Select Harvests Limited : Letter to Shareholders
06/03/2012| 08:39pm US/Eastern
4 June 2012
I write today to inform you of progress on a range of
initiatives within the business, to update you on the almond
crop and the outlook for the remainder of the year.
After a thorough strategic review of the company's water
requirements and permanent water assets we have agreed to
sell 11 gigalitres (GL) of high security Victorian and New
South Wales water entitlements for $18 million. The majority
of the entitlements were sold to the Federal Government as
part of the recent water tender process, with the remainder
sold to a private buyer.
This is an excellent outcome for Select Harvests. We
undertook a thorough analysis of the business's needs under a
variety of scenarios, including drought. With a range of
economically viable temporary water solutions now available
it became apparent that the sale of some permanent water
allocations, and a more active management of our long term
water requirements, makes commercial and strategic sense for
Select Harvests' retains ownership of 30 GL of water
entitlements across Victoria, NSW and Western Australia, and
has access to high security entitlements through its leased
orchards in New South Wales and Victoria. The balance of
future water requirements will
be secured through a combination of temporary water purchases
and medium term hedging strategies.
In March 2012 we announced that we have appointed Kidder
Williams to oversee the sale of our non-core health and snack
food brands; SunSol, Soland and Nu-Vit. I am pleased to
advise you that the sale process is progressing well with
several submissions of interest now under consideration.
Together the sale of our non-core food brands and the
permanent water assets is consistent with our ongoing capital
management plans. It will enable us to reduce debt and
provide further balance sheet flexibility to support the
business's growth agenda.
With the almond harvest now largely completed across Company
and Managed Orchards we have updated our estimate for the
2012 almond crop.
Latest estimates across the Australian almond industry
indicate that yields will be below the industry averages for
the third year in a row. This trend is also being reflected
across our Company and Managed Orchards crop. Our initial
estimate was that our Company Orchards crop would be 75%
above the 2011 crop of 4,030 metric tonnes. The latest
indications are that the 2012 crop will be approximately 35 -
45% higher than the 2011
The industry believes that the reduced yields are the result
of the impacts of drought followed by unseasonable weather
conditions over the past two to three years. Full
horticultural programs are in place across our orchards and
we expect yields to increase as trees return to full
productive health and orchards reach maturity. In the
meantime we are benchmarking our horticultural programs to
ensure that we are in line with international best
Average nut quality for the 2012 crop is good with only
minimal staining recorded on some almonds from our New South
Almond price fundamentals are strong with increased demand
supporting a firmer almond price. This is supported by
continued increased demand from China and India.
This strong demand and the softening of the Australian dollar
against the US dollar has underpinned an almond price which
is 12-15% higher than in fiscal year 2011.
Our processing and marketing programs are well advanced with
more than a quarter of the
2012 harvest processed and an active selling program
We expect that the firmer almond price will partly offset
lower than previously estimated volumes for the 2012
Board and executive team
Subject to the crop estimate being within the projected range
the company anticipates FY12 underlying EBIT, excluding any
gains on the sale of water entitlements, to be approximately
10% - 15% higher than underlying FY11 EBIT.
Curt Leonard has announced his retirement from the Board of
Select Harvests after eight years as a director of the
Company. Curt initially flagged his intention to retire as a
director when he announced his retirement as Chairman of the
Board in October 2011. I would like to thank Curt on behalf
of the Board, shareholders and employees of Select Harvests
for his dedication and commitment to the Company.
Under Curt's Chairmanship the Company navigated a period of
significant transition in the Australian almond industry,
putting in place a platform to take advantage of the strong
fundamentals which underpin the global and Australian almond
industry. We wish him the very best in his retirement.
It is the Board's intention to appoint another independent
non-executive director to replace
Curt in due course.
I would also like to update you on the process to appoint a
Chief Executive Officer. I have been extremely impressed by
the quality of candidates who have come forward for this
position, reflecting Select Harvests' leadership position in
the Australian almond industry. We are close to finalising a
decision in the coming weeks and I am confident that the
successful candidate will be well placed to drive the next
phase of Select Harvests' development and drive value for
In the meantime the executive team continues to make good
progress in driving efficiencies and reducing working capital
requirements across the business to ensure that we
a leading position within the Australian almond industry.
The outlook for Select Harvests remains positive. The
fundamentals of the almond industry are compelling with
strong demand from fast growing markets such as China and
India. We are on track with our plans to strengthen our
balance sheet positioning us well to benefit from market
improvements and increasing crop volumes.