Huge Central Otago orchard in receivership sale

Property

A Central Otago orchard with more than 48,000 stone fruit trees is being sold by its receivers

7th Oct 14, 10:34am by Greg Ninness

The Summerfruit Orchards property is mainly planted in apricot and cherry trees

One of the country's largest stone fruit orchards has been put on the market after the company that owns it was put into receivership.

Summerfruit Orchards Ltd was put into receivership last month and its 201 hectare stone fruit orchard located 3km from Clyde in Central Otago has been put on the market by receivers Tim Ward and Colin Gower of BDO.

According to Bayleys Queenstown, which is selling the property by tender, it is planted in 20,000 cherry trees and and 28.000 apricot trees along with some nectarines and peaches.

The property also has about 10ha of easy contoured land land which has not yet been planted and a large scale, modern packing shed, three cool stores and an administration building.

The receivers are due to publish their first report on November 7 and the company is yet to publish its accounts for the most recent financial year.

However its annual report for the year to June 2013 shows that it had total income of $3.7 million and made a net loss of $529,000.

Its property, plant and equipment and biological assets (trees) were valued in its accounts at $7.76 million.

The annual report said the company was struggling with cash flow issues which had not been helped by poor weather and it was reliant on the continuing support of its largest shareholder and marketer to continue as a going concern.

It is understood most of the orchard's crops were exported.

Tenders for the property close on October 30 and are being handled by David Gubb of Bayleys Queenstown.

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30 Comments

by Stephen Hulme | 7th Oct 14, 10:42am 1412631776

However its annual report for the year to June 2013 shows that it had total income of $3.7 million and made a net loss of $529,000.

Its property, plant and equipment and biological assets (trees) were valued in its accounts at $7.76 million.

Herein lies the problem - an extortionate property value that attracts costs not commensurate with possible income.

by Gummy Bear Hero | 7th Oct 14, 10:45am 1412631957

.. too late for a dairy conversion ?

I've heard that ferret farming is making a come back ... wonder if you can milk them ?

by notaneconomist | 7th Oct 14, 11:31am 1412634691

You'd need something smaller than a thimble for a milking cup GBH.

by Andrewj | 7th Oct 14, 11:15am 1412633759

If it had 7 million dollars of debt at %8 its only 560k. I'd be surprised if the bank lent them that much but stranger things have happened. That leaves 3.24 mil to run 200 hectares and they couldn't do it at less than 3.9mill. Somthing is very wrong with the NZ cost structure, 20,000 a hectare in running costs. Eye watering stuff.

by KH | 7th Oct 14, 11:19am 1412633969

Thank you Andrew. It's always good to see some 'simple sums', to cut through the foofoo we so often see.

by Casual Observer | 7th Oct 14, 1:07pm 1412640443

There is a story behind this story that is more about a dysfunctional Board and scrapping between shareholders. Pity it isnt an auction. Could have been entertaining to see which if any, of the existing shareholders bid against the other in the expectation of getting it at a 'fire sale' price. It has been operating since 1986.

http://www.odt.co.nz/regions/central-otago/317592/fruit-company-receive…

http://www.odt.co.nz/regions/central-otago/318004/summerfruit-receivers…

by steven | 7th Oct 14, 1:51pm 1412643064

I wonder what the rates are.

Wages I assume are at min give or take a bit.

This of course I think is just going to get worse and worse.

regards

by Casual Observer | 7th Oct 14, 2:45pm 1412646354

Perhaps this is more a lesson in what happens when you have a majority controlling shareholder that sees things differently to others. Small companies that have a majority control shareholder are always going to have some risk attached if that shareholder has a different view to other shareholders/directors. Just ask some of the young equity farm managers that have been burnt as a result of this.

Our rates in Central Otago on a property with a higher CV than we had up north, are around half of what we paid up north. So I doubt they would be that high.

Due to the greater demand than supply of orchard/viticulture workers in Central their pay is better than minimum wage.

by Andrewj | 7th Oct 14, 2:52pm 1412646729

Bob Jones said if you go into partenships it should always be in odd numbers and 3 is too many.

by Casual Observer | 7th Oct 14, 3:14pm 1412648041

At the SIDE dairy conference this year the workshop speakers on equity partnerships said 3 is ok but definitely no more than five and to make sure you have met your prospective partners and you all have the same values, ethics etc.

by gordon | 7th Oct 14, 11:40am 1412635215

NZEIR came out with a report this morning and said profits are razor thin for businesses. Speaking from personal experience I would have to think many retailers are currently making losses. Harvey Norman and Noel Leemings did not have their recent fire sales because they are incredibly profitable and want to be nice to the public. No they need to reduce stock and get some cash flow going. Watch this space. More and more retailers to close down especially in the provinces unless people get back to normal spending patterns again. Every purchase off shore is a nail in the coffin. People will be moaning when their are no shops in their towns and they cannot buy offshore as the dollar is too weak to make it worthwhile. Small businesses emply of lot of new Zelanders. If these people lose their jobs they will need benefits. Is that a good thing for the economy.

by Andrewj | 7th Oct 14, 11:54am 1412636062

I agree there is a problem but we differ on the cause. NZ has been centralised and financialised. The money from the regions is not going on offshore purchases in any volume to make a difference. But the interest to foreign banks and the tax and costs to support overpaid government and central government workers is a killer blow. Nothing can be done until these issues are delt with and producers and manufacturers will continue to be squeezed between costs,regulation and falling disposable incomes.

In Waipukurau there is a meat works it's 25 minutes south. Its having trouble getting workers to open a sheep chain because it doesn't pay to run a car for one hour a day to earn $15 an hour after tax. $660 a week a friend gets, he spends $130 a week on fuel, to register his car is $300. No wonder they struggle to get workers.

Provincial NZ is being hollowed out to keep the big cities in clover.

by cowboy | 7th Oct 14, 1:09pm 1412640563

I'm getting more personal stuff than ever shipped in.

NZ just doesn't carry the range. We have the shop fronts but most of them are selling the exact same items...if they stock the range at all.

by gordon | 7th Oct 14, 1:45pm 1412642731

You always sound so hard up Cowboy. How can you afford to buy so much personal stuff? I am pretty well off in retirement but still contain personal spending.

by cowboy | 11th Oct 14, 10:04pm 1413018289

The dairy farming business is pretty hard up.

But that is 1 of 4 distinct revenue revenue streams. It has the largest cash turnover but is also the least profitable.

Although the video business I haven't spend time or sales in for a long time so that's generally dead quiet unless I need to do some catch-up

Most of my fun purchases in the last 2 years have been from profits of Foreign Exchange currency. They are good, but not significant enough or regular enough to be more than play. This is because I'm reinvesting (compounding) most of it, but I also get the panics occasionally which causes me to close early, so not much profit when farm uses all my time (can't close fx trades at good times, for profit)

The residential house stuff is balanced out. I've sold of the cashflow positive stuff, as it had good equity, in order to keep pooled debt down for the farm operation. I do most of my own renovation/build work, but with the laws I can't do it, and the hours demanded by the dairy farm mean I always get called up at the worst times. It would be nice to hire some reliable staff, but the payout and lack of profitablity in the farming sector make it to hard to commit to staff. Mostly the residential stuff, which is operated under a Trust for the longer-term plan for my kids (and hopefully their kids) means a financial divide between house income, personal income, farm income, other business and tranche income. But generally any income here is routed back into debt reduction/equity growth.

Plus I've got a few extra bits trickling in here and there which make doing my IR3's a nightmare.

so houses for security,

farm for cashflow,

fx and other bits and pieces for income/profts.

And I've helped a few people out here and there in the past, so they're happy to help me out (occasionally) so I can sometimes score a good deal on some things (eg the Ute at trade-in price).

That's why I could swing a sizeable loan at the bank when things look messy, everything put together adds up. And that's why I'm irritated at farming requiring significant over-capitalisation to provide what is an absolutely essential product AND that it doesn't pay decent wages in years like this ($5.30 payout - the 8.40 went to deferred maintenance and compliance costs and tax).

by cowboy | 11th Oct 14, 10:10pm 1413018607

That...and the problem of a monthly payperiod. :)

by steven | 7th Oct 14, 2:09pm 1412644167

"they are incredibly profitable and want to be nice to the public"

really?

4 and 5 year interest free is now normal, or walk in with cash and see a big discount, if they are that busy / profitable they'd tell you to go away.

"More and more retailers to close down especially in the provinces unless people get back to normal spending patterns again"

Yep they will shut, but "normal" it wasnt. It was a blip from cheap oil, that era has ended. Hence retail is going to implode and with it the commercial property game which is one huge ponzi scheme IMHO.

"Is that a good thing for the economy." depends on whether you think the "blip" was an aboration that was abused or not, I do.

"as the dollar is too weak to make it worthwhile." indeed but if you need the item/parts you will buy it / import it. Its simple really the manufactured demand by marketeers of the last 60 odd years to saok up excessive supply was hugely wasteful and un-sustainable so its going to go bye bye.

As cowboy says I to am buying more and more offshore. Partily the huge savings like 50%+ and partially the choice/availability. Also just how does a NZ retailer justify charging like a wounded bull for obsolete kit? Not many moons ago I tried to get a replacement motherboard for my PC sourced in NZ. The retailer would only sell me the min order of 5 and at a eye watering RRP + a commission price. My Dad picked one up for me for 1/2 the pirce while over in OZ on holiday. I arranged it with the OZ retailer and paid for it with my CC, he just picked it up and brought it back.

Currently I am buying some parts in the USA to make up what I want that will save me 50%+ and give me a better piece of kit as the end of it. So the Q is how will retailing survive on the needed/expected huge margins when ppl wont have the money to sustain it.

regards

by gordon | 7th Oct 14, 2:25pm 1412645123

They are not incredibly profitable despite their pricing. They have to rent buildings, pay staff and pay gst . If they all close will you buy everything from overseas?

by Zombie ponzi | 7th Oct 14, 3:25pm 1412648735

They have to rent buildings, pay staff and pay gst.

Getting closer to the root cause.

Property, particularly in urban centres, is massively overvalued in this country - roughly speaking if property was 30% cheaper rents would be also. The same goes for wages - if a person on minimum wage is spending 40-50%+ of their income on rent, then look at what a reduction in house prices (and therefore rents and mortgage repayments) would do for the cost of business.

If most people are spending a significant proportion of their income on their mortgage (or on rent servicing someone else's mortgage) there isn't going to be much left to spend at the shops.

by cowboy | 12th Oct 14, 2:01pm 1413075708

rent is just a ratio of building value, which reflects buying price + interest. adjusted for demand and costs (eg insurance and earthquake renovations must be passed on to tenants eventually)

by frazz | 7th Oct 14, 11:46am 1412635594

Maybe higher wages would help improve things?

by Alter Ego | 7th Oct 14, 11:55am 1412636106

Yes, simple arithmetic seems to be lacking these days, in "Big Business".

Maybe, "They" should have invested time, effort and money, in Auckland or Christchurch property, like so many others, even over my "Boundary Fences".

That would have put the icing on the cake, leaving the cherry picking for others to cater for.

The fruits of ones Labours are beneath some people though, it is becoming a National trait.

Sit back and watch your assets grow and take a hefty "Capital Gain", the new way to prosperity in the new era, most aspire to today.

I cannot understand why anyone would work, just borrow and be thankful to the Banks and Government ideaolog and cheap interest rates, leveraged to the hilt, is the way to go.

Just a simple deposit, simple arithmetic, who needs a leveraged indebted Cherry Orchard, when rich pickings in fixing up leaky old old ruins, ex state houses etc and offloading them to rich immigrants bringing their ill-gotten gains garnished and tarted up into the stratosphere, elsewhere.

Maybe the cream is off the table, in Farming, of late, not surprisingly. And a glut of wine is apparently being hidden away for futures consumption, all over the place.

So methinks, a "Cherry Brandy" might be the way to go, if you have deep pockets...But what do the poor receivers think, or banks will lend on...that is the rub.

Or they would be doing it for themselves...but that would mean...work.. something they are not geared up for, just the opposite.

by Andrewj | 7th Oct 14, 12:37pm 1412638648

Work doesn't pay, you need to use your brain and get into tax free property. This outfit is the only one suffering from mispriced assets and high costs.

http://www.trademe.co.nz/property/rural/auction-788991434.htm

by iconoclast | 7th Oct 14, 1:13pm 1412640836

Explain

Your point eludes me

There is a huge difference between 201 hectares and 19 hectares

201 hectares $8 million - includes house and buildings

19.3 hectares $1.6 million - includes house and buildings

by Andrewj | 7th Oct 14, 1:47pm 1412642872

I was just noticing there are a few hoticultural properties in receivership, as someone with interests in horticulture, the costs always astound me and Im amazed people can etch a living. buying prperty in AKL would have always been a better bet.

by Casual Observer | 7th Oct 14, 3:07pm 1412647635

In the next few years cherry plantings in Central Otago are going to significantly increase. 45 South one of the largest packhouses here, is looking to build a 2nd packhouse to cope with the increased crop. http://www.45s.co.nz/home.html On some orchards, apricots are being pulled out to plant cherries. Will be interesting to watch what happens.

Aj I think some people get sucked in to buying horticulture blocks on some romantic vision of an 'elegant' lifestyle. They have sometimes never owned a business, nor have a real understanding of the industry they are buying in to. Anyone who makes a living off the land (in whatever industry) knows that weather can play real havoc with your plans, and all land based industries have their financial swings and roundabouts. However to some who come into a land based industry once the 'romance' of their vision wears off, and they have had a couple of consecutive 'bad' years the reality of the volitility and risks outside your control has set in. But even then they are in denial of their true situation. So the bank steps in. Or else if in multiple ownership some want out, the others can't afford to pay them out, so the place goes on the market.

by Andrewj | 7th Oct 14, 3:18pm 1412648281

its no game for the innocent or the inexperienced. I have friends who have done really well in the apple industry, but its been rocky and now our major market is China we need to be extra cautious. I have many more friends who became casualties along the way and have found it very difficult to get back on their feet, one just had a frost at a bad time, following a hail storm the year before.

The cost per hectare to develope vineyards must be over 75k with a frost system. we just had a nasty frost go through unexpected this week, it hit at about 3am, fortunately my back up system kicked in.

Somehow the world looks more volitile to me, more risk and more unknowns, just my gut feeling.

I talked to a friend who is a sales rep today, he told me that in his industry sales were back %27 year on year across the States, he's worried about his job as many companies are now marketing direct with no middlemen.

by Stephen Hulme | 7th Oct 14, 3:18pm 1412648332

However to some who come into a land based industry once the 'romance' of their vision wears off, and they have had a couple of consecutive 'bad' years the reality of the volitility and risks outside your control has set in. But even then they are in denial of their true situation. So the bank steps in. Or else if in multiple ownership some want out, the others can't afford to pay them out, so the place goes on the market.

LOL - the same happens elsewhere - witness the bond market.

Bill Gross, who co-founded Pacific Investment Management Co. more than four decades ago and rose to become manager of the world’s biggest bond mutual fund, is leaving amid a dispute with management over how to move the firm forward and end record redemptions. Read more

by Grant A | 12th Oct 14, 9:05pm 1413101114

That does seem to show what a state we apparently have got ourselves into doesn't it, the stupidity of the borrowing some of us have done, that four modest rate rises off a histrorically low base, has the whole country reportedly (here anyway) about to fall apart and "bankrupt business". ....wow

by Grant A | 13th Oct 14, 9:23am 1413145396

Actually if you'd read the article fully yourself, you'd realise that this is all to do with a disjunctional company and states nothing about currency and interest rates. People just love to push their own lame arguments with irrelevant examples. And high interest rates aren't all the story for a high NZD, it's mostly a reflection of our comparison against countries with zero or moderate growth, massive debt, and a very weak USD for a number of years. The latter is now correcting, the NZD going lower, bugger all to do with the RBNZ except for an initial push. Best understand drivers to comment