Carr : Interim Report 2022/2023

2 May 2023

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

INTERIM RESULTS

For the 26 weeks ended 4 March 2023

Carr's (CARR.L), the Speciality Agriculture and Engineering Group, announces its Interim Results for the 26 weeks ended 4 March 2023.

Financial highlights
		Adjusted1
	Adjusted1	H1 2022
	H1 2023	(restated)2,3	+/-
Revenue (£m)	79.8	64.5	+23.6%
Adjusted1 operating profit (£m)	5.8	7.5	-23.4%
Adjusted1 profit before tax (£m)	5.5	7.2	-23.3%
Adjusted1 EPS (p)	4.9	6.1	-19.7%
Net (cash)/debt4 (£m)	(8.6)	29.9
		Statutory
	Statutory	H1 2022
	H1 2023	(restated)2,3	+/-
Revenue (£m)	79.8	64.5	+23.6%
Operating profit (£m)	5.1	8.0	-35.8%
Profit before tax (£m)	4.9	7.7	-36.2%
Basic EPS (p)	4.4	6.8	-35.3%
Interim dividend (p)	1.175	1.175

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 8.
2. Prior period restated to provide comparable information for continuing and discontinued operations following the classification of the Carr's Billington
   Agricultural business as a disposal group. Further details of results from discontinued operations and net assets relating to the disposal group can be found in note 9.
3. See note 19 for an explanation of the prior period restatements recognised in relation to the recognition of revenue from customer contracts within the Engineering division.
4. Excluding leases. Further details of net (cash)/debt can be found in note 13.

Highlights

• Revenue increased 24% on prior year, reflecting raw material cost recovery in Speciality Agriculture division
• H1 profits impacted by volumes in Speciality Agriculture and contract timing in Engineering
• Record Engineering order book of £57 million at 28 April, up by 30% from start of the period
• Phasing in engineering work will be favourable in H2, with strong profit generation in the division expected
• Net cash position following receipt of £24 million on completion of disposal of Agricultural Supplies division

Outlook

The outlook for Engineering in the second half of FY2023 is positive. The division has several key contracts coming through in fabrication and robotics, allied to an improved position for the precision engineering business buoyed by activity in oil and gas. These factors will offset the low summer season for Speciality Agriculture which also continues to manage historically high input costs. Acknowledging the challenges ahead, the Board anticipates full year adjusted profit before tax of c.£10m and remains confident in the prospects of both divisions in the medium term.

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Peter Page, Chief Executive Officer, commented:

"A strong order book in robotics, fabrication and precision engineering, alongside completion of a long-running defence contract in H1, provides the prospect of a considerable step up in profits from the Engineering division for H2. This will offset the quieter summer months for the Speciality Agriculture division, which is managing a period of unprecedented input costs. The outlook for 2024 and 2025 is encouraging in both divisions."

Enquiries:
Carr's Group plc	Tel: [phone]
Peter Page (Chief Executive Officer)
David White (Chief Financial Officer)
FTI Consulting	Tel: [phone]
Richard Mountain/Ariadna Peretz
Investec Bank plc	Tel: [phone]
Carlton Nelson/David Anderson/William
Brinkley

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 around the world. Carr's operates a business model that empowers operating subsidiaries enabling them to be competitive, agile, and effective in their individual markets whilst setting overall standards and goals.

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

The Engineering division manufactures vessels, precision components and remote handling systems, and provides specialist engineering services, for the nuclear, defence and oil & gas industries.

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Interim Management Report

Results (continuing operations only)

During the 26 weeks ended 4 March 2023 revenues increased 24% to £79.8m (H1 2022 restated: £64.5m) reflecting the pass through of unprecedented cost increases in the Speciality Agriculture division. Adjusted operating profit for the Group of £5.8m (H1 2022 restated: £7.5m) was 23% down on the prior year period. Adjusted profit before tax reduced by 23% to £5.5m (H1 2022 restated: £7.2m). Adjusted earnings per share for continuing operations decreased by 20% to 4.9p (H1 2022 restated: 6.1p) for the six month period.

Operational review

Speciality Agriculture

The Speciality Agriculture division manufactures livestock supplements including branded feed blocks, essential minerals, and precision dose trace element boluses, sold to farmers in the UK, Europe, North America, and New Zealand through a long-established distribution network.

	H1 2023	H1 2022	% Change
Revenue	£57.1m	£42.7m	34%
Adjusted operating profit	£6.0m	£6.5m	(9%)
Adjusted operating margin	10.4%	15.3%

The increase in revenue in the period follows an increase of 35% in average feed block selling prices to pass through substantial raw material cost increases, impacting total volumes by 13% (excluding joint ventures) compared to prior year.

In the UK, costs of the principal ingredient of feed blocks, sugar cane molasses, have increased by 70% over the past three years, which, with increases in other ingredients along with energy and labour, has necessitated a 45% increase in selling prices over the past two years. When combined with 45% increases in other feed costs, a 180% uplift in fertiliser prices and 60% on diesel, livestock customers have inevitably limited expenditure, particularly impacting UK sales volumes during a mild autumn and winter that supported continued grazing for longer than usual. Feed block volumes in the UK were down by a quarter on the first half of FY2022, a situation that was consistent across the majority of distributors.

In the USA, molasses costs have increased 50% since 2019, and non-molasses ingredient costs are up by 65%, resulting in a 47% year on year increase in the selling price for feed blocks. At the same time, the USA has been severely impacted by three years of drought, with the US Department of Agriculture Drought Mitigation Center reporting 41% of the national cattle herd being in areas experiencing drought. In key market areas for feed blocks, ranch-based cow calf herd headcount has reduced by up to 40%, in part reflecting the drought impact, but also occurring as the US beef industry reaches the low point of a 10-year production cycle. As a result of all these factors, volumes sold (excluding joint ventures) were 10% down on last year, limiting scope to recover fixed costs in the business.

At the UK animal health business acquired in 2018, revenues were down 11% compared to the prior year, principally related to lower sheep bolus volumes in one market where favourable weather and general market conditions limited demand.

Management maintains a positive longer-term outlook for the Speciality Agriculture division from FY2024 onwards, whilst recognising that H2 for the current year will remain challenging. In the UK and Ireland, farm input prices, particularly for feed and fertiliser, are coming down, easing the pressure on customer spending budgets. At the same time, farmgate prices for dairy, beef and lamb are strong, particularly when compared to 10-year historic averages, such that investment in the quality of inputs will be repaid by the marginal gain in revenue-related traits of daily liveweight gain and milk yield. In the USA, the area affected by drought is markedly reduced from 12 months previously, whilst the cyclical outlook specifically for beef will improve as herds rebuild over the next five years.

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Management action at the UK animal health business and at the US speciality protein business lays the foundations for improved profitability. Each of the Speciality Agriculture businesses is founded on respected brands with a track record of quality, innovation and service, that will support sales as markets recover from recent extraordinary conditions.

Engineering

The Engineering division comprises specialist fabrication and precision engineering businesses in the UK, robotics businesses in the UK, Europe and USA, and engineering solutions businesses in the UK and USA.

	H1 2023	H1 2022 (restated)	% Change
Revenue	£22.6m	£21.8m	4%
Adjusted operating profit	£1.1m	£2.0m	(44%)
Adjusted operating margin	4.9%	9.2%

Performance in the division was below the prior year in H1 due to phasing of contracts and completion of a long- running defence contract that has impacted margins.

The order book has strengthened during the first half, with £41.3m recorded at the period end, ahead of the year end position of £40.6m. Significant contract wins since the end of February 2023 leave the order book standing at £57m at the end of April. This improved position will support performance during the second half of the year and into FY2024.

Fabrication and precision engineering revenues were up 27% in the period, supported by continued high activity levels in the nuclear sector and strong order intake from the oil and gas sector.

Revenues in the robotics business were down on last year, a reflection of temporary lower order receipts in this business during prior year, FY2022. With a significant uplift in order intake year to date, this part of the division's order book now stands at record levels, including a £1.5m contract in the emerging nuclear medicine sector and a prestigious £10m contract for the UK's National Nuclear Laboratory, the largest single contract signed by Wälischmiller.

Management is confident in the outlook for the Engineering division beyond the current financial year, with confirmed high value contracts continuing into FY2024 and FY2025, a well-balanced spread of current orders across all the business units in the division, and a stronger market for precision engineering. The pipeline of opportunities and prospects beyond confirmed orders is very encouraging. The division is increasingly focused on the specific opportunities that match its market leading skills, technical strengths and high-quality manufacturing assets.

Disposal of Agricultural Supplies

The sale of the Agricultural Supplies division was completed on 26 October 2022, with receipt of £24.7 million in cash. Trading continued in the division until the completion date, during which period trading profit after tax was £0.8m.

The Agricultural Supplies division was treated as a discontinued operation in the accounts for the year ended 3 September 2022, with trading disclosed separately and the net assets of that business categorised as held for resale. An assessment of the fair value of the net assets was undertaken at the year end, resulting in a loss on measurement to fair value less costs to sell of £6.2m. Subsequent to the year end, during the process to complete the accounting treatment of the disposal, an adjustment related to the book cost of assets sold was identified, increasing the loss on disposal by £2.7m. Of this, £1.3m is attributable to the Group with the remainder allocated to the non-controlling interest's share of the loss on disposal. There is no impact on the cash proceeds received to date nor on future consideration receivable as a result of this.

The results and financial position of the Group's discontinued operations for the year ended 3 September 2022 have been restated to reflect the impact of this adjustment and full details are provided in note 9.

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The process to close the completion accounts for the sale is underway and will be finished during the current financial year. Unconditional deferred consideration of £4m is due for payment in October 2023, in line with the sale agreement, leading to full receipt of the anticipated net proceeds of £29m, excluding any benefits from potential property related transactions over the next 2-3 years.

Financial review (Continuing Operations)

Adjusted results

Revenue increased by 24% to £79.8m (H1 2022 restated: £64.5m), with year on year increases of 34% in Speciality Agriculture and 4% in Engineering.

Adjusted operating profit fell 23.4% to £5.8m (H1 2022 restated: £7.5m). Both divisions were below last year with Engineering down 44% and Speciality Agriculture below 2022 by 9%.

Central costs were 32% higher at £1.3m (H1 2022: £1.0m) driven by the impact of inflationary pay increases and the costs of early settlement of borrowings, with the benefit of the latter expected in reduced financing costs in the balance of the financial year.

Net finance costs of £0.2m (H1 2022: £0.3m) were slightly lower than the prior period. Higher interest rates were offset by lower borrowings across the period after existing facilities were reduced using consideration received from the sale of the Carr's Billington business.

The Group's adjusted profit before tax decreased by 23% to £5.5m (H1 2022 restated: £7.2m). Adjusted earnings

per share decreased by 19.7% to 4.9p (H1 2022: restated 6.1p).

Adjusting items

The Group provides the adjusted profit measures referred to above to present additional useful information on business performance consistent with how business performance is measured internally. These measures show underlying profits before certain adjusting items. Adjusting items related to continuing operations during the period were a net charge before tax of £0.6m (H1 2022: credit of £0.5m), with full details included in note 8.

Statutory results

Reported operating profit on a statutory basis was £5.1m (H1 2022 restated: £8.0m) and reported profit before tax

was £4.9m (H1 2022 restated: £7.7m). Basic earnings per share on a statutory basis was 4.4p (H1 2022: restated 6.8p).

Balance sheet and cash flow

Net cash generated from operating activities in the first half was £0.6m (H1 2022: cash consumed of £15.2m). Cash generated from continuing operations in the period of £3.6m was ahead of the same period last year (cash generated of £1.0m), while discontinued operations consumed cash of £3.0m (H1 2022: cash consumed of £16.1m).

Excluding leases, the Group moved from net debt of £14.0m at the financial year end to a net cash position of £8.6m at 4 March 2023. This change has been driven by proceeds received (net of professional fees paid and cash disposed) of £24.3m related to the sale of the Carr's Billington Agriculture business, which has supported a reduction in borrowings during the period of £19.4m. The working capital outflow in the period was £1.6m (H1 2022: £5.6m) driven by a reduction in inventory levels since year end, offset by an increase in accounts receivable, due in part to the continued high selling prices in Speciality Agriculture.

The Group's defined benefit pension scheme remains in surplus, with a balance of £5.9m compared to £6.8m at 3 September 2022. The process towards a potential full buy-out of the scheme is progressing.

Shareholders' equity at 4 March 2023 was £120.3m (3 September 2022 restated: £119.2m).

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