Wynnstay Group has posted a sharp fall in underlying profits, the company has revealed.

The agricultural supplies business blamed tough times for the farming industry, partly due to changes in EU subsidy payments, for the first half figures to April 30.

Wynnstay said underlying pretax profit dropped to £ 1.31 million from £1.99 million a year earlier as sales fell to £52.40 million from £55.02 million.

Chairman John Davies said: "We expect some recovery within our core agricultural activity in our second half, however, the impact of higher energy costs, particularly on the fertiliser business, will continue."

The Wales-based operation, which also trades in Shropshire, Staffordshire and Warwickshire, said it was reinstating its interim dividend with a payment of 1.75p.

The chairman said the start of the new EU Single Farm Subsidy Payment and rising energy prices had made trading this year difficult.

But looking ahead, he added: "The group continues to look for acquisitions, continuing the strategy of acting as a consolidator within the agriculture supply industry, whilst at the same time developing our joint venture activities which should guarantee a profit stream from outside the core business."

Wynnstay said the effect of the new Single Farm Subsidy Payment on sales should become less prominent as farmers become used to the new regime.

The lifting of the ban on live animal exports is expected to raise livestock prices, which should lead to increased sales.

Rises in sales of animal feed, due in part to the prolonged winter weather, were offset by higher energy and distribution costs.

The company's arable division was hit by rising fertiliser prices although the emergence of new markets for wheat and oil seed rape in the production of bio-fuels should see seed sales grow substantially in future years, it said.

Mr Davies said Shropshire Grain handled a slightly lower volume of product during the period and continued to look to exploit quality markets.

The company's store division - which has six outlets in Shropshire and one in both Staffordshire and Warwickshire - had seen good progress in its improvements programme.

He said: "We completed a major refit at Oswestry, Shropshire, and will be upgrading our stores at Gaerwen and Rhosfawr in North Wales over the second half of the year. We continue to look for opportunities to expand this division and are currently evaluating a number of sites."

Mr Davies said the company, in its final results a nnounced in January, reported that it expected trading

Shares closed down 6.5p at 217.5.