Horticulture products producer William Sinclair (SNCL:AIM) has dropped 6% to 122.5p after cutting its interim dividend. Investors were also unimpressed by yet another profits warning triggering a chunky forecast downgrade.


Lincoln-based William Sinclair's half-year figures to March were poor, reflecting the impact on gardening spend of the coldest Spring in more than fifty years. Sales fell to £20.4 million (2012: £26.2 million) and the £22.1 million cap swung from a £400,000 profit to a £1.8 million loss.


Woeful weather put a dent in the firm's sales, while the need to buy more expensive peat from overseas following last year's disappointing peat harvest crimped margins. With unseasonable weather continuing well into April, William Sinclair, whose customers include Tesco (TSCO), Morrisons (MRW) and Kingfisher (KGF)-owned B&Q, says it won't be able to recover lost sales and annual profits will be 'significantly lower' than previous expectations.


Given these disappointing numbers as well as the need to invest in its new flagship site at Ellesmere Port in Cheshire over the next two years, William Sinclair has prudently cut the dividend from 1.9p to 1.5p.


Today's news has clearly spooked investors, yet William Sinclair appears to have a sensible long-term strategy in place. The company is reducing its exposure to unpredictable weather by developing technology to harvest and dry peat and allow a longer harvesting period each year. Furthermore, it is dramatically ramping up production of SupaFyba, the industry's leading peat-free product made from household garden waste, at Ellesmere Port.


Chief executive officer Peter Rush says cost savings and operational efficiencies at Ellesmere are now expected to beat previous expectations. And after a slow start, SupaFyba production should reach previously forecast volumes and quality by the end of this month.


Westhouse Securities' Robert Sanders has cut his target price from 150p to 130p following tdoay's financial results. In a research note to clients, he writes: 'The difficult market conditions that characterised much of FY2012 have persisted into FY2013 with the coldest Spring in more than 50 years impacting trading. As a result we have reduced our full-year forecasts to adjusted pre-tax profit of £0.3m (£2.0m) on sales of £48.7m (£54.9m) which would imply similar numbers to FY2012.'


Sanders now expects a flat full-year dividend of 4.6p, well south of the 6.1p consensus estimate previously in the market.

Issue Date: 10 Jun 2013