Carrier Global
Annual Report 2015

Download report
Get a demo

More annual reports from Carrier Global:

2023 Report
2021 Report
2020 Report
2019 Report
2018 Report

Peers and competitors of Carrier Global:

Delek Logistics Partners
Everest Re Group
Carrier Global
CSS Industries Inc.
Eldorado Gold

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS 2015 AGRICULTURE | FOOD | ENGINEERING DIVERSITY STRENGTHENS PERFORMANCE ’ C A R R S G R O U P P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 5 Old Croft, Stanwix, Carlisle CA3 9BA www.carrsgroup.com STRATEGIC REPORT THE GROUP CARR’S GROUP PLC IS FOCUSSED ON THE PRINCIPAL ACTIVITIES OF AGRICULTURE, FOOD AND ENGINEERING. Carr’s Group plc is an international business operating across Agriculture, Food and Engineering, supplying over 35 countries around the world. The Agriculture division comprises an international feed block supplement business with manufacturing locations in the USA, UK and Europe. In the UK the division also sells animal feed, fertiliser, animal health products, oil, farm machinery and rural supplies from its 30 Country Stores. The Food division produces flour from three strategically located mills in the UK to the bread, biscuit and retail markets. The Engineering division designs, manufactures and supplies specialist precision parts, equipment, robotics and remote handling products from three sites in the UK and one site in Germany. These highly specialised products and services are supplied predominately into the nuclear and oil and gas markets. The Group is listed on the London Stock Exchange. CONTENTS STRATEGIC REPORT 1 Highlights 2 Group at a Glance 4 Chairman’s Statement 6 Group Strategy 7 Divisional Highlights 8 Strategy in Action 10 Chief Executive’s Review 15 Risk Management 18 Financial Review 20 Key Performance Indicators 21 The Board 22 Corporate Responsibility CORPORATE GOVERNANCE 25 Corporate Governance Report 28 Audit Committee Report 30 Remuneration Committee Report 36 Nominations Committee Report 37 Directors’ Report FINANCIAL STATEMENTS 40 Independent Auditors’ Report to the Members of Carr’s Group plc 44 Consolidated Income Statement 45 Consolidated and Company Statements of Comprehensive Income 46 Consolidated and Company Balance Sheets 47 Consolidated Statement of Changes in Equity 48 Company Statement of Changes in Equity 49 Consolidated and Company Statements of Cash Flows 50 Principal Accounting Policies 55 Notes to the Financial Statements 92 Five Year Statement 94 Directory of Operations 96 Registered Office and Advisers Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk FINANCIAL HIGHLIGHTS m 1 . 8 6 4 £ m 0 . 9 2 4 £ m 6 . 1 1 4 £ m 1 . 4 0 4 £ m 3 . 3 7 3 £ m 5 . 7 1 £ m 6 . 6 1 £ m 4 . 5 1 £ m 1 . 3 1 £ m 0 . 0 1 £ p 4 . 3 1 p 4 . 2 1 p 8 . 2 1 p 8 . 9 p 7 . 7 p 7 . 3 p 4 . 3 p 2 . 3 p 9 . 2 p 6 . 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 1 1 0 2 2 1 0 2 * 3 1 0 2 4 1 0 2 5 1 0 2 1 1 0 2 2 1 0 2 * 3 1 0 2 4 1 0 2 5 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 REVENUE PROFIT BEFORE TAX EARNINGS PER SHARE** DIVIDEND PER SHARE** £411.6m £17.5m 13.4p 3.7p 4.1% DOWN FROM 2014 5.5% UP FROM 2014 4.7% UP FROM 2014 8.8% UP FROM 2014 * restated for IAS 19 Revised ** restated for the effect of the 10:1 share split in January 2015 2015 HIGHLIGHTS FURTHER INVESTMENT IN OUR RETAIL NETWORK View this report online www.carrsgroup.com CREATION OF ENGINEERING DESIGN DEPARTMENT AGRICULTURE DIVISION ACQUISITIONS 01 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS GROUP AT A GLANCE: STRENGTH THROUGH DIVERSITY Carr’s is an international group focussed on developing innovative solutions for our global customers. The Group’s distribution network spans over 35 countries worldwide, and the geographic and divisional diversity lies at the centre of our strategy. The Group consists of three divisions operating in markets that offer growth prospects, delivering products and services to the global agri-food and energy sectors. Our diverse geographic and divisional exposure provides strength in an increasingly volatile global economic environment. AGRICULTURE OVERVIEW AND MARKETS FOOD OVERVIEW AND MARKETS ENGINEERING OVERVIEW AND MARKETS The Agriculture division develops and supplies a range of branded innovative animal nutrition products into the livestock industries as well as servicing the UK farming and rural communities through a network of retail stores and fuel businesses. Carr’s develops and manufactures branded molasses-based feed supplements, in the form of high and low moisture feed blocks, which enrich the diet of all types of farm animals. Operational Locations The division’s products are manufactured in the USA, Germany and the UK, which are sold through a vast distributor network across the UK, Europe, New Zealand and North America. The Food division supplies bakeries, food manufacturers and multiples across the UK, using the latest milling technologies and sourcing the best wheat either from the UK or overseas. The Engineering division designs and manufactures bespoke equipment for use in the nuclear, oil and gas, and petrochemical industries. Products include manipulators, robotics, specialist fabrication and precision machining. Carr’s works with its customers to meet their changing requirements in a constantly changing marketplace; developing commercial strategies in response to increasingly volatile commodity markets. Carr’s is focussed on the design and manufacture of pressure vessels and steel fabrications together with specialist remote handling technology, robotics and radiation protection equipment for use in environments inaccessible to humans. Operational Locations The division operates from two strategically located dockside sites in the UK, on the coast at Silloth in Cumbria and at the state-of-the-art site at Kirkcaldy in Fife, as well as a third mill at Maldon in Essex. Operational Locations The division is based in a number of key locations across the UK and in Germany, distributing to clients around the world including Europe, North and South America, Russia, Australia, Japan and South Africa. Customer Base Leading livestock farmers across the globe in the dairy, beef, sheep, pig and equine sectors. Customer Base Food manufacturers and retailers, which use bulk and bagged flour as well as ethnic and artisanal flour products. Customer Base Key players across the worldwide nuclear, research, oil and gas, and petrochemical industries. REVENUE £297.7m OPERATING PROFIT £11.2m REVENUE £80.3m OPERATING PROFIT £3.1m REVENUE £33.5m OPERATING PROFIT £3.3m EMPLOYEES TOTAL: 605 EMPLOYEES TOTAL: 169 EMPLOYEES TOTAL: 302 435 170 139 30 258 44 02 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT INTERNATIONAL DISTRIBUTION CANADA USA Our Engineering and Agriculture divisions distribute to customers all over the world. ARGENTINA UK LOCATIONS UK ICELAND GERMANY KAZAKHSTAN TURKEY CYPRUS KUWAIT QATAR UNITED ARAB EMIRATES MAURITIUS SOUTH AFRICA RUSSIA CHINA SOUTH KOREA JAPAN TAIWAN INDONESIA AUSTRALIA NEW ZEALAND FINLAND ESTONIA LATVIA LITHUANIA AGRICULTURE EUROPEAN DISTRIBUTION NORWAY SWEDEN UK DENMARK NETHERLANDS BELGIUM GERMANY FRANCE SWITZERLAND IRELAND PORTUGAL SPAIN ITALY POLAND CZECH REPUBLIC AUSTRIA UKRAINE SLOVAKIA HUNGARY ROMANIA SERBIA GREECE ENGINEERING EUROPEAN DISTRIBUTION NORWAY SWEDEN NETHERLANDS UK BELGIUM GERMANY FRANCE SWITZERLAND POLAND CZECH REPUBLIC AUSTRIA HEAD OFFICE FOOD AGRICULTURE ENGINEERING 03 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CHAIRMAN’S STATEMENT “The Group’s diversity, both geographic and operational, has driven performance, with another year of record profit.” CHRIS HOLMES CHAIRMAN STRATEGIC DELIVERY I am pleased to report that the Group has delivered another record year of profit before tax. This is particularly encouraging given the challenging market backdrop across all three of our divisions. Achieving this performance is testament to the management team and employees of the Group and the Board would like to thank everyone involved for their dedication and continuing to strive for excellence. Revenue for the year fell by 4.1% to £411.6 million (2014: £429.0 million). Profit before tax was up 5.5% to £17.5 million (2014: £16.6 million). This comprised an 8.8% increase in Agriculture profit before tax to £10.4 million (2014: £9.6 million), a 6.3% increase in Food profit before tax to £2.4 million (2014: £2.3 million), and a 16.7% reduction in Engineering profit before tax to £3.1 million (2014: £3.7 million). Basic earnings per share were up by 4.7% to 13.4 pence per share (2014 restated: 12.8 pence), with fully diluted earnings per share of 12.9 pence (2014 restated: 12.3 pence) and adjusted earnings per share, excluding non-recurring items and amortisation of intangibles of 13.6 pence (2014 restated: 13.1 pence). Net debt decreased slightly to £24.4 million (2014: 24.6 million). 04 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT In addition, on 10 September 2015 it was announced that Robert Heygate had decided to stand down from the Board after 25 years’ service, with effect from April 2016. I would like to take this opportunity to thank Bob, for his contribution, dedication, enthusiasm, and support during his time with Carr’s. OUTLOOK In the year ahead we expect the headwinds seen across all three divisions to continue. However, we remain confident that the Group’s diversity and resilient business model positions us well to make further progress in 2016. We will continue to build on our success and invest for the future across the Group, both in the UK and internationally. We expect our innovative approach, in particular the development of new products, to continue to differentiate us from the competition and we will remain alert to suitable complementary acquisitions. This, alongside plans to develop existing businesses organically, ensures the Group is well placed in the medium term. CHRIS HOLMES Chairman 11 November 2015 In Agriculture, the business continued to build on the momentum established in previous years, with our retail operations expanding into new territories through both acquisitions and organic growth. Our geographic presence and relevance of our product offering will be key to supporting farming customers, given the tough market climate they face over the forthcoming year. Our international feedblock business has performed well, with a key strength of the business being our geographic reach. In the UK, lower farm incomes, coupled with excellent quality forage, resulted in reduced demand. However, in the USA we have seen a significant uplift in demand on the back of the rebuilding of beef herds together with favourable weather conditions. We continue to invest heavily in the R&D of these products both in the UK and internationally to drive future growth. The Food division has delivered further growth despite changes in the consumer market having an adverse impact on our customers, which is expected to continue into the current financial year. Our continuing excellent customer service across all three mills ensures we are well placed to face these challenges and ensure the needs of our customers are surpassed. It has been a tough year for our Engineering division, with a combination of the depressed oil price and the impact of a complicated factory move affecting our precision engineering business, Chirton Engineering. Additionally, reduced activity in the nuclear sector in Japan and economic sanctions with Russia impacted Wälischmiller. However, we have continued to invest across the division in order to build for the future and to benefit from the expected increase in demand from the UK nuclear sector. GOVERNANCE The Board is mindful of the UK Corporate Governance Code and takes its responsibilities very seriously. It continues to strive to comply with all areas of the Code and a full report on Corporate Governance can be found on pages 25 to 27. All Directors will be standing for election at the Annual General Meeting (AGM) on 5 January 2016. SHARE SPLIT The Company’s shares split 10:1 on 14 January 2015 following shareholder approval. This reduced the nominal value of the ordinary shares to 2.5 pence each, and was undertaken to primarily improve the liquidity of the Company’s shares. CHANGE OF NAME At a General Meeting on 8 April 2015 the shareholders approved the change of Company name from Carr’s Milling Industries PLC to Carr’s Group plc with the change effective on 9 April 2015. ARTICLES OF ASSOCIATION As a result of the change of name to Carr’s Group plc the Board have reviewed the Articles of Association and have asked the Company’s solicitor to amend the Articles in line with minor regulatory changes and best practice. The resolution to adopt the new Articles will be proposed at the AGM on 5 January 2016, and a copy of the Articles will be enclosed with the notice of the AGM. SHARESAVE SCHEME The Carr’s Milling Industries Sharesave Scheme 2006 expires in 2016 so no further options may be granted to employees under the scheme. Therefore a replacement, Carr’s Group Sharesave Scheme 2016, incorporating the old scheme and updates necessary for changes in legislation, has been drafted and a resolution to adopt the replacement scheme will be proposed at the AGM on 5 January 2016. A copy of the main terms of the replacement scheme will be enclosed with the notice of the AGM. DIVIDEND The Board is proposing a 8.8% increase in the final dividend to 1.85 pence per ordinary share, which together with the two interim dividends, each of 0.925 pence per ordinary share paid on 15 May and 9 October 2015, make a total of 3.7 pence per share for the year (2014 restated: 3.4p), representing an increase of 8.8%. The final dividend, if approved by the Shareholders, will be paid on 15 January 2016 to Shareholders on the register at close of business on 18 December 2015, and the shares will go ex-dividend on 17 December 2015. THE BOARD During the year, John Worby was appointed as a Non-Executive Director of the Board, taking over as Senior Independent Director and Audit Committee Chairman from Alistair Wannop and Robert Heygate respectively. John’s experience in FTSE 250 companies Fidessa plc, Genus plc, Cranswick plc and Uniq plc, coupled with his financial and sector experience, enhances the Board’s expertise. Since the year-end the Board has been further strengthened with the appointment of Non-Executive Director Ian Wood, who has extensive experience in the engineering and energy sectors, working currently for Centrica plc. 05 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS GROUP STRATEGY VISION To be recognised as a truly international business at the forefront of technology and innovation Investment in assets to ensure long term competitive advantage Seen and recognised as leaders in innovation T N E VES T M IN P E O P L E T E C H N O L O G Y AGRICULTURE FOOD ENGINEERING E U L A S N A D DED V U ISITIO Q C A Investing in people that will shape the business in ten years’ time Acquisition strategy for growth and joint ventures with strategic purpose 06 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT BUSINESS STRATEGIES DIVISIONAL HIGHLIGHTS AGRICULTURE FOOD ENGINEERING TRADING OVERVIEW TRADING OVERVIEW TRADING OVERVIEW • Retail sales growth • Feed blocks growth • Investments – Silver Springs (USA) Retail store upgrades • Acquisition of Reid & Robertson Ltd • Acquisition of WM. Nicholls & Company (Crickhowell) Ltd • Maintaining financial step change • Market dynamics • Volume growth • Continued improvement in operational efficiencies • Investment in food safety • Investment at Wälischmiller • Strong performance at Carrs MSM • New specialist design business at Bendalls • BP contract delivery on time • Investment at Chirton DIVISIONAL PLANS DIVISIONAL PLANS DIVISIONAL PLANS • Brand growth • Lead in dairy nutrition • Investment in targeted research • New markets • Strengthen UK position • Acquisitions • Maintain benefits of new mill • Capitalise on market changes • Service excellence • Logistics optimisation • Exploit new areas of market growth • Product research, innovation and development • Investment in new products • Exploit growing market sectors • Acquisitions DELIVERY DELIVERY • Research • New plants • New products • New markets • Retail development and expansion • Acquisitions • Step change in financial performance • Baking category and brand • New contracts DELIVERY • Wälischmiller – Telbot Demo 2000 • New contract wins INVESTMENT INVESTMENT INVESTMENT £5.6m including new branches at Rothbury and Selkirk and acquisitions of WM. Nicholls & Co. (Crickhowell) Ltd and Reid & Robertson Ltd £1.3m including state of the art machinery £1.7m including state of the art machinery and creation of a specialist design department 07 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS STRATEGY IN ACTION KEY ELEMENTS OF OUR BUSINESS MODEL The business has four key strategic pillars to drive success and long term sustainable value for shareholders in the form of increased earnings and dividends. INVESTMENT Carr’s is an international business with key production facilities in the UK, Germany and the USA. USA UK To drive operational excellence we invest strategically and for the long term across our divisions ensuring we operate in attractive growing markets across the globe. Our aim is to develop market leadership in all territories in which we are active. In the UK this means a regional strength across the North of England and Scotland in our flour milling and agricultural retail businesses. Globally this has meant expanding the markets into which we sell our remote handling equipment and feedblocks. TECHNOLOGY Developing new innovative products and services will ensure long-term sales growth and increased market share. Focussing on innovation and excellent customer service has allowed us to lead in key markets. The Engineering division has built a position as quality leader in the nuclear field through superior innovative products, reliability and a customer orientation. It will continue to lead by focussing on its innovation pipeline not only in the nuclear market but also in oil and gas. 08 The investment to develop the feed block production facility in Silver Springs, Nevada is almost complete, with full commissioning expected in November. This facility will be able to manufacture the branded feed block Smartlic® to the highest standard and service the needs of customers throughout the western states. The retail division has continued its strategy of investment in its Country Store network with significant expenditure at Appleby, the relocation of Selkirk and the opening of Rothbury. The Selkirk Country Store showcases a new look of Country Store with a particular emphasis on the country dweller and equine market, whilst still providing a full range of products for the farmer customer. BENDALLS WÄLISCHMILLER ENGINEERING Bendalls created an equipment design team that utilises the latest 3D and analytical software. Bendalls has also enhanced its project management capability to ensure that any commercial risks of the new design business are diligently managed. The design team will capture a greater breadth of the value chain enabling the business to pursue broader opportunities. The design capability, coupled with the extensive manufacturing expertise in Bendalls and Chirton, creates client value propositions which will be leveraged in nuclear, sub-sea, and oil & gas. The Demo 2000 project with partners Shell & Statoil has concluded with a successful site acceptance test. This project was for the creation of a robot capable of entering an explosive environment for inspection and cleaning of gas tanks. The robot, based on the Telbot®, removes human involvement in the inspection and cleaning process. This results in significantly less downtime, and, importantly, enhanced safety and wellbeing of the employees. This robot is the first of its kind worldwide. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT ACQUISITIONS Reid & Robertson Ltd The Group has continued to strengthen its UK Agriculture business with three value added acquisitions. Carr’s has been particularly successful at identification, acquisition, and integration of owner managed businesses, which enhance the existing Agriculture division. The Group will continue with this focus in the short and medium term. 2015 • Green (Agriculture) Co based in Morpeth, expanding the retail customer base (after year end); • Reid & Robertson Ltd in Balloch, Ayr and Oban; • WM. Nicholls & Company (Crickhowell) Ltd based in Crickhowell, Wales, complementing the acquisition of B E Williams Ltd in 2014, and consolidating our feed business in South Wales. Based in Balloch, Ayr and Oban, Reid & Robertson significantly extends the geographic reach of the retail business, providing a strong presence in Western Scotland. Reid & Robertson is an agriculture supplier with over 100 years’ history, specialising in animal health preparations. The synergies between the experience and expertise of the Reid & Robertson business, and the broader product offering of our existing retail network, will deliver improved financial performance this year. PEOPLE FUTURE PIPELINE During the year Carr’s has created an apprentice exchange programme, which will commence in the winter of 2015 and will operate in the Carrs Engineering division. The programme will allow selected apprentices to visit and work at Wälischmiller, Bendalls, and Chirton, gaining insight into the different areas within these multifaceted businesses. This initiative has been developed and led by Claudia Reich, the Managing Director of Wälischmiller, located in Germany. It will provide a great opportunity for the apprentices to broaden their knowledge of our Engineering division and its operational capability whilst building confidence and cultural diversity. This is an exciting investment in our future talent pipeline, and one which will improve the capability and integration of our Engineering division. 09 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE’S REVIEW PROFIT BEFORE TAX BY SECTOR AGRICULTURE £10.4m 8.8% UP FROM 2014 FOOD £2.4m 6.3% UP FROM 2014 ENGINEERING £3.1m 16.7% DOWN FROM 2014 “The Group has delivered another record performance, driven by operational and geographic diversity, despite headwinds in all divisions” TIM DAVIES CHIEF EXECUTIVE OFFICER During the year we have continued to build on our vision to be recognised as a truly international business at the forefront of innovation and technology across Agriculture, Food and Engineering. Our strategy remains centred around four key pillars: These strategic pillars are at the heart of each of our divisions and their implementation has ensured we have once again delivered another record year of profit growth for the Group. Our investment in the business has continued to be a priority. Major projects commenced and completed in the year include: • £0.3m on land acquired at Morpeth adjacent to our existing machinery Country Store; • £1.0m Acquisition of WM Nicholls & Company (Crickhowell) Ltd completed in October 2014; • £0.9m Acquisition of Reid and Robertson Ltd completed in June 2015; • £0.3m Acquisition of Green (Agriculture) Co completed September 2015; • investing in our people, who are vital to the • $2.3m redevelopment of a feed block facility • £0.7m new factory for Chirton completed in long term success of the business; at Silver Springs, Nevada, USA; March 2015; • investing in our asset base, to ensure we • £0.2m on redevelopment of the Country Store • £0.3m on new equipment to further enhance retain our competitive advantage; • driving product innovation across each of our divisions; • delivering growth through acquisitions and organic expansion. network; – Rothbury – Selkirk – Appleby 10 food safety for Carr’s Flour Mills. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT AGRICULTURE Profit before tax for the year increased by 8.8% to £10.4 million (2014: £9.6 million) on revenue down by 5.5% to £297.7 million (2014: £314.9 million) due to falling commodity prices. Profit before tax for the year, including contributions from associate and joint ventures, increased by 5.5% to £12.7 million (2014: £12.1 million) m 4 . 0 1 £ m 6 . 9 £ m 8 . 8 £ 3 1 0 2 4 1 0 2 5 1 0 2 PROFIT £10.4m 8.8% UP FROM 2014 The geographic spread and operational diversity of our businesses within the Agriculture division led to another record year. FEED BLOCKS Feed block sales in the USA have been exceptional this year with sales volumes, excluding joint ventures, 19.9% higher. Record production levels have been driven by favourable market and weather conditions. The drought in the South East, Mid-West and North West States continues to recede, resulting in beef herds being rebuilt across our key territories. The investment at the plant in Silver Springs, Nevada, has been on-going and remains on track to begin production of our branded product, Smartlic®, in November 2015. This plant expands our geographic reach in the USA by supplying low moisture feed blocks to the West Coast dairy and beef market. There has been positive initial reaction to the launch in the summer of our innovative new product Piglyx®, which is an environmental enrichment product reducing stress levels in pigs, enabling the farmers to increase their returns. In the summer, Horslyx® a product for the equine leisure market, was exported to the USA for the first time, and resultant revenues are expected in the current financial year. We have continued with our strategy of research and development to ensure we deliver sustainable growth. A research project into our unique feedblock, Megastart®, completed this year, has demonstrated significant benefits to livestock, which has led to a substantial increase in sales of Megastart® during the year. Crystalyx® has seen a decline in UK sales this year as a result of high quality forage harvested 11 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE’S REVIEW CONTINUED during 2014, and declining farm incomes. We continue our commitment to our international growth strategy with Crystalyx®, and have employed personnel in Brazil to develop this potential market. On-farm trials of Crystalyx® are due to commence in Brazil by the end of 2015. RETAIL The strategy for growing our retail business delivered results exceeding expectations, with sales 8.6% higher year on year, a third consecutive record year. Like for like sales, excluding the impact of additional stores also increased by 5.3%. Our presence in strategic locations, coupled with the diverse retail offering, further strengthened our business. With a new Country Store at Rothbury, and redeveloped facilities in Appleby, Wigton, and Selkirk, we continue our commitment to, and investment in, servicing both the agricultural and rural communities. In addition to organic growth, in June 2015 we undertook the strategic acquisition of Reid and Robertson Ltd, an agricultural merchant business specialising in veterinary medicines, based at Balloch, Ayr, and Oban in Scotland. This expands our geographic reach in Scotland, and provides access to a new customer base for our existing product offering. Since the year-end we have acquired Green (Agriculture) Co., an agricultural merchant business based in Morpeth, near our existing machinery Country Store. This acquisition strengthens the Country Store network in Northumberland and enhances the services offered to the local community. With organic growth and acquisitions, we now have 30 Country Stores in our network with a further 5 livestock market locations. Our integrated oil distribution business has also surpassed expectations this year with increased sales of 4.4%, despite the benign weather and increased competition. This is due to investment in our fleet, increased presence across our regions, and our emphasis on customer service. The acquisition of WM. Nicholls & Company (Crickhowell) Ltd in October 2014 together with the previous year’s acquisition of B E Williams Ltd further developed our strategy for our feed business in South Wales. We have combined these businesses into a central administration location in Brecon, whilst maintaining a presence in Sennybridge in the short term. The UK feed market is currently suffering from pricing pressure due to falling farm incomes, and the impact of increased manufacturing activity in our geographic markets has intensified competition. Despite this, our feed business performed well with total feed volumes up 4.1% year on year. While we remain cognisant of the uncertainty facing the UK agriculture sector, we believe that our strong regional presence, technical expertise, and diverse product offering provides a solid platform to service our customers’ needs through the next financial year and beyond. AminoMax® AminoMax®, the patented animal bypass protein product for dairy cows, manufactured at Watertown, New York State, USA, and Lancaster, UK recorded flat worldwide sales this year, predominantly as a result of the fall in farm incomes due to the declining farm- gate milk price. The falling soya and canola commodity prices, and continuing pressures on farm incomes, are expected to have an adverse impact on AminoMax® sales in the forthcoming year. However, we are continuing with research and development to extend this innovative product range. Market Conditions Farmer confidence has been adversely affected this year and it is anticipated this will continue in the medium term, as a direct result of the significant decline in the farm-gate milk price, both in the UK and internationally. Many of our farming customers are starting to modify their spending in reaction to the ongoing uncertainty in the UK agriculture market, and are postponing sizable capital investments until they have further market visibility. Once again, UK farmers benefited from a mild winter and benign spring, resulting in lower costs of production, which provided some respite from market conditions. We continue to support our farming customers in choosing the appropriate strategy to enable them to navigate a path through these difficult markets. 12 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT FOOD Profit before tax for the year increased 6.3% from £2.3 million to £2.4 million in this financial year on revenue down by 7.8% to £80.3 million (2014: £87.1 million) driven by falling commodity prices m 4 . 2 £ m 3 . 2 £ m 6 . 0 £ 3 1 0 2 4 1 0 2 5 1 0 2 PROFIT £2.4m 6.3% UP FROM 2014 We have enjoyed strong growth in the Food division this year with sales volumes 4.6% higher than last year. Through the year our reputation for customer service, quality and technical expertise has resulted in important new business wins. The growth in the division’s sales volumes follows last year’s step change in operating performance, which was driven by the commissioning of our state of the art mill at Kirkcaldy. We have continued our investment programme with the installation of cutting edge equipment at our other mills, which ensures we remain ahead of our customers’ ever-increasing demands, particularly in the need for food safety. The ongoing investment supports the commercial benefits derived from increased customer confidence in our ability to produce quality flour, milled to the highest standards of product integrity. The wheat harvest in summer 2014 was relatively normal at just over 16 million tonnes, however there were inconsistencies in quality. Our versatility with regard to wheat sourcing and mill processing meant that we were well positioned to respond to the changing market dynamics. The 2015 harvest has been large and consistent in quality and the position of our three mills enables us to benefit from this exceptional harvest. Changes in the retail landscape and consumers’ shopping habits are impacting the whole food supply chain, including the bakery sector. In the current financial year, ending August 2016, it is anticipated that these headwinds will persist. This challenging backdrop will in part be off-set by our investment in technology, high standards of customer service, and our on-going commitment to operational efficiencies throughout our three mills which, over the medium term, leaves us well placed to handle these changing markets. 13 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE’S REVIEW CONTINUED ENGINEERING Profit before tax for the year fell by 16.7% to £3.1 million (2014: £3.7 million) on revenue up by 24.8% to £33.5 million (2014: £26.9 million) m 2 . 4 m£ 7 . 3 m£ 1 . 3 £ 3 1 0 2 4 1 0 2 5 1 0 2 PROFIT £3.1m 16.7% DOWN FROM 2014 2015 has been a year in which we have invested in the future growth of our Engineering division. Our Engineering business operates in high value markets and within two distinct areas, manufacturing and remote handling. During the year there has been increased collaboration throughout the division with joint bids being submitted and parts being manufactured internally for the remote handling businesses. macro-economic pressure resulting from the funding and political issues faced in Russia and Japan, which is expected to continue through 2016. There are signs of increased activity in the UK nuclear market, with delivery of two power manipulators to Dounreay, Scotland expected by the end of 2015, and the successful completion of a remote handling project for Sellafield, with further orders through to 2017 being received after the year-end. market. To facilitate this, it is working closely with our other Engineering businesses, taking advantage of the sector expertise, to ensure that cross selling opportunities are maximised. During the year, Chirton commenced selling engineered parts for our remote handling operations, and this is set to continue through the next financial year. TIM DAVIES Chief Executive Officer 11 November 2015 Our remote handling businesses have met expectations in this difficult market, and performed well this year. In particular, Carrs MSM has had an excellent year, and this is expected to continue with Life of Plant contract and other significant contracts to the nuclear sector being delivered in the current financial year. Wälischmiller had a successful site acceptance test for the Demo 2000 Telbot® project in Norway. This project removes the need for human inspection of oil and gas tanks and improving safety reducing the time needed to shut down the plant by up to 700 man hours per tank. In addition, operating within a UK led engineering consortium, Wälischmiller has also been awarded a contract for the design and supply of robotic remote handling equipment for ITER with potential sales due for delivery between 2017 and 2020. ITER is the international collaboration for the creation of an experimental fusion reactor based in France. Wälischmiller has also invested in state of the art machinery, development of a new showroom, and a marketing programme in the USA. This will help offset the continuing Bendalls, one of our two manufacturing businesses, is also benefiting from the increased activity in the UK nuclear market with multiple new framework agreements being awarded by Sellafield, operational through 2016-2019. We invested in the organic growth of the business through the creation of a new design department in 2015, which has been awarded its first contract from Sellafield for the design of a skip conveyor system. The BP Shah Deniz project, for the manufacture of 33 pressure vessels for the gas pipeline in Azerbaijan, has been successfully delivered in accordance with the agreed timeline, with one vessel to be delivered in spring 2016, as previously announced. Chirton has had a difficult trading year due to the decline in the oil price and the impact of a complicated move to new factory premises in March 2015. The delay in moving to the new factory caused a greater level of disruption than expected, and issues commissioning new equipment resulted in extra costs and more lost production time than planned. This has adversely affected results in the short term. The low oil price has had a direct impact on Chirton’s oil exploration customers, and as a result management have taken the decision to accelerate Chirton’s entry into the nuclear 14 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT RISK MANAGEMENT OUR RISK APPETITE AND APPROACH TO RISK MANAGEMENT Our success as a Group depends on the ability to identify and maximise the opportunities generated by our businesses and the markets in which we operate. In doing so, we continue to develop an embedded approach to risk management which puts risk and opportunity assessment at the heart of our strategy. The Group adopts a risk profile aligned to our vision to be recognised as a truly international business at the forefront of technology and innovation. Our available capital and resources are applied to underpin our four strategic pillars: people, investment, innovation, and growth through acquisition and organically. who have an active responsibility for focusing on the principal areas of risk to the Group. The Board reviews these risk areas, including consideration of environmental, social, and governance matters, and retains responsibility for determining the nature and extent of the risks that the Group is prepared to undertake. Our approach to risk management is designed to provide reasonable assurance that our assets are safeguarded. The risks facing the business are assessed and, where possible, mitigated. All relevant information is reported to and reviewed by the Board. ORGANISATION AND PROCESS The Board assumes overall responsibility for the management of risk and for reviewing the effectiveness of the Group’s risk management and internal control systems. The Group operates a risk management framework whereby for each of our principal risks we detail our assessment of the risk, the controls we have in place, who is responsible for managing the risk, as well as any further mitigating actions required. Further development work on the risk management framework and system is planned for 2015/16. This will further strengthen risk management and will lead to an overall increase in the amount of time the Board allocates to the discussion of risk. The Board has established a clear organisational structure with well-defined accountabilities for the principal risks the Group faces in the short, medium, and long term, across all divisions. This is overseen by the Executive Directors, BOARD’S ASSESSMENT OF COMPLIANCE WITH THE RISK MANAGEMENT FRAMEWORKS The Board, advised by the Audit Committee, review the effectiveness of the company’s risk management and internal control systems at least annually. Details of the activities of the Audit Committee in relation to this can be found in the Audit Committee Report on pages 28 to 29. There is a more regular discussion of risks affecting the business as and when required at each Board meeting. PRINCIPAL RISK FACTORS Our business is subject to a variety of risks and uncertainties. On the following pages we have identified the risks we regard as most relevant to our Group and performance at this time. These may change as the Group develops over the year. We have commented on mitigating actions that we believe help us manage these risks. However, we may not be successful in deploying some or all of these mitigating actions. If the circumstances in these risks occur or are not successfully mitigated, our cash flow, operating results, financial position, business and reputation could be materially adversely affected. KEY RISKS DESCRIPTION OF THE RISK WHAT WE ARE DOING TO MANAGE THE RISK Safety The safety of our employees, contractors and suppliers and the communities in which we operate is paramount. We must operate within local laws, regulations, rules, and ordinances relating to health, safety, and the environment, including emissions. We have Health and Safety policies that apply to all facilities, with dedicated staff to ensure they are embedded within our culture and regularly measured and assessed. This includes an annual compliance programme, which reports monthly to the Executive Directors, highlighting any issues that require action, including training needs. Regular training in this area is also provided to key personnel in the Group’s locations. Business Continuity The operation of manufacturing plants involves many risks that could cause a temporary or permanent stoppage in production and could have a material adverse effect on the Group. The Group has Business Continuity arrangements in place to enable continuity of supply, as quickly as practicable, of product to customers in the event of a natural disaster or major equipment or plant failure. A programme of insurance is also in place to protect against the cost of major business interruptions. People Performance, knowledge, and skills of employees are central to the success of the Group. We must attract, integrate, and retain the talent required to fulfil our strategic growth ambitions. Inability to retain key knowledge, and adequately plan for succession could have a negative impact on the Group’s performance. The Group has remuneration policies designed to attract, retain and reward employees with the ability and experience to execute the Group’s strategy. Management development programmes are in place, alongside detailed succession planning across the Group. Succession plans for senior roles are reviewed by the Nominations Committee annually. 15 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT CONTINUED DESCRIPTION OF THE RISK WHAT WE ARE DOING TO MANAGE THE RISK Commodity Costs Margins may be affected by fluctuations in crop prices due to factors such as harvest and weather conditions, crop disease, crop yields, alternative crops, and by-product values. In some cases, due to the basis for pricing in sales contracts, or due to competitive markets, we may not be able to pass on to customers the full amount of raw material price increases or higher energy, freight or other operating costs. The Group has a number of strategies in place to manage this risk. These include: • strategic long term relationships with suppliers; • multiple-source suppliers for key ingredients; • raw material and forward energy purchasing policies to provide security of supply and cost; • the use of derivatives where most beneficial to hedge exposure to movements in future prices of commodities; and • close monitoring of contract execution to ensure supply is within agreed terms. Product Innovation Risk Our commercial success depends, in part, on innovation and then obtaining and maintaining trademark and patent protection on certain products and technology. The Group invests heavily in research and development to innovate across its businesses. For new innovations, there is an organised and secure process for identifying and recording innovations, trade secrets, and potentially patentable ideas. Failure to innovate could have an adverse effect on our business. We must also successfully defend trademarks and patents against third- party challenges or infringements. The Group has an in-house Legal Counsel to monitor and oversee this risk, supported by expert intellectual property lawyers in multiple jurisdictions. Strategic Partners The Group has a number of strategic partners, particularly in the Agriculture division, who are involved either as joint venture partners or significant minority shareholders. A successful working relationship with these partners in paramount to those businesses’ success. Close working relationships are maintained with all the Group’s strategic partners. This includes regular meetings, both formally and informally, and close involvement in the setting and monitoring of strategy for those businesses. In addition, arrangements are appropriately documented in contracts and legal agreements. Treasury We are exposed to a variety of financial risks in relation to treasury. The Group must ensure that it has an adequate level of facilities to provide sufficient funding to operate its businesses and to develop growth opportunities. Changes to the value of currencies can fluctuate widely and could have a significant impact on a division’s results. Furthermore, because the Group has international businesses it is subject to exchange risks in the translation of the underlying net assets and earnings of its foreign subsidiaries. The level of facilities are regularly reviewed by the Group Finance Director, and these are also regularly reported to and discussed by the Board. The Group operates a treasury policy of hedging all significant transactional currency exposures. Additionally, translational hedging instruments are used to limit the potential impact of fluctuating currencies on reported earnings from foreign subsidiaries. For interest rate risk on floating rate debt, we maintain a mix of fixed rate debt, primarily finance lease, and floating rate debt. These levels are monitored and assessed against forecast changes in interest rates and forward guidance from interest rate setting authorities. Non-compliance with Legislation and Regulation The Group operates in diverse markets and therefore is exposed to a range of constantly changing legislation and regulation. We must comply with, and understand, all regulation and legislation, and be able to make correct interpretations for our diverse Group. Any breach could have a financial impact and damage our reputation. The Group is committed to complying with the laws and regulations of the countries in which we operate. In-house Legal Counsel provides immediate legal knowledge and understanding to the Board and management, and this is supplemented by external legal advisers assisting with monitoring external changes in legislation and advising accordingly. We have a tax risk framework, including a tax strategy and code of conduct, which sets out our approach to managing global tax risks. The Group also maintains policies in areas such as antitrust, money laundering and bribery laws. A whistleblowing policy and procedure is also in place. 16 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT DESCRIPTION OF THE RISK WHAT WE ARE DOING TO MANAGE THE RISK Acquisitions The Group is acquisitive and is therefore exposed to the possibility of acquiring a company based on inaccurate information, unrealistic synergies and financial benefits, and inappropriate deal structure. Failure to effectively integrate acquired businesses could also undermine any expected synergies. Customer Demand Changes in customer demand, be that retail or commercial customers, caused by economic factors could result in a fall in demand for the Group’s product offering, resulting in a significant loss of revenue. Reliance on Key Customers Some businesses within the Group have a significant proportion of their revenue generated from a small number of key customers. A loss of a number of these customers could adversely affect the performance of a division and in turn the Group. A thorough and careful due diligence process is undertaken, utilising relevant skilled internal personnel, as well as external expertise when required. Individual businesses and Group resources are used to analyse potential synergies and financial benefits. Consideration is given to the composition and skills of the management team of the acquired company and support and relevant training is provided by Group personnel to ensure a successful integration. The deal structure is reviewed on a case by case basis. Post-acquisition reviews are also undertaken to identify any areas for improvement in future transactions. The Group operates in diverse worldwide markets, which provide resilience for the Group against difficulties faced by any one market or economy. The businesses are managed flexibly to react to changing demands in their own sector. The businesses have established good long term relationships with key customers to ensure that demands and expectations are met. The Group is constantly investing in its businesses to ensure that they are able to satisfy customer needs and are market leaders. The Group is continually working on identifying new markets, products, and opportunities to expand the customer base of all its businesses. Political Instability Disruption to business activity as a result of political instability in one of our key markets, particularly in our Engineering business, could impact sales into that market. The wide geographic spread of the Group’s operations and customer base diminishes the impact of any one market on the results of the Group as a whole. Reliance on Key Ingredients Our feed block business relies on a key ingredient of molasses. Should there be volatility in the molasses market or should a crop disaster result in little to no global harvest it could adversely affect the Group’s performance. Our feed block businesses acquire molasses from a variety of sources worldwide and therefore there is no over reliance on any one producer. The molasses market is international and therefore it is unlikely that molasses could not be sourced from an alternative location should any one harvest be adversely impacted by a natural disaster. In addition, research is underway to establish alternative ingredients to molasses. Defined Benefit Pension Scheme The Group operates one active defined benefit pension scheme. The funding of the scheme could be adversely affected by a number of factors including: investment returns, interest rate fluctuations, and members’ longevity. Changes in all or some of these inputs could increase the cost to the Group of funding this scheme in the future. The scheme closed to new members in 2001. The Group has made significant contributions to the deficit over a number of years and the Group and the Trustees monitor the performance regularly and take investment and actuarial advice when required. In addition, the Group is currently consulting with affected employees and the Trustees to cease future accrual in the scheme from 31 December 2015. 17 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS FINANCIAL REVIEW CURRENT AND FUTURE DEVELOPMENT AND PERFORMANCE “The key features of the year have been the record profit before tax for the Group, for another successive year, and continued capital investment across all three divisions.” NEIL AUSTIN GROUP FINANCE DIRECTOR REVENUE Reported revenues were £411.6m, down 4.1% behind last year (2014: £429.0m). Revenues have fallen primarily as a result of lower raw material prices, which because of the nature of some of our contracts can directly affect sales values. OPERATING PROFIT Group operating profit of £16.4m is up 6.1% on last year (2014: £15.4m). As a percentage of revenues, Group operating margin is 4.0% compared to 3.6% in 2014. Operating profits per division and as a percentage of divisional revenues are as follows: 18 Operating Profit Agriculture Food Engineering 2015 £m 11.2 3.1 3.3 2015 % 3.8 3.9 9.7 2014 £m 10.4 3.1 3.8 2014 % 3.3 3.5 14.2 SHARE OF ASSOCIATE AND JVS The Group’s share of the post-tax result in its associate and joint ventures was £2.3m, compared to £2.5m in 2014. The result reflected a slight decrease in its associate’s profitability, together with a slight decrease in the European feed block and USA feed supplement joint ventures driven by the market issues in the dairy sector. FINANCE COSTS Net finance costs of £1.2m (2014: £1.4m) were lower than the previous year. This reflected lower average borrowings during the year as a result of lower working capital and debt repayments. Interest cover was 15.4 times compared to 13.2 times in 2014. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT PROFIT BEFORE TAX Profit before tax at £17.5m was 5.5% higher than in the previous year (2014: £16.6m). TAXATION The Group’s effective tax charge on profit from activities after net finance costs and excluding profits from associate and joint ventures was 24.9% (2014: 26.0%). A reconciliation of the actual total tax charge to the standard rate of corporation tax in the UK of 20.58% is given in note 6 to the financial statements. EARNINGS PER SHARE The profit attributable to the equity holders of the Company amounted to £12.0m (2014: £11.4m), and basic earnings per share was 13.4p (2014 restated: 12.8p), an increase of 4.7%. Adjusted earnings per share of 13.6p (2014 restated: 13.1p), is calculated by dividing the profit attributable to equity holders for the period, before non-recurring items and amortisation of intangible assets, by the weighted average number of shares in issue during the period. ACQUISITIONS On 20 October 2014 the Group acquired the entire issued share capital of WM. Nicholls & Company (Crickhowell) Limited, an agricultural merchant, for a net cash consideration of £1.0 million. On 12 June 2015, the entire issued share capital of Reid and Robertson Limited, also an agricultural merchant, was acquired by the Group. The cash consideration was £0.9 million. Both of these acquisitions combined generated goodwill of £1.1 million. CASH FLOW AND NET DEBT Our net debt has decreased slightly over the year, due to cash generated from operating activities exceeding cash spend on acquisitions and capital expenditure. A free cash flow of £7.6 million was generated in the year, representing a decrease of 31.2% on the previous year. During the year loans in our Agriculture division were consolidated with RBS and an additional £2.0m revolving credit facility provided for ongoing acquisition activity. Headroom against existing facilities was £19.0m at the year end. Other than the Group’s overdraft, which is renewable annually, the majority of the Group’s existing facilities are due for renewal in June 2019. An additional £5.0 million of facilities was agreed after the year. Cash flow and net debt Operating profit Depreciation and profit on disposal Amortisation EBITDA (excluding associate and joint ventures) Increase in inventories Decrease in receivables Decrease in payables Other Net operating cash flow Net interest Taxation Cash flow from operations Maintenance capital expenditure net of disposal proceeds Free cash flow Expansionary capital expenditure net of disposal proceeds Acquisitions Dividends Loans and finance leases received/paid Other Decrease in cash and cash equivalents Opening cash equivalents Cash and cash equivalents at the end of the year Opening net debt Decrease in cash and cash equivalents Net decrease in borrowings Closing net debt £’000 16,375 5,053 208 21,636 (967) 320 (3,237) (2,625) 15,127 (1,186) (3,965) 9,976 (2,350) 7,626 (3,158) (1,749) (3,110) (2,352) 1,993 (750) 17,025 16,275 24,609 750 (946) 24,413 PENSIONS The Group operates its current pension arrangements on a defined benefit and defined contribution basis. The defined benefit section is closed to new members and has 40 active members, 80 deferred members and 227 current pensioners. The scheme received £2.3 million during the year in additional contributions from the Group in accordance with the 2011 actuarial valuation as agreed between the Company and the Trustees. The triennial actuarial valuation as at 31 December 2014 was undertaken in the year and the results showed that the agreed recovery plan was on target and, all else being equal, recovery payments would not be required after 31 December 2015. The valuation on an IAS 19 accounting basis showed a surplus before the related deferred tax liability in the scheme at 29 August 2015 of £1.8m (2014: £2.1m). Actuarial losses of £2.8m (2014: gains of £3.2m) have been recognised in the Consolidated Statement of Comprehensive Income. The Group and the Trustees continue to work together to introduce ways of de-risking the defined benefit scheme to provide less volatility in the scheme’s assets and liabilities in the future. Several initiatives were introduced during the year. NEIL AUSTIN Group Finance Director 11 November 2015 19 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS KEY PERFORMANCE INDICATORS We monitor our performance against the strategy by means of key performance indicators (‘KPIs’): % 6 . 4 1 3 1 0 2 % 4 . 0 1 * 3 1 0 2 % 9 . 2 * 3 1 0 2 . m 8 1 £ - 3 1 0 2 % 7 9 1 . % ) 9 . 8 ( 4 1 0 2 % 7 . 1 1 4 1 0 2 % 7 . 3 4 1 0 2 m 1 . 1 1 £ 4 1 0 2 % 8 8 1 . % ) 4 . 4 ( 5 1 0 2 % 3 . 3 1 5 1 0 2 % 0 . 4 5 1 0 2 m 6 . 7 £ 5 1 0 2 % 9 7 1 . UNDERLYING SALES GROWTH/DECLINE (4.4)% Financial Review Pages 18 to 19 GROSS MARGIN 13.3% Financial Review Pages 18 to 19 Definition Year on year increase/ (decrease) in sales revenue excluding the impact of acquisitions and disposals. Comments Revenues are monitored by the Board, although because of the nature of our businesses it is not, by itself, an indicator of performance. Our volume driven businesses are all subject to significant raw material price variations, the majority of which are passed through to selling prices. Hence falling raw material prices are expected to lead to falling revenues. Definition Gross profit as a percentage of sales revenue. Comments Gross margin is a reflection on how successfully we have managed raw material price volatility in our markets, together with how successful we have been in pricing in other areas of our business in competitive markets. Our gross margin grew to 13.3% in the current year, which highlights how we continue to manage input price volatility. ADJUSTED GROUP OPERATING MARGIN 4.0% Financial Review Pages 18 to 19 FREE CASH FLOW £7.6m Financial Review Pages 18 to 19 RETURN ON NET ASSETS 17.9% Definition Operating profit before non-recurring items and amortisation, as a percentage of revenue. Comments The adjusted Group operating margin reflects the gross margin achieved, which is described above, but also indicates the efficiency of our operations from both an administrative and distribution perspective. The growth in margin to 4.0% relates to both of these aspects. Definition Cash generated from operating activities, less maintenance capital expenditure. Comments This KPI indicates how much cash is available for the Group to utilise for expansionary capital investment, paying dividends, or financing/repaying borrowings. The reduction in the year is predominantly due to working capital changes across the business. Definition Profit before tax, non-recurring items and amortisation as a percentage of net assets. Comments Return on net assets reduced slightly by 0.9% this year. The Group’s asset base continues to increase reflecting the investment made in facilities and infrastructure, for the long term. * 3 1 0 2 4 1 0 2 5 1 0 2 Financial Review Pages 18 to 19 * restated for IAS 19 Revised 20 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT THE BOARD 1 5 2 6 3 7 4 8 1 TIM DAVIES Chief Executive Officer Tim joined Carr’s in March 2013 as Chief Executive. Tim was formerly the Group Managing Director at Openfield. Prior to this, he progressed from Sales Director to Managing Director of Grainfarmers plc in 2005. He subsequently led the successful merger of Grainfarmers plc and Centaur Grain Ltd in 2008, forming Openfield, the largest farmer-owned grain marketing business in the UK. Tim continued in his role as Group Managing Director until 2013. He has been a Director of the Agricultural Industries Confederation since 2003. 2 NEIL AUSTIN Group Finance Director Neil joined Carr’s in January 2013 and became Group Finance Director in April 2013. Neil was formerly a Director at PwC, having joined as a graduate in their Newcastle office in 1997. He was appointed as a Director of the Newcastle office in 2007 with lead responsibility for part of the Assurance practice, and has experience with FTSE 350 companies and multi-nationals. 3 CHRIS HOLMES Board Chairman Nominations Committee Chairman Chris joined Carr’s in 1991 as the Managing Director of the Agriculture business, having previously worked for J Bibby & Sons. Chris was appointed Chief Executive in 1994, and remained in that role until he was appointed Chairman in 2013. He commenced as Chairman of Carlisle Youth Zone in 2013 and is a Non-Executive Director of Break 90 Limited. 4 ROBERT HEYGATE Non-Executive Director Robert joined Carr’s as a Non-Executive Director in 1991. He is the joint Managing Director of Heygate & Sons Ltd, the UK’s largest independent flour milling company, which is also engaged in animal feed compounding and other agricultural activities. 5 ALISTAIR WANNOP Remuneration Committee Chairman Alistair was appointed a Non-Executive Director in 2005. Alistair has been the Chairman of both the County NFU and the MAFF northern regional advisory panel. He has served as a Director of The English Farming and Food Partnership, Rural Regeneration Cumbria, and Cumbria Vision. Alistair is a fellow of the Royal Agricultural Society of England. 6 JOHN WORBY Senior Independent Director Audit Committee Chairman John was appointed a Non-Executive Director in April 2015. John is currently a Non-Executive Director of Fidessa plc and Senior Independent Director of Connect Group plc. John was previously the Finance Director of Genus and a Non-Executive Director of Cranswick plc. John is a chartered accountant and a member of the Financial Reporting Review Panel. 7 IAN WOOD Non-Executive Director Ian was appointed to the Board on 1 October 2015. He is the Commercial Director, International Business Development in Centrica (previously British Gas) and has held a number of positions with the Company, covering various aspects of the business including engineering, customer services, industrial and commercial marketing, and energy trading within the UK, Continental Europe and North America. 8 KATIE SINCLAIR Company Secretary Katie was appointed Counsel and Assistant Company Secretary in 2010. She became Company Secretary in January 2013, whilst maintaining her role as Counsel. Katie is a solicitor and has worked with FTSE and NASDAQ companies, and has a breadth of experience in corporate, commercial and employment matters. She is an Associate of the Chartered Institute of Secretaries. 21 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CORPORATE RESPONSIBILITY ONGOING COMMITMENT TO CORPORATE RESPONSIBILITY The Group maintains its emphasis on ensuring it operates with ethical responsibility and remains committed to all aspects of corporate social responsibility. PEOPLE People are fundamental to every business and our employees are critical to the successful delivery of our strategic objectives; one of the four key pillars being “investing in people, who are vital to the long term success of the business”. Our values of trust, respect, and integrity run throughout all our businesses. Our high levels of teamwork and co-operation are a major contributing factor to our success. We remain committed to employee engagement throughout the Group, and employees are kept up-to-date with the Group’s performance and development through regular briefing notes. We have continued to assess the development needs and opportunities across the business, to support our short, medium and longer term objectives. This year our senior team have assessed leadership development throughout the Group and in November 2016 the first leadership programme commences, with participants from across all three divisions. This is an exciting addition to our training programme. Management and supervisory development has been taking place throughout the year with specific focus on areas such as sales and customer service. Identifying talent and people development will remain key priorities for us going forward. We remain committed to providing a working environment that: • is consistent and fair; • is free from discrimination; • aids development and skills; • supports employee engagement. 22 maintaining the current open, fair and non- discriminatory recruitment process operated throughout the Group, and seek to have full engagement with any employee who becomes disabled during their employment. The Group employs, 1,101 people. The split is as follows: 23% Sharesave The Group operates a sharesave scheme, in which currently all UK based employees are entitled to participate. The Group recognises that the scheme is a well-established method of employee engagement, facilitating ownership in the Group. Equal opportunities The Group is committed to an active equal opportunities policy promoting an environment free from discrimination, harassment and victimisation, where everyone will receive equal treatment regardless of gender, colour, ethnic or national origin, disability, age, marital status, sexual orientation or religion. All decisions relating to employment practices will be objective, free from bias and based solely upon work criteria and individual merit. The Group is responsive to the needs of its employees, customers and the community at large. We are an organisation which uses everyone’s talents and abilities and where diversity is valued. 77% 846 Men 255 Women Senior Managers and Executives, male and female: 24% 76% Employees with disabilities It is our policy that people with disabilities should have full and fair consideration for all vacancies. We remain committed to 13 Men 4 Women CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT HEALTH & SAFETY The Group is committed to the maintenance of high standards of health and safety for all its employees, visitors, customers, suppliers and others who may be affected by its business activities. There is also recognition of the need to continually improve safety performance. Health and safety is reviewed regularly at Board level and is a standing Board meeting agenda item. This enables review of accident statistics, auditing activity and other initiatives as well as ensuring the Board are alerted to key risk management and legislative changes. The Board also endorses an ongoing programme of safety improvements. This year an Executive Health and Safety Committee was formed, comprising the Cheif Executive Officer, Group Finance Director and Group Risk Manager, which meets monthly in advance of the monthly Board meetings. This formalises the previous meeting arrangements in order to make them more in line with the recommendations of the Institute of Directors and HSE. The Group has repeated the extremely successful IOSH accredited Managing Safety training course for UK staff. In addition to the Group training plan, each Division also runs their own annual training programmes focusing in depth on the business needs. The Group has also focussed upon the management of road risk, with a Company car driver training initiative and the issue of a Company car drivers’ handbook. The Group Risk Manager continuously monitors safety performance across all Group businesses, to ensure there is a high standard of health and safety management, with an annual audit plan undertaken across the Group. Despite this proactive approach to safety management, the overall number of accidents across the UK Group companies was 51, a slight increase on the 48 recorded in 2014. However it should be recognised these figures include recently acquired businesses and an increase in employee numbers, without which the figure for 2015 would have reduced to 45. The number of RIDDOR reportable injuries has reduced down to 6, from 7 in 2014, and the number of days lost resulting from RIDDOR reportable injuries decreased 29% from 166 in 2014 to 118 this year. The Board is committed to improving standards of health and safety and remains confident that the procedures adopted across the Group, coupled with the culture of the employees, will achieve this. SUSTAINABILITY The Group remain committed to reducing carbon emissions, and increasing sustainable energy consumption. During the year the in-house data and monitoring system was expanded to encompass all UK and overseas subsidiary companies. Additional data collection and monitoring is now operational for all elements of environmental performance: • Energy and carbon generation • Water utilisation • Waste generation and recycling • Transport fuels The new data and monitoring system was launched in the spring of 2015 and sets benchmark targets for improvements to all Group operations. Our Engineering division is leading the way for the Group with several sites utilising green renewable grid supplied electricity. In addition, the new Chirton Engineering factory site, opened early in 2015, is the first site operation across the Group to be completely green, utilising green electricity and bio-mass heating. During 2015 the Group undertook a full Energy Audit in accordance with the mandatory Energy Savings Opportunity Scheme. The full Audit Report detailing potential further energy/carbon reduction opportunities is due to be completed and presented to the Directors in early November 2015. Carbon Generation Report The Group does not generate any additional greenhouse gases other than C02 from the utilisation of grid supplied electricity and natural gas. The energy intensive operations of the Food division and UK feedblock business continue to be in receipt of Climate Change Discount Agreements in exchange for target carbon reductions. Due to changes in the qualifying status for entry into the CRC Scheme the Group were able to withdraw from the second phase of the scheme. Detailed below is the C02 generation for all of the Group’s subsidiary companies comparing actual volume against previous year. It should be noted that this does not include transport C02 generated for the period 2014/15, this is detailed separately below. GROUP CARBON C02 GENERATION 2013/14 v 2014/15 Division CO2 Tonnes 2013/14 CO2 Tonnes 2014/15 Food UK Agriculture USA Agriculture Engineering Sub Total Total Transport Total 15,666 4,349 6,986 797 27,798 —* 27,798 * Transport data was not collected for 2013/2014 14,256 4,277 7,052 821 26,406 5,038 31,444 23 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS During the year the Group created a Cumbria Community Foundation Fund, which has been established with an initial sum of £35,000. This Fund enables charitable groups to support rural communities, disadvantaged individuals, and young people, throughout Cumbria. The Fund supports activities that promote life skills with the intention of raising aspirations, enabling people to fulfil their potential. It also aims to provide support to farming communities and improve knowledge of countryside matters. We maintain our relationship with Carlisle Youth Zone, which serves the social, recreational and emotional needs of young people in the Carlisle area. We strive to ensure that our community work reflects our broader responsibilities as a Group operational throughout the UK, Germany and USA. CORPORATE RESPONSIBILITY CONTINUED Electricity and Gas Utilisation Annual UK Group Electricity Consumption for 2014/15 Group Overseas Electricity Consumption for 2014/15 Annual UK Group Gas Consumption for 2014/15 Group Overseas Gas Consumption for 2014/15 Total Other Fossil Fuel Consumption for 2014/15 32,345,551 Kwh 7,667,445 Kwh 9,215,234 Kwh 6,356.002 Kwh 1,844,355 Kwh Transport Fuels During 2014/15 the Carr’s Group utilised 1,880,166 litres of Diesel Fuel for Own Fleet Vehicles and Company Cars throughout its UK operations. The C02 generated from this fuel consumption during 2014/15 is 5,038 tonnes. C02 conversion factors, as approved by the Department of Energy. Fuel and energy use are based on direct measurement verified through purchase invoices for the vast majority of our sites. In certain instances, an exceptionally small number of invoices were not available, therefore it has been necessary to estimate energy and fuel usage. CARR’S GROUP PLC TOTAL ENERGY BY DIVISION 14% UK Agriculture 3% Engineering 16% Total Transport Environmental Compliance Across the Group there have been no breaches of environmental legislation. The large manufacturing sites continue to operate within the emission levels set by the UK Environment Agency and current permit conditions, and constant monitoring is undertaken. 22% USA Agriculture Food USA Agriculture Total Transport UK Agriculture Engineering 45% Food Waste recycling data has been collected over the year enabling the Group to set targets for reduction in waste and increased recycling, where possible, across the Group for this current year. We maintain our promotion of the culture of environmental and sustainability awareness and encourage all employees to reduce waste and improve energy efficiency. Total C02 generated by the Group Combining the C02 generated through operations and fuel consumption the total Group C02 Generation for the year is 31,444 tonnes. On a like for like basis this resulted in an annual decrease of C02 emissions of 5%. COMMUNITY Interacting with and supporting the communities in which we operate continues to be important to the Group. Support takes many forms from donations and sponsorship to volunteering and mentoring. Intensity Matrix Due to the diverse nature of the operations of the Group it was decided that people were the best measure for the intensity matrix. The 2014/15 intensity matrix is 29 C02 tonnes per employee being 31,444 C02 tonnes/1,101 employees. The C02 emissions data is reported in metric tonnes. The C02 emissions data has been calculated on the basis of measured energy and fuel use multiplied by relevant Our employees take part in a variety of community interactions as well as the Group’s involvement in a variety of charities and sponsorships. The Group and the BBSRC (Biotechnology and Bioscience Research Council) continue to jointly fund the four year PhD scholar at Lancaster University. The PhD student is researching wheat root systems so as to be able to identify wheat varieties which are suited to drought conditions. 24 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORT CORPORATE GOVERNANCE REPORT “Achieving the highest standards of corporate governance remains exceptionally important to the Board.” CHAIRMAN’S OVERVIEW I value the openness, mutual respect and trust of the Board. It is through this, coupled with the expertise, range of perspectives and probative questioning, that the Board is able to assess future opportunities, anticipate risks and build a sustainable business. We are required to state how we have applied the principles contained in the Code and disclose whether we have complied with the provisions of the Code during the year. The Board consider that the Company has, during the year ended 29 August 2015, complied with the requirements of the Code other than with the following: Carr’s approach to governance is outlined in the following report, which describes how it integrates the main principles of the 2012 UK Corporate Governance Code. The corporate governance of the Company is continuously being reviewed as the Company develops, to ensure that the stakeholders’ interests are always aligned with the Company. CHRIS HOLMES Chairman 11 November 2015 Statement by the Directors on compliance with the provisions of the UK Corporate Governance Code 2012. UK CORPORATE GOVERNANCE CODE The UK Corporate Governance Code dated September 2012 (‘the Code’) issued by the Financial Reporting Council is applicable to listed companies, and sets out standards of good practice in relation to issues such as: • Board composition and effectiveness; • the role of Board committees; • risk management; • remuneration; • relationships with shareholders. • B.1.1. Chris Holmes was the Chief Executive Officer and proceeded immediately to Chairman and therefore does not meet the independence criteria for a Chairman. However, the Group believed that the substantial in-depth knowledge of Chris Holmes was invaluable to the business and it was therefore in the best interests of the shareholders for him to have a continuing role with the Group. Clear division of responsibilities with the Chief Executive ensure there is no conflict, as set out on page 26. • B.1.1. The Board considers Robert Heygate as independent, notwithstanding his longstanding position on the Board and his substantial shareholding. Robert Heygate has a wealth of knowledge in the flour milling industry which the Board values, and despite being a Non- Executive Director for 24 years, he has always continued to question with the impartiality expected of a Non-Executive Director. In addition, his shareholding aligns his interests with the other shareholders. Robert Heygate on 10 September 2015 confirmed his intention to stand down from the Board in April 2016. • B.2.1, B.2.2, B.2.4. A Nominations Committee was created within the financial year to 29 August 2015, and its terms of reference are available on the Company’s website www.carrsgroup.com. The Company is aware of its ongoing corporate governance obligations and appointed a new independent Non-Executive Director, CHRIS HOLMES CHAIRMAN John Worby, who commenced on 1 April 2015 and is both the Audit Committee Chairman and Senior Independent Director. John Worby is a former Finance Director and therefore complies with the Code’s requirements regarding having relevant financial experience. After the period end the Company appointed a new independent Non-Executive Director, Ian Wood, who commenced on 1 October 2015. THE BOARD The Directors have a collective duty to promote the long term success of the Company for its shareholders. In determining long-term strategy and objectives of the Group, the Board is mindful of its duties and responsibilities to shareholders as well as employees and other stakeholders. The Board reviews management and financial performance and monitors strategic delivery and achievement of business objectives, resulting in promoting the vision of the Group. The powers of the Directors are set out in the Company’s Articles of Association. In addition, the Directors have responsibilities and duties under legislation, in particular the Companies Act 2006. During the year ended 29 August 2015, the Board comprised of two Executive Directors, a Chairman, and three Non-Executive Directors (John Worby from 1 April 2015). There is a Company Secretary to the Board. The biographies of the Board including the newly appointed Non-Executive Director Ian Wood can be found on page 21. The Board met 11 times during the year. In addition to the regular scheduled meetings throughout the year, unscheduled supplementary meetings may also take place as and when necessary, although during this financial year there was no reason to hold an unscheduled meeting. Directors who are unable to attend a 25 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT CONTINUED The Board’s time can be grouped in to six key areas as outlined below. A portion of their time is also spent on administrative matters. The UK Corporate Governance Code stipulates that there should be a clear division of responsibility between the running of the Board and Executive responsibilities for running the Company. Board. The Company Secretary is responsible to the Board for the timeliness and quality of information. Strategy Setting strategic targets. Reviewing potential acquisitions. Research and technology. Risk Group’s risk and internal control framework. Governance Legal updates and new disclosure requirements. Internal Board review. Succession planning. Finance Stakeholder engagement Oversight of the financial performance of the Group and of the preparation and management of the financial statements. Dividend policy. Pensions strategy. AGM and other shareholder feedback. Investor calls, meetings and roadshows. Safety Health & Safety monthly updates and management. The Chairman was responsible for: • setting the Board agenda; • the leadership of the Board and ensuring its effectiveness on all aspects of its role; • providing strategic insight from his long business experience in the industry and with the Company; • providing a sounding board for the Chief Executive on key business decisions and challenging proposals where appropriate. The Chief Executive was responsible for: • the day-to-day management of the Group’s business; • leading the business and the rest of the management team in accordance with the strategy agreed by the Board; • leading the development of the Group’s strategy with input from the rest of the Board; • leading the management team in the implementation of the Group’s strategy; • bringing matters of particular significance to the Chairman for discussion and consideration by the Board if appropriate. particular meeting receive relevant briefing papers and are given the opportunity to discuss any issues with the Chairman, the Chief Executive or the Group Finance Director. During this year Robert Heygate and Alistair Wannop were unable to attend one Board meeting each, there were no other Director absences during the year. Elections The Company’s Articles of Association provide that one third of the Directors retire by rotation each year at the AGM, however, in line with it best practice the Company requires all the Directors to retire annually. To enable the Directors of the Board to carry out their responsibilities all Directors have full and timely access to all relevant information. The Board has a schedule of matters for its discussion, which is reviewed against best practice. A summary is shown below and a full schedule is available on the Company’s website. Attendance & Agenda In advance of all Board meetings the Directors are supplied with detailed and comprehensive papers covering the Group’s strategy and operations. Members of the executive management team can attend and make presentations as appropriate at meetings of the Details of the number of meetings of, and members’ attendance at, the Board, Audit Remuneration and Nomination Committees during the period are set out in the table below. Support Directors can obtain independent professional advice at the Company’s expense in performance of their duties as Directors. None of the Directors obtained independent professional advice in the period under review. All Directors have access to the advice and the services of the Company Secretary. In addition to these formal roles, the Non-Executive Directors have access to senior management of the business either by telephone or via involvement at informal meetings. DIRECTORS’ CONFLICTS OF INTEREST The Companies Act 2006 and the Company’s Articles of Association require the Board to consider any potential conflicts of interest. The Board has a policy and procedures for managing and, where appropriate, authorising actual or potential conflicts of interest. Under those procedures, Directors are required to declare all directorships or other appointments to organisations that are not part of the Group and which could result in actual or potential conflicts of interest, as well as other situations which could result in a potential conflict of interest. The Board is required to review Directors’ actual or potential conflicts of interest at least annually. Directors are required to disclose proposed new appointments to the Chairman before taking them on, to ensure that any potential conflicts of interest can be identified and addressed appropriately. Any potential conflicts of interest in relation to proposed Directors are considered by the Board prior to their appointment. In this financial year there have been no declared conflicts of interest. The Board is responsible for: • the Group’s strategy; • acquisitions and divestment policy; • corporate governance, risk and environment policy and management; • approval of budgets; • general treasury policy; • major capital expenditure projects; • dividend policy; • monitoring the Group’s profit and cash flow performance. The Board has delegated authority to the Audit, Remuneration, and Nomination Committees to carry out certain tasks as defined in their written terms of reference approved by the Board; these are also available on the Company website. 26 Meetings Attendance No. of meetings Chris Holmes Robert Heygate Alistair Wannop John Worby** Neil Austin Tim Davies * part of the meetings by invitation ** attended all meetings since his appointment Board Audit Committee Remuneration Committee Nomination Committee 11 11 10 10 4 11 11 3 3 2 3 2 3 3 3 3 3 3 0 2* 1* 2 2 2 2 0 1* 1* CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE BOARD EVALUATION The Board conducted an internal evaluation, building on the external evaluation in 2013, which found that the Board was operating effectively. Improvements have been implemented throughout the year, with new action points set out for the forthcoming year. The Board will undertake an externally facilitated evaluation in the financial year ending 2016. The Chairman appraised the individual performance of the Directors and the Non- Executives met and appraised the performance of the Chairman. BOARD COMMITTEES Audit Committee The Audit Committee’s key function is to review the effectiveness of the Company’s financial reporting and performance of the external auditor. The Audit Committee comprised of four Non- Executive Directors, John Worby (Chairman), Chris Holmes, Robert Heygate and Alistair Wannop. Since the year-end Ian Wood has joined the Audit Committee. The Board considers that the Committee meets the main requirements of the Code for a company of Carr’s size. The work, responsibilities and governance of the Audit Committee are set out on pages 28 to 29. The Chair of the Audit Committee will be available at the AGM to answer any shareholder questions on the Committee and its activities. Remuneration Committee During the year the Remuneration Committee comprised of Alistair Wannop (Chairman), Chris Holmes, Robert Heygate, and John Worby. Since the year-end Ian Wood has joined the Remuneration Committee. The work, responsibilities and governance of the Remuneration Committee are set out on pages 30 to 35. The Chair of the Committee will be available at the AGM to answer any shareholder questions on the Committee and its activities. Nomination Committee During the year the Nomination Committee comprised of Chris Holmes (Chairman), Alistair Wannop, Robert Heygate, and John Worby. Since the year-end Ian Wood has joined the Nomination Committee. The work, responsibilities and governance of the Nomination Committee are set out on page 36. The Chair of the Committee will be available at the AGM to answer any shareholder questions on the Committee and its activities. Relations with Shareholders The Board recognises and values the importance of good communications with all shareholders. The Group maintains dialogue with institutional shareholders and analysts, and hosts presentations on the preliminary and interim results. Shareholders have access to the Company’s website at www.carrsgroup.com. We engage with our shareholders through our regular communications. Significant matters relating to trading or development of the business are disseminated to the market by way of Stock Exchange announcements. We announce our financial results on a six monthly basis with all shareholders receiving a summary full year statement, a half year statement, and we produce trading updates during the year. All reports and updates are made available on our website. The AGM provides all shareholders with the opportunity to develop further their understanding of the Company. It is the principal forum for all the Directors to engage in dialogue with private investors. All shareholders are given the opportunity to raise questions on any matter at the meeting. The Group aims to send notices of AGMs to shareholders at least 20 working days before the meeting, as required by the Code, and it is the Company’s practice to indicate the proxy voting results on all resolutions at the meetings. Following the AGM the voting results for each resolution are published and are available on the Company’s website. FAIR, BALANCED AND UNDERSTANDABLE The Directors have also reviewed the financial statements and taken as a whole consider them to be fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. GOING CONCERN The Directors have prepared the accounts on a going concern basis, having satisfied themselves from a review of internal budgets and forecasts and current bank facilities that the Group has adequate resources to continue in operational existence for the foreseeable future. SHARE SPLIT At the AGM on 13 January 2015 the Shareholders voted approving the split of the Company’s shares 10 for 1, and the subdivision of the shares took place on 14 January 2015. CHANGE OF NAME At a General Meeting on 8 April 2015 the Shareholders voted approving the change of Company name from Carr’s Milling Industries PLC to Carr’s Group plc, with the change effective on 9 April 2015. INTERNAL CONTROL The Board of Directors has overall responsibility for the Group’s systems of internal control and for reviewing its effectiveness, including: financial, operational and compliance controls and risk management, which safeguard the shareholders’ investment and the Group’s assets. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives. The Board of Directors is not aware of any significant losses caused by breaches of internal control in the year. The Group operates within a clearly defined organisational structure with established responsibilities, authorities and reporting lines to the Board. The organisational structure has been designed in order to plan, execute, monitor and control the Group’s objectives effectively and to ensure that internal control becomes embedded in the operations. The Board confirms that the key on-going processes and features of the Group’s internal risk based control system, which accord with the Turnbull guidance, have been fully operative throughout the year and up to the date of the Annual Report being approved. These include: a process to identify and evaluate business risk; a strong control environment; an information and communication process; a monitoring system and a regular Board review for effectiveness. The Group Finance Director is responsible for overseeing the Group’s internal controls. The Group’s internal controls systems cover controls over the financial reporting process, including monthly reporting from subsidiaries, its associate and joint ventures. This reporting is subject to detailed review by the Chief Executive and the Group Finance Director and detailed validation by the Group finance team, and forms the basis for information presented to and reviewed by the Board. All monthly reporting is prepared in line with Group accounting policies, which are reviewed annually and are also subject to review by the external auditors. The management of the Group’s businesses identified the key business risks within their operations, considered the financial implications and assessed the effectiveness of the control processes in place to mitigate these risks. The Board reviewed a summary of the findings and this, along with direct involvement in the strategies of the businesses, investment appraisal and budgeting process, enabled the Board to report on the effectiveness of internal control. A summary of the risk management framework and key risks to the business are set out on pages 15 to 17. By order of the Board KATIE SINCLAIR Company Secretary Carlisle CA3 9BA 11 November 2015 27 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS AUDIT COMMITTEE REPORT JOHN WORBY CHAIRMAN OF THE AUDIT COMMITTEE • Implementation of IFRS 10 and 11, and considerations of whether the adoption of these new accounting standards required any changes in our accounting treatment of investments. No such changes were required; • The assumptions adopted for the accounting valuation of our defined benefit pension scheme. The Committee concluded that the assumptions used were appropriate; • Potential impairment of goodwill for historic acquisitions, especially in relation to Chirton given the current state of the oil market. The Committee reviewed the assumptions used and the impact of sensitivities and agreed that no provision for impairment was required; • Provisioning policies in relation to accounts receivable particularly in the Agriculture division. The Committee determined that the judgements made were appropriate to justify the provisions held at 29 August 2015; • Revenue recognition in the Engineering division. The Committee focussed on the recognition of revenue and profit or losses on long term contracts and agreed with management’s judgements. The Committee, further to the Board’s request, has reviewed the Annual Report and financial statements with the intention of providing advice to the Board on whether, as required by the Code, ‘the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s performance, business model and strategy’. INTRODUCTION On behalf of the Audit Committee, I am pleased to present my first report to shareholders following my appointment as Chairman of the Committee. The purpose of this report is to highlight the areas that the Committee has reviewed during the year and how we have discharged our responsibilities effectively during the year. RESPONSIBILITIES The key responsibility of the Committee is to provide effective governance over the appropriateness of the Company’s financial reporting. Under its terms of reference, the Committee is required, amongst other things, to: • monitor the integrity of the financial statements of the Company including the appropriateness of the accounting policies adopted and whether the Annual Report is fair, balanced and understandable; • review, understand and evaluate the Company’s internal financial risk, and other internal controls and risk management systems; • oversee the relationship with the external auditors, making recommendations to the Board in relation to their appointment, remuneration and terms of engagement; • monitor and review the effectiveness of the external audit including the external auditors’ independence, objectivity and effectiveness and to approve the policy on the engagement of the external auditors to supply non-audit services; • keep under review the requirement for and extent of internal audit activities in the Company. The terms of reference can be found on the Company’s website www.carrsgroup.com. MEETINGS The Audit Committee met three times during the year, and has an agenda linked to the Group financial calendar. It invites the Chief Executive, Group Finance Director, Group Financial Controller and external auditors to attend its meetings. The Committee met with the external auditors at the conclusion of the audit without the Executive Directors being present. The Committee has met once since the end of the financial year. MAIN ACTIVITIES DURING THE YEAR Set out below is a summary of the key areas considered by the Committee during the year and up to the date of this report. FINANCIAL REPORTING During the year the Audit Committee reviewed reports and information provided by both the Group Finance Director and the external auditors in respect of the half year and annual financial report. An important responsibility of the Audit Committee is to review and agree significant estimates and judgements made by management. To satisfy this responsibility, the Committee reviewed a written formal update from the Group Finance Director on such issues as well as reports from the external auditors. The Committee carefully considered the content of these reports in evaluating the significant issues and area of judgement across the Group. The key areas of judgement in the year were as follows: 28 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE Taking into account our findings in relation to the effectiveness of the audit process and in relation to the independence of PwC, the Committee is satisfied that PwC continues to be independent, and free from any conflicting interest with the Group. As a result, the Committee has recommended to the Board that PwC be proposed for reappointment at the forthcoming AGM in January 2016. INTERNAL AUDIT Consideration was given to whether there should be a formal internal audit function within the Group. The Committee agreed that in view of the current size of the Group and the absence of any significant control issues having arisen, no such internal audit function was required. The Committee has however recommended that this be reviewed in the year ahead given the increasing spread of the Group’s activities. The Committee also reviewed the Committee’s terms of reference and its effectiveness. As Chairman of the Committee, I will be available at the AGM to respond to any shareholder questions that might be raised on the Committee’s activities. JOHN WORBY Chairman of the Audit Committee 11 November 2015 To make this assessment, the Committee reviewed a report prepared by the Group Finance Director outlining the key matters worthy of consideration. We also considered the KPIs included in the Strategic Report (see page 20) and concluded that, whilst they were appropriate for our shareholders’ understanding of the performance, position and future prospects of the business, there could be inclusion of additional non-financial KPIs. These will continue to be developed over the forthcoming financial year. In addition, the committee also considered and was satisfied that all the key events and issues which have been reported to the Board in the CEO’s monthly report during the year, both good and bad, have been adequately referenced or reflected within the Annual Report. INTERNAL CONTROL AND RISK MANAGEMENT During the year the Committee reviewed the Group’s internal control and risk management systems. The Committee also reviewed current risk management activities and management’s plans to further enhance risk management within the Group as further explained on pages 15 to 17 of the Annual Report. In the light of this work, the Committee reported to the Board that it had reviewed and was satisfied with the effectiveness of the Company’s internal control and risk management systems. EXTERNAL AUDIT The Audit Committee is responsible for recommendations for the appointment, reappointment or removal of external auditors and for approval of their remuneration. PricewaterhouseCoopers LLP (PwC) and its predecessor firms have been the Auditor for Carr’s Group plc since the Company first listed on the London Stock Exchange in 1972. The Audit Committee assesses annually the qualification, expertise and independence of the auditors and the effectiveness of the audit process. Subject to the ongoing satisfactory performance of the external auditors, the Committee expects to carry out a tendering process for the 2019 year end following the conclusion of the five year term of the current audit partner. Following approval by shareholders to re-appoint PwC at last year’s AGM, the Audit Committee reviewed and approved the terms of engagement and remuneration of the external auditors. AUDIT EFFECTIVENESS The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. PwC present their detailed audit plan to us each year identifying their assessment of these key risks. Our assessment of the effectiveness and quality of the audit process and addressing these key risks is formed by, amongst other things, the reporting from the auditors and also seeking feedback from management on the audit process. The Committee remain satisfied with PwC’s performance and is of the view that there is nothing of concern that would impact the effectiveness of the external audit process. AUDITOR INDEPENDENCE The Group meets its obligations for maintaining an appropriate relationship with the external auditors through the Audit Committee, whose terms of reference include an obligation to consider and keep under review the degree of work undertaken by the external auditor other than the statutory audit, to ensure such objectivity and independence is safeguarded. In accordance with the Auditing Practices Board Ethical Standards, PwC has to implement rules and requirements which include that none of their employees working on our audit can hold any shares in Carr’s. PwC is also required to tell us about any significant facts and matters that may reasonably be thought to bear on their independence or on the objectivity of the lead partner and the audit team. The lead partner in the audit team must change every five years. The Audit Committee reviewed and approved the non-audit services policy, the objective of which is to ensure that the provision of such services does not impair, or is not perceived to impair, the external auditors’ independence or objectivity. The policy imposes guidance on the areas of work that the external auditors may be asked to undertake and those assignments where the external auditors should not be involved. There is a further category of services for which a case-by-case decision is necessary. In order to ensure that the policy is effective and the level of non-audit fees is kept under review, major work to be awarded to the audit firm must be agreed in advance by the Audit Committee Chairman. For the 2015 financial year end, the non-audit to audit services ratio was 0.41. Note 3 on page 57 provides further detail on non- audit service fees. 29 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS REMUNERATION COMMITTEE REPORT “As Chairman of the Remuneration Committee I am pleased to present the Remuneration Committee’s annual report on Directors’ remuneration for the year to 29 August 2015.” ALISTAIR WANNOP CHAIRMAN OF THE REMUNERATION COMMITTEE INTRODUCTION This report sets out the Group’s remuneration policy and details of remuneration paid to Executive and Non-Executive Directors during the year. ROLE The main role of the Remuneration Committee is to determine the remuneration for the Executive Directors, in agreement with the Board. The Committee is responsible for all aspects of the Executive Directors’ remuneration, including bonus and long term incentives, and makes recommendations regarding awarding long term incentives to senior management. It reviews the long term incentives to ensure they are aligned with the development of the Group and the business needs. The policy that has been adopted was created by taking into account the need to create shareholder value and therefore putting in place the appropriate incentives for the Executive Directors. The Committee considered the following during the year: • total remuneration and review of base pay for the Directors; • annual earnings of the Directors, including the outcome of annual bonus plans; • the LTIP for the Executive Directors and senior management; and • the requirement for a minimum shareholding requirement. The Remuneration Committee currently comprises Alistair Wannop (Chairman), Chris Holmes, Robert Heygate, John Worby and Ian Wood. Neil Austin and Tim Davies attend meetings of the Committee by invitation and in an advisory capacity. No Director attends any part of a meeting at which his own remuneration 30 is discussed. The Chairman and the Executive Directors determine the remuneration of the other Non-Executive Directors. The remuneration of the Chairman is determined by the Board. The Committee has access to advice from the Company Secretary and to detailed analysis of executive remuneration in comparable companies. The Chair of the Committee, will be available at the AGM to answer any shareholder questions on the Committee and its activities. The Committee is authorised by the Board to: • determine the total remuneration packages, authorise terms and conditions, and contracts for the Board; • approve the design and determine the targets for performance related pay schemes of the Executive Directors; and • review the design of any share incentive plans for approval by the Board and shareholders. REMUNERATION POLICY In this forward looking section we describe our remuneration policy for the Board. This includes considerations when determining policy, a description of the elements of the reward package, and an indication of the potential future value of this package for each Executive Director. There have been no changes to the policy during 2014/15, and no changes are currently planned. However we will review the policy each year to ensure it continues to support the Group’s strategy. CONSIDERATIONS WHEN DETERMINING REMUNERATION POLICY The Group’s policy is that the overall remuneration package offered should be sufficiently competitive to attract, retain and motivate high quality executives and to align the rewards of the Executive Directors with the progress of the Group, whilst giving consideration to salary levels in similar size quoted companies in similar industry sectors. The remuneration package is split into two parts: • A non-performance related element represented by basic salary (including benefits); and • A significant performance related element in the form of an annual profit related bonus and a Long Term Incentive Plan. PERFORMANCE MEASURES AND TARGETS Our Group strategy and business objectives are the primary consideration when we are selecting performance measures for incentive plans. Targets within incentive plans that are related to internal financial measures, such as profit, are typically determined based on our budgets. The threshold and maximum levels of performance are set to reflect minimum acceptable levels at threshold and very stretching but achievable levels at maximum. At the end of each performance period we review performance against the targets, using judgement to account for items such as foreign exchange rate movements, changes in accounting treatment, and significant one-off transactions. The application of judgement is important to ensure that final assessments of performance are fair and appropriate. In addition, the Remuneration Committee reviews the bonus and incentive plan results before any payments are made to Executive Directors or any shares vest and has full discretion to adjust the final payment or vesting downwards if they believe the circumstances warrant it. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE REMUNERATION POLICY TABLE ELEMENT Base salary PURPOSE AND LINK TO STRATEGY POLICY AND APPROACH To attract and retain the best talent. Salaries are reviewed annually and fixed for 12 months commencing 1 September. The decision is influenced by: • level of skill, experience and scope of responsibilities of individual; • business performance, economic climate and market conditions; • increases elsewhere in the Group; and • external comparator groups (used for reference purposes only). CHANGE OF POLICY VERSUS 2014? No. OPPORTUNITY Base salary increases are applied in line with the outcome of the annual review. Pension To remain competitive in the market place. Executive Directors are entitled to participate in a defined contribution pension arrangement. 15% of base salary. No. Company contributions are 15% of base salary. Benefits To aid retention and remain competitive in the market place. These include permanent health insurance, private medical insurance and life assurance. Relocation benefits may also be provided in the case of recruitment of a new Executive Director. Market rate determines value. Annual cash bonus Designed to reward delivery of key strategic priorities during the year. Bonus levels and appropriateness of performance measures and weighting are reviewed annually to ensure they continue to support our strategy. Performance is measured against stretching profit related targets, and is usually paid in November each year for performance in the previous financial year. The bonuses payable are capped at a maximum of 100% of base salary. Maximum of 100% of base salary. No. No. Save As You Earn (SAYE) Long Term Incentive Plan (LTIP) To encourage employee involvement and encourage greater shareholder alignment. To motivate and incentivise delivery of sustained performance over the longer term, and to support and encourage greater shareholder alignment. A SAYE scheme is available to eligible staff, including Executive Directors. Currently there is a 3 year and a 5 year scheme in operation. N/A No. Award levels and vesting are reviewed annually to ensure they continue to support the Group’s strategy. Awards are capped at the equivalent of 100% of base salary at the date of award. Maximum of 100% of base salary. No. Three awards have been made, one maturing in 2015, one in 2016 and one in 2017. For the 2015 maturing award, the amount vesting will be based on average growth of adjusted EPS over the three year period 2013 – 2015. A minimum average annual growth of 7% is required to vest 25% of the award with a sliding scale arrangement up to 10% average annual growth to vest 100% of the award. For the 2016 and 2017 maturing awards, which are also based on three year performance periods, a minimum average annual growth in adjusted EPS of 3% is required to vest 25%, with a sliding scale up to 100% vesting at an annual average growth of 10%. 31 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS REMUNERATION COMMITTEE REPORT CONTINUED CHAIRMAN AND NON-EXECUTIVE DIRECTORS REMUNERATION Our policy is for the Executive Directors to review the remuneration of Non-Executive Directors annually following consultation with the Chairman. Remuneration reflects: • the time commitment and responsibility of their roles; • market rate; and • that they do not participate in any bonus, pension or share based scheme. Non-Executive Directors are engaged on one year fixed-term letters of appointment that set out their duties and responsibilities. SHAREHOLDING GUIDELINES The Committee believes that it is important for a significant investment to be made by each Executive Director in the shares of the Company to provide alignment with shareholder interests. Executive Directors are required to build up a minimum shareholding, equivalent to 200% of base salary over a five year period. This guideline was introduced within the year and therefore the five year period began at that time. APPROACH TO RECRUITMENT REMUNERATION The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s approved remuneration policy in force at the time of appointment. Buy-out awards In addition, the Committee may offer additional cash and/or share-based elements (on a one- time basis or ongoing) when it considers these to be in the best interests of the Group (and therefore shareholders). Any such payments would be limited to a reasonable estimate of value of remuneration lost when leaving the former employer and would reflect the delivery mechanism (i.e. cash and/or share-based), time horizons and whether performance requirements are attached to that remuneration. Maximum level of variable pay The maximum initial level of long-term incentives which may be awarded to a new Executive Director will be limited to the maximum Long Term Incentive Plan limit of 100% of base salary. Therefore the maximum initial level of overall variable pay that may be offered will be 200% of base salary (i.e. 100% annual bonus plus 100% Long Term Incentive Plan). These limits are in addition to the value of any buy-out arrangements which are governed by the policy above. In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other previously awarded entitlements would continue, and be disclosed in the next Annual Report on remuneration. Base salary and relocation expenses The Committee has the flexibility to set the salary of a new appointment at a discount to the market level initially, with a series of planned increases implemented over the following few years to bring the salary to the appropriate market position, subject to individual performance in the role. For external and internal appointments, the Committee may agree that the Group will meet certain relocation expenses as appropriate. Appointment of Non-Executive Directors For the appointment of a new Chairman or Non-Executive Director, the fee arrangement would be set in accordance with the approved remuneration policy in force at that time. ESTIMATES OF TOTAL FUTURE POTENTIAL REMUNERATION FROM 2016 PAY PACKAGES The tables below provide estimates of the potential future remuneration of each Executive Director based on the remuneration opportunity granted in the 2016 financial year. Potential outcomes based on different scenarios are provided for each Executive Director. The assumptions underlying each scenario are described below. Fixed Consists of base salary, pension and other benefits. Base salaries are as at 1 September 2015. Benefits are valued using the figures in the total remuneration for the 2015 financial year table, adjusted for any benefits that will not be provided during 2016. Pensions are valued by applying the appropriate percentage to the base salary. Tim Davies Neil Austin Base £’000 264 195 Benefits £’000 Pension £’000 1 1 40 29 Total £’000 305 225 On target Based on what a Director would receive if performance was in line with plan and the threshold level was achieved under the LTIP. Maximum Assumes that the full stretch target for the LTIP are achieved, and maximum performance is obtained under the annual bonus scheme. Tim Davies, Chief Executive Officer 800 600 400 200 0 Total: £635,000 66 Total: £833,000 264 Total: £305,000 264 264 305 305 305 Fixed On target Maximum Neil Austin, Group Finance Director 700 600 500 400 300 200 100 0 Total: £469,000 49 195 225 Total: £615,000 195 195 225 On target Maximum Total: £225,000 225 Fixed LTIP Annual bonus Salary and benefits 32 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE SERVICE CONTRACTS AND LETTERS OF APPOINTMENT The Group’s current policy is not to enter into employment contracts with any element of notice period in excess of one year. Dates of service contracts and first appointment to the Board for all Directors are given opposite. For early termination, the Remuneration Committee will consider circumstances, including any duty to mitigate, and determine any compensation payments accordingly. Copies of Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are available for inspection at the Company’s registered office during normal hours of business and will be available at the Company’s AGM. ANNUAL REPORT ON REMUNERATION Remuneration Committee In this section we give details of the composition of the Remuneration Committee and activities undertaken during the 2015 financial year. 2015 AGM The 2014 remuneration report received a 99.91% vote in favour, with 0.09% against. The approval of the remuneration policy received a 89.78% vote in favour, with 10.22% against. Shareholder Contact No shareholders have contacted the Remuneration Committee during the year to share views regarding remuneration. Executive Directors Tim Davies Neil Austin Non-Executive Directors Chris Holmes Alistair Wannop Robert Heygate John Worby Ian Wood Date of service contract/ letter of appointment Date first appointed to the Board 18 October 2012 1 January 2013 1 March 2013 1 May 2013 1 September 2015 1 September 2015 1 September 2015 1 April 2015 1 October 2015 7 January 1992 1 September 2005 1 May 1991 1 April 2015 1 October 2015 The performance period for the 2013 LTIP awards has completed, and the awards will vest at 100%. The awards do not vest however until the expiry of the three year period, which is May 2016, therefore the share price used to value the awards in the table above has been taken as the average price in the final quarter of the 2014/15 financial year. 2015 Remuneration (Audited Information) In this section we summarise the pay packages awarded to our Executive Directors for performance in the 2015 financial year versus 2014. The table below shows all remuneration that was earned by each individual during the year and includes a single total remuneration figure for the year. The value of the annual bonus was earned in the year but will be paid out as cash in the following financial year. The Remuneration Committee reviews all incentive awards prior to payment and has full discretion to reduce awards if it believes this is appropriate. The Committee did not exercise any discretion in determining the annual bonus payout for this year. Salary/Fees Benefits Bonus LTIP Pension Total 2015 £’000 2014 £’000 2015 £’000 2014 £’000 2015 £’000 2014 £’000 2015 £’000 2014 £’000 2015 £’000 2014 £’000 2015 £’000 2014 £’000 Executive Directors Tim Davies Neil Austin Non-Executive Directors Chris Holmes Alistair Wannop Robert Heygate John Worby1 261 193 256 189 35* 1 77 36 36 15 75 36 36 — — — — — 9 1 — — — — 261 193 256 189 315 233 — — — — — — — — — — — — — — — — — — 39 29 — — — — 38 28 — — — — 911 649 559 407 77 36 36 15 75 36 36 — 1 Represents a 5 month period – pro rata would be £36,000 * Benefits in 2015 include certain relocation costs agreed at the time of appointment. 33 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS LONG TERM INCENTIVE PLAN AWARDS DURING THE YEAR The 2015 long-term awards were in line with the remuneration policy as disclosed in our 2014 remuneration report. The performance conditions are based on annual average growth in adjusted EPS over a three year period. Average annual growth % 3 10 % vesting 25 100 Nothing is payable below 3%, and a sliding scale operates between this and the maximum available. ALL EMPLOYEE SHARE PLANS The Executive Directors are also eligible to participate in the UK all-employee plans. The CMI Sharesave Scheme 2006 is a HM Revenue & Customs (‘HMRC’) approved scheme open to all staff permanently employed in a UK Group company as of the eligibility date. Options under the plan are granted at a 20% discount to market value. Executive Directors’ participation is included in the option table later in this report. REMUNERATION COMMITTEE REPORT CONTINUED 2015 ANNUAL BONUS PAYOUT The annual bonus is payable based on adjusted profit before tax (‘PBT’) performance of different parts of the Group, and an element payable based on total Group performance. If the Group target is achieved, regardless of individual divisional performance, then the maximum bonus is payable. Adjusted PBT is calculated as reported PBT after adding back or deducting any one-off items outside of normal trading that were not anticipated at the time the performance targets were set, such as acquisition related costs. The targets are split between the different aspects of the Group as follows: Agriculture Food Engineering Group 20% 20% 20% 40% In the 2015 financial year the adjusted PBT target for the Group was set at £17.62m for maximum payout. An adjusted PBT in excess of this was achieved, therefore the maximum bonus was awarded. FIVE YEAR HISTORICAL TSR PERFORMANCE 400 350 300 250 200 150 100 50 0 34 / 0 1 8 0 1 3 / / 0 1 1 1 0 3 / / 1 1 2 0 8 2 / / 1 1 5 0 1 3 / / 1 1 8 0 1 3 / / 1 1 1 1 0 3 / / 2 1 2 0 9 2 / / 2 1 5 0 1 3 / / 2 1 8 0 1 3 / / 2 1 1 1 0 3 / / 3 1 2 0 8 2 / / 3 1 5 0 1 3 / / 3 1 8 0 1 3 / / 3 1 1 1 0 3 / / 4 1 2 0 8 2 / / 4 1 5 0 1 3 / / 4 1 8 0 1 3 / / 4 1 1 1 0 3 / / 5 1 2 0 8 2 / Carr’s Group plc Source: Thomson Datastream FTSE All-Share Price Index / 5 1 5 0 1 3 / / 5 1 8 0 1 3 / CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE DIRECTORS’ INTERESTS IN THE SHARES OF THE COMPANY (AUDITED INFORMATION) A summary of interests in shares and scheme interests of the Directors who served during the year is given opposite. PERFORMANCE SHARES (AUDITED INFORMATION) The maximum number of outstanding shares that have been awarded to Directors under the LTIP are currently as follows: ASSESSING PAY AND PERFORMANCE In the table opposite we summarise the Chief Executive’s single remuneration figure over the past 5 years, as well as how variable pay plans have paid out in relation to the maximum opportunity. Total number of interests in shares Unvested LTIP SAYE (unvested without performance conditions) 20,000 20,000 315,620 233,560 2,958 4,933 1,252,500 22,610 372,250 25,000 — — — — — — — — Executive Directors Tim Davies Neil Austin Non-Executive Directors Chris Holmes Alistair Wannop Bob Heygate John Worby 2012/13 award 2013/14 award 2014/15 award Tim Davies Neil Austin 190,110 140,680 152,260 112,670 163,360 120,890 Single figure of total remuneration Annual variable element (actual award versus maximum opportunity) Long-term incentive (vesting versus maximum opportunity) 2011 Chris Holmes £’000 2012 Chris Holmes £’000 2013 Tim Davies £’000 2014 Tim Davies £’000 2015 Tim Davies £’000 845 573 2831 559 596 100% 100% 100% 100% 100% N/A N/A N/A N/A 100% 1 Represents a 6 month period – pro rata would be £566,000 CHANGE IN CHIEF EXECUTIVE’S REMUNERATION In the table opposite we show the percentage change in the Chief Executive’s remuneration between 2014 and 2015 financial years compared to the other employees. Base pay Benefits Annual bonus Employee costs Dividends paid to shareholders 2015 £’000 39,148 3,110 RELATIVE SPEND ON PAY The table shows the relative importance of spend on pay compared to distributions to shareholders. By order of the Board ALISTAIR WANNOP Chairman of the Remuneration Committee 11 November 2015 Tim Davies Other employees 2.0% 289.0% 2.0% 2014 £’000 35,755 2,912 2.0% 0% 2.0% % change 9.5% 6.8% 35 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CHRIS HOLMES CHAIR OF THE NOMINATION COMMITTEE NOMINATION COMMITTEE REPORT INTRODUCTION This year the Board created a Nomination Committee. During the year the Committee focused on Board succession plans, and the outcomes are set out in this report. Looking ahead, this year we plan to focus in particular on succession planning for critical roles in senior management to ensure that our talent pipeline is appropriately resourced and supported. COMPOSITION AND CONSTITUTION The Nomination Committee comprises the Chairman of the Company and all the Non- Executive Directors. ROLE OF THE COMMITTEE The Committee meets at least once a year, it reviews the structure, size and composition of the Board and considers the optimal level of independence and diversity of skills, knowledge, experience and gender required for the Board to operate effectively. It is responsible for considering and making recommendations to the Board on new appointments of Executive and Non-Executive Directors. It also gives due consideration to succession planning throughout the Group, taking into account the challenge and opportunities facing the Group and the skills and expertise needed within the Board and senior management in the future. BOARD SUCCESSION PLANNING John Worby joined the Board on 1 April 2015, and Ian Wood joined the Board on 1 October 2015. Both appointments were made after conclusion of a process which included using independent external search consultants. Biographical details are set out on page 21. RE-ELECTION At the AGM on 5 January 2016, John and Ian will stand for election for the first time. Executive Directors and all other Non-Executive Directors will stand for re-election in accordance with best practice under the UK Corporate Governance Code 2012. The Board has set out in the Notice of AGM its reasons for supporting the re-election of the Directors at the forthcoming AGM. Their biographical details on page 21 demonstrate the range of experience and skills which each brings to the benefit of the Group. The Chair of the Nomination Committee will attend the AGM to respond to any Shareholder questions that might be raised on the Committee’s activities. On behalf of the Board ACTIVITIES OF THE COMMITTEE The Committee met on two occasions in the year to consider the following matters: CHRIS HOLMES Chair of the Nomination Committee 11 November 2015 • the structure, size, composition and diversity of both the Board and its Committees; • the Committee’s Terms of Reference to ensure they reflect the Committee’s remit. 36 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE DIRECTORS’ REPORT THE DIRECTORS SUBMIT THEIR REPORT AND THE AUDITED ACCOUNTS OF THE COMPANY FOR THE YEAR ENDED 29 AUGUST 2015. The Company is a public limited company incorporated and domiciled in England and Wales whose shares are listed and traded on the London Stock Exchange. The address of its registered office is Old Croft, Stanwix, Carlisle, CA3 9BA. RESULTS AND DIVIDENDS A review of the results can be found on pages 18 to 19. First Interim dividend per share paid on 15 May 2015 Second Interim dividend per share paid on 9 October 2015 Final dividend per share proposed 2015 2014* 0.925p 0.85p 0.925p 0.85p 1.85p 1.70p *restated due to 10:1 share split on 14 January 2015. Subject to approval at the AGM, the final dividend will be paid on 15 January 2016 to members on the register at the close of business on 18 December 2015. Shares will be ex-dividend on 17 December 2015. The Group profit from continuing activities before taxation was £17.5 million (2014: £16.6 million). After taxation charge of £3.8 million (2014: £3.7 million), the profit for the year is £13.7 million (2014: £12.9 million). PENSIONS Estimates of the amount and timing of future funding obligations for the Group’s pension plans are based on various assumptions including, among other things, the actual and projected market performance of the pension plan assets, future long-term corporate bond yields, longevity of members and statutory requirements. The Group continued to make monthly payments to reduce the Group’s pension fund deficit, totalling £2.3 million in the year, which are scheduled to end on 31 December 2015. The Group continually reviews this risk and takes action to mitigate where possible. In addition, while the Group is consulted by the Trustees on the investment strategies of its pension plans, the Group has no direct control over these matters as the Trustees are directly responsible for the strategy. Details of the Group’s pension plans are in note 24 in the Notes to the Financial Statements. EMPLOYMENT POLICIES AND EMPLOYEES The Company is committed to its employees and further details on the Company’s policies and commitment can be found in the Corporate Responsibility Report on pages 22 to 24. ENVIRONMENT The Company’s report on sustainability including carbon footprint and energy usage is on pages 23 and 24. Group contributed £43,920 (2014: £41,000) in the UK for charitable purposes. Further details have been included with the Corporate Responsibility statement on page 24. There were no political donations during the year (2014: £Nil). INVESTMENT PROPERTIES The market value of the Group’s investment properties at 29 August 2015 exceeded their net book amount by approximately 429,000. The previous valuation in July 2011 for the majority of the investment properties was undertaken by independent, professionally qualified valuers. The Directors have reviewed the valuations and are satisfied there are no significant changes to the assumptions and the valuations. SHARE CAPITAL The Company has a single class of share capital which is divided into Ordinary Shares of £0.025 each. The movement in the share capital during the year is detailed in note 25 to the financial statements. ACQUISITIONS On 20 October 2014 Carrs Billington Agriculture (Sales) Ltd acquired the entire issued share capital of WM. Nicholls & Company (Crickhowell) Ltd, an agricultural merchant based in Crickhowell, Wales. For the cash consideration payable see note 27 on page 85. On 12 June 2015, Carrs Billington Agriculture (Sales) Ltd acquired the entire issued share capital of Reid & Robertson Ltd, an agricultural merchant based in Balloch, Ayr and Oban, Scotland. For the cash consideration payable see note 27 on page 85. POLITICAL AND CHARITABLE DONATIONS During the period ended 29 August 2015 the In January 2015 the Company’s shareholders approved the split of the Company’s shares 10:1, which reduced the nominal value of the ordinary shares to 2.5 pence each. At the last AGM the Directors received authority from the shareholders to: Allot Shares – this gives Directors the authority to allot authorised but unissued shares and maintains the flexibility in respect of the Company’s financing arrangements. The nominal value of ordinary shares which the Directors may allot in the period up to the next AGM to be held on 5 January 2016, is limited to £737,865 which is equal to 33% of the nominal value of the issued share capital on 12 November 2014. 37 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS Interest of the Directors Tim Davies Neil Austin Chris Holmes Robert Heygate Alistair Wannop John Worby At 29 August 2015 Ordinary Shares At 30 August 2014 Ordinary Shares 20,000 20,000 1,252,500 372,250 22,610 25,000 10,000* 10,000* 1,252,500* 372,250* 22,610* 0 *restated due to 10:1 share split on 14 January 2015. All the above interests are beneficial. There have been no other changes to the above interests in the period from 29 August 2015 to 11 November 2015. RIGHTS AND OBLIGATIONS ATTACHING TO SHARES In a general meeting of the Company, subject to the provisions of the Articles of Association and to any special rights or restrictions as to voting attached to any class of shares in the Company (of which they are none), the holders of the Ordinary Shares are entitled to one vote in a poll for every Ordinary Share held. No member shall be entitled to vote at any general meeting or class meeting in respect of any shares held if any call or other sum then payable in respect of that share remains unpaid. Currently all issued shares are fully paid. Full details of the deadlines for exercising voting rights in respect of the resolutions to be considered at the AGM to be held on 5 January 2016 are set out in the Notice of AGM. Subject to the provisions of the Companies Act 2006, the Company may, by ordinary resolution, declare a dividend to be paid to the members, but no dividend shall exceed the amount recommended by the Board. The Board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. All dividends shall be apportioned and paid pro rata according to the amounts paid up on the shares. MAJOR SHAREHOLDERS The Company has been informed of the following interests at 11 November 2015 in the 89,820,680 ordinary shares of the Company, as required by the Companies Act 2006: Major Shareholders Number of shares % of issued share capital Heygate & Sons Limited* T W G Charlton Goldman Sachs Securities (Nominees) Ltd (ILSEG) Rathbone Nominees Limited HSBC Global Custody Nominee (UK) Limited * Robert Heygate is a director of Heygate & Sons Ltd. 12,652,870 5,100,000 4,335,940 3,644,950 2,968,940 14.1 5.68 4.83 4.06 3.31 DIRECTORS’ REPORT CONTINUED The directors do not have any present intention of exercising this authority other than in connection with the issue of ordinary shares in respect of the Company’s share option plans. This authority will expire at the end of the AGM to be held on 5 January 2016. Disapplication of rights of pre-emption – this disapplies rights of pre-emption on the allotment of shares by the Company and the sale by the Company of treasury shares. The authority will allow the Directors to allot equity securities for cash pursuant to the authority to allot shares mentioned above, and to sell treasury shares for cash, on a pro rata basis to existing shareholders (but subject to any exclusion or arrangements as the Directors consider necessary or expedient in relation to fractional entitlements, any legal, regulatory or practical problems or costs under the laws or regulations of any overseas territory or the requirements of any regulatory body or stock exchange) and otherwise on a pro rata basis up to an aggregate nominal amount of £111,798, representing 5% of the Company’s issued share capital as at 12 November 2014. This authority will expire at the end of the AGM to be held on 5 January 2016. To buy own shares – this authority allows the Company to buy its own shares in the market, as permitted under the Articles of Association of the Company, up to a limit of 10% of the Company’s issued share capital. The price to be paid for any share must not be less than 0.25p, being the nominal value of a share, and must not exceed 105% of the average middle market quotations for the ordinary shares of the Company as derived from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which the ordinary shares are purchased. The Directors have no immediate plans to exercise the powers of the Company to purchase its own shares and undertaken that the authority would only be exercised if the Directors were satisfied that a purchase would result in an increase in expected earnings per share and was in the best interests of the Company at the time. This authority will expire at the end of the AGM to be held on 5 January 2016. The Directors would consider holding any of its own shares that it purchases pursuant to this authority as treasury shares. The interests of the Directors, as defined by the Companies Act 2006, in the ordinary shares of the Company, other than in respect of options to acquire ordinary shares (which are detailed in the analysis of options included in the Directors’ Remuneration Report on pages 30 to 35), are as follows: 38 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015CORPORATE GOVERNANCE CHANGE OF CONTROL There are no agreements that the Company considers significant and to which the Company is party that would take effect, alter or terminate upon change of control of the Company following a takeover bid, other than the following: • The Company is party to a number of banking agreements which upon a change of control of the Company are terminable by the bank immediately. DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations. RESPONSIBILITY FOR PREPARING FINANCIAL STATEMENTS Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have elected to prepare the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing those Financial Statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and of the Group and enable them to ensure that the Financial Statements and Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. DIRECTORS’ STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 21. Having made enquiries of fellow Directors each of these Directors, at the date of this report, confirms that: • he is aware there is no relevant audit information of which the Company’s auditors are unaware; and • he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. RESPONSIBILITY STATEMENT Each of the Directors, whose names and functions are listed on page 21 confirm that, to the best of their knowledge: • the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; • the Chief Executive’s Review includes a fair review of the development and performance of the business and the position of the Group; and • the Risk Management review provides a description of the principal risks and uncertainties that the Company faces. By Order of the Board KATIE SINCLAIR Company Secretary 11 November 2015 39 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CARR’S GROUP PLC REPORT ON THE FINANCIAL STATEMENTS Our opinion In our opinion: • Carr’s Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 29 August 2015 and of the Group’s profit and the Group’s and the Company’s cash flows for the year then ended; • the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union; • the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. • the Consolidated and Company Statements of Cash Flows for the year then ended; • the Principal Accounting Policies; and • the Notes to the Financial Statements, which include other explanatory information. What we have audited The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise: • the Consolidated and Company Balance Sheets as at 29 August 2015; • the Consolidated Income Statement and Consolidated and Company Statements of Comprehensive Income for the year then ended; • the Consolidated Statement of Changes in Equity for the year then ended; • the Company Statement of Changes in Equity for the year then ended; Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. OUR AUDIT APPROACH Overview Materiality Audit scope Area of focus • Overall Group materiality: £875,000 which represents 5% of profit before tax. • Audit of complete financial information of two financially significant reporting units and three significant risk reporting units. • Specified audit procedures over four other reporting units. • Reporting units located in UK, USA and Germany visited. • Fraud risk in revenue recognition. • Defined benefit pension scheme surplus. • Receivable provisioning. The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. 40 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS AREA OF FOCUS HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS Fraud risk in revenue recognition Refer also to the significant judgements, key assumptions and estimates within the principal accounting policies. ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition. We have determined this to apply specifically to the occurrence of revenue in all divisions because of the pressure management may feel to achieve the planned results. Within the Agriculture and Food division this is specifically in relation to whether a sale has occurred and within the Engineering division this is in relation to the judgements involved in long term contract accounting. Defined benefit pension scheme surplus Refer also to the significant judgements, key assumptions and estimates within the principal accounting policies and note 24. The Group has a defined benefit pension scheme with post- retirement assets of £62.1 million and post-retirement liabilities of £60.4 million, which are significant in the context of the overall balance sheet of the Group. The valuation of the pension scheme liabilities requires significant levels of judgement and technical expertise in choosing appropriate assumptions. Unfavourable changes in a number of the key assumptions (including salary increases, inflation, discount rates, and mortality) can have a material impact on the calculation of the liability. In addition, the recognition of the post-retirement plan surplus position for accounting purposes is dependent on the rights of the employer to recover any surplus. Receivable provisioning Refer also to the significant judgements, key assumptions and estimates within the principal accounting policies and note 18. The Group has material amounts of trade receivables that are past due and not impaired. The key associated risk was the recoverability of these past due trade receivables. Management’s related provisions are subjective and are influenced by assumptions concerning customer credit risk. We focused in particular on the Agriculture division given the significance of this division’s receivables balances to the Group balance sheet and the slower historic collection pattern in this division. Our testing of revenue transactions focused on demonstrating a service had been provided or a sale had occurred. For the Agriculture and Food divisions this involved testing the operating effectiveness of controls around dispatches and invoicing as well as substantively testing that revenue agreed to accounts receivable and cash received. Where revenue did not directly agree to accounts receivable/cash further work was performed to understand and substantively test those transactions. From the work we performed no material exceptions were noted. For the Engineering division we focused on the judgements required to account for long term contracts. This involved reading extracts of the related contracts in order to understand the nature of services provided. We also evaluated management’s assessment of the stage of completion of significant contracts through performing a look back test to assess management’s previous estimations as well as on a sample basis agreeing the inputs into the calculation of the revenue to supporting documentation and reperforming the calculation. From the work we performed no material exceptions were noted. Utilising our pension specialists we focused on the valuations of pension plan liabilities and the pension assets as follows: • We compared the assumptions around salary increases and mortality rates to national and industry averages and guidance. • We compared the discount and inflation rates used in the valuation of the pension liability to our internally developed benchmarks. • We obtained third party confirmations on ownership and valuation of pension assets. • We tested the census data back to the latest triennial valuation provided by the administrator. • We checked that the Company is entitled to any surplus by examining the Trust Deed and Rules documentation. We found that the assumptions underlying the pension scheme surplus were consistent with external data and internally developed benchmarks. We found no material exceptions from our other testing. With focus on the Agriculture division we understood management’s receivables provisioning policy and tested the accuracy of the ageing of the receivables balances in order to recalculate management’s receivables provision. We then analysed the receivables provision focusing on any anomalies in the provisioning methodology and followed up any anomalies, such as unusual payment terms, through investigation with management and review of customer payment history. We tested the operating effectiveness of controls around approval of credit limits for customers and monthly detailed review of the receivables ledger. We examined large individual aged receivable balances, understanding the rationale for management’s provisioning decisions by reference to payment patterns during the year as well as other information available. We also assessed the level of cash collected by the business after the year end on past due receivable balances to consider any additional provisioning requirements. From the work we performed we did not identify any further material balances requiring a provision and no material exceptions were noted. 41 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF CARR’S GROUP PLC CONTINUED How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group is structured in three business divisions, Agriculture, Food and Engineering. The Group financial statements are a consolidation of 16 reporting units, comprising the Group’s operating businesses within these business divisions. The Group operates mainly in the UK but has a global presence particularly in the USA and Germany. These nine reporting units accounted for 88% of Group revenue and 63% of Group profit before tax. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis in preparing the financial statements is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to continue as a going concern. OTHER REQUIRED REPORTING Consistency of other information Companies Act 2006 opinions In our opinion: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and Within the Agriculture division significant operations include subsidiaries Carrs Billington Agriculture (Sales) Limited and Carrs Agriculture Limited as well as an associate Carrs Billington Agriculture (Operations) Limited all located within the UK. Within Food the largest operation is Carr’s Flour Mills Limited again located in the UK. Finally within the Engineering division Wälischmiller Engineering GmbH, located in Germany, is the largest operation. The Group also has centralised functions such as a treasury function and a payroll function which includes the pension scheme administration, all performed by the Company. We identified five reporting units, being those named above within the Agriculture and Food divisions alongside the Company, which in our view required an audit of their complete financial information. Two of these reporting units were deemed financially significant and the other three were selected for particular risk characteristics, which included coverage of the risks relating to pension assumptions and fraud in revenue recognition, and of the profit from the associate. Specific audit procedures on certain balances and transactions were performed on four further reporting units, including those based in the USA and Germany, in order to gain coverage of individually material financial statement line items. The Senior Statutory Auditor visited six of the nine reporting units located in both the UK and in Germany. For another two he attended the clearance meeting, one of which was via conference call in respect of the associate Carrs Billington Agriculture (Operations) Limited which was audited by another firm operating under our instruction. The final reporting unit based in the US was visited by a senior member of the audit team. 42 Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality How we determined it £875,000 (2014: £830,000). 5% of profit before tax. Rationale for benchmark applied We believe that profit before tax is the primary measure used by the shareholders in assessing the performance of the Group, and is a generally accepted auditing benchmark. Reporting unit materiality For each reporting unit in our audit scope, we allocated a materiality that was less than our overall Group materiality. The range of materiality allocated across reporting units was between £111,000 and £800,000. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £44,000 (2014: £42,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. • the information given in the Corporate Governance Statement set out on pages 25 to 27 with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements. Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on page 27, in relation to going concern. We have nothing to report having performed our review. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: • Information in the Annual Report is: − materially inconsistent with the information in the audited financial statements; or − apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company We have no exceptions to report. acquired in the course of performing our audit; or − otherwise misleading. • the statement given by the Directors on page 27, in accordance with provision C.1.1 of the UK Corporate Governance Code (the ‘Code’), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and Company’s performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit. • the section of the Annual Report on pages 28 to 29, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report. We have no exceptions to report. Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Directors’ Remuneration Report – Companies Act 2006 opinion In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Corporate Governance Statement Under the Companies Act 2006 we are required to report to you if, in our opinion, a Corporate Governance Statement has not been prepared by the Company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten provisions of the Code. We have nothing to report having performed our review. • the reasonableness of significant accounting estimates made by the Directors; and • the overall presentation of the financial RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Our responsibilities and those of the Directors As explained more fully in the Directors’ Responsibilities set out on page 39, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed; statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. BILL MACLEOD (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne 11 November 2015 43 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 29 AUGUST 2015 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administrative expenses Group operating profit Finance income Finance costs Share of post-tax profit in associate Share of post-tax profit in joint ventures Profit before taxation Taxation Profit for the year Profit attributable to: Equity shareholders Non-controlling interests Earnings per ordinary share (pence) Basic Diluted Notes 2015 £’000 2014 £’000 2 3 5 5 2 6 8 8 411,565 (356,708) 54,857 (21,313) (17,169) 16,375 197 (1,412) 1,500 807 17,467 (3,774) 428,956 (378,670) 50,286 (19,438) (15,421) 15,427 264 (1,624) 1,579 907 16,553 (3,660) 13,693 12,893 11,989 1,704 13,693 13.4 12.9 11,372 1,521 12,893 12.8 12.3 44 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 AUGUST 2015 Notes Group 2015 £’000 2014 £’000 13,693 12,893 Company 2015 £’000 2,870 2014 £’000 2,021 Profit for the year Other comprehensive income/(expense) Items that may be reclassified subsequently to profit or loss: Foreign exchange translation gains/(losses) arising on translation of overseas subsidiaries Items that will not be reclassified subsequently to profit or loss: Actuarial (losses)/gains on retirement benefit obligation: – Group – Share of associate Taxation credit/(charge) on actuarial (losses)/gains on retirement benefit obligation: – Group – Share of associate Other comprehensive (expense)/income for the year, net of tax 24 16 20 (950) — — (2,848) 70 3,209 (619) (2,848) — 3,209 — 570 (14) (642) 124 570 — (2,202) 1,122 (2,278) Total comprehensive income for the year 11,491 14,015 Total comprehensive income attributable to: Equity shareholders Non-controlling interests 9,787 1,704 12,494 1,521 11,491 14,015 592 592 — 592 (642) — 2,567 4,588 4,588 — 4,588 45 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 29 AUGUST 2015 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment property Investment in subsidiary undertakings Investment in associate Interest in joint ventures Other investments Financial assets – Non-current receivables Retirement benefit asset Deferred tax assets Current assets Inventories Trade and other receivables Current tax assets Financial assets – Derivative financial instruments – Cash and cash equivalents Total assets Liabilities Current liabilities Financial liabilities – Borrowings – Derivative financial instruments Trade and other payables Current tax liabilities Non-current liabilities Financial liabilities – Borrowings Deferred tax liabilities Other non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Share premium Equity compensation reserve Foreign exchange reserve Other reserve Retained earnings Total shareholders’ equity Non-controlling interests Total equity Notes 9 9 10 11 12,15 12,13 12,14 12 18 24 16 17 18 19 23 20 22 23 21 22 16 21 25 Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 10,849 448 58,385 636 — 8,439 5,012 79 50 1,767 861 9,798 499 56,626 656 — 6,883 4,836 77 501 2,056 1,507 — — — — 12,205 245 272 — — 1,767 3 — — — — 12,755 245 272 — 500 2,056 3 86,526 83,439 14,492 15,831 35,031 64,454 839 50 16,488 33,315 63,623 47 — 17,268 116,862 114,253 203,388 197,692 (15,157) (72) (54,496) (472) (19,688) (15) (54,236) (1,631) (70,197) (75,570) — 36,845 1,564 30 8,973 47,412 61,904 (690) — (1,915) — (2,605) — 33,812 1,192 — 8,822 43,826 59,657 (1,553) — (1,302) — (2,855) (25,744) (4,184) (4,300) (22,189) (4,111) (5,995) (16,414) (353) — (12,047) (412) — (34,228) (32,295) (16,767) (12,459) (104,425) (107,865) (19,372) (15,314) 98,963 89,827 42,532 44,343 2,244 8,615 1,138 (515) 862 74,706 87,050 11,913 98,963 2,235 8,453 640 (535) 875 67,996 79,664 10,163 89,827 2,244 8,615 1,239 — — 30,434 42,532 — 42,532 2,235 8,453 699 — — 32,956 44,343 — 44,343 The financial statements set out on pages 44 to 91 were approved by the Board on 11 November 2015 and signed on its behalf by: Tim J Davies Neil Austin 46 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 AUGUST 2015 Share Capital £’000 Equity Share Compensation Reserve £’000 Premium £’000 Foreign Exchange Reserve £’000 Other Reserve £’000 Total Retained Shareholders’ Equity Earnings £’000 £’000 Non- controlling Interests £’000 Total Equity £’000 At 1 September 2013 2,223 8,183 326 Profit for the year Other comprehensive (expense)/income Total comprehensive (expense)/income Dividends paid Equity settled share- based payment transactions, net of tax Allotment of shares Transfer — — — — — 12 — — — — — — 270 — At 30 August 2014 2,235 8,453 At 31 August 2014 2,235 8,453 Profit for the year Other comprehensive income/(expense) Total comprehensive income/(expense) Dividends paid Equity settled share- based payment transactions, net of tax Allotment of shares Transfer — — — — — 9 — — — — — — 162 — — — — — 314 — — 640 640 — — — — 498 — — 415 — (950) (950) — — — — 888 57,396 69,431 8,610 78,041 — — — — — — (13) 11,372 11,372 1,521 12,893 2,072 1,122 — 1,122 13,444 (2,912) 12,494 (2,912) 1,521 — 14,015 (2,912) 55 — 13 369 282 — 32 — — 401 282 — (535) 875 67,996 79,664 10,163 89,827 (535) 875 67,996 79,664 10,163 89,827 — 20 20 — — — — — — — — — — (13) 11,989 11,989 1,704 13,693 (2,222) (2,202) — (2,202) 9,767 (3,110) 9,787 (3,110) 1,704 — 11,491 (3,110) 40 — 13 538 171 — 46 — — 584 171 — At 29 August 2015 2,244 8,615 1,138 (515) 862 74,706 87,050 11,913 98,963 The equity compensation reserve reflects the cumulative accounting impact, at the balance sheet date, of the fair value of the share schemes over the vesting periods. The movement on the equity compensation reserve is taken through the consolidated income statement. During the year £40,000 (2014: £55,000) was transferred from the equity compensation reserve to retained earnings in respect of options exercised in the year. The Group has opted to use previous revaluations of property made under UK GAAP as deemed cost. On adoption of IFRS the revaluation reserve was reclassified to other reserves. 47 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 AUGUST 2015 Share Capital £’000 Share Premium £’000 Equity Compensation Reserve £’000 Foreign Exchange Reserve £’000 Retained Earnings £’000 Total Equity £’000 At 1 September 2013 2,223 8,183 373 (221) 31,481 42,039 Profit for the year Other comprehensive income Total comprehensive income Dividends paid Equity settled share-based payment transactions, net of tax Allotment of shares Transfer At 30 August 2014 At 31 August 2014 Profit for the year Other comprehensive expense Total comprehensive income Dividends paid Equity settled share-based payment transactions, net of tax Allotment of shares — — — — — 12 — — — — — — 270 — 2,235 8,453 2,235 8,453 — — — — — 9 — — — — — 162 — — — — 326 — — 699 699 — — — — 540 — At 29 August 2015 2,244 8,615 1,239 — — — — — — 221 — — — — — — — — — 2,021 2,567 4,588 (2,912) 20 — (221) 2,021 2,567 4,588 (2,912) 346 282 — 32,956 44,343 32,956 44,343 2,870 (2,278) 592 (3,110) (4) — 2,870 (2,278) 592 (3,110) 536 171 30,434 42,532 The equity compensation reserve reflects the cumulative accounting impact, at the balance sheet date, of the fair value of the share schemes over the vesting periods. The movement on the equity compensation reserve is taken through the income statement where it relates to employees of the Company and to investment in subsidiaries where it relates to employees of the subsidiaries. During the year £4,000 (2014: £20,000) was transferred from the equity compensation reserve to retained earnings and £45,000 (2014: £58,000) was transferred from the equity compensation reserve to investment in subsidiaries in respect of options exercised in the year. 48 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 29 AUGUST 2015 Group Company Cash flows from operating activities Cash generated from/(used in) operations Interest received Interest paid Tax (paid)/recovered Notes 28 2015 £’000 15,127 194 (1,380) (3,965) 2014 £’000 17,125 275 (1,668) (3,226) Net cash generated from/(used in) operating activities 9,976 12,506 27 Cash flows from investing activities Acquisition of subsidiaries (net of cash acquired) Dividends received from subsidiaries Net payment of loans to subsidiaries Return/(cost) of investment in joint venture Loan repaid by/(paid to) joint ventures Loan repaid by associate Other loans Purchase of intangible assets Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Disposal of investment Redemption of preference shares in joint venture (1,749) — — 488 129 500 220 (15) 462 (5,970) — 150 (3,649) — — (965) (159) 225 (270) (57) 738 (7,201) 32 150 2015 £’000 (2,915) 884 (359) (92) (2,482) — 4,200 (2,602) — — 500 — — — — — — Net cash (used in)/generated from investing activities (5,785) (11,156) 2,098 Cash flows from financing activities Proceeds from issue of ordinary share capital Net payment of loans from subsidiaries Net proceeds from issue of new bank loans Finance lease principal repayments Repayment of loan from related party Repayment of borrowings (Decrease)/increase in other borrowings Dividends paid to shareholders Receipt of grant income Net cash (used in)/generated from financing activities Effects of exchange rate changes Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 25 7 20 20 171 — 9,061 (2,395) (500) (4,880) (3,638) (3,110) 500 (4,791) (150) (750) 17,025 283 — 2,731 (2,325) (225) (7,077) 2,256 (2,912) 450 (6,819) (181) (5,650) 22,675 16,275 17,025 171 — 4,854 — — (1,383) — (3,110) — 532 3 151 8,822 8,973 2014 £’000 (3,677) 834 (534) 466 (2,911) — 3,510 (5,401) — (223) 225 — — — — 29 — (1,860) 283 (289) 2,731 — — (5,971) — (2,912) — (6,158) (71) (11,000) 19,822 8,822 49 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS PRINCIPAL ACCOUNTING POLICIES BASIS OF ACCOUNTING The consolidated financial statements are prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Standards Interpretation Committee (IFRS IC) interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Company is a public limited company incorporated and domiciled in England and Wales whose shares are listed and traded on the London Stock Exchange. The address of its registered office is Old Croft, Stanwix, Carlisle, CA3 9BA. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ materially from the estimates. Accounting policies have been applied consistently, other than where new policies have been adopted. The consolidated financial statements are prepared under the historic cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. BASIS OF CONSOLIDATION The consolidated financial statements comprise Carr’s Group plc and all its subsidiaries, together with the Group’s share of the results of its associate and joint ventures. The financial information of the subsidiaries, associate and joint ventures is prepared as of the same reporting date and consolidated using consistent accounting policies. Group inter-company balances and transactions, including any unrealised profits arising from Group inter-company transactions, are eliminated in full. Profits and losses on transactions with the associate and joint ventures are recognised in the consolidated income statement. Results of subsidiary undertakings acquired during the current and prior financial year were included in the financial statements from the effective date of control. The separable net assets, both tangible and intangible, of the acquired subsidiary undertakings were incorporated into the financial statements on the basis of the fair value as at the effective date of the Group acquiring control. IFRS 10 introduces a new definition of control which could affect whether an entity is consolidated into the Group accounts. An investor controls an investee when it is exposed, or has right, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Control requires power over the investee, exposure, or rights, to variable returns and the ability to use power to affect returns. Subsidiaries are entities that meet the new definition of control. Subsidiaries are consolidated from the date on which control is transferred to the Group and are included until the date on which the Group ceases to control them. Associates are entities over which the Group has significant influence but not control, generally accompanied by a share of between 20% and 50% of the voting rights. Joint ventures are entities over which the Group has joint control, established by contractual agreement. Investments in associates and joint ventures are accounted for using the equity method. The Group’s share of its associate and joint ventures’ post-tax 50 profits or losses are recognised in the income statement, and its share of movement in reserves is recognised in reserves. The cumulative movements are adjusted against the carrying amount of the investment. The Group’s investment in associate and joint ventures includes any goodwill arising on acquisition. If the Group’s share of losses in an associate or joint venture equals or exceeds its investment in the associate or joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. All subsidiaries are accounted for by applying the purchase method. The cost of a business combination is measured as the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity instruments issued by the Group. The identifiable assets, liabilities and contingent liabilities of the acquiree are measured initially at fair value at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill. Acquisition related costs are expensed to the consolidated income statement in the year they are incurred. The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. EMPLOYEE SHARE TRUST IFRS 10 requires that the Group consolidate a structured entity where the substance of the relationship between the parties indicates that the Group controls the entity. The employee share trust sponsored by the Group falls within this category of structured entity and has been accounted for as if it were, in substance, a subsidiary. CURRENCY TRANSLATION The financial statements for the Group’s subsidiaries, associate and joint ventures are prepared using their functional currency. The functional currency is the currency of the primary economic environment in which an entity operates. The presentation currency of the Group is Sterling. Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Exchange differences resulting from the settlement of such transactions and from the translation, at exchange rates ruling at the balance sheet date, of monetary assets and liabilities denominated in currencies other than the functional currency are recognised in the consolidated income statement. The balance sheets of foreign operations are translated into sterling using the exchange rate at the balance sheet date and the income statements are translated into sterling using the average exchange rate for the year. Where this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, the exchange rate on the transaction date is used. Exchange differences arising are recognised as a separate component of shareholders’ equity. On disposal of a foreign operation any cumulative exchange differences held in shareholders’ equity are transferred to the consolidated income statement. REVENUE RECOGNITION Revenue from the sale of goods or services is measured at the fair value of the consideration, net of rebates and excluding value added tax. Revenue from the sale of goods or services is recognised when the Group has transferred the significant risks and rewards of ownership of the goods to the buyer, when the amount of revenue can be measured reliably and when it is probable that the economic benefits associated with the transaction will flow to the Group. Inter segmental transactions are on an arm’s length basis. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS In respect of construction contracts, revenue is calculated on the basis of the stage of completion and the total sales value of each contract. of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. The stage of completion is determined as the proportion that contract costs incurred for work performed to date bear to the total estimated total contract costs. No profit is recognised until a contract is at least 30% complete. Amounts invoiced for work completed are deducted from the selling price, while amounts invoiced in excess of work completed are recognised as current liabilities. Where it is probable that contract costs will exceed total contract revenue the expected loss is recognised immediately as an expense in the consolidated income statement. RETIREMENT BENEFIT OBLIGATIONS The Group participates in two defined benefit pension schemes, Carr’s Group Pension Scheme and Carrs Billington Agriculture Pension Scheme. The Group also offers various defined contribution schemes to its employees. The assets of the above named schemes are held separately from those of the Group and are invested with independent investment managers. Contributions to defined contribution schemes are charged to the consolidated income statement in the year to which they relate. The asset/(obligation) recognised in the consolidated balance sheet at the year end in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the balance sheet date less the fair value of scheme assets. Independent actuaries calculate the defined benefit asset/(obligation) annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. The service costs, including pension scheme administrative costs are included in operating profit in the consolidated income statement. A charge is made within operating profit which represents a net interest amount that is calculated by applying the discount rate at the beginning of the year to the net defined benefit asset/(obligation) at the beginning of the year. The net interest amount also takes into account changes to the net asset/(obligation) during the year. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the consolidated statement of comprehensive income. The pension schemes’ deficits or surpluses, to the extent that they are considered recoverable, are recognised in full on the consolidated balance sheet. IFRIC 14 confirms that where a company has an unconditional right to a refund of surplus from a defined benefit pension plan during the lifetime of that plan or when it winds it up, and where there is expected to be surplus assets, there is no limit on the asset the Company can show on its balance sheet. At 29 August 2015 and 30 August 2014 the consolidated balance sheet recognises the full surplus on the Carr’s Group defined benefit pension scheme. The Group’s share of the deficit in the Carrs Billington Agriculture Pension Scheme is recognised through its investment in associate. SHARE BASED PAYMENTS The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of the grant. The fair value determined at the grant date Fair value is measured by use of a valuation model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. At each balance sheet date the Group revises its estimate of the number of options that are expected to vest. Changes to the fair value recognised as a result of this are charged or credited to the consolidated income statement with a corresponding adjustment to the equity compensation reserve. INTEREST Interest is recognised in the consolidated income statement on an accruals basis using the effective interest method. BORROWING COSTS General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in the consolidated income statement in the year in which they are incurred. OPERATING SEGMENTS IFRS 8 requires operating segments to be identified on the basis of internal financial information about components of the Group that are regularly reviewed by the Chief Operating Decision Maker (‘CODM’) to allocate resources to the segments and to assess their performance. The CODM has been identified as the Executive Directors. The CODM considers the business from a product/services perspective. Operating segments have been identified as Agriculture, Food and Engineering. NON-RECURRING ITEMS Non-recurring items that are material by size and/or by nature are presented within their relevant income statement category. Items that management consider fall into this category are disclosed within a note to the financial statements. The separate disclosure of non-recurring items helps provide a better indication of the Group’s underlying business performance. Events which may give rise to non-recurring items include, but are not limited to, gains or losses on the disposal of businesses, derivative gains or losses in respect of capital expenditure, gains or losses on the disposal of properties, gains or losses on the disposal of material investments, the restructuring of businesses, the integration of new businesses, acquisition related costs and asset impairments. GOODWILL Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. 51 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS PRINCIPAL ACCOUNTING POLICIES CONTINUED For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed. Goodwill written off to reserves under UK GAAP prior to 31 August 1998 has not been reinstated and would not form part of the gain or loss on the disposal of a business. OTHER INTANGIBLE ASSETS Other intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation commences when assets are available for use. The expected useful lives, over which the assets are amortised, are generally as follows: Customer relationships Brands Know-how Patents and trademarks Software 1 – 5 years 15 – 20 years 5 years contractual life 3 – 10 years Customer relationships and brands are amortised in line with the profit and income streams they are respectively expected to generate over their expected useful life. Know-how, patents, trademarks and software are amortised on a straight-line basis. The cost of intangible assets acquired in a business combination is the fair value at the acquisition date. The cost of separately acquired intangible assets comprises the purchase price and any directly attributable costs of preparing the assets for use. RESEARCH AND DEVELOPMENT COSTS All research costs are recognised in the consolidated income statement as incurred. Development costs are recognised as an asset only to the extent that specific recognition criteria, as set out in IAS38 ‘Intangible assets’, relevant to the proposed application are met and the amount recognised is recoverable through future economic benefits. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Cost comprises purchase price and directly attributable costs. Freehold land and assets in the course of construction are not depreciated. For all other property, plant and equipment, depreciation is calculated on a straight-line basis to allocate cost less residual values of the assets over their estimated useful lives as follows: Freehold buildings Leasehold buildings Plant and equipment up to 50 years shorter of 50 years or lease term 3 to 20 years Residual values and useful lives are reviewed, and adjusted if appropriate, at each financial year-end. Assets not fully constructed at the balance sheet date are classified as assets in the course of construction. When construction is complete these assets are reclassified to the appropriate heading within property, plant and equipment. Depreciation commences when the asset is ready for use. The cost of maintenance, repairs and minor equipment is charged to the consolidated income statement as incurred; the cost of major renovations and improvements is capitalised. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the consolidated income statement. INVESTMENT PROPERTY Investment properties are properties held for long-term rental yields. Investment properties are carried in the balance sheet at cost less accumulated depreciation. Freehold land is not depreciated. For all other investment property, depreciation is calculated on a straight- line basis to allocate cost less residual values of the assets over their estimated useful lives as follows: Freehold buildings up to 50 years The cost of maintenance, repairs and minor equipment is charged to the consolidated income statement as incurred; the cost of major renovations and improvements is capitalised. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the consolidated income statement. IMPAIRMENT OF NON-FINANCIAL ASSETS Non-financial assets are reviewed for impairment where there are any events or changes in circumstances that would indicate potential impairment. In addition, at each reporting date, the Group assesses whether there is any indication that goodwill may be impaired. Where an indicator of impairment exists, the Group makes an estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is written down to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is deemed for an individual asset. If the asset does not generate cash flows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Where appropriate, cost is calculated on a specific identification basis. Otherwise inventories are valued using the first-in first-out method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Provision has been made, where necessary, for slow moving, obsolete and defective inventories. Contract work in progress is measured at the selling price of the work performed at the balance sheet date. The selling price is measured by reference to the stage of completion at the balance sheet date and total expected income from the contract work. 52 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS Progress payments received are deducted from the value of work in progress except to the extent that payments on account exceed the value of work in progress on any contract where the excess is included in trade and other payables. Tax is recognised in the consolidated income statement, unless the tax relates to items recognised directly in shareholders’ equity, in which case the tax is recognised directly in shareholders’ equity through the consolidated statement of comprehensive income. CASH AND CASH EQUIVALENTS Cash and cash equivalents for the purposes of the consolidated statement of cash flows comprise cash at bank and in hand, money market deposits and other short term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts are presented in borrowings within current liabilities in the consolidated balance sheet. DIVIDENDS Final equity dividends to the shareholders of the Company are recognised in the year that they are approved by the shareholders. Interim equity dividends are recognised in the year that they are paid. Dividends receivable are recognised in the period in which they are received. GRANTS Grants received on capital expenditure are recorded as deferred income and taken to the consolidated income statement in equal annual instalments over the expected useful lives of the assets concerned. FINANCIAL INSTRUMENTS Financial assets and liabilities are recognised on the Group’s consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument. Revenue grants and contributions are taken to the consolidated income statement in the year to which they apply. LEASES Leases are classified as finance leases at inception where substantially all of the risks and rewards of ownership are transferred to the Group. Assets classified as finance leases are capitalised on the consolidated balance sheet and are depreciated over the shorter of the useful life of the asset and the term of the lease. The interest element of the rental obligations is charged to the consolidated income statement over the period of the lease using the actuarial method. Rentals paid under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the lease. Leasehold land is normally classified as an operating lease. Payments made to acquire leasehold land are included in prepayments at cost and are amortised over the life of the lease. Any incentives to enter into operating leases are recognised as a reduction of rental expense over the lease term on a straight-line basis. TAX The tax charge comprises current tax and deferred tax. The current tax charge represents an estimate of the amounts payable to tax authorities in respect of the Group’s taxable profits. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax arising from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, is not recognised. Deferred tax is measured using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the asset is realised or the liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of a provision for impairment, and the amount of the loss is recognised in the consolidated income statement. The provision is utilised when a trade receivable is uncollectible. Investments Investments are initially measured at cost, including transaction costs. Equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured by other means are held at cost. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Bank borrowings Interest-bearing loans and overdrafts are recognised initially at fair value net of direct issue costs and are subsequently stated at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 53 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS PRINCIPAL ACCOUNTING POLICIES CONTINUED Derivative financial instruments and hedging activities The Group primarily uses forward foreign currency contracts, options and currency swaps to manage its exposures to fluctuating foreign exchange rates. These instruments are initially recognised at fair value and are subsequently re-measured at their fair value at each balance sheet date. SIGNIFICANT JUDGEMENTS, KEY ASSUMPTIONS AND ESTIMATES Application of certain Group accounting policies requires management to make judgements, assumptions and estimates concerning the future as detailed below. The Group’s policy is to hedge its international assets and it has designated foreign currency borrowings as a hedge against net investment in foreign operations. The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined as an effective hedge is recognised directly in equity. The gain or loss on any ineffective portion of the hedge is recognised immediately in the consolidated income statement. Valuation of pension obligations The valuation of the Group’s defined benefit pension scheme is determined each year following advice from a qualifying independent actuary and can fluctuate based on a number of external factors. Such factors include the major assumptions as shown in the table in note 24 and actual returns on scheme assets compared to those predicted in the previous scheme valuation. NEW STANDARDS AND INTERPRETATIONS From 31 August 2014 the following became effective and were adopted by the Group: Valuation of share-based payments The fair value of share-based payments is determined using valuation models and is charged to the consolidated income statement over the vesting period. The valuation models require certain assumptions to be made as shown in the tables in note 26. Estimations of vesting and satisfaction of performance criteria are required to determine fair value. Impairment of goodwill The carrying value of goodwill must be assessed for impairment annually, or more frequently if there are indications that goodwill might be impaired. This requires an estimation of the value in use of the cash generating units to which goodwill is allocated. Value in use is dependent on estimations of future cash flows from the cash generating unit and the use of an appropriate discount rate to discount those cash flows to their present value. No impairment has been identified in the year (note 9). Revenue recognition on construction contracts Under long term contracts, the Group recognises revenue and profits based on the percentage completion method. This requires management to make an assessment of the overall profitability and the stage of completion of the entire contract in order to determine the level of revenue and profit to recognise. Provision for impairment of trade receivables The financial statements include a provision for impairment of trade receivables (note 18) that is based on management’s estimation of recoverability. There is a risk that the provision will not match the trade receivables that ultimately prove to be irrecoverable. Valuation of derivative financial instruments The fair value of derivative financial instruments (note 23) is determined using market factors at the year end over which management have no control. Such factors include the estimation of future currency exchange rates. In addition the fair value of such instruments is affected by the global economic environment and financial institution pricing structures. IFRS 10 ‘Consolidated financial statements’ IFRS 11 ‘Joint arrangements’ IFRS 12 ‘Disclosures of interests in other entities’ Amendments to IFRS 10, 11 and 12 on transition guidance IAS 27 (revised 2011) ‘Separate financial statements’ IAS 28 (revised 2011) ‘Associates and joint ventures’ Amendments to IFRS 10, IFRS 12 and IAS 27 on consolidation for investment entities Amendments to IAS 32 on Financial instruments asset and liability offsetting Amendments to IAS 36 ‘Impairment of assets’ on recoverable amount disclosures Amendments to IAS 39 ‘Financial instruments: Recognition and measurement’ on novation of derivatives and hedge accounting IFRIC 21 ‘Levies’ The adoption of these standards and interpretations has had no impact on the Group’s profit for the year or equity. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE AND NOT EARLY ADOPTED IFRS 9 ‘Financial instruments’ Amendments to IFRS 10 ‘Consolidated financial statements’ and IAS 28 ‘Investments in associates and joint ventures’ Amendment to IFRS 10 and IAS 28 on investment entities applying the consolidation exemption Amendment to IFRS 11 ‘Joint arrangements’ on acquisition of an interest in a joint operation IFRS 14 ‘Regulatory deferral accounts’ IFRS 15 ‘Revenue from contracts with customers’ Amendment to IAS 1 ‘Presentation of financial statements’ on the disclosure initiative Amendment to IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ on depreciation and amortisation Amendment to IAS 16 ‘Property, plant and equipment’ and IAS 41 ‘Agriculture’ regarding bearer plants Amendment to IAS 19 regarding defined benefit plans Amendments to IAS 27, ‘Separate financial statements’ on the equity method Annual improvements to IFRSs 2012, 2013 and 2014 It is considered that the above standards and amendments will not have a significant effect on the results or net assets of the Group. 54 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS 1 The Company has taken advantage of the exemption, under section 408 of the Companies Act 2006, from presenting its own income statement. The profit after tax for the year dealt with in the accounts of the Company was £2,870,000 (2014: £2,021,000). 2 Segmental information The chief operating decision maker (“CODM”) has been identified as the Executive Directors. Management has identified the operating segments based on internal financial information reviewed by the CODM. The CODM considers the business from a product/services perspective. Operating segments have been identified as Agriculture, Food and Engineering. Operating segments have not been aggregated for the purpose of determining reportable segments. Agriculture aims to provide for all farming requirements. It derives its revenue from the sale of animal feed and feed blocks together with retail sales of farm equipment, fuels and farm consumables. Food derives its revenues from the milling of wheat into flour. Customers range from the larger companies, bread and biscuit manufacturers and supermarkets, to smaller owner managed bakeries. Engineering derives its revenues from the design and manufacture of remote handling equipment for use in research and nuclear industries. In addition the UK business is involved in precision machining and the design and manufacture of pressure vessels for the oil, petrochemical and gas industry. Performance is assessed using profit before taxation. For internal purposes profit before taxation is measured in a manner consistent with that in the financial statements, with the exception of material non-recurring items, which are excluded. Inter-segmental transactions are all undertaken on an arm’s length basis. Adjustments to segmental information and amounts classified as ‘other’ represents non-reportable segments and consolidation adjustments. As segment liabilities are not reviewed by the CODM they are not required to be disclosed under IFRS 8. The Group has operations in the UK and overseas. In accordance with IFRS 8, entity wide disclosures based on the geography of operations is also presented. The geographical analysis of revenue is presented by revenue origin. The segmental information for the year ended 29 August 2015 is as follows: Total segment revenue Inter segment revenue 297,811 (115) 80,280 — 33,588 (46) Revenue from external customers 297,696 80,280 33,542 47 — 47 411,726 (161) 411,565 Agriculture £’000 Food £’000 Engineering £’000 Other £’000 Group £’000 EBITDA1 13,557 4,995 4,201 (1,117) 21,636 Depreciation of property, plant and equipment Depreciation of investment property Profit/(loss) on the disposal of property, plant and equipment Amortisation of intangible assets Operating profit/(loss) Finance income Finance costs Share of post-tax profit of associate Share of post-tax profit of joint ventures Profit/(loss) before taxation (2,259) — 50 (100) 11,248 49 (865) 10,432 1,500 807 12,739 (1,860) (4) 12 (15) 3,128 1 (695) 2,434 — — 2,434 (815) — (24) (93) 3,269 2 (180) 3,091 — — 3,091 (125) (16) (12) — (1,270) 145 328 (797)2 — — (5,059) (20) 26 (208) 16,375 197 (1,412) 15,160 1,500 807 (797) 17,467 1 Earnings before interest, tax, depreciation and amortisation (and before profit/(loss) on the disposal of property, plant and equipment) 2 Includes Head Office net expense of £(663,000) and retirement benefit charge of £(120,000) 55 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 Segmental information (continued) Assets Segment gross assets 106,193 42,977 33,964 20,254 203,388 Agriculture £’000 Food £’000 Engineering £’000 Other £’000 Group £’000 The segmental information for the year ended 30 August 2014 is as follows: Total segment revenue Inter segment revenue 315,019 (94) 87,107 (1) 26,939 (61) 47 — 429,112 (156) Revenue from external customers 314,925 87,106 26,878 47 428,956 Agriculture £’000 Food £’000 Engineering £’000 Other £’000 Group £’000 EBITDA1 12,563 4,955 4,618 (1,719) 20,417 Depreciation of property, plant and equipment Depreciation of investment property Profit/(loss) on the disposal of property, plant and equipment Amortisation of intangible assets Operating profit/(loss) Finance income Finance costs Share of post-tax profit of associate Share of post-tax profit of joint ventures (2,215) — 102 (56) 10,394 88 (897) 9,585 1,579 907 (1,856) (4) (6) (17) 3,072 2 (784) 2,290 — — (690) — 8 (120) 3,816 3 (107) 3,712 — — (121) (15) — — (1,855) 171 164 (1,520)3 — — (4,882) (19) 104 (193) 15,427 264 (1,624) 14,067 1,579 907 Profit/(loss) before taxation 12,071 2,290 3,712 (1,520) 16,553 3 Includes Head Office net expense of £(753,000) and retirement benefit charge of £(687,000) Assets Segment gross assets 101,203 44,485 31,822 20,182 197,692 Agriculture £’000 Food £’000 Engineering £’000 Other £’000 Group £’000 Entity wide disclosures Revenues from external customers are derived from the sale of products by individual business segment. The breakdown of revenue by business segment is provided above. Revenues from external customers: UK Europe USA 56 2015 £’000 368,007 13,759 29,799 2014 £’000 391,581 14,137 23,238 411,565 428,956 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 2 Segmental information (continued) Non-current assets excluding deferred tax assets: Goodwill Other intangible assets Property, plant and equipment Investment property Investment in associate Interest in joint ventures Other investments Non-current receivables Retirement benefit asset 2015 UK £’000 Europe £’000 10,520 173 48,256 636 8,439 1,748 61 50 1,767 313 245 6,009 — — 2,097 — — — USA £’000 16 30 4,120 — — 1,167 18 — — Total £’000 UK £’000 Europe £’000 2014 10,849 448 58,385 636 8,439 5,012 79 50 1,767 9,470 107 47,620 656 6,883 1,738 61 501 2,056 313 351 6,580 — — 1,953 — — — USA £’000 15 41 2,426 — — 1,145 16 — — Total £’000 9,798 499 56,626 656 6,883 4,836 77 501 2,056 71,650 8,664 5,351 85,665 69,092 9,197 3,643 81,932 Major customers There are no revenues from transactions with individual customers which amount to ten percent or more of Group revenue. 3 Group operating profit Group operating profit is stated after (crediting)/charging: Amortisation of grants Profit on disposal of property, plant and equipment Depreciation of property, plant and equipment Depreciation of owned investment property Amortisation of intangible assets Foreign exchange losses/(gains) Derivative financial instruments losses Operating lease charges Auditors’ remuneration: Audit services (Company £15,300; 2014: £15,000) The auditing of accounts of subsidiaries of the Company pursuant to legislation (including overseas) Total audit services Taxation compliance services Other taxation advisory services Other non-audit services Total non-audit services Included within Group operating profit is the following in respect of investment property leased to, and occupied by, external parties: Rental income Operating expenses 2015 £’000 (120) (26) 5,059 20 208 50 7 1,077 75 136 211 33 35 19 87 (54) 64 10 2014 £’000 (54) (104) 4,882 19 193 (52) 9 897 74 131 205 30 45 69 144 (54) 58 4 57 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4 Staff costs Group Wages and salaries Social security costs Other pension costs Share based payments Included within other pension costs is £120,000 (2014: £687,000) in respect of the defined benefit pension scheme. The average monthly number of employees, including Directors, during the year was made up as follows: Group Sales, office and management Manufacture and distribution 2015 £’000 33,010 3,536 2,018 584 39,148 2015 Number 566 491 1,057 2014 £’000 29,674 3,292 2,388 401 35,755 2014 Number 542 423 965 Key management are considered to be the Directors of the Group. Full details of the Directors’ emoluments, pension benefits and share options are given in the Remuneration Committee Report on pages 30 to 35. 5 Finance income and finance costs Finance income Bank interest Other interest Total finance income Finance costs Interest payable on bank overdrafts Interest payable on bank loans and other borrowings Interest payable on finance leases Other interest 2015 £’000 2014 £’000 187 10 197 (190) (763) (389) (70) 246 18 264 (219) (901) (428) (76) Total finance costs (1,412) (1,624) 58 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 6 Taxation (a) Analysis of the charge in the year Current tax: UK corporation tax Current year Adjustment in respect of prior years Foreign tax Current year Adjustment in respect of prior years Group current tax Deferred tax: Origination and reversal of timing differences Current year Adjustment in respect of prior years Group deferred tax (note 16) Tax on profit from ordinary activities 2015 £’000 1,736 114 621 (33) 2,438 1,293 43 1,336 3,774 2014 £’000 1,480 238 1,722 98 3,538 362 (240) 122 3,660 (b) Factors affecting tax charge for the year The tax assessed for the year is higher (2014: lower) than the rate of corporation tax in the UK of 20.58% (2014: 22.17%). The differences are explained below: Profit before taxation Tax at 20.58% (2014: 22.17%) Effects of: Tax effect of share of profit in associate and joint ventures Tax effect of expenses that are not allowable in determining taxable profit Tax effect of non-taxable income Effects of different tax rates of foreign subsidiaries Effects of changes in tax rates Adjustment in respect of prior years Other 2015 £’000 2014 £’000 17,467 16,553 3,595 3,670 (475) 154 (92) 478 (16) 124 6 (551) 75 — 420 (57) 96 7 Total tax charge for the year 3,774 3,660 (c) Factors affecting future tax charges The main rate of UK corporation tax was reduced from 21% to 20% from 1 April 2015. This was substantively enacted prior to the year end. UK deferred tax balances at 29 August 2015 have been calculated using a tax rate of 20%. 59 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 7 Dividends Equity Second interim paid for the year ended 30 August 2014 of 0.85p per 2.5p share (2013 restated: 0.775p) Final dividend for the year ended 30 August 2014 of 1.7p per 2.5p share (2013 restated: 1.65p) First interim paid for the year ended 29 August 2015 of 0.925p per 2.5p share (2014 restated: 0.85p) 2015 £’000 760 1,520 830 3,110 2014 £’000 689 1,467 756 2,912 Since the year end a second interim dividend of £830,281, being 0.925p per share, has been paid. The financial statements do not reflect this dividend payable. The proposed final dividend for the year ended 29 August 2015 to be considered by shareholders at the Annual General Meeting is £1,661,683, being 1.85p per share, making a total for the year of 3.7p (2014 restated: 3.4p). The financial statements do not reflect this proposed final dividend as payable. 8 Earnings per ordinary share Earnings per share are calculated by reference to a weighted average of 89,574,461 shares (2014 restated: 88,995,250) in issue during the year. Non-recurring items and amortisation that are charged or credited to profit do not relate to the profitability of the Group on an ongoing basis. Therefore an adjusted earnings per share is presented as follows: Earnings per share – basic Amortisation and non-recurring items: Amortisation of intangible assets Taxation relief on amortisation Acquisition related costs1 Earnings per share – adjusted 2015 Earnings per share pence 2014 Earnings per share pence2 Earnings £’000 13.4 11,372 0.2 (0.1) 0.1 13.6 193 (50) 123 11,638 12.8 0.2 (0.1) 0.2 13.1 Earnings £’000 11,989 208 (52) 58 12,203 For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The potentially dilutive ordinary shares, where the exercise price is less than the average market price of the Company’s ordinary shares during the year, are disclosed in note 26. 2015 Weighted average number of shares Earnings £’000 Earnings per share pence Earnings £’000 2014 Weighted average number of shares2 Earnings per share 11,989 89,574,461 13.4 11,372 88,995,250 Effect of dilutive securities: Share option scheme Share save scheme Long term incentive plan — — — 332,332 1,288,785 1,476,960 Diluted earnings per share 11,989 92,672,538 (0.1) (0.2) (0.2) 12.9 — — — 537,350 1,756,950 964,760 11,372 92,254,310 Diluted adjusted earnings per share 12,203 92,672,538 13.2 11,638 92,254,310 Earnings per share pence2 12.8 (0.1) (0.3) (0.1) 12.3 12.6 1 Disallowable for tax purposes 2 Restated for the effect of the 10:1 share split in January 2015 60 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 9 Goodwill and other intangible assets Group Cost At 1 September 2013 Exchange differences Subsidiaries acquired Additions At 30 August 2014 Exchange differences Subsidiaries acquired Additions At 29 August 2015 Accumulated amortisation and impairment At 1 September 2013 Exchange differences Charge for the year At 30 August 2014 Exchange differences Charge for the year At 29 August 2015 Net book amount At 31 August 2013 At 30 August 2014 At 29 August 2015 Goodwill £’000 Customer relationships £’000 Brands £’000 Know-how £’000 Patents and trademarks £’000 Software £’000 Total £’000 5,540 (2) 4,585 — 10,123 1 1,050 — 11,174 325 — — 325 — — 325 5,215 9,798 10,849 3,158 — 51 — 3,209 — 162 — 3,371 3,158 — 51 3,209 — 81 3,290 — — 81 612 (18) — — 594 (16) — — 578 310 (6) 33 337 (6) 30 361 302 257 217 240 — — — 240 — — — 240 240 — — 240 — — 240 — — — 153 (11) — 3 145 13 — 5 163 107 (7) 5 105 9 19 133 46 40 30 577 (41) — 54 590 (40) — 10 560 310 (26) 104 388 (26) 78 440 267 202 120 10,280 (72) 4,636 57 14,901 (42) 1,212 15 16,086 4,450 (39) 193 4,604 (23) 208 4,789 5,830 10,297 11,297 During the year goodwill of £1,050,000 arose on acquisitions (note 27). During the prior year goodwill totalling £4,585,000 arose on the acquisitions of Chirton Engineering Limited and B.E. Williams Limited. Goodwill represented the excess of the consideration paid over the Group’s interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities acquired. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to cash generating units that are expected to benefit from the synergies of the combination. 61 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 9 Goodwill and other intangible assets (continued) The carrying value of goodwill has been allocated to the following cash generating units: Carrs Billington Agriculture (Sales) Limited Carrs Billington Agriculture (Sales) Limited – Johnstone Wallace Oils profit centre Carrs Billington Agriculture (Sales) Limited – Borders profit centre Carrs Billington Agriculture (Sales) Limited – Wooler profit centre Carrs Billington Agriculture (Sales) Limited – Safe at Work profit centre Carrs Billington Agriculture (Sales) Limited – Laycocks profit centre Carrs Billington Agriculture (Sales) Limited – Williams profit centre Carrs Billington Agriculture (Sales) Limited – Nicholls profit centre Carrs Billington Agriculture (Sales) Limited – Reid and Robertson profit centre Carrs Agriculture Limited – Scotmin profit centre Animal Feed Supplement, Inc. – Silver Springs profit centre Wälischmiller Engineering GmbH Carrs Engineering Limited – Bendalls Engineering profit centre Carrs Engineering Limited – Chirton profit centre 29 August 2015 £’000 30 August 2014 £’000 195 781 264 369 568 125 359 267 783 2,068 15 313 516 4,226 10,849 195 781 264 369 568 125 359 — — 2,068 14 313 516 4,226 9,798 Goodwill is tested annually for impairment, or more frequently if there are indications that goodwill might be impaired. Goodwill is tested for impairment by estimating future cash flows from the cash generating units to which goodwill has been allocated and discounting these cash flows to their present value. Each unit or group of units to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at operating segment level. The key assumptions in this calculation are in respect of discount rates used and the change in cash flows. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cash generating units. Cash flows are estimated using the most recent budget information for the year to August 2016, which has been approved by the Board and forecast information for the four years to August 2020 based on medium term business plans and an assumption for long term growth of between 1-3% excluding inflation. The pre-tax discount rate used to discount the forecast cash flows for all cash generating units is 7.73% - 12.76% (2014: 5.97% - 11.41%). The Directors consider the assumptions adopted in calculating the cash flows to be consistent with historical performance and to be reasonable given current market conditions. Significant headroom exists in each of the cash generating units and, based on the stress testing performed, reasonable possible changes in the assumptions would not cause the carrying amount of the cash generating units to equal or to exceed their recoverable amount. Given the current state of the oil market the Directors placed particular attention to the impairment review on the carrying value of goodwill relating to the Chirton profit centre. The Directors reviewed the assumptions used and the impact of sensitivities and agreed that no provision for impairment was required. Amortisation and impairment charges are recognised within administrative expenses. There is no goodwill or intangible assets in the Company (2014: none). 62 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 10 Property, plant and equipment Group Cost At 1 September 2013 Exchange differences Subsidiaries acquired Additions Disposals Reclassifications At 30 August 2014 Exchange differences Subsidiaries acquired Additions Disposals Reclassifications At 29 August 2015 Accumulated depreciation At 1 September 2013 Exchange differences Subsidiaries acquired Charge for the year Disposals Reclassifications At 30 August 2014 Exchange differences Subsidiaries acquired Charge for the year Disposals At 29 August 2015 Net book amount At 31 August 2013 At 30 August 2014 At 29 August 2015 Land and buildings £’000 Plant and equipment £’000 Assets in the course of construction £’000 32,138 (402) — 3,656 (85) 154 35,461 (198) 14 710 (51) 133 67,680 (501) 1,963 3,252 (1,253) 871 72,012 300 178 4,410 (1,419) 175 506 (12) — 1,134 — (1,025) 603 (2) — 2,143 — (308) Total £’000 100,324 (915) 1,963 8,042 (1,338) — 108,076 100 192 7,263 (1,470) — 36,069 75,656 2,436 114,161 6,408 (56) — 730 (85) (16) 6,981 42 14 817 (14) 7,840 40,848 (312) 822 4,152 (1,057) 16 44,469 301 60 4,242 (1,136) 47,936 25,730 26,832 28,480 27,543 — — — — — — — — — — — — 506 603 28,229 27,720 2,436 47,256 (368) 822 4,882 (1,142) — 51,450 343 74 5,059 (1,150) 55,776 53,068 56,626 58,385 Freehold land amounting to £3,569,135 (2014: £3,322,460) has not been depreciated. The net book amount of plant and equipment includes £12,261,842 (2014: £12,722,306) in respect of assets held under finance leases. This consists of cost of £16,603,001 (2014: £16,260,825) less accumulated depreciation of £4,341,159 (2014: £3,538,519). The Group’s bankers hold legal charges over certain properties. 63 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 10 Property, plant and equipment (continued) Depreciation is recognised within the Consolidated Income Statement as shown below: Cost of sales Distribution costs Administrative expenses The Company has no property, plant and equipment (2014: none). 11 Investment property Group Cost At 1 September 2013, 31 August 2014 and 29 August 2015 Accumulated depreciation At 31 August 2013 Charge for the year At 30 August 2014 Charge for the year At 29 August 2015 Net book amount At 31 August 2013 At 30 August 2014 At 29 August 2015 2015 £’000 4,373 76 610 5,059 2014 £’000 4,246 92 544 4,882 Total £’000 922 247 19 266 20 286 675 656 636 Included within investment property are properties occupied by life tenants. The net book amount of these properties at 29 August 2015 is £145,000 (2014: £150,000). The fair value of investment properties at 29 August 2015 is £1,065,000 (2014: £1,065,000). Investment properties were valued by independent professionally qualified valuers in 2011. The Directors have reviewed the valuations and are satisfied there are no significant changes to the assumptions and the valuations. The Directors have therefore not sought updated professional valuations at 29 August 2015. There is no investment property in the Company (2014: none). 64 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 12 Investments Group Cost At 1 September 2013 Exchange difference Subsidiaries acquired Additions Disposals Redemption of preference shares Reclassification Share of post-tax profit Share of losses recognised directly in equity At 30 August 2014 Exchange difference Return of capital invested Redemption of preference shares Share of post-tax profit Share of gains recognised directly in equity At 29 August 2015 Associate £’000 Joint ventures £’000 Other investments £’000 7,024 — — — — — (1,225) 1,579 (495) 6,883 — — — 1,500 56 8,439 3,299 (143) — 965 — (150) — 907 (42) 4,836 (71) (488) (150) 807 78 5,012 Total £’000 10,404 (144) 10 965 (4) (150) (1,225) 2,486 (537) 11,805 (69) (488) (150) 2,307 134 13,539 9 10,395 11,796 13,530 81 (1) 10 — (4) — — — — 86 2 — — — — 88 9 72 77 79 Accumulated provision for impairment At 1 September 2013, 30 August 2014 and 29 August 2015 — — Net book amount At 31 August 2013 At 30 August 2014 At 29 August 2015 7,024 6,883 8,439 3,299 4,836 5,012 During the prior year £1,225,000 was reclassified to receivables. At the prior year end £1,000,000 of this receivable was outstanding. £500,000 was included within current receivables and £500,000 was included within non-current receivables. At 29 August 2015 £500,000 of this receivable is outstanding and is included within current receivables. Other investments comprise shares in several private limited companies. These investments have been classified as unquoted investments for which fair value cannot be reliably measured and are held at cost less accumulated impairment. 65 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 12 Investments (continued) Company Cost At 1 September 2013 Share based payment expense in respect of employees of subsidiary undertakings Reclassification At 30 August 2014 Recapitalisation Share based payment expense in respect of employees of subsidiary undertakings At 29 August 2015 Accumulated provision for impairment At 1 September 2013 Disposals At 30 August 2014 Impairment in the year At 29 August 2015 Net book amount At 31 August 2013 At 30 August 2014 At 29 August 2015 Shares in subsidiaries £’000 Associate £’000 Joint ventures £’000 Total £’000 18,028 1,470 272 19,770 114 — 18,142 74 222 18,438 5,381 6 5,387 846 6,233 12,647 12,755 12,205 — (1,225) 245 — — 245 — — — — — 1,470 245 245 — — 272 — — 272 — — — — — 272 272 272 114 (1,225) 18,659 74 222 18,955 5,381 6 5,387 846 6,233 14,389 13,272 12,722 During the prior year £1,225,000 was reclassified to receivables. At the prior year end £1,000,000 of this receivable was outstanding. £500,000 was included within current receivables and £500,000 was included within non-current receivables. At 29 August 2015 £500,000 of this receivable is outstanding and is included within current receivables. 13 Investment in associate The associated undertaking at 29 August 2015 is: Group and Company Name Proportion of shares held Ordinary % Country of incorporation Country of operation Activity Carrs Billington Agriculture (Operations) Limited 49 England UK Manufacture of animal feed The Group does not have the ability to control the financial and operating policies of Carrs Billington Agriculture (Operations) Limited. The Group has a 49% shareholding and a 43% representation on the Board of Directors of this associate. Associates are accounted for using the equity method. At the year end the associate had capital commitments of £187,000 (2014: £nil). No contingent liabilities exist within the associate. The aggregate amounts relating to the associate, of which the Group recognises 49% in the net investment in associate, are: Total assets Total liabilities Revenues Profit after tax 66 2015 £’000 34,199 (16,977) 105,162 3,061 2014 £’000 33,244 (19,197) 113,984 3,223 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 14 Interest in joint ventures The joint ventures at 29 August 2015 are: Group Name Interest held Equity % Non-equity % Country of incorporation Country of operation Crystalyx Products GmbH Bibby Agriculture Limited Afgritech Limited Afgritech LLC 50 26 50 50 Gold-Bar Feed Supplements LLC 50 ACC Feed Supplement LLC 50 Silloth Storage Company Limited 50 — 26 — — — — — Germany Germany England England USA USA USA England UK UK USA USA USA UK Activity Manufacture of animal feed blocks Sale of agricultural products Holding company Producers of ingredients of animal feed Manufacture of animal feed blocks Manufacture of animal feed blocks Storage of cane derived livestock feed supplement Crystalyx Products GmbH has a 31 December accounting year end. Silloth Storage Company Limited has a 30 June accounting year end. Interests in the joint ventures listed above are held directly by the holding Company with the following exceptions: Carrs Billington Agriculture (Sales) Limited holds 50% of the ordinary share capital and 50% of the preference share capital in Bibby Agriculture Limited. Carrs Agriculture Limited holds 50% of the ordinary share capital in Silloth Storage Company Limited. Animal Feed Supplement, Inc. holds the interest in Gold-Bar Feed Supplements LLC and ACC Feed Supplement LLC. Afgritech Limited has 100% control of Afgritech LLC. The preference shares in Bibby Agriculture Limited are redeemable with three months notice, carry no dividend entitlement except at the Directors’ discretion, and no voting rights. Joint ventures are accounted for using the equity method. At the year end Afgritech LLC had capital commitments of £nil (2014: £580,000). The prior year capital commitment was in respect of replacement silos. No contingent liabilities exist within the joint ventures. The aggregate amounts included in the financial statements relating to the Group’s share of joint ventures are: Non-current assets Current assets Current liabilities Non-current liabilities Income Expenses Net finance (cost)/income 2015 £’000 5,737 5,643 (5,930) (775) 24,607 (23,618) (12) 2014 £’000 5,222 5,102 (5,594) (381) 27,212 (26,072) 14 Goodwill of £17,000 arose on the investment in Silloth Storage Company Limited. This is included in the carrying amount of the Group’s interest in joint ventures and is not shown as a separate asset. Included within interest in joint ventures is an amount of £320,000 (2014: £470,000) which relates to the Group’s interest in the preference share capital of Bibby Agriculture Limited. 67 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 15 Investment in subsidiary undertakings Name Proportion of shares held Ordinary % Country of incorporation Country of operation Carrs Agriculture Limited 100 England Carrs Billington Agriculture (Sales) Limited Animal Feed Supplement, Inc. Horslyx LLC Carr’s Flour Mills Limited Carrs Engineering Limited Wälischmiller Engineering GmbH B.R.B. Trust Limited Carrs Properties Limited Dormant subsidiaries are listed on page 96. 51 100 100 100 100 100 100 100 England USA USA England England Germany England England UK UK USA USA UK UK Germany UK UK Activity Manufacture of animal feed/mineral blocks and ingredients of animal feed Agricultural retailers Manufacture of animal feed blocks Distributor of animal feed blocks Flour milling Engineering Engineering Financial services Property holding Investments in the subsidiaries listed above are held directly by the Company with the following exceptions: Carrs Engineering Limited holds 100% of the ordinary share capital in Wälischmiller Engineering GmbH and Carrs Agriculture Limited holds 100% of the investment in Horslyx LLC. 16 Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Group Accelerated tax depreciation Employee benefits Other Tax assets/(liabilities) Assets Liabilities Net 2015 £’000 — — 861 861 2014 £’000 — — 1,507 1,507 2015 £’000 (2,996) (353) (835) (4,184) 2014 £’000 (2,932) (412) (767) (4,111) 2015 £’000 (2,996) (353) 26 (3,323) Movement in deferred tax during the year At 31 August 2014 £’000 1,507 1,507 (2,932) (412) (767) (4,111) (2,604) Assets: Other Liabilities: Accelerated tax depreciation Employee benefits Other Net liabilities Exchange differences £’000 In respect of acquisitions £’000 Recognised in income £’000 Recognised in equity £’000 118 118 (10) — 10 — 118 (32) (32) (39) — — (39) (71) (732) (732) (15) (511) (78) (604) (1,336) — — — 570 — 570 570 2014 £’000 (2,932) (412) 740 (2,604) At 29 August 2015 £’000 861 861 (2,996) (353) (835) (4,184) (3,323) Other deferred tax assets and liabilities includes deferred tax on short term timing differences, rolled over capital gains, trading losses, capital losses, business combinations and overseas deferred tax. 68 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 16 Deferred tax assets and liabilities (continued) Movement in deferred tax during the prior year At 1 September 2013 £’000 654 1,390 2,044 (2,964) — (801) (3,765) (1,721) — (91) (91) 8 — 12 20 (71) Assets 2015 £’000 2014 £’000 3 — 3 3 — 3 Assets: Employee benefits Other Liabilities: Accelerated tax depreciation Employee benefits Other Net liabilities Company Accelerated tax depreciation Employee benefits Tax assets/(liabilities) Movement in deferred tax during the year Assets: Accelerated tax depreciation Liabilities: Employee benefits Net liabilities Movement in deferred tax during the prior year Assets: Accelerated tax depreciation Employee benefits Liabilities: Employee benefits Net liabilities Exchange differences £’000 In respect of acquisitions £’000 Recognised in income £’000 Recognised in equity £’000 — (10) (10) (198) — 160 (38) (48) 2015 £’000 — (353) (353) Liabilities (654) 218 (436) 222 230 (138) 314 (122) 2014 £’000 — (412) (412) — — — — (642) — (642) (642) 2015 £’000 3 (353) (350) Net At 31 August 2014 £’000 3 (412) (409) Recognised in income £’000 Recognised in equity £’000 — (511) (511) — 570 570 At 1 September 2013 £’000 Recognised in income £’000 Recognised in equity £’000 1 654 655 — — 655 2 (654) (652) 230 230 (422) — — — (642) (642) (642) At 30 August 2014 £’000 — 1,507 1,507 (2,932) (412) (767) (4,111) (2,604) 2014 £’000 3 (412) (409) At 29 August 2015 £’000 3 (353) (350) At 30 August 2014 £’000 3 — 3 (412) (412) (409) 69 Tax of £133,000 (2014: £133,000) in respect of tax losses has not been recognised as a deferred tax asset in the Group balance sheet. Tax of £43,000 (2014: £43,000) in respect of tax losses has not been recognised as a deferred tax asset in the Company balance sheet. CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 17 Inventories Group Raw materials and consumables Work in progress Finished goods and goods for resale 2015 £’000 10,060 2,382 22,589 35,031 2014 £’000 10,968 1,633 20,714 33,315 Inventories are stated after a provision for impairment of £414,000 (2014: £396,000). The amount recognised as an expense in the year in respect of the write down of inventories is £66,000 (2014: £52,000). The amount recognised as a credit in the year in respect of reversals of write downs of inventories is £9,000 (2014: £nil). The cost of inventories recognised as an expense and included in cost of sales is £354,656,000 (2014: £376,529,000). The Company has no inventories (2014: none). Construction contracts disclosures Contract costs incurred plus recognised profits less recognised losses to date Contract advances received Work in progress on construction contracts 2015 £’000 2,691 (1,679) 1,012 2014 £’000 3,862 (3,239) 623 Revenue from construction contracts 23,678 19,858 18 Trade and other receivables Current: Trade receivables Less: provision for impairment of trade receivables Trade receivables – net Amounts recoverable on contracts Amounts owed by Group undertakings (note 33) Amounts owed by other related parties (note 33) Loans receivable Other taxes and social security receivable Other receivables Prepayments and accrued income Non-current: Amounts owed by other related parties (note 33) Other receivables Group Company 2015 £’000 53,428 (2,070) 51,358 3,985 — 4,343 — 1,141 1,379 2,248 64,454 — 50 50 2014 £’000 57,830 (3,065) 54,765 806 — 4,200 270 838 736 2,008 63,623 500 1 501 2015 £’000 — — — — 32,740 3,651 — — 234 220 36,845 — — — 2014 £’000 — — — — 29,983 3,417 — — 210 202 33,812 500 — 500 The movement in the provision for impaired trade receivables consists of increases for additional provisions offset by receivables written off and unused provision released back to the consolidated income statement. The provision is utilised when there is no expectation of recovering additional cash. 70 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 18 Trade and other receivables (continued) During the year a credit of £307,000 (2014: £17,000) has been recognised within administrative expenses in the consolidated income statement in respect of the movement in provision for impairment of trade receivables. No impairment of other receivables has been recognised in the current or preceding year. Interest bearing, non-trading amounts owed by Group undertakings carry interest at Bank of England base rate + 2.50%, 4.50% or 4.88%. Such amounts are unsecured and repayable on demand. 2015 2014 Gross £’000 Impairment £’000 Past due but not impaired £’000 Gross £’000 Impairment £’000 Past due but not impaired £’000 The ageing of trade receivables is as follows: Not past due Past due 0 – 30 days Past due 31 – 60 days Past due 61 – 90 days Past due 91 – 120 days Past 121 days 35,236 6,800 3,724 2,667 1,282 3,719 53,428 (123) (82) (110) (104) (83) (1,568) (2,070) N/A 6,718 3,614 2,563 1,199 2,151 40,529 7,187 1,921 2,367 1,702 4,124 (359) (221) (109) (321) (246) (1,809) N/A 6,966 1,812 2,046 1,456 2,315 16,245 57,830 (3,065) 14,595 The Company has no trade receivables (2014: none). The credit quality of customers is assessed at subsidiary and Group level, taking into account their financial positions, past experiences and other relevant factors. Individual customer credit limits are imposed based on these factors. It is Group policy that overdue accounts are reviewed monthly at divisional management meetings to mitigate exposure to credit risk and are provided for where appropriate. The maximum exposure to credit risk at the year end is the carrying value, net of provision for impairment, of each receivable. The Group and Company do not hold any significant collateral as security (2014: none). The carrying value of trade receivables are denominated in the following currencies: Sterling US Dollar Euro New Zealand Dollar 19 Current tax assets Corporation tax recoverable Group taxation relief Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 47,443 630 2,937 348 51,358 2015 £’000 839 — 839 50,812 413 3,540 — 54,765 — — — — — Group Company 2014 £’000 47 — 47 2015 £’000 1,256 308 1,564 — — — — — 2014 £’000 639 553 1,192 71 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 20 Cash and cash equivalents and bank overdrafts Group Company Cash and cash equivalents per the balance sheet Bank overdrafts (note 22) 2015 £’000 16,488 (213) 2014 £’000 17,268 (243) Cash and cash equivalents per the statement of cash flows 16,275 17,025 21 Trade and other payables Current: Trade payables Payments on account Amounts owed to Group undertakings (note 33) Amounts owed to other related parties (note 33) Other taxes and social security payable Deferred employee incentive plan Other payables Accruals and deferred income Non-current: Deferred employee incentive plan Contingent consideration Accruals and deferred income Group 2015 £’000 20,655 1,279 — 18,045 1,162 2,324 5,836 5,195 54,496 — 2,394 1,906 4,300 2014 £’000 20,808 3,027 — 16,072 1,175 2,217 6,978 3,959 54,236 1,973 2,394 1,628 5,995 2015 £’000 8,973 — 8,973 2014 £’000 8,822 — 8,822 Company 2015 £’000 2014 £’000 — — 27 1 683 — 241 963 — — 29 2 447 — 203 621 1,915 1,302 — — — — — — — — Amounts owed to Group undertakings and other related parties are interest free, unsecured and repayable on demand. The contingent consideration of £2,394,000 on the acquisition of Chirton Engineering Limited in year ended 2014 remains potentially payable subject to certain earnings criteria being met. As at 29 August 2015 this criteria was not met and therefore none of this contingent consideration is payable within one year of the balance sheet date. The earliest that any consideration may fall due would be subsequent to year end 2016. Included within accruals and deferred income is the following in respect of government grants: Group 2015 £’000 1,628 — 500 (120) 2,008 102 1,906 2,008 2014 £’000 1,180 52 450 (54) 1,628 — 1,628 1,628 Company 2015 £’000 2014 £’000 — — — — — — — — — — — — — — — — At the beginning of the year Subsidiaries acquired Received in the year Amortisation in the year At the end of the year Included within: Current liabilities Non-current liabilities 72 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 22 Borrowings Current: Bank overdrafts Bank loans and other borrowings Loans from Group undertakings (note 33) Other loans from related parties (note 33) Finance leases Non-current: Bank loans Other loans from related parties (note 33) Finance leases Borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years inclusive Over five years Group Company 2015 £’000 213 12,270 — 500 2,174 15,157 18,444 — 7,300 25,744 15,157 3,229 22,467 48 40,901 2014 £’000 243 16,711 — 500 2,234 19,688 13,427 500 8,262 22,189 19,688 4,349 16,382 1,458 41,877 2015 £’000 — 517 173 — — 690 16,414 — — 16,414 690 517 15,897 — 17,104 2014 £’000 — 1,380 173 — — 1,553 12,047 — — 12,047 1,553 546 11,501 — 13,600 Group and Company borrowings are shown in the balance sheet net of arrangement fees of £132,000 (2014: £19,000) of which £33,000 (2014: £4,000) is deducted from current liabilities and £99,000 (2014: £15,000) is deducted from non-current liabilities. The net borrowings are: Borrowings as above Cash and cash equivalents Net borrowings Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 40,901 (16,488) 41,877 (17,268) 17,104 (8,973) 13,600 (8,822) 24,413 24,609 8,131 4,778 Bank loans and other borrowings includes an amount of £9,984,000 (2014: £13,622,000) which is secured on trade receivables. The Company, together with certain subsidiaries, act as guarantors on the bank loans. In addition, The Royal Bank of Scotland PLC and Clydesdale Bank PLC have legal charges over certain properties. Finance lease obligations are secured on the assets to which they relate. Interest bearing loans from Group undertakings carry interest at Bank of England base rate + 2.50%. Such amounts are unsecured and repayable on demand. Other loans are non-interest bearing. The bank loans are repayable by instalments and the overdraft is repayable on demand. Bank loans includes a drawn down revolving credit facility of £15.0 million (2014: £10.0 million) which is repayable in June 2019. At the year end the Group had £2.0 million of undrawn revolving credit facilities (2014: £5.0 million). Since the period end the Group has increased its revolving credit facilities by £2.5 million. 73 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23 Derivatives and other financial instruments The Group’s activities expose it to a variety of financial risks. The Board reviews and agrees policies for managing its risk. These policies have remained unchanged throughout the year. Financial Instruments by currency Group Assets Other investments Non-current receivables Current trade and other receivables Current derivatives Cash and cash equivalents Liabilities Current borrowings Current derivatives Current trade and other payables Non-current borrowings Other non-current liabilities Company Assets Non-current receivables Current trade and other receivables Current derivatives Cash and cash equivalents Liabilities Current borrowings Current trade and other payables Non-current borrowings Sterling £’000 61 50 53,596 — 11,758 US Dollar £’000 18 — 4,177 14 3,080 2015 Euro £’000 — — 2,944 36 1,222 NZ Dollar £’000 US Total Sterling £’000 £’000 Dollar Euro £’000 £’000 Total £’000 2014 — — 61 79 50 501 348 61,065 53,272 50 — 428 16,488 13,136 — — — 16 — 77 501 3,958 3,547 60,777 — 2,996 1,136 17,268 — — 65,465 7,289 4,202 776 77,732 66,970 6,970 4,683 78,623 13,987 — 46,006 25,744 4,300 213 72 3,847 — — 957 — 3,481 — — — 15,157 19,445 — 72 — — 53,334 45,094 — 25,744 22,189 4,022 — 4,300 243 8 — 19,688 15 7 3,047 4,920 53,061 — 22,189 5,995 — — 1,973 90,037 4,132 4,438 — 98,607 90,750 5,271 4,927 100,948 2015 US Dollar £’000 Euro £’000 Sterling £’000 2014 US Total Sterling Dollar £’000 £’000 £’000 Euro £’000 Total £’000 — 30,697 — 8,173 — 4,824 14 687 — — 500 1,104 36,625 28,922 — 8,368 30 8,973 16 113 — 4,451 — 399 — 500 237 33,610 — 8,822 — 55 38,870 5,525 1,233 45,628 37,790 4,850 292 42,932 690 1,232 16,414 18,336 — — — — 690 1,232 1,553 — 855 — — 16,414 12,047 — 18,336 14,455 — — — — 1,553 — — 855 — 12,047 — 14,455 Other taxes and social security receivable and prepayments are excluded from trade and other receivables in the tables above as they are not financial instruments. For this same reason other taxes and social security payable is excluded from trade and other payables. The Group and Company have right of offset on certain bank accounts. Sensitivity analysis The impact of a weakening or strengthening in Sterling against other currencies at the balance sheet date is shown in the table below. The Directors consider that a 10% (2014: 5%) weakening or strengthening in Sterling against the Euro and a 10% (2014: 10%) weakening or strengthening in Sterling against other currencies represents reasonable possible changes. Impact on profit after taxation Impact on total equity 10% weakening £’000 480 2,521 2015 10% strengthening £’000 (353) (1,993) 2014 5%/10% weakening £’000 389 1,502 5%/10% strengthening £’000 (333) (1,275) This sensitivity analysis is not an indication of actual results, which may materially differ. For the purposes of this sensitivity analysis all other variables have been held constant. 74 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 23 Derivatives and other financial instruments (continued) Interest rate risk The Group finances its operations through a mixture of retained earnings and bank borrowings. The Group borrows in the desired currencies at fixed and floating rates of interest. Group Bank overdrafts Bank loans and other borrowings Other loans Finance lease liabilities Fixed rate Floating rate Non-interest bearing Weighted average effective interest rate % 4.65 2.16 — 2.21 Weighted average effective interest rate % 5.08 2.13 — 2.10 2015 £’000 213 30,714 500 9,474 40,901 9,474 30,927 500 40,901 The Group’s floating rate financial liabilities bear interest determined as follows: Bank overdrafts Bank loans and other borrowings US prime rate + 1.0% margin; US prime rate + 1.6% margin Libor + 1.8%; Libor + 2.0%; Bank of England base rate + 1.25% margin Company Bank loans Loans from Group undertakings Floating rate Weighted average effective interest rate % 2.39 — Weighted average effective interest rate % 2.40 3.00 2015 £’000 16,931 173 17,104 The Company’s floating rate financial liabilities bear interest determined as follows: Bank loans Libor + 1.8% 2014 £’000 243 30,138 1,000 10,496 41,877 10,496 30,381 1,000 41,877 2014 £’000 13,427 173 13,600 75 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23 Derivatives and other financial instruments (continued) Sensitivity analysis The impact of a decrease or increase in interest rates during the year is shown in the table below. The Directors consider that a 1% movement in interest rates represents reasonable possible changes. 2015 2014 1% decrease £’000 1% increase £’000 1% decrease £’000 1% increase £’000 Impact on profit after taxation Impact on total equity 383 383 (383) (383) 312 312 (312) (312) This sensitivity analysis is not an indication of actual results, which may materially differ. For the purposes of this sensitivity analysis all other variables have been held constant. Liquidity risk The Group’s policy throughout the year has been to maintain a mix of short and medium term borrowings. Short-term flexibility is achieved by overdraft facilities. In addition it is the Group’s policy to maintain committed undrawn facilities in order to provide flexibility in the management of the Group’s liquidity. The tables below analyse the Group and Company’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows which have been calculated using spot rates at the relevant balance sheet date. Within one year £’000 Total £’000 2015 One to two years £’000 Two to five years £’000 Over five years £’000 Total £’000 Within one year £’000 2014 One to two years £’000 Two to five years £’000 Over five years £’000 213 213 — — 32,445 500 10,338 72 12,768 500 2,482 72 1,793 — 2,131 — 17,884 — 5,666 — — — — 59 — 31,530 1,000 11,590 15 17,068 500 2,602 15 2,227 500 2,196 — 12,235 — 5,312 — 243 243 — — — 53,334 53,334 — — — 53,061 53,061 — — 4,300 120 2,514 1,666 — 5,995 — 4,367 1,628 — — 1,480 — — — Group Bank overdrafts Bank loans and other borrowings Other loans Finance lease liabilities Derivatives Trade and other payables Other non-current liabilities 101,202 69,489 6,438 25,216 59 103,434 73,489 9,290 19,175 1,480 Company Bank loans Loans from Group undertakings Trade and other payables 2015 Within one year £’000 952 173 1,232 One to two years £’000 939 — — Two to five years £’000 16,642 — — Total £’000 18,533 173 1,232 2014 Within one year £’000 1,380 173 855 One to two years £’000 Two to five years £’000 546 — — 11,501 — — Total £’000 13,427 173 855 19,938 2,357 939 16,642 14,455 2,408 546 11,501 Trade and other payables in the tables above exclude other taxes and social security which do not meet the definition of financial liabilities under IFRS 7. 76 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 23 Derivatives and other financial instruments (continued) Future minimum lease payments of finance leases Group Amount payable: Within one year In the second year In the third to fifth years inclusive Over five years Less: future finance charges Present value of lease obligations Repayment profile 2015 £’000 2,174 1,900 5,352 48 9,474 2014 £’000 2,234 1,923 4,881 1,458 10,496 2015 £’000 2,482 2,131 5,666 59 2014 £’000 2,602 2,196 5,312 1,480 10,338 11,590 (864) (1,094) 9,474 10,496 The Company has no finance lease obligations (2014: none). Borrowing facilities The Group has various undrawn facilities. The undrawn facilities available at 29 August 2015, in respect of which all conditions precedent had been met, were as follows: Expiring in one year or less Expiring within two and five years inclusive 2015 Floating rate £’000 2014 Floating rate £’000 17,007 2,000 19,007 12,449 5,000 17,449 The Company’s overdraft is within a Group facility and it is therefore not possible to determine the Company’s undrawn facilities at the balance sheet date. Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an efficient capital structure to optimise the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings (including current and non-current borrowings) as shown in the consolidated balance sheet less cash and cash equivalents. Total equity is as shown in the consolidated balance sheet. At 29 August 2015 the Group had net debt of £24.4 million (2014: £24.6 million) and gearing of 24.7% (2014: 27.4%). The Group monitors cash balances and net debt on a daily basis to ensure adequate headroom exists on banking facilities and that it is compliant with banking covenants. Fair value hierarchy 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. There were no transfers between levels in the above hierarchy in either the current or prior year. The Group holds shares in several private limited companies. These have been classified as unquoted investments for which fair value cannot be reliably measured and are held at cost less accumulated impairment. Had fair value been applied this financial asset would have been Level 3. 77 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 23 Derivatives and other financial instruments (continued) Fair values of financial assets and liabilities The fair value of Group and Company financial assets and liabilities are not materially different to book value. Derivative financial instruments Hedge of net investment in foreign subsidiaries The Group hedges foreign denominated borrowings against its investment in foreign subsidiaries. A foreign exchange pre-tax gain of £373,000 (2014: pre-tax loss of £174,000) was recognised in equity during the year on translation of US dollar denominated borrowings to sterling. A foreign exchange pre-tax loss of £35,000 (2014: £2,000) was recognised in equity during the year on translation of Euro denominated borrowings to sterling. Currency derivatives The Group and Company use forward foreign currency contracts and options to manage exchange risk exposure. At the balance sheet date, the fair value of outstanding forward foreign currency contracts and options are as below: Group At beginning of the year Losses during the year At end of the year Included within: Current assets Current liabilities Company At beginning of the year Gains during the year At end of the year (current assets) 2015 2014 Contractual or notional amount £’000 515 6,887 7,402 5,193 2,209 7,402 Fair value £’000 (6) (9) (15) — (15) (15) 2015 2014 Contractual or notional amount £’000 — 5,066 5,066 Fair value £’000 — — — Contractual or notional amount £’000 2,120 (1,605) 515 — 515 515 Contractual or notional amount £’000 — — — Fair value £’000 (15) (17) (32) 40 (72) (32) Fair value £’000 — 30 30 The Group uses currency swaps to manage exchange risk exposure. At the balance sheet date, the fair value of outstanding currency swaps are as below: Group At beginning of the year Gains during the year At end of the year (current assets) The Company has no currency swaps (2014: none). 2015 2014 Fair value £’000 — 10 10 Contractual or notional amount £’000 — 394 394 Fair value £’000 — — — Contractual or notional amount £’000 — — — Fair value has been determined by reference to the value of equivalent forward foreign currency contracts, options and currency swaps at the balance sheet date. All forward foreign currency contracts, options and currency swaps have a maturity of less than one year after the balance sheet date. Gains and losses on currency related derivatives are included within administrative expenses. 78 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 24 Retirement benefit obligation The Group participates in two defined benefit pension schemes, Carr’s Group Pension Scheme and Carrs Billington Agriculture Pension Scheme. Carr’s Group The Company sponsors the Carr’s Group Pension Scheme and offers a defined contribution and a defined benefit section. The assets of the scheme are held separately from those of the Group and are invested with independent investment managers. The pension expense for the defined contribution section of the scheme for the year was £751,000 (2014: £635,000). Contributions totalling £47,000 (2014: £41,000) were payable to the fund at the year end and are included in other payables. The defined benefit section of the scheme is closed to new members. The pension contribution made by the Group over the year to the defined benefit section was £2,679,000 (2014: £2,806,000). Contributions to the scheme for the year ending August 2016 are expected to be £1,128,000. In addition, the Group offers a Group Personal Pension plan to certain employees of Carr’s Flour Mills Limited. The pension expense for this scheme for the year was £208,000 (2014: £229,000). The following disclosures relate to the defined benefit section of the Carr’s Group Pension Scheme. The last full actuarial valuation of this scheme was carried out by a qualified independent actuary as at 31 December 2011 and updated on an approximate basis to 29 August 2015 by a qualified independent actuary. The actuarial valuation as at 31 December 2014 is not yet finalised. Major assumptions: Inflation (RPI) Inflation (CPI) Salary increases Rate of discount Pension in payment increases: RPI or 5.0% per annum if less RPI or 5.0% per annum if less, minimum 3.0% per annum 2015 % 3.00 2.10 2.55 3.80 2.90 3.50 2014 % 3.00 2.10 2.55 4.00 2.90 3.50 The mortality tables used in the valuation as at 29 August 2015 are 100% of S2PMA (males) and S2PFA (females) with allowance for mortality improvements using CMI_2013 with a 1.25%pa underpin. The mortality assumptions adopted imply the following life expectancies at age 65 as at 29 August 2015: Males currently age 45 Females currently age 45 Males currently age 65 Females currently age 65 Amounts recognised in the Income Statement in respect of defined benefit schemes: Service cost – including current service costs, past service costs and settlements Service cost – administrative cost Net interest on the net defined benefit asset Total expense At 29 August 2015 24.2 years 26.6 years 22.5 years 24.7 years At 30 August 2014 24.1 years 26.5 years 22.4 years 24.6 years 2015 £’000 31 230 (141) 120 2014 £’000 430 170 87 687 79 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24 Retirement benefit obligation (continued) The expense is recognised within the Income Statement as shown below: Cost of sales Administrative expenses Total expense Remeasurements of the net defined benefit asset to be shown in the Statement of Comprehensive Income: Net measurement – financial Net measurement – demographic Net measurement – experience Return on assets, excluding interest income Total remeasurement of the net defined benefit asset Amounts included in the Balance Sheet: Present value of funded defined benefit obligations Fair value of scheme assets Surplus in funded scheme Reconciliation of opening and closing balances of the present value of the defined benefit obligation: Benefit obligation at the beginning of the year Service cost Interest cost Contributions by scheme participants Net measurement losses – financial Net measurement gains – demographic Net measurement losses/(gains) – experience Benefits paid Past service cost Benefit obligation at the end of the year Reconciliation of opening and closing balances of the fair value of scheme assets: Fair value of scheme assets at the beginning of the year Interest income on scheme assets Return on assets, excluding interest income Contributions by employers Contributions by scheme participants Benefits paid Scheme administrative cost 2015 £’000 55 65 120 2015 £’000 (1,700) — (699) (449) (2,848) 2014 £’000 306 381 687 2014 £’000 (3,147) 1,667 335 4,354 3,209 2015 £’000 (60,352) 62,119 2014 £’000 (61,948) 64,004 1,767 2,056 2015 £’000 61,948 301 2,346 190 1,700 — 699 (6,562) (270) 2014 £’000 59,509 430 2,696 266 3,147 (1,667) (335) (2,098) — 60,352 61,948 2015 £’000 64,004 2,487 (449) 2,679 190 (6,562) (230) 2014 £’000 56,237 2,609 4,354 2,806 266 (2,098) (170) Fair value of scheme assets at the end of the year 62,119 64,004 80 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 24 Retirement benefit obligation (continued) Analysis of the scheme assets and actual return: Equity instruments Debt instruments Property Other assets Actual return on scheme assets Fair value of assets 2015 £’000 28,476 27,177 5,637 829 62,119 2,038 2014 £’000 32,524 26,276 5,038 166 64,004 6,963 Sensitivity analysis A sensitivity analysis of the principal assumptions used to measure the scheme liabilities: Discount rate Rate of inflation Assumed life expectancy at age 65 Change in assumption Increase by 0.25% Increase by 0.25% Increase by 1 year Impact on scheme liabilities 29 August 2015 Decrease by £2.2 million Increase by £1.7 million Increase by £1.9 million Extrapolation or combination of the sensitivity analysis beyond the ranges shown may not be appropriate. Characteristics of the Scheme and the risks associated with the Scheme a) Information about the characteristics of the Scheme i. The Scheme provides pensions in retirement and death benefits to members. Pension benefits are linked to member’s final salary at retirement and their length of service. ii. The Plan is a registered scheme under UK legislation and is contracted out of the State Second Pension. The plan is subject to the scheme funding requirements outlined in UK legislation. The scheme funding valuation of the Scheme as at 31 December 2011 revealed a deficit of £9.9 million. In the recovery plan dated August 2012 the Employer agreed to pay contributions of £195,000 per month with the view to eliminating the shortfall by 31 December 2015. In line with previous years there is no additional liability recognised on the balance sheet as a result of the recovery plan dated August 2012. iii. The Scheme was established under trust and is governed by the Scheme’s trust deed and rules dated June 2008. The Trustees are responsible for the operation and the governance of the Scheme, including making decisions regarding the Scheme’s funding and investment strategy in conjunction with the Employer. b) Information about risks of the Scheme to the Employer In general, the risk to the Employer is that the assumptions underlying the disclosures, or the the calculation of contribution requirements are not borne out in practice and the cost to the Employer is higher than expected. This could result in higher contributions required from the Employer and a higher deficit disclosed. This may also impact the Employer’s ability to grant discretionary benefits or other enhancements to members. i. The return on the Scheme’s assets being lower than assumed, resulting in an unaffordable increase in the required Employer contribution rate. ii. Falls in asset values (particularly equities) not being matched by similar falls in the value of liabilities. iii. Unanticipated future changes in mortality patterns leading to an increase in the Scheme’s liabilities. Future mortality rates cannot be predicted with certainty. This is especially so bearing in mind that the youngest Scheme members could be expected to still be alive in 50 years or more and it is not possible to reliably predict what medical advances may or may not have occurred by this time. The average duration of the Scheme’s liabilities is approximately 16 years. iv. The potential exercise (by members or others) of options against the Scheme for example taking early retirement or exchanging a portion of pension for a cash lump sum. 81 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24 Retirement benefit obligation (continued) Carrs Billington Agriculture Carrs Billington Agriculture (Sales) Limited, one of the Group’s subsidiary undertakings, is a participating employer of the Carrs Billington Agriculture Pension Scheme, another funded defined benefit scheme. On 30 November 2007, following consultation with the active members, the Company and Trustees agreed to close the scheme to future service accrual. The most recent actuarial assessment of the scheme was at 31 December 2012. The pension contribution made by Carrs Billington Agriculture (Sales) Limited over the year to the Carrs Billington Agriculture Pension Scheme was £nil (2014: £nil). It is not possible to identify the underlying share of the pension scheme assets and liabilities that relate to the Group. At inception in June 2000 approximately 50% of the assets and liabilities of the pension scheme related to the Group and under IFRS approximately 50% of the assets and liabilities are included in the Group’s financial statements through the investment in associate, which is the sponsoring employer of the scheme. Details and disclosures in respect of the scheme are provided in the financial statements of Carrs Billington Agriculture (Operations) Limited which are publicly available. Carrs Billington Agriculture (Sales) Limited offers a Group Personal Pension Plan to its employees and the pension expense for this plan in the year was £451,000 (2014: £414,000). During the year contributions were also payable to a defined contribution pension scheme for certain employees of Carrs Billington Agriculture (Sales) Limited. The pension expense for this scheme for the year was £32,000 (2014: £23,000). 25 Share capital Group and Company Authorised: Ordinary shares of 2.5p each 2015 Shares 2015 £’000 2014 Shares1 2014 £’000 140,000,000 3,500 140,000,000 3,500 Allotted and fully paid ordinary shares of 2.5p each: At start of the year Allotment of shares 89,401,900 358,190 2,235 9 88,902,300 499,600 At end of the year 89,760,090 2,244 89,401,900 2,223 12 2,235 1 Restated for the effect of the 10:1 share split in January 2015 The consideration received on the allotment of shares during the year was £171,000 (2014: £283,000). For details of share based payment schemes see note 26. Since the year end there was a further allotment of 60,590 shares with a nominal value of £1,515 due to the exercise of share options. 82 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 26 Share-based payments Group The Group operates three active share based payment schemes at 29 August 2015. Under the long term incentive plan shares will be awarded to eligible individuals subject to an earnings per share (EPS) target measured against average annual increases over a three year period. For the awards granted in May 2013 an average annual growth of EPS must exceed 7.0% for 25% of the awards to vest, 50% vest at 8.1% and 100% vest at 10.2%, with a straight line calculation between 25%, 50% and 100% of the award. For the awards granted in November 2013 and November 2014 an average annual growth of EPS must exceed 3.0% for 25% of the awards to vest and 100% vest at 10.0%, with a straight line calculation between 25% and 100% of the award. All employees, subject to eligibility criteria, may participate in the share save scheme. Under this scheme employees are offered savings contracts for both 3 year and 5 year vesting period plans. The exercise period is 6 months from the vesting date. The approved share options were granted to certain senior employees and Directors. Options are exercisable between three and ten years from the date of grant, subject to the movement of the Group’s adjusted earnings per share over the three years to 31 August 2008 exceeding that of the RPI by an average of 2% per annum. The fair value per option granted and the assumptions used in the calculation of fair values are as follows: Long Term Incentive Plan November 2014 November 2013 May 2013 Long Term Incentive Plan Long Term Incentive Plan Share Save Scheme (3-Year Plan 2014) Share Save Scheme (5-Year Plan 2014) Approved Share Save Executive Share Scheme (5-Year Plan 2011) Option Scheme 2006 10/11/14 11/11/13 1/5/13 9/6/14 9/6/14 10/5/11 24/2/06 £1.600 £1.683 £1.315 £1.870 £1.870 £0.720 £0.476 £0.00 8 512,200 3 Market value1 — 10 6.5 — £0.00 8 475,380 3 £0.00 5 489,380 3 £1.520 192 504,040 3 Market value1 Market value1 Black Scholes Black Scholes Black Scholes 30.0% 3.5 3.25 1.51% £1.520 63 323,960 5 £0.572 71 734,760 5 24.00% 5.5 5.25 2.450% 26.9% 5.5 5.25 2.07% — 10 6.5 — — 10 6.5 — 2.81% 100% 50% £1.504 3.02% 100% 50% £1.597 2.42% 100% 100% £1.237 1.93% 95% N/A £0.490 1.93% 95% N/A £0.529 3.90% 95% N/A £0.156 £0.476 5 210,000 3 Binomial 22.44% 10 6.5 4.224% 3.36% 100% 100% £0.099 Grant date Share price at grant date (weighted average)2 Exercise price (weighted average)2 Number of employees Shares under option2 Vesting period (years) Model used for valuation Expected volatility Option life (years) Expected life (years) Risk-free rate Expected dividends expressed as a dividend yield Expectations of vesting Expectations of meeting performance criteria Fair value per option2 1 discounted for dividends forgone over the three year vesting period 2 restated for the effect of the 10:1 share split in January 2015 The expected volatility has been calculated using historical daily data over a term commensurate with the expected life of each option. The expected life is the midpoint of the exercise period. The risk-free rate of return is the implied yield of zero-coupon UK Government bonds with a remaining term equal to the expected term of the award being valued. 83 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 26 Share-based payments (continued) Number of options Long Term Incentive Plan Long Term Incentive Plan November 2014 November 2013 Number3 ’000 Number3 ‘000 Long Term Incentive Plan May 2013 Number3 ’000 Share Save Scheme (3-Year Plan 2014) Number3 ’000 Share Save Scheme (5-Year Plan 2014) Number3 ’000 Share Save Scheme (5-Year Plan 2011) Number3 ’000 Outstanding: At 1 September 2013 Granted in the year Exercised in the year Forfeited in the year At 30 August 2014 Granted in the year Exercised in the year Forfeited in the year At 29 August 2015 Exercisable: At 30 August 2014 At 29 August 2015 — — — — — 512 — — 512 — — Weighted average: Remaining contractual life (years) 9.00 Remaining expected life (years) 5.50 3 Restated for the effect of the 10:1 share split in January 2015 — 475 — — 475 — — — 475 — — 8.00 4.50 489 — — — 489 — — — 489 — — 7.00 3.50 — 544 — — 544 — — (40) 504 — — 2.25 2.00 — 324 — — 324 — — — 324 — — 4.25 4.00 The total expense recognised for the year arising from share based payments are as follows: Long Term Incentive Plan November 2014 Long Term Incentive Plan November 2013 Long Term Incentive Plan May 2013 Share Save Scheme (3-Year Plan 2014) Share Save Scheme (5-Year Plan 2014) Share Save Scheme (3-Year Plan 2011) Share Save Scheme (5-Year Plan 2011) 84 Approved Executive Share Option Scheme 2006 Number3 ’000 740 — (30) — 710 — (350) (150) 210 778 — — — 778 — — (43) 735 — 710 — 210 1.25 1.00 0.50 — 2015 £’000 128 127 202 77 33 — 17 584 2014 £’000 — 127 202 21 8 20 23 401 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 26 Share-based payments (continued) Company The movement in the number of outstanding options under the share schemes for the company is not shown as it is immaterial and disclosure would be excessively lengthy. The total expense recognised for the year arising from share based payments are as follows: Long Term Incentive Plan November 2014 Long Term Incentive Plan November 2013 Long Term Incentive May Plan 2013 Share Save Scheme (3-Year Plan 2014) Share Save Scheme (5-Year Plan 2014) Share Save Scheme (3-Year Plan 2011) Share Save Scheme (5-Year Plan 2011) 2015 £’000 84 83 137 11 1 — 1 317 Share based payments awarded to employees of subsidiary undertakings and recognised as an investment in subsidiary undertakings in the Company are as follows: Long Term Incentive Plan November 2014 Long Term Incentive Plan November 2013 Long Term Incentive Plan May 2013 Share Save Scheme (3-Year Plan 2014) Share Save Scheme (5-Year Plan 2014) Share Save Scheme (3-Year Plan 2011) Share Save Scheme (5-Year Plan 2011) Approved Executive Share Option Scheme 2006 Total carrying amount of investments 2015 £’000 45 88 195 83 39 — 87 21 558 2014 £’000 — 83 137 3 — 5 1 229 2014 £’000 — 44 130 18 8 1 74 64 339 27 Acquisitions WM. Nicholls & Company (Crickhowell) Limited On 20 October 2014 Carrs Billington Agriculture (Sales) Limited acquired the entire issued share capital of WM. Nicholls & Company (Crickhowell) Limited. As a condition of this acquisition the assets and liabilities not required by the Group were sold back to the vendor. The net cash consideration for this entire transaction was £1,030,000. The principal activity of WM. Nicholls & Company (Crickhowell) Limited is that of an agricultural merchant. The primary reason for the business combination was the expansion of the existing agriculture business. Reid and Robertson Limited On 12 June 2015 Carrs Billington Agriculture (Sales) Limited acquired the entire issued share capital of Reid and Robertson Limited for cash consideration of £869,000. The principal activity of Reid and Robertson Limited is that of an agricultural merchant. The primary reason for the business combination was the expansion of the existing agriculture business. Chirton Engineering Limited In the prior year Carrs Engineering Limited acquired the entire issued share capital of Chirton Engineering Limited for cash consideration of £5,300,000. £2,394,000 of this was contingent consideration and is payable subject to certain growth criteria being met subsequent to the acquisition. The principal activity of Chirton Engineering Limited is that of precision engineering. The primary reason for the business combination was that the acquired business complimented the existing engineering business enabling a wider set of skills to be offered to customers. B.E. Williams Limited In the prior year Carrs Billington Agriculture (Sales) Limited acquired the entire issued share capital of B.E. Williams Limited for cash consideration of £1,096,000. The principal activity of B.E. Williams Limited is that of the supply and haulage of agricultural feed. The primary reason for the business combination was that the acquired business complimented the existing agriculture business. 85 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27 Acquisitions (continued) All of the above purchases have been accounted for as acquisitions. Given the size of the acquisitions no separate disclosure has been presented on the face of the consolidated income statement as the impact would not be material. Aggregate disclosures The total goodwill arising from acquisitions in the year amounts to £1,050,000 (2014: £4,585,000). Goodwill, in both the current and prior year, represents the excess of the consideration paid over the Group’s interests in the net fair value of the net identifiable assets, liabilities and contingent liabilities acquired. The following aggregated amounts have been recognised within the consolidated income statement in respect of acquisitions made in the year: Revenue Profit before taxation 2015 £’000 3,589 85 2014 £’000 2,312 129 There were no other recognised gains and losses other than the profit shown above. Acquisition related costs amounted to £58,000 (2014: £123,000), which have been recognised within administrative expenses in the consolidated income statement. The aggregate assets and liabilities recognised in the acquisition accounting are set out below: Intangible assets Property, plant and equipment Investment Inventories Receivables Assets held for resale Cash at bank Payables Finance Leases Grants Taxation – Current – Deferred Net assets acquired Goodwill Satisfied by: Cash consideration Contingent consideration Total consideration 2015 Fair value £’000 2014 Fair value £’000 162 118 — 549 1,493 116 150 (1,431) (37) — (200) (71) 849 1,050 1,899 1,899 — 1,899 51 1,141 10 677 1,390 439 222 (1,468) (555) (52) 4 (48) 1,811 4,585 6,396 4,002 2,394 6,396 Intangible assets represents the fair value of customer relationships of WM. Nicholls & Company (Crickhowell) Limited and Reid and Robertson Limited. The fair value exercise on the acquisition of Chirton Engineering Limited in the prior year resulted in no significant intangible assets being identified other than the value of employees, which is not permitted to be recognised on the balance sheet. Assets held for resale were sold before the year end. 86 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 27 Acquisitions (continued) Pro forma full year information IFRS3 (revised) requires disclosure of information as to the impact on the financial statements if the acquisitions had occurred at the beginning of the accounting year. The unaudited pro forma summary below presents the Group as if the acquisitions had been acquired on 31 August 2014 (2014: 1 September 2013). The pro forma amounts include the results of the acquisitions and the interest expense on the increase in net debt as a result of the acquisitions. The pro forma amounts do not include any possible synergies from the acquisition. The pro forma information is provided for comparative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results. Revenue Profit before taxation 28 Cash generated from/(used in) operations Profit for the year Adjustments for: Tax Tax credit in respect of R & D Dividends received from subsidiaries Depreciation of property, plant and equipment Depreciation of investment property Intangible asset amortisation Profit on disposal of property, plant and equipment Impairment of investment Amortisation of grants Net fair value loss on share based payments Net foreign exchange differences Net fair value losses/(gains) on derivative financial instruments in operating profit Finance costs: Interest income Interest expense and borrowing costs Share of profit from associate and joint ventures Pension contributions – deficit reduction – ongoing IAS19 income statement charge (note 24) Changes in working capital (excluding the effects of acquisitions): (Increase)/decrease in inventories Decrease/(increase) in receivables (Decrease)/increase in payables Group 2015 £’000 2014 £’000 13,693 12,893 3,774 (623) — 5,059 20 208 (26) — (120) 584 53 7 (197) 1,445 (2,307) (2,340) (339) 120 (967) 320 (3,237) 3,660 (102) — 4,882 19 193 (104) — (54) 401 160 9 (264) 1,679 (2,486) (2,340) (466) 687 807 4,880 (7,329) 2015 £’000 415,295 18,019 2014 £’000 435,441 16,600 Company 2015 £’000 2,870 232 — (4,200) — — — — 846 — 317 (341) (30) (887) 435 — (2,340) (339) 120 — (162) 564 2014 £’000 2,021 (127) — (3,516) — — — — 6 — 229 246 — (822) 531 — (2,340) (466) 687 — 101 (227) Cash generated from/(used in) operations 15,127 17,125 (2,915) (3,677) 87 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 29 Analysis of net debt Group Cash and cash equivalents Bank overdrafts Loans and other borrowings: – current – non-current Finance leases: – current – non-current Net debt At 31 August 2014 £’000 17,268 (243) 17,025 (17,211) (13,927) (2,234) (8,262) (24,609) Cash flow £’000 (630) 30 (600) 6,327 (6,370) 2,395 — 1,752 Other non-cash changes £’000 — — — (1,886) 1,853 (2,335) 962 (1,406) Exchange movements £’000 (150) — (150) — — — — At 29 August 2015 £’000 16,488 (213) 16,275 (12,770) (18,444) (2,174) (7,300) (150) (24,413) Other non-cash changes relate to finance leases, including finance leases acquired with subsidiaries, and transfers between categories of borrowings. It also includes the release of deferred borrowing costs to the consolidated income statement. Company At 31 August 2014 £’000 Cash flow £’000 Other non-cash changes £’000 Exchange movements £’000 Cash and cash equivalents 8,822 148 — Loans and other borrowings: – current – non-current Net debt (1,553) (12,047) (4,778) 1,529 (5,000) (3,323) (666) 633 (33) 3 — — 3 At 29 August 2015 £’000 8,973 (690) (16,414) (8,131) Other non-cash changes relate to the release of deferred borrowing costs to the consolidated income statement and transfers between categories of borrowings. 30 Capital Commitments Group Capital expenditure on property, plant and equipment that has been contracted for but has not been provided for in the accounts The Company has no capital commitments (2014: none). 2015 £’000 2014 £’000 22 — 31 Other Financial Commitments Group At 29 August 2015 the Group had commitments, other than land and buildings, under non-cancellable operating leases as follows: Within one year Within two and five years inclusive The Company has no commitments under non-cancellable operating leases (2014: none). 88 2015 £’000 695 1,104 1,799 2014 £’000 520 1,024 1,544 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 32 Financial guarantees The Company, together with certain subsidiary undertakings, has entered into a guarantee with Clydesdale Bank PLC in respect of the Group loans, overdraft, asset finance and guarantee facilities with that bank, which at 29 August 2015 amounted to £8,152,000 (2014: £10,609,000). Certain subsidiary undertakings utilise guarantee facilities with financial institutions which include their own bankers. These financial institutions in the normal course of business enter into certain specific guarantees with some of the subsidiaries’ customers. All these guarantees allow the financial institutions to have recourse to the subsidiaries if a guarantee is enforced. The total outstanding of such guarantees at 29 August 2015 was £1,453,000 (2014: £1,267,000). The Company has provided specific guarantees to certain customers of a subsidiary. These are in place to guarantee the completion of the contract in any event. At 29 August 2015 the contracts under guarantee that have still to be completed and delivered have a total contract value of £9,521,000 (2014: £8,430,000). The Company has provided a guarantee over the lease of a premises occupied by a subsidiary. The guarantee is in respect of prompt and full payment of rents due throughout the term of the lease. As at 29 August 2015 the cumulative rent payable over the remaining term of the lease is £1,494,000 (2014: £nil). The Company has entered into a guarantee with the Trustees of the Carrs Billington Agriculture Pension Scheme in respect of the punctual payment of obligations due to the pension scheme by the participating employers of the scheme. The Company’s total liability shall not exceed £1,500,000 (2014: £1,500,000). The Group and Company does not expect any of the above guarantees to be called in. 33 Related parties Group and Company Identity of related parties The Group has a related party relationship with its subsidiaries, associate and joint ventures and with its Directors. The balances and transactions shown below were all undertaken on an arm’s length basis in the normal course of business. Transactions with key management personnel Key management personnel are considered to be the Directors and their remuneration is disclosed within the Remuneration Committee Report. Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 Balances reported in the Balance Sheet Amounts owed by businesses controlled by key management personnel (in a trading capacity): Trade receivables Transactions reported in the Income Statement 109 84 Revenue 204 329 — — — — 89 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED 33 Related parties (continued) Transactions with subsidiaries Company 2015 £’000 2014 £’000 32,602 138 32,740 (173) (27) (200) 2,520 4,200 744 — 29,869 114 29,983 (173) (29) (202) 2,351 3,516 652 (2) Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 — 623 623 500 619 1,119 (18,036) (16,067) 967 19 91 (189) (92,235) 1,148 19 107 (149) (98,526) — 555 555 (1) — — 44 (8) — 500 522 1,022 (2) — — 58 — — Balances reported in the Balance Sheet Amounts owed by subsidiary undertakings: Loans Other receivables Amounts owed to subsidiary undertakings: Loans Other payables Transactions reported in the Income Statement Management charges receivable Dividends received Interest receivable Interest payable Transactions with associate Balances reported in the Balance Sheet Amounts owed by associate: Non-current receivables Trade and other receivables Amounts owed to associate: Trade and other payables Transactions reported in the Income Statement Revenue Rental income Management charges receivable Management charges payable Purchases 90 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS 33 Related parties (continued) Transactions with joint ventures Balances reported in the Balance Sheet Amounts owed by joint ventures: Trade and other receivables Amounts owed to joint ventures: Trade and other payables Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 3,611 3,497 3,096 2,895 (9) (5) — — Included within Group trade and other receivables is £3,584,000 (2014: £3,459,000) in respect of loans owed by joint ventures. Included within Company trade and other receivables is £3,095,000 (2014: £2,888,000) in respect of loans owed by joint ventures. Transactions reported in the Income Statement Revenue Management charges receivable Purchases Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 147 110 (1,093) 114 146 (274) — — — — — — Transactions with other related parties Other loans of £nil (2014: £500,000) included within non-current borrowings and £500,000 (2014: £500,000) included within current borrowings is in respect of a loan from Edward Billington and Son Limited to Carrs Billington Agriculture (Sales) Limited. This loan is interest free and unsecured. Edward Billington and Son Limited has a 49% shareholding in Carrs Billington Agriculture (Sales) Limited. 34 Post balance sheet event On 4 September 2015, after the year end, the Group completed the acquisition of the business and related assets of Green (Agriculture) Co, an agricultural merchant. The net cash consideration paid was £0.3 million. The primary reason for the business combination was the expansion of the existing agriculture business. The provisional fair value of assets acquired are set out below: Property, plant and equipment Inventories Receivables Assets acquired Goodwill Satisfied by cash consideration Provisional Fair value £’000 23 112 55 190 80 270 91 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS FIVE YEAR STATEMENT Continuing operations Revenue and Results 2011 £’000 2012 £’000 (Restated)1 2013 £’000 2014 £’000 2015 £’000 Revenue 373,318 404,058 468,083 428,956 411,565 Group operating profit 9,156 12,071 13,337 15,427 16,375 Analysed as: Operating profit before non-recurring items and amortisation Non-recurring items and amortisation 10,387 (1,231) 12,517 (446) 13,353 (16) 15,743 (316) Group operating profit 9,156 12,071 13,337 15,427 Profit on the disposal of property and investment Finance income Finance costs Share of post-tax profit in associate and joint ventures — 410 (1,332) 282 673 (1,348) — 513 (1,318) — 264 (1,624) 1,776 1,381 2,819 2,486 Profit before taxation Taxation 10,010 (1,973) 13,059 (2,954) 15,351 (3,036) 16,553 (3,660) Profit for the year from continuing operations 8,037 10,105 12,315 12,893 Profit/(loss) for the year from discontinued operations 16,598 (202) — — 16,641 (266) 16,375 — 197 (1,412) 2,307 17,467 (3,774) 13,693 — Profit for the year 24,635 9,903 12,315 12,893 13,693 Ratios (continuing operations) Operating margin (excluding non-recurring items and amortisation) Return on net assets (excluding non-recurring items and amortisation) Earnings per share – basic2 Dividends per ordinary share2 – adjusted2 1 Restated for IAS 19 revised 2 Restated for the effect of the 10:1 share split in January 2015 2.8% 17.9% 7.7p 8.8p 2.6p 3.1% 19.9% 9.8p 10.2p 2.9p 2.9% 19.7% 12.4p 12.4p 3.2p 3.7% 18.8% 12.8p 13.1p 3.4p 4.0% 17.9% 13.4p 13.6p 3.7p 92 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS Net assets employed Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment property Investments Financial assets – Non-current receivables Retirement benefit asset Deferred tax assets Current assets Inventories Trade and other receivables Current tax assets Financial assets – Derivative financial instruments – Cash and cash equivalents 2011 £’000 4,558 1,029 31,519 764 6,832 2 — 2,519 2012 £’000 5,199 728 37,158 1,005 8,081 2 — 2,480 2013 £’000 5,215 615 53,068 675 10,395 1 — 2,044 2014 £’000 9,798 499 56,626 656 11,796 501 2,056 1,507 2015 £’000 10,849 448 58,385 636 13,530 50 1,767 861 47,223 54,653 72,013 83,439 86,526 22,793 56,988 9 — 33,282 27,128 59,651 — — 23,294 33,445 66,434 178 2 22,884 33,315 63,623 47 — 17,268 35,031 64,454 839 50 16,488 113,072 110,073 122,943 114,253 116,862 Total assets 160,295 164,726 194,956 197,692 203,388 Current liabilities Financial liabilities – Borrowings – Derivative financial instruments Trade and other payables Current tax liabilities Non-current liabilities Financial liabilities – Borrowings Retirement benefit obligation Deferred tax liabilities Other non-current liabilities Total liabilities Net assets (26,436) — (53,469) (1,688) (14,176) (309) (56,108) (1,552) (15,545) (8) (58,282) (1,639) (19,688) (15) (54,236) (1,631) (15,157) (72) (54,496) (472) (81,593) (72,145) (75,474) (75,570) (70,197) (2,274) (5,960) (4,007) (3,617) (11,573) (5,351) (3,733) (4,064) (29,448) (3,272) (3,765) (4,956) (22,189) — (4,111) (5,995) (25,744) — (4,184) (4,300) (15,858) (24,721) (41,441) (32,295) (34,228) (97,451) (96,866) (116,915) (107,865) (104,425) 62,844 67,860 78,041 89,827 98,963 93 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS DIRECTORY OF OPERATIONS Carr’s Group plc Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA Tel: 01228 554600 Fax: 01228 554601 Website: www.carrsgroup.com Animal Feed Supplement, Inc East Highway 212, PO Box 188, Belle Fourche, South Dakota 57717 USA Tel: 001 605 892 3421 Fax: 001 605 892 3473 Animal Feed Supplement, Inc PO Box 105, 101 Roanoke Avenue, Poteau, Oklahoma 74953 USA Tel: 001 918 647 8133 Fax: 001 918 647 7318 Animal Feed Supplement, Inc PO Box 569, 1700 US 50 East, Silver Springs, Nevada 89429 Tel: 001 775 577 2002 Fax: 001 775 577 4625 Caltech Solway Mills, Silloth, Wigton, Cumbria CA7 4AJ Tel: 016973 32592 Fax: 016973 32339 Carrs Billington Agriculture (Operations)** Parkhill Road, Kingstown Ind Est, Carlisle CA3 0EX Tel: 01228 529 021 Fax: 01228 554 397 Carrs Billington Agriculture (Operations)** Lansil Way, Lancaster LA1 3QY Tel: 01524 597 200 Fax: 01524 597 229 Carrs Billington Agriculture (Operations)** High Mill, Langwathby, Penrith CA10 1NB Tel: 01768 889 800 Fax: 01768 889 887 Carrs Billington Agriculture (Operations)** Cold Meece, Stone ST15 0QW Tel: 01785 760 535 Fax: 01785 760 888 Carrs Billington Agriculture (Sales), Annan Annan Business Park, Annan, Dumfriesshire DG12 6TZ Tel: 01461 202 772 Fax: 01461 202 712 Scotmin 13 Whitfield Drive, Heathfield Ind Est, Ayr KA8 9RX Tel: 01292 280 909 Fax: 01292 280 919 Carrs Billington Agriculture (Sales), Appleby Crosscroft Industrial Estate, Appleby, Cumbria CA16 6HX Tel: 01768 352 999 Aminomax Old Croft, Stanwix, Carlisle Tel: 01228 554 600 Fax: 01228 554 601 Horslyx LLC 810 Waterman Drive, Watertown New York 13601, USA Tel: 001 315 785 3625 Fax: 001 315 785 3627 Gold-Bar Feed Supplements LLC* 783 Eagle Boulevard, Shelbyville, TN 37160, USA Tel: 001 877 618 6455 Fax: 001 877 618 6489 Crystalyx Products GmbH* Am Stau 199-203, 26122, Oldenburg, Germany Tel: 00 49 441 2188 92142 Fax: 00 49 441 2188 92177 ACC Feed Supplement LLC* 5101 Harbor Drive, Sioux City, Iowa 51111 Tel: 001 712 255 6927 Fax: 001 712 252 4845 Carrs Billington Agriculture (Sales), Askrigg Uredale Mill, Askrigg, Leyburn, North Yorkshire DL8 7HZ Tel: 01969 650 229 Fax: 01969 650 770 Carrs Billington Agriculture (Sales), Barnard Castle Montalbo Road, Barnard Castle, Co Durham DL12 8ED Tel: 01833 637 537 Fax: 01833 638 010 Carrs Billington Agriculture (Sales), Bakewell Unit 4-6, Kingfisher Building, Buxton Road, Bakewell, Derbyshire DE45 1GZ Tel: 01629 814 126 Fax: 01629 814 804 Carrs Billington Agriculture (Sales), Berwick upon Tweed 29 Northumberland Road, Berwick upon Tweed, Northumberland TD15 2AS Tel: 01289 307 245 Fax: 01289 305 727 94 Carrs Billington Agriculture (Sales), Brecon Warren Road Stores, Warren Road, Brecon, Powys, LD3 8FF Tel: 01874 623470 Carrs Billington Agriculture (Sales), Brock Brockholes Way, Claughton Trading Estate, Lancaster Old Road, Claughton on Brock, Preston PR3 0PZ Tel: 01995 643 200 Fax: 01995 643 220 Carrs Billington Agriculture (Sales), Carlisle Montgomery Way, Rosehill Estate, Carlisle CA1 2UY Tel: 01228 520 212 Fax: 01228 817 800 Carrs Billington Agriculture (Sales), Cockermouth Unit 5, Lakeland Agricultural Centre, Cockermouth CA13 0QQ Tel: 01900 824 105 Fax: 01900 826 860 Carrs Billington Agriculture (Sales), Leek Macclesfield Road, Leek, Staffordshire ST13 8NR Tel: 01538 383 277 Fax: 01538 385 731 Carrs Billington Agriculture (Sales), Malton 31 Horsemarket, Malton, North Yorkshire YO17 7NB Tel: 01653 600 328 Fax: 01653 690 338 Carrs Billington Agriculture (Sales), Milnathort Stirling Road, Milnathort, Kinross KY13 9UZ Tel: 01577 862 381 Fax: 01577 863 057 Carrs Billington Agriculture (Sales), Morpeth 20c Coopies Lane Industrial Estate, Morpeth, Northumberland NE61 6JN Tel: 01670 503 930 Fax: 01670 504 404 Carrs Billington Agriculture (Sales), Gisburn Pendle Mill, Mill Lane, Gisburn, Clitheroe, Lancashire BB7 4LN Tel: 01200 445 491 Fax: 01200 445 305 Carrs Billington Agriculture (Sales), Morpeth (Greens) Old Station Buildings, Coopies Lane, Morpeth, Northumberland, NE61 2SL Tel: 01670 518474/84 Carrs Billington Agriculture (Sales), Hawes Burtersett Road, Hawes, North Yorkshire DL8 3NP Tel: 01969 667 334 Fax: 01969 667 335 Carrs Billington Agriculture (Sales), Hexham Tyne Mills Industrial Estate, Hexham, Northumberland NE46 1XL Tel: 01434 605 371 Fax: 01434 608 938 Carrs Billington Agriculture (Sales), Jedburgh Mounthooly, Crailing, Jedburgh, TD8 6TJ Tel: 01835 850 250 Fax: 01835 850 748 Carrs Billington Agriculture (Sales), Kendal Unit 1, J36, Rural Auction Centre, Crooklands, Kendal, Cumbria LA7 7FP Tel: 01539 566 035 Fax: 01539 566 042 Carrs Billington Agriculture (Sales), Penrith Haweswater Road, Penrith Industrial Estate, Penrith, Cumbria CA11 9EH Tel: 01768 862 160 Fax: 01768 899 345 Carrs Billington Agriculture (Sales), Perth 17/18 Arran Place, Arran Road, Perth PH1 3RN Tel: 01738 643 022 Fax: 01738 442 122 Carrs Billington Agriculture (Sales), Rothbury The Store, Coquet View, Rothbury, Morpeth, Northumberland, NE64 7RZ Tel: 01669 621150 Carrs Billington Agriculture (Sales), Selkirk The Former Baxter’s Unit, Dunsdale Haugh, Selkirk, Selkirkshire, TD7 5EF Tel: 01750 720 734 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS Chirton Engineering Unit 4A, High Flatworth, Tyne Tunnel Trading Estate, North Shields, Tyne & Wear, NE29 7SW Tel: 0191 296 2020 Wälischmiller Engineering GmbH Schießstattweg 16, 88677 Markdorf, Germany Tel: 0049 7544 95140 Fax: 0049 7544 951499 Carr’s Flour, Silloth Solway Mills, Silloth, Wigton, Cumbria CA7 4AJ Tel: 01697 333 700 Fax: 01697 332 543 Carr’s Flour, Maldon Station Road, Maldon, Essex CM9 4LQ Tel: 01621 852 696 Fax: 01621 854 525 Carr’s Flour, Scotland East Bridge, Kirkcaldy, Fife KY1 2SR Tel: 01592 267 191 Fax: 01592 641 805 Silloth Storage Company* Station Road, Silloth, Wigton, Cumbria, CA7 4JQ * joint venture company ** associate company Carrs Billington Agriculture (Sales), Settle Unit 6, The Sidings Industrial Estate, Settle, North Yorkshire BD24 9RP Tel: 01729 825 812 Fax: 01729 825 812 Carrs Billington Agriculture (Sales), Skipton Skipton Auction Mart, Gargrave Road, Skipton, North Yorkshire BD23 1UD Tel: 01756 792 166 Fax: 01756 701 008 Carrs Billington Agriculture (Sales), Spennymoor Southend Works, Byers Green, Spennymoor, Co. Durham, DL16 7NL Tel: 01388 662 266 Fax: 01388 603 743 Carrs Billington Agriculture (Sales), Stirling Stirling Agricultural Centre, Stirling FK9 4RN Tel: 01786 474 826 Fax: 01786 472 933 Carrs Billington Agriculture (Sales), Wigton Hopes Auction Co Ltd., Skye Road, Wigton, Cumbria, CA7 9NS Tel: 016973 45874 Carrs Billington Agriculture (Sales), Wooler Bridge End, South Road, Wooler, Northumberland, NE71 6QE Tel: 01668 281 567 Fax: 01668 283 453 Reid & Robertson, a division of Carrs Billington Agriculture (Sales) Ballagan, Stirling Road, Balloch, G83 8LY Tel: 01389 752800 Workware Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 591 091 Fax: 01228 590 026 Wallace Oils, Carlisle Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 534 342 Fax: 01228 590 820 Johnstone Wallace Fuels, Castle Douglas Abercromby Industrial Park, Castle Douglas, Dumfriesshire, DG7 1BA Johnstone Wallace Fuels, Dumfries Dargavel Stores, Lockerbie Road, Dumfries, Dumfriesshire DG1 3PG Tel: 01387 750 747 Fax: 01387 750 747 Johnstone Wallace Fuels, Stranraer Droughduil, Dunragit, Stranraer DG9 8QA Tel: 01581 400 356 Fax: 01581 400 356 Afgritech LLC* 810 Waterman Drive, Watertown, New York 13601, USA Tel: 001 315 785 3625 Fax: 001 315 785 3627 Bibby Agriculture* Priory House, Priory Street, Carmarthen SA31 1NE Tel: 01267 232 041 Fax: 01267 232 374 Bibby Agriculture* 1A Network House, Badgers Way, Oxon Business Park, Shrewsbury, Shropshire, SY3 5AB Tel: 01743 237 890 Fax: 01743 351 552 Bendalls Brunthill Road, Kingstown Industrial Estate, Carlisle CA3 0EH Tel: 01228 526 246 Fax: 01228 525 634 R Hind Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 523 647 Fax: 01228 512 712 Carrs MSM Unit 1 Spitfire Way, Hunts Rise, South Marston Park, Swindon, Wiltshire SN3 4TX Tel: 01793 824 891 Fax: 01793 824 894 95 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS REGISTERED OFFICE AND ADVISERS Registered Office Carr’s Group plc Old Croft, Stanwix, Carlisle, CA3 9BA Registered No. 98221 Chartered Accountants and Statutory Auditors PricewaterhouseCoopers LLP Central Square South, Orchard Street, Newcastle upon Tyne, NE1 3AZ Bankers Clydesdale Bank PLC 82 English Street, Carlisle, CA3 8HP The Royal Bank of Scotland PLC 37 Lowther Street, Carlisle, CA3 8EL DORMANT SUBSIDIARIES Company Name A C Burn Limited B. E. Williams Limited Bowie & Aram Limited Caltech Biotechnology Limited Carrs Animal Feed Supplements Limited Carrs Blends Limited Carrs Feeds Limited Carrs Fertilisers Limited Carrs Foodtech Limited Carr’s International Industries Limited Carr’s Milling Industries Limited Carrs Milling Limited Carrs Natural Feeds Limited Chirton Engineering Limited Forsyths of (Wooler) Limited George Shackleton & Sons Limited Greens Flour Mills Limited J M Raine Limited Johnstone Fuels and Lubricants Limited Northern Feeds Solutions Limited R Hind Limited Reid and Robertson Limited Robert Hutchison Limited Robertsons (Bakers) Limited Safe at Work Limited Scotmin Nutrition Limited Scotphos Limited Walischmiller Solutions Limited Wallace Oils Holdings Limited Wallace Oils Limited WM. Nicholls & Company (Crickhowell) Limited Financial Adviser and Broker Investec Bank (UK) Limited 2 Gresham Street, London, EC2V 7QP Financial and Corporate PR Advisers Powerscourt 1 Tudor Street, London, EC4Y 0AH Solicitors Hill Dickinson LLP 1 St Paul’s Square, Liverpool, L3 9SJ Registrars Capita Registrars The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Registered and Located England & Wales England & Wales Scotland England & Wales England & Wales Scotland England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Ireland England & Wales Scotland Scotland England & Wales England & Wales Scotland England & Wales England & Wales England & Wales Scotland Scotland England & Wales Scotland England & Wales England & Wales 1 100% owned by Carrs Billington Agriculture (Sales) Limited which is a 51% subsidiary of Carr’s Group plc. 96 Ownership 100% 51%1 100% 100% 100% 100% 51%1 100% 100% 100% 100% 100% 100% 100% 51%1 100% 100% 51%1 51%1 100% 100% 51%1 100% 96% 51%1 100% 100% 100% 51%1 51%1 51%1 CARR’S GROUP PLCANNUAL REPORT AND ACCOUNTS 2015FINANCIAL STATEMENTS STRATEGIC REPORT THE GROUP CARR’S GROUP PLC IS FOCUSSED ON THE PRINCIPAL ACTIVITIES OF AGRICULTURE, FOOD AND ENGINEERING. Carr’s Group plc is an international business operating across Agriculture, Food and Engineering, supplying over 35 countries around the world. The Agriculture division comprises an international feed block supplement business with manufacturing locations in the USA, UK and Europe. In the UK the division also sells animal feed, fertiliser, animal health products, oil, farm machinery and rural supplies from its 30 Country Stores. The Food division produces flour from three strategically located mills in the UK to the bread, biscuit and retail markets. The Engineering division designs, manufactures and supplies specialist precision parts, equipment, robotics and remote handling products from three sites in the UK and one site in Germany. These highly specialised products and services are supplied predominately into the nuclear and oil and gas markets. The Group is listed on the London Stock Exchange. CONTENTS STRATEGIC REPORT 1 Highlights 2 Group at a Glance 4 Chairman’s Statement 6 Group Strategy 7 Divisional Highlights 8 Strategy in Action 10 Chief Executive’s Review 15 Risk Management 18 Financial Review 20 Key Performance Indicators 21 The Board 22 Corporate Responsibility CORPORATE GOVERNANCE 25 Corporate Governance Report 28 Audit Committee Report 30 Remuneration Committee Report 36 Nominations Committee Report 37 Directors’ Report FINANCIAL STATEMENTS 40 Independent Auditors’ Report to the Members of Carr’s Group plc 44 Consolidated Income Statement 45 Consolidated and Company Statements of Comprehensive Income 46 Consolidated and Company Balance Sheets 47 Consolidated Statement of Changes in Equity 48 Company Statement of Changes in Equity 49 Consolidated and Company Statements of Cash Flows 50 Principal Accounting Policies 55 Notes to the Financial Statements 92 Five Year Statement 94 Directory of Operations 96 Registered Office and Advisers Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk ANNUAL REPORT AND ACCOUNTS 2015 AGRICULTURE | FOOD | ENGINEERING DIVERSITY STRENGTHENS PERFORMANCE ’ C A R R S G R O U P P L C A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 5 Old Croft, Stanwix, Carlisle CA3 9BA www.carrsgroup.com

Continue reading text version or see original annual report in PDF format above