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Finance Review

Group Structure

Further simplification of the Group’s operational structure has taken place during the year, with the integration of the Woodheads Seeds activities into the Wynnstay (Agricultural Supplies) Limited business from February 2018. In May 2018, Glasson Grain Limited effectively acquired all the FertLink joint venture activities, and in June 2018, our associate entity, Wynnstay Fuels Limited sold its trading business to a third party. Woodheads Seeds Limited will become a non-trading subsidiary in 2019, and eventually dormant, while FertLink Limited and Wynnstay Fuels Limited will seek solvent liquidation of their respective assets.
The effective legal structure of the Group is therefore now, a holding company, Wynnstay Group Plc, which has investments in four wholly owned trading subsidiaries, namely;
  • 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 19 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

The financial performance of the business during the year has reflected the recovery in the underlying trading environment for the Group’s predominant farmer customers, where generally farm gate produce prices more realistically reflected the costs of production. 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 18-20.

Group revenue in the period increased substantially to £462.66m (2017: £390.72m from continuing activities), with the growth having three components. Direct contributions from new acquisitions during the year added £28.21m to sales, while commodity inflation was estimated to contribute a further £22.30m to the overall revenue result. However, the most pleasing element was the £21.43m contribution identified as being the result of increased comparative additional bulk product volumes, and growth in merchanting activity through the Group’s chain of depots.

The segmental revenue analysis showed a 19% growth to £334.34m (2017: £280.87m) in our Agriculture division, and a near 17% growth to £128.26m (2017: £109.73m) in our Specialist Agricultural Merchanting division, with both segments experiencing growth in all the component elements described above.

On a continuing operations basis, Group adjusted operating profit was £9.43m (2017: £7.87m), and profit before taxation on an IFRS basis was £9.53m (2017: £7.66m). 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 £9.60m (2017: £7.97m). A reconciliation with the reported income statement and this measure, together with the reasons for its use is given below:

The Board uses this alternative performance measure as it believes the underlying commercial performance of the current trading activities is better reflected, and provides investors and other users of the accounts with an improved view of likely future performance by making the following adjustments to the IFRS results 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. During 2018, these non-recurring items included the profit made on the disposal of a freehold property. Full details of this net figure are provided in note 5 of the accounts.

Inclusive of contributions from joint ventures and associate businesses, our Agriculture division generated an operating profit of £4.29m (2017: £3.34m), an increase of 28%, while our Specialist Merchanting division produced £5.53m (2017: £4.74m), an increase of nearly 17%. Other activities generated a similar loss to last year at £0.09m (2017: £0.10m).

 

Taxation          

The Group’s tax charge on continuing operations, including joint ventures and associates, of £1.90m (2017: £1.43m) represents 19.8% (2017: 18.5%) of the Group pre-tax profit from continuing operations of £9.61m (2017: £7.73m). Deferred tax provisions have been calculated at the target rate of 17% which will become effective from April 2020. A reconciliation relating to the Group’s tax charge and Group pre-tax profit is given below:

 

A reconciliation to reported (loss)/profit for the year is as follows:

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 from continuing operations were 39.11p (2017: 32.29p), based on a weighted average number of shares in issue during the year of 19.708m (2017: 19.529m). The Board proposes to recommend the payment of a final dividend of 8.95p per share to be paid on the 30 April 2019, which when added to the interim dividend of 4.41p per share paid on the 31 October 2018, makes a total of 13.36p for the year (2017: 12.60p), an increase of 6.0%. The total dividend is expected to be covered 2.92 times (2017: 2.56 times) by earnings from continuing operations. The total dividend represents the fifteenth 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 £15.83m, (2017: £14.19m) and are adequate to cover at least five 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 now 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 106,418 (2017: 170,185) new ordinary shares were issued for a total equivalent cash amount of £0.439m (2017: £0.723m). A total of 18,816 (2017: 110,896) shares were issued in relation to the exercise of employee share options for a total consideration of £0.067m (2017: £0.378m), and the remaining 87,602 (2017: 59,289) shares were issued to existing shareholders exercising their right to receive dividends in the form of new shares, with an equivalent cash value of £0.372m (2017: £0.345m).

Balance Sheet

Group net assets at the year end amounted to £91.07m (2017: £85.39m). Based on the weighted average number of shares in issue during the year of 19.708m, (2017: 19.529m) this represented a net asset value per share of £4.62 (2017: £4.37). During the financial year the share price traded in a range between a high of £5.17 in August 2018 and a low of £4.01 in March and April 2018. Based on these balance sheet values, Return on Net Assets from continuing operations for the year was 10.6% (2017: 9.4%).

Capital investment in fixed assets amounted to £5.11m (2017: £2.74m) which was significantly higher than the previous year due to the carryover of a number of projects from 2017, as we reported last year. Further expansion expenditure is anticipated during the new financial year, as the Group continues to invest in increased capacity across the business. Additionally, the Group invested £1.76m on five acquisitions during the period, which included a total of £1.53m of fixed assets, Some £0.74m of this acquisition expenditure was on a deferred basis, with some elements contingent on the future trading performance of the acquired businesses.

Net Working Capital, which is defined as, the net of inventory, trade and other receivables and trade and other payables, showed an overall 20% increase as at the year end, standing at £48.5m (2017: £40.3m), which was primarily caused by the considerable increase in overall revenues, which were up by 18.4%.

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 (defined below). Essentially, this measures operating profit in broad cash generative terms, and a reconciliation of this measure to reported IFRS profit before tax is provided below:

During the year a substantial element of this generated cash has been utilised in increased working capital requirements to fund the considerable expansion in activities and generally higher commodity prices. Together with the considerable investment explained above, these activities have resulted in a net debt position at the year end of £0.98m, compared with net cash in 2017 of £4.51m.

A reconciliation of EDITDA shown above to the net debt 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 in accordance with IAS 7:

The year end does represent a traditionally low point in the Group’s cash utilisation cycle, and therefore 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. The Group currently has a combination of committed and short term bank facilities of £18.8m in place (2017: £17.0m), together with asset finance lines of £6.5m, which are expected to satisfy forecast peak requirements for 2019. However, the Board will continue to keep this position under review, particularly if there is any reversal to the current weaknesses being shown in commodity prices, which are currently expected to show a reversal of the inflationary effects experienced during the year under review.

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. £462.66m (2017: £390.72m from continuing activities).

EBITDA: Earnings before interest, tax, depreciation and amortisation, and excluding non-recurring costs, and share-based payment expense. £12.84m (2017: £10.69m).

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. 39.11p (2017: 32.29p).

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. £9.60m (2017: £7.97m).

Return on net assets: Underlying pre-tax profit, with intangible amortisation added back, divided by the balance sheet net asset value. 10.6% (2017: 9.4%).

Net asset per share: The balance sheet net asset value, 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. £4.62 (2017: £4.37).

Relevant results for these KPI’s, for the year under review and the prior year comparatives have been disclosed earlier in this Report.

 

Paul Roberts

Finance Director

22 January 2019.