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Tegel posts 24% drop in annual profit, recommends investors accept takeover offer

Monday 11th June 2018

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Tegel Group Holdings, the poultry group which listed on the NZX two years ago, posted a 24 percent drop in annual profit and recommended shareholders accept a $437.8 million takeover offer from Philippines poultry company Bounty Fresh Foods.

Auckland-based Tegel posted net profit of $26.1 million in the 52 weeks ended April 29, down from $34.2 million a year earlier, after a one-time pre-tax costs of about $9.9 million due to industry compliance, ex-cyclone Gita and organisational restructuring. It said underlying earnings before interest, tax, depreciation and amortisation, excluding one-time costs, fell to $70.2 million from $72 million, due to a decline in exports.

Tegel said its results were within its guidance in March for ebitda of $70 million to $72 million, and net profit of $25 million to $27 million. The company said it disagreed with its auditors PwC, which estimated the company's $264 million of goodwill on its balance sheet should be written down by about $31 million, and issued a qualified audit report on the earnings due to that issue.

Last month, Bounty launched a full takeover offer for Tegel, having already secured the support of the company's cornerstone shareholder Affinity Equity Partners for its 45 percent stake. The independent directors of Tegel said today that they unanimously recommend shareholders accept the Bounty offer, saying the offer price is fair and Bounty's likely majority holding in the company will introduce uncertainties for minority shareholders who reject the offer. The offer is set to close Aug. 25.

Tegel chief executive Phil Hand said today it had been a demanding year for the business but underlying performance remained strong and the company had made a number of investments for the long-term benefit of the business. The company achieved record poultry volumes of 99,908 tonnes during the year, up from 98,036 tonnes, with total revenue up 2 percent to $615.4 million, and domestic revenue up 3.9 percent to $467.1 million due to a higher proportion of free-range and value-added products.

“While it is pleasing to be able to deliver results within our updated forecast range, there is no doubt that it has been a demanding year on several fronts," Hand said. "We have stayed focused on delivering a strong operational performance, and our increased volumes and revenue reflect this. Tegel has a very strong domestic position, and we are determined to achieve strategic and sustainable export growth."

Hand said growth in free range products remained strong, and the company is aligning the business for further increased free range demand.

“Consumers are continuing to move toward free range product options, and the business is responding to this," he said. "Over the last 12 months we have increased free-range capacity by 169 percent. This represents an additional 80,000 square metres of farm capacity. In future all new Tegel grower farms will be free range."

The company is seeking to establish a greater presence in Australia and introduced 41 new products in the market over the past year.

Tegel will pay a final dividend of 4.10 cents per share on July 13, taking the total annual dividend to 7.55 cents. Investors who accept the Bounty offer after the June 29 record date are still entitled to the final dividend.

In response to the Bounty offer, Tegel produced an ebitda range for the current 2019 financial year of $65.5 million to $70.2 million, but said this wasn't a forecast as it was early in the financial year and there were many uncertainties which could materially impact its results.

Tegel shares last traded at $1.19 on the NZX, compared with the Bounty offer of $1.23 per share.


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