UK: Wyevale Garden Centres' new strategy shifts away from acquisitions
New strategy
In order for the business to achieve sustainable growth, the company made a change in strategy in 2016. "A new leadership team to develop and implement this new strategy was a critical first step. During 2016 this new team made significant progress in setting out this new strategy and in dealing with legacy issues, particularly stock", says Chairman of the Group Justin King despite these improvements, 2016 was not without its challenges. "The change of strategy led to the need for a detailed review of the Group’s balance sheet", he adds.
Balance sheet review
The review of the balance sheet "included the consideration of the tangible and intangible assets of the business, as well as the recoverable value of inventory. This review led to management making a number of key adjustments to better reflect the financial position of the Group. The two key adjustments are a £51.3 million impairment of fixed assets and a £20.0 million write down of inventory following a change to the inventory provisioning methodology. These items have been separately presented as non-recurring items in order to better reflect the underlying performance of the Group. These non-cash impairment charges are the main contributing factors that have led to a loss after tax of £122.4 million", explains Chief financial officer Anthony Jones.
"The Group generated revenue before non-recurring items of £328.3 million for the financial year ended 25 December 2016, an increase of 5.5% on the prior year. This growth has been driven from acquisitions. Like for like sales decreased by 2% in 2016 compared to 2015, although the business returned to like for like sales growth in the second half of 2016 with some early signs of recovery in key customer metrics"
"2016 saw the instigation of a new strategy focused on the core business with a significant shift in financial priorities away from acquisitions and other capital intensive growth initiatives, to investment in the core infrastructure, systems and processes required to develop a scalable and sustainable platform to underpin the Group’s future growth plans."
Cleaner stock position
The review "resulted in the recognition of a significant impairment of tangible and intangible fixed assets and the introduction of a new stock provisioning methodology. This new provisioning methodology together with a focus on dealing with legacy stock issues has led to a dilution of margin in 2016, which will benefit future years as we move towards a cleaner stock position", says King.
"I am also pleased to report that a refinancing of all external bank debt facilities has been successfully completed subsequent to the year end in September 2017 which provides the Group with the required financing for the next five years and ensures the business can fully focus on delivery of the new strategy."
"The fundamentals of the garden centre market remain strong with estimated growth at an average rate of 2.5% per annum through to 2021. The Group has a loyal customer base and experienced colleagues who have a real passion for horticulture and helping our customers. I firmly believe that Roger and the team, with their strong retail backgrounds and transformation experience, are now well placed to complete the initial phase of the strategy and set the business up for future growth", King concludes.
Click here for the entire annual report 2016 (PFD).