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Chairman's Statement

OVERVIEW

Wynnstay’s core agricultural and specialist retail activities generated a significantly improved performance on the prior year (1). However, financial results for the Group as a whole have been impacted by the trading difficulties at our pet products operation, though decisive action has minimised the effect on employees and creditors of Just for Pets Limited, as well as shareholders in the Group.
A key feature of the year was the improvement in the trading backdrop, with market prices for agricultural outputs recovering over the year. For many farmers, particularly in the dairy sector, output prices had previously fallen to below the cost of production.  The recovery in prices over the period, therefore, lifted sentiment across the sector, driving an upturn in demand for most agricultural inputs, including feeds.
The benefit of this recovery in demand is evident in the Board’s preferred alternative performance measure of underlying pre-tax profit (2) from continuing operations, which rose by 9.2% to £7.97m (2016 restated: £7.30m) despite some margin pressure. Revenues generated by Wynnstay’s continuing operations increased to £390.72m (2016 restated: £353.73m), reflecting increased activity in most sectors as well as inflation in certain product categories. The Group’s reported pre-tax profit (3) includes a one-off charge, associated with the Just for Pets Limited business, which reduced the outcome to £1.15m (2016: £7.29m) for the year.
The most marked improvements in output prices were in the livestock sector, particularly dairy, where milk prices increased sharply over the last 12 months, although they did not reach the levels seen in 2013.  We remain encouraged about the level of demand for livestock feed in the current year.
Seed sales were in line with last year’s record level and overall fertiliser sales were higher year-on-year. This reflected increased activity in Glasson’s fertiliser business in northern England and Scotland. Grain volumes were lower compared to the prior year, partly a result of the smaller harvest of 2016 but also reflecting farmers’ reluctance to trade grain as prices declined during the autumn period.
Sales from the network of Wynnstay Stores increased as farmers invested in their enterprises, with a significant improvement in hardware, supplements and animal health products. Our stores provide a valuable route to market both for our own products and for those of national suppliers, and we intend to further expand our geographic presence as well as invest in ongoing store upgrades and refurbishments. Further details on the Group’s trading performance are provided in the Chief Executive’s Review.
The Board is encouraged by the progress that has been made during the year in the Group’s continuing operations, and plans to make further investments across all aspects of the business as it continues to strengthen Wynnstay’s position as a major supplier of agricultural products and services to farmers and the rural community.


FINANCIAL RESULTS

For the year to 31 October 2017, revenues from continuing operations increased by 10.5% to £390.72m (2016 restated: £353.73m), owing partly to a reversal of the commodity price deflation experienced in recent years. Agriculture sales contributed £280.87m (2016: £249.74m), which reflected higher average unit values for most feed, seed, grain and fertiliser products. Specialist Retail revenue increased by 5.7% to £109.73m (2016 restated: £103.86m), with good like-for-like growth in many important product categories as farmer confidence improved and farm-related investment increased. 
Reported profit before tax from continuing operations increased by 6.2% to £7.66m (2016 restated: £7.21m), and on the Board’s preferred alternative performance measure of “Underlying Group pre-tax profit”, which includes the gross share of results from joint ventures and associates, but excludes share-based payments and exceptional items, the Group achieved an increase of 9.2% on the prior year to £7.97m (2016 restated: £7.30m). 
The improvement in trading conditions is reflected in both operating divisions, with Agriculture contributing £3.34m (2016: £3.01m) to operating profit, a rise of 11.0% year-on-year.  This includes an improved performance in the FertLink and Bibby joint ventures. Our Specialist Retailing activities contributed £4.74m (2016 restated: £4.47m), a 6.0% increase, which mainly reflected improved revenues across nearly all stores. Other activities recorded a similar loss to the prior year of £0.10m (2016: loss of £0.10m).
Net finance costs increased slightly to £0.15m (2016 restated: £0.14m) as commodity inflation created higher average working capital utilisation.
Basic earnings per share from continuing operations were 8.7% higher at 32.29p per share (2016 restated: 29.71p). Costs associated with the discontinued Just for Pets Limited business amounted to £6.59m (2016 restated: income of £0.06m). This resulted in a reported loss for the year after tax of £0.28m (2016: profit of £5.83m).
Cash generation remained strong during the year and, at the year end, the Group’s net cash position was £4.51m (2016: £4.28m). 
Balance sheet net assets stood at £85.39m (2016: £86.95m) at the year end, equating to £4.37 (2016: £4.48) per share, and the return on net assets from continuing operations was 9.4% (2016 restated: 8.4%).

DIVIDEND

Reflecting the recovery in the performance of continuing operations, the Board is pleased to propose the payment of an increased final dividend of 8.40p per share (2016: 8.00p).  This, together with the interim dividend of 4.20p per share, paid on 31 October 2017, takes the total dividend for the year to 12.60p, an increase of 5.0% on last year (2016: 12.00p).
The final dividend will be paid on 30 April 2018 to shareholders on the register on 3 April 2018. A scrip dividend alternative will continue to be available as in previous years.  The last date for election for the scrip dividend will be 16 April 2018.

COLLEAGUES

Wynnstay has tremendously dedicated and talented colleagues across its operations and, on behalf of the Board, I would like to thank them all for their input and hard work during the year.  Their expertise and commitment will help to drive Wynnstay’s performance and future growth.  

OUTLOOK

Wynnstay has the benefit of a strong balance sheet and a broad base of activities covering all aspects of agricultural inputs. This has been a significant factor in Wynnstay’s resilient performance during the prolonged downturn which affected the whole of UK agriculture.  It also creates a robust platform for the Group’s future growth and development.
The improvement in farmgate prices has generated an increase in demand for most agricultural inputs and, with market prices at more realistic levels for farmers, there is a greater degree of stability within the industry. 
Currently, the medium-to-long term picture is less clear, due to the ongoing negotiation process for the UK’s exit from the European Union and the likely shift in the nature of support mechanisms for UK agriculture. However, the Government has indicated its support for the industry as a whole, and Brexit comes at a time when world demand for agricultural products for food and also for energy continues to increase. This is a positive driver for the industry and should bring further opportunities for Wynnstay.
While there are some uncertainties over the next few years, the Board remains confident of the Group’s market positioning and is firmly focused on the opportunities presented by the evolving UK market.