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Tegel says 2018 earnings to miss target on one-time costs, New Plymouth plant disruptions

Thursday 8th March 2018

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Tegel Group, New Zealand's biggest poultry producer, said full-year profit may drop by as much as a fifth because of slower progress in Australia and one-time costs ranging from compliance rule changes to restructuring and disruptions to its New Plymouth processing plant.

Chief executive Phil Hand said underlying earnings before interest, tax, depreciation and amortisation, excluding one-time costs, is expected to be in a range of $70 million to $72 million in the 2018 financial year from $72 million in 2017. Net profit would be in a range of $25 million to $27 million, down from $31.7 million last year.

At the time of its first-half results in December, the company had said it was working "towards exceeding FY17 underlying ebitda", aiming to maintain domestic market share "in a challenging pricing environment." Profit fell 2.3 percent in the first half as higher expenses offset the benefits of increased sales.

The Auckland-based company gave a market update in February, saying one-time costs could erase as much as $2 million from full-year net profit because of damage to the New Plymouth plant from ex-cyclone Gita and an ammonia leak. Today it said pre-tax one-time costs were expected to be between $8 million and $10 million.

"The recent one-off events have proved challenging for the business, however, despite these challenges, the impact on our customers has been minimised as a result of our business strategy of running three independent fully integrated sites," Hand said. "Our domestic business is solid, our new product development programme continues to deliver and our value-added sales are generating better margins. Tegel continues to maintain its leading domestic position with a focus on expanding existing export markets through new channels, products and customers."

Updating its operating performance, Tegel said free-range products delivered 18 percent volume growth "over the summer months" and in January it contracted with three more free-range farms which would add 34 percent to the company's free-range capacity in 2019, although operational costs related to the new suppliers hadn't been included in its 2018 forecasts.

Hand said Tegel is continuing its strategy of diversifying in Australia from the quick service restaurant channel to retail and foodservice channels.

"This transition is progressing well, though slower than forecast, resulting in export trading performance over the January and February period being weaker than expected as a result of this transitional timing," Hand said.

The shares last traded at $1 and have fallen 22 percent in the past 12 months. They sold at $1.55 in the 2016 initial public offering when Tegel was taken public by private equity firm Affinity Equity Partners.


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