The announcement couldn’t wait till the annual meeting on Tuesday at Shrewsbury Town Football Club, says Paul Roberts, finance director. Wynnstay’s trading environment has deteriorated sharply in three short months, with ramifications for margins and working capital. Its shares fell nearly a fifth while the group’s broker Shore Capital cut its expectations for 2019 pre-tax profits by a quarter to £7.7m.
It was a shock after the group in January posted record pre-tax profits of £9.5m in the year to October, up 24 per cent on 2017 and ahead of forecasts. At the time, trading in the first months of 2019 was in line. Then abruptly farmers lost confidence and the orders for feed, seed and fertiliser stopped.
The sudden reversal is not entirely due to what Mr Roberts calls “the dreaded B word”. February was unseasonably warm. Cows donned bikinis. Then the rain followed and the grass grew, providing plenty of fodder. It was a sharp contrast to the harsh winter last year, during which farmers had to buy in extra feed for their animals. Brokers at Peel Hunt wonder if Wynnstay allowed itself to be carried away by last year’s bumper numbers and exceptional weather.
They may have a point. A milk glut following the spring flush will probably continue to push down dairy prices. Oversupply and global commodity prices have prompted widespread drops in the prices of eggs, meat, dairy and arable products, undoubtedly influencing farmers’ confidence and spending plans. These are seasonal acts of God that Wynnstay has had to deal with for a century, since it was formed as a farmers’ co-operative in 1918.
This time, though, “uncertainty is being exacerbated by politics”, said Mr Roberts from his office in Oswestry. His customers don’t know what the market will look like when the lambs that he can see from his window are ready to be sold in a few months, he said. Last year many would have been exported to Europe. But European buyers, worrying about post-Brexit tariffs, are already looking for alternative sources of sheep meat. Conversely, low tariffs on imports into the UK may suck in rival goods from overseas. It makes it hard for farmers to plan.
Wynnstay’s tribulations are compounded by the oscillations of sterling, which has pushed up the prices of imported supplements and vitamins it uses in feed, says Mr Roberts. The company can’t pass these costs on to customers, he says. “It just adds to [our] margin squeeze”.
And then there is the much-talked about disruption to the supply chain, not just of imported products. The stories about chaos at the ports following Brexit may be “noise”, said Mr Roberts, but Wynnstay has had to take precautions to ensure it can fulfil orders. Where it can, the company has begun to hoard and forward-order some specialised goods.
Mr Roberts is aware how this might strain working capital although he said the group had just £7m in net debt at the half-year mark, when cash outflows peak, and £1m at the year end. The company’s equity is worth £83m. Nonetheless, he frets that “there are better things for us to invest in than stock”.
The company may have to halt its long-run strategy of picking off small rival farming suppliers, building market share and breaking out of its Wales-West Country heartland. That may disappoint Wynnstay’s shareholders, many of them farmers themselves.
Wynnstay is just one of many companies struggling with currency fluctuations, margin squeezes and supply-chain dilemmas that are playing merry hell with working capital and spending plans. For those whose balance sheets are in worse shape than Wynnstay, Brexit may be the tipping point. “And it is not a question of waiting and seeing how it will fall,” said an exasperated Mr Roberts. “Uncertainty over Brexit is forcing companies to make decisions now.” Companies don’t have the luxury of waiting to see what happens and putting off hard choices. Unlike politicians.