Wynnstay Group Plc (WYN) Earnings Call Transcript & Summary

[ Welcome ] to the Wynnstay Group Investor Webinar. Wynnstay provides a range of agricultural inputs and services to U.K. farmers, mainly in England and Wales, that includes animal feed, seed and fertilizer. It also has a chain of 51 depots which sell fencing and feed troughs, dairy hygiene products and so on. The group has been in business for over 100 years, but Al and Rob are new. Al joined as CEO in October last year, and Rob has been CFO for a year. There's a lot going on. So it's a very exciting time to be able to hear from management. Alk, please go ahead.

Hello, everybody. It is very pleasing to meet all of you today and for me to be able to deliver my first set of results for this best company, Wynnstay, plc. We will immediately delve, go into the presentation. And we're pleased by my colleague, Rob Thomas. So I will just allow him to quickly introduce himself.

Hello, everybody, and delighted to be presenting these results with Al today.

Thank you. So let's get into the results. I'm sure everybody would like to hear about our performance in 2024 and the plans to improve this business. I would like to start by saying that there's a lot of headwinds, which this company had to manage in the last year. And I'll focus very much looking forward is to find solutions to improve a business in areas which we can control. And this is a very good start for us. And I will hand over to Rob to take us through our focus areas.

Thanks, Al. So for people who followed us for some time, you might notice that we've now changed slightly the way that we report our Business. We're now reporting Wynnstay's performance in 3 main business units. We think that this better reflects how we manage the business internally. And I'm hoping that it gives some more clarity and transparency to those who follow us externally. And it gives more insight into how we've performed. So we have a Feed and Grain business. So that particular business unit manufactures animal feed. It trades feed raw materials, and it also has a grain marketing business called GrainLink, which effectively procures and sells combinable crops from farmers into the feed trade and other milling trades. We have a fertilizer and seed business. Our Glasson fertilizer operation is the second largest feed blending manufacturer in the U.K. And we have a seed processing business. We have a seed processing plant in Astley in Shropshire, and we sell both of those products as part of our category management lines through the Wynnstay brand as well. And finally, we have our depot merchanting division. So we have 51 stores or depots that are located throughout the United Kingdom from Helston in Cornwall, all the way up to Kendal in the Lake District. What I'll do now is I will move forward to the overview. So our results for the financial year were conducted against a challenging market condition. And whilst they were in line with our October trading update, we're starting by saying that the results weren't where we want them to be. And as part of the presentation, we'll talk about how we're looking to improve fix and further develop the Wynnstay Group. There were some very adverse weather conditions that did impact particularly planting seasons in spring and in October, and that impacted our arable business. Commodity prices have fallen, and as people who understand Wynnstay, they'll know that, that does have an impact on our revenue, and that accounted for 90% of the reduction in revenue that we anticipate or we encountered during the year. We did have, notwithstanding, these market conditions, some underperformance in our feed and fertilizer businesses, and I'll talk about that shortly. Notwithstanding the income statement, we did have a good level of cash generation. That was a combination of effective cash management and reductions in working capital as commodity prices fell. Our net cash at the end of October is a record for the group at GBP 32.8 million. And off the back of that strong liquidity, we proposed a final dividend of 11.9p and that there's a slight increase in the annual dividend to 17.5p and that really reflects our confidence as a board in both the current balance sheet position and our future prospects. We have continued to invest in the group. That's through investing in manufacturing plant. We've got some great news regarding a new fertilizer blending plant that will be opening in Bristol in the Southwest later this year. And we've completed the second phase of our solar array investment project, which has delivered returns of around 20%, which are very strong and lucrative for the group. We started our operational transformation program, and we're really excited to talk to you later on about Project Genesis. And as it stands today, we are expecting that the group will perform in line with expectations and our performance will be slightly better than it has been in FY '24. If we go to the results summary, as I mentioned, our revenue has reduced, and that is a result of falling commodity prices, so feed raw materials and fertilizer raw materials costs less than this year than they did the year before. And that meant that our revenue reduced accordingly and of the GBP 122 million reduction. That was 96% of that, which was as a result of commodities. We think gross profit is a much better indicator of our underlying activity and performance, and that reduced by 1%. The key drivers were a reduction in our manufactured feed volumes, a reduction in the amount of grain traded of poor harvest conditions, offset by some recovery in our fertilizer and seed business, but with a strong performance in depots reflecting enhanced profitability of a stable level of footfall. Our overhead base increased in line with underlying cost of living impacts on labor and an increase in our relative electricity costs and power costs year-to-year. And that meant our adjusted PBT was at GBP 7.6 million versus GBP 10.3 million in 2023. As I mentioned, the cash was strong. We generated a net increase in net cash of GBP 9.1 million. The reduction in earnings per share reflects that lower level of earnings along with some nonrecurring items that impacted the P&L, which I'll talk around shortly. And as I mentioned, the dividend has been progressive increasing to 17.5p per share. So we move on to now the business review in this section. What I'll do is outline the operational key points, and then Al will talk to the future growth opportunities in each of our divisions. So starting with feed and grain. Revenue reduced reflecting commodity prices, but there were some lower feed volumes. Total manufactured feed was down 2.7%, and that was mainly the result of lower poultry feed volumes. The key driver from this was less volume sold as we transitioned away from our Twyford site. So as a reminder to people, in 2022, we invested in a business called Humphrey Feeds, which manufactured poultry feed and also had a pullets business. With that, we acquired a rented plant in Twyford, which had an exit date of 2026 and mothballed facility in Calne. The original business case that would be that we would transfer manufacture from Twyford to Calne and develop a multispecies animal feed mill in the south of England. Unfortunately, after that -- immediately after that acquisition, significant inflation meant that the returns on the project just weren't viable. And as we reported at the half year, it was unlikely at that stage, we were going to develop the Calne site. Alk and I have taken the decision that we won't make that development. And in fact, we're looking and we have a potential buyer for the Calne side that we're expecting to complete this spring. We've also made the decision to accelerate the transition away from Twyford and production is now ceased at that plant from the end of January 2025. Now whilst that is disappointing in terms of the feed volumes we've sold in the 12-month period to October of 2024, what it does is gives us a stable base to stabilize that business. We've now transitioned volumes, and we have a solid platform to grow the poultry business going forward by manufacturing from one of our anchor sites, Llansantffraid feed mill in Mid Wales and also through a third-party manufacturer who is partnering with us in the south of England. As I mentioned, reduced grain trading volumes were driven from the second poorest harvest on record. And if you do remember, last year, our grain trading operation, GrainLink had its record year and had really exceptional margins. They did normalize this year as was expected. And just to reiterate, within our feed and grain offering, our specialist advisory teams do continue to provide on-farm advice in nutrition, which is really supporting farmers as they become more sustainable, progressive and more profitable.

Now looking forward to growing our business. if we can go back to the previous slide. We have very large confidence that our ability to grow our business is substantial all over the business. specifically looking at the feed industry, and I'm looking at the second bullet point on your Slide 6, we would like to significantly increase the feed manufacturing capacity across our anchor sites, all our production sites. So we are talking specifically our Llansantffraid site, Carmarthen site, but also Tamar and the Lancaster dock where Glasson is hosted. All 4 these areas have a huge opportunity in terms of manufacturing ability to scale up. Projects already has been identified for all sites. And our vision is to increase these production capacity substantially over the next 3 years. And we believe that we've got the ability to scale up and increase our capacity on these sites at least to 40%, we have strong confidence that we will be able to sell the capacity created, including to go to the first bullet point ability to increase our market share in the poultry area through micro manufacturing sites close by. Then to also mention that Wynnstay has 3 trading platforms of which we trade feed raw material, in Wynnstay itself, but also in Glasson Grain and in a company called GrainLink. We have now decided to combine the effort of all 3 these platforms for the greater good of the company. We have phenomenal colleagues with very specific skills in all 3 and the joint effort of focusing on opportunities together in terms of the right time to buy and not will definitely improve ability of the company to increase our profitability. Furthermore, our company GrainLink which is a really strong grain trader only supply the Wynnstay Group company in terms of our feed mills, the small percentage of our need. And we believe by using the strength and knowledge of our own teams we will also be able to unlock potential and margin. Okay.

So moving on to our fertilizer seed business. So results, as I mentioned, have improved over 2023. But I would mention that the comparator there was a soft comparator. Going back to last year, fertilizer raw material prices were reducing significantly off the back -- of the highs of the 2022 levels. And that meant that margins were adversely impacted. We did anticipate better recovery this year, but unfortunately, adverse weather, particularly in the spring planting season meant that there were less crops in the ground for a less amount of time and there was less of an opportunity for farmers to apply fertilizer. That also impacted our serial seed volumes and they decrease year-on-year, again, disrupted spring and autumn planting seasons meant that demand was lower. However, we did see an opportunistic increased demand for environmental seed mixtures and that was off the back of government-funded initiatives for use of land for rewilding both in England and Wales. So we did see an opportunistic increase in both volume and margin in that area, albeit noting that, that is a relatively small part of our fertilizer and seed business. In terms of development of the fertilizer operation. We did, as planned, closed our Howden site and transfer capacity into the Goole plant. That means that we can service all the needs in terms of the existing capacity on the East Coast with some headroom to grow the business but with a much reduced cost base. And I'm pleased to see that the benefits of that are starting to come through in financial year 2025.

And as you will see from Rob's presentation, we're focusing on the ability to do it, we do it more efficiently, but also to grow our business. So I'm pleased to say that in spring this year, we will be opening a new very exciting blending facility in Port of Avonmouth in Bristol. Glasson has historically -- it's a Glasson site, historically been operating more in north of the country. And we have a huge customer base, farmer base in the south of the country, which will also benefit from Wynnstay buying from the Glasson site but also for Glasson to continue to supply many of the very loyal customers. We are very focused to further expand our advisory services. It's a really world-class and give Wynnstay a competitive advantage in the market. And then we have plenty of capacity left in our cleaning and blending site of seed in Shropshire and in Astley. And we will use this capacity available for us to focus more on seed offerings and to match growing demand fueled by the government funded schemes, which is now available. This is a really strong growth opportunity for the company.

Within our depot merchanting business, transactions and footfall were in line with last year. That did show an improvement in H2. If you remember our update at the interims, we have seen a slight reduction in the first half. So pleasing to see that improvement, good signs of trajectory as well going into Q1 of this year. The reduction in revenue reflects price deflation, and that's where we sell certain commoditized products, bagged animal feed and fertilizer through the depot network. The real success story in this division in the financial year '24 was the improved margins. And that was a management initiative that was brought in to offset some expected higher costs that were coming through that business. So the depot network is one of the highest concentrations of colleagues within the Wynnstay Group. And we knew that we were going to have cost of living increases to labor that came through that business. We also had higher energy costs, and that's because we had come off a contract in 2023 for fixed energy prices, and that sheltered us during the inflation in power costs coming from the Ukraine crisis. So it was pleasing to see that we not only recovered those costs but also improved profitability in the group. And as you can see in the picture there, we've got solar arrays now on pretty much every available roof within the Wynnstay Group -owned asset estate. And whilst that didn't fully shelter us from the increase in energy costs, it certainly helped to cushion the blow and really successful project, as I mentioned before. During the year, we launched our Click-and-Collect services which enables farmers to order on our Wynnstay website and have the product available to collect at a set time. We've also increased our direct-to-farm deliveries. So we're trying to expand our digital capability, noting that it is a very small percentage of our current offering, but we have plenty of scope to grow as farmer trading patterns and the way they operate changes as well. And we have continued to see increased takeup of the digital portal from our customers, albeit it's mostly at this stage for account management purposes.

Again, we believe that we could grow depot even on the -- just by the numbers we have today significantly. Everything is already in place to advance our category management through our product teams in this area, through enhanced product mix, including additional high-margin project lines. There's some really exciting opportunities there for us currently to continue to strengthen. As Rob said, our digital sales platform, we are benchmarking against best-in-class in countries outside the U.K. and evidence there are that up to 20% of sales through these type of depots can be derived through the digital platform. We're right in the beginning of this development. But surely, there is a very, very large opportunity as consumer preferences in terms of how they order will change over time. And then we have many opportunities to expand our footprint in livestock-weighted regions for M&A. We will pick the right ones when it comes. But there's no doubt that Wynnstay is heavily focused on the depot opportunity. We believe in it, and we like to expand it. Our customer engagement strategies to boost the repeat business and loyalty is getting a substantial and deep focus. And I would like to emphasize, again, this is a very important part of our focus going forward.

So if we move on now to the financial review. I'll start with the income statement. I'm also conscious that in the highlight slides and in the divisional performance, we have talked around a lot of these areas. So what I'll do is pick out the key other points. If we look at the income statement, we can see in the revenue where the commodity deflation is impacted by sector. And similarly, those trends in gross profit. Looking further down the P&L, you can see contribution from joint ventures of GBP 0.8 million versus GBP 0.9 million in the previous year. As a recap, we have 2 joint venture operations, one of which is our feed marketing business called Bibby Agriculture. Bibby is a joint venture with Carrs Billington Agriculture. It's a sale -- feed sales business operating in Wales. And they've had another very successful year, noting that the profit they made in the previous year was a record for that business. They're operating across Wales, but they also have a big presence in South Wales, which is aligned with our strategy to grow our feed manufacturing operations in that region and we see them as a key partner. I'd also highlight the nonrecurring costs. So as you can see, GBP 2.3 million versus GBP 0.1 million in financial year 2023. These costs reflect the business reorganization that we've started to put in place ahead of Project Genesis. So one note, we have the cost of the -- effectively the wind down of our Twyford operation. We also have a small impairment of GBP 0.8 million on the potential sale of the Calne site. And then there's also some costs associated with the reorganization of our senior leadership team to better align with both the revised operating structures we have and the strategy going forward. Moving on to the balance sheet. Again, I've highlighted the net cash and strong cash position. We have GBP 135 million worth of assets on our balance sheet. That equates to GBP 5.83 per share. At the moment, we're trading just above GBP 3 in terms of market capitalization. And obviously, the activities we are looking to develop the group are very focused on bridging the gap between the 2. I would say we have a strong balance sheet in terms of tangible assets. And that's a really strong underpin to the activities that we want to conduct and develop going forward. I'd also say that we have a really strong asset base. And one of the focuses we have going forward is around utilization of the existing assets we've got, and we believe we can much improve returns from the asset base, and that's something we'll talk about. If we look at our return on net assets, this is, again, aligned with our revised segmental reporting. And as you can see, reduction, particularly in the feed and grain business for the matters that we've discussed previously. Some recovery in fertilizer and seed and the depot merchanting has had a strong return. Our target is to clearly get the return on net assets higher to better align the net earnings at an interested PBT level with the balance sheet strength of the group. On the cash flow, our operating cash flows were strong. This was driven by some good working capital development and management. If we can just move on to the next slide to show that. The net cash generated was GBP 9.1 million. Capital expenditure was lower than in normal average years at GBP 1.2 million. And that was a timing because we completed some significant projects in 2023 and there was a period where we were taking stock ahead of planned projects for '25 and beyond. We maintained our progressive dividend and that totaled GBP 4 million, a slight increase on the last year, reflecting that slight increase in amount. The next slide shows a graphical representation of our cash flows. And you can see there the EBITDA generation and working capital generation and how we deploy funds, and that's through strategic investment in CapEx. These repayments reflect where we've used [ HP ] financing to fund the development of the group. We pay interest and tax, as you'd expect. And then we have our dividend. One thing I would highlight is that despite the strong liquidity position, we do have a cycle of working capital in the group that means the highest reported net cash position is normally at the end of October. I would say that throughout the year, we traded within a net funds position and that also includes on an interim month basis where the timing of receipts and payments can vary. We also have, I believe, significant or suitable cash, I should say, to deal with any potential increases in commodity prices and to also develop the group going forward. And then talking about group development. We spent a lot of time over the last 6 months, in particular, looking at our capital allocation policies. There's a number of areas where we can look to develop the group internally through either enhancing efficiency or focusing on organic growth. A lot of that is focused in our manufacturing facilities, but there are also areas where we can focus on deployment platforms and other systems. However, we've got a number of initiatives, and we're setting ourselves some fairly stringent targets in terms of investment to ensure that the money that we deploy is improving the return and getting it significantly above the level that we're currently at, to improve earnings and better generate returns from the balance sheet we have. We're also conducting an asset review where we're looking at existing infrastructure and making sure that, that is generating the returns that we want and are appropriate going forward. There's some really exciting opportunities to invest in advanced manufacturing technologies, and that can really help reduce what are the fixed costs of a manufacturing operation to mean that we're efficient and we can both increase capacities, but also lower net costs. We are very interested in consolidation of what is a large stable market across all the feed and grain fertilizer and seed and depot merchanting, and we see value-enhancing acquisitions as a key part of that. It goes without saying that as a leadership team, we're very focused on making sure that any acquisition is done at an appropriate price or an appropriate multiple so that, again, capital deployed in that area gets the necessary returns to improve the performance of the group. And finally, we understand that the dividend is a significant valued attribute of a Wynnstay share for our shareholders. We have a history of paying progressive dividends and that's something we will continue to be focused on, and that is incorporated into our capital allocation decisions as well and factored into future cash flows.

Thank you, Rob. So let's now look forward. The year is behind us. we would like to improve our business, how do we do it? First of all, in terms of growth, we believe that we can grow our business still substantially, and we will. Growth always have to start with organic growth. It's always a safest place to start and the cheapest place to start. So we have several opportunities to increase our market share across all our key areas of operations. We will do it by expanding the manufacturing capacity. We will also do it by using capacities, which are in the group and historically, it's never been used for manufacturing outside that as an example, the Glasson business, to expand our manufacturing capacity to help us to focus on new customers and older customers in a better way in that area. So the expansion of our manufacturing capacities, both in Carmarthen as well as Llansantffraid but also in Tamar and on the Glasson Dock is definitely on the cards. We will continue to enhance our product offering and services as part of this organic growth. my expert advice, which we have done so successfully in the past will continue with quality advice, which deepens the relationship with our customers. Our specialist teams assist customers in improving their business. And our focus on that is very, very, very targeted going forward. We will continue to promote profitable, efficient and sustainable food production. As Rob has indicated, acquisitions has always been part of Wynnstay growth, and we'll continue to do so, but only if it aligns with our strategy and aligns with the growth strategy of the business. We will be targeting accretive acquisitions that complement existing areas of operation and add value at the right price only. We believe our technology will play an even bigger role in decision-making of our customers, our farmers and investing to take advantage of these opportunities and to align the group of shifting customer buying habits and engagement is now very relevant. Sustainability will continue to be a corner focus of our business. Sustainability in the U.K. farming is now a more dominant theme driven by the change in government support schemes, post exit of the European Union. And Wynnstay is aligning itself with this fundamental change and our target remains to be net zero by 2040. We have now been talking about growth, but also, we have to focus on how do we improve what we currently are doing. It is the opinion of the executive leadership team and a broad-based leadership team of the company, supported by the Wynnstay Board. But there are so many areas. If we just marginally improve it because of a volume, we are putting through the business, it will enhance our profitability. We felt that the best way to deal with that is to do it formally through a project with proper governance. And therefore, we have decided to call it a name, we call it Project Genesis. We've been asked many times why the name. It's just because we are starting right in the beginning again. It's time to stop to think and then to rebase. This is now the chance to do so. This is a well-thought-through program, well supported from the top to down and from the bottom up again and widely supported in our business. It's a 3-year program of operational transformation. It has already started. It will drive efficiencies, it will reduce costs, and it will establish a higher base level of profitability as well as support wider plans for growth. The opportunity, why are we doing it, is to significantly improve the group's financial performance and return on assets, to strengthen the Wynnstay position in the agriculture supply market, to better capture the potential of future value creative opportunities through M&A and to enhance return to shareholders. Our core objectives for Project Genesis is to simplify operations, to remove unnecessary costs and enhance efficiency. We have established a new management structure which is more fit for purpose for where we are today and for the future, and we are now creating a more scalable sales-led model to optimize revenue and to better serve our British farmers. We are building greatest resilience to external pressures, including market volatility. These are the stuff we can control. Obviously, there are stuff like the weather, like decisions by politicians, which we cannot control. Our focus would be on what we can control. The key outcomes over the next 3 years will be operationally stronger with improved commercial focus. We will have increased gross profit. We are planning to lower our operational costs, to increase our net profits and to increase our cash generation. Therefore, this will enable us to enhance our market presence with a robust platform for growth.

Okay. So how we'll drive value. As Alk mentioned, it will be over a 3-year period, and we've split the project into 3 phases, and we're currently in the design and initial implementation phase. And this is really where we've set up work stream with project leaders who are now doing bottom-up plans to look at how they can design and implement and set targets for improvement across various areas of the business. We'll then move into the core implementation phase. And that's where we expect the project to deliver real value in 2026 and 2027. And then from 2028 and beyond, we'll have a platform which is optimized and is able to accelerate growth and scale the group into the future. In terms of as Alk mentioned, the primary focus is to increase gross profits, reduce costs, improve our net returns and cash generation. And really, what we're looking here is simplification and integration of the group, alignment of our management functions and our core functions overall. So making sure that we have simple structures of sales, manufacturing, category management and support, which are covering all aspects of our operations, whether that's a feed mill within the feed and grain division or whether it's a processing plant within the seed division, they will be under a common manufacturing leadership structure. Similarly, with logistics, that will be managed across all aspects of the group, regardless of the nature of the business or the branding or statutory entity, it had historically operated in. Again, there'll be some simplification of systems to make sure we have a common operating method across all aspects of intake. We talked previously around operating our trading division of 3 platforms that will be consolidating and that will drive both efficiency but also productivity benefits. We'll focus on those manufacturing efficiencies, the benefit of our trading functions, better procurement across the group, logistics and we're really aiming to have a leaner, more efficient, better performing and focused group as we transition through the project.

So in front of you, you will find a very, very busy slide, which I'm not going to unpack in totality. But one thing which is important to say is over the last couple of years, we, as a business, have made some promises and unfortunately, didn't deliver it. So we're sensitive about that. So we are well aware that the more information we provide in presentations like this, the more accountable, we all will be, which is the right thing. In front of you, you will see again what Rob's just done, but expand it a little bit more. We are now in design initial implementation phase in 2025 of Project Genesis. We are now busy simplifying our sales structures and aligning into all the trading regions. We are consolidating the group feed wide and grain trading wide, integrating Youngs Animal feed just to become part of the business, a total consolidation of our facilities, including Glasson under one Wynnstay manufacturing leadership team, to fully utilize existing asset base. We've got very, very specific activities, including fixing operational issues, addressing our bottlenecks in manufacturing processes which there are several, focusing on efficient manufacturing principles and focusing on supply chain inefficiencies to improve it and then to properly match our capacity with our sales opportunity and therefore, a demand planning solution. Our plans for growth are several by increasing our anchor site capacity, we will potentially increase the volume up to 40%, which we are confident we can sell. It will require some investment, which we are planning for to increase this capacity, and that will take place in this financial year and the year after. We would like to see a manufacturing modernization process to improve all efficiencies on these 2 sites, but also in Tamar and in Glasson Dock. The benefits will be to have a leaner, more responsive business, able to meet the demands, which we have in our business, to strengthen our supply chain resilience, more capacity to support our sales opportunities and the resulting cost focus will bring initial earnings improvement, and that will increase every year from now on. So I won't go into the detail of 2026-'27 outside of just thanking you as investors again for the confidence you have in us. It is the responsibility of a leadership team to look after every penny of our investors. And I hope you will see that this initiative will definitely unlock so much potential to help us to stabilize the business and to deal with volatility, which is so always part of agriculture industry.

Okay. So in terms of the summary and outlook. It was an underperformance really in challenging markets, but we think we've made some really important structural changes and decisions and we've got the right strategy and application of that strategy to really take the business forward and unlock the fantastic potential that we have. We generated good cash flows. We've got a strong balance sheet and that gives us both the opportunity to develop the group but also maintain focus on growth and also on dividends. We've started our operational transformation in Project Genesis, and we're really excited about what that's going to develop going forward. We've continued to invest both during the year, but with also some exciting developments going forward, particularly around the Bristol plant, and we have maintained that progressive dividend taking it up to 17.5p per share. In terms of farmgate prices, they've been strong, particularly in the second half, and we expect them to remain robust. And as I mentioned, as it stands today, performance year-to-date and also in terms of the outlook, we would expect FY '24 to improve -- FY '25, sorry, to improve over FY '24.

Thank you, Rob. So before we hand over for questions, I'd like to say again, ladies and gentlemen that 2024 was a year which was difficult but we are looking forward to the good years ahead. So I thank you for your investment. The team understands the responsibility we have to always not look -- only looking after our investors, but also to look after our very, very special customers, the British farmers. without strong farming, none of us will be able to live the life we live today and to find balance between all our stakeholders stay very, very important for all of us. We have heard what our customers say they need, and we understand the expectations of our investors. And together, in harmony, we will find the ways to make this proud 107-year-old company even more successful. So thank you for your confidence in us, we'll take some questions.

That's great. Thank you very much to both Alk and Rob. [Operator Instructions] We have had a number of questions already submitted, so I'll start to work through those now. The first one, what's the Board's approach to the deployment of cash generated, considering both the desire to pay the dividend and the requirement to invest in the business? What changes have you made to your investment assessment process? And should we expect the group to increase its return on capital employed?

I'm going to -- Rob's going to answer the question in detail, but I just start by saying that in a company which has such a lot of potential, but also various views of investors, we always have to be careful not to make any emotional decision and everything that needs to be filtered through a proper analysis. And I'm very happy to say that Rob and his team came up with a very good capital allocation framework, which he will take you through now.

Yes. And I'll just recap where we went through in terms of the presentation. The first thing to say is we have a framework, and we spent a lot of time, particularly over the last 6 months, really looking at where we should be deploying capital. And having that framework and considering that has helped us because as part of the project and also development of the group, there's a lot of areas we can spend funds. And we do have funds, but you can only spend the pound once. So we've got to make sure we're looking at the right projects that deliver the right returns to give us the best immediate return, but also on a sustainable basis. going forward on a long-term returns basis. We also need to look at what can get us the highest return for the least effort. So these are all kind of things we're looking at, not only in terms of pound notes, but complexity, ease of delivery and what fits within our core operations. As I mentioned before, focuses are around internal efficiency, how we can reduce costs, particularly within manufacturing. Some of the exciting things we're looking at, for example, are alternative sources of fuel for boiler energy in feed mills, some really interesting opportunities there that we're pursuing. What can we spend to enhance capacity? And when we enhance capacity, we're really focused on lowest cost, but also looking at what is the incremental business that we can generate and can we sell that? For example, there are certain parts of our business where we know that our demand is outstripping our supply potential, particularly bagged feed in depots and supply dairy feed in South Wales. And as people have mentioned, the dividend is a key part of that consideration. So when we are making these capital allocation decisions, we're looking at the available funds we have, we operate short-term, 12-week cash flows, we operate a longer-term funding forecast. And in that, we look at operational cash flows. We look at what we expect to spend in terms of interest to service debt. We look at what we expect to pay in dividends, and that's all factored in. The other thing that we have to be very mindful of is as commodity prices increase that is a drain on our working capital. So we make sure we've got assumptions around what could reasonably possibly happen within that area. We also have to look at the intra-year cycle on our working capital. So all investment decisions are looking at the lowest point in the cycle with potential movements in working capital, looking at what's available to spend, incorporating dividends and they're looking for the best returns there on.

Okay. Great. We've had a number of questions, as you might imagine, around IHT asking about its impact and whether it represents a threat to the business. Could you talk a bit about the IHT changes and what impact do you think they're having on the industry and on the business itself.

So that is a very difficult question to answer because it's a matter of opinion and not fact. But clearly, it had a very negative effect on the sentiment of farming. And like any investor or farmer, it is not fully confident, but it's a good investment to make in his farm, will not do so. So it's a bit early to say. And for now, it's very emotional. So what we need to do as a business is to stay close to our customers and to be a good friend for them and be a good supplier for them, to enable them to navigate through these difficult times. It is very difficult to predict what the outcome of this is going to be. At the end, British farmers are doing an outstanding job as good as anybody else in the world or better, helping to supply British consumers with vital food products, a critical part of the supply of food. And it is -- they need to be supported. And we will do absolutely everything to be a friend to them. The outcome is too soon to declare. And only time will tell in my opinion. I hope that it will be not as bad as it looks at the moment.

Okay. Next question is, under previous management, the return on capital has been on a long-term downward trend. 2 of your 3 segments show a low return on capital. What is your return on capital hurdle for the planned capacity increases in those segments? And why will that return be better than the return on existing capital?

Okay. So I think in terms of whether or not returns are lower this year in terms of a long-term decline, actually, I think there are certain years over recent history where returns have been very high. What I would say is that there's been some volatility in that period, in terms of looking at future investments. We have our own internal hurdle rates. What I would say is that clearly, we want returns that are substantially higher than our own internal rate of return, and they are substantially higher than the published returns that we've currently got. Why we think we will get better returns than in the past. We are looking at investments that will reduce our cost base. We are looking at returns that will make our group more efficient. But I think one of the key points around Project Genesis is looking at the group as a whole and looking at investments that are beneficial to the group as a whole rather than assets in isolation. So for example, I'd look at how we have considered our asset base previously is very much, but it's defined by its own activities. So for example, we've got a really good manufacturing site in Lancaster that's operated by Glasson Grain. We are currently looking at how we can invest in that site, not only to support the existing activities of Glasson, but also look at what we can do as a combined group what can we provide in terms of the feed manufactured feed market into the northwest from that site. So whilst that's at very early stages, it gives an example of kind of aligned thinking of the group under the new leadership team to invest to get a total return across all aspects of the group, all route to market that I think will really grow the top line, reduce the cost base and get those returns to higher percentage points.

Thank you. We've also had a couple of questions around CapEx and asking whether I think probably, Rob, again another one of you, I'm afraid, some indications on what CapEx might be in the years ahead.

Okay. So yes, so in terms of our broker forecast, we're forecasting cash CapEx of GBP 7 million for each of financial year '25 and '26. To give you some ideas, our maintenance CapEx, if you put any net disposals to one side is normally around GBP 4 million per year. So we've earmarked GBP 6 million worth of additional CapEx over and above normal levels to develop the group. And that's focused roughly between -- in 2 areas between efficiency benefits in manufacturing, so investment in lower-cost manufacturing technologies and then investment in expansionary CapEx to grow capacity, primarily within the feed mill operations. It also includes the CapEx associated with the fertilizer blending site in the Southwest, albeit fertilizer blending operations are a reasonably straightforward and low CapEx development.

Okay. Great. Next question, can you please state the range of cash held during the course of the year, i.e., peak to trough cash or net debt? And how will this change over the next 3 years?

Okay. So we have high points of cash in October, so that's GBP 32.8 million. Our low point on a monthly basis is at the half year and the half year just gone was around GBP 18 million. So that gives you an idea in terms of the intra month or intra-period swing. Within the month, there were a cycles. So we often pay for materials in the first week of the month and we collect cash from our farmers in the third or fourth week of the month. So at the low point, we were around GBP 5 million in the year. Clearly, we've operated within net funds for the entirety of the financial year just gone. And on top of that, just as a background, we have a GBP 10.5 million overdraft and a GBP 10 million RCF with a GBP 5 million accordion. So we've got some substantial headroom over and above the low point in the cycle. As I mentioned, that gives us some headroom on the potential working capital requirement from commodity inflation, and we can develop the group. In terms of the view ahead. It's very hard to predict commodity price movements. I'm not really going to get drawn in terms of where I think raw materials and commodities will go. However, what we do is plan for a flat market and we make sure that we've got, in my mind, around GBP 10 million of headroom to give us that comfort. We also look at what we know we're going to do. So for example, within Bristol, there's around GBP 1.5 million of working capital that will be needed to fund that. Other than that, we've got ongoing initiatives in terms of receivable collection, inventory management that we would hope would generate some benefits, but significant movements really the 1.5 needed on the Bristol project.

Next question. A large nearby competitor also earns low margins on feeds and are diversified into higher-margin businesses. Why are you so confident about expanding capacity in feeds?

I'll take that one. Every company needs to pick their own business model. We are not an investment holding company, and we will not be distracted by stuff, which is outside our main focus, which is to supply British farmers with good quality product. So that is a choice we made. We feel confident by doing it well, but we're doing it in a wider scale. We can create significant returns for our investors, and that is the one we chose to take. We also have made a decision because we know that there are several improvements we can make in what we currently do. Also, we feel very strongly that the market is consolidating very fast and those were our specialized and focused, we'll be able to capture that better than anybody else.

Next question. Please, could you give specific examples of improvements from Project Genesis that will improve profitability.

We selected after wide consultation bottom-up and top-down 9 areas of improvement. And for the sake of time now, I will just explain one. We would like to improve the way we do our logistics and deliveries. There are some inefficiencies in it. we not currently have a model where sales demand, manufacturing process and logistics are aligned. In there, there are several opportunities for improvement. We set some KPIs against all of these. And there will be outcome of that with an improvement, which is in financial terms. And collectively, that will add up to a number which we will then multiply all the volumes we do in the business. So that is a very specific area of improvement with a quantifiable benefit against that. There are several others as well, but we will not have the time to discuss that today, but I can assure you, these are headed up by functional experts, which are definitely can deliver the benefit out of it.

Our next question is in another caller, you mentioned that some properties are still valued at 1950s values, how much potential upside in GBP 1 million pounds is hidden from the balance sheet.

So, we haven't done a valuation this year. But it is true, we have certain assets that are valued on a very historic cost, shall I say. And the rule of them we've applied there's around GBP 10 million worth of excess property value. In simple terms, I look at the fact that there's potential valuation uplifts on properties that offset the value of intangible assets on our balance sheet. So when I look at GBP 134.8 million, I'm looking at a bricks and mortar value with liquid working capital resources on top of it. So that kind of justifies the asset-backed nature of our balance sheet.

Great. And coming towards the end of the question. [Operator Instructions] We've got a question around seasonality. What are the seasonally important months? And does very dry weather have an equally bad impact on you as does very wet weather.

Rob, do you want to take that? Yes.

Yes. So we are just coming into now what is our key seasonal period. So as we get into planting seasons, spring fertilizer season. That also corresponds with the lambing season. So we have our peak feed manufacturing and selling periods. We also sell an awful lot of sheet feeds through depots. So depots have their most important trading months in the spring. And then the other key periods are the September and October period when we get into the harvest time, the autumn planting seasons another round of seed sales and fertilizer sales. And then in terms of -- yes, look, the agriculture is volatile to weather. So as much as been to wet can harm as can do dry. We have very experienced teams who look to make sure that they can manage these conditions as best as possible. We have a balanced business model that we talked about previously. So we're not exposed to one particular sector. We have arable, we have livestock [indiscernible], we have the depot network. But the key thing really in the project is looking at what we can control. I know that we can better apply our distribution to save costs. So I know that we can coordinate our feed trading teams. I know that we can be more efficient in manufacturing, and it doesn't matter whether it's too wet, too dry, too hot or too cold. Those are activities that we can undertake and we can make improvements.

Next question. You may have covered this in your comments around return on capital. But the question was asked is, please, could you comment on the reasons for the long-term decline in profit margins at Wynnstay and what actions will be taken to restore margins?

Okay. So I would -- again, I've been with the business for a year, but I would -- in terms of long-term decline, I'd maybe question that because if you look back at particularly in 2021, 2022, we have some really strong upticks in margins. I think the point is that we've got volatility in margin. I think the other point is that in the recent past, we have seen squeeze on margin and profitability. And I think there is some causal there because of the disconnect between commodities that impact our top line and gross profit and cost of living inflation, which continually goes up and impacts our cost base. We think that we can get a grip of that in terms of trends and also improvement by getting into control of the cost base, unlocking efficiencies and offsetting any cost of living increases through efficiency drives and hard savings. We also think that the scope to grow our margins through more products, more value-added products and also offering the right things to farmers in each of our 3 divisions.

And then what might be the last question. On the depot business, how much is M&A likely to affect future in its growth? Can the network be doubled over the next 5 years?

Let's start with the last part of the question, undoubtedly it can be increased. But like any M&A activity, we will only do it if it makes sense. We will not engage in territories where there's no potential or low potential. So like anything else, we will pick them as they come. But we can definitely increase our growth in our business through increased depot numbers. But I'd also like to say that we can increase our growth, our current base of depots, we still have lots of space in terms of ability to look at the products we sell there, different ways of attracting farmer interest by being more active with our farming network. So both adding more, but doing more with what we've got is possible.

Okay. That's great. Thank you. No, I can't see any more questions at this time. We're just over the hour. So I'm afraid we're going to have to wrap it up there. In a moment, I will be asking Alk for any final closing remarks, but I'd just like to remind everyone in the audience that there is a feedback form that will open after conclusion of the webinar. Your feedback is very useful to management team, and it's a great way to thank them for taking the time to present to you today. So please do take a couple of moments to fill that out. If you don't have time right now, the link will also be sent to you in our follow-up email. So on that conclusion, I'll hand back to Alk for any final closing remarks, Alk, go ahead.

There's always a pessimistic and a positive way of looking at things. I choose to go over a positive route. So I probably can say that some people said to me that you could not have chosen a more difficult time to join Wynnstay. I'm saying I could not choose a better time because we've got so much potential. This is a great company with great assets, great customers, great investors. So thank you for your confidence in us. We will do everything we can and more to improve the way we run our business. We understand the responsibility to all stakeholders, including our customers, the farmers and you as our investors and all our colleagues in the business. So thank you.

Thank you, Alk. Thank you, Rob. That's the end of the webinar.

Thank you.