The Inghams Group Limited (ASX: ING) share price has dropped in early trade following the release of the integrated poultry producer’s half year results for the period ended 28 December 2019. Inghams shares are currently down 1.92% to $3.57 at the time of writing.
What did Inghams announce?
The group reported core poultry volumes growth of 4.1%, driven by strong consumer demand as well as by strong business performance by key customers across its major sales channels.
The company reported statutory earnings before interest, tax, depreciation and amortisation (EBITDA) of $205.3 million, which was an increase of 35.1% on the prior corresponding period (pcp). This figure reflected the treatment of lease expenses and financing under the new lease standard AASB16. Statutory net profit after tax (NPAT) came in a $26.2 million and also reflected the impact of AASB16, which amounted to $12.8 million.
However, Inghams’ underlying group EBITDA pre AASB16 decreased by 16.3% to $91.7 million for the second half of FY20, while its underlying NPAT pre AASB16 decreased 24.2% to $42.0 million.
The company commented that its transition to the AASB16 standard resulted in the recognition of “right of use” assets and leases liabilities, which amounted to $1.6 billion on the balance sheet at the balance date.
Inghams further commented that its operating result was in line with expectations, as it managed to regain operating momentum after a difficult first quarter in FY20. This difficulty was due to a previously announced restructure of its further processing (FP) network, which significantly impacted volumes, costs, mix and margin.
The company reported that its Australian operating performance turned around through the first half of FY20, with FP issues now resolved.
In terms of its New Zealand operations, Inghams noted its turnaround strategy is now on track with strong year-on-year growth, despite the previously reported impact of infectious bursal disease virus (IBDV).
Positive momentum underway
Inghams commented that it was gaining positive momentum as it implements its 5-year strategic plan across the entire business. However, it noted that feed costs remained elevated due to the deterioration of the Australian wheat harvest.
Inghams Group Managing Director Jim Leighton said:
The results are in line with our expectation as the business entered the half with the significant volume, cost, mix and margin headwinds from the FP restructuring. Pleasingly, operating momentum improved through the half and those issues are now behind us.
The company also confirmed its new leadership team is in place and benefits are already being realised across all operations, driven by the implementation of its new continuous improvement framework. The new strategy has encompassed aligning its sales and marketing team to capitalise on any new opportunities that arise over the next year.
Inghams declared an interim fully franked dividend of 7.3 cents per share, with a record date 16 March 2020, and a payment date of 9 April 2020. Its dividend policy remains unchanged, which is to pay fully franked dividends of 60–70% of underlying NPAT, before AASB16, across the full year.
Outlook for FY20 and beyond
Inghams commented that it believes market conditions remain favourable for the poultry industry, however it will continue to closely monitor the impact of bushfires, weather and health events on its consumers and customers.
The company further commented that despite the impact of IBDV, its New Zealand turnaround plan is well on track. The New Zealand market currently remains closed to exports to Australia, although the company commented that it does anticipate that industry supply will eventually rebalance.
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