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Dairy recovery spurs feeds revival at NWF

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Growth in food logistics and fuel divisions helped NWF Group to earnings growth, despite "challenging conditions" in feed markets, which would have been worse were it not for milk price revival.

The UK food storage-to-feed group unveiled a 3.4% increase to £9.0m in earnings for the year to the end of May, on 19.3% higher revenues at £555.8m.

"Strong performances from food and fuels more than offset the challenging conditions experienced in the feeds market," said Sir Mark Hudson, the group's chairman.

Indeed, full-year operating profits in feed, at £1.5m, tumbled nearly 30% year on year, with margins squeezed by the growth in raw material costs, buoyed by the weakness in sterling, at a time of marginal growth in sales volumes.

"Commodity prices increased significantly through the year, increasing by 17% from the start of the year until March 2017, since when they have eased back," Sir Mark said.

Milk fillip

However, result implied a late improvement nonetheless in the feed division, which recorded a small loss in the first half of the financial year.

"Low milk prices at the start of the [financial] year depressed market volumes for feed over the summer," Sir Mark said.

"As milk prices increased, feed demand recovered and for the year as a whole ruminant feed market volumes were ahead by 1.5%."

Indeed, average British milk prices rose by 28% to 29.6p per litre over the year to May, "a level that positively is above the average cost of production and therefore reducing the hardship faced by dairy farmers".

Capacity revamp

NWF has completed a £5.2m restructure of its feed manufacturing capacity, closing a plant in the centre of its trading area and expanding capacity at the northern end and at its headquarters mill in Cheshire.

This "significant investment" has been funded by "strong cash generation, whilst maintaining a satisfactorily low level of net debt and a robust balance sheet position", Sir Mark said.

There was a £1.2m exceptional cost due to delayed commissioning, although the company now said that "our mills in the North, Cheshire and the South West are fully operational and aligned to the needs of our farming customers in these key areas of the country."

Market reaction

NWF's results were viewed by broker VSA Capital as showing "a strong recovery in the second half" of the group's financial year, with the revival in feeds viewed as "particularly impressive".

"In feeds, the group achieved the improvement despite having significant margin pressure," VSA head of research Ed Hugo said.

Mr Hugo added that NWF's outlook "looks quite positive", thanks in part to the improved dairy market.

"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."

NWF shares stood up 1.7% at 150p in afternoon deals.

By Jamie Day

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