Tegel boosts first-half sales but expenses push down profit

Tegel Group, NZ's biggest poultry producer, increased sales in its first half. Photo / File

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, the Auckland-based company said in a statement.

Sales rose 2 per cent to $302m as Tegel lifted processed poultry volumes by 0.8 per cent to 48,676 tonnes.

Tegel's shares sank to a record low $1.05 in May this year and have since recovered to $1.39 - still below the $1.55 price it was sold in last year's initial public offering when it was taken public by private equity firm Affinity Equity Partners.

The company failed to meet its initial prospectus targets in the face of a domestic glut of chicken which constrained prices. Today it said domestic pricing "remains competitive and this will continue" although Tegel also said it is benefiting from lower commodity prices 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.

"Our Australian exports have diversified into more channels and customers. We continue to work towards exceeding FY17 underlying ebitda."

In the first half, underlying earnings before interest, tax, depreciation and amortisation fell 1.7 per cent to $34.6m. Tegel's income statement shows 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.

Gross profit as a percentage of sales rose to 23.3 per cent from 23.2 per cent. Gross profit was boosted by growth in revenue, lower feed costs and improved operational efficiency from capital investment, Tegel said.

In its 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 with increases in all domestic channels during the half-year" 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 7,907 tonnes while revenue dropped 11.5 per cent to $44.8m. The decline reflected a drop in the Australian market, which had been expected, the company said. Tegel was working to diversify its channel and customer mix and had won new customers in retail, food service and QSR, it said. 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. Free-range was now worth $55.9m in New Zealand grocery, and now accounted for 12 per cent of total poultry scan sales market share, it said.

The compared declared an interim dividend of 3.45 cents a share, unchanged from a year earlier, to be paid on January 26.