I would now like to hand the conference over to Mr. Andy Borland, Managing Director. Please go ahead.
Good morning. I'd like to welcome you to Scales' interim results announcement for the six months ending 30 June 2026. With me is Ben Washington, Scales CFO. Earlier this morning, we lodged our results with the NZX, which included the presentation pack that we will base our comments on for this call. Ben and I will run through the slides, then take questions at the end. An agenda is provided on slide two. We thought we would start our presentation on slide four with a quick recap of the Scales Group. Three global operating divisions, which all have different business models, but all operate within the agribusiness sector. Global Proteins has two main business areas, the manufacturing supply of pet food, ingredients, and the supply of Edible Proteins. Horticulture comprises Mr Apple, our vertically integrated apple business, Fern Ridge Fresh, a fresh produce exporter, and Profruit, a premium juice manufacturer.
Logistics provides air and sea freight services to both internal and external customers, primarily within the perishable food sector. As you can see from slide five, we are a truly global business, spanning multiple geographies, but with a focus on the North America and Asia markets. On to our results for the first half of 2026, as you can see from slide six, it has been another very positive period with record first half earnings. This has been driven by both organic and transactional growth, and in particular, the M&A activity that we undertook within Global Proteins last year. Putting some numbers to those record results, revenue increased 105% to NZD 762 million. Underlying EBITDA grew 18% to NZD 102 million. Underlying NPAT rose 10% to NZD 62 million, and underlying net profit attributable to shareholders increased 7% to NZD 52 million.
As a result, earnings per share has increased NZD 0.02 to NZD 0.36 per share for the six-month period. In respect of the divisions on slide eight, I am pleased to report that we had top-line revenue growth across all divisions. Within Global Proteins, our EBITDA margin was impacted as a result of our increased shareholding in the Edible Proteins businesses in the third quarter last year, as this is a higher revenue, lower margin operation. However, pet food ingredients margins grew strongly. Horticulture had another solid growing season with a further shift towards premium varieties targeted to the Asia and Middle East markets. Sales run rates were very strong in the first half of the year, and this offset a slightly lower pack-out rate. Lastly, Logistics performed well, continuing to increase volumes despite ongoing geopolitical issues and continuing to deliver best-in-class service to both internal and external customers.
I'll now pass on you to Ben, who will run through the financial results for the first half of the year in more detail.
Thanks, Andy. For those of you with a copy of the results presentation, we're now on slide 10. This slide comprises the key financial metrics for the group for the first half of 2026 compared to the first half of last year. I'll refer to the financial results measured on an underlying basis, which includes the effects of IFRS 16, but excludes the impact of acquisition accounting and certain one-off items detailed in the appendices of the presentation. I'd also just like to note an impairment provision of NZD 19.7 million has been recognized within our reported earnings in respect of the loan to the Esro Petfood Joint Venture. This impairment has been excluded from our underlying results. As you can see, revenue has more than doubled year-over- year, primarily due to the consolidation of the Edible Proteins business from the third quarter of last year.
This has also contributed to the change in gross margin mix between the two periods. Whilst operating expenses increased with the consolidation of Edible Proteins business, we did achieve operating leverage overall. As a result, operating expenses as a percentage of revenue decreased from almost 8% in the first half of 2025 to 5.5% for this year. As Andy mentioned, the group result is a strong profit growth for the first half year, with underlying EBITDA increasing by nearly 18% to NZD 102 million. The underlying net profit after tax attributable to shareholders increased by nearly 7% to NZD 52 million. The next slide summarizes our financial position. Whilst there are several movements between June 2025 and June 2026, it's important to note that the balance sheet at 30 June last year did not include the Edible Proteins business or Meateor Australia.
It is therefore important to consider the position as at 31 December 2025 for comparative purposes. In addition to the effects of bringing in the Edible Proteins businesses, net working capital at 30 June 2026 has increased by a faster sales run rate in Horticulture, increasing the June receivables balance. Net debt is also impacted by Horticulture's seasonal working capital, together with higher input costs of inventory for Global Proteins. Whilst the quantum of the net debt balance at 30 June 2026 has increased compared to both June 2025 and December 2025, it remains only 0.7x the rolling 12-month EBITDA, similar to other periods. As in previous years, we expect net debt to reduce in the second half of the year as horticulture's seasonal working capital requirements unwind. In other words, as cash is collected from our horticulture debtors.
Finally, the group has extended its term debt facilities with Rabobank and Westpac for a further three years. On to slide 12. The movement in net debt between December and June can be apportioned into four main areas. Firstly, strong cash earnings from each of the divisions. A disciplined approach to CapEx, predominantly within the horticulture division. Payment of dividends, including those in respect of our non-controlling interest, and as I previously mentioned, an increase in working capital, largely seasonal from the horticultural division. Moving on to a review of the divisions, starting with Global Proteins. As you'll see on slide 14 of the presentation, in addition to presenting Global Proteins' underlying results for the six months to 30 June 2025, we've provided pro forma results as if the increased investment in Meateor Australia, Fayman International, and ANZ Exports had taken place from the start of 2025.
This offers a year-over-year comparison of the division on a like-for-like basis. Of particular note is the reduction in EBITDA margins in June 2026, which, as previously mentioned, is due to the higher volume, lower margin model of the Edible Proteins business. However, EBITDA margin is significantly more comparable between June 2025 and June 2026 when viewed on a like-for-like basis. Most businesses within the division perform well. We're seeing strong demand for global pet food ingredients. However, supply remains tight across Australia and New Zealand. Shelby delivered a very strong result, driven by favorable product mix and a new in-plant collection facility. Meateor also contributed strongly, driven by positive demand. Unfortunately, the divisional results were impacted by the disruption of Esro Petfood, which has provided us with some challenges. Our immediate focus is to stabilize operations and assess the long-term strategic plan within the region.
On the edible protein side, the Fayman business continued to grow sales across Asia and the U.S. As you can see in the pie chart on slide 15, around 57% of our total protein volumes were sold to the North American market. We source product in this market, both locally and globally, to meet customer needs. Asia was our second biggest market at around 30% of sales, with the addition of the Edible Proteins business growing sales into both Asia and North America. Pet food ingredient volumes grew around 11% due to our investment in production capacity in prior periods reaching operational levels. This, along with improved efficiencies, also increased pet food ingredients revenue and underlying EBITDA per kilogram. Moving on to horticulture on slide 16, which produced another solid result. Whilst there was some disruption to Middle East sales, this was compensated by robust demand in Asia.
As mentioned, Mr Apple's sales run rate was higher than last year at around 66% of forecasted homegrown export volume being sold as at 30 June 2026, compared to 54% last year. Profruit had another solid six months, with healthy production levels, comparable sales volumes to last year, and strong sales in the U.S. market. Increased fuel cost and freight from the Middle East conflict have impacted EBITDA margin. On slide 17, we continue to see an increase in the proportion of sales to Asia. We expect sales to the important Asian and Middle East markets to account for around 91% of export sales volumes this year. This compares to around 84% last year. Mr Apple's total export volumes are forecast to be around 3.5 million TCEs for the year, with a pack out rate of around 75%.
Whilst both of these metrics are slightly down on last year, they have been offset by a continuation of our strategy to increase market exposure to Asia and Middle East and increase the proportion of Mr Apple's premium variety volumes to 79%. Once again, Dazzle and Posy have driven the premium volume growth as plantings of these varieties approach maturity. Lastly, onto logistics, which produced a robust result, with underlying EBITDA down only 6% from last year's exceptional first half performance. This is particularly pleasing considering the ongoing geopolitical tensions and associated fuel price challenges. There was a significant increase in demand for air freight, primarily from the dairy sector, together with modest increase in sea freight volumes. I will now pass you back to Andy.
Thanks, Ben. Sustainability remains at the forefront of our mind, and we continue to make progress on our ESG and sustainability projects and goals. A selection of projects is shown on slide 20, and I would just like to touch on a few of them. The availability and efficiency of energy is important to us from both an environmental and cost point of view. Consequently, we are currently assessing our process and technology options in order to improve our energy efficiency and to ensure resilience towards energy availability and cost. In respect of our people goals, we are committed to ensuring that Scales is the best workplace that it can be.
Mr Apple has had a people strategy in place for several years, and I am pleased to say that we have leveraged this knowledge and have implemented our first formal group-wide people strategy, extending a common framework across the group. We also recently completed a gender pay gap assessment across our New Zealand businesses. Our first pay equity review was undertaken in 2020, so this more recent assessment provides us with an up-to-date baseline going forward. Lastly, I would like to update you on our key divisional strategic priorities and provide an outlook for the full year. On to slide 22 now. Within Global Proteins, one of the most processing priorities is to stabilize Esro Petfood, and in conjunction with that, assess the long-term plan for our European operations. We have also focused on broadening our supply base in Australia, in what has become a relatively tight supply market.
This would diversify any potential associated supply risk. Horticulture's long-term strategy of investing in premium varieties targeted towards the Asia and Middle East markets continues, with an ongoing orchard redevelopment program. We also continually assess efficiency and automation opportunities within our post-harvest operations. Lastly, logistics is focusing on what it does best, which is deliver best-in-class service to both internal and external customers, while navigating volatility in the global freight market. The division continues to actively pursue new customers whilst continuing to strengthen long-standing relationships with existing customer base. In respect of the full-year outlook, the directors would like to advise an increase in the FY 2026 guidance range of underlying net profit after tax attributable to shareholders to between NZD 55 million and NZD 60 million.
In providing this guidance, the directors would like to note, Mr Apple's sales run rate for the first 6 months this year was higher than the run rate in the same period last year, around 7% of Mr Apple's export crop is to be sold, which compares to around 18% this time last year. Ongoing geopolitical tension in the Middle East and final pricing remain areas of risk. We continue to remain cautious in Global Proteins due to ongoing geopolitical uncertainty and tight product supply in certain markets, but we remain confident with the medium-term outlook and strategic growth initiatives that we have in place for the division. Our logistics business has successfully managed the impact of geopolitical tension, increased fuel costs, and ongoing freight disruption in the first half of the year.
However, we will keep a close watch on the ongoing impact of this disruption in the second half of the year. That concludes today's formal presentation. I'd like to direct you towards the appendices, which provides additional information, including the reconciliation of reported earnings to underlying earnings for the group and each of our divisions. We are now happy to take questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rob Morrison from Craigs.
Hey, morning guys. Congratulations, Andy and Ben and the wider team for a really good result.
Thank you.
All right. Kicking off with the guidance range. You have obviously upgraded it, and there is a bunch of assumptions that bookend the top and the bottom. Can you just run me through what you are assuming for the divisions at the top and the bottom end?
Yeah. We have kept it pretty broad, as you know, with our guidance, Rob, in terms of not being directly specific about each of the divisions. But it is clearly, on the downside, we have got to bring in quite a lot of debtors from the sales of apples. And we do have increased opportunity for quality claims. But we have factored those in relative to the bottom and the top of the grade of the guidance.
Yeah. Maybe a couple of other observations there, Rob. We obviously had a record result for the horticulture business last year. We do not anticipate we will repeat that year on year. Equally, you will see in the numbers, we have had a very good result for Global Proteins. We do not anticipate, I guess, that run rate to necessarily continue through the second half. There are some challenges around supply in certain markets, and we have had some very good favorable contracts through the first half.
Okay, thanks. Just on that Global Proteins, it looks like Shelby had a really good first half growth. If you look at that [UNPAT] minority shareholders, which is mostly Shelby, it seems to me, that was up about 32%. The guide is assuming a pretty big deceleration in the second half. It looks like the guide range is for a - 3% to - 16% fall in the second half for that un-packed minorities, again, which is mostly Shelby. What's driving that?
There's a couple of things there, Rob, and it's a little bit complex. With the Esro Petfood piece, we've obviously taken control of that for accounting purposes. The minority interest is going to go through for Esro Petfood there in the second half as well, so that's sort of compensating. My observation or my comment on Shelby would be that we would expect it to deliver some growth on the second half of last year. We just don't think that it will repeat the run rate of the first half.
Cool, that's great. Thanks a lot, guys, for the improved disclosures. Just in terms of what all the divisions did within Global Proteins. I can see the organic Global Proteins net profit is up 7%, but the net profit to shareholders is down a couple of percent. Looks like Meateor New Zealand's up about NZD 1 million. Shelby SPS is up a little, which is great. Esro Europe is down about NZD 2 million. Can you just talk about what you're seeing in Fayman International Meateor Australia in the half?
Yeah. The Fayman International business has grown year-over-year top-line sales. The margins are under pressure in that business. Gross margin's under pressure a little bit year-over-year. The Meateor Australia business has had a very good first half. We have acknowledged that supply is tight. But I think, a key beneficiary for us in that first half has been we carried some inventory over in the first half. We don't have that same luxury in the second half in a tight supply market.
Okay, thanks. Just in terms of the next steps for Esro Europe, it kind of sounds like you are perhaps considering the viability of the operation. How soon could that be wound down, and what kind of losses would it incur while that is happening?
Look, very manageable for us. We are working through, obviously, our joint venture partner, who had some difficulties. Their entity that went into administration, and yeah, we are in the process of, as Ben Washington says, sort of taking control of it. Yeah, we look pretty confident of getting a solution through this next period to the end of the year. We want to continue operating in that geography as it is a massive market and a good opportunity. Remains a good opportunity for Scales Global Proteins.
Okay, cool. That is great. Hey, thanks very much, guys, and have a good day.
Thanks, Rob.
Our next question will come from Adrian Allbon with Jarden.
Oh, good morning, team. How are you going?
Good, thanks, Adrian.
This might be a tough question. Just looking for a ballpark. I know like, particularly for Mr. Apple, FX is kind of wrapped into the broader negotiations. Is it possible to sort of call out, was there any sort of supernormal FX benefit that you kind of, I guess, benefited from in the first half? Obviously, the NZD was quite weak. Just wondering if there's anything you could isolate on that front for us.
Yeah. On that one, we are hedged sort of five years out, so it's largely all hedged, Adrian. There is a little bit of currency benefit, but it's not significant in the first half. It's pretty modest.
Okay. All right, no problem. Then just maybe staying with you, Ben, just in terms of those Esro challenges, are they sort of normalized in the proteins number and the underlying estimates you've provided for that division?
Yeah.
Okay.
The trading performance is included in the underlying result, and it is included in the forward-looking view. The only thing we've stripped out is the provision for the loan from the underlying performance.
Okay. Then the counsel you are giving us for the second half, given is that Esro will join the non-controlling interest. Is that right?
Correct. Yeah. So from an accounting perspective, we will consolidate 100% of the result, and then 50% of it, whilst we remain in the 50% joint venture, will go through the non-controlling in the second half.
Have you made a placeholder for that? Like, within the-
Yeah.
Are you able to give us Are you able to kind of. Obviously, that is hard for us to have any sort of idea on-
Yeah.
How material is it?
Well, I think we've given you the first half performance, which is a NZD 3 million loss for our 50% share. We wouldn't expect to repeat that necessarily in the second half. It will be an improvement on that in the second half.
Okay.
But we don't expect it to be profitable.
Okay. So there's a, yeah, somewhere between a minor loss and half of that loss would be reasonable for us.
Yep.
Okay. Just in the apples business, I guess you have recorded, at this point in time, you have sold more and the pack-out rate is lower compared to last year. Would it be reasonable to expect around a NZD 10 million loss at the impact level for the second half?
Yeah. It is within the ballpark. Yep.
Okay. Just in terms of the efficiency options that you talk about, I think Andy was talking about that on slide 22. How linked or contingent are they on your activities that were quite watchful on the industry consolidation?
Not really, no. It is.
Yeah, one of the ones is in Profruit. We're a big gas user there. The prices have gone up for gas and electricity, so we're just looking at ways to get more efficient in that business. We've got some of the specialist equipment in there is getting quite aged, if you want to call it that. There's probably an investment too. Yeah, and the payback's super good because the new kit uses a lot less energy per kilogram, if you want, of product. So it's really in those sort of areas, Adrian, that we're trying to look for improvement. Yeah, so definitely.
I think the other one, Adrian, is there are some efficiencies we've identified in some of our proteins businesses around plate freezing and the like, so we think we can invest some CapEx and get some efficiency over time.
Okay. No, that's helpful. So, in terms of horticulture, I guess the big strategy that you're calling out has driven the value is essentially the shift up into the premium varietals, where you're running at kind of just under 80% at the moment.
Yeah.
This stuff is more just sort of backfilling just to kind of keep a watchful eye on the costs. Then I guess the industry consolidation allows you to sort of optimize the orchard land that you've got and potentially take on a few more opportunities as they sort of fit in on the varietal and the price front. Is that sort of how you would see that vertical?
We have certainly picked up a number of leases. I think in total about 100 hectares, 80- 100 of leases that have come out of that range of, if you want to call it business failures in the Hawke's Bay.
On that, is that over the first half?
It was a bit of last year as well, and we picked up some late in the year, and we have picked up some more recently, yeah.
Okay.
They are really just helping us target more growth for our premium varieties and help keep the volume stable as we redevelop.
Okay. Then, maybe a final question. In logistics, you are calling out, I think the air freight boosts from a dairy sector. Do you think that has sort of crested now with the Middle East, or is it still ongoing?
Look, it comes and goes. Certainly, we love it when it is full bore. But yeah, you are right, the continuity of it is variable, let us just say.
Okay. But there is not a NZD for that sort of forecast in the second half for logistics. It is sort of back to sort of, I guess-Back to normal.
Back to normal.
This is quite difficult to describe. Back to normal in an unnormal way.
Yeah.
All right.
Exactly.
Okay. Thank you guys. That was good.
Thanks, Adrian Allbon.
Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Our next question, we will hear from Paul Koraua with Forsyth Barr.
Hey, guys. Thanks for taking my questions. Just a couple quick ones. The first is just on Esro. It has been a challenging six months, but down at the operational level, what has changed after your JV partner going into receivership? What do you have control of to give us a little bit of comfort that that NZD 5 million loss does tighten up in the second half?
Look, A, we have got people over there. Three of our senior people have been in that business, working with the team on operations, working with the suppliers and the customers to stabilize it and get it back up to where it was. Prior to the intervention, the business was profitable. It was doing solid volume, and that has come off, and we are busy looking to get it back to those levels. We expect to see good progress of that in the second half.
Awesome. Thank you. The second one on Global Proteins. Even on a like-for-like basis, you did see a little bit of that margin squeeze, at the EBITDA level, 140 basis points or so. Does that come down to the supply issues you are talking about? How should we think about that running into the second half? It sounds like it is still pretty challenging out there.
I think there's two components to that piece, Paul. The pet food ingredients business, actually, margins have been really healthy and actually growing. It's on the edible piece that the margins have been a bit compressed and challenged, and obviously, it's a bigger weighting, so it skews the overall pot, if that makes sense. We've actually seen good, healthy margin growth for the pet food ingredients side of the business. It's on the edible piece, where the margins have been a bit tighter year-over-year.
Yeah. No, awesome. That makes sense. Then maybe just the last one is, you used to have the slide on some of the initiatives you were working on in the U.S., and one of those was that fish and poultry JV that you guys started up over there. Could you just give us a little bit of an update on how that's progressing and how that fits into the plan?
Yeah, going really well. It's a startup, if you want to call it that. It's not a high investment, but got a great team of people working with us there, and they're picking up volume. It's a trading business at the moment, and we continue to look for opportunities to deepen the involvement, I suppose, by starting the processing like what we do with Meateor and Shelby.
Cool. Awesome. Thanks. That'll do me, and congrats on a good result, guys.
Thanks very much, Paul.
Cheers, Paul. Thanks.
Your next question will come from David Oxley with ACC. Please go ahead.
Thank you. Morning, guys. Just a quick question. Rob's assumption that the vast majority of the non-controlling interest relates to Shelby. A, is that correct? B, can you give us a steer on how that, whatever the number is, 10-point-something million, does actually split between the two minorities?
Yeah. For the first half, the non-controlling interest is largely the Shelby business, as it has been. I guess it is in the forward view that from 30 June, we will be consolidating 100% of Esro in the second half. Does that clarify that?
No. The 15% of ANZ Exports, is that zero?
It is not zero, but it is pretty minor in the context, in the first half.
So-
It is not a big part of the business.
Less than one or less than five, or?
About one.
About one, yeah.
About one. Okay. That is helpful. Thank you. The other thing I just wanted to quickly ask on with regard. Oh, sorry. Also, yeah, on the horticulture business, the pack out is obviously slightly weaker than you suggested at the end of May. It looks like the aggregate result for Mr Apple was going to be fairly similar to what we were expecting. It presumably implies that pricing has been reasonably decent. Could you comment on what pricing has been like, both for the traditional and the premium varietals sort of underlying relative to PCP?
Yep. We've definitely seen some really strong pricing on the premium varieties, and we've seen some good pricing also on the traditional. I think there's been a mix shift as well, so where the market shifts, so where the product has gone. We've seen strong demand from Asia. We've obviously seen some challenges into the Middle East, and that change in market has certainly been beneficial across both varieties.
I think last time you spoke, you were suggesting that the PCP was particularly buoyant because you had larger than normal fruit size, and that, for reasons which I still don't understand, apparently leads to better pricing on a per-tray basis. The suggestion was, bearing in mind you're normally somewhat conservative, that like for like in-market prices might be down in 2026 relative to 2025. It sounds like that's been overly cautious. Is that fair?
Probably, yeah. Look, I think what's happened, as Ben Washington said, is if you're selling less to the Middle East than we thought and more to Asia sells better than Middle East anyway.
Yeah.
That's really compensated a lot, David Oxley. It's been a strong market in Asia. The Chinese market had a tough weather event during their harvest, so their volumes, we were selling into a very, if you like, open and nearly, not empty, but a positive market from the get-go.
Right. Okay. That makes sense. Thank you. On the sort of weird accounting you have to go through with regard to Mr Apple, obviously, last year, for want of a better word, there was far less spoilt fruit than you had anticipated at the half year, and that got adjusted late in the piece from memory, hence the sort of bumper result from Mr Apple last year. Can we be confident that, and I know you are looking forward, and that is the difficult kind of forecast, but can we be confident that this year is more likely to be a kind of normal second half, first half split, i.e., not a lot of profit coming in in the second half? That would seem to be consistent with previous comments around Mr Apple, a good year, but not quite as good as last year.
Yeah, that is right, David. We have gone back, and it is obviously difficult to tell. We still have some time to play out, but we have gone back and looked at some of the historical averages and used that as a proxy for what we think claims and soiled apples, as you called it, there may be in the second half. So we have gone back to a conservative sort of position that we have looked at historically over time. I would not expect it to be the result we had in the second half of last year.
Right. Okay. Thank you. You do not really disclose much on it, but Profruit, is that just up or down relative to last year, given the issues you have talked about?
Slightly back, but still on track for what we thought it would do.
Right. Okay. Thank you. Is there any sort of, given the sort of way that working capital yo-yos around 1H and 2H, is there any sort of steer on where we should be thinking the full year net debt number might come in at?
Yeah. It should come down from a reasonable amount from where it is. We've obviously, with that higher sell-through rate of horticulture, we've got a lot more receivables on our books. Would expect that to convert to cash in the second half. We definitely think there will be a reasonable reduction in net debt between the half and the full year result.
All right. Okay. Hey, thank you very much.
Thanks, David.
Your next question will come from Greg Main with JBWere.
Good morning, guys. Just a question more about looking forward. You are describing this El Niño event as a super one. Prior experience, how has El Niño maybe impacted on the trees' productive capacity, going forward, if you do get a super dry period? What has that sort of done to production?
We are pretty well protected from drought or dry conditions, where there are good irrigation, water rights and irrigation systems, Greg. A hot, dry summer for us, we would prefer that than a wet summer, believe it or not. The more sun the apples get, the better in most cases, in terms of color. Then, keeping the water up is important during a dry period, but we have got good water takes and systems.
Okay. Thank you.
Thanks.
There are no further questions at this time. I will now hand back to Mr. Borland for closing remarks.
Look, thanks very much, everybody. Appreciate the interest, and we will look forward to providing you with an update later in the year. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.