Mole Valley Farmers (MVF) has returned a lower full year profit on marginally smaller revenues in what it calls an “extremely challenging trading year with a substantial level of deflation”.
The co-operative has reported a pre-tax profit of £1.57 million on a turnover of £422.12m in the full year ended September 30th 2015, compared to £5.01m and £422.5m in the previous twelve months. Net assets at the year-end were £46.5m (£45.8m) and farmer shareholder numbers rose to 8,313 from 8,000.
The lower profitability is attributed to the tough trading environment and margin erosion with lower farm gate prices for milk, cereals and redmeat. Chief executive Andrew Jackson estimates that there was a £35m impact on the business from commodity deflation, equivalent to 8% of revenues. Maintaining revenues at last year’s level is a considerable achievement when many competitors are reporting significant reductions in full year turnover, he states.
The company’s feed business increased manufactured volumes to over 750,000 tonnes of compounds and blends, a 13% rise on the previous year. This includes an additional 50,000 tonnes from the new Coylton feedmill in South West Scotland, a joint venture business with JC Fergusson, which came on stream midway through the year. Mole Valley’s alternative feed business saw 10% volume growth, with a 15% increase in molasses and dry straights and 5.4% in moist blends. The Mole Valley Feed Solutions division has been refocused to strengthen its nutritional advice service with a more local emphasis.
Mr Jackson says the ruminant business experienced strong growth. “We have continued to challenge our operational practice and, where relevant, advance the proficiency of our feed business. It is satisfying to report that recent investments in our production facilities are already assisting in realising some meaningful enhancements that we believe are benefitting the company and its feed customers alike.”
But the pressure on milk and cereal crop prices has seen farmers cutting back on inputs where they can, particularly on fertilisers. “This is probably one of the hardest years we can recall for Mole Valley Forage Services, as farmers consciously try to reduce their fertiliser usage,” he notes. Revenues for fertiliser dropped to £25.6m (£29m), in line with the 10%-15% drop in national fertiliser demand.
Capital investment of £6.3m in the year included upgrading some manufacturing facilities and stores, a new fertiliser blending plant in Newport plus the replacement of some of the bulker feed delivery vehicle fleet. As well as the Coylton project, the company moved its Devon feed blends plant to a new location in Risdon, which has greater raw material storage and production capacity. It has also fully integrated the Lillico Attlee feed business acquired in June 2015.
The retail division’s 52 stores had like-for-like revenues of £193.5m (184.5m). During the year, the company completed the amalgamation of the legacy brands acquired over the years into two identities – the original ten Mole Valley Farmers outlets across the South West contributed £87m sales, plus £86.1m from the chain of 38 Mole Country Stores which now incorporates the former SCATS, CWG and Farmway fascias. The four stores trading as Bridgeman’s and Cox & Robinson contributed £20.5m. MVF has invested in the Microsoft Dynamics AX IT platform across all its retail businesses to save costs, drive efficiencies and growth and allow a better customer interface. The year saw continued upgrading across the stores and a redeveloped site at Holsworthy.
“Although underlying profit has reduced from the previous year, MVF achieved a healthy EBITDA figure of £6.8m,” notes Mr Jackson. “This reflects continued investment in the company, supported by some very positive compensatory growth sustained by maintaining a strong competitive pricing lead for agricultural inputs and rural supplies.”
Reduced farm incomes are likely to challenge suppliers of essential inputs and rural retailers throughout 2016, predicts Mr Jackson. “While the company’s manufacturing facilities and store chains are well invested for the future, we will continue to seek production efficiencies and retail provision that matches changing consumer preferences.
“Further rationalisation and consolidation within the supply sector is inevitable, and the company should continue to look for opportunities to develop and grow, while balancing scale and growth so as not to compromise business efficiencies and lose sight of our core values and purpose,” he concludes.