REG - Carr's Group PLC - Full Year Results
07/12/2021 07:00
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RNS Number : 7447U Carr's Group PLC 07 December 2021
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
Adjusted(1) FY21 FY20 +/-
(restated)(2)
Revenue (£m) 417.3 395.6 +5.5%
Adjusted(1) operating profit (£m) 17.6 16.3 +7.9%
Adjusted(1) profit before tax (£m) 16.6 15.0 +11.1%
Adjusted(1) EPS (p) 13.2 12.0 +10.0%
Statutory FY21 FY20 +/-
(restated)(2)
Revenue (£m) 417.3 395.6 +5.5%
Operating profit (£m) 13.0 12.3 +6.1%
Profit before tax (£m) 12.1 10.9 +10.3%
Basic EPS (p) 8.3 9.1 -8.8%
Dividend (p per share) 5.00 4.75 +5.3%
Net debt(3) (£m) 10.0 18.9 -47.2%
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:
Carr's Group plc Tel: +44 (0) 1228 554 600
Peter Page (Chairman)
Neil Austin (Chief Financial Officer)
Powerscourt Tel: +44 (0) 20 7250 1446
Nick Dibden / Nick Hayns / Sam Austrums
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
FY20
FY21 (restated) Change
£m £m %
Revenue 68.5 61.9 +10.6
Adjusted operating profit 9.5 7.6 +25.0
Operating margin 13.9% 12.3% +1.6
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
FY21 FY20 Change %
£m £m
Revenue 297.5 280.7 +6.0
Adjusted operating profit 6.7 5.8 +15.7
Operating margin 2.3% 2.1% +0.2
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
FY21 FY20 Change
£m £m %
Revenue 51.3 53.0 -3.2
Adjusted operating profit 3.9 3.8 +3.0
Order book 38.8 33.5* +15.9
*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
2020
Note 2021 (restated)(2)
£'000 £'000
Continuing operations
Revenue 2 417,254 395,630
Cost of sales (365,174) (343,381)
Gross profit 52,080 52,249
Distribution costs (18,434) (19,507)
Administrative expenses (20,784) (22,901)
Adjusted(1) share of post-tax results of associate 1,525 1,191
Adjusting items 3 (694) (202)
Share of post-tax results of associate 831 989
Share of post-tax results of joint ventures 1,421 1,442
Impairment of joint venture (adjusting item) 3 (2,090) -
Adjusted(1) operating profit 17,585 16,293
Adjusting items 3 (4,561) (4,021)
Operating profit 2 13,024 12,272
Finance income 260 313
Finance costs (1,232) (1,656)
Adjusted(1) profit before taxation 16,613 14,950
Adjusting items 3 (4,561) (4,021)
Profit before taxation 2 12,052 10,929
Taxation 4 (2,400) (1,316)
Adjusted(1) profit for the year 14,675 12,727
Adjusting items 3 (5,023) (3,114)
Profit for the year 9,652 9,613
Profit attributable to:
Equity shareholders 7,712 8,422
Non-controlling interests 1,940 1,191
9,652 9,613
Earnings per ordinary share (pence)
Basic 5 8.3 9.1
Diluted 8.1 9.0
Adjusted(1) 5 13.2 12.0
( )( )
(1)Adjusted results are consistent with how business performance is measured
internally and is presented to aid comparability of performance. Adjusting
items are disclosed in note 3. Adjustments made to calculate adjusted earnings
per share can be found in note 5. An alternative performance measures glossary
can be found in note 10.
(2)See note 9 for an explanation of the prior year restatement recognised in
relation to the adoption of the IFRIC agenda decision on cloud configuration
and customisation costs.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 28 August 2021
2020
2021 (restated)(1)
£'000 £'000
Profit for the year 9,652 9,613
Other comprehensive (expense)/income
Items that may be reclassified subsequently to profit or loss:
- Foreign exchange translation losses arising on translation
of overseas subsidiaries (1,781) (2,552)
- Net investment hedges 165 (54)
- Taxation (charge)/credit on net investment hedges (31) 10
Items that will not be reclassified subsequently to profit or loss:
- Actuarial gains on retirement benefit asset:
- Group 1,205 142
- Share of associate 578 408
- Taxation charge actuarial gains on retirement benefit asset:
- Group (301) (27)
- Share of associate (144) (96)
Other comprehensive expense for the year, net of tax (309) (2,169)
Total comprehensive income for the year 9,343 7,444
Total comprehensive income attributable to:
Equity shareholders 7,403 6,253
Non-controlling interests 1,940 1,191
9,343 7,444
(1)See note 9 for an explanation of the prior year restatement recognised in
relation to the adoption of the IFRIC agenda decision on cloud configuration
and customisation costs.
CONSOLIDATED BALANCE SHEET
as at 28 August 2021
2020 2019
2021 (restated)(1) (restated)(1)
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 31,560 32,041 32,877
Other intangible assets 5,151 6,365 7,878
Property, plant and equipment 36,198 38,259 37,325
Right-of-use assets 16,777 14,856 16,086
Investment property 152 158 164
Investment in associate 14,268 14,042 13,329
Interest in joint ventures 9,482 10,551 9,671
Other investments 72 73 76
Contract assets 312 - -
Financial assets
- Non-current receivables 20 20 22
Retirement benefit asset 9,371 8,037 7,769
Deferred tax asset - - 410
123,363 124,402 125,607
Current assets
Inventories 43,226 40,961 46,270
Contract assets 7,202 8,114 9,466
Trade and other receivables 61,735 51,686 55,573
Current tax assets 2,669 2,068 -
Financial assets
- Derivative financial instruments - 3 -
- Cash and cash equivalents 24,309 17,571 28,649
139,141 120,403 139,958
Total assets 262,504 244,805 265,565
Liabilities
Current liabilities
Financial liabilities
- Borrowings (11,113) (11,420) (22,673)
- Leases (2,967) (2,778) (2,801)
Contract liabilities (2,447) (1,061) (1,269)
Trade and other payables (69,526) (55,522) (62,424)
Current tax liabilities (42) (33) (736)
(86,095) (70,814) (89,903)
Non-current liabilities
Financial liabilities
- Borrowings (23,159) (25,021) (26,846)
- Leases (12,458) (11,171) (12,777)
Deferred tax liabilities (5,503) (4,783) (4,721)
Other non-current liabilities (55) (1,385) (2,999)
(41,175) (42,360) (47,343)
Total liabilities (127,270) (113,174) (137,246)
Net assets 135,234 131,631 128,319
Shareholders' equity
Share capital 2,343 2,312 2,299
Share premium 10,155 9,176 9,165
Other reserves 105,584 103,343 100,671
Total shareholders' equity 118,082 114,831 112,135
Non-controlling interests 17,152 16,800 16,184
Total equity 135,234 131,631 128,319
(1)See note 9 for an explanation of the prior year restatement recognised in
relation to the adoption of the IFRIC agenda decision on cloud configuration
and customisation costs.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 28 August 2021
Equity Foreign Total Shareholders' Non-
Share Share Treasury Share Reserve Compensation Exchange Other Retained Equity controlling
Capital Premium £'000 Reserve Reserve Reserve Earnings £'000 Interests Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As previously reported at 31 August 2019 2,299 9,165 1,577 6,146 199 93,933 113,319 16,229 129,548
-
Prior year adjustment(1) - - - - - (1,184) (1,184) (45) (1,229)
-
At 1 September 2019 (restated)(1) 2,299 9,165 1,577 6,146 199 92,749 112,135 16,184 128,319
-
Profit for the - - - - - 8,422 8,422 1,191 9,613
Year (restated)(1) -
Other comprehensive (expense)/income - - - (2,596) - 427 (2,169) - (2,169)
-
Total comprehensive (expense)/income (restated) - - - - (2,596) - 8,849 6,253 1,191 7,444
Dividends paid - - - - - - (3,344) (3,344) (588) (3,932)
Equity-settled share-based payment transactions - - (843) - - 691 (152) 15 (137)
-
Excess deferred taxation on share-based payments - - - - - (27) (27) (2) (29)
-
Allotment of shares 13 11 - - - - - 24 - 24
Purchase of own shares held in trust - - - - - - (58) - (58)
(58)
Transfer - - 13 - - (2) (11) - - -
At 29 August 2020 (restated)(1) 2,312 9,176 734 3,550 197 98,907 114,831 16,800 131,631
(45)
As previously reported at 29 August 2020 2,312 9,176 734 3,550 197 101,202 117,126 17,043 134,169
(45)
Prior year adjustment(1) - - - - - (2,295) (2,295) (243) (2,538)
-
At 30 August 2020 (restated)(1) 2,312 9,176 734 3,550 197 98,907 114,831 16,800 131,631
(45)
Profit for the - - - - - 7,712 7,712 1,940 9,652
Year -
Other comprehensive (expense)/income - - - (1,647) - 1,338 (309) - (309)
-
Total comprehensive (expense)/income - - - (1,647) - 9,050 7,403 1,940 9,343
-
Dividends paid - - - - - - (5,490) (5,490) (1,647) (7,137)
Equity-settled share-based payment transactions - - (254) - - 660 406 58 464
-
Excess deferred taxation on share-based payments - - - - - 32 32 1 33
-
Allotment of shares 31 979 - - - - - 1,010 - 1,010
Purchase of own shares held in trust - - - - - - (110) - (110)
(110)
Transfer - - 155 - - (2) (153) - - -
At 28 August 2021 2,343 10,155 - 480 1,903 195 103,006 118,082 17,152 135,234
(1)See note 9 for an explanation of the prior year restatement recognised in
relation to the adoption of the IFRIC agenda decision on cloud configuration
and customisation costs
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 28 August 2021
2020
Note 2021 (restated)(1)
£'000 £'000
Cash flows from operating activities
Cash generated from continuing operations 6 22,163 21,227
Interest received 109 176
Interest paid (1,244) (1,696)
Tax paid (2,131) (3,059)
Net cash generated from operating activities 18,897 16,648
Cash flows from investing activities
Contingent/deferred consideration paid (1,077) (2,659)
Dividend received from associate and joint ventures 1,898 701
Other loans - 718
Purchase of intangible assets (107) (47)
Proceeds from sale of property, plant and equipment 396 421
Purchase of property, plant and equipment and right-of-use assets (3,850) (6,569)
Purchase of own shares held in trust - (58)
Net cash used in investing activities (2,740) (7,493)
Cash flows from financing activities
Proceeds from issue of ordinary share capital 1,010 24
Purchase of own shares held in trust (110) -
New financing and draw downs on RCF 11,526 5,889
Repayment of RCF draw downs (8,500) (4,000)
Lease principal repayments (3,252) (3,171)
Repayment of borrowings (2,400) (2,459)
Increase/(decrease) in other borrowings 2,394 (14,508)
Dividends paid to shareholders (5,490) (3,344)
Dividends paid to related party (1,647) (588)
Net cash used in financing activities (6,469) (22,157)
Effect of exchange rate changes (296) (989)
Net increase/(decrease) in cash and cash equivalents 9,392 (13,991)
Cash and cash equivalents at beginning of the year 10,304 24,295
Cash and cash equivalents at end of the year 19,696 10,304
(1)See note 9 for an explanation of the prior year restatement recognised in
relation to the adoption of the IFRIC agenda decision on cloud configuration
and customisation costs.
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. Basis of preparation and going concern
The financial information in this preliminary announcement
does not constitute the Company's statutory accounts for the years ended 28
August 2021 or 29 August 2020. Statutory accounts for 2020 have been delivered
to the Registrar of Companies, and those for 2021 will be delivered in due
course. The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
Going concern
The financial information in this preliminary announcement has been prepared
on a going concern basis which the Directors consider to be appropriate for
the following reasons.
The Directors have reviewed the Group's operational forecasts and projections
for the three years to 31 August 2024 as used for the viability assessment,
taking account of reasonably possible changes in trading performance, together
with the planned capital investment over that same period. The Group is
expected to have a sufficient level of financial resources available through
operating cash flows and existing bank facilities for a period of at least 12
months from approval of the financial statements ("the going concern period").
The Group has operated within all its banking covenants throughout the year.
In addition, the Group's main banking facility is in place until November 2023
and an invoice discounting facility is in place until August 2023.
For the purpose of assessing the appropriateness of the preparation of the
Group's accounts on a going concern basis, the Directors have prepared
financial forecasts for the Group, comprising profit before and after
taxation, balance sheets and cash flows through to year ended 2024. The
forecasts consider the current cash position, the availability of banking
facilities and an assessment of the principal areas of risk and uncertainty.
These forecasts have been sensitised on a combined basis for severe but
plausible downside scenarios. The scenarios tested included significant
reductions in profitability and associated cashflows linked to the four
principal risks of managing costs, reliance on key customers, strategic
partners and customer demand. The results of this stress testing showed
that, due to the stability of the core business, the Group would be able to
withstand the impact of these severe but plausible downside scenarios
occurring over the period of the financial forecasts.
In addition, several other mitigating measures remain available and within the
control of the Directors that were not included in the scenarios. These
include withholding discretionary capital expenditure and reducing or
cancelling future dividend payments.
In all the scenarios, the Group complied with its financial bank covenants,
operated within its existing bank facilities, and met its liabilities as they
fall due.
Consequently, the Directors are confident that the Group and the Company will
have sufficient funds to continue to meet their liabilities as they fall due
for at least 12 months from the date of approval of the financial statements
and therefore have prepared the financial information in this preliminary
announcement on a going concern basis.
Accounting policies
The accounting policies are consistent with those of the prior year with the
following exception.
Application of IFRIC agenda decisions
In April 2021, the IFRS Interpretations Committee (IFRIC) published an agenda
decision on the clarification of accounting in relation to the configuration
and customisation costs incurred in implementing Software-as-a-Service (SaaS)
as follows:
· Amounts paid to the cloud vendor for configuration and customisation
that are not distinct from access to the cloud software are expensed over the
SaaS contract term.
· In limited circumstances, other configuration and customisation
costs incurred in implementing SaaS arrangements may give rise to an
identifiable intangible asset, for example, where code is created that is
controlled by the entity.
· In all other instances, configuration and customisation costs will
be expensed as the customisation and configuration services are received.
Following the publication of this agenda decision the Group and Company has
reviewed its accounting policy for the capitalisation of costs incurred in
respect of the configuration and customisation of its cloud hosted ERP system
which has been implemented recently across several of the Group's
businesses. In determining whether a change in accounting policy is required
the Group has considered whether the cost of configuration and customisation
activities create a resource controlled by the Group that is separate to the
software. Control is demonstrated if the entity has the power to obtain future
economic benefits and also has the ability to restrict access of others to
those benefits.
The Board concluded that the Group did not meet the definition of having
control over the asset and that the configuration and customisation costs did
not relate to a separately identifiable asset under IAS 38. It has therefore
revised its accounting policy to align with the IFRIC guidance. This revision
has been accounted for retrospectively resulting in a prior year restatement
(note 9).
2. Segmental information
The segmental information for the year ended 28 August
2021 is as follows:
Agricultural
Speciality Supplies
Agriculture £'000 Engineering Central Group
£'000 £'000 £'000 £'000
Total segment revenue 74,395 297,506 51,299 - 423,200
Inter segment revenue (5,934) (6) (6) - (5,946)
Revenue from external customers 68,461 297,500 51,293 - 417,254
Adjusted(1) EBITDA(2) 9,858 7,348 6,133 (2,417) 20,922
Depreciation, amortisation and profit/(loss) on disposal of non-current assets
(1,335) (2,602) (2,208) (138) (6,283)
Share of post-tax results of associate (adjusted(1)) and joint ventures
991 1,955 - - 2,946
Adjusted(1) operating profit 9,514 6,701 3,925 (2,555) 17,585
Adjusting items (note 3) (2,847) (1,684) 97 (127) (4,561)
Operating profit 6,667 5,017 4,022 (2,682) 13,024
Finance income 260
Finance costs (1,232)
Adjusted(1) profit before taxation 16,613
Adjusting items (note 3) (4,561)
Profit before taxation 12,052
( )
(1 )Adjusted results are consistent with how business performance is
measured internally and is presented to aid comparability of performance.
Adjusting items are disclosed in note 3
(2 )Earnings before interest, tax, depreciation, amortisation,
profit/(loss) on the disposal of non-current assets and before share of
post-tax results of associate and joint ventures
The segmental information for the year ended 29 August 2020
is as follows. This has been restated to present Speciality Agriculture and
Agricultural Supplies separately. This is to aid comparability with the
segmental information presented for the current year. The disclosure has also
been restated following the change in accounting policy for cloud
configuration and customisation costs.
Speciality Agriculture Agricultural Supplies £'000
£'000 Engineering Central Group
£'000 £'000 £'000
Total segment revenue 66,948 280,740 53,020 - 400,708
Inter segment revenue (5,058) (8) (12) - (5,078)
Revenue from external customers 61,890 280,732 53,008 - 395,630
Restated:
Adjusted(1) EBITDA(2) 7,914 6,884 6,754 (781) 20,771
Depreciation, amortisation and profit/(loss) on disposal of non-current assets
(1,362) (2,665) (2,944) (140) (7,111)
Share of post-tax results of associate (adjusted) (1) and joint ventures
1,061 1,572 - - 2,633
Adjusted(1) operating profit 7,613 5,791 3,810 (921) 16,293
Adjusting items (note 3) (184) (1,388) (2,449) - (4,021)
Operating profit 7,429 4,403 1,361 (921) 12,272
Finance income 313
Finance costs (1,656)
Adjusted(1) profit before taxation 14,950
Adjusting items (note 3) (4,021)
Profit before taxation 10,929
(1 )Adjusted results are consistent with how business performance is
measured internally and is presented to aid comparability of performance.
Adjusting items are disclosed in note 3
(2 )Earnings before interest, tax, depreciation, amortisation,
profit/(loss) on the disposal of non-current assets and before share of
post-tax results of associate and joint ventures
3. Adjusting items
In reporting financial information, the Group presents alternative performance
measures (APMs), which are not defined or specified under the requirements of
IFRS. These APMs are consistent with how business performance is measured
internally and therefore the Group believes that these APMs provide
stakeholders with additional useful information on the performance of the
business. The following adjusting items have been added back to reported
profit measures.
2020
2021 (restated)
£'000 £'000
Amortisation of acquired intangible assets (i) 1,186 1,380
Adjustments to contingent consideration (ii) (1,013) (937)
Restructuring/closure costs (iii) 248 1,964
Cloud configuration and customisation costs - Group (iv) 1,356 1,412
Cloud configuration and customisation costs - share of associate (iv) 515 202
Impairment of joint venture (v) 2,090 -
Effect of deferred tax rate change - share of associate (vi) 179 -
Included in profit before taxation 4,561 4,021
Effect of deferred tax rate change - Group (vi) 990 -
Taxation effect of the above adjusting items (528) (907)
Included in profit for the year 5,023 3,114
(i) Amortisation of acquired intangible assets which do not
relate to the underlying profitability of the Group but rather relate to costs
arising on acquisition of businesses.
(ii) Adjustments to contingent consideration arise from the revaluation
of contingent consideration in respect of acquisitions to fair value at the
year end. Movements in fair value arise from changes to the expected payments
since the previous year end based on actual results and updated forecasts. Any
increase or decrease in fair value is recognised through the income statement.
(iii) Restructuring/closure costs include redundancy costs and
impairments of assets to recoverable amounts. The impairment to property,
plant and equipment was £nil (2020: £239,000).
(iv) Costs relating to material spend previously capitalised in
relation to the implementation of the Group's, and associate's,
ERP system that have now been expensed following the adoption of the IFRIC
agenda decision. See note 9 for further details of the prior year
restatement.
(v) During the year the joint venture Afgritech LLC reported a
loss and is expected to continue to underperform against budgeted
information in the short to medium term. An impairment review has been
undertaken which has resulted in an impairment charge of £1,314,000
(2020: £nil) against the carrying amount of interest in joint venture and
an impairment charge of £776,000 (2020: £nil) against the carrying
amount of a loan receivable.
(vi) On 24 May 2021, legislation was substantively enacted in the
UK to increase the corporate tax rate to 25% with effect from 1 April 2023. As
a result of the change, a tax charge of £179,000 was recognised in the year
in the Group's share of associate results and £990,000 was recognised in the
Group's tax charge (note 4) in relation to the remeasurement of deferred
assets and liabilities. This does not relate to the underlying performance of
the associate or Group and has therefore been included as an adjusting item.
4. Taxation
2020
2021 (restated)
£'000 £'000
Analysis of the charge in the year
Current tax:
UK corporation tax
Current year 837 818
Adjustment in respect of prior years 18 (150)
Foreign tax
Current year 1,130 356
Adjustment in respect of prior years (84) (217)
Group current tax 1,901 807
Deferred tax:
Origination and reversal of timing differences
Current year 767 450
Adjustment in respect of prior years (268) 59
Group deferred tax 499 509
Tax on profit 2,400 1,316
Profit before taxation 12,052 10,929
Tax at 19% (2020: 19%) 2,290 2,077
Effects of:
Tax effect of share of results of associate and joint ventures (428) (462)
Tax effect of expenses that are not allowable in determining taxable 488 184
profit
(778) (633)
Tax effect of non-taxable income
77 83
Effects of different tax rates of foreign subsidiaries
990 304
Effects of changes in deferred tax rates
95 71
Unrecognised deferred tax on losses
(334) (308)
Adjustment in respect of prior years
Total tax charge for the year 2,400 1,316
The tax effect of expenses that are not allowable in determining taxable
profit includes adjustments for impairment of joint venture (note 3), share
based payments, depreciation and amortisation on non-qualifying assets, and
other expenses disallowable for UK corporation tax.
The tax effect of non-taxable income includes adjustments to contingent
consideration (note 3) and the effect of income within the patent box regime.
The Group has reviewed its accounting policy following the IFRIC agenda
decision in April 2021 in respect of the configuration and customisation costs
previously capitalised in relation to the Group's cloud hosted ERP system.
Following this review these previously capitalised costs have been expensed
and amortisation previously charged on those assets has been reversed. The tax
charge for year ended 29 August 2020 shown above has been restated to reflect
the tax effect of this change in accounting policy. This has resulted in a
reduction of £259,000 to the UK tax charge as set out in note 9.
On 24 May 2021, legislation was substantively enacted in the UK to increase
the corporate tax rate to 25% with effect from 1 April 2023. As a result of
the change, a tax charge of £990,000 was recognised for the year for the
parent Company and UK tax resident subsidiaries in relation to the
remeasurement of deferred tax assets and liabilities. UK deferred tax balances
at 28 August 2021 are provided at 25% (2020: 19%). This charge of £990,000
does not relate to the underlying profitability of the Group and has been
treated as an adjusting item (note 3).
5. Earnings per ordinary share
Basic earnings per share are based on profit attributable to shareholders and
on a weighted average number of shares in issue during the year of 93,123,043
(2020: 92,346,828). The calculation of diluted earnings per share is based
on 94,690,182 shares (2020: 93,731,044).
Adjusting items disclosed in note 3 that are charged or credited to profit do
not relate to the underlying profitability of the Group. The Board believes
adjusted profit before these items provides a useful measure of business
performance. Therefore, an adjusted earnings per share is presented as
follows:
2021 Earnings £'000 2021 Earnings per 2020 (restated) 2020 (restated)
share pence Earnings £'000 Earnings share pence
Earnings per share - basic 7,712 8.3 8,422 9.1
Adjusting items:
Amortisation of acquired intangible assets 1,186 1.3 1,380 1.5
Adjustments to contingent consideration (1,013) (1.1) (937) (1.0)
Restructuring/closure costs 248 0.3 1,964 2.1
Cloud configuration and customisation costs - Group
1,356 1.5 1,412 1.5
Cloud configuration and customisation costs - share of associate
515 0.6 202 0.2
Impairment of joint venture 2,090 2.2 - -
Taxation effect of the above (528) (0.7) (907) (0.9)
Effect of increase to UK deferred tax rate - Group
990 1.1 - -
Effect of increase to UK deferred tax rate - share of associate
179 0.2 - -
Non-controlling interest in the above (433) (0.5) (471) (0.5)
Earnings per share - adjusted 12,302 13.2 11,065 12.0
6. Cash generated from continuing operations
2020
2021 (restated)
£'000 £'000
Continuing operations
Profit for the year 9,652 9,613
Adjustments for:
Tax 2,400 1,316
Tax credit in respect of R&D (260) (250)
Depreciation of property, plant and equipment 3,822 4,567
Depreciation on right-of-use assets 2,529 2,462
Depreciation of investment property 6 6
Intangible asset amortisation 1,256 1,467
(Profit)/loss on disposal of property, plant and equipment (144) 265
Profit on disposal of right-of-use assets - (37)
Adjustments to contingent consideration (1,013) (937)
Net fair value charge/(credit) on share based payments 464 (137)
Release of loan provision - (783)
Other non-cash adjustments (600) (504)
Interest income (260) (313)
Interest expense and borrowing costs 1,292 1,716
Share of results of associate and joint ventures (2,252) (2,431)
Impairment of joint venture 2,090 -
IAS19 income statement charge (excluding interest):
Administrative expenses 18 13
Changes in working capital (excluding the effects of acquisitions):
(Increase)/decrease in inventories (2,679) 4,811
(Increase)/decrease in receivables (10,606) 3,862
Increase/(decrease) in payables 16,448 (3,479)
Cash generated from continuing operations 22,163 21,227
7. Pensions
The Group operates its current pension arrangements on a defined benefit and
defined contribution basis. The valuation of the defined benefit scheme under
the IAS19 accounting basis showed a surplus in the scheme at 28 August 2021 of
£9.4m (2020: £8.0m).
In the year, the retirement benefit charge, excluding interest, in respect of
the Carr's Group Pension Scheme was £18,000 (2020: £13,000).
A Group subsidiary undertaking is a participating employer in a defined
benefit pension scheme of the associate, Carrs Billington Agriculture
(Operations) Ltd. The IAS19 accounting basis showed a surplus for that scheme
at 28 August 2021 of £5.4m (2020: £3.5m). The scheme is treated as a defined
contribution scheme by the Group, and its level of participation in the scheme
is estimated at 48.5%, which is based on its estimated share of the buyout
liabilities. Due to the fact that the sponsoring employer is an associate
company of the Group, 49% of the surplus calculated on an IAS19 accounting
basis is included in the Group's balance sheet within its 'Investment in
associate'.
8. Analysis of net debt and leases
At Other At
30 August Cash Non-Cash Exchange 28 August
2020 Flow Changes Movements 2021
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 17,571 7,034 - (296) 24,309
Bank overdrafts (7,267) 2,654 - - (4,613)
10,304 9,688 - (296) 19,696
Loans and other borrowings: 59
- current (4,153) (3,920) 1,514 277 (6,500)
- non-current (25,021) 900 685 (23,159)
Net debt (18,870) 6,668 2,199 40 (9,963)
Leases: -
- current (2,778) - (189) 17 (2,967)
- non-current (11,171) 3,252 (4,556) (12,458)
Leases (13,949) 3,252 (4,745) 17 (15,425)
9. Prior year restatement
In April 2021, the IFRS Interpretations Committee (IFRIC) published an agenda
decision on the clarification of accounting in relation to the configuration
and customisation costs incurred in implementing Software-as-a-Service (SaaS)
as follows:
· Amounts paid to the cloud vendor for configuration and
customisation that are not distinct from access to the cloud software are
expensed over the SaaS contract term.
· In limited circumstances, other configuration and
customisation costs incurred in implementing SaaS arrangements may give
rise to an identifiable intangible asset, for example, where code is created
that is controlled by the entity.
· In all other instances, configuration and customisation
costs will be expensed as the customisation and configuration services are
received.
Following the publication of this agenda decision the Group and Company has
reviewed its accounting policy for the capitalisation of costs incurred in
respect of the configuration and customisation of its cloud hosted ERP system
which has been implemented recently across several of the Group's
businesses. In determining whether a change in accounting policy is required
the Group has considered whether the cost of configuration and customisation
activities create a resource controlled by the Group that is separate to the
software. Control is demonstrated if the entity has the power to obtain future
economic benefits and also has the ability to restrict access of others to
those benefits.
The Board concluded that the Group did not meet the definition of having
control over the asset and that the configuration and customisation did not
relate to a separately identifiable asset under IAS 38. It has therefore
revised its accounting policy to align with the IFRIC guidance. This revision
has been accounted for retrospectively resulting in a prior year restatement.
The Group identified £2,894,000 of capitalised costs incurred by the parent
Company and its subsidiaries in the years up to and including 29 August 2020
that should be expensed with a further £667,000 in its associate's balance
sheet, of which the Group recognises 49%. During the current year, costs of
£1,356,000 incurred by the parent Company and its subsidiaries have been
expensed. The associate incurred costs of £1,297,000 during the current
year, of which the Group recognises 49%, that have been expensed and
recognised through the Group's share of post-tax results of associate.
The affected financial statement line items for the Group are as follows.
29 August 2020 29 August 2020
(previously reported) Restatement (restated)
£'000 £'000
£'000
Income Statement
Administrative expenses (21,535) (1,366) (22,901)
Adjusted share of results of associate 1,191 - 1,191
Reported share of results of associate 1,191 (202) 989
Adjusted operating profit 16,247 46 16,293
Reported operating profit 13,840 (1,568) 12,272
Adjusted profit before taxation 14,904 46 14,950
Reported profit before taxation 12,497 (1,568) 10,929
Taxation (1,575) 259 (1,316)
Adjusted profit for the year 12,690 37 12,727
Reported profit for the year 10,922 (1,309) 9,613
Basic EPS (pence) 10.3 (1.2) 9.1
Diluted EPS (pence) 10.2 (1.2) 9.0
Adjusted EPS (pence) 11.9 0.1 12.0
Balance Sheet
Other intangible assets 9,171 (2,806) 6,365
Investment in associate 14,307 (265) 14,042
Total non-current assets 127,473 (3,071) 124,402
Current tax assets 1,535 533 2,068
Total current assets 119,870 533 120,403
Total assets 247,343 (2,538) 244,805
Net assets 134,169 (2,538) 131,631
Retained earnings 101,202 (2,295) 98,907
Total shareholders' equity 117,126 (2,295) 114,831
Non-controlling interests 17,043 (243) 16,800
Total equity 134,169 (2,538) 131,631
Cash Flow Statement
Cash generated from continuing operations 22,639 (1,412) 21,227
Net cash generated from operating activities 18,060 (1,412) 16,648
Purchase of intangible assets (1,459) 1,412 (47)
Net cash used in investing activities (8,905) 1,412 (7,493)
In accordance with IAS 1, a third balance sheet has been presented below to
show the impact to the opening balance sheet for the prior year. The Group has
identified £1,481,000 of costs previously capitalised as at 1 September 2019
in respect of the cloud hosted ERP system that should be expensed and £41,000
of amortisation to be reversed. In addition, the Group's investment in
associate has been restated to reflect the Group's share of costs of £159,000
capitalised by the associate as at 1 September 2019 that should be expensed.
The opening balance sheet of the prior year has been restated to correct for
these. Balances at 1 September 2019 are those disclosed after the application
of IFRS 16 'Leases' which was adjusted prospectively on adoption. The affected
financial statement line items are as follows.
1 September 2019 (previously reported) 1 September 2019
£'000 Restatement (restated)
£'000 £'000
Balance Sheet
Other intangible assets 9,318 (1,440) 7,878
Investment in associate 13,392 (63) 13,329
Total non-current assets 127,110 (1,503) 125,607
Total assets 267,068 (1,503) 265,565
Current tax liabilities (1,010) 274 (736)
Total current liabilities (90,177) 274 (89,903)
Total liabilities (137,520) 274 (137,246)
Net assets 129,548 (1,229) 128,319
Retained earnings 93,933 (1,184) 92,749
Total shareholders' equity 113,319 (1,184) 112,135
Non-controlling interests 16,229 (45) 16,184
Total equity 129,548 (1,229) 128,319
10. Alternative performance measures glossary
The Preliminary Announcement includes alternative performance measures (APMs),
which are not defined or specified under the requirements of IFRS. These APMs
are consistent with how business performance is measured internally and are
also used in assessing performance under the Group's incentive plans.
Therefore the Directors believe that these APMs provide stakeholders with
additional useful information on the Group's performance.
Alternative performance measure Definition and comments
Adjusted EBITDA Earnings before interest, tax, depreciation, amortisation, profit/(loss) on
the disposal of non-current assets, before share of post-tax results of the
associate and joint ventures and excluding items regarded by the Directors as
adjusting items. This measure is reconciled to statutory operating profit and
statutory profit before taxation in note 2. EBITDA allows the user to assess
the profitability of the Group's core operations before the impact of capital
structure, debt financing and non-cash items such as depreciation and
amortisation.
Adjusted operating profit Operating profit after adding back items regarded by the Directors as
adjusting items. This measure is reconciled to statutory operating profit in
the income statement and note 2. Adjusted results are presented because if
included, these adjusting items could distort the understanding of the Group's
performance for the year and the comparability between the years presented.
Adjusted profit before taxation Profit before taxation after adding back items regarded by the Directors as
adjusting items. This measure is reconciled to statutory profit before
taxation in the income statement and note 2. Adjusted results are presented
because if included, these adjusting items could distort the understanding of
the Group's performance for the year and the comparability between the years
presented.
Adjusted profit for the year Profit after taxation after adding back items regarded by the Directors as
adjusting items. This measure is reconciled to statutory profit after taxation
in the income statement. Adjusted results are presented because if included,
these adjusting items could distort the understanding of the Group's
performance for the year and the comparability between the years presented.
Adjusted earnings per share Profit attributable to the equity holders of the Company after adding back
items regarded by the Directors as adjusting items after tax divided by the
weighted average number of ordinary shares in issue during the year. This is
reconciled to basic earnings per share in note 5.
Net debt The net position of the Group's cash at bank and borrowings per the balance
sheet. Details of the movement in net debt is shown in note 8.
11. The Board of Directors approved the preliminary announcement on
7 December 2021.
12. The Company intends to provide a copy of the Report and
Accounts to shareholders by 16 December 2021. The full Report and Accounts
will also be available upon request from the Company Secretary, Carr's Group
plc, Old Croft, Stanwix, Carlisle, CA3 9BA or alternatively on the Company's
website: www.carrsgroup.com
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