NWF Group: FY 2017 Results
UK-focused specialist agricultural and distribution business NWF Group (LON:NWF) has released results for the year ended 31 May 2017 (FY 2017).
• Group results: Revenues £555.8m, +19.3% YoY (FY 2016: £465.9m) and an adjusted operating profit £9.0m, +3.4% YoY (FY 2016: £8.7m)
• FY 2017 FactSet consensus was for revenues of £539.4m and an adjusted operating profit of £9.0m
• Feeds Division: Operating profit £1.5m, -28.6% YoY (FY 2016: £2.1m)
• Fuels Division: Operating profit £4.5m, +15.4% YoY (FY 2016: £3.9m)
• Food Division: Operating profit £3.0m, +11.1% YoY (FY 2016: £2.7m)
• Net debt at 31 May 2017: £13.0m (31 May 2016: £9.9m)
• Final dividend of 5.0p delivers a full year dividend of 6.0p, +5.3% YoY (FY 2016: 5.7p).
VSA Comment
NWF delivered a strong recovery in the second half, which saw its operating profit improve from being more than 20% behind YoY in H1 (mainly due to a very poor Q1) to posting an increase of 3.4% YoY over the FY, supporting the Board’s assertions at the half year stage that its full-year result would indeed still be in-line with expectations.
This was particularly impressive in its feeds division, which swung from a small H1 loss to an operating profit for the FY, and its fuels division, which posted a 20% YoY operating profit decrease in H1 but a 15% YoY increase over the FY. The turnaround in fuels was due to a revised sales & marketing strategy and new outlets exceeding expectations (FY volumes were 513 million litres, +8.2% YoY).
In feeds, the group achieved the improvement despite having significant margin pressure, as commodity costs increased in H2 (feed wheat ended the FY at c£140/t from c£100/t at the start of the FY in June 2016) with increased prices difficult to pass through to farmers in the key winter period. NWF’s total feed volumes for FY 2017 were 589,000t, +1.6% YoY, in-line with the wider UK market, +1.5% YoY, which also showed a significant recovery in NWF’s second half (-0.9% in H1, +3.4% in H2).
Despite the group having £9.4m of capital expenditure during the year, including £5.2m spent on a significant mill development programme in the Cheshire and Northern mills, net debt was kept at 1x EBITDA.
We believe the outlook for the group looks quite positive with solid performance expected to continue in its food division (having showed considerable resilience in FY 2017 following the previously announced lower contracted volumes with a major customer), an improving dairy market likely to spur compound feed volumes, and the operational improvements in its fuels division made in H2 likely to be sustained.
As usual, the main risk for the coming year is the potential for a warm winter and/or a rapid decrease in input commodity prices after NWF’s key commodity buying period for the winter in August and September. Of course, the first is impossible to predict but the second feels unlikely this year given the continued weakness of the GBP.