FARGRO_LIMITED - Accounts

The directors have pleasure in presenting the strategic report and financial statements for the year ended 30 September 2015.

Sales for the year decreased by 2% to £19.3m with an operating profit of £611,547 compared to £432,544 in the previous financial year. These, together with gross profit, remain the financial key performance indicators ("KPI's") that the directors have identified to be the most effective method of monitoring the company's performance.

KPI's              2015     2014 2013

          £     £      £

Turnover          19,286,237     19,768,811     20,772,773              

Gross profit          4,665,743     4,361,508     4,300,951     (excluding carriage)

Operating profit          611,547     432,544     494,588              

The mild weather experienced during the year allowed for a more stable environment than for some time. Volatility in pricing and issues surrounding substrate supply due to problems within a major supplier caused a certain amount of disruption. In the event, these issues were manageable and the year under review saw a small growth of 1% in the sales of requisites boosted by excellent growth in the “added value” product ranges. Early season low pest and disease levels, impacted on crop protection sales. The warm weather late in the season combined with increased competition and the impact of further regulation in the energy market reported last year resulted in a further £0.6m (35%) drop in turnover in this area. This accounted for all of the overall decrease in sales although gross profit was maintained for the year due to product mix.

The product range including “added value” products, sourced from China and elsewhere with higher gross margins continued to grow. Most costs were maintained at or below last year’s level. This led to an increase of 41% in operating profit before tax, an excellent result, in a year when significant management attention was required to be given to the relocation project and represents another solid achievement.

The Company’s strategy of diversification where appropriate, is demonstrated in the increased contribution from the “added value” products. Continued focus on customer support through diverse stock holdings and an efficient delivery service enabled the more established product lines to maintain or increase their contribution.

We moved into the new purpose-built facility at the end of the first quarter of 2015-2016. The Company is now in a strong position to enhance customer experience but it will take time to establish all the logistical benefits that will accrue from the new site. Early forecasts for the current year indicate a solid start to budget in a year of consolidation.

The last three years have seen a relatively quiet period for new product introductions, largely due to regulatory delays, but the Company continues to recognise the importance of its program for new products across the various product ranges. We will continue to maintain our focus on environmentally sustainable products such as bio pesticides, the storage facility of which has been substantially upgraded in the new building. The technical expertise developed in house in this area is important to this program and provides the company with an excellent resource and a strong platform to grow sales levels and profitability.

The Company places great importance on strong financial control. Maintaining costs and expenses at around 2012/2013 levels for the past two years has been a significant achievement recently enhanced by the benefits of an old low-cost building. The directors believe that it is essential to continue the policy of investing in appropriate resources to provide the basis for responding to ever-changing customer requirements; the new facility will be an important resource in achieving this. Sourcing and stocking new products to support expansion is a key strategy which will enable the company to respond to market conditions, diversify the product base and enhance our offerings to customers. The directors believe that, combined with other strategic initiatives such as “on-line” sales, this policy will ensure the company remains well placed to increase profitability.

The Company's principal financial instruments comprise bank balances, trade debtors and trade creditors. The main purpose of these instruments is to finance the business’ operations.

The Company’s operations expose it to a variety of financial risks that include credit risk, liquidity risk, exchange rate risk and interest rate risk. These risks are limited by the company’s financial management policies and practices as described below:

Credit risk

The company operates a number of policies and procedures designed to mitigate credit risk. These include but are not limited to the maintenance of third party Credit Insurance for major customers and the use of regular credit reviews for new and existing customers via third party credit rating agencies. This enables management to determine whether or not in their opinion a customer has the ability to meet its debts as they fall due. Consequently, the company will only conduct business with those customers deemed to be creditworthy.

Liquidity risk

The Company maintains sufficient cash to meet its obligations as and when they become due. The Company uses an overdraft to manage its working capital requirements and has access to longer term funding for capital projects such as the construction of the new office/warehouse complex completed recently. Available cash headroom is monitored by management on a daily basis and regular discussions take place with the company's bankers as a way of managing this risk. Key factors such as stock and trade debtor levels are reported upon monthly to the board of directors and monitored regularly at their meetings.

Exchange rate risk

The Company trades with a number of major suppliers and, to a lesser extent, customers in currencies other than sterling, mainly the euro and US dollar. The fluctuating rate movement against the pound of these currencies in recent years has increased the Company's exposure in this area. The Company manages this risk by identifying and forecasting the potential exposure at an early stage and undertaking forward contracts for purchase of the relevant currencies in order to fix the major portion of this exposure as early as possible and enable management to determine product pricing accordingly.

Interest rate risk

In the past bank borrowings have been utilised for specific capital investment projects or in support of short term working capital requirements which are impacted by the seasonal nature of much of the business. The company manages its interest rate exposure by maintaining a prudent mix of financing and thereby achieves a certain level of protection against interest rate increases.

Approved by and signed on behalf of the board

The directors have pleasure in presenting their report for the year ended 30 September 2015.

During the year a final dividend for 2014, and two interim dividend for 2015 were paid (being 30p, 200p and 30p per share respectively) totaling £492,780 (2014 - £123,195). A further interim dividend of 200p per share was paid, after the year end, in November 2015 and the directors have proposed a final dividend for 2015 of 30p per share which will be paid prior to the next AGM.

As reported last year, the Company, having sold its freehold land and buildings site at Toddington Lane and acquired a new site, signed a contract for the construction of a new facility “commensurate with the company’s current operating requirements and designed to be “fit for purpose” in the markets of the future”. Construction commenced at the beginning of 2015, the building was completed in December and the Directors are pleased to report that relocation took place over the weekend of December 19/20 2015. Whilst all staff are now operating from the new site it is anticipated that transfer of warehouse stock from the Toddington Lane site will continue and be completed early in 2016.

The re-location was substantially financed from proceeds of the sale of the old site and in August 2015 the company entered into a loan agreement with the bankers to finance the completion of the new premises. This agreement was to provide a flexible facility to a maximum of £2.3m during completion of the project and pending receipt of outstanding retention moneys from the sale of the old site. The bank will hold a charge over the new premises in respect of any balance outstanding. As of the date of this report the company has drawn down £1.67m against this facility.

Completing a project of this nature is a major commitment to a company the size of Fargro both in time and resource to deal with the many issues that typically arise. The Directors are pleased to have been able to report completion of the relocation to schedule and, apart from bad weather and regulatory matters relating to local planning requirements and services supplied by statutory bodies, which are out of the company’s control, in line with original cost estimates.

Led by the Chairman the Board is continually reviewing its structure and the competencies offered by its members to ensure they are appropriate to meet the needs of the company's strategic objectives. As part of this process the directors were pleased to appoint Mrs R Freshwater to the Board on 22 September 2015 this appointment to be confirmed by the shareholders at the next AGM in March 2016. Particular attention continues to be given to succession planning to also ensure continuity in pursuing these objectives.

The role of the Board is to ensure that the company is effectively governed, to ensure that it complies with all relevant legislation, its own memorandum and articles of association and the requirements of good practice, and to also ensure that the Company works to agreed strategic and operational plans.

To fulfill their governance role the directors meet regularly either as a Board or members of separately established committees such as the Remuneration Committee. There has been full attendance by members at all meetings throughout the year.

Communication with shareholders and employees to encourage full involvement in the company's development is an important part of the directors' strategy and all opportunities are taken to achieve this.

Details of the number of employees and related costs can be found in note 21 to the financial statements.

The company considers its valued workforce to be assets of the company and does not experience significant staff turnover. The company also places considerable value on the involvement of its employees and keeps them informed on matters affecting them as employees and the various factors affecting the performance of the Company through formal and informal meetings and regular newsletters.

In accordance with the company's articles, a resolution proposing that Carpenter Box be re-appointed as auditors of the company will be put at a General Meeting.

The directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and accounting estimates that are reasonable and prudent;

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The company maintains directors' and officers' insurance cover for directors and officers of the company against certain personal liabilities which they may incur in the performance of their duties as directors and officers. The upper limit of the indemnity provided by this policy is £1,000,000.

We have audited the financial statements of Fargro Limited for the year ended 30 September 2015 which comprise the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.

In our opinion the financial statements: give a true and fair view of the state of the company's affairs as at 30 September 2015 and of its profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. In our opinion the information given in the Directors' and Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

give a true and fair view of the state of the company's affairs as at 30 September 2015 and of its profit for the year then ended;

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

have been prepared in accordance with the requirements of the Companies Act 2006.

In our opinion the information given in the Directors' and Strategic Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

the financial statements are not in agreement with the accounting records and returns; or

certain disclosures of directors' remuneration specified by law are not made; or

The financial statements are prepared under the historical cost convention.

Research and development expenditure is written off to the profit and loss account in the year in which it is incurred.

No depreciation was provided on the freehold buildings because, in the directors' opinion, the charge for the year and cumulative provision to date would, on the basis of reasonable and prudent estimates of their useful lives and residual values, be immaterial.

The freehold land and buildings were sold during the comparative year. The profits from this sale have been disclosed as an exceptional item on the face of the profit and loss account.

The financial statements present information about the company as an individual undertaking and not about its group. Cohort (Worthing) Limited, a wholly owned subsidiary company, did not trade in the year to 30 September 2015. The directors believe the absence of consolidation is not material.

None of the above operating lease rentals relate to plant and machinery as these costs are immaterial.

In 2014 the sale of the company's freehold land and buildings resulted in a chargeable gain arising. However with the reinvestment of the proceeds of the sale into the construction of its new premises, rollover relief was claimed to offset the gain.

Cohort (Worthing) Limited's last financial year end was 31 March 2015.

The bank holds a fixed and floating charge over all the company's assets on the company's overdraft facilities.

Obligations under finance lease and hire purchase contracts, due both within and after more than one year, are secured on the assets funded.

At 30 September 2015 forward currency deals were in place to the value of £1,344,867 (2014 - £1,958,493).

Directors' emoluments above exclude benefits in kind valued at £25,224 (2014 - £22,920).

After the year end the board approved an interim dividend of £2 per share and a final dividend for 2015 of 30p per ordinary share.

As disclosed in more detail within the Directors’ Report, the company has, since the balance sheet date, utilised a new loan facility to finance the completion of its new premises.

Mr D J Godsmark and Mr C Lisher, both directors, received material dividends during the year amounting to £21,525 and £15,818 respectively.

During the year the company entered into transactions, in the ordinary course of business, with other related parties. Transactions entered into, and trading balances outstanding at 30 September, are as follows:

Terms and conditions of transactions with related parties

Sales and purchases between related parties are made at normal market prices. Outstanding balances with entities are unsecured, interest free and cash settlement is expected within 60 days of invoice. The company has not provided or benefited from any guarantees for any related party receivables or payables. During the year ended 30 September 2015, the company has not made any provision for doubtful debts relating to amounts owed by related parties (2014: nil).