"Strategic progress and financial performance ahead of expectations"
Carr's (CARR.L), the Agriculture and Engineering Group, announces its results for the year ended 1 September 2018.
The year has seen significant progress for the Group, with our financial performance ahead of the Board's expectations and significantly improved upon the prior year across both Agriculture and Engineering. We continued to deliver our strategic objectives, which are consistent with our vision to be recognised as a truly international business at the forefront of innovation and technology.
During the year we were also able to make significant progress with senior management succession plans for a number of key leadership roles across the Group, as well as continuing to invest in our own programmes to develop our next generation of leaders. People remain fundamental to our businesses; we recognise the enormous contribution of our people across the businesses which has enabled the Group to deliver a strong result for the year. Another key driver is keeping everyone safe, and we have continued to focus on safety throughout the financial year, improving our reporting mechanisms and further embedding our safety culture.
The Agriculture division has performed strongly this year, as a result of improvements in underlying markets as well as the investments made in recent years.
During the year, revenue was up 13.8% to £359.6m (2017: £315.9m). Adjusted operating profit was up 16.9% to £13.4m (2017: £11.4m) and reported operating profit was up 20.1% to £13.0m (2017: £10.8m).
Total global feed block sales volumes were up 15.0% compared to last year.
Our USA feed blocks business was significantly ahead of last year with sales volumes up 17.7%. This performance was driven by the ongoing recovery in cattle prices in the USA. Our new low moisture feed block plant in Tennessee is now fully operational and provides additional capacity and access to new markets across the Eastern and South Eastern states of the USA.
UK feed blocks sales volumes were up 8.9%, in line with expectations.
Our joint venture business based in Germany, Crystalyx Products GmbH, performed strongly during the period with sales volumes up 12.4%, due to improved farm incomes following a recovery in the milk price across Europe.
Our plans to grow our feed blocks business internationally continue to progress well. In New Zealand, our direct sales operation distributing to farmers through merchants has continued to grow, with supply agreements now in place with several of the country's leading agricultural merchants. In South America, we are now supplying products through our chosen distributors and made our first commercial sales during the year. Farm trials continue to demonstrate the efficacy of our products, providing local evidence which we will use in support of our plans to develop our market in South America.
The strength of our brands, including Crystalyx®, SmartLic®, Megastart®, FlaxLic® and Horslyx®, continue to enable us to drive growth and expand internationally and we remain focused on investment in new product development.
UK Agriculture continued to perform well across all areas of the business, reflecting improved farm incomes and ongoing farmer confidence. Manufactured feed volumes were up 8.7%, in line with the national average. Key drivers for the increased volumes were the late Spring and the dry weather during the summer months.
Our retail business delivered a strong performance during the period, with the country store network reporting an increase of 4.4% in like-for-like sales and a 12.1% increase in total sales. The increase in total sales was primarily driven by the acquisition of Pearson Farm Supplies, an agricultural retail business with locations across Yorkshire, Lancashire and North West Wales, which was completed in October 2017. This business has now been successfully integrated and as expected the acquisition has enabled synergies to be achieved with our existing retail business and the team has settled in well. Our retail footprint currently stands at 43 locations.
Machinery sales revenues were ahead of the prior year, up 7.8%, a new record level of sales, as the business continued to benefit from an improved trading environment. We also invested in the expansion of our machinery branch at Morpeth, Northumberland, during the year to provide additional workshop capacity, improving our after-sales service capability.
The oil distribution business delivered sales volumes that were 4.6% ahead of the prior year. The business saw higher demand for heating oil in the colder months earlier in the year, partially offset by a reduction in on-farm activity during the drier summer months.
On 21 September 2018 we acquired Animax Limited, a producer of market-leading trace element supplementation products for livestock, for an initial cash consideration of £6m. Additional cash consideration of up to a maximum of £2.5m is payable over the period to November 2020, based on the achievement of agreed financial targets.
Animax, based in Suffolk in the UK, is at the forefront of innovation in the field of livestock trace element supplementation. Its patent-protected leaching boluses are proven to release trace elements in a controlled and consistent manner over prolonged periods, resulting in improved animal performance. The boluses are currently sold in the UK and overseas under the Tracesure® and Allsure® brands. Animax also produces other leading animal health and trace element supplementation products sold under well-known brands including Copasure®, Copinox®, Coprac®, Easycal® and Pardevit®.
Animax broadens the Group's animal health and supplementation product ranges that deliver added value to farmers. Its products are highly complementary to the established Carr's Group feed block business across the USA, New Zealand, Europe, UK and Ireland.
Carr's will support the growth and development of Animax through investment in research to develop new products and by investing in manufacturing efficiencies. In addition, Carr's expects significant manufacturing, distribution and sales synergy benefits to be realised as a result of the acquisition.
We remain confident in the prospects of UK Agriculture in the near term following the sustained recovery in farm incomes. We now have greater visibility on the impact of Brexit on farming support in the near term, although uncertainty remains over future trade agreements with the EU and the rest of the world.
Internationally, the gradual recovery in the USA cattle market seen through the course of the year is expected to be sustained, which will contribute to the future growth of this business.
We remain focused on developing our global supplements business. The acquisition of Animax is in line with that strategy; it builds on our established global feed blocks business and provides a broader platform for the next phase of international growth across the Agriculture division. We also remain alert to other suitable acquisition opportunities where we believe there is a strong commercial and strategic rationale.
The Engineering division has seen a significant improvement in financial performance during the year, following the challenges experienced in 2017 which were largely attributable to one major contract delay in the UK Manufacturing business. That contract is back on track and performing in line with our expectations.
During the year, revenue was up 43.6% to £43.6m (2017: £30.4m). Adjusted operating profit was up 533.5% to £4.1m (2017: £0.6m) and reported operating profit was up to £3.4m (2017: loss of £0.1m).
Our UK Manufacturing business recovered strongly during the year generating revenues of £18.4m (2017: £13.0m). Work on the significant contract announced in July 2017 continues to progress and the order book remains strong. Although there has been a significant improvement in the trading performance during the year, goodwill of £0.5m was written off as a result of an impairment review undertaken.
During the year we strengthened the management team in our fabrication business with the appointment of a new Managing Director and Commercial Director.
In our precision engineering business, the continued recovery of the oil price, together with strengthened management, more effective business development and enhanced manufacturing efficiencies, has delivered a significant uplift in revenues.
Our Remote Handling business has performed well during the year and in line with the Board's expectations. Revenues for the financial year totalled £19.5m (2017: £17.2m). The substantial orders into China, awarded in 2017, have all now been successfully delivered during the year. As expected, following the successful completion of these contracts, the order book in the near term is softer than last year, but this is not expected to impact on overall divisional performance and medium-term prospects for our Remote Handling business remain positive.
The extension of our facility in Markdorf, Germany has now been completed, including the full relocation of people and machinery from STABER following its acquisition in October 2016. Operating from a single site should enable efficiency improvements in the medium-term.
Our plans to enter the USA market with Wälischmiller remote handling equipment continue to progress with our first contracts being won earlier than expected during the second half of the year.
Carr's established an engineering presence in the USA through the acquisition of NuVision Engineering, Inc in August 2017. The business has performed well in its first year of ownership, generating revenues of £5.7m (2017: £0.2m). During the year we completed the integration of NuVision into our wider Engineering division and successfully completed a planned reorganisation of its management and leadership teams.
NuVision has secured a good level of work during the year, including two significant Mechanical Stress Improvement Process (MSIP®) contracts, which substantially strengthen the order book through to FY21.
During the year, we also disposed of NuVision's 49% stake in Mid-Columbia Engineering, Inc (MCE), a non-core loss-making business based in Richland, Washington, to enable greater strategic focus on the development of the USA Engineering business.
Prospects for the Engineering Division remain good over the medium term. The order books in the UK Manufacturing and USA Engineering businesses remain strong. We remain confident in the long-term outlook for the Remote Handling business with the forecast lower sales in 2019, due to contract phasing, not expected to impact upon the performance of the division.
While uncertainty remains around Brexit and the impact this could have on certain supply chains within our engineering businesses, we believe our geographically diverse operations position the Group well to deliver growth in the medium term. We remain focused on identifying suitable value enhancing acquisitions, which complement our existing operations, and will continue to invest in technology and innovation across the division.
Chief Executive Officer
12 November 2018