Wynnstay: H1 2016 Results
Wynnstay Group (LON:WYN), a UK manufacturer and supplier of agricultural inputs, has released interim results covering the six-month period to 30 April 2016 (H1 2016).
• Revenue: £193.2m, -3.6% YoY (H1 2015: £200.6m); FY 2016 (Y/E Oct) FactSet consensus revenue is currently £395.1m, +4.7% YoY
• PBT: £4.1m, -15.4% YoY (H1 2015: £4.8m); FY 2016 (Y/E Oct) FactSet consensus PBT is currently £7.3m, -18.9% YoY
• Net debt of £3.9m at 30 April 2016 (30 April 2015: £8.1m)
• Agricultural Division: Revenue: £135.2m, -8.2% YoY (H1 2015: £147.3m); Operating Profit: £1.8m, -18.4% YoY (H1 2015: £2.2m)
• Specialist Retail Division: Revenue: £58.0m, +9.0% YoY (H1 2015: £53.2m); Operating Profit: £2.4m, -15.8% YoY (H1 2015: £2.85m)
• Interim dividend: 4.0p, +8.1% YoY (H1 2015: 3.7p)
VSA Comment
WYN have delivered H1 results in-line with expectations, although it is important to note that FactSet consensus currently points to a fall of almost 20% YoY in PBT for the full-year.
In agriculture, as expected WYN’s arable input operations (seeds & fertiliser) have experienced a pick-up in Q2, after a slow Q1, given the recent shift in farmer buying patterns. However, WYN have added that this shift has increased its distribution costs.
In grain trading, volumes were reported higher, again as expected given the large UK wheat harvest in 2015 (16.4 million tonnes), but prices remain low. WYN expects volumes to remain elevated with “reasonable” on-farm grains and a large harvest expected this year (planted area similar to last year, final size dependent on yield/weather). We would note that after the recent deluge of rain, the UK crop certainly requires sunshine if it wishes to boost yields to a level to compete with the 2015 harvest.
WYN estimates that reduced commodity prices hit its revenues by c£20m, with lower volumes of manufactured feed products, particularly in the dairy sector impacting profits. Sheep and poultry feed performed better. Lower commodity prices and feed volumes led to lower working capital usage and thus a much reduced net debt figure.
UK animal feed production figures from DEFRA show that for WYN’s H1 period (Nov – Apr), overall UK ruminant feed production fell 3.6% YoY (sheep +0.6%, cattle & calf -4.6%). However, when you include feed production for the poultry sector, an area where WYN has a unique focus compared to its peers, overall production actually increased 4.1% YoY, with UK poultry feed production increasing 17.6% over the period.
Despite the mildest winter on record and good silage conditions in summer 2015, the traditional winter spikes in demand were repeated once more at reasonable levels. However, cattle and calf feed production did fall somewhat from the levels seen in the previous three years. Overall though, we feel that the mild winter did not impact animal feed volumes as much as might have been expected.
In specialist retail, WYN’s recent Agricentre acquisition delivered a £6.0m revenue contribution (contribution to profit expected in 2017) so like-for-likes sales in retail actually fell slightly YoY as farmers reduced spending during the period.
WYN states that last week’s EU referendum results are not expected to have an immediate impact on the sector, as we also said in our latest Agri Monthly publication, released yesterday. However, as discussions for the UK’s exit progress we would highlight the following areas for WYN, and other agricultural input stocks, to contend with:
• EU subsidy replacement: What will be put in place by the government to support UK farmers? How supportive will it be compared to the existing European system?
• General business uncertainty for the next two years, which will impact both share prices and underlying customer decisions.
• Imports of some animal feed raw materials will become more expensive with a weaker pound. However, these costs will largely be passed on to customers. Should the pound strengthen (perhaps as the EU started to unravel further), this would of course be reversed.