Annual report reveals driver of Wyevale profit

Sale and leasebacks are leading the improvement of Wyevale Garden Centres' bottom line, according to its latest annual report, issued in late June and covering 2015.

Wyevale: programme has seen 78 centres refurbished - image: HW
Wyevale: programme has seen 78 centres refurbished - image: HW

Profit on sale and leaseback of eight centres in December 2015 was £32.7m, helping operating profit reach £47.9m, up from £32.5m on £311m turnover, up from £290m. In June 2016, the group completed sale and leaseback of five freehold sites, raising a further £40.1m.

Orchard Street Investment Management bought and leased Altrincham, Gosforth, Nantwich, Leicester, Huntingdon, Braintree, Woking and Osterley in December 2015 for £91m on behalf of St James's Place Wealth Management. Wyevale has signed 25-year leases on the centres.

Chairman Stephen Murphy said 2015 EBITDA was down from £56.1m to £55m in a "challenging year for our profitability" that was "attributable to both unseasonal weather and to adverse gross margin impacts resulting from the transition of the group's supply and stock-management systems.

"From a trading perspective, the year began strongly, with solid growth in like-for-like sales across most key categories. Unfortunately, the latter half of the year was marked by extended periods of unfavourable weather, in which we saw autumn and Christmas trade suppressed."

Murphy said the "unexpected Brexit result and consequent changes in the political landscape have created a volatile near-term economic backdrop. The immediate impact is uncertainty and the long-term prognosis is difficult to assess. However, the underlying fundamentals of the economy are positive and the financial institutions that support this are well capitalised and prepared." Wyevale said it will hold Christmas tree prices this season despite Brexit's effect on exchange rates.

The report says this is because of higher stock loss, wastage and discounting after major changes to supply chain systems and processes as well as increased investment in IT. Overall margin decreased from 56.5 to 54 per cent. Food and beverage margin decreased from 73 to 69 per cent.

Transaction numbers rose from 13.09 million to 13.23 million, with footfall conversion falling from 28.7 to 28.6 per cent. Average transaction grew from £18.95 to £19.28. Concession income per square foot was up by 10p to £21.78.

Wyevale bought four centres (two Armitages, Sidmouth and Wych Cross) for a combined £21.6m and closed one (Westonbirt) in 2015. It has bought two more (Woodcote Green and Crowders) in 2016, taking it to 151 centres. The group has refurbished 78 centres since the start of its programme and added 125 concessions. There were 93 concessions added in the year, along with 47 restaurant refurbishments, 11 new play areas, five restaurants and 13 coffee shops.

Food contribution went up from 16.5 per cent to 18 per cent, with 7.55 million transactions, up from 6.76 million. Concession income grew from £18.1m to £20.7m. The group spent £55.9m on property, plant and equipment, up from £34.6m. Manned concessions numbered 659, up from 566.

Wyevale changed its management with Kevin Bradshaw and directors Jason Danciger, Tim Patten, Sarah Fuller, Dan Zinner and Nils Steinmeyer leaving. Roger Mclaughlan is new chief executive, Anthony Jones chief financial officer, Paul Emslie trading and marketing director and Richard Morgan supply chain director. Mclaughlan said he wants to put the customer at the forefront of the business and he is "excited" about the launch of e-commerce in 2016.

Consultant Neville Stein said: "This is an interesting set of results from Wyevale. Most notably turnover has increased and I would imagine that much of this increase might be attributable to the acquisition of the two Armitage stores and Wych Cross garden centre in 2015 - all three centres had very solid turnovers."

He added: "It is encouraging to see that the average transaction value has increased slightly. This, of course, may be in part due to price increases in certain product categories, but one hopes that they are doing a better job at selling more items to each customer.

"A significant amount of income is derived from rent received from concessions and it appears that the group still sees this as a major form of revenue. Food contribution has also grown, replicating the wider trend in the sector where catering is becoming a major footfall driver and accounting for an ever-increasing slice of turnover.

"As the group has been engaged in a major change programme it seems that it might be building a model that can be scaled up even further. I wouldn't be surprised to see more acquisitions occur later this year or early next year."

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