Wynnstay : Interim Results

30 June 2021

AIM: WYN

Wynnstay Group Plc

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

Interim Results for the Six Months ended 30 April 2021

Record pre-tax profit as sector confidence returns

KEY POINTS

Financial

• Record underlying and reported pre-tax profit* results as sector confidence returns, helped by:
• • stronger farmgate prices, greater clarity with the completion of EU settlement and enactment of UK Agriculture Bill
  • balanced business model supplying products to both livestock and arable farmers
• Revenue up 9% to £249.71m (2020: £229.29m), with commodity price inflation accounting for c.65% of the rise and a combined first-time contribution of £5.5m from two bolt-on acquisitions
• Underlying pre-tax profit*up 23% to £5.53m (2020: £4.51m)/ Reported PBT up 25% to £5.36m
  (2020: £4.30m)
• Basic earnings per share, including non-recurring items up 24% to 21.62p (2020: 17.50p)
• Net cash at 30 April 2021 increased to £4.01m on a pre-IFRS 16 basis (excl. leases) (30 April 2020: £1.28m) even after commodity inflation and period of peak working capital utilisation
• Net assets up to £101.05m/£5.04 per share at period end (30 April 2020: £96.84m/£4.87 per share)
• Interim dividend up 8.7% to 5.00p (2020: 4.60p)

Operational

• Agriculture Division - revenue of £180.72m (2020: £166.41m), operating profit before non-
  recurring items up 21% to £2.20m (2020: £1.81m)
• • feed activity performed very well - manufactured volumes recovered strongly, buoyed by more normal winter weather pattern and improved farmgate prices
  • weaker performance from arable operations, as expected - with last year's exceptionally poor planting season and poor harvest, impacting grain trading and seed sales in line with national trend
  • Glasson activity performed well
• Specialist Agricultural Merchanting Division - revenue of £68.88m (2020: £62.83m), operating profit
  before non-recurring items up 13% to £3.40m (2020: £3.02m)
• • strong demand for bagged feed
  • recovery in hardware sales as farmers returned to investing in their businesses
• Commercial Sales & Marketing Director to join in July - completing the reorganisation of the senior management structure, and ESG Manager appointed
• Two strategic bolt-on acquisitions completed - extending footprint in the eastern side of England
• Board appointments - Steve Ellwood became Chairman from March 2021 and Catherine Bradshaw is to join as a non-executive director on 1 July

Outlook

• Strong trading conditions support a good outturn in H2, with farmgate prices firm and 2021 harvest on track to revert to more normal yield and tonnage

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• The Board remains very confident about the Group's longer term prospects, supported by strong financial position and growth initiatives in place

*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:

"These record interim results reflect strong recovery in farmer confidence, driven by higher farmgate prices, and clarity provided by the EU settlement and the landmark Agriculture Act. They also demonstrate the benefits of the Group's broad spread of activities, supplying both livestock and arable farmers.

"We made good strategic progress, extending our reach in the eastern side of England with two bolt-on acquisitions, completing a major hire for our reorganised senior management team, and creating a dedicated role in support of the Group's ESG strategy.

"Prospects for the second half of the financial year are very encouraging, with farmgate prices firm and a good harvest expected. We will continue to invest in the business to increase the Group's manufacturing capacity and improve production efficiencies, and will look for further complementary acquisitions. With our strong balance sheet and good cash flows, we view the future with confidence."

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CHAIRMAN'S STATEMENT

INTRODUCTION

This is my first interim result statement since becoming Chairman in March 2021, and I am delighted to report record interim pre-tax profit. The Group generated underlying pre-tax profit of £5.53m1 (2020: £4.51m), a 23% increase year-on-year, on revenues of £249.71m (2020: £229.29m), up 9%. Reported pre- tax profit increased 25% to £5.36m (2020: £4.30m).

Three factors helped to deliver this excellent result, improved farmgate prices, the EU settlement, and the UK Agricultural Bill, all of which have played a major part in removing uncertainty and improving farmer sentiment.

These results also demonstrate the resilient nature of our balanced business model and the benefits of recent growth and efficiency initiatives. The breadth of the Group's activities, supplying products into both livestock and arable farming enterprises, and the natural hedging this establishes provides significant advantages. In addition, over the last 12 months years, we have been focusing on increasing our exposure to those activities where demand is typically more consistent year-on-year.

The health, safety and welfare of our colleagues, customers and communities remained priorities in the face of the ongoing coronavirus crisis. It is greatly encouraging that, in recent months, there has been some easing of government-imposed restrictions and I am extremely grateful to every member of our team for their efforts to ensure the continuity of our business. It has meant that our farmer customers have continued to be fully serviced throughout this still difficult period.

We made two strategic bolt-on acquisitions in the period in line with our growth strategy. They have expanded our footprint in the eastern side of the UK, and were of the agricultural division of the Armstrong Richardson Group, which supplies inputs to farmers in the North East of England, and the fertiliser manufacturing business and assets of HELM Great Britain Limited, which serves South Yorkshire and the surrounding area. Both bring new customers to the Group and staff with significant experience and local knowledge. I am pleased to welcome the teams, and to report that both acquisitions are integrating well.

In March 2021, we appointed Paul Jackson as Commercial Sales and Marketing Director, which marked the completion of the new management structure put in place at the end of the last financial year. Paul will take up his position on 5 July 2021, and this new structure allows for enhanced Group effectiveness, and supports our future growth and investment plans for the business.

As we emerge from a period of a significant level of general economic uncertainty, we are confident that Wynnstay is well positioned in a sector that is emerging from a prolonged period of inertia created by Brexit uncertainties. We expect to make good progress with our investment plans and growth initiatives in the second half of the financial year.

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FINANCIAL RESULTS

Revenue for the six months to 30 April 2021 increased by 8.9% on the same period last year to £249.71m (2020: £229.29m). We estimate that commodity price inflation accounted for nearly 65% (c. £13.3m) of the overall increase, with the combined contribution from the two acquisitions completed in February and March contributing £5.5m. The contribution to Group revenue from the Agriculture Division increased by 8.6% to £180.72m (2020: £166.41m) and from the Specialist Agricultural Merchanting Division by 9.6% to £68.88m (2020: £62.83m). Other activity contributed revenue of £0.11m (2020: £0.05m).

Adjusted operating profit rose by 19% to £5.68m (2020: £4.78m before non-recurring costs, share-based payments and intangible amortisation). The Agricultural Division contributed operating profit of £2.20m (2020: £1.81m), up by 22% on last year, with this result reflecting improved manufactured feed volumes and incomes but lower contributions from the arable product categories following the exceptionally poor harvest last year. The Specialist Agricultural Merchanting division contributed operating profit of £3.40m (2020: £3.02m), up by 13%, reflecting a continuation of the improving trading conditions evident from the end of the previous financial year. Other activities incurred an operating loss of £0.12m (2020: loss of £0.09m). In line with prior years, the contribution from our Joint Ventures will be consolidated in the second half of our full year results.

There have been no non-recurring costs charged in the period (2019: £0.18m)2, and net finance costs

including IFRS 16 charges were £0.11m (2020: £0.26m), with this reflecting the improved average cash

position. Share-based payment expenses for the period increased to £0.16m (2020: 0.03m), as a result of the launch of a successful all employee Save As You Earn option scheme in the second half of last year.

Reported profit before tax was higher at £5.36m (2020: £4.30m). While the effective tax rate for the

period at 19.1% (2020:19.0%) was slightly higher, resulting in a charge of £1.03m (2020: £0.82m), it is lower than the 2020 full year effective tax rate of 20.7% as a result of the Government's 130% Super- deduction capital allowance on qualifying investment. Profit after tax increased by 25% to £4.34m (2020: £3.48m) and basic earnings per share increased by 24% to 21.62p (2020: 17.50p).

Net assets now exceed £100m, and at 30 April 2021 stood 4% higher year-on-year at £101.05m (2020: £96.84m). This equates to £5.04 per share (2020: £4.87 per share), based on the weighted average number of shares in issue during the period at 20.06m (2019: 19.90m).

Net cash on a pre IFRS 16 basis (excluding leases) increased significantly to £4.01m (2020: £1.28m), despite the commodity inflation experienced and the Group's cash requirements peaking during the spring months, particularly in April. Total lease liabilities amounted to £8.86m (2020: £10.24m). Strong cash generation from trading and tight working capital control remain priorities, and continue to provide a secure underpinning to the Group's growth plans.

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DIVIDEND

The Board is pleased to declare an increased interim dividend of 5.00p per share (2020: 4.60p), up by 8.7% on the equivalent payment last year. The increased payment reflects the Directors continuing confidence in prospects for the business and the strong results.

The interim dividend will be paid on 29 October 2021 to shareholders on the register at the close of business on 1 October 2021. As in previous years, the Scrip Dividend alternative will continue to be available, with the last day for election for this scheme being 15 October 2021.

REVIEW OF OPERATIONS

AGRICULTURE DIVISION

The improving sector sentiment experienced towards the end of the last financial year continued into the new year. It was supported by continuing strong farmgate prices for most commodities and the removal of some of the political uncertainty with the completion of the Brexit negotiations and clarity evolving over the details of the future support provisions contained in the new Agriculture Act.

Feed Products

Manufactured feed volumes recovered strongly, up by 8.5% over the equivalent period last year, helped by the improvement in background trading conditions and a more normalised winter weather pattern. We continued to make progress in the free-range egg feed market and have further increased customer numbers and tonnage sold.

Rising commodity prices remain a challenge and careful raw materials management is required across our manufacturing and trading operations where margins are likely to come under pressure as prices continue to rise. Efficiencies in production are therefore essential. Our substantial three year investment programme currently under way at our Carmarthen mill will generate significant benefits, materially increasing our manufacturing capacity and improving manufacturing throughput.

Arable Products

The weaker performance from our arable operations was expected, with the anticipated consequences of the poor harvest of 2020 and the carry-over of autumn seed from 2019, coming through in the period.

Grainlink, our grain marketing business, experienced a like-for-like 26% reduction in volumes available to trade. This was in line with the latest estimates of the overall reduction in UK wheat and barley production in 2020. However, margins improved and the positive contribution from the acquisition of the agricultural division of the Armstrong Richardson Group in February minimised the financial impact of the contraction in volumes.

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