Wynnstay Group Plc (WYN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Wynnstay Group Plc interim results presentation for the period of 30th of April 2021. [Operator Instructions] I'd also like to remind you, this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Gareth Davies, CEO; and Paul Roberts, Finance Director of Wynnstay Group Plc. Good afternoon.

Good afternoon. Thank you, Paul, and good afternoon, everybody. I'm Gareth Davies, Chief Executive Officer, and I'm joined by Paul Roberts, our Finance Director. So for those who are not so familiar with the business, our business is about supplying farmers and customers predominantly within the rural communities. The business started in 1918 as a farmers cooperative, becoming a Plc in 1992 and listing on to the AIM's market in 2004. I'm often asked the question, what is our business, and what do we do? I'll use the phrase that we help farmers, both livestock and arable farmers to produce food. As a business, we supply most agricultural inputs with the exception of farm machinery. So therefore, we don't deal in tractors and combines, et cetera, and anything that they should have with them. We only deal in the U.K., predominantly Mainland GB. We do not export. As a business, we report in 2 divisions: Agriculture, which includes feed, arable and Glasson Grain Ltd.; and the other section being Specialist Agricultural Merchanting, which covers our 54 depots and a subsidiary, Youngs Animal Feeds. We have a balanced business model. We deal with livestock farmers and arable farmers, which provides a natural hedge within the business. You may be aware of the term horn v corn. What that means is that sometimes arable farmers are doing well and livestock farmers are not at the same time and also vice versa. So that gives us a natural hedge within the business and helps us deliver consistent results. Our routes to market, we have a multichannel routes to market, either people collecting product from our Wynnstay depots, delivering products direct to farm, e-commerce and online with specialist catalogs and also a team of expert advisers who, by appointment, make farm visits. I'll give you more detail in the presentation about the divisions and also the balance within each division. Our geographical reach. There's 2 maps here. The map on the left-hand side gives you an indication of where we're stronger and where our market share is. The darker blue is where we're stronger. And [indiscernible] is really -- as we're based on the Welsh borders just west of Shrews, being south of Oswestry, that's where we started, and that's where our strongest position is. So the darker blue is our stronger position. You'll notice that whilst we do cover many parts of England and Wales and a small part of Scotland, we're not totally national. The symbols indicate where our manufacturing points are. Therefore, orange symbols, fertilizer processing at Montrose in Scotland, 2 sites in East Yorkshire and 1 in Lancashire. The yellow symbols are our feed manufacturing facilities, predominantly on the western side of the country where the animals are. And the central at Shrewsbury, the green symbol indicates where our seed processing facility is. The map on the right-hand side shows where our 54 depots are. So the dark blue are our 54 depots, and our business model within depots is based on the livestock sector. So therefore, our depots are predominantly on the western side of the country, stretching from [ Cornwall ] in the north in [ Cambria ], right down to the southern tip of Cornwall at Helston. The 3 green dots indicate our subsidiary, Youngs Animal Feeds. Youngs Animal Feeds is a specialist division, not effectively a manufacture product for the equine market, and also a distributor for the pet market. So that gives you an indication of where we trade as a group. The model of our depots is very similar to -- very often referred to -- similar to building merchants. 85% of our trade would be business to business, so therefore, an account with farmers. But anybody is welcome to come into our depots and pay by casual card. Currently, the business has rounded about 950 employees. So just going on to the operational highlights of our half year results. We're very, very pleased with the performance of the business. Record first half profits. This was supported by stronger farm grade prices and particularly the clarity for the industry with both the EU settlement coming out of Europe and understanding clearly where we go in with a free trade agreement, FTA, and also the U.K. agricultural bill becoming the U.K. Agricultural Act, which effectively is the way that our future -- our governments will support our agriculture going forward and includes the developed nations. Our balanced business model has certainly helped us deliver this performance. Strong contributions from the feed sector, from the specialist agricultural division, from Glasson Grain Ltd., which is mitigated to agree the challenge in arable sector. Throughout the COVID pandemic, we have kept all our operation's trade-in, which demonstrates both the agility and the resilience of the business by ensuring that our customers have been fully serviced throughout this very difficult period. We've continued to build the business and develop the business to bolt-on acquisitions. AR Agriculture and HELM fertilizers have not only given us an increased geographical footprint but also increased fertilizer manufacturing capacity. Both have integrated well into the business. We've also completed our senior management organization with the appointment of a very experienced sales and marketing director, and Catherine Bradshaw joins the group Board as a Nonexecutive Director. ESG is a strategic pillar, but it will also drive commercial benefits. We've appointed a group ESG manager who will not only ensure that our policies and our objectives are embedded right across the group but will also help our farmer customers to deliver their own environmental strategies that will now be required as part of U.K. agricultural policy and the environmental land management scheme or sometimes known as ELMS. We continue to invest in the business. We started our 3-year investment plan at Carmarthen feed mill, which is a GBP 6 million investment over 3 years in addition to other investments. So there's been a strong and resilient performance from the business in both the short- and the long-term prospects for the sector, and Wynnstay is very encouraging. I will now hand over to Paul to go through the financial highlights.

Thank you, Gareth. Good afternoon, everyone. Just the financial key points from the first 6 months of the year. It may seem a strange thing for me to say, but revenues are not necessarily the best metric of assessing the underlying financial performance of the business. And that's because a lot of the categories that we're actually involved in are subject to underlying commodity prices, which the business really has no control over, so volatile commodities such as grain, soy and other soft products. Our business model effectively involves adding an absolute margin to an underlying price and passing that on to our customers. The reason I mention that is that this period under review has been a period of relatively high commodity inflation, which is actually accounted for the majority of the GBP 20 million increase in revenue in the period. Gareth earlier mentioned our 2 bolt-on acquisitions, which took place in the second quarter and added a further GBP 5.5 million to that revenue increase number. Those do disguise the volume performance of the business, which is obviously fundamental to our business model, or where we have actually seen a very strong recovery in manufactured feed volumes, an increased fertilizer volume driven by the expansion of our Glasson business, which included the HELM acquisition that Gareth has mentioned. But those volume increases have been offset by a significant reduction in the volume of traded grain that the business has carried out in this 6-month period. And that was a result of the terrible harvest from 2020, where yields were actually down by some 40%, particularly in wheat. But those changes, again, mask an improved margin mix in the business, where the categories that we have seen increased volumes in represents some of the higher margin categories we're involved in, where graded traded grain, for example, is actually a low-margin category. So overall, the absolute margins generated by the business have increased significantly, and this has been the main driver of the record interim profitability, which showed a 19% increase at the operating level and a 23% increase at the underlying PBT model. This profitability has fell through to earnings per share which increased to 21.6p per year. The business turns its profits into cash very readily, and the improved cash position is represented again by another one of the highlights. Retain profitability has increased the net assets of the business at the end of April, which now exceeded GBP 100 million for the first time. And the improving sentiment within the sector has provided the Board with sufficient confidence to recommend a further near 9% increase in the interim dividend. Just showing some graphs that actually represent the underlying progress of the business over a 5-year period. The absolute business model -- absolute unit margin model that I mentioned is probably best represented by the top right-hand graph there. Gross profit in absolute terms is demonstrating the growth of the business over that 5-year period and, as I mentioned, is a better metric for assessing the performance of the business than revenue. And that improved performance is reflected in the income statement, where that absolute gross margin shows an increase of some GBP 1.8 million on the previous year with a tight control of operating costs, which only grew by GBP 900,000 in the period. That's where we saw the increase of 19% in the operating profit. One other number on that schedule is the lower finance charges as a result of that strong cash generation and the much lower utilization of debt, which in our business is primarily used to fund working capital. Just turning to the balance sheet. I'll highlight the asset-backed nature of the business again. The GBP 101 million of net assets represents some GBP 5.4 per share but also disguises the freehold property assets that we have in the business. Of that fixed asset line, property, plant and equipment, some GBP 10 million of that is represented by freehold property, which is in this balance sheet at its historic cost. So our 13-acre industrial estate, which represents our head office in mid-Wales, is in the balance sheet of its 1957 cost. We estimate that a real up-to-date valuation for those operating assets would more than offset the goodwill that's been carried in the balance sheet. So a strong tangible business represented by the balance sheet, which you'll also note has no pension liabilities. There are no defined benefit elephant traps for the company to fall into -- in the future. So just turning to cash generation and working capital. This is an old-fashioned reconciliation statement, which provides a summary of EBITDA, profit in cash terms right down to the closing net cash position at this time of year. You will see a substantial outflow in the first half of our financial year. In both years, it was bigger in 2021 because of the low position at the year-end as a result of that very poor harvest that I mentioned, the restricted activities at the back end of last year. But this is usual and represents seasonal cycle, which is quite predictable within our business. So again, just trying to highlight these points. The net cash bridge is just showing a perspective of that cash change position. But looking at what I call the cash rollercoaster, demonstrates that predictable nature of the seasonal cash flows within our business. You'll see with our interim results, the lines have historically been negative where the business has been in a net debt position. With our October year-end, which represents the trough of our working capital requirement, you'll see that the business has historically reported a net cash position. All of those positions have been stronger in the last 2 years, but the predictable swing between peak and trough generally averages something like GBP 10 million and is a good method of control and activities within the finance department of the business. So finally, from me, just by way of introduction for Gareth to give a little bit more detail on the divisional performance, just some charts to try to represent that balanced business model that Gareth mentioned to the pie chart on the left-hand side represent a roughly 3 quarters, 1 quarter revenue split between the 2 divisions. And in our ideal world, bar charts on the right-hand side would be an equilibrium with equal contributions, which is very much our plan moving forward to grow those elements of the business so that, that business model helps iron out any concerns over climate or animal disease or any other problems that can affect agriculture by having that equal split across our activities.

So thank you, Paul. I'll cover the agricultural division first. I'm starting with feed. Our feed division has performed strongly during the period. Manufactured feed volumes were 8.5% above the same period last year. I think the significant point about that is, as a country, the U.K. was up 3%. So as a business, we've gained market share, particularly within the dairy and the free range egg sectors. Dairy volumes are up 10.5%. Our fee to the free range eggs sector was up between 12% and 13%, and that aligns to our strategic ambitions. So we're particularly pleased with that. Raw material markets have been particularly volatile, and we've seen significant increases during the period. Wynnstay margins have remained in line with expectations. So we've been able to manage a very difficult market well. Looking ahead, I mentioned previously that we have commenced an investment plan of Carmarthen feed mill down in southwest Wales to double the capacity to 300,000 tonnes. Southwest Wales is the second largest milk field in the country. Dairy is very much a percent of our strategic ambitions and our growth. And there is the opportunity not only to gain market share down there, but also to repatriate some volumes of feed manufactured tonnes that we have manufactured with some of our competitors in the area. Effectively, our mill is full in the southwest in Carmarthen, and we have the opportunity to bring tonnes back to the mill as well as increasing market share. Looking at some of the projects and initiatives that we're involved in. It is anticipated that the number of cows' milk by robots will increase over the coming years. Currently, over 12% of the cows within the U.K. are milked by a robot system. It is the belief that by 2025, this will increase to 25%. So as a business, we've introduced bespoke feed rations with cows that are milked within the robotic system. That has brought us new customers and also the opportunity of increasing sales going forward. Other initiatives involve carbon reduction and sustainability initiatives. Some examples of those were currently trial in feed rations with ingredients to reduce methane from ruminants. Whilst very much in the trial period, if we are able to prove that these are commercially viable as well as practical in reducing methane, it will give us an edge over some of our competitors. We're also looking to feed lower protein rations without being detrimental to the yield of a cow, and therefore, reducing ammonia. We're also collaborating with partners to look for alternative feed ingredients to imported soya and palm kernel in a quest to increase sustainability and reduce the carbon footprint of producing product at home rather than to import proteins from the Americas and beyond. I'll just go on to the arable sector. It has certainly been a very challenging period for arable division. However, this is in line with our industry competitors, and that's as a result of what Paul referred to earlier on, following a very poor harvest of 2020. Yields were about 10 million tonnes, which is probably the lowest yield of wheat in the U.K. for nearly 40 years. That gave us less with grain to trade. And also, there was a carryover of cereal seed from the previous wet autumn, and therefore, farmers did not need to pay so many tonnes of seeds in the previous year. However, despite the lower grain volumes, margins have improved. And GrainLink, which is our subsidiary grain marketing business, delivered a performance, which was over and above expectations. The acquisition of AR Agriculture has contributed positively in the period whilst also allowing us now to extend our footprint into North Yorkshire and into Durham. Looking forward, we believe that there will be a good harvest. There's a lot of grain -- there's a lot of cereal in the ground. There's a lot of crop in the ground. And the rains in May came at the right time, and it looks as if this is going to be an exceptionally good yield. That bodes well for both our customers and for Wynnstay, and cereal prices are relatively high as well. We will continue to expand our team in the arable east. We've just recruited 2 experienced traders to join our team, and we've also got plans to construct a new seed plant in Yorkshire to supplement and complement our ambitions to grow in the area. The investment in Astley -- plant at Astley is ongoing as well. We're investing GBP 0.5 million there to increase grass seed production and also to add new technologies in relation to cereal seed processing. We've strengthened our environmental seed offering with the appointment of an environmental seed manager, a head of the introduction of the environmental and management scheme that I referred to earlier on, where farmers will be rewarded for planting grass seed with them with wildflowers. You may be aware of the drive to increase the amount of pollinators for bees, where the bees have dropped in, in numbers and also to introduce deep-rooted herbs that will aid soil structure. We believe that we're in a strong position to take advantage of that. The HELM scheme comes into force in 2024, and we're well prepared for that. So just going on to Glasson Grain Ltd. Glasson Grain Ltd. is a subsidiary business based at Glasson on the Lancashire coast. There's a picture of it there. It's actually based on a small dock. It is a title dock. So the vessels have come into the dock. It's no more than about 3,500 tonnes. The business is balanced. We trade in feed raw materials, fertilizer process in manufacturing and also specialist feed manufacturers. It's a balanced business model. Very strong performance from Glasson, ahead of both last year and expectation, driven primarily by high demand for feed volumes and also an excellent performance from the fertilizer division, which has been supported by a stronger-than-expected contribution from the new business, HELM fertilizers. And this acquisition will actually increase our fertilizing capacity, manufacturing capacity by about 20%. So looking forward in Glasson, we'll build upon our very successful market share that we currently have. We are the second largest manufacturer of fertilizer -- blended fertilizer in the U.K. HELM fertilizers will bring us increased market share in the East. Whilst at the same time, we will continue to seek an additional plant in the southern part of the country, where we have business and our national customers are looking for a supply from ourselves. We'll also grow our activity in Glasson mill by strengthening our sales team and introducing productivity and efficiency improvements within manufacturing by introducing a new packing system over the next 12 months. The Specialist Agriculture Merchanting division is the second division that we report in. This division has performed exceptionally well, increase in sales and the contribution to the group. So this is the 54 depots that I referred to earlier on. And whilst our sales have increased by 10% year-on-year, I should note actually that the comparative period was impacted by the first lockdown 12 months ago. Strong performance has been driven by improved feed sales, up 9%. On hardware, 13%. And I'll just make a point about hardware. Within this sector for ourselves, it includes fencing and livestock handling equipment and materials for building farm sheds, and that's a clear sign at 13% up year-on-year. It's a clear sign that farmers now have confidence with a clear direction of the EU settlement and the U.K. agricultural bill all farmers will be supported going forward to now reinvest in their business. We went through a period of time where farmers did not have a lot of clarity as to what it meant for them going forward, but now there's confidence back in the sector, and we can clearly see that with the investment in hardware and the infrastructure in their own businesses. Digital is a major pillar of our strategy. We commissioned a customer research project carried out by an independent company, Map of Agriculture, to consider how our customers for the future will want to trade and what impact that may have on our depot network. Both customers and noncustomers were surveyed. The survey basically was a comparison about how they trade today, which is by the depots or the on-farm specialists, as against potentially bigger depots, but further apart and less of them, trading by telesales, online or indeed doing away with the depots and replacing the depots with a van and a man service or man-to-man service or a lady and a van as in the picture that you see there. About 400 customers were surveyed, unknown customers from right across our trading area. The conclusions was that whilst online trading would increase in the long term, the depot network was extremely valued for the agricultural community. Everybody was surveyed, from young people in the 20s up to people from about 50, 60 and beyond, all engaged in online activities. But within agriculture, they increasingly use online to seek information, but they still prefer to trade with our depots on the trusted on-farm advisers by appointment, confirming our original thinking was referenced to the rollout of our own digital strategy. So during the period, we introduced a customer portal, which will allow our customers to trade in a digital manner. Customers are able to access the portal, to access their accounts, and we're currently in the beta testing stage to be able to trade by the portal. So looking to the future and taking on board the findings of the survey, we'll continue to reshape our depot network. Over the last 18 months, we've reduced the depots from 59 to 54 in the same geographical footprint, and I'm very pleased to say that we've been able to do it efficiently. We've been able to hold on to the trade whilst reducing costs. We're also in the process of strengthening our national offering. Our market share on animal health, for example, is 12%. We are the market leaders in a very fragmented market, and we see the opportunity of being able to roll out our offering on animal health and young stock group -- product groups across the nation where we may not have stores at this moment in time; and to roll out our digital engagement with our customers, whether it be via podcast, social media and, of course, a further expansion of our online offering via the customer portal. So very importantly and looking to the future, what's the outlook for the rest of this financial year and beyond? We are very well positioned to grow our business across our 4 strategic business units and that being, feed, arable, Glasson Grain Ltd. and also Specialist Agricultural Merchanting, whilst at the same time, maintaining our very successful and proven balanced business model. To drive organic growth, the appointment of the sales and marketing director is significant as he will be responsible for building upon our trusted team of advisers on farm, and this certainly gives us a point of difference over some of our competitors, and also advancing our multichannel sales strategy by building upon our digital offering and our sales trading desk to complement our on-farm and depot sales activities. We aim to increase our M&A activity. We've completed the 2 bolt-on acquisitions in the first half, and we are seeking further opportunity to add value to the group, both within our current geographical footprint and beyond. Expansion of our manufacturing capacity across the business will come from both organic growth, investments in our current facilities and acquisitions. And the rollout of our depot optimization program and investment in technology will continue to take costs out to the supply chain. I believe that we have a very strong and experienced senior management team that will be able to drive this growth and increase efficiency. Whilst a key pillar in our strategy, ESG will also contribute to growth. Farmers will be rewarded for delivering environmental outcomes. And Wynnstay is in a unique position. But as a business, we offer both the goods and the services to help our farmers achieve the desired outcomes and become carbon net zero by 2040. 2040 is the ambition for U.K. agriculture set down to the National Farmers Union, and we will certainly contribute to achieving that. We'll continue to encourage sustainable farming techniques and continue to source materials that have been grown and produced in a sustainable manner. Examples of that would be soya that referred to earlier on. Soya was a feed ingredient used in rations, in feed rations. It's imported from the Americas, and we only import product that has been grown in a sustainable manner. And also in reference to packaging, the majority of our packaging from our feed and our fertilizer manufacturing plants now contain a minimum of 30% of recyclable product. Wynnstay has become a corporate member of LEAF. LEAF is the Linking the Environment and Farming. So Linking the Environmental and Farming. LEAF is an organization that was set up Sunday Farm Open days, which is the opportunity for people to discover what it means to be a farmer and the work that these farmers do to produce our food. We're very much in support of that organization. So in the future and concluding, confidence has certainly returned to the sector, clearly helped by a better understanding and clear direction for U.K. agriculture in terms of both government support and also the EU settlement. Trade deals between the U.K. and non-EU countries will provide both opportunities and challenges for our farmers. The Australian trade deal has been very much in the news recently. It is the first trade deal that the U.K. has done since coming out of the European Union. And whilst not concluded as yet, it will be over a 15-year transition period, it's expected. The detail has started to come through. And certainly, the media and the press would indicate that the outcome of the Australian trade deal is potentially damaging or challenging for U.K. agriculture, particularly red meat. We feel it will be okay for dairy, free range eggs and arable. But possibly, there's a challenge to red meat. As the volume of tariff-free quota, therefore, the amount of meat that can enter into this country without a tariff on it will increase. Sheep possibly at least double on that. Beef meat, at least tenfold. However, it is a challenge. You may be aware that or may not be aware that currently, there's an agreement with Australia that tariff-free meat can come into this country as it is. However, it is only being filled by over 50%, and the reason for that is economics. Australia has far better markets, closer to home in China and the Asian Pacific Rim. So whilst that part of the world continues to grow on the demand on protein from an ever affluent population is there, Australia and New Zealand will find better markets near the whole. New Zealand has a quota of 227,000 tonnes of tariff-free sheep meat into Europe at this moment in time. In the last 12 months, only 67,000 tonnes came in. So I don't see Australian trade deal to be that detrimental to U.K. agriculture going forward. And of course, it is the issue of standards. The National Farmers Union quite rightly pointing out that meat in Australia, particularly beef, has grown with growth promoters. And land is treated with certain herbicides, which are banned in the U.K., and they are band here for a reason. So I think the U.K. needs equal standards with the rest of the world that we have to compete with for product brought into this country. However, there's other deals that is very positive. A deal with Japan for U.K.-quality produced food. Japan is particularly interested in how the food is produced, high welfare standards and high animal health standards and environmental standards. And certainly, the U.K. is seen as the best producer of food in the world, and nobody has competed with the U.K. as far as those standards are concerned. And if we can secure our added value markets abroad, the whole market value will also follow. At this moment in time, farm grade prices are particularly strong across the majority of product categories over the last 6 months as the price of eggs, dairy and beef are all increased, and arable as well, while sheep meat certainly in the period of time between February and May was at an all-time high. We support our strategy of concentrating on dairy, free range eggs, arable and high input beef and sheep. I mentioned earlier on that our activities within the arable sector for the second half of the financial year looks strong. There will be a good harvest. There will be good volume of tonnes to trade. And it is anticipated that the larger acreage of cereals will be redrilled for next year's harvest -- Wynnstay cereal seed. The outlook for H2 for Wynnstay and our customers is very encouraging. And the group is well positioned for both operational and financial growth into the second half of the financial year and beyond. Our strategy is on track, and our business is strengthening. So I'll hand back to Paul, if I may.

Fantastic. Thank you very much indeed. Well, thank you for that presentation. [Operator Instructions] I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A, can be accessed via investor dashboard on the investor meat company platform. I'd just like to remind that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations.

Gareth, Paul, perhaps before we move on to some of the live questions, we did have a couple of presubmitted questions from investors. And if I may, I'll just read the first one out, and perhaps I can address that to you, Paul. Can you discuss any input price pressures or supply chain issues and also your own pricing power, please?

Yes. Thanks. As I mentioned in the presentation, we are subject to underlying commodity prices as a major input cost for our business. Our business model is to add an absolute margin to those input costs, and therefore, volumes are the important factor to us. We do have various tools available to us for managing some of those prices. International futures markets taking derivatives on forward purchasing of particular soft commodities is the usual way of ironing out or smoothing out our volatile pressures, and we've obviously got considerable experience in that. We always would emphasize that we are not a commodity speculator. So we do not take positions or take bets on the movement of individual commodity markets. We operate a balanced book where we offset our budgeted sales with our purchase requirements and always operate within set parameters to control that issue. It's probably fair to say that on input expenses, there is some inflationary pressures building up. That's evident in fuel costs and, indeed, labor costs as the labor market has tightened with various outcomes of Brexit and so on. So these are areas that the business is focusing and is focused on controlling going forward. Because we are a relatively small unit margin business, net margins are around 2% to 2.5% of revenues. So controlling costs will always remain a strong focus for us.

Fantastic. And the second one, if I may, Gareth, I think I can address to you. Are there any digital disruptors or other new entrants in your field of business?

No, not really. There's no digital disruptors come into the agricultural sector. Our competitors do offer online. However, they're no further forward than what our sales would be, and I guess that's because of the research that they would have done possibly in addition to what we've done. So as a business, we feel that we're very much in line with our own market, and we don't feel that there's anybody particularly ahead of us in the digital strategy on online sales.

That's great. We've had a number of questions submitted from investors during the meeting itself. [Operator Instructions]

Yes. Okay. So there's a question here, but there are a lot of places in the U.K. where you don't have depots and physical coverage, and presumably, lots more growth to happen. Are you planning to cover the whole of the U.K. soon? So if I take that question. It's a good question. Thank you. Our depot strategy and our depot model is very much based on livestock, as that map would have shown you earlier in the presentation. So do we really have the ambitions to increase our number of depots across the geographical area? Yes, we most certainly do. Our depots will be within the livestock areas rather than the arable sector. And the reason for that is that livestock farmers are generally a little bit smaller and would very often, by far more often, purchases would take far more often than the notable farmer. They'll be smaller, and they would come and collect product rather than have it all delivered. The arable sector tends to buy less regularly than in larger transactions, and it's all delivered to farm. So -- but to answer your question, are we planning to cover the whole of the U.K. soon? Certainly, our ambitions within M&A would be to expand our geographical footprint, but we'll seek those opportunities and do so if the opportunity is right. But there's nothing to announce very shortly, but we continue with that M&A strategy. So just going on to another question. And have you ever raised equity since your IPO? And can you finance your growth without raising new equity? So maybe if I ask Paul to answer that one.

We joined the AIM market in 2004 and effectively introduced the shares at that point. We have since then used the market on 3 occasions to raise finance to support acquisitions, which has obviously been an important pillar of our growth strategy. The U.K. agricultural supply sector remains very fragmented, and the consolidation process and strategy that we have been following is probably result in us doing some 30-odd transactions in that period since 2004. We have raised funds to finance 3 of the larger transactions. So we certainly see the benefit of being on the public market, but also as well as the very valuable element of contributing finance to support the investments the business has made. The fundraisings have also acted to widen the shareholder base for the company and improve the profile of the business as far as the wider city audience is concerned. So those finance-raising opportunities were opportunities to bring in some larger institutional holders onto our shareholder register. So I very much see them as double benefits. And we would certainly consider use of the market, gain for the appropriate earnings, enhancing opportunity, which, as I said, from the fragmented industry, remains a number of opportunities for us. And as our balance sheet is growing, then our ability to contemplate larger transactions has also grown as well.

So just add into that, and there was a -- Paul will add to this, if he may. There was a further question. Do you envisage further acquisitions to be a share issue or cash?

Well, again, we have no specific strategy on the most appropriate method of finance for any individual transaction until the structure of that deal is fully understood, and I've always used the London bus analogy for acquisitions. You tend to study the timetable for months on end, and then 3 buses come along at the same time. So the funding package will always be appropriate to the transaction that's being contemplated. But certainly, we feel one of the benefits of being on a public market is the ability to raise funds, but it can only be concluded at the appropriate stage when the structure is fully understood.

This question here, which has been partly touched on earlier. From a Wynnstay point of view, what does rising grain prices mean for the business? So maybe if I take that one. It -- there's a balance here actually due to the balanced business model. From rising grain prices, first and foremost, it means that our arable farmers are having more for their product, and therefore, they have more money into their banks, which is particularly good news. Paul, is related to the absolute margins that we work on. So therefore, it doesn't increase the profitability of the business that much. So from an arable sector, from a farmer point of view, yes, it's a plus. Rising grain prices means that arable farmers will plant more grain as they see an income stream increase in the future. From a feed perspective, rising grain prices will mean that the feed price will raise as well because our major constituent of feed rations would be cereals. So therefore, arable farmers are doing well, but feed -- but the livestock farmers will have to pay more for that product. And that's what I referred to earlier on is the horn v corn scenario. Our balance business model accounts for the 2. So as a business, we're able to accommodate it. And overall, it doesn't have a significant impact on us. I'll just follow that question with a further one, which I'll ask Paul to give a view on. How vulnerable is the group to a sharp rise in global commodity prices? Can you just pass on the increased prices? Or could they reduce your margins? I think Paul has covered this primarily. But maybe, Paul, if you add to that.

Certainly, without wanting to sound our complacent, the business model requires us to pass those underlying commodity prices through, and our farmer customers will generally have a good understanding of the direction of travel in any commodity markets. So when prices fall, for example, they certainly expect us to be adjusting our prices downwards. And although they may not like it when prices are rising, they certainly understand the reason for us to be increasing prices in line. We do offer, as I've mentioned, various tools to manage those situations. We very much like to offer term contracts to our customers, which not only then commits them to our business, but offers them a degree of price stability, which we can then hedge using one of the derivatives that I mentioned before. So working hand-in-hand with our customers. We certainly support their businesses through any periods of adverse volatility. Obviously, our issues outside of our control such as adverse weather events in large commodity-producing areas, such as the current heat wave in the certain parts of America, these are concerns that we're constantly monitoring, and we'll be in a regular dialogue with our customers over. One of the downsides of higher prices is the impact that it has on working capital for the business. And certainly, part of my job is to ensure that adequate financing is always in place to make sure that we have adequate headroom to absorb any unexpected commodity shocks. But again, a long track record. This business has been operating for over 100 years, and the resilience in managing our way through these difficulties is well embedded and ingrained in the company. So yes, they -- there can be some unexpected movements, but we're very adaptive at managing them.

Okay. One question here, how are the acquisitions AR Group and HELM embedded and integrated into the business? So these acquisitions are fairly recent. AR Agriculture came in February. HELM came in March. Both are above expectations, and both have contributed to the financial performance in the first half. But over and above that, I think that they've integrated exceptionally well. This growth in the second half, both of them are basically arable businesses. And I mentioned earlier on that it is quarter 4 for us, so August, October -- September and October. But the arable part of the business contributes heavily, and that's because the harvest, the harvest is in July and August. And there's tonnes to trade and seed to sow and fertilizer to pay, et cetera. So we're very, very pleased that those 2 companies have embedded and integrated, and we certainly see growth coming forward from both of them, both in terms of giving us new customers and also extra manufacturing capacity. One question here would be, yes, would you be able to confirm your underlying property asset base on the last property valuations? I didn't catch the valuation date you mentioned. What do you see current values has been?

Apologies for, probably, my slightly confused message on the balance sheet. I was emphasizing the asset-backed nature of the business. The balance sheet includes around GBP 18 million of non-leased fixed assets, which include GBP 10 million of written down freehold properties. These are assets where we're actually operating the business from, so which not as if they have any immediate disposal value. They are the sites of our feed mills, our seed processing plants and so forth, but the values are contained in the balance sheet at historic costs, which will be different for the different assets. But our head office site was acquired back in 1957 and is still in the balance sheet as part of that GBP 10 million at the 1957 value. So clearly, there is disguised value because those assets have not been revalued recently, but the difference between the balance sheet and insurance values, for example, is around about GBP 10 million. So that's the disguised freehold asset that isn't shown in the balance sheet values, which I often use to offset the goodwill, which is contained in the balance sheet. And just to offer a broad perspective that any which way you cut the balance sheet, then there is a tangible asset base to the business there. It's a real business where you can come and kick the tires and so on, and I think that is just the investor perspective that I was trying to offer.

Okay. And question here was, what levers to have the flex margins, and I guess we've covered that to a degree. But go on from there is with reference to acquisitions and the criteria you consider, what are you actually looking for?

I mean very simply for me to start off with the activities for our acquisitions need to support that balanced business model. It's a sheer coincidence that the 2 transactions from the second quarter of this year both had an arable bias, but the balanced nature, that internal hedge and to excuse the fund to avoid us having all of our eggs in one basket, we're very keen to seek out acquisitions across the range of our activities so that we can grow all of those divisions proportionately so that, that balanced business model can be maintained. An ideal scenario for us is a business that is strong in a particular product category into which we can then cross-sell our wider range of offerings and, indeed, our expertise. Obviously, geographic regions, the -- we've seen the map, certain areas of mixed farming interest for us where we can increase our footprint is important to us. But obviously, from a financial perspective, earnings enhancement is an absolute must for us. Then there are plenty and sufficient opportunities for us out there, and we intend to carry on being selective to ensure that a proper contribution can be made from any transactions that are completed. But we do have a very successful track record of identifying, negotiating with and then successfully integrating those transactions that we do enter into.

Yes. Just to add to that, our strategy is very clear, that is agriculture on U.K. So our acquisition criteria very much starts there. Does it fit into our strategy with where we start? Manufacturing is important to us, as we mentioned earlier on, on sales. So our trading businesses with manufacturing, not always made. Many of our bolt-on acquisitions don't include manufacturing and also an increased new customers. I think overall, what I would say really is that we're looking for opportunities to enable us to do more of what we already do well. And if we can do that, I'm very, very confident that the business can increase what we do, increase the size of the business, whilst at the same time maintain a very high level service to our customer base, which does give us a point of difference over many of our competitors. So that brings us to an end of the questions. So what I would like to say, really, on behalf of Paul and myself, I'd like to thank you all for the time that you have given to join us today. And I hope you've found it useful. If anybody would like to follow up the presentation with a discussion, both Paul and myself would be available to do so. Thank you ever so much, and enjoy the rest of the day.

That's fantastic. Gareth, Paul, thank you very much, and thank you for being so generous. You've answered every single question that we've got through. And if any further questions are submitted, of course, the company will have the ability to review those. Gareth, Paul, thank you again for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected for the opportunity to provide your feedback in order for the management team can better understand your views and expectations.