Weak prices put Tegel pretax earnings near bottom of revised guidance

Tegel shares sank to what was a record low on Dec 15. Photo / NZME

Tegel Group, New Zealand's biggest poultry producer, posted a 0.8 per cent gain in full-year pretax earnings as weaker pricing eroded the benefits of record sales.

Underlying earnings before interest, tax, depreciation and amortisation rose to $75.6 million in the 53 weeks ended April 30, from $74.9 million in the year-earlier 52-week period, the Auckland-based company said in a statement. That's at the low end of the revised $75 million-to-$85 million forecast range the company gave in December, and below the $87.4 million projection in its prospectus. Sales rose 5.4 per cent to $614 million, against a prospectus forecast of $637 million.

Tegel shares sank to what was a record low on Dec. 15, when the company said a chicken glut was restraining domestic poultry prices and had combined with rising freight costs to squeeze margins. Since then the shares have continued to fall, reaching $1.05 last month, and recently traded at $1.15. Last month, chairman James Ogden unexpectedly quit the board effective immediately after less than a year overseeing the poultry company's direction as a publicly listed company, without an explanation.

The poultry group, taken public by private equity firm Affinity Equity Partners, first traded at $1.69 in May last year, having sold in the initial public offering at $1.55 apiece.

Affinity was the second buyout firm to own Tegel, having acquired the business in a leveraged buyout from Pacific Equity Partners and ANZ Capital in early 2011. PEP had, in turn, bought Tegel from HJ Heinz in 2005.

"Naturally, we are very disappointed to not achieve our original PFI numbers," chief executive Phil Hand said in a statement. "Despite this, we have achieved a lot this year. In FY2017 we raised and processed more birds than ever before. For the first time, we exceeded $600 million in revenue and we increased our leading domestic market position by 2 per cent."

Tegel sold 99,806 tonnes of poultry in the latest year, just below its forecast of 100,505 tonnes. Cost of sales rose 7.8 per cent to $469 million, which was below the $474 million target in its prospective financial information. Gross profit fell 1.6 per cent to $145 million, "largely due to lower domestic pricing," it said.

Hand said that, provided current market conditions prevail and Tegel maintains its share of the New Zealand market, with growth in domestic consumption and exports, the company "expects to deliver an increase in underlying ebitda".

Domestic volumes sold in the latest year rose 7.2 per cent to 82,777 tonnes, while sales gained 5.9 per cent to $457.8 million, although the latest period included an extra week. Growth was driven by retail and fast-food channels, it said. Export volumes climbed 6.7 per cent to 17,029 tonnes, although export sales rose a more modest 1.1 per cent to $103 million.

It will pay a fully-imputed final dividend of 4.1 cents a share on July 27, bringing total payments for the year to 7.55 cents a share.