Tegel sales grow but not profit
Company fails to meet initial targets as domestic glut of chicken hits prices
Tegel Group, New Zealand’s biggest poultry producer, increased sales and recorded an improved gross margin in its first half, while higher expenses pushed profit down 2.3 per cent. It is still aiming for an improved full-year result on an underlying earnings basis.
Net profit was $14.8 million in the six months ended October 29, from $15.1m a year earlier. Sales rose 2 per cent to $302m as it lifted processed poultry volumes by 0.8 per cent to 48,676 tonnes.
Tegel’s shares sank 12.8 per cent to $1.22 on the release of the result yesterday. The share price hit a record low of $1.05 in May this year and though it has recovered it’s still below the $1.55 price it was sold at in last year’s initial public offering.
The company failed to meet its initial prospectus targets in the face of a domestic glut of chicken, which constrained prices. Yesterday it said domestic pricing “remains competitive and this will continue” and that some of the expenses in the first half were “non-repeating costs”.
“Looking at the remainder of FY18, we will maintain our domestic market share in a challenging pricing environment,” chairman David Jackson and chief executive Phil Hand said in the interim report.
In the first half, underlying earnings before interest, tax, depreciation and amortisation fell 1.7 per cent to $34.6m. Tegel’s income statement showed the biggest gain in expenses came from distribution, which rose to $28.7m from $25.6m. Administration expenses were little changed at $18.2m while finance costs fell to $2.8m from $3.6m.
In domestic operations, volumes rose 1.7 per cent to 40,769 tonnes and sales rose 4 per cent to $226m. The largest revenue gains were through retail and food service channels and in its presentation.
Tegel noted continued poultry consumption growth and “changing trends of consumers looking for increasingly convenient meal solutions being reflected in growth in QSR (quick-service restaurant) and food service”.
Export volumes fell 3.5 per cent to 7907 tonnes while revenue dropped 11.5 per cent to $44.8m. The decline reflected an expected drop in the Australian market.
It aimed to diversify its channel and customer mix and had won new customers in retail, food service and QSR. The company had expanded in the Australian retail channel and launched 11 products.
Tegel also highlighted its move into free-range poultry, saying its growth via grocery had soared 225 per cent, outpacing a 63 per cent gain in the total free-range market. Freerange was now worth $55.9m in New Zealand grocery, accounting for 12 per cent of total poultry scan sales market share.
It declared an interim dividend of 3.45 cents a share, unchanged from a year earlier, to be paid on January 26.