)
A strategic review at flower producer and wholesaler Lynch Group (ASX: LGL) has led the Sydney-based company to announce an exit from two of its three potted farms in Australia at a cost of $12-13.5 million, including a Queensland greenhouse where orchid inventories were damaged by a power outage brought on by ex-Tropical Cyclone Alfred.
After the review recognised Lynch Group's potted farms create complexity but do not make a material earnings contribution, the decision was made to close the orchid facility in Thornlands south of Brisbane, as well as potted flower site in Nowergup north of Perth.
The company's native wildflower facility in Chittering near Perth in WA's Wheatbelt region, mainly supplying cut Geraldton wax flowers grown outdoors, will remain operational for the remainder of its lease term to 2030.
Lynch Group - which has a market capitalisation of around $214 million - had previously planned to continue operating its Queensland site specialising in growing phalaenopsis orchids until the end of its lease in 2030, phasing out production starting in FY26, but now the closure will happen much earlier.
These orchids have a production cycle of 18 months within a climate-controlled greenhouse environment, so losing power for six days due to extreme weather takes its toll on inventory.
"An independent review of the inventory is underway and is expected to conclude in April," the company states.
"Preliminary findings suggest a significant portion of the orchids may be lost or will not meet customer standards.
"As a result, the Group will now bring forward the planned closure of the Queensland farm, expected to be around 30 June 2026. This closure is not expected to have a material impact on underlying Group earnings."
The group also doesn't expect any material impact on earnings from the WA closure, but the two closures will have a non-cash cost of $8.5-9.5 million in asset write-downs, and $3.5-4 million in one-off cash costs mainly comprising lease obligations and staff redundancies.
"The Group’s Australian core business focus, being the design and supply of value-added floral and potted products, linked with in-store merchandising support, does not depend on owning and operating its own farms," Lynch Group states.
"Potted product lines will continue to be sourced via the Group’s long-term third-party grower supply commitments to support ongoing potted supply programs with customers."
Despite these changes, Lynch Group has reaffirmed guidance that EBITDA margins will be similar to FY24 and revenue growth will be around 6 per cent, driven by strong performance during key event periods such as Chinese New Year, Valentine’s Day, International Women’s Day, and Mother’s Day next month.
)
