Final Results - 'Much Improved Performance'

Carr's Milling Industries PLC 8 November 1999 CARR'S MILLING INDUSTRIES PLC - 1999 PRELIMINARY ANNOUNCEMENT Much improved performance, encouraging trading in new financial year * Carr's, the Carlisle-based agriculture, food and engineering group, announces a much improved performance for the year ended August 1999, as predicted a year ago: 1999 1998 Turnover (£m) 97.3 97.1 Pre-tax profit: pre-exceptionals (£000) 2,271 644 post-exceptionals (£000) 3,317 (1,843) Earnings per share: pre-exceptionals (p) 19.8 5.3 post-exceptionals (p) 29.5 (17.8) Net dividends per share (p) 8.0 5.0 * The much improved performance is as a direct result of the positive management actions taken in 1998 to reduce costs and reorganise problem areas of the business and has been achieved despite the continuing problems in British agriculture. * Agriculture made an operating profit of £1.10m (1998: loss of £0.29m) despite a decline in turnover to £68.4m (1998: £74.1m). Both the feed operation (with manufacturing, since September 1998, through the Carrs Billington Agriculture JV) and the fertiliser business returned to profit. * Food, which principally comprises Carrs Flour Mills, made an operating profit of £0.50m (1998: £0.28m) on a turnover of £18.5m (1998: £13.6m). In addition, Robertsons, the joint venture bakery company, prior to its disposal on 2 August 1999 at an exceptional profit of £1.51m, contributed £0.56m (1998: £0.49m). * Engineering had a good year, with increased turnover of £10.5m (1998: £9.4m) whilst operating profit was similar to last year at £0.85m (1998: £0.86m). * Year end net gearing improved to 57% from 85% in 1998, mainly as a result of the sale of the interest in Robertsons bakery, and interest cover was 4.0 times. * David Newton, Chairman, stated 'The indications are of a continuation of a difficult business climate in our main operating sectors, which in itself will no doubt bring opportunities as well as problems. However, I am pleased to report that early trading in the new financial year is encouraging and the intended capital expenditure in the flour mill is expected to generate longer term benefits. Recognising what has to be done, and having the resolve and quality of management to make changes and see them through, has stood us in good stead this last year and we will continue to be realistic and proactive in the year ahead.' Enquiries: Carr's Milling Industries PLC 01228-528291 Chris Holmes (Chief Executive) Ron Wood (Finance Director) Bankside Consultants Limited 0171-220 7477 Charles Ponsonby CHAIRMAN'S STATEMENT FINANCIAL OVERVIEW I am pleased to report a much improved performance for the year ended August 1999, as predicted a year ago. This is as a direct result of the positive management actions taken in 1998 to reduce costs and reorganise problem areas of the business and has been achieved despite the continuing problems in British agriculture. On turnover of £97.3 million, marginally up on that of last year (£97.1 million), the profit before exceptional items and tax increased to £2.27 million (1998: £0.64 million), whilst a pre-tax profit of £3.32 million compares with a loss in 1998 of £1.84 million. Earnings per share before exceptionals increased to 19.8p (1998: 5.3p) whilst post-exceptionals earnings per share of 29.5p compared with a loss per share of 17.8p. The main differences between the two years are, first, 1999 reflects the first full year of operation of our joint venture animal feed manufacturing business, Carrs Billington Agriculture, with the consequent closure of our inefficient Silloth feed mill, and, secondly, over the last year we have seen better organisation and control of our fertiliser business, which in the previous year generated significant losses but is now beginning to benefit the Group. Year end gearing has improved to 57 per cent from 85 per cent in 1998, mainly as a result of the sale of our interest in Robertsons bakery, and interest cover was 4.0 times. However, the parlous state of farming continues to make debtor control a key issue for the management to keep under constant review. DIVIDENDS The Board proposes an increased final dividend of 5.0p net per share (1998: 2.0p). If approved at the AGM, to be held at 11.30 am on 13 January 2000 at the Crown Hotel, Wetheral, Carlisle, this will be paid on 25 January 2000 to all shareholders on the register on 24 December 1999. Total dividends per share for the year of 8.0p (1998: 5.0p), up 60 per cent, are covered 2.5 times by earnings per share (alternative basis). OPERATIONAL REVIEW Agriculture It is pleasing to report an operating profit for the Agriculture Division of £1.10 million (1998 loss of £0.29 million) despite a decline in turnover to £68.4 million (1998: £74.1 million). Lower input and selling prices, particularly for feed and fertiliser, combined with reduced sales of agricultural machinery, disguised the overall volume growth achieved by Agriculture. The combination of increased volumes and the formation of the joint venture company, Carrs Billington Agriculture Limited, on 9 September 1998, to manufacture ruminant feeds at Carlisle, Cumbria and Stone, Staffordshire exclusively for Carrs Agriculture and Billington Agriculture, resulted in the feed operation returning to profitability. Continuing progress is expected without the one-off costs involved in establishing the combined feed production operation. Ongoing efficiency gains and increased volumes are expected to reduce further the manufacturing unit cost. The changes made to our fertiliser business and new strategic partnerships, combined with the absence of relocation costs, resulted in our fertiliser business also returning to profitability. The new blending facilities at Glasgow performed well in the first full year of production, with reduced manufacturing and distribution costs. Sales of horticultural and speciality fertiliser products increased during the year, contributing to the improved performance. Benefits of the capital expenditure made during the year at the Poteau, Oklahoma feed block plant resulted in excellent products and reduced costs. The new patented production process plant at Belle Fourche, South Dakota, commissioned in September 1998 to manufacture Smartlic low moisture feed blocks, performed exceptionally well. Despite the adverse weather conditions for feed sales in the US, the expected progress was achieved. Having taken professional advice, the Board feels it is prudent in light of the ongoing lawsuit against our US subsidiary company, Animal Feed Supplement Inc., to provide for future legal costs. A provision of £250,000 has been included in the results for this purpose. In Europe, Caltech increased sales of animal health products and Crystalyx, our low moisture feed block brand. Sales of Horslyx, our equine brand, continued to grow in both the domestic market and continental Europe. Sales of retail products, machinery parts and ground-care equipment increased in the year from the seven branches that service the agricultural market in the north of England and south of Scotland. Machinery sales were lower but satisfactory, given the current agricultural climate. We are well placed with the excellent range of Massey Ferguson tractors and other farm machinery to satisfy market demands when farmers achieve more realistic price levels for their produce. Food The Food Division, which principally comprises Carrs Flour Mills, made an operating profit of £0.50 million (1998: £0.28 million) on a turnover of £18.5 million (1998: £13.6 million). In addition, Robertsons, the joint venture bakery company, prior to disposal on 2 August 1999, contributed £0.56 million (1998: £0.49 million). The gain on the disposal of the investment in Robertsons and the sale of an associated property was £1.5 million before tax and is treated as an exceptional item in the accounts. Carrs Flour Mills improved sales and profitability with the increases coming from organic growth with existing customers plus the acquisition last year of Irish-based Shackletons. Part of the increase in sales is due to wheatfeed, the co- product of flour milling, now being sold externally following the closure of Carrs Agriculture's feed mill at Silloth. The benefits of the ongoing capital expenditure in the flour mill are beginning to show through, with concentration on high quality flours processed with lower unit costs of production. Sales of speciality cereal products and ingredients through Carrs Foodtech continued to contribute to the growth of our food business. Engineering Our Engineering Division, based in Cumbria, had a satisfactory year, with increased turnover of £10.5 million (1998: £9.4 million). Operating profit was similar to last year at £0.85 million (1998: £0.86 million). Our high integrity welding business, Bendalls, mainly manufacturing for the nuclear industry, was busy throughout the year. The market for pressure vessels was lower, with a slowdown in construction projects and oil exploration and production reducing turnover and profitability. To enhance further its reputation for quality, Bendalls, the largest of our three engineering businesses, gained the Chinese 'M' stamp certificate, enabling it to supply pressure vessels to an expanded market. Keytor, our electrical and mechanical engineering company, had a successful year and completed a number of significant contracts in the animal and human food sector. The extension in 1998 to its Carlisle-based workshop enabled the more efficient handling of larger fabrications and the relocation of our small Durham-based farm and construction machinery business to these larger premises. The vehicle and body building business, trading as Hinds, increased sales and profit and had an excellent year. This was a particularly good performance by the Engineering Division measured against the background of the strength of sterling, low oil prices and continuing weak demand in Asia, together with increased competitiveness in the UK. BOARD At the end of November, we will regretfully say goodbye to long-serving director John Tudor, who is retiring. John has been with Carrs for over 19 years and has served as a Director for 17 of those. He was honoured by the British flour millers trade organisation (nabim), serving as President during this last year, and he will be much missed by them, too. We wish John and his wife, Carolyn, a very happy and well-earned retirement. OUTLOOK Essentially, nothing has changed in the environment surrounding our operations since we reported a year ago. The indications are of a continuation of a difficult business climate in our main operating sectors, which in itself will no doubt bring opportunities as well as problems. We indicated with the sale of Robertsons that it would initially be slightly earnings negative and this remains the position. However, we also anticipated that other positive factors were likely to come through this year to help offset that. I am pleased to report that early trading in the new financial year is indeed encouraging and the intended capital expenditure in the flour mill is expected to generate longer term benefits. Recognising what has to be done, and having the resolve and quality of management to make changes and see them through, has stood us in good stead this last year and we will continue to be realistic and proactive in the year ahead. David Newton 8 November 1999 Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 28 August 1999 28 August 29 August 1999 1998 £000 £000 Turnover: group and share of joint venture Continuing operations 99,129 97,132 Acquisitions 1,079 - ------ ------ 100,208 97,132 Less: share of turnover of joint venture - continuing operations (2,872) - ------ ------ Group turnover 97,336 97,132 ====== ====== Operating profit: Continuing operations 2,375 748 Acquisitions 2 - ------ ------ Group operating profit 2,377 748 Share of operating profit/(loss) in Joint venture (10) - Associate - discontinued 558 492 ------ ------ Total operating profit: group and share of joint venture and associate 2,925 1,240 Continuing operations Investment income 6 1 Discontinued operations Profit on sale of associate 1,434 - Profit/(loss) on disposal of fixed assets 75 (1,826) ------ ------ Profit/(loss) on ordinary activities before interest 4,440 (585) Interest receivable Group 23 65 Joint venture 10 - Associate 12 19 Interest payable - group (1,168) (1,342) ------ ------ Profit/(loss) on ordinary activities before taxation 3,317 (1,843) Taxation (940) 292 ------ ------ Profit/(loss) on ordinary activities after taxation 2,377 (1,551) Minority interest (14) 130 ------ ------ Profit/(loss) for the financial year 2,363 (1,421) Dividends (640) (400) ------ ------ Retained profit/(deficit) for the financial year 1,723 (1,821) ====== ====== Earnings per ordinary share: Basic 29.5p (17.8p) Diluted 29.5p (17.7p) Alternative basis 19.8p 5.3p Dividends per share 8.0p 5.0p CONSOLIDATED BALANCE SHEET at 28 August 1999 1999 1998 £000 £000 £000 £000 FIXED ASSETS Intangible assets 60 - Tangible assets 18,141 19,464 ------ ------ 18,201 19,464 INVESTMENTS Investment in joint venture 100 - Investment in associate - 808 Other investments 23 23 ------ ------ 18,324 20,295 CURRENT ASSETS Assets held for resale 307 437 Stocks 7,723 7,204 Debtors 16,098 15,331 Cash at bank and in hand 102 602 ------ ------ 24,230 23,574 CREDITORS Amounts falling due within one year 21,043 23,379 ------ ------ NET CURRENT ASSETS 3,187 195 ------ ------ TOTAL ASSETS LESS CURRENT LIABILITIES 21,511 20,490 CREDITORS Amounts falling due after more than one year 2,506 3,263 PROVISIONS FOR LIABILITIES AND CHARGES 1,578 1,483 DEFERRED INCOME 345 415 ------ ------ 4,429 5,161 ------ ------ 17,082 15,329 ====== ====== CAPITAL AND RESERVES Called-up share capital 1,999 1,999 Reserves 14,794 13,055 ------ ------ Equity shareholders' funds 16,793 15,054 Minority interests - equity 289 275 ------ ------ 17,082 15,329 ====== ====== CONSOLIDATED CASH FLOW STATEMENT for the year ended 28 August 1999 1999 1998 £000 £000 Net cash inflow from operating activities 2,511 4,197 ------ ------ Dividend received from associate 390 400 ------ ------ Returns on investment and servicing of finance Interest received 23 66 Interest paid (1,110) (1,253) Interest paid on finance leases (89) (91) Investment income received 6 1 ------ ------ Net cash outflow from returns of investments and servicing of finance (1,170) (1,277) ------ ------ Taxation 90 (899) ------ ------ Capital expenditure and financial investment Purchase of tangible fixed assets (1,547) (4,503) Proceeds of tangible fixed assets 1,775 326 Investments purchased - (10) Proceeds of assets held for resale 197 - ------ ------ 425 (4,187) ------ ------ Acquisitions and disposals Purchase of subsidiary undertakings - (424) Purchase of trade (185) (1,192) Net cash acquired in subsidiary - 121 Investment in joint venture (100) - Disposal of interest in associated undertaking 2,243 - ------ ------ 1,958 (1,495) ------ ------ Equity dividends paid (400) (919) ------ ------ Cash inflow/(outflow) before management of liquid resources and financing 3,804 (4,180) ------ ------ Financing (1,606) (1,237) ------ ------ Increase/(decrease) in cash and cash equivalents 2,198 (5,417) ====== ====== NOTES 1 Segmental Analysis 1999 1998 £000 £000 Turnover Agriculture 68,390 74,134 Food 18,484 13,559 Engineering 10,462 9,439 ------ ------ 97,336 97,132 Group operating profit Agriculture 1,103 (288) Food 504 277 Engineering 854 858 Central costs (84) (99) ------ ------ 2,377 748 ====== ====== Turnover for Food increased by £1,079,000 and operating profit by £2,000 as a result of an acquisition made this year. 2. The calculation of basic earnings per share is based on the profit for the financial year of £2,363,000 (1998: loss £1,421,000) and on 7,996,639 shares (1998: 7,995,010 shares) being the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based on the profit for the financial year of £2,363,000 (1998: loss £1,421,000) and on 7,998,406 shares (1998: 8,036,797 shares) being the weighted average number of shares in issue during the year and the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares. The calculation of earnings per share on the alternative basis (including acquisitions) is based on the profit for the financial year of £2,363,000 deducting exceptional items of £1,046,000 net of related tax of £268,000 to give a profit for the financial year of £1,585,000 (1998: profit £425,000). 3 Cost of sales and other operating income and expenses 1999 1998 £000 £000 Cost of sales: normal 82,765 84,469 exceptional - 94 ------ ------ 82,765 84,563 ------ ------ Gross profit 14,571 12,569 Net operating expenses Distribution costs (5,511) (5,471) Administrative expenses: normal (6,220) (5,783) exceptional (463) (567) ------ ------ Operating profit 2,377 748 ------ ------ In 1999 the exceptional administrative costs relate to the costs incurred in the year and a provision for the likely costs of defending proceedings against a subsidiary undertaking. This litigation relates to a dispute with a competitor in the US which alleges that the subsidiary undertaking has infringed a trademark in the US. The directors are of the opinion, having taken legal advice, that the claim can be successfully resisted by the subsidiary undertaking and feel it is commercially desirable to defend the proceedings and therefore provision has been made for the likely legal costs. In 1998 the exceptional items relate to the cessation of production of animal feed and the relocation of the fertiliser production facilities. 4. The preliminary results for the year ended 28 August 1999 are unaudited and do not constitute the Company's statutory accounts. Comparative figures have been derived from the statutory accounts for the year ended 29 August 1998 which have been delivered to the Registrar of Companies. They were the subject of an unqualified audit report by the Company's auditors. The statutory accounts for the year ended 28 August 1999 will in due course be delivered to the Registrar of Companies.

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