I have been a holder for several years, and my own view of the management has been generally favourable, although as you can tell from some earlier comments, my opinion is not shared by all; certainly some events within the past six months have put a bit of a cloud over the executive team.
As you would have noticed, there has been some changes to the executive management: the operations manager resigned and the CFO will soon be leaving the company.
These resignations are probably a consequence of the shock harvest downgrade and the delays in the projects, Parboil and H2E.
At the start of this year, the company had forecast a crop between 15,750 and 16,250 mt (Results Presentation, 28/2/17) however the crop ended up significantly smaller, only 14,100 mt.
This is about 12% below the harvest forecast at the start of the year, and so it is unsurprising that investor confidence has been a bit shaken by the downgrade.
Curiously, in some of the announcements in late 2016, there is a graphic which states that the theoretical harvest volume for 2017 was 15,200 mt (announcement of 25/11/16), so you wonder why their harvest forecast for this year ended up being so much higher than what was suggested in their earlier announcements. Perhaps there was a division of opinion between different personalities at the top level?.
In the event, the harvest ended up being significantly lower than even the 15,200 theoretical harvest estimate shown in the presentations last year, so something seems to have caught them by surprise.
My own suspicion is that excessive rainfall in September last year may have done much of the damage: in the NSW orchard locations the level of precipitation was record-breaking, with over 150 mm in both Hillston and Griffith, compared to the long term September average of around 30 mm.
In short, the management probably bear some responsibility for the large crop downgrade, as the 15,750-16,250 forecast was well above their own theoretical crop estimate for the year.
Having said that, it also seems clear that freak weather had a significant role to play in the harvest downgrade this year, and this is beyond the control of the management.
What this highlights is that risk management is absolutely key for this company. They have implemented some good measures in recent years, such as the night harvesting equipment (which has helped speed up the harvest) and the frost fans (which help prevent damage to crop).
However, it is an ongoing battle, and they need to continue to look for ways to minimise risk.
The two projects, Parboil and H2E, also should help with risk mitigation, so it is disappointing that these two projects have been delayed. The delay in these projects has added to the cost (adding about $4 million) in addition to the foregone benefits. I suspect the chaos created by the aforementioned shock harvest downgrade earlier this year may have played a role in these delays.
Project Parboil should maximise the almond price they receive from their produce, while H2E (a biomass electricity plant) should reduce their electricity costs and, in addition, my understanding is that about 50% of the power generated will be exported to the grid, providing the company with an new source of income.
It is possible that the Parboil project may already be up and running, as in the 'Results Presentation' announcement last month it states 'Commissioning in Progress- to be completed Q1 FY 2018' (page 15). The wording of that bullet point suggests we might be hearing something about this soon, and if so that might provide a bit of a boost to the share price.
But getting back to the original question, despite the problems this year, overall the management have a pretty good track record. I suspect that Select Harvests would be a more difficult company to manage than most companies of comparable size, for, as Yellowsun previously mentioned, the fortunes of the company are heavily influenced by factors beyond their control such as fluctuations in the exchange rate and (of course) the weather in their growing locations.
As such, I am a bit forgiving: given the nature of the company I don't think it is wise to read too much into one disappointing year. If they can get the two projects, H2E and Parboil, up and running by next year that should go some way to restoring shareholder confidence.
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