REG - Wynnstay Group PLC - Acquisition

WynnstayAnnouncement

10/03/2022 07:00

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RNS Number : 2727E  Wynnstay Group PLC  10 March 2022

AIM: WYN

 

WYNNSTAY GROUP PLC

("Wynnstay" or "the Group" or "the Company")

 

Acquisition of

Humphrey Feeds Ltd and associated business, Humphrey Pullets Ltd

 

Wynnstay, the agricultural supplies group, is pleased to announce that it has
agreed terms to acquire the share capital of Humphrey Feeds Ltd, a
manufacturer and supplier of poultry feed to farmers mainly in the South of
England. In addition, the Company is acquiring the share capital of an
associated business, Humphrey Pullets Ltd, which supplies point-of-lay
pullets.  The initial consideration for these acquisitions (together
"Humphrey" or the "Acquisition") is £9.5 million in cash at completion.

Highlights

 

·     Based in Hampshire, with an 85-year history, Humphrey is a
well-established manufacturer and supplier of poultry feed, and point-of-lay
pullets, to farmers, mainly in the South of England

-    c.109,000 tonnes of poultry feed sold in FY 2021

-    c.200 farmer customers

-    share of the poultry feed market for free-range laying hens is
estimated at c.5%*

o  share of the organic poultry feed market is c.30%*

-    pullet-rearing activity supports the main feed business

 

·     Humphrey's poultry feed manufacturing is based at facilities in
Twyford in Hampshire, with a facility at Calne in Wiltshire currently unused

-    Wynnstay intends to redevelop the Calne site into a modern c.185,000
metric tonne capacity mill, manufacturing both poultry and ruminant feed.
Planning permission is already in place

 

·     In the year ended 28 February 2021, Humphrey generated combined
revenues of £39.51m, and an adjusted profit before tax** of £1.16m. Reported
combined profit before tax was £1.63m.

-    net assets that transfer at completion are valued at £4.5m***

 

·     Initial consideration for the Acquisition of £9.5m in cash at
completion. Deferred consideration of up to £2.0m may become payable
dependent on the attainment of certain performance targets

 

·     In order to fund the Acquisition, the Company is entering into a
new £12.5m revolving credit facility

 

·     The Board believes this is a highly complementary acquisition:

-    is expected to be immediately earnings enhancing

-    extends geographic reach

-    adds new farmer and supply chain relationships

-    increases the Group's poultry feed manufacturing capacity and
purchasing power

o  significantly expands the Group's share of poultry feed market for
free-range laying hens, a growth sector

o  adds organic poultry feed sales (typically premium-margin)

-    facilitates expansion of multi-species feed sales in the South of
England

 

·     The Acquisition is in line with the Company's current growth
strategy:

-    maintain a balanced agricultural offering between arable and feed, and

-    reviewing opportunities in the Group's markets, and ongoing
discussions with a number of potential targets

 

* Humphrey/ Wynnstay estimates

**Adjusted profit before tax excludes non-continuing activities and costs,
one-off items and profits from the disposal of fixed assets

***Subject to consideration adjustment by reference to completion accounts

 

Gareth Davies, Chief Executive Officer of Wynnstay Group plc, commented:

 

"This is an excellent acquisition for Wynnstay. Humphrey is a
long-established, family-owned business, with an 85-year history, which prides
itself on 'advancing poultry performance'. It makes a highly complementary
addition to the Group, which will be readily integrated, and is expected to be
immediately earnings enhancing.

 

"Humphrey fulfils multiple acquisition criteria for us. It will significantly
extend our trading footprint in the South of England, enlarge our market share
of poultry feed, a key target sector for us, increase our feed manufacturing
capacity, and bring additional farmer customers.

 

"Looking further out, with the redevelopment of the Calne manufacturing
facility into a ruminant as well as poultry mill, there is scope to drive
additional significant long-term trading benefits."

 

 

Enquiries:

 

 Wynnstay Group plc                Gareth Davies, Chief Executive     T: 01691 827 142

                                   Paul Roberts, Finance Director

 KTZ Communications                Katie Tzouliadis / Dan Mahoney     T: 020 3178 6378

 Shore Capital (Nomad and Broker)  Stephane Auton / Patrick Castle /  T: 020 7408 4090

                                   John More

 

 

The Acquisition

 

Based in Hampshire, the principal activity of Humphrey Feeds Ltd and Humphrey
Pullets Ltd (together "Humphrey" or "the Acquisition") respectively is the
manufacture and supply of poultry feed to farmers, predominantly in the South
of England, and the supply of point-of-lay pullets. Humphrey is
well-established and it is part of a family-owned enterprise. Its current
activities commenced in 1966, but it has an 85-year history.

 

Humphrey manufactures poultry feed from its leasehold mill in Twyford, in
Hampshire, and in the last financial year, feed sales totaled 109,000 metric
tonnes. In feed manufacturing, Humphrey follows and is audited against the
Universal Feed Assurance Scheme ("UFAS"), an internationally recognised
standard. Humphrey owns a second, freehold manufacturing facility in Calne, in
Wiltshire, which is not currently utilised. Wynnstay plans to redevelop this
facility and to transfer production from Twyford to Calne in the future. In
addition to manufacturing conventional poultry feed, Humphrey manufactures
organic poultry feed.  For its organic poultry feed manufacture, it is
certified by Organic Farmers and Growers ("OF&G"), and Humphrey also works
with Organic UK (The Organic Trade Board), an independent non-profit
membership organization.

 

Humphrey supplies a customer base of approximately 200 farmers, mainly in the
South of England, including the South-west, but also in the Midlands and
Wales. Humphrey's estimated share of the poultry feed market for free-range
laying hens is c.5%*, and its share of the organic poultry feed market is
c.30%*.

 

Humphrey's feed business is supported by its pullet-rearing activity. In the
current financial year, the unit is budgeted to rear c.1.1m pullets. These are
typically sold when the pullets reach 16 weeks old, i.e. around the egg-laying
stage. The pullet rearing activity currently accounts for c.7% of Humphrey's
poultry feed sales.

 

The management team of Humphrey is expected to join Wynnstay at completion.

 

*Humphrey/Wynnstay estimates

 

Financial Information

 

In the year ended 28 February 2021, Humphrey generated combined revenues of
£39.51 million (2020: £40.61 million) and an adjusted profit before tax** of
£1.16 million (2020: £0.97 million). The reported combined profit before tax
for the financial year was £1.63 million (2020: £1.01 million).  Net assets
that transfer at completion are valued at £4.5 million***. Feed volumes sold
in 2021 totalled 109,430 metric tonnes (2020: 116, 704 metric tonnes).

 

**Adjusted profit before tax excludes non-continuing activities and costs,
one-off items and profits from the disposal of fixed assets

***Subject to consideration adjustment by reference to completion accounts

 

Rationale for the Acquisition

 

Wynnstay has a twin-track strategy of combining organic growth with carefully
selected acquisitions, and an established record of identifying, negotiating
and integrating acquisitions. The Board believes that the acquisition of
Humphrey is highly attractive, offering significant benefits, and wholly
aligns with its growth strategy. It is expected to be readily integrated and
immediately earnings enhancing.  The sale of Humphrey reflects succession
planning on the part of the vendors and their focus on other areas of
activities, particularly property.

 

A brief summary of the rationale for the Acquisition is as follows:

 

•     expected to be immediately earnings enhancing

•     extends the Group's geographic reach

•     adds new farmer and supply chain relationships

•     increases the Group's poultry feed manufacturing capacity and
purchasing power

o significantly expands Group's share of the free-range feed market for laying
hens, a growth sector

o adds organic poultry feed sales (typically premium-margin)

•     facilitates expansion of multi-species feed sales in the South of
England

 

The acquisition of Humphrey will mark a significant step in building
Wynnstay's presence in the South of England, including in the South West.  At
completion, a base of c.200 existing Humphrey farmer customers will be added,
and following the integration of the Humphrey operations into the Group, the
Board believes that there will be significant opportunities to increase this
customer base further and to cross-sell other Wynnstay products and services.
Wynnstay will also benefit from the expertise of Humphrey management and
staff, who will join the Group at completion, Humphrey's supply chain
relationships, and from an anticipated increase in purchasing power.

 

Poultry feed, in particular for free-range laying hens, is a specifically
targeted growth area for the Group.  Poultry feed demand is typically
consistent throughout the year, and UK free-range egg production is growing.
Major supermarkets have committed to end the sale of colony eggs by 2025,
replacing colony eggs with free-range and barn eggs.  The Company estimates
that the addition of Humphrey will take its share of the poultry feed market
for free-range laying hens to c.11% from c.6%.  The Group's target market
share is c.15+%.  The addition of organic poultry feed, considered to be a
premium-margin market, will also expand Wynnstay's existing feed offering.
Organic poultry feed constituted c.30% of Humphrey's feed volumes in its last
financial year.

 

Currently Humphrey's manufacturing mill at Calne in Wiltshire is mothballed,
and Wynnstay proposes to redevelop it into a modern facility, capable of
manufacturing c.185,000 metric tonnes of feed, and to secure organic
certification. Wynnstay intends to diversify production so that the mill
manufactures ruminant feed as well as poultry feed. The Company also plans to
transfer feed production at Twyford to Calne in the future.

 

The Board expects the redevelopment of the Calne facility to open up
significant opportunities to develop multi-species feed sales in the region.
It will also enable Wynnstay to transfer some production from the Group's
manufacturing plants at Llansantffraid and Carmarthen to Calne, thereby
freeing up capacity and facilitating the potential for further sales expansion
in the immediate geographies served by these mills.

 

The Board estimates that the capital expenditure required for the Calne
redevelopment project is c. £13.0m, and that project will take approximately
three years to complete. Planning permission for the redevelopment has already
been obtained, and the project is expected to be funded through debt
financing.

 

Humphrey also operates a pullet-rearing operation, which Wynnstay will take
over as part of the Acquisition. The pullet-rearing operation currently
accounts for c.7% of Humphrey's poultry feed sales, and is expected to provide
a valuable opportunity for Wynnstay to cross-sell other products and services.

 

Acquisition Terms and Funding

 

Under the terms agreed for the Acquisition, a total initial consideration of
£9.5m in cash is due at completion, which is expected by 18 March 2022.
Deferred consideration of up to £2.0m may become payable, dependent on the
attainment of certain performance targets, 12 months after completion of the
Acquisition.

 

The transaction includes, a four-year lease on the feed production facility in
Twyford on a peppercorn rent, the freehold of the currently mothballed mill in
Calne, and net assets of c. £4.5m***.

 

In order to fund the Acquisition, the Company is entering into a new £12.5m
revolving credit facility.

 

***Subject to consideration adjustment by reference to completion accounts

 

Current Trading

 

In its final results announcement, issued on 2 February 2022, Wynnstay
reported that trading in the new financial year had begun well, in line with
management expectations, and that the Board considered that Wynnstay was
well-positioned to achieve its growth objectives for the year.

 

 

NOTES

 

Reconciliation of Adjusted Profit before Tax

 

 Year ended 28 February                                   2021        2020
 £'000
 Revenues                                                 41,446      42,535
 Less inter-company                                       -1,933      -1,923
 Combined revenue                                         39,513      40,612
 Combined reported profit before tax                      1,634       1,011
    Add backs(1):                                         766         646
    Less non-recurring(1):                                -1,238      -688
 Combined adjusted profit before tax                      1,162       969
 Add back depreciation                                    627         723
 EBITDA                                                   1,789       1,692

 

(1) adjustments for one off costs/benefits relate to Calne cost write-offs,
central support costs, partnership storage, joint farming agreement,
management charges, profit on fixed assets, interest received, dilapidations
provisions and rental income

 

 

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