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Chairman's Statement

OVERVIEW

Centenary Year. These very strong figures, which are well above our expectations at the start of the financial year, reflect the continuing recovery in farmer confidence and spending, driven by improved farmgate prices. Trading in the second half of the year also benefited from the unusually dry summer weather that extended well into the autumn months and boosted sales of feed, fertiliser, and seed in particular.

Underlying* pre-tax profit (the Board’s preferred alternative performance measure) from continuing operations rose by 20.5% to £9.60m (2017: £7.97m), and Group revenue from continuing activities increased by 18.4% to £462.66m (2017: £390.72m), with acquisitions accounting for £28.21m of sales.

All of Wynnstay’s key activities generated increased sales. This reflected the general improvement in farmgate prices, which benefited farmers across the arable and livestock sectors. Average UK grain prices were above the previous season, with milk prices stabilising to more realistic levels, and sheep and beef meat prices increasing year-on-year. The weaker pound also benefited UK farm exports. Against this, farmers faced rising costs, including fuel and fertiliser, and unexpected feed requirements driven by the dry weather.

Strong feed demand in the second half benefited both our direct-tofarm activity as well as sales through our other channels-to-market, including Wynnstay’s agricultural depots. Overall, the Group’s compound and blended feed volumes were 6.4% higher than last year and sales of bagged feed, which is predominantly sold through our depots, reached a record high.

The acquisitions of the Montrose fertiliser blending plant in East Scotland in November 2017 and the balance of the FertLink joint venture fertiliser manufacturing business in May 2018 have established Wynnstay as the second largest fertiliser blending manufacturer in the UK, enabling us to capitalise on increased fertiliser demand in the second half. Strategically, the addition of Montrose has given us our first presence in Scotland, which we will build on. The Group’s seed operations produced a very strong performance, with record sales of herbage seeds. Grain trading activities were buoyant, with volumes up by 15.5% over the previous year. This included a good initial contribution from our new grain trading operation in Grantham, opened in the late Spring.

Sales through our agricultural depots were strong, with like-for-like sales up by 9.8%. We made a number of acquisitions of agricultural outlets in the year and these have expanded our trading reach and farming customer base, especially in the South West. The most significant acquisition was from the administrators of Countrywide Farmers Plc on 30 April 2018. The integration of our acquisitions is proceeding to plan and, as previously highlighted, we expect the former Countrywide depots to make a positive contribution to the Group’s results in the new financial year to 31 October 2019.

Over the year, we have continued to invest across the Group to improve operational efficiencies, particularly in production facilities and logistics. We are also continuing to invest in our advisory services and have established a strong team of specialists. The application of science and technology in farming is important and our advisory services are aimed at assisting farmers in reviewing and adopting relevant new products and practices as they seek to become more efficient and more profitable.

FINANCIAL RESULTS

Group revenues from continuing operations for the year to 31 October 2018 increased by 18.4% to £462.66m (2017: £390.72m), with acquisitions contributing £28.2m and inflation accounting for about £22.3m of the rise.

Sales in the Agriculture Division rose by 19% to £334.34m (2017: £280.87m), with the increase reflecting higher average unit values for most feed, seed and grain products and stronger volumes. Revenue from the Specialist Agricultural Merchanting Division increased by 17% to £128.26m (2017: £109.73m), with acquisitions contributing £7.83m to this rise and £10.7m accounted for by strong like-for-like growth in many important product categories.

On an IFRS basis, profit before taxation increased by 24.4% to £9.53m (2017: £7.66m). Underlying* Group pre-tax profit, which excludes share-based payments and non-recurring items but includes the results from joint ventures and associates, increased by 20.5% to £9.60m (2017: £7.97m), setting a new record high. This strong performance was driven by both Divisions.
The Agriculture Division generated a 28.4% rise in operating profit contribution to £4.29m (2017: £3.34m), including contributions from Joint Ventures and Associate business. The Specialist Agricultural Merchanting Division generated a 16.7% rise in contribution to £5.53m (2017: £4.74m). Other activities showed a loss of £0.09m (2017: loss of £0.10m).

Net finance costs increased slightly to £0.19m (2017: £0.15m) as commodity price inflation created higher average working capital utilisation.

Profit after tax from continuing operations rose by 22.2% to £7.71m (2017: £6.31m) and basic earnings per share from continuing operations increased by 21.1% to 39.11p (2017: 32.29p). The Group continued to generate good cash flows. However, it closed the year with net debt of £0.98m (2017: net cash £4.51m), which mainly reflected higher working capital utilisation as a result of the growth in revenues. It also reflected increased investment across the Group particularly in our logistics fleet, depots and manufacturing facilities. The Group maintains borrowing facilities of approximately £18.8m, which provide it with ample headroom.

Net assets increased by 6.7% to £91.07m (2017: £85.39m) at the year-end, which equates to £4.62 per share (2017: £4.37 per share) and the return on net assets from continuing operations rose to 10.6% (2017: 9.4%).

DIVIDEND

The Board is pleased to propose the payment of a final dividend of 8.95p per share. Together with the interim dividend of 4.41p per share, paid on 31 October 2018, this takes the total dividend for the year to 13.36p, an increase of 6.03% on last year (2017: 12.60p).

The final dividend will be paid on 30 April 2019 to shareholders on the register on 29 March 2019. A script dividend alternative will continue to be available as in previous years. The last date for election for the script dividend will be 16 April 2019.

BOARD CHANGES

On 11 July 2018, Gareth Davies assumed the role of Chief Executive Officer, succeeding Ken Greetham, who retired after 21 years with the Group, the last 10 of which were as CEO.

On behalf of the Board and all staff, I am delighted to take this opportunity to welcome Gareth to the Board and to thank Ken for his substantial contribution to Wynnstay over so many years. Ken leaves the Group well-positioned for its next stage of growth and we wish him a very happy retirement.

Gareth joined Wynnstay in 1999, rising to become a key member of the senior management team. Over the last five years, he has been Joint Managing Director of Wynnstay (Agricultural Supplies) Ltd. Gareth is also a Director of Hybu Cig Cymru – Meat Promotion Wales, the industry-led organisation responsible for the development, promotion and marketing of Welsh red meat, and a member of both the Welsh Government Trade and Supply Chain Working Group, as well as Treasurer of British Grassland Society.

COLLEAGUES

Our colleagues are knowledgeable and highly experienced, and Wynnstay’s continuing success has been built upon a strong team culture of commitment, passion and endeavour. On behalf of the Board, I would like to thank everyone for their part in helping to deliver a very successful year. We look forward to moving the Group into its next phase of growth with the support of our dedicated team.

OUTLOOK

We believe that the long-term prospects for UK agriculture are positive, despite the current uncertainties surrounding political reform and the changes to the way in which farmers will be supported. The Agriculture Bill, which is currently progressing through Parliament, supports and promotes investment in sustainable business models, and incentivises greater efficiency and environmental management. Macro-economic factors point to increased demand for agricultural produce as a result of increasing world population and shifting dietary habits, which British agriculture stands to benefit greatly from. We believe that Wynnstay can play an important role in supporting the future needs of farmers as they respond to the new challenges and opportunities ahead.

Wynnstay remains well-placed to grow and develop. The business is now wholly-focused on its agricultural activities and the acquisitions that we have completed over the last year have expanded our trading areas and our customer base, providing growth opportunities for the future.

We have strong routes into our farming customer base and continue to invest in our product range and in the different ways in which we engage with customers, including online. Our depots remain a strong channel to market, complemented by our growing advisory services, educational events and specialist catalogues. We intend to continue to develop our ‘multi-channel’ approach over the coming year.

We also have a programme of investment in place to continue to improve efficiencies, with a strong focus on enhancing our manufacturing facilities and upgrading systems.

Trading at the start of the current financial year is in line with management expectations and looking further ahead, the Board remains confident of continuing organic and acquisitive growth opportunities. Wynnstay’s breadth of activities and strong balance sheet will continue to provide a secure underpinning to the Group’s position as we develop and expand the business.

Jim McCarthy
Chairman
22 January 2019