Wynnstay : Half Year Results

Released 07:00 21-Jun-2017

RNS Number : 6448I Wynnstay Group PLC 21 June 2017

Results benefited from greater demand for agricultural inputs over the winter period but were affected by continued subdued trading at pet products business, Just for Pets

Revenue of £205.32m (2016: £193.24m) - increase partly driven by higher commodity prices

Adjusted* profit before tax, before goodwill & investment impairment charges, is £4.07m (2016: £4.08m) - excluding the pet products operation, the Group's performance for the first six months improved year-on-year, with profitability ahead

Reported profit before tax, including goodwill & investment impairment charges, is £0.13m (2016: £4.08m)

- goodwill & investment impairment charges of £3.94m (2016: nil) related to Just for Pets

Adjusted * earnings per share, before goodwill & investment impairment charges, of 16.84p (2016: 17.22p)

Reported loss per share of 3.38p (2016: earnings per share of 17.22p)

Net debt at period end (a seasonal peak) was £8.28m (2016: £3.90m). The rise reflected commodity price inflation and consequent higher average working capital utilisation. Ample headroom in debt facilities

Net assets at 30 April 2017 stood at £85.03m (2016: £85.06m)

Interim dividend of 4.20p (2016: 4.00p) - an increase of 5.0%

Agricultural Division - revenue of £145.78m, operating profit of £1.54m

• greater demand for many agricultural inputs over the winter period but feed and arable margins remained under pressure across the sector

• broad portfolio of products helped to smooth marketplace variations

  Specialist Retail Division - revenue of £59.48m, operating profit of £2.41m

• improved results at Wynnstay Stores

• Just for Pets generated a trading loss and a restructuring is underway, with options under consideration

The trading backdrop has improved but challenges for the agricultural supply industry remain. Nonetheless, Wynnstay remains well-placed to continue its development

"However, the trading loss at our Just for Pets chain has impacted the Group's overall results and, given this unit's performance, we have recognised a non-cash goodwill and investment impairment charge and are restructuring the operations and reviewing our options for the business.

"Looking forward, we are encouraged by the improvement in farmgate prices for our farmer customers but believe that the rate of recovery for the agricultural supply sector will remain tempered. Nonetheless, Wynnstay is well-positioned to continue its organic and acquisitive growth strategy. The breadth of the Group's activities and strong balance sheet provide a solid foundation for further development over the coming years."

The Group's interim results reflect some easing in trading headwinds for farmers, with an improvement in farmgate prices resulting in a greater demand for many agricultural inputs over the winter period. However feed and arable margins remained under pressure across the sector. Wynnstay's breadth of agricultural activities, including Wynnstay Stores, once again provided a degree of resilience, helping to mitigate the variations across our marketplaces. The most significant impact on the Group's results was weaker trading at our pet products chain, Just for Pets. As we previously reported, this business continued to experience subdued demand, reflecting overall difficult trading conditions, and incurred a trading loss during the period. We have therefore recognised a non-cash goodwill impairment charge of £3.88m and are reviewing options for the unit, with restructuring now also underway.

Excluding the pet products operation, the Group's performance for the first six months was better year-on-year, with profitability ahead. However, including the trading loss at Just for Pets, the Group's adjusted* profit before tax, before goodwill & investment impairment charges, is marginally below last year at £4.07m (2016: £4.08m). The Group's reported profit before tax for the first half, including the impairment charges, is £0.13m (2016: £4.08m).

An improvement in overall feed sales, which reflected the national picture, was driven by higher demand for dairy feed. However, total volumes in April reduced slightly as the mild weather gave rise to early spring grass, benefiting livestock farmers. We experienced strong demand for spring seed and fertiliser although, as expected, grain trading volumes were behind the previous year after a smaller 2016 harvest.

Within the Retail Division, Wynnstay Stores traded well, with a small increase in like-for like- sales as famers begin to reinvest in their enterprises. The diverse range of products offered by Wynnstay Stores is a key attraction and drives footfall. By contrast, Just for Pets experienced a reduction in like-for-like sales and margins, reflecting high-street pressures and changes in consumer shopping behaviour.

Looking ahead, there is a degree of short term stability as farmgate prices begin to improve. Demand for inputs is expected to remain robust although margin pressure is likely to remain a feature of the industry. However, Wynnstay remains well-placed within the sector with its broad portfolio of products, customer focus and strong balance sheet.

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 profit before tax, operating profit and earnings per share, which take account of non-cash charges for intangible amortisation, share-based payments, and goodwill & investment impairment. A reconciliation table is provided below*. The Directors believe that the non-recurring nature of the goodwill impairment charge supports the presentation of adjusted results and these adjusted results provide a better understanding of the underlying performance of the business.

Revenue for the six months to 30 April 2017 totalled £205.32m (2016: £193.24m), an increase of 6.25% on the same period last year. The rise is partly attributable to higher commodity prices after a three year period of sustained deflation. The Agriculture Division contributed

£145.78m (2016: £135.18m) to Group revenues, with the Specialist Retail Division contributing £59.48m (2016: £57.97m). Other activity revenues were £0.06m (2016:

£0.09m).

Operating profit before non-cash charges relating to intangible amortisation, share-based payments, and the goodwill & investment impairments, was flat at £4.24m (2016: £4.24m). Non-cash charges amounted to £4.02m (2016: £0.07m), and mainly reflected the goodwill & investment impairment charge of £3.94m (2016: nil). This impairment charge is mostly against the carrying value of goodwill attributed to the Just for Pets business. Intangible amortisation and share-based payments amounted to £0.08m (2016: £0.07m). Reported Group operating profit reduced to £0.21m (2016: £4.18m).

Operating profit in the Agricultural Division was £1.54m (2016: £1.82m), with low volumes of traded grain, and margin pressures in other agricultural products, affecting the result. Operating profit in our Specialist Retail operations increased to £2.68m (2016: £2.40m), reflecting improved results at Wynnstay Stores. The Agricentre business, acquired in October 2015, produced an improved performance during the period. Other activities, which include the charges relating to annual intangible amortisation and share based payments of £0.08m (2016: £0.07m), incurred an operating loss of £0.06m (2016: loss of £0.05m).

Net finance costs reduced slightly to £0.09m (2016: £0.10m) helped by marginally lower average interest rates across the period. With the return to commodity price inflation, we expect average working capital and therefore debt and future finance costs to trend up. The Group retains substantial headroom within its existing debt facilities to accommodate this anticipated increase. April is historically the Group's peak cash requirement period and net debt at 30 April 2017 was £8.28m (2016: £3.90m), reflecting higher levels of working capital utilisation in the first half.

Adjusted profit before tax, before goodwill amortisation and share-based payments of

£3.94m, is marginally below last year at £4.07m (2016: £4.08m), reflecting the trading loss at Just for Pets. Earnings per share before the goodwill & investment impairment charge was 16.84p (2016: 17.22p) - see table below *. As the impairment charge is likely to be disallowable for tax purposes, a tax charge for the period has been provided on this basis. This