Carrs Group Regulatory News (CARR)

12 April 2017

CARR'S GROUP plc ("Carr's" or the "Group")

INTERIM RESULTS

For the six months ended 4 March 2017

"A robust half year performance, medium term outlook remains positive"

Carr's (CARR.L), the Agriculture and Engineering Group, announces its results for the six months ended 4 March 2017. 

Financial highlights

· Revenue up 15.3% to £176.8m (H1 2016: £153.4m*)

· Operating profit (before exceptional items) up 0.9% to £7.5m (H1 2016: £7.5m*)

· Operating profit (after exceptional items) down 7.6% to £6.9m (H1 2016: £7.5m*)

· Profit before tax (before exceptional items) up 4.8% to £8.9m (H1 2016: £8.5m*)

· Profit before tax (after exceptional items) down 2.6% to £8.3m (H1 2016: £8.5m*)

· Basic EPS down 3.0% to 6.4p (H1 2016: 6.6p*)

· Adjusted EPS1 up 6.0% to 7.1p (H1 2016: 6.7p*)

· Interim dividend held at 0.95p (H1 2016: 0.95p)

· Net debt of £11.5m (£8.1m net cash at 3 September 2016)

*continuing operations

_______________

Commercial highlights

· Strong performance in UK Agriculture, outperforming the market and continuing to grow market share. Greater confidence in UK agriculture expected to continue into H2

· Rebound in UK machinery sales, up 43.4% on H1 2016, and retail business performed well, benefiting from store improvement programme

· Significant pressure from falling cattle prices impacting USA feed block sales

· Full year performance in Engineering to be impacted by previously announced contract delay in UK Manufacturing

· Remote handling business performing ahead of expectations and bolstered by a strong order book, demonstrating the potential in this market

· Integration of STABER acquisition progressing well, with plans to extend premises in Markdorf, Germany

Tim Davies, Chief Executive Officer, commented:

"While still at an early stage, we are seeing initial signs of improving confidence among our core UK farming customers resulting in a strong first half performance in our UK Agriculture business, which we expect to continue in the second half. However, our USA feed block business continues to be impacted by the fall in cattle prices.

"Our Engineering business has been affected by a delay to a significant UK Manufacturing contract, which will impact our full year performance, but we have a strong pipeline in UK manufacturing and our remote handling business is performing ahead of expectations.

"We remain committed to delivering organic revenue growth, supported by value enhancing acquisitions and, further to the trading update released on 30 March, the Board's expectations for the full year remain unchanged."

Enquiries:

About Carr's Group plc:

Carr's is an international leader in manufacturing value added products and solutions, with market leading brands and robust market positions in Agriculture and Engineering, supplying customers in 35 countries around the world.

Its Agriculture division manufactures and supplies feed blocks for livestock, farm machinery and runs a UK network of rural stores, providing a one-stop shop for the farming community. Its Engineering division designs and manufactures bespoke equipment for use in the nuclear, petrochemical, oil and gas, pharmaceutical, process and renewable energy industries, including robotic and remote handling equipment.

Interim Management Report

INTRODUCTION

Carr's has delivered results that are ahead of the prior year (before exceptional items), despite the continuation of tough trading conditions in some of its key markets. The Board's expectations for the full year remain unchanged from that detailed in the Company's recent trading update published on 30 March 2017.

BUSINESS REVIEW

During the 26 weeks ended 4 March 2017 the Group delivered a resilient performance. Group revenues were £176.8m, up 15.3% from the prior year (H1 2016 continuing operations: £153.4m), primarily due to commodity price movements. Profit before tax (before exceptional items) increased by 4.8% to £8.9m (H1 2016 continuing operations: £8.5m); profit before tax after exceptional items was £8.3m (H1 2016 continuing operations: £8.5m). Exceptional items of £0.6m (H1 2016: £nil) relate to business combination expenses and restructuring costs.

Group operating profit (before exceptional items) of £7.5m (H1 2016 continuing operations: £7.5m) was 0.9% ahead of the prior year, but was 7.6% behind the prior year after exceptional items at £6.9m.

The Group's share of profit after tax from associate and joint venture companies was up 20.0% on the prior year to £1.7m (H1 2016: £1.4m).

Basic earnings per share decreased by 3.0% from 6.6p to 6.4p, as a result of the impact of exceptional items. On an adjusted basis, earnings per share increased by 6.0% to 7.1p (H1 2016 continuing operations: 6.7p).

AGRICULTURE

The Agriculture division has reported operating profit of £7.3m (H1 2016: £7.0m), up 4.9% and ahead of the Board's expectations for the half year. This is a resilient performance driven by a strong UK result but partially offset by lower profits in the USA.

UK

UK Agriculture has continued its strong start to the year, despite the market for compound feed and blend volumes contracting by 1%-2% and margins remaining under pressure. Set against this backdrop we have continued to outperform the market increasing our volumes by 11.6% as we continue to gain market share.

Feed block sales have performed particularly well in the UK, with sales volumes 6.0% ahead of the prior year.

Despite another relatively mild autumn and winter, the fuel distribution business has performed well, with sales volumes 0.9% ahead of the prior year and machinery sales, often regarded as a barometer of farmer confidence, 43.4% ahead of the prior year.

Our retail business has also performed well, with like-for-like sales 3.8% ahead of the prior year. This reflects our continuing store improvement programme and our ever improving offer to our core farming customers. A new store in Penicuik, East Midlothian, opened in December 2016 which takes our total retail footprint to 41 locations.

It is pleasing to report that the challenging UK farming environment experienced in the last couple of years is showing signs of abating, helped significantly by improvements in the farmgate milk price, and while it remains at early stages we are optimistic about the year ahead for the UK farming community.

International

The strong performance in the UK market is in contrast to the performance in the USA, where the market pressure from lower cattle prices has impacted both volumes and margins of SmartLic® and Feed in a Drum®, with sales volumes down 10.1% year on year. Despite these challenges, and in readiness for the anticipated market recovery, our plans to construct a low moisture block plant in Shelbyville, Tennessee, are progressing well. Once operational, the plant will provide access to new markets across eastern US states.

The higher level of confidence that has benefited the UK Agriculture business in H1 looks set to continue during H2, however this will only partially mitigate the full year impact of the USA cattle market pressures on the division's performance.

ENGINEERING

As previously reported, the Engineering division had a slower than expected start to the year, mainly due to a significant contract delay in the UK Manufacturing business. Operating profit (before exceptional items) was £0.3m (H1 2016: £0.5m), down £0.2m year on year. Overall, revenues generated from the nuclear business represented 71% of the total, against 55.4% in the prior year.

UK Manufacturing

The performance of the UK manufacturing business has been affected by a significant contract delay and, as previously announced on 30 March 2017, the Group has only been partially successful in its measures to mitigate the impact of this delay through cost cutting, winning new business and accelerating the existing order book.

Management will remain focussed on continuing to maximise throughput within the production facilities. The pipeline in the medium term is looking strong, with the benefit of the Sellafield Vessels and Tanks Framework contract awarded in 2016 expected to begin during 2018.

Remote Handling

The remote handling businesses have started well and are ahead of expectations. Some large orders have been won for the supply of power manipulators into China, with manufacturing activity largely taking place during the second half. This is particularly encouraging given the potential for this market. The integration of the recently acquired STABER GmbH is progressing well, and consequently we have taken the decision to extend the premises in Markdorf, Germany, to fully integrate the two businesses and to provide additional flexibility and capacity into our production facilities in Germany.

BALANCE SHEET AND CASHFLOW

Net cash generated from operating activities was strong in the first half at £5.2m (H1 2016: £1.3m). Net debt has risen to £11.5m from a net cash position of £8.1m at the 2016 financial year end. In addition to seasonal working capital movements, this is primarily due to the payment of a special dividend of 17.54p per share in October 2016, totalling £16.0m, and the acquisition of STABER GmbH in October 2017, for an initial consideration of €5.85m.

The Group's defined benefit pension scheme remains in surplus and this increased from £0.3m at 3 September 2016 to £5.7m at 4 March 2017.

SHAREHOLDERS' EQUITY

Shareholders' equity at 4 March 2017 was £90.0m (3 September 2016: £96.7m), with the reduction primarily due to the payment of the special dividend of £16.0m in October 2016 offset by profit retained by the Group for the period.

DIVIDEND

A first interim dividend of 0.95 pence per ordinary share (2016: 0.95 pence per ordinary share) will be paid on 12 May 2017 to shareholders on the register on 21 April 2017. The ex-dividend date will be 20 April 2017.

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has a process in place to identify and assess the impact of risks on its business, which is reviewed and updated quarterly. The principal risks and uncertainties for the remainder of the financial year are not expected to change materially from those included on pages 14 to 16 of the Annual Report and Accounts 2016.

The principal risks and uncertainties are as follows:

· Safety

· Business Continuity

· People

· Commodity Costs

· Product Innovation Risk

· Strategic Partners

· Treasury

· Acquisitions

· Customer Demand

· Reliance on Key Customers

· Reliance on Key Ingredients

· Defined Benefit Pension Scheme

· Brexit

OUTLOOK

As previously announced, the second half performance will be affected by a combination of the contract delay in UK Manufacturing and depressed USA cattle prices impacting our USA feed block operations.

Despite these short-term setbacks, we are seeing recovery in the UK agricultural markets and are encouraged by the medium term outlook for our businesses operating in the nuclear sector. Overall, the Group continues to benefit from geographic and operational diversity.

The Group is focused on growth, both through the organic development of its businesses and selective acquisitions, and is committed to driving innovation through research and development to ensure it remains at the forefront of all the markets in which it operates.

Further to the trading update released on 30 March 2017, the Board's revised expectations for the full year remain unchanged.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the 26 weeks ended 4 March 2017

 UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 26 weeks ended 4 March 2017

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 4 March 2017

¹ restated by £4,553,000 for the grossing up of cash and cash equivalents and bank overdrafts for accounts with right of offset within the same banking facility (see note 3) 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 26 weeks ended 4 March 2017

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the 26 weeks ended 4 March 2017

¹ restated by £4,553,000 for the grossing up of cash and cash equivalents and bank overdrafts for accounts with right of offset within the same banking facility (see note 3) 

Statement of Directors' responsibilities

The Directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Directors are listed in the Annual Report and Accounts 2016. A list of current Directors is maintained on the website: www.carrsgroup.com

On behalf of the Board

Tim Davies Neil Austin

Chief Executive Group Finance Director

12 April 2017 12 April 2017

Unaudited notes to condensed interim financial information

1. General information

The Group operates across two divisions of Agriculture and Engineering. The Company is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA.

These condensed interim financial statements were approved for issue on 12 April 2017.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the 53 weeks ended 3 September 2016 were approved by the Board of Directors on 16 November 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

2. Basis of preparation

These condensed interim financial statements for the 26 weeks ended 4 March 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the 53 weeks ended 3 September 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

The Directors have made suitable enquiries, and based on financial performance to date and available banking facilities they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed interim financial statements.

3. Accounting policies

The accounting policies adopted are consistent with those of the previous financial year.

Taxes on income in the interim periods are accrued based on management's estimate of the weighted average annual income tax rate expected for the full financial year.

Cash and cash equivalents and overdrafts, within current borrowings, as at 27 February 2016 have been restated by £4.6m to recognise overdrafts that would previously have been offset against cash balances. This restatement ensures comparability of the three period ends presented in the interim financial statements and reflects the accounting policy adopted in the preparation of the financial statements for the 53 weeks ended 3 September 2016 and the 26 weeks ended 4 March 2017.

The Group continues to review the impact of IFRS 15 'Revenue from contracts with customers' and IFRS 16 'Leases' on the results and net assets of the Group. It is not possible at this stage to quantify any financial impact arising from either of these two standards.

4. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the 53 weeks ended 3 September 2016, with the exception of changes in estimates that are required in determining the provision for income taxes.

5. Financial risk management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk and liquidity risk.

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 3 September 2016. There have been no changes in risk management practices since the year end.

6. Operating segment information

The Group's chief operating decision-maker ("CODM") has been identified as the Executive Directors. Management has determined the operating segments based on the information reviewed by the CODM for the purposes of allocating resources and assessing performance.

The CODM considers the business from a product/services perspective. Operating segments have been identified as Agriculture and Engineering. The previously recognised Food operating segment was disposed on 3 September 2016. Performance is assessed using operating profit, which is measured in a manner consistent with the financial statements. Sales between segments are carried out at arm's length. 

The following tables present revenue, profit and asset information regarding the Group's operating segments for the 26 weeks ended 4 March 2017 and the comparative periods.

¹ Earnings before interest, tax, depreciation and amortisation (and before profit/(loss) on the disposal of property, plant and equipment)

7. Non-recurring exceptional items

Business combination expenses relate to acquisition costs incurred in the period as well as contingent consideration in relation to the prior year acquisition of Phoenix Feeds Limited which is explained further below.

Phoenix Feeds Limited was acquired on 1 June 2016 for cash consideration of £1,744,000 including £490,000 of contingent consideration. The contingent consideration is linked to the continued employment of key personnel and therefore in accordance with IFRS 3 this was not recognised as consideration in the acquisition accounting in the 53 weeks ended 3 September 2016 and is instead being recognised in the income statement over a two year period. Given the nature of the payment it has been recognised as a non-recurring item.

Restructuring costs comprise redundancy costs. 

8. Earnings per share

Non-recurring items and amortisation that are charged or credited to profit do not relate to the profitability of the Group on an ongoing basis. Therefore an adjusted earnings per share is presented as follows:

9. Dividends

An interim dividend of £866,393 that relates to the period to 3 September 2016 was paid on 7 October 2016, and a final dividend of £1,736,169 was paid on 13 January 2017. A special dividend of £15,996,351 was paid on 7 October 2016 following the disposal of Carr's Flour Mills Limited.

In addition, an interim dividend of 0.95p per share (2016: 0.95p per share) has been approved by the Directors. It is payable to shareholders on the register at 21 April 2017. This interim dividend, amounting to £868,258 (2016: £854,968), has not been recognised as a liability in this interim financial information. It will be recognised in shareholders' equity in the 52 weeks to 2 September 2017.

10. Intangible assets, property, plant and equipment and investment property

Capital commitments contracted, but not provided for, by the Group at the period end amounts to

£687,000 (2016: £758,000).

11. Borrowings and loans

12. Financial instruments

IFRS13 requires financial instruments that are measured at fair value to be classified according to the valuation technique used:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - inputs, other than Level 1 inputs, that are observable for the asset or liability, either

directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3 - unobservable inputs

All derivative financial instruments are measured at fair value using Level 2 inputs. The Group's bankers provide the valuations for the derivative financial instruments at each reporting period end based on mark to market valuation techniques. 

The Group holds shares in several private limited companies. These have been classified as unquoted investments for which fair value cannot be reliably measured and are held at cost less accumulated impairment. Had fair value been applied this financial asset would have been Level 3.

Transfers between levels are deemed to have occurred at the end of the reporting period. There were no transfers between levels in the above hierarchy in the period.

With the exception of those detailed above, the Group's financial instruments are measured at amortised cost.

13. Retirement benefit asset

The amounts recognised within the Income Statement were as follows:

As a result of the closure to future accrual on 31 December 2015 a negative past service cost, net of associated costs, of approximately £350,000 has been recognised in the income statement in the 26 weeks ended 27 February 2016 and in the 53 weeks ended 3 September 2016.

Net interest on the defined benefit retirement asset is recognised within interest income.

The amounts recognised in the Balance Sheet were as follows:

Actuarial gains of £5,418,000 (2016: £879,000) have been reported in the Statement of Comprehensive Income. The surplus has increased over the period since 3 September 2016 mainly as a result of improving market conditions.

The Group's associate's defined benefit pension scheme is closed to future service accrual and the valuation for this scheme has not been updated for the half year as any actuarial movements are not considered to be material.

14. Share Capital

Employee share schemes: options exercised during the period to 4 March 2017 resulted in 24,710 shares being issued (2016: 26,584 shares), with exercise proceeds of £19,177 (2016: £15,765) under the share save scheme and nil shares being issued (2016: 60,000 shares), with exercise proceeds of £nil (2016: £28,560) under the approved share option scheme. The related weighted average price of the shares exercised was £0.776 (2016: £0.593) per share and £nil (2016: £0.476) respectively.

In addition 178,027 shares were issued in the period and held initially as Treasury shares. These shares were subsequently used to satisfy the share awards under the LTIP scheme which were exercisable in November 2016. 

15. Acquisition

On 24 October 2016 Wälischmiller Engineering GmbH ("Wälischmiller") acquired the entire issued share capital of STABER GmbH ("STABER") for cash consideration of €7.85m including deferred consideration of €2.0m, which is payable by 30 June 2018 at the latest.

STABER and Wälischmiller have been working together closely for over 50 years and STABER has most recently been a key supplier of parts for the remote handling business. STABER has designed and developed specialised intellectual property ("IP") which will be strategically beneficial to Wälischmiller in both the near and long term. This IP will accelerate the ongoing strategic development work on the Telbot® and the Demo 2000 Telbot® by Wälischmiller.

Goodwill represented the excess of the consideration paid over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.

STABER has generated intra segmental revenue of £205,000 which has been eliminated on consolidation and incurred a loss before taxation of £9,000 since the date of acquisition.

Acquisition related costs amounted to £190,000 which have been recognised within exceptional items in the consolidated income statement.

The assets and liabilities provisionally recognised in the acquisition accounting are set out below:

Intangible assets represent the fair value of know-how within the business.

Had the acquisition of STABER occurred at the beginning of the accounting period the Group's revenue and profit before taxation for the period would not be materially different to the amounts actually recognised in the consolidated income statement.

16. Cash generated from continuing operations

17. Related party transactions

The Group's significant related parties are its associate and joint ventures, as disclosed in the Annual Report and Accounts 2016.

Transactions and balances with the associate and joint ventures were all undertaken on an arm's length basis in the normal course of business and are as follows: