Streamlined focus on being an international leader in manufacturing value added products and solutions in Speciality Agriculture and Engineering

In line with the strategic review announced on 18 January 2022 to grow shareholder value, Carr’s (CARR.L), the Agriculture and Engineering Group, is pleased to announce that it has entered into a conditional agreement to dispose of its interests in the Carr’s Billington Agriculture business (the “Agricultural Supplies Division” to Edward Billington and Son Limited (the “Purchaser” for an aggregate consideration of up to £44.5 million (the “Disposal”

The Disposal will enable the Group to focus on its Speciality Agriculture and Engineering Divisions, both of which provide a greater opportunity for growth and historically have achieved higher profit margins.

A circular convening a general meeting of the Company (the “General Meeting”) to consider and approve the Disposal (the “Circular”) is expected to be published later today and posted to shareholders tomorrow. The Circular, when published, will be made available on the Group’s website (www.carrsgroup.com). It will also be submitted to the National Storage Mechanism where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

• Streamlining of the business, enabling resources and investments to be focused on the Speciality Agriculture and Engineering Divisions, principally because these divisions:
  • Have recognised market-leading brands and supply an international customer base which, combined with the anticipated market progression for each business, gives greater opportunity for growth;
  • Deliver products and services that are differentiated from their respective competitors with scope for development and extension in the future; and
  • Have consistently achieved higher profit margins and have the potential for better returns on capital employed 
• £44.5 million, on a cash-free, debt-free basis and subject to customary adjustments, producing an implied sale multiple of 6.4 times 2021 adjusted EBITDA  
• Expected net cash proceeds of approximately £29.6 million with the Group expected to be in net cash position upon Completion
  
• Net proceeds to target enhanced shareholder returns by funding growth initiatives over the next three years, including:
  • Supporting international growth in the Speciality Agriculture Division through investments of approximately £10 million in manufacturing capacity and plant upgrades;
  • Funding carefully targeted acquisitions in the Speciality Agriculture Division;
    
  • Providing approximately £4 million of additional liquidity to the Engineering Division to fund potential new larger and longer-term customer contracts; and
  • Furthermore, following Completion, the Board intends to determine the benefits for shareholders of arranging a full buy-out of the Group defined benefit pension scheme for approximately £4 million

Commenting on today's announcement, Peter Page, Executive Chairman, said:

“We are today setting out a clear strategy for growth in earnings and shareholder value. This proposed transaction will enable Carr’s to focus on its Speciality Agriculture and Engineering Divisions and provide funding for strategic growth and investment, thereby enabling us to build upon our industry-leading positions in these two higher margin divisions.

The Agricultural Supplies Division, trading as Carr’s Billington Agriculture, has been a key part of the Group’s growth and development over the past 20 years. Following the strategic review, the Board is confident that now is the right time for a single owner and management team to take the business forward. We are confident that Edward Billington and Son, with its long-term commitment to the sector, is well placed to fulfil this role.

This Transaction represents a compelling and immediate realisation of value for all of our shareholders, streamlines the business and provides the Board with a clear strategic direction for driving future growth. We look forward to updating on further progress in due course.”

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Matthew Ratcliffe, Group Legal Director and Company Secretary.

About Carr’s Group plc

The Group has market leading brands and robust market positions in Agriculture and Engineering supplying customers in over 50 countries, with manufacturing sites in the UK, Germany and the USA, managed in three divisions. Carr’s operates a decentralised business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

Its Speciality Agriculture Division manufactures and supplies feed blocks, minerals and boluses containing trace elements and minerals for livestock.

Its Engineering Division designs and manufactures bespoke equipment, including robotic and remote handling equipment, and provides technical services primarily into nuclear, oil and gas, and defence industries.

Its Agricultural Supplies Division manufactures compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural stores, providing a one-stop shop for the farming community.

Introduction

On 31 August 2022, the Board of Carr’s announced that, in line with its strategic review announced on 18 January 2022, it had entered into a sale and purchase agreement with the Purchaser pursuant to which the Company would dispose of its interests in the Agricultural Supplies Division to the Purchaser.

As part of the Transaction, the Company (through its relevant subsidiary) has entered into a put and call option deed with a group undertaking of the Purchaser relating to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle) (the “Option Deed”), as well as right of first refusal agreements relating to the Company's interests in land at Barnard Castle, Hexham, Penrith and Milnathort (the “Right of First Refusal Agreements”).

The Company and the Purchaser formed the Carr’s Billington Agriculture business in 1999 by bringing together the agricultural interests of both companies to establish a market leading brand in ruminant nutrition. Over the past 20 years, the business has successfully expanded to become one of the leading suppliers of farm inputs, machinery and fuel in the UK.

The Consideration in connection with the Disposal is payable by the Purchaser predominantly at Completion and comprises an initial purchase price of £43 million (on a debt free, cash free basis and subject to a retention amount and to adjustments for estimated net debt and estimated normalised working capital) and contingent consideration of up to £1.5 million based on future performance (the “Contingent Consideration”), giving an aggregate Consideration of up to £44.5 million. This aggregate Consideration implies a multiple of 6.4 times 2021 adjusted EBITDA on the basis of combined adjusted EBITDA for the Agricultural Supplies Companies in FY 2021 of £13.8 million.

The initial purchase price of £43 million is expected to be reduced by estimated debt of approximately £19.2 million, increased by an estimated normalised working capital adjustment of approximately £6.5 million, and an amount to be paid on a deferred basis of at least £4 million (comprising a retention relating to debtors of approximately £1.35 million and a further deferred payment of £2.65 million). Initial cash proceeds are, therefore, expected to be £26.4 million.

A maximum of approximately £0.7 million of the Contingent Consideration is achievable within one year. The remaining approximate £0.8 million of Contingent Consideration, if earned, would fall due after more than one year. The deferred consideration arrangements comprise of (i) a retention against debtors of approximately £1.35 million, which is expected to be received in the second year following Completion, and (ii) a further payment by way of deferred consideration of an amount equal to £4 million minus the finally determined retention for debtors, which (assuming a positive amount) would fall due 12 months after Completion. On the basis that the full Contingent Consideration is paid, the deferred consideration amount is paid and the full debtor retention is paid, the total estimated cash proceeds are approximately £31.9 million. Transaction costs are estimated at approximately £1.9 million and the Company is committed to make a payment of £0.4 million to the Group's pension scheme following the removal of the relevant employers from the scheme through a 'Flexible Apportionment Arrangement', giving net cash proceeds from the Disposal of approximately £29.6 million (the “Net Disposal Proceeds”).

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable. Additional proceeds may also be received in the event that Carr’s elects to sell the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort and Billingtons exercises its rights under the Right of First Refusal Agreements.

Completion is expected to occur as soon as practicable following satisfaction of the conditions precedent to Completion as set out in the Sale and Purchase Agreement, which include the approval of Shareholders.

Carr’s Group Strategy

In January 2022, the Board announced a strategic review of all three of the Group's divisions, (namely, the Agricultural Supplies Division, the Speciality Agriculture Division and the Engineering Division), with a particular focus on opportunities to increase Shareholder value. Each of the Group’s divisions is performing well and has a leading position in its respective market. However, the Board has determined that there are limited opportunities for synergy between the Group’s divisions, varying levels of ownership and control of businesses, competing demands for capital investment and differing returns anticipated on future investments.

As the first step in a long-term strategy, the Board has decided to concentrate resources and investments on the Speciality Agriculture Division and the Engineering Division, principally because:

1. the Speciality Agriculture Division and the Engineering Division have consistently achieved higher profit margins and have the potential for better returns on capital employed than the Agricultural Supplies Division;
2. the businesses making up the most significant parts of each of the Speciality Agriculture Division and the Engineering Division are wholly owned and under the complete control of the Company, whereas the Agricultural Supplies Division is jointly owned;
3. the Speciality Agriculture Division and the Engineering Division each have recognised market leading brands supplying an international customer base, which combined with the anticipated market development for each business, gives greater opportunity for growth, whereas the Agricultural Supplies Division supplies a local customer base within a region of the UK, with limited opportunity to scale up in new geographies;
4. the products manufactured and services supplied by the Speciality Agriculture Division and the Engineering Division are differentiated from their respective competitors with scope for development and extension in the future, whereas the Agricultural Supplies Division is a manufacturer and distributor of high volume, low margin compound feeds and fuels, and a retailer of third party brands and own label products; and
5. the Agricultural Supplies Division operates in a regional UK market that has limited expectations of volume or customer growth in the future in view of expected structural changes in the sector (as farm ownership becomes more concentrated and dairy cow numbers reduce) and therefore has less opportunity to improve margins as many of the inputs are commodity-based with comparable products available from competitors.

Speciality Agriculture Division

The Speciality Agriculture Division consists of market leading brands in the supply of nutritional supplements to beef, dairy, sheep and equine customers predominantly in the UK, Europe, North America and New Zealand, with manufacturing assets in the UK, Germany and the United States.

The Speciality Agriculture Division has considerable potential for growth in sales, being well positioned for between eight per cent. and 10 per cent. annual earnings growth, through increased market penetration in North America, Europe and New Zealand, product extension in its key markets and growth of equine product sales in all markets. Current trends in ruminant agriculture, particularly growth in low input grass and pasture-based management systems, provide opportunities for the Company's brands, as they are proven to be effective in more extensive grass-based nutrition programmes rather than intensive, confined housing and total-mixed-ration regimes. These trends arise due to the increasing cost of cereals, soya and oilseeds required for total-mixed-rations, consumer demands for grass-fed and free-range food, and the scarcity of labour in livestock agriculture. To deliver this sales growth, the Board estimates investment in manufacturing facility upgrades and expansion, in the UK and internationally, of approximately £10 million is required over the next three years. Additionally, investment in product research and development and strengthened commercial capabilities will further support the Board's ambitions for the Speciality Agriculture Division.

The Speciality Agriculture Division provides opportunities for diversification in the products and services supplied to existing customers and potential customers of existing products thus enabling growth in markets where the Company is already well established. Four trends in ruminant agriculture will be addressed by technical solutions and new management systems, namely data as a management tool, the reduced use of antibiotics, reduced methane output, and improved productivity from less intensive grass-based systems to reduce cereal and soya consumption. The Company is exploring opportunities for investment and acquisition to add to its existing capabilities to build a group of businesses that will address the evolving needs of professional livestock farmers over the next 25 years.

Engineering Division

The Engineering Division consists of long-established, specialist companies with expertise and strong reputations in the nuclear energy and defence sectors, providing market leading capabilities in robotics, high specification fabrication and bespoke engineering solutions. The Board believes these capabilities will enable growth in revenues and profitability over the next three to five years, as government and private sector support for new nuclear power generation capacity, additional nuclear defence assets and ongoing decommissioning of older nuclear systems will provide substantial funding in markets that include the UK, the United States, Japan, Europe and south-east Asia. The Engineering Division will focus on core competencies and will invest in developing customer relationships where cross-selling provides additional opportunities.

The Board will support organic growth and development in the Engineering Division to increase Shareholder value in the future. The Engineering Division has a strong leadership team in place, a growing order book and a pipeline of pre-qualification work and tenders. Growth in the Engineering Division requires modestly increased liquidity and additional skilled employees to provide the capacity for larger and longer-term contracts that the Group is being invited to bid for by existing and potential new customers.

Summary Information on the Agricultural Supplies Division

The Carr’s Billington Agriculture business, forming the Group's Agricultural Supplies Division, has contributed to the growth of the Group's revenue and profitability since 1999, alongside the Speciality Agriculture Division and the Engineering Division.

From its beginnings as a ruminant feed manufacturing and distribution business, development of Carrs Billington Agriculture Sales extended activities to market leading brands of agricultural machinery, parts and service, fuel supply and distribution, and a chain of 32 retail stores supplying a full range of consumables and equipment for farm and rural customers. The Carr’s Billington Agriculture business and Bibby Agriculture Limited are recognised brands in ruminant feed, farm machinery, fuels and retail, serving approximately 20,000 farmers and rural dwellers in the Midlands and north of England, Wales, and south and central Scotland.

The Carr’s Billington Agriculture business operates as two separate entities. Carrs Billington Agriculture Sales manages the sales of feeds direct to farm, including 50 per cent. of the Bibby Agriculture Limited joint venture for feed sales in Wales, franchises for agricultural machinery sales and service, depots and distribution of fuel for farms and rural dwellers, and 32 retail stores in various locations across the United Kingdom. Carrs Billington Agriculture Sales is headquartered in Carlisle. For HY 2022, Carrs Billington Agriculture Sales achieved £158.7 million in revenues and £2.0 million of operating profit (both unaudited).

Carrs Billington Agriculture Operations comprises raw materials purchasing, feed milling assets and distribution, manufacturing over 500,000 tonnes of finished product per year. Carrs Billington Agriculture Operations is headquartered in Lancaster. In HY 2022, Carrs Billington Agriculture Operations achieved £70.9 million (unaudited) in revenues and £1.6 million of operating profit (unaudited) (pre cloud configuration and customisation costs adjustments recognised at the Group level).

As at 26 February 2022, the Agricultural Supplies Division had gross assets of £150.8 million (unaudited).

Background to and strategic rationale for the Transaction

Following its decision to focus its strategy on the Speciality Agriculture Division and the Engineering Division, the Board initiated a thorough review of the options for the Agricultural Supplies Division with a view to optimising Shareholder value. The Board has concluded that, whilst the Agricultural Supplies Division has performed well since formation, and has been a key part of the development of the Company over the past 20 years, it is now of a scale and market position that a single owner and management team would be better placed to take the business forward through its next phase of development.

In addition, Group resources, both in terms of executive management and central corporate functions, are disproportionately consumed by the day-to-day management and operation of Carrs Billington Agriculture Sales, limiting the Group's ability to focus and drive growth in the Speciality Agriculture Division and the Engineering Division. In financial terms, the existing ownership structure of Carrs Billington Agriculture Sales means that the benefits and rewards of new initiatives and investment for growth return only a proportion of the benefit to Shareholders. Furthermore, the feed milling business of Carrs Billington Agriculture Operations is capital intensive and will soon require a high level of replacement capital investment at a rate of return that will be lower than potential investments in the Speciality Agriculture Division and the Engineering Division. The forthcoming capital investment requirements could also potentially impact the Agricultural Supplies Companies' ability to pay dividends up to the Company.

In light of all circumstances, the Board determined that Shareholder value would be best achieved through an exit from the Agricultural Supplies Division.

By undertaking the Transaction, the desired exit will be achieved, the Group structure will be simplified, and increased focus will be given to the two remaining divisions (namely the Speciality Agriculture Division and the Engineering Division), both having attractive growth potential underpinned by a favourable outlook and strong market positions. The Group has full ownership of the larger companies within the Speciality Agriculture Division and the Engineering Division, giving autonomy in decision making by the executive management team and ensuring the return on growth initiatives is fully for the benefit of Shareholders.

The Transaction also addresses Shareholder and investor concerns that the structure of the Group's shareholding in the Agricultural Supplies Division is opaque, thus causing difficulty in determining a fair valuation of the individual divisions and overall Group.

Summary of the key terms of the Transaction

On 30 August 2022, Carr’s entered into the Sale and Purchase Agreement, pursuant to which the Company agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell its interests in the Carr’s Billington Agriculture business, comprising its shares in both Carrs Billington Agriculture Sales (together with its 50 per cent. shareholding in Bibby Agriculture Limited) and Carrs Billington Agriculture Operations, to the Purchaser.

The aggregate consideration payable by the Purchaser in connection with the Disposal comprises:

     (i)          an initial cash purchase price of £43 million on a debt free, cash free basis, subject to adjustments for estimated net debt and estimated normalised working capital, minus

    (ii)          a retention and deferred consideration amount of £4 million,

which is payable at Completion and is subject to adjustments after Completion by way of a standard completion accounts mechanism, plus

   (iii)          payment of up to the retention amount (estimated to be £1.35 million but ultimately being an amount (as at Completion) that reflects 50 per cent. of the increase in overdue debtors of the Agricultural Supplies Division as compared to FY 2021). The first payment from the retention shall fall due in the second week of FY 2024, with further payments due in each quarter of FY 2024 (and in each case representing a pass through of 50 pence on every £1 received by the Agricultural Supplies Division from the relevant overdue debtors during the relevant period). Should any amount of the retention remain payable after FY 2024, the Company shall be appointed debt collection agent on behalf of the Agricultural Supplies Division for the purposes of obtaining due payment of such overdue debts as equals the retention;

   (iv)          payment of a lump sum by way of deferred consideration on the first anniversary of Completion, such amount to be equal to £4 million minus the retention against debtors (referred to in paragraph (iii) above) and to be finally determined by the completion accounts mechanism. For the avoidance of doubt, should the retention equal or exceed £4 million no such lump sum will be payable; and

    (v)          the potential for a further £1.5 million of Contingent Consideration payable following the conclusion of FY 2022 and FY 2023, depending on the performance of the Agricultural Supplies Division against an agreed earn out criteria,

the net sum of which is the “Consideration”.

Completion under the Sale and Purchase Agreement is subject to, and can only occur upon satisfaction (or waiver, where applicable) of certain outstanding conditions prior to the Long Stop Date, including:

     (i)          approval of the Resolution by Shareholders, which is being proposed as an ordinary resolution at the General Meeting;

    (ii)          drawdown by the Purchaser of funds made available to it by Barclays Bank plc pursuant to an acquisition funding facility agreement, in order to facilitate the Purchaser's payment of the initial cash consideration on Completion; and

   (iii)          certain other conditions precedent which are customary for a transaction of this nature.

There can be no assurance that the requisite approval from Shareholders will be obtained, nor any guarantee that the Purchaser will be able to finalise definitive financing documents with Barclays Bank plc to enable it to drawdown sufficient funding and pay the initial cash consideration amount on Completion.

The Sale and Purchase Agreement contains warranties as to title, authority and capacity, solvency and anti-bribery and corruption in respect of both Carrs Billington Agriculture Operations and Carrs Billington Agriculture Sales given to the Purchaser by the Company.

The Sale and Purchase Agreement also contains a market standard set of general business warranties and a tax indemnity given to the Purchaser by the Company in respect of Carrs Billington Agriculture Sales and its business only. The Company's potential liability in respect of these warranties and the tax indemnity is limited in aggregate to £15 million and is further qualified by market standard seller liability limitations.

As part of the Transaction, for a limited time following Completion, Carr’s and the Purchaser have agreed that the Company and its Group will provide certain transitional services to the Agricultural Supplies Division pursuant to the Transitional Services Agreement.

The Board expects that, subject to the satisfaction and/or waiver (where applicable) of the conditions precedent to the Transaction, Completion will occur before the end of October 2022.

On or around the date of the Sale and Purchase Agreement, the Company (through its relevant subsidiary) entered into the Option Deed with a group undertaking of the Purchaser in relation to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle). The Option Deed grants Carr’s a put option to sell to Billingtons the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), for a period of one year, commencing from the second anniversary of Completion, for a total cash consideration of £1.3 million (reflecting its independently assessed value). The Option Deed also grants Billingtons a call option (on the same terms) exercisable at any time before the second anniversary of Completion. The Option Deed contemplates Billingtons may, in the first six months following Completion, conduct environmental diligence on the Rosehill Industrial Estate (Carlisle) following which, should a material issue come to light, Billingtons may ultimately terminate the Option Deed.

Billingtons must pay a deposit of £130,000 during the option period in order to validly exercise its call option. The deposit is then deducted from the purchase price once the sale completes.

Completion of the sale is conditional upon the landlord providing its consent in the form of a deed, free from unreasonable conditions, or a declaration from a court that the landlord's consent is unreasonably withheld.

The sale of the property is subject to certain special conditions including in relation to matters affecting the property, environmental matters and apportionment of rent between Carr’s and Billingtons. The sale of the property is otherwise subject to the standard commercial property conditions under Part 1 of the Standard Commercial Property Conditions (Third Edition).

As part of the Transaction, the Company (through its relevant subsidiary) has also entered into the Right of First Refusal Agreements with a group undertaking of the Purchaser in relation to the sale of the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort, all of which are leased to and currently in use within the Agricultural Supplies Division. The right of first refusal will require the Group to first offer these properties to a group undertaking of the Purchaser in the event the Group determines to dispose of them in the two year period following Completion.

Use of proceeds and financial effects of the Transaction

The Disposal is expected to generate Net Disposal Proceeds of approximately £29.6 million on the basis that the full Contingent Consideration is paid and that the full debtor retention is paid. The Board anticipates that the Transaction will produce a net cash position for the Group at Completion. The Group intends to utilise the Net Disposal Proceeds to invest in the Group in order to:

     (i)          support international growth in the Speciality Agriculture Division through the investment of approximately £10 million in manufacturing capacity and plant upgrades between 2023 and 2025;

    (ii)          enable growth in the Engineering Division by providing up to an additional £4 million of liquidity over the next three years to fund potential new larger and longer-term customer contracts; and

   (iii)          fund carefully targeted acquisitions in the Speciality Agriculture Division to diversify activity within a market sector where the Group is already well-established.

Furthermore, following Completion, the Board intends to determine the benefits for Shareholders of arranging a full buy-out of the Group pension scheme, a legacy defined benefit pension scheme that, as at the Latest Practicable Date, is in surplus, thus securing all pension liabilities in the Group and eliminating future risk of further funding being required from the Company. The Directors understand this process would require approximately £4 million including the £0.4 million payment already committed.

The Transaction is expected to materially strengthen the Group's balance sheet and the Group is expected to move to a net cash position immediately following Completion prior to undertaking any further investments as set out above.

It is expected that the Disposal will have a dilutive effect on the earnings per Ordinary Share in the first full year following Completion.

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable.

Class 1 Transaction and Related Party Transaction and General Meeting

Due to the size of the Agricultural Supplies Division when compared with the Company as determined by the class tests under the Listing Rules, the Transaction is classified under the Listing Rules as a Class 1 Transaction and therefore requires the approval of Shareholders pursuant to Chapter 10 of the Listing Rules.

Furthermore, the Purchaser is a Related Party of the Company by virtue of it being a 'substantial shareholder' (as defined in the Listing Rules) of a subsidiary undertaking. The Company holds a 51 per cent. interest in Carrs Billington Agriculture Sales, thereby resulting in Carrs Billington Agriculture Sales constituting a subsidiary undertaking of the Company. The Purchaser is a 'substantial shareholder' of this subsidiary undertaking as it is entitled to exercise more than 10 per cent. (49 per cent.) of the votes able to be cast at a general meeting of Carrs Billington Agriculture Sales. Therefore, the Transaction constitutes a Related Party Transaction under Chapter 11 of the Listing Rules. As such, the approval of Shareholders is also required pursuant to Chapter 11 of the Listing Rules.

A notice convening the General Meeting to be held at 9:30 a.m on 19 September 2022 at Hotel Sofitel London Heathrow, Terminal 5 London Heathrow Airport, London TW6 2GD will be sent to Shareholders.

The Resolution proposes that the Transaction be approved and that the Directors be authorised to take all such steps as may be necessary, expedient or desirable in relation to the Transaction.

Recommendation

The Board is of the opinion that the Transaction is fair and reasonable so far as the Shareholders are concerned and the Directors have been so advised by Investec as sponsor. In providing advice to the Board, Investec has taken into account the Board's commercial assessment of the Transaction.

The Board is also of the opinion that the Transaction and the Resolution are in the best interests of the Company and its Shareholders taken as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as all of the Directors intend to do (or procure to be done), in respect of the Ordinary Shares in which they are interested, or in relation to which they are otherwise able to control the exercise of the voting rights, held at the time of the General Meeting, amounting to 569,703 Ordinary Shares in aggregate as at the Latest Practicable Date (representing approximately 0.61 per cent. of the issued ordinary share capital of the Company).

Expected timetable of principal events

The times and dates set out in the expected timetable of principal events above and mentioned in this announcement and in any other announcement issued in connection with the Transaction are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to shareholders.

Definitions

Important Notice

This announcement has been issued by, and is the sole responsibility of, Carr’s Group plc. No representation or warranty, express or implied, is or will be made by, or in relation to, and no responsibility or liability is or will be accepted by any adviser to the Company or by any of their respective affiliates or agents as to or in relation to the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any responsibility or liability therefore is expressly disclaimed.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Carr’s and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Carr’s for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

Save for the responsibilities and liabilities, if any, of Investec under FSMA, as amended, or the regulatory regime established thereunder, Investec  assume no responsibility whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by the Company, or on the Company's behalf, or by Investec  or on Investec's behalf and nothing contained in this announcement is, or shall be, relied on as a promise or representation in this respect, whether as to the past or the future, in connection with the Company or the transaction. Investec disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract or commitment to do so.

A copy of the Circular will be available on the Company's website at www.carrsgroup.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Circular will give further details of the transaction.

This announcement includes statements that are, or may be deemed to be, forward-looking statements, beliefs or opinions, including statements with respect to the Company's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Company's directors in good faith based on the information available to them at the date of this announcement and reflect the Company's directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

Certain figures included in this announcement have been subjected to rounding adjustments.

Streamlined focus on being an international leader in manufacturing value added products and solutions in Speciality Agriculture and Engineering

In line with the strategic review announced on 18 January 2022 to grow shareholder value, Carr’s (CARR.L), the Agriculture and Engineering Group, is pleased to announce that it has entered into a conditional agreement to dispose of its interests in the Carr’s Billington Agriculture business (the “Agricultural Supplies Division” to Edward Billington and Son Limited (the “Purchaser” for an aggregate consideration of up to £44.5 million (the “Disposal”

The Disposal will enable the Group to focus on its Speciality Agriculture and Engineering Divisions, both of which provide a greater opportunity for growth and historically have achieved higher profit margins.

A circular convening a general meeting of the Company (the “General Meeting”) to consider and approve the Disposal (the “Circular”) is expected to be published later today and posted to shareholders tomorrow. The Circular, when published, will be made available on the Group’s website (www.carrsgroup.com). It will also be submitted to the National Storage Mechanism where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

• Streamlining of the business, enabling resources and investments to be focused on the Speciality Agriculture and Engineering Divisions, principally because these divisions:
  • Have recognised market-leading brands and supply an international customer base which, combined with the anticipated market progression for each business, gives greater opportunity for growth;
  • Deliver products and services that are differentiated from their respective competitors with scope for development and extension in the future; and
  • Have consistently achieved higher profit margins and have the potential for better returns on capital employed 
• £44.5 million, on a cash-free, debt-free basis and subject to customary adjustments, producing an implied sale multiple of 6.4 times 2021 adjusted EBITDA  
• Expected net cash proceeds of approximately £29.6 million with the Group expected to be in net cash position upon Completion
  
• Net proceeds to target enhanced shareholder returns by funding growth initiatives over the next three years, including:
  • Supporting international growth in the Speciality Agriculture Division through investments of approximately £10 million in manufacturing capacity and plant upgrades;
  • Funding carefully targeted acquisitions in the Speciality Agriculture Division;
    
  • Providing approximately £4 million of additional liquidity to the Engineering Division to fund potential new larger and longer-term customer contracts; and
  • Furthermore, following Completion, the Board intends to determine the benefits for shareholders of arranging a full buy-out of the Group defined benefit pension scheme for approximately £4 million

Commenting on today's announcement, Peter Page, Executive Chairman, said:

“We are today setting out a clear strategy for growth in earnings and shareholder value. This proposed transaction will enable Carr’s to focus on its Speciality Agriculture and Engineering Divisions and provide funding for strategic growth and investment, thereby enabling us to build upon our industry-leading positions in these two higher margin divisions.

The Agricultural Supplies Division, trading as Carr’s Billington Agriculture, has been a key part of the Group’s growth and development over the past 20 years. Following the strategic review, the Board is confident that now is the right time for a single owner and management team to take the business forward. We are confident that Edward Billington and Son, with its long-term commitment to the sector, is well placed to fulfil this role.

This Transaction represents a compelling and immediate realisation of value for all of our shareholders, streamlines the business and provides the Board with a clear strategic direction for driving future growth. We look forward to updating on further progress in due course.”

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Matthew Ratcliffe, Group Legal Director and Company Secretary.

About Carr’s Group plc

The Group has market leading brands and robust market positions in Agriculture and Engineering supplying customers in over 50 countries, with manufacturing sites in the UK, Germany and the USA, managed in three divisions. Carr’s operates a decentralised business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

Its Speciality Agriculture Division manufactures and supplies feed blocks, minerals and boluses containing trace elements and minerals for livestock.

Its Engineering Division designs and manufactures bespoke equipment, including robotic and remote handling equipment, and provides technical services primarily into nuclear, oil and gas, and defence industries.

Its Agricultural Supplies Division manufactures compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural stores, providing a one-stop shop for the farming community.

Introduction

On 31 August 2022, the Board of Carr’s announced that, in line with its strategic review announced on 18 January 2022, it had entered into a sale and purchase agreement with the Purchaser pursuant to which the Company would dispose of its interests in the Agricultural Supplies Division to the Purchaser.

As part of the Transaction, the Company (through its relevant subsidiary) has entered into a put and call option deed with a group undertaking of the Purchaser relating to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle) (the “Option Deed”), as well as right of first refusal agreements relating to the Company's interests in land at Barnard Castle, Hexham, Penrith and Milnathort (the “Right of First Refusal Agreements”).

The Company and the Purchaser formed the Carr’s Billington Agriculture business in 1999 by bringing together the agricultural interests of both companies to establish a market leading brand in ruminant nutrition. Over the past 20 years, the business has successfully expanded to become one of the leading suppliers of farm inputs, machinery and fuel in the UK.

The Consideration in connection with the Disposal is payable by the Purchaser predominantly at Completion and comprises an initial purchase price of £43 million (on a debt free, cash free basis and subject to a retention amount and to adjustments for estimated net debt and estimated normalised working capital) and contingent consideration of up to £1.5 million based on future performance (the “Contingent Consideration”), giving an aggregate Consideration of up to £44.5 million. This aggregate Consideration implies a multiple of 6.4 times 2021 adjusted EBITDA on the basis of combined adjusted EBITDA for the Agricultural Supplies Companies in FY 2021 of £13.8 million.

The initial purchase price of £43 million is expected to be reduced by estimated debt of approximately £19.2 million, increased by an estimated normalised working capital adjustment of approximately £6.5 million, and an amount to be paid on a deferred basis of at least £4 million (comprising a retention relating to debtors of approximately £1.35 million and a further deferred payment of £2.65 million). Initial cash proceeds are, therefore, expected to be £26.4 million.

A maximum of approximately £0.7 million of the Contingent Consideration is achievable within one year. The remaining approximate £0.8 million of Contingent Consideration, if earned, would fall due after more than one year. The deferred consideration arrangements comprise of (i) a retention against debtors of approximately £1.35 million, which is expected to be received in the second year following Completion, and (ii) a further payment by way of deferred consideration of an amount equal to £4 million minus the finally determined retention for debtors, which (assuming a positive amount) would fall due 12 months after Completion. On the basis that the full Contingent Consideration is paid, the deferred consideration amount is paid and the full debtor retention is paid, the total estimated cash proceeds are approximately £31.9 million. Transaction costs are estimated at approximately £1.9 million and the Company is committed to make a payment of £0.4 million to the Group's pension scheme following the removal of the relevant employers from the scheme through a 'Flexible Apportionment Arrangement', giving net cash proceeds from the Disposal of approximately £29.6 million (the “Net Disposal Proceeds”).

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable. Additional proceeds may also be received in the event that Carr’s elects to sell the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort and Billingtons exercises its rights under the Right of First Refusal Agreements.

Completion is expected to occur as soon as practicable following satisfaction of the conditions precedent to Completion as set out in the Sale and Purchase Agreement, which include the approval of Shareholders.

Carr’s Group Strategy

In January 2022, the Board announced a strategic review of all three of the Group's divisions, (namely, the Agricultural Supplies Division, the Speciality Agriculture Division and the Engineering Division), with a particular focus on opportunities to increase Shareholder value. Each of the Group’s divisions is performing well and has a leading position in its respective market. However, the Board has determined that there are limited opportunities for synergy between the Group’s divisions, varying levels of ownership and control of businesses, competing demands for capital investment and differing returns anticipated on future investments.

As the first step in a long-term strategy, the Board has decided to concentrate resources and investments on the Speciality Agriculture Division and the Engineering Division, principally because:

1. the Speciality Agriculture Division and the Engineering Division have consistently achieved higher profit margins and have the potential for better returns on capital employed than the Agricultural Supplies Division;
2. the businesses making up the most significant parts of each of the Speciality Agriculture Division and the Engineering Division are wholly owned and under the complete control of the Company, whereas the Agricultural Supplies Division is jointly owned;
3. the Speciality Agriculture Division and the Engineering Division each have recognised market leading brands supplying an international customer base, which combined with the anticipated market development for each business, gives greater opportunity for growth, whereas the Agricultural Supplies Division supplies a local customer base within a region of the UK, with limited opportunity to scale up in new geographies;
4. the products manufactured and services supplied by the Speciality Agriculture Division and the Engineering Division are differentiated from their respective competitors with scope for development and extension in the future, whereas the Agricultural Supplies Division is a manufacturer and distributor of high volume, low margin compound feeds and fuels, and a retailer of third party brands and own label products; and
5. the Agricultural Supplies Division operates in a regional UK market that has limited expectations of volume or customer growth in the future in view of expected structural changes in the sector (as farm ownership becomes more concentrated and dairy cow numbers reduce) and therefore has less opportunity to improve margins as many of the inputs are commodity-based with comparable products available from competitors.

Speciality Agriculture Division

The Speciality Agriculture Division consists of market leading brands in the supply of nutritional supplements to beef, dairy, sheep and equine customers predominantly in the UK, Europe, North America and New Zealand, with manufacturing assets in the UK, Germany and the United States.

The Speciality Agriculture Division has considerable potential for growth in sales, being well positioned for between eight per cent. and 10 per cent. annual earnings growth, through increased market penetration in North America, Europe and New Zealand, product extension in its key markets and growth of equine product sales in all markets. Current trends in ruminant agriculture, particularly growth in low input grass and pasture-based management systems, provide opportunities for the Company's brands, as they are proven to be effective in more extensive grass-based nutrition programmes rather than intensive, confined housing and total-mixed-ration regimes. These trends arise due to the increasing cost of cereals, soya and oilseeds required for total-mixed-rations, consumer demands for grass-fed and free-range food, and the scarcity of labour in livestock agriculture. To deliver this sales growth, the Board estimates investment in manufacturing facility upgrades and expansion, in the UK and internationally, of approximately £10 million is required over the next three years. Additionally, investment in product research and development and strengthened commercial capabilities will further support the Board's ambitions for the Speciality Agriculture Division.

The Speciality Agriculture Division provides opportunities for diversification in the products and services supplied to existing customers and potential customers of existing products thus enabling growth in markets where the Company is already well established. Four trends in ruminant agriculture will be addressed by technical solutions and new management systems, namely data as a management tool, the reduced use of antibiotics, reduced methane output, and improved productivity from less intensive grass-based systems to reduce cereal and soya consumption. The Company is exploring opportunities for investment and acquisition to add to its existing capabilities to build a group of businesses that will address the evolving needs of professional livestock farmers over the next 25 years.

Engineering Division

The Engineering Division consists of long-established, specialist companies with expertise and strong reputations in the nuclear energy and defence sectors, providing market leading capabilities in robotics, high specification fabrication and bespoke engineering solutions. The Board believes these capabilities will enable growth in revenues and profitability over the next three to five years, as government and private sector support for new nuclear power generation capacity, additional nuclear defence assets and ongoing decommissioning of older nuclear systems will provide substantial funding in markets that include the UK, the United States, Japan, Europe and south-east Asia. The Engineering Division will focus on core competencies and will invest in developing customer relationships where cross-selling provides additional opportunities.

The Board will support organic growth and development in the Engineering Division to increase Shareholder value in the future. The Engineering Division has a strong leadership team in place, a growing order book and a pipeline of pre-qualification work and tenders. Growth in the Engineering Division requires modestly increased liquidity and additional skilled employees to provide the capacity for larger and longer-term contracts that the Group is being invited to bid for by existing and potential new customers.

Summary Information on the Agricultural Supplies Division

The Carr’s Billington Agriculture business, forming the Group's Agricultural Supplies Division, has contributed to the growth of the Group's revenue and profitability since 1999, alongside the Speciality Agriculture Division and the Engineering Division.

From its beginnings as a ruminant feed manufacturing and distribution business, development of Carrs Billington Agriculture Sales extended activities to market leading brands of agricultural machinery, parts and service, fuel supply and distribution, and a chain of 32 retail stores supplying a full range of consumables and equipment for farm and rural customers. The Carr’s Billington Agriculture business and Bibby Agriculture Limited are recognised brands in ruminant feed, farm machinery, fuels and retail, serving approximately 20,000 farmers and rural dwellers in the Midlands and north of England, Wales, and south and central Scotland.

The Carr’s Billington Agriculture business operates as two separate entities. Carrs Billington Agriculture Sales manages the sales of feeds direct to farm, including 50 per cent. of the Bibby Agriculture Limited joint venture for feed sales in Wales, franchises for agricultural machinery sales and service, depots and distribution of fuel for farms and rural dwellers, and 32 retail stores in various locations across the United Kingdom. Carrs Billington Agriculture Sales is headquartered in Carlisle. For HY 2022, Carrs Billington Agriculture Sales achieved £158.7 million in revenues and £2.0 million of operating profit (both unaudited).

Carrs Billington Agriculture Operations comprises raw materials purchasing, feed milling assets and distribution, manufacturing over 500,000 tonnes of finished product per year. Carrs Billington Agriculture Operations is headquartered in Lancaster. In HY 2022, Carrs Billington Agriculture Operations achieved £70.9 million (unaudited) in revenues and £1.6 million of operating profit (unaudited) (pre cloud configuration and customisation costs adjustments recognised at the Group level).

As at 26 February 2022, the Agricultural Supplies Division had gross assets of £150.8 million (unaudited).

Background to and strategic rationale for the Transaction

Following its decision to focus its strategy on the Speciality Agriculture Division and the Engineering Division, the Board initiated a thorough review of the options for the Agricultural Supplies Division with a view to optimising Shareholder value. The Board has concluded that, whilst the Agricultural Supplies Division has performed well since formation, and has been a key part of the development of the Company over the past 20 years, it is now of a scale and market position that a single owner and management team would be better placed to take the business forward through its next phase of development.

In addition, Group resources, both in terms of executive management and central corporate functions, are disproportionately consumed by the day-to-day management and operation of Carrs Billington Agriculture Sales, limiting the Group's ability to focus and drive growth in the Speciality Agriculture Division and the Engineering Division. In financial terms, the existing ownership structure of Carrs Billington Agriculture Sales means that the benefits and rewards of new initiatives and investment for growth return only a proportion of the benefit to Shareholders. Furthermore, the feed milling business of Carrs Billington Agriculture Operations is capital intensive and will soon require a high level of replacement capital investment at a rate of return that will be lower than potential investments in the Speciality Agriculture Division and the Engineering Division. The forthcoming capital investment requirements could also potentially impact the Agricultural Supplies Companies' ability to pay dividends up to the Company.

In light of all circumstances, the Board determined that Shareholder value would be best achieved through an exit from the Agricultural Supplies Division.

By undertaking the Transaction, the desired exit will be achieved, the Group structure will be simplified, and increased focus will be given to the two remaining divisions (namely the Speciality Agriculture Division and the Engineering Division), both having attractive growth potential underpinned by a favourable outlook and strong market positions. The Group has full ownership of the larger companies within the Speciality Agriculture Division and the Engineering Division, giving autonomy in decision making by the executive management team and ensuring the return on growth initiatives is fully for the benefit of Shareholders.

The Transaction also addresses Shareholder and investor concerns that the structure of the Group's shareholding in the Agricultural Supplies Division is opaque, thus causing difficulty in determining a fair valuation of the individual divisions and overall Group.

Summary of the key terms of the Transaction

On 30 August 2022, Carr’s entered into the Sale and Purchase Agreement, pursuant to which the Company agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell its interests in the Carr’s Billington Agriculture business, comprising its shares in both Carrs Billington Agriculture Sales (together with its 50 per cent. shareholding in Bibby Agriculture Limited) and Carrs Billington Agriculture Operations, to the Purchaser.

The aggregate consideration payable by the Purchaser in connection with the Disposal comprises:

     (i)          an initial cash purchase price of £43 million on a debt free, cash free basis, subject to adjustments for estimated net debt and estimated normalised working capital, minus

    (ii)          a retention and deferred consideration amount of £4 million,

which is payable at Completion and is subject to adjustments after Completion by way of a standard completion accounts mechanism, plus

   (iii)          payment of up to the retention amount (estimated to be £1.35 million but ultimately being an amount (as at Completion) that reflects 50 per cent. of the increase in overdue debtors of the Agricultural Supplies Division as compared to FY 2021). The first payment from the retention shall fall due in the second week of FY 2024, with further payments due in each quarter of FY 2024 (and in each case representing a pass through of 50 pence on every £1 received by the Agricultural Supplies Division from the relevant overdue debtors during the relevant period). Should any amount of the retention remain payable after FY 2024, the Company shall be appointed debt collection agent on behalf of the Agricultural Supplies Division for the purposes of obtaining due payment of such overdue debts as equals the retention;

   (iv)          payment of a lump sum by way of deferred consideration on the first anniversary of Completion, such amount to be equal to £4 million minus the retention against debtors (referred to in paragraph (iii) above) and to be finally determined by the completion accounts mechanism. For the avoidance of doubt, should the retention equal or exceed £4 million no such lump sum will be payable; and

    (v)          the potential for a further £1.5 million of Contingent Consideration payable following the conclusion of FY 2022 and FY 2023, depending on the performance of the Agricultural Supplies Division against an agreed earn out criteria,

the net sum of which is the “Consideration”.

Completion under the Sale and Purchase Agreement is subject to, and can only occur upon satisfaction (or waiver, where applicable) of certain outstanding conditions prior to the Long Stop Date, including:

     (i)          approval of the Resolution by Shareholders, which is being proposed as an ordinary resolution at the General Meeting;

    (ii)          drawdown by the Purchaser of funds made available to it by Barclays Bank plc pursuant to an acquisition funding facility agreement, in order to facilitate the Purchaser's payment of the initial cash consideration on Completion; and

   (iii)          certain other conditions precedent which are customary for a transaction of this nature.

There can be no assurance that the requisite approval from Shareholders will be obtained, nor any guarantee that the Purchaser will be able to finalise definitive financing documents with Barclays Bank plc to enable it to drawdown sufficient funding and pay the initial cash consideration amount on Completion.

The Sale and Purchase Agreement contains warranties as to title, authority and capacity, solvency and anti-bribery and corruption in respect of both Carrs Billington Agriculture Operations and Carrs Billington Agriculture Sales given to the Purchaser by the Company.

The Sale and Purchase Agreement also contains a market standard set of general business warranties and a tax indemnity given to the Purchaser by the Company in respect of Carrs Billington Agriculture Sales and its business only. The Company's potential liability in respect of these warranties and the tax indemnity is limited in aggregate to £15 million and is further qualified by market standard seller liability limitations.

As part of the Transaction, for a limited time following Completion, Carr’s and the Purchaser have agreed that the Company and its Group will provide certain transitional services to the Agricultural Supplies Division pursuant to the Transitional Services Agreement.

The Board expects that, subject to the satisfaction and/or waiver (where applicable) of the conditions precedent to the Transaction, Completion will occur before the end of October 2022.

On or around the date of the Sale and Purchase Agreement, the Company (through its relevant subsidiary) entered into the Option Deed with a group undertaking of the Purchaser in relation to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle). The Option Deed grants Carr’s a put option to sell to Billingtons the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), for a period of one year, commencing from the second anniversary of Completion, for a total cash consideration of £1.3 million (reflecting its independently assessed value). The Option Deed also grants Billingtons a call option (on the same terms) exercisable at any time before the second anniversary of Completion. The Option Deed contemplates Billingtons may, in the first six months following Completion, conduct environmental diligence on the Rosehill Industrial Estate (Carlisle) following which, should a material issue come to light, Billingtons may ultimately terminate the Option Deed.

Billingtons must pay a deposit of £130,000 during the option period in order to validly exercise its call option. The deposit is then deducted from the purchase price once the sale completes.

Completion of the sale is conditional upon the landlord providing its consent in the form of a deed, free from unreasonable conditions, or a declaration from a court that the landlord's consent is unreasonably withheld.

The sale of the property is subject to certain special conditions including in relation to matters affecting the property, environmental matters and apportionment of rent between Carr’s and Billingtons. The sale of the property is otherwise subject to the standard commercial property conditions under Part 1 of the Standard Commercial Property Conditions (Third Edition).

As part of the Transaction, the Company (through its relevant subsidiary) has also entered into the Right of First Refusal Agreements with a group undertaking of the Purchaser in relation to the sale of the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort, all of which are leased to and currently in use within the Agricultural Supplies Division. The right of first refusal will require the Group to first offer these properties to a group undertaking of the Purchaser in the event the Group determines to dispose of them in the two year period following Completion.

Use of proceeds and financial effects of the Transaction

The Disposal is expected to generate Net Disposal Proceeds of approximately £29.6 million on the basis that the full Contingent Consideration is paid and that the full debtor retention is paid. The Board anticipates that the Transaction will produce a net cash position for the Group at Completion. The Group intends to utilise the Net Disposal Proceeds to invest in the Group in order to:

     (i)          support international growth in the Speciality Agriculture Division through the investment of approximately £10 million in manufacturing capacity and plant upgrades between 2023 and 2025;

    (ii)          enable growth in the Engineering Division by providing up to an additional £4 million of liquidity over the next three years to fund potential new larger and longer-term customer contracts; and

   (iii)          fund carefully targeted acquisitions in the Speciality Agriculture Division to diversify activity within a market sector where the Group is already well-established.

Furthermore, following Completion, the Board intends to determine the benefits for Shareholders of arranging a full buy-out of the Group pension scheme, a legacy defined benefit pension scheme that, as at the Latest Practicable Date, is in surplus, thus securing all pension liabilities in the Group and eliminating future risk of further funding being required from the Company. The Directors understand this process would require approximately £4 million including the £0.4 million payment already committed.

The Transaction is expected to materially strengthen the Group's balance sheet and the Group is expected to move to a net cash position immediately following Completion prior to undertaking any further investments as set out above.

It is expected that the Disposal will have a dilutive effect on the earnings per Ordinary Share in the first full year following Completion.

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable.

Class 1 Transaction and Related Party Transaction and General Meeting

Due to the size of the Agricultural Supplies Division when compared with the Company as determined by the class tests under the Listing Rules, the Transaction is classified under the Listing Rules as a Class 1 Transaction and therefore requires the approval of Shareholders pursuant to Chapter 10 of the Listing Rules.

Furthermore, the Purchaser is a Related Party of the Company by virtue of it being a 'substantial shareholder' (as defined in the Listing Rules) of a subsidiary undertaking. The Company holds a 51 per cent. interest in Carrs Billington Agriculture Sales, thereby resulting in Carrs Billington Agriculture Sales constituting a subsidiary undertaking of the Company. The Purchaser is a 'substantial shareholder' of this subsidiary undertaking as it is entitled to exercise more than 10 per cent. (49 per cent.) of the votes able to be cast at a general meeting of Carrs Billington Agriculture Sales. Therefore, the Transaction constitutes a Related Party Transaction under Chapter 11 of the Listing Rules. As such, the approval of Shareholders is also required pursuant to Chapter 11 of the Listing Rules.

A notice convening the General Meeting to be held at 9:30 a.m on 19 September 2022 at Hotel Sofitel London Heathrow, Terminal 5 London Heathrow Airport, London TW6 2GD will be sent to Shareholders.

The Resolution proposes that the Transaction be approved and that the Directors be authorised to take all such steps as may be necessary, expedient or desirable in relation to the Transaction.

Recommendation

The Board is of the opinion that the Transaction is fair and reasonable so far as the Shareholders are concerned and the Directors have been so advised by Investec as sponsor. In providing advice to the Board, Investec has taken into account the Board's commercial assessment of the Transaction.

The Board is also of the opinion that the Transaction and the Resolution are in the best interests of the Company and its Shareholders taken as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as all of the Directors intend to do (or procure to be done), in respect of the Ordinary Shares in which they are interested, or in relation to which they are otherwise able to control the exercise of the voting rights, held at the time of the General Meeting, amounting to 569,703 Ordinary Shares in aggregate as at the Latest Practicable Date (representing approximately 0.61 per cent. of the issued ordinary share capital of the Company).

Expected timetable of principal events

The times and dates set out in the expected timetable of principal events above and mentioned in this announcement and in any other announcement issued in connection with the Transaction are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to shareholders.

Definitions

Important Notice

This announcement has been issued by, and is the sole responsibility of, Carr’s Group plc. No representation or warranty, express or implied, is or will be made by, or in relation to, and no responsibility or liability is or will be accepted by any adviser to the Company or by any of their respective affiliates or agents as to or in relation to the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any responsibility or liability therefore is expressly disclaimed.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Carr’s and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Carr’s for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

Save for the responsibilities and liabilities, if any, of Investec under FSMA, as amended, or the regulatory regime established thereunder, Investec  assume no responsibility whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by the Company, or on the Company's behalf, or by Investec  or on Investec's behalf and nothing contained in this announcement is, or shall be, relied on as a promise or representation in this respect, whether as to the past or the future, in connection with the Company or the transaction. Investec disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract or commitment to do so.

A copy of the Circular will be available on the Company's website at www.carrsgroup.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Circular will give further details of the transaction.

This announcement includes statements that are, or may be deemed to be, forward-looking statements, beliefs or opinions, including statements with respect to the Company's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Company's directors in good faith based on the information available to them at the date of this announcement and reflect the Company's directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

Certain figures included in this announcement have been subjected to rounding adjustments.

Streamlined focus on being an international leader in manufacturing value added products and solutions in Speciality Agriculture and Engineering

In line with the strategic review announced on 18 January 2022 to grow shareholder value, Carr’s (CARR.L), the Agriculture and Engineering Group, is pleased to announce that it has entered into a conditional agreement to dispose of its interests in the Carr’s Billington Agriculture business (the “Agricultural Supplies Division” to Edward Billington and Son Limited (the “Purchaser” for an aggregate consideration of up to £44.5 million (the “Disposal”

The Disposal will enable the Group to focus on its Speciality Agriculture and Engineering Divisions, both of which provide a greater opportunity for growth and historically have achieved higher profit margins.

A circular convening a general meeting of the Company (the “General Meeting”) to consider and approve the Disposal (the “Circular”) is expected to be published later today and posted to shareholders tomorrow. The Circular, when published, will be made available on the Group’s website (www.carrsgroup.com). It will also be submitted to the National Storage Mechanism where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

• Streamlining of the business, enabling resources and investments to be focused on the Speciality Agriculture and Engineering Divisions, principally because these divisions:
  • Have recognised market-leading brands and supply an international customer base which, combined with the anticipated market progression for each business, gives greater opportunity for growth;
  • Deliver products and services that are differentiated from their respective competitors with scope for development and extension in the future; and
  • Have consistently achieved higher profit margins and have the potential for better returns on capital employed 
• £44.5 million, on a cash-free, debt-free basis and subject to customary adjustments, producing an implied sale multiple of 6.4 times 2021 adjusted EBITDA  
• Expected net cash proceeds of approximately £29.6 million with the Group expected to be in net cash position upon Completion
  
• Net proceeds to target enhanced shareholder returns by funding growth initiatives over the next three years, including:
  • Supporting international growth in the Speciality Agriculture Division through investments of approximately £10 million in manufacturing capacity and plant upgrades;
  • Funding carefully targeted acquisitions in the Speciality Agriculture Division;
    
  • Providing approximately £4 million of additional liquidity to the Engineering Division to fund potential new larger and longer-term customer contracts; and
  • Furthermore, following Completion, the Board intends to determine the benefits for shareholders of arranging a full buy-out of the Group defined benefit pension scheme for approximately £4 million

Commenting on today's announcement, Peter Page, Executive Chairman, said:

“We are today setting out a clear strategy for growth in earnings and shareholder value. This proposed transaction will enable Carr’s to focus on its Speciality Agriculture and Engineering Divisions and provide funding for strategic growth and investment, thereby enabling us to build upon our industry-leading positions in these two higher margin divisions.

The Agricultural Supplies Division, trading as Carr’s Billington Agriculture, has been a key part of the Group’s growth and development over the past 20 years. Following the strategic review, the Board is confident that now is the right time for a single owner and management team to take the business forward. We are confident that Edward Billington and Son, with its long-term commitment to the sector, is well placed to fulfil this role.

This Transaction represents a compelling and immediate realisation of value for all of our shareholders, streamlines the business and provides the Board with a clear strategic direction for driving future growth. We look forward to updating on further progress in due course.”

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Matthew Ratcliffe, Group Legal Director and Company Secretary.

About Carr’s Group plc

The Group has market leading brands and robust market positions in Agriculture and Engineering supplying customers in over 50 countries, with manufacturing sites in the UK, Germany and the USA, managed in three divisions. Carr’s operates a decentralised business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

Its Speciality Agriculture Division manufactures and supplies feed blocks, minerals and boluses containing trace elements and minerals for livestock.

Its Engineering Division designs and manufactures bespoke equipment, including robotic and remote handling equipment, and provides technical services primarily into nuclear, oil and gas, and defence industries.

Its Agricultural Supplies Division manufactures compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural stores, providing a one-stop shop for the farming community.

Introduction

On 31 August 2022, the Board of Carr’s announced that, in line with its strategic review announced on 18 January 2022, it had entered into a sale and purchase agreement with the Purchaser pursuant to which the Company would dispose of its interests in the Agricultural Supplies Division to the Purchaser.

As part of the Transaction, the Company (through its relevant subsidiary) has entered into a put and call option deed with a group undertaking of the Purchaser relating to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle) (the “Option Deed”), as well as right of first refusal agreements relating to the Company's interests in land at Barnard Castle, Hexham, Penrith and Milnathort (the “Right of First Refusal Agreements”).

The Company and the Purchaser formed the Carr’s Billington Agriculture business in 1999 by bringing together the agricultural interests of both companies to establish a market leading brand in ruminant nutrition. Over the past 20 years, the business has successfully expanded to become one of the leading suppliers of farm inputs, machinery and fuel in the UK.

The Consideration in connection with the Disposal is payable by the Purchaser predominantly at Completion and comprises an initial purchase price of £43 million (on a debt free, cash free basis and subject to a retention amount and to adjustments for estimated net debt and estimated normalised working capital) and contingent consideration of up to £1.5 million based on future performance (the “Contingent Consideration”), giving an aggregate Consideration of up to £44.5 million. This aggregate Consideration implies a multiple of 6.4 times 2021 adjusted EBITDA on the basis of combined adjusted EBITDA for the Agricultural Supplies Companies in FY 2021 of £13.8 million.

The initial purchase price of £43 million is expected to be reduced by estimated debt of approximately £19.2 million, increased by an estimated normalised working capital adjustment of approximately £6.5 million, and an amount to be paid on a deferred basis of at least £4 million (comprising a retention relating to debtors of approximately £1.35 million and a further deferred payment of £2.65 million). Initial cash proceeds are, therefore, expected to be £26.4 million.

A maximum of approximately £0.7 million of the Contingent Consideration is achievable within one year. The remaining approximate £0.8 million of Contingent Consideration, if earned, would fall due after more than one year. The deferred consideration arrangements comprise of (i) a retention against debtors of approximately £1.35 million, which is expected to be received in the second year following Completion, and (ii) a further payment by way of deferred consideration of an amount equal to £4 million minus the finally determined retention for debtors, which (assuming a positive amount) would fall due 12 months after Completion. On the basis that the full Contingent Consideration is paid, the deferred consideration amount is paid and the full debtor retention is paid, the total estimated cash proceeds are approximately £31.9 million. Transaction costs are estimated at approximately £1.9 million and the Company is committed to make a payment of £0.4 million to the Group's pension scheme following the removal of the relevant employers from the scheme through a 'Flexible Apportionment Arrangement', giving net cash proceeds from the Disposal of approximately £29.6 million (the “Net Disposal Proceeds”).

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable. Additional proceeds may also be received in the event that Carr’s elects to sell the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort and Billingtons exercises its rights under the Right of First Refusal Agreements.

Completion is expected to occur as soon as practicable following satisfaction of the conditions precedent to Completion as set out in the Sale and Purchase Agreement, which include the approval of Shareholders.

Carr’s Group Strategy

In January 2022, the Board announced a strategic review of all three of the Group's divisions, (namely, the Agricultural Supplies Division, the Speciality Agriculture Division and the Engineering Division), with a particular focus on opportunities to increase Shareholder value. Each of the Group’s divisions is performing well and has a leading position in its respective market. However, the Board has determined that there are limited opportunities for synergy between the Group’s divisions, varying levels of ownership and control of businesses, competing demands for capital investment and differing returns anticipated on future investments.

As the first step in a long-term strategy, the Board has decided to concentrate resources and investments on the Speciality Agriculture Division and the Engineering Division, principally because:

1. the Speciality Agriculture Division and the Engineering Division have consistently achieved higher profit margins and have the potential for better returns on capital employed than the Agricultural Supplies Division;
2. the businesses making up the most significant parts of each of the Speciality Agriculture Division and the Engineering Division are wholly owned and under the complete control of the Company, whereas the Agricultural Supplies Division is jointly owned;
3. the Speciality Agriculture Division and the Engineering Division each have recognised market leading brands supplying an international customer base, which combined with the anticipated market development for each business, gives greater opportunity for growth, whereas the Agricultural Supplies Division supplies a local customer base within a region of the UK, with limited opportunity to scale up in new geographies;
4. the products manufactured and services supplied by the Speciality Agriculture Division and the Engineering Division are differentiated from their respective competitors with scope for development and extension in the future, whereas the Agricultural Supplies Division is a manufacturer and distributor of high volume, low margin compound feeds and fuels, and a retailer of third party brands and own label products; and
5. the Agricultural Supplies Division operates in a regional UK market that has limited expectations of volume or customer growth in the future in view of expected structural changes in the sector (as farm ownership becomes more concentrated and dairy cow numbers reduce) and therefore has less opportunity to improve margins as many of the inputs are commodity-based with comparable products available from competitors.

Speciality Agriculture Division

The Speciality Agriculture Division consists of market leading brands in the supply of nutritional supplements to beef, dairy, sheep and equine customers predominantly in the UK, Europe, North America and New Zealand, with manufacturing assets in the UK, Germany and the United States.

The Speciality Agriculture Division has considerable potential for growth in sales, being well positioned for between eight per cent. and 10 per cent. annual earnings growth, through increased market penetration in North America, Europe and New Zealand, product extension in its key markets and growth of equine product sales in all markets. Current trends in ruminant agriculture, particularly growth in low input grass and pasture-based management systems, provide opportunities for the Company's brands, as they are proven to be effective in more extensive grass-based nutrition programmes rather than intensive, confined housing and total-mixed-ration regimes. These trends arise due to the increasing cost of cereals, soya and oilseeds required for total-mixed-rations, consumer demands for grass-fed and free-range food, and the scarcity of labour in livestock agriculture. To deliver this sales growth, the Board estimates investment in manufacturing facility upgrades and expansion, in the UK and internationally, of approximately £10 million is required over the next three years. Additionally, investment in product research and development and strengthened commercial capabilities will further support the Board's ambitions for the Speciality Agriculture Division.

The Speciality Agriculture Division provides opportunities for diversification in the products and services supplied to existing customers and potential customers of existing products thus enabling growth in markets where the Company is already well established. Four trends in ruminant agriculture will be addressed by technical solutions and new management systems, namely data as a management tool, the reduced use of antibiotics, reduced methane output, and improved productivity from less intensive grass-based systems to reduce cereal and soya consumption. The Company is exploring opportunities for investment and acquisition to add to its existing capabilities to build a group of businesses that will address the evolving needs of professional livestock farmers over the next 25 years.

Engineering Division

The Engineering Division consists of long-established, specialist companies with expertise and strong reputations in the nuclear energy and defence sectors, providing market leading capabilities in robotics, high specification fabrication and bespoke engineering solutions. The Board believes these capabilities will enable growth in revenues and profitability over the next three to five years, as government and private sector support for new nuclear power generation capacity, additional nuclear defence assets and ongoing decommissioning of older nuclear systems will provide substantial funding in markets that include the UK, the United States, Japan, Europe and south-east Asia. The Engineering Division will focus on core competencies and will invest in developing customer relationships where cross-selling provides additional opportunities.

The Board will support organic growth and development in the Engineering Division to increase Shareholder value in the future. The Engineering Division has a strong leadership team in place, a growing order book and a pipeline of pre-qualification work and tenders. Growth in the Engineering Division requires modestly increased liquidity and additional skilled employees to provide the capacity for larger and longer-term contracts that the Group is being invited to bid for by existing and potential new customers.

Summary Information on the Agricultural Supplies Division

The Carr’s Billington Agriculture business, forming the Group's Agricultural Supplies Division, has contributed to the growth of the Group's revenue and profitability since 1999, alongside the Speciality Agriculture Division and the Engineering Division.

From its beginnings as a ruminant feed manufacturing and distribution business, development of Carrs Billington Agriculture Sales extended activities to market leading brands of agricultural machinery, parts and service, fuel supply and distribution, and a chain of 32 retail stores supplying a full range of consumables and equipment for farm and rural customers. The Carr’s Billington Agriculture business and Bibby Agriculture Limited are recognised brands in ruminant feed, farm machinery, fuels and retail, serving approximately 20,000 farmers and rural dwellers in the Midlands and north of England, Wales, and south and central Scotland.

The Carr’s Billington Agriculture business operates as two separate entities. Carrs Billington Agriculture Sales manages the sales of feeds direct to farm, including 50 per cent. of the Bibby Agriculture Limited joint venture for feed sales in Wales, franchises for agricultural machinery sales and service, depots and distribution of fuel for farms and rural dwellers, and 32 retail stores in various locations across the United Kingdom. Carrs Billington Agriculture Sales is headquartered in Carlisle. For HY 2022, Carrs Billington Agriculture Sales achieved £158.7 million in revenues and £2.0 million of operating profit (both unaudited).

Carrs Billington Agriculture Operations comprises raw materials purchasing, feed milling assets and distribution, manufacturing over 500,000 tonnes of finished product per year. Carrs Billington Agriculture Operations is headquartered in Lancaster. In HY 2022, Carrs Billington Agriculture Operations achieved £70.9 million (unaudited) in revenues and £1.6 million of operating profit (unaudited) (pre cloud configuration and customisation costs adjustments recognised at the Group level).

As at 26 February 2022, the Agricultural Supplies Division had gross assets of £150.8 million (unaudited).

Background to and strategic rationale for the Transaction

Following its decision to focus its strategy on the Speciality Agriculture Division and the Engineering Division, the Board initiated a thorough review of the options for the Agricultural Supplies Division with a view to optimising Shareholder value. The Board has concluded that, whilst the Agricultural Supplies Division has performed well since formation, and has been a key part of the development of the Company over the past 20 years, it is now of a scale and market position that a single owner and management team would be better placed to take the business forward through its next phase of development.

In addition, Group resources, both in terms of executive management and central corporate functions, are disproportionately consumed by the day-to-day management and operation of Carrs Billington Agriculture Sales, limiting the Group's ability to focus and drive growth in the Speciality Agriculture Division and the Engineering Division. In financial terms, the existing ownership structure of Carrs Billington Agriculture Sales means that the benefits and rewards of new initiatives and investment for growth return only a proportion of the benefit to Shareholders. Furthermore, the feed milling business of Carrs Billington Agriculture Operations is capital intensive and will soon require a high level of replacement capital investment at a rate of return that will be lower than potential investments in the Speciality Agriculture Division and the Engineering Division. The forthcoming capital investment requirements could also potentially impact the Agricultural Supplies Companies' ability to pay dividends up to the Company.

In light of all circumstances, the Board determined that Shareholder value would be best achieved through an exit from the Agricultural Supplies Division.

By undertaking the Transaction, the desired exit will be achieved, the Group structure will be simplified, and increased focus will be given to the two remaining divisions (namely the Speciality Agriculture Division and the Engineering Division), both having attractive growth potential underpinned by a favourable outlook and strong market positions. The Group has full ownership of the larger companies within the Speciality Agriculture Division and the Engineering Division, giving autonomy in decision making by the executive management team and ensuring the return on growth initiatives is fully for the benefit of Shareholders.

The Transaction also addresses Shareholder and investor concerns that the structure of the Group's shareholding in the Agricultural Supplies Division is opaque, thus causing difficulty in determining a fair valuation of the individual divisions and overall Group.

Summary of the key terms of the Transaction

On 30 August 2022, Carr’s entered into the Sale and Purchase Agreement, pursuant to which the Company agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell its interests in the Carr’s Billington Agriculture business, comprising its shares in both Carrs Billington Agriculture Sales (together with its 50 per cent. shareholding in Bibby Agriculture Limited) and Carrs Billington Agriculture Operations, to the Purchaser.

The aggregate consideration payable by the Purchaser in connection with the Disposal comprises:

     (i)          an initial cash purchase price of £43 million on a debt free, cash free basis, subject to adjustments for estimated net debt and estimated normalised working capital, minus

    (ii)          a retention and deferred consideration amount of £4 million,

which is payable at Completion and is subject to adjustments after Completion by way of a standard completion accounts mechanism, plus

   (iii)          payment of up to the retention amount (estimated to be £1.35 million but ultimately being an amount (as at Completion) that reflects 50 per cent. of the increase in overdue debtors of the Agricultural Supplies Division as compared to FY 2021). The first payment from the retention shall fall due in the second week of FY 2024, with further payments due in each quarter of FY 2024 (and in each case representing a pass through of 50 pence on every £1 received by the Agricultural Supplies Division from the relevant overdue debtors during the relevant period). Should any amount of the retention remain payable after FY 2024, the Company shall be appointed debt collection agent on behalf of the Agricultural Supplies Division for the purposes of obtaining due payment of such overdue debts as equals the retention;

   (iv)          payment of a lump sum by way of deferred consideration on the first anniversary of Completion, such amount to be equal to £4 million minus the retention against debtors (referred to in paragraph (iii) above) and to be finally determined by the completion accounts mechanism. For the avoidance of doubt, should the retention equal or exceed £4 million no such lump sum will be payable; and

    (v)          the potential for a further £1.5 million of Contingent Consideration payable following the conclusion of FY 2022 and FY 2023, depending on the performance of the Agricultural Supplies Division against an agreed earn out criteria,

the net sum of which is the “Consideration”.

Completion under the Sale and Purchase Agreement is subject to, and can only occur upon satisfaction (or waiver, where applicable) of certain outstanding conditions prior to the Long Stop Date, including:

     (i)          approval of the Resolution by Shareholders, which is being proposed as an ordinary resolution at the General Meeting;

    (ii)          drawdown by the Purchaser of funds made available to it by Barclays Bank plc pursuant to an acquisition funding facility agreement, in order to facilitate the Purchaser's payment of the initial cash consideration on Completion; and

   (iii)          certain other conditions precedent which are customary for a transaction of this nature.

There can be no assurance that the requisite approval from Shareholders will be obtained, nor any guarantee that the Purchaser will be able to finalise definitive financing documents with Barclays Bank plc to enable it to drawdown sufficient funding and pay the initial cash consideration amount on Completion.

The Sale and Purchase Agreement contains warranties as to title, authority and capacity, solvency and anti-bribery and corruption in respect of both Carrs Billington Agriculture Operations and Carrs Billington Agriculture Sales given to the Purchaser by the Company.

The Sale and Purchase Agreement also contains a market standard set of general business warranties and a tax indemnity given to the Purchaser by the Company in respect of Carrs Billington Agriculture Sales and its business only. The Company's potential liability in respect of these warranties and the tax indemnity is limited in aggregate to £15 million and is further qualified by market standard seller liability limitations.

As part of the Transaction, for a limited time following Completion, Carr’s and the Purchaser have agreed that the Company and its Group will provide certain transitional services to the Agricultural Supplies Division pursuant to the Transitional Services Agreement.

The Board expects that, subject to the satisfaction and/or waiver (where applicable) of the conditions precedent to the Transaction, Completion will occur before the end of October 2022.

On or around the date of the Sale and Purchase Agreement, the Company (through its relevant subsidiary) entered into the Option Deed with a group undertaking of the Purchaser in relation to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle). The Option Deed grants Carr’s a put option to sell to Billingtons the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), for a period of one year, commencing from the second anniversary of Completion, for a total cash consideration of £1.3 million (reflecting its independently assessed value). The Option Deed also grants Billingtons a call option (on the same terms) exercisable at any time before the second anniversary of Completion. The Option Deed contemplates Billingtons may, in the first six months following Completion, conduct environmental diligence on the Rosehill Industrial Estate (Carlisle) following which, should a material issue come to light, Billingtons may ultimately terminate the Option Deed.

Billingtons must pay a deposit of £130,000 during the option period in order to validly exercise its call option. The deposit is then deducted from the purchase price once the sale completes.

Completion of the sale is conditional upon the landlord providing its consent in the form of a deed, free from unreasonable conditions, or a declaration from a court that the landlord's consent is unreasonably withheld.

The sale of the property is subject to certain special conditions including in relation to matters affecting the property, environmental matters and apportionment of rent between Carr’s and Billingtons. The sale of the property is otherwise subject to the standard commercial property conditions under Part 1 of the Standard Commercial Property Conditions (Third Edition).

As part of the Transaction, the Company (through its relevant subsidiary) has also entered into the Right of First Refusal Agreements with a group undertaking of the Purchaser in relation to the sale of the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort, all of which are leased to and currently in use within the Agricultural Supplies Division. The right of first refusal will require the Group to first offer these properties to a group undertaking of the Purchaser in the event the Group determines to dispose of them in the two year period following Completion.

Use of proceeds and financial effects of the Transaction

The Disposal is expected to generate Net Disposal Proceeds of approximately £29.6 million on the basis that the full Contingent Consideration is paid and that the full debtor retention is paid. The Board anticipates that the Transaction will produce a net cash position for the Group at Completion. The Group intends to utilise the Net Disposal Proceeds to invest in the Group in order to:

     (i)          support international growth in the Speciality Agriculture Division through the investment of approximately £10 million in manufacturing capacity and plant upgrades between 2023 and 2025;

    (ii)          enable growth in the Engineering Division by providing up to an additional £4 million of liquidity over the next three years to fund potential new larger and longer-term customer contracts; and

   (iii)          fund carefully targeted acquisitions in the Speciality Agriculture Division to diversify activity within a market sector where the Group is already well-established.

Furthermore, following Completion, the Board intends to determine the benefits for Shareholders of arranging a full buy-out of the Group pension scheme, a legacy defined benefit pension scheme that, as at the Latest Practicable Date, is in surplus, thus securing all pension liabilities in the Group and eliminating future risk of further funding being required from the Company. The Directors understand this process would require approximately £4 million including the £0.4 million payment already committed.

The Transaction is expected to materially strengthen the Group's balance sheet and the Group is expected to move to a net cash position immediately following Completion prior to undertaking any further investments as set out above.

It is expected that the Disposal will have a dilutive effect on the earnings per Ordinary Share in the first full year following Completion.

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable.

Class 1 Transaction and Related Party Transaction and General Meeting

Due to the size of the Agricultural Supplies Division when compared with the Company as determined by the class tests under the Listing Rules, the Transaction is classified under the Listing Rules as a Class 1 Transaction and therefore requires the approval of Shareholders pursuant to Chapter 10 of the Listing Rules.

Furthermore, the Purchaser is a Related Party of the Company by virtue of it being a 'substantial shareholder' (as defined in the Listing Rules) of a subsidiary undertaking. The Company holds a 51 per cent. interest in Carrs Billington Agriculture Sales, thereby resulting in Carrs Billington Agriculture Sales constituting a subsidiary undertaking of the Company. The Purchaser is a 'substantial shareholder' of this subsidiary undertaking as it is entitled to exercise more than 10 per cent. (49 per cent.) of the votes able to be cast at a general meeting of Carrs Billington Agriculture Sales. Therefore, the Transaction constitutes a Related Party Transaction under Chapter 11 of the Listing Rules. As such, the approval of Shareholders is also required pursuant to Chapter 11 of the Listing Rules.

A notice convening the General Meeting to be held at 9:30 a.m on 19 September 2022 at Hotel Sofitel London Heathrow, Terminal 5 London Heathrow Airport, London TW6 2GD will be sent to Shareholders.

The Resolution proposes that the Transaction be approved and that the Directors be authorised to take all such steps as may be necessary, expedient or desirable in relation to the Transaction.

Recommendation

The Board is of the opinion that the Transaction is fair and reasonable so far as the Shareholders are concerned and the Directors have been so advised by Investec as sponsor. In providing advice to the Board, Investec has taken into account the Board's commercial assessment of the Transaction.

The Board is also of the opinion that the Transaction and the Resolution are in the best interests of the Company and its Shareholders taken as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as all of the Directors intend to do (or procure to be done), in respect of the Ordinary Shares in which they are interested, or in relation to which they are otherwise able to control the exercise of the voting rights, held at the time of the General Meeting, amounting to 569,703 Ordinary Shares in aggregate as at the Latest Practicable Date (representing approximately 0.61 per cent. of the issued ordinary share capital of the Company).

Expected timetable of principal events

The times and dates set out in the expected timetable of principal events above and mentioned in this announcement and in any other announcement issued in connection with the Transaction are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to shareholders.

Definitions

Important Notice

This announcement has been issued by, and is the sole responsibility of, Carr’s Group plc. No representation or warranty, express or implied, is or will be made by, or in relation to, and no responsibility or liability is or will be accepted by any adviser to the Company or by any of their respective affiliates or agents as to or in relation to the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any responsibility or liability therefore is expressly disclaimed.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Carr’s and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Carr’s for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

Save for the responsibilities and liabilities, if any, of Investec under FSMA, as amended, or the regulatory regime established thereunder, Investec  assume no responsibility whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by the Company, or on the Company's behalf, or by Investec  or on Investec's behalf and nothing contained in this announcement is, or shall be, relied on as a promise or representation in this respect, whether as to the past or the future, in connection with the Company or the transaction. Investec disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract or commitment to do so.

A copy of the Circular will be available on the Company's website at www.carrsgroup.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Circular will give further details of the transaction.

This announcement includes statements that are, or may be deemed to be, forward-looking statements, beliefs or opinions, including statements with respect to the Company's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Company's directors in good faith based on the information available to them at the date of this announcement and reflect the Company's directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

Certain figures included in this announcement have been subjected to rounding adjustments.

Streamlined focus on being an international leader in manufacturing value added products and solutions in Speciality Agriculture and Engineering

In line with the strategic review announced on 18 January 2022 to grow shareholder value, Carr’s (CARR.L), the Agriculture and Engineering Group, is pleased to announce that it has entered into a conditional agreement to dispose of its interests in the Carr’s Billington Agriculture business (the “Agricultural Supplies Division” to Edward Billington and Son Limited (the “Purchaser” for an aggregate consideration of up to £44.5 million (the “Disposal”

The Disposal will enable the Group to focus on its Speciality Agriculture and Engineering Divisions, both of which provide a greater opportunity for growth and historically have achieved higher profit margins.

A circular convening a general meeting of the Company (the “General Meeting”) to consider and approve the Disposal (the “Circular”) is expected to be published later today and posted to shareholders tomorrow. The Circular, when published, will be made available on the Group’s website (www.carrsgroup.com). It will also be submitted to the National Storage Mechanism where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

• Streamlining of the business, enabling resources and investments to be focused on the Speciality Agriculture and Engineering Divisions, principally because these divisions:
  • Have recognised market-leading brands and supply an international customer base which, combined with the anticipated market progression for each business, gives greater opportunity for growth;
  • Deliver products and services that are differentiated from their respective competitors with scope for development and extension in the future; and
  • Have consistently achieved higher profit margins and have the potential for better returns on capital employed 
• £44.5 million, on a cash-free, debt-free basis and subject to customary adjustments, producing an implied sale multiple of 6.4 times 2021 adjusted EBITDA  
• Expected net cash proceeds of approximately £29.6 million with the Group expected to be in net cash position upon Completion
  
• Net proceeds to target enhanced shareholder returns by funding growth initiatives over the next three years, including:
  • Supporting international growth in the Speciality Agriculture Division through investments of approximately £10 million in manufacturing capacity and plant upgrades;
  • Funding carefully targeted acquisitions in the Speciality Agriculture Division;
    
  • Providing approximately £4 million of additional liquidity to the Engineering Division to fund potential new larger and longer-term customer contracts; and
  • Furthermore, following Completion, the Board intends to determine the benefits for shareholders of arranging a full buy-out of the Group defined benefit pension scheme for approximately £4 million

Commenting on today's announcement, Peter Page, Executive Chairman, said:

“We are today setting out a clear strategy for growth in earnings and shareholder value. This proposed transaction will enable Carr’s to focus on its Speciality Agriculture and Engineering Divisions and provide funding for strategic growth and investment, thereby enabling us to build upon our industry-leading positions in these two higher margin divisions.

The Agricultural Supplies Division, trading as Carr’s Billington Agriculture, has been a key part of the Group’s growth and development over the past 20 years. Following the strategic review, the Board is confident that now is the right time for a single owner and management team to take the business forward. We are confident that Edward Billington and Son, with its long-term commitment to the sector, is well placed to fulfil this role.

This Transaction represents a compelling and immediate realisation of value for all of our shareholders, streamlines the business and provides the Board with a clear strategic direction for driving future growth. We look forward to updating on further progress in due course.”

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Matthew Ratcliffe, Group Legal Director and Company Secretary.

About Carr’s Group plc

The Group has market leading brands and robust market positions in Agriculture and Engineering supplying customers in over 50 countries, with manufacturing sites in the UK, Germany and the USA, managed in three divisions. Carr’s operates a decentralised business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

Its Speciality Agriculture Division manufactures and supplies feed blocks, minerals and boluses containing trace elements and minerals for livestock.

Its Engineering Division designs and manufactures bespoke equipment, including robotic and remote handling equipment, and provides technical services primarily into nuclear, oil and gas, and defence industries.

Its Agricultural Supplies Division manufactures compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural stores, providing a one-stop shop for the farming community.

Introduction

On 31 August 2022, the Board of Carr’s announced that, in line with its strategic review announced on 18 January 2022, it had entered into a sale and purchase agreement with the Purchaser pursuant to which the Company would dispose of its interests in the Agricultural Supplies Division to the Purchaser.

As part of the Transaction, the Company (through its relevant subsidiary) has entered into a put and call option deed with a group undertaking of the Purchaser relating to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle) (the “Option Deed”), as well as right of first refusal agreements relating to the Company's interests in land at Barnard Castle, Hexham, Penrith and Milnathort (the “Right of First Refusal Agreements”).

The Company and the Purchaser formed the Carr’s Billington Agriculture business in 1999 by bringing together the agricultural interests of both companies to establish a market leading brand in ruminant nutrition. Over the past 20 years, the business has successfully expanded to become one of the leading suppliers of farm inputs, machinery and fuel in the UK.

The Consideration in connection with the Disposal is payable by the Purchaser predominantly at Completion and comprises an initial purchase price of £43 million (on a debt free, cash free basis and subject to a retention amount and to adjustments for estimated net debt and estimated normalised working capital) and contingent consideration of up to £1.5 million based on future performance (the “Contingent Consideration”), giving an aggregate Consideration of up to £44.5 million. This aggregate Consideration implies a multiple of 6.4 times 2021 adjusted EBITDA on the basis of combined adjusted EBITDA for the Agricultural Supplies Companies in FY 2021 of £13.8 million.

The initial purchase price of £43 million is expected to be reduced by estimated debt of approximately £19.2 million, increased by an estimated normalised working capital adjustment of approximately £6.5 million, and an amount to be paid on a deferred basis of at least £4 million (comprising a retention relating to debtors of approximately £1.35 million and a further deferred payment of £2.65 million). Initial cash proceeds are, therefore, expected to be £26.4 million.

A maximum of approximately £0.7 million of the Contingent Consideration is achievable within one year. The remaining approximate £0.8 million of Contingent Consideration, if earned, would fall due after more than one year. The deferred consideration arrangements comprise of (i) a retention against debtors of approximately £1.35 million, which is expected to be received in the second year following Completion, and (ii) a further payment by way of deferred consideration of an amount equal to £4 million minus the finally determined retention for debtors, which (assuming a positive amount) would fall due 12 months after Completion. On the basis that the full Contingent Consideration is paid, the deferred consideration amount is paid and the full debtor retention is paid, the total estimated cash proceeds are approximately £31.9 million. Transaction costs are estimated at approximately £1.9 million and the Company is committed to make a payment of £0.4 million to the Group's pension scheme following the removal of the relevant employers from the scheme through a 'Flexible Apportionment Arrangement', giving net cash proceeds from the Disposal of approximately £29.6 million (the “Net Disposal Proceeds”).

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable. Additional proceeds may also be received in the event that Carr’s elects to sell the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort and Billingtons exercises its rights under the Right of First Refusal Agreements.

Completion is expected to occur as soon as practicable following satisfaction of the conditions precedent to Completion as set out in the Sale and Purchase Agreement, which include the approval of Shareholders.

Carr’s Group Strategy

In January 2022, the Board announced a strategic review of all three of the Group's divisions, (namely, the Agricultural Supplies Division, the Speciality Agriculture Division and the Engineering Division), with a particular focus on opportunities to increase Shareholder value. Each of the Group’s divisions is performing well and has a leading position in its respective market. However, the Board has determined that there are limited opportunities for synergy between the Group’s divisions, varying levels of ownership and control of businesses, competing demands for capital investment and differing returns anticipated on future investments.

As the first step in a long-term strategy, the Board has decided to concentrate resources and investments on the Speciality Agriculture Division and the Engineering Division, principally because:

1. the Speciality Agriculture Division and the Engineering Division have consistently achieved higher profit margins and have the potential for better returns on capital employed than the Agricultural Supplies Division;
2. the businesses making up the most significant parts of each of the Speciality Agriculture Division and the Engineering Division are wholly owned and under the complete control of the Company, whereas the Agricultural Supplies Division is jointly owned;
3. the Speciality Agriculture Division and the Engineering Division each have recognised market leading brands supplying an international customer base, which combined with the anticipated market development for each business, gives greater opportunity for growth, whereas the Agricultural Supplies Division supplies a local customer base within a region of the UK, with limited opportunity to scale up in new geographies;
4. the products manufactured and services supplied by the Speciality Agriculture Division and the Engineering Division are differentiated from their respective competitors with scope for development and extension in the future, whereas the Agricultural Supplies Division is a manufacturer and distributor of high volume, low margin compound feeds and fuels, and a retailer of third party brands and own label products; and
5. the Agricultural Supplies Division operates in a regional UK market that has limited expectations of volume or customer growth in the future in view of expected structural changes in the sector (as farm ownership becomes more concentrated and dairy cow numbers reduce) and therefore has less opportunity to improve margins as many of the inputs are commodity-based with comparable products available from competitors.

Speciality Agriculture Division

The Speciality Agriculture Division consists of market leading brands in the supply of nutritional supplements to beef, dairy, sheep and equine customers predominantly in the UK, Europe, North America and New Zealand, with manufacturing assets in the UK, Germany and the United States.

The Speciality Agriculture Division has considerable potential for growth in sales, being well positioned for between eight per cent. and 10 per cent. annual earnings growth, through increased market penetration in North America, Europe and New Zealand, product extension in its key markets and growth of equine product sales in all markets. Current trends in ruminant agriculture, particularly growth in low input grass and pasture-based management systems, provide opportunities for the Company's brands, as they are proven to be effective in more extensive grass-based nutrition programmes rather than intensive, confined housing and total-mixed-ration regimes. These trends arise due to the increasing cost of cereals, soya and oilseeds required for total-mixed-rations, consumer demands for grass-fed and free-range food, and the scarcity of labour in livestock agriculture. To deliver this sales growth, the Board estimates investment in manufacturing facility upgrades and expansion, in the UK and internationally, of approximately £10 million is required over the next three years. Additionally, investment in product research and development and strengthened commercial capabilities will further support the Board's ambitions for the Speciality Agriculture Division.

The Speciality Agriculture Division provides opportunities for diversification in the products and services supplied to existing customers and potential customers of existing products thus enabling growth in markets where the Company is already well established. Four trends in ruminant agriculture will be addressed by technical solutions and new management systems, namely data as a management tool, the reduced use of antibiotics, reduced methane output, and improved productivity from less intensive grass-based systems to reduce cereal and soya consumption. The Company is exploring opportunities for investment and acquisition to add to its existing capabilities to build a group of businesses that will address the evolving needs of professional livestock farmers over the next 25 years.

Engineering Division

The Engineering Division consists of long-established, specialist companies with expertise and strong reputations in the nuclear energy and defence sectors, providing market leading capabilities in robotics, high specification fabrication and bespoke engineering solutions. The Board believes these capabilities will enable growth in revenues and profitability over the next three to five years, as government and private sector support for new nuclear power generation capacity, additional nuclear defence assets and ongoing decommissioning of older nuclear systems will provide substantial funding in markets that include the UK, the United States, Japan, Europe and south-east Asia. The Engineering Division will focus on core competencies and will invest in developing customer relationships where cross-selling provides additional opportunities.

The Board will support organic growth and development in the Engineering Division to increase Shareholder value in the future. The Engineering Division has a strong leadership team in place, a growing order book and a pipeline of pre-qualification work and tenders. Growth in the Engineering Division requires modestly increased liquidity and additional skilled employees to provide the capacity for larger and longer-term contracts that the Group is being invited to bid for by existing and potential new customers.

Summary Information on the Agricultural Supplies Division

The Carr’s Billington Agriculture business, forming the Group's Agricultural Supplies Division, has contributed to the growth of the Group's revenue and profitability since 1999, alongside the Speciality Agriculture Division and the Engineering Division.

From its beginnings as a ruminant feed manufacturing and distribution business, development of Carrs Billington Agriculture Sales extended activities to market leading brands of agricultural machinery, parts and service, fuel supply and distribution, and a chain of 32 retail stores supplying a full range of consumables and equipment for farm and rural customers. The Carr’s Billington Agriculture business and Bibby Agriculture Limited are recognised brands in ruminant feed, farm machinery, fuels and retail, serving approximately 20,000 farmers and rural dwellers in the Midlands and north of England, Wales, and south and central Scotland.

The Carr’s Billington Agriculture business operates as two separate entities. Carrs Billington Agriculture Sales manages the sales of feeds direct to farm, including 50 per cent. of the Bibby Agriculture Limited joint venture for feed sales in Wales, franchises for agricultural machinery sales and service, depots and distribution of fuel for farms and rural dwellers, and 32 retail stores in various locations across the United Kingdom. Carrs Billington Agriculture Sales is headquartered in Carlisle. For HY 2022, Carrs Billington Agriculture Sales achieved £158.7 million in revenues and £2.0 million of operating profit (both unaudited).

Carrs Billington Agriculture Operations comprises raw materials purchasing, feed milling assets and distribution, manufacturing over 500,000 tonnes of finished product per year. Carrs Billington Agriculture Operations is headquartered in Lancaster. In HY 2022, Carrs Billington Agriculture Operations achieved £70.9 million (unaudited) in revenues and £1.6 million of operating profit (unaudited) (pre cloud configuration and customisation costs adjustments recognised at the Group level).

As at 26 February 2022, the Agricultural Supplies Division had gross assets of £150.8 million (unaudited).

Background to and strategic rationale for the Transaction

Following its decision to focus its strategy on the Speciality Agriculture Division and the Engineering Division, the Board initiated a thorough review of the options for the Agricultural Supplies Division with a view to optimising Shareholder value. The Board has concluded that, whilst the Agricultural Supplies Division has performed well since formation, and has been a key part of the development of the Company over the past 20 years, it is now of a scale and market position that a single owner and management team would be better placed to take the business forward through its next phase of development.

In addition, Group resources, both in terms of executive management and central corporate functions, are disproportionately consumed by the day-to-day management and operation of Carrs Billington Agriculture Sales, limiting the Group's ability to focus and drive growth in the Speciality Agriculture Division and the Engineering Division. In financial terms, the existing ownership structure of Carrs Billington Agriculture Sales means that the benefits and rewards of new initiatives and investment for growth return only a proportion of the benefit to Shareholders. Furthermore, the feed milling business of Carrs Billington Agriculture Operations is capital intensive and will soon require a high level of replacement capital investment at a rate of return that will be lower than potential investments in the Speciality Agriculture Division and the Engineering Division. The forthcoming capital investment requirements could also potentially impact the Agricultural Supplies Companies' ability to pay dividends up to the Company.

In light of all circumstances, the Board determined that Shareholder value would be best achieved through an exit from the Agricultural Supplies Division.

By undertaking the Transaction, the desired exit will be achieved, the Group structure will be simplified, and increased focus will be given to the two remaining divisions (namely the Speciality Agriculture Division and the Engineering Division), both having attractive growth potential underpinned by a favourable outlook and strong market positions. The Group has full ownership of the larger companies within the Speciality Agriculture Division and the Engineering Division, giving autonomy in decision making by the executive management team and ensuring the return on growth initiatives is fully for the benefit of Shareholders.

The Transaction also addresses Shareholder and investor concerns that the structure of the Group's shareholding in the Agricultural Supplies Division is opaque, thus causing difficulty in determining a fair valuation of the individual divisions and overall Group.

Summary of the key terms of the Transaction

On 30 August 2022, Carr’s entered into the Sale and Purchase Agreement, pursuant to which the Company agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell its interests in the Carr’s Billington Agriculture business, comprising its shares in both Carrs Billington Agriculture Sales (together with its 50 per cent. shareholding in Bibby Agriculture Limited) and Carrs Billington Agriculture Operations, to the Purchaser.

The aggregate consideration payable by the Purchaser in connection with the Disposal comprises:

     (i)          an initial cash purchase price of £43 million on a debt free, cash free basis, subject to adjustments for estimated net debt and estimated normalised working capital, minus

    (ii)          a retention and deferred consideration amount of £4 million,

which is payable at Completion and is subject to adjustments after Completion by way of a standard completion accounts mechanism, plus

   (iii)          payment of up to the retention amount (estimated to be £1.35 million but ultimately being an amount (as at Completion) that reflects 50 per cent. of the increase in overdue debtors of the Agricultural Supplies Division as compared to FY 2021). The first payment from the retention shall fall due in the second week of FY 2024, with further payments due in each quarter of FY 2024 (and in each case representing a pass through of 50 pence on every £1 received by the Agricultural Supplies Division from the relevant overdue debtors during the relevant period). Should any amount of the retention remain payable after FY 2024, the Company shall be appointed debt collection agent on behalf of the Agricultural Supplies Division for the purposes of obtaining due payment of such overdue debts as equals the retention;

   (iv)          payment of a lump sum by way of deferred consideration on the first anniversary of Completion, such amount to be equal to £4 million minus the retention against debtors (referred to in paragraph (iii) above) and to be finally determined by the completion accounts mechanism. For the avoidance of doubt, should the retention equal or exceed £4 million no such lump sum will be payable; and

    (v)          the potential for a further £1.5 million of Contingent Consideration payable following the conclusion of FY 2022 and FY 2023, depending on the performance of the Agricultural Supplies Division against an agreed earn out criteria,

the net sum of which is the “Consideration”.

Completion under the Sale and Purchase Agreement is subject to, and can only occur upon satisfaction (or waiver, where applicable) of certain outstanding conditions prior to the Long Stop Date, including:

     (i)          approval of the Resolution by Shareholders, which is being proposed as an ordinary resolution at the General Meeting;

    (ii)          drawdown by the Purchaser of funds made available to it by Barclays Bank plc pursuant to an acquisition funding facility agreement, in order to facilitate the Purchaser's payment of the initial cash consideration on Completion; and

   (iii)          certain other conditions precedent which are customary for a transaction of this nature.

There can be no assurance that the requisite approval from Shareholders will be obtained, nor any guarantee that the Purchaser will be able to finalise definitive financing documents with Barclays Bank plc to enable it to drawdown sufficient funding and pay the initial cash consideration amount on Completion.

The Sale and Purchase Agreement contains warranties as to title, authority and capacity, solvency and anti-bribery and corruption in respect of both Carrs Billington Agriculture Operations and Carrs Billington Agriculture Sales given to the Purchaser by the Company.

The Sale and Purchase Agreement also contains a market standard set of general business warranties and a tax indemnity given to the Purchaser by the Company in respect of Carrs Billington Agriculture Sales and its business only. The Company's potential liability in respect of these warranties and the tax indemnity is limited in aggregate to £15 million and is further qualified by market standard seller liability limitations.

As part of the Transaction, for a limited time following Completion, Carr’s and the Purchaser have agreed that the Company and its Group will provide certain transitional services to the Agricultural Supplies Division pursuant to the Transitional Services Agreement.

The Board expects that, subject to the satisfaction and/or waiver (where applicable) of the conditions precedent to the Transaction, Completion will occur before the end of October 2022.

On or around the date of the Sale and Purchase Agreement, the Company (through its relevant subsidiary) entered into the Option Deed with a group undertaking of the Purchaser in relation to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle). The Option Deed grants Carr’s a put option to sell to Billingtons the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), for a period of one year, commencing from the second anniversary of Completion, for a total cash consideration of £1.3 million (reflecting its independently assessed value). The Option Deed also grants Billingtons a call option (on the same terms) exercisable at any time before the second anniversary of Completion. The Option Deed contemplates Billingtons may, in the first six months following Completion, conduct environmental diligence on the Rosehill Industrial Estate (Carlisle) following which, should a material issue come to light, Billingtons may ultimately terminate the Option Deed.

Billingtons must pay a deposit of £130,000 during the option period in order to validly exercise its call option. The deposit is then deducted from the purchase price once the sale completes.

Completion of the sale is conditional upon the landlord providing its consent in the form of a deed, free from unreasonable conditions, or a declaration from a court that the landlord's consent is unreasonably withheld.

The sale of the property is subject to certain special conditions including in relation to matters affecting the property, environmental matters and apportionment of rent between Carr’s and Billingtons. The sale of the property is otherwise subject to the standard commercial property conditions under Part 1 of the Standard Commercial Property Conditions (Third Edition).

As part of the Transaction, the Company (through its relevant subsidiary) has also entered into the Right of First Refusal Agreements with a group undertaking of the Purchaser in relation to the sale of the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort, all of which are leased to and currently in use within the Agricultural Supplies Division. The right of first refusal will require the Group to first offer these properties to a group undertaking of the Purchaser in the event the Group determines to dispose of them in the two year period following Completion.

Use of proceeds and financial effects of the Transaction

The Disposal is expected to generate Net Disposal Proceeds of approximately £29.6 million on the basis that the full Contingent Consideration is paid and that the full debtor retention is paid. The Board anticipates that the Transaction will produce a net cash position for the Group at Completion. The Group intends to utilise the Net Disposal Proceeds to invest in the Group in order to:

     (i)          support international growth in the Speciality Agriculture Division through the investment of approximately £10 million in manufacturing capacity and plant upgrades between 2023 and 2025;

    (ii)          enable growth in the Engineering Division by providing up to an additional £4 million of liquidity over the next three years to fund potential new larger and longer-term customer contracts; and

   (iii)          fund carefully targeted acquisitions in the Speciality Agriculture Division to diversify activity within a market sector where the Group is already well-established.

Furthermore, following Completion, the Board intends to determine the benefits for Shareholders of arranging a full buy-out of the Group pension scheme, a legacy defined benefit pension scheme that, as at the Latest Practicable Date, is in surplus, thus securing all pension liabilities in the Group and eliminating future risk of further funding being required from the Company. The Directors understand this process would require approximately £4 million including the £0.4 million payment already committed.

The Transaction is expected to materially strengthen the Group's balance sheet and the Group is expected to move to a net cash position immediately following Completion prior to undertaking any further investments as set out above.

It is expected that the Disposal will have a dilutive effect on the earnings per Ordinary Share in the first full year following Completion.

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable.

Class 1 Transaction and Related Party Transaction and General Meeting

Due to the size of the Agricultural Supplies Division when compared with the Company as determined by the class tests under the Listing Rules, the Transaction is classified under the Listing Rules as a Class 1 Transaction and therefore requires the approval of Shareholders pursuant to Chapter 10 of the Listing Rules.

Furthermore, the Purchaser is a Related Party of the Company by virtue of it being a 'substantial shareholder' (as defined in the Listing Rules) of a subsidiary undertaking. The Company holds a 51 per cent. interest in Carrs Billington Agriculture Sales, thereby resulting in Carrs Billington Agriculture Sales constituting a subsidiary undertaking of the Company. The Purchaser is a 'substantial shareholder' of this subsidiary undertaking as it is entitled to exercise more than 10 per cent. (49 per cent.) of the votes able to be cast at a general meeting of Carrs Billington Agriculture Sales. Therefore, the Transaction constitutes a Related Party Transaction under Chapter 11 of the Listing Rules. As such, the approval of Shareholders is also required pursuant to Chapter 11 of the Listing Rules.

A notice convening the General Meeting to be held at 9:30 a.m on 19 September 2022 at Hotel Sofitel London Heathrow, Terminal 5 London Heathrow Airport, London TW6 2GD will be sent to Shareholders.

The Resolution proposes that the Transaction be approved and that the Directors be authorised to take all such steps as may be necessary, expedient or desirable in relation to the Transaction.

Recommendation

The Board is of the opinion that the Transaction is fair and reasonable so far as the Shareholders are concerned and the Directors have been so advised by Investec as sponsor. In providing advice to the Board, Investec has taken into account the Board's commercial assessment of the Transaction.

The Board is also of the opinion that the Transaction and the Resolution are in the best interests of the Company and its Shareholders taken as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as all of the Directors intend to do (or procure to be done), in respect of the Ordinary Shares in which they are interested, or in relation to which they are otherwise able to control the exercise of the voting rights, held at the time of the General Meeting, amounting to 569,703 Ordinary Shares in aggregate as at the Latest Practicable Date (representing approximately 0.61 per cent. of the issued ordinary share capital of the Company).

Expected timetable of principal events

The times and dates set out in the expected timetable of principal events above and mentioned in this announcement and in any other announcement issued in connection with the Transaction are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to shareholders.

Definitions

Important Notice

This announcement has been issued by, and is the sole responsibility of, Carr’s Group plc. No representation or warranty, express or implied, is or will be made by, or in relation to, and no responsibility or liability is or will be accepted by any adviser to the Company or by any of their respective affiliates or agents as to or in relation to the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any responsibility or liability therefore is expressly disclaimed.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Carr’s and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Carr’s for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

Save for the responsibilities and liabilities, if any, of Investec under FSMA, as amended, or the regulatory regime established thereunder, Investec  assume no responsibility whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by the Company, or on the Company's behalf, or by Investec  or on Investec's behalf and nothing contained in this announcement is, or shall be, relied on as a promise or representation in this respect, whether as to the past or the future, in connection with the Company or the transaction. Investec disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract or commitment to do so.

A copy of the Circular will be available on the Company's website at www.carrsgroup.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Circular will give further details of the transaction.

This announcement includes statements that are, or may be deemed to be, forward-looking statements, beliefs or opinions, including statements with respect to the Company's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Company's directors in good faith based on the information available to them at the date of this announcement and reflect the Company's directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

Certain figures included in this announcement have been subjected to rounding adjustments.

Streamlined focus on being an international leader in manufacturing value added products and solutions in Speciality Agriculture and Engineering

In line with the strategic review announced on 18 January 2022 to grow shareholder value, Carr’s (CARR.L), the Agriculture and Engineering Group, is pleased to announce that it has entered into a conditional agreement to dispose of its interests in the Carr’s Billington Agriculture business (the “Agricultural Supplies Division” to Edward Billington and Son Limited (the “Purchaser” for an aggregate consideration of up to £44.5 million (the “Disposal”

The Disposal will enable the Group to focus on its Speciality Agriculture and Engineering Divisions, both of which provide a greater opportunity for growth and historically have achieved higher profit margins.

A circular convening a general meeting of the Company (the “General Meeting”) to consider and approve the Disposal (the “Circular”) is expected to be published later today and posted to shareholders tomorrow. The Circular, when published, will be made available on the Group’s website (www.carrsgroup.com). It will also be submitted to the National Storage Mechanism where it will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

• Streamlining of the business, enabling resources and investments to be focused on the Speciality Agriculture and Engineering Divisions, principally because these divisions:
  • Have recognised market-leading brands and supply an international customer base which, combined with the anticipated market progression for each business, gives greater opportunity for growth;
  • Deliver products and services that are differentiated from their respective competitors with scope for development and extension in the future; and
  • Have consistently achieved higher profit margins and have the potential for better returns on capital employed 
• £44.5 million, on a cash-free, debt-free basis and subject to customary adjustments, producing an implied sale multiple of 6.4 times 2021 adjusted EBITDA  
• Expected net cash proceeds of approximately £29.6 million with the Group expected to be in net cash position upon Completion
  
• Net proceeds to target enhanced shareholder returns by funding growth initiatives over the next three years, including:
  • Supporting international growth in the Speciality Agriculture Division through investments of approximately £10 million in manufacturing capacity and plant upgrades;
  • Funding carefully targeted acquisitions in the Speciality Agriculture Division;
    
  • Providing approximately £4 million of additional liquidity to the Engineering Division to fund potential new larger and longer-term customer contracts; and
  • Furthermore, following Completion, the Board intends to determine the benefits for shareholders of arranging a full buy-out of the Group defined benefit pension scheme for approximately £4 million

Commenting on today's announcement, Peter Page, Executive Chairman, said:

“We are today setting out a clear strategy for growth in earnings and shareholder value. This proposed transaction will enable Carr’s to focus on its Speciality Agriculture and Engineering Divisions and provide funding for strategic growth and investment, thereby enabling us to build upon our industry-leading positions in these two higher margin divisions.

The Agricultural Supplies Division, trading as Carr’s Billington Agriculture, has been a key part of the Group’s growth and development over the past 20 years. Following the strategic review, the Board is confident that now is the right time for a single owner and management team to take the business forward. We are confident that Edward Billington and Son, with its long-term commitment to the sector, is well placed to fulfil this role.

This Transaction represents a compelling and immediate realisation of value for all of our shareholders, streamlines the business and provides the Board with a clear strategic direction for driving future growth. We look forward to updating on further progress in due course.”

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Matthew Ratcliffe, Group Legal Director and Company Secretary.

About Carr’s Group plc

The Group has market leading brands and robust market positions in Agriculture and Engineering supplying customers in over 50 countries, with manufacturing sites in the UK, Germany and the USA, managed in three divisions. Carr’s operates a decentralised business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

Its Speciality Agriculture Division manufactures and supplies feed blocks, minerals and boluses containing trace elements and minerals for livestock.

Its Engineering Division designs and manufactures bespoke equipment, including robotic and remote handling equipment, and provides technical services primarily into nuclear, oil and gas, and defence industries.

Its Agricultural Supplies Division manufactures compound animal feed, distributes farm machinery and fuels, and runs a UK network of rural stores, providing a one-stop shop for the farming community.

Introduction

On 31 August 2022, the Board of Carr’s announced that, in line with its strategic review announced on 18 January 2022, it had entered into a sale and purchase agreement with the Purchaser pursuant to which the Company would dispose of its interests in the Agricultural Supplies Division to the Purchaser.

As part of the Transaction, the Company (through its relevant subsidiary) has entered into a put and call option deed with a group undertaking of the Purchaser relating to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle) (the “Option Deed”), as well as right of first refusal agreements relating to the Company's interests in land at Barnard Castle, Hexham, Penrith and Milnathort (the “Right of First Refusal Agreements”).

The Company and the Purchaser formed the Carr’s Billington Agriculture business in 1999 by bringing together the agricultural interests of both companies to establish a market leading brand in ruminant nutrition. Over the past 20 years, the business has successfully expanded to become one of the leading suppliers of farm inputs, machinery and fuel in the UK.

The Consideration in connection with the Disposal is payable by the Purchaser predominantly at Completion and comprises an initial purchase price of £43 million (on a debt free, cash free basis and subject to a retention amount and to adjustments for estimated net debt and estimated normalised working capital) and contingent consideration of up to £1.5 million based on future performance (the “Contingent Consideration”), giving an aggregate Consideration of up to £44.5 million. This aggregate Consideration implies a multiple of 6.4 times 2021 adjusted EBITDA on the basis of combined adjusted EBITDA for the Agricultural Supplies Companies in FY 2021 of £13.8 million.

The initial purchase price of £43 million is expected to be reduced by estimated debt of approximately £19.2 million, increased by an estimated normalised working capital adjustment of approximately £6.5 million, and an amount to be paid on a deferred basis of at least £4 million (comprising a retention relating to debtors of approximately £1.35 million and a further deferred payment of £2.65 million). Initial cash proceeds are, therefore, expected to be £26.4 million.

A maximum of approximately £0.7 million of the Contingent Consideration is achievable within one year. The remaining approximate £0.8 million of Contingent Consideration, if earned, would fall due after more than one year. The deferred consideration arrangements comprise of (i) a retention against debtors of approximately £1.35 million, which is expected to be received in the second year following Completion, and (ii) a further payment by way of deferred consideration of an amount equal to £4 million minus the finally determined retention for debtors, which (assuming a positive amount) would fall due 12 months after Completion. On the basis that the full Contingent Consideration is paid, the deferred consideration amount is paid and the full debtor retention is paid, the total estimated cash proceeds are approximately £31.9 million. Transaction costs are estimated at approximately £1.9 million and the Company is committed to make a payment of £0.4 million to the Group's pension scheme following the removal of the relevant employers from the scheme through a 'Flexible Apportionment Arrangement', giving net cash proceeds from the Disposal of approximately £29.6 million (the “Net Disposal Proceeds”).

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable. Additional proceeds may also be received in the event that Carr’s elects to sell the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort and Billingtons exercises its rights under the Right of First Refusal Agreements.

Completion is expected to occur as soon as practicable following satisfaction of the conditions precedent to Completion as set out in the Sale and Purchase Agreement, which include the approval of Shareholders.

Carr’s Group Strategy

In January 2022, the Board announced a strategic review of all three of the Group's divisions, (namely, the Agricultural Supplies Division, the Speciality Agriculture Division and the Engineering Division), with a particular focus on opportunities to increase Shareholder value. Each of the Group’s divisions is performing well and has a leading position in its respective market. However, the Board has determined that there are limited opportunities for synergy between the Group’s divisions, varying levels of ownership and control of businesses, competing demands for capital investment and differing returns anticipated on future investments.

As the first step in a long-term strategy, the Board has decided to concentrate resources and investments on the Speciality Agriculture Division and the Engineering Division, principally because:

1. the Speciality Agriculture Division and the Engineering Division have consistently achieved higher profit margins and have the potential for better returns on capital employed than the Agricultural Supplies Division;
2. the businesses making up the most significant parts of each of the Speciality Agriculture Division and the Engineering Division are wholly owned and under the complete control of the Company, whereas the Agricultural Supplies Division is jointly owned;
3. the Speciality Agriculture Division and the Engineering Division each have recognised market leading brands supplying an international customer base, which combined with the anticipated market development for each business, gives greater opportunity for growth, whereas the Agricultural Supplies Division supplies a local customer base within a region of the UK, with limited opportunity to scale up in new geographies;
4. the products manufactured and services supplied by the Speciality Agriculture Division and the Engineering Division are differentiated from their respective competitors with scope for development and extension in the future, whereas the Agricultural Supplies Division is a manufacturer and distributor of high volume, low margin compound feeds and fuels, and a retailer of third party brands and own label products; and
5. the Agricultural Supplies Division operates in a regional UK market that has limited expectations of volume or customer growth in the future in view of expected structural changes in the sector (as farm ownership becomes more concentrated and dairy cow numbers reduce) and therefore has less opportunity to improve margins as many of the inputs are commodity-based with comparable products available from competitors.

Speciality Agriculture Division

The Speciality Agriculture Division consists of market leading brands in the supply of nutritional supplements to beef, dairy, sheep and equine customers predominantly in the UK, Europe, North America and New Zealand, with manufacturing assets in the UK, Germany and the United States.

The Speciality Agriculture Division has considerable potential for growth in sales, being well positioned for between eight per cent. and 10 per cent. annual earnings growth, through increased market penetration in North America, Europe and New Zealand, product extension in its key markets and growth of equine product sales in all markets. Current trends in ruminant agriculture, particularly growth in low input grass and pasture-based management systems, provide opportunities for the Company's brands, as they are proven to be effective in more extensive grass-based nutrition programmes rather than intensive, confined housing and total-mixed-ration regimes. These trends arise due to the increasing cost of cereals, soya and oilseeds required for total-mixed-rations, consumer demands for grass-fed and free-range food, and the scarcity of labour in livestock agriculture. To deliver this sales growth, the Board estimates investment in manufacturing facility upgrades and expansion, in the UK and internationally, of approximately £10 million is required over the next three years. Additionally, investment in product research and development and strengthened commercial capabilities will further support the Board's ambitions for the Speciality Agriculture Division.

The Speciality Agriculture Division provides opportunities for diversification in the products and services supplied to existing customers and potential customers of existing products thus enabling growth in markets where the Company is already well established. Four trends in ruminant agriculture will be addressed by technical solutions and new management systems, namely data as a management tool, the reduced use of antibiotics, reduced methane output, and improved productivity from less intensive grass-based systems to reduce cereal and soya consumption. The Company is exploring opportunities for investment and acquisition to add to its existing capabilities to build a group of businesses that will address the evolving needs of professional livestock farmers over the next 25 years.

Engineering Division

The Engineering Division consists of long-established, specialist companies with expertise and strong reputations in the nuclear energy and defence sectors, providing market leading capabilities in robotics, high specification fabrication and bespoke engineering solutions. The Board believes these capabilities will enable growth in revenues and profitability over the next three to five years, as government and private sector support for new nuclear power generation capacity, additional nuclear defence assets and ongoing decommissioning of older nuclear systems will provide substantial funding in markets that include the UK, the United States, Japan, Europe and south-east Asia. The Engineering Division will focus on core competencies and will invest in developing customer relationships where cross-selling provides additional opportunities.

The Board will support organic growth and development in the Engineering Division to increase Shareholder value in the future. The Engineering Division has a strong leadership team in place, a growing order book and a pipeline of pre-qualification work and tenders. Growth in the Engineering Division requires modestly increased liquidity and additional skilled employees to provide the capacity for larger and longer-term contracts that the Group is being invited to bid for by existing and potential new customers.

Summary Information on the Agricultural Supplies Division

The Carr’s Billington Agriculture business, forming the Group's Agricultural Supplies Division, has contributed to the growth of the Group's revenue and profitability since 1999, alongside the Speciality Agriculture Division and the Engineering Division.

From its beginnings as a ruminant feed manufacturing and distribution business, development of Carrs Billington Agriculture Sales extended activities to market leading brands of agricultural machinery, parts and service, fuel supply and distribution, and a chain of 32 retail stores supplying a full range of consumables and equipment for farm and rural customers. The Carr’s Billington Agriculture business and Bibby Agriculture Limited are recognised brands in ruminant feed, farm machinery, fuels and retail, serving approximately 20,000 farmers and rural dwellers in the Midlands and north of England, Wales, and south and central Scotland.

The Carr’s Billington Agriculture business operates as two separate entities. Carrs Billington Agriculture Sales manages the sales of feeds direct to farm, including 50 per cent. of the Bibby Agriculture Limited joint venture for feed sales in Wales, franchises for agricultural machinery sales and service, depots and distribution of fuel for farms and rural dwellers, and 32 retail stores in various locations across the United Kingdom. Carrs Billington Agriculture Sales is headquartered in Carlisle. For HY 2022, Carrs Billington Agriculture Sales achieved £158.7 million in revenues and £2.0 million of operating profit (both unaudited).

Carrs Billington Agriculture Operations comprises raw materials purchasing, feed milling assets and distribution, manufacturing over 500,000 tonnes of finished product per year. Carrs Billington Agriculture Operations is headquartered in Lancaster. In HY 2022, Carrs Billington Agriculture Operations achieved £70.9 million (unaudited) in revenues and £1.6 million of operating profit (unaudited) (pre cloud configuration and customisation costs adjustments recognised at the Group level).

As at 26 February 2022, the Agricultural Supplies Division had gross assets of £150.8 million (unaudited).

Background to and strategic rationale for the Transaction

Following its decision to focus its strategy on the Speciality Agriculture Division and the Engineering Division, the Board initiated a thorough review of the options for the Agricultural Supplies Division with a view to optimising Shareholder value. The Board has concluded that, whilst the Agricultural Supplies Division has performed well since formation, and has been a key part of the development of the Company over the past 20 years, it is now of a scale and market position that a single owner and management team would be better placed to take the business forward through its next phase of development.

In addition, Group resources, both in terms of executive management and central corporate functions, are disproportionately consumed by the day-to-day management and operation of Carrs Billington Agriculture Sales, limiting the Group's ability to focus and drive growth in the Speciality Agriculture Division and the Engineering Division. In financial terms, the existing ownership structure of Carrs Billington Agriculture Sales means that the benefits and rewards of new initiatives and investment for growth return only a proportion of the benefit to Shareholders. Furthermore, the feed milling business of Carrs Billington Agriculture Operations is capital intensive and will soon require a high level of replacement capital investment at a rate of return that will be lower than potential investments in the Speciality Agriculture Division and the Engineering Division. The forthcoming capital investment requirements could also potentially impact the Agricultural Supplies Companies' ability to pay dividends up to the Company.

In light of all circumstances, the Board determined that Shareholder value would be best achieved through an exit from the Agricultural Supplies Division.

By undertaking the Transaction, the desired exit will be achieved, the Group structure will be simplified, and increased focus will be given to the two remaining divisions (namely the Speciality Agriculture Division and the Engineering Division), both having attractive growth potential underpinned by a favourable outlook and strong market positions. The Group has full ownership of the larger companies within the Speciality Agriculture Division and the Engineering Division, giving autonomy in decision making by the executive management team and ensuring the return on growth initiatives is fully for the benefit of Shareholders.

The Transaction also addresses Shareholder and investor concerns that the structure of the Group's shareholding in the Agricultural Supplies Division is opaque, thus causing difficulty in determining a fair valuation of the individual divisions and overall Group.

Summary of the key terms of the Transaction

On 30 August 2022, Carr’s entered into the Sale and Purchase Agreement, pursuant to which the Company agreed, on the terms and subject to the conditions of the Sale and Purchase Agreement, to sell its interests in the Carr’s Billington Agriculture business, comprising its shares in both Carrs Billington Agriculture Sales (together with its 50 per cent. shareholding in Bibby Agriculture Limited) and Carrs Billington Agriculture Operations, to the Purchaser.

The aggregate consideration payable by the Purchaser in connection with the Disposal comprises:

     (i)          an initial cash purchase price of £43 million on a debt free, cash free basis, subject to adjustments for estimated net debt and estimated normalised working capital, minus

    (ii)          a retention and deferred consideration amount of £4 million,

which is payable at Completion and is subject to adjustments after Completion by way of a standard completion accounts mechanism, plus

   (iii)          payment of up to the retention amount (estimated to be £1.35 million but ultimately being an amount (as at Completion) that reflects 50 per cent. of the increase in overdue debtors of the Agricultural Supplies Division as compared to FY 2021). The first payment from the retention shall fall due in the second week of FY 2024, with further payments due in each quarter of FY 2024 (and in each case representing a pass through of 50 pence on every £1 received by the Agricultural Supplies Division from the relevant overdue debtors during the relevant period). Should any amount of the retention remain payable after FY 2024, the Company shall be appointed debt collection agent on behalf of the Agricultural Supplies Division for the purposes of obtaining due payment of such overdue debts as equals the retention;

   (iv)          payment of a lump sum by way of deferred consideration on the first anniversary of Completion, such amount to be equal to £4 million minus the retention against debtors (referred to in paragraph (iii) above) and to be finally determined by the completion accounts mechanism. For the avoidance of doubt, should the retention equal or exceed £4 million no such lump sum will be payable; and

    (v)          the potential for a further £1.5 million of Contingent Consideration payable following the conclusion of FY 2022 and FY 2023, depending on the performance of the Agricultural Supplies Division against an agreed earn out criteria,

the net sum of which is the “Consideration”.

Completion under the Sale and Purchase Agreement is subject to, and can only occur upon satisfaction (or waiver, where applicable) of certain outstanding conditions prior to the Long Stop Date, including:

     (i)          approval of the Resolution by Shareholders, which is being proposed as an ordinary resolution at the General Meeting;

    (ii)          drawdown by the Purchaser of funds made available to it by Barclays Bank plc pursuant to an acquisition funding facility agreement, in order to facilitate the Purchaser's payment of the initial cash consideration on Completion; and

   (iii)          certain other conditions precedent which are customary for a transaction of this nature.

There can be no assurance that the requisite approval from Shareholders will be obtained, nor any guarantee that the Purchaser will be able to finalise definitive financing documents with Barclays Bank plc to enable it to drawdown sufficient funding and pay the initial cash consideration amount on Completion.

The Sale and Purchase Agreement contains warranties as to title, authority and capacity, solvency and anti-bribery and corruption in respect of both Carrs Billington Agriculture Operations and Carrs Billington Agriculture Sales given to the Purchaser by the Company.

The Sale and Purchase Agreement also contains a market standard set of general business warranties and a tax indemnity given to the Purchaser by the Company in respect of Carrs Billington Agriculture Sales and its business only. The Company's potential liability in respect of these warranties and the tax indemnity is limited in aggregate to £15 million and is further qualified by market standard seller liability limitations.

As part of the Transaction, for a limited time following Completion, Carr’s and the Purchaser have agreed that the Company and its Group will provide certain transitional services to the Agricultural Supplies Division pursuant to the Transitional Services Agreement.

The Board expects that, subject to the satisfaction and/or waiver (where applicable) of the conditions precedent to the Transaction, Completion will occur before the end of October 2022.

On or around the date of the Sale and Purchase Agreement, the Company (through its relevant subsidiary) entered into the Option Deed with a group undertaking of the Purchaser in relation to its leasehold interest in land at the Rosehill Industrial Estate (Carlisle). The Option Deed grants Carr’s a put option to sell to Billingtons the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), for a period of one year, commencing from the second anniversary of Completion, for a total cash consideration of £1.3 million (reflecting its independently assessed value). The Option Deed also grants Billingtons a call option (on the same terms) exercisable at any time before the second anniversary of Completion. The Option Deed contemplates Billingtons may, in the first six months following Completion, conduct environmental diligence on the Rosehill Industrial Estate (Carlisle) following which, should a material issue come to light, Billingtons may ultimately terminate the Option Deed.

Billingtons must pay a deposit of £130,000 during the option period in order to validly exercise its call option. The deposit is then deducted from the purchase price once the sale completes.

Completion of the sale is conditional upon the landlord providing its consent in the form of a deed, free from unreasonable conditions, or a declaration from a court that the landlord's consent is unreasonably withheld.

The sale of the property is subject to certain special conditions including in relation to matters affecting the property, environmental matters and apportionment of rent between Carr’s and Billingtons. The sale of the property is otherwise subject to the standard commercial property conditions under Part 1 of the Standard Commercial Property Conditions (Third Edition).

As part of the Transaction, the Company (through its relevant subsidiary) has also entered into the Right of First Refusal Agreements with a group undertaking of the Purchaser in relation to the sale of the Group's real estate interests at Barnard Castle, Hexham, Penrith and Milnathort, all of which are leased to and currently in use within the Agricultural Supplies Division. The right of first refusal will require the Group to first offer these properties to a group undertaking of the Purchaser in the event the Group determines to dispose of them in the two year period following Completion.

Use of proceeds and financial effects of the Transaction

The Disposal is expected to generate Net Disposal Proceeds of approximately £29.6 million on the basis that the full Contingent Consideration is paid and that the full debtor retention is paid. The Board anticipates that the Transaction will produce a net cash position for the Group at Completion. The Group intends to utilise the Net Disposal Proceeds to invest in the Group in order to:

     (i)          support international growth in the Speciality Agriculture Division through the investment of approximately £10 million in manufacturing capacity and plant upgrades between 2023 and 2025;

    (ii)          enable growth in the Engineering Division by providing up to an additional £4 million of liquidity over the next three years to fund potential new larger and longer-term customer contracts; and

   (iii)          fund carefully targeted acquisitions in the Speciality Agriculture Division to diversify activity within a market sector where the Group is already well-established.

Furthermore, following Completion, the Board intends to determine the benefits for Shareholders of arranging a full buy-out of the Group pension scheme, a legacy defined benefit pension scheme that, as at the Latest Practicable Date, is in surplus, thus securing all pension liabilities in the Group and eliminating future risk of further funding being required from the Company. The Directors understand this process would require approximately £4 million including the £0.4 million payment already committed.

The Transaction is expected to materially strengthen the Group's balance sheet and the Group is expected to move to a net cash position immediately following Completion prior to undertaking any further investments as set out above.

It is expected that the Disposal will have a dilutive effect on the earnings per Ordinary Share in the first full year following Completion.

In the event the put or call option under the Option Deed is exercised in connection with the Company's leasehold interest in land at the Rosehill Industrial Estate (Carlisle), a further £1.3 million is receivable.

Class 1 Transaction and Related Party Transaction and General Meeting

Due to the size of the Agricultural Supplies Division when compared with the Company as determined by the class tests under the Listing Rules, the Transaction is classified under the Listing Rules as a Class 1 Transaction and therefore requires the approval of Shareholders pursuant to Chapter 10 of the Listing Rules.

Furthermore, the Purchaser is a Related Party of the Company by virtue of it being a 'substantial shareholder' (as defined in the Listing Rules) of a subsidiary undertaking. The Company holds a 51 per cent. interest in Carrs Billington Agriculture Sales, thereby resulting in Carrs Billington Agriculture Sales constituting a subsidiary undertaking of the Company. The Purchaser is a 'substantial shareholder' of this subsidiary undertaking as it is entitled to exercise more than 10 per cent. (49 per cent.) of the votes able to be cast at a general meeting of Carrs Billington Agriculture Sales. Therefore, the Transaction constitutes a Related Party Transaction under Chapter 11 of the Listing Rules. As such, the approval of Shareholders is also required pursuant to Chapter 11 of the Listing Rules.

A notice convening the General Meeting to be held at 9:30 a.m on 19 September 2022 at Hotel Sofitel London Heathrow, Terminal 5 London Heathrow Airport, London TW6 2GD will be sent to Shareholders.

The Resolution proposes that the Transaction be approved and that the Directors be authorised to take all such steps as may be necessary, expedient or desirable in relation to the Transaction.

Recommendation

The Board is of the opinion that the Transaction is fair and reasonable so far as the Shareholders are concerned and the Directors have been so advised by Investec as sponsor. In providing advice to the Board, Investec has taken into account the Board's commercial assessment of the Transaction.

The Board is also of the opinion that the Transaction and the Resolution are in the best interests of the Company and its Shareholders taken as a whole.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as all of the Directors intend to do (or procure to be done), in respect of the Ordinary Shares in which they are interested, or in relation to which they are otherwise able to control the exercise of the voting rights, held at the time of the General Meeting, amounting to 569,703 Ordinary Shares in aggregate as at the Latest Practicable Date (representing approximately 0.61 per cent. of the issued ordinary share capital of the Company).

Expected timetable of principal events

The times and dates set out in the expected timetable of principal events above and mentioned in this announcement and in any other announcement issued in connection with the Transaction are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to shareholders.

Definitions

Important Notice

This announcement has been issued by, and is the sole responsibility of, Carr’s Group plc. No representation or warranty, express or implied, is or will be made by, or in relation to, and no responsibility or liability is or will be accepted by any adviser to the Company or by any of their respective affiliates or agents as to or in relation to the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any responsibility or liability therefore is expressly disclaimed.

Investec Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting exclusively for Carr’s and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Carr’s for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.

Save for the responsibilities and liabilities, if any, of Investec under FSMA, as amended, or the regulatory regime established thereunder, Investec  assume no responsibility whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by the Company, or on the Company's behalf, or by Investec  or on Investec's behalf and nothing contained in this announcement is, or shall be, relied on as a promise or representation in this respect, whether as to the past or the future, in connection with the Company or the transaction. Investec disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

The contents of this announcement do not constitute or form part of an offer of or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for any securities for sale in any jurisdiction nor shall they (or any part of them) or the fact of their distribution form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract or commitment to do so.

A copy of the Circular will be available on the Company's website at www.carrsgroup.com. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Circular will give further details of the transaction.

This announcement includes statements that are, or may be deemed to be, forward-looking statements, beliefs or opinions, including statements with respect to the Company's business, financial condition and results of operations. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other various or comparable terminology. These statements are made by the Company's directors in good faith based on the information available to them at the date of this announcement and reflect the Company's directors' beliefs and expectations. By their nature these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements speak only as at the date of this announcement and the Company and its advisers expressly disclaim any obligations or undertaking to release any update of, or revisions to, any forward-looking statements in this announcement. As a result, you are cautioned not to place any undue reliance on such forward-looking statements.

Nothing in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share or dividend per share for the Company for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share or dividend per share for the Company.

Certain figures included in this announcement have been subjected to rounding adjustments.