Tegel reiterates FY18 earnings guidance as poultry remains attractive

Tegel reiterated this year's earnings are expected to be ahead of last year's.

Tegel Group, New Zealand's biggest poultry producer, reiterated that it expects this year's underlying earnings to be ahead of last year's as it benefits from population growth and protein competition that still favours poultry.

"Domestic volume and market growth is underpinned by increased poultry consumption of around 5 per cent since 1990. We see those trends continuing and they will impact favourably on our business," said chief executive Phil Hand in speech notes published ahead of the annual general meeting. Tegel currently has a 52 per cent domestic market share and it expects to retain that position in the current financial year.

According to Tegel, chicken is a much "more affordable option for consumers" than beef and lamb and now commands 53 per cent of 'share of plate', double what it was 16 years ago.

The Auckland-based company reported underlying earnings before interest, tax, depreciation and amortisation rose to $75.6 million in the 53 weeks ended April 30, from $74.9m in the year-earlier 52-week period, in late June.

Tegel launched new branding and packaging this year and "will continue to drive free range expansion which attracts higher margins," said Hand. Free range product growth increased 28 per cent year-on-year in the 53 weeks to April 30.

The company is forecasting capital expenditure of around $30m in FY18 across a range of initiatives including a hatchery expansion in New Plymouth, brand investment and new product innovation. It launched 29 new products in the last financial year and "new product development is a major focus for us," said Hand.

Exports market plans include new range launches in the second quarter in Australia and shoring up market presence across the Tasman, and building its position in Asia and the Middle East. Tegel will launch its first products in Bahrain in the first quarter. It will also seek in-market partners in Japan and to gain market access in Singapore, Korea and Taiwan.

Its aim is for export revenues to represent approximately 25 per cent of total revenues in four years. In the last financial year, export revenue was $103m while total revenue was $614m.

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. The shares last traded at $1.23 and have fallen 26 per cent over the past 12 months. 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.