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Latest Results

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.

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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.

 



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