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Half Yearly Financial Report to 31 December 2016

Half Yearly Financial Report to 31 December 2016

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Dear Shareholders

Please find below a link to our half-yearly audit reviewed financial report for the six months to 31 December 2016 as well as an update below.

Boundary Bend Ltd 31 December 2016 Half Year Financial Report

Half-yearly results

For the half year to 31 December 2016 Boundary Bend Limited reported a net loss after tax of $5.26 million (2015: $4.55 million loss), which included a post-tax loss of $1.57 million from the Australian operations (2015: $2.30 million loss) and a post-tax loss of $3.69 million from US operations (2015: A$2.25 million loss).

It is important to note that we do not recognise the net value of the 2017 olive crop in our half yearly accounts, therefore the net value of the crop will not be realised until after we harvest and mill the olives in the June quarter. The loss for the period (both Australian and US operations) is smaller than forecast.  We expect to report a material full year profit, noting that the level of this profit is highly reliant on the final results of harvest which will not be completed until the end of June.

The consolidated entity reported positive cash flow from operations of $10.12 million compared to $17.09 million for the same period last year. In the same period last year, we sold a material amount of oil on the bulk market, which compares to the last 6 months where the majority of our olive oil has being sold as packaged goods, which is more evenly spread across the full year.

New Accounting Treatment of Bearer Plants (Olive Trees)

This reporting period is the first time we have adopted the revised accounting standard relating to the treatment of Bearer Plants (i.e. our olive trees). In previous reporting periods, the value of olive trees was recorded at fair value under AASB 141 Agriculture, and any movement in fair value included in the profit or loss account for the period. Under changes to the accounting treatment, olive trees will now be assessed under the AASB 116 Property Plant and Equipment accounting standard, and we have opted to record the trees at cost and depreciate the cost over their useful life. Costs associated with young trees will be capitalised until such a time as they are fully operational.

As required under accounting standards, the comparative Profit or Loss, Balance Sheet and Cash Flows have been restated to account for this new treatment. The impact of this restatement is set out in Note 1 of the Financial Report.

Sales Update

Packaged goods sales are on track to exceed last year’s sales by approximately 5% in value, which pleasingly will be achieved with a decreased in-store discounting program. Whilst our supermarkets business has continued to trade exceptionally well, we have also seen excellent growth in our ‘non-retail’ channels, mainly through sourcing of new customers, and additional sales to our existing customers.

Cobram Estate

The olive oil category has experienced some extremely strong discounting in the first half of the 2017 financial year, largely driven by our competitors. However, Cobram Estate maintained the market leading position at the end of the 2016 calendar year. Our average baseline (non-discounted, full price) dollar sales closed the calendar year approximately 15% higher than at the same time 12 months ago. This is a very strong position to be in, with exciting marketing activity planned for the coming months.

Red Island

In the first half of the 2017 financial year we have seen the launch of the new PET bottle into the Australian market. This innovation was met with 100% trade acceptance and is currently selling through all major supermarkets, however consumer uptake and understanding of the functionality of the squeeze bottle is slower than expected. We are initiating packaging changes to communicate better to consumers the benefits of the product. The Red Island bulk format business (tins) has undergone some changes, and is on track to exceed dollar sales vs last year.

USA Operations

Our US based business continues to perform as planned, as we increase our packaged goods distribution footprint nationally, having currently been accepted in over 3,000 retail locations.  The 2016 harvest (October and November) pleasingly exceeded forecast volume of fruit milled, and sales prices achieved for bulk oil are also better than expected. Boundary Bend has completed the planting of our first 150 acres at our flagship grove and we have continued to secure additional volumes from independent growers.  Installation of an in-house bottling line has begun with expected production commencing in early April.   Expansion of the processing capacity is scheduled to begin in May of 2017 with final construction completed prior to the 2018 harvest as planned.

Value adding by-products and waste streams

We continue to research and develop value added products using the waste stream from the production of olive oil. Over the next six months several products will move from research phase into commercial trials and/or production. We expect to have our first products available for commercial sale in FY 2018 and have commenced discussion with potential customers and partners. The process and products are still commercially sensitive, but as always, we will update shareholders with further details when appropriate.

Grove improvement and 2017 Australian harvest

We have continued with our grove redevelopment program, having planted 160 hectares of olive trees at Boundary Bend Estate in the spring period. At Boort Estate we are in the process of planting 145 hectares on previously cleared land and replanting 200 hectares. The current Boort planting will be finalised within the next two weeks.

Harvest will start in a limited capacity on early varieties at both groves in late March but will commence in earnest in mid to late April.  We expect harvest to be complete by the end of June and will send shareholders a full update shortly thereafter.

Equity Placement

We continue to work with investors in relation to an equity placement to help fast-track our core growth pillars.  Any equity raising will be subject to attracting the right type of investor and at the right value. We will continue to update shareholder as this progresses.

Strategic planning

The board and key executives from both Australia and the USA have just completed our annual two-day strategic planning retreat. It was productive two days, which was mostly spent focusing on the strategic direction of our four growth pillars, and how we continue to increase shareholder value.

We thank you for your continuing support.  Should you have any questions please feel free to contact me at any time on mobile 0418 955 363 or via email r.mcgavin@boundarybend.com

Kindest regards

Rob McGavin

Executive Chairman