Investor Presentaiton
Key risks (continued)
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Pricing risk and industry supply
Costa's financial performance depends on the price it can realise for its produce. Pricing is variable and subject to a number of factors outside Costa's control, including changes in demand and supply.
Excess supply can cause price competition in the fresh fruit and vegetable industry. For example, pricing across the avocado category has softened during CY21 as a result of significant industry volumes. If overall industry production in
categories in which Costa competes are higher than expected, Costa's operating results can be negatively impacted. Industry production depends on season harvest results (including yield and timing) and industry capacity which changes over
time.
Water rights
Costa relies on access to its allocated water rights for half of its citrus and grape crop in the Riverland and surrounding Southern regions. Costa has access to permanent water licences and their allocated water rights in respect of approximately
50% of its needs from the Murray River. The balance is purchased by Costa under forward supply agreements, temporary water purchases and carry over.
With respect to CY21, under a full allocation scenario, Costa has secured approximately 50% of the balance required with fixed pricing under contractual commitments. These water rights are contingent on there being sufficient water in the
Murray River. If there is insufficient water in the Murray River, then some or all of Costa's allocated water rights may not be available. If the Southern Murray Darling Basin remains affected by drought for a prolonged period, then this could further
increase the costs of temporary water rights and ultimately could have a material adverse impact on the ability of Costa to obtain sufficient water to maintain healthy citrus trees, grape vines or viable fruit for its citrus farms in the Riverland and
Sunraysia regions and consequently impact Costa's citrus and grape crop yield and the financial performance and prospects of Costa. Prolonged drought conditions and changes in government can increase the risk of regulatory changes, which
may result in adverse modifications to Costa's allocated water rights.
Forecasting risk
There are inherent challenges in forecasting agricultural businesses such as Costa due to the potential impact of factors outside of Costa's control. As has been demonstrated in prior years, Costa has had periods of upgrading previous guidance
and periods of downgrading guidance. Actual results may differ from forecast results due to a range of both external and internal factors.
Reliance on large customers
Costa sells its produce to a number of large customers, including several large supermarket chains and other retailers. Costa's top three customers comprised approximately two thirds of CY20 produce sales. Most of Costa's customer contracts
are short term, with supply periods typically for one season or one to two years depending on the product's seasonality, and generally do not contain a fixed cost price and accordingly are supplied at market prices which are subject to fluctuation
and depend on the level of supply and demand at the time that the produce is sold. Some of these large customers currently, or could in the future, wield significant market power due to their size, putting them in a strong negotiating position with
their fresh produce suppliers.
Costa's market shares and/or profit margins may be materially and adversely impacted by a large customer taking actions harmful to Costa's interests, including by such customers:
materially changing its trading terms with Costa;
vertically diversifying its operations to include the growing or wholesale marketing of fresh produce;
sponsoring the expansion of one or more of Costa's competitors or new entrants into the fresh fruit and vegetables market;
procuring produce directly from Costa's third party growers, i.e. without the intermediation of Costa;
promoting the products of one or more of Costa's competitors; or
refusing to promote or stock Costa's produce or significantly reducing orders for Costa's produce.
Supermarket chains may also lower prices in Costa's fresh produce categories as part of competition between supermarket chains and other retailers for consumers and their shopping basket. This may impact Costa's market shares, sales
volumes and/or profit margins by increasing price pressure applied to Costa's produce offerings or as a result of some consumers switching from Costa's produce offerings to lower priced alternative produce when that produce is available.
Costa Group Holdings Limited
African Blue
Morocco's Best Bluebe
Only the Finest Berries"
Driscoll's Kes
Kersama
lady fingers
☹
LOVACADO.
Aussie avos. From Costa.
MUSH
BOOM!
TO THE
NOT FOR DISTRIBUTION OR RELEASE IN THE UNITED STATES
RESCUE
Perino Vitor.
AUSTRALIA'S BEST
itor
AUSTRALIA'S BEST
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