The legal structure is a holding company, Wynnstay Group Plc, which has investments in five wholly owned trading subsidiaries, namely;
- GrainLink Limited, a grain merchant.
- Woodheads Seeds Limited, a seed processor and merchant.
- Youngs Animal Feeds Limited, an equine and pet products distributor.
A summary of the trading conditions experienced by the business over the last financial year is provided in the Chief Executive’s Review on pages 18-20. The financial performance of the business has generally reflected the improving trading environment for the Group’s predominant farmer customers, where farm gate prices have improved over the previous year, supported by the lower value of Sterling since the Brexit referendum result. Clearly the final results are impacted by the Just for Pets Limited discontinued activity, and further details on this are given later.
On a continuing operations basis, Group operating profit before intangible amortization, share-based payments, investment impairment and costs of corporate restructuring was £7.87m (2016: £7.36m), and profit before taxation on an IFRS basis was £7.66m (2016: £7.21m). On the Board’s preferred alternative performance measure referred to as Underlying pre-tax profit which includes the gross share of results from joint ventures and associates, but excluding share-based payments and impairment and exceptional items, the Group achieved £7.97m (2016: £7.30m). A reconciliation with the reported income statement and this measure, together with the reasons for its use is given below:
The Board uses this alternative performance measure as it believes the underlying commercial performance of the current trading activities is better reflected, and provides investors and other users of the accounts with an improved view of likely future performance by making the following adjustments to the IFRS results for the following reasons:
- The add back of tax incurred by joint ventures and associates. The Board believes the incorporation of the gross result of these entities provides a fuller understanding of their combined contribution to the Group performance.
- The add back of share-based payments. This charge is a calculated using a standard valuation model, with the assessed non cash cost each year varying depending on new scheme invitations and the number of leavers from live schemes. These variables can create a volatile non-cash charge to the income statement, which is not directly connected to the trading performance of the business.
- Non-recurring items. The Group’s accounting policies include the separate identification of non-recurring material items on the face of the income statement, which the Board believes could cause a misinterpretation of trading performance if not disclosed. During 2017, these exceptional items were the write off of an unlisted investment in a business which went into administration and certain non-cash costs related to the dissolution of dormant subsidiaries to facilitate a simplified corporate Group structure.
Reported losses from discontinued operations, relate to the administration of the Just for Pets Limited business in October 2017, an extremely difficult decision following a review of its prospects under deteriorating trading conditions. This course of action was taken in the best interests of all stakeholders in that business, including employees, creditors and Wynnstay shareholders, and followed a period of accelerating losses after the devaluation of Sterling in 2016. This process led to the eventual sale of 18 stores and the transfer of nearly 200 colleagues to the acquiring business, and protects the future trading results of the Group from the likely continuing losses that were occurring in that entity. The total charge related to the discontinuation of the activity amounted to £6.59m, and is detailed in Note 11 of the accounts.
The Group’s tax charge on continuing operations, including joint ventures and associates, of £1.43m (2016: £1.46m) represents 18.5% (2016: 20.2%) of the Group pre-tax profit from continuing operations of £7.73m (2015: £7.23m). No relief has been provided for in relation to the charges for discontinued operations, as these are likely to be treated as being of a capital nature. A reconciliation relating to Group’s tax charge and Group pre-tax profit is given below-
A reconciliation to reported (loss)/profit for the year is as follows:
Earnings Per Share & Dividend
Basic earnings per share from continuing operations were 32.29p (2016: 29.71p), based on a weighted average number of shares in issue during the year of 19.529m (2016: 19.425m). The Board proposes to recommend the payment of a final dividend of 8.40p per share to be paid on the 30 April 2018, which when added to the interim dividend of 4.20p per share paid on the 31 October 2017, makes a total of 12.60p for the year (2016: 12.00p), an increase of 5.0%. The total dividend is expected to be covered 2.56 times (2016: 2.50 times) by earnings from continuing operations. The total dividend represents the fourteenth consecutive year of payment growth since the business was floated on the Alternative Investment Market of the London Stock Exchange in 2004. The Board has noted the current dividend cover which is now below historical levels, but still within a range which can support the continuing progressive policy. Current Company distributable reserves amount to £14.19m, which are adequate to cover at least five years of current level dividend payments. Adequate anticipated cash resources and future generation assumptions also support the Board’s view that the current policy is sustainable. A process of subsidiary dividend payments to the parent Company is now established to ensure adequate liquidity and capital are available to support the policy. The Board will continue to monitor dividend cover ratios when assessing future payment recommendations.
During the year a total of 170,185 (2016: 104,229) new ordinary shares were issued for a total equivalent cash amount of £0.723m (2016: £0.435m). A total of 110,896 (2016: 26,800) shares were issued in relation to the exercise of employee share options for a total consideration of £0.378m (2016: £0.068m), and the remaining 59,289 (2016: 77,429) shares were issued to existing shareholders exercising their right to receive dividends in the form of new shares, with an equivalent cash value of £0.345m (2016: £0.367m).
Group net assets at the year end amounted to £85.39m (2016: £86.95m). Based on the weighted average number of shares in issue during the year of 19.529m, (2016: 19.425m) this represented a net asset value per share of £4.37 (2016: £4.48). During the financial year the share price traded in a range between a high of £6.67 in March 2017 and a low of £4.55 in October 2017. Based on these balance sheet values, Return on Net Assets from continuing operations for the year was 9.4% (2016 restated: 8.4%).
Capital investment in fixed assets amounted to £2.74m (2016: £3.98m) which was lower than initially budgeted as some projects have been delayed through the necessary planning processes, and will now be completed during the new financial year, resulting in an expected higher level of investment in this period.
Net Working Capital, which is defined as, the net of inventory, trade and other receivables and trade and other payables, showed a 10% increase as at the year end, standing at £40.3m (2016: £36.5m), which was primarily caused by the inflationary impact referred to earlier, partially offset by the reduction related to the discontinued operations.
Cashflow, Net Cash and Banking Facilities
The business remains strongly cash generative, despite having to absorb the higher levels of working capital created by the expansion in activities and commodity inflation. Net cash at the year end has increased to £4.51m from £4.28m, after absorbing the increased working capital requirement referred to above of £3.8m.
The year end does represent a traditionally low point in the Group’s cash utilisation cycle, and therefore the Board continues to prioritise the maintenance of adequate debt facilities to accommodate the usual spring peak of this seasonal fluctuation, together with any unexpected commodity price volatility. Utilisation of bank facilities has been limited during the year, but a total of committed and short term facilities of £17.0m remained in place at the year end (2016: £17.9m), which the Board believes should exceed any actual requirement.
Key Performance Indicators
The performance of the business is regularly monitored against financial Key Performance Indicators (KPI’s), 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.
Earnings per Profit for the year after taxation divided by the weighted average number of
Share: shares in issue during the year excluding any shares held by the Group’s Employee Share Ownership Trust.
Return on Net Group pre-tax profit, including share of pre-tax profits of joint ventures and
Assets: associates before intangible amortisation, share-based payment charges or exceptional costs, divided by the balance sheet net asset value.
Net Asset per The balance sheet net asset value, divided by the weighted average number
Share: of shares in issue during the year, excluding any shares held by the Group’s Employee Share Ownership Trust.
Underlying Underlying Pre-tax profit includes the Group’s share of pre-tax profit from joint
Pre-tax profit: ventures and associate investments but excludes the exceptional item and share-based payments.
Relevant results for these KPI’s, for the year under review and the prior year comparatives have been disclosed earlier in this Report.
30 January 2018.