Wynnstay : Interim Report

Financial Calendar

Wednesday, 24 June 2020

Friday, 25 September 2020

Friday, 30 October 2020

Saturday, 31 October 2020

January 2021

March 2021

March 2021

Friday, 30 April 2021

AUDITOR

BDO LLP

3 Hardman Street

Manchester

M3 3AT

NOMINATED ADVISOR

Shore Capital and Corporate Limited

Cassini House

57 St James's Street London

SW1A 1LD

Anouncement of Half Year Results

Interim Dividend Record Date

Payment of Interim Dividend

Financial Year End

Announcement of Full Year Results

Dividend Record Date

Annual General Meeting

Payment of Final Dividend

Advisors

PRINCIPAL BANKERS

HSBC Plc

Wales Corporate Banking Centre

15 Lammas Street

Carmarthen SA31 3AQ

NOMINATED STOCKBROKER

Shore Capital Stockbrokers Ltd

Cassini House

57 St James's Street London

SW1A 1LD

SOLICITORS

Harrisons Solicitors LLP

11 Berriew Street

Welshpool Powys, SY21 7SL

DWF LLP

5 St Paul's Square Liverpool, L3 9AE

REGISTRARS

Neville Registrars Limited

Neville House Steelpark Road

Halesowen West Midlands

B62 8HD

Chairman's Statement

INTRODUCTION

We are pleased to report a resilient trading performance in what was an exceptionally challenging period. Adjusted operating profit before non-recurring items1 in the six months to 30 April 2020 increased by 8% to £4.78m (2019: £4.43m) on lower revenue of £229.29m (2019: £260.57m), largely impacted by commodity price deflation. Reported profit before tax was 4% higher at £4.30m (2019: £4.12m). Both the Agriculture and Specialist Agricultural Merchanting divisions contributed to this recovery in performance, which also benefited from the efficiency programme we introduced a year ago.

The outbreak of the coronavirus and subsequent global pandemic created significant social and economic disruption. Our overriding priority has been to ensure the welfare of our colleagues, customers and supplier partners as well as to mitigate risk for the wider community. We are very proud of the way in which Wynnstay colleagues responded to the challenges. Remote working arrangements were put in place, and as an essential service provider we continued to trade across all areas of activity. Our depotsshort period of time. This together with ongoing Brexit uncertainty affected farmer confidence, constraining spending.

The mild but abnormally wet winter weather conditions inhibited demand for many of the Group's core product categories, particularly for arable inputs since many farmers were unable to sow winter cereal seed due to the heavy rain. Spring cereal seed was sown towards the end of March, but it has a lower yield and lower input requirement than winter cereals. Some land that would have normally been cultivated was also left fallow.

While we expect the remainder of the financial year to remain challenging, Wynnstay is well- positioned financially and operationally. Our balanced business model, supplying inputs to both arable and livestock farmers, provides a natural hedge. We will continue with our investment programme, upgrading facilities, systems, and processes, together with efficiency initiatives.

initially adjusted to an 'order & collect' process to FINANCIAL RESULTSminimise infection risks, and our feed, seed and fertiliser processing activities and other distribution operations continued to function to plan. All depots, except for three, have now returned to more normalised operating procedures, with appropriate safe working practises in place.

These issues and restrictions impacted business opportunities over the first half, and additional costs were incurred, including extra short-term resource to cover for those colleagues unavailable to work because of shielding or isolation requirements. We have not had to make use of the Government's Coronavirus Job Retention Scheme and as such no colleagues have been furloughed.

The pandemic created further pressures for farmers, in particular because of its effect on food distribution channels with the closure of restaurants and other food service outlets. Some milk producers were asked to dispose of their milk, rather than sell it into the market, for aRevenue for the six months to 30 April 2020 decreased by 12% to £229.29m (2019: £260.72m), with commodity price deflation accounting for an estimated 60% of the year-on-year decrease. The balance of the decrease reflected lower volumes of certain product categories adversely affected by the wet weather and some sales that were impacted by the trading restrictions in the depot merchanting business as a result of the coronavirus crisis. The Agriculture Division contributed £166.41m to overall revenue (2019: £195.05m) and the Specialist Agricultural Merchanting Division contributed £62.83m (2019: £65.48m). Other activity contributed revenue of £0.05m (2019: £0.05m).

1 Note 20. Explanation of Non GAAP measure

Chairman's Statement continued

During the period, the Group adopted the IFRS 16 accounting standard in relation to Leases, which now requires the recognition of 'right-of-use' property assets on the balance sheet. The Group has chosen not to restate comparative figures, so on adoption there has been an overall comparative negative impact on net profitability of £71,471 in the period. Operating profit shows a comparative increase of £99,445 as some costs, previously expensed as rental payments, have now been classified as interest payable.

Adjusted operating profit, before non-recurring corporate restructuring costs, increased by 8% to £4.78m (2019: £4.43m). Operating profit in the Agricultural Division was £1.81m (2019: £1.79m), which reflected lower arable product demand due to the wet weather, offset by an improved feed performance. Fertiliser and agrochemical sales were very late to commence, in March/April, both for core farmer customers and within our Glasson business. Grain volumes and margins were lower due to farmer reluctance to sell ahead of expected price increases. Operating profit at the Specialist Agricultural Merchanting Division increased by 13.1% to £3.02m (2019: £2.67m), helped by the cost efficiency programme introduced over the last twelve months. Other activities incurred an operating loss of £0.09m (2019: loss of £0.08m). As in prior years, the contribution from our JointNet assets at 30 April 2020 increased by 4% to £96.84m (2019: £92.97m), which represents approximately £4.87 per share (2019: £4.70 per share). The weighted average number of shares in issue during the period was 19.90m (2019: 19.77m).

Net debt at 30 April 2020 calculated on a comparable basis to last year reduced by 83% to £2.54m (2019: £14.70m)3. However, the impact of adopting IFRS 16 has been to create additional lease liabilities of £6.42m, which are now technically classified as debt, and to increase the balance sheet reported net borrowings and lease liabilities at the period end to a total of £8.96m. While the Group's cash requirements are at their highest during the spring months, particularly in April, working capital utilisation benefitted strongly from the commodity deflation driven lower revenues in this period. The lower levels of fertiliser activity have also strongly contributed to this lower cash requirement, which is a considerable reversal to the trading pattern experienced last year.

The Group's robust liquidity position is further supported by recently renewed short-term and committed bank facilities amounting to £20m.

Ventures will be consolidated in the second half of DIVIDENDour full year results.

Corporate restructuring expenses relating to the efficiency programme amounted to £0.18m (2019: £0.09m)2, and net finance costs increased to £0.26m (2019: £0.16m), which mainly reflected the adoption of the IFRS 16 interest charges.

The resultant reported profit before tax was £4.30m (2019: £4.12m), up 4%. The tax charge for the period was £0.82m (2019: £0.76m) and profit after tax increased by 3% to £3.48m (2019: £3.36m). Basic earnings per share increased by 3% to 17.50p (2019: 17.01p).

The Board is pleased to declare an interim dividend of 4.60p per share (2019: 4.60p), equivalent to last year's. This reflects the Board's continuing confidence in the underlying business while recognising the broader economic uncertainty.

The interim dividend will be paid on 30 October 2020 to shareholders on the register at the close of business on 25 September 2020. As in previous years, the Scrip Dividend alternative will continue to be available, with the last day for election for this scheme being 16 October 2020

• 2 Note 10

• 3 Note 11

REVIEW OF OPERATIONS

AGRICULTURE DIVISION

Many of the elements affecting UK farmer confidence in our last financial year, including subdued farmgate prices, extreme weather, and political uncertainty over Brexit, continued into the current financial year, and the impact of the global coronavirus pandemic has heightened farmer caution.

Feed Products

Feed performance improved over the same period last year, benefiting from higher gross margin, which offset the slight reduction in overall volumes. While the winter was generally mild, the extremely wet weather prevented the early turn out of animals seen in 2019, and we saw a recovery in volumes of sheep feed sold. Other ruminant categories saw small volume reductions as many customers switched to straight feedsWhile grass seed sales were similarly delayed by the weather, we took advantage of our strong market presence in this sector once demand picked up in the drier spring period and volumes were higher year-on-year.

Grain trading activities started the year well, with good volumes available from last year's harvest. However, forecast shortages of grain for next year encouraged farmers to delay marketing of their grain to take advantage of anticipated higher prices. This in turn tightened competition for remaining volumes, pressurising margins. We expect this to continue for the rest of the current season, and anticipate reduced volumes from the 2020 harvest, reflecting the lower yields from spring sown crops. This will adversely affect income from grain trading in the fourth quarter of the financial year.

away from manufactured compounds in reaction Glasson Grainto lower farmgate prices. Through our dedicated team of poultry specialists, we maintain a significant presence in the local free-range egg manufactured feed market, where demand is generally very stable. Our ruminant youngstock team continued to grow market share within the milk replacer sector at farm level.

Arable Products

The extreme and prolonged wet weather, which dominated the early months of 2020, hampered all forms of arable farming. Much of the winter cereal seed, bought in the autumn, could not be planted and unused product remains on farm to be sown this autumn. However, we benefitted from strong demand for spring cereal seed varieties when the weather improved in April. These spring crops have a shorter growing period, yield less grain, and require a lower level of agricultural inputs than winter crops. This was reflected in reduced demand for fertilisers and agrochemicals, and the grassland fertiliser market was also delayed due to the wet weather.

Glasson Grain operates in three main areas, feed raw materials, fertiliser production and the manufacture of specialist animal feed products.

Glasson generated a good performance, in line with budget. Feed activities performed satisfactorily. Demand for fertiliser was significantly delayed in the first half, however, in April, as planting conditions improved, volumes rebounded and matched last year's level over the same period. The sharp drop in oil prices following the coronavirus outbreak resulted in lower fertiliser prices and created margin pressure since raw material commitments needed realising before lower replenishment values could come through.