Tegel first-half earnings fall 4% as margins get squeezed on chicken glut

Thursday 15th December 2016

Tegel Group Holdings, the poultry group taken public by private equity firm Affinity Equity Partners in April, posted a 4 percent decline in first-half earnings as margins were squeezed by a glut of chicken keeping domestic prices low.

Underlying earnings before interest, tax, depreciation and amortisation fell to $35.1 million in the six months ended Oct. 23 from $36.6 million a year earlier, the Auckland-based company said in a statement. Revenue rose 4 percent to $296.3 million, lagging behind a 6.9 percent increase in the volume of chicken products sold.

Tegel warned that glut of chicken would probably continue through the second half of the financial year, and while domestic prices will likely increase, any gains would be offset by higher freight costs after the Kaikoura earthquake disrupted the main trunk line through the South Island. The poultry firm expects annual underlying ebitda of between $75 million and $85 million, having previously projected proforma earnings of $84 million for the 2017 year.

"We have seen a period of lower domestic pricing this year," chief executive Phil Hand said. "This has been due to excess volume in the local market. We are, however, expecting some recovery in prices in the second half."

Tegel's net profit more than doubled to $15.1 million, though the year-earlier period was when the firm was privately owned and included $19 million of finance costs. The company also lowered its guidance for annual profit to a range of $33 million-to-$41 million from $44 million forecast in the offer document.

The board declared an interim dividend of 3.45 cents per share, payable on Jan. 27 with a Jan. 13 record date.

Tegel spent $15.9 million on capital expenditure in the period, installing a breast deboner in New Plymouth, and plans to do the same at its facility in Henderson in the current financial year.

Export revenue slipped 2.5 percent to $50.6 million in the half on flat foreign sales in volume terms. Still, Tegel said the international business "continues to strengthen" with the opening up of Australian market to a broader range of products, and new customers in the Middle East.

"The company is forecasting further growth in international markets through new products, existing customer growth, new customers and additional sales channels," it said.

The shares last traded at $1.55, unchanged from the price they were sold at in an initial public offering in May.

BusinessDesk.co.nz

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