Transaction with Bostock Group

NZX Release


16 May 2024

SCALES ACQUIRES SELECTED ORCHARD ASSETS AND 50% OF PROFRUIT BUSINESS FROM
BOSTOCK GROUP FOR $47.5 MILLION, TWO MR APPLE ORCHARDS TO BE MARKETED FOR SALE

Scales Corporation Limited (NZX:SCL Scales) today announced that it has entered into an agreement to
acquire certain assets from Bostock Group Limited (Bostock). The transaction includes approximately 240
hectares of planted orchard area comprised of approximately 114 hectares of owned orchards and the
assignment of approximately 126 hectares of leased orchard. The total acquisition price of $47.5m also
includes the purchase of 50% of Profruit (2006) Limited (Profruit) held by Bostock (collectively the
Transaction).

At the same time Mr Apple will put up for sale its Blyth and Te Papa orchards (with a combined planted area
of approximately 186 hectares) as part of Scales’ strategy to improve Mr Apple’s margins. By acquiring the
Bostock orchards and selling these existing orchards, Mr Apple will broadly maintain its total orchard area
while achieving a meaningful uplift in its premium variety volumes.

The key highlights of the Transaction include:

• Approximately 240 hectares of planted orchard, comprising the acquisition of approximately 114
hectares of owned orchard and assignment of approximately 126 hectares of leased orchard.
• Strong geographical alignment to existing Mr Apple orchards and its post-harvest infrastructure.
• High concentration of Dazzle
TM
plantings. Approximately 110 hectares (of approximately 240
hectares) are planted in Dazzle
TM
.
• Acquired orchards also include High-Colour Fuji and Royal Gala plantings.
• Profruit to become a wholly-owned subsidiary of Scales.
• Mr Apple’s total orchard area is expected to be largely unchanged through time following the
proposed orchard acquisition and sales.
• Premium fruit is expected to represent nearly 80% of Mr Apple’s 2025 fruit sales (compared with 64%
in 2023).

2



Scales Corporation’s Managing Director, Andy Borland, says “We are extremely pleased to announce our
transaction with John Bostock today. Scales and Mr Apple have worked closely with John Bostock and his
team over multiple decades and expect to continue to work closely together to collectively grow the industry.
Bostock orchards are renowned for their premium quality produce and the orchards being transferred are
optimally located, with strong strategic alignment to existing Mr Apple orchards.”

“Scales recognises the hard-work and dedication of both the Mr Apple and Bostock teams. Both businesses
have operated at the pinnacle in their field. The Hawke’s Bay community has had a challenging few years
and we are hopeful that the increased value to be unlocked through this Transaction creates opportunities
for new roles across the industry.”

“Our Mr Apple strategy is to focus on the sale of premium varieties to Asia and the Middle East markets, and
drive improved margins from Mr Apple’s existing level of assets employed rather than expanding its asset
base. The transactions announced will achieve those objectives. Dazzle
TM
has been a highly successful
variety for Mr Apple, and this transaction materially accelerates our strategy of increasing Dazzle
TM
volumes.
By inheriting mostly mature blocks we will have higher volumes of Dazzle
TM
apples from 2025”.

Bostock Group Limited’s Managing Director, John Bostock, says “I am especially pleased that Scales is
acquiring these orchards. The distinction between ‘organic’ and ‘conventional’ fruit is of a lower significance
in Asia, where Dazzle
TM
has strong market appeal. It is a natural fit for these orchards to be operated by Mr
Apple and for the Bostock group to continue to service its customers in other markets with Bostock’s other
varieties. There is a strong cultural alignment between our two businesses, and I feel confident that any staff
moving between the growers will find themselves well at home at Mr Apple.”

Scales Corporation Chair, Mike Petersen, says “migrating our orchard mix to favour higher percentages of
premium varieties, especially those varieties for which we have proprietary rights, is a core strategic
imperative for Mr Apple as well as New Zealand’s broader horticultural industry. PVR varieties, such as
Dazzle
TM
, are more sought after than our traditional varieties, reflecting the superior colour qualities and
eating experience. This allows the industry to continue to invest, innovate and expand whilst also creating
high-value employment opportunities. Profruit is an extremely well-run business and we are very pleased to
move to outright ownership.”

The Transaction is subject to customary closing conditions and expected to complete in early to mid-June
2024, while the Mr Apple orchard sales are not expected to conclude until the second half of the year. The
Transaction and orchard sales are expected to have a negligible impact on Scales’ Net Profit After Tax
Attributable to Shareholders for 2024 (the first full year of production from the affected orchards will not be
until 2025). Further details on earnings are expected to be provided at or about the time of Scales’ half-year
results announcement (late August), following confirmation of the outcome of the proposed orchard sales.

3



About Scales Corporation
Scales Corporation is a diversified agribusiness group. It comprises three operating divisions: Global
Proteins, Horticulture and Logistics. The company’s diverse spread of activities gives Scales broad exposure
to the agribusiness sector. Scales Corporation was founded in 1897 as a shipping business by George
Scales. Today it has operations across New Zealand, Australia, United States and Europe. Find out more
at www.scalescorporation.co.nz

---

SCALES CORPORATION LIMITED
Bringing Nutrition to the World
16 May 2024
Transaction with Bostock Group

2
•Scales has today announced a transaction with Bostock Group Limited, comprising:
◦Approximately 240 hectares of planted orchard, comprising the acquisition of approximately 114 hectares of owned orchards and assignment of approximately
126 hectares of leased orchard.
◦Strong geographical alignment to existing Mr Apple orchards and post-harvest infrastructure.
◦High concentration of Dazzle
TM
plantings. Approximately 110 hectares (of ~240 hectares) is planted in Dazzle
TM
.
◦Acquired orchards also include High-Colour Fuji and Royal Gala plantings.
◦Profruit to become a wholly-owned subsidiary of Scales.
◦Mr Apple’s total orchard area is expected to be largely unchanged through time following the proposed orchard sales.
◦Premium fruit is expected to represent nearly 80% of 2025 fruit sales (compared with 64% in 2023).
•Concurrently, Mr Apple intends to market two orchards (Blyth Orchard and Te Papa Orchard) with a combined planted area of ~186
hectares for sale.

3
•The transaction accelerates us into production, packing and export of Dazzle
TM
:
◦Mr Apple has an ownership interest (including through its investment in Fruitcraft) in both Dazzle
TM
and
Posy
TM
. These are highly sought-after varieties sold principally to Asia and other near markets.
◦The Bostock transaction includes ~110 hectares of Dazzle
TM
orchard, all of which is nearing full-maturity.
◦The transaction accelerates Mr Apple production, packing and export of this core variety as shown in the
chart to the right.
◦Note that 2024 volumes are pre-harvest estimates only. An update on harvested volumes will be provided
at Scales’ Annual Meeting.
•2025 volumes (post the acquisition of Bostock orchards and sale of proposed
orchards):
◦Premium volumes are estimated to comprise nearly 80% of 2025 fruit sold.
◦Total export volumes are estimated at ~3.4 million TCEs for 2025.
269
390
640
844
1,005
20232024F2025F2026F2027F
Dazzle
TM
& Posy
TM
, Total Exported Volume (TCE 000s)
Mr AppleBostock Orchards

4
•The Transaction is expected to contribute $10-12 million annually to EBITDA over the
medium-term prior to orchard sales:
◦This includes an increased share of Profruit earnings together with anticipated margins achieved by
bringing the responsibility for shipping and marketing inhouse.
◦This is prior to the EBITDA impact from selling Blyth and Te Papa orchards (the financial impact of these
orchard sales will depend on factors such as whether fruit continues to be handled by Mr Apple’s post-
harvest infrastructure post any sale).
◦Further details on earnings are expected to be provided at or about the time of Scales’ half-year results
announcement (late August).
•The purchase price will initially be funded through a combination of debt and existing
cash reserves:
◦The proceeds from orchard sales will be used to retire the additional debt raised for the transaction.
◦The final net impact on debt will depend on the outcome from the proposed orchard sales. Updates will
be provided in due course.

5
The information in this presentation has been prepared by Scales Corporation Limited with due care and attention. However, neither Scales Corporation Limited nor any of its directors, employees,
shareholders nor any other person shall have any liability whatsoever to any person for any loss (including, without limitation, arising from any fault or negligence) arising from this presentation or
any information supplied in connection with it.
This presentation supplements our full year results announcement. It should be read subject to and in conjunction with the additional information in that release, and other material which we have
released to the NZX.
This presentation may contain projections or forward-looking statements regarding a variety of items. Such projections or forward-looking statements are based on current expectations, estimates
and assumptions and are subject to a number of risks, uncertainties and assumptions. There is no assurance that results contemplated in any projections and forward-looking statements in this
presentation will be realised. Actual results may differ materially from those projected in this presentation. No person is under any obligation to update this presentation at any time after its release
to you or to provide you with further information about Scales Corporation Limited.
Our results are reported under NZ IFRS. This presentation includes non-GAAP financial measures which are not prepared in accordance with NZ IFRS. The non-GAAP financial measures used in
this presentation include:
•EBITDA. We calculate EBITDA by adding back (or deducting) depreciation, amortisation, finance charges / (revenue), and taxation expense to net earnings / (loss) from continuing operations
•EBIT. We calculate EBIT by adding back (or deducting) finance charges / (revenue), and taxation expense to net earnings / (loss) from continuing operations
•Underlying EBITDA and EBIT are calculated by adding back (or deducting) certain non cash NZ IFRS and other adjustments
•Underlying Net Profit is calculated by adding back or (or deducting) the after-tax effect of certain non cash NZ IFRS and other adjustments
A full reconciliation of Underlying to reported measures is provided in our Annual Report.
We believe that these non-GAAP financial measures provide useful information to readers to assist in the understanding of our financial performance, financial position or returns, but that they
should not be viewed in isolation, nor considered as a substitute for measures reported in accordance with NZ IFRS. Non-GAAP financial measures may not be comparable to similarly titled
amounts reported by other companies.
Forward-looking statements are subject to any material adverse events, significant one-off expenses or other unforeseeable circumstances.
The information in this presentation is of a general nature and does not constitute financial product advice, investment advice or any recommendation. Nothing in this presentation constitutes
legal, financial, tax or other advice.