Inghams (ASX:ING) share price on watch after Q1 business update

The Inghams Group Ltd (ASX: ING) share price will be on watch today following the company's release of a business update.

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The Inghams Group Ltd (ASX: ING) share price will be on watch today following the company's release of a business update.

Let's take a look and see how the poultry producer tracked for the start of the new financial year.

Business update

For the quarter ending 30 September, Inghams reported a strong return in poultry sales volumes, nearing pre COVID-19 levels.

Core poultry volumes sold in the first quarter of FY21 increased by 6.2% to 110.9 kilotons over the prior corresponding period. The surge in momentum also reflected a 7.5% uplift on the prior three months. The growth was driven in both Australia and New Zealand, despite COVID-19 restrictions in Victoria which saw the Inghams Thomastown plant shutdown.

During the quarter, Inghams continued to reduce poultry production levels due to the pandemic. The company is initiating further cuts in inventory levels by the end of FY21. This will be supported by the additional demand over the Christmas holiday period. So far, total poultry inventory has reduced by $16 million in the first 17 weeks of FY21.

Inghams noticed a slight increase in feed costs, however it said that crop harvest for late 2020 is appearing favourable. Moreover, feed prices are expected to be significantly lower in the second half of FY21, resulting in cost efficiency by Q4.

COVID-19 response

Stage 4 lockdowns in Victoria throughout August and September, and level 2 restrictions in New Zealand impacted Inghams' facilities. In response, the company managed to navigate around the constraints imposed through operating on a reduced workforce. Customer demand was met while maintaining full operations across all its plants.

Commenting on the impact, Inghams CEO, Mr Jim Leighton, said:

While navigating continued complexity associated with the COVID-19 pandemic in the first quarter of the financial year, we have maintained an unwavering commitment to the safety and employment of our people, while fulfilling our role as an essential service provider to the people of Australia and New Zealand.

The speed and scale of our response, particularly in the second-waves impacting Victoria and Auckland, was made possible by the enormous efforts of our people who worked together to keep the business running to ensure customer demand was met.

Dividend policy review

Management advised that it has reviewed the current dividend policy following the adoption of the new leases on its balance sheet.

The revised dividend policy is expected to have a pay-out ratio of between 60% and 80% of underlying net profit after tax. The increase in the top end of the dividend range is said to provide the board flexibility to determine dividends going forward.

From FY21, Inghams will begin to report its underlying results inclusive of the impact of its leases. It is anticipated that the company will pay an FY21 interim dividend to shareholders in April 2021.

Inghams Chair, Mr Peter Bush, spoke about the new change. He said:

We were pleased to provide shareholders with a fully franked dividend of 14 cents per share in relation to the 2020 financial year, reflecting a payout ratio of 66 per cent of Underlying NPAT pre AASB 16, within our prior target payout range of 60 to 70 per cent. This was particularly important in light of the challenges that many people have faced throughout the COVID-19 pandemic.

About the Inghams share price

The Inghams share price has had a volatile year. Whilst quickly recovering from the March crash, the company's shares have been on a wild ride since then. The Inghams share price came close to its pre-pandemic highs in July and August this year before commencing another downward trend. Having closed yesterday's session at $2.85, the Inghams share price is currently 16.67% lower in year-to-date trading.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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