2 February 2016

Finance Directors Report

The rural Sector, put simply has a unique business cycle. For many businesses in the food and farming industries, when the National Picture is one of recession and indeed sustained contraction of Growth, the rural sector performs better than other major industries and sectors. In Contrast, as the economy is posting 2%+ Growth in 2015 and projecting a continued picture of improvement in 2016, Rural PLC shows a declining profitability. This profitability is not a reflection of inflated overheads or administration of business, rather the inputs and margins that enable rural business to maintain fiscal efficiency and continue investment.

In our 2013 Financial Statements an operational gross profit of 32% was posted, in contrast to a 12% profit in 2014. Gross turnover however has marginally moved by only 3%.

The reasons are simple; Volatility of profits over the last three harvest years due to input pricing and the world supply and demand has made it impossible to predict performance in cereals, arable and livestock.

Showing gross deficits in Cereals and Arable indicate the scale of cost movement – if there are no profits where does the continued investment in modern technology and highly skilled workforces come from? As with all business, we must respond to the economic outlook with balanced risk and effective planning, and British food and farming, in particular in Kent show resilience with strong control of overhead costs and diversification. This is a challenging picture, but also part of the economic cycle. The eradication of ‘boom and bust’ may well have been quoted in the past, however the performance of food and farming, as with many other sectors clearly state otherwise. Rural businesses, remain resilient providing investment is maintained and they are supported in both consolidation and growth (were appropriate) with high quality.

It is this high quality and consistency that needs to continue to unlock the ‘upward’ control of margins from the major multiples and national purchasing powerhouses. Profitability, Investment, Skills & Leverage should be used to work equally with the Finance Directors Report ‘players’ to ensure a fair and reasonable price for products that reflect the cost of production, not always the ‘price that the consumer will bear’. It is this argument that Rural PLC continues to demonstrate and champion.

Rural PLC, from day one has been clear that much of its strength is aligned to its balance sheet. Its baseline property and fixed assets are the foundation for its long term debt, representing only 2.3% of net assets. Rural PLC management of its assets and liabilities to ensure business liquidity is a strong prospect for investment. In addition, continued investment, much of which is shown in capital additions and rising value in areas under glass (£22.4m), vineyards (£4.3m) and woodland (£647m) also adds strength. 22% of all agricultural land holdings in the South East belong to Kent (5,511 Holdings).

Rural PLC continues to perform under challenging national and international financial conditions. It is a resilient sector but must be championed to ensure it gets the right level of government time (not necessarily hand outs) to secure long term investment both in terms of human and financial capital.

If we can summarise 2014, Rural PLC can be interpreted as a Pint of Milk. In that Pint there is Cream and there is the Milk. The substantial part of the Pint is Milk and that gives you nutrition and is a key part of life. The Cream is the smaller part of the pint that gives richness, taste and not everyone is that bothered about it. In 2014 Rural Plc still has its pint of Milk, however the Cream has been reduced and to ensure a long term sustainable sector, it needs both components to achieve excellent performance to benefit all.