Omicron Staff Shortages Disrupting Ingham’s Production And Distribution

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Omicron Staff Shortages Disrupting Ingham’s Production And Distribution

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  •  Some chicken products temporarily suspended
  •  Financial impact not quantified
  •  Less stringent isolation rules are alleviating some staff shortages
  •  Grain input costs elevated, partly explained by historically high wheat price

Inghams Group Limited (‘Inghams’ or the ‘Group ), formerly a family-owned and run business established in 1918, was acquired by TPG Capital in 2013 and listed on the ASX in 2016. TPG is a US-based private equity firm. TPG completed their sell-down of Ingham shares in August 2020. 

Inghams is today Australia’s largest vertically integrated poultry producer, selling an estimated 200 million birds in Australia and New Zealand each year. Operations span the value chain from farming to processing and distribution. The Group also operates a stockfeed business. Ingham’s has supply arrangements with major retail and quick service restaurant (QSR) customers. Woolworths is Ingham’s largest customer. The Group’s processing capabilities cater to changing consumer preferences that include value-enhanced, premium-priced poultry products.

Business Update

In a market update on 11 January, Inghams stated that the spread of the Omicron variant since December is disrupting production and distribution channels, which in turn is impacting sales. The variant is resulting in significant staff shortages. This means that Australian supply chain, operations and logistics are operating at below capacity, reducing production volumes and operational efficiency. Some of Ingham’s products have been temporarily suspended. 

Inghams have not quantified the impact of Omicron on 1H FY22 trading results, because operational changes are being made to volume and mix across Ingham’s Australian business and it is not possible to predict the duration of the current supply disruption. 

Changes to isolation rules announced by State and Federal Governments for close contacts in the food sector have alleviated some of the staff shortages. Inghams are confident that as operating conditions stabilise, production capacity will quickly recover to meet customer and consumer demand.

Looking Ahead

Historically, chicken demand in Australia has grown at around a consistent four percent per year. In FY21, poultry demand by volume, at Group level, increased by 4.2 percent on the previous year. Volume growth in New Zealand was just over 6 percent. This can be attributed to chicken being an affordable source of protein, compared to beef. This is particularly the case during periods of high beef prices, such as at the present time. 

Grain input costs are ‘elevated’ according to Inghams, and this is having a slightly negative impact on margins. Continuing high wheat prices will most likely sustain this key input price for the foreseeable future. The other grain input cost is the price of soymeal, which has been impacted by higher shipping costs, raising the cost of this commodity. The sustained input cost pressures have the potential to place upward pressure on market pricing at a time when supply disruptions are impacting demand. 

Inghams is investing in the premium market through branded and private label products, including a new brand, The Free Ranger,  which is now stocked in 477 supermarkets. New chicken offerings are also being developed for Ingham’s major QSR customers.

The Group intends to release its half-year result to the market on 18 February 2022. An update on the operations and trading results outlook for FY22 will be provided at that time.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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