schedule due to a mild spring and summer, conditions have been favorable for the most part, and the group expects to see output of between 15,750 tons and 16,250 tons of almonds for the 2016/17 season.

The deal also included the acquisition of a 22 percent stake in Laragon Processing, located at Lindsay Point, Victoria, which has the capacity to process 10,000 tons of almonds per year.

Long-Term Outlook

This deal is the latest in a wave of expansionary moves by Select Harvests, which is aiming to increase production to 20,000 tons per year by 2019/20, despite a notable drop in half-year profits.

In the six months to December 31, 2016, Select Harvests saw net profits of $11.6 million – a 51 percent decline from a year earlier, due in large part to recent almond price volatility, according to the company.

However, in its half-year report, the company goes on to outline a range of macro trends that support the potential for long-term growth and increasing returns for Australia’s almond industry.

More informed consumers are increasingly replacing sugary snacks with healthier options as more research finds that plant-protein foods have a positive effect on cardiovascular conditions and diabetes, while also giving consumers with lactose intolerance a wider range of food and beverage options.

Over the past 10 years tree nut consumption has climbed by 59 percent, with almond accounting for the highest growth at 94 percent over the same time period. High-income countries (HIC) continue to account for 56 percent of consumption, while consumption in middle-income countries (MIC) has doubled over the last decade. Continuing this trend, as wealth increases in some of the world’s largest emerging markets including China, Thailand, India, Indonesia, low levels of almond consumption are expected to show rapid increases over the next decade, according to Select Harvests.

Given these strong long-term market dynamics, the drop in profits for the second half of 2016 is being viewed by Select Harvests as simply a short-term situation.

“Current earnings momentum remains in line with our expectations,” said Thompson. “Select Harvests is structured and managed to withstand and capitalize [sic] on short term commodity price and currency fluctuations.”

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com.