NWF profits halve as dairy margins squeezed

Profitability at feed manufacturer NWF Agriculture halved in its latest full trading year, as margins were squeezed by low milk prices and falling commodity values. However, with profitability recovering towards the end of H2, the business anticipates further acquisitions to increase its UK footprint under its new managing director.

The NWF Feeds division reported an operating profit of £1.8 million on revenues of £144.9m in the year ended May 31st 2015, compared with £3.3m and £160.7m in the previous year. The NWF Group, comprised of three divisions – Feeds, Fuel and Food distribution – made an operating profit of £8.6m on sales of £492.3m, against £8.5m and £537.7m twelve months earlier. Feeds and Fuels were particularly affected by commodity price deflation. Group net debt at the year-end had halved from £11.7m to £5.9m.

With dairy farmers, the company’s principal customer category, suffering low prices for much of the year, feed selling prices also fell, so reducing revenues. The business was also affected by falling feed ingredient commodity prices, as it had started the financial year with more expensive stocks of forward-bought feed materials, which led to reduced margins in H1. A basket of representative spot feed commodities shows a 16% drop in price over the financial year. 

Overall demand for the company’s ruminant feed was in line with the prior year, against a flat UK dairy feed market constrained by an average 7.4p/litre cut in milk prices to 24.7p/litre. Sheep feed sales rose in 2015 over the mild winter 2014. Overall NWF feed volumes rose by 4.4% to 567,000 tonnes from the 543,000 tonnes of the previous year. The former figure was lifted by the contribution from SC Feeds, the Staffordshire feed company acquired in late 2013.

During the year, the Feeds division installed a new Microsoft Dynamics IT platform, using the Adifo Bestmix and Milas AX enterprise resource planning (ERP) programs. It says this £500,000 investment sets the industry standard for ERP systems and establishes an effective platform for future development. The period also saw the arrival of new managing director Andrew Downie in February, previously with AB Agri, with a brief to lead the next stage of the division’s development and establish a new leadership team.

NWF Agriculture says increasing the nutritional focus of the business is a key strategic priority - providing more advice and value-added products to its 4,300 customers helps to both improve their business performance and strengthen the long-term trading relationship. Last month, NWF acquired Lancaster-based New Breed (UK), the ruminant feed consultancy that advises clients across the North West of England and Scotland, for £2.5m with a further £1.5m in a three year earn-out.

“We are looking to continue our focus on technical leadership and being the nutritional advisor of choice,” says Group chief executive Richard Whiting. “We are also looking to continue our track record of organic growth in this division and, in line with our strategic emphasis on agriculture, are looking for complementary acquisitions to increase our presence in the UK.” Last year the Group agreed a new five-year £65m credit facility with the Royal Bank of Scotland.

 “NWF delivered a solid performance last year,” concludes Mr Whiting. “The results demonstrate the resilience and benefits of the diverse NWF business model and the benefits of targeted initiatives delivered in all three of our divisions.

“The acquisition of New Breed in June 2015 demonstrates our strategic intent to continue the successful development of the group. Progress to date in the current financial year has been in line with the board’s expectations.”