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Chairman's Statement

OVERVIEW

Wynnstay has performed in line with market expectations delivering a result which, although lower than the previous year’s, reflects, as anticipated, the adverse trading environment experienced across the wider agricultural industry. The breadth of the Group’s activities, which includes arable, feeds and retail, traditionally provides an internal hedge against variable returns within the industry. However the downturn in UK agriculture has affected most sectors, mirroring world trends. Against this challenging backdrop, the underlying pre-tax profit* of £7.37m (2015: £9.05m) on revenues of £368.14m (£377.38m) is, in my view, creditable.

Within the Agricultural Division there was an overall reduction in contribution mainly reflecting margin pressure associated with the mix of products sold during the year. Feed demand reduced, reflecting national trends, but sales of straight feeds and arable products increased. Seed sales were at record levels and sales of fertiliser rose as some farmer customers placed orders ahead of price increases in the autumn. Grain volumes were slightly lower than the record of the previous year. The feed and arable aspects of the business are well placed for future growth as farmers begin to experience some recovery in output prices.

The Specialist Retail Division continues to develop. There are now 52 Wynnstay Stores and 25 Just for Pets outlets. The businesses acquired during the previous financial year have now been integrated and we have opened new stores during the year. Overall sales have increased, although, as expected given the challenging trading environment, like-for-like sales and profit contribution are behind the prior year’s level. The retail aspect of the Group’s operations is an important route to market for our own agricultural products along with those supplied by UK and international businesses, and also provides another important point of contact with our farmer customer base.

In line with the corporate plan, we continued to invest in the Group’s infrastructure, expanding and modernising our bagged feed production facilities. Further investment is planned to support our ongoing development in the feed and arable sectors.

The agricultural trading environment is now demonstrating early signs of recovery, with a welcome improvement in farm output prices, mainly as a result of a weaker Sterling but it also reflects a rebalancing of some agricultural markets.

FINANCIAL RESULTS

Revenues for the year to 31 October 2016 at £368.14m (2015: £377.38m) were once again impacted by continuing deflation in many product categories for much of the period. Sales from the Agricultural Division contributed £249.74m (2015: £270.05m) to total revenue, reflecting average lower unit values for most feed, seed, grain and fertiliser products, together with the reduced demand for dairy-related items. Specialist Retail revenue contributed £118.28m (2015: £107.19m), with the increase being driven by a full year’s contribution from acquisitions made towards the end of last year, particularly the Agricentre business.

Profit before taxation reduced by 12.59% to £7.29m (2015: £8.34m). Underlying pretax profit*, which includes results from joint ventures and associates but excludes share based payments and exceptional items, was £7.37m (2015: £9.05m), a decrease of 18.56% year-on-year. The Agricultural Division contributed £3.01m (2015: £4.13m), reflecting a reduction in compound and blended feed volumes, which was only partially offset by increased straight feeds as customers sought to cut costs. Our Specialist Retailing activities also made a lower contribution of £4.54m (2015: £5.08m), mainly as a result of the costs associated with new store openings and integration, together with reduced demand for certain products. Other activities showed a reduced loss of £0.10m (2015: loss of £0.26m) which reflected the lower share based payment charge for the period.

Net finance costs decreased to £0.14m (2015: £0.24m), with average net debt reducing through the year. Basic earnings per share was 30.01p per share (2015: 34.66p).

Cash generation remained strong during the year, with an EBITDA** performance of £10.17m (2015: £11.70m before exceptional items) and the net cash position at the year end stood at £4.28m (2015: £2.14m). Balance sheet net assets increased to £86.95m (2015: £82.86m) at the year end equating to £4.48 (2015: £4.31) per share.

DIVIDEND

The Board is pleased to propose the payment of a final dividend of 8.00p per share. This, together with the interim dividend of 4.00p per share, paid on 31 October 2016, takes the total dividend for the year to 12.00p, an increase of 8.11% on last year (2015: 11.10p). The final dividend, which is subject to shareholder approval, will be paid on 28 April 2017 to shareholders on the register on 31 March 2017. A scrip dividend alternative will continue to be available as in previous years. The last date for election for the scrip dividend will be 18 April 2017.

THE BOARD

On 1 April 2016, we were pleased to welcome Steve Ellwood to the Board as a Non-executive Director. Steve has substantial experience in the agricultural and agri-food sector, having worked for twenty-five years at HSBC Bank’s agricultural banking operations, including as Head of Agriculture for 10 years. He remains active in the sector both through significant industry initiatives and as a Non-executive Director of several agricultural companies.

COLLEAGUES

Our colleagues across the Group have once again worked with skill, energy and commitment over the year and, on behalf of the Board, I would like to acknowledge everyone’s contribution. Wynnstay’s achievements to date are built on clear strategy and successful teamwork.

OUTLOOK

The Group has performed well over recent years and, despite the challenges faced by the industry over the last twelve months, Wynnstay remains in a strong position to progress in the UK market. While uncertainties for the industry remain, particularly as the UK Government negotiates the exit from the European Union, the Board remains confident of the opportunities that exist for UK agriculture as the world market for agricultural products becomes more balanced.

In recent months, there has been some recovery in output prices for farmers and there are early signs of increased demand for certain products, particularly in the livestock sector. Changing global dynamics and weaker Sterling have triggered an increase in input prices and the industry is therefore likely to experience the return of inflation. Wynnstay is well placed with a robust balance sheet and strong cash flows. Our broad range of products and expanding route-to-market brings further opportunity as we look forward. We continue to work on delivering our corporate plan and remain focused on meeting the requirements of our important customer base.

Jim McCarthy

Chairman

24 January 2017