Wynnstay Regulatory News (WYN)

24 Jan 2007 07:01

Wynnstay Group PLC24 January 2007 WYN.L WYNNSTAY GROUP PLC ("Wynnstay" or "the Group") Preliminary Results for the year ended 31 October 2006 Based in Wales, Wynnstay manufactures and supplies agricultural products andservices for farmers and operates a network of 24 stores providing a wide rangeof products both for farmers and country dwellers. Key Points •Creditable results against challenging trading conditions - H2 improvement, as expected - strength of diversified business base reflected in results •Total turnover of £110.9m •Pre-tax profit of £2.534m •Basic earnings per share of 18.08p •Net assets increased by 10% to £25.26m •Proposed final dividend of 3.5p per share, making total dividend for the year of 5.25p, up 5% over last year •Acquisition in August of Glasson Group (Lancaster) Limited for total of £2.4m - benefits Group's three major divisions, Feeds, Arable and Stores - expected to be earnings enhancing in current financial year •Launch of "Just for Pets" stores - exciting new development - first store to open in Telford with 2 further stores over new financial year •Board optimistic for outlook for Group - important Spring market still to come Bernard Harris, Managing Director, commented, "This year was especially challenging with the commencement of the EU SingleFarm Subsidy Payment and rising fuel and power prices. However, as anticipated,we saw an improvement in trading conditions in the second half. Against thisbackdrop, our results are creditable and reflect the strength of our diversifiedbusiness base. Looking forward, the launch of our new 'Just for Pets' stores is an excitingdevelopment and we anticipate opening our first dedicated pet products store inMarch 2006 and two further stores by the end of the current financial year.Also, we expect to see the benefits of our acquisition of Glasson to comethrough over the year. While the important Spring market is yet to come, the Board is optimistic forthe outlook for the Group." Press enquiries: Wynnstay Group plc Bernard Harris, Managing Director T: 020 7448 1000 today Paul Roberts, Finance Director Thereafter: 01691 828512 Biddicks Katie Tzouliadis T: 020 7448 1000 WH Ireland Limited David Youngman T: 0161 832 2174 CHAIRMAN'S STATEMENT Introduction In my interim report, I reported that general trading conditions had become moredifficult with the commencement of the EU Single Farm Subsidy Payment and theimpact of higher fuel and power prices, especially on fertiliser production,where prices reached a 10 year high. In the second half of the year, we saw someimprovement in conditions, however, the factors above continued to impact theperformance of the Group and for the first time in five years, our record ofprofits growth (before exceptional items) faltered. Nevertheless, we have continued to develop the Group, investing in our StoresDivision and in our manufacturing capability. Quins Farm Supplies, which weacquired in December 2005, has been fully integrated within our Stores businessand we are about to launch our first stand-alone pet store, "Just for Pets". Ournew feed blending facility at Rhosfawr, North Wales, became operational inSeptember and at the time of writing is performing above expectations. In August, we completed the purchase of our largest acquisition to date, GlassonGroup (Lancaster) Limited ("Glasson") for a total consideration of £2.4m.Glasson should bring benefits to the Group's three major divisions, Feeds,Arable and Stores. Given the timing of this acquisition, it has not made animpact on Group profits this year but I believe it will be earnings enhancing inthe current financial year. Our joint ventures all performed well and continue to strengthen our diversifiedbusiness base. Financial Results Excluding the three month contribution of £8.83m from Glasson, turnover was£102.05m (2005: £100.81m). Pre-tax profit was £2.534m (2005: £2.869m). Thedecrease of 11.7% largely reflected the significant drop in fertiliser sales, animportant Group activity, and the impact of increased energy costs. Basicearnings per share were 18.08p (2005: 22.78p). Our balance sheet remains strong with net assets of £25.26m (2005: £23.62m), anincrease of 7%. Using the average number of shares in issue during the year, netassets per share are £2.44 compared with a share price of £2.41 at the time ofwriting. Gearing remains conservative at 20%. Dividend The Board initiated the payment of an interim dividend this financial year,which was paid in October 2006 at the rate of 1.75p per share. The Board is nowpleased to recommend a final dividend of 3.5p per share. This makes a totaldividend for the year of 5.25p, an increase of 5% over last year (2005: 5.0p). The final dividend will be paid on 30th April 2007 to shareholders on theregister at the close of business on 30th March 2007. Review of Trading As stated, trading conditions for two of our three major divisions, Feeds andArable, were difficult. Passing on energy cost increases will take time. Thedairy sector is affected by very weak milk prices, which is resulting in manyproducers leaving the industry, whilst those remaining are reluctant to acceptfeed price rises. However, the price of wheat has moved up substantially sincethe 2006 harvest and this has encouraged record levels of new planting in thesector, which will benefit our Arable Division. The increase in wheat prices hassimultaneously raised the cost of producing animal feed considerably and theseprice increases have not fully found their way into the feed market. The Arable Division enjoyed good sales of cereal seeds during the importantautumn planting season, due to excellent weather conditions and the higher priceof wheat. However, as I stated previously, fertiliser sales were poor, whichimpacted considerably the Division's performance. In the Feed Division, the drought conditions in Mid Wales and in the WelshBorder counties led to strong demand for feed during the late summer and earlyautumn, although excellent grass growing conditions after rainfall duringOctober and November subsequently reduced demand. Both our Llansantffraid milland our joint venture operation in Carmarthen enjoyed improved feed sales, withthe latter producing a record tonnage. Our Stores Division performed well during the year and improved sales in many ofits major product groups. Our major new store at Newtown, Powys, opened inDecember 2005, has now enjoyed a full year's trading and performed to budget,and over the course of the year, we completed the refitting and upgrading of ourstores at Oswestry, in Shropshire, and at Gaerwen and Rhosfawr in North Wales.We are about to launch our first stand-alone pet store under the "Just for Pets"format in Telford and we have plans for at least two more pilot stores duringthe financial year, subject to satisfactory lease negotiations. The overall performance of our other activities, the three joint ventures andassociate company, was good. In particular, Wyro Developments, our propertydevelopment joint venture, had an excellent year and continues to add to itsland bank. Board Change Having reached the agreed retirement age for Board members, RobertJones-Perrott, a Non-executive Director, will be leaving the Board at thisyear's A.G.M. Robert joined the Board of Wynnstay & Montgomeryshire Farmers in 1984, hisfamily being founder members of the original Wynnstay Farmers Association in1917. We are grateful for Robert's tremendous support of the business and wish him along, active and happy retirement. We intend to appoint a new Non-executiveDirector in due course. Prospects We continue to look for improved shareholder value in many areas of thebusiness. Market conditions are far from ideal but in the Arable Division, webelieve we have seen the bottom of the cycle, with better market conditionsgoing forward for arable crops, particularly for the bio-fuels sector. Theimproved world price for wheat has encouraged higher levels of cereal plantingand this will help fertiliser and seed sales. We are therefore anticipating aconsiderable improvement in the performance of the Arable Division over thecoming year. Whilst conditions in the Feed business are challenging, we are a low costproducer and will invest further in our infrastructure and distributionoperations, making us well placed to take advantage of the changing conditions.We will have a full year's contribution from the new feed blending plant atRhosfawr. Demand for feed remains strong, however, margins and rising costs aregiving concern and we believe that it will take some time for these to be fullyrecovered from the marketplace. We are budgeting for further growth in the Retail business as the benefits ofstore upgrades carried out during 2006 lead to greater sales. The ongoingrefurbishment programme will continue this trend and the opening of our first"Just for Pets" store is an exciting new initiative. We will continue to lookfor further opportunities to expand the number of retail outlets in bothformats. In the current financial year, the Group will benefit from a full year's tradingfrom Glasson, with budgeted sales for the year expected at £38m. The businesscomplements the activities of our three core divisions as well as some of ourjoint ventures. The full benefits of this acquisition will be more fullyreflected in results for the financial year 2008, once the business has beenintegrated into the Group. Our Joint Venture businesses will continue to grow, with anticipated highersales in Wyro Developments, our property development business, and anticipatedgreater growth in our pet and speciality equine business, Youngs Animal Feeds. I look forward to updating shareholders on the Group's trading at the AnnualGeneral Meeting in March, when I will be in a position to comment on the important spring market. John DaviesChairman MANAGING DIRECTOR'S REVIEW INTRODUCTION Rising power and fuel prices, higher ingredient costs for our feed business andincreased fertiliser prices, coupled with a change in the EU's support paymentsystem for farmers, affected the Group's results this year. Nevertheless, theGroup produced a creditable result which reflects the success of our diversifiedbusiness model. We continue to make progress in our strategy of acting as a consolidator withinthe agricultural sector and in the final quarter of the year, in August, wepurchased the assets of the Glasson Group (Lancaster) Limited ("Glasson").Glasson is involved in the importation, shipping and trading of animal feedmaterials together with fertiliser blending and the manufacture of pet andspeciality products and therefore fits very well with our major businesses. Outside our three core divisions, our Joint Ventures and Associate Companiesmade very good progress. In particular, Bibby Agriculture Limited, establishedlast year, traded profitably and our property joint venture (Wyro Developments)and our animal feeds joint venture (Youngs Animal Feeds) achieved particularsuccess. REVIEW OF TRADING FEED DIVISION The Feed Division manufactures and markets a wide range of animal nutritionproducts for farm livestock. It operates from a number of compound feed millsand blending plants, either wholly owned or franchised under manufactureragreements throughout England and Wales. This division accounted for 32% of Group turnover and gained market share overthe year, with volumes growing by 5.2%, helped by the prolonged winter weather. Sheep feed volumes again achieved a record, improving by 22%, and lamb finisherrations volumes, where we supply a number of major producers, were alsosuccessful. We are looking at ways of differentiating our products forintensively fed lambs, carrying out extensive research at the Institute ofGrassland and Environmental Research in Aberystwyth, with particular emphasis onOmega 3, essential fatty acid retention in lamb meat. Compound dairy feeds alsoachieved a good performance, with volumes up 7%. Feed blends are a growing part of the ruminant feed market and our sales grewrapidly, with Llansantffraid enjoying 140% growth over the previous year.Further investment was made in automatic production control, product cooling andin the general enhancement of quality at Llansantffraid mill. Our new feedblending plant in Rhosfawr, North Wales, came on stream in September and iscurrently performing ahead of budget. The plant is expanding its customer baseand offers considerable savings in distribution costs in the area. In order toservice our expanding sales area, we are also using three other suppliers ofblended feeds. Our specialist partnership in niche egg production continues to grow and we tookon further producers over the year. We will continue to expand this activity asthe market for free range eggs increases. Our beef feed sales were slightly down. However, we continue to recruit newproducers for our Celtic Pride beef scheme, which produces high quality beefproducts, following an exacting protocol, and sells to the top-end of the foodservice market. Our Raw Material trading department had another successful year and continues toincrease its volumes substantially both to farmers and the feed manufacturingindustry. ARABLE DIVISION The Arable Division supplies a wide range of services and products, includingseeds, fertilisers and agricultural chemicals to arable and grass-land farmers.It has its own grain trading arm, Shropshire Grain Limited, which provides amarketing service throughout the Group's trading area. Sales in this division accounted for 30% of Group turnover. The division wasaffected by a substantial fall in volume sales of fertiliser, which decreased by12%, as sharply increasing fertiliser prices deterred sales. Farmers and growerscontinue to operate on a "just-in-time" buying policy, reluctant to forwardpurchase fertiliser at higher prices. Our recorded fertiliser sales during theyear were also affected by the previous purchasing of large volumes ahead of theseason in Autumn 2005. Lower fertiliser prices are forecast from June 2007onwards as the price of natural gas, a key component in the manufacturingprocess, eases. With lower prices, we should see a pick-up in demand,particularly from the arable farming sector. Cereal seed sales were excellent and improved by 9% due to favourable weatherconditions for planting and anticipated higher wheat prices going forward. Newmarkets for wheat are opening up in the both bio-ethanol sector and also as araw material for starch production. Herbage seed sales were maintained in amarket substantially reduced by the drought conditions in much of our tradingarea in the late summer. Following the 2005 harvest which produced consistently good quality grain,trading markets have been rather flat. Nevertheless, Shropshire Grain - ourin-house grain trading arm - has made the best of a difficult season andproduced a robust performance, maintaining throughput and margins. This has beenassisted by the early months of trading the 2006 harvest which, in contrast to2005, has produced variable quality grain and therefore greater pricevolatility. Grain prices have improved by about 50% since the summer, largelydue to a poor Australian harvest. This is helping to create a more positiveoutlook amongst arable farmers and offers us the opportunity for us to improvemargins. STORES DIVISION The Stores Division operates 24 retail outlets, in Mid and North Wales,Shropshire, Staffordshire and Lancashire, and sells an extensive range ofproducts both to professional farmers and growers as well as to the generalpublic. The division accounted for 27% of Group turnover. Total sales improved by 5.2%and there was very good growth in some key product areas. Pet food sales improved by 10% and the important equine market grew by 8%.Household goods, including cleaning products, improved by 20%. It is alsoencouraging to see country clothing sales growing by 13% as a result of betterranging and product offers. Animal healthcare product sales grew by 18%, helpedby the Quins Farm Supplies in December 2005. Quins, which supplies animal healthcare and nutrition products as well as general hardware items and a range ofcountry sporting goods including shotguns, is now fully integrated. Further margin improvements took place in the eight Eifionydd stores, acquiredsome two and a half years ago, due to store improvements and better productsourcing. Our new Newtown store enjoyed its first full year of trading, achieving itstarget, and sales continue to grow. The store is also piloting a "One Stop"fishing tackle shop to complement the Quins offering of shooting and sportinggoods. Over the year, we completed three major store refits, at Gaerwen (in Anglesey),and Oswestry (Shropshire) and Rhosfawr (North Wales). In 2007, we will berefitting our store at St Asaph in North Wales. In 2007, we are taking an exciting step forward with the launch of our "Just forPets" stand-alone stores, with the first lease signed on a site in Telford. Wehope to open a further two stores over the year. The pet supplies market is agrowth sector and we believe we have the expertise to exploit demand in areas ofhigh population density. OTHER ACTIVITIES Glasson Group We acquired Glasson Group (Lancaster) Limited in August 2006 in line with ourstrategy to act as a consolidator in the agricultural supply industry. Glasson'sactivity complements all of our three major divisions, acting as a shipper andtrader of raw materials and operating the port of Glasson, near Lancaster.Owning shipping facilities give us a degree of independence in the procurementof raw materials both for our feed business and fertiliser production. Turnoverat the time of acquisition was £37m and we believe Glasson will bringconsiderable benefits to the Group. Glasson is a major trader of raw materials and, together with our own feedmanufacturing, blending and trading activities, we will handle in excess of600,000 tonnes of raw materials every year, which will add to our purchasingpower and strengthen our position in the marketplace. Glasson also operates afertiliser blending plant, which will increase the Group's fertiliser activitiesand enable us to offer both compound and blending fertilisers to the market.Additionally, Glasson manufactures ingredients for the pet food industry, whichnot only complements our Youngs' joint venture but also widens the range ofproducts available through our retail division. Going forward, we anticipate that there will be considerable synergies to beexploited as the businesses become more closely integrated. Foxmoor Foxmoor is a large scale producer of potted plants and shrubs operating fromfour sites based in the South West. Its target market is multiple retailers,garden centres and other general horticultural outlets. Foxmoor's sales value grew by 40% during the year but it was adversely affectedby much higher costs, particularly gas and labour. In addition, non-recurringcosts were incurred in developing a new site in Devon. We expect further salesgrowth in 2007, with our production capacity provisionally sold for that period.We have also established a new venture in conjunction with the Ideal ShoppingChannel to sell plants and associated garden accessories, which will add to ourhorticultural activities. JOINT VENTURES AND ASSOCIATES The Group has interests in three joint ventures and two associate companies todevelop business in growth markets. • Wyro Developments Wyro, our property development business, enjoyed an excellent year, with sales on budget. There were an encouraging number of reservations at our second site at Abermule near Newtown, where sales values are higher than we have previously achieved in the area. Negotiations are nearing completion for two further large sites in Powys which will include units of mixed value housing. Work is nearing completion on two small executive developments near Welshpool, which have created considerable interest. We continue to look for opportunities to acquire further land particularly where we can develop low cost housing for which there is strong local demand. • Youngs Animal Feeds Youngs Animal Feeds acquired Dollin and Morris Ltd, a specialist manufacturer of equine, pet and wild bird seed, in December 2005. During the year, we integrated the two businesses and installed a new IT system to run the combined operation. Further work was carried out at our Molichop Equine Feed Plant in Staffordshire and we have won considerable amounts of new business for the products from the plant. • Welsh Feed Producers Our joint venture mill in Carmarthen benefited from the volumes acquired from Bibby and the plant enjoyed record sales during the year. An ongoing upgrade programme in grinding and pelleting facilities is continuing to improve output and product quality for which the plant has an enviable reputation. • Bibby Agriculture Ltd (associate company) Bibby Agriculture brought considerable volume benefits to the business at Carmarthen mill and is trading profitably. Considerable scope exists for cost reduction and distribution savings going forward, working closely with our partners, Carrs Billington Agriculture Ltd. • Wynnstay Fuels Ltd (associate company) Wynnstay Fuels, which distributes agricultural and domestic fuels, enjoyed a successful year, helped by substantial increases in prices. Fuel volumes rose by 30% due to the expanded sales area following the recent construction of storage and distribution facilities in North Wales. OUTLOOK In 2007, we will enjoy a full year's contribution from Glasson as well as ournew feed blending plant. Integration benefits will accrue from the Glassonacquisition and the combined purchasing volumes of raw materials should help theGroup going forward. The Retail divison offers very encouraging prospects for growth, with continuinginvestment, improved purchasing and marketing helping us capture our share ofgrowing markets in pet and equine products particularly. We also intend toexpand our sales of animal healthcare products and are looking for opportunitiesto acquire further retail distributors in a market that is rapidlyconsolidating. Our "Just for Pets" stores, the first of which is due to belaunched in March 2007, offers an exciting opportunity to build on ourexperience in the high growth pet products sector with the new stand-alone petstore format. Market conditions in the agricultural industry remain mixed. Our industry isstill subject to higher power costs and the ever increasing burden of complianceand regulation. These costs must be recovered in the market and inevitably thistakes time. The sheep and beef markets have improved considerably with thelifting of the export ban and look better in the short term. In contrast, thedairy sector is suffering from low milk prices and rising costs which arelimiting producers' spending power. The feed industry as a whole in the UKcontinues to suffer from over-capacity. After several years of low grain prices and rising input costs, the arablesector would appear to have a much brighter future. Low world grain stocks andincreasing demand, coupled with crop failures around the world due to extremeweather conditions, will help this trend. The rising world price for wheat hasencouraged higher levels of planting by cereal farmers and the decision to closea sugar beet processing factory in Shropshire should result in growers switchingfrom sugar beet production to combinable crops. This should help our ArableDivision, encouraging increased fertiliser usage, and therefore, we expect togenerate substantially higher volumes during 2007. Whilst high wheat costs willimpact on feed margins, the balanced nature of our business between livestockand arable sectors should help to lessen the impact. Prospects in our joint ventures remain good, particularly in our propertybusiness and the Young's equine and pet supply company. Bernard HarrisManaging Director WYNNSTAY GROUP PLCCONSOLIDATED PROFIT & LOSS ACCOUNTFor the year ended 31 October 2006 As restated 2006 2005 Note £000 £000 £000 £000 TURNOVER 1,2Continuing operations 102,050 100,806Acquisitions 8,833 - --------------------------------- 110,883 100,806Cost of sales (91,394) (82,482) ---------------------------------GROSS PROFIT 19,489 18,324Selling and distribution costs (16,262) (15,150)Administrative expenses (1,162) (918) ---------------------------------OPERATING PROFIT 4 2,065 2,256Share of operating profit in joint ventures 610 490Share of operating profit in associates 62 31 ---------------------------------Continuing operations 2,707 2,777Acquisitions 30 - ---------------------------------GROUP OPERATING PROFIT 2,737 2,777 Net profit on sale of fixed assets 27 184 ---------------------------------PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 2,764 2,961Income from other fixed asset investments 8 31Interest receivable 188 108Interest payable 3 (426) (231) ---------------------------------PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2,534 2,869TAX ON PROFIT ON ORDINARY ACTIVITIES (664) (874) ---------------------------------PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 1,870 1,995 =================================Earnings per 25p share 18.08p 22.78p =================================Diluted earnings per 25p share 5 15.58p 16.64p ================================= There were no recognised gains and losses for 2006 or 2005 other than thoseincluded in the profit and loss account above. There is no difference between the profit calculated on an historical cost basisand those reported in the profit and loss account above. WYNNSTAY GROUP PLCBALANCE SHEETAs at 31 October 2006 Group Company As restated As restated 2006 2005 2006 2005 Note £000 £000 £000 £000FIXED ASSETSIntangible fixed assets 2,882 2,501 2,174 2,137Tangible fixed assets 10,946 8,769 9,394 8,733Investments in subsidiary - - 3,742 1,322undertakingsInvestments 3,390 2,763 2,017 1,876 ------------------------------------------- 17,218 14,033 17,327 14,068 -------------------------------------------CURRENT ASSETSStocks 9,557 8,284 7,782 8,246Debtors 22,258 19,158 19,346 18,827Cash at bank and in hand 1,181 1,646 1,147 1,646 ------------------------------------------- 32,996 29,088 28,275 28,719CREDITORS: amounts falling due within one year (22,363) (18,716) (19,248) (19,115) -------------------------------------------NET CURRENT ASSETS 10,633 10,372 9,027 9,604 -------------------------------------------TOTAL ASSETS LESS CURRENT LIABILITIES 27,851 24,405 26,354 23,672 ------------------------------------------- CREDITORS: amounts falling due after more than one year (2,061) (345) (1,954) (345)PROVISIONS FOR LIABILITIES AND CHARGESDeferred taxation (528) (189) (379) (189)Other provisions - (250) - (250) -------------------------------------------NET ASSETS 25,262 23,621 24,021 22,888 =========================================== CAPITAL AND RESERVESCalled up share capital 2,867 2,438 2,867 2,438Share premium account 7,673 4,253 7,673 4,253Loan stock redemption reserve - 3,153 - 3,153General reserves 1,582 1,582 1,582 1,582Profit and loss account 13,140 12,195 11,899 11,462 -------------------------------------------SHAREHOLDERS' FUNDS - ALL EQUITY 25,262 23,621 24,021 22,888 =========================================== WYNNSTAY GROUP PLCCASH FLOW STATEMENTFor the year ended 31 October 2006 2006 2005 Note £000 £000Net cash flow from operating activities 8 2,611 3,483Returns on investments and servicing of finance 9 (230) (92)Taxation (482) (719)Capital expenditure and financial investment 9 (2,331) (1,294)Acquisitions 9 (3,782) -Equity dividends paid (708) (391) ----------------------CASH (OUTFLOW)/INFLOW BEFORE FINANCING (4,922) 987 Financing 9 2,789 (216) ----------------------(DECREASE)/INCREASE IN CASH IN THE YEAR (2,133) 771 ====================== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2006 2005 £000 £000(Decrease)/Increase in cash in the year (2,133) 771Cash (outflow)/inflow from increase in debt and lease financing (2,132) 739 ------------------------CHANGE IN NET DEBT RESULTING FROM CASH FLOWS (4,265) 1,510New finance leases and debt (208) (371)Finance leases acquired with subsidiaries (235) - ------------------------MOVEMENT IN NET DEBT IN THE YEAR (4,708) 1,139Net debt at 1 November 2005 (488) (1,627) ------------------------NET DEBT AT 31 OCTOBER 2006 10 (5,196) (488) ======================== WYNNSTAY GROUP PLCNOTES 1. Accounting policies 1.1 Basis of preparation of financial statements The financial information is prepared under the historical cost convention andin accordance with applicable United Kingdom law and accounting standards. Theparticular accounting policies adopted are described below, together with anexplanation of where changes have been made to previous policies on the adoptionof new accounting standards in the year. 1.2 Changes in accounting policy The Group has adopted Financial Reporting Standard 21, events after the balancesheet date, in these financial statements. The adoption of this standardrepresents a change in accounting policy and the comparative figures have beenrestated accordingly. 1.3 Basis of consolidation and goodwill Corporate and unincorporated joint ventures in which the Group has an investmentrepresenting not less than 20% of the voting rights, and over which it exertssignificant influence, are treated as associated undertakings. The Groupaccounts include the appropriate share of these undertakings' profits based onthe latest available audited accounts, and provide for an appropriate share oftheir losses, based on the latest available management accounts. The results ofsubsidiary undertakings are consolidated on an acquisition accounting basis,with purchased goodwill arising prior to FRS 10 written off against reserves.Following the implementation of FRS 10, purchased goodwill is capitalised andwritten off over its estimated useful economic life. 1.4 Profits of holding company The Company has taken advantage of the exemptions conferred by S.230 of theCompanies Act 1985 not to prepare a profit and loss account. A profit of£1,362,000 (2005: £1,525,000) has been dealt with in the parent Companyaccounts. 1.5 Turnover Turnover represents the invoiced value of sales which fall within WynnstayGroup's ordinary activities and excludes Value Added Tax. 1.6 Tangible fixed assets and depreciation Tangible fixed assets are stated at cost, net of depreciation and any provisionfor impairment. Depreciation is provided at rates calculated to write off thecost of fixed assets over their expected useful lives as follows: Freehold property - 2.5%-5% per annum straight-line Leasehold land and buildings - 3% per annum reducing balance Plant and machinery/office equipment - 10%-33% per annum straight-line Motor vehicles - 20%-30% per annum straight-line 1.7 Stocks Stocks are valued at the lower of cost and net realisable value. 1.8 Deferred taxation Provision is made in full for all taxation deferred in respect of timingdifferences that have originated but not reversed by the balance sheet date. Deferred tax assets are recognised to the extent that it is more likely than notthat they will be recovered. 1.9 Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translatedinto sterling at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rateruling on the date of the transaction. Exchange gains and losses are recognised in the profit and loss account. 1.10 Leasing and hire purchase Assets held under finance leases or being obtained under hire purchase contractsare capitalised in the balance sheet and depreciated over their useful economiclives, interest being charged to the profit and loss account over the period ofthe agreement. Operating lease rentals are charged to the profit and lossaccount as incurred. 1.11 Pensions The Company operates a defined contribution pension scheme. Contributions tothis scheme are charged to the profit and loss account, as they are incurred inaccordance with the rules of the scheme. 1.12 Employee share ownership trust The Company operates an employee share ownership trust. Contributions to thistrust are charged to the profit and loss account on an accruals basis. 1.13 Investments(i) Subsidiary Undertakings Shares in subsidiaries are valued at cost less provision for permanentimpairment. (ii) Associated undertakings Investments in associates are stated at the amount of the Company's share of netassets. The consolidated profit and loss account includes the Company's share ofthe associated companies' profits after taxation using the equity accountingbasis. (iii) Joint venture undertakings Investments in joint ventures are stated at the Company's share of net assets.The Company's share of the profits or losses of the joint ventures is includedin the consolidated profit and loss account using the equity accounting basis.This accounting treatment is not in line with the requirements of FinancialReporting Standard 9, "Associates and Joint Ventures", which requires theadoption of the gross equity accounting basis. There is no material effect tothe reported figures as a result of this departure. (iv) Other investments Investments held as fixed assets are shown at cost less provisions for theirpermanent impairment. 2. Turnover Turnover represents the amounts derived from the provision of goods which fallwithin the Group's ordinary activities, stated net of value added tax. In the opinion of the directors, the Group operates in a single area ofactivity, and segmental analysis is therefore not appropriate. The acquired turnover during the year is attributable to Glasson Group(Lancaster) Limited; details of the acquisition are provided in note 7. 3. Interest payable 2006 2005 £000 £000Bank loans and overdrafts wholly repayable within five years 335 123Interest on loan capital - 18Finance lease charges 83 65Interest on loan stock 8 25 -------------------- 426 231 --------------------4. Operating profit The operating profit is stated after charging: 2006 2005 £000 £000Amortisation - intangible fixed assets 262 236Depreciation of tangible fixed assets:- owned by the Company 824 762- held under finance leases 311 285Operating lease rentals:- other operating leases 313 162Directors' emoluments 607 587 -------------------Exceptional selling and distribution costs - 250 ------------------- 5. Dividends and earnings per share As restated 2006 2005 £000 £000Final paid for prior year: 5.0p (2005: 4.5p) per 25p share 507 391Interim paid for current year: 1.75p (2005: 0.0p) per 25p share 201 - --------------------Total dividends paid 708 391 -------------------- Subsequent to the year end it has been recommended in the Directors' Report thata final dividend, at a rate of 3.5 pence net per 25p ordinary share (2005: 5.0pence net per 25p ordinary share) be paid, making a total in respect of the yearof 5.25 pence (2005: 5.0 pence). Earnings per share Basic earnings per Diluted earnings per share share 2006 2005 2006 2005Earnings attributable toshareholders (£'000) 1,870 1,995 1,878 2,013 --------------------------------------------Weighted average number ofshares in issue during theyear (No.) 10,344 8,759 12,052 12,095 --------------------------------------------Earnings per ordinary 25pshare (pence) 18.08 22.78 15.58 16.64 -------------------------------------------- Basic earnings per 25p ordinary share is calculated by dividing the earningsattributable to ordinary shareholders by the weighted average number of ordinaryshares in issue during the year, excluding those held in the Employee ShareOwnership Trust which are treated as cancelled. For diluted earnings per share,the weighted average number of ordinary shares is adjusted to assume conversionof all dilutive potential shares (share options and convertible loanstock). An adjustment to earnings is also made to recognise notional interest saved onconvertible loanstock. 7. Acquisitions Acquisition of Glasson Group (Lancaster) Limited The Group purchased the Glasson Group, which comprises four companies, on 4thAugust 2006 for a net total consideration of £2.4m, which has been treated as anacquisition in the year. The total adjustments required to the book values of the assets and liabilitiesof the Group in order to present the net assets of the Group at fair value inaccordance with the Group accounting principles were £2,417,985, details ofwhich are set out as follows, together with the resultant amount of goodwillarising. From the date of acquisition to 31st October 2006, the acquisition contributed£8,832,809 to turnover, £60,658 to profit before interest and £30,425 to netprofit after interest. Glasson Group (Lancaster) Limited contributed £135,542 tothe Group's net operating cash flows, paid £30,233 in respect of interest andutilised £6,135 for capital expenditure. In its last financial year to 31st May 2006, Glasson Group (Lancaster) Limitedmade a profit after tax of £179,175. For the period 31st May 2006 to the date ofacquisition, the trading performance of the business during what is its quiettime of year shows an operating loss of £103,890. Acquisition of Glasson Group (Lancaster) Limited "Sale back" Provisional Book value Revaluations Subtotal of property fair value £000 £000 £000 £000 £000Tangiblefixed assets 2,203 729 2,932 (1,350) 1,582Stock 1,997 - 1,997 - 1,997Debtors 3,301 - 3,301 - 3,301Cash at bankand in hand 131 - 131 - 131Creditors (4,849) - (4,849) - (4,849)Loans & financeleases (148) - (148) - (148) -----------------------------------------------------------Net assetsacquired 2,635 729 3,364 (1,350) 2,014Goodwill 404 -----------------------------------------------------------Consideration 2,418 -----------------------------------------------------------Considerationsatisfied by:Convertiblesecuredloanstock 500Cash 1,918 ----------------------------------------------------------- 2,418 ----------------------------------------------------------- The book value of the assets and liabilities have been taken from the managementaccounts of Glasson Group (Lancaster) Limited as at 31st July 2006, the closestavailable reporting date to the acquisition date of 4 August 2006. The movementbetween these dates is not considered to be material. The revaluation adjustments in respect of tangible fixed assets comprise thevaluations of certain freehold and leasehold properties. 8. Net cash flow from operating activities 2006 2005Reconciliation of operating profit to net cashinflow from operating activities: £'000 £'000Operating profit 2,737 2,777Associated undertaking results (672) (521)(Increase)/decrease of loans made to joint ventures (1,500) 400Amortisation of intangible fixed assets 262 236Depreciation of tangible fixed assets 1,135 1,047Impairment of investments 1 -Decrease/(increase) in stocks 725 (266)Decrease/(increase) in debtors 1,701 (2,348)(Decrease)/increase in creditors (1,528) 1,908(Decrease)/increase in other provisions (250) 250 -------------------Net cash inflow from operations 2,611 3,483 ------------------- 9. Analysis of cash flows for headings netted in the cash flow statement 2006 2005 £'000 £'000Returns on investments and servicing of finance Interest received 188 108Interest paid (343) (166)Hire purchase interest (83) (65)Dividends received 8 31 ----------------Net cash outflow from returns on investments and servicing of finance 230 (92) ---------------- 2006 2005 £'000 £'000Capital expenditure and financial investmentPurchase of intangible fixed assets (604) -Purchase of tangible fixed assets (1,629) (853)Proceeds from sale of tangible fixed assets 44 290Purchase of investments (182) (731)Proceeds from sale of investments 40 - -------------------Net cash outflow from capital expenditure (2,331) (1,294) 2006 2005 £'000 £'000AcquisitionsPurchase of subsidiary undertakings (1,918) -Net overdrafts acquired with subsidiary undertakings (1,864) - ----------------------Net cash outflow from acquisitions (3,782) - ---------------------- 2006 2005 £'000 £'000FinancingIssue of ordinary shares 657 523Repayment of loans (530) (404)Capital element of finance lease repayments (338) (335)New loan 3,000 - ---------------------Net cash outflow from financing 2,789 (216) --------------------- 10. Analysis of changes in net debt 1 Nov Cash flow Acquisition Other 31 Oct 2005 (excluding non-cash 2006 changes cash and overdrafts) £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand: 1,646 (465) - - 1,181Bank overdraft (209) (1,668) - - (1,877) ---------------------------------------------------- 1,437 (2,133) - - (696)Debt: Finance leases (645) 338 (235) (106) (648)Debt due within one year (1,280) (969) - 148 (2,101)Debts falling due after more than one year - (1,501) - (250) (1,751)Net debt (488) (4,265) (235) (208) (5,196) 11. Annual report The Annual Report and Financial Statements will be posted to shareholders 7 February 2007. Further copies will be available to the public, freeof charge, at the Company's Registered office at Eagle House, Llansantffraid,Powys, SY22 6AQ. 12. Annual general meeting The Annual General Meeting of the Company will be held at The Royal Oak Hotel,Welshpool on the 20 March 2007 at 11.45a.m.. 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