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NWF overcomes feed sector headwinds to achieve trading growth

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Delays in reconfiguring its animal feed manufacturing capacity will reduce the NWF Group's full year agricultural revenues, but results for the whole group are expected to be ahead of the prior year.

Cheshire-based NWF, listed on London's AIM market, specialises in feed manufacture alongside food logistics and fuel.

The group said in an update for its financial year to the end of last month that trading was "ahead of the prior year and in line with market expectations". Full financial results are due in early August.

The feeds division, with around 12% of the UK market, saw an improvement in second half business after posting a first half operating loss of £300,000 on sales of £65.1m.

But the recovery was not enough to prevent the division's full year figures being "down on the previous year after being impacted by the later than planned opening of our northern [England] feed mill and the previously reported margin pressure from increasing commodity costs".

Extra capacity

In mid-2016, the business closed a Staffordshire feed mill acquired in 2013, with the volume to be replaced by upgrading both its headquarters plant and a more recent purchase in Cumbria.

The additional capacity is designed to grow its sales in northern England and southern Scotland, but the construction delays will have put this plan behind schedule, as well as incurring some exceptional cost.

The slow recovery in milk prices since the mid-2016 low led to a 1.5% increase in the volume of feed manufactured by the company in the first half, but a "significant increase" in feed commodity costs in the period was helping to constrain demand.

NWF measured a 20% rise between March to November 2016 in the cost of a representative basket of feed ingredients through underlying commodity price rises and the adverse Brexit currency effect of sterling falling out of bed on imported commodities.

Market reaction

The group's food and fuels divisions both performed ahead of the previous year.

"NWF has delivered another solid trading performance," said chief executive Richard Whiting, and that the group had shown "its ability to successfully navigate volatile economic conditions".

Broker Shore Capital upgraded its rating on NWF shares to "hold" from "buy", termed the NWF announcement as "positive… highlighting another year of progress and growth in profitability despite challenging conditions".

"We believe that with industry headwinds starting to lift the current valuation is now compelling," Shore Capital said, pegging at 9.4 times the 2017 earnings multiple at which the shares are trading.

The shares stood 2.2% higher at 139.1p in late deals.

By Jamie Day

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