Wynnstay Group Plc (WYN) Earnings Call Transcript & Summary

Welcome to the Wynnstay Group Interim Results Webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Gareth Davies, CEO; and Paul Roberts, Finance Director. Gareth, over to you.

Thank you very much, and good afternoon, everybody. Thank you for joining us for the presentation of our interim results ending April '23. So just a brief presentation to a summary rather of those who don't know us, I'm Gareth Davies. I'm Chief Exec. I've been Chief Exec now for 5 years. Also been with the business with Wynnstay since 1999. So my background is very much agricultural sales and commercial sales management. And prior to my appointment as CEO, I was obviously in the agricultural division for the previous 10 years. So just introduce Paul too.

Just complementing the sentiment of an experienced management team. I've been with the business over 35 years, but have just recently announced my intention to retire.

Okay. Thank you, Paul. Slide here gives an overview as to what the business is for those who don't -- who is not familiar with the business maybe. So our business is very much about supplying farmers and customers in the rural communities. The business itself started as cooperative in 1918, becoming a PLC in 1992 and on to the AIM's market in 2004. I'm often asked a question as to what does our business actually do? I'll summarize it very clearly really, that we help farmers both arable and livestock farmers produce food in a sustainable manner. We have a very clear strategy, and it is based upon supply in both agricultural inputs and also services to farmers within Great Britain. We don't export as such. We're predominantly GB Mainland and we supply most products with the exception of agriculture machinery. So therefore, we don't supply tractors and combine harvesters, et cetera. But our product portfolio is as much as 25,000 SKUs or thereabouts. A key difference to our business to many is that we do have a balanced business model. By that, I mean that we do supply both livestock and arable farmers. And generally speaking, our revenues from those 2 divisions are pretty well similar. The fact that we supply both sector farmers basically gives us a natural hedge within the business. Some of you would have heard me say previously on the term horn V corn. So what that basically means that you'll often find that the arable farmers doing particularly well, and therefore, having good returns for what he's doing. But because wheat is then used in feed materials to feed animals, sometimes the cost of production for those people is more than it was. So therefore, the arable farmers doing well and maybe the livestock farmer not so good, not actually has reversed as well. That natural hedge in our business does help us deliver consistent results. The slide here shows that we actually reporting 2 divisions, that's Agriculture, Specialist Agricultural Merchanting. Within agriculture, we have a feed division, which manufactures and supply feed to a range of animals. Arable processing fertilizer, processing seed, both grass and cereal seeds, small agrochemical business, but also complemented by a grain marketing business known as GrainLink. A subsidiary with an agricultural division is Glasson Grain Ltd, which is based up in Lancashire. It's actually on a small dock in the River Lune. The Glasson business trades feed raw materials, some of which are imported into that dock. On the dock side also as a small manufacturing facility and whilst the rest of the business manufactures feed for larger farm animals, this business actually manufactures feed for pet and wild birds. And also within the Glasson business is our fertilizer blending operation. The other division is Specialist Agricultural Merchanting, which comprises of our 53 depots, which predominantly cater for farmers within the communities. These depots are very akin really to a builder's merchant. So effectively 80% of the trade that we've done with farmers on account, no different to a builder. But at the same time, both you and I can go into those builders merchants and into our depots to be able to purchase product either by cash or card. Again, a subsidiary within a division is Youngs Animal Feeds, which manufactures and distributes echoing products. The reason for the fact that Glasson and Youngs are in the subsidiaries, is that whilst fully owned by the business. They do actually supply product to some of the competitors that we have as Wynnstay and whilst those competitors are fully aware that the business is owned by Glasson. It does give a difference that the invoice may come from Glasson or Youngs Animal Feeds. Our routes to market are varied. Farmers come and collect from the depots. Hub product delivered to farms. So effectively, those depo collections could well be 2 or 3 times a week, same farmers whilst in the agricultural division, most of those products are either in bulk form or full load form and will be delivered to farmers was at the same time, you'd often find, but we have the same customers in the depots as what we do in the agricultural division. Our link for farmers is twofold, either expert advisers who by appointment would go and see farmers and discuss their business and their requirements and we have advisers across the whole sector, be it dairy, beef and sheep, free-range eggs, arable, for example, and also going to the depots. And whilst at the depots, they will also have the opportunity of taking specialist catalogs with them, which would be dairy, beef and sheep or poultry. And we often find that when we go into new areas, particularly new areas, that these catalogs are very similar really to an [ Argos ] catalog as such people will take these catalogs away and in due course, I would be in touch. I'm seeing something maybe in a certain page with a certain interest in. And very much in this infancy form is our digital platform. We have about 23,000 active accounts now at this moment in time. And of those 3,000 signed up to the digital platform, a digital portal impact, but the majority of the activity on the portal is people accessing their accounts and looking to pay by that form. The actual amount of online trading that we do is very small. And we do, do surveys across the industry and across our customers to understand how they want to deal and certainly at this moment in time, whilst we do farmers who seek information in digital manner, actually trading with people is fairly small. And the fact of that is most of them on accounts, many farmers like [ Tobata ] and also their requirements will change from month to month depending on weather conditions and seasonality, et cetera. So just going on to our geographical reach. That map there will give you an indication of where we actually trade. The map on the left-hand side is our market share within a certain area. And we're here, we're based on the borders of England and Wales. And that's really expect, I guess, where our greatest market penetration is, but certainly, over a period of time, we spread out across England and right up into Scotland as well. And within the appendix of the presentation, there is a page showing our acquisitions. I think it's just over 33, 34 now since 2004. The green circles indicate where our fertilizer plants are either in the north of England and Montrose in Scotland. The orange circles indicate where our feed manufacturing sites are predominantly on the western side of the country perhaps where the animals are. The exception to that being the recent Humphrey acquisition, which is done in Hampshire. And right in the middle is our seed processing plant at Shrewsbury. Size of the business, people wise, it's just about 960 as we speak now. The majority of the product we actually deliver to farm is within our own vehicles, 110 commercial vehicles as we speak. The right-hand map is an indication of where our depots are. The notice on the left-hand side of the country because our model is based around livestock farmers, arable farmers, which we deal with in the eastern side predominantly, would buy maybe 2 or 3 times a year, a limited amount of product being fertilizer, cereal, seed and agrochemicals predominantly. Well, the livestock farmer would buy a wider portfolio of products, I may well go to those depots even 2 or 3 times a week on the -- based on the left-hand side. So just coming to the half year that we've just reported on them. I'm very pleased with the performance of the business. It's been robust and the underlying performance is certainly in line with our expectations. So trading conditions have softened as we've gone into the new year, particularly into quarter 2, in some sectors of the agricultural community, which has resulted in weaker farmer sentiment in some sectors. And in contrast to last year, Glasson's blended fertilizer operations did content with adverse stock value realizations, which has impacted our profits by about GBP 1.5 million, but Paul will give you more detail on that later in the presentation. Over the period, volatility continues selling commodities and also inflation cost pressures have impacted some sectors. However, when I look at the business, our balanced business model of supply in both livestock and arable farmers with that natural hedge has certainly helped us as a business to smooth the variations in sector profitability. The balanced business model is very much core of our strategy. The financial base that we have, the strong financial base and balance sheet has certainly enabled us to be able to continue to grow the business. On the recent acquisitions of Humphrey back in March 2022 and Tamar right at the beginning of this period will deliver long-term strategic benefits. In relation to the Humphrey business, it has delivered a positive contribution in the first half, whilst it is lower than what we would have anticipated. And the reason for that is Avian influenza. The disruption caused by Avian influenza reducing the number of birds to feed over the short term and therefore, reduce the amount of tonnes that we've manufactured into that sector. But however, in the long term, that business will certainly contribute to the long-term growth of Wynnstay. Tamar is the first manufacturing facility that we've got in the southwest of England. As far as Humphrey Feeds goes and is very much an important strategic move for us, and it certainly bedded in well over that 6-month period. And a small incorporation into the business, is a trading business of S.G. Deakins on the border of Powys and Herefordshire, which came in December, and it certainly helped the business over that period of time. The financial strength that we have with the business has enabled us to continue to invest in the facilities that we have, particularly feed and seed and also a significant investment in renewable energy. And Paul will give you more detail on that later in the presentation. And in order to propel growth and take our strategy forward, I have made some significant changes to the executive team. Neil Richardson, who came into our business as MD of Humphrey Feeds and Pullets, vast experience in feed logistics and engineering now takes the role of group feed operations and engineering director. Andrew Evans, who was previously obviously in Feed in addition to sustainability, which he maintains now takes on the role of supply chain and innovation director. And a new position that brought into the business is head of strategic delivery. This has been taken by Paul Godwin, who's been with the business for a number of years. And this will be very much key to work with the executive team to ensure that we look for projects, look for opportunities to be able to deliver our strategic ambitions. So I think in summary of the first half, I mean, despite the short-term challenges that the business has encountered, we are now a bigger business and we certainly have the capability of expanding further in line with our strategic plan. And now I'd like to ask Paul to go through the financial highlights.

Thanks, Gareth. Just to recap, we are -- our business model is very much what I refer to as a absolute unit margin -- absolute unit margin model, which really means that underlying revenue is not necessarily the best metric to measure the performance of the business. And I mentioned that because the last 2 years have been a period of particularly inflationary environment for commodity prices. And that has been the story in the interim results that we have just reported. During that period, we have experienced just under GBP 50 million of increased revenue simply as a result of underlying commodity price increases, which we have had to pass on through customers. That inflationary trajectory actually changed towards the end of this period. From the beginning of March, most prices are now showing a downward progression signs. The impact on the net profit of the business during the period has been impacted by what Gareth already alluded to one-off impact on fertilizer stock values, which is the total reverse of what happened during the previous year, where the company experienced a series of upward lifts in fertilizer values caused by events primarily around the Ukraine war. Towards the beginning of March this year, the global prices for arable nutrients did take a violent drop some 30% fall in the price of ammonium nitrate, the primary product that we are involved in trading. Our position for manufacturing raw materials meant that, that fall in prices actually created a GBP 1.5 million stock impact on our bottom line results. Having said that, our underlying PBT was GBP 5.25 million after incorporating that impact, and that is obviously falling through to earnings per share, which was also impacted by the near 30% increase in the headline rate of corporation tax introduced from the 1st of April. The higher revenue numbers, although not necessarily contributing any additional contribution to the performance of the business, does have a substantial impact on working capital and that funding requirement did cause overall net debt to increase to GBP 10.5 million in the period. I'll share a little bit more detail on that in the slides to come. But we are a strongly asset-backed business with GBP 132 million of net assets, which represents some GBP 5.90 per share, and we're very proud of our dividend record, which has shown an average annual growth of some 7% over every year since the company joined the AIM market in 2004. The interim dividend has been increased by 2%, and we're confident that we will be able to report the 20th year of annual growth when those numbers come through at the end of the financial year. The track record graphs are really just to demonstrate the trend line, the progression of the business over the last 5 years. The detail of the results, I think, have generally been touched on as far as the headlines are concerned. So I won't do on the income statement. The balance sheet, again, I've highlighted the asset-backed nature of the business and would just emphasize that we have no pension deficit on our balance sheet, as we have no defined benefit obligation. As far as cash flow is concerned, the strong cash annual figure is probably better demonstrated on the next slide, which is an old-fashioned debt reconciliation statement, which shows profit in cash terms obviously, compared to last year, we don't have the one-off gains that were being reported, but the substantial outflow is evident on this slide as far as working capital is concerned, reconciling down to the reported debt numbers, which again are better described by reference to a net debt cycle graph where the seasonality of our business is [Audio Gap] always reverses in the second half. The income that we're anticipating to come from the unwinding of the previous inflationary environment is likely to exacerbate that and we are anticipating reporting significant cash balances at the end of the year as the interim peak reverses into the second half. Even though the peak are at GBP 10.7 million during the period, we still have substantial banking facilities of just under GBP 30 million with more than adequate headroom to fund the significant and exciting investment program that we have in mind. Just by way of introduction for Gareth to give you a little bit more divisional details, the segment diagrams here are designed to demonstrate the balanced business model that we operate.

So as an introduction to the agricultural division, I'll just give an overview here of the current agricultural trading environment. So the top of the table or yes, the top half of the table is very much in relation to farm outputs and commodities. So therefore, it's the farmers hub for their product. You can see from this, there's been significant volatility in farm outputs of the past 18 months. And during the first half of our financial year, we've certainly seen farmer sentiment weaken in some of these sectors, particularly grain and milk. So if you take grain, significant swings there. So grain levels are now very much back to effectively what they were pre the Ukraine crisis, and this is as a result of large global stocks. Milk at farm gate level did reach about 50p per liter, actually which is a record level for milk, just about the turn of the calendar year. But these levels have come back now as supply has gone above weakening demand, although very much shorter, particularly on a global basis in China, we're back now to about 36p per liter. Beef, we've seen a very, very strong beef market again to record high, certainly in the first half, weakened a little bit of late actually probably as a result of the cost of living crisis having an impact on a very positive note, free-range eggs, which was really said earlier in the presentation, it suffered a little bit. We've now seen the price of egg turn now again to a record level whilst at the same time, we've also seen a weakening of the feed price. And about 60% of the cost of producing an egg is actually feeding the hen, the main ingredient of that feed would be wheat. So you can see really that the balance that I referred to earlier on, certainly has an impact when it comes to our customers' performance. But despite some of these sectors, having a drop in income as such, certainly from farm outputs, what they receive for their materials. The bottom table clearly demonstrates that costs have also come down. Our concentrated here on what I see as some of the higher costs for our farmers and [indiscernible] diesel power in other words, you can see that has dropped. Within the table, I've highlighted fertilizer by a table because it actually relates to what we spoke about with Glasson and you can see those significant swings there. But overall, I would say as far as challenges for our customers, it's right through the full supply chain, and that's labor, whether it be the supply of skilled labor, but also the increased cost as well. And that's true whether it's our producers, whether it's ourselves, on the process as a process forward into the retail chain. Given the overview of the feed division, we certainly expanded our geographical reach. And as a result of that with the acquisitions, we've also increased our manufacturing facilities. However, during the period, like-for-like sales they reduced by about 7%. So the differential between our actual at 1.3% and 7% is the differential from Tamar, tonnes that came in from Tamar. The Humphrey tonnage of the business is actually separate to this because due to the earn-out period, we actually run Humphrey as a subsidiary for this period of time. This reduction is very much in line with national trend, partly for the reasons I've said earlier, a reduction in full [indiscernible] free-range hens. And also in the second quarter, dairy farmers who have taken the belt a little bit as milk prices were coming down. So whilst the free-range egg sector has certainly been challenging. The integration of Humphrey Feeds and Pullets into the agriculture supplies is certainly on track. And we have now combined the brands to be rebranded as Wynnstay Humphrey Feeds and Pullets. As we look forward, the Carmarthen mill project is certainly progressing well, and Paul will give you a little bit more detail later in the presentation. And as far as Carmarthen project is concerned, if you recall, when we bought Humphrey business, we're operating on our lease until 2026 at the current site, the [indiscernible] food cycle, which is the ownership has been retained by the Humphrey family, but we also bought a mothballed plant at Calne, which would give us opportunity to considering our options as we go forward. And we're certainly still in our position as we consider what is the best option to go forward to give the best return on capital. But I can assure you that we are committed to a feed manufacturing facility in that part of the world to service the M4 corridor and the Southwest of England. But very much what we are doing, I'd like to highlight is working with our farmers to deliver their environmental outcomes, which is a key point of difference for us. All the soya and the palm kernel that we source for our customers have grown in a sustainable manner. We've just carried out -- we're engaged in a trial with free-range egg producers actually to feed a certain type of phosphate that will end with a reduction in the amount of phosphate that goes through with the farmyard manure. You may be aware that in certain parts of the country, there are issues seen with agricultural pollution and maybe phosphate going into certain river courses. And also, we're working with our suppliers in terms of methane inhibitors. We're already including a methane inhibitor in some of our feeds, and we're looking at extra trials as well to reduce the amount of methane that comes from ruminant animals. The balanced model within the arable division has certainly helped us deliver a strong performance. GrainLink marketing business traded volumes as much as 27% above the same period last year. The majority of this increase coming in the eastern side of the country, an area, which we have for a number of years now targeted for geographical expansion. Coupled with that, sales of Spring Cereal seed has been good, about 6% above last year, which is outperforming the marketplace. And in addition to a large acreage planted in the autumn, which I referred to, at the full year results back in January, our expectations are very large harvest this year. Crops are looking good. So there will be a good amount of grain trade, which is good news for GrainLink because that's exactly what we do. As we look forward, we're very much focused on increasing market share, particularly in grain trade in, and also following our recent capital investment in lastly [indiscernible]. We are very confident of increasing our market share of grass seed, not only in traditional grass seed mixtures, but also, and particularly so in our environmental seed offering of grass seed mixtures, which include wildflowers, pollinators and herbs. As farmers now respond to incentives from the various government schemes central government, the environmental and management scheme. The developed nation particularly in Wales of the sustainable farming scheme, which will award farmers to improve both wildlife habitat and also soil structure. The Glasson business, which I referred to as a subsidiary up in Lancashire. And part of this, I think we've covered earlier in the presentation, particularly around the fertilizer situation in the first half. But I am particularly pleased that how well the Glasson executive have managed this challenge by ensuring that our fertilizer stock levels throughout the process were kept to a minimum during critical periods. As a processor blended fertilizer, we will always be in a position of what I call, longer material in other words, having more material than what you particularly sold because that's what you need to do as a manufacturer, but as fertilizer prices are now at more sustainable levels, we are more confident that this will encourage increased sales going forward. In addition to the fertilizer business within Glasson the trade -- the feed trading activity performed well and certainly in line with expectations. However, the cost of living crisis has impacted sales of product manufactured within the specialist feed operation. I mentioned earlier on that we manufacture wild bird food, particularly and the cost of living crisis has certainly reduced volumes there. But looking forward, those government and environmental policies that will reward farming for the environmental outcomes, we believe will reduce the total volume of fertilizer that is -- will be used in the U.K. But we see that as an opportunity at Glasson because each farm will be now required to do a new trip management plan. What that means is that each farm will need to analyze this soil to understand what is the nutrient value of the soil, phosphate, potash, for example, They'll also have to do a nutrient management plan, but if they are applying any livestock renewers becomes part of the fertilizer requirement. And the differential for optimum crop growth will then be from [indiscernible] fertilizers. So the analysis of fertilizer will vary from farm to farm. And I think we at Glasson have an opportunity there because we are able to manufacture product small runs of materials, i.e., lower volumes of tonnes in one go. So therefore, we'll be able to manufacture product, which is specific to a certain farm. So whilst volumes will reduce to a degree, we see the opportunity of being able to enhance margin from the bespoke fertilizer manufacturer. And across the business at Glasson, we'll continue to see efficiencies, particularly in that Calne mill I referred to reduce the cost of manufacturing, and that cost saving program is already underway. The depots -- the 53 depots, revenues within the depot did increase over the period by 4%, but that was particularly driven by agricultural inflation, product inflation on the profitability within the sector was impacted. So sales of certain good margin product groups such as the Wynnstay branded bagged feed were down 10%. The main reason for that is that chicken feed was down because of Avian influenza, many people with small chicken flocks, backyard flocks as they call them they were reduced because of Avian influenza. And also bagged feed to the sheep market has also reduced because April was a particularly mild open month once it was wet. So feed -- sheep feeding season was rather short as well. On hardware sales within hardware, it's financing materials. So farmer sentiment weakened. Farmers tightened their belts a bit and would have put off replacing fences for another year maybe. And also costs within the sector would have increased. We're fortunate within the wider business that with electricity contracts in place for our field manufacturing sites, which absorbed the majority of electricity, but within the depots, we didn't. So therefore, we did enter new contracts from the 1st of November to the end of April, I'm pleased to say now that the contract we've entered now since 1st of April -- 1st of May forward, rather are certainly more advantageous to the business. The depots do remain a very, very key route to market for Wynnstay. And what we will continue to do is upscale the staff that we have. Many of the our staff as Paul mentioned earlier, do come from agricultural background. They have a good knowledge of the sector. So our role is to increase their product knowledge, whether it be in animal health. We are one of the leading suppliers of our own health in the country. You'll notice on the right-hand side of quoted market shares. It is a very fragmented market that we operate in. But Wynnstay would be the leading animal health supplier in the country a 12% market share. In order to do that, we have to have qualified people. So within the depots, we have about 200 people now who are qualified to be able to advise and sell animal health products. In addition to animal health, we train people on feed on grassland products on seed. And it does give us a point of difference over some of our competitors. So just moving forward to recap our growth strategy. We also presented this on a number of times before. We do have a very clear growth strategy, and it does contain a number of key pillars. The market we operate in, U.K. agriculture is fairly mature. So our pillar of growth is very much organic on a slowly, but surely basis, but also by acquisition, which we referred to earlier on. Manufacturing is key to our strategy. We seek those opportunities where we can bring more manufacturing into the business. A good example being Humphrey and Tamar of late. ESG is a key sector -- key pillar, as I'll refer to in a second, and digital, which I've already referred to. But as we look to grow the business, we'll do it both organically and by acquisition. We are very proactive in searching for those acquisitions, but those acquisitions will need to add long-term value to the business and across both divisions because it is absolutely clear that we do have the aim of maintaining a balanced business model right across the group. I'll ask Paul to just go on to our investments, if you will, please.

So as Gareth has mentioned, a clear pillar of our communicated strategy is investment in manufacturing efficiency and where possible, adding value to a number of the commodities that we are involved with. We see this as the essential way of improving the net margins of the business. So there is a significant investment program in place for the business where we anticipate investing up to GBP 25 million over the next 3 years in such manufacturing efficiency programs. Gareth's already explained the Calne mill redevelopment program that was associated with the Humphreys acquisition, which we have previously highlighted at our an approximate cost of some GBP 13 million, representing about half of that investment program. But in addition to this, we have already improved the production capacity and our efficiency elements of our seed processing plant at Shrewsbury, and we have further plans now to invest in 30,000 square feet of additional warehousing to improve distribution efficiency in -- on that side and probably a cost of some GBP 3 million. The Carmarthen mill project, Gareth mentioned earlier on, project to potentially double the manufacturing capabilities at that site. And the fourth graph on the right-hand side is first phase of that, the finished product and finished product storage and dispatch facility. So we're about halfway through that GBP 6 million project, but also excitingly, we have an interest in renewable energies program, where we've allocated GBP 5 million to effectively produce electricity to eliminate the majority of our scope 2 carbon emissions, those who bought in electricity. GBP 1 million will be spent on that project in the first year, as well as taking the important milestones towards our net zero target. It's an extremely attractive proposition, providing a 25% return on investment because we are very much able to consume the electricity that is generated directly within the manufacturing sites where we're going to be installed in the solar arrays. So again, when that building on the right-hand side is actually fully clad, the roof will basically consist of solar panels. And again, as has already been mentioned, we continue our investment in our colleague base where upskilling of staff is a critical USP for this business.

So ESG is a pillar of our strategy. And as a business, we have a clear ambition of becoming carbon neutral by 2040. And that will be as a result of activities that we do within the business. We will certainly have no intention at all of green washing. We are progressing well, and we will prepare a TCFD report for the 2023 annual report. To help us deliver our ambitions, we have now engaged with a sustainable farm advisory team and that's working well. So that team consists of experts from within the industry, senior experts who have a knowledge and experience of sustainability. And also the appointment of recently now the Nonexecutive Director, Steven Esom, he also brings a wide knowledge of the food industry or the food supply chain to our business as well. I'd just like to mention really that in addition to some of the national charities that we've seen the support, whether it be children with cancer or the Royal Agricultural Benevolent Institution or RABI is also known. Many of us have worked and lived within the communities, the rural communities. I was just looking last week actually, that we're currently supporting in excess of 230 projects, events agricultural shows, et cetera, within the communities that we work and live. Probably supporting our farmers deliver their environmental outcomes. As you're aware, environmental legislation, which has now been introduced to our farmers by both central and the old governments actually does support our growth strategy exceptionally well. So we're engaged with our farmers, as I mentioned earlier on, with nutrient management plans to enable them to seek optimum plant growth and reduction of pollution, improving this soil health with deep rooted herbs and rotations in the livestock sector, improving animal health to animal health plans. Those trials that we're carrying out to reduce phosphate for example, and to ensure right across the business that we are committed to seeking both raw materials and products for resale that have been sustainably manufactured and grown. So as a business, we continue to seek both innovative products and to provide help and advice so that our farmers can deliver their environmental and sustainability targets by collaboration throughout the food chain. And a good example of that collaboration is a trial that we sponsor Harper Adams University College, that is a 15-acre site, looking at varieties of soya. So soya -- there's no soya actually growing commercially in the U.K. at this moment in time, majority comes from the Americas. And I was saying myself actually, about 25 years ago, there was very little forage maize grow in the western side of the country. That is now very much part on a rotation -- crop rotation and many dairy farmers. So maybe there will be the opportunity once we look at varieties, et cetera, growing soya in the country. But I'll certainly keep you updated with the development of that opportunity over the next year or so. I'd just like to highlight a point of difference that we do have as a business, and that's the agricultural events that we hold for our customers, very clearly a point of difference over many of our competitors. We hold an arable event on an annual basis, it's held at Shifnal near Telford. And on a biannual basis, we hold a beef and sheep event. And this is really for our customers to look at new technologies, sustainable farming techniques, as I mentioned earlier on, whether it be soil health. If you look at the picture on the left-hand side on the bottom left, that's a working demonstration of minimum tillage, so therefore, disturbing the soil less and there'll be less carbon going to the atmosphere. That is trial plots, up-to-date varieties, new varieties has been introduced. So our farmers can come and see whether those varieties are appropriate for them to use in the future, industry speakers and also workshops across the products that we sell. So what we're looking to do here as a business is promote Wynnstay very much as the one-stop shop for innovation, products and advice and effectively helping our farmers to feed the U.K. in a sustainable way. So I think in summary and the outlook, the business has performed well. It has been a challenging environment. And whilst the full year outcome is likely to remain dented as a result of the adverse stock realizations at Glasson. Prospects for the second half of the year are encouraging, particularly within the arable sector and also the recovery of the free range egg sector. Looking forward, the long-term future of British agriculture improved and food production remains strong as both food security and food self-sufficiency have certainly risen the political agenda. That's really as a result of some of the global issues, the Ukraine crisis, for example, and also the COVID pandemic as well. So the Wynnstay Group Board is very confident that as a business, Wynnstay is well placed to deliver objectives, not only in the short term, but the full trading year but also beyond. And our strong cash position, a robust balance sheet and particularly that balanced business model, which does provide us with the internal hedge will allow us to continue to invest not only within the business, but also see those acquisitions, which will add scale and the ability to deliver long-term growth alongside our strategic ambitions. So that brings me to the end of the presentation, and we're very happy to take questions in due course.

[Operator Instructions] And the first question is about the egg market, which has been through a difficult time with bird flu. I noticed that your statement mentioned that the free-range egg market is now beginning to recover. It's obviously an important feed sector for you. Can you update us on the current state of the market?

Yes, it's 2 sides to that and the economics in addition to bird flu, maybe if we look at economics first and foremost. See over the last 12, 18 months, margins within free-range egg production has certainly been impacted twofold in many respects, quite direct to start with. The supermarkets were keeping egg at a reasonably low level. And also at the same time, the cost of feed in the headwind up because grain went up. As a result of that, some farmers chose not to restock facilities were kept there for the bird cycle, aligned bird cycle, a bird comes into lay eggs 16 weeks of age. And then hens is laying life effect to be a 76 weeks of age. So it is a fairly quick turnaround cycle as such. So some people chose not to restock. What we've seen then since then the feed has come down in cost. And the price of egg has gone up now at a record level. So margins are looking particularly strong and certainly, we'll see that coming through into the end of the second half of our financial year it should means next year. The impact of Avian influenza did -- that has tailed off to a degree. I mean that hasn't gone away, so please don't get me wrong there. But we're certainly seeing in our pullets business now that farmers are placing orders for pullets. So the Humphrey Pullet business is about rearing chicks from 1 day of age up to 16 weeks and then they become a laying bird. Now orders for the -- we've expect a full book now. I know that our competitors will be in the same situation. So certainly, confidence has come back from the free-range egg sector.

Tremendous. And I see that inventories reduced as fertilized replacement costs fell, but this was more than balanced by adverse year-on-year movements in receivables and payables. Were these year-on-year movements linked or were there other factors? And is working capital fairly normal for this time of year?

Quite a few elements to that question. Just taking the inventories firstly, that some falling price scenario has certainly impacted the carry-in volumes and indeed the lower values of fertilizer inventories. So that was a significant element. The prices were already slipping. So we were being particularly cautious. Obviously, that didn't compensate sufficiently for the very violent drop in prices that the 30% drop that was experienced in March. So it very much is a fertilizer driven scenario as far as stocks are concerned, but also that crosses over into other elements of working capital, particularly on the payable side, which has reduced year-on-year a lot of the fertilizer raw materials are actually offered from traditional suppliers on extended credit terms, the absence of some of those suppliers partly because of the sanction regimes and partly because of the reorganization of the shortage of materials, we've not been able to benefit from some of those extended payment terms, and they've all contributed to that always balance sheet numbers that were reported at the end of April. Certainly, as far as working capital is concerned, we are already experiencing the reversal that was anticipated which, as I said earlier on in the presentation, has actually been exacerbated by the deflationary environment that we're now operating in, which will result in a lot less cash being tied up by the time we get to this year and probably compared to the previous year.

And at 16 months since the company's acquisition of Humphrey's Feed in March 2022, and you mentioned that the redevelopment of the mothballed mill at Calne remains under consideration. When is the decision likely, and what are the current cost estimates involved? And should the redevelopment not proceed in the manner you originally proposed, will this result in a write-down in the value of the acquisition? And if so, to what extent?

I'll come on just the first part of that, maybe and Paul will cover the financials of this, okay. So as far as the development of the site at Calne, we clearly release [indiscernible] rent on the site of twice until 2026. So we purchased a site at Calne. From the Humphrey business, it was already part of the Humphrey business and whilst it was closed, and that gave us the opportunity then to consider whether that was the right place to develop our next manufacturing facility. So when we bought it, we had tabled the fact that we felt we could redevelop it for GBP 13.5 million. in the public domain cost increase from there with the COVID pandemic and the Ukraine crisis, et cetera, with certainly the Ukraine crisis in this particular case. So at this moment in time, we are considering a number of options. You asked the question as to when do I think we'll be in a position to give more detail on those options. It will be into the autumn months when we've concluded as to the best way forward. But I can show you there's a number of options ongoing, and we will have a facility in the Southwest.

The Board is very confident that those options will provide the ability to actually satisfy the acquired Humphrey volumes. So the risks of write-downs, as was mentioned in the question, is minimal. There are all various alternatives that the company can use to manufacture the required Humphrey's volume. Obviously, our preferred opportunity remains in the development of a multi-species mill, Humphrey's being poultry only, the strategic opportunity in the Southwest is for us to develop a ruminant feed activity. And because of inflationary pressures on the initial costs, it's those added complications that we are currently in the process of refining before we finalize what our end decision is going to be and the precise nature of the development that we're going to initiate.