Wynnstay Plc

Source: Stock Market Digital

Date :8/29/2007 8:53:51 AM

Wynnstay Plc makes consolidation within the agricultural sector the key to its success

From its humble origins as a farmers’ cooperative founded in 1918, Wynnstay Plc has grown steadily over the decades to become an AIM quoted company with a turnover of over £145 million spread across its three core divisions. Finance Director Paul Roberts told James Hurley how the company’s strong acquisition strategy and broad business base has delivered impressive growth in the notoriously competitive agriculture sector

Written by James Hurley & Produced by Kiron Chavda

At the centre of much political and economic debate across Europe ever since the advent of the Common Agricultural Policy (CAP) in 1962, the agriculture industry remains a competitive and often harsh environment to work within.

Yet that’s not to say that the future isn’t bright for British agriculture, and Wynnstay Plc in particular– the company currently finds itself on the cusp of a very interesting stage in its development.

Paul Roberts, Wynnstay’s Finance Director concedes there has been a certain amount of “doom and despondency” surrounding the industry in recent years. Even before the foot and mouth epidemic loaded further strains on British agriculture, it was already struggling under the onslaught of successive crises, including the effects of the CAP combined with the bureaucratic demands of the EU, food scares from salmonella to BSE, the spread of intensive farming and the concentration of buying power in the hands of the retail giants.

“Farmers have been struggling with low commodity values for some time but I think there are now a number of opportunities that people will begin to see the benefit of over the next twelve months and beyond. The world population is growing, and China’s development of a Western taste for foods has seen demand for grain rise by 30 percent in recent months. Another area where we’re seeing growth in gas has come with the rising demand for bio-fuels - which of course raises the food versus fuels argument in terms of land use – so we’re experiencing a sea change in confidence due to macro economic reasons.”

An acquisitive pedigree

The success of Wynnstay against a challenging background can be attributed to a number of factors. Arguably chief amongst these is its strong acquisitive pedigree. A series of acquisitions during the last 15 years has expanded the company’s trading area and consolidated its long term prospects.

“The acquisition strategy is central to the business since we’re operating in a declining market,” says Roberts. “We’re constantly looking for the scale for consolidation since there are fewer and fewer businesses operating in the sector. It’s a bit like European cup football, and I think the industry has now reached the knock out stage,” he jokes.

The foundations for Wynnstay’s acquisitive driven growth were laid in 1992 when the company converted from a co-operative to a Public Limited Company in order to secure the company's long-term future. The flotation enabled it to access alternative sources of capital for long-term investment.

“It gave us significantly wider interest and acceptance from an institutional basis. The declining market meant it was crucial that we bought market share, and we needed the additional capital to be able to do that. More recently, in 2004, we moved to the AIM list so that shares could be traded more easily and company performance monitored by investors.”

Since 1992, Wynnstay Plc has completed some 20 corporate transactions. The most recent of these was the £2.4 million acquisition of the Glasson Group. Glasson compliments all of Wynnstay’s three major divisions; feed manufacturing (for farm livestock), arable (providing a range of services for cereal and grassland farmers) and retail stores.

Based in Lancaster, Glasson acts as a trader and shipper of raw materials and operates its own port facilities at Glasson Dock. Owning shipping facilities gives Wynnstay a crucial degree of independence in the procurement of raw materials both for its feed business and for fertiliser production.

“With a transaction like this, we’re acquiring talent as well as trade. Glasson had an experienced and capable management team, so we’ve carefully managed the absorption of that talent pool,” says Roberts. In its latest set of results, for the six month period to April 2007, the company reported turnover of £79.9 million, an increase of 53 percent from the earlier year period. Consolidation of the agriculture sector has clearly proved a successful strategy for the company, and it’s likely that further acquisitions of varying scales will be made where the company sees additional scale for consolidation. It is currently in talks to buy agricultural distribution companies to increase its reach and product range.

At the heart of a proactive business are good IT systems that promote the ability to deliver improved customer service and an efficient administrative function so reducing costs. Wynnstay has deployed Kit, the market leading Microsoft Dynamics Commodity Trading ERP product from Kinross Software a Microsoft Gold Certified Partner. This scaleable highly functional package software embraces small business through to enteprise companies and is the most cost effective business solution of its type available within the UK.

Kit can be tailored to meet the needs of any agribusiness or commodity trading company. It is offered with the internationally renowned Dynamics GP Financials and FRx Management Reporting suite, together with Microsoft CRM for businesses looking to develop long term customer relationships through customer service excellence.

A diversified business model

The other major factor that has secured Wynnstay’s position is its balanced business spread. Its three divisions, which are roughly the same in scale, are often counter cyclical, balancing each other out in a changeable environment. “If feed activity isn’t performing well, it’s likely to be made up for by a better performance in the arable division. This ‘corn versus horn’ principle balances the business,” explains Paul Roberts. For example, in recent months, input hikes had an adverse affect on the company’s feeds manufacturing and sales operations yet recovery in the fertiliser market boosted sales in the arable division.

Along with its arable and feeds divisions, Wynnstay also has burgeoning retail operations within its stores divisions. An enterprise that began as a sideline akin to an agricultural version of a builders’ merchants is fast becoming an increasingly significant part of the overall business. The stores division currently operates a chain of 25 stores located in mid and North Wales, Shropshire, Staffordshire and Lancashire with purchasing and distribution centralised in Shrewsbury.

“We’re increasing our income stream from the stores by expanding our product range and reaching a wider audience. In many cases, it’s a fairly natural evolution. – for example the leap from stocking animal feeds for livestock to selling to ordinary rural pet owners isn’t that far,” says Roberts. He sees a number of opportunities in the retail sector for Wynnstay – the company is starting to view their stores as more than simply farmers’ merchants, and instead as providing lifestyle options for the entire rural population. A range specifically tailored for farmers and country dwellers alike includes clothing, hardware, equine, gardening and pet products alongside the traditional agricultural products. This strategy has already seen some early vindication with an increasingly strong performance from the stores in the company’s most recent set of results, and it has opened its first dedicated per store (Just for Pets), with further outlets planned.

While market conditions in the agricultural industry remain mixed, the success of Wynnstay’s diversified business model and consolidation strategy means that the company is well placed to reap the rewards of a British agriculture sector that’s finally beginning to look more favourable, as Roberts concludes. “This industry will always be subject to some uncertainty and potential risks - BSE, foot and mouth and, more recently, the bird flu scare have all demonstrated this – but if we get our strategy right and have a broad enough base, we always have the potential to turn risks into opportunities.”