NMR Accounts

Chairman and Managing Director's report. For detailed information click on "Useful Info" button to right.

Overview

• Increased revenues and dividend of 2 pence per share
• Expanded geographic presence through Joint Venture to provide payment testing services to Irish dairy market
• Successful diversification of current product offering to include fertility aid Silent HerdsmanTM - highly encouraging uptake in the UK
• Post year end acquisition of a new property to consolidate testing facilities, providing savings of £150,000 per annum
• Defined growth strategy to take advantage of strong market conditions bolstered by concerns regarding global food shortages and food traceability
• Share Reorganisation implemented to reduce number of legacy shareholders to a more appropriate size

NMR Managing Director Andy Warne said, "We are delighted to report a dividend of 2 pence per share on the back of what has been a highly active year for NMR. Over the last 12 months we have successfully consolidated our shareholder base, strengthened our product offering and raised our profile both in the UK and further afield.

"The market conditions within the dairy industry are highly conducive for growth and we are confident that we are positioned to capitalise upon this. Worldwide demands for increased food production, and stipulations from all major retailers for milk traceability has made milk recording a near necessity for all dairy farmers. NMR is already recording 50 per cent. of the cows in the UK and with only one other major recording organisation operating in the market, we are rapidly gaining more business from non-recording farmers. Importantly, with the infrastructure in place to accommodate further customers, growth can be achieved with marginal investment."

Chairman's Statement

It has been a successful year for NMR both on an operational and corporate level. We have established a formal presence in Ireland, trading has strengthened across our divisions and importantly, having conducted a share consolidation to dramatically decrease our shareholder register and reduced associated costs over the period, I am pleased to announce that we are now ideally placed to award a dividend of 2 pence per share for the year.

NMR operates through three divisions, which expand the Company's reach across various areas of the dairy industry: National Milk Records, which provides management information to farmers regarding individual cow performance in terms of milk quality, yield and fertility; National Milk Laboratories, an independent milk testing division for milk buyers, and National Livestock Records, which provides support to the red meat industry, facilitating the growing requirement for traceability in this sector.

As the leading provider of milk recording services in the UK, NMR's offering is increasingly attractive to farming professionals, retailers and policy-makers alike as concerns about a potential global food shortage between 2020 and 2040 rise. As the global population and household incomes continue to increase, so too does the number of consumers for which to provide. As this development continues, the demand for higher quality food is also predicted to increase, presenting NMR with a strong environment for expansion. We have already experienced increased trading on the back of this over recent years and we are confident that this will play a key role in our future growth.

Reveal More

National Milk Records

Milk recording continues to be at the core of the business and we are consistently looking for new ways to improve our services. Our disease testing capabilities are a key revenue driver in the business, particularly as concerns regarding food providence increase, and we continue to test herds on behalf of the majority of major UK dairy industry bodies to ensure that the quality of the milk is maintained.

During the period we were pleased to increase our product offering through our distribution agreement with Embedded Technology Solutions (‘ETS') to distribute Silent HerdsmanTM, an intelligent, electronic monitoring collar designed to detect a cow's oestrus events, to the UK dairy industry. As reported in our interims, uptake amongst new and existing customers has been excellent due to the product's superior ability to significantly improve the efficiency of reproductive operations within the herd during the insemination process. Going forward, we hope to strengthen this relationship further and will update shareholders accordingly.

National Milk Laboratories ('NML')

NML has made strong progress over the year. Already testing the quality of over 95 per cent of the milk in the UK before it is sold to consumers in the UK and Scotland, we were pleased to announce a formal move into southern Ireland in September 2010. Our proprietary payment testing business in Ireland is now marketed and delivered through Independent Milk Laboratories Limited (‘iML') a company that we have set up with Irish farming cooperative Progressive Genetics Ireland Limited. We have focussed on moving into this highly attractive dairy market over recent years and iML has received a positive reception since it was established, particularly due to our association with a local leader in dairy services, which strengthens our credibility in the country.

We have a strong team on the board of iML, including Riona Sayers as CEO, a leading researcher of infectious diseases in dairy herds, and Professor Paddy Wall, one of Europe's most pre-eminent authorities on food quality, as Chairman. With this in mind, I am confident that our operations in Ireland will continue to add value to NMR and I look forward to updating shareholders over the coming months.

Additionally, we were pleased to announce in June 2011 the purchase of a freehold building in Wolverhampton for £475,000 to be used as the Company's only laboratory in England and Wales, consolidating the Company's current testing facilities. This will provide savings of up to £150,000 per year and will be funded by a 15 year mortgage rolling every three years. The purchase provides immediate cash flow advantage to the Company. It will also be used as a central transport depot for NMR's vehicles currently operating from a leased site in Stone, Staffordshire. Refurbishment work, which is anticipated to cost circa £325,000, is expected to begin in August and the laboratory is expected to be operational in Q1 2012.

National Livestock Records (‘NLR')

Work with the Welsh Assembly Government on The Technology, Agriculture and Greater Efficiencies Project (‘TAG') is ongoing, aimed at increasing traceability and efficiency in the Welsh sheep industry. This continues to be a significant source of revenue and provides us with a foothold from which to develop services to the wider UK sheep industry. We are also seeing growth in our ear tag distribution service, Nordic Star.

Financial

NMR continues to be highly cash generative and trading across all three divisions has been strong. I am pleased to report a net profit before tax and FRS 17 interest of £387,000 (2010: £504,000) on an increased turnover of £16,801,000 (2010: £15,896,000). The costs for the year include £93,000 relating to the share consolidation, and an increase of over £100,000 in the compulsory levy to the pension protection fund. Both costs can be considered as non-recurring and thus the underlying trend in profit is satisfactory. Our cash position at the year end is affected by working capital of some £300,000 tied up in Silent HerdsmanTM which is expected to generate cash this year. Thus the net overdraft of £86,000 at the year end (2010 credit £297,000) belies the fact that our trading is cash generative.

In November 2010, NMR undertook a reorganisation of the NMR share capital to reduce the number of shareholders on the Company's register to a level more consistent with a company of NMR's size. We are confident that this has stimulated trading in our shares and has reduced the number of shareholders who are no longer engaged with the Company. This has provided us with the opportunity to generate value for our reduced shareholder base and we look forward to benefitting from this going forward.

In view of the consistent profitability of the Company over recent years, and the recently decreased share register, the Board considers it appropriate to initiate a dividend policy commencing with the payment of a dividend, having taken into account existing cash flow, capex commitments, and the Company's prospects. A dividend of 2 pence per share will be paid on 30 September 2011 to shareholders on the register on 2 September 2011. The Ex Dividend date is 31 August 2011. The total dividend amounts to £146,967.

Pension

We take our commitments to our pensioners and deferred pensioners seriously and we believe that our business plan will generate sufficient cash to allow us to invest in the growth of our business whilst agreeing with the Trustee a phased payment plan to meet the deficit in the fund. This should allow us to substantially reduce the inherent risk within a five year period.

Outlook

Over the past year, we have successfully reached key milestones which have added considerable value to the NMR offering and I am confident that the year ahead will be one of growth. Having made strong progress in expanding our geographic presence through our payment testing venture in Ireland, we are now well positioned to increase our presence in these markets and look forward to updating shareholders accordingly.

Market sentiment and concerns regarding food security and quality control provide our milk recording and payment testing divisions with an exciting market in which to operate. Going forward, we will be focussed on maintaining our position at the forefront of our sector, and working with dairy industry bodies to service the growing demand for good quality dairy products.

Finally, I'd like to thank all NMR employees for their hard work over the year and shareholders for their support over the past 12 months.

Philip Kirkham