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Risk Management Statement

Principal Risks and Uncertainties

The Group aims to mitigate the risks it faces as we seek to create sustainable growth over the medium to long-term by adopting an approach that is appropriate to the business activities being conducted. The Board retain overall responsibility for reviewing risk management strategies and this statement provides information about the extent of exposure to identifi ed risks that the Board is able to bear and willing to take. The executive directors work closely with the non-executive directors who provide oversight and scrutiny in this area to ensure that risk management is appropriately aligned with commercial strategy.:

As a Board, we play a critical role in helping to shape the tone for the organisation. This is achieved by modelling behaviours which drive strategic thinking, pace, risk management and compliance. Stakeholder feedback is sought from a variety of sources which is considered and acted upon as appropriate in order to ensure the Group is functioning in line with our corporate goals.

As with all businesses, there are some risks and uncertainties which are not able to be controlled.

The table below sets out the principal risks and uncertainties which could have a material impact on the Group, the list is not exhaustive, and it is possible that there will be other risks or uncertainties that could have a material adverse impact. Whilst all companies are subject to some financial risk, the Group continues to have a strong balance sheet and low gearing.

Risk Description of risk Mitigating Actions

Operational: Brexit and the political backdrop
There is uncertainty about the terms of the trade agreement which the UK will be able to negotiate with the European Union which may impact the Group in the following ways:

- Imports of raw materials
Potential disruption of imports of raw materials due to congestion and customs procedures at point of entry which could lead to disruption of manufacturing and merchanting operations.

- Customer exports
Some of our customers export their end product, so the imposition of tariff s may impact demand for their products, which in turn could affect their demand for the Group’s products.

- Exchange rate volatility
Leading to commodity price risk.

- Historic reliance of our customers on government support
Our core farmer base has historically relied upon government support and whilst the UK Agriculture Bill 2019 guarantees support until 2022 it is unclear what will happen after this time. This may lead to uncertainty and impact our customer buying patterns.

Operational: Brexit and the political backdrop
We continue to closely monitor the government’s Brexit arrangements and adapt our plans to respond to the latest arrangements.

- Imports of raw materials
Our raw material inputs and goods for resale are sourced
from worldwide locations and where possible we plan to
purchase from a variety of sources in order to minimise
reliance on a single point of supply.

- Customer exports
The Group’s customers are located in Britain and are
involved in enterprises meeting the country’s basic need
for food. The Group diversifies where possible to avoid
reliance on individual customer or product groups, such as
offering products to arable and livestock farmers.

- Exchange rate volatility
Detailed mitigating actions for commodity price risk are in
the subsequent “fi nancial: commodity prices and currency
exchange rates” section.

No Change

Operational: Infrastructure and IT systems
Much of the Group’s feed business is conducted on a customer ‘made to order’ basis. This requires sophisticated order processing, manufacturing and delivery systems as low lead time can provide a competitive advantage.

The breakdown of any of these systems through mechanical fault, weather and traffic disruption, or computer malfunctions or errors could lead to failure to fulfil customer orders.

The Group has internal IT support teams to manage its computer systems, including procedures for recovery from disruption.

The Group operates multiple supply points, with additional third-party manufacturing arrangements in place.

It is recognised that all organisations could be subject to cyber attacks and data theft and we have policies around data protection and use of IT systems which seek to minimise the risk of breaches.

No Change Operational: Recruitment, retention and development of our key people
Recruiting and retaining the right people is crucial to the success of the Group.

Succession planning and development of key colleagues is
considered at Board level.

The Remuneration Committee develops remuneration policy for executives and key colleagues, referring to external benchmarking data as appropriate.

No Change Financial: Commodity prices and currency exchange rates
The Group’s raw material inputs (grain, feed inputs), along with the farmer customer outputs (dairy, meat, agricultural goods) are subject to world prices which are impacted by world supply and demand, political factors and currency
exchange rates which could lead to fluctuating demand for the Group’s products.

The Group does not engage in the taking of speculative commodity positions, but it does have to make significant forward purchases of certain raw materials, particularly for use in its animal feed and fertiliser manufacturing operations. Position reporting systems are in place,
together with appropriate limits, to ensure the Board is appraised of the exposure level on a regular basis. Where available, hedging tools such as commodity futures contracts on the London LIFFE market are used to manage pricing decisions.

Foreign currency risk is managed by entering into currency purchase agreements at the time the underlying transaction for the purchase of raw materials is completed. The adjusted fair value of these contracts is now material. At the year end the principal amounts relating to forward purchased currency amounted to £9,178k (2018: £11,489k).

No Change Financial: Availability of finance and interest rates
Fluctuating commodity prices can adversely impact the Group’s working capital requirements and it is possible that interest rates charged may increase

The Group monitors and maintains headroom in its facilities to accommodate unexpected but foreseeable trading patterns and conditions. Debt facilities are in place with HSBC Bank Plc which includes variable overdraft and revolving credit facilities and term loans.

The majority of debt is floating and linked to interest base
rates. The Board reviews its option to fix the rates attached
to debt through the use of interest swap derivatives.


Operational: Operating climate

- Impact of weather conditions and climate change
Demand for the Group’s products is impacted by climatic conditions as these impact demand for animal feed and associated products and arable activities and so customer
demand can be impacted by the weather which, in turn, could lead to volatility of earnings.

- Consumer awareness
There is growing evidence of consumer awareness and concern about sustainability of products purchased, including food.

- Government regulation and licences
A number of the operating sites within the Group require specific Environmental Agency regulated permits or other governmental approvals or licences. Non- compliance with terms could result in the withdrawal to operate certain activities which could lead to volatility of earnings or loss of reputation.

- Impact of weather conditions and climate change

The Group monitors trends and, as noted above, seeks to diversify where possible to avoid reliance on individual customer or product groups, such as offering products to arable and livestock farmers.

- Consumer awareness
The Board monitors developments in consumer buying patterns in relation to sustainability and looks to ensure that the Group offers a range of products to meet consumer preferences, and looks for new opportunities to service emerging trends in agriculture, such as the public goods concept in the UK Agriculture Bill 2019.

Government regulation and licences
The Board oversees Environment and Regulatory Compliance by receiving regular updates from management and monitoring the results of audits.

No Change

Financial: Credit
A significant proportion of the Group’s trade is conducted on credit terms and as such the risk of non payment is always present.

- Grain trading business
The grain trading business derives a significant proportion of
revenue from a small number of key customers, leading to
substantial customer credit balances.

Financial: Credit

Customers are credit checked and appropriate limits set up prior to goods being supplied. The Group actively monitors accounts using the credit control policy and the Board regularly monitors debtor days. The historic incidence of
bad debts is low.

 - Grain trading business
The Group utilises credit insurance in order to provide partial cover against default by certain customers.

No Change Operational: Industry consolidation and change
The Group operates in a fragmented market which is undergoing consolidation. Our strategy is to grow through a combination of organic and acquisition-based means in order to remain competitive and benefit from economies of scale. Consequently, it is important to successfully identify, execute and integrate growth opportunities in order to mitigate the risk of customer loss and competition.

The Group pursues a sensible growth strategy by seeking to increase its market share through geographic expansion and acquisitions.

The Group continues to invest its sales channels, capturing data through a customer relationship management tool in order to identify and manage customer sales, service, support and quality across our catalogue direct to farm and specialist agricultural merchanting depot networks.

Paul Roberts Finance Director

22 January 2020