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CARR'S GROUP PLC — Interim / Quarterly Report 2020
Apr 15, 2020
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Interim / Quarterly Report
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National Storage Mechanism | Additional information
RNS Number : 6449J
Carr's Group PLC
15 April 2020
15 April 2020
CARR'S GROUP PLC ("Carr's" or the "Group")
INTERIM RESULTS
For the 26 weeks ended 29 February 2020
"A resilient H1 performance in challenging markets"
Carr's (CARR.L), the Agriculture and Engineering Group, announces its Interim Results for the 26 weeks ended 29 February 2020 and provides an update on COVID-19.
Financial highlights
| Adjusted1 H1 2020 |
Adjusted1 H1 2019 |
+/- | |
| Revenue (£m) | 200.0 | 206.2 | -3.0% |
| Adjusted1 operating profit (£m) | 10.3 | 11.9 | -13.4% |
| Adjusted1 profit before tax (£m) | 9.6 | 11.4 | -16.0% |
| Adjusted1 EPS (p) | 8.0 | 9.4 | -14.9% |
| Statutory H1 2020 |
Statutory H1 2019 |
+/- | |
| Revenue (£m) | 200.0 | 206.2 | -3.0% |
| Operating profit (£m) | 11.2 | 10.8 | +3.8% |
| Profit before tax (£m) | 10.5 | 10.3 | +1.7% |
| Basic EPS (p) | 9.3 | 8.3 | +12.0% |
Net debt2, excluding leases, of £25.4m (£20.9m net debt at 31 August 2019 excluding finance leases)
Commercial highlights
COVID-19
· Health, safety and well-being of our employees remains of paramount importance
· No material overall impact to date, but significant uncertainty remains
· Measures implemented, and contingencies planned, to minimise the potential impact on the Group
· Strong balance sheet with net debt (excluding leases) of £25.4m as at H1 2020 representing 1.2x adjusted EBITDA and undrawn facilities at H1 2020 of £22.4m
· Cash flow being closely monitored with cash forecasting thoroughly stress tested
· Payment of interim dividend deferred until full effects of COVID-19 become clear
Agriculture
· Resilient performance in Agriculture despite challenging market conditions and unseasonable weather
· In the UK, lower feed and fuel volumes partly offset by strong performance in machinery and retail sales
· Strong performance at our low moisture feed block plant in Tennessee and enhanced presence in Canada as we continue to expand our geographic footprint in North America
· Launch of new product ranges including FesCool® in the USA and Pick Block in Europe
1 Adjusted results are after adding back amortisation of acquired intangible assets and non-recurring items
2 Further details of net debt can be found in note 12
Engineering
· Lower profits due to phasing of contracts in Global Robotics and Global Technical Services
· UK Service and Manufacturing performed well, benefitting from strong order books across key markets
· Global Robotics impacted by certain orders for Japan and China being delayed until FY21, but robust medium term prospects supported by a strong and diverse global pipeline
· Strong order book in Global Technical Services, including the award of a $6.2m MSIP® contract to be delivered into Switzerland during the period
· NW Total, acquired in June 2019, now fully integrated and performing above expectations
Outlook
As reported in our trading update on 12 March 2020, challenges across both divisions, unrelated to COVID-19, led to a reduction in the Board's expectations for the current financial year. Based on recent activity, and whilst remaining acutely aware of possible interruptions due to COVID-19, the Board still anticipates a full-year outcome broadly in line with those revised expectations.
Tim Davies, Chief Executive Officer, commented:
"In challenging market conditions, with significant headwinds experienced in both divisions, we have delivered a resilient performance in the period.
"While there remains significant uncertainty over the impact of COVID-19, we are moving decisively on all fronts to address these challenges, ensuring we conserve cash and maintain a robust financial position. We will continue to monitor developments closely and respond accordingly. At this time the health, safety and well-being of our employees, customers and the wider communities in which we operate remain our absolute first priority, and we have implemented measures to protect and support them through these unprecedented times.
"We are confident that our approach and robust business model will ensure the Group is well placed to endure this period of uncertainty and continue to deliver growth in the medium term."
Enquiries:
| Carr's Group plc Tim Davies (Chief Executive) Neil Austin (Group Finance Director) |
Tel: +44 (0) 1228 554 600 |
| Powerscourt Nick Dibden / Lisa Kavanagh / Sam Austrums |
Tel: +44 (0) 20 7250 1446 |
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.
Its Agriculture division manufactures and supplies feed blocks and supplementation products for livestock, distributes farm machinery and runs a UK network of rural stores, providing a one-stop shop for the farming community. Its Engineering division designs and manufactures bespoke equipment and provides technical engineering services into the nuclear, petrochemical, oil and gas, pharmaceutical, process and renewable energy industries, including robotic and remote handling equipment.
INTERIM MANAGEMENT REPORT
COVID-19
The impact of the COVID-19 pandemic on the Group remains under close and constant review by the Board. To date, we have not seen any material adverse direct impact, but there remains significant global uncertainty. The Group has implemented a range of measures and planned contingencies across both divisions which are designed to minimise the impact of the pandemic.
The health, safety and well-being of our employees and customers is of paramount importance. We are following government guidelines and have implemented rigorous social distancing controls, hygiene measures and shift-working practices across all locations, and our people are working effectively from home where possible.
In Agriculture, measures have been taken to ensure that all of our UK and overseas manufacturing facilities can remain operational, and that our network of UK retail outlets can be used to supply our core ranges of feeds, supplements, animal health products, fuels, machinery, retail products and services to our farming customers, who are critical to the UK's food supply chain. We are carefully monitoring our stock levels, together with our supply and distribution channels, to ensure that we remain operational.
In Engineering, the majority of our facilities remain operational as we continue to supply products and services in connection with projects of national importance, particularly across the nuclear decommissioning and nuclear defence sectors. Our range of current and future contracts across the division is being closely monitored and we continue to communicate openly with our supply chain partners in order to minimise any potential negative impact.
The Group remains in a strong financial position. Net debt, excluding leases, was £25.4m at the period end (excluding finance leases, H1 2019: £20.5m; FY2019: £20.9m), representing 1.2 times adjusted EBITDA. We also had undrawn facilities at the period end of £22.4m, with our main banking facilities maturing between 2021 and 2023.
As part of its response to the COVID-19 crisis, the Group has ensured it has a rigorous short term weekly and longer-term monthly cash forecasting process in place. These have been stress tested on a number of different, but realistic, scenarios including the temporary closure of several businesses and, predominantly in Agriculture, modelling the impact of delays in debt collections. In each of these scenarios, the Group has sufficient funding in place within its current facilities. Measures have also been taken to restrict capital expenditure, including the deferral of all non-time critical expenditures to the next financial year, and the Board has taken the decision to defer the payment of an interim dividend until the full effects of the pandemic have become clearer. The Group is keeping under review the opportunity to appropriately utilise government assistance schemes where these provide additional flexibility.
We are moving decisively on all fronts to address the challenges presented by COVID-19 and consider the Group to be well placed to endure this period of material uncertainty.
HALF YEAR PERFORMANCE
In challenging market conditions, Carr's has delivered a resilient performance in the period.
During the 26 weeks ended 29 February 2020 Group revenues were £200.0m, slightly down on the prior year (H1 2019: £206.2m).
Adjusted Group operating profit of £10.3m (H1 2019: £11.9m) was 13.4% behind the prior year, and reported operating profit was 3.8% ahead of the prior year at £11.2m (H1 2019: £10.8m). Adjusted profits are stated before amortisation of acquired intangibles and non-recurring items. The Board considers that this measure better reflects the Group's underlying performance. The reduction in operating profits is mainly attributable to challenging market conditions and the impact of weather in Agriculture, and contract phasing in Engineering.
Adjusted profit before tax decreased by 16.0% to £9.6m (H1 2019: £11.4m). Reported profit before tax after amortisation and non-recurring items was £10.5m (H1 2019: £10.3m).
Amortisation and non-recurring items were a credit of £0.9m (H1 2019: charge of £1.1m) and related mainly to adjustments to contingent consideration partly offset by amortisation of intangible assets.
On an adjusted basis, earnings per share decreased by 14.9% to 8.0p (H1 2019: 9.4p). Basic earnings per share increased by 12.0% from 8.3p to 9.3p.
AGRICULTURE
Trading during the first half of 2020 was slower than the prior year. Challenging market conditions, which continue to impact farm incomes, and continued unseasonal weather affected both the UK and the USA.
During the period, revenue was down 5.5% to £175.0m (H1 2019: £185.2m). Adjusted operating profit was down 15.5% to £9.0m (H1 2019: £10.7m) and reported operating profit was down 5.8% to £10.0m (H1 2019: £10.6m).
Supplements
Total global feed block sales volumes were broadly in line with the same period last year.
In the UK, feed block and supplement sales were lower than anticipated owing to market pressures and continued unseasonal weather. In the period, we improved procurement and manufacturing processes in order to maximise efficiencies, including realising buying synergies on key raw materials and introducing least cost formulation software at UK manufacturing sites, which helped to partially mitigate the effect of the difficult trading conditions on profitability.
In the USA, our low moisture feed block plant in Shelbyville, Tennessee delivered a good performance. Volumes from the plant grew during the period as we continue to expand our geographic footprint across the eastern and south eastern states. Earlier this year we also launched FesCool® following a period of extensive trials in conjunction with Kansas State University. FesCool® is a new low moisture feed block proven to improve the performance of grazing cattle by reducing the impact of fescue toxicity. Our initial launch of the product has been successful.
We increased our presence in Canada to address the local beef market, appointing key distribution partners, expanding our sales presence and completing product registrations. This market will be serviced out of our existing facility in Belle Fourche, South Dakota ensuring that maximum efficiencies are achieved.
Challenges in the agriculture market have particularly affected Animax, our manufacturer of trace element supplements for livestock, where market pressures coupled with milder weather have led to a temporary reduction in customer demand. During the period we appointed a new commercial sales director in the business and continued to make good progress in automating manufacturing processes.
Feed block sales in our German joint venture business, Crystalyx Products GmbH, were impacted by similar weather conditions experienced in the UK, with volumes down 2% compared to the prior year. During the period we started commercial production at our new Pick Block plant in Oldenburg, Germany and sales volumes are beginning to grow. Pick Block is an innovative range of products designed to enhance poultry welfare standards.
UK Agriculture
The sustained mild winter and ongoing market pressures have resulted in total compound feed volumes declining by 10% against the previous year. This reduction is in line with the decline seen nationally, which has placed margins under pressure. Volumes in our fuel distribution business were less impacted and were down 6% on last year.
Our retail business performed resiliently during the period with like-for-like sales up 2%. Overall sales increased by 1% against the same period last year following further store rationalisation, largely resulting from the acquisition of Pearson Farm Supplies in 2017. Machinery revenues were marginally ahead of management's expectations and increased by 20% against the prior year. Last year's performance was attributable to reduced farmer confidence in the period leading up to the original Brexit date.
ENGINEERING
The Engineering division had a slow start to the financial year due to contract phasing. Adjusted operating profit was down 39.6% at £1.2m (H1 2019: £2.0m); reported operating profit was £1.1m (H1 2019: £1.9m).
As announced in our March trading update, while the Group originally expected the strength of its pipeline to offset this slow start during the second half of the year, delays to certain significant orders into our next financial year means that this is no longer the case.
UK Service and Manufacturing
Our UK Manufacturing business performed well during the period, benefitting from strong order books across each of our chosen markets.
Our most recent acquisition, NW Total, acquired in June 2019, has been fully integrated into the broader Engineering division and is performing well. The business has a strong order book and is well placed to benefit from significant opportunities in nuclear decommissioning and nuclear defence, in particular the UK's £31 billion Dreadnought submarine programme.
NW Total complements the range of products and services offered across the rest of our Engineering division and is now collaborating with our other engineering businesses on projects in the UK and USA, realising synergies identified in the Board's acquisition strategy. As previously reported, our new divisional management team has overseen a focus on closer collaboration, including in new business development, where we have aligned our products and services with our customers and markets, and through enhancements in procurement.
Global Robotics
Our Global Robotics business has experienced delays to contract awards, primarily on projects in Japan and China. While this is expected to result in lower levels of activity than anticipated during the second half of the financial year, the medium-term prospects for the Global Robotics business remain robust, supported by a strong and diverse global pipeline.
As part of our investment in new business development, we have recently opened a new showroom in Mooresville, Charlotte to demonstrate our range of robotics equipment, including Wälischmiller products, to customers based in the USA.
Global Technical Services
As previously reported, our Global Technical Services business experienced lower levels of activity during the period, owing to the phasing of several significant multi-year patented MSIP® technology projects. These contracts will mainly benefit H2 2020 and FY2021 and are progressing as planned. In the medium term, the business has a strong order book and opportunity pipeline, including a $6.2m MSIP® contract secured during the period to be delivered into Switzerland in 2021.
Work on our project to develop passive cooling technology, following funding awarded by the US Department of Energy, is progressing well. This technology has the potential to be retrofitted to existing nuclear power plants to reduce the risk of a catastrophic incident.
BALANCE SHEET AND CASHFLOW
Net cash generated from operating activities in the first half was £4.9m (H1 2019: £3.8m). Net debt, excluding leases, rose to £25.4m from £20.9m, excluding finance leases, at the 2019 financial year end. This is primarily related to seasonal working capital increases, the payment of contingent consideration in relation to the acquisition of NuVision, and the payment of dividends. The Group's defined benefit pension scheme remains in surplus, although that surplus had decreased from £7.8m at 31 August 2019 to £6.6m at 29 February 2020. This was primarily due to market conditions.
During the period, the Group implemented IFRS 16, which has resulted in right-of-use assets of £15.9m and related lease liabilities of £15.2m at 29 February 2020. IFRS 16 has had a minimal impact on profit before tax.
SHAREHOLDERS' EQUITY
Shareholders' equity at 29 February 2020 was £114.5m (31 August 2019: £114.3m), with the increase primarily due to profit retained by the Group for the period offset by the reduction in the Group's pension surplus, foreign exchange translation losses and dividends paid.
DIVIDEND
Given the uncertainty associated with the COVID-19 pandemic, and in order to provide the Group with maximum flexibility during these unprecedented times, the Board considers it prudent to defer the payment of an interim dividend until such time as the full effects of the pandemic have become clearer. The position will be revisited at the time of the Group's trading update expected in July 2020.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has a process in place to identify and assess the impact of risks on its business, which is reviewed and updated quarterly. The principal risks and uncertainties for the remainder of the financial year are not expected to change materially from those included on pages 31 to 32 of the Annual Report and Accounts 2019 (available on the Company's website at http://investors.carrsgroup.com) with the exception of the potential impact of COVID-19, further details relating to which are set out above.
OUTLOOK
As reported in our trading update on 12 March 2020, challenges across both divisions, unrelated to COVID-19, led to a reduction in the Board's expectations for the current financial year. Based on recent activity, and whilst remaining acutely aware of possible interruptions due to COVID-19, the Board still anticipates a full-year outcome broadly in line with those revised expectations.
We continue to monitor the effects of COVID-19 very closely, taking steps where necessary to protect operations and planning contingencies to limit any negative impact on the Group's performance. The Board is extremely grateful to all colleagues for their commitment, dedication and ingenuity in ensuring that operations continue.
The Board remains confident that the Group is well placed for growth in the longer term.
CONDENSED CONSOLIDATED INCOME STATEMENT
For the 26 weeks ended 29 February 2020
| 26 weeks ended 29 February 2020 (unaudited) |
26 weeks ended 2 March 2019 (unaudited) |
52 weeks ended 31 August 2019 (audited) |
||
| Notes | £'000 | £'000 | £'000 | |
| Continuing operations | ||||
| Revenue | 6,7 | 199,957 | 206,210 | 403,905 |
| Cost of sales | (172,924) | (176,702) | (349,798) | |
| Gross profit | 27,033 | 29,508 | 54,107 | |
| Net operating expenses | (17,685) | (20,885) | (39,289) | |
| Adjusted¹ share of post-tax results of associate and joint ventures | 1,892 | 2,207 | 2,683 | |
| Non-recurring items | 8 | - | - | (306) |
| Share of post-tax results of associate and joint ventures | 1,892 | 2,207 | 2,377 | |
| Adjusted¹ operating profit | 6 | 10,322 | 11,922 | 18,930 |
| Amortisation of acquired intangible assets and non-recurring items | 8 | 918 | (1,092) | (1,735) |
| Operating profit | 6 | 11,240 | 10,830 | 17,195 |
| Finance income | 178 | 226 | 463 | |
| Finance costs | (905) | (722) | (1,349) | |
| Adjusted¹ profit before taxation | 6 | 9,595 | 11,426 | 18,044 |
| Amortisation of acquired intangible assets and non-recurring items | 8 | 918 | (1,092) | (1,735) |
| Profit before taxation | 6 | 10,513 | 10,334 | 16,309 |
| Taxation | (1,382) | (1,884) | (2,685) | |
| Profit for the period | 9,131 | 8,450 | 13,624 | |
| Profit attributable to: | ||||
| Equity shareholders | 8,565 | 7,656 | 12,049 | |
| Non-controlling interests | 566 | 794 | 1,575 | |
| 9,131 | 8,450 | 13,624 | ||
| Earnings per share (pence) | ||||
| Basic | 9 | 9.3 | 8.3 | 13.1 |
| Diluted | 9 | 9.1 | 8.1 | 12.8 |
| Adjusted¹ | 9 | 8.0 | 9.4 | 14.6 |
| Diluted adjusted¹ | 9 | 7.9 | 9.1 | 14.2 |
[1] Adjusted results are after adding back amortisation of acquired intangible assets and non-recurring items
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 26 weeks ended 29 February 2020
| 26 weeks) ended 29 February) 2020 (unaudited) |
26 weeks ended 2 March 2019 (unaudited) |
52 weeks Ended 31 August 2019 (audited) |
||
| Notes | £'000 | £'000 | £'000 | |
| Profit for the period | 9,131 | 8,450 | 13,624 | |
| Other comprehensive (expense)/income | ||||
| Items that may be reclassified subsequently to profit or loss: | ||||
| Foreign exchange translation (losses)/gains arising on translation of overseas subsidiaries |
(2,778) | (1,487) | 1,857 | |
| Net investment hedges | 210 | 177 | 37 | |
| Taxation charge on net investment hedges | (40) | (33) | (7) | |
| Items that will not be reclassified subsequently to profit or loss: | ||||
| Actuarial losses on retirement benefit asset: | ||||
| - Group | 14 | (1,187) | (2,640) | (1,845) |
| - Share of associate | - | - | (88) | |
| Taxation credit on actuarial losses on retirement benefit asset: | ||||
| - Group | 202 | 449 | 314 | |
| - Share of associate | - | - | 15 | |
| Other comprehensive (expense)/income for the period, net of tax | (3,593) | (3,534) | 283 | |
| Total comprehensive income for the period | 5,538 | 4,916 | 13,907 | |
| Total comprehensive income attributable to: | ||||
| Equity shareholders | 4,972 | 4,122 | 12,332 | |
| Non-controlling interests | 566 | 794 | 1,575 | |
| 5,538 | 4,916 | 13,907 | ||
CONDENSED CONSOLIDATED BALANCE SHEET
As at 29 February 2020
| As at 29 February 2020 (unaudited) |
As at 2 March 2019 (unaudited) |
As at 31 August 2019 (audited) |
|||
| Notes | £'000 | £'000 | £'000 | ||
| Non-current assets | |||||
| Goodwill | 11 | 32,070 | 28,138 | 32,877 | |
| Other intangible assets | 11 | 9,315 | 2,737 | 9,318 | |
| Property, plant and equipment | 11 | 36,767 | 40,029 | 41,917 | |
| Right-of-use assets | 11 | 15,870 | - | - | |
| Investment property | 11 | 161 | 167 | 164 | |
| Investment in associate | 13,846 | 13,783 | 13,392 | ||
| Interest in joint ventures | 10,392 | 8,980 | 9,671 | ||
| Other investments | 74 | 74 | 76 | ||
| Financial assets | |||||
| - Non-current receivables | 21 | 20 | 22 | ||
| Retirement benefit asset | 14 | 6,643 | 6,841 | 7,769 | |
| Deferred tax assets | 410 | - | 410 | ||
| 125,569 | 100,769 | 115,616 | |||
| Current assets | |||||
| Inventories | 48,915 | 51,542 | 46,270 | ||
| Contract assets | 8,412 | 6,958 | 9,466 | ||
| Trade and other receivables | 60,537 | 59,553 | 56,349 | ||
| Current tax assets | 328 | 554 | - | ||
| Financial assets | |||||
| - Cash and cash equivalents | 12 | 29,318 | 29,239 | 28,649 | |
| 147,510 | 147,846 | 140,734 | |||
| Total assets | 273,079 | 248,615 | 256,350 | ||
| Current liabilities | |||||
| Financial liabilities | |||||
| - Borrowings | 12 | (26,855) | (28,507) | (23,856) | |
| - Leases | 12 | (2,557) | - | - | |
| Contract liabilities | (2,351) | (441) | (1,269) | ||
| Trade and other payables | (62,520) | (65,020) | (62,653) | ||
| Current tax liabilities | (158) | (1,296) | (1,010) | ||
| (94,441) | (95,264) | (88,788) | |||
| Non-current liabilities | |||||
| Financial liabilities | |||||
| - Borrowings | 12 | (27,896) | (24,012) | (28,586) | |
| - Leases | 12 | (12,666) | - | - | |
| Deferred tax liabilities | (4,634) | (3,737) | (4,987) | ||
| Other non-current liabilities | (2,537) | (2,696) | (2,999) | ||
| (47,733) | (30,445) | (36,572) | |||
| Total liabilities | (142,174) | (125,709) | (125,360) | ||
| Net assets | 130,905 | 122,906 | 130,990 | ||
| Shareholders' equity | |||||
| Share capital | 15 | 2,312 | 2,298 | 2,299 | |
| Share premium | 15 | 9,165 | 9,149 | 9,165 | |
| Other reserves | 4,379 | 4,411 | 7,922 | ||
| Retained earnings | 98,655 | 90,878 | 94,864 | ||
| Total shareholders' equity | 114,511 | 106,736 | 114,250 | ||
| Non-controlling interests | 16,394 | 16,170 | 16,740 | ||
| Total equity | 130,905 | 122,906 | 130,990 | ||
The comparative periods presented have not been restated for the adoption of IFRS 16
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 26 weeks ended 29 February 2020
| Share Capital |
Share Premium | Treasury Share Reserve |
Equity Compensation Reserve | Foreign Exchange Reserve | Other Reserve | Retained Earnings |
Total Shareholders' Equity | Non- Controlling Interests | Total Equity | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| As previously reported | ||||||||||
| at 31 August 2019 (audited) | 2,299 | 9,165 | - | 1,577 | 6,146 | 199 | 94,864 | 114,250 | 16,740 | 130,990 |
| Effect of IFRS 16 adoption | - | - | - | - | - | - | (1,093) | (1,093) | (615) | (1,708) |
| At 1 September 2019 (restated)¹ (unaudited) |
2,299 | 9,165 | - | 1,577 | 6,146 | 199 | 93,771 | 113,157 | 16,125 | 129,282 |
| Profit for the period | - | - | - | - | - | - | 8,565 | 8,565 | 566 | 9,131 |
| Other comprehensive expense | - | - | - | - | (2,608) | - | (985) | (3,593) | - | (3,593) |
| Total comprehensive (expense)/income | - | - | - | - | (2,608) | - | 7,580 | 4,972 | 566 | 5,538 |
| Dividends paid | - | - | - | - | - | - | (3,344) | (3,344) | (294) | (3,638) |
| Equity-settled share based payment transactions | - | - | - | (933) | - | - | 659 | (274) | (3) | (277) |
| Allotment of shares | 13 | - | - | - | - | - | - | 13 | - | 13 |
| Purchase of own shares held in trust | - | - | (13) | - | - | - | - | (13) | - | (13) |
| Transfer | - | - | 12 | - | - | (1) | (11) | - | - | - |
| At 29 February 2020 (unaudited) | 2,312 | 9,165 | (1) | 644 | 3,538 | 198 | 98,655 | 114,511 | 16,394 | 130,905 |
| At 2 September 2018 (audited) | 2,285 | 9,141 | - | 1,427 | 4,259 | 202 | 87,843 | 105,157 | 15,685 | 120,842 |
| Profit for the period | - | - | - | - | - | - | 7,656 | 7,656 | 794 | 8,450 |
| Other comprehensive expense | - | - | - | - | (1,343) | - | (2,191) | (3,534) | - | (3,534) |
| Total comprehensive (expense)/income | - | - | - | - | (1,343) | - | 5,465 | 4,122 | 794 | 4,916 |
| Dividends paid | - | - | - | - | - | - | (3,139) | (3,139) | (343) | (3,482) |
| Equity-settled share based payment transactions | - | - | - | (133) | - | - | 721 | 588 | 34 | 622 |
| Allotment of shares | 13 | 8 | - | - | - | - | - | 21 | - | 21 |
| Purchase of own shares held in trust | - | - | (13) | - | - | - | - | (13) | - | (13) |
| Transfer | - | - | 13 | - | - | (1) | (12) | - | - | - |
| At 2 March 2019 (unaudited) | 2,298 | 9,149 | - | 1,294 | 2,916 | 201 | 90,878 | 106,736 | 16,170 | 122,906 |
| At 2 September 2018 (audited) |
2,285 | 9,141 | - | 1,427 | 4,259 | 202 | 87,843 | 105,157 | 15,685 | 120,842 |
| Profit for the period | - | - | - | - | - | - | 12,049 | 12,049 | 1,575 | 13,624 |
| Other comprehensive income/(expense) | - | - | - | - | 1,887 | - | (1,604) | 283 | - | 283 |
| Total comprehensive income | - | - | - | - | 1,887 | - | 10,445 | 12,332 | 1,575 | 13,907 |
| Dividends paid | - | - | - | - | - | - | (4,173) | (4,173) | (588) | (4,761) |
| Equity-settled share based payment transactions | - | - | - | 53 | - | - | 759 | 812 | 68 | 880 |
| Allotment of shares | 14 | 24 | - | - | - | - | - | 38 | - | 38 |
| Purchase of own shares held in trust | - | - | (13) | - | - | - | - | (13) | - | (13) |
| Reclassified from liabilities | - | - | - | 97 | - | - | - | 97 | - | 97 |
| Transfer | - | - | 13 | - | - | (3) | (10) | - | - | - |
| At 31 August 2019 (audited) | 2,299 | 9,165 | - | 1,577 | 6,146 | 199 | 94,864 | 114,250 | 16,740 | 130,990 |
[1] Restated for the adoption of IFRS 16 (note 19)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 26 weeks ended 29 February 2020
| 26 weeks ended 29 February 2020 (unaudited) |
26 weeks ended 2 March 2019 (unaudited) |
52 weeks ended 31 August 2019 (audited) |
||
| Notes | £'000 | £'000 | £'000 | |
| Cash flows from operating activities | ||||
| Cash generated from continuing operations | 16 | 7,840 | 5,015 | 16,004 |
| Interest received | 111 | 86 | 178 | |
| Interest paid | (897) | (596) | (1,276) | |
| Tax paid | (2,139) | (734) | (2,306) | |
| Net cash generated from operating activities | 4,915 | 3,771 | 12,600 | |
| Cash flows from investing activities | ||||
| Acquisition of subsidiaries (net of overdraft/cash acquired) | - | (4,717) | (9,868) | |
| Contingent/deferred consideration paid | (1,596) | (155) | (379) | |
| Dividends received from associate and joint ventures | 294 | 343 | 711 | |
| Other loans | 382 | 53 | 79 | |
| Purchase of intangible assets | (845) | (550) | (1,310) | |
| Proceeds from sale of property, plant and equipment | 141 | 362 | 831 | |
| Purchase of property, plant and equipment | (2,569) | (1,851) | (4,471) | |
| Purchase of own shares held in trust | (13) | (13) | (13) | |
| Net cash used in investing activities | (4,206) | (6,528) | (14,420) | |
| Cash flows from financing activities | ||||
| Proceeds from issue of ordinary share capital | 13 | 21 | 38 | |
| New bank loans and movement on RCF | 2,500 | 8,394 | 14,430 | |
| Lease principal repayments | (1,569) | (641) | (1,278) | |
| Repayment of borrowings | (1,247) | (1,628) | (2,493) | |
| Increase/(decrease) in other borrowings | 114 | 3,766 | (1,352) | |
| Dividends paid to shareholders | (3,344) | (3,139) | (4,173) | |
| Dividends paid to related party | (294) | (343) | (588) | |
| Net cash (used in)/generated from financing activities | (3,827) | 6,430 | 4,584 | |
| Effects of exchange rate changes | (410) | (538) | 526 | |
| Net (decrease)/increase in cash and cash equivalents | (3,528) | 3,135 | 3,290 | |
| Cash and cash equivalents at beginning of the period | 24,295 | 21,005 | 21,005 | |
| Cash and cash equivalents at end of the period | 20,767 | 24,140 | 24,295 | |
| Cash and cash equivalents consist of: | ||||
| Cash and cash equivalents per the balance sheet | 29,318 | 29,239 | 28,649 | |
| Bank overdrafts included in borrowings | (8,551) | (5,099) | (4,354) | |
| 20,767 | 24,140 | 24,295 |
Statement of Directors' responsibilities
We confirm that to the best of our knowledge:
• the condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
• the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Directors are listed in the Annual Report and Accounts 2019. A list of current Directors is maintained on the website: www.carrsgroup.com
On behalf of the Board
Tim Davies Neil Austin
Chief Executive Officer Group Finance Director
15 April 2020 15 April 2020
Unaudited notes to condensed interim financial information
1. General information
The Group operates across two divisions of Agriculture and Engineering. The Company is a public limited company, which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA.
These condensed interim financial statements were approved for issue on 15 April 2020.
The comparative figures for the financial year ended 31 August 2019 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditor and delivered to the Registrar of Companies. The report of the auditor was (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.
2. Basis of preparation
These condensed interim financial statements for the 26 weeks ended 29 February 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the 52 weeks ended 31 August 2019, which have been prepared in accordance with IFRSs as adopted by the European Union.
The Directors have made suitable enquiries and based on financial performance to date and available banking facilities they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The potential impact of COVID-19 is discussed further in the interim management report. The Group therefore continues to adopt the going concern basis in preparing its condensed interim financial statements.
3. Accounting policies
The accounting policies adopted are consistent with those of the previous financial year except for:
Taxation
Income taxes are accrued based on management's estimate of the weighted average annual income tax rate expected for the full financial year based on enacted or substantively enacted tax rates at 29 February 2020.
IFRS 16 'Leases'
The Group adopted IFRS 16 with effect from 1 September 2019 and has applied the standard using the modified retrospective approach under which the cumulative effect of initially applying the standard is recognised at the date of initial application. The Group has restated its opening total equity position as at 1 September 2019 by a charge of £1.7m. Comparative information has not been restated and is therefore still reported under IAS 17 'Leases' and related interpretations. To assist comparability, note 19 shows the balance sheet as at 29 February 2020 had the Group continued to adopt IAS 17 and related interpretations.
Under the modified retrospective approach used, the Group has recognised right-of-use assets at their carrying amounts as if the standard had been applied since the commencement date, but discounted using the Group's incremental borrowing rate at the date of initial application. The liability has been recognised at an amount equal to the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at the date of initial application. The incremental borrowing rates used range between 1.3% - 3.88%. In addition to existing finance leased assets with a net book value of £4.4m being transferred to right-of-use assets on transition, £11.5m of right-of-use assets were recognised on transition in respect of leases previously accounted for as operating leases under IAS 17. An additional lease obligation of £12.7m was recognised on transition in respect of leases previously accounted for as operating leases. Prepayments and accruals totalling £0.5m have been removed from the balance sheet on transition.
3. Accounting policies (continued)
A reconciliation of operating lease commitments disclosed as at 31 August 2019 to the lease liabilities recognised on transition is as follows:
| £'000 | |
| Operating lease commitments as at 31 August 2019 | 12,917 |
| Discounted using the incremental borrowing rate at initial application | (4,365) |
| Inclusion of liabilities beyond break clauses | 3,746 |
| Other | 357 |
| Lease liabilities (excluding existing finance lease liabilities) at 1 September 2019 | 12,655 |
Right-of-use assets include properties, motor vehicles, plant and machinery and other equipment. Right-of-use assets are depreciated over the shorter of the asset's useful economic life and the lease term on a straight line basis and are also subject to regular impairment reviews.
Leases that commenced during the period ended 29 February 2020 are discounted using the rate implicit in the lease. Where this cannot be determined the Group's incremental cost of borrowing is used. The interest charge recognised in the income statement within finance costs reflects the unwinding of the discounting over the life of the lease. Lease payments are taken to the balance sheet as incurred to reduce the lease liability.
The following table shows the effect of IFRS 16 on the income statement for the period ended 29 February 2020.
| £'000 | |
| Reduction in lease expense recognised | 1,024 |
| Depreciation on right-of-use assets | (947) |
| Interest cost of lease liabilities | (183) |
| Impact on Group profit before tax | (106) |
Depreciation and interest costs in the table above exclude amounts in respect of finance leases that would have been recognised in the income statement under IAS 17.
On transition to IFRS 16 the Group has applied the following practical expedients permitted by the standard on a lease-by-lease basis:
· Accounting for leases where the lease term ends within 12 months of the date of initial application as short-term leases;
· Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
· Use of hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease.
The Group is not required to make any transition adjustment for leases previously classified as operating leases under IAS 17 where the underlying asset is of low value.
The Group is also not required to reassess whether a contract is, or contains, a lease at the date of initial application. IFRS 16 permits the Group to apply the standard only to contracts that were previously identified as containing a lease under IAS 17 and IFRIC 4 'Determining whether an arrangement contains a lease'.
4. Significant judgements and estimates
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the 52 weeks ended 31 August 2019, with the exception of judgements made in respect of IFRS 16 'Leases' and changes in estimates that are required in determining the provision for income taxes as explained in note 3.
For IFRS 16 significant judgements are required, principally in respect of property leases, when determining the lease term where the lease contains break clauses or options to extend the term. The Group has several property leases and in valuing these assets the Group has assumed that the right to break or extend the lease is
not exercised. The Group will regularly monitor these leases and should this assumption become inappropriate the asset and liability will be revalued accordingly.
5. Financial risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk and liquidity risk.
The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 August 2019. The potential impact of COVID-19 is discussed further in the interim management report.
6. Operating segment information
The Group's chief operating decision-maker ("CODM") has been identified as the Executive Directors. Management has determined the operating segments based on the information reviewed by the CODM for the purposes of allocating resources and assessing performance.
The CODM considers the business from a product/services perspective. Reportable operating segments have been identified as Agriculture and Engineering. Central comprises the central business activities of the Group's head office, which earns no external revenues. Performance is assessed using operating profit. For internal purposes the CODM assesses operating profit before material non-recurring items and amortisation of acquired intangible assets (note 8) consistent with the presentation of adjusted operating profit in the financial statements. The CODM believes this measure provides a better reflection of the Group's underlying performance. Sales between segments are carried out at arm's length.
6. Operating segment information (continued)
The following tables present revenue, profit and asset information regarding the Group's operating segments for the 26 weeks ended 29 February 2020 and the comparative periods.
| 26 weeks ended 29 February 2020 | Agriculture £'000 |
Engineering £'000 |
Central £'000 |
Group £'000 |
| Total segment revenue | 175,042 | 24,919 | - | 199,961 |
| Inter segment revenue | (3) | (1) | - | (4) |
| Revenue from external customers | 175,039 | 24,918 | - | 199,957 |
| Adjusted¹ EBITDA² | 9,051 | 2,492 | 195 | 11,738 |
| Depreciation, amortisation and profit/(loss) on disposal of non-current assets |
(1,942) | (1,277) | (89) | (3,308) |
| Share of post-tax results of associate and joint ventures | 1,892 | - | - | 1,892 |
| Adjusted¹ operating profit | 9,001 | 1,215 | 106 | 10,322 |
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
994 | (76) | - | 918 |
| Operating profit | 9,995 | 1,139 | 106 | 11,240 |
| Finance income | 178 | |||
| Finance costs | (905) | |||
| Adjusted¹ profit before taxation | 9,595 | |||
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
918 | |||
| Profit before taxation | 10,513 | |||
| Segment gross assets | 171,050 | 83,786 | 18,243 | 273,079 |
The following tables have been restated to present central costs separately. This is to aid comparability with the segmental information presented for the current period to 29 February 2020.
| 26 weeks ended 2 March 2019 (restated) | Agriculture £'000 |
Engineering £'000 |
Central £'000 |
Group £'000 |
| Total segment revenue | 185,179 | 21,039 | - | 206,218 |
| Inter segment revenue | (7) | (1) | - | (8) |
| Revenue from external customers | 185,172 | 21,038 | - | 206,210 |
| Adjusted¹ EBITDA² | 9,931 | 2,931 | (698) | 12,164 |
| Depreciation, amortisation and profit/(loss) on disposal of non-current assets |
(1,485) | (920) | (44) | (2,449) |
| Share of post-tax results of associate and joint ventures | 2,207 | - | - | 2,207 |
| Adjusted¹ operating profit | 10,653 | 2,011 | (742) | 11,922 |
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
(47) | (103) | (942) | (1,092) |
| Operating profit | 10,606 | 1,908 | (1,684) | 10,830 |
| Finance income | 226 | |||
| Finance costs | (722) | |||
| Adjusted¹ profit before taxation | 11,426 | |||
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
(1,092) | |||
| Profit before taxation | 10,334 | |||
| Segment gross assets | 169,385 | 64,243 | 14,987 | 248,615 |
[1] Adjusted results are after adding back amortisation of acquired intangible assets and non-recurring items
2 Earnings before interest, tax, depreciation, amortisation, profit/(loss) on the disposal of non-current assets and share of post-tax results of associate and joint ventures
6. Operating segment information (continued)
| 52 weeks ended 31 August 2019 (restated) | Agriculture £'000 |
Engineering £'000 |
Central £'000 |
Group £'000 |
| Total segment revenue | 357,399 | 46,556 | - | 403,955 |
| Inter segment revenue | (11) | (39) | - | (50) |
| Revenue from external customers | 357,388 | 46,517 | - | 403,905 |
| Adjusted¹ EBITDA² | 14,914 | 7,796 | (1,554) | 21,156 |
| Depreciation, amortisation and profit/(loss) on disposal of non-current assets |
(2,946) | (1,879) | (84) | (4,909) |
| Share of post-tax results of associate (adjusted¹) and joint ventures | 2,683 | - | - | 2,683 |
| Adjusted¹ operating profit | 14,651 | 5,917 | (1,638) | 18,930 |
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
(531) | 65 | (1,269) | (1,735) |
| Operating profit | 14,120 | 5,982 | (2,907) | 17,195 |
| Finance income | 463 | |||
| Finance costs | (1,349) | |||
| Adjusted¹ profit before taxation | 18,044 | |||
| Amortisation of acquired intangible assets and non-recurring items (note 8) |
(1,735) | |||
| Profit before taxation | 16,309 | |||
| Segment gross assets | 157,685 | 82,436 | 16,229 | 256,350 |
1 Adjusted results are after adding back amortisation of acquired intangible assets and non-recurring items
2 Earnings before interest, tax, depreciation, amortisation, profit/(loss) on the disposal of non-current assets and share of post-tax results of associate and joint ventures
7. Disaggregation of revenue
The following table presents the Group's reported revenue disaggregated based on the timing of revenue recognition.
| 26 weeks ended 29 February 2020 |
26 weeks ended 2 March 2019 |
52 weeks ended 31 August 2019 |
|
| Timing of revenue recognition | £'000 | £'000 | £'000 |
| Over time | 16,054 | 13,098 | 27,840 |
| At a point in time | 183,903 | 193,112 | 376,065 |
| 199,957 | 206,210 | 403,905 |
8. Amortisation of acquired intangible assets and non-recurring items
| 26 weeks ended 29 February 2020 £'000 |
26 weeks ended 2 March 2019 £'000 |
52 weeks ended 31 August 2019 £'000 |
|
| Amortisation of acquired intangible assets (i) | 687 | 150 | 814 |
| Adjustments to contingent consideration (ii) | (2,147) | - | (1,126) |
| Restructuring/closure costs (iii) | 542 | - | 437 |
| Business combination expenses (iv) | - | 147 | 509 |
| Past service cost - Group (v) | - | 795 | 795 |
| Past service cost - share of associate (v) | - | - | 306 |
| (918) | 1,092 | 1,735 |
(i) Amortisation of acquired intangible assets which do not relate to the underlying profitability of the Group.
(ii) Adjustments to contingent consideration arise from the revaluation of contingent consideration in respect of acquisitions to fair value at the period end. Any increase or decrease in fair value is recognised through the income statement. The Group has recognised a decrease in fair value in respect of the contingent consideration payable to the vendors of NuVision Engineering, Inc. and Animax Ltd. The Group has recognised an increase in fair value in respect of the contingent consideration payable to the vendors of NW Total Engineered Solutions Ltd. These movements arise from changes to the expected payments since the previous year end based on actual results and updated forecasts. They do not relate to the underlying profitability of the Group and have therefore been recognised as non-recurring items.
(iii) Restructuring/closure costs include redundancy costs and impairments of assets to recoverable amounts.
(iv) Business combination expenses relate to acquisition costs incurred.
(v) The scheme actuary's estimated effect on the Group's, and share of associate's, pension scheme liabilities following the equalisation of Guaranteed Minimum Pensions (GMPs). Further details can be found in note 14.
9. Earnings per share
Amortisation of acquired intangible assets and non-recurring items 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:
| 26 weeks ended 29 February 2020 |
26 weeks ended 2 March 2019 |
52 weeks ended 31 August 2019 |
|
| £'000 | £'000 | £'000 | |
| Earnings | 8,565 | 7,656 | 12,049 |
| Amortisation and non-recurring items: | |||
| Amortisation of acquired intangible assets | 687 | 150 | 814 |
| Adjustments to contingent consideration | (2,147) | - | (1,126) |
| Restructuring/closure costs | 542 | - | 437 |
| Business combination expenses | - | 147 | 509 |
| Past service cost - Group | - | 795 | 795 |
| Past service cost - share of associate | - | - | 306 |
| Taxation effect of the above | (225) | (166) | (367) |
| Non-controlling interest in the above | (29) | - | (57) |
| Earnings - adjusted | 7,393 | 8,582 | 13,360 |
| Number | Number | Number | |
| Weighted average number of ordinary shares in issue | 92,214,566 | 91,697,033 | 91,828,015 |
| Potentially dilutive share options | 1,669,575 | 2,821,066 | 2,519,643 |
| 93,884,141 | 94,518,099 | 94,347,658 | |
| Earnings per share (pence) | |||
| Basic | 9.3p | 8.3p | 13.1p |
| Diluted | 9.1p | 8.1p | 12.8p |
| Adjusted | 8.0p | 9.4p | 14.6p |
| Diluted adjusted | 7.9p | 9.1p | 14.2p |
10. Dividends
An interim dividend of £1,034,348 that related to the period to 31 August 2019 was paid on 4 October 2019, and a final dividend of £2,310,140 was paid on 10 January 2020.
Given the uncertainty associated with the COVID-19 pandemic, and in order to provide the Group with maximum flexibility during these unprecedented times, the Board considers it prudent to defer the payment of an interim dividend until such time as the full effects of the pandemic have become clearer. The position will be revisited at the time of the Group's trading update expected in July 2020.
11. Intangible assets, property, plant and equipment, right-of-use assets and investment property
| Goodwill £'000 |
Other intangible assets £'000 |
Property plant and equipment £'000 |
Right-of-use assets £'000 |
Investment property £'000 |
|||||||
| 26 weeks ended 29 February 2020 | |||||||||||
| Opening net book amount at 1 September 2019 | 32,877 | 9,318 | 41,917 | - | 164 | ||||||
| Transition to IFRS 16 (note 19) | - | - | (4,409) | 15,903 | - | ||||||
| Exchange differences | (807) | (99) | (911) | (48) | - | ||||||
| Additions | - | 845 | 2,569 | 1,263 | - | ||||||
| Disposals | - | - | (90) | - | - | ||||||
| Depreciation, amortisation and impairment | - | (749) | (2,309) | (1,248) | (3) | ||||||
| Closing net book amount at 29 February 2020 | 32,070 | 9,315 | 36,767 | 15,870 | 161 | ||||||
| 26 weeks ended 2 March 2019 | |||||||||||
| Opening net book amount at 2 September 2018 | 24,272 | 2,223 | 38,484 | - | 170 | ||||||
| Exchange differences | (402) | (42) | (486) | - | - | ||||||
| Subsidiary acquired | 4,268 | 226 | 1,868 | - | - | ||||||
| Additions | - | 550 | 2,901 | - | - | ||||||
| Disposals | - | - | (352) | - | - | ||||||
| Depreciation and amortisation | - | (220) | (2,386) | - | (3) | ||||||
| Closing net book amount as at 2 March 2019 | 28,138 | 2,737 | 40,029 | - | 167 | ||||||
On transition to IFRS 16 £4,409,000 was transferred from property, plant and equipment to the new category of right-of-use assets in respect of assets held under finance leases. £11,494,000 was recognised on transition in respect of assets held under operating lease arrangements. Further details can be found in note 19.
Capital commitments contracted, but not provided for, by the Group at the period end amounts to £1,559,000 (2019: £132,000).
12. Borrowings and leases
| As at 29 February 2020 |
As at 2 March 2019 |
As at 31 August 2019 |
|
| £'000 | £'000 | £'000 | |
| Current | 26,855 | 28,507 | 23,856 |
| Non-current | 27,896 | 24,012 | 28,586 |
| Total borrowings | 54,751 | 52,519 | 52,442 |
| Cash and cash equivalents as per the balance sheet | (29,318) | (29,239) | (28,649) |
| Net debt (excluding leases under IFRS 16) | 25,433 | 23,280 | 23,793 |
| Leases | 15,223 | - | - |
| Net debt (including leases) | 40,656 | 23,280 | 23,793 |
| Net debt (excluding leases under IAS 17) | 20,514 | 20,870 | |
| Undrawn facilities | 22,412 | 21,456 | 22,191 |
| Current borrowings include bank overdrafts of £8.6m (2019: £5.1m). Undrawn facilities include overdraft facilities of £2.5m (2019: £2.5m) that are renewable on an annual basis. |
| Movements in borrowings are analysed as follows: | 26 weeks ended 29 February 2020 |
26 weeks ended 2 March 2019 |
| £'000 | £'000 | |
| Balance at start of period | 52,442 | 39,991 |
| Reclassified to leases on transition to IFRS 16 (note 19) | (2,923) | - |
| Exchange differences | (362) | (246) |
| Subsidiary acquired | - | 340 |
| New bank loans/RCF drawdown | 2,500 | 8,393 |
| New finance leases (IAS 17) | - | 1,051 |
| Finance lease principal repayments (IAS 17) | - | (641) |
| Repayments of borrowings | (1,247) | (1,628) |
| Increase in other borrowings | 114 | 3,766 |
| Release of deferred borrowing costs | 30 | 21 |
| Net increase to bank overdraft (excluding the effects of acquisitions) | 4,197 | 1,472 |
| Balance at end of period | 54,751 | 52,519 |
12. Borrowings and leases (continued)
| Movements in leases are analysed as follows: | 26 weeks ended 29 February 2020 |
26 weeks ended 2 March 2019 |
| £'000 | £'000 | |
| Balance at start of period | - | - |
| Reclassified from borrowings on transition to IFRS 16 (note 19) | 2,923 | - |
| Additional leases recognised on transition to IFRS 16 (note 19) | 12,655 | - |
| Exchange differences | (49) | - |
| New leases | 1,263 | - |
| Lease principal repayments | (1,569) | - |
| Balance at end of period | 15,223 | - |
The comparative period information presented in this note has not been restated for the effects of IFRS 16. Finance lease liabilities in the comparative periods are included within borrowings on the balance sheet.
13. Financial instruments
IFRS 13 requires financial instruments that are measured at fair value to be classified according to the valuation technique used:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 - inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)
Level 3 - unobservable inputs
All derivative financial instruments are measured at fair value using Level 2 inputs. The Group's bankers provide the valuations for the derivative financial instruments at each reporting period end based on mark to market valuation techniques.
Contingent consideration is measured at fair value using Level 3 inputs such as entity projections of future profitability.
Transfers between levels are deemed to have occurred at the end of the reporting period. There were no transfers between levels in the above hierarchy in the period.
Financial instruments recognised at fair value are as follows:
| As at 29 February 2020 |
As at 2 March 2019 |
As at 31 August 2019 |
|
| Book value and fair value | £'000 | £'000 | £'000 |
| Current contingent consideration payable | (878) | (3,417) | (5,119) |
| Non-current contingent consideration payable | (2,401) | (2,517) | (2,835) |
The movement on the fair value of current and non-current contingent consideration since 31 August 2019 is mainly due to payments made to vendors and changes to expected future payments based on updated forecasts.
14. Retirement benefit asset
The (income)/expense is recognised within the Income Statement as shown below:
| 26 weeks ended 29 February 2020 |
26 weeks Ended 2 March 2019 |
52 weeks ended 31 August 2019 |
|
| £'000 | £'000 | £'000 | |
| Administrative expenses | 9 | 11 | 21 |
| Past service cost | - | 795 | 795 |
| Net interest on the net defined benefit asset | (70) | (141) | (284) |
| (61) | 665 | 532 |
The past service cost in the prior period of £795,000 represents the scheme actuary's estimated effect on the Group's pension scheme liabilities following the equalisation of Guaranteed Minimum Pensions (GMPs). The Group continues to monitor further clarifications arising from the High Court case of Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others.
Net interest on the defined benefit retirement asset is recognised within interest income.
The amounts recognised in the Balance Sheet were as follows:
| As at 29 February 2020 |
As at 2 March 2019 |
As at 31 August 2019 |
|
| £'000 | £'000 | £'000 | |
| Present value of funded defined benefit obligations | (67,203) | (61,930) | (68,037) |
| Fair value of scheme assets | 73,846 | 68,771 | 75,806 |
| Surplus in funded scheme | 6,643 | 6,841 | 7,769 |
Actuarial losses of £1,187,000 (2019: £2,640,000) have been reported in the Statement of Comprehensive Income. The surplus has decreased over the period since 31 August 2019 due to changes in market conditions contributing to an overall reduction in the scheme surplus.
The Group's associate's defined benefit pension scheme is closed to future service accrual and the valuation for this scheme has not been updated for the half year as any actuarial movements are not considered to be material.
15. Share capital
| Allotted and fully paid ordinary shares of 2.5p each | Number of shares | Share capital £'000 |
Share premium £'000 | Total £'000 |
| Opening balance as at 1 September 2019 | 91,942,005 | 2,299 | 9,165 | 11,464 |
| Proceeds from shares issued: | ||||
| - Treasury/LTIP | 513,604 | 13 | - | 13 |
| At 29 February 2020 | 92,455,609 | 2,312 | 9,165 | 11,477 |
| Opening balance at 2 September 2018 | 91,403,112 | 2,285 | 9,141 | 11,426 |
| Proceeds from shares issued: | ||||
| - Treasury/LTIP | 520,313 | 13 | - | 13 |
| - share save scheme | 7,540 | - | 8 | 8 |
| At 2 March 2019 | 91,930,965 | 2,298 | 9,149 | 11,447 |
No options were exercised under the share save scheme during the period to 29 February 2020 (2019: 7,540 shares), with exercise proceeds of £nil (2019: £8,000). The related weighted average price of the shares exercised in the prior period was £1.061 per share.
In addition, 513,604 shares were issued in the period and held initially as Treasury shares. Except for 49,993 shares that remain held in treasury at the balance sheet date, these shares were subsequently used to satisfy the share awards under the LTIP scheme which were exercised in November 2019.
Since the period end 2,356 shares were issued under the share save scheme with exercise proceeds of £2,500 and a related weighted average exercise price of £1.061 per share.
16. Cash generated from continuing operations
| 26 weeks ended 29 February 2020 |
26 weeks ended 2 March 2019 |
52 weeks ended 31 August 2019 |
|
| £'000 | £'000 | £'000 | |
| Profit for the period from continuing operations | 9,131 | 8,450 | 13,624 |
| Adjustments for: | |||
| Tax | 1,382 | 1,884 | 2,685 |
| Tax credit in respect of R&D | (240) | (330) | (526) |
| Depreciation and impairment of property, plant and equipment | 2,309 | 2,386 | 4,804 |
| Depreciation and impairment of right-of-use assets | 1,248 | - | - |
| Depreciation of investment property | 3 | 3 | 6 |
| Intangible asset amortisation | 749 | 220 | 943 |
| Profit on disposal of property, plant and equipment | (51) | (10) | (30) |
| Business combination expenses | - | 147 | 509 |
| Adjustments to contingent consideration | (2,147) | - | (1,126) |
| Net fair value (credit)/charge on share based payments | (277) | 503 | 880 |
| Other non-cash adjustments | (618) | (51) | (139) |
| Interest income | (178) | (226) | (463) |
| Interest expense and borrowing costs | 935 | 743 | 1,399 |
| Share of results of associate and joint ventures | (1,892) | (2,207) | (2,377) |
| IAS 19 income statement charge (excluding interest): | |||
| Administrative expenses | 9 | 11 | 21 |
| Past service cost | - | 795 | 795 |
| Changes in working capital (excluding the effects of acquisitions): |
|||
| Increase in inventories | (3,348) | (6,715) | (670) |
| Increase in receivables | (4,976) | (3,377) | (1,008) |
| Increase/(decrease) in payables | 5,801 | 2,789 | (3,323) |
| Cash generated from continuing operations | 7,840 | 5,015 | 16,004 |
17. Related party transactions
The Group's significant related parties are its associate and joint ventures, as disclosed in the Annual Report and Accounts 2019.
Transactions and balances with the associate and joint ventures were all undertaken on an arm's length basis in the normal course of business and are as follows:
| Sales to | Purchases from | Rent receivable from | Net management charges (from)/to |
Dividends receivable from |
Amounts owed from |
Amounts owed to |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| 26 weeks to 29 February 2020 |
|||||||
| Associate | 280 | (55,183) | 10 | (69) | 294 | 214 | (24,334) |
| Joint ventures | 238 | (143) | - | 80 | - | 1,756 | (2) |
| 26 weeks to 2 March 2019 |
|||||||
| Associate | 356 | (66,428) | 10 | 7 | 343 | 97 | (26,970) |
| Joint ventures | 467 | (277) | - | 111 | - | 1,772 | (12) |
18. Alternative performance measures
The Interim Report includes alternative performance measures, which are not defined or specified by IFRSs. These alternative performance measures provide important additional 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, share of post-tax results of the associate and joint ventures and excluding non-recurring items. This measure is reconciled to statutory operating profit and statutory profit before taxation in note 6. 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 non-recurring and amortisation of acquired intangible assets. This measure is reconciled to statutory operating profit in the income statement and note 6. Adjusted results excluding non-recurring items and amortisation of acquired intangible assets are presented because if included, these items could distort the understanding of the Group's performance for the period and the comparability between the periods presented. |
| Adjusted profit before taxation | Profit before taxation after adding back items regarded by the Directors as non-recurring and amortisation of acquired intangible assets. This measure is reconciled to statutory profit before taxation in the income statement and note 6. Adjusted results excluding non-recurring items and amortisation of acquired intangible assets are presented because if included, these items could distort the understanding of the Group's performance for the period and the comparability between the periods presented. |
| Adjusted earnings per share | Profit attributable to the equity holders of the Company after adding back items regarded by the Directors as non-recurring and amortisation of acquired intangible assets after tax divided by the weighted average number of ordinary shares in issue during the period. This is reconciled to basic earnings per share in note 9. |
| Adjusted diluted earnings per share | Profit attributable to the equity holders of the Company after adding back items regarded by the Directors as non-recurring and amortisation of acquired intangible assets after tax divided by the weighted average number of ordinary shares in issue during the period adjusted for the effects of any potentially dilutive options. Diluted earnings per share is shown in note 9. |
| Net Debt | The net position of the Group's cash at bank and borrowings. Details of the movement in borrowings is shown in note 12. |
19. Adoption of IFRS 16 'Leases'
The Group adopted IFRS 16 with effect from 1 September 2019 and has applied IFRS 16 using the modified retrospective approach with the cumulative effect of initially applying the standard recognised at the date of initial application. Comparative information has not been restated and is therefore still reported under IAS 17.
Adjustments to the opening balance sheet arising from the adoption of IFRS 16 are as follows.
| 31 August2019 £'000 |
Adjustments £'000 |
1 September 2019 £'000 |
|
| Non-current assets | |||
| Property, plant and equipment | 41,917 | (4,409) | 37,508 |
| Right-of-use assets | - | 15,903 | 15,903 |
| Current assets | |||
| Trade and other receivables | 56,349 | (776) | 55,573 |
| Current liabilities | |||
| Borrowings | (23,856) | 1,183 | (22,673) |
| Leases | - | (2,801) | (2,801) |
| Trade and other payables | (62,653) | 229 | (62,424) |
| Non-current liabilities | |||
| Borrowings | (28,586) | 1,740 | (26,846) |
| Leases | - | (12,777) | (12,777) |
| Equity | |||
| Retained earnings | 94,864 | (1,093) | 93,771 |
| Non-controlling interests | 16,740 | (615) | 16,125 |
| Headline figures | |||
| Non-current assets | 115,616 | 11,494 | 127,110 |
| Current assets | 140,734 | (776) | 139,958 |
| Total assets | 256,350 | 10,718 | 267,068 |
| Current liabilities | (88,788) | (1,389) | (90,177) |
| Non-current liabilities | (36,572) | (11,037) | (47,609) |
| Total liabilities | (125,360) | (12,426) | (137,786) |
| Net assets | 130,990 | (1,708) | 129,282 |
| Total shareholders' equity | 114,250 | (1,093) | 113,157 |
| Total equity | 130,990 | (1,708) | 129,282 |
The adjustments to the opening position reflect the recognition of £11.5m right-of-use assets previously accounted for as operating leases under IAS 17 together with £4.4m of existing assets held under finance lease arrangements reclassified to the new balance sheet category of right-of-use assets. Prepayments and accruals in respect of leases recognised on the balance sheet as at 31 August 2019 have been removed and additional lease liabilities of £12.7m have been recognised in respect of leases previously accounted for as operating leases under IAS 17. Finance lease liabilities of £2.9m have been reclassified from borrowings to leases on transition.
19. Adoption of IFRS 16 'Leases' (continued)
To enable users of these accounts to compare the periods presented in this interim report the following table shows the balance sheet of the Group as at 29 February 2020 as though IAS 17 still applied.
| 29 February2020 (as reported - unaudited) £'000 |
Adjustments £'000 |
29 February 2020 (IAS 17 - unaudited) £'000 |
|
| Non-current assets | |||
| Property, plant and equipment | 36,767 | 4,923 | 41,690 |
| Right-of-use assets | 15,870 | (15,870) | - |
| Current assets | |||
| Trade and other receivables | 60,537 | 796 | 61,333 |
| Current liabilities | |||
| Borrowings | (26,855) | (843) | (27,698) |
| Leases | (2,557) | 2,557 | - |
| Trade and other payables | (62,520) | (170) | (62,690) |
| Non-current liabilities | |||
| Borrowings | (27,896) | (2,247) | (30,143) |
| Leases | (12,666) | 12,666 | - |
| Equity | |||
| Retained earnings | 98,655 | 1,198 | 99,853 |
| Non-controlling interests | 16,394 | 614 | 17,008 |
| Headline figures | |||
| Non-current assets | 125,569 | (10,947) | 114,622 |
| Current assets | 147,510 | 796 | 148,306 |
| Total assets | 273,079 | (10,151) | 262,928 |
| Current liabilities | (94,441) | 1,544 | (92,897) |
| Non-current liabilities | (47,733) | 10,419 | (37,314) |
| Total liabilities | (142,174) | 11,963 | (130,211) |
| Net assets | 130,905 | 1,812 | 132,717 |
| Total shareholders' equity | 114,511 | 1,198 | 115,709 |
| Total equity | 130,905 | 1,812 | 132,717 |
The adjustments to the reported figures as at 29 February 2020 reflect the de-recognition of right-of-use assets and lease liabilities except for finance leases that would have been capitalised under IAS 17. It also reinstates prepayments in respect of lease premiums paid at the commencement of the lease together with prepayments and accruals in respect of the regular lease payments for those leases that were accounted for as operating leases under IAS 17.
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