Welcome to the Wynnstay Group full year 2021 results webinar. All attendees are in listen-only mode, and at the end of the presentation, there will be the opportunity to ask questions. There's PDFs of the slides on the right-hand side, and this webinar is being recorded. I now hand over to Gareth Davies, CEO, and Paul Roberts, CFO. Gareth, over to you.
Thank you. Good afternoon, everybody, and welcome to the presentation of our annual results. I'm Gareth Wyn Davies. I've been Chief Executive of the business now for just over three years. Previously Managing Director of Wynnstay Agricultural Supplies, and before that, Head of Agriculture. Joined the business in 1999, and my background is particularly commercial, sales and sales management.
Hello, I'm Paul Roberts. I'm the Finance Director. I've been with the business over 30 years, and I enjoy the growth ride that it's been up until now.
For those who are not so familiar with the business, our business is about supplying farmers and customers within the rural communities. We started as an agricultural cooperative in 1918, became a PLC in 1992, and listed under the AIM market in 2004. I often use the phrase, we help farmers produce food in a sustainable manner by supplying most agricultural inputs, with the exception of farm machinery. We have a very balanced business model. We supply both livestock and arable farmers, which provides a natural hedge within the business. You may be aware of the term Horn vs Corn, and that means that sometimes arable farmers are doing well and maybe livestock farmers aren't, and vice versa. That helps. That balanced business model helps us deliver consistent results.
We report in two divisions, Agriculture, and within our Agricultural Division is our Feed Division. We manufacture and supply feed for dairy, beef, sheep and free-range eggs. We also supply raw materials for farmers and other manufacturers. Our Arable Division it consists of a seed processing, fertilizer marketing, and agrochemical sales. In addition to our subsidiary business, GrainLink, which is a grain marketing business. Glasson Grain is a subsidiary business based up in Lancashire, Glasson Dock on the River Lune, and that's also a balanced business, trading feed raw materials, manufacture specialist feed products, and also blending fertilizer. The Specialist Agricultural Merchant Division consists of our 54 depots. Our 54 depots are located across the western side of the country.
80% of the business is business to business and resembles very much similar to a builder's merchant, where the majority of the business is on account. Anybody can go into our businesses to be able to pay by credit or by cash. Credit card or cash. Also includes Youngs Animal Feeds. We manufacture and distribute a range of equine products, predominantly to Wales and the Midlands and through our own agricultural depots. We have three small depots within Youngs, where people can come and collect products. Our routes to market include the Wynnstay depots, where people come and collect from. We can deliver to farm instead. We have a number of specialist catalogs, including online marketing. Our key points are different for those expert advisors who meet farmers by appointment and sell through advice on the farm.
Our geographical reach, where we're situated, the map in the middle gives you an idea. The darker the blue is where we have a greater market share and the whiter areas is where we're not particularly represented at this moment in time. We have 11 manufacturing sites on here. There's actually 10. There's a small manufacturing plant at Standon in Staffordshire, which doesn't show within the Youngs business. The orange symbols relate to where our fertilizer department, fertilizer processing sites are. The yellows are where our feed manufacturing sites are. The green is our seed processing plant at Shrewsbury. On the right-hand side indicates where our agricultural depots are. Predominantly on the western side of the country because they actually serve livestock farmers more than arable farmers. Livestock farmers come and collect their products.
Arable farmers would generally have their products delivered direct to farm. 54 depots, furthest north being Kendal in Cumbria and the furthest south being Helston in Cornwall. We have about 100 fleet vehicles within our fleet. We run our own vehicle business, Wynnstay branded vehicles. Currently in the business as a group is about 920 employees. The operational highlights of the business, very pleased that the business has performed. Record performance during the year, particularly supported by strong farm gate prices, which continued to strengthen during the financial year. Farming sentiment is strong and farmers are reinvested in their business. Also, the initiatives that we introduced during the last two years have also contributed to the growth of the business. Double-digit growth from both divisions, both agriculture and specialist agricultural merchanting.
Particularly strong results from Glasson and also we've seen growth within the agricultural merchanting depots. The business continues to grow. The two senior management positions are now in place, and we're very pleased with the two acquisitions that we made earlier in the year, which bolstered our manufacturing capacity of fertilizer and also increased our geographical reach into North Yorkshire. There's been challenges within trading, particularly disruptions in supply and also the ongoing impact of the COVID pandemic. The agility of the business has ensured that we've continued to operate both in manufacturing, in the depots and in distribution, and continue to service our customers in a very professional way.
very, very pleased, it's the 18th year of consecutive dividend growth, and our balanced business model has certainly contributed to our strong results and puts us in a very good position to be able to grow within our strategic plan. I'd like to hand over to Paul, who will go through the financial key points.
Thank you, Gareth. I'm just quickly going to highlight some of the main areas from the results for the full year. Starting off with revenue. Last year was obviously quite a milestone for the business, exceeding half a billion pounds of sales for the first time. Although it may seem a little strange to put it this way, revenue actually isn't the most important metric for understanding the underlying performance of the business. That's because we're subject to commodity volatility, price variations that we have very little control over. Our actual business model is what I refer to as an absolute unit margin model, in that we tend to pass on underlying commodity prices straight through to our customers after adding an absolute margin to the category that we may be referring to.
Revenue, again, can be subject to price change, and 2021 was a period of significant commodity inflation. During the year, we probably estimate that the impact on increased sales was somewhere in the region of about GBP 45 million, where simply those underlying prices have added to our overall revenue. An inflation rate of somewhere in the region of about 15%, across many of our core categories during the year. However, that's Gareth's already highlighted, we did generate record profits during the year, up 37% at just under GBP 11.5 million. We're very pleased that that improvement actually came from across the group's activities. We have two core reporting segments or divisions, and both of those segments actually improved their performance by just under GBP 1.4 million each.
Again, a very pleasing across the board performance. That profitability fed through to earnings per share, although the headline 60% improvement is a little flattering on the basis that the comparative number from last year was after GBP 1.2 million of exceptional costs incurred during that year. The commodity inflation that I've already talked about obviously has an adverse impact on working capital, more of which I'll talk about in a moment. Despite that impact, the liquidity position of the business is still extremely good with an improvement in net cash at the year-end, which stood at just over GBP 9 million.
Another milestone during the financial year was moving through GBP 100 million of net assets for the first time, with GBP 105 million being the year-end balance, which equated to some £5.25 per share. Gareth's already mentioned the continued progressive dividend policy. We've been on the AIM market for some 18 years now, and in every one of those years, we've actually increased the dividends year-on-year. The graphs on the next slide are simply demonstrating the progress of the business. These are the underlying key performance indicators that we tend to track. Indeed, that graph could have been extended back to the left-hand side, all the way back to our 2004 flotation, and that progress would have been fairly steady if you were to draw a trend line through it.
Just turning to the detail of the results on the income statement. I've already mentioned the revenue situation. We tend to address the gross profit line as being the best metric for demonstrating the progress of the business. You can see during the last financial year that growth was some GBP 7 million. I've already mentioned the improvement having come from across our activities, and that improvement in gross profit includes a contribution of somewhere in the region of GBP 1.3 million from two small bolt-on acquisitions that were completed during the year.
An increase of some GBP 1.5 million from extra volume of products as we continue to grow our activities, but also because of the improved backdrop to our business sector, the balance of around about GBP 4 million has come from improving margins across that range of activities, as we previously mentioned. The group does have a number of joint ventures, and one significant one is Bibby Agriculture, a distributor of animal feed in Wales primarily. As a result of that improving backdrop, Bibby did have a very good year, as well, and actually contributed to that higher result from joint ventures. Just moving on to the balance sheet. One area we like to highlight is that asset-backed nature of the business.
GBP 105 million in net assets, as I've already mentioned, represents some GBP 5.25 per share. You can see that there are substantial amounts of fixed assets supporting the business as well. You'll perhaps also notice that there is no pension deficit within our company. We were out of our defined benefit schemes many, many years ago. I mentioned the inflation, and that is reflected in the working capital elements on the balance sheet. You can see that stocks, trade debtors, and indeed trade creditors, all show significant increases during the year.
Despite having to fund those higher balances on the balance sheet, I've highlighted in green there the elements of our net cash position, which obviously has been highlighted at GBP 15.5 million, excluding the new IFRS treatment of property leases, which is technically treated as debt in accountancy terms. That strong cash flow is demonstrated by an old-fashioned cash statement here, starting off with EBITDA profitability in cash terms. As a result of the commodity inflation, you can see the significant outflow of working capital, some GBP 7 million in the year, as opposed to a GBP 6 million inflow the previous year, which was a period of commodity deflation, with prices actually going down, resulting in less working capital being utilized.
Strong cash generation from the business has enabled continued investment in our growth, so some GBP 5 million invested in further fixed assets, particularly manufacturing capacity. The two small bolt-on acquisitions that I've mentioned accounted for a further GBP 2 million or so of expenditure. We continued with that progressive dividend policy, all financed from the cash being generated by the business during the year and leaving a higher closing cash position at the year-end. Cash is obviously quite an important factor for the business, so that we can ensure that those commodity positions cause no difficulties. We do have a very predictable nature of cash generation. Our year-end in October does represent the trough of our cash requirements.
It's the best time, which is why we have our year-end at October, and you can see the balances there are generally at their highest with our October year-end results. The opposite part of that cycle tends to come with our interim results in April, and you can see the general flows of cash generation within the business. Just then, really by way of introduction for Gareth to give you some more detail on the divisional operations. We try to use this slide just to demonstrate the balanced nature of our business. Very pleased that we've been able to maintain that balance during a period of growth from these results. The bar charts on the right there are still showing that improvement in similar proportions across two of the major segments.
Maintaining that balanced profile is very important for continued growth of the business.
The agricultural division includes feed, arable, and Glasson Grain. Just as an introduction to this division, I'd like to give you an overview of the trading environment and what farmers are actually getting for their product is indicated on the top right-hand table. A particularly strong year for farmgate prices. They increased as the year went on. We actually saw record prices for both grain and red meat during the period. Free range eggs stayed fairly stable throughout the year, and milk continued to increase as we came into 2022. You notice there, mid-January, 32.5 pence per liter was the average farmgate price for milk in the U.K.. That's actually strengthened since then, and likely to strengthen further to up to around about 34 to 35 pence come April-May period.
I haven't included pigs as a business. We supply very little pig feed or products to pig farmers. Tends to be an integrated system. Costs have also gone up, particularly on the bottom right-hand table, particularly feed, fertilizer, and energy. Labor shortages have certainly been within the dairy sector and also within the food supply chain, particularly in feed processing plants, sorry, meat and food processing plants and also logistics. However, 2021 has been a particularly good year for British agriculture. Our feed division is a balanced business model as we provide feed for dairy, beef, sheep, and free-range eggs. Very, very pleased with the performance of the feed division.
It's shown a 6.5% growth year-on-year, and that's against an industry, a national trend of 1.4%. Very pleased with our growth within free range eggs and dairy, where we have increased market share. Within our strategy, these two sectors are areas that we're targeting for growth. First and foremost, because free range eggs is a growth sector, dairy is a very stable sector and growing, and also, they tend to be less impacted by weather patterns. For example, more extensive beef and sheep systems, more feed will be used if it's a hard winter and less feed if there's an early spring. Very good production at our mill here in Llansantffraid which seen record productions.
Margins throughout the year have been in line with expectation despite the volatility of raw materials and also increased costs of supplying our customers, particularly in the cost of diesel for distribution. Electricity is the main source of power that we use for the feed plants. We were rather lucky maybe that we are now into a three-year period of a fixed electricity contract, having just gone through year one, where many others would now be faced with increased costs come the April-May period of this year. Looking forward, the first phase of our Carmarthen Mill project to double the capacity of that mill in Carmarthen will start this year. We'll also increase the emphasis of helping our farmers to feed their animals in a far more sustainable way by further developing our climate-friendly diets.
We have diets today that include soya and palm kernel, which is sourced sustainably. We'll also introduce into those diets a methane inhibitor that is approved by the Carbon Trust that will reduce methane excretion from ruminant animals by 9%, while at the same time increasing yield of milk by up to 4% and daily live weight gain of beef animals by 10%. The winter has started strong. Feed demand throughout the winter is likely to be strong. While there's good silage stocks available, the quality of that stock is variable. Going on to the Arables sector. Within this division, we market fertilizer, we process seed, and we also market agrochemicals, in addition to GrainLink, which is our grain marketing business based in Shrewsbury.
Following a very difficult and challenging first half to the year, the second half of the year performed particularly strongly, particularly GrainLink, as harvest became more normalized, and also the seed division. Grass seed sales, while being slightly back on last year, were actually ahead of the market, which is 10% back. We introduced into the business an environmental seed manager in March, and the emphasis on environmental seeds and the sales growth that we've had from that division is particularly pleasing. Environmental grass seed mixtures would include pollinators and deep-rooted herbs that will aid soil structure and will certainly be part of farmers' expectations and plans as they go forward into the Environmental Land Management scheme, which is part of how the government will support farmers going forward from 2024.
The introduction of nitrate vulnerable zones, NVZs, into Wales will mean that all farmers in Wales will have to have a nutrient management plan from 2024. We're in the process of training an increased number of staff to be able to help farmers with these plans by nationally recognized training as far as FACTS for fertilizer and BASIS for crop agronomy. During the autumn, we introduced into Shrewsbury, into our seed processing capacity, a new mixer, which will double the ability to mix grass seed at Shrewsbury. Into the spring of this year, we'll introduce more technology into the plant with the color sort coding, which actually separates cereal seed and basically allows us to be able to increase technology at the plant.
Overall, as we go into this year, both cereal and oilseed rape prices remain particularly strong, which increases our positive view of prospects for this part of the business. Glasson Grain is our subsidiary business based up in Lancashire. An exceptional performance from Glasson with record results. As fertilizer prices rose during quarter four, the business benefited from one-off margins. As a manufacturer, we'll always have blending product, and as prices increased, we were able to increase margins accordingly. At the same time, increased demand, we've seen record volumes of fertilizer manufactured by Glasson, and we're particularly pleased with the way that business that we bought, Howden in Yorkshire, has come into the business. It was a fertilizer division of HELM Great Britain Limited.
Increased feed volumes have certainly helped our feed trade-in business at Glasson. During the second half of the year, we structured the business, discontinuing non-core activities such as de-icing, which has successfully now been taken over by a third-party provider. As you move forward, the business will concentrate on the three core activities, being fertilizer blending, feed raw material trading, and also specialist feed manufacturing, as we seek to do more of what we already do well. Specialist agricultural merchant division includes Wynnstay Depots and Youngs Animal Feeds. Particularly good performance from the agricultural merchant division. Well up on last year, 12% up on like-for-like sales. Good strong performances from a number of branded products really. Wynnstay branded feed. We produce our own feed into these depots. Milk replacers.
We're already market leaders in milk replacers, but we've seen a 30% increase in sales. Animal health, we're the market leaders at 12% of the market. It's a fairly fragmented market, but again, we've seen growth there. From farmers reinvesting into their businesses, the sales of fencing materials and agricultural hardware, as farmers have more clarity now. They've better farm gate prices and also as a result of the fact that there's clarity about Brexit coming out of Europe. We know exactly which way we're going now and the way government is gonna support agriculture going forward, particularly from 2024. Significant increase in footfall throughout the depots on last year, and also an increase in spend per transaction.
Youngs Animal Feeds, the subsidiary business that I mentioned, providing equine products, was also ahead of expectation. During the year, we introduced a digital customer portal right at the start of 2020. We currently have 1,100 customers signed up to this, which is about 5% of our total customer base. Our customers are able to access their accounts, pay their accounts if they should wish online, look for quotations, and also be able to trade either by click and collect or having product delivered. Back in the springtime, we actually carried out a survey of our customer base, about 400 customers or so, including non-customers, by an independent company called Map of Ag. That survey basically told us that our customers would be rather slow to engage to trade online.
Farmers are that way inclined. We're particularly pleased that we are now in a position to be able to help our farmers trade online as they do change their buying habits in due course, particularly the younger generation coming through. Our next steps, we continue with our digital engagement by rolling out our successful podcasts, social media, and the further expansion on our online offering via the customer portal. Now, the efficiencies within our depots will continue with our depot optimization program and particularly the training of our staff. We currently have about 200 individuals in the depot network who are trained to an AMTRA qualification, again, a nationally recognized qualification, to be able to advise and sell animal health products. This gives us a point of difference between ourselves and many of our competitors.
The future and the outlook of 2022 and beyond. Our growth strategy. We are well positioned to be able to grow the business within the two divisions. In late 2020, we overhauled the senior management of Agricultural Supplies. This restructure is now in place with the successful appointment of a group engineer and a sales and marketing director who will be responsible for increasing the skill set of both our staff on farms, advising our customers. Those in the depots will also be supported with the digital offering I mentioned and also our sales trading desk that form our multi-channel sales route to market. Following the two successful acquisitions during the year, we will continue to look for opportunities to add scale and expand geographically within a strategic plan.
Manufacturing is very much part of our growth strategy, continuing to invest to increase capacity and become more environmentally efficient across our feed, seed, and fertilizer processing plants. ESG will also contribute to our growth as we seek efficiencies within our own business and also by providing products to work with our farmers who will be rewarded for delivering environmental outcomes and precision farming techniques in both arable and livestock farming. We do have a very clear ESG strategy. Following the appointment of our environmental and sustainability manager back in March 2021, we are now seeking to appoint an ESG advisory board to help us accelerate our ESG strategy and deliver our own objective of becoming carbon net zero by 2040.
Throughout the business, we've introduced a number of carbon reducing initiatives, which includes biofuel within our fleet, hybrid cars, electric forklifts, and environmental management schemes within manufacturing. We've also become members of LEAF, Linking Environment And Farming, an organization which has been set up to promote more sustainable farming techniques and also to connect the non-farming community with farms by running a number of farm open Sundays, which are attended by thousands of people across the nation, by allowing people to come and see how farmers produce their food. I believe that Wynnstay is particularly well-positioned to offer solutions and to support our customers through a whole farm approach across all enterprises.
We've engaged with Capitalor Energy, an independent company, to introduce leads to our customers to be able to bring onto their farms solar, wind, and hydro projects. We will also return this year to hosting our own individual events within the business. The Arable Event, we invite arable farmers. Sheep and Beef Event, sheep and beef farmers. These events are independent, where we promote sustainable farming techniques, by having practical demonstrations, a whole host of exhibitors and keynote speakers. The whole purpose of these events is to introduce new products and ideas to increase efficiency and sustainability on farm. As we look forward, confidence has certainly returned to the agricultural sector, and farming sentiment is strong. Following the EU settlement, the U.K. government has now agreed, in principle a number of trade deals with non-EU countries.
Although some of these deals have increased the opportunity for food imports into the U.K., they've opened up new markets across the world at a time when global food demand is increasing. Trade in the new financial year has started in line with expectations, and Wynnstay is well positioned to be able to deliver our objectives for the year. We are confident that our strategic plan, our strong cash flows, our robust balance sheet, and a balanced business model will enable us to continue our success into the future. Thank you, Tasmin. I'm happy to take questions now.
Thank you, Gareth. To ask your question, click on the question mark on the right-hand side, type in your question and submit. We have a question here. How important are fertilizer sales to your overall profits, and how do you think the sharp rise in fertilizer prices will affect overall demand for fertilizers in the current financial year?
I'll take that one then, Tamsin, initially, and invite Gareth to come in as appropriate, really. Fertilizer has been an interesting commodity during this financial year in that it was actually in the news as a result of the natural gas price spike. Natural gas is the core raw material for producing ammonium nitrate, the main fertilizer category. Obviously, as a result of that, the main producer in the United Kingdom announced that they were going to close their plants in the U.K. temporarily because it was uneconomic to actually manufacture. That obviously hit the news headlines as a result of the impact it had on the by-product, which was CO2 production.
The government ultimately had to step in to ensure that at least one of those plants was reopened. Clearly that announcement caused quite a spike in prices, which the company did benefit from in a very short period of time, in that raw materials that were already in place for manufacturing our product obviously was ultimately sold into a marketplace at higher prices. We've identified that there's probably around GBP 500,000 contribution in last year's results, which was really driven by that one-off event. Prices do remain very high. Obviously, one of those plants remains closed. There is gonna be a considerable shortage of product in the main spring use period.
The performance of our fertilizer business during the current year is likely to be depressed slightly because of the caution that we will have over raw material prices potentially coming down. Because of its manufacturing capability, our Glasson business is very focused on fertilizer production. It's quite important to us and is a major element of that basket of categories that we promote ourselves as being a one-stop shop to farmers for.
Yeah, I'll just add to that, supporting what Paul says. Fertilizer use going forward will still be important to us. I mentioned the Environmental Land Management scheme and the way that the U.K. government will change its support for farmers going forward will be more so on environmental outcomes and particularly in the maybe the more extensive areas of the U.K. Food will still be produced. The economics of fertilizer is still strong. For example, when fertilizer trebled in price back in the autumn period, the differential between grain price then is about GBP 50 per tonne. Fertilizer at a 4 tonnes crop has added GBP 15 per tonne onto that price, so. The same would be true of dairy.
The most economical way of feeding cows today is still through grass. As we look forward, fertilizer will be important to growing food in the U.K. and to us as a business.
Thank you very much. Should we expect any further acquisitions in the next 12 to 24 months?
That's a very good question. Our growth strategy clearly includes acquisitions. We made two during the last financial year, and we're continually looking for opportunities across our business. It's a balanced business that we have. Whilst those two acquisitions last year was predominantly in the arable sector, fertilizer and into a small trading business in Northeast Yorkshire, which is arable, we're always looking for opportunities to be able to grow our business, both in scale and from a geographical point of view. Some of those historically, we've done bolt-on acquisitions, the smaller ones, but we certainly have the appetite to be looking for larger acquisitions to give us more scale and impact in certain parts of the business.
Thank you. You refer to being in line with expectations. Are you able to indicate what the expectations are for the next year?
We're a small-cap company, and unfortunately, we obviously don't have the level of external analyst coverage that larger entities do. Sort of consensus forecasts are maybe an unusual phenomenon as far as small-cap businesses are concerned. Certainly our house broker did issue an upgrade as a result of the results that we're talking about today. Obviously the one-off impact of that fertilizer price did make a contribution to last year's figures. Our house broker has us down for around GBP 10.5 million in the current financial year.
Thank you very much. What are the key risks for the business over the next 12 months?
I don't think there's any particularly strong risks as such. Obviously inflation, whether that be farmer inputs or inflation with our own business, the cost of running the business. You know, we're particularly pleased with the way we're doing that. I mentioned earlier on that fuel delivering product to farm is obviously an increased cost than what we've had. Volatility in raw materials continues to happen, but I think that if you look at the cost of energy into the business, I also stated that we're year one into a three-year fixed period for electricity. You know, farmers are doing particularly well at this moment in time as we look at the agricultural backdrop going forward.
Farm prices certainly look like they will remain strong for the rest of the year's business. We engage with dairy consultants and arable consultants that look into those sectors, particularly strong. Of course, there's always the political side as well, really. Currently, what will happen in Russia and Ukraine might have an impact on some commodity prices. 30% of grain, which is exported throughout the world, comes out of Russia and Ukraine. You know, arable farmers may well see an increase in the price of the product that they sell as a result of. I think to answer your question, I think the business is particularly strong. We've got a good balance. Farmers are doing well at this particular time, and while there are risks, I think we are managing those risks well.
Thank you. You seem much more upbeat about the outlook for British farming post-Brexit than many commentators in the mainstream media. Do you think they're overdoing the doom and gloom for the outlook?
I think our clear point about Brexit is that there's clarity. While we started the financial year on the unknown of what Brexit was gonna bring, the clarity of Brexit was that there was a free trade agreement with the EU 27, therefore no tariffs. We export products. A third of the lamb that we export goes into Europe. That was likely to carry a 48% tariff. I think the clarity of Brexit has certainly been a great help for the farming communities. I mentioned those trade deals, which can potentially be seen as a negative with Australia and New Zealand, you know, agreements to export more food into the U.K. in the long term without no tariffs.
I think the positive point I would take from those deals is that even with the low quotas that they have today or the lower quotas, they do not fulfill those, as there's stronger markets in Asia, particularly China. The cost of freight has gone up. In due course, there will be also pressure on those deals because of the distance that food will travel, food miles, carbon footprint, et c. I think the clarity of the EU settlement was certainly good for British farming, that we know where we are and there are no tariffs from into Europe.
Thank you very much. Do you anticipate a reduction in cereal seed demand due to the movement in ELM schemes?
Not significantly, no. There will be acreage taken out of arable cropping. That will be likely to be the less productive acres on the fringes that may be planted into environmental seed mixtures or even trees. I read a fact the other day actually that there's 30% more grain used in the world today than there was 10 years ago. Obviously food demand is strong. Whilst we will likely to see a reduction in acreage, it's fairly small. Andersons consultants who we work with indicated to myself last week when I spoke to them that as we are today, it's likely to be anywhere between a 2%-3% reduction in the acreage sown for cereals in the U.K. when ELMS comes into operation.
Thank you. The last two acquisitions took you into the eastern side of England. Are there particular geographic areas that you're targeting both in the short and medium term?
I wouldn't say there's any particular area that we're targeting specifically. The map that I showed earlier on shows the darker blue is where we're strong, the lighter blue is where we are, we're active, but maybe not 100% doing what we do as a business. A good example of that would be the southwest of England. We've been down there now since 2014 with a number of agricultural depots. We don't have arable businesses there. We don't have a feed business there. I think if the opportunity should come up that we're able to acquire a business, that will strengthen our position in our existing trading area most certainly would.
The eastern side, where it's fairly white, as you can see, is an arable area. I think really looking at the balance across the business is strengthening what we do in areas that we're already operating in and stretching our geographical spread in due course. There's nowhere particular that we're targeting, but to looking to do more of what we already do well in areas that we could be stronger.
Thank you. How has the business been affected by the widely reported shortages of haulage drivers? Can you put a figure on the additional cost to the business?
We're certainly not immune to what's going on in the wider world. Fortunately, we haven't been particularly affected by that specific issue, and I'd like to attribute that primarily to the fact that I think we're, you know, a good employer, particularly in our local area. We have always paid fair and good wages for, you know, well-respected teams. We probably also benefit from our rural location. We're certainly not situated anywhere near, you know, the Northampton transport hubs or anything. We haven't been particularly adversely impacted from that particular scenario.
Thank you. What are your main growth markets you're investing in?
Well, I mentioned earlier on that our strategy is balanced. We've identified dairy and free-range eggs as a sector that are growing. We're certainly growing organically in those sectors, but also the balance of arable as well. Our latest acquisition was a fertilizer blending plant up in Yorkshire. That consolidated our position as the second largest fertilizer blender in the U.K. I think it's a balance across. There's nothing specific other than we've identified certain areas that we'd like to grow in, whether it be arable, free-range eggs and dairy in particular. But you know, that's our ambition, is to grow the business in a balance within the U.K., particularly mainland GB.
Great. Thank you. Do you see the forecast, your broker's forecast at GBP 10.5 million as conservative, and would you see there's potential for upside?
I mean, we're comfortable with the brokerage position, and I guess we are inherently a cautious organization. We quite often would like to point out that there are critical trading periods, critical seasons for our business, which we always want to make sure we can navigate through before we can offer any sort of further commentary or guidance on likely performance. I mean, clearly we're in the middle of the peak winter feeding season now, which is very important for livestock farmers. Obviously later on during the year, we have the harvest, which is very important as far as our arable activities.
It's very difficult to actually comment on likely outcomes on those categories of trade, you know, well ahead of them. We do remain cautious in the guidance that we give, but we're comfortable with the numbers that they're talking about.
Thank you. Is feed activity a higher margin area for you? How would you like to develop this activity?
Well, feed manufacturing is capital intensive. From a margin perspective, it obviously has to support those activities. It's very important as part of that overall package. We obviously manufacture bagged feed as well, which we actually sell through our own depots, so it's very good that we can actually have both elements of the margin from that category. You know, it is clearly an important factor, and we are already investing in additional manufacturing capacity.
Yes. Mentioned earlier on that, at Carmarthen in South West Wales, it is the second-largest dairy field in the country. We have a mill down there. We manufacture circa 140,000 tons per year at this moment in time. Between ourselves and our successful JV business that Paul mentioned earlier on, Bibby, we're currently having tons of feed manufactured by a third party down there. We're able to repatriate a significant volume while also increase market share. At this moment in time, that mill only manufactures ruminant feed. We take poultry feed down from Llansantffraid, which is effectively a four-hour trip. The mill in itself as we invest into it, will not only increase capacity, it'll become more environmentally friendly with new production systems, and also reduce miles of our feed driven, really.
We do know having had discussions with some milk processors that they will be looking for their farmers to be able to prove to them the carbon footprint of products that they actually buy into the farm. Investing into the milling compound then would be a significant move for ourselves. It will be a GBP 6 million investment over a period of three years. We start this summer. Not only increasing the ability in that part of the world to grow our market share, but it will also free up some capacity from the mill here in Fanceford, which is also full during the winter months.
Great. Thank you. What does CapEx look like over the next two to three years?
We certainly are intending to increase our levels of investment over the next two- to three-year period. We're obviously expanding on many fronts, and it's absolutely critical that we in our manufacturing operations operate efficiently and as productively as we possibly can. We certainly see a higher level of investment as an insurance policy to make sure that we continue to be at the forefront of our sector. It's a low margin business and therefore productivity is absolutely critical. We certainly have half an eye on the inflationary environment that Gareth's already mentioned. Labor rates will undoubtedly be an area of pressure going forward, so automation is an important factor for us.
You know, we will continue to invest at higher levels in both our feed, seed, and fertilizer production operations over that period to make sure that we maintain our market share in those sectors.
Thank you very much. What do you expect farmgate prices to do in the next 12 months?
From the indications and the trends and the factors behind it from what we can see at this moment in time, I'd say that they're gonna remain particularly strong. I mentioned earlier on that it's supply and demand. Milk supply is slightly behind where it has been in the previous year or so. Red meat continues to be strong going into 2022. While some of those commodities such as sheep and beef may not be quite as high going forward as what they have been, but the trend will still particularly strong. Arable market is strong all the way through to harvest. There's likely to be a good harvest in 2022 based on sowing. Sowings are slightly up on last year.
I think as we look across the commodities that we're involved with, whether it be milk, grain, oilseed rape, beef, sheep, I think those sectors are particularly strong. Free-range eggs likely to increase a little bit. The reason why they were flat, you may or may not be aware, but it is a growth sector. Free-range eggs is predicted to grow by 20% over the next four years, and that's on the basis of the major retailers stating their ambitions that they will no longer be sourcing eggs from cage systems from 2025 forward. The situation we have at the moment is that supply of free range has slightly got ahead of demand, but that will correct itself in due course. Overall, I believe that farmgate prices will remain reasonably strong for the next 12 months.
Thank you. You mentioned that the harvest this year was more normal. What is a normal harvest?
More normal harvest for wheat is circa around about 14 million tons. U.K. harvest for wheat was 14 million tons in 2020-2021. Previous harvest was a very low harvest based on bad weather, just under 10 million tons. Fourteen million tons is more normal. We have seen highs of 15 million to 16 million tons , prior to that.
Thank you. How did you select the two Bolton acquisitions?
Select the two bolt-on acquisitions. I guess really, those opportunities came from our connections in the marketplace. HELM Fertilizers was a stand-alone fertilizer business, part of a major German chemical business. We do have a plant just down the road 7 mi away at Goole. The business was particularly known to us, and the opportunity came up. Goole, our plant there was reasonably full, and Howden was only 7 mi away. That fertilizer business gave us a new customer base as well. We selected the business on new customers and also increased capacity in the part of the U.K. where we needed some. The other business, which is Armstrong Richardson , a business that was known to us, A.R. Agriculture, part of Armstrong Richardson, rather.
A business that was known to us and gave us the opportunity of extending our trading operations further north into Yorkshire and just up into Durham.
Great, thank you. That's the end of questions. Gareth, do you have any closing remarks?
I'd like to thank everybody for joining us this afternoon. I'd just like to say that I think the sector is in a good place, and Wynnstay is particularly well-positioned to grow on our consistent results for the past few years and to build a business into the future. We have a clear strategy, and the strategy is about agriculture within the U.K..
Many thanks, Gareth and Paul, and to you all for joining. To everyone that's been listening, you'll now be taken to a webpage to give feedback on today's presentation. If you're unable to complete it now, you'll receive a follow-up email. We'd be really grateful if you could take a few minutes to complete. Many thanks indeed. This is the end of the webinar.