Inghams Group (ASX:ING) reported a first-half result management described as “below expectation and below the potential of this business,” citing elevated operational costs in Australia tied to excess inventory, higher cost-to-serve from onboarding new customers and products, and transitional supply chain inefficiencies linked to network changes, including consolidation into the company’s Ingleburn facility in New South Wales.
Chief Executive Officer and Managing Director Ed Alexander said these factors reduced network efficiency and increased unit costs during the first half of fiscal 2026. He said actions taken during the half reduced processed poultry inventory by AUD 27 million, allowing production settings to return toward normal and supporting an improvement in unit costs heading into the second half.
Operational costs and progress on inventory reduction
Despite the first-half earnings pressure, Alexander said business fundamentals improved through the half, highlighting a return to positive volume growth in the second quarter driven by “significant new business wins,” and improved net selling prices supported by retail channel growth and a recovery in wholesale pricing. He added that New Zealand remained resilient on stable operations and branded performance.
Management said the company remains on track to deliver AUD 60 million to AUD 80 million of savings in fiscal 2026 through its cost reduction program, supported by improved planning discipline, supply chain stabilization, and targeted farming and processing initiatives. Alexander said unit costs improved sequentially in Q2 versus Q1.
Volumes and pricing trends across channels
For the half, group core poultry volumes declined 0.7% year-over-year, with a trend improvement and a return to growth in Q2. Australia volumes declined 0.5%, with QSR volumes up 9% and wholesale up 4.5% offsetting a retail decline. In New Zealand, core poultry volumes were down 1.6%, largely due to a 41.5% fall in “other poultry products” following closure of key export markets; excluding those products, New Zealand core volumes increased 2.7%.
Alexander described retail performance as a “story of successful customer diversification,” noting non-Woolworths retail growth of 16.6%. Combined food service, wholesale, and export volumes increased 3.8% versus the prior corresponding period, including Australian food service growth of 11.9% driven by increased customer demand.
On pricing, group core poultry net selling price rose 1.4% to AUD 6.43 per kilogram. Australia core poultry NSP increased 1.1%, while New Zealand NSP increased 4.4% in local currency. Retail NSP increased 1.5% on favorable mix, and New Zealand retail pricing rose 3.9% in local currency, with management noting 11% growth in higher-value further processed products.
QSR pricing declined 1.2%, which management attributed to the new Nando’s supply agreement and increased demand for McDonald’s McWings, a lower-price-per-kilogram product. Alexander highlighted a wholesale pricing recovery, with wholesale up 4.5% year-over-year and “week-on-week momentum” through the half, including a 20.9% increase over the half. Export channel pricing increased 20.5% versus the prior period as export markets progressively returned to more normal operations.
Financial results, leverage, and cash flow
Chief Financial Officer Gary Mallett said revenue was largely flat at AUD 1.61 billion, down 0.1% year-over-year. Core poultry revenue increased 0.7% on NSP growth, offset by lower by-products revenue (down 5.1%) and a decline in external feed revenue (down 9.9%) from lower volumes and pricing.
Total costs increased 5% (AUD 69.7 million), reflecting inflation, elevated Australian operational costs, and the impact of grower contract conversions under AASB 16. Mallett said the conversion of 68 growers to variable performance-based contracts over the last 18 months increased as-reported operating costs by AUD 29.5 million versus the prior period, which he said was largely offset by lower AASB 16 depreciation and interest. Internal feed costs declined AUD 24.9 million versus the prior period due to improved market pricing for key inputs.
Net profit after tax was AUD 18.1 million, down 64.9% versus the prior corresponding period. Net finance expense increased 2.9% on higher average debt balances, partially offset by lower AASB 16 interest.
On the balance sheet, inventories and biological assets declined AUD 24.3 million versus fiscal 2025 year-end. Processed poultry inventory fell AUD 27.1 million, including AUD 13.7 million from turkey and AUD 12.7 million from chicken. Feed inventory declined AUD 4.4 million, partially offset by an increase in other inventories of AUD 10.9 million linked to higher ingredients and packaging items.
Net debt increased AUD 35.7 million to AUD 466.1 million, which management attributed to lower earnings and ongoing capital expenditure. Leverage ended the half at 2.4x, above the company’s stated policy range of 1–2x. Mallett said the company expects leverage to trend lower as earnings improve, and noted it had AUD 199 million in committed undrawn facilities with debt maturities in November 2027 and November 2029.
Operating cash flow was AUD 134.3 million, down AUD 32.8 million year-over-year, primarily due to lower earnings. However, cash conversion improved to 113% as working capital improved, which management linked mainly to inventory reduction.
Capital expenditure and operational projects
Inghams invested AUD 47.6 million in capital expenditure during the half, including AUD 13.6 million in sustaining capital, AUD 18.9 million in core growth initiatives, and AUD 15.1 million in “high-growth opportunities.” Mallett said the company’s growth investments focus on automation, infrastructure upgrades, and improved processing capabilities.
Management provided several project updates:
- Australia: Fully cooked capability at Ingleburn is now operational. A new Victorian pet food capability is nearing completion and expected to be operational from April 2026.
- New Zealand: New QSR “nine cut and DSI capability” is fully commissioned and performing to plan, with additional retail automation investments planned to support efficiency.
- Brand and farming: The Bostocks farming expansion is expected to deliver a 20% increase in volume to support the company’s future Australian market strategy for the brand.
The company paid a final fully franked fiscal 2025 dividend of AUD 0.08 per share during the half. The board also declared a fully franked interim dividend of AUD 0.04 per share, representing a payout ratio of 70% of underlying NPAT, within its 60%–80% target range.
Updated guidance and management commentary on recovery timing
Inghams updated guidance for fiscal 2026 underlying pre-AASB 16 EBITDA to a range of AUD 180 million to AUD 200 million. Alexander said the revision reflects the timing of operational recovery, with benefits expected to be “more heavily weighted towards the fourth quarter,” particularly in supply chain and logistics performance. He also cited flat first-half performance in New Zealand as a contributor to the revised outlook.
In Q&A, Alexander said the downgrade was driven by delays in improving supply chain inefficiencies, farming performance improvements occurring at a slower rate than expected, and the Ingleburn value-enhanced transition taking longer to reach efficient operation. He added that volume performance was strong and “slightly exceeding” expectations, and said the market had remained “very tight” through January and February, with the company seeing growth across channels despite the Woolworths change.
On the inventory reduction and related costs, management responded to an investor question by saying the AUD 19 million cited in earlier commentary reflected costs associated with imbalance in supply—such as lower fixed cost recovery and product downgrades—rather than a loss on sale, adding that inventory was reduced at “profitable prices” and market economics were “quite strong.”
Asked about competitive dynamics related to potential competitor capacity coming online, Alexander said the company had not seen changes in competitor dynamics or customer conversations, emphasizing Inghams’ network, service levels, quality, welfare, sustainability, and customer feedback through voice-of-customer metrics.
About Inghams Group (ASX:ING)
Inghams Group Limited, together with its subsidiaries, produces and sells chicken and turkey products in Australia and New Zealand. The company provides frozen, gluten free, and ready to cook chicken and turkey products under the Ingham's brand name. It also offers stock feeds for poultry and pig industries. Inghams Group Limited was founded in 1918 and is based in North Ryde, Australia.
