(CRM) Carr's Milling Inds

Carr's Milling Industries PLC

Press Announcement

CARR'S MILLING INDUSTRIES PLC ("Carr's") - FULL YEAR RESULTS

"…well positioned for sustained profitable growth…"

Carr's (CRM.L), the fully-listed agriculture, food and engineering group, announces results for the 53 weeks ended 3 September 2011.

Financial highlights (continuing operations)

·     Revenue up 25.2% to £373.3m (2010: £298.1m)

·     Profit before taxation up 34.8% to £10.0m (2010: £7.4m)

·     EBITDA up 23.7% to £13.6m (2010: £11.0m)

·     Fully diluted EPS up 47.0% to 76.3p (2010: 51.9p)

·     Declared final dividend of 13.0p up 8.3% with a total for the year of 26.0p (2010: 24.0p)

·     Balance sheet transformed following £22.1m disposal of Carrs Fertilisers which significantly reduced volatility and seasonal working capital requirements

·     Investment of £5.0m in core activities with further projects planned for the next 2 years

Commercial highlights

·     Agriculture revenue up 26.7% with profit before tax (including contribution from associate and JVs) up 16.9%.  Performance reflects a favourable trading environment overall, successful entry of animal feedblock business into new markets, impact of acquisitions, and strong organic growth from oil distribution.

·     Food revenue was up 23.1%, but the pressure on margins caused by excess capacity in the flour milling industry and higher wheat costs, resulted in profit before tax down 16.6%.  £0.8m investment in re-opened port at Kirkcaldy will benefit the current year.

·     Engineering revenue up 13.8%, following fall in H1, and profit before tax up 68.7% reflects growing order book.  Strong demand in the nuclear market has led to the decision to invest €4m in a new Wälischmiller factory at Markdorf.

Richard Inglewood, Chairman, said:

"In addition to the capital projects in progress, the Board is continuing to explore acquisitions and other investment opportunities and, with the Group's strong balance sheet and cash position, we believe that Carr's is well positioned for sustained profitable growth."

Chris Holmes, Chief Executive Officer, said:

"Our core businesses are well placed to deliver sustainable, profitable growth over the next few years.  Our strategy is to expand in the UK and internationally, both organically and through selected acquisitions, in growing niche markets, which build on our core strengths."

Enquiries:

Chairman's Statement

Carr's delivered a strong trading performance for the 53 weeks ended 3 September 2011.  Overall, agricultural prices were favourable and our continued focus on service, particularly in the UK during the severe winter months, significantly benefited the results for the year.  Strong demand from the nuclear industry and the completion of significant projects during the second half of the period resulted in a very satisfactory contribution from the engineering business whose order book continues to grow and is now quoting for deliveries in 2014 and beyond.  The food business remains focused on cost control to mitigate the negative impact on sales growth and margins from the continued excess capacity in the flour milling industry.

In July 2011, we completed the disposal of Carrs Fertilisers to Origin Enterprises plc for a cash consideration of £19.0 million before expenses.  In addition, and in accordance with the agreement, Origin discharged the net debt in Carrs Fertilisers which was £3.9 million.  The disposal will reduce the Group's exposure to fluctuating commodity prices, should reduce the volatility of the Group's operating profit and significantly reduce levels of seasonal working capital.  We have always recognised the cyclical nature of the fertiliser business and are therefore particularly pleased to have been able to dispose of it at a significant book profit.

The continuing agriculture and engineering businesses are well placed to deliver sustainable, profitable growth over the next few years.  Our strategy is to expand in the UK and internationally, both organically and through selected acquisitions in growing niche markets, which build on our core strengths. 

In the period, we invested a total of £5.0 million in our core activities and have earmarked projects for investment over the next two years.  Major investment projects completed and proposed include:

·   £0.8 million for a grain handling and storage facility at Kirkcaldy

·     £1.0 million for an AminoMax feed plant in Watertown, New York State, scheduled to commence production in November 2011

·     £2.5 million acquisition of agricultural related businesses

·     £0.9 million for fuel oils depots at Hexham (opened in August 2011) and Cockermouth (scheduled to open spring 2012)

·     £3.5 million to replace Wälischmiller Engineering factory scheduled for completion in 2013

·     £0.6 million for a feedblock plant in Shelbyville, Tennessee, scheduled to commence production in November 2011

·     £0.6m for new robotic packaging facility at Silloth

Of the above £9.9 million investment programme, £5.0 million was incurred in the period to 3 September 2011 and £4.0 million is expected to be incurred in the current financial year.

In addition, we are expanding our animal feedblock business in Europe and New Zealand.  We also believe that Wälischmiller Engineering has an opportunity to build a leading position in nuclear manipulator markets worldwide.  

Dividend

The Board is proposing an 8.3 per cent increase in the final dividend to 13.0 pence per ordinary share which, together with the two interim dividends of 6.5 pence per share each, paid in May and October 2011, makes a total of 26.0 pence per share for the year (2010: 24.0 pence per share).  The final dividend, if approved by shareholders, will be paid on 20 January 2012 to shareholders on the register at the close of business on 23 December 2011 and the shares will go ex-dividend on 21 December 2011.  

Financial Review

Revenue for the period for continuing operations increased by 25.2 per cent to £373.3 million (2010: £298.1 million).  Profit before taxation, excluding a £16.6 million profit from discontinued operations, was up 34.8 per cent to £10.0 million (2010: £7.4 million).  The growth achieved by our core businesses, in a relatively stable business environment, is a result of the investment made by the Group in selected niche markets both in the UK and overseas.

Excluding discontinued operations, basic earnings per share for the year were up by 48.4 per cent to 77.0 pence (2010:  51.9 pence) with fully diluted earnings per share of 76.3 pence (2010:  51.9 pence) and adjusted earnings per share of 88.4 pence (2010: 53.5 pence).

The net cash generated from operating activities in continuing operations was £11.4 million (2010: £8.3 million).  At the end of the year, the Group had net cash of £4.6 million compared to net debt of £15.5 million at 28 August 2010.  This reflected the disposal of Carrs Fertiliser for a net cash consideration of £22.1 million including the discharge of net debt.  It also reflected total investment and capital expenditure during the year of £5.0 million, a reduction in working capital of £4.0 million, and an additional £2.0 million paid to the pension scheme. 

As a result of a strong balance sheet, which is underpinned by a strong cash generation performance, the Group is well placed to fund its investment activities, including potential acquisitions in the UK and overseas.

Business Review

Agriculture

Revenue for the year grew by 26.7 per cent to £272.7 million (2010: £215.2 million) with profit before tax and non-recurring items increasing by 12.1 per cent to £7.0 million (2010: £6.2 million). 

Profit before tax, including contribution from associate and joint ventures, increased by 16.9 per cent to £8.2 million (2010: £7.0 million).

Overall, farmgate prices during 2010/11 were favourable and UK milk prices, whilst remaining low during the year, have recently started to increase to more economically viable levels.  UK feedblock sales benefited from the severe winter, although sales in the US were lower than expected in the first half before recovering well in the second half.

Caltech, the animal feedblock business, has continued to perform well with growing demand in existing markets and the successful entry into new markets being reflected in a significant increase in sales and profit. 

In the UK, the integration of Scotmin Nutrition, the feed supplements business acquired in June 2010, was completed to plan.  This included a reorganisation and investment programme to reduce costs, improve production efficiency and support the future growth of the enlarged business.  During the second half, strong demand for Crystalyx in New Zealand was reflected in a substantial increase in exports.  The early success, in France and elsewhere in Europe, of our joint venture with Crystalyx Products in Germany has continued, resulting in increased sales and profit for the year.

The US animal feedblock business performed strongly in the second half following a disappointing first half when heavy snow prevented delivery in key areas.  For the year overall, revenue increased and, whilst profit fell as the result of lower margins in the first half, current demand is encouraging.

The new AminoMax plant in Watertown, New York State, will start production in November 2011.  This is later than originally anticipated because of an unexpected delay in the delivery of certain equipment, which has now been installed.  In the meantime, demand in the US for AminoMax, the patented rumen bypass protein which improves the yield and profitability of dairy herds, has been encouraging and the new plant is expected to make a positive contribution for the current year. 

In the UK the Group gained market share of compound and blended animal feeds against a background of rising and volatile wheat prices, which peaked 70.0 per cent higher than in 2009/10, for much of the year.  The impact of forward buying a portion of our raw materials requirement, combined with efficiencies, extra volume and better margins, meant we were able to record a higher level of profitability.  Bibby Agriculture, our joint venture, which sells animal feeds mainly in Wales, had a good year with volume and profit growing strongly.

Retail sales at Carrs Billington grew, reflecting a full year's contribution from Forsyths of Wooler, acquired in September 2010, and market share gains from the enhanced range of products, from animal health products to silage wraps, sold through the enlarged network of 20 branches.  In April 2011, the Group acquired Safe at Work, the specialist supplier of protective clothing to the forestry and agricultural markets, which has been successfully integrated and made a positive contribution in the period.  Overall margins increased as a result of improved terms agreed with suppliers and other benefits of scale.

Farm machinery sales increased by 18.0 per cent on last year with profitability being maintained.  The sales of Massey Ferguson tractors and the enlarged machinery range, including the Kuhn franchise established in September 2010, continue to be encouraging.

Fuel oils increased sales by 37.0 per cent on the prior year, reflecting the expansion of the customer base, the steep rise in the oil price, the impact of the depot opened at Lancaster in September 2010 and strong organic growth.  Total sales volume was up approximately 15.4 per cent on last year with margins improving.  As a result of our strong focus on customer service and competitive pricing, particularly during the winter months, we increased our market share by gaining and retaining new customers.  A new depot at Hexham was opened in August 2011 and we are planning further investment in this sector, including a depot at Cockermouth scheduled to open in the spring of 2012.

Carrs Fertilisers (sold in July 2011)

For the period to disposal, revenue from the fertiliser blending business was £78.4 million on which profit before tax was £3.1 million.

As a result of the disposal, the Group is no longer subject to the extreme price and working capital volatility associated with the fertiliser business over recent years.  As part of the transaction we secured a supply agreement to supply fertiliser to our Carrs Billington customers over an initial period of five years.

Food

Revenue for the year from our three flour mills, Kirkcaldy Fife, Silloth Cumbria and Maldon Essex was up by 23.1 per cent to £82.6 million (2010: £67.1 million) with profit before tax falling by 16.6 per cent to £1.3 million (2010: £1.5 million).

Over-capacity in the UK milling industry continues to be an issue and this, combined with ongoing price volatility in the wheat market, resulted in a challenging environment for our food business.  The significant increase in revenue primarily reflects higher wheat prices year on year which, as a result of not being able to pass on these increases in full, resulted in lower margins.

We continue to reduce costs.  Labour and energy represent our highest costs after raw materials and we made significant savings in both areas.

Working closely with Forth Ports we re-opened the port of Kirkcaldy to grain ships.  We invested £0.8m net of a freight facility grant from Transport Directorate of Scotland.  The benefits of this project are three-fold, a financial benefit for our Kirkcaldy Mill, the benefit of consistently available quality wheat, and an environmental benefit of removing 250,000 truck miles and 4,000 lorry journeys off the road.

Engineering

As anticipated, a strong performance in the second half of the period and growing order book resulted in profit before tax for the year increasing by 68.7 per cent to £1.7 million (2010: £1.0 million) on revenue up by 13.8 per cent to £18.0 million (2010: £15.8 million) following a fall in the first half.  The profit before tax after adding back £203,000 for impairment of assets was £1.9 million, an increase of 89.4 per cent over last year.

Wälischmiller Engineering, the remote handling technology and robotics business, has experienced very strong demand, particularly in France, Germany, Japan, Korea and Russia.  The strong level of demand is reflected in the order book which had grown to £38.0 million at 31 October 2011 (2010: £17.0 million) and Wälischmiller is now quoting for deliveries in 2014 and beyond.  In Wälischmiller's core nuclear market, projects in China, Japan and Germany, with a total value of €4.5 million, were completed during the second half as planned, including the first of eight TELBOTS® specialist robots.   In July 2011, Wälischmiller won a €6.5 million contract for a nuclear decommissioning project in Russia on which design work has now commenced and which is due for completion in early 2013.  Outside the nuclear market, wins include a contract with LBO in Norway, a main contractor to Shell, for the design and supply of a TELBOT® system for cleaning tanks.

In support of future growth, we are investing approximately €4.0 million (£3.5 million) in a new factory at Markdorf, South West Germany, scheduled for completion in 2013 and which will largely replace the existing facility.

Bendalls Engineering, the specialist steel fabrication business, made substantial progress in the project to supply a major vessel for the Evaporator D project at Sellafield, which is the UK's largest nuclear project, with delivery expected in early 2012.  Financial performance for the year also benefited from the project to supply pressure vessels to Bechtel in the US for the nuclear decommissioning plant at Hanford, Washington State.

At Carrs MSM, the Swindon-based supplier of remote handling equipment to the UK nuclear industry, demand increased in the second half of the period following the completion by its major customer of a major reorganisation and operations review.

Outlook

We anticipate that future financial performance will benefit from the investments we have made, in the UK and overseas, to expand in new and existing growth markets and to improve operational efficiency.

We also believe that the growth potential of the Group's core businesses will significantly mitigate the dilutive impact of the disposal of Carrs Fertilisers on earnings in the short term.

The current year has started well, benefiting from increased sales of low moisture feed blocks in the UK, USA, Europe and New Zealand.

We expect further growth in the US from the opening of two new plants in Watertown, New York State (producing AminoMax)and Shelbyville, Tennessee (producing high moisture feedblocks).

Group financial performance will also benefit from the restructured and recently launched new brands in our Scotmin business, a full year's trading of Safe at Work, utilisation of the new port facility at Kirkcaldy and the strong order book in Engineering.

In addition to the capital projects in progress, the Board is continuing to explore acquisitions and other investment opportunities and, with the Group's strong balance sheet and cash position, we believe that Carr's is well positioned for sustained profitable growth.

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the period ended 3 September 2011

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the period ended 3 September 2011

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 3 September 2011

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 3 September 2011 (continued)

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period ended 3 September 2011