UK feed group issues profit warning, blames farmgate prices, warm weather and Brexit
While the first quarter - November to January - was in line with management expectations, Q2 has seen a rapid deterioration in the trading environment, said the company.
Due to tough trading conditions across the industry and farming sentiment somewhat uncertain surrounding Brexit, Wynnstay’s management said they prudently anticipate earnings for the FY2019 to be substantially below current market expectations.
Wynnstay’s feed division targets the ruminant and layer sectors. It operates two compound feed mills and one blending plant, producing yearly in excess of 300,000 tons of feeds.
“Following last year's record results and after an encouraging start to the new financial year, market conditions in the second quarter have significantly weakened and trading is now behind seasonal norms. This mainly reflects the abnormally warm winter months, which reduced the requirement for feed and other weather-related products. It also contrasts significantly with last year, when the winter season was unusually long and harsh. The recent weakening in farmgate prices, partly believed to be the result of Brexit/political uncertainties is also undermining farmer confidence.
“The impact has been felt across both the Group's divisions.
“Results for the first six months of the financial year are therefore expected to be substantially behind those of last year. Given these prevailing uncertainties, management currently believes it prudent to anticipate that the full year outturn is likely to be substantially below current market expectations.”
The company said it had incurred some additional Brexit-related costs during the period, mainly to ensure continuity of supply in certain sectors, particularly specialist imported raw materials.
The sentiments expressed in today's statement contrast strongly with the upbeat note of the group in January this year on release of its Q1 results.
Better longer term prospects
However, the Board said it believes that despite current trading conditions, Wynnstay remains well placed to capitalize on opportunities in the agricultural sector and that prospects over the longer term are positive as agriculture adjusts to the changing economic landscape.
Shore Capital said it was downgrading its forecasts for the Wynnstay group for FY2019 and FY2020: “Whilst downgrades are disappointing, we highlight the fact that management remains very cautious looking ahead on the trading environment. We remain positive on the group’s long-term prospects, which are supported by a resilient business model and strong balance sheet but note the near-term trading environment looks to be deteriorating,” commented Akhil Patel, industrials equity research, in a note on the trading statement.
He said feed volumes and feed block sales are expected to be down year-on-year (yoy) thus negatively impacting Shore Capital’s profit exceptions for Wynnstay.
He said the recent economic climate has undermined farmers’ confidence with signs of weaker discretionary spending given the political uncertainty, especially around the delay of the UK’s exit from the EU and possible implementation of tariffs on products.
“Farmgate milk and grain prices have weakened since January whilst the poultry and dairy (butter and cream) market month-on month are in oversupply, thus depressing prices further.”
