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Finance Review

Group Structure

The Group’s operations are divided into two main divisional segments for reporting purposes, Agriculture, encompassing the manufacturing and supply of a comprehensive range of agricultural inputs delivered to customers, and Specialist Retail, covering the supply of specialised products linked through the provision of expert advice of their use. An additional reporting segment called “Others” is used for peripheral activities not readily attributable to either of the main segments.

The legal structure is a holding company, Wynnstay Group Plc, which has investments in six wholly owned trading subsidiaries, namely:

  • Wynnstay (Agricultural Supplies) Limited, an agricultural merchant.
  • Glasson Grain Limited, a feed and fertiliser merchant.
  • Grainlink Limited, a grain merchant.
  • Woodheads Seeds Limited, a seed processor and merchant.
  • Just for Pets Limited, a pet products retailer.
  • Youngs Animal Feeds Limited, an equine and pet products distributor.

During the year the grain trading operations of Woodheads Seeds Limited were integrated into GrainLink Limited, to enable a coordinated market strategy across the different regional territories traditionally serviced by the two separate companies.

Additionally Wynnstay Group Plc holds investments in the joint ventures and associate companies outlined in Note 18 in the accounts, and certain other property and investment assets, which are again reported within one of the appropriate segments.

Trading Results

The financial performance of the business has reflected the adverse trading environment for the Group’s predominant farmer customers, particularly within the dairy sector, where low average milk prices were below the costs of production for much of the year. Whilst the devaluation of Sterling following the Brexit referendum result had a beneficial effect on the prices of many farm products, this improved business sentiment will take time to work through to the Group’s operations. Group operating profit was £7.36m (2015: £8.39m or £8.71m before exceptional items), and profit before taxation was £7.29m (2015: £8.34m). On the Board’s preferred alternative performance measure of Underlying Pretax profit*, which includes finance costs and the gross share of results from joint ventures and associates, but excludes share based payments and exceptional items, the Group achieved £7.37m (2015: £9.05m).

Continuing falling commodity prices for much of the reporting period has resulted in this being the third consecutive year where revenues have been adversely affected by significant deflation. Group revenue for the year was £368.14m (2015: £377.38m), with Paul Roberts, Finance Director our estimate for the total deflationary impact in our main product categories being approximately £21m during the year. This decrease has been partly offset by the new revenues from acquisitions making a contribution for the first time, the largest of which was the Agricentre business acquired on the last day of the previous financial year. We estimate the total cumulative deflation effect on revenues over the last three years to be approximately £90m, while the new contribution from acquisitions has been around £32m in that period, and genuine volume growth of core product categories has added a further £13m. Current commodity prices would indicate that we are now entering an inflationary period, likely to be exacerbated through any prolonged period of Sterling weakness.

The Underlying Pre-tax profit*, of £7.37m (2015: £9.05m) consisted of the main divisional contributions as shown in the table below, together with a smaller loss within Other Activities, which includes a lower charge this year for Group share based payment costs. The table also gives details of Group Earnings before Interest, Tax, Depreciation and Amortisation ( EBITDA**), which was £10.17m (2015: £11.70m before the exceptional costs), and was made up as follows:

Taxation

The Group’s tax charge, including joint ventures and associates, of £1.48m (2015: £1.73m) represented 20.2% (2015: 20.5%) of the Group pre-tax profit of £7.31m (2015: £8.40m), and remained very close to the pro-rata standard rate for the period of 20.0% (2015: 20.4%).

A reconciliation relating to the Group’s tax charge and Group pre-tax profit is given below:

Earnings Per Share and Dividend

Basic earnings per share were 30.01p (2015: 34.66p, or 36.32p before exceptional costs), based on a weighted average number of shares in issue during the year of 19.425m (2015: 19.243m). The Board proposes to recommend the payment of a final dividend of 8.00p per share to be paid on the 28 April 2017, which when added to the interim dividend of 4.00p per share paid on the 31 October 2016, makes a total of 12.00p for the year (2015: 11.10p), an increase of 8.11%. The total dividend is expected to be covered 2.50 times (2015: 3.10 times) by earnings, and represents the ninth consecutive year that the Board has been able to raise the dividend by over 8%. The Board has noted the reduction in dividend cover and will continue to monitor this ratio when assessing future payment recommendations.

Share Capital

During the year a total of 104,229 (2015: 282,545) new ordinary shares were issued for a total equivalent cash amount of £0.435m (2015: £0.877m). A total of 26,800 (2015: 200,812) shares were issued in relation to the exercise of employee share options for a total consideration of £0.068m (2015: £0.447m), and the remaining 77,429 (2015: 81,733) shares were issued to existing shareholders exercising their right to receive dividends in the form of new shares, with an equivalent cash value of £0.367m (2015: £0.431m).

Balance Sheet

Group net assets at the year end amounted to £86.95m (2015: £82.86m). Based on the weighted average number of shares in issue during the year of 19.425m, (2015: 19.243m) this represented a net asset value per share of £4.48 (2015: £4.31). During the financial year the share price traded in a range between a low of £3.87 in July 2016 and a high of £6.02 in December 2015. Based on these balance sheet values, Return on Net Asset for the year was 8.5% (2015: 10.9%).

Capital investment in fixed assets amounted to £3.98m (2015: £3.26m) which exceeded the Group depreciation charge of £2.77m (2015: £2.66m) as the business continues to invest in expansion opportunities.

Net Working Capital, which is defined as, the net of inventory, trade and other receivables and trade and other payables, showed only a modest increase as at the year end, standing at £36.5m (2015: £35.3m). This was primarily due to higher inventory levels, as a result of a further increase in the number of retail units open at the year end, which was 77 across both chains compared to 73 last year.

Cashflow, Net Cash and Banking Facilities

The business continues to be cash generative. It has been able to finance further growth, including the necessary capital investment and associated working capital requirements, primarily from operational cashflow, and still increase net cash balances at the year end to £4.28m compared to £2.14m at the beginning of the year. However the Board continues to prioritise the maintenance of adequate debt facilities to accommodate any unexpected commodity price volatility or other requirements. While utilisation of bank facilities has been limited during the year, a total of committed and short term facilities of £17.9m was in place at the year end (2015: £20.0m), which the Board believes should exceed any actual requirement.

A reconciliation of EDITDA shown above to the net cash position at the year end is provided in the table below:

Net Cash Position

Key Performance Indicators

The performance of the business is regularly monitored against Key Performance Indicators (KPIs), defined as follows:

  • Revenue: The invoiced value of sales from the Group’s activities, measured at a fair value net of all rebates and excluding value added tax.
  • EBITDA: Group pre-tax profit, including share of pre tax profits of joint ventures and associates and profit on fixed asset disposals, before interest, taxation, depreciation, fixed asset impairment charges, exceptional items and share based payments.
  • Earnings per Share: Profit for the year after taxation divided by the weighted average number of shares in issue during the year excluding any shares held by the Group’s Employee Share Ownership Trust.
  • Return on Net Assets: Group pre-tax profit, including share of pre-tax profits of joint ventures and associates before intangible amortisation, share based payment charges or exceptional costs, divided by the balance sheet net asset value.
  • Net Asset per Share: The balance sheet net asset value, divided by the weighted average number of shares in issue during the year, excluding any shares held by the Group’s Employee Share Ownership Trust.
  • Underlying Pre-tax profit: Underlying Pre-tax profit includes the Group’s share of pre-tax profit from joint ventures and associate investments but excludes the exceptional item and share based payments.

Relevant results for these KPIs, for the year under review and the prior year comparatives have been disclosed earlier in this Report.

B P Roberts
Finance Director
24 January 2017