Wynnstay Share Blog – Final Results Year Ended 2018

Wynnstay have now released their final results for the year ended 2017.

Revenues increased when compared to last year due to a £31.1M growth in agriculture revenue and a £5.9M increase in retail revenue. Staff costs were up £743K, depreciation increased by £209K and other cost of sales grew by £33.4M to give a gross profit £2.6M higher. Operating leases were up £456K and other manufacturing costs increased by £595K. We also see a growth in admin expenses and a £95K restructuring cost which meant that the operating profit was just £341K higher. There was a £130K increase in the share of profits from the joint venture but a £977K negative swing to losses from the discontinued Pet stores to give a continuing profit for the period of £6.3M, an increase of £476K year on year.

When compared to the end point of last year, total assets increased by £4.5M, driven by a £12.6M growth in receivables, partially offset by a £3.9M decline in goodwill, a £1.8M fall in property, plant and equipment, a £1.3M decrease in inventories and a £1.2M decline in cash. Total liabilities increased during the period as a £1.4M decline borrowings was more than offset by an £8M growth in payables. The end result was a net tangible asset level of £71M, a growth of £2.3M over the past six months.

Before movements in working capital cash profits increased by £579K to £10.3M. There was a cash outflow from working capital and after tax payments increased by £181K the net cash from operations was £4.7M, a decline of £2.7M year on year. The group spent a net £1.8M on capex and spent £678K on the disposal to give a free cash flow of £2.5M. Of this, £1.2M was spent on finance leases, £896K on loan repayments and £2.4M on dividends which meant that after £723K was raised from new share capital, the cash outflow was £1.2M and the cash level at the year-end was £8.9M.

The profit in the Agriculture division was £3.3M, a growth of £331K year on year. Revenues rose by 13% which reflected volume increases across most agricultural inputs, except grain, as well as some inflationary impact in feed and grain prices. The upturn in output prices in 2017 has brought a degree of optimism to the sector.

Demand for fertilizer and feed, increased in the period, mirroring the general UK market. There was some variation in order patterns for fertilizer as farmers timed their orders around fluctuations in market prices during the year. Demand for seed was in line with previous years but the smaller 2016 harvest meant that grain volumes were lower year on year.

In feed products, the increase in farm output prices, particularly milk, increased UK demand. This is reflected in the strong upturn in feed demand, and it also provides the group with confidence for sales over the winter period. The increased volume of milk in the UK market has given rise to some concern over milk prices, which have peaked at around 30p per litre, and there is some possibility of a slight reduction. With a generally stable UK and world market, the board believe that this is likely to be short-term, however, and they don’t expect to see a repeat of the reduction in prices experienced in 2015.

Demand for bagged feed, which is mainly sold through the retail stores, increased during the year, and the investment in new bagging facilities in 2016 helped to satisfy demand efficiently. Further investment in both the compound feed mills is planned for 2018.

At Glasson Grain, while demand for raw materials was lower than the previous year, sales of fertilizer increased significantly, albeit with some reduction in margin. The business has increased its penetration in the north of England and Scotland, and the acquisition of the facility in Montrose will further enhance sales in the area. The financial outcome for the year is in line with the previous year, with an increase in contribution from fertilizer balancing a reduction in the trading division.

The arable business remains strong, although lower grain volumes, along with continued margin pressure, have reduced the contribution from this activity. Combined sales of cereal and herbage seed was in line with the performance last year. Further capital investment is budgeted for 2018 to support additional expansion of the site in Shropshire. Demand for fertilizer was strong in the spring and summer months, although in contrast to the previous year, higher prices in autumn tempered demand for early orders and as a result it is expected that there will be a stronger spot market as farmers buy for the spring usage period.

The smaller 2016 harvest, combined with a reticence of farmers to sell grain from the larger 2017 crop contributed to a reduction in volumes in GrainLink, the gain marketing business. They also experienced some margin pressure as traders competed in a subdued market. Wheat prices weakened slightly during autumn but longer term futures prices indicate a general level of stability at above the cost of production. Overall farm stocks of grain are higher than in 2016, most of which will be traded before the 2018 harvest.

The profit in the Specialist Retail division was £4.7M, a growth of £275K when compared to last year. The pets sector has been very challenging since late 2015 and Just for Pets began to experience a deterioration in trading in 2016. In the first half of the year it became apparent that the business did not have sufficient sale to survive the increasingly difficult trading environment and the decision was taken to put it into administration.

Like for like sales across Wynnstay Stores increased by 5% with the upturn reflecting improved sentiment across the livestock sector. This has been particularly evident in animal health and hardware products as well as milk powders. The success of their Dairy and Sheep and Beef catalogues has also contributed to the improvement in sales, although a change in product mix across the store network has led to a slight reduction in average margin.

The group continues to invest in the network of stores and finished a total refurbishment of the Craven Arms outlet early in the year. They also completed the relocation of the store in Ruthin. The Agricentre business operates a slightly different model with a high percentage of products delivered to farms. During the year they have focused on the efficiency of its delivery network which has resulted in the closure of two outlets and initiatives to create better customer services processes. They have also invested in personnel ahead of an anticipated improvement in sales. Going forward they anticipate further growth in the specialist retailing activities as they expand the trading area.

The contribution from joint ventures was higher, benefiting in particular from an improved performance from Fert Link, which reflected a recovery in volumes in the fertilizer marketplace.

There were some cost incurred on the disposal of Just For Pets. There was a £3.9M Goodwill impairment charge, a £1.7M loss on the measurement of fair value less costs to sell the assets, and a £77K cost incurred in relation to administration.

After the year-end the group acquired a mill and processing facilities in Montrose which will allow Glasson Grain to better service customers in Scotland. The consideration paid was £550K with all of that deferred until 2020 and contingent on the resolution of certain conveyancing issues which the board expect to be resolved within three years. The consideration is the same as the value of the asset and it was required to be divested by Origin after they acquired it for competition remedy purposes.

The recovery in output prices has brought an improvement in demand for all agricultural inputs. The improvement is principally a result of a more balanced world market, particularly for milk products. Prices have also been enhanced by the devaluation of Sterling, which brought added benefits to the UK industry. The improved pricing seems to be sustainable, at least in the short term, and the farming industry is eagerly awaiting the outcome of the Brexit negotiations to understand the full implications for demand and prices in the medium to long term.

Going forward the agricultural trading backdrop is stronger than this time last year and the New Year has started in line with management expectations. While Brexit creates some uncertainties, the board remain confident of the group’s market positioning.

At the current share price the shares are trading on a PE ratio of 14.4 which rises to 14.8 on next year’s consensus forecast. After a 5% increase in the dividend, the shares are yielding 2.7% which increases to 2.8% on next year’s forecast. At the year-end the group had a net cash position of £4.5M compared to £4.3M at the end of last year.

Overall then this has been a bit of a mixed year for the group. Profits from continuing operations were up, net tangible assets increased but the operating cash flow declined. This was due to working capital movements, however, and cash profits increased. There was some free cash, but not enough to cover everything. The increase in output prices has given rise to a good improvement in the agricultural business and now that Just for Pets has closed, the two divisions will probably rise and fall in unison so the group has lost a bit of a hedge against the agricultural market.

The next year has started OK but with a forward PE of 14.8 and yield of 2.8% these shares are not yet good value. I am reluctant to buy in here for the time being.

On the 30th April the group announced that it had reached an agreement with the administrators of Countrywide Farmers to acquire eight stores for a total consideration of £800K, payable in cash. Five of these stores are located in Devon and Cornwall, which extends the group’s reach into the South West with the remaining three stores in Shropshire, Monmothshire and Oxon. The new stores provide a range of products for farmers and operate similarly to the current stores, which will increase to 60 outlets.

Last year the new stores generated sales of £16.4M and the board expect to see a positive contribution from 2019 onwards.


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