7 December 2021

CARR'S GROUP PLC

("Carr's" or the "Group")

FULL YEAR RESULTS

For the year ended 28 August 2021

"A strong performance ahead of expectations"

Carr's (CARR.L), the Agriculture and Engineering Group, announces its full year results for the year ended 28 August 2021.

Financial highlights

Commercial and strategic highlights

·      Results ahead of Board's improved expectations, despite COVID-19 and oil price volatility

·      Substantial increase in profitability of both Agriculture divisions:

- Strong performance in Speciality Agriculture assisted by livestock prices in the UK and USA

- Successful year in Agricultural Supplies with feed volumes, machinery revenues, and retail sales all improved

·      Engineering adjusted operating profits marginally higher, despite lower oil prices and COVID-19 impact in Q1

·      Year end Engineering order book 15.9% higher than prior year

·      Very strong cash and net debt position

·      Board remains confident in prospects of all divisions

Peter Page, Chairman, commented:

"The Group has delivered an excellent result ahead of the Board's original expectations, with increased profits across both Agriculture divisions and an enhanced order book for Engineering. In large part, this result stems from the unwavering commitment of all employees.

"The markets for both Agriculture and Engineering remain positive, and the Board therefore remains confident in the Group's prospects."

¹   Adjusted results are consistent with how business performance is measured internally and are presented to aid comparability of performance.  Adjusting items are disclosed in note 3

²   Prior year restatement recognised in relation to the adoption of the IFRIC agenda decision on cloud configuration and customisation costs in April 2021. Further details can be found in note 9

³   Excluding leases. Further details of net debt can be found in note 8

Enquiries:

About Carr's Group plc:

Carr's is an international leader in manufacturing value added products and solutions, with market leading brands and robust market positions in Agriculture and Engineering, supplying customers in over 50 countries around the world.  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 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.

Its Engineering division designs and manufactures pressure vessels, manufactures precision components from specialist steel alloys, manufactures robotic manipulators, and provides engineering design, assembly, and installation services for the nuclear, defence and oil & gas industries.

CHAIRMAN'S REVIEW

Overview

Carr's Group plc made good progress in the year ended 28 August 2021, financially, operationally, and in development of the organisation. Each of our divisions performed well. The Group delivered results ahead of the Board's expectations.

In the year, we separated the reporting of our Agricultural businesses into Speciality Agriculture and Agricultural Supplies to enable greater visibility on the key drivers of growth and the performance of each business.

All colleagues have been impressively resilient and committed throughout the year, despite the COVID-19 pandemic. They have dealt constructively with customer project delays and travel restrictions in the Engineering businesses, and worked hard to keep stores, fuel depots and manufacturing plants operating in the Agricultural businesses, whilst complying with new practices to minimise health risks. Many went to extraordinary lengths in support of customers. On behalf of the Board, I thank all colleagues for their positive approach to dealing with a constantly changing situation, including working from home with all the issues this brings such as poor broadband or lack of space, often coping with home schooling and caring for family at the same time.

Financial performance

Revenue for the year increased by 5.5% to £417.3m (2020: £395.6m). Adjusted operating profit increased by 7.9% to £17.6m (2020: restated £16.3m), with Speciality Agriculture contributing £9.5m (2020: restated £7.6m), Agricultural Supplies contributing £6.7m (2020: £5.8m), and Engineering contributing £3.9m (2020: £3.8m).  Further details of the prior year restatement can be found in note 9.

Reported operating profit increased by 6.1% to £13.0m (2020: restated £12.3m).  Adjusted operating profits are before amortisation of acquired intangible assets totalling £1.2m, restructuring and closure costs of £0.2m, ERP system implementation costs of £1.9m, an impairment charge of £2.1m, and the effect of the deferred rate tax change in the share of the associate's results of £0.2m, offset by adjustments to contingent consideration totalling £1.0m, giving a net total adjusting items of £4.6m.

Adjusted profit before tax increased 11.1% to £16.6m (2020: restated £15.0m) and reported profit before tax increased 10.3% to £12.1m (2020: restated £10.9m). Basic earnings per share decreased 8.8% to 8.3p (2020: restated 9.1p) and adjusted earnings per share increased 10.0% to 13.2p (2020: restated 12.0p). Net debt at 28 August 2021, excluding leases, was £10.0m (2020: £18.9m), driven by improved cash flow from operating activities.

Dividend

The Board is proposing a final dividend of 2.65 pence per share which, together with the interim dividends of 1.175 pence per share declared in April 2021 and 1.175 pence per share declared in July 2021, makes a total dividend for the year of 5.0 pence per share, 5.3% up on the prior year (2020: 4.75p). The final dividend, if approved by shareholders, will be paid on 26 January 2022, to shareholders on the register at close of business on 17 December 2021, and the shares will go ex-dividend on 16 December 2021.

Board changes

Tim Davies concluded his appointment as CEO at the AGM in January 2021. Subsequently, he continued to provide support during a valuable handover period. On behalf of the Board, I thank Tim for his substantial contribution during seven years leading the Group.

In succession, Hugh Pelham joined as CEO, bringing experience in the engineering sector and in international markets. An initial review of the Group followed which confirmed the underlying strengths of its businesses and identified opportunities for growth, leading to the separate reporting of our Agriculture businesses.  

In October 2021, it was agreed that Hugh Pelham would leave the Company. The Board appreciates his contribution since January. On an interim basis, at the request of the Board, I have assumed the role of Executive Chairman, providing direction and strategic support to Neil Austin and the wider management team. The Board expects to appoint a new CEO during the current financial year, whereupon it is anticipated that I will revert to Non-Executive Chairman.

I would also like to thank Alistair Wannop for his service to the Group as a Non-Executive Director over the last 16 years.  Alistair has continued to make his valuable knowledge of the agricultural sector and experience with Carr's available to the Board during a period of transition in the last year. We wish him well for the future as he leaves the board at the AGM in January 2022.  In September 2021, we announced that Kristen Eshak Weldon will not be standing for re-election at the January 2022 AGM, due to changes in her full-time role.  The Board has initiated a process to identify and recruit a suitably qualified Non-Executive Director to join the Board in the early part of 2022.

Stakeholder engagement

During the year, each of the Non-Executive Directors visited different sites around the business and met with senior managers. During the summer of 2021, following the lifting of COVID-19 restrictions, I visited many depots, stores and manufacturing plants in the UK, meeting employees, customers, and strategic partners. I have also held discussions with a range of shareholders to ensure that the Board has a clear sense of stakeholder views. Our aim is that Directors will continue to visit locations individually to meet directly with our people, to complement feedback the Board receives from the Non-Executive Director responsible for employee engagement.   

Due to COVID-19 restrictions, our AGM in January 2021 was held with the Directors in attendance only. To help keep shareholders informed, we released a video statement after the AGM which included an update on business performance and responses to questions submitted prior to the meeting. We plan to return to an ordinary AGM in January 2022, giving all shareholders the opportunity to engage with the Board directly.

In the spring of 2021, we consulted widely on executive remuneration following our AGM in January. Whilst our remuneration report was approved by a majority at the AGM, there was a high level of votes against approval. The Chair of the Remuneration Committee conducted a thorough engagement process. Feedback received and our response has been published on our website. More detail on this will be covered in the Directors' Remuneration Report.

Environment, Social and Governance

The Board recognises the importance of Environmental, Social and Governance issues to all stakeholders and has begun the work needed to develop a comprehensive strategy at Group level. Whilst we have a strong foundation for governance and have made good progress in developing our social contribution, we are at the beginning of our environmental development as a Group. Several of our individual businesses have already made sound progress, which we will continue to build on. Sustainability will become integral to the Group's core values and is being integrated into our strategy and the way we conduct business.

We will outline how our approach is developing in the Responsible Business section of our Annual Report and Accounts 2021 and will build upon this in future reports.

We conducted an externally facilitated Board evaluation during the year. It was reassuring to hear that we are working well in line with the requirements of the Corporate Governance Code in general, with some areas for improvement. This will be covered in more detail in our Corporate Governance Report. I am committed to maintaining high standards of governance and to ensure that the Board is functioning as effectively as possible.

In April 2021 the Audit Committee commenced a competitive tender process relating to the appointment of the Group's external auditor for the 2021/22 financial year.  That process, which involved five firms and included incumbent auditor KPMG LLP, resulted in the Committee's recommendation that Grant Thornton UK LLP be appointed.  That recommendation has now been approved by the Board, which will propose the appointment of Grant Thornton UK LLP as the Group's external auditor at the Group's next Annual General Meeting to be held in January 2022.

Development of future strategy

The Group's strategy is being developed against a backdrop of uncertainty, including the impact of COVID-19, raw material and energy price inflation, labour shortages, and global supply chain disruption.

Factors such as a diminishing geopolitical enthusiasm for global trade, the generational shift being seen in labour market dynamics, and real concern over the environmental impact of business in general, particularly ruminant agriculture, all herald a point of change.

We will incorporate environmental and social issues into the Group's strategy to ensure that we sustain the value we deliver to stakeholders in the long term. The need to reduce the impact of livestock farming on the environment is clear, providing opportunities for the Group's Agriculture businesses.  Across Engineering, attractive opportunities in civil and defence sectors will become clearer as key decisions and commitments are confirmed by governments.

For our Agriculture and Engineering divisions, we are looking at the potential for growth alongside the skills and experience needed to manage them successfully.

Outlook

The Group is well-positioned in attractive markets for both Agriculture and Engineering, with good opportunities to grow in the UK and internationally. We continue to improve efficiency with investment in manufacturing processes and IT infrastructure.

Whilst all businesses face inflation headwinds in raw material supply chains, we see a positive outlook for the Group based upon the strength of livestock and milk prices across Agriculture and a growing order book in Engineering.

The Board remains confident in the Group's prospects across all divisions.

Peter Page

Chairman

Group Performance Review

OVERVIEW

The Group delivered improved results, ahead of the Board's expectations, despite a backdrop of COVID-19 and oil price volatility.  A substantial increase in profitability in the Speciality Agriculture and Agricultural Supplies divisions mitigated the impact of challenges seen in the early part of the year in our Engineering division due to low oil prices, travel restrictions and customer project delays.

Our health and safety performance improved with reductions in key indicators. This year we appointed a new Group HSE Director and engaged Marsh to undertake an external audit assessing safety standards and risks at a range of Group sites across all divisions and geographies. The audit identified that standards and reporting levels were good but recommended greater levels of consistency across the Group which will be a key objective in the year ahead.

Operational review

The Group is now managed in three operating divisions - Speciality Agriculture, Agricultural Supplies and Engineering - to give greater strategic and operational focus and to provide investors and other stakeholders with more insight to the financial performance of various parts of the Group.

The Speciality Agriculture division traded very well throughout the year, with strong livestock prices in the UK and the US underpinning demand. Feed block volumes were significantly ahead of the prior year, as were sales from the Animax product lines.  Adjusted operating profit was £9.5m, up 25.0% on the prior year (2020: restated £7.6m).

Agricultural Supplies had a strong year. Conclusion of the agreement for the terms of the UK's exit from the European Union in late 2020 gave the market confidence. All elements of the business performed well.  Adjusted operating profit was £6.7m, up 15.7% on the prior year (2020: £5.8m).

The Engineering division experienced some difficulties in the first quarter, with depressed oil prices reducing order intake in one part of the division, and lockdowns and international travel restrictions impacting the timing of on-site works and delivery on some contracts. Despite these challenges, adjusted operating profit was £3.9m, up marginally on the prior year (2020: £3.8m).

Central costs of £2.6m at adjusted operating profit level were £1.6m higher than the prior year.  This was due to a change in provision for a non-recoverable debt, increased costs for performance-based remuneration, and CEO handover costs.

SPECIALITY AGRICULTURE

Speciality Agriculture comprises our businesses which manufacture and supply feed blocks, mineral supplements and trace element boluses to a global customer base from sites in the UK, Europe and USA.

Overview

This year saw a very strong performance for the division across all geographies. Overall, sales of feed blocks (including JVs) increased 12.3% compared to the prior year. 

Sales of equine products, including Horslyx®, generated the highest revenue growth rates in the division, albeit from a smaller base. The equine market is becoming increasingly important for the Group, in all territories.

Animax performed well in the year, and ahead of the Board's expectations, driven by business development initiatives and cost efficiencies following two challenging years since its acquisition in 2018. 

Financial Performance

USA

Feed block volumes sold increased by 13.4% compared to the prior year.  The impact of drought on farm incomes was mitigated by the easing of COVID-19 restrictions which increased demand for beef and helped firm up livestock prices. The USA is a fragmented market, providing opportunities to increase market share in our core territories through the strength of our brands. We are developing opportunities in Canada for beef and equine products.

We continue to invest in product innovation; particularly to incorporate novel ingredients into our products and in the development of environmentally friendly packaging. The introduction of vacuum control technology in our manufacturing process has enhanced product consistency and we are investing in a new ERP system which will be going live in 2022.

UK and Ireland

Lamb and beef prices remained strong in the UK, driven by greater certainty over Brexit combined with an increase in eating at home during COVID-19 restrictions. These factors, combined with more typical winter weather patterns during the year, have contributed to a significant growth in volumes for all products.  Total sales volumes of feed blocks increased 10.8% versus the prior year.

At UK Dairy Day in September 2021, we launched a new range of Crystalyx® dairy feed block products. These are Crystalyx® products specifically formulated for dairy cattle, which deliver value to farmers by enhancing the performance of livestock from calf rearing through to milking.

The project to automate production at Animax is nearing completion and is expected to be fully operational in the current financial year. This will enhance product quality and production efficiency.

Europe

Our joint venture business in Germany, Crystalyx Products GmbH, performed in line with management expectations, with sales volumes growth of 6.0% versus the prior year. Following its launch into the poultry sector last year, Pick Block sales continue to grow, underpinned by an efficient and automated production process.

New Zealand

Sales volumes continued to grow in New Zealand, with a 12.4% increase seen compared to the prior year.  Increasing freight costs and travel restrictions presented challenges in the year, but the region remains an attractive market opportunity which will continue to be developed.

Outlook

Demand for our products is robust underpinned by good livestock prices in the UK and USA and stable milk prices in the UK, which continues to drive farmer confidence.

There remains substantial opportunity to expand sales in North America and Europe, a strategic priority for the Group.

AGRICULTURAL SUPPLIES

Our Agricultural Supplies division includes our Carr's Billington branded agricultural stores, machinery, fuel, and compound feed business together with our joint venture business, Bibby Agriculture.

Overview

It has been a successful year for the Agricultural Supplies division, with a 15.7% growth in adjusted operating profit, despite significant increases in commodity prices. Total feed volumes, machinery revenues, and retail sales were all ahead of the prior year. An ongoing programme of modernisation and simplifying the product range continues to help margin improvement.

Financial performance

Feed

Total feed volumes sold were 2.6% up on the prior year. Strong beef and lamb prices, resulting from an increase in home consumption of UK-sourced products, together with better milk prices, contributed to a favourable environment for our customers which helped in the recovery of higher raw material costs through increased pricing.

Machinery

An exceptionally good year for machinery sales delivered revenue growth of 8.3% against last year. We are now the leading seller of Massey Ferguson tractors in the UK following our focus on this brand, the strengthening of our sales team and enhanced after-sales service offering. The reach of our franchise was extended this year to include southern Scotland and we will be opening a new machinery depot and retail store in Stranraer in the current year. In 2021, a new machinery sales operation was opened at our retail premises at Skipton Auction Mart. This full-service combination of machinery, retail and fuels has increased activity at the stores.

Fuel

Overall volumes sold during the year were 5.6% down on the record performance seen in 2020.  The business, however, focused on margin management and delivered a strong overall performance.

Retail

Retail stores remained open throughout the year, even when auction markets were closed due to COVID-19 restrictions, utilising phone and collect/delivery services to support farmers safely. Overall sales increased 1.6% on the prior year with like-for-like sales also increasing by 6.3%.  A focus on cost has delivered a strong margin improvement, including the introduction of standardised pricing across all stores and the recruitment of a central buying team dedicated to controlling the costs across our supply chain. Following a review of store profitability, the retail estate was reduced by four outlets, with existing customers transferred to adjacent branches where possible.  This leaves us with 37 retail sites, including 8 machinery branches, which will increase further with the opening of Stranraer this year.

Outlook

Customers are at the centre of our business.  We remain committed to supporting UK farmers and always strive to provide the best levels of service.

To develop the business for the future, we continue to invest in IT, people and processes. We continue to embed our new ERP system, which went live on 1 September 2021, and we introduced a new CRM system to enhance our offering to new and existing customers.  Our future strategy includes the development of an e-commerce solution.

In addition to our new central buying team, we have recruited new sales managers in feed, fuels, machinery, and retail.  We also introduced a scheme to ensure that our management teams spend as much time as possible out with our customers.

Our focus on costs and margins means we are well placed for the year ahead and we will continue to strengthen our business building upon our unique combination of feed, machinery, fuel and retail stores.

ENGINEERING

Engineering comprises fabrication and precision engineering in the UK, robotics in the UK and Europe and engineering solutions in the UK and USA.

Overview

This was a positive year for our Engineering division, with profitability increasing 3.0% to £3.9m (2020: £3.8m) and confirmed orders at year end up by 15.9%. The key drivers of improved performance were in remote handling and robotics, offset by a much more difficult year in our precision engineering business due to the impact of COVID-19 and low oil and gas prices.

Financial performance

*Restated from the figure of £37m reported in the half-year results to exclude the value of intra-group contracts which more accurately reflects the position.

UK: Fabrication and precision engineering

Our precision engineering business was challenged by lower oil and gas prices which impacted order intake in the first half of the year.  Within fabrication, both revenue and profitability increased driven by a higher level of nuclear work.  Total combined revenues were down 10.8% to £15.8m (2020: £17.7m).     

Over £19m of new contracts were secured in the year, and our order book for specialist fabrication stood at £13.0m at the financial year end (2020: £2.5m). During the year, we formed the Cumbria Manufacturing Alliance in collaboration with the Shepley Group, which secured a significant nuclear decommissioning contract. That contract will utilise the £1.3m investment made in state-of-the-art capability at our Carlisle facility in 2020.

Although challenged this year, our precision engineering business recovered well in the second half, with £5.2m in new orders secured resulting in an order book of £3.3m at year end (2020: £2.1m). 

UK and USA: Engineering solutions

NW Total, our UK engineering solutions business acquired in 2019, made good progress on a major design and build defence contract, with completion expected in FY22.  On-site works supporting the UK government's submarine defence programme also progressed well. Several major contracts were secured in the year, including a £4.5m defence contract to upgrade testing facilities which will run over the next two years. The business enters FY22 with a strong order book of £6.8m (2020: £6.7m).

Our engineering solutions business in the USA, NuVision, also delivered a good performance. In the year, a $4m contract was secured to supply MSIP^® in Slovenia in late 2022.  We also entered into a five-year agreement with GeoRoc International, world-leading innovators in advanced materials and process engineers for the nuclear, aerospace and defence sectors, to jointly develop and commercialise Hot Isostatic Pressing (HIP) technology for radioactive waste treatment. HIP has been identified as a preferred solution for high profile global waste clean-up challenges and the project has attracted government funding in the UK and USA.

UK, USA and Europe: Remote handling and robotics

Our remote handling and robotics businesses performed well in the year despite travel restrictions and on-site works being impacted by COVID-19 in the first half.  Revenues in the year improved 10.0% to £16.3m (2020: £14.8m). The order book at year end was £10.4m (2020: £12.2m).

During the year we also invested in the development of a new product: the A150; a telescopic manipulator for smaller sized hot cells, which enhances our product range and strengthens our competitive position.

Outlook

Enquiry levels remain strong across civil nuclear markets globally, with decommissioning spend expected to increase, creating opportunity for our fabrication and robotics businesses into the long-term.  A much higher and stable oil price has increased order intake in our precision engineering business.

Prospects in UK defence remain strong going forward, and the UK government's programme to replace the current submarine fleet is expected to provide opportunities for the next two decades.

Our Engineering business in the USA is likely to see a lower level of activity in the current financial year, due to the phasing of outages at nuclear sites impacting the timing of MSIP® works. Long-term prospects remain strong, however, and the business is developing opportunities to trial HIP technology in the USA.

Across the division, order books grew in the year to £38.8m at the year end, 15.9% higher than the prior year (2020: £33.5m).  Since year end, order books have grown further to £44.6m at the end of October 2021.

I am grateful for the contributions of all employees who continued to meet the challenges of working in a pandemic environment during the year, and who have enabled the Group to deliver a strong set of results.

Trading in the current financial year has started positively.  We look forward to updating shareholders further at the AGM in January 2022.

Peter Page

Chairman

CONSOLIDATED INCOME STATEMENT

for the year ended 28 August 2021