News Column

Audited Final Results

June 15, 2014

16 June 2014 GB00B5TWCQ18 National Milk Records plc ('NMR' or 'the Company') Audited Final Results National Milk Records plc, the ISDX-quoted leading supplier of dairy and livestock services, is pleased to announce its results for the year ended 31 March 2014. Highlights * Profit before taxation of GBP 1.2 million (2013 GBP 0.8 million) * 28% increase in operating profit to GBP 893,000 - driven by operational savings resulting from the previous investment in Four Ashes site * Positive year-end cash position and no borrowings * Strengthened Board through appointment of operational personnel * Continued focused on growth through the provision of significant products and services to existing markets and to expand into new areas that build on competencies and customer interests NMR Managing Director Andy Warne said, "These results highlight the enhanced financial position of the Company and underline the solid nature of our business model. Consolidating our facilities has improved the efficiency of the business and allowed us to repay our debt. We have a strong market presence and are well-placed to continue our growth and deliver further value for shareholders." Chairman's Statement The financial year ended 31 March 2014 has been a year in which NMR has delivered the promised operational savings resulting from the previous investment in our new site at Four Ashes. During the year our operating profit increased by 28% to GBP 893,000 (2013: GBP 698,000) and we have used our improved cash position to pay off the debt of GBP 1,201,000 incurred in building the Four Ashes site and set up costs for Independent Milk Laboratories in Ireland. On 31 March 2014 the Group had GBP 1,443,000 (2013: GBP 1,303,000) of cash at the bank and no further borrowings. The Group's Diluted Earnings per Share for the year ending 31 March 2014 has increased to 9.61 pence per share from 4.65 pence per share for the year ended 31 March 2013. This strong operating performance is tempered by the worsening position of the defined benefit pension scheme deficit before deferred tax asset which increases to GBP 8,252,000 (2013: GBP 6,774,000). The difference is caused by incorporating the detail of our actual individual pensioner experience rather than estimates based on the previous triennial valuation and strengthening the longevity provisions. The NMR Board is acutely aware of the impact the pension obligations have on the business and is working to mitigate the impact whilst recognising the Group's commitments to pensions and deferred pensioners. In August 2013 our Vice Chairman, Mr Ian Smith, died following a short illness which kept him from the Board room. I would like to acknowledge the contribution Ian made during his time on the Board. Trevor Lloyd, who is an existing Non-Executive director, has been elected by the Board as the new Vice Chairman. During the period we have improved the balance of Executive to Non-Executive Directors and have welcomed both Mr Ben Bartlett and Mr Jonathan Davies to the Board. Both Ben and Jonathan join the Board from the current NMR organisation where they have been senior managers for a number of years. We also welcome Mr Mark Butcher, who joins the Board as an Independent Non-Executive Director with a wealth of commercial experience. Mark has taken on the role of Chairman of the Audit Committee previously held by Ian. We would like to thank Mrs Janina Marshall and Mrs Sandra Pope for their contribution to the NMR Board during their tenure as Non-Executive Directors. Biographies of each of the current NMR Directors can be found on the NMR website at www.nmr.co.uk. Whilst the reported year on year comparison of Board costs appears to have increased as a result of the replacement of two Non-Executive Directors with two Executive Directors, the new Directors were already members of the Senior Management team so the incremental impact of their directorships is not as significant as it may appear. A more detailed analysis of our business performance is detailed in the Strategic Report. I would like to thank our shareholders for their continued support and all our employees for their hard work during the year. Philip Kirkham Chairman 13 June 2014 STRATEGIC REPORT To the members of National Milk Records Plc CAUTIONARY STATEMENT This Strategic Report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for those strategies to succeed. The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. The directors, in preparing this Strategic Report, have complied with s414C of the Companies Act 2006. This Strategic Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to National Milk Records Plc and its subsidiary undertakings when viewed as a whole. The business model The principal activity of the group in the year under review was the provision of management information to dairy farmers via National Milk Records (NMR) and the provision of milk payment testing services to milk buyers via National Milk Laboratories (NML). Both these services have achieved relatively high market shares in their respective UK sectors. Single digit organic growth is planned by launching new services to existing customers along with development of new farmer customers in geographic territories where market share is relatively low such as Scotland and Northern Ireland. The advent of national control programmes for bovine diseases such as Johne's and Bovine Viral Diarrhoea (BVD) create opportunities for both NMR and NML to develop new testing services. Business Area New services available in 2014/15 NMR * Pregnancy testing * Energy balance monitoring * Individual cow Neospora testing NML * Every-day testing for farmers * Fatty acid profiling and energy balance monitoring * BVD testing by Polymerase Chain Reaction (PCR) * New range of tests for mastitis pathogens * Accredited BVD testing using ear tissue samples The Group currently also has two areas of significant potential revenue growth. Independent Milk Laboratories (iML) is a joint venture in Southern Ireland which replicates NML's payment testing services in a market of comparable size to that of the UK. National Livestock Records (NLR) is a wholly owned subsidiary which currently sells identification tags to dairy, beef and sheep farmers but is also engaged in development of management information services to both the beef and sheep sectors. The combined turnover from iML and NLR is currently GBP 1,209,000, just 6% of the Group's total. Improvement in turnover in both iML and NLR is likely to generate a step change in revenue growth. The business model of iML and NLR is largely Business to Business (B2B) in nature. A fair review of the business The focus of activity in the previous two periods has been the investment in our new operational site at Four Ashes and the closure of the three sites at Harrogate, Wolverhampton and Meaford. Four Ashes is now fully operational and operational savings have been delivered. The Group's operating profit has increased by 28% to GBP 893,000 (2013: GBP 698,000). Total turnover (including share of the joint venture) in the same period has been largely flat at GBP 19,212,000 (2013: GBP 18,828,000) although the mix of revenue has changed during the period. Revenue in both NMR and NML is increasing in line with our planned organic growth; however these increases are masked by lower sales of heat detection systems which we believe was caused by macro-economic factors in the dairy sector resulting from poor cash flow in farming businesses during the first nine months of the period. We believe the improving prospects for dairy farming businesses in 2014 will improve this situation. Future developments The directors will continue to focus on the core business of the Company and its subsidiary undertakings, whilst looking to take advantage of new opportunities as they arise. In general terms the Board believes overall market dynamics in the UK and Irish dairy sectors are favourable which will increase demand for its products. Global demand for dairy products remains strong driven principally by new consumer demand from developing markets such as China. This global consumer demand for dairy products will help support the milk price in the UK which adds value to the services provided by the NMR Group. This value is further supported by increased awareness of food provenance in the UK following the horse meat scandal. The NMR Group continues to build strategic relationships with food retailers, food suppliers and agricultural bodies to strengthen its value proposition within the food chain. The consolidation process in the UK dairy sector by which fewer dairy farmers tend to have larger, more professionally managed herds creates demand for NMR's management information services. This same consolidation process also creates an opportunity for NMR to broaden its product range as other suppliers find a third party distribution channel is more efficient. Strategy and objectives NMR's market share in the milk recording sector varies between geographic areas between 6% and 64% and areas of lower market share such as Scotland represent opportunities to grow. In areas of higher market share our strategy is to sell additional products to existing customers. Competition is active and challenging in the milk recording sector as well as new product sectors such as heat detection. NMR seeks to differentiate its products by improving service levels. NML has a 100% market share of the quality testing sector which covers any dairy farmer who sells milk to a third party. Competition in this sector is also challenging and there are a number of companies who have the capability and capacity to enter the market. NML has a number of growth opportunities largely based on increasing the frequency and depth of the quality testing suite of tests. In both sectors the Group has growth strategies as well as defensive strategies. The Group aims to extend market share by continually providing useful and significant products, services and solutions to markets it already serves and to expand into new areas that build on the Group's competencies and customer interests. The Group aims to be influential in the markets in which it operates. Key performance indicators The directors monitor the Group's progress against its strategic objectives and the financial performance of the Group's operations on a regular basis. Details of the most significant key performance indicators (KPIs) used by the Group are as follows: Turnover (growth) NMR views change in the market as an opportunity to grow, and to use its profits and ability to develop and produce innovative products, services and solutions that satisfy emerging customer needs. Growth comes from taking considered risks, based on the state of the industry, but also in inducing change in the industry in which NMR operates. For the year ended 31 March 2014, Group turnover (including share of the joint venture) was GBP 19,212,000 (2013: GBP 18,828,000), which represents a 2% increase on the previous year. NMR has been focusing on stabilising its traditional core business and developing new innovative products and services which should lead to turnover growth over the next few years. Profitability In order to be successful, NMR needs to achieve sufficient profit to finance growth, create value for the Group's shareholders and provide the resource needed to achieve any of the Group's other objectives. For the year ended 31 March 2014, gross profit was GBP 6,383,000, equivalent to 34% gross margin. This was up 17% from the year ended 31 March 2013 (GBP 5,446,000, equivalent to 30% gross margin). Operating profit was GBP 893,000 representing a 28% increase on the previous year (2013: GBP 698,000). Laboratory processing time NMR seeks to differentiate its products by improving service levels. An example of improving service is that during 2014 the average laboratory processing time for milk recording samples arriving in the laboratory was 5.5 hours, compared to 8.5 hours in 2013. Principal risks and uncertainties The Group operates a risk management system that evaluates and prioritises risks and uncertainties. This is principally a function of the Board of Directors lead by the Executive team with oversight by the Audit Committee. There is a range of risks and uncertainties facing the Group. The list below is not intended to be exhaustive and focuses on those specific risks and uncertainties that the directors believe could have a significant impact on the Group's performance, as analysed by its key performance indicators. Market conditions and competitive pressures The Group operates in a number of different markets that are influenced by economic cycles, the health of the agricultural market, changes in government legislation and environmental factors. These can all lead to changes in profitability of our customers and demand patterns for our products and services. Through an experienced management team, board oversight and commitment to developing products that are focused on customers' requirements, the Group addresses the risks of increased competition in developed and emerging markets by protecting and growing market share and margins in increasingly price sensitive areas. Where emerging markets are identified a joint venture business model has been used after careful selection of appropriate partners to reduce the risk associated with entering these new markets. Finance The Group is exposed, along with others, to the risk of failure of a third party member of the Milk Pension Fund under its joint and several terms as well as exposure to costs that result from external factors impacting the size of the pension deficit (e.g. mortality rates, investment values). This area is actively managed at Board level with appropriate external advice and agreement of actuarial valuations and deficit reduction plans with the pension trustees. Investment strategies are reviewed and the joint and several liability in the Milk Pension Fund is regularly monitored by the Board of Directors. The Group's activities expose it to limited foreign currency exchange risks due to use of European suppliers and its joint venture based in Ireland. The Group's objective is to produce continuity of funding at a reasonable cost. To do this it seeks to arrange committed funding that matches the assets or working capital it is designed to fund. Funding comes from a limited number of providers. The Group finances its operations by a mixture of short term overdrafts and finance leases, having paid off its bank loan in the year. It manages its interest rate risk primarily through the use of fixed rate finance leases, matched against the assets being acquired. It does, however, have a floating rate overdraft facility to manage day to day working capital requirements. The Group does not enter into speculative derivative contracts. The Group's principal finance assets are bank balances, trade and other receivables. The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of cashflows. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Other risks The risk of failure to attract or retain skills and experience within the Executive and Management teams is managed by external consultation on Executive and Senior Management pay levels led by the Remuneration Committee that also monitors senior management performance. Business continuity plans are in place for IT systems and all key locations to address the risks associated with loss of capability in these areas. Approval This report was approved by the Board of Directors on 13 June 2014 and signed on its behalf by: Mr A J Warne Director 13 June 2014 CONSOLIDATED PROFIT AND LOSS ACCOUNT Year ended 31 March 2014 2014 2013 GBP '000 GBP '000 TURNOVER Group and share of joint ventures 19,212 18,828 Less: share of joint ventures' group turnover (545) (415) _____________ _____________ 18,667 18,413 Cost of sales (12,284) (12,967) _____________ _____________ Gross profit 6,383 5,446 Administrative expenses (5,490) (4,748) _____________ _____________ OPERATING PROFIT 893 698 Share of operating profit/(loss) in joint ventures 88 (11) Profit on sale of tangible fixed assets - 243 Costs of fundamental restructuring of continuing operations - (246) _____________ _____________ PROFIT ON ORDINARY ACTIVITIES BEFORE FINANCE CHARGES 981 684 Finance charges (net) 202 137 _____________ _____________ PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1,183 821 Tax on profit on ordinary activities (485) (486) _____________ _____________ PROFIT FOR THE FINANCIAL YEAR 698 335 _____________ _____________ Earnings per share expressed in pence per share (note 9) Basic 9.99 4.83 Diluted 9.61 4.65 _____________ _____________ The profit and loss account has been prepared on the basis that all operations are continuing operations CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Year ended 31 March 2014 2014 2013 GBP '000 GBP '000 PROFIT FOR THE FINANCIAL YEAR 698 335 Actuarial losses on pension scheme (1,858) (2,097) Movement on deferred tax relating to pension scheme 371 482 _____________ _____________ TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR (789) (1,280) _____________ _____________ CONSOLIDATED BALANCE SHEET At 31 March 2014 2014 2013 GBP '000 GBP '000 GBP '000 GBP '000 FIXED ASSETS Goodwill - 31 Tangible assets 3,185 3,669 Investments Interest in joint venture Share of gross assets 270 254 Share of gross liabilities (61) (133) _____________ _____________ 209 121 Other investments 5 5 _____________ _____________ 3,399 3,826 CURRENT ASSETS Stock 244 554 Debtors 1,848 1,821 Cash at bank and in hand 1,443 1,303 _____________ _____________ 3,535 3,678 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (2,763) (2,967) _____________ _____________ NET CURRENT ASSETS 772 711 _____________ _____________ TOTAL ASSETS LESS CURRENT LIABILITIES 4,171 4,537 CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR (452) (1,606) PROVISIONS FOR LIABILITIES (342) (185) _____________ _____________ NET ASSETS EXCLUDING PENSION LIABILITY 3,377 2,746 PENSION LIABILITY (6,602) (5,216) _____________ _____________ NET LIABILITIES (3,225) (2,470) _____________ _____________ CAPITAL AND RESERVES Called up share capital 742 735 Share premium 25 - Share option reserve 22 20 Profit and loss account (4,014) (3,225) _____________ _____________ SHAREHOLDERS' DEFICIT (3,225) (2,470) _____________ _____________ CONSOLIDATED CASH FLOW STATEMENT Year ended 31 March 2014 2014 2013 GBP '000 GBP '000 GBP '000 GBP '000 Net cash inflow from operating activities 1,989 1,102 Return on investment and servicing of finance (61) (78) Taxation (240) (25) Capital expenditure and financial investment (188) 773 Equity dividends - (147) _____________ _____________ (489) 523 _____________ _____________ Cash inflow before management of liquid resources and financing 1,500 1,625 Financing (1,360) (458) _____________ _____________ Increase in cash in the year 140 1,167 _____________ _____________ EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. The shares held by the Employee Share Option Plan are deducted from total shares in arriving at the weighted average number of ordinary shares used in the earnings per share calculation. Reconciliations are set out below. 2014 Weighted average Earnings Earnings number per share GBP '000 of shares pence Basic EPS Earnings attributable to ordinary shareholders 698 6,989,779 9.99 Effect of dilutive securities Options - 270,000 - _____________ __________________________ Diluted EPS Adjusted earning 698 7,259,779 9.61 _____________ __________________________ 2013 Weighted average Earnings Earnings number per share GBP '000 of shares pence Basic EPS Earnings attributable to ordinary shareholders 335 6,938,780 4.83 Effect of dilutive securities Options - 270,000 - _____________ __________________________ Diluted EPS Adjusted earning 335 7,208,780 4.65 _____________ __________________________ There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Group 2014 2013 GBP '000 GBP '000 At beginning of year (2,470) (1,051) Shares issued during the year 32 - Profit for the financial year 698 335 Dividends - (147) Share option charge 2 8 Other gains and losses recognised in the year (1,487) (1,615) ______________ ______________ At end of year (3,225) (2,470) __________ ___ ______________ Going concern basis The Group's business activities together with the factors likely to affect its future development, cash flows, liquidity, performance and position are set out in the Strategic report. The Group meets its day-to-day working capital requirements through 1,443,000 of cash at bank (2013: 1,303,000) and an overdraft facility of 700,000 which is renewable on an annual basis in October. The pension scheme deficit puts the Group in a net liabilities position, however, a recovery plan was agreed in relation to the Milk Pension Fund (note 28), fixing future pension contributions. These have been included within the Group's cash flow forecasts. The Group's forecasts and projections, which allow for reasonable possible changes in trading performance, show that the Group has adequate headroom against the committed facility across the forecast period. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements. General Information The basis of preparation of this preliminary announcement is set out below. The financial information in this announcement, which was approved by the Board of Directors on 13 June 2014, does not constitute the Company's statutory accounts for the years ended 31 March 2014 or 31 March 2013, but is derived from these accounts. Statutory accounts for the year ended 31 March 2013 have been delivered to the Registrar of Companies and those for the year ended 31 March 2014 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006. Whilst the financial information included in this preliminary announcement has been completed in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice 'UKGAAP'), this announcement itself does not contain sufficient information to comply with UKGAAP. The financial information has been prepared on the historical cost basis. Copies of the announcement can be obtained from the Company's registered office at Fox Talbot House, Bellinger Close, Chippenham, SN15 1BN It is intended that the full financial statements which comply with UKGAAP, or summary financial statements where the shareholder has elected to receive Summary Financial statements will be posted to shareholders on 16 June 2014 and will be available to members of the public at the registered office of the Company from that date and available on the Company's website: www.nmr.co.uk


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Source: Marketwire (UK Regulatory)