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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

The Group was able to continue trading (with some modifications to protect the safety our of colleagues, customers, suppliers and communities) and was not significantly impacted financially. More details are contained within the Chief Executive’s Review on pages 14 to 18.

Group revenue in the period decreased to £431.40m (2019: £490.60m), with the decrease being a combination of lower volumes of certain bulk categories, most notably traded grain, and commodity deflation where lower unit values is estimated to have reduced revenue by some £20.6m for the period. Most of the fall in revenues have occurred in the Agriculture division which saw sales reduced by 15.6% to £302.58m (2019: £358.69m), inclusive of lower volumes of low margin categories such as grain and straight raw materials trading. The Specialist Agricultural Merchanting division saw revenue reduce to £128.81m (2019: £131.84m), with like for like activities showing only a 1% reduction despite the trading restrictions implemented during Coronavirus lockdowns.

Group adjusted operating profit was £8.14m (2019: £7.76m), and profit before taxation on an IFRS basis was £6.98m (2019: £7.55m). 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 but excludes share-based payments and non-recurring items, the Group achieved £8.37m (2019: £8.01m). A reconciliation with the reported income statement and this measure, together with the reasons for its use is shown:

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 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. The non-recurring items include the completion of the business re-organisation efficiency program which commenced in 2019, an impairment of goodwill, costs associated with one of the Youngs Animal Feeds depots, and decommissioning costs of the Selby seed plant. An analysis of these charges is given in Note 5 to the accounts.

 Inclusive of contributions from joint ventures our Agriculture division generated an operating profit before non-recurring items of £2.88m (2019: £2.95m), while our Specialist Merchanting division produced £5.78m (2019: £5.24m). Other activities generated a small loss of £0.12m (2019: £0.05m).

Taxation          

The Group’s tax charge including joint ventures of £1.55m (2019: £1.52m) represents 21.9% (2019: 19.9%) of the Group pre-tax profit of £7.08m (2019: £7.66m). Additional deferred tax provisions have contributed to this respective increase as these have now been recalculated at a higher rate following the government’s decision to cancel the planned reduction in corporation tax to 17%. A reconciliation relating to Group’s tax charge and Group pre-tax profit is shown:

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 27.73p (2019: 30.95p), based on a weighted average number of shares in issue during the year of 19.952m (2019: 19.812m). The Board proposes to recommend the payment of a final dividend of 10.00p per share to be paid on the 30 April 2021, which when added to the interim dividend of 4.60p per share paid on the 31 October 2020, makes a total of 14.60p for the year (2019: 14.00p), an increase of 4.3%. The total dividend is expected to be covered 1.90 times (2019: 2.21 times) by earnings after non-recurring items. The total dividend represents the seventeenth 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 £15.82m, (2019: £16.29m) and are adequate to cover over 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 continues so as to ensure adequate liquidity and capital are available to support the progressive dividend policy.

Share Capital and Balance Sheet

During the year a total of 155,035 (2019: 124,212) new ordinary shares were issued for a total equivalent cash amount of £0.392m (2019: £0.373m) to existing shareholders exercising their right to receive dividends in the form of new shares. Group net assets at the year end amounted to £98.18m (2019: £94.95m). Based on the weighted average number of shares in issue during the year of 19.952m, (2019: 19.812m) this represented a net asset value per share of £4.92 (2019: £4.79). During the financial year the share price traded in a range between a high of £3.47 in August 2020 and a low of £2.00 in March 2020. Based on these balance sheet values, Return on Net Assets from Underlying Pre-tax profits was 8.6% (2019: 8.5%). Capital investment in fixed assets amounted to £4.01m (2019: £4.92m) in the year, and net Working Capital, which is defined as, the net of inventory, trade and other receivables and trade and other payables, decreased by 14% as at the year end, standing at £37.57m (2019: £43.81m).

 IFRS 16 Leases

During the year the Group adopted the new accounting standard, IFRS 16 relating to leases, which has had the effect of recognising on the balance sheet right-of-use (ROU) assets previously treated as operating leases. This has mainly related to rented property leases and has the effect of reclassifying rental costs in the income statement into amortisation and finance charges. Further details on the impact are given in notes 23 and 35, which show that £7.80m of new ROU assets and were recognised on adoption together with a similar figure of forward new lease liabilities. Technically, these new lease liabilities will be classified as additional debt, but the Group’s banking covenants have been adjusted so as to ignore this change.

Cashflow and Net Cash

Strong cash generation in trading activities continued as measured by reference to the key performance indicator called EBITDA (defined below), which essentially reports operating profit in broad cash terms. A reconciliation of this measure to reported IFRS profit before tax is provided below:

 

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. £431.40m (2019: £490.60m).

EBITDA: Earnings before interest, tax, depreciation and amortisation, and excluding non-recurring costs, and share-based payment expense. £14.15m (2019: £11.24m)

Earnings per share: Profit for the year after taxation divided by the weighted average number of shares in issue during the year 27.73p (2019: 30.95p).

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. £8.37m (2019: £8.01m).

Return on net assets: Underlying pre-tax profit, with intangible amortisation added back, divided by the balance sheet net asset value. 8.6% (2019: 8.5%).

Net asset per share: The balance sheet net asset value, divided by the weighted average number of shares in issue during the year. £4.92 (2018: £4.79).

Under the exceptionally challenging trading circumstances prevalent during the year, the Board are pleased with the financial performance and believes the results highlight the success of the balanced business model, which this year has sheltered the Group from the difficulties experienced in the arable sector.

 

Paul Roberts

Finance Director

26 January 2021.