WYNNSTAY GROUP PLC
(“Wynnstay” or “the Group”)
Half Year Results
For the six months to 30 April 2018
Key Points
Summary
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Encouraging first half results reflect a continuing recovery in farmgate prices across the agricultural sector – farmer confidence is returning |
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Group saw growth across both Divisions, and acquired 10 country stores in the first half, including 8 in April 2018 |
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Wynnstay remains well-positioned to meet current market expectations for the full year |
Financial
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Revenue from continuing operations up by 10.3% to £218.53m (2017: £198.14m) |
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Operating profit from continuing operations, before investment impairment and corporate restructuring and acquisition costs, up by 15.9% to £5.09m (2017: £4.40m) |
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Profit before tax from continuing operations up by 15.7% to £4.91m (2017: £4.25m) |
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Earnings per share from continuing operations increased by 13.3% to 20.14p (2017: 17.77p) |
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Net assets at 30 April 2018 increased to £88.05m (2017: £85.03m) |
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Interim dividend up by 5.0% to 4.41p per share (2017: 4.20p) |
Operational
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Agricultural Division – revenue up 9.9% to £160.14m; operating profit up by 33% to £2.05m |
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strongest recovery was in feeds, driven by both farmers returning to more typical feeding patterns and the protracted winter |
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arable product orders were delayed by the late spring; on a year-to-date basis, sales are now at normal levels |
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Specialist Retail Division – revenue up 11.4%; to £58.27m; operating profit up by 6.2% to £3.10m |
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Wynnstay Stores benefited from the improved trading backdrop, with like-for-like sales up 8%, excluding inflation |
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acquired eight stores from the administrators of Countrywide Farmers plc at the end of April, and an investment and integration programme is now underway |
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establishes a firmer footprint for Group in Devon and Cornwall |
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CEO Succession
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CEO, Ken Greetham, retires from the Group in early July, with Gareth Davies appointed to succeed him, as previously reported. A smooth handover process is well advanced. |
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Gareth was formerly Joint Managing Director of Wynnstay (Agricultural Supplies) Ltd |
Ken Greetham, Chief Executive of Wynnstay, commented:
“Wynnstay's interim results are encouraging, with the Group's stronger performance reflecting the long-awaited upturn for the agricultural sector, which started to come through in 2017. The continuing improvement in farmgate prices has boosted farmer confidence, and demand across most product categories was higher year-on-year. Demand for feed also benefited from the prolonged winter.
“We continue to invest in and develop the Group in line with our strategic plans, and, at the end of April, acquired eight stores from the administrators of Countrywide Farmers plc. This strategic acquisition together with two separate store purchases strengthen our presence in a number of counties, especially in the South West of England, where Wynnstay is currently under-represented.
“Trading remains in line with overall budgets and the Group is well-positioned to meet current market expectations for the full year.”
Enquiries:
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Wynnstay Group plc |
Ken Greetham, Chief Executive Paul Roberts, Finance Director |
T: 01691 827 142 T: 020 3178 6378 (today) |
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KTZ Communications |
Katie Tzouliadis / Emma Pearson
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T: 020 3178 6378 |
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Shore Capital (Nomad and Broker) |
Stephane Auton / Patrick Castle |
T: 020 7408 4090 |
CHAIRMAN'S STATEMENT
INTRODUCTION
Wynnstay's results for the first six months of the financial year are encouraging, with profit before tax from continuing operations up by 15.7% to £4.91m against the same period last year.1 The Group's stronger performance reflects the long-awaited upturn for the agricultural sector, which began to come through during 2017. The continued improvement in farmgate prices has had a noticeable impact on farmer sentiment, and demand across most of our product categories was higher year-on-year.
The greatest improvement in demand came from the livestock sector where farmers returned to more normal animal feeding patterns. Feed volumes were also boosted by the extended winter weather. However, the late spring delayed demand for fertiliser, seed and agrochemicals, as farmers struggled with seasonal activities. These sales started to come through in April and May with improved weather conditions, and most crops look well as we enter the summer season.
The Group's continuing Specialist Retail activities, which principally comprise the Wynnstay Stores operation, also benefited from the improved trading backdrop, with sales rising strongly year-on-year.
As previously reported, we completed two larger acquisitions in the first half2. In November 2017, we purchased a fertiliser blending facility in Montrose, Scotland, which has added valuable further capacity to the Glasson business. At the end of April 2018, we expanded Wynnstay Stores with the purchase of eight stores from the administrators of Countrywide Farmers plc, which together generated approximately £16.4m of sales in 2017. These new stores strengthen our presence in a number of counties, and specifically in Devon and Cornwall. We have started the integration process and will be investing further in all eight stores throughout the year. We expect to see a positive contribution start to come through over the course of 2019 and beyond. We also made two separate agricultural store acquisitions in the first half, M.D. Lloyd, which is in our heartland territory of mid-Wales, and Mike Hawken, which established our first footprint in Cornwall.
The UK agricultural industry has improved significantly over the last year and shows signs of medium, and possibly longer term, stability. The final outcome of Brexit has yet to be decided but the importance of agriculture, the environment and rural communities should positively influence the Government's support for the sector. We believe the changes associated with a reformed agricultural policy will be challenging but will create opportunities for Wynnstay and its customers.
The Group continues to invest across the business to increase efficiency and facilitate further growth in our core feed, retail and arable activities.
FINANCIAL RESULTS
In order to provide a more representative view of the Group's business performance (non-GAAP alternative performance measures), the Directors provide adjusted figures for Group operating profit before intangible amortisation and share-based payments and also Group operating profit before investment impairment, costs of corporate restructuring and business combination expenses. These adjustments are included in the Condensed Consolidated Statement of Comprehensive Income. The Directors believe that the non-trading nature of these charges supports the presentation of adjusted results and these adjusted results provide a better understanding of the underlying performance of the business. The non-GAAP alternative performance measures are not intended as a substitute for GAAP measures and might not be the same as used by other companies.
Comparative financial results for the six months to 30 April 2017 have been restated to take into account the discontinuation of the Just for Pets business1.
Revenue for the six months to 30 April 2018 totalled £218.53m (2017: £198.14m), an increase of 10.3% on the same period last year. This rise is attributable to an increase in volumes across certain core product categories, a £6.3m contribution from new acquisitions, and commodity price inflation. Revenue from the Agriculture Division rose by 9.9% to £160.14m (2017: £145.78m) and revenue from the Specialist Retail Division was 11.4% higher at £58.27m (2017: £52.30m). Other activity contributed revenue of £0.12m (2017: £0.06m).
Operating profit from continuing activities, before investment impairment, costs of corporate restructuring, and business combination expenses, rose by 15.9% to £5.09m (2017: £4.40m). Operating profit in the Agricultural Division was 33% higher at £2.05m (2017: £1.54m), helped by increased feed volumes. Operating profit at our Specialist Retail operations increased by 6.2% to £3.10m (2017: £2.92m), reflecting improved results at Wynnstay Stores. Other activities incurred a similar year-on-year operating loss of £0.06m (2017: loss of £0.06m). As in prior years, the contribution from our Joint Ventures will be consolidated in the second half of our full year results.
Investment impairment, costs of corporate restructuring and business combination expenses amounted to £0.07m in the period (2017: £0.06m)3, and net finance costs increased slightly to £0.11m (2017: £0.09m), mainly reflecting higher average working capital requirements due to increased activity.
This resulted in a profit before tax from continuing operations of £4.91m (2017: £4.25m), up by 15.7% year-on-year. The tax charge for the period was £0.95m (2017: £0.79m) and profit after tax was £3.96m (2017: loss after tax and discontinued activities of £0.66m).
Earnings per share from continuing operations increased by 13.3% to 20.14p (2017: 17.77p). The comparative result after losses from discontinued operations in 2017 was a loss per share of 3.38p.
Net assets at 30 April 2018 were £88.05m (2017: £85.03m), which represents approximately £4.47 per share (2017: £4.36 per share), with the weighted average number of shares in issue during the period at 19.67m (2017: 19.49m).
Net debt at 30 April 2018 was 16.5% lower year-on-year at £6.92m (2017: £8.28m)4. The Group's cash requirements are at their highest of the year during the Spring months, particularly April, and the business is well-placed to accommodate this, with the Group retaining substantial headroom within its existing debt facilities.
DIVIDEND
The Board is pleased to declare an interim dividend of 4.41p per share (2017: 4.20p), which is a rise of 5.0% year-on-year. The dividend is in line with our progressive policy and reflects the Board's continuing confidence in the Group's growth prospects.
The interim dividend will be paid on 31 October 2018 to shareholders on the register at the close of business on 28 September 2018. As in previous years, a Scrip Dividend alternative will also be available, with the last day for election for this scheme being 17 October 2018.
REVIEW OF OPERATIONS
AGRICULTURE
The trading environment across the agricultural sector began to recover during 2017, and stronger output prices for both arable and livestock farmers have driven a broad based recovery in demand for agricultural inputs. Demand was strongest in the livestock sector, where there was also a higher feed requirement as a result of the extended winter period. While the late spring led to delayed demand for arable inputs, with the bulk of orders coming through in April and May, sales were in line with last year. Grain volumes improved in the late spring period, although margins remain under pressure in a relatively flat market.
Feed Products
The feeds business benefited from strong demand for compound, blended and straight feed products, as improved output prices encouraged livestock farmers to return to more typical feeding regimes. Demand for ruminant feeds was also boosted by the unusually protracted winter period, although some extra costs were incurred in meeting this demand, mainly in raw materials and logistics. Bagged feed sales, which are principally sold through the Wynnstay Stores network, reached record highs, also benefiting from the extended winter period. We are also pleased to see volume growth in monogastric feeds, with further expansion of feeds for free range egg production.
Glasson Grain
Glasson delivered a solid performance in the first half, with an increase in volumes in all products, although there was some margin pressure in fertiliser.
The acquisition of a fertiliser production facility in Montrose in November 2017 positions Glasson as the second largest fertiliser blender in the UK market, and its geographic presence now extends across central and northern UK. The manufacture of certain products for Youngs Animal Feeds has boosted the output of specialist corn-milling activity, and we are starting to see the benefits come through.
After the half year end, on 1 May 2018, we acquired the majority of the assets and liabilities of FertLink Limited, the 50% joint venture fertiliser manufacturing facility based in Birkenhead established between Glasson and NW Trading. Its integration within the Glasson business is well-advanced and we expect to complete the process over the coming months.
Arable Products
The unusually late spring affected demand for arable products in the first half. However April and May have been very busy months and, on a year-to-date basis, arable product sales are now at normal levels. Demand for spring cereal seed has been very strong, partly reflecting a change in cropping pattern as some arable enterprises deal with blackgrass weed problems associated with autumn cropping. Herbage sales are currently at lower levels than the previous year, reflecting the general trend in the UK. However, we expect an increase in demand later in the year, subject to autumn weather conditions. Inclement weather also reduced usage of agrochemicals and, despite strong demand in May, sales remain behind budget.
Improved grain prices stimulated trading activity, and volumes for GrainLink, the in-house grain marketing business, have risen above the previous year. However the previously subdued activity and flat market prices have had a negative impact on margins. Forward grain prices remain strong, which is an encouraging sign for arable farmers and bodes well for the sector.
We have now started work on a major warehouse expansion project at the Group's arable site near Shrewsbury. This will enable us to increase production of processed seed in 2019 and we will also be enlarging our retail facilities on the same site.
SPECIALIST RETAIL
Wynnstay Stores
Sales across our network of Wynnstay Stores increased strongly over the first half, with like-for-like sales rising by 8%, adjusted for inflation. Demand for feed was a key driver of this increase as farmers battled with inclement weather, but increased spending was evident more broadly, including supplements and hardware products, reflecting the general improvement in sentiment at farm level.
Our acquisition of a further eight stores, in Central and Southern England, at the end of April 2018 was part of our expansion plans to enhance our presence in these regions, particularly in the South and South West, where we are under-represented. Wynnstay Stores works closely with our wider agricultural operations and a stronger presence in these newer geographical areas will also stimulate broader Group sales activity. The new outlets, which were previously loss-making, require investment to fully develop the potential of the business. However, we anticipate the new stores starting to make a positive contribution to earnings in 2019.
With the addition of these new stores as well as M.D. Lloyd and Mike Hawken, the Wynnstay Store network now stands at 60 outlets (October 2017: 50 outlets).
JOINT VENTURES AND ASSOCIATES
Results from the Group's joint ventures and associate companies are not included in this half yearly report. They will, as usual, be consolidated into Wynnstay's full year results.
BOARD CHANGES
In early May, we announced that Ken Greetham will be retiring as Chief Executive Officer in early July, after 21 years with the Company, the last 10 of which have been in his current role. At the same time, we were pleased to announce the appointment of Gareth Davies, Joint Managing Director of Wynnstay (Agricultural Supplies) Ltd as Chief Executive Designate. This followed the completion of a thorough recruitment process, which looked externally as well as internally for Ken's successor. Gareth joined Wynnstay in 1999, initially as Sales Manager for South Wales and, in 2008, was appointed as Head of Agriculture. A graduate of Harper Adams University, he began his career in agriculture at a large scale beef and sheep farm before joining Kemira Fertilisers, where he worked for 13 years. He also established his own enterprise in fertiliser and seed sales.
A smooth handover process is currently underway, and Ken will remain available to the Group in an advisory capacity for a period after he steps down.
On behalf of the Board and all Wynnstay staff, I would like to thank Ken for his very significant contribution to the business and leadership of the Group over the past decade, and to welcome Gareth, an outstanding internal candidate, who, like Ken, is a well-known and respected leader in the Agricultural Industry, as his successor. We look forward to Wynnstay's next phase of growth under Gareth's leadership.
OUTLOOK
The improvement in output prices for farmers provides a robust backdrop for the UK agricultural industry. While Brexit negotiations remain underway, the full implications on some UK farming practices are difficult to forecast. It is widely accepted that the existing financial support mechanisms provided as part of the Common Agricultural Policy will focus on output parameters rather than area and historical factors. We expect an even greater emphasis on efficiency and productivity as farmers compete in a market with changing competitive dynamics. This will require innovation in many production systems which, in itself, will lead to significant change and opportunity in the agricultural supply industry.
We believe that Wynnstay is strongly positioned, with its broad product range, well established market positions in key product areas, excellent routes-to-market, specialist sales personnel and a wide network of country stores.
We continue to invest in all aspects of the business, with a focus on supply chain efficiency and the further development of our production facilities. With a strong balance sheet and low gearing, the business is able to continue to develop in line with its strategic plan whilst carefully assessing the likely medium-term impact of Brexit negotiations.
Current trading is in line with overall budgets and, despite short term costs associated with the integration of the newly-acquired country stores, the Board believes that Wynnstay remains well-positioned to meet current market expectations for the full financial year.
Jim McCarthy
Chairman
WYNNSTAY GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 April 2018
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Unaudited six months ended 30 April 2018 |
(Restated) 30 April 2017 |
Audited year ended 31 October 2017 |
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Note |
£'000 |
£'000 |
£'000 |
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CONTINUING OPERATIONS |
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Revenue |
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218,536 |
198,135 |
390,724 |
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Cost of sales |
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(189,123) |
(171,717) |
(337,835) |
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Gross profit |
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29,413 |
26,418 |
52,889 |
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Manufacturing, distribution and selling costs |
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(20,959) |
(18,952) |
(40,009) |
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Administrative expenses |
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(3,486) |
(3,172) |
(5,335) |
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Other operating income |
9 |
158 |
183 |
326 |
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Group operating profit before intangible amortisation share-based payment costs |
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5,126 |
4,477 |
7,871 |
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Intangible amortisation and share-based payments |
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(31) |
(82) |
(156) |
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Group operating profit before investment impairment, costs of corporate restructuring and business combination expenses |
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5,095 |
4,395 |
7,715 |
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Investment impairment, costs of corporate restructuring and business combination expenses |
10 |
(70) |
(61) |
(95) |
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Group operating profit |
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5,025 |
4,334 |
7,620 |
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Interest income |
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81 |
8 |
66 |
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Interest expense |
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(188) |
(94) |
(219) |
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Share of profits in associates and joint ventures accounted for using the equity method |
2 |
– |
– |
267 |
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Share of tax incurred in associates and joint ventures |
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– |
– |
(70) |
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Profit before taxation |
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4,918 |
4,248 |
7,664 |
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Taxation |
4 |
(956) |
(784) |
(1,359) |
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Profit for the period from continuing operations |
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3,962 |
3,464 |
6,305 |
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DISCONTINUED OPERATIONS |
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(Loss) for the period from discontinued operations |
11 |
– |
(4,123) |
(6,586) |
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Profit/(Loss) for the period attributable to the owners of the parent |
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3,962 |
(659) |
(281) |
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Basic earnings per ordinary share (pence) |
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Profit from continuing operations |
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20.14 |
17.77 |
32.29 |
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(Loss) from discontinued operations |
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– |
(21.15) |
(33.72) |
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20.14 |
(3.38) |
(1.43) |
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Diluted earnings per ordinary share (pence) |
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Profit from continuing operations |
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20.06 |
17.44 |
31.87 |
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(Loss) from discontinued operations |
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– |
(21.15) |
(33.72) |
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20.06 |
(3.71) |
(1.85) |
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WYNNSTAY GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEET
For the six months ended 30 April 2018
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Unaudited as at 30 April 2018 |
Unaudited as at 30 April 2017 |
Audited as at 31 October 2017 |
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Note |
£'000 |
£'000 |
£'000 |
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ASSETS |
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NON-CURRENT ASSETS |
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Goodwill |
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14,590 |
14,266 |
14,266 |
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Investment property |
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2,372 |
2,372 |
2,372 |
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Property, plant and equipment |
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20,344 |
20,279 |
18,709 |
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Investments |
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3,444 |
3,397 |
3,444 |
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Intangibles |
|
98 |
102 |
95 |
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40,848 |
40,416 |
38,886 |
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CURRENT ASSETS |
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Inventories |
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36,645 |
36,265 |
30,056 |
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Trade and other receivables |
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76,735 |
63,212 |
62,961 |
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Financial assets – loans to joint ventures |
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2,844 |
2,786 |
2,844 |
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Cash and cash equivalents |
12 |
1,645 |
22 |
8,914 |
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|
117,869 |
102,285 |
104,775 |
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TOTAL ASSETS |
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158,717 |
142,701 |
143,661 |
|
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LIABILITIES |
|
|
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CURRENT LIABILITIES |
|
|
|
|
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Financial liabilities – borrowings |
|
(6,791) |
(6,014) |
(2,512) |
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Trade and other payables |
|
(60,720) |
(47,953) |
(52,738) |
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Current tax liabilities |
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(1,180) |
(1,128) |
(847) |
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|
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(68,691) |
(55,095) |
(56,097) |
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NET CURRENT ASSETS |
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49,178 |
47,190 |
48,678 |
|
|
|
|
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|
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NON-CURRENT LIABILITIES |
|
|
|
|
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Financial liabilities – borrowings |
|
(1,770) |
(2,286) |
(1,896) |
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Trade and other payables |
|
(21) |
– |
(22) |
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Deferred tax liabilities |
|
(190) |
(289) |
(254) |
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|
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(1,981) |
(2,575) |
(2,172) |
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TOTAL LIABILITIES |
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(70,672) |
(57,670) |
(58,269) |
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NET ASSETS |
|
88,045 |
85,031 |
85,392 |
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EQUITY |
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Share capital |
6 |
4,936 |
4,883 |
4,916 |
|
Share premium |
|
29,829 |
29,065 |
29,529 |
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Other reserves |
|
3,343 |
3,008 |
3,319 |
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Retained earnings |
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49,937 |
48,075 |
47,628 |
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TOTAL EQUITY |
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88,045 |
85,031 |
85,392 |