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Finance Review

Group Structure

The Group’s effective legal structure continues to be a holding company, Wynnstay Group Plc, which has investments in four wholly owned active trading subsidiaries which are:

  • Wynnstay (Agricultural Supplies) Limited, an agricultural merchant. 
  • Glasson Grain Limited, a feed and fertiliser merchant. 
  • GrainLink Limited, a grain merchant. 
  • Youngs Animal Feeds Limited, an equine and pet products distributor.

Additionally, Wynnstay Group Plc holds investments in the principal joint ventures and associate companies outlined in note 18 in the accounts, and certain other property and investment assets.

For reporting purposes the Group’s operations are classified into two main divisional segments, Agriculture, encompassing the manufacturing and supply of a comprehensive range of agricultural inputs delivered to customers, and Specialist Agricultural Merchanting, covering the supply of products, primarily to farmers, linked through the provision of expert advice of their use. An additional reporting segment called “Others” is used for peripheral activities not readily attributable to either of the main segments.

Trading Results

A summary of the trading conditions experienced by the business over the last financial year is provided in the Chief Executive’s Review on pages 15-19, which includes details of the impact of the mild winter weather conditions and the Brexit related political uncertainties which have adversely affected the financial performance of the business.

Group revenue in the period increased to £490.60m (2018: £462.66m), with the majority of the increase attributed to commodity inflation which is estimated at some £23.5m for the period. Contributions from acquisitions made both in the year, and during the previous year where they have made a further incremental contribution as a result of being included for the full period this year, added an additional £8.1m to revenue.

Our Agriculture division absorbed most of the inflationary impact with a net £24.35m increase in revenues, taking the total to £358.69m (2018: £334.34m). This net result also reflected falls in the volumes of manufactured feeds partly off set by an increased tonnage of grain traded, all of which were at higher unit values. The Specialist Agricultural Merchanting division included the growth from acquisitions, with a net increase of £3.58m to a total revenue of £131.84m (2018: £128.26m). Like for like activities together with some depot consolidation produced a small 3.5% revenue reduction.

Group adjusted(1) operating profit was £7.76m (2018: £9.43m), and profi t before taxation on an IFRS basis was £7.55m (2018: £9.53m). On the Board’s preferred alternative performance measure referred to as Underlying pre-tax profit, which includes the gross share of results from joint ventures and associates, but excludes share-based payments and non-recurring items, the Group achieved £8.01m (2018: £9.60m). A reconciliation with the reported income statement and this measure is shown above.

The Board provides this alternative performance measure as it believes it provides a view of the underlying commercial performance of current trading activities, providing investors and other users of the accounts with an improved view of likely future performance by making the following adjustments to the IFRS for the following reasons:

  • 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 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.

Inclusive of contributions from joint ventures and associate businesses, our Agriculture division generated an operating profi t before non-recurring items of £2.95m (2018: £4.29m), while our Specialist Merchanting Division produced £5.24m (2018: £5.53m). Other activities generated a small loss of £0.05m (2018: £0.09m).

 

Taxation          

The Group’s tax charge, including joint ventures and associates, of £1.52m (2018: £1.90m) represents 19.9% (2018: 19.8%) of the Group pre-tax profit of £7.65m (2018: £9.61m). Deferred tax provisions have continued to be calculated at the target rate of 17% which was substantively enacted in 2016 and was due to become effective from April 2020, although we note recent Government proposals to cancel this reduction. A reconciliation relating to the Group’s tax charge and Group pre-tax profit is given:

In accordance with Schedule 19 of the Finance Act 2016, the Group has published a Tax Strategy document on its website, which confirms that the organisation is committed to full compliance with all statutory obligations and adopts a policy of full disclosure to HMRC. The Group refrains from using offshore tax jurisdictions and will not use specifically constructed tax avoidance schemes or arrangements.

Earnings Per Share & Dividend

Basic earnings per share were 30.95p (2018: 39.11p), based on a weighted average number of shares in issue during the year of 19.812m (2018: 19.708m). The Board proposes to recommend the payment of a fi nal dividend of 9.40p per share to be paid on the 30 April 2020, which when added to the interim dividend of 4.60p per share paid on the 31 October 2019, makes a total of 14.00p for the year (2018: 13.36p), an increase of 4.8%. The total dividend is expected to be covered 2.21 times (2018: 2.92 times) by earnings. The total dividend represents the sixteenth consecutive year of payment growth since the business was floated on the Alternative Investment Market of the London Stock Exchange in 2004. This current dividend cover remains within the range which can support the continuing progressive policy. Current Company distributable reserves amount to £16.29m, (2018: £15.83m) and are adequate to cover over fi ve years of current dividend payment levels. Adequate anticipated cash resources and future generation assumptions also support the Board’s view that the current policy is sustainable. A process of subsidiary dividend payments to the parent Company is established to ensure adequate liquidity and capital are available to support the policy. The Board will continue to monitor dividend cover ratios when assessing future payment recommendations..

Share Capital

During the year a total of 124,212 (2018: 106,418) new ordinary shares were issued for a total equivalent cash amount of £0.373m (2018: £0.439m). No (2018: 18,816) shares were issued in relation to the exercise of employee share options during the year, while the 124,212 (2018: 87,602) shares were issued to existing shareholders exercising their right to receive dividends in the form of new shares, with an equivalent cash value of £0.373m (2018: £0.372m).

Balance Sheet

Group net assets at the year end amounted to £94.95m (2018: £91.07m). Based on the weighted average number of shares in issue during the year of 19.812m, (2018: 19.708m) this represented a net asset value per share of £4.79 (2018: £4.62). During the financial year the share price traded in a range between a high of £4.55 in February 2019 and a low of £2.70 in August 2019. Based on these balance sheet values, Return on Net Assets from Underlying pre-tax profi ts was 8.5% (2018: 10.6%).

Capital investment in fixed assets amounted to £4.92m (2018: £5.11m) in the year, with the upgrading of the bulk feed delivery fleet having been a priority. Additionally, the Group invested £0.53m in the year on the acquisition of Stantons Farm Supplies Limited on a gross provisional fair value basis with £0.15m of this deferred. A further total of £0.60m of deferred payments on earlier acquisitions was also paid during the year.

Net Working Capital, which is defined as, the net of inventory, trade and other receivables and trade and other payables, showed an overall 10% decrease as at the year end, standing at £43.81m (2018: £48.48m), which was primarily caused by seasonal differentials in trading patterns.

Cashflow, Net Cash and Banking Facilities

The business’s trading activity remains strongly cash generative, with this being measured by reference to a key performance indicator called EBITDA. Essentially, this measures operating profi t in broad cash generative terms, and a reconciliation of this measure to reported IFRS profit before tax is provided:

A reconciliation of EDITDA, as shown, to the net cash position at the year-end is provided in the table below, which is shown for additional information only and is prepared under the indirect method of item allocation, which is not is accordance with IAS 7:

During the year a substantial element of this generated cash has been invested in fixed assets and acquisitions to broaden the base of the business, and with lower working capital requirements at the year-end, the Group was able to report significant cash balances.

The year-end does represent a low point in the Group’s cash utilisation cycle, and the Board continues to prioritise the maintenance of adequate debt facilities to accommodate the usual spring peak of this seasonal fluctuation, together with any unexpected commodity price volatility.

At the year-end, the Group had a combination of committed and short-term bank facilities of £20.3m in place (2018: £18.8m), together with asset finance lines of £8.7m, which are expected to satisfy forecast peak requirements for 2020. The committed Revolving Credit Facility element in this total is £7.5m which expires in June 2020, with discussions already underway to renew this with HSBC Bank, which are expected to conclude well before the expiry date. The Board will continue to keep the overall facility requirement position under review, taking a balanced approach between assessing the costs of committed debt against short-term working capital requirements.

Key Performance Indicators  

The performance of the business is regularly monitored against financial key performance indicators (KPI’s), defined as follows:

Revenue: The invoiced value of sales from the Group’s activities, measured at a fair value net of all rebates and excluding value added tax. £490.60m (2018: £462.66m).

EBITDA: Earnings before interest, tax, depreciation and amortisation, and excluding non-recurring costs, and share-based payment expense. £11.24m (2018: £12.84m).

Earnings per share: Profit for the year after taxation divided by the weighted average number of shares in issue during the year excluding any shares held by the Group’s Employee Share Ownership Trust. 30.95p (2018: 39.11p).

Underlying pre-tax profit: Underlying pre-tax profit includes the Group’s share of pre-tax profit from joint ventures and associate investments but excludes nonrecurring costs and share-based payment expense. £8.01m (2018: £9.60m).

Adjusted operating profit: Adjusted operating profit includes adding back amortisation of acquired intangible assets, share-based payment expense and non-recurring items. £7.76m (2018: £9.43m)

Return on net assets: Underlying pre-tax profit, with intangible amortisation added back, divided by the balance sheet net asset value. 8.5% (2018: 10.6%).

Net asset per share: The balance sheet net asset value, divided by the weighted average number of shares in issue during the year. £4.79 (2018: £4.62).

Whilst disappointed with the lower profit performance after last year’s record results, the Board believes that under the difficult prevailing trading conditions through the year, which were announced in a trading update on 21 March 2019, the business has performed to revised expectations.

 

Paul Roberts

Finance Director

21 January 2020.