The Group’s results are in line with market expectations and reflect the tough trading environment which has impacted UK farmers and our industry as a whole. These difficult conditions stem from an imbalance in world markets, which have led to low output prices for farmers. This has been most apparent in the livestock sector, particularly dairy and has led to a reduced demand for feed and associated products nationally.
While underlying Pre-tax profit* at £7.37m is below last year’s strong performance (2015: £9.05m), as we expected, we view this outcome as satisfactory given the market backdrop. Revenues at £368.14m (2015: £377.38m) mainly reflect the impact of deflation, with the reduction in demand for feed offset by higher volumes of other products.
During the course of the year, we completed the integration of the businesses we acquired in the previous year, which extended the Group’s trading into the South of England. We also launched a new retail store next to Sedgemoor Livestock Market, one of the largest agricultural markets in the country, and opened three new Just for Pets outlets.
We are investing significantly across the Group and completed a major investment in new packaging facilities for bagged animal feed. This investment enables us to satisfy the growing requirement for bagged feed as we increase the number of Wynnstay stores. Further investment is now targeted across our arable and feed operations to support growth and efficiencies within the business.
The UK’s decision to leave the EU brings a degree of uncertainty to the agricultural industry, however the macroeconomics of food demand are encouraging. Wynnstay is well positioned within the sector for ongoing development both organically and via acquisition.
REVIEW OF ACTIVITIES
The Agricultural Division provides a wide range of products for agricultural enterprises and offers a marketing facility for combinable crops. Traditionally, the breadth of our operations has provided a natural internal hedge against sector variations. However the downturn in farm output prices experienced over the last two years has been widely felt across most sectors. The downturn was especially evident in the dairy sector, with milk prices falling below the cost of production for most farmers. The resultant fall in demand for feed and associated products has been felt nationally and our feed activities were similarly affected. By contrast, despite low grain prices reducing crop farmers’ income, our arable activities contributed an improved performance year-on-year.
The Agricultural Division’s operating profit contribution for the year was £3.01m, (2015: £4.13m). Revenues reduced to £249.74m (2015: £270.05m), which reflected ongoing deflation (although this reversed in the autumn). We saw increased activity in traded materials and higher fertiliser volumes, with this increase offsetting the decrease in feed and grain volumes.
The strong link between the Agricultural Division and the Specialist Retail Division, with its network of Wynnstay Stores, creates an efficient and coordinated route to market for a broad range of products. Our ability to act as a “one-stop shop” to customers is an important aspect of our business and we aim to be the supplier of choice across our trading regions.
Demand for livestock feed was down year-on-year, mirroring national trends. As previously indicated, the reduced demand was particularly evident in the dairy sector, especially for blended feed, some of which was replaced by straight feeds. This reduction reflected a decision on the part of farmers to search for production efficiency and, for some, not to feed for marginal milk volume. The resultant reduction in UK milk yields was the catalyst for an upward movement in milk prices in the late summer. Feed demand over the winter period has improved and there are encouraging signs that demand will continue to strengthen.
Our strategy of working with specialists across all activities continues. We believe that the ability to provide detailed product advice to farmers will become increasingly important as farming enterprises look for efficiencies. Our dairy specialists are part of this initiative and work alongside both farm sales colleagues and Wynnstay Stores staff. We are also evolving our customer relationship management systems to support our wider initiatives with farmers.
Our long established Glasson business has built a strong reputation for its commercial activities, which include the trading of raw materials, processing of specialist feed products and the supply of fertiliser both wholesale and direct-to-farm.
Glasson’s contribution this year was lower than the prior year with margin pressure across all products and a reduction in fertiliser volumes which was also evident in the FertLink joint venture.
Our arable activities have continued to perform well despite the subdued market environment. Demand for all products was higher year-on-year, which was reflected in volumes. However, as we expected, there was also some pressure on margins. Sales of cereal and herbage seed have been buoyant and broken previous records. Demand for fertiliser was subdued at the beginning of the year although we were well placed to satisfy the spring market. An active buying spell in the autumn helped increase volumes for the year as a whole ahead of the previous year.
Grain volumes, which are marketed by our inhouse business, GrainLink, were strong in the first half, but the smaller 2016 harvest resulted in reduced activity in the second half on a likefor- like basis.
During the year, we started to combine the management of Woodheads seed and grain business with the Wynnstay seed and GrainLink operations and expect to complete this process over the coming months.
Specialist Retail Division
Wynnstay Stores, now at 52 country stores, forms the main part of the Specialist Retail Division, with Youngs Animal Feeds and our dedicated pet products chain, Just for Pets complementing this activity.
The main features of the year were the integration of Agricentre and the opening of new pet stores, including a new concept store, ‘Bessie and Boo’. Total revenues rose by 10% to £118.28m (2015: £107.19m) although contribution reduced by 10.6% to £4.54m (2015: £5.08m). This reflected margin pressure and opening costs within the new stores.
The Group’s network of Wynnstay Stores has increased significantly over recent years and our outlets provide a wide range of products for farmers and country dwellers. We have now completed the integration of the Agricentre business, acquired in October 2015, and all the outlets have been re-branded “Wynnstay Agricentre”. We expect the acquired stores to make a positive contribution to the Group’s results during 2017. In August, we opened a new store next to the Sedgemoor Livestock Market, near Bridgwater. Sedgemoor is a strategically important trading area and complements the newly acquired Wynnstay Agricentre stores.
Total sales for the year increased by 12%, benefiting from the newly acquired business. However, like-for-like sales reduced, primarily reflecting lower fertiliser sales and a reduced volume of hardware and ancillary products in the dairy sector.
With 52 outlets, Wynnstay Stores provide an important platform for the continued development of our agricultural business as well as a key route to market for UK and international suppliers.
Just for Pets
Our chain, Just for Pets, now comprises 25 stores, having added three new stores during financial year. We opened a new store in Nottingham in November 2015, followed by a new boutique store, ‘Bessie and Boo’, near Evesham in May, and, in July, we opened a Just for Pets outlet at Maypole near Birmingham. The contribution from the business is behind the previous year’s level, reflecting the opening costs and maturity curve associated with new outlets as well as a small reduction in like-for-like sales.
Youngs Animal Feeds
Youngs Animal Feeds manufactures and distributes a range of equine products to specialist outlets across the centre of the UK. The business performed in line with expectations and we believe that there are further opportunities available to it as we continue to expand the Specialist Retail Division as a whole.
Joint Ventures and Associates
The Group has four joint venture businesses (Bibby Agriculture, Wyro Developments, FertLink and Total Angling) as well as two associate businesses (Wynnstay Fuels and Celtic Pride). These businesses extend the Group’s activities and strengthen marketing channels for a number of products.
The dedicated commitment of our colleagues across the Group is key to the success of Wynnstay and I would like to take this opportunity to record my personal appreciation for the contribution of all staff during the year.
The broad spread and balanced nature of Wynnstay’s activities remains a key strength and the business remains focused on deepening its relationship with customers through the provision of additional specialist products and services. This will be particularly important as the agricultural industry adapts to the changes resulting from the decision for the UK to leave the EU. Whilst it is too early to get a clear direction from the Government on future agricultural policy, the food and farming sectors are strategically important and make a significant contribution to the UK economy. The Group’s breadth of products and its geographical coverage, combined with balance sheet strength, means that Wynnstay is well placed to continue to develop as a major supplier to a broad customer base.
In the short term there has been a recovery in output prices for farmers, mainly as a result of the recent devaluation of Sterling, and the new financial year has started in line with management expectations. I look forward to providing an update at Wynnstay’s AGM on 21 March 2017 which, will be held at a new venue for 2017, The Albrighton Hall Hotel and Spa in Shrewsbury.
24 January 2017