Disposal decision pays off as Carr’s delivers “strong performance in transformational year”
Carr’s Group has reported higher profit margins and a balance sheet improvement as a result of its disposal of its share in its joint venture with agricultural feed business Edward Billington and Son.
Former chairman Peter Page, who has taken over as chief executive of the group, said the business is now focused on “higher-margin, differentiated, international Speciality Agriculture and Engineering businesses with strong growth prospects.”
The company has also given the markets reassurances that there will be no repeat of the audit issues around the Billington joint venture, which led to shares being suspended from trading in January this year.
For the financial year ended 3 September 2022 (“FY22”) the group enjoyed 8.0% growth in adjusted profit before tax compared to the prior year, from a 3.3% revenue increase.
While results were hit by supply chain delays, raw material cost increases and energy price rises, the effects of the Covid pandemic receded and global business activity started to return to higher levels.
Revenue for the year from continuing operations increased to £124.2m (2021 restated: £120.3m).
Adjusted operating profit from continuing operations increased to £11.9m (2021 restated: £11.1m), with Speciality Agriculture contributing £9.2m (2021: £9.5m), and Engineering contributing £5.4m (2021 restated: £3.9m). Reported operating profit was in line with last year at £8.2m (2021 restated: £8.2m).
Adjusted profit before tax from continuing operations increased to £11.2m (2021 restated: £10.4m) whilst reported profit before tax increased 0.4% to £7.6m (2021 restated: £7.5m).
The Engineering division reported a strong recovery in adjusted operating profit during the year, up 38.2% to £5.4m, as a result of closer control of projects and improving utilisation as the interruptions of COVID-19 receded (2021 restated: £3.9m). Adjusted operating margins rose to 11.6% (2021 restated: 7.5%) on lower revenues of £46.2m (2021 restated: £51.9m). Several important projects were awarded in the nuclear industry, reflecting the specialist expertise of the companies in the Engineering division, with the order book closing the year at £40.6m, 2.4% ahead of the prior year (2021 restated: £39.7m).
An “extraordinary” increase in raw material costs also allowed the business to grow top line revenue by 21.0% and to pass on the increase to customers. Adjusted operating profit for the feed division grew 6.8% to £6.9m, albeit with a substantial increase in working capital.
The decision to focus on high margin, differentiated, international businesses, and the disposal of the lower margin UK-only division, are the first steps in an ongoing process of strategic change, Page said.
The receipt of sale proceeds puts the balance sheet in a strong net cash position and the board will both invest for growth in pursuit of long-term value and provide returns to shareholders.
The disposal yielded £43m paid in cash, with a further £1.5m contingent on performance.
In November 2022 a delay was announced to the completion of the year-end which led to a temporary suspension of trading in Carr’s shares, and delayed release of the Annual Report, audited results and payment of the final dividend.
Whilst the delay primarily related to the Billington joint venture, the company has said it will “carefully review the audit process to seek opportunities for the timely completion of the current financial year”.