Wynnstay Regulatory News (WYN)

AIM: WYN

Wynnstay Group Plc

("Wynnstay" or the "Group" or the "Company")

Final Results

For the year ended 31 October 2023

KEY POINTS

Financial

· Much softer trading conditions compared to FY22

o  farmer sentiment lower, farmgate prices down in important categories of dairy and arable, and the significant one-off gains of FY22 were not repeated (as expected)

· Revenue up 3% to £735.9m (2022: £713.0m)

o  full year contributions from two acquisitions and record grain trading volumes, partly offset by the normalisation of fertiliser prices from the unsustainable, historic highs of 2022

· Adjusted operating profit* was £9.30m, including adverse stock realisations as fertiliser raw material prices normalised (2022: £22.4m, including significant one-off fertiliser stock gains)

· Underlying pre-tax profit* of £9.2m, including nominal, non-cash accounting loss of £0.8m (2022: £22.6m, including significant one-off gains) Reported pre-tax profit of £8.7m (2022: £21.1m)

· Basic earnings per share of 30.75p (2022: 82.72p)

· Net cash (excluding property leases) rose to £19.0m (2022: £18.2m)

· Net assets increased to £135.2m (2022: £130.7m)

· 20th consecutive year of dividend increases, with proposed final dividend of 11.75p (2022: 11.60p) - taking total dividend for the year to 17.25p (2022: 17.00p)

Operational

· Agriculture Division - revenue of £584.3m (2022: £564.3m), segmental profit contribution of £3.7m, including one-off adverse Glasson fertiliser stock realisations (2022: £14.7m including significant Glasson fertiliser stock gains)

o  Glasson contended with correction in fertiliser raw material prices to more sustainable levels, which created stock losses

o  feed volumes decreased by 5.3% on a like-for-like basis, largely reflecting lower demand from dairy and poultry sectors, respectively affected by weaker milk prices and by Avian influenza and margin pressures

o  arable activities experienced a very poor seasonally important Q4 with prolonged wet weather significantly disrupting farmers' post-harvest activities. Grain marketing operation, GrainLink, delivered record performance and fertiliser demand recovered as global prices reduced but margins were pressured

o  Higher labour and energy costs impacted margins

· Specialist Agricultural Merchanting Division - revenue of £151.5m (2022: £148.8m), segmental profit contribution of £6.1m (2022: £7.9m)

o  footfall and number of transactions were in line with prior year, but like-for-like sales decreased as lower farmer sentiment affected spending patterns, with higher margin bagged feed and hardware sales down

· 2022 acquisitions, Humphrey Feeds and Tamar Milling, were fully integrated

o  full benefits still to come

· First phase of investment at Carmarthen feed mill was completed, with other investments also progressing well, including installation of solar arrays

Outlook

· Market conditions expected to remain challenging in the short-term

· Strong balance sheet and good cash generation leaves Group well-placed to continue with its strategic growth plans and to consider suitable acquisition opportunities

*Underlying pre-tax profit is a non-GAAP (generally accepted accounting principles) measure and is not intended as a substitute for GAAP measures and may not be calculated in the same way as those used by other companies. Refer to Note 14 for an explanation on how this measure has been calculated and the reasons for its use.

Gareth Davies, Chief Executive of Wynnstay Group plc, commented:

"Last year's results were exceptional, setting record highs driven by substantial one-off gains, especially from soaring global fertiliser prices. Strong farmgate prices and farmer confidence also helped to create a strong market backdrop last year for the Group. 

"This year's results were generated against much softer trading conditions, with weaker farmer sentiment, particularly dairy and arable farmers, higher labour and energy costs, and a weak final quarter for arable as a result of the prolonged wet weather. As we expected, the one-off gains of 2022 did not repeat and our fertiliser activities contended with the reversal of fertiliser raw materials prices, which created one-off stock losses.

"Nonetheless, we made progress with the Group's investment plans and completed the integration of our two acquisitions, Humphrey Feeds and Tamar Milling. The full strategic benefits of these acquisitions are still to come through. We are also delighted to highlight our twentieth year of annual dividend growth, with our proposed final dividend.

"Trading conditions are anticipated to remain challenging in the short-term. However, the Group's strong balance sheet and good cash flows leave us well-placed to continue with our growth plans and to consider suitable acquisitions."

Enquiries:

CHAIRMAN'S STATEMENT 2023

CHAIRMAN'S STATEMENT

Trading conditions over the financial year contrasted sharply to the prior year. Farm gate prices were weaker across most categories and farmer sentiment was lower as a result. The substantial one-off gains arising from macroeconomic events that we had benefitted from last year were absent too.

The stratospheric rise in fertiliser raw material prices, which generated significant one-off gains in 2022, returned to more normal levels over the year. This normalisation of prices led to one-off stock losses at the Group's fertiliser manufacturing operations, although it should be noted that these losses were considerably less than the one-off stock gains of the previous financial year. There were also margin challenges from higher labour, distribution and energy costs.

While the Group was on target to achieve market forecasts for most of the financial year, after a weak seasonally important final quarter, we reported in November 2023 that results would be below market expectations. Underlying Group pre-tax profit for the financial year was £9.2 million, and Group revenue was £735.9 million. Revenue growth reflected a first full year's contribution from both Humphrey Poultry (Holdings) Limited ("Humphrey Feeds") and Tamar Milling Ltd following their acquisition, as well as record grain trading volumes, in part, offset by a reduction in raw material and fertiliser prices.

In the Agriculture Division, the integration of the two acquisitions, Humphrey Feeds and Tamar Milling, was completed, contributing to a rise in revenue. However, the Division's operating performance was affected by the correction in fertiliser raw material prices, lower demand for feed, which was experienced nationally, particularly for dairy and poultry feed, and the disruption in post-harvest farming activities in the final quarter caused by the prolonged wet weather. Against this challenging background, GrainLink Limited, our grain trading operation, produced record results, helped by both market share growth and margin expansion.

The Specialist Agriculture Merchanting Division maintained footfall and transaction numbers, although the rise in revenue mainly reflected agricultural inflation, and reduced volumes of own-brand bagged feed and a decrease in hardware sales delivered an overall lower margin product mix. Higher energy and labour costs also reduced operating profit.

Our joint ventures performed well and delivered a record contribution to Group results. 

We continued to invest across the Group in line with strategic plans. This investment is aimed at increasing manufacturing capacity, driving efficiencies and increased capabilities. We successfully completed the first part of our investment at our feed mill in Carmarthen, and will be proceeding with further investment. We also continued to focus on developing both our environmental offering to customers, and the steps needed to attain the Group's Net Zero ambitions. Our Renewable Energy Programme to install solar arrays started and progressed well in its first year of roll-out, and we are involved with some exciting environmental projects. We will be adding to our teams of on-farm specialists, who advise farmers on how to achieve their farming objectives. These objectives increasingly concern environmental goals as Government support shifts to payments according to environmental outcomes.

Financial Results

Group revenue for the year to 31 October 2023 increased by 3% to £735.9 million (2022: £713.0 million). This included full year contributions from two acquisitions, Humphrey Feeds and Tamar Milling Ltd, partly offset by the significant correction in fertiliser prices, which returned to more normalised levels from the historic highs recorded in 2022, following Russia's invasion of Ukraine.

As expected, adjusted operating profit and underlying Group pre-tax profit, the Board's alternative performance measure, both decreased significantly year-on-year. However, after a weak final quarter, and including the nominal, non-cash accounting loss of £0.8 million relating to the grain trading book, adjusted operating profit was was £9.3m (2022: £22.4m, which included significant one-off gains, in particular fertiliser stock gains) and underlying Group pre-tax profit was £9.2 million, (2022: £22.6 million). Further details on the non-cash accounting loss of £0.8m are provided in the Financial Report and Notes. Reported pre-tax profit was £8.7 million (2022: £21.1 million) and basic earnings per share was 30.75p (2022: 82.72p). 

The Agricultural Division delivered sales of £584.3 million (2022: £564.3 million) and the Specialist Agricultural Merchanting sales of £151.5 million (2022: £148.8 million). The segmental profit contribution from the Agriculture Division was £3.7 million (2022: £14.7m), which included contributions from joint ventures, with the Specialist Agricultural Merchanting Division contributing £6.1 million before non-recurring items (2022: £7.9m). Other activities generated a loss of £0.04m (2022: profit of £0.23m).

The Group continued to generate good cash flows, and net cash generated from operating activities was £17.2 million (2022: £10.3 million), helped by an easing of working capital requirements as raw material prices decreased.

The Group net cash position excluding property leases at 31 October 2023 was £19.0 million (2022: £18.2 million). This calculation excludes the classification of land and buildings leases as debt, which is in line with the basis that the Group's banking covenants are calculated. October remains the highest point of net cash in the Group's annual working capital cycle.

During the financial year, 111,181 (2022: 75,891) new ordinary shares were issued to existing shareholders exercising their right to receive dividends in the form of new shares. The total equivalent cash amount was £0.5 million (2022: £0.6 million). A further 503,534 shares (2022: 65,689) were issued for a total cash consideration of £1.0 million (2022: £0.3m) to employees exercising rights over approved share options. In the prior financial year, 1,900,000 shares were issued in a private placing to institutional holders for a total cash consideration of £10.3 million.

Capital investment in fixed assets over the year amounted to £15.6 million (2022: £5.3 million). Of this, £6.2 million related to renewal of property leases (2022: nil) and £2.7 million was invested in acquisitions (2022: £10.2 million), including deferred consideration.

The balance sheet remains very robust. Group net assets at the financial year-end increased to £135.2 million (2022: £130.7 million). Based on the weighted average number of shares in issue during the financial year of 22.525m (2022: 20.722m), this equates to a net asset per share of £6.00 (2022: £6.31 per share). Return on net assets from underlying pre-tax profit was 7.0% (2022: 17.4%).

Dividends

The Board is pleased to propose an increased final dividend of 11.75p per share (2022: 11.60p). This together the interim dividend of 5.50p per share, paid on 31 October 2023, takes the total dividend for the year of 17.25p (2022: 17.00p), a 1.5% rise on the previous financial year. Subject to shareholder approval, the final dividend will be paid on 30 April 2024 to shareholders on the register as at 2 April 2024.

This is the 20th consecutive year of dividend growth change since 2004, when Wynnstay joined AIM. It is covered 1.8 times by profit after tax (2022: 4.1 times) and continues the Board's progressive dividend policy.

ESGThe business is committed to reaching Net Zero by 2040 and we are making good early steps towards this aim. The 2023 Annual Report and Accounts will include our first Task Force on Climate-related Financial Disclosures ("TCFD") report, and we have brought in external expertise and established additional internal groups as we further develop our Net Zero roadmap. We also commenced a significant investment programme in solar energy, which continues in the new financial year and beyond.

Our ESG programme is much wider than our own Net Zero ambitions. It also encompasses our objective to assist our farmer customers as they increasingly focus on environmental and biodiversity goals. The transition period from payments based on the EU's Common Agricultural Policy (CAP) to a new system of financial support based on environmental outcomes is driving change across UK farms. Wynnstay's on-farms teams provide advice and guidance on the innovative products and services the Group offers, including our expanding environmental seeds offering. 

As we deepen our environmental expertise and offerings, we are widening our links. In particular, I am pleased to highlight two exciting projects in which Wynnstay is involved. The first is the 'Dancing with Daffodils' research project. This is a revolutionary research project, supported by the department of Farming, Environment and Rural Affairs and Innovate UK, which is trialing the use of daffodils to reduce cattle methane emissions. If successful, Wynnstay would be the route-to-market for the new product. The second project is one with Harper Adams University, which is exploring ways to grow soya beans in the UK.

We continue to host specialist agricultural events for farmers, including the Arable Event, and Beef and Sheep Event.

Board and Colleagues

On behalf of the Board, I would like to thank our very dedicated people for their hard work over the year. They provide customers with excellent service, and my fellow directors and I are very pleased to acknowledge their vital contribution to the Group's success.

There have been two changes to the Board's composition during the financial year. Steven Esom was appointed as Senior Independent Non-executive Director and head of the Renumeration Committee on 18 April 2023. He replaced Philip Kirkham who retired on 24 May 2023, after 10 years as a Board member. Steven has extensive senior-level experience in the UK food and retailing industries and significant experience of the UK agricultural sector. He was Managing Director of Waitrose & Partners, where he regularly engaged with farmers and was involved with the oversight of Waitrose-owned farmlands. He was also Executive Director of Food at Marks & Spencer, and held senior commercial buying roles at J Sainsbury plc for 12 years as well as at Texas, the DIY retailer, then part of Ladbroke Group. Steven also holds three other non-executive directorships. He is Chairman of Sedex, a leading global supply chain consultancy focused on environmental, social and governance ("ESG") outcomes. He is also Chairman of Andrews & Partners Ltd, the residential estate agency and lettings and management group, and Chairman of Advantage Travel Partnership, the UK's largest independent travel agent group.

In July 2023, we announced that Paul Roberts, Finance Director, was retiring after 36 years with Wynnstay. We subsequently appointed Rob Thomas, FCA, as Group Finance Director designate, and Rob joined the Group in this role on 2 October. On 2 January 2024, Rob took over fully from Paul after a very smooth handover process. Paul continues to assist in a consultancy capacity while the year-end audit process completes.

Rob Thomas has significant financial and commercial experience in senior roles, including in the agricultural and the supply chain sectors. He joined Wynnstay from EFS Global Limited, the UK-based logistics provider, where he was Group Finance Director. Before that, he worked at NWF Group plc, the specialist distributor of fuel, food and feed, for eight years until 2022. For the majority of his time there, he was Finance Director of the feeds division, NWF Agriculture Limited, which manufactures and supplies animal feeds to livestock farmers across the UK. He has significant experience of M&A and strategic planning. Rob's earlier career was in accountancy with PwC, both in the UK and overseas.

I take this opportunity to welcome Rob to Wynnstay and to pay tribute to the outstanding contribution that Paul has made to the business over his long year career. Paul joined the Board in 1997 and has managed the Group's finances in an exemplary manner over this time.

Outlook

In November 2023, the Board reported that with uncertainty over milk and other farm-gate prices, farmer sentiment is likely to remain cautious in the short-term. We expect this to remain the case. However, with our strong market position, good cash flows and very robust balance sheet, the Board believes that the Group is well-positioned as we continue with our strategic growth plans and investments, which will further strengthen our position in the market. We continue to review acquisition opportunities that fit our strategic criteria.

Steve Ellwood

Chairman

CHIEF EXECUTIVE'S REPORT

INTRODUCTION

Trading conditions over the financial year were markedly different from the prior financial year, when the Group benefited from substantial one-off gains, as well as strong farmgate prices, to deliver a record set of results. By contrast, in the financial year under review, farmgate prices were lower across most categories, impacting farmer sentiment and spending. In addition, the global correction in fertiliser raw material prices, which moved back to more normalised levels, created one-off stock losses for Glasson Grain Ltd. This represented the opposite picture to last year's one-off gains when fertiliser raw material prices soared to historic highs following Russia's invasion of Ukraine. For context, last year's one-off gains were significantly greater than this financial year's one-off losses. Inflation also remained a factor for the Group, affecting labour, distribution and packaging costs in particular.

The trading backdrop in the second half of the financial year was weaker than the first half. Farm gate prices moved lower, especially for milk and grain. In addition, the Group's arable activities suffered from the very wet autumn in a seasonally important period, with heavy rains reducing the grain harvest and disrupting post-harvest farming activities, particularly winter cereal seed planting.

More positively, GrainLink, the Group's specialist crop marketing business, delivered record annual results. This was driven by increased volumes of grain purchased, helped by market share gains in the eastern side of its trading area and good margin retention. This record performance was even after the recognition of a non-cash nominal accounting loss.

Both our acquisitions, Humphrey Feeds and Tamar Milling, have now been fully incorporated into the business, and contributed positively to the performance of the Group. Unlike Tamar Milling though, the performance of Humphrey Feeds was below our expectations. The business was affected by the challenges experienced by the free range sector, driven by Avian influenza and weaker prices. However, the sector is recovering, stimulated by higher egg prices.

The first phase of our investment at Carmarthen feed mill is now complete, and we are considering the most viable and sustainable options for replacing the feed volumes that we currently manufacture at Twyford.

Our Joint Ventures and associate business together delivered an above-expected performance, helped by record trading at Bibby Agriculture Ltd and positive contributions from WYRO and Total Angling Ltd.

We continued to make good progress with our ESG strategy, both internally and in relation to our farmer customers whose financial support mechanisms are now increasingly linked to environmental outcomes. In England approximately 50% of the previous Basic Farm Payment under the Common Agricultural Policy is moving to Environmental Land Management ("ELMs") schemes by 2024, and the devolved administrations will shape their respective support schemes from 2025.

REVIEW OF AGRICULTURAL ACTIVITIES

AGRICULTURE DIVISION

The Agriculture Division manufactures and processes a wide range of agricultural inputs, including feeds, fertiliser and seeds, which cater for the needs of both livestock and arable farmers. Glasson Grain Limited ("Glasson"), whose operations include fertiliser blending, and GrainLink, the Group's crop marketing business, also report within this Division.

Divisional revenue increased by 3.6% year-on-year to £584.3 million (2022 £564.3 million) and the segmental contribution was £3.7 million (2022: £14.7 million). Revenue was boosted by full-year contributions from the Humphreys Feeds and Tamar Milling acquisitions, as well as by increased activity at GrainLink Limited. However, operating profit was impacted by a number of factors: the reversal in fertiliser raw material prices, which impacted Glasson; the weaker free range egg sector, which suffered from the outbreak of Avian Influenza and margin pressures; and the difficult final quarter, when prolonged wet weather impacted arable activities.

Feed

Wynnstay manufactures and supplies a wide range of feeds and animal nutrition products for a range of sectors, including dairy, beef, sheep, and poultry. The business operates three feed mills and three blending plants, and offers nutrition products in compounded, blended and meal forms, both in bulk and in bags. This wide offering provides an internal hedge against sector variations. Bagged feed is predominantly marketed under our "Wynnstay brand" and sold through our depot network.

Feed volumes on a like-for-like basis were 5.3% below the previous year. This decrease largely reflected reduced demand from the dairy sector, as a result of weaker milk prices, and from free range poultry farmers, who were still recovering from Avian influenza and also contending with reduced margins. The early spring and an abundance of grass in the summer months were also factors dampening demand. Efficiency initiatives have helped mitigate inflation-driven costs, which were especially evident in labour, distribution and packaging costs. As we move through the early months of the new financial year, with milk prices still low, we expect demand from the dairy farmers to remain suppressed.

The integration of the two acquisitions, Humphrey Feeds (purchased in March 2022) and Tamar Milling (purchased in November 2022), into the Group's wider activities, was completed. Our offering to the free range egg sector has been rebranded as 'Wynnstay Humphrey Feeds and Pullets', and the respective sales teams combined. This has created greater efficiencies in both feed manufacturing and distribution. Whilst the Humphrey Feeds acquisition contributed positively to the Group's overall performance, its performance was below our expectations. This reflected the challenges of the free range egg sector, including the organic egg sub-sector, with a number of producers exiting the marketplace. However, the more recent onset of higher free range egg prices has stimulated confidence in the sector and acted as a boost to recovery. Tamar Milling performed above management expectations in its first full year contribution. The full potential of these acquisitions is still to come through.

Our investment to expand the feed manufacturing capacity of our mill at Carmarthen and to improve its operational efficiencies progressed well over the year. Phase one, which included the installation of a bank of blended feed out-loading bins, has been completed. The second phase of investment is scheduled to commence, and the feed mill is now also being evaluated as we consider the most commercially optimal solutions for replacing the manufacturing facility currently in use at Twyford.

Our on-farm animal nutrition advisors continued to work very effectively with customers to help them improve performance efficiency and deliver their environmental objectives and respond to market demands. We continue to focus on keeping abreast of the latest scientific developments and aim to further strengthen our teams of specialists across all sectors in support of our growth plans.

Arable Products

Our arable operations supply a wide range of services and products to arable and grassland farmers. These include seeds, fertilisers and agrochemicals as well as grain marketing services.

We saw significant variations in performance within the arable division. GrainLink, our grain and combinable crop marketing business delivered record results, which were well ahead of management expectations. This resulted from a 30% increase in grain marketing volumes and good margin retention. GrainLink continued to gain market share on the eastern side of the trading area. As we detail in the Financial Report, GrainLink's headline performance was impacted by the accounting treatment of financial derivatives. It should be noted that this results only from the application of International Financial Reporting Standard 9 and is a non-cash charge.

The final quarter of the financial year is a seasonally important period for arable activities, and weather conditions were challenging. The very wet summer and heavy rains in the autumn reduced the harvest size, and its quality, and created very difficult autumn sowing conditions. Land intended for autumn sowing has not been sown, impacting sales of winter cereal seed, and some of the crop seed that was sown was flood damaged. In addition, some of the decrease in winter cereal seed sales also reflected our decision to exit from some low-margin wholesale contracts.

While we anticipate that demand for spring sown cereal and environmental seed mixtures will increase, as a result of reduced autumn sowings, there are difficulties in the availability of spring seed this season, following the poorer 2023 harvest yields.

Volumes of traditional grass seed mixtures were also impacted by the weather and were 5% lower year-on-year. However, this was better than the national trend, which showed an annual decrease of 10%. Sales of our environmental seed mixtures grew strongly as farmers adjusted and changed cropping rotations, in line with opportunities to participate in the Government's Environmental Land Management Schemes. We expect demand for these environmental seed mixtures to continue to increase. Our team of specialist advisors can offer customers environmentally-friendly seed mixtures that include pollinators, deep-rooted herbs and wildflowers. Demand for root seeds has also increased as sheep farmers grow more crops to reduce bought-in feed and participate in environmental schemes.

The completion of our investment at our seed plant at Astley in Shropshire will enable us to double grass seed processing and provides a platform to continue to increase sales in the future. It also enhances our reputation for high-quality seeds.

Merchanted fertiliser volumes in the second half of the year were stronger than in the first half and overall sales were up by 2% on the prior year. This was significantly better than the estimated national decrease in volumes of c. 10%. As fertilizer prices reduced from the higher levels earlier in the year, demand improved, however margins were affected in a falling market.

Farmer returns within the arable sector have been squeezed in comparison to the very strong prior year, when grain supplies were disrupted following the invasion of the Ukraine by Russia and prices climbed to record highs. While the reduced acreage that has been sown this autumn will impact the demand for crop inputs, including fertiliser, farmers will plant alternative crops, which will require our products and services.

Glasson Grain Limited

Glasson Grain is the second largest fertiliser blender in the UK and is based at Glasson Dock near Lancaster. As well as fertiliser blending, Glasson has two other core activities, the supply of feed raw materials and the manufacture of added-value animal feed products.

As we reported with first-half results, Glasson contended with the sharp reversal of global fertiliser raw material prices, from the unsustainable levels of the prior year, to more normalised levels. In the last financial year, the stratospheric rise in raw material prices led to significant one-off gains; by contrast, in this financial year, Glasson's performance has been distorted by adverse stock realisations. As a fertiliser manufacturer, Glasson carries stocks of raw materials for blending and therefore can be affected by price movements, up and downwards. Fertiliser prices continued their correction in the second half of the financial year and retained a degree of volatility in the autumn period.

Overall, Glasson's fertiliser volumes decreased by 4% year-on-year, although it increased its market share. We anticipate that fertiliser usage will change as farmers switch increasingly to precision application techniques, stimulated by Government-supported environmental schemes. As farmers shift their approach and carry out more detailed nutrient management plans to identify crop requirements, Glasson is well-placed to assist, having the ability to process bespoke fertilisers to suit individual customer requirements. We anticipate opportunities to add value to the business in the coming years, and expect to maintain our position as the UK's second largest manufacturer of blended fertiliser.

Feed raw materials performed well and ahead of expectation. Although volumes decreased by 11%, which was in line with national trends, margins were better than last year and drove strong results. Glasson's smaller operation, the specialist animal feed activity, saw lower volumes as the cost-of-living crisis reduced consumer demand for some of the manufactured products. Higher energy and labour costs also put pressure on margins. We are currently restructuring the operation to mitigate costs.

SPECIALIST AGRICULTURAL MERCHANTING DIVISION

The Specialist Agricultural Merchanting Division comprises a network of 53 depots catering mainly for the needs of farmers but also rural dwellers. Depots are mostly located within the livestock areas of England and Wales. The network is supported by a multi-channel sales route to market, which includes a digital sales platform, a sales trading desk and specialist catalogues. Youngs Animal Feeds ("Youngs") is also accounted for in this division. Youngs manufactures and distributes a wide range of equine products, which are sold through three dedicated Youngs outlets, Wynnstay depots and via third-party wholesale customers. 

Revenue in the division increased to £151.5 million (2022: £148.8 million). However, this rise mostly reflected agricultural inflation, while segmental contribution decreased to £6.1 million (2022: £7.9 million), which was below management expectations. Footfall and the number of transactions were in line with the previous year, but an overall lower margin product mix had an impact on profitability. In particular, we felt the effect of lower volumes of our own-brand bagged feed and lower hardware sales. This shift in buying patterns reflected subdued farmer sentiment, as farmers tightened their belts in response to lower farm gate prices, and the good availability of grass in the second half also had an effect on feed volumes. In addition, rising energy and labour costs affected the Division's cost base and we have put in place actions to mitigate this.

We continue to develop our digital offering. The number of customers who have signed up to our digital portal continued to increase. The majority of the activity on the portal remains non-trading and accounts related. During the coming year, we will be introducing a click-and-collect service as we continue to develop our online offering.

Youngs Animal Feeds saw an increase in sales of its own- manufactured fibre product, 'Sweet Meadow' and performed ahead of last year. 

JOINT VENTURES AND ASSOCIATE COMPANIES

Wynnstay has three joint venture companies, Bibby Agriculture Ltd, WYRO Developments Limited and Total Angling Limited, as well as an associate company, Celtic Pride Limited. The businesses together made another strong contribution, which totalled £0.9 million (2022 £0.8 million). This was driven by a record performance from Bibby Agriculture Limited, as well as positive contributions from WYRO and Total Angling Limited.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")

Our ESG strategy has two goals. As an organisation, Wynnstay is working towards becoming carbon neutral by 2040. We are committed to helping to protect the local and global environments, and aim to minimise, as much as we can, any adverse environmental impacts that our activities may have. Alongside this, we are focused on helping farmers to feed the UK in a more sustainable way, providing advice and access to more environmentally-friendly agricultural inputs and other innovative products. 

In the last financial year, we established The Sustainable Farm Advisory Team. The team includes industry experts, and the objective is to bring in additional expertise to help guide the decisions of our Executive Management and our Sustainability Team as they develop our environmental strategies. We have recently formed the Resource Efficiency Action Team, which has been tasked with accelerating resource efficiency gains across the Group.

In order to reduce Group energy costs and its carbon footprint, we have invested £1.0m in solar voltaic panels and will be investing a further £1.0m over the new financial year to install solar panels on roofs of Group properties. The Group's vehicle replacement policy is now reshaping the vehicle fleet with electric/hybrid cars and lorries that are more fuel efficient.

We continue to work with the wider industry and customers on carbon and methane reduction projects. During the year, Wynnstay, along with other partners from the industry, launched the revolutionary "Dancing with Daffodils". The project is investigating the potential use of a daffodil extract to reduce methane emissions from cows. A 96% reduction in methane emissions has been demonstrated in artificial cow stomachs and a team of researchers at Scotland's Rural College is now trialling the extract's use in real cows. The research team believes that the daffodil extract, when added to livestock feed, could reduce methane emissions by at least 30%. A four-year programme of trials has begun at farms across the UK, and if they prove successful, it is intended that Wynnstay provides the route-to-market for the end-product. Whilst we already offer methane inhibitors within our climate-friendly range of feed products, this potential new product would represent a significant step forward in reducing methane emissions from ruminant animals.

In line with our environmental commitments and to address concerns about poultry manure and phosphate levels in rivers, we introduced a lower phosphorus feed option for free range layer hens. The new feed formula, which optimises the level of the phytase enzyme without compromising feed performance or bird health, improves diet utilisation and results in an average reduction of 13.8% in in phosphate excretion per bird per year. All of Wynnstay's relevant manufactured layer mashes now contain optimised doses of phytase. 

Our colleagues remain of paramount importance, and we work hard to encourage dialogue and engagement throughout the Group, including the contribution of ideas as to how to improve the business, workplace and performance. The Colleagues Ideas Hub was established as a means by which staff can submit their ideas. If an idea is taken up and shown to be successful, we also provide financial recognition. The Executive Team regularly updates colleagues across the Group on the Company's progress, with both the Team and colleagues benefiting from this regular engagement. We also support colleagues' fundraising initiatives. Fundraising proceeds are distributed to nominated charities, principally Children with Cancer and The Royal Agricultural Benevolent Institution (RABI), the award-winning charity which provides local support to the farming community in England and Wales.

COLLEAGUES

I would like to take this opportunity to thank all our colleagues for their continued hard work, loyalty and commitment over the past twelve months. They have risen to the challenge of a more difficult trading environment and continued to demonstrate Wynnstay's values and serve our customers well. I am proud of working alongside them.

I would also like to add my personal thanks to Paul Roberts, who retired as Finance Director, on 2 January 2024 after a long and successful career at Wynnstay. It has been a great pleasure to work with him, and I join my colleagues in acknowledging his outstanding contribution to the Group. 

OUTLOOK

The trading backdrop remains difficult. Farmer sentiment is cautious, reflecting uncertainty over farmgate prices and the adjustment to the Environmental Land Management Scheme and the Sustainable Farming Scheme. We anticipate current low milk prices to continue to suppress dairy feed demand, although some recovery is expected in the coming months, and arable inputs are likely to be down in the spring, following the significant reduction in autumn cereal planting. It is also reasonable to expect a smaller 2024 harvest. Energy and labour costs remain factors too.

While these are challenges for the entire sector in the short term, Wynnstay's strong balance sheet and good cash generation enable us to continue to invest across the business in support of our growth plans, and to consider acquisitions. The Group is well-placed in the marketplace and its balanced business model helps to smooth sector variations and remains a strength. 

Gareth Davies

Chief Executive Officer

WYNNSTAY GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 October 2023

1Adjusted operating profit are after adding back amortisation of acquired intangible assets, goodwill impairment, share-based payment expense and non-recurring items.

WYNNSTAY GROUP PLC

CONSOLIDATED BALANCE SHEET

WYNNSTAY GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 October 2023

WYNNSTAY GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 October 2023

WYNNSTAY GROUP PLC

NOTES TO THE ACCOUNTS

1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES

The Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form part of this approved financial information. 

The Group's financial statements have been prepared in accordance with international accounting standards in accordance with UK-adopted International Accounting Standards and applicable law. The Group financial statements have been prepared under the historical cost convention other than certain assets which are at deemed cost under the transition rules, share-based payments which are included at fair value and certain financial instruments which are explained in the relevant section below. A summary of the material Group accounting policies, which have been applied consistently, is set out below.

The preparation of financial statements in accordance with UK-adopted International Accounting Standards requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

The directors have prepared the financial information presented for Group and Company on a going concern basis having considered the principal risks to the business and the possible impact of plausible downside trading scenarios. The Board has concluded that they have a reasonable expectation that the entity has adequate resources to continue in operational existence for the foreseeable future. The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report of the Group's Annual Report. The financial position of the Group and the principal risks and uncertainties are also described in the Strategic report.

The Group has a sound financial base and forecasts that show profitable trading and sufficient cash flow and resources to meet the requirements of the business, including compliance with banking covenants and on-going liquidity. In assessing their view of the likely future financial performance of the Group, the Directors consider industry outlooks from a variety of sources, and various trading scenarios. This analysis showed that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. More detail on the outlook is contained within the Group's Annual Report.

In conclusion, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

2. SEGMENTAL REPORTING

IFRS 8 requires operating segments to be identified on the basis of internal financial information about the components of the Group that are regularly reviewed by the chief operating decision maker ("CODM") to allocate resources to the segments and to assess their performance.

The chief operating decision maker has been identified as the Board of Directors (" the Board"). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board has determined that the operating segments, based on these reports are Agriculture, Specialist Agricultural Merchanting and Other.

The Board considers the business from a product/service perspective. In the Board's opinion, all of the Group's operations are carried out in the same geographical segment, namely the United Kingdom.

Agriculture - manufacturing and supply of animal feeds, fertiliser, seeds and associated agricultural products.

Specialist Agricultural Merchanting - supplies of a wide range of specialist products to farmers, smallholders, and pet owners.

Other - miscellaneous operations not classified as Agriculture or Specialist Agricultural Merchanting.

The Board assesses the performance of the operating segments based on a measure of operating profit. Non-recurring costs and finance income and costs are not included in the segment result that is assessed by the Board. Other information provided to the Board is measured in a manner consistent with that in the financial statements. No segment is individually reliant on any one customer.

All revenue during the year has arisen from revenue recognised at a point in time, and there were no revenues from transactions in 2023 or 2022 with individual customers which amounted to 10% or more of Group revenues.in that period.

The segment results for the year ended 31 October 2023 are as follows:

The segment results for the year ended 31 October 2022 are as follows:

3. FINANCE COSTS

4. AMORTISATION OF ACQUIRED INTANGIBLE ASSETS, IMPAIRMENT OF GOODWILL, SHARE-BASED PAYMENTS AND NON-RECURRING ITEMS

Non-recurring items consisted of:

5. GROUP OPERATING PROFIT

The following items have been included in arriving at operating profit:

Services provided by the Group's auditor

During the year the Group obtained the following services from the Group's auditor:

6. SHARE OF POST-TAX PROFITS OF JOINT VENTURES

7. TAXATION

8. DIVIDENDS

Subsequent to the year end it has been recommended that a final dividend of 11.75p per ordinary share (2022: 11.60p) be paid on 30 April 2024. Together with the interim dividend already paid on 31 October 2023 of 5.50p net per ordinary share (2022: 5.40p) this will result in a total dividend for the financial year of 17.25p net per ordinary share (2022: 17.00p).

9. EARNINGS PER SHARE

Basic earnings per 25p ordinary share is calculated by dividing profit for the year from continuing operations attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.

For diluted earnings per share, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares (share options) taking into account their exercise price in comparison with the actual average share price during the year.

10. SHARE CAPITAL

During the year 111,181 shares (2022: 75,891) were issued with an aggregate nominal value of £28,000 (2022: £19,000) and were fully paid up for equivalent cash of £474,000 (2022: £459,000) to shareholders exercising their right to receive dividends under the Company's dividend scrip scheme. A further 503,534 (2022: 1,965,689) shares with a nominal value of £126,000 (2022: £491,000) were issued for an equivalent cash value of £997,000 (2022: £10,581,000), with 503,534 (2022: 65,689) shares being to satisfy the exercise of employee options. Of these employee option shares, 141,766 (2022: Nil) were the result of the exercise of nil cost options under the Company's Performance Share Plan, with the nominal value being credited from the transfer of capital from the Equity Remuneration Reserve. 

11. CASH AND CASH EQUIVALENTS, BORROWINGS AND LEASE LIABILITIES

? Cash and cash equivalents

Cash and cash equivalents are all non-restricted balances and are all cash at bank and held with HSBC UK Bank Plc, except for £1,500,000 (2022: £1,652,000) which is held at International FC Stones for wheat futures hedging purposes. HSBC UK Bank Plc's credit rating per Moody's for long-term deposits is Aa3 (2022: Aa3). £1,820,000 of the cash and cash equivalent balances are denominated in foreign currencies, EUR (98%) and USD (2%) (2022: £3,623,000, in EUR (99%) and USD (1%)). All other amounts are denominated in GBP and are at booked fair value.

? Borrowings

Bank loans and overdrafts are secured by an unlimited composite guarantee of all the trading entities within the Group. The outstanding bank loan of £6,640,000 (2022: £9,011,000) is structured as a term facility with quarterly repayments of £474,250. Interest on this loan is 1.75% over the daily SONIA rate up to the point of repayment.

Loan stock is redeemable at par at the option of the Company or the holder. Interest of 3.7% (2022: 1.5%) per annum is payable to the holders.

12. CASH GENERATED FROM OPERATIONS

13. BUSINESS COMBINATIONS

Tamar Milling Limited

On 16 November 2022, Wynnstay Agricultural Supplies entered a business combination and acquired 100% of the shares of Tamar Milling Limited. The provisional consideration is £1,746,000 inclusive of cash and cash equivalents of £32,000.

The provisional consideration payable is dependent on future product volumes and profitability of the commercial business acquired. The fair value of the contingent consideration has been based on management's expectation of the future performance of the business and that could range from £Nil to £100,000.

A full analysis of the provisional consideration is provided in the table below. The goodwill balance represents the assembled workforce and future sales opportunities and is not expected to be deductible for tax purposes.

Subsequent to the year-end, a first instalment of the deferred consideration shown in the table above was paid to the vendors in the sum of £37,000 in January 2024. Directly attributable acquisition costs of £28,000 were incurred with the transaction, and these have been recognised as non-recurring expenses in the income statement for the period. During the last available audited accounts of the acquired entity, for the period to September 2021, the annual aggregate revenues on a non-consolidated basis amounted to £6,397,000 and profit before tax was £422,000. Business combination accounting is expected to be finalised within 12 months from the completion date of the acquisition. Amounts included in the Consolidated Statement of Comprehensive Income period to October 2023 in relation to the acquired business are revenues of £7,430,000 and profit before tax of £110,000.

Contingent and deferred consideration of £1,095,000 was paid during the period to 31 October 2023 relating to other prior period acquisitions, resulting in a total gross cash outflow of £2,741,000 or £2,709,000 net of cash acquired with the Tamar Milling transaction.

In February 2023, the contingent consideration relating to the acquisition of Humphrey Poultry (Holdings) Limited was settled in the sum of £1,095,000. This value was less than the provisionally assessed contingent consideration of £2,000,000, primarily as a result of a change in anticipated trading conditions created in part by the impact of Avian Influenza on poultry flocks. As the timing of the recognition of this change was within the maximum twelve month period permitted under IFRS 3 for finalising the business combination accounting relating to this transaction, the adjustment to the provisionally assessed value of the contingent consideration and the settled amount, has resulted in a reduction in the acquired value of goodwill of £905,000.

14. ALTERNATIVE PERFORMANCE MEASURES

The Board of Directors consider that the following Alternative Performance Measures provide useful information for shareholders on underlying trends and performance:

· Adjusted Operating Profit

· Underlying Profit Before Tax

· Adjusted EBITDA

The Board believes these Alternative Performance Measures reflect the underlying commercial performance of the current trading activities and provide investors and other users of the accounts with an improved view of likely future performance. The rationale behind making adjustments to the IFRS results is as follows:

· The add back of tax incurred by joint ventures and associates. The Board believes the incorporation of the gross result of these entities provides a fuller understanding of their combined contribution to the Group performance.

· The add back of share-based payments. This charge is a calculated using a standard valuation model, with the assessed non-cash cost each year varying depending on new scheme invitations and the number of leavers from live schemes. These variables can create a volatile non-cash charge to the income statement, which is not directly connected to the trading performance of the business.

· Non-recurring items. The Group's accounting policies include the separate identification of non-recurring material items on the face of the income statement, which the Board believes could cause a misinterpretation of trading performance if not disclosed. An analysis of these charges is given in Note 5 to the accounts.

A reconciliation of reported IFRS results to Alternative Performance Measures is shown below:

Adjusted Operating Profit

Adjusted results are after adding back amortisation of acquired intangible assets, goodwill impairment, share-based payment expense and non-recurring items.

Underlying Profit Before Tax

Adjusted results which includes the gross share of results from joint ventures are after adding back share-based payment expense and non-recurring items.

Adjusted EBITDA

Defined as earnings before interest, tax, depreciation and amortisation, and investment property fair value adjustment, tax on joint ventures, goodwill impairment, share-based payment expenses and other non-cash charges.

15. RESPONSIBILITY STATEMENT

The Directors below confirm to the best of their knowledge:

S J Ellwood

S D Esom

R J Thomas

G W Davies

H J Richards

C A Bradshaw

?

16. CONTENT OF THIS REPORT

The information in this announcement has been extracted from the audited statutory financial statements for the year ended 31 October 2023 and as such, does not constitute statutory financial statements within the meaning of section 435 of the Companies Act 2006 as it does not contain all the information required to be disclosed in the financial statements prepared in accordance with UK-adopted International Accounting Standards.

Statutory accounts for 2022 have been delivered to the Registrar of Companies. The auditor, RSM UK Audit LLP, has reported on the 2022 accounts; the report (i) was unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for 2023 will be delivered to the Registrar of Companies following the Annual General Meeting. The auditor, Crowe U.K. LLP, has reported on these accounts; their report is unqualified, does not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and; does not include a statement under either section 498(2) or (3) of the Companies Act 2006.

The Annual Report and full Financial Statements will be available to shareholders during February 2024. Further copies will be available to the public, free of charge, from the Company's Registered Office at Eagle House, Llansantffraid, Powys, SY22 6AQ or on the Company's website at www.wynnstay.co.uk. 

17. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on Tuesday 26 March 2024 at 11.45am in the Sovereign Suite at Shrewsbury Town Football Club, Oteley Road, Shrewsbury, Shropshire, SY2 6ST. Further details will be published on the Company's website www.wynnstayplc.co.uk.