Carrier Global
Annual Report 2020

Plain-text annual report

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 2 0 The Agriculture & Engineering Group 0 2 0 2 s t n u o c c A d n a t r o p e R l a u n n A . m o c p u o r g s r r a c w w w . Strategic Report Governance Financial Statements Strategic Report 02 Highlights 04 At a Glance 06 Chairman’s Statement 08 Market Overview 10 Our Business Model 12 Our Strategy 14 Chief Executive’s Review 16 Key Performance Indicators 18 Financial Review 20 Divisional Review: Agriculture 24 Divisional Review: Engineering 28 Risk Management 31 Viability Statement 32 Corporate Responsibility 35 Non-Financial Information Statement 36 Stakeholder Engagement Corporate Governance 38 The Board 40 Chairman’s Introduction 41 Corporate Governance Report 46 Nomination Committee Report 49 Audit Committee Report 53 Remuneration Committee Report 67 Directors’ Report Independent Auditor’s Report Financial Statements 70 78 Consolidated Income Statement 79 Consolidated and Company Statements of Comprehensive Income 80 Consolidated and Company Balance Sheets 82 Consolidated Statement of Changes in Equity 83 Company Statement of Changes in Equity 84 Consolidated and Company Statements of Cash Flows 85 Principal Accounting Policies 95 Notes to the Financial Statements 141 Five Year Statement 143 Alternative Performance Measures Glossary 145 Directory of Operations 146 Dormant Subsidiaries at 29 August 2020 147 Registered Office and Advisers Carr’s is an international business at the forefront of innovation and technology. The Group is a global leader in the supply of value-adding products and services to customers in the Agriculture and Engineering sectors. Agriculture The Agriculture division includes a livestock supplementation business which manufactures feed blocks, boluses and other trace element supplements from locations across the UK, USA and Europe. These products are supplied through an extensive distribution network to farming customers across the globe. In the UK the division also sells animal feed, fertiliser, animal health products, oil, farm machinery and rural supplies from a network of country stores and depots. Engineering The Engineering division designs and manufactures specialist equipment and components, robotic goods and remote handling equipment, and provides technical services, from five sites in the UK, one site in Germany and two sites in the USA. These highly specialised products and services are supplied predominately into the nuclear, defence, and oil and gas markets. t r o p e r r u o n i s ’ t a h W Carr's Group plc Annual Report and Accounts 2020 01 Strategic Report Highlights A robust performance in a year of significant challenge 02 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Operational highlights Financial highlights • Robust performance in a challenging year, demonstrating the benefits of the Group’s diversity • COVID-19: £395.6m Revenue 4.75p Dividend Per Share a. Health, safety and well-being of employees remains of paramount importance b. Dynamic global business 2019 2018 £403.9m £403.2m 2019 2018 response including rigorous health and safety regimes adhering to government and local guidelines, ensuring businesses remain operational to support customers c. Close financial and operational monitoring and controls including contingency planning d. No material financial impact during the year overall • Challenging H1 in UK Agriculture largely mitigated by strong H2, with increased deliveries and collection model adopted to maintain supplies to farmers during COVID-19 lockdown • Continued growth of Supplements business internationally, and launch of new FesCool® and Pick Block products • Engineering performance impacted by project delays, restricted access to customer sites owing to COVID-19, and weakened oil price • Strong performance by NW Total in first full year as part of the Group • New Global Robotics showrooms opened in Japan and USA • Strong cash and net debt position £16.2m Adjusted Operating Profit* £13.8m Reported Operating Profit 2019 2018 £18.9m £17.5m 2019 2018 £14.9m Adjusted Profit Before Tax* £12.5m Reported Profit Before Tax 2019 2018 £18.0m £16.6m 2019 2018 11.9p Adjusted Earnings Per Share* 10.3p Basic Earnings Per Share 2019 2018 14.6p 13.9p 2019 2018 * Adjusted results are consistent with how business performance is measured internally and is presented to aid comparability of performance. 4.75p 4.50p £17.2m £16.4m £16.3m £15.5m 13.1p 13.0p 0 2 0 2 n i d e m r o f r e p e w w o H Carr's Group plc Annual Report and Accounts 2020 03 Strategic Report At a Glance Carr’s Group plc is an international business operating across Agriculture and Engineering sectors which supplies products and services to over 50 countries around the world. Revenue by division Agriculture Engineering £342.6m £53.0m Adjusted operating profit by division Agriculture Engineering £13.4m £3.8m The Agriculture division develops and manufactures a range of innovative livestock supplementation products under highly regarded brands which are distributed to customers globally. The division also services UK farming and rural communities through a network of retail stores, supplies specialist equipment and machinery, and distributes fuels. Locations Our Supplements business develops and manufactures products from three sites in the UK, six sites in the USA and one site in Germany. These products are sold through a vast distribution network across the UK, Europe, North America, South America and Australasia. Our UK Agriculture business operates predominantly across the north of England and southern Scotland from a network of retail stores, machinery distributorships and fuel depots. Customer base Our customer base includes leading livestock farmers across the globe in the dairy, beef, sheep, pig and equine sectors. Brands Our branded product ranges are the result of extensive research and development and include feed blocks sold under the Crystalyx®, Horslyx®, SmartLic® and Megastart® brands, and boluses sold under the Tracesure® and Allsure® brands. Agriculture For more information, see pages 20-23 Locations 50 UK 6 USA 1 Germany 04 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Engineering For more information, see pages 24-27 The Engineering division designs and manufactures bespoke equipment, and provides specialist technology and engineering solutions, for the nuclear, oil and gas, defence and petrochemical industries. Its diverse range of products and services includes robotic manipulators and remote handling equipment, life-of-plant extension technologies, radiation protection and decontamination services, equipment condition monitoring, specialist design and fabrication and precision machining. Locations Our Engineering division is spread across eight key sites globally; five in the UK, two in the USA and one in Germany. From these sites we supply products and services worldwide across Europe, North America, South America, Asia, Africa and Australasia. Customer base Our customers include global businesses and government bodies across nuclear, energy, pharmaceutical and utilities industries worldwide. Product ranges Our range of innovative products and services include TELBOT® remote handling equipment, MSIP® life-of-plant extension technology, Power Fluidics™ waste mobilisation systems and nuclear decontamination services. We also supply specialist design, fabrication, testing and precision machining services. Locations 5 UK 2 USA 1 Germany Carr's Group plc Annual Report and Accounts 2020 05 Strategic Report Chairman’s Statement In difficult market conditions the Group delivered a robust financial performance, responding well to the challenges arising from the COVID-19 pandemic. Peter Page Chairman 06 Carr's Group plc Annual Report and Accounts 2020 Review of the yearFor the year ended 29 August 2020, in difficult market conditions the Group delivered a robust financial performance, with full year profitability slightly ahead of the Board’s revised expectations. Across both divisions, the Group responded well to managing the challenges arising from the COVID-19 pandemic. First half trading in the Agriculture division was characterised by both challenging market conditions affecting farm incomes and continued unseasonal weather in the UK and USA. Trading in the second half of the year recovered well, and overall profitability exceeded the Board’s revised expectations for the year. As COVID-19 restrictions were tightened, the UK Agriculture businesses proved adept in maintaining supplies to farmers whilst keeping people safe. In the Supplements business, new and innovative products were launched, and expanded production and research capabilities supported our international footprint, particularly in New Zealand and Canada where feed block sales continued to build. In the Engineering division, the first half of the year was impacted by contract phasing. Whilst it had been expected some of this would recover in the second half, delays in receiving expected orders on overseas projects meant that this was not the case. Restrictions imposed on travel and access to customer sites as a consequence of COVID-19, together with the weakened oil price, also negatively affected the division’s full year performance with profitability below the Board’s revised expectations.At the onset of COVID-19, all sites moved quickly to follow government guidelines and implemented a range of safety measures including social distancing, increased hygiene and shift-working. People worked from home where possible, maintaining strong engagement with our customers, suppliers and each other, using virtual media. Contingencies were planned across both divisions, which remain under constant review. Strategic Report Governance Financial Statements total dividend for the year of 4.75 pence per share (2019: 4.75p). The final dividend, if approved by Shareholders, will be paid on 15 January 2021, to shareholders on the register on close of business 4 December 2020, and the shares will go ex-dividend on 3 December 2020. Corporate governance and Board succession This has been an important year for Board succession. After joining the Board in November 2019, I took over as Non- Executive Chairman following the AGM in January 2020. In October 2020 Kristen Eshak Weldon joined the Board as an Independent Non-Executive Director, bringing international experience of investment appraisal along with real insight into new technology applications in the agri-food sector. In August 2020 we announced that Tim Davies would be stepping down after seven years as CEO of the Group. On behalf of all shareholders, I am extremely grateful to Tim for his dedication and contribution to the business. Tim’s leadership style and genuine concern for colleagues have been most evident since March 2020 as everyone has come to terms with different ways of working, heightened levels of uncertainty and increased demands on the business. Tim will leave the Board at the AGM in January 2021 but will remain available to give advice and share his knowledge during a handover period. Hugh Pelham joins Carr’s Group as CEO in January 2021, standing for election at the AGM. Hugh has relevant experience in developing and growing businesses and integrating them into larger group structures, he has worked in many markets around the world, and he has developed high performing management teams. I look forward to welcoming Hugh to the Group. As part of its long-term succession strategy, it is planned that Alistair Wannop will stand down from the Board at the conclusion of the AGM in January 2022. Alistair was first appointed to the Board as a Non-Executive Director in September 2005. Given the level of Board succession achieved during 2019 and 2020, and recognising Alistair’s deep knowledge of the Group’s activities and understanding of agricultural industries, the Board considers it appropriate for Alistair to remain appointed for another year to ensure continuity. AGM January 2021 In the light of the COVID-19 pandemic, the AGM on 12 January 2021 will be held in a revised format. As shareholders will not be able to attend the meeting in person, the Board will be inviting shareholders to vote on the resolutions proposed by proxy, and to submit any questions in advance of the meeting. We will be publishing a broadcast on the Company’s website, reflecting on the year, providing an update on current trading, introducing Hugh Pelham, and answering questions raised by shareholders, following the AGM on 12 January 2021. Our people Carr’s employs over 1,100 people across the globe, all of whom have made a significant contribution to the business this year, particularly in the demanding situation arising from COVID-19. I am extremely grateful for everyone’s support, endurance and adaptability. Outlook The Group remains committed to building value by focusing on markets with growth potential, diversifying its international footprint and differentiation through innovation and technology. The global economy has been dominated by COVID-19, creating uncertainty and making forecasts difficult. Nevertheless, the Group is well positioned as the agriculture sector remains crucial in supplying raw materials and ingredients to the food chain, and our engineering businesses are predominantly involved in government funded contracts in the nuclear sector. Management will continue to focus on optimising all the businesses in the Group. Trading in the new financial year has started in line with the Board’s expectations. Whilst uncertainties remain in the broader economic environment, the Board is confident about the prospects of our business in the medium term. Peter Page Chairman 23 November 2020 Carr's Group plc Annual Report and Accounts 2020 07 Financial reviewRevenue for the year decreased by 2.0% to £395.6m (2019: £403.9m). Adjusted operating profit was down 14.2% to £16.2m (2019: £18.9m), with Agriculture contributing £13.4m (2019: £14.7m) and Engineering £3.8m (2019: £5.9m). Reported operating profit fell by 19.5% to £13.8m (2019: £17.2m). Adjusted profits are before amortisation of acquired intangible assets totalling £1.4m and restructuring and closure costs of £2.0m offset by adjustments to contingent consideration totalling £0.9m, giving a net total adjusting items of £2.4m.Adjusted profit before tax was down 17.4% to £14.9m (2019: £18.0m) and reported profit before tax decreased by 23.4% to £12.5m (2019: £16.3m). Basic earnings per share were down by 21.4% to 10.3p (2019: 13.1p), with fully diluted earnings per share of 10.2p (2019: 12.8p) and adjusted earnings per share down 18.5% to 11.9p (2019: 14.6p).Net debt at 29 August 2020, excluding leases, was £18.9m (2019: £20.9m). This movement included £18.1m generated from operations, £8.9m used in investing activities and £3.3m paid in dividends. The recent leasing standard IFRS 16 has been adopted in the year, with a consequential reduction to opening net assets of £1.4m as operating leases were brought onto the balance sheet. There was also a consequential impact to the income statement of an additional charge to profit before tax of £0.1m resulting from the new standard.With the onset of COVID-19, the Group implemented a rigorous cash forecasting process which is tested regularly against a variety of scenarios. Cash management measures were also implemented to limit non-essential expenditure. Whilst an interim dividend decision in April 2020 was deferred, this was subsequently confirmed and reinstated in July 2020 once the short-term impact of COVID-19 on the business became clearer. Such measures preserved the Group’s strong cash and net debt positions, leaving good headroom on the Group’s committed banking facilities.DividendThe Board is proposing a final dividend of 2.5 pence per share which, together with the interim dividend of 2.25 pence per share declared in July 2020, makes a Strategic Report Market Overview Our vision is to be recognised as a truly international business at the forefront of technology and innovation in our chosen markets. Agriculture Market trend Global agriculture Livestock sector Population is the key determinant of total food use. Income, relative prices and consumer lifestyles, meanwhile, determine a person’s desired food basket. Global livestock production is expected to expand by 14% over the next ten years, supported by low feed prices and stable product prices. On accou nt of an expected 11% expansion in the global population over the next ten years, as well as notable gains in per capita income in all regions, total consumption of food commodities is expected to rise by 15%. What this means for Carr’s Our key agricultural markets are likely to continue to expand over a ten-year perspective with enhanced productivity being a key driver for farmers. Our primary market segments of global dairy, beef and sheep production are expected to remain in growth over the coming years. Growth will increasingly vary regionally across the globe. Our global footprint puts us in a strong position to respond to changes in levels of demand. UK policy and environmental challenge In the UK, Brexit and the passing of a new Agriculture Bill will herald the biggest shake-up in agriculture seen for a generation or more. Environmental concerns will increasingly impact food consumption and farming practices, especially in developed countries. Production projections, based upon current policies and available technologies, suggest a growth in direct greenhouse gas emissions of 6% in the next ten years, with livestock accounting for 80% of this increase. The UK market is heading into a period of significant change leading to changing farmer demand and opportunities to which we can respond positively. Responding to climate change is also likely to become an increasingly important issue at farm level. 15% Predicted increase in consumption of food commodities over the next ten years 14% Expected growth in global livestock production over the next decade 6% Estimated growth in greenhouse gas emissions from global agriculture in the next decade 08 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Engineering Market trend Civil nuclear Defence Oil and gas The requirement for nuclear decommissioning and legacy waste clean-up operations continues to grow globally. In coming decades, it is expected that a significant number of nuclear reactors will be retired from use globally which, together with a growth in subsidised renewable technologies, is expected to increase demand for products and services in the decommissioning market. Investment continues in the UK defence sector with a committed spend of £31bn for the Dreadnought programme; the building of four nuclear submarines at Barrow -in-Furness. The Submarine Dismantling Project is expected to continue into the 2040s, costing at least £10.4bn to decommission the redundant submarine fleet of 27 boats. Oil prices started 2020 strong at c. $61/b in January but dropped to a price of c. $40/b as a consequence of reduced demand attributable to the COVID-19 pandemic. It is estimated by the US Energy Information Administration that the oil price will average at c. $50/b in 2021. What this means for Carr’s Continued growth in these highly regulated markets will increase demand for robotics products, decommissioning technologies and the manufacture of waste transportation containment packages. Lifetime extensions at nuclear facilities, and the demand for enhanced power plant safety, require safe and proven technologies which presents opportunity for our solutions such as MSIP® and Dynamic Natural Convection. 12% Annual global growth spend in nuclear decommissioning Continued long-term investment by the UK Government in defence provides significant future opportunities to utilise technologies across the Group. Carr’s has a track record of delivering products and services into this highly regulated and growing market, and is well placed to further develop its divisional capabilities to support customers in the sector. In the short term, those of our UK Service & Manufacturing businesses which serve oil and gas markets are focusing on overseas opportunities. In the medium-term, those businesses continue to diversify the markets they serve to further reduce reliance on the oil and gas sector. Oil and gas companies are investing in their green agenda with opportunities arising in decommissioning to clean up their oil and gas environmental footprint. £31bn Value of UK Dreadnought nuclear submarines programme $40/b The current oil price, to which the market is having to adjust Carr's Group plc Annual Report and Accounts 2020 09 Strategic Report Our Business Model Diversified, innovative, How we create value Investment in innovation & technology We continue to grow by investing in our people and assets, and through carefully considered acquisitions which align with our strategy. We apply this approach across both our Agriculture and Engineering divisions, centred around a strong focus on innovation and technology. Innovation and technology During the year we continued to develop new products across both divisions. We also made significant investment in our people, and in process efficiencies, to ensure that we can deliver the best levels of service and add the most value to our customers globally. 10 Carr's Group plc Annual Report and Accounts 2020 Our Supplements business launched two new products during the year: FesCool® in the USA and Pick Block in Europe. Research and product development remain at the core of our business which enables us to remain at the forefront of innovation in our markets. We also invested during the year in enhancing manufacturing plants in our US Supplements business to maximise efficiencies and ensure that they continue to consistently produce the best quality products. e r u t l u c i r g A g n i r e e n g n of services we offer to customers. E i We also invested £1.3m in state-of-the-art machinery at our UK Service & Manufacturing site in Carlisle, bringing large-scale machining capabilities in-house and enhancing the range During the year our Global Robotics business opened showrooms in the USA and Japan to further develop opportunities internationally. Diversified, innovative, sustainable How we create value Our resources Who we create value for Strategic Report Governance Financial Statements Talented people We place great value in our global workforce and are committed to continuous development. People are critical to our success and we strive to provide environments in which our employees can reach their potential. Global distribution network As a Group we have a diverse customer base spanning over 50 countries worldwide. Our strategy is to target markets with the potential for growth on an international scale. Deep knowledge We have a strong focus on innovation and technology. Our businesses possess a wealth of specialist knowledge and we continue to invest in the development of new products and solutions which can add value to our customer base. Well invested We continue to invest in our businesses to ensure that they remain best placed to deliver our strategic objectives. Long-term, trusted relationships We are proud to have built longstanding and trusted relationships founded upon the quality of our offering, our organisational culture, and our levels of customer service. Market- leading Culture and values Our businesses have market-leading brands and products which are recognised internationally including Crystalyx®, AminoMax®, Tracesure®, SmartLic® and FesCool® in Agriculture and TELBOT®, MSIP® and Power Fluidics™ in Engineering. As a Group we have a clear set of values and are committed to investing in and engaging with our employees and other stakeholders to ensure that our businesses remain ethically and sustainably managed. Employees We continue to expand our employee training and development offering and enhance our engagement initiatives. Customers Our success can be measured by the level of custom we continue to attract and retain through our leading product ranges and excellent service levels. Investors Our strategy is designed to deliver sustainable growth. Over the last five years, we have been able to increase the dividends we pay to investors by almost 40%. Partners As a Group we enjoy close relationships with a range of trusted strategic partners across the UK, USA and Europe. Communities Across the Group we believe in supporting charitable initiatives and the communities in which we operate. Environment We believe in ethical business practices including taking steps to minimise our environmental impact. 823 Training days delivered in the year 17,000 Number of direct UK Agriculture customers 4.75p Dividend per share 7 Number of joint venture and associate businesses £81k Charitable donations in the year 43% Reduction in CO2 emissions over the last three years Carr's Group plc Annual Report and Accounts 2020 11 Strategic Report Our Strategy Strategic Objectives Build business value by focusing on markets with growth potential Grow and diversify our international footprint Differentiate ourselves Lead in our through innovation and technology chosen markets 2020 achievements During the year, our Agriculture division enhanced its strong position in global supplementation, through the development and launch of new product ranges which increase animal performance and add value to our farming customers. Sales volumes across our Supplements business increased 1.2% in the year despite market challenges which places the division well for future growth. In early FY20, we completed the integration of NW Total into our broader Engineering division. NW Total has brought significant opportunity to the Group, particularly in nuclear defence markets where the business continues to further strengthen its order book. We also continue to develop innovative solutions for the nuclear decommissioning sector which represents a considerable long-term opportunity for the Group. Future priorities Our Supplements business has seen international growth in the year, particularly into Canada where we have made progress through local distribution channels and in New Zealand where year-on-year feed block sales have increased by 40%. Our German joint venture business has also seen increased exports across Europe including into Russia, Spain, Italy and Turkey. We continue to see significant international sales for our Engineering business including increased revenues generated from the USA, and the opening of showrooms in the USA and Japan for our Global Robotics business. Our Global Technical Services business continues to develop its strong order book, particularly following its success in securing a $6m MSIP® contract to be delivered into Switzerland. Agriculture In Agriculture, we will continue to grow sales volumes across our Supplements business in the UK, Irish, European and New Zealand dairy sectors, and to enhance our market share across beef sectors in the USA and Canada. We will also look to build upon our presence in related sectors including equine in the UK and USA and poultry across Europe. Agriculture We will continue to develop our international presence in Agriculture across Europe, the USA, Canada, and Australasia through strategic partnerships and enhanced business development initiatives focusing on building relationships and maintaining excellent levels of customer service. Engineering Our Engineering division continues to concentrate on global nuclear markets, with a particular focus by our Global Robotics business on opportunities in the USA, Europe and Japan. The 2019 acquisition of NW Total has provided us with a strong foothold into the UK nuclear defence market where significant opportunities exist. Engineering In Engineering we will continue to focus on global opportunities, particularly across the USA, Europe and Asia. Our divisional structure aligns the products and services we offer with customers in our chosen markets and enhances our international offering. 12 Carr's Group plc Annual Report and Accounts 2020 Following research trials undertaken with Kansas State Our innovative approach to staying open safely and using University, our US Supplements business launched FesCool® technology during the COVID-19 pandemic enabled in 2020, which enhances the performance of grazing cattle our UK Agriculture business to maintain leading levels (see page 23). Our German joint venture Supplements of service, ensuring that our farming customers could business also launched its Pick Block product this year, which keep producing. In the USA we have invested this year promotes improved animal welfare and poultry performance. in production systems, driving business efficiencies and We also made progress in automating bolus manufacture ensuring that we continue to produce the best products. at Animax, which will help drive future efficiencies and even higher product quality. During 2020, we invested in new manufacturing technologies across our UK Manufacturing businesses, In the year, our Engineering division developed a new client adding additional machining capabilities and ensuring that relationship management system which aligns our businesses our processes remain state-of-the-art. with customers and markets and enables improved business development globally. Product development Service levels Key to the Group’s future is our ongoing investment in the development of intellectual property and product ranges, We will continue to invest in our people and in the delivery of our offering. Our collaborative approach and which is achieved through our culture of collaboration and the organisational culture will ensure that we continue to offer sharing of know-how across each of our divisions. leading levels of service to our customer base globally. Acquisitions Adding value We also remain alert to suitable acquisition opportunities, We also strive to ensure that our manufacturing processes where businesses can be integrated within the Group to are optimised and efficient, enabling us to add the most achieve synergies and enhance the range of products and value to our customers. solutions offered to our global customer base. Strategic Objectives Build business value by focusing on markets with growth potential Grow and diversify our international footprint Differentiate ourselves through innovation and technology Lead in our chosen markets Strategic Report Governance Financial Statements 2020 achievements During the year, our Agriculture division enhanced its strong position Our Supplements business has seen international growth in global supplementation, through the development and launch in the year, particularly into Canada where we have made of new product ranges which increase animal performance and progress through local distribution channels and in New add value to our farming customers. Sales volumes across our Zealand where year-on-year feed block sales have Supplements business increased 1.2% in the year despite market increased by 40%. Our German joint venture business has challenges which places the division well for future growth. also seen increased exports across Europe including into In early FY20, we completed the integration of NW Total into our Russia, Spain, Italy and Turkey. broader Engineering division. NW Total has brought significant We continue to see significant international sales for opportunity to the Group, particularly in nuclear defence markets our Engineering business including increased revenues where the business continues to further strengthen its order book. generated from the USA, and the opening of showrooms We also continue to develop innovative solutions for the nuclear in the USA and Japan for our Global Robotics business. Our decommissioning sector which represents a considerable long-term Global Technical Services business continues to develop its strong order book, particularly following its success in securing a $6m MSIP® contract to be delivered into Switzerland. opportunity for the Group. Future priorities Agriculture Agriculture In Agriculture, we will continue to grow sales volumes across our We will continue to develop our international presence in Supplements business in the UK, Irish, European and New Zealand Agriculture across Europe, the USA, Canada, and Australasia dairy sectors, and to enhance our market share across beef through strategic partnerships and enhanced business sectors in the USA and Canada. We will also look to build upon our development initiatives focusing on building relationships presence in related sectors including equine in the UK and USA and and maintaining excellent levels of customer service. poultry across Europe. Engineering Engineering Our Engineering division continues to concentrate on global nuclear In Engineering we will continue to focus on global markets, with a particular focus by our Global Robotics business on opportunities, particularly across the USA, Europe and Asia. opportunities in the USA, Europe and Japan. The 2019 acquisition of Our divisional structure aligns the products and services we NW Total has provided us with a strong foothold into the UK nuclear offer with customers in our chosen markets and enhances defence market where significant opportunities exist. our international offering. Following research trials undertaken with Kansas State University, our US Supplements business launched FesCool® in 2020, which enhances the performance of grazing cattle (see page 23). Our German joint venture Supplements business also launched its Pick Block product this year, which promotes improved animal welfare and poultry performance. We also made progress in automating bolus manufacture at Animax, which will help drive future efficiencies and even higher product quality. In the year, our Engineering division developed a new client relationship management system which aligns our businesses with customers and markets and enables improved business development globally. Our innovative approach to staying open safely and using technology during the COVID-19 pandemic enabled our UK Agriculture business to maintain leading levels of service, ensuring that our farming customers could keep producing. In the USA we have invested this year in production systems, driving business efficiencies and ensuring that we continue to produce the best products. During 2020, we invested in new manufacturing technologies across our UK Manufacturing businesses, adding additional machining capabilities and ensuring that our processes remain state-of-the-art. Product development Key to the Group’s future is our ongoing investment in the development of intellectual property and product ranges, which is achieved through our culture of collaboration and the sharing of know-how across each of our divisions. Service levels We will continue to invest in our people and in the delivery of our offering. Our collaborative approach and organisational culture will ensure that we continue to offer leading levels of service to our customer base globally. Acquisitions We also remain alert to suitable acquisition opportunities, where businesses can be integrated within the Group to achieve synergies and enhance the range of products and solutions offered to our global customer base. Adding value We also strive to ensure that our manufacturing processes are optimised and efficient, enabling us to add the most value to our customers. Carr's Group plc Annual Report and Accounts 2020 13 Strategic Report Chief Executive’s Review Despite challenging trading conditions early in the year together with the onset of COVID-19, a robust performance in the second half resulted in a full year performance which exceeded the Board’s revised expectations. Tim Davies Chief Executive Officer 14 Carr's Group plc Annual Report and Accounts 2020 IntroductionAs outlined in our trading update on 12 March 2020, trading conditions across both divisions during the first half of the year were challenging and, unrelated to COVID-19, led to a reduction in the Board’s performance expectations for the full year. I am pleased to report, however, that despite these challenges, and the significant measures adopted across the Group in order to manage the effects of the pandemic, a very robust performance in the second half resulted in a full year performance which exceeded those revised expectations.While cash preservation has remained a key priority, we have been able to continue to invest in key areas to ensure that the Group remains well placed for the future. During the year, we strengthened our presence in growth markets across the world, whilst driving innovation and technological advances to maintain our strong position in our established markets. AgricultureAs previously reported, trading in our Agriculture division in the first half was slower than the prior year, largely driven by atypical weather patterns and growing conditions from the previous summer which reduced demand for key products. Improved trading during the second half, however, resulted in a robust outturn for the full year. During the year, revenue was down 4.1% to £342.6m (2019: £357.4m). Adjusted operating profit was down 8.5% to £13.4m (2019: £14.7m), whilst reported operating profit was down 4.8% to £13.4m (2019: £14.1m).Strategic Report Governance Financial Statements Internationally, our Supplements business continues to enhance its presence in territories with significant growth opportunity, particularly across Europe, the USA, Canada, and New Zealand. We also remain focused upon increasing our presence in new markets including the UK dairy sector. We continue to build growth through strategic partnerships and sustained research and development, and remain confident in the division’s medium term outlook. Engineering The Group remains confident in the medium-term prospects of the Engineering division. Whilst parts of the division which serve oil and gas markets have been impacted in the short-term, owing to a reduction in customer investment attributable to the low oil price, there remain significant opportunities across nuclear and defence markets. The division also continues to develop technologies, in conjunction with its strategic partners, to provide innovative solutions to customer challenges in nuclear markets. Our improved divisional structure provides a comprehensive offering, able to compete on a larger scale than before. Such changes provide an uplift in the volume of contracts we can tender for and leave the division well placed for future growth. Tim Davies Chief Executive Officer 23 November 2020 Keeping farmers farming during COVID-19 Throughout the pandemic our UK Agriculture business has stepped up to keep farmers farming. We’ve stayed safe, but we’ve stayed open. We’ve gone the extra mile, keeping up our deliveries of feeds, fuels and essential supplies to our customers across rural communities. And, most importantly, we’ve kept in touch, particularly with those who are vulnerable or self-isolating. Our people have worked around the clock, turning our network of Country Stores into collection and distribution centres for our core ranges of agricultural products. We implemented an order-and-collect policy, alongside a rigorous health and safety regime, at all times following government guidelines and social distancing rules. We are very proud of our colleagues, who keep working hard and staying safe to ensure that farmers can continue to play their vital part in feeding the nation. www.carrs-billington.com Carr's Group plc Annual Report and Accounts 2020 15 EngineeringThe Engineering division performed resiliently despite significant challenges. First half trading was slow due to contract phasing and delays in receiving key robotics orders. This did not improve in the second half, as had been expected, mainly due to temporary disruption to nuclear and defence projects due to COVID-19 restrictions, which affected travel and access to customer sites. In addition, the sharp decline in the oil price led to customers deferring investments in the oil and gas sector. Whilst delays to projects had a negative impact on divisional performance, the business was able to strengthen its customer relationships by working flexibly to accommodate changing needs. During the year, revenue was up 14.0% to £53.0m (2019: £46.5m). NW Total, acquired towards the end of the prior year, contributed £11.7m (2019: £1.9m). Adjusted operating profit was down 35.6% to £3.8m (2019: £5.9m) and reported operating profit was down 77.2% to £1.4m (2019: £6.0m).OutlookAgricultureThe Group continues to remain confident in the medium-term prospects of the Agriculture division. Whilst short-term uncertainty relating to Brexit continues, our resilient performance in UK Agriculture during the pandemic illustrates the strength of our business and its ability to overcome future challenges. That adaptability, combined with operational efficiencies and enhanced customer focus, places the business well for future growth. Since the year-end, we have also significantly expanded the geographic coverage of our machinery franchise across southern Scotland with a more focused product range, which provides an opportunity to grow sales over the medium term.Strategic Report Key Performance Indicators Our performance Our strategy is to be recognised as an international business at the forefront of innovation and technology in our chosen markets. In addition to the financial highlights shown on page 3, we monitor our growth and health as a business, and our performance against strategy, using the key performance indicators noted opposite. 16 Carr's Group plc Annual Report and Accounts 2020 s I P K Underlying sales growth/decline i l a c n a n F i -4.5% 2019: -1.8% Free cash flow Revenues are indicative of business activity but are not in isolation an indicator of performance. Our volume driven businesses are subject to raw material price variations which are largely passed through in selling prices, affecting revenues. The reduction in the current year is reflective of reduced commodity prices, especially the oil price, together with lower levels of activity in Engineering. 2020 2019 2018 -4.5% -1.8% 13.6% Free cash flow demonstrates how much cash is available for the Group to utilise for expansionary capital investment, paying dividends, or financing/repaying borrowings. The increase year-on-year largely reflects improvements in the management of our working capital, but is also assisted by lower commodity prices. £12.7m 2019: £8.9m 2020 2019 2018 £12.7m £8.9m £9.5m s I P K i l a c n a n i f - n o N Number of training days delivered 823 2019: 722 We are committed to providing a variety of development opportunities for our people. In the year, the amount of face-to-face training delivered across the Group was impacted by the COVID-19 pandemic, but employee engagement in our development programmes has remained strong through the use of online training. 2020 2019 823 722 Strategic Report Governance Financial Statements Gross margin Gross margin is a reflection of how successfully we manage raw material price volatility and our selling prices in competitive markets. Our gross margin fell to 13.2% in the year, largely reflecting conditions across agriculture in the UK. Adjusted Group operating margin Our underlying operating margin is reflective of the gross margin, but also indicates the efficiency of our operations. The reduction in the year reflects the fixed nature of some of our costs combined with reduced levels of activity. 13.2% 2019: 13.4% 2020 2019 2018 13.2% 13.4% 13.2% 4.1% 2019: 4.7% 2020 2019 2018 4.1% 4.7% 4.1% Return on net assets The Group’s overall return on net assets fell to 11.1% this year. This reduction is reflective of the underlying performance of the Group as described elsewhere. Ratio of net debt to EBITDA This measures the Group’s leverage and reflects its ability to service its debt. The reduction in the year is due to the cash preservation measures implemented in response to the COVID-19 pandemic. 11.1% 2019: 13.8% 2020 2019 2018 11.1% 13.8% 13.7% 0.91 2019: 0.99* 2020 2019 2018 0.91 0.99* 0.82* Injury incident frequency rate We ensure that information relating to all injuries and potential incidents, no matter how serious, is properly captured and reported to enable us to continually improve the health and safety of our people whilst at work. *Not adjusted to reflect IFRS 16 CO2 intensity metric We carefully monitor our carbon emissions and have achieved a reduction of 43% in the last three years. During the year these were similar to the previous year overall, although increased delivery activities during the pandemic did increase our consumption of fuels. 576 2019: 522 2020 2019 576 522 29.4 2019: 29.2 2020 2019 2018 29.4 29.2 46.6 Average rate of injuries/headcount x 100,000 Tonnes CO2/£m turnover Carr's Group plc Annual Report and Accounts 2020 17 Strategic Report Financial Review Current and future development and performance The key features of the year have been challenging markets in the UK and USA for our Agriculture businesses and difficulties associated with COVID-19, particularly in Engineering. Revenue Reported revenues from continuing operations were £395.6m, 2.0% behind last year (2019: £403.9m). Alternative performance measures This Financial Review and other parts of the Strategic Report include both statutory and alternative performance measures (APMs). The principal APMs measure profitability excluding items regarded by the Directors as adjusting items (note 5). These APMs, generally referred to as ‘adjusted’ measures, are used in the management and measurement of business performance on a day-to-day basis and are also used in assessing performance under the Group’s incentive plans. A glossary and reconciliation of APMs is included towards the end of the report and accounts on pages 143 to 144. Operating profit Adjusted Group operating profit of £16.2m is down 14.2% on last year (2019: £18.9m). As a percentage of revenues, the Group’s adjusted operating margin is 4.1% compared to 4.7% in 2019. Reported operating profit was £13.8m (2019: £17.2m). Our trading performance is covered in detail in the Chief Executive’s Review on pages 14 to 15 and in the Divisional Reviews on pages 20 to 23 and 24 to 27. Adjusted operating profits per division and as a percentage of divisional revenues are as follows: 3.9%Agriculture adjusted operating margin 7.2%Engineering adjusted operating margin Neil Austin Chief Financial Officer 18 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Adjusted* Operating Profit 2020 Adjusted Operating Profit Agriculture Engineering Central Total 2020 £’000 13,400 3,810 (963) 16,247 2020 % 3.9 7.2 2019 £’000 14,651 5,917 (1,638) 18,930 2019 % 4.1 12.7 *Segmental reported profit figures can be found in note 2 to the financial statements. The Group’s share of the adjusted post-tax result in its associate and joint ventures was £2.6m (2019: £2.7m). Adjusting items The Group incurred £2.4m (2019: £1.7m) in respect of adjusting items in the year. This year’s charge included amortisation of acquired intangibles of £1.4m, restructuring and impairment charges of £1.9m, offset by a credit of £0.9m in relation to contingent consideration on historic acquisitions (further details are set out in note 5). Finance costs Net finance costs of £1.3m were 51.6% higher than in the previous year, principally related to the increased interest payable on leases following adoption of IFRS 16. Interest cover was 10.3 times based on reported profit (12.1 times on an adjusted profit basis) compared to 19.4 times in 2019. Profit before tax Adjusted profit before tax at £14.9m was 17.4% lower than in the previous year (2019: £18.0m). Reported profit before taxation was £12.5m (2019: £16.3m). Taxation The Group’s effective tax charge on profit from activities after net finance costs and excluding results from the associate and joint ventures, which are recorded after tax, was 16.0% (2019: 19.3%). A reconciliation of the actual total tax charge to the standard rate of corporation tax in the UK of 19% is given in note 8 to the financial statements. The year benefitted from R&D related tax credits in the USA. Cash flow and net debt a free cash flow of £12.7m was generated in the year, representing an increase of 42.1% on £8.9m in the previous year. This was driven by improved cash flow from operating activities, which increased from £12.6m to £18.1m. Headroom against existing facilities was £35.1m at the year end. The Group’s main banking facilities were renewed in November 2018 for a five-year period together with its invoice discounting facility which was renewed for a three-year period in August 2020. Cash flow and net debt Cash flow from operating activities Net debt (excluding leases) 2020 £m 18.1 18.9 2019 £m 12.6 20.9 IFRS 16 ‘Leases’ The Group has adopted IFRS 16 ‘Leases’ during the year, recognising £11.5m of right-of-use assets previously treated as operating leases together with £4.4m of existing assets held under finance lease arrangements. Incremental lease liabilities of £12.7m have also been recognised at the transition date of 1 September 2019. The impact on the income statement was modest, with a reduction in lease costs of £2.1m being offset by depreciation of £1.8m and interest of £0.4m to leave a net charge of £0.1m to profit before tax. Further details of the impact of IFRS 16 are given in the Principal Accounting Policies and note 37. Pensions The Group operates its current pension arrangements on a defined benefit and defined contribution basis. The defined benefit scheme is closed to new members and closed to future accrual. The scheme currently has 82 deferred members and 224 current pensioners. The valuation on an IAS 19 accounting basis showed a surplus before the related deferred tax liability in the scheme at 29 August 2020 of £8.0m (2019: £7.8m). This is after an actuarial gain of £0.1m (2019: loss of £1.8m) which has been recognised in the Consolidated Statement of Comprehensive Income. Earnings per share The profit attributable to the equity holders of the Company amounted to £9.5m (2019: £12.0m), and basic earnings per share was 10.3p (2019: 13.1p), a decrease of 21.4%. Neil Austin Chief Financial Officer 23 November 2020 Adjusted earnings per share of 11.9p (2019: 14.6p) is calculated by dividing the adjusted profit attributable to equity holders for the year by the weighted average number of shares in issue during the year. The decrease of 18.5% reflects the reduction in trading performance partly offset by the lower effective tax rate in 2020. Carr's Group plc Annual Report and Accounts 2020 19 Strategic Report Divisional Review: Overview Agriculture The Group’s Agriculture division manufactures and supplies feed blocks and supplementation products for livestock, distributes animal feeds and farm machinery, and runs a UK network of rural stores, providing a one-stop shop for the farming community. Our Agriculture division comprises of two primary sub-divisions: UK Agriculture We have a significant presence of country stores across northern England and southern Scotland from which we serve the needs of our core farming customer base providing a range of retail and animal health products. Our UK Agriculture business also supplies a broad range of compound and blended feeds for livestock under a number of well-respected brands. From a number of our retail sites we specialise in the supply of farming machinery in the UK including all-terrain vehicles, tractors and combine harvesters which we distribute from seven sites. The business also supplies fuels across the region from eight depots. £280.7m Revenues in 2020 Agriculture Our brands Our geographic footprint UK Europe USA Canada New Zealand CRYSTALYX® HORSLYX® TRACESURE® ALLSURE® AMINOMAX® SMARTLIC® MEGALIC® FLAXLIC® FESCOOL® FEED IN A DRUM® CARR'S BILLINGTON WORKWARE HENDON® SIMARGHU® 20 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Agriculture key figures £342.6m Revenues £13.4m Adjusted Operating Profit 17,000 UK farming customers 734 Employees globally Revenue split:  UK 89.4%  International 10.6% Supplements We manufacture and supply a broad range of innovative animal nutritional supplements under well-respected brands. These include patent-protected feed blocks and boluses which effectively release trace elements into livestock consistently and over periods of up to six months. These products help to maintain animal health and improve performance. Our feed blocks are manufactured at a variety of wholly owned and joint venture facilities located across the UK, Germany and the USA. We manufacture boluses from a wholly owned facility in the UK. These products are supplied through a large distribution network across the UK, Europe, Middle East, New Zealand and North America. £61.9m Revenues in 2020 Carr's Group plc Annual Report and Accounts 2020 21 Strategic Report Divisional Review: The Year in Review Agriculture Overview As previously reported, trading in our Agriculture division in the first half was slower than the prior year, largely driven by atypical weather patterns and growing conditions from the previous summer which reduced demand for key products. Improved trading during the second half, however, resulted in a robust outturn for the full year. During the year, revenue was down 4.1% to £342.6m (2019: £357.4m). Adjusted operating profit was down 8.5% to £13.4m (2019: £14.7m), whilst reported operating profit was down 4.8% to £13.4m (2019: £14.1m). During the period, following the appointment of a new Managing Director in the UK Agriculture business, the management team was strengthened through a further four senior appointments to help optimise efficiencies and drive strategic growth, whilst maintaining an absolute focus on serving our customers. We also appointed a new Commercial Director in our Supplements business. Supplements Total global feed block sales volumes were up 1.2% year-on-year. Sales volumes were slightly ahead of the Board’s expectations as a direct result of increased demand and growth in target markets during the second half. Despite overall volume increases, however, increases in raw material prices were not wholly mitigated through selling price increases which led to lower margins, particularly in the UK. UK feed block volumes were up 5.2% compared to the prior year. This performance was driven by improved livestock prices in the second half, which increased farmers’ willingness to invest in supplementation. Following a weaker first half, US feed block sales subsequently recovered towards the end of the financial year, with volumes up 0.5% in the period overall. Whilst cattle prices were suppressed during the majority of the period, prices recovered towards the end. During the year, we successfully launched our new FesCool® feed block in the USA following extensive research trials undertaken in conjunction with Kansas State University. FesCool® enhances the performance of grazing cattle in warm climates by reducing the impact of fescue toxicity and enhances our range of innovative supplements that add real value to livestock farmers. In 2020, we also invested in and enhanced our production systems in the USA, spending £2.1m in improving our manufacturing facilities at two of our sites and in the creation of a research facility. This investment will help drive efficiencies and provide us with the opportunity to develop and test new product ranges, ingredients, and manufacturing techniques. We continue to make progress in developing sales of feed blocks into Canada. As North America moved into stricter national travel restrictions, we benefited from having a sales team on £2.1mInvested in US manufacturing facilities 22 Carr's Group plc Annual Report and Accounts 2020 the ground locally. The Canadian market represents a significant potential market for sales into beef and equine sectors, and can be supplied out of the Group’s existing facility in Belle Fourche, South Dakota. New Zealand feed block sales were up 40% in the period where we continued to make progress in raising customer awareness and building relationships with further distribution partners. The Group continues to consider the New Zealand market as offering strong potential for future growth. In Germany, our joint venture business, Crystalyx Products GmbH, saw a 4.1% decrease in feed block sales compared to the prior year. During the year, the business launched its new Pick Block product, manufactured out of its plant in Oldenburg, Germany, and sales are expected to build. Pick Block is designed to improve poultry welfare standards through environmental enrichment, encouraging birds to demonstrate a wider range of natural behaviours. Animax, the Group’s manufacturer of livestock bolus supplements, had a challenging year owing to market pressures coupled with milder weather which reduced customer demand. During the year, the business appointed a new Commercial Director and increased focus on international growth opportunities. The Group continues to make progress on its manufacturing automation project, which is expected to help drive future efficiencies, new product ranges and even higher product quality. UK Agriculture Total volumes in our compound feed business declined by 6.9% during the year. This was largely driven by the warm summer in 2019 and subsequent mild winter which led to high stocks of good forage and reduced farmer demand for bought-in feeds during the first half. Such reduction in demand gave rise to increased competition which impacted margins during the period. During the second half, the initial closure of the food service sector impacted farmer incomes; however, the strong retail sales subsequently seen led to a significant pick-up in demand for certain meat and dairy products which largely offset the effect of this. The Group’s fuel distribution business saw sales volumes increase 2.9% on the prior year. This was driven by colder weather during March 2020 and customers stocking up on heating oil in the early stages of the pandemic when commodity prices were low, as well as increased demand from farmers due to a busy spring period on farms generally. Machinery sales were particularly strong in the year, up 19.2% overall and achieving record sales of £45.5m. New machinery sales were up 17% on the previous year. The performance was driven by improved farmer confidence and government loan schemes supporting farming investments, together with pent-up demand following a period of subdued activity prior to the original Brexit date. Growth in the machinery business, which outperformed the market significantly, is also attributable to the development of our relationship with a key supplier. The Group’s retail outlets performed resiliently, with like-for-like sales up 1.6% and overall sales up 0.6% during the period. During the pandemic, extensive measures were taken to ensure that our network of country stores could continue to service our core farming customers, who remain critical to the UK’s food supply chain. These innovative measures included the successful roll-out of a pre-order, collection and delivery service across all branches. During the year we also progressed our rationalisation and efficiency programme in UK Agriculture. Our ongoing review of retail store effectiveness resulted in the closure of four sites as we focus our offering at strategic locations and enhancing our delivery and collection models. During the pandemic, the early stages of lockdown gave us the ability to test new ways of working, which has provided valuable strategic insight for the future and helped develop our strategy for managing a second wave. Strategic Report Governance Financial Statements Tall fescue is a resilient source of forage found across 40 million acres of grazed pastures in the USA and consumed by nearly 17 million beef cattle. Whilst a highly cost-effective source of nutrition, feeding on tall fescue comes with a common issue: fescue toxicity. ® l o o C s e F Cattle consuming infected tall fescue are susceptible to overheating caused by the constriction of blood vessels. Numerous symptoms are displayed, and cattle performance is affected. During the year, and following thorough research and trials undertaken in conjunction with Kansas State University, our US Supplements business, Animal Feed Supplement, Inc., launched FesCool®, a new low moisture feed block which improves temperature regulation in cattle through the increased dilation of blood vessels. In controlled university trials, animals supplemented with FesCool® exhibited better core temperature regulation and increased forage intake, resulting in significantly improved performance. FesCool® represents another significant development in cattle supplementation and enhances our range of innovative products which bring value to our farming customers. https://smartlic.com/products/fescool/ Carr's Group plc Annual Report and Accounts 2020 23 Strategic Report Divisional Review: Overview Engineering The Group’s Engineering division designs and manufactures specialist precision components, bespoke equipment, robotic goods and remote handling equipment, and provides technical services, from five sites in the UK, one site in Germany and two sites in the USA. These specialised products and services are supplied to customers globally including government bodies and some of the world’s largest companies and nuclear site operators. Engineering Our Engineering division comprises of three sub-divisions: Our businesses Our global markets UK Service and Manufacturing WÄLISCHMILLER ENGINEERING NUVISION ENGINEERING NW TOTAL BENDALLS ENGINEERING CHIRTON ENGINEERING CARRSMSM HINDSBENDALLS We supply into highly regulated markets including: – Nuclear decommissioning – Nuclear power generation – Defence – Pharmaceuticals – Oil and gas 24 Carr's Group plc Annual Report and Accounts 2020 We operate four facilities across the north of England which design, manufacture and service complex and bespoke equipment. These facilities specialise in equipment to be supplied into regulated markets including electro- mechanical machinery, process equipment packages, pressure vessels and special purpose fabrications. We also supply a range of on-site technical services through teams of highly qualified personnel. Our businesses pride themselves on their reputation for quality and service excellence which has led to the establishment of longstanding and trusted customer relationships. £29.4m Revenues in 2020 Global Robotics Our Global Robotics business comprises one facility in the UK, one in Germany and one in the USA. These businesses collectively design, manufacture and supply a broad range of complex robotic and remote handling equipment. These highly innovative products are delivered predominantly into nuclear markets and are designed to withstand radioactive and other challenging environments. Through sustained investment in research and development we ensure that our Global Robotics business remains at the forefront of remote handling technology and that our products continue to provide innovative solutions for our global customer base. £14.8m Revenues in 2020 Strategic Report Governance Financial Statements Global Technical Services From our two sites in the USA, we offer a range of engineering applications and technical services which provide innovative solutions across global nuclear industries. These services include our patent protected Mechanical Stress Improvement Process (MSIP®), Power Fluidics™ technology and a range of decontamination services which are supplied to utilities, OEMs and government contractors worldwide. Our Global Technical Services business focuses heavily on research and development, and has been engaged by governments to develop solutions to complex problems affecting the nuclear industry. Engineering key figures £53.0m Revenues £3.8m Adjusted operating profit 369 Employees globally Revenues by market: £8.8m Revenues in 2020  Nuclear 49%  Oil and Gas 21%  Defence 18%  Other 12% Carr's Group plc Annual Report and Accounts 2020 25 Strategic Report Divisional Review: The Year in Review Engineering Overview The Engineering division performed resiliently despite significant challenges. First half trading was slow due to contract phasing and delays in receiving key robotics orders. This did not improve in the second half, as had been expected, mainly due to temporary disruption to nuclear and defence projects due to COVID-19 restrictions, which affected travel and access to customer sites. In addition, the sharp decline in the oil price led to customers deferring investments in the oil and gas sector. Whilst delays to projects had a negative impact on divisional performance, the business was able to strengthen its customer relationships by working flexibly to accommodate changing needs. During the year, revenue was up 14.0% to £53.0m (2019: £46.5m). NW Total, acquired towards the end of the prior year, contributed £11.7m (2019: £1.9m). Adjusted operating profit was down 35.6% to £3.8m (2019: £5.9m) and reported operating profit was down 77.2% to £1.4m (2019: £6.0m). UK Service and Manufacturing Our UK Service and Manufacturing business delivered a solid performance during the first half. The second half, however, was heavily impacted by the decline in the oil price and significantly reduced investment in the oil and gas sector, which led to delays on one major project. In the year, total revenues were £29.4m (2019: £23.0m), including NW Total revenues of £11.7m (2019: £1.9m). Global Robotics The Group’s Global Robotics business had a challenging year. This was driven by a weaker order book, resulting from contract phasing and delays to projects in Japan, together with export restrictions which continue to affect China. These challenges were exacerbated by delays and travel restrictions imposed as a result of COVID-19. Revenues for the year totalled £14.8m (2019: £16.5m). NW Total had a strong performance in its first full year as part of the Group. Whilst COVID-19 restrictions were imposed temporarily on one customer site, this had a limited impact on the business overall and the risk of further impact or delay to that project is reduced by on-site controls now in place. The order book for the business remains very strong and we remain very encouraged by the opportunities, particularly in the defence sector, that NW Total brings to the division. During the year, the Group also invested £1.3m in state-of-the-art machinery at its site in Carlisle, bringing large-scale machining capabilities and enhancing the range of customer services available within the division. While the business experienced lower levels of activity during the year, the order book was strengthened significantly. We also remain optimistic about opportunities in Japan, where many of the country’s nuclear facilities continue to be decommissioned. In the year, we opened a showroom for our products in Japan which will help develop opportunities in the region. Our Global Robotics business continues to develop its position in the USA. Good progress continues to be made on the significant $8.5m contract previously announced, and during the year we opened a robotics showroom at our facility in Mooresville, North Carolina, which will help demonstrate the efficacy of our products to customers in North America. £11.7m Full year revenue contribution from NW Total 26 Carr's Group plc Annual Report and Accounts 2020 Global Technical Services The Group’s Global Technical Services business performed in line with expectations, generating revenues of £8.8m (2019: £7.0m). The phasing of several long-term Mechanical Stress Improvement Process (MSIP®) projects enhanced performance in the second half of the year, which will continue throughout the current year. During the period, the business was awarded another $6m MSIP® contract to be delivered through to 2022. The development of our passive cooling technology continues to progress, following the award of funding from the US Department of Energy in 2019. It is anticipated that an application for a second tranche of funding will be made during 2021. This technology has the potential to be retrofitted on existing nuclear power plants to improve safety. Our Global Technical Services business, NuVision Engineering, Inc., is the world leader in the use of Power Fluidics™ systems for nuclear applications. These waste management systems use changes in air pressure to mobilise radioactive sludges, slurries, and liquids with no moving parts coming into contact with contaminated substances. Since its first installation at Oak Ridge National Laboratory in 1996, NuVision has completed hundreds of Power Fluidics™ installations globally, with more than 50 projects completed for the US Department of Energy. To date, there have been no reported instances of system failure, erosion or mechanical or corrosion damage. Power Fluidics™ is a key competence of our Global Technical Services business and provides a reliable and highly effective means of mixing, sampling, and pumping of radioactive waste in a manner which is safe and eliminates facility downtime. https://nuvisionengineering.com/ Strategic Report Governance Financial Statements i i ™ s c d u l F r e w o P Carr's Group plc Annual Report and Accounts 2020 27 Strategic Report Risk Management Our success as a Group depends upon our 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. Our risk appetite and approach to risk management 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 strategy in accordance with our business model. The Board believes that in operating the Group’s businesses it is critical to strike the right balance between an appropriate and comprehensive control environment and encouraging entrepreneurial behaviours required to seek out and develop the business. However well this is struck, the business will always be subject to a number of risks and uncertainties. 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 and all relevant information is disclosed and reported to 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 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 together with emerging risks. This is overseen by the Executive Directors, who have an active responsibility for focusing on those areas of risk. The Board reviews these risks, including consideration of environmental, social, and governance matters. This review is undertaken quarterly. For each of our principal and emerging risks we have a risk management framework detailing 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. Board’s assessment of compliance with the risk management framework The Board carries out a robust assessment of the principal risks quarterly together with any emerging risks. This is supported by an annual review of the risk management system undertaken by the Audit Committee. Details of the activities of the Audit Committee in relation to this can be found in the Audit Committee Report on pages 49 to 52. Decisions that could have a material impact on the Group are reviewed as and when required at Board meetings. 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 significant 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. 28 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements : Change in risk (increase/decrease/no change) Description of the risk What we are doing to manage the risk ▲ ▼ Risk Brexit ▲ COVID-19 ▲ IT and Cyber- Security The impending end to the transition period following the UK’s exit from the European Union (EU) highlights a number of risks for the Group. Part of our customer base is inherently reliant on agricultural subsidies from the EU, and therefore future government policy and support for the agricultural sector will potentially impact on our customers with a knock-on effect to our Agriculture businesses. Our customers also rely on trade flows into the EU for their produce, and any tariffs on exports could impact demand for their products with a consequential impact on demand for our products and services. Similarly, for some areas of the business the Group imports raw materials from within the EU. The imposition of tariffs or other related cost increases, together with any issues relating to availability of raw materials, could impact the cost base of the Group or its ability to service customers. Our business may be impacted through disruption caused by COVID-19. In Agriculture, our businesses were able to remain open during 2020 and were not subject to restrictions or closures. Their biggest risk is a loss of staff due to an outbreak at a production facility, or a wider requirement to self-isolate, that causes us to be unable to produce or deliver goods. Within Engineering, the same risk applies. Additionally, broader travel restrictions or customer-specific site restrictions may impact our ability to deliver projects where site-based engineering or installation is required. At a Group level, any disruption to our businesses could have an impact on cash flows. The Group relies on information technology and key systems to support the business. In common with other organisations, the Group undertakes development of its IT systems and is currently implementing a new Group-wide ERP system. The Group remains susceptible to cyber-attacks with the risk of financial loss and threat to the overall confidentiality and availability of data in systems. 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, or an inappropriate deal structure. Failure to effectively integrate acquired businesses could also undermine any expected synergies. We continue to monitor developments post Brexit and incorporate steps into our future business planning where these might be required in order to mitigate any potentially adverse consequences including any arising through changes to agricultural subsidies and support or the imposition of any tariffs. The Group benefits from its operational and geographic diversity and is not substantially dependent on the EU for either raw materials or revenues. We continue to monitor the impacts on our business week by week. Rigorous procedures implemented at all of our sites are overseen by the Group’s HSE and Risk Manager. All sites are operating in line with government restrictions in respect of social distancing, PPE requirements, and other measures. Additional hygiene protocols are in place around all of our operations, and where required our self- isolation requirements are more prudent than required by governments. Cash flows continue to be frequently monitored and all businesses run a number of sensitised scenarios demonstrating the impact of disruption. These are consolidated for an overall Group picture. The Group has a comprehensive suite of IT security solutions in place, which are reviewed and tested by specialist third parties where appropriate. These have been further updated and improved during the course of 2019/20. From a system development perspective, major projects are subject to appropriate project governance arrangements. A thorough and careful due diligence process is undertaken, utilising relevant skilled internal personnel, as well as external expertise when required. Individual business unit and Group resource is 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 and proposed financing arrangements are determined on a case-by-case basis. Post-acquisition reviews are also undertaken to identify any areas for improvement in future transactions. Carr's Group plc Annual Report and Accounts 2020 29 Strategic Report Risk Management continued ▲ ▼ : Change in risk (increase/decrease/no change) Risk People Strategic partners Customer demand Treasury Description of the risk What we are doing to manage the risk The knowledge, experience and skills of our 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 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 is paramount to the success of those businesses. Changes in customer demand, be that retail, commercial or government customers, caused by economic factors could result in a fall in demand for the Group’s product offering, resulting in a significant loss in revenue. The Group has remuneration policies designed to attract and retain 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 management and other key roles are reviewed by the Nomination Committee regularly. The Group undertakes a range of employee engagement initiatives with a view to maintaining positive workplace cultures and good working environments. 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. 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. 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 and joint ventures. The levels of facilities are regularly reviewed by the Chief Financial Officer, 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. For interest rate risk on floating rate debt, we maintain a mix of fixed rate debt, primarily finance leases, and floating rate debt. These levels are monitored and assessed against forecast changes in interest rates and forward guidance from interest rate setting authorities. 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. Managing costs Margins may be affected by fluctuations in raw material 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 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. 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; and – close monitoring of contract execution to ensure supply is within agreed terms. Emerging risk Description of the risk What we are doing to manage the risk Climate change ▲ Operating in the Agriculture sector, climate change, raw material sustainability and regulatory requirements can have an impact on the performance of the Group. Such impact can include the cost of raw materials and the sustainability of raw material supplies, farming and manufacturing operations, and customer demand for the Group’s products. The Group is geographically and operationally diverse and has a focus on international growth markets. The Group carefully manages its procurement of raw materials, utilising ethically managed and sustainable sources, and invests in the development of products which are tailored to different farming conditions and which incorporate alternative ingredients to reduce reliance on imported soya for feed products. The Group’s business model and strategy are central to an understanding of its prospects, and details can be found on pages 10 to 13. 30 Carr's Group plc Annual Report and Accounts 2020 Viability Statement Strategic Report Governance Financial Statements The Group is very diverse both operationally and geographically. The Group set down a strategic plan two years ago, which is subject to ongoing monitoring and development as described below. The Group’s focus is particularly on developing the Supplements business, because of the opportunities for international expansion and product development, and its nuclear engineering business because of the global expansion opportunities in the nuclear sector and adjacent markets. The Group’s prospects are assessed primarily through its strategic planning process. This process is led by the Chief Executive across all aspects of the Group. The Board participates fully in the annual process through an annual strategy day, detailed strategic presentations on all areas of the business by business leaders throughout the year, and an annual half-year strategic update. Part of the Board’s role is to consider whether the plan continues to take appropriate account of the changing external environment. The output of the strategic planning process is a set of Group strategic objectives and a number of strategic priorities for the forthcoming financial year. The latest updates to the strategic plan were finalised in August 2020 following this year’s review. This considered the Group’s current position and the development of the business as a whole over the next three years. Given the nature of the business cycles in both Agriculture and Engineering, it was decided that a period of three years to 2 September 2023 was the most appropriate for the purpose of a viability assessment. The Group has prepared detailed financial forecasts for the 3 year period to 2 September 2023, so that 2 years 10 months remains at the time of approval of this year’s Annual Report. The first year of the financial forecasts form the Group’s operating budget and is subject to a re-forecast process at the half-year. The second and third years are in a similar level of detail. The Group’s principal risks are set out on pages 29 to 30. The purpose of the principal risks table is primarily to summarise those matters that could prevent the Group from delivering on its strategy. A number of other aspects of the principal risks – because of their nature or potential impact – could also threaten the Group’s ability to continue in business in its current form if they were to occur. Of the principal risks identified, the following are the most important to the assessment of the viability of the Group: 1. Brexit; 2. COVID-19; 3. Managing costs; 4. Reliance on key customers; 5. Strategic partners; and 6. Customer demand. It was determined that none of these individual risks would, in isolation, compromise the Group’s viability. Although the strategic plan reflects the Directors’ best estimate of the future prospects of the business, they have also tested the potential impact on the Group of a number of scenarios over and above those included in the plan by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan. These scenarios represent ‘severe but plausible’ circumstances that the Group could experience. The scenarios tested included significant reductions in profitability and associated cashflows associated with the risks highlighted above, with consumer demand affecting all business units, additional impacts on Agriculture business units from Brexit and a larger impact on Engineering from disruption caused by COVID-19. The results of this stress testing showed that, due to the stability of the core business, the Group would be able to withstand the impact of these scenarios occurring over the period of the financial forecasts by making adjustments to its operating plans within the normal course of business. The Group also considered a number of scenarios that would represent serious threats to its liquidity. None of these were considered to be plausible. We have assumed that, should the need arise we would have both the ability to renew existing debt facilities which mature over the three-year period and be able to raise new debt. Based on their assessment of prospects and viability above, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 2 September 2023. The Directors also considered it appropriate to prepare the financial statements on the going concern basis, as explained in the Basis of accounting and Going concern paragraphs in the Principal Accounting Policies on page 85 of the accounts. Carr's Group plc Annual Report and Accounts 2020 31 Strategic Report Corporate Responsibility Carr’s Group promotes a supportive culture of engagement, transparency and fairness. We take great pride in doing what we can to ensure the health, safety and wellbeing of our people and that we adhere to ethical and sustainable business practices. People People are fundamental to the delivery of our strategy and the long-term success of the Group. Continuing to identify talent and develop our people remain key priorities across all of our businesses. We promote high levels of teamwork and co-operation and consider these to be major contributing factors in the Group’s success. Our organisational culture is led from the top-down and places great value in the principles of trust, respect, and integrity. We remain committed to providing a working environment that: is consistent and fair; • is diverse and free from discrimination; • • encourages the development of skills; and • promotes employee engagement. Employee engagement We strive to ensure that employees across the Group are kept informed about key developments and business performance. This is achieved through the issue of briefing notes by Executive Directors and senior management which are circulated regularly. Management within the Group is also kept informed on issues that may affect employees which enables effective, transparent communication and consultation where appropriate. Throughout 2020, we have been able to utilise CarrsConnect, our employee intranet, as an effective communication tool during the COVID-19 pandemic. Information was regularly posted on CarrsConnect including blogs, video blogs, announcements, and updates to ensure that our people remained abreast of key developments. We have also been able to use our IT systems, in particular Office 365 and Microsoft Teams, to facilitate working from home, which has ensured business continuity and enabled us to remain in touch. Engagement survey 2020 as part of our increased focus on employee engagement, in November 2020 the Group launched its first Employee Engagement Survey to all staff across the Group. The survey sought confidential feedback on a range of topics including job satisfaction and wellbeing, organisational culture, health and safety and diversity. We want to better understand the views of our people in order to help shape future Group culture, policy and strategy. We recognise that colleagues who have interesting and fulfilling roles, work in safe and healthy environments and feel valued will not only be happier and healthier, but more likely to drive better business performance. The results of the survey will be reviewed during late 2020 and reported to the Board and to Group employees during early 2021. Where appropriate, action plans will be developed across the Group taking into account feedback and progress monitored by the Board regularly. It will be our intention to repeat the survey in future years to monitor developing employee views, and to ensure that any actions have been appropriate in addressing areas of concern. Sharesave The Group operates a Sharesave scheme, in which all UK-based employees are entitled to participate. The Group recognises that the scheme is a well- established method of employee engagement, facilitating ownership across the Group. Diversity and 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 upon the needs of the business and individual merit. The Group values the benefits of a diverse workplace and is responsive to the needs and views of stakeholder groups. We remain committed to maintaining open, fair and non-discriminatory recruitment and development processes across the Group. We promote flexible working where possible and seek to have full engagement in order to support any employee who becomes disabled during their employment. Year overview 2020 We continue to provide extensive development opportunities for all employees. The Group is committed to continuing development and now offers a broad range of courses and seminars which are delivered in-house. We continue to support a range of individuals across the Group working towards professional qualifications or accreditation. In line with the Group’s focus on continuous health and safety improvements, we have seen a significant increase in health and safety training at all levels which we expect to continue. 32 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements “Engaging with our employees throughout the pandemic” COVID-19 Given the broad challenges presented by COVID-19, we took the decision prior to lockdown in March to cancel all face-to-face training and to focus on virtual training utilising Microsoft Teams. We found that training by video conference was most effective when delivered in shorter sessions to fewer delegates. We ensured that feedback was gathered after each session, to help improve the employee experience, with feedback being very positive overall. “Even though the social element of meeting face to face cannot be fully emulated remotely, undertaking the training over Teams was just as beneficial as a normal session in the office. The session itself was just as informative, constructive and enjoyable as expected.” Employee feedback We were fortunate to have a relatively high number of employees who were able to work from home throughout the lockdown period. To help our people adapt to new ways of working, we developed and posted a series of short training video blogs on CarrsConnect, which covered topics including Working from Home, Motivation and Health and Wellbeing, which were widely viewed. Coronavirus job retention scheme During the early period of the pandemic, our UK businesses furloughed a number of employees under the Coronavirus Job Retention Scheme (CJRS) where people could not attend work and were unable to work from home or where the pandemic caused a reduction in trade. At the highest point, this affected 62 employees. In July 2020, we commenced collective consultation in our UK Service & Manufacturing business to best secure its future sustainability given the significant reduction in oil and gas investment attributable to the pandemic. Following such consultation, and the acceptance of 10 voluntary redundancies, a further 15 employees were made redundant. These roles could not be sustained into the longer term and so it was not considered appropriate for the Group to continue receiving support for those employees under the CJRS. E-Learning In September 2019 the Group launched its E-Learning platform which provides all employees with unlimited access to accredited health and safety and other workplace training. Manual Handling has been the most commonly completed course to date with 75% of all activity around Health, Safety and Wellbeing and 25% of all activity on Business Knowledge. We are currently working with businesses across the Group to develop a suite of core training modules for all new employees to complete as part of their induction, which will further embed E-Learning and enhance capabilities across the Group. E-Learning activity ■ Health, Safety and Wellbeing 75% ■ Business Knowledge 25% Health & safety The health and safety of people in the workplace remains of paramount imporance. The Board considers health and safety performance as a priority item at each meeting and regularly reviews targets and improvements as part of the Group’s health and safety strategy. COVID-19 brought significant health challenges during the second half of the year. Prior to the imposition of lockdown, the Group developed its plans for managing the effects of the pandemic including detailed business continuity plans across both divisions. As the pandemic has developed, our business continuity plans have remained under close and constant review. From March onwards, a variety of measures were introduced across our businesses including social distancing and site access controls, enhanced hygiene measures, shift-pattern working, and working from home. We also stopped all unnecessary business travel and revised Group travel policies to mitigate risks. All such measures were developed in strict adherence to government guidelines (in the UK and overseas as appropriate) and were rigorously observed. Carr's Group plc Annual Report and Accounts 2020 33 Strategic Report Corporate Responsibility continued Health and safety continued Our staff health and safety training programme continues, with E-Learning continuing to provide a range of accredited courses. All training courses that were previously classroom-based, including IOSH-accredited courses, have been delivered remotely during the pandemic via video conferencing. In 2020, the Group also established an occupational health programme for employees in all UK locations. The hazard profile of the businesses remains similar to the prior year. All Group businesses which are accredited to internationally recognised standards, such as OHSAS 18001, have succeeded in retaining these during the year, and are transitioning to the new international standard ISO 45001. Reported Incidents Group 2019/2020 2018/2019 All injuries RIDDOR injuries All injuries average IFR* RIDDOR average IFR* 83 9 576 62 78 5 522 20 *IFR= incident frequency rates, measured as the number of incidents/headcount x 100,000 Over the last 12 months, an increase in incident frequency rates (IFRs) has been seen with a 12 month all injuries average from September 2019 to August 2020 of 576 (2019: 522), and a RIDDOR injuries IFR of 62 (2019: 20). With no significant change in risk profile, and progress being made towards the Group’s strategic health and safety targets, we consider this increase to be reflective of improved injury classification, days lost calculations and incident reporting across the Group as local reporting and data management improves. These statistics will continue to be monitored across the Group and reported annually. Two RIDDOR injuries were major injuries. The highest number of lost time injury types during the year were hand injuries. A hand safety campaign was therefore launched during the year to raise awareness of hand injuries, which led to a slight decrease in hand injury frequency in the second half. A health, safety and environmental strategy was launched at the end of the financial year, introducing a plan, action, review cycle for risk identification and control, effective incident investigation, learning, communication and consultation, and monitoring and audit. Each business has developed its own business specific plan for achieving strategic objectives, with progress being regularly reported to the Board throughout the current year. Environment The Group remains committed to protecting the environment and reducing the impact of its businesses through best practice. We have an Environmental Committee which includes senior members of management from across the Group and which meets regularly to consider energy consumption, waste and opportunities including initiatives to make improvements. In 2019, we adopted a new Group Environmental Policy which increases the accountability of subsidiary businesses and their leadership teams for making environmental improvements. As part of that policy, our data collection processes have been enhanced to ensure that, as a Group, we capture information accurately to help drive policy. Across the Group, we monitor energy consumption, transportation, carbon generation, water utilisation and recycling. In the second half of 2020, as resource turned to management of the COVID-19 pandemic, we maintained our data collection practices whilst environmental initiatives were paused temporarily. Our energy-intensive UK feed block manufacturing business in Cumbria continues to benefit under a Climate Change Discount Agreement having met its carbon emission reduction targets during the year. Solar panels installed on the roofspace at the Animax site in Suffolk led to the generation of nearly 40% of the total electricity demand for the site during the year. All UK Group locations purchase their energy from Haven Power Limited which sources 100% of its electricity supplies from renewable resources. Packaging The impact of packaging on the environment remains under focus. We are exploring alternatives to plastic through research being conducted in our Agriculture business in the USA. Streamlined Energy and Carbon Reporting Carbon Reduction Performance* CO2 tonnes 2019/2020 2018/2019 Agriculture, UK Agriculture, overseas Engineering, UK Engineering, overseas Head Office Group total 4,292 6,240 753 253 103 11,641 *Scope 1 and Scope 2 emissions 4,613 6,269 581 244 77 11,784 The Group did not generate any additional gases other than carbon dioxide during the year. Absolute energy use in the year across the Group totalled 39.5m kWh. The increase in emissions in Engineering, UK is largely attributable to the first full year inclusion of NW Total. Data for Head Office has shown an increase due to the inclusion of air and rail travel. The total amount of carbon dioxide generated across the Group for the year was 11,641 tonnes, a slight decrease on the prior year. The relative carbon footprint of the Group therefore equates to 29.4 tonnes per £m turnover. By comparison, the footprint for the previous year was 29.2 tonnes per £m turnover. Social engagement Carr’s takes an active role in supporting the communities in which it operates. That support takes a variety of forms including charitable monetary donations, fundraising, partnering initiatives and voluntary work. Carr’s is now one year into its partnership with Yorkshire Dales Millennium Trust as part of a three-year initiative to create a lasting legacy for agriculture in the Yorkshire Dales and surrounding areas. The programme provides support for people, innovation and the environment to deliver sustainable farm improvements. It also creates new native broadleaf woodlands, 34 Carr's Group plc Annual Report and Accounts 2020 Maintaining planted trees with the Yorkshire Dales Millennium Trust Decorated purple bales which raise funds for WellChild Strategic Report Governance Financial Statements During the pandemic, Carr’s Billington also made donations of slow-moving stock to Carlisle Key (a homeless shelter for young people aged 16-25) and Oak Tree Animal Charity. As a Group, we actively encourage our people to participate in charitable and community initiatives. In the past 12 months, employees of NW Total cycled 500 miles around the Scottish coastal areas, raising over £2,000 for St Mary’s Hospice in Ulverston. Anti bribery and corruption Carr’s operates its businesses in a culture of honesty and openness. The Group takes a very firm stance against unethical behaviours including bribery and corruption which are prevented through a robust framework of controls, including standardised policies and transparent practices, which every employee is made aware of and which are subject to regular review. The Group’s policies require the regular declaration by all personnel of gifts and hospitality and provide a whilstleblowing line which is available to all for the reporting of concerns. Human rights Carr’s is committed to the sustainable development of its business and to improvement in its management of socio- ethical issues, including ensuring that its business and its supply chain remain free from modern slavery and human trafficking. Whilst the risk of modern slavery and human trafficking within the Group and its supply chain is assessed as low, Carr’s remains vigilant and is aware that the risk of modern slavery appearing in supply chains can increase, particularly as the Group continues to grow. Carr’s will not deal with any third parties where concerns arise and will accordingly report such circumstances to appropriate authorities. The Group operates internal policies which are supported by training on the issue of modern slavery which both protect against risks and promote awareness. A whistleblowing line is also available for the reporting of concerns. We also carry out appropriate due diligence on supply chains and engage with suppliers in relation to their policies on tackling slavery and human trafficking. which are hugely valuable habitats for wildlife and also provide areas of shelter for farm animals and help with flood risks and soil erosion. For a fifth consecutive year, Carr’s Billington is supporting WellChild, the national charity for seriously ill children. The business has so far donated over £30,000 through fundraising and from the proceeds of purple wrap and netting. In addition to raising funds, Carr’s Billington also raises awareness of this charity through its use of a social media campaign which encourages customers to share pictures of eye- catching purple hay bale displays. Carr’s remains committed to helping young people in the local community. The Group continues to support Carlisle Youth Zone which provides a safe and fun environment designed to support the social, recreational and emotional development of young people in the area. Also local to Carlisle, Bendalls Engineering continue to sponsor Dalston Under 15s football club, which it has supported for the last five years. At the beginning of 2020, Carr’s Billington became corporate supporters of RSABI (Royal Scottish Agricultural Benevolent Institution), which provides support to individuals and families across the agricultural sector. Non-Financial Information Statement Reporting requirement Group policies and standards Additional information Environmental matters Environmental Policy See page 34 Employees Human rights Employee Handbook, Health and Safety Policy See pages 32-34 Employee Handbook, Modern Slavery Statement and Policy See page 35 Social matters Charitable Donations Policy Anti-corruption and anti-bribery Anti-Bribery Policy See pages 34-35 See page 35 Policy implementation and due diligence Employee Handbook, financial and other controls and internal due diligence/integration processes See our Strategic Report on pages 1-37 Description of principal risks and impact on business activity Description of the business model - - Non-financial key performance indicators Environmental Policy, Health and Safety Policy, Employee Handbook See pages 28-30 See pages 10-11 See pages 16-17 Carr's Group plc Annual Report and Accounts 2020 35 Strategic Report Stakeholder Engagement: Our Section 172 Responsibilities Our stakeholders People Customers Investors Partners Communities At Carr’s Group we believe in fairness and acting responsibly in everything we do, so that we can continue to make a positive impact on our people, partners, investors, customers and the communities in which we operate. We recognise that proper consideration of the interests and views of our broader stakeholders produces better outcomes and enhances the sustainability of our businesses. We have a broad range of stakeholders with whom we engage to provide information about developments across our businesses and to understand stakeholder priorities and perspectives. We adopt a number of initiatives which focus on ensuring that a regular dialogue is maintained with our stakeholders, some of which are carried out directly by the Board whereas others are built into day-to-day management across the Group. Consideration is given by the Board to the impact on all of our stakeholders when reviewing all major projects for approval. On these pages, we identify our various stakeholders, explain how we engage as a business, and describe the positive outcomes this brings. These disclosures demonstrate how we have regard to the matters set out in section 172(1) of the Companies Act 2006. Board decision-making and stakeholder considerations during the year included the matters set out below: Board succession During the year, the Board oversaw the appointment of Peter Page as Non- Executive Chairman and Kristen Eshak Weldon as a Non-Executive Director. The Board also announced the retirement of Tim Davies from the role of CEO, and the subsequent appointment of Hugh Pelham who will take over as CEO in January 2021. These changes at Board level required full consideration of the interests and impact upon our colleagues, investors, strategic partners and customers. Cash management As part of the Board’s strategy for managing the uncertainties associated with COVID-19, the decision was reached to suspend non-essential capital expenditure and defer the payment of an interim dividend until the likely impact of the pandemic became clearer. These decisions were communicated upon release of the interim results in April 2020 following detailed consideration of the impact that this might have on our investors, our strategic partners, and the communities in which we operate. As the impact on the Group became clearer, the deferred dividend was reinstated and declared in July 2020. For more information on specific activities during the year, please see: People Health and safety Communities Board Pages 32-33 Pages 33-34 Pages 34-35 Page 40 36 Carr's Group plc Annual Report and Accounts 2020 How we engage Stakeholder interests Outcomes We use a variety of methods to ensure We strive to ensure that our Our people remain a primary consideration in everything that our people remain engaged including people remain an active part we do. We have a strong commitment to the health, safety regular internal announcements, video of our businesses, can shape and wellbeing of our employees and introduced rigorous blogs and informal meetings with Directors. the future of the Group, have measures as part of our management of the COVID-19 In 2020, we introduced an Employee opportunities to develop their pandemic (see page 33). We also further enhanced the Engagement Survey. For more information, skills and experiences, and feel range of training and development opportunities we offer see page 32. properly valued and rewarded for during the year. In 2020, we launched our first Employee the efforts and contributions they Engagement survey which will be used to help improve continue to make. our employee experience and shape the future of the Group. We have also increased our use of employee communications through CarrsConnect to make sure that our people remain informed about developments across the Group. Staying in touch with our customers and Customers want to work with Good open communication with customers has been suppliers has never been more important. businesses who can meet crucial during the pandemic. Throughout 2020, we have Our management teams maintain regular demands and deliver on engaged in constant dialogue with our customers to and open dialogue with those we do business with which helps build long lasting and trusted relationships. Key promises, who treat them fairly, understand their developing needs, particularly on large- and who can be trusted to put scale projects being delivered in our Engineering division, their interests first. Customers to help reduce risks, plan for contingencies and offer customer dialogue is reported to the Board also expect us to manage our support where appropriate. to ensure that customer perspectives are business in a sustainable manner. properly understood as part of the Board’s decision making process. We maintain a regular calendar of Our investors trust us to manage In addition to our regular investor engagement, during the announcements and events for investors. their assets and execute the year we liaised with key investors on matters such as Board The Executive Directors frequently Board’s strategy. In so doing, succession and changes to our Directors’ Remuneration communicate with institutional investors to we must act ethically, in a Policy. We have also communicated our strategy for discuss strategy and broader markets. The sustainable manner, and to managing the ongoing COVID-19 pandemic, including Chairman, Non-Executives and Company exercise good governance health and safety considerations across the Group, cash Secretary also regularly engage with practices. Our investors also management and contingency planning. investors on governance issues and other expect us to remain open about matters concerning the Board. the Group’s current and expected performance. The Group includes a number of joint ventures with strategic partners with Our strategic partnerships are Our joint venture boards and management teams have founded upon mutual trust and worked dynamically and collaboratively during 2020 to whom we maintain an active dialogue. strategic alignment. Our partners ensure an aligned and risk-averse approach to COVID-19. Regular formal and informal meetings value long-term commitment, Working together has enabled all of our joint venture take place with our partners involving both open communication and businesses to continue trading effectively and helped Board members and senior management diligence so that we can build strength and resilience into our business model, to covering strategic, operational and industry effectively pursue jointly our mutual benefit. issues, which are regularly reported to developed strategic goals. the Board to ensure that it remains fully appraised. We practice responsible behaviours at all times and are committed to the communities where we have an impact. We encourage active participation in community initiatives and continue to Our various community stakeholders have broad interests ranging from the The Group is committed to ethical and responsible business practices and adheres to a policy framework on matters such as modern slavery and the sustainable provision of jobs and investment sourcing of raw materials. We also ensure that in local economies, to supporting environmental considerations feature prominently on the support a range of selected charitable vulnerable people and Board’s agenda. Across the Group, our people devote causes. We are also party to raw material environmental and charitable considerable time and resources to good causes and sustainability programmes. Reports on significant community issues and sustainability programmes are delivered to the Board from time to time. initiatives. community initiatives including Carlisle Youth Zone, WellChild and The Yorkshire Dales Millennium Trust. For more information on our corporate social responsibility programme, please see pages 34 to 35. Our stakeholders People Customers Investors Partners Communities Strategic Report Governance Financial Statements How we engage Stakeholder interests Outcomes We use a variety of methods to ensure that our people remain engaged including regular internal announcements, video blogs and informal meetings with Directors. In 2020, we introduced an Employee Engagement Survey. For more information, see page 32. We strive to ensure that our people remain an active part of our businesses, can shape the future of the Group, have opportunities to develop their skills and experiences, and feel properly valued and rewarded for the efforts and contributions they continue to make. Staying in touch with our customers and suppliers has never been more important. Our management teams maintain regular and open dialogue with those we do business with which helps build long lasting and trusted relationships. Key customer dialogue is reported to the Board to ensure that customer perspectives are properly understood as part of the Board’s decision making process. We maintain a regular calendar of announcements and events for investors. The Executive Directors frequently communicate with institutional investors to discuss strategy and broader markets. The Chairman, Non-Executives and Company Secretary also regularly engage with investors on governance issues and other matters concerning the Board. The Group includes a number of joint ventures with strategic partners with whom we maintain an active dialogue. Regular formal and informal meetings take place with our partners involving both Board members and senior management covering strategic, operational and industry issues, which are regularly reported to the Board to ensure that it remains fully appraised. We practice responsible behaviours at all times and are committed to the communities where we have an impact. We encourage active participation in community initiatives and continue to support a range of selected charitable causes. We are also party to raw material sustainability programmes. Reports on significant community issues and sustainability programmes are delivered to the Board from time to time. Customers want to work with businesses who can meet demands and deliver on promises, who treat them fairly, and who can be trusted to put their interests first. Customers also expect us to manage our business in a sustainable manner. Our investors trust us to manage their assets and execute the Board’s strategy. In so doing, we must act ethically, in a sustainable manner, and to exercise good governance practices. Our investors also expect us to remain open about the Group’s current and expected performance. Our strategic partnerships are founded upon mutual trust and strategic alignment. Our partners value long-term commitment, open communication and diligence so that we can effectively pursue jointly developed strategic goals. Our various community stakeholders have broad interests ranging from the provision of jobs and investment in local economies, to supporting vulnerable people and environmental and charitable initiatives. Our people remain a primary consideration in everything we do. We have a strong commitment to the health, safety and wellbeing of our employees and introduced rigorous measures as part of our management of the COVID-19 pandemic (see page 33). We also further enhanced the range of training and development opportunities we offer during the year. In 2020, we launched our first Employee Engagement survey which will be used to help improve our employee experience and shape the future of the Group. We have also increased our use of employee communications through CarrsConnect to make sure that our people remain informed about developments across the Group. Good open communication with customers has been crucial during the pandemic. Throughout 2020, we have engaged in constant dialogue with our customers to understand their developing needs, particularly on large- scale projects being delivered in our Engineering division, to help reduce risks, plan for contingencies and offer support where appropriate. In addition to our regular investor engagement, during the year we liaised with key investors on matters such as Board succession and changes to our Directors’ Remuneration Policy. We have also communicated our strategy for managing the ongoing COVID-19 pandemic, including health and safety considerations across the Group, cash management and contingency planning. Our joint venture boards and management teams have worked dynamically and collaboratively during 2020 to ensure an aligned and risk-averse approach to COVID-19. Working together has enabled all of our joint venture businesses to continue trading effectively and helped build strength and resilience into our business model, to our mutual benefit. The Group is committed to ethical and responsible business practices and adheres to a policy framework on matters such as modern slavery and the sustainable sourcing of raw materials. We also ensure that environmental considerations feature prominently on the Board’s agenda. Across the Group, our people devote considerable time and resources to good causes and community initiatives including Carlisle Youth Zone, WellChild and The Yorkshire Dales Millennium Trust. For more information on our corporate social responsibility programme, please see pages 34 to 35. This Strategic Report was approved by the Board on 23 November 2020 and signed on its behalf by: Tim Davies Chief Executive Officer Carr's Group plc Annual Report and Accounts 2020 37 Governance The Board N R — Peter Page Non-Executive Chairman Peter joined Carr’s in November 2019 and became Non-Executive Chairman in January 2020. Peter was formerly Chief Executive of Devro plc, one of the world’s leading manufacturers of collagen casings for the food industry, a position which he held for 11 years during which time he transformed the company’s international manufacturing capabilities. Prior to this, Peter worked at poultry genetics and stock supplier Aviagen. Tim Davies Chief Executive Officer Tim joined Carr’s in March 2013 as Chief Executive. Tim was formerly the Group Managing Director at Openfield, the largest farmer-owned grain marketing business in the UK. Prior to this, he progressed from Sales Director to Managing Director of Grainfarmers plc in 2005 and led the company’s merger with Centaur Grain Ltd in 2008 to form Openfield. Tim will be standing down as Chief Executive, and from the Board, at the conclusion of the Company’s AGM in January 2021. N R A N R A John Worby Senior Independent Director John was appointed a Non-Executive Director in April 2015. John is currently Senior Independent Director and Chairman of the Audit Committee of Hilton Food Group plc. He was previously the Finance Director of Genus plc and a Non- Executive Director of Cranswick plc and Fidessa Group plc. John is a chartered accountant and a member of the Financial Reporting Review Panel. Ian Wood Non-Executive Director Ian was appointed to the Board in October 2015. He retired as the Commercial Director, International Business Development for Centrica (previously British Gas) in January 2016 having 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. Ian is a Director of Talkin Energy Ltd and Chief Executive of Cumbria County Holdings. 38 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements — N R A Neil Austin Chief Financial Officer Neil joined Carr’s in January 2013 and became Chief Financial Officer 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 working alongside FTSE 350 companies and multi-national organisations. Alistair Wannop Non-Executive Director Employee Engagement Representative 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 and between 2017 and 2018 held office as High Sheriff of Cumbria. N R A — Kristen Eshak Weldon Non-Executive Director Kristen was appointed as a Non-Executive Director in October 2020. Kristen was until recently a member of the Executive Group at Louis Dreyfus Company, where she focused on innovation and forward-looking investments across global agriculture. As Head of Food Innovation and Downstream Strategy, she led investment activities in the ag-tech and food technology industries. Prior to Louis Dreyfus, Kristen spent 13 years at Blackstone, the leading global investment business, where she was co- head of the London office for the company’s $75bn Hedge Fund Solutions business. Matthew Ratcliffe Company Secretary Matthew joined Carr’s in November 2016 as Company Secretary and Legal Counsel. Matthew is a solicitor with a breadth of experience working alongside both international and local businesses in corporate, commercial and contentious matters. He began his career with Pinsent Masons before joining a Cumbrian law firm in 2009 and being appointed a Director in 2014. Committee membership N R A Nomination Remuneration Audit Chair — None Carr's Group plc Annual Report and Accounts 2020 39 Governance Chairman’s Introduction Peter Page Chairman On behalf of the Board, I present the Group’s Corporate Governance Report for the financial year ended 29 August 2020. requirement that Executive Directors hold up to 200% of their base salary in shares which have vested under the Long-Term Incentive Plan for a period of two years after they leave their employment, to ensure that interests remain aligned with shareholders over the longer term. These two changes are in line with current best practice and follow consultation with major shareholders. The new policy is set out in the Remuneration Committee Report on pages 54 to 60. We hope you will agree that it is an appropriate framework for rewarding performance and encouraging entrepreneurialism in a manner which aligns with the interests of our stakeholders. Our forthcoming AGM will be different to previous years. As COVID-19 restrictions prevent the AGM from taking place in person, members will be invited to vote on each of the resolutions proposed by proxy and given the opportunity to raise questions in advance. We will also be broadcasting a presentation online to report on the Company’s performance, provide answers to questions and to introduce Hugh Pelham. In addition, we will publish responses to the questions raised by members on the Company’s website. Details will be provided in the Notice of AGM. Developing good governance is central to the integrity, reputation and performance of Carr’s Group. I am committed to achieving the highest standards at all times. Peter Page Chairman 23 November 2020 The Group’s governance framework is designed to safeguard its long-term success for the benefit of all stakeholders. It evolves as the Group develops and promotes transparency, respect and accountability. It ensures that the Board operates in a culture of openness and uses its collective experience to optimise its effectiveness. This report describes how we adopt the principles of the UK Corporate Governance Code 2018, which has applied to the Group since 1 September 2019. In January 2020 Chris Holmes stood down from the Board after 29 years’ dedicated service to the Group firstly as Chief Executive and subsequently Chairman. I became Chairman at the January 2020 AGM. In October 2020 Kristen Eshak Weldon joined the Board as an independent Non-Executive Director, bringing considerable experience of investment appraisal and extensive knowledge of new technology opportunities in global agriculture. Hugh Pelham will be joining the Board in January 2021, taking over as Chief Executive upon Tim Davies standing down at the AGM after seven years in the role. In last year’s Annual Report, we explained that the Board had formalised its workforce engagement initiatives, with Alistair Wannop being appointed as Board Representative for Employment Engagement. Due to COVID-19, planned face-to-face engagement was replaced by videoconference technology to keep people informed and involved. Staying connected with our people has never been more important. At the AGM in January 2021, our new Executive Director Remuneration Policy will be put to shareholders, as it will be three years since the policy was last approved. Key changes to the policy (compared to that approved in January 2018) are: (a) the alignment of employer pension contribution rates for Executive Directors with those available to the majority of the Group’s UK workforce; and (b) the introduction of a new 40 Carr's Group plc Annual Report and Accounts 2020 Corporate Governance Report Strategic Report Governance Financial Statements Statement of Compliance with UK Corporate Governance Code The UK Corporate Governance Code dated July 2018 and issued by the Financial Reporting Council sets out standards of good practice in relation to issues such as: • Board Leadership and Company Purpose; • The division of Responsibilities; • Board Composition, Succession and Evaluation; • Audit, Risk and Internal Control; and • Remuneration. We are required to state how we have applied the principles contained in the Code and explain any areas where compliance has not been possible during the year. The Board considers that the Company has, during the year ended 29 August 2020, complied with the requirements of the Code in their entirety. 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 its shareholders as well as employees and other stakeholders. The Board reviews the performance of management and the Group’s businesses and monitors the delivery of the Group’s strategic objectives. The Board’s time can be grouped in to six key areas as outlined below. A portion of its time is also spent on administrative matters. Strategy Risk Governance Setting strategic aims and objectives. Setting organisational cultures and behaviours. Reviewing new business developments and opportunities including potential acquisitions. Investing in research and technology. Oversight of the Group’s risk management and internal control framework. Compliance with legal, regulatory and disclosure requirements. Consideration of feedback from external and internal audit. Determination of matters reserved for the Board and terms of reference for Board committees. Board and Committee performance evaluation. Succession planning and Board appointments. Finance Stakeholder engagement Health, Safety and Environmental Approving budgets. Monitoring financial performance. Engagement with employees, shareholders and other stakeholders and consideration of feedback. Oversight of the preparation and management of the financial statements. Approval of public announcements. Consideration of Health, Safety and Environmental reports from management. Providing support where appropriate to drive continuous improvement. Consideration of feedback from investor meetings and roadshows. Approving major capital projects or materially significant contracts. Determining dividend policy. Determining pensions strategy. Carr's Group plc Annual Report and Accounts 2020 41 Governance Corporate Governance Report continued 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 those arising under s.172 of the Companies Act 2006. The Code stipulates that there should be a clear division of responsibility between Board governance and executive management. During the year ended 29 August 2020, the Board comprised of two Executive Directors, a Non-Executive Chairman1, and up to five Non-Executive Directors2. There is also a Company Secretary to the Board. Subsequent to the end of the financial year, Kristen Eshak Weldon was appointed as a Non-Executive Director on 1 October 2020, and it was announced that Hugh Pelham would be appointed to the Board as an Executive Director and Chief Executive Designate with effect from 4 January 2021. Biographies of the Board can be found on pages 38-39. The Board met on 11 scheduled occasions throughout the year. In addition to regular scheduled meetings, a number of additional meetings took place during the year in order to deal with specific business arising from time to time. Whilst the Board’s planned agenda was for all scheduled meetings to take place in person, the majority of Board and Committee meetings during 2020 were held by videoconference in order to minimise the risk of COVID-19 transmission. Board agendas are set by the Chairman in consultation with the Executive Directors and with the assistance of the Company Secretary. All Directors are expected to attend scheduled Board meetings and relevant Committee meetings in addition to the Annual General Meeting unless they are prevented from doing so by prior work or extenuating personal commitments. Directors who are unable to attend a particular meeting receive relevant briefing papers and are given the opportunity to discuss any issues with the Chairman, the Chief Executive or the Chief Financial Officer. 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 maintains a schedule of matters reserved for the Board which is reviewed against best practice. A summary of those matters is set out below and a full schedule is available on the Company’s website. The Board is responsible for: • the Group’s strategy; • acquisitions and divestment policy; • corporate governance, risk management and environmental policy; • approval of budgets; • general treasury policy; • major capital expenditure projects; • dividend policy; and • 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’s website. The Chairman is responsible for: • providing effective leadership of the Board; • promoting ethical behaviours and high standards of corporate governance; • ensuring the effectiveness of the Board in determining and developing strategy, and in fulfilling its responsibilities; • setting the Board agenda; • ensuring that members of the Board are well informed to enable the Board to make sound and effective decisions and ensure constructive discussion; • ensuring effective communication with shareholders and other • stakeholders; identifying and meeting (in conjunction with the Company Secretary) the development needs of the Board and for each Director; and • providing strategic insight and a sounding board for the Chief Executive on key business decisions, and challenging proposals where appropriate. The Chief Executive is responsible for: • the executive management of the Group’s business, to deliver the strategy and commercial objectives agreed by the Board; • researching and proposing the Group’s strategy and commercial objectives, which are developed in conjunction with the Chairman; • effecting the decisions of the Board and its Committees; • maintaining and protecting the reputations of the Group and its subsidiaries; • establishing an annual budget consistent with the agreed strategy to be agreed by the Board; • managing the performance of the Group against the agreed budget; • ensuring that dialogue is maintained with the Chairman on important issues facing the Group; • providing information and advice on succession planning to the Board, and managing executive succession planning; • providing information and advice to the Board on health, safety and environmental issues and overseeing the Group’s strategy on such matters; • setting the Group’s culture, values and behaviours and conducting the affairs of the Group adhering to the highest standards of integrity and good governance. Elections The Company’s Articles of Association provide that one third of the Directors retire by rotation each year at the Annual General Meeting. In accordance with the Code, the Board consider it best practice to require all Directors to retire and stand for re-election annually. 1 Until conclusion of the AGM on 7 January 2019, Chris Holmes was Non-Executive Chairman. Following conclusion of that AGM, Peter Page became Non-Executive Chairman. 2 From the appointment of Peter Page to the Board on 1 November 2019 until Chris Holmes standing down from the Board upon conclusion of the AGM on 7 January 2019, there were five Non-Executive Directors. For the remainder of the financial year, there were four Non-Executive Directors. 42 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Attendance and Agenda In advance of all Board meetings the Directors are supplied with detailed and comprehensive papers covering the Group’s strategy, performance and operations. Members of the executive management team or other third parties may also attend meetings, or parts of meetings, where appropriate from time to time by invitation. The Company Secretary is responsible to the Board for the timeliness and quality of information. Details of the scheduled meetings of the Board, and of the Audit, Nomination and Remuneration Committees, during the period together with members’ attendance are set out in the table below. Scheduled Meeting Attendance No. of meetings Peter Page** Chris Holmes*** Tim Davies Neil Austin Alistair Wannop John Worby Ian Wood Board Audit Committee Remuneration Committee Nomination Committee 11 9 5 11 11 11 11 11 4 4* 1* 4* 4* 4 4 4 5 4 1* 2* 3* 5 5 5 6 5 1 6* 6* 6 6 6 * Attended meeting in full or part by invitation. ** Appointed on 1 November 2019 (attended 100% of meetings whilst appointed). *** Stood down on 7 January 2020 (attended 100% of meetings whilst appointed). 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 across the Group 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. Any conflicts are also required to be declared at the outset of every Board meeting in relation to the matters on the agenda. In the financial year ended 29 August 2020, there were no declared conflicts of interest. Board evaluation Each year the Board undertakes a review of its effectiveness. The Board last undertook an independent external review in 2017, which was conducted by Independent Audit Limited. That review, and the report delivered to the Board, drew positive conclusions including that the Board and its Committees were performing effectively and appropriately constituted. The report went on to make certain further recommendations including the planning of agendas to include further business-specific reviews and increasing the focus on succession planning and people issues more generally. In each of the years ended 2018 and 2019, the Board carried out internal reviews which built upon the 2017 external review. These reviews were led by the Chairman with the support of the Company Secretary. Reviews commenced with discussions between the Chairman and the Company Secretary, together with a review of the findings of prior reviews and of progress made during the year against recommendations for improvements. The discussions led to the issue of questionnaires to members of the Board. Responses were collated by the Company Secretary and reports presented to the Board detailing any views on an anonymous basis, together with progress made to date against previous recommendations. Reports were the subject of detailed and constructive discussion by the Board. Although the Group sits outside the FTSE 350, the Board considered facilitating an external evaluation of the Board and its Committees during 2020. Given the changes to membership of the Board during 2020, it was considered that the Group would in fact benefit more from an externally facilitated review in 2021. It was determined that the Board would therefore conduct an internal evaluation in 2020, planning for an external evaluation in the coming year. During 2020, the Board therefore undertook an internal evaluation in a similar fashion to those in 2018 and 2019. A detailed report on questionnaire responses was compiled by the Company Secretary including anonymised feedback which was reported to the Board. This led to a detailed discussion and the implementation of certain recommendations including improvements to financial reporting, adding regular management and industry updates to Board agendas, adopting changes to employee engagement practices and adopting regular post- investment appraisals for significant capital expenditure projects. During the year, the Chairman also evaluated the performance of the Non-Executive Directors through discussions with Board members and the Company Secretary, and informal observations. The Senior Independent Director also held discussions with Board members and the Company Secretary, without the Chairman present, to appraise the Chairman’s performance. Feedback was provided following such evaluations and reviewed by the Board. Overall the Board considered the performance of each Director to be effective and concluded that the Board and its Committees provide effective leadership and that appropriate governance and controls are in place. The Board will continue to review its procedures, effectiveness and development in the future. Carr's Group plc Annual Report and Accounts 2020 43 Governance Corporate Governance Report continued Non-Executive Director independence The Board’s views on Non-Executive Director independence were also reconsidered as part of the 2020 internal review. This was afforded greater focus owing to Alistair Wannop serving as a Non-Executive Director for more than nine years. In carrying out its assessment, the Board noted that no issues or concerns regarding independence had been highlighted during previous evaluations. The Board noted that Alistair Wannop had no material business relationships with the Company, does not hold a significant shareholding, does not represent any shareholder, does not have any family connections with the Company, and has not served the Company in any capacity other than as a Non-Executive Director. The Board accordingly determined that the independence of Alistair Wannop was not compromised by his tenure, and that there were no circumstances which could give rise to his independence being questioned. The Board was entirely satisfied that Alistair Wannop continued to exercise the level of objectivity and challenge that would be expected of an independent Non- Executive Director. The Board has therefore assessed Alistair Wannop, Ian Wood and John Worby as independent. Upon their appointment to the Board on 1 November 2019 and 1 October 2020 respectively, both Peter Page and Kristen Eshak Weldon were assessed by the Board to be independent. The question of Non-Executive Director independence is a matter which is kept under review and assessed annually by the Board. Non-Executive Director succession Following the appointment of Kristen Eshak Weldon and as part of the Board’s strategy for Non-Executive Director succession, Alistair Wannop will stand down from the Board upon conclusion of the AGM which will take place in January 2022. Alistair was first appointed to the Board in September 2005. Recognising Alistair’s deep knowledge of the Group’s activities and understanding of agricultural industries, and given the level of Board succession achieved during 2019 and 2020, the Board considers it appropriate for Alistair to remain appointed for a further year to provide continuity. Board Committees Audit Committee The Audit Committee’s key responsibilities are to review the effectiveness of the Company’s financial reporting, the performance of the external auditor and the Group’s systems of risk management and internal control. During the year, the Audit Committee comprised three independent Non-Executive Directors: John Worby (Chair), Ian Wood and Alistair Wannop. On 1 October 2020, Kristen Eshak Weldon was also appointed to the Committee which now comprises four independent Non-Executive Directors. The Board considers that the Committee meets the requirements of the Code and is appropriate for a company of its size. In particular, the members bring financial, agricultural and engineering experience to the Committee together with a good understanding of the businesses within the Group and the risks that they face. The Chairman of the Audit Committee is a chartered accountant with recent and relevant financial experience. The work, responsibilities and governance of the Audit Committee are set out on pages 49 to 52. Remuneration Committee The Remuneration Committee’s primary role is to review and set the reward structures for Executive Directors and other senior management to ensure that these promote the correct behaviours and are appropriate when considered in conjunction with the levels of pay and benefits offered across the Group. From 1 November 20193, the Remuneration Committee comprised four independent Non-Executive Directors: Ian Wood (Chair), Peter Page, John Worby and Alistair Wannop. On 1 October 2020, Kristen Eshak Weldon also became a member of the Committee which now comprises five independent Non-Executive Directors. The work, responsibilities and governance of the Remuneration Committee is set out on pages 53 to 66. Nomination Committee The role of the Nomination Committee is to ensure that an appropriate balance of skills, experiences and backgrounds is achieved across the Board, and that the Group is properly prepared for the succession of members of the Board and senior management. During the year, the Nomination Committee comprised of Peter Page (Chair), Alistair Wannop, John Worby and Ian Wood4. On 1 October 2020, Kristen Eshak Weldon also became a member of the Committee. The work, responsibilities and governance of the Nomination Committee are set out on pages 46 to 48. Relations with Shareholders The Board recognises and values the importance of good communications with all shareholders. The Group maintains dialogue with substantial and 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 half-year statement, and we produce trading updates during the year. All reports and updates are made available on the Company’s website. 3 Prior to 1 November 2019, the Committee comprised of three independent Non-Executive Directors: Ian Wood (Chairman), John Worby and Alistair Wannop. 4 Prior to 1 November 2019, the Committee comprised of Chris Holmes (Chairman), Ian Wood, John Worby and Alistair Wannop. Peter Page became a member of the Committee on 1 November 2019 and became Committee Chair upon Chris Holmes standing down from the Board and the Committee on 7 January 2020. 44 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements The Annual General Meeting ordinarily provides all shareholders with the opportunity to develop further their understanding of the Company. It is an excellent forum for all Directors to engage with private investors. All shareholders are given the opportunity to raise questions on matters proposed for consideration at the AGM. The Group aims to send notices of Annual General Meetings to shareholders at least 20 working days before the meeting, as required by the Code. Following the AGM, the voting results for each resolution are published and are available on the Company’s website. COVID-19 and our January 2021 AGM Owing to the ongoing risks associated with COVID-19, arrangements for our January 2021 AGM will be different to those in previous years. Members will not be able to attend the meeting in person, but will be invited to cast their votes on the resolutions proposed at the meeting by proxy in advance. Voting at the meeting will take place by poll, on the basis of the proxy votes cast in advance of the meeting. Any members who do try to attend the AGM in person will unfortunately not be permitted to enter the meeting owing to government restrictions and social distancing guidelines. On the day of the AGM we will be publishing a broadcast on the Company’s website, reflecting on the year, providing an update on current trading, introducing Hugh Pelham, and answering questions raised by shareholders. Written responses to questions raised by shareholders will also be made available on the Company’s website. We hope that our members understand the need for caution in current circumstances and very much look forward to returning to hosting our AGM in person in future years. Fair, balanced and understandable The Directors have 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 Group’s performance, business model and strategy. Internal control The Board of Directors has overall responsibility for the Group’s systems of risk management and internal control, and for reviewing their effectiveness, including: financial, operational and compliance controls and risk management, which safeguard the shareholders’ investment and the Group’s assets. Such systems can only provide reasonable and not absolute assurance against material misstatement or loss, being 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 ongoing processes and features of the Group’s internal risk-based control system 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 Chief Financial Officer 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 Chief Financial Officer 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 Audit Committee also reviewed the effectiveness of the risk management and internal control systems. 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 28 to 30. By order of the Board Matthew Ratcliffe Company Secretary Carlisle CA3 9BA 23 November 2020 Carr's Group plc Annual Report and Accounts 2020 45 Governance Nomination Committee Report Peter Page Chair of the Nomination Committee Dear Shareholder I present this report on the role of the Nomination Committee and its activities during the year. Nomination Committee Highlights • Appointment of Hugh Pelham as CEO Designate • Appointment of Peter Page as Non-Excutive Chairman • Appointment of Kristen Eshak Weldon as independent Non- Executive Director • Internal evaluation completed with external evaluation planned for FY2021 Introduction The Nomination Committee ensures that the Board and senior management team possess the right balance of skills, experience and knowledge to support the Group’s strategy. Central to this is making sure that effective succession plans are in place to fill vacancies on the Board, and in management teams, alongside robust and transparent procedures for identifying suitable candidates. I joined the Board in November 2019 and took over as Chairman of the Board and Chair of the Nomination Committee upon Chris Holmes standing down at the AGM in January 2020. In July 2020, we announced the recruitment of Kristen Eshak Weldon to the Board as an independent Non-Executive Director. Kristen joined the Board on 1 October 2020 having previously been Head of Food and Downstream Strategy at Louis Dreyfus Company, where she focused on innovation and investments across global agriculture. Prior to this, Kristen spent 13 years at Blackstone where she was Co-Head of the London office for the company’s $75 bn Hedge Fund Solutions business, leading their work on investment opportunities worldwide. In September 2020, we announced that Hugh Pelham will be joining the Board on 4 January 2021 as Chief Executive Officer Designate and will take over as Chief Executive upon Tim Davies standing down at the AGM later that month. Hugh brings over 30 years’ experience in leading growing businesses across various sectors, having most recently been Global President of Minova, part of ASX-listed Orica, a global manufacturer and supplier of chemical and mechanical earth control products, adhesives and support equipment. Prior to this Hugh spent four years leading Wood Group Industrial Services, a supplier of specialist coatings, access and fabric maintenance services to the oil and gas, marine and rail industries. Hugh’s broad experience and strong track record of generating long-term value will be of real value to the Group. More information on the activities of the Committee, including the recruitment processes which led to the appointment of Kristen and Hugh, is set out on the pages which follow. 46 Carr's Group plc Annual Report and Accounts 2020 Role of the Committee The primary responsibilities of the Nomination Committee are: Reviewing the structure, size and composition of the Board and monitoring the range of skills, knowledge and experience required for the Board to operate effectively and to deliver the Group’s strategy; Overseeing Board and senior management succession planning, including setting objective selection criteria and transparent recruitment processes, and making recommendations to the Board in relation to the appointment of Executive and Non-Executive Directors; and Setting the Group’s policy on diversity and inclusion and overseeing its implementation in succession planning across the Group. Activities of the Committee The Committee met on six scheduled occasions during the year to consider the following matters: • the Committee’s terms of reference to ensure they appropriately reflect the Committee’s remit; the succession plans in place for the Board and senior management across the Group; recruitment for Board appointments; the structure, size, composition and diversity of the Board, its committees and senior management across the Group; the Group’s policy on diversity and inclusion; and the Group’s talent management, training and development programmes. • • • • • Strategic Report Governance Financial Statements Attendance at meetings of the Committee was as follows: Member Peter Page (Chair)* John Worby Ian Wood Alistair Wannop Chris Holmes* Meetings attended 100% 100% 100% 100% 100% * Peter Page was appointed to the Committee on 7 January 2020 at which point Chris Holmes stood down. Each attended 100% of meetings during their tenure. Changes to the Committee I joined the Board as an independent Non-Executive Director, Chairman Designate and a member of the Committee on 1 November 2019. I subsequently became Non-Executive Chairman of the Group and Chair of the Committee on 7 January 2020 upon Chris Holmes standing down. After the year end, Kristen Eshak Weldon jointed the Board on 1 October 2020 and became a member of the Committee. Board evaluation During the year, the Board conducted an internal evaluation of the Board and its Committees. The Board’s previous external evaluation took place in 2017, but owing to succession on the Board during 2020, the Committee considered it appropriate for an external evaluation to take place in 2021. The 2017 external review was facilitated by corporate governance specialists Independent Audit Limited and reviewed the size, composition and effectiveness of the Board and its Committees. That review, which generated positive feedback, confirmed that the Board and its Committees were appropriately constituted and provided effective management of the Group as a whole. The review also involved a consideration of the continued independence of the Non-Executive Directors and the commitment required from each in order to properly fulfil their duties. Following the review, and in consideration of all circumstances, it was determined by the Board that all Directors committed sufficient time to properly fulfil their responsibilities and that John Worby, Ian Wood and Alistair Wannop were considered to be independent. The internal review during 2020, built upon the 2017 external review, and further internal reviews undertaken in 2018 and 2019. For more information on the process see page 43. The review involved a detailed consideration of the effectiveness of the Board and its committees together with a review of diversity and the range of skills, knowledge and experience required to effectively deliver the Group’s strategy. The review also reflected on the previous year, and on decisions made by the Board, in order to identify where its effectiveness can be enhanced. The 2020 review also considered the continued independence of the Non-Executive Directors. That review concluded that the Board and its Committees are indeed appropriately constituted, and that Peter Page, John Worby, Ian Wood and Alistair Wannop remain independent. Group succession planning and development The Group’s succession strategy focuses upon ensuring that appropriate and sufficient employees are recruited or developed internally to meet the future management and leadership needs of the Group, taking into account continued growth and Group strategy. During the year the Committee reviewed the Group’s broader succession and development plans with the Group Head of HR and CEO. Recruitment processes for leadership and senior positions across the Group are managed under the supervision of the Group Head of HR inviting both internal and external candidates. Independent recruitment consultants are also appointed where appropriate taking into account the requirements of the Group. In recent years, the Group has made significant progress in the implementation of its senior management succession plans. This progress continued during 2020 with a significant reorganisation of management teams in our UK Agriculture business under the leadership of the recently appointed Managing Director. Our Engineering division also saw significant change with a greater focus on integration and the appointment of a new President in our Global Technical Services business. Across the Group our career pathway and employee development initiatives continue to evolve which are designed to attract, retain and develop the best talent. Further details of those initiatives are described on pages 32 to 33. Board succession In addition to my appointment to the Board in November 2019, which was detailed in last year’s report, the Nomination Committee led two Board recruitment exercises during the year. As part of the Company’s long-term succession planning for Non-Executive Directors, the Board announced the appointment of Kristen Eshak Weldon in July 2020. That recruitment process was led by the Committee who, following a competitive tender exercise, appointed recruitment consultants Independent Search to assist. In selecting candidates, the Committee considered a broad range of important skills and characteristics. The Committee also considered the balance of skills, experience and knowledge present across the Board, the culture of the Group and the benefits of diversity. Kristen was appointed to the Board on 1 October 2020 as an independent Non-Executive Director and as a member of the Audit, Remuneration and Nomination Committees. During the year the Committee undertook a rigorous search for a Chief Executive Officer to succeed Tim Davies who will be standing down from the Board at the AGM in January 2021. The Committee engaged recruitment consultants Spencer Stuart following a competitive tendering process. The search involved an in-depth analysis of the skills, knowledge and experience which would best benefit the Group and the development of a detailed candidate profile. The search considered a large pool of 426 potential candidates from a broad variety of backgrounds, industries, and countries. Carr's Group plc Annual Report and Accounts 2020 47 Governance Nomination Committee continued Of the total candidate pool identified, 35 individuals were considered further for the position from both internal and external sources (of that total, 26 candidates were male, eight were female and one was undisclosed). Five shortlisted candidates were ultimately identified, which led to the Committee’s recommendation that the Board appoint Hugh Pelham to the position. Hugh’s appointment was announced on 24 September 2020. He will join the Board as an Executive Director and Chief Executive Officer Designate on 4 January 2021 and, subject to the approval of shareholders, will take over as Chief Executive Officer at the conclusion of the AGM which is currently expected to take place on 12 January 2021. Alistair Wannop has served on the Board since September 2005. As part of the Board’s long-term succession strategy, and following the appointment of Kristen Eshak Weldon, it is planned that Alistair will stand down at the conclusion of the Group’s AGM in January 2022. Given the level of Board succession achieved during 2019 and 2020, and recognising Alistair’s deep knowledge of the Group’s activities and understanding of agricultural industries, the Board considers it appropriate for Alistair to remain appointed for another year to ensure continuity. Diversity and inclusion The Group’s principal concern when making employment decisions is ensuring that candidates possess the skills, knowledge and experience, or the potential to develop the required skills, knowledge and experience, to meet the requirements of the Group. The Board is aware of the benefits to the Group of diversity, including gender diversity, and of the recommendations of the Hampton Alexander Review. Diversity is an important consideration when determining the needs of the Group and its businesses when making recruitment decisions. Whilst the Board does not currently set any specific diversity targets, as part of the Group’s employee survey (for more information please see page 32), information will be collected on the diversity of our people from across the Group. This information will be reviewed by the Committee and the Board together with the Group Head of HR in order to enhance understanding of diversity across the Group and to enable the development of policy and/or targets where appropriate. The Group operates a strict equal opportunities policy. All appointments are made on the basis of merit and the requirements of the Group regardless of factors such as race, colour, nationality, religion or belief, gender, marital or civil partnership status, family status, pregnancy, sexual orientation, gender identity, gender reassignment, disability or age. There are no differences in pay structures for persons of different genders performing similar roles. Gender Breakdown Group employees Senior managers Direct reports to senior managers Total Male Female Total Male Female Total Male Female 1,146 838 308 13 9 4 42 26 16 Re-Election At the AGM on 12 January 2021, Hugh Pelham and Kristen Eshak Weldon will stand for election by shareholders for the first time since being appointed to the Board. Tim Davies will not stand for re-election owing to him standing down from the Board. All other Directors will stand for re-election in accordance with best practice and the Corporate Governance Code. The Board will set out in the Notice of Annual General Meeting its reasons for supporting the re-election of each Director. Their biographical details on pages 38 to 39 demonstrate the range of experience and skills which each brings to the benefit of the Company. On behalf of the Board Peter Page Chair of the Nomination Committee 23 November 2020 48 Carr's Group plc Annual Report and Accounts 2020 Audit Committee Report Strategic Report Governance Financial Statements John Worby Chair of the Audit Committee Dear Shareholder On behalf of the Audit Committee, I am pleased to present this report to shareholders which highlights the areas of review during the year and explains how the Committee has reviewed and discharged its responsibilities. Audit Committee Highlights • Adoption of IFRS 16 • Consideration of impact of COVID-19 • Appointment of Kristen Eshak Weldon to the Committee Introduction This has been the second year in which KPMG LLP (KPMG) has acted as the Group’s auditor, having been first appointed by shareholders at the AGM on 8 January 2019 following the recommendation of the Board and the tender process conducted by the Committee in the spring of 2018. Composition of Committee and Meetings During the year, the Audit Committee comprised three Non-Executive Directors; John Worby, who is Chair of the Committee, Ian Wood and Alistair Wannop. On 1 October 2020, Kristen Eshak Weldon became a member of the Committee upon her appointment to the Board. The Chair of the Committee has recent and relevant financial experience and collectively members of the Committee have in-depth knowledge and experience of agricultural and engineering industries, and a good understanding of the Group’s undertakings. Details of Committee members’ qualifications can be found on pages 38 to 39. The Audit Committee met four times during the year, and has an agenda linked to the Group financial calendar. It invites the Chairman, the Chief Executive, the Chief Financial Officer, the Head of Group Finance, the Head of Business Finance, the Head of Internal Audit and the external auditor to attend its meetings. During the year, the Committee met with each of the Head of Internal Audit and the external auditor without the Executive Directors or other senior management being present. The Committee has met twice since the end of the financial year to consider internal audit work and the results and Annual Report for the year ended 29 August 2020. Responsibilities The key responsibilities of the Committee are to provide effective governance over the integrity of the Company’s financial reporting and the effectiveness of its systems of internal control and risk management. 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 was fair, balanced and understandable; Keep under review and evaluate the effectiveness of the Company’s internal financial control, and other internal controls and risk management systems; Appraise the Board on how the Company’s prospects are assessed; Oversee the relationship with the external auditor, making recommendations to the Board in relation to its appointment, remuneration and terms of engagement; Monitor and review the effectiveness of the external audit including the external auditor’s independence, objectivity and effectiveness and to approve the policy on the engagement of the external auditor to supply non-audit services; Review and approve the mandate of the internal auditor, evaluate the work and monitor the effectiveness of the internal auditor, and approve the appointment or removal of the Head of Internal Audit; and Review the adequacy of the Company’s whistleblowing and anti-bribery arrangements. The Committee’s terms of reference can be found on the Company’s website www.carrsgroup.com. Carr's Group plc Annual Report and Accounts 2020 49 Governance Audit Committee Report continued 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 the Chief Financial Officer, and the external auditor in respect of the half year and full year results and Annual 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 Chief Financial Officer on such issues at the two meetings that reviewed the half year and year end results, as well as reports from the external auditors. The Committee carefully considered the content of these reports in evaluating the significant issues and areas of judgement across the Group. The key areas of judgement in the year were as follows: • Contract risks in the Engineering division, including the risks associated with the judgemental nature of revenue and profit recognition over time. The Committee reviewed a selection of significant active contracts, challenging management’s forecast outturns and profit recognition assessments and examining commercial processes and controls to test the recoverability of contract balances. The Committee determined that the judgements adopted by management were appropriate. • The valuation of the Carr’s Group defined benefit pension scheme assets and obligations. The Committee reviewed valuations of the scheme’s investments, and the key actuarial assumptions used to value the scheme obligations. The assumptions made were reviewed against market data in conjunction with independent actuarial specialists, to assess their appropriateness and the disclosures on the sensitivity of the obligations to changes in such assumptions were reviewed. The Committee was satisfied that the scheme’s assets were appropriately valued, that the assumptions adopted in relation to the scheme’s liabilities were appropriate, and that disclosures made in relation to the scheme were appropriate. • The valuation of the Group’s share of the Carrs Billington Agriculture (Operations) Ltd defined benefit scheme surplus. The Committee evaluated the actuarial assumptions adopted in estimating scheme obligations and reviewed asset statements in relation to the scheme’s investments in conjunction with actuarial specialists. The Committee was satisfied following such review that the valuation adopted for the scheme surplus was appropriate. • Estimates of the recoverability of trade receivables in the Agriculture division. The Committee reviewed key controls within credit control processes, the estimates and policies adopted in relation to debtors, and the adequacy of the Company’s disclosures relating to provisions for receivables. The Committee determined that the estimates and disclosures made were appropriate. • Brexit and the associated increased levels of uncertainty of outcomes. The Committee considered the Directors’ assessment of Brexit-related sources of risk and their potential impact on the going concern assessment and viability statement. Potential sensitivities were challenged against the full range of reasonably possible scenarios, and adjustments were considered to discount rates for forecast cash flows for any residual uncertainties. The Committee also reviewed the reasonableness of disclosures made in the strategic report relating to Brexit. The Committee determined that the assessments made by management were appropriate and that the narrative disclosures were reasonable. • Potential goodwill impairment. The Committee challenged the reasonableness of the future business performance assumptions adopted by management for those businesses that had underperformed against expectations. Factors considered included historical performance, industry benchmarks and where relevant the likely long-term impact of the COVID-19 pandemic. The Committee agreed with management’s view that no impairments were necessary. Inventory provisioning. The Committee reviewed management’s policies and related processes to monitor inventory movement, particularly given the potential impact of Brexit and COVID-19, and determined that no changes to inventory provisioning was necessary. • • Adoption of new accounting standard IFRS 16. The Committee reviewed the accounting policies adopted to meet the requirements of IFRS 16, management controls in relation to key judgements, and the impact of adoption of the standard on the financial statements including relevant disclosures. The Committee was satisfied with the manner in which the accounting standard had been adopted and reflected in the financial statements. • Changes to the fair value of contingent consideration in relation to the acquisitions of Animax, NuVision and NW Total. The Committee challenged management’s assessments of the fair value of the contingent consideration likely to be payable as potential earn-out payments for those acquisitions and determined that such assessments were appropriate. 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’. To make this assessment, the Committee reviewed a report prepared by the Chief Financial Officer outlining the relevant key matters worthy of consideration. The Committee was satisfied that, where relevant, all the key events and issues which have been reported to the Board in the CEO’s reports during the year, both good and bad, have been adequately referenced or reflected within the Annual Report. 50 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements The Committee has also reviewed the Group’s going concern and viability statement disclosures, particularly in relation to the ongoing uncertainties associated with COVID-19 and Brexit. It received a written report prepared by the Chief Financial Officer which enabled it to review the base assumptions and various sensitised scenarios throughout the forecast period. The Committee was comfortable with the disclosures made. Internal Control and Risk Management During the year the Committee continued to monitor the effectiveness of the Group’s internal control and risk management systems and at the end of the year carried out a review of the effectiveness of such systems. 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 KPMG was appointed as external auditor of the Group at the AGM in January 2020, having first been appointed at the AGM in January 2019 following the recommendation of the Board and a competitive tender process managed by the Audit Committee which took place during 2018. KPMG’s current engagement partner is Nick Plumb, who has been in place since commencement of the audit for the 2019 financial year. The Audit Committee assessed the qualifications, expertise and independence of KPMG as auditors as part of the tender process and updated its assessment during the year. Following approval by shareholders to appoint KPMG in January 2020. the Audit Committee reviewed and approved the terms of engagement and remuneration of the external auditors for the 2020 financial year. Audit Effectiveness The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. KPMG presented its detailed audit plan to the Committee in June 2020, identifying their assessment of these key risks. The 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. In addition, each year, the Audit Committee assesses its performance and the effectiveness of the external auditor through a questionnaire completed by Audit Committee members and members of the Group’s senior finance team. Whilst the Committee was satisfied with the robustness of the audit, the questionnaire highlighted some concerns with the efficiency of the audit process which were discussed in detail with KPMG through a thorough debrief process. It was agreed that improvements would be made for the 2020 audit. Auditor Independence The Group meets its obligations for maintaining an appropriate relationship with the external auditor 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, the Group’s external auditor must implement rules and requirements which include that none of their employees working on our audit can hold any shares in the Company. The external auditor 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 annually reviews the Company’s Non- Audit Services policy, updating and approving the policy where appropriate. The objective of the policy is to ensure that the provision of any 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. The policy can be viewed on the Company’s website www.carrsgroup.com. In order to ensure that the policy is effective, and the level of non-audit fees is kept under review, all non-audit services must be approved by the Chief Financial Officer and reported to the Committee. Prior approval of the Committee is also required before the external auditor is engaged to provide non-audit services costing in excess of £25,000 in aggregate. During the 2020 financial year, there was no non-audit work undertaken by the Group’s external auditor. The Committee concluded that it was satisfied with the independence of KPMG as auditors and that it should recommend their reappointment to the Board. Internal Audit The Committee is responsible for monitoring the performance and effectiveness of the Company’s internal audit activities. During the year, the Committee reviewed and approved the internal audit plan which is devised from assessments across the Group’s operations and aligned to the Group risk framework as well as business-specific risks. On an annual basis, the Committee also reviews and approves the Group’s internal audit charter which describes the role and mandate of the internal audit function. The internal audit plan was significantly impacted from March 2020 by the onset of the COVID-19 pandemic, particularly owing to the Group’s imposition of travel restrictions. During this period, and to reflect changes to risks across the Group, internal audit resources were refocused towards business continuity planning, the maintenance of control environments whilst working remotely, and the Group’s ongoing ERP implementation project. During 2020, the Committee considered the internal audit plan regularly to ensure that internal audit activity remained aligned to any emerging risks. At each of the Committee’s meetings during the year, the Group’s Head of Internal Audit provided updates on internal audit activities. Internal audit findings, together with responses from management, were considered by the Committee and, where appropriate, challenged. Carr's Group plc Annual Report and Accounts 2020 51 Governance Audit Committee Report continued The Committee also keeps the performance and effectiveness of the internal audit function under review and in doing so it also assesses the quality, experience and expertise within the internal audit function. The Committee was satisfied that the internal audit function continues to operate effectively, despite the challenges brought by COVID-19, and that the expertise and level of resource available to internal audit were appropriate. Since the year end, the Committee has agreed the internal audit plan for 2021, which will continue to be reviewed on a quarterly basis to respond to emerging risks or challenges in completing the audit programme as the COVID-19 pandemic continues. Other activities The Committee also reviewed its terms of reference, its effectiveness, the Group’s policies on whistleblowing, business ethics and on the prevention of bribery and modern slavery. John Worby Chair of the Audit Committee 23 November 2020 52 Carr's Group plc Annual Report and Accounts 2020 Remuneration Committee Report Strategic Report Governance Financial Statements Annual Statement The Committee’s report is presented in the following sections: 1. This Annual Statement, which summarises the key considerations of the Committee during the year and forms part of the Annual Report on Remuneration. 2. The Directors’ Remuneration Policy, which sets out the Policy for the Executive Directors, Chairman and Non-Executive Directors. The Directors’ Remuneration Policy will be put to shareholders at the AGM due to take place on 12 January 2021. Changes to the previous policy, which was approved by shareholders at the AGM on 9 January 2018, are summarised below. 3. The Annual Report on Remuneration, which sets out how the Remuneration Policy has been applied in 2019/20, the remuneration received by Directors for the year and how the policy will be applied during 2020/21. The Annual Report on Remuneration will be subject to an advisory shareholder vote at the AGM. Performance and Remuneration in 2019/20 Whilst full year performance was ahead of the Board’s revised expectations, it fell short of the original budget with the result that no annual bonus was payable relating to financial targets. Adjusted profit before tax of £14.9m was 17.4% below the prior year when the Group achieved a record performance of £18.0m. Adjusted Earnings Per Share was also down to 11.9p (2019: 14.6p). Non-financial targets were achieved during the year, in relation to which annual bonus was payable. The financial and strategic targets set by the Committee, together with the resulting remuneration payable to the Executive Directors, are detailed in the Remuneration Committee’s Report which follows. Key matters for consideration in 2019/2020 The Committee maintains a schedule of matters for consideration which aligns with its terms of reference and ensures that changes to the corporate governance framework and remuneration best practice are considered by the Committee when appropriate. The areas of focus for the Committee are set out in the Annual Report on Remuneration on the pages which follow. During the year, the Committee undertook a review of its existing Directors’ Remuneration Policy. The proposed policy, which will be put to shareholders at the AGM in January 2021, includes certain changes designed to ensure that it remains in line with best practice. These are: 1. A requirement that Executive Directors retain all shares which vest under the Company’s Long Term Incentive Plan (LTIP), up to a value equal to 200% of their basic salary, for a period of two years following the cessation of their employment with the Company for any reason. This requirement will apply to all shares which vest after the Policy takes effect, regardless of when awards were made under the Company’s LTIP. 2. A firm commitment that all Executive Directors – both current and future appointments – receive an employer pension contribution (or cash in lieu where appropriate) at a rate that does not exceed the employer contribution rate available to the majority of the Group’s UK workforce (currently 4% of basic salary per annum). Such alignment of pension contributions will be achieved by no later than the end of the Company’s current financial year ending August 2021. In addition to disclosing CEO pay ratios, the Group has also reported on its UK- wide gender pay gap. The Group’s largest subsidiary, Carrs Billington Agriculture (Sales) Limited has reported on its gender pay gap since 2018. Carr's Group plc Annual Report and Accounts 2020 53 Ian Wood Chair of the Remuneration Committee Dear Shareholder On behalf of the Remuneration Committee and the Board, I am pleased to present the Report of the Remuneration Committee for the year ended 29 August 2020. Remuneration Committee Highlights • New Directors’ Remuneration Policy to be considered by shareholders at January 2021 AGM • Executive benchmarking exercise undertaken as part of CEO succession planning process • Appointment of Peter Page and Kristen Eshak Weldon to the Committee Governance Remuneration Committee Report continued During the year, the Board appointed Peter Page who became Non-Executive Chairman on 7 January 2020. After the year end, the Board appointed Kristen Eshak Weldon as an independent Non- Executive Director and Hugh Pelham as Chief Executive Officer Designate. Kristen joined the Board on 1 October 2020. Hugh will be joining the Board on 4 January 2021 and, subject to shareholder approval, will become Chief Executive Officer upon conclusion of the AGM on 12 January 2021. Whilst neither Kristen nor Hugh have served during the financial year ended 29 August 2020, full details of their remuneration are set out in the report which follows. Inflationary salary increases of 1% were awarded to the Executive Directors effective 1 September 2020, consistent with the broader workforce. After the end of the financial year, and as part of the Board’s CEO succession planning process, the Committee reviewed Executive Director salaries. This highlighted that Neil Austin’s remuneration was significantly below the market. The Committee noted that Neil’s salary had increased by an average of 1.8% per annum since appointment in 2013. Reflecting the significant contribution made by Neil, and his growth in role since joining the Board, the Committee determined that it would be appropriate to increase Neil’s basic annual salary by 17.5% from 1 November 2020 to £251,000. Neil has received consistently strong Board approval during his tenure and will be integral to a smooth CEO transition. The Committee carried out a market benchmarking exercise as part of its review, and noted that the increased salary fell within a market competitive range (albeit below median). Taking into consideration changes to pension contributions for Executive Directors (as set out in the report which follows), the overall increase to Neil Austin’s fixed remuneration is 6.3%. With this in mind, the Committee is confident in its salary proposal, which it considers to be fair and not excessive. For 2020/21, the maximum annual bonus for the Executive Directors will remain 100% of salary, with 25% of any amount awarded being deferred for two years in the form of shares. The Committee also intends to grant LTIP awards of 100% of salary, which will be based upon stretching EPS targets. I hope that you are able to support the Remuneration Committee’s Report, and the Directors’ Remuneration Policy at the forthcoming AGM on 12 January 2021. Ian Wood Chair of the Remuneration Committee 23 November 2020 Remuneration Policy This part of the report sets out the remuneration policy for the Group and has been prepared in accordance with The Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (as amended). The current policy was approved by the shareholders at the AGM which took place on 9 January 2018, receiving a 99.7% proxy vote in favour. This policy builds upon the previous policy and includes the following notable changes which align with the Corporate Governance Code 2018 and emerging best practice: 1. A requirement that Executive Directors retain all shares which vest under the Company’s Long Term Incentive Plan (LTIP), up to a value equal to 200% of their basic salary, for a period of two years following the cessation of their employment with the Company for any reason. This requirement will apply to all shares which vest after the Policy takes effect, regardless of when awards were made under the Company’s LTIP. 2. A firm commitment that all Executive Directors – both current and future appointments – receive an employer pension contribution (or cash in lieu where appropriate) at a rate that does not exceed the employer contribution rate available to the majority of the Group’s UK workforce (currently 4% of basic salary per annum). Such alignment of pension contributions will be achieved during the Company’s current financial year ending August 2021. Further information on the above changes is set out in the remuneration policy table on the pages which follow. The new policy will be put to shareholders for consideration and approval at the AGM taking place on 12 January 2021. The role of the Committee The primary role of the Remuneration Committee is to make recommendations to the Board on the Company’s policy for executive remuneration. The Committee also has delegated responsibility for determining the remuneration and benefits of the Chairman, the Executive Directors and senior management including the Company Secretary. Key responsibilities include: • determining the framework for the remuneration of the Group’s Executive Directors, senior management and Chairman; reviewing workforce remuneration and related policies; • • determining the total remuneration packages, authorising terms and conditions, and issuing contracts for the Board; • approving the design and determining the targets for • performance related pay schemes of the Executive Directors; reviewing the ongoing appropriateness and relevance of the Remuneration Policy to ensure that is it aligned with the culture and strategy of the Group; • ensuring that the Group rewards fairly and responsibly, with clear links to both corporate and individual performance; and reviewing the design of any share incentive plans for approval by the Board and shareholders. • 54 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Overview of policy When setting the policy for Directors’ remuneration, the Committee takes into account the overall business strategy, considering the long-term interests of the Group, with the aim of incentivising the delivery of rewards to the Group’s shareholders, workforce and broader stakeholders. The Group’s policy is that the overall remuneration packages 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 and views of shareholders. The remuneration package is split into two parts: • a non-performance related element represented by basic salary, benefit and pension; and • a performance related element in the form of an annual bonus and a Long Term Incentive Plan. However, there are some differences in the Executive Directors’ Remuneration Policy compared to that for the wider workforce, which the Committee believes are necessary to reflect the differing levels of seniority and scope of responsibility. A greater weight is placed on performance-based pay through the quantum and participation levels in incentive schemes to ensure the remuneration of the Executive Directors is aligned with the performance of the Group and the interests of shareholders. In 2019 we formalised our employee engagement activities with Alistair Wannop being appointed as the Board’s Representative for Employee Engagement. Whilst we were able to carry out some initial planned activities in the first half of the year, the onset of COVID-19 in the second half prevented group sessions with staff groups from taking place. Employee engagement activities therefore turned towards regular announcements and video blogs on business activities through the Company’s intranet, CarrsConnect. In late 2020, we launched an employee engagement survey which will for the first time seek feedback from employees on remuneration. Considerations of conditions elsewhere in the Group In determining the remuneration of the Group’s Directors, the Committee takes into account the pay arrangements and terms and conditions across the Group as a whole. The Committee seeks to ensure that the underlying principles which form the basis for decisions on Directors’ pay are consistent with those on which pay decisions for the rest of the workforce are taken. For example, the Committee takes into account the general salary increase for the broader employee population when conducting the salary review for the Executive Directors. Consideration of shareholder views In formulating this policy, the Committee has taken into consideration the views and policies of shareholders and proxy agencies. Proposed changes to the policy were communicated to major shareholders prior to its formation, and all feedback taken into consideration. Advice was also taken on best practice from appropriately qualified remuneration advisers Aon plc and PricewaterhouseCoopers LLP. The views offered to the Committee have been taken into account in the policy below. The Committee welcomes feedback from all of the Group’s stakeholders at all times. Remuneration Policy table Element Purpose and link to strategy Policy and approach Base salary To attract and retain the best talent. Salary levels (and subsequent salary increases) are set taking into consideration a number of factors, including: Reflects an individual’s experience, performance and responsibilities within the Group. • 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). Salaries are normally reviewed annually with any increase effective 1 September each year. Opportunity There is no formal maximum; however, increases will normally align with the general increase for the broader employee population of the Group. More significant increases may be awarded from time to time to recognise, for example, development in role and change in position or responsibility. Current salary levels are disclosed in the Annual Report on Remuneration. Carr's Group plc Annual Report and Accounts 2020 55 Governance Remuneration Committee Report continued Element Pension Purpose and link to strategy Policy and approach Provides a competitive and appropriate pension package that is aligned with arrangements across the Group. Executive Directors are entitled to participate in a defined contribution pension arrangement or to receive a cash alternative to those contributions. Subject to as provided below, Company contributions for all Executive Directors are at a rate which does not exceed the contribution rate available to the majority of the UK workforce (currently 4%). Tim Davies is standing down from the Board upon conclusion of the AGM on 12 January 2021. He will remain employed by the Company until 22 August 2021 and, during such period, will continue to receive his existing employer pension contribution of 15%. To the extent that pension contributions exceed annual tax-free allowances, Executive Directors will be entitled to receive payment through ordinary payroll in lieu of pension contributions. Benefits provided 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. The benefits provided may be subject to minor amendment from time to time by the Committee within this policy. The Company may reimburse any reasonable business related expenses incurred in connection with their role (including tax thereon if these are determined to be taxable benefits). Bonus levels and appropriateness of performance measures and weighting are reviewed annually to ensure they continue to support our strategy. Bonuses are capped at 100% of base salary. 25% of any bonus earned will be deferred into awards over shares, with awards normally vesting after a two-year period. Performance is measured against stretching targets. These may include financial and non-financial measures. Financial measures will account for the majority and will typically include a profit related target. Performance targets will be disclosed retrospectively. The threshold level of bonus under each measure is 0%. The cash element of the bonus is usually paid in November each year for performance in the previous financial year. Dividends will accrue on deferral awards over the vesting period and be paid out either as cash or as shares on vesting and in respect of the number of shares that have vested. A malus and clawback mechanism applies in specific circumstances including in the event of a material misstatement of the Group’s accounts and also for other defined reasons including material financial misstatement, reputational damage, gross misconduct, fraud, error in the assessment of performance measures and corporate failure. These provisions apply to both the cash and deferred elements of the bonus. An HMRC approved SAYE scheme is available to eligible staff, including Executive Directors. Opportunity Up to a maximum rate not exceeding that available to the majority of the UK workforce (currently 4%). Market rate determines value. There is no prescribed maximum level but the Remuneration Committee monitors the overall cost of benefits to ensure that it remains appropriate. Maximum of 100% of base salary. The schemes are subject to the limits set by HMRC from time to time. Benefits To aid retention and remain competitive in the market place. Annual bonus Designed to reward delivery of key strategic priorities during the year. Save As You Earn (SAYE) To encourage employee involvement and encourage greater shareholder alignment. 56 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Element Purpose and link to strategy Policy and approach Long Term Incentive Plan (LTIP) To motivate and incentivise delivery of sustained performance over the longer term, and to support and encourage greater shareholder alignment. Annual awards of performance shares which normally vest after three years subject to performance conditions. Award levels and performance conditions required for vesting are reviewed annually to ensure they continue to support the Group’s strategy. Annual awards are capped at the equivalent of 100% of base salary at the date of award. Opportunity Maximum of 100% of base salary for annual awards. Exceptional awards can be made of up to 200% of base salary. In accordance with the rules of the LTIP, which were approved by shareholders at the AGM on 8 January 2013, in circumstances considered by the Committee to be exceptional, single awards in excess of 100% of base salary can be made, up to a maximum of 200% of base salary at the date of the award. Awards are currently based solely upon an EPS growth measure, although the Committee reserves the right to introduce further or alternative performance measures where considered appropriate from time to time and following consultation with major shareholders. 25% vests at threshold performance. There is straight-line vesting between threshold and maximum. A two-year post-vesting holding period applies to the net of tax shares for awards granted in 2018 and beyond. A malus and clawback mechanism applies in specific circumstances including in the event of a material misstatement of the Group’s accounts and also for other defined reasons. Shareholding guidelines To provide alignment with shareholder interests. Executive Directors are required to build up a shareholding equivalent to 200% of base salary over a five-year period. Post-cessation shareholding To provide alignment with shareholder interests in the long term. Executive Directors are required to retain all shares acquired on vesting under the Company’s LTIP, up to a value equal to 200% of their basic salary, for a period of two years following the cessation of their employment with the Company for any reason. This requirement will apply to all shares which vest after the Policy takes effect, regardless of when awards were made under the Company’s LTIP. N/A N/A Chairman’s and Non-Executive Directors’ Remuneration Non-Executive Director fees To attract and retain a high-calibre Chairman and Non-Executive Directors by offering market- competitive fee levels. 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. Our policy is for the Executive Directors to review the remuneration of Non-Executive Directors annually following consultation with the Chairman. The Chairman’s remuneration is reviewed annually by the Remuneration Committee. The Chairman and the Non-Executive Directors are entitled to reimbursement of reasonable expenses. They may also receive limited travel or accommodation-related benefits in connection with their role as a Director. The Non-Executive Directors will not participate in the Group’s share, bonus or pension schemes. Non-Executive Directors are engaged for terms of one year subject to appointment and reappointment at the Company’s AGM. Non-Executive Directors receive a single fee for all services to the Company. Levels of fee are reviewed annually with any increases normally aligning with general increases for the broader employee population of the Group. Carr's Group plc Annual Report and Accounts 2020 57 Governance Remuneration Committee Report continued 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 ordinarily be limited to 200% of base salary (i.e. 100% annual bonus plus 100% Long Term Incentive Plan). This can be increased to 300% in exceptional circumstances (i.e. 100% annual bonus plus 200% 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. Directors’ terms of employment and loss of office The Group’s current policy is not to enter into employment contracts with any element of notice period in excess of one year. All Non-Executives are appointed for terms of 12 months and stand for re-election annually at the Company’s AGM. 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. Remuneration Committee discretions The Committee will operate the annual bonus plan and LTIP according to their respective rules. To ensure the efficient operation and administration of these plans, the Committee retains discretion in relation to a number of areas. This is consistent with market practice and these include (but are not limited to) the following: • • • the participants; the timing of grant and/or payment; the size of grants and/or payments (within the limits set out in the Policy table); the determination of vesting based on the assessment of performance; the determination of a ‘good leaver’ and where relevant the extent of vesting in the case of the share-based plans; treatment in exceptional circumstances such as a change of control; • • • • making the appropriate adjustments required in certain circumstances (e.g. rights issues, corporate restructuring events, variation of capital and special dividends); • cash settling awards; and • the annual review of performance measures, weightings and setting targets for the discretionary incentive plans from year to year. The Committee also retains the ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose. Any varied performance condition would not be materially less difficult to satisfy in the circumstances. Performance measures and targets Our Group strategy and business objectives are the primary consideration when we are selecting performance measures for incentive plans. The annual bonus is based on performance against a stretching combination of financial and non-financial measures. Profit before tax reflects the Group’s strategic objective to increase profit. In addition, Executive Directors are assessed on strategic objectives as agreed by the Committee at the beginning of the year. The LTIP is assessed against growth in adjusted Earnings Per Share as it rewards improvement in the Group’s underlying financial performance and is a measure of the Group’s overall financial success and is visible to shareholders. 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. 58 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Dates of service contracts and first appointment to the Board for all Directors are given opposite. Date of service contract/ letter of appointment Date first appointed/ to be appointed to the Board Date stood/standing down Executive Directors Hugh Pelham Neil Austin Tim Davies Non-Executive Directors Peter Page John Worby Ian Wood Alistair Wannop Kristen Eshak Weldon Chris Holmes 23 August 2020 1 January 2013 18 October 2012 1 September 2020 1 September 2020 1 September 2020 1 September 2020 26 July 2020 1 September 2019 4 January 2021 1 May 2013 1 March 2013 1 November 2019 1 April 2015 1 October 2015 1 September 2005 1 October 2020 7 January 1992 12 January 2021 7 January 2020 An Executive Director’s service contract may be terminated summarily without notice and without any further payment or compensation, except for sums accrued up to the date of termination, if they are deemed to be guilty of gross misconduct or for any other material breach of the obligations under their employment contract. The Group has the right to terminate contracts by making a payment in lieu of notice. Any such payment will typically reflect the individual’s salary, benefits and pension entitlements. The Group has the ability to mitigate costs and phase payments, if alternative employment is obtained. Estimates of total future potential remuneration from 2020 pay packages The tables below provide estimates of the potential future remuneration of each Executive Director based on the remuneration opportunity granted in the 2020/2021 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. There will be no automatic entitlement to a bonus if an Executive Director has ceased employment or is under notice. However, the Committee may at its discretion pay a prorated bonus in respect of the proportion of the financial year worked. Such payment could be payable in cash and not subject to deferral. Any share-based entitlements granted to an Executive Director under the Group’s share plans will be treated in accordance with the relevant plan rules. Usually, any outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, such as death, ill-health, injury, disability, redundancy, retirement with the consent of the Committee, or any other circumstances at the discretion of the Committee, ‘good leaver’ status may be applied. For good leavers under the LTIP, outstanding awards will vest at the original vesting date to the extent that the performance condition has been satisfied and be reduced on a pro rata basis to reflect the period of time which has elapsed between the grant date and the date on which the participant ceases to be employed by the Group. For good leavers under the deferred bonus plan, unvested awards will usually vest in full upon cessation. In determining whether a departing Executive Director should be treated as a ‘good leaver’, the Committee will take into account the performance of the individual and Group over the whole period of employment and the reasons for the individual’s departure. In the event of a change of control resulting in termination of office, the Executive Directors are entitled to 12 months’ base salary. The Non-Executive Directors are not entitled to any compensation for loss of office. Base salaries are as at 1 September 20201. Benefits are valued using the figures in the total remuneration for the 2019 financial year table, adjusted for any benefits that will not be provided during 2020. Pensions are valued by applying the appropriate percentage to the base salary. Tim Davies Neil Austin1 Hugh Pelham Base £’000 289 251 2252 Benefits £’000 Pension £’000 1 1 1 43 10 9 Total £’000 333 262 235 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 both the financial and non-financial targets set for the annual bonus scheme. 1 Neil Austin’s total potential remuneration for the 2020/21 financial year has been adjusted to reflect the adjustment made from November 2020 as a consequence of the salary review undertaken by the Committee in 2020. 2 The fixed remuneration for Hugh Pelham has been prorated to reflect that his appointment commences from 4 January 2021. The full year equivalent would be a base salary of £337,000, and total fixed remuneration of £351,000. Carr's Group plc Annual Report and Accounts 2020 59 Governance Remuneration Committee Report continued Tim Davis Chief Executive Officer Total 74% 26% £453,000 Annual Report on Remuneration This part of the Directors’ Remuneration Report sets out a summary of how the Directors’ Remuneration Policy was applied during the 2019/20 financial year. Maximum with 50% share price appreciation Maximum On Target Fixed 74% 26% £453,000 85% 15% £393,000 100% 0% £333,000 0 100 200 300 400 500 Neil Austin Chief Financial Officer 29% 28% 42% £890,000 Maximum with 50% share price appreciation 34% 33% 33% £764,000 Maximum On Target 58% 28% 14% £450,000 100% 0% Fixed £262,000 0 200 400 600 800 1000 Hugh Pelham Chief Executive Officer (Designate)1 24% 23% 52% £966,000 Maximum with 50% share price appreciation 29% 28% 42% £797,000 Maximum 54% 26% 20% On Target 100% 0% Fixed £431,000 £235,000 0 200 400 600 800 1000 1 Note that the fixed remuneration and annual bonus figures shown are reflective of Hugh Pelham’s prorated annual base salary for the period from 4 January 2021. Salary and benefits Annual bonus LTIP 60 Carr's Group plc Annual Report and Accounts 2020 Remuneration Committee During the 2019/20 year, the Remuneration Committee comprised Ian Wood (Chair), John Worby, Alistair Wannop and Peter Page3. The Committee met on 5 occasions during the year with all members in attendance (see page 43). The Executive Directors may attend meetings of the Remuneration Committee by invitation and in an advisory capacity only. No person attends any part of a meeting at which his or her own remuneration is discussed. The Chairman and the Executive Directors determine the remuneration of the other Non-Executive Directors. During the year the Committee considered: the Committee’s terms of reference; • the Corporate Governance Code and developing remuneration • trends, and their impact on the activities of the Committee and remuneration policy; the Directors’ Remuneration Policy; levels of basic pay for Executive Directors, the Chairman and senior management; the remuneration package to be offered to the incoming Chief Executive Officer Designate; • • • • performance targets, both financial and non-financial, for Executive Director variable pay; • pay and benefits structures across the broader Group (including • • gender pay gap reporting and CEO pay ratios); the outcome of bonus arrangements for Executive Directors and senior management; the award, and vesting, of long-term incentives for Executive Directors and senior management; • overall remuneration of Executive Directors; and • shareholder feedback relating to changes being proposed to the Directors’ Remuneration Policy. 3 Who became a member on 1 November 2019 upon his appointment to the Board. Strategic Report Governance Financial Statements 2020 Remuneration (Audited Information) In this section we summarise the pay packages awarded to our Executive Directors for performance in the 2020 financial year versus 2019. 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. Salary/fees Benefits1 Pension Total fixed pay Bonus LTIP4 Total variable pay Total remuneration £’000 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Executive Directors Tim Davies Neil Austin 286 211 Non-Executive Directors Chris Holmes2 Alistair Wannop John Worby Ian Wood Peter Page3 29 40 40 40 75 280 207 82 39 39 39 N/A 1 1 — — — — — 1 1 43 32 43 31 330 244 324 239 43 38 — — — — N/A — — — — — — — — — N/A 29 40 40 40 75 82 39 39 39 N/A — — — — — 169 131 — — — — N/A 135 98 271 200 178 136 440 331 508 380 764 570 — — — — — — — — — N/A — — — — — — — — — N/A 29 40 40 40 75 82 39 39 39 N/A 1 Benefits consist of private medical insurance, death in service and income protection insurance. 2 Chris Holmes stood down from the Board on 7 January 2020. 3 Peter Page was appointed to the Board on 1 November 2019. 4 LTIP award values are calculated using the average share price over the final three months of the relevent financial year. 2020 Annual Bonus Payout The annual bonus is calculated using a combination of financial and strategic performance targets which are set with regard to Group budget, historic performance, market outlook and future strategy. 80% of the bonus was based on Group adjusted profit before tax (PBT). 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 Group is committed to disclosing its performance targets retrospectively save where this is prevented due to commercial sensitivities. For the year ending 29 August 2020, the PBT targets were set in accordance with the table below. Threshold target (0%) £’000 Basic target (30%) £’000 Maximum target (80%) £’000 17,616 18,543 19,470 Payments are adjusted on a straight-line basis between the targets set out above. For the year ended 29 August 2020, adjusted PBT for the Group was £14.9m. This performance was below the threshold target and so nothing was payable to the Executive Directors in connection with the Group’s financial targets. Carr's Group plc Annual Report and Accounts 2020 61 Governance Remuneration Committee Report continued Strategic targets, which account for 20% of the bonus, were set at the start of the year. Details of certain targets, together with performance against those targets, are provided in the tables below. Tim Davies: Objective Performance measures Performance outcome a. Successful integration of NW Total into the Group. • Development of target business and • Business developing in line with acquisition plan with Engineering division in line with Board strategy and acquisition plan. increasingly diverse order book and opportunity pipeline growth in line with the Board’s acquisition plan. • Collaboration and joint working between NW Total and other Engineering businesses. • Several collaborative initiatives already underway with other Engineering division businesses in UK Service & Manufacturing. • Continuing growth of order book over • Strong performance by business in first year as part of the medium term. Group. b. Continued integration and development of Animax business. • Delivery of first phase of bolus manufacturing automation including successful manufacture to required standards. • Growth in international sales and progress with UK business development strategy. c. Identify and deliver suitable acquisitions which align to the Board’s strategy. • Develop pipeline of suitable acquisition opportunities with a targeted return which meets the Board’s strategy. • Boluses successfully manufactured using new automated process. Testing to date shows good quality product which meets required standards. • International sales growth has been slower than expected owing to delay in securing product registrations and the implementation of international business development strategy. • Seven acquisition profiles presented to the Board during the year, with detailed work undertaken and presented to the Board on three opportunities. • Progression of opportunities delayed owing to COVID-19 but • Detailed appraisal of acquisition all potential projects remain under review. opportunities, with plans presented to the Board for consideration and/or approval where appropriate. d. Continued development of global Agriculture strategy. • Development and presentation of revised global Agriculture strategy. • Implementation of existing strategy relating to Supplements including focus on UK dairy and international markets with demonstrable year-on-year growth. • Implementation of restructuring of UK Agriculture business. • Significant year-on-year international Supplements growth (New Zealand sales increased by 40%). • Dairy Supplements launch taking place in December 2020 (COVID-19 delayed original planned launch). • Development of strategy through consideration of markets, customers and competitors, to facilitate transition to new CEO in January 2021. • UK Agriculture transformation plan presented to the Board with implementation on track. Neil Austin: Objective Performance measure Comments on progress a. Successful integration of NW Total into the Group. • Integration of business operations including financial reporting, IT, internal and external audit, tax compliance, banking and payroll. • All integration work completed successfully, including the on-boarding of staff into the Group’s defined contribution pension scheme. b. Successful continuation of Group ERP project. • ERP project progressing in line • ERP go-live for targeted UK Supplements businesses took with approved revised budget and delivery timelines. place successfully over the year, having been delayed from March 2020 due to COVID-19. • Regular progress reports delivered to • UK Agriculture project underway and scheduled for go-live in the Board. May 2021. • Successful go-live within two UK • Revised scope and budget presented to the Board and Supplements sites. approved in August 2020. • Progress with UK Agriculture • Board regularly appraised and project head presented business with go-live planned for 2021. detailed update to Board on 13 October. 62 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Objective Performance measure Comments on progress a. Support CEO in • Support development of pipeline of developing and delivery of acquisition pipeline. suitable acquisition opportunities and provide detailed appraisals to the Board for consideration. • Seven acquisition profiles presented to the Board during the financial year, with detailed work undertaken and presented to the Board on three opportunities. • Progression of opportunities delayed owing to COVID-19 but • Deploy structured process in all potential projects remain under review. • Post-investment appraisal devised, and appraisals presented in relation to NuVision Engineering, Inc. and Animax Limited. respect of: a. acquisition identification; b. deal evaluation; c. due diligence; and d. execution (if appropriate). • Development of a post-investment appraisal process for acquisitions. e. Further develop financial reporting. • Develop Board reporting to further improve understanding of current performance and incorporate more forward-looking information. • More detailed commentary implemented during the year, and reporting format improved to enable better visibility of trading performance for each business. Further refinements planned for FY21 following discussions with NEDs. • Inclusion of opportunity pipeline information for Engineering businesses. • Inclusion of latest year end forecasts. • Opportunity pipeline has been developed ready for implementation. • Forecasting information included from March 2020 and further detailed forecast information presented at Board meetings. • Extensive new COVID-19 cash flow reporting in place. In addition to the above strategic performance indicators, the Committee has a discretion to consider matters such as good corporate governance which can include environmental, social and governance considerations. Long Term Incentive Plan awards during the year (audited) Long-term awards for 2020 were made to the Executive Directors in line with the Directors’ Remuneration Policy. Following the year end, the Committee reviewed overall outcomes of the year and noted that good progress had been made towards the non-financial targets. Noting the financial performance of the Company, the Committee considered whether it would be appropriate to exercise its discretion and withhold awarding any payment to Executive Directors under the non-financial targets. In making its judgement, the Committee took into account that good strategic progress had been made, despite significant and unprecedented external challenges, and also the exceptional response by the Executive Directors to the COVID-19 pandemic, which substantially mitigated its impact on the Company. In the light of those considerations, the Committee determined that a payment based upon achievement of the non-financial targets was merited and awarded a bonus of 15% to Tim Davies and 18% to Neil Austin. Long Term Incentive Plan The awards made to Executive Directors in 2017 were subject to average annual adjusted EPS growth targets over the three-year period ending on 29 August 2020 and from a base adjusted EPS of 10.7p. Threshold vesting was set at 3% average annual growth. The average EPS growth over the three-year period was 5.49% and, accordingly, 51.64% of shares under the long-term awards made to Executive Directors in 2017 vested. Basis on which the award was made Face value of the award (£’000) Number of shares Threshold vesting End of performance period Tim Davies Neil Austin 199,810 100% of salary 147,859 100% of salary 286 25% 211 25% August 2022 August 2022 The performance conditions which govern the vesting of those shares are based on annual average growth in adjusted EPS over a three-year period. The Committee regularly reviews the performance measures it adopts to incentivise long-term incentives and considers growth in adjusted EPS to be appropriate because it directly measures the Group’s underlying financial performance and is visible to shareholders. Average annual growth % % vesting 3 10 25 100 Nothing is payable below 3%, and a sliding scale operates between this and the maximum available. Carr's Group plc Annual Report and Accounts 2020 63 Governance Remuneration Committee Report continued All-employee share plans The Executive Directors are also eligible to participate in the UK all-employee plans. The Carr’s Group Sharesave Scheme 2016 is an 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. Total pension entitlements (audited) The table below provides details of the Executive Directors’ pension benefits: Tim Davies Neil Austin Normal retirement age 67 67 Total contributions to DC-type pension plan £’000 — — Cash in lieu of contributions to DC-type pension plan £’000 43 32 Each Executive Director has the right to participate in the Carr’s Group defined contribution pension plan or to elect to be paid some or all of their contribution in cash. During the year, pension contributions and/or cash allowances in the year were capped at 15% of salary for existing Executive Directors although contribution rates will be aligned with the majority of the UK workforce before the end of the current financial year. Newly appointed Executive Directors will receive an employer pension contribution that does not exceed the rate received by the majority of the UK workforce (currently 4% of base salary). Payments to past Directors (audited) No payments to past Directors have been made during the year. Payments for loss of office (audited) No payments for loss of office have been made to Directors during the year. 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 below. Total number of interests in shares Vested LTIP Unvested LTIP SAYE (unvested without performance conditions) Unvested deferred bonus shares % of salary held in shares* Executive Directors Tim Davies Neil Austin Non-Executive Directors Alistair Wannop John Worby Ian Wood Peter Page 359,019 291,729 22,610 25,000 30,000 40,000 115,070 84,227 388,447 287,450 16,965 16,965 71,994 54,330 — — — — — — — — — — — — — — — — 137% 178% n/a n/a n/a n/a *Based upon the average average share price over the three months of the year ended 29 August 2020. Performance shares (audited information) The maximum number of outstanding shares that have been awarded to Directors under the LTIP are currently as follows: Tim Davies Neil Austin 2017/18 award 2018/19 award 2019/20 award 222,818 163,095 188,637 139,591 199,810 147,859 64 Carr's Group plc Annual Report and Accounts 2020 Assessing pay and performance In the table below we summarise the Chief Executive’s single remuneration figure over the past five years, as well as how variable pay plans have paid out in relation to the maximum opportunity. None of the remuneration shown is attributable to share price appreciation. Strategic Report Governance Financial Statements Single figure of total remuneration Annual variable element (actual award versus maximum opportunity) Long-term incentive (vesting versus maximum opportunity) Ten-year historical TSR performance 500 2016 Tim Davies 2017 Tim Davies 2015 Tim Davies 911 100% 531 55% 100% 37.45% 2018 Tim Davies 861 2019 Tim Davies 764 100% 60.41% 2020 Tim Davies 508 15% 100% 100% 51.64% 308 0% 0% 450 400 350 300 250 200 150 100 50 0 Aug 10 Carr’s Group plc FTSE All-Share Price Index Source: Thomson datastream Aug 11 Aug 12 Aug 13 Aug 14 Aug 15 Aug 16 Aug 17 Aug 18 Aug 19 Aug 20 Change in Chief Executive’s remuneration In the table below we show the percentage change in the Directors’ remuneration between the 2019 and 2020 financial years compared to the other employees. Base pay/fees Benefits Annual bonus Tim Davies Neil Austin Chris Holmes John Worby Ian Wood Alistair Wannop Other UK employees 2% 2% 2% 2% 2% 2% 2% 0% 0% N/A N/A N/A N/A 0% -74.7% -71.0% N/A N/A N/A N/A -39.2% Other UK employees The Remuneration Committee considers pay across the entire Group when setting Executive Director remuneration. Annual consultations take place across the Group between the Executive Directors, senior management and the Group Head of HR Group in relation to employee pay. The outcome of that exercise, and any changes to employee pay levels, are considered when determining the appropriateness to changes in Executive Director pay. Chief Executive Officer pay ratio (unaudited) The table below shows the pay ratio based on the total remuneration of the Chief Executive Officer to the 25th, 50th and 75th percentile of all permanent UK employees of the Group. Total pay (£’000) Pay ratio CEO pay 25th percentile Median 75th percentile 2020 508 — 2019 763 — 2020 2019 2020 21 24 19 41 25 17 2019 25 31 2020 36 14 2019 34 22 The Group adopted Option A as defined in The Companies (Miscellaneous Reporting) Regulations 2018, as the calculation methodology for the above ratios. The 25th, median and 75th percentile pay ratios were calculated using the full-time equivalent remuneration for all UK employees as at 29 August 2020. Carr's Group plc Annual Report and Accounts 2020 65 Governance Remuneration Committee Report continued Gender pay gap Since 2017, the Company has reported the gender pay gap within its largest subsidiary, Carrs Billington Agriculture (Sales) Limited. Detailed information on the Carrs Billington gender pay gap can be found on the company’s website at www.carrs-billington.com. This year, the Committee also considered the gender pay gap across the whole of the UK Group, which was as follows for the snapshot period ending 5 April 2019: Inflationary salary increases were awarded to the Executive Directors effective 1 September 2020, of 1% which is consistent with the broader workforce. A salary increase of 17.5% was also awarded to Neil Austin with effect from 1 November 2020, following the Executive Director benchmarking exercise undertaken by the Committee after the year end as part of its CEO succession planning exercise. Taking into account the alignment of pension contributions, the overall increase in fixed remuneration payable to Neil Austin amounts to 6.3%. Difference between men and women Hourly pay Bonus Mean 28% 63% Proportion of people awarded a bonus Men Women Median 25% 63% Mean 48% 35% Hugh Pelham will join the Board as CEO Designate on 4 January 2021 and will take over as CEO upon conclusion of the Company’s AGM on 12 January 2021. Hugh will receive an annual base salary of £337,000 per annum. This base salary is reflective of an increase of 16.6% against the previous CEO base salary, although a reduction in employer pension contributions means that overall fixed remuneration is 5.4% higher. The Committee took advice from remuneration consultants PwC in connection with the proposed salary which was considered to be commensurate with market levels. External advisors During the year, external advisers Aon plc (Aon) and PricewaterhouseCoopers LLP (PwC) were engaged to advise the Committee on remuneration issues, most notably in connection with proposed changes to the Directors’ Remuneration Policy and on the remuneration offered to the incoming Chief Executive Officer Designate. Both Aon and PwC are a signatories to the Remuneration Consultants’ Code of Conduct, which requires that its advice be objective and impartial. The Company switched from Aon to PwC due to the Committee’s primary adviser moving roles. Total combined fees paid for the services provided amounted to £14,000. PwC provides other services to the Company, in relation to accounting. The Committee is satisfied that no conflicts of interest in respect of advice provided to the Committee exist. It is also satisfied that the members of Aon and PwC teams do not have connections with the Company which might impair their independence. 2020 AGM At our AGM in January 2020, the Committee’s Annual Report on Remuneration received a 99.6% proxy vote from shareholders in favour (47,277,997 votes), with 0.3% against (143,909 votes) and 0.1% withheld (47,175). The previous Directors’ Remuneration Policy, which was approved at our AGM in January 2018, received a 99.7% proxy vote from shareholders in favour (48,274,652 votes), with 0.2% against (138,890 votes) and 0.1% withheld (74,059 votes). By order of the Board Ian Wood Chair of the Remuneration Committee 23 November 2020 Percentage of men/women in each pay quartiles Men Women Lowest 51% 49% Q2 67% 33% Q3 Highest 80% 20% 86% 14% Relative spend on pay The table shows the relative importance of spend on pay compared to distributions to shareholders. Employee costs Dividends paid to shareholders 52,890 3,344 48,397 4,173 2020 £’000 2019 £’000 % change 9.3 -19.9* *The reduction shown in dividends paid in the year is due to the deferral of the interim dividend announced on 15 April 2020. That interim dividend was reinstated and declared on 15 July 2020 (and paid following the year end on 2 October 2020). The total dividends declared in respect of the year ended 29 August 2020 remains unchanged from the prior year. External appointments The Executive Directors did not receive any remuneration in respect of any external appointments in 2019/20. Implementation of the policy in 2020/21 For 2020/21, the maximum annual bonus for the Executive Directors’ will remain 100% of salary. 25% of any bonus will be deferred for two years in the form of shares. Performance will be assessed against stretching targets which will be 80% financial and 20% strategic. Financial targets will be based upon adjusted PBT for the Group only and will not have any divisional splits. All annual bonus targets will vest at thresholds of 0%. Due to commercial sensitivity, targets will be disclosed respectively in next year’s report. The Committee intends to grant LTIP awards of 100% of salary to Neil Austin and, upon him joining the Board, Hugh Pelham, with future vesting conditional upon stretching targets based upon an adjusted EPS growth measure. Awards will vest at a threshold of 25% for average growth of 3% per annum and will rise on a straight- line basis to the maximum 100% for average growth of 10% per annum during the performance period. 66 Carr's Group plc Annual Report and Accounts 2020 Directors’ Report The Directors submit their report and the audited accounts of the Company for the year ended 29 August 2020. 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. Interim dividend Final dividend per share proposed 2020 2019 2.25p 2.50p 2.25p1 2.50p 1 In aggregate comprising a first interim dividend of 1.125 pence per share paid on 31 May 2019 and a second interim dividend of 1.125 pence per share paid on 4 October 2019. Subject to approval at the Annual General Meeting, the final dividend will be paid on 15 January 2021 to members on the register at the close of business on 4 December 2020. Shares will become ex-dividend on 3 December 2020. The Group profit from continuing activities before taxation was £12.5m (2019: £16.3 m. After taxation charge of £1.6 m (2019: £2.7 m), the profit for the year is £10.9 m (2019: £13.6 m). 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 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 28 of 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 32 to 35. Environment The Company’s report on sustainability and the environment, including its carbon footprint, is on page 34. Strategic Report Governance Financial Statements Political and charitable donations During the year ended 29 August 2020 the Group contributed £81,000 (2019: £41,000) in the UK for charitable purposes. Further details have been included with the Corporate Responsibility Statement on pages 34 to 35. There were no political donations during the year (2019: £nil). 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 29 to the financial statements. At the last Annual General Meeting the Directors received authority from the shareholders to: • Allot Shares – this gives Directors the authority to allot 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 Annual General Meeting to be held on 12 January 2021, is limited to £762,346.30 which is approximately 33% of the nominal value of the issued share capital on 21 November 2019. 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 Annual General Meeting to be held on 12 January 2021. • 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 without a pre-emptive offer to existing shareholders, up to an aggregate nominal amount of £115,507.00, representing approximately 5% of the Company’s issued share capital as at 21 November 2019. This authority will expire at the end of the Annual General Meeting to be held on 12 January 2021. • 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 9,240,560 Ordinary Shares being approximately 10% of the Company’s issued share capital at 21 November 2019. The price to be paid for any share must not be less than £0.025, 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 five 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 Annual General Meeting to be held on 12 January 2021. The Directors would consider holding any of its own shares that it purchases pursuant to this authority as treasury shares. Carr's Group plc Annual Report and Accounts 2020 67 Governance Directors’ Report continued 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 60 to 66), are as follows: T J Davies N Austin P W B Page A G M Wannop J G Worby I Wood At 29 August 2020 Ordinary Shares At 31 August 2019 Ordinary Shares 359,019 291,729 40,000 22,610 25,000 30,000 245,929 202,054 0 22,610 25,000 10,000 All the above interests are beneficial. There have been no other changes to the above interests in the period from 29 August 2020 to 23 November 2020. 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 there 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. Change of control There are a number of significant agreements across the Group with provisions that take effect, alter or terminate upon a change of control of the Company, such as bank facility agreements, agreements with strategic partners (including joint venture agreements), employee share scheme rules and certain project contracts within the Engineering division. The Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs solely because of a change of control. 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. Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company financial statements on the same basis. Full details of the deadlines for exercising voting rights in respect of the resolutions to be considered at the Annual General Meeting to be held on 12 January 2021 will be set out in the Notice of Annual General Meeting. 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 Parent Company and of their profit or loss for that period. 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 23 November 2020 in the 92,465,833 Ordinary Shares of the Company, as required by the Companies Act 2006: Number of shares % of issued share capital Heygate and Sons Limited BBHISL Nominees Limited (130227) Nortrust Nominees Limited (BAEMNL) Chase Nominees Limited (ELUCIT) Rathbone Nominees Limited 12,652,870 4,270,000 3,973,519 3,701,254 2,646,797 13.68 4.62 4.30 4.00 2.86 In preparing each of the Group and Parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable, relevant and reliable; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; • assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 68 Carr's Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK 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 pages 38 to 39. Having made enquiries of fellow Directors, each of the Directors at the date of this report confirms that: • they are not aware of any relevant audit information of which the Company’s auditors are unaware; and they have taken all the steps that they ought to have taken as a Director in order to make themself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. • Responsibility statement of the Directors in respect of the annual financial report Each of the Directors confirms that, to the best of their knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. • Each of the Directors considers the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. By order of the Board Matthew Ratcliffe Company Secretary 23 November 2020 Carr's Group plc Annual Report and Accounts 2020 69 Independent Auditor's Report To the members of Carr’s Group plc 1. Our opinion is unmodified We have audited the financial statements of Carr’s Group plc (“the Company”) for the year ended 29 August 2020 which comprise the Consolidated Income Statement, Consolidated and Company Statements of Comprehensive Income, Consolidated and Company Balance Sheets, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated and Company Statements of Cash Flows, and the related notes, including the Principal Accounting Policies. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 29 August 2020 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU 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. • • • Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee. We were first appointed as auditor by the shareholders on 8 January 2019. The period of total uninterrupted engagement is for the two financial years ended 29 August 2020. We have fulfilled our ethical responsibilities under, and we remain independent of, the Group in accordance with UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. Materiality: Group financial statements as a whole £1,500,000 (2019: £850,000) 0.4% of Group revenue (2019: 4.9% of Group profit before tax before certain adjusting items) Coverage 93% (2019: 92%) of Group profit before tax Key audit matters Recurring risks The impact of uncertainties due to the UK exiting the European Union on our audit Going concern Contract risk in Engineering on over time contracts Parent Company: Valuation of Carr’s Group defined benefit pension obligation New: Provision for trade receivables vs 2019      70 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements 2. Key audit matters: including our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. The risk Our response The impact of uncertainties due to the UK exiting the European Union on our audit Refer to page 29 (principal risks), page 31 (viability statement), page 50 (Audit Committee Report). Unprecedented levels of uncertainty All audits assess and challenge the reasonableness of estimates, in particular as described in the Going concern, Contract risk in Engineering on over time contracts, Valuation of Carr’s Group defined benefit pension obligation (Parent Company) and Provision for trade receivables key audit matters below, and related disclosures, and the appropriateness of the going concern basis of preparation of the financial statements (see below). All of these depend on assessments of the future economic environment and the Group’s future prospects and performance. In addition, we are required to consider the other information presented in the Annual Report including the principal risks disclosure and the viability statement and to consider the Directors’ statement that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. Brexit is one of the most significant economic events for the UK and its effects are subject to unprecedented levels of uncertainty of consequences, with the full range of possible effects unknown. We developed a standardised firm-wide approach to the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included: • Our Brexit knowledge – We considered the Directors’ assessment of Brexit-related sources of risk for the Group’s business and financial resources compared with our own understanding of the risks. We considered the Directors’ plans to take action to mitigate the risks. • Sensitivity analysis – When addressing the Going concern, Contract risk in Engineering on over time contracts, Valuation of Carr’s Group defined benefit pension obligation (Parent Company) and Provision for trade receivables key audit matters, and other areas that depend on forecasts, we compared the Directors’ analysis to our assessment of the full range of reasonably possible scenarios resulting from Brexit uncertainty and, where forecast cash flows are required to be discounted, considered adjustments to discount rates for the level of remaining uncertainty. • Assessing transparency – As well as assessing individual disclosures as part of our procedures on the Going concern, Contract risk in Engineering on over time contracts, Valuation of Carr’s Group defined benefit pension obligation (Parent Company) and Provision for trade receivables key audit matters, we considered all of the Brexit related disclosures together, including those in the Strategic Report, comparing the overall picture against our understanding of the risks. Our results – As reported under the Going concern, Contract risk in Engineering on over time contracts, Valuation of Carr’s Group defined benefit pension obligation (Parent Company) and Provision for trade receivables key audit matters, we found the resulting estimates and related disclosures, and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit. Carr’s Group plc Annual Report and Accounts 2020 71 Independent Auditor's Report continued To the members of Carr’s Group plc Going concern Disclosure quality Our procedures included: The risk Our response Refer to page 31 (viability statement), page 51 (Audit Committee Report) and page 85 (accounting policy). The financial statements explain how the Board has formed a judgement that it is appropriate to adopt the going concern basis of preparation for the Group and Parent Company. That judgement is based on an evaluation of the inherent risks to the Group’s and Company’s business model and how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over a period of at least a year from the date of approval of the financial statements. The risks most likely to adversely affect the Group’s and Company’s available financial resources over this period were: • The impact of COVID-19 on the economy as a whole; • Benchmarking assumptions – We assessed the Group’s forecast models to identify and challenge the key underlying inputs and assumptions, comparing the Group’s assumptions used in the cash flow projections to externally derived data. • Funding assessment – We assessed the current and available committed facilities to understand the financial resources available to the Group during the forecast period from the balance sheet date and considered any related covenant requirements and the evidence available regarding whether they will be met. • Historical comparisons – We assessed historical forecasting accuracy by comparing forecast cash flows to those actually achieved by the Group. • Sensitivity analysis – We considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively. • The impact of Brexit on the Group’s • Evaluating Directors’ intent – We evaluated the Agriculture customer base in the United Kingdom linked to continued uncertainty over the nature of any future trade agreements and agricultural subsidies; and intent of the Directors and the potential mitigating actions within their control that they would take to improve the position should certain risks materialise. • The potential impacts of Brexit on the • Assessing transparency – We assessed the Group’s supply chain. There are also less predictable but realistic second order impacts, such as the potential impact of COVID-19 and Brexit in eroding customer or supplier confidence, which could result in a rapid reduction of available financial resources. The risk for our audit was whether or not those risks were such that they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had they been such, then that fact would have been required to have been disclosed. completeness and accuracy of the going concern disclosures in the financial statements with reference to our challenge of the Directors’ going concern assessment and considered whether they reflected the risks most likely to adversely affect the Group’s and Company’s available financial resources over the forecast period, and the risks associated with the Group‘s ability to continue as a going concern. Our results – We found the going concern disclosure without any material uncertainty to be acceptable (2019 result: acceptable). 72 Carr’s Group plc Annual Report and Accounts 2020   Contract risk in Engineering on over time contracts Contract revenue over time (£34.8m; 2019: £27.8m) Refer to page 50 (Audit Committee Report), pages 86 to 87 and 94 (accounting policy) and pages 97 and 114 to 115 (financial disclosures). Strategic Report Governance Financial Statements The risk Our response Subjective estimate Our procedures included: For a significant proportion of its contracts in the Engineering division, the Group recognises revenue and profit over time. Depending on the nature of the performance obligation, the Group measures progress based either on the input method (by considering the proportion of contract costs incurred relative to the estimated total forecast costs at completion), or the output basis (with reference to certified contract works). The recognition of contract revenue and profit over time for performance obligations measured on the input basis is dependent upon estimates in relation to the forecast total costs of each performance obligation, which inform the percentage of completion calculation. The recognition of contract revenue and profit over time for performance obligations measured on both the input and the output basis is dependent upon estimates in relation to forecast total revenues, including assessment of contract revenue variations, which should be recognised only when evidence supports the conclusion that it is highly probable that a significant reversal of revenue recognised will not occur. • The effect of these matters is that, as part of our risk assessment, we determined that contract revenue, profit recognition and the recoverability of contract assets involve a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. Contracts were selected for substantive audit procedures based on quantitative factors, such as financial significance and stage of completion, and qualitative factors, such as contracts under increased management scrutiny, that we considered to be indicative of risk. Our procedures for the contracts selected included: • Contract documentation – We inspected the contract documents and challenged the identification of performance obligations and the method of revenue recognition in accordance with IFRS 15. • Contract clauses scrutiny – Our inspection of contract documents included a search for unusual contract clauses or contractual mechanisms and we assessed how these were reflected in the amounts recognised in the financial statements. • Challenge key judgements – We obtained the detailed project review papers and challenged the Group’s estimates and judgements in respect of contract forecasts, variations, and the recoverability of contract assets via agreement to third-party certifications and confirmations, challenge of senior operational, commercial and financial management, and with reference to our own expertise. We also performed corroborative enquiries of the Group’s in-house legal counsel. Independent re-performance – We recalculated progress towards satisfaction of performance obligations to assess the expected revenue and profit recognition and compared this to the amounts recorded. • Tests of detail – We inspected correspondence with customers and third parties, including in instances where contract variations have arisen, to challenge the revenue and costs recorded. • Remote inspection – For contracts measured on the input basis in the UK Engineering business, we performed remote inspections, physically inspecting the job progress around the year-end point, and challenging the stage of completion and forecast costs to complete through observation and discussion with key personnel. • Cost allocation – We challenged the accuracy of contract cost allocation through vouching costs to source documentation and confirming that those costs related to the stated contract, reviewing certain controls including timesheet authorisation. • Assessing transparency – We considered the adequacy of the Group’s contract-related disclosures, including those in respect of estimates and judgements relating to contract revenues and profit recognition. Our results – We found the revenue and profit margin recognised on over time contracts to be acceptable (2019 result: acceptable). Carr’s Group plc Annual Report and Accounts 2020 73 Independent Auditor's Report continued To the members of Carr’s Group plc Provision for trade receivables Trade receivables (£49.1m; 2019: £51.4m) Provision (£1.9m; 2019: £1.3m) Refer to page 50 (Audit Committee Report), page 94 (accounting policy) and pages 115 to 116 (financial disclosures). Parent Company: Valuation of Carr's Group Pension Scheme defined benefit pension obligation (£65.8m; 2019: £68.0m) Refer to page 50 (Audit Committee Report), pages 87 and 94 (accounting policy) and pages 124 to 129 (financial disclosures). The risk Our response Subjective estimate Our procedures included: There are material amounts of trade receivables within the Agriculture division, where historically there has been a slower collection pattern and for which financial stress may have increased during the year due to the impacts of COVID-19 and Brexit (see above). The effect of these matters is that, as part of our risk assessment, we determined that the provision for trade receivables has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. • Assessing assumptions – We assessed the Directors’ assumptions behind the provision against trade receivables, and tested the accuracy of the ageing calculations in order to recalculate management’s provision. • Historical comparisons – We assessed historical receivable collection patterns in the Agriculture division and compared these to current trends. • Tests of detail – We assessed the amount of cash received against trade receivables at year-end, investigating significant, overdue amounts where cash has not been received and for which no provision has been recognised. • Assessing transparency – Assessing the adequacy of the Group’s disclosures about the degree of estimation involved in arriving at the provision. Our results – We found the provision for trade receivables to be acceptable. Subjective valuation Our procedures included: • Benchmarking assumptions – We challenged the key actuarial assumptions applied (discount rate, inflation rate and mortality rate) in estimating the defined benefit obligation with the support of our own pension specialists, including a comparison of the principal assumptions against market data. • Sensitivity analysis – We assessed the sensitivity of the defined benefit obligation to changes in certain key actuarial assumptions. • Assessment of experts – We assessed the competence, capabilities and objectivity of the external actuary engaged by the Company. • Assessing transparency – We considered the adequacy of the Company’s disclosures in respect of the sensitivity of the obligation to changes in key assumptions. Our results – We found the valuation of the Carr’s Group Pension Scheme defined benefit pension obligation to be acceptable (2019 result: acceptable). The Company operates a defined benefit pension scheme, the Carr’s Group Pension Scheme. The defined benefit obligation in respect of this scheme is material in the context of the overall balance sheet of the Company. Significant estimates in respect of key actuarial assumptions including the discount rate, inflation rate and mortality rate, are made in valuing the Company’s defined benefit obligation (before deducting the scheme’s assets). The scheme is closed to future accrual, but small changes in the assumptions and estimates would have a material impact on the financial position of the Company. The Company engages external actuarial specialists to assist in selecting appropriate assumptions and to calculate the obligation. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of the Carr’s Group Pension Scheme defined benefit obligation has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the Company’s financial statements as a whole, and possibly many times that amount. The financial statements (note 28) disclose the sensitivities estimated by the Company. The acquisitions of Animax and NW Total Engineered Solutions took place in the previous financial year. While there are aspects of the acquisition accounting which are subject to audit procedures in the current year, we have not assessed this as a significant risk in our current year audit. We also continue to perform procedures over the valuation of certain Carr's Group defined benefit pension scheme assets in relation to the Parent Company. However, the assets held are subject to lower estimation uncertainty than in the previous financial year and therefore we have not assessed this as one of the most significant risks in our current year audit. Therefore, these items are not separately identified in our report this year. 74 Carr’s Group plc Annual Report and Accounts 2020 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £1,500,000, determined with reference to a benchmark of revenue of which it represents 0.4% (2019: 4.9% of Group profit before tax, normalised to exclude certain of the year’s adjusting items as disclosed in note 5, of £17.2m). Our benchmark has changed because we consider revenue to be the most appropriate benchmark as it provides a more stable measure year on year than Group profit before tax, and is reflective of the size and complexity of the Group. Materiality for the Parent Company financial statements as a whole was set at £600,000 (2019: £350,000), determined with reference to a benchmark of Company total assets, of which it represents 0.7% (2019: 0.4%). Strategic Report Governance Financial Statements Group revenue £395.6m (2019: £403.9m) Group materiality £1,500,000 (2019: £850,000) £1,500,000 Whole financial statements materiality (2019: £850,000) £900,000 Range of materiality at 11 components £110,000 to £900,000 (2019: £100,000 to £620,000) £52,500 Misstatements reported to the Audit Committee (2019: £42,500) We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £52,500, in addition to other identified misstatements that warranted reporting on qualitative grounds. Revenue Group materiality Group revenue Group profit before tax 2 7 8 93% (2019: 92%) 92 91 2 1.5 0.5 100% (2019: 98%) 98 98 Group total assets 3 1 13 3 99% (2019: 87%) 84 96 Full scope for Group audit purpose 2020 Specified risk-focused audit procedures 2020 Full scope for Group audit purposes 2019 Specified risk-focused audit procedures 2019 Residual components Of the Group’s 53 (2019: 52 reporting components), we subjected nine (2019: eight) to full scope audits for Group purposes and two (2019: two) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full scope audit for Group purposes, but did present specific individual risks that needed to be addressed. We conducted reviews of financial information (including enquiry) at these non-significant components to re-examine our assessment that there were no significant risks of material misstatement. The components within the scope of our work accounted for the percentages illustrated opposite. The remaining 7% of Group profit before tax and 1% of total Group assets is represented by 14 reporting components, none of which individually represented more than 5% of any of total Group revenue, Group profit before tax or total Group assets. For these residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these. The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materialities, which ranged from £110,000 to £900,000, having regard to the mix of size and risk profile of the Group across the components. The work on two of the nine components (2019: two of the eight components) was performed by component auditors and the rest, including the audit of the Parent Company, was performed by the Group team. The Group team held video and telephone conference meetings with the component auditors. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. 4. We have nothing to report on going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). Carr’s Group plc Annual Report and Accounts 2020 75 Independent Auditor's Report continued To the members of Carr’s Group plc Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this Auditor's report is not a guarantee that the Group and the Company will continue in operation. • • • We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit matter, we are required to report to you if: • we have anything material to add or draw attention to in relation to the Directors’ statement in the Principal Accounting Policies in the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least 12 months from the date of approval of the financial statements; or the same statement is materially inconsistent with our audit knowledge. • We have nothing to report in these respects. 5. We have nothing to report on the other information in the Annual Report and Accounts The Directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic Report and Directors’ Report Based solely on our work on the other information: • we have not identified material misstatements in the Strategic • • Report and the Directors’ Report; in our opinion the information given in those reports for the financial year is consistent with the financial statements; and in our opinion those reports have been prepared in accordance with the Companies Act 2006. Directors’ Remuneration Report In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Disclosures of emerging and principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: 76 Carr’s Group plc Annual Report and Accounts 2020 the Directors’ confirmation within the Viability Statement on page 31 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and the Directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s and Company’s longer-term viability. Corporate governance disclosures We are required to report to you if: • we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the Directors’ statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; or • • a corporate governance statement has not been prepared by the Company. We are required to report to you if the Statement of Compliance with the UK Corporate Governance Code does not properly disclose a departure from the provisions of the UK Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in these respects. Based solely on our work on the other information described above • with respect to the Corporate Governance Statement disclosures about internal control and risk management systems in relation to financial reporting processes and about share capital structures: • we have not identified material misstatements therein; and • the information therein is consistent with the financial statements; and • in our opinion, the Corporate Governance Statement has been prepared in accordance with relevant rules of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. Strategic Report Governance Financial Statements 6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the • Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. 7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on pages 68 to 69, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussion with the Directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence and discussed with the Directors and other management the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant laws and regulations identified at Group level. The potential effect of these laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery, employment law, regulatory capital and liquidity and certain aspects of company legislation recognising the nature of the Group’s activities and its legal form. Auditing standards limit the required audit procedures to identify non- compliance with these laws and regulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Through these procedures, we became aware of actual or suspected non-compliance and considered the effect as part of our procedures on the related financial statement items. The identified actual or suspected non-compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter. Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations. 8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Nick Plumb (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Quayside House 110 Quayside Newcastle upon Tyne NE1 3DX 23 November 2020 Carr’s Group plc Annual Report and Accounts 2020 77 Consolidated Income Statement For the year ended 29 August 2020 Continuing operations Revenue Cost of sales Gross profit Distribution costs Administrative expenses Adjusted1 share of post-tax results of associate Adjusting items Share of post-tax results of associate Share of post-tax results of joint ventures Adjusted1 operating profit Adjusting items Operating profit Finance income Finance costs Adjusted1 profit before taxation Adjusting items Profit before taxation Taxation Profit for the year Profit attributable to: Equity shareholders Non-controlling interests Earnings per ordinary share (pence) Basic Diluted Adjusted1 Notes 2,3 2020 £’000 2019 £’000 395,630 (343,381) 403,905 (349,798) 52,249 (19,507) (21,535) 54,107 (18,454) (20,835) 5 2 5 2,4 7 7 2 5 2 8 10 10 10 1,191 – 1,191 1,442 16,247 (2,407) 13,840 313 (1,656) 14,904 (2,407) 12,497 (1,575) 1,230 (306) 924 1,453 18,930 (1,735) 17,195 463 (1,349) 18,044 (1,735) 16,309 (2,685) 10,922 13,624 9,533 1,389 10,922 10.3 10.2 11.9 12,049 1,575 13,624 13.1 12.8 14.6 1 Adjusted results are consistent with how business performance is measured internally and is presented to aid comparability of performance. Adjusting items are disclosed in note 5. An alternative performance measures glossary can be found on pages 143 to 144. 78 Carr’s Group plc Annual Report and Accounts 2020 Consolidated and Company Statements of Comprehensive Income For the year ended 29 August 2020 Strategic Report Governance Financial Statements Profit for the year Other comprehensive (expense)/income Items that may be reclassified subsequently to profit or loss: Foreign exchange translation (losses)/gains arising on translation of overseas subsidiaries Net investment hedges Taxation credit/(charge) on net investment hedges Items that will not be reclassified subsequently to profit or loss: Actuarial gains/(losses) on retirement benefit asset: – Group – Share of associate Taxation (charge)/credit on actuarial gains/(losses) on retirement benefit asset: – Group – Share of associate Other comprehensive (expense)/income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: Equity shareholders Non-controlling interests Notes Group 2020 £’000 2019 £’000 10,922 13,624 Company 2020 £’000 6,739 2019 £’000 6,768 (2,552) (54) 10 1,857 37 (7) 142 408 (1,845) (88) 28 19 (27) (96) (2,169) 8,753 7,364 1,389 8,753 314 15 283 13,907 6,854 12,332 1,575 13,907 6,854 – 6,854 – – – 142 – (27) – 115 – – – (1,845) – 314 – (1,531) 5,237 5,237 – 5,237 Carr’s Group plc Annual Report and Accounts 2020 79 Consolidated and Company Balance Sheets As at 29 August 2020 (Company Number 00098221) Notes 11 11 12 13 14 15,18 15,16 15,17 15 22 28 19 20 21 22 23 27 24 26 13 21 25 26 13 19 25 Group 2020 £’000 Company 2019 £’000 2020 £’000 2019 £’000 32,041 9,171 38,259 14,856 158 – 14,307 10,551 73 20 8,037 – 32,877 9,318 41,917 – 164 – 13,392 9,671 76 22 7,769 410 127,473 115,616 40,961 8,114 51,686 1,535 46,270 9,466 56,349 – 3 17,571 – 28,649 119,870 140,734 247,343 256,350 – 334 118 457 – 32,568 245 272 – 34,735 8,037 – 76,766 – – 2,617 1,954 – 7,984 12,555 89,321 – 376 158 – – 26,538 245 272 – 16,413 7,769 285 52,056 – – 36,185 840 – 6,778 43,803 95,859 (11,420) (2,778) (1,061) (55,522) (33) (23,856) – (1,269) (62,653) (1,010) (2,450) (97) – (1,660) – (7,806) – – (2,533) – (70,814) (88,788) (4,207) (10,339) (25,021) (11,171) (4,783) (1,385) (28,586) – (4,987) (2,999) (22,947) (354) (1,365) – (26,846) – (1,321) – (42,360) (36,572) (24,666) (28,167) (113,174) (125,360) (28,873) (38,506) 134,169 130,990 60,448 57,353 Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets 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 Contract assets Trade and other receivables Current tax assets Financial assets – Derivative financial instruments – Cash and cash equivalents Total assets Liabilities Current liabilities Financial liabilities – Borrowings – Leases Contract liabilities Trade and other payables Current tax liabilities Non-current liabilities Financial liabilities – Borrowings – Leases Deferred tax liabilities Other non-current liabilities Total liabilities Net assets 80 Carr’s Group plc Annual Report and Accounts 2020 Consolidated and Company Balance Sheets continued As at 29 August 2020 (Company Number 00098221) Strategic Report Governance Financial Statements Shareholders’ equity Share capital Share premium Other reserves Retained earnings: At the beginning of the year Effect of IFRS 16 adoption Profit attributable to the equity shareholders Other changes in retained earnings Total shareholders’ equity Non-controlling interests Total equity Notes 29 Group 2020 £’000 2,312 9,176 4,436 94,864 (931) 9,533 (2,264) 101,202 117,126 17,043 Company 2019 £’000 2,299 9,165 7,922 87,843 – 12,049 (5,028) 94,864 114,250 16,740 2020 £’000 2,312 9,176 780 44,196 (7) 6,739 (2,748) 48,180 60,448 – 134,169 130,990 60,448 2019 £’000 2,299 9,165 1,693 42,623 – 6,768 (5,195) 44,196 57,353 – 57,353 The comparative year presented has not been restated for the adoption of IFRS 16. The financial statements set out on pages 78 to 140 were approved by the Board on 23 November 2020 and signed on its behalf by: Tim J Davies Neil Austin Carr’s Group plc Annual Report and Accounts 2020 81 Consolidated Statement of Changes in Equity For the year ended 29 August 2020 Share Capital £’000 Share Premium £’000 Treasury Share Reserve £’000 Equity Compensation Reserve £’000 Foreign Exchange Reserve £’000 Other Reserve £’000 Retained Earnings £’000 Total Shareholders’ Equity £’000 Non- controlling Interests £’000 Total Equity £’000 As at 2 September 2018 2,285 9,141 Profit for the year Other comprehensive income/(expense) Total comprehensive income Dividends paid Equity-settled share-based payment transactions Allotment of shares Purchase of own shares held in trust Reclassified from liabilities Transfer – – – – – 14 – – – – – – – – 24 – – – At 31 August 2019 2,299 9,165 As previously reported at 31 August 2019 Effect of IFRS 16 adoption 2,299 – 9,165 – At 1 September 2019 (restated)1 Profit for the year Other comprehensive (expense)/income Total comprehensive (expense)/income Dividends paid Equity-settled share-based payment transactions Excess deferred taxation on share-based payments Allotment of shares Purchase of own shares held in trust Transfer 2,299 9,165 – – – – – – 13 – – – – – – – – 11 – – At 29 August 2020 2,312 9,176 – – – – – – – (13) – 13 – – – – – – – – – – – (58) 13 (45) 1,427 4,259 202 87,843 105,157 15,685 120,842 – – – – 53 – – 97 – – 1,887 1,887 – – – – – – – – – – – – – – (3) 12,049 12,049 1,575 13,624 (1,604) 283 – 283 10,445 (4,173) 12,332 (4,173) 1,575 (588) 13,907 (4,761) 759 – – – (10) 812 38 (13) 97 – 68 – – – – 880 38 (13) 97 – 1,577 6,146 199 94,864 114,250 16,740 130,990 1,577 – 6,146 – 199 – 94,864 (931) 114,250 (931) 16,740 130,990 (1,442) (511) 1,577 6,146 199 93,933 113,319 16,229 129,548 – – – – – (2,596) (2,596) – (843) – – – – – – – – – – – – – – – – – (2) 9,533 9,533 1,389 10,922 427 (2,169) – (2,169) 9,960 (3,344) 7,364 (3,344) 1,389 (588) 8,753 (3,932) 691 (152) (27) – – (11) (27) 24 (58) – 15 (2) – – – (137) (29) 24 (58) – 734 3,550 197 101,202 117,126 17,043 134,169 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 £691,000 (2019: £759,000) 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. 1 Restated for the adoption of IFRS 16 (note 37). 82 Carr’s Group plc Annual Report and Accounts 2020 Company Statement of Changes in Equity For the year ended 29 August 2020 Strategic Report Governance Financial Statements At 2 September 2018 Profit for the year Other comprehensive expense Total comprehensive income Dividends paid Equity-settled share-based payment transactions Excess deferred taxation on share-based payments Allotment of shares Purchase of own shares held in trust Reclassified from liabilities Transfer At 31 August 2019 As previously reported at 31 August 2019 Effect of IFRS 16 adoption At 1 September 2019 (restated)1 Profit for the year Other comprehensive income Total comprehensive income Dividends paid Equity-settled share-based payment transactions Excess deferred taxation on share-based payments Allotment of shares Purchase of own shares held in trust Transfer Share Capital £’000 Share Premium £’000 2,285 9,141 – – – – – – 14 – – – – – – – – – 24 – – – 2,299 2,299 – 2,299 9,165 9,165 – 9,165 – – – – – – 13 – – – – – – – – 11 – – At 29 August 2020 2,312 9,176 Treasury Share Reserve £’000 Equity Compensation Reserve £’000 Retained Earnings £’000 Total Equity £’000 – – – – – – – – (13) – 13 – – – – – – – – – – – (58) 13 (45) 1,537 42,623 55,586 – – – – 59 – – – 97 – 1,693 1,693 – 1,693 – – – – (868) – – – – 6,768 (1,531) 5,237 (4,173) 520 2 – – – (13) 6,768 (1,531) 5,237 (4,173) 579 2 38 (13) 97 – 44,196 57,353 44,196 (7) 57,353 (7) 44,189 57,346 6,739 115 6,854 (3,344) 519 (25) – – (13) 6,739 115 6,854 (3,344) (349) (25) 24 (58) – 825 48,180 60,448 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 £519,000 (2019: £520,000) was transferred from the equity compensation reserve to retained earnings and £212,000 (2019: £301,000) was transferred from the equity compensation reserve to investment in subsidiaries in respect of options exercised in the year. 1 Restated for the adoption of IFRS 16 (note 37). Carr’s Group plc Annual Report and Accounts 2020 83 Consolidated and Company Statements of Cash Flows For the year ended 29 August 2020 Cash flows from operating activities Cash generated from/(used in) continuing operations Interest received Interest paid Tax (paid)/received Net cash generated from/(used in) operating activities Cash flows from investing activities Acquisition of subsidiaries (net of overdraft/cash acquired) Contingent/deferred consideration paid Dividends received from subsidiaries Net receipt/(payment) of loans to subsidiaries Dividend received from associate and joint ventures Other loans Purchase of intangible assets Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Purchase of own shares held in trust Notes 31 Group 2020 £’000 Company 2019 £’000 2020 £’000 2019 £’000 22,639 176 (1,696) (3,059) 18,060 — (2,659) — — 701 718 (1,459) 421 (6,569) (58) 16,004 178 (1,276) (2,306) 12,600 (9,868) (379) — — 711 79 (1,310) 831 (4,471) (13) (2,520) 1,774 (729) (571) (2,046) — — 8,856 1,130 588 — — — — (58) (2,587) 1,765 (547) 492 (877) — — 6,805 (12,623) 588 — (89) — (46) (13) Net cash (used in)/generated from investing activities (8,905) (14,420) 10,516 (5,378) Cash flows from financing activities Proceeds from issue of ordinary share capital New bank loans and movement on RCF Lease principal repayments Repayment of borrowings Receipt of loans from subsidiaries Decrease in other borrowings Dividends paid to shareholders Dividends paid to related party 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 29 9 24 1,889 (3,171) (2,459) — (14,508) (3,344) (588) 38 14,430 (1,278) (2,493) — (1,352) (4,173) (588) (22,157) 4,584 (989) (13,991) 24,295 526 3,290 21,005 Cash and cash equivalents at end of the year 24 10,304 24,295 24 (1,500) (114) (2,400) 110 — (3,344) — (7,224) (40) 1,206 6,778 7,984 38 13,763 — (1,613) — — (4,173) — 8,015 63 1,823 4,955 6,778 84 Carr’s Group plc Annual Report and Accounts 2020 Principal Accounting Policies Strategic Report Governance Financial Statements Basis of accounting The consolidated and Company 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, Cumbria 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 and Company financial statements are prepared under the historic cost convention as modified by the revaluation of certain financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. The accounting policies for the Group and Company are detailed below: Going concern The financial statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons. The Directors have reviewed the Group’s operational forecasts and projections for the three years to 2 September 2023 as used for the viability assessment, taking account of reasonably possible changes in trading performance, together with the planned capital three-year statement over that same period. The Group is expected to have a sufficient level of financial resources available through operating cash flows and existing bank facilities for a period of at least 12 months from approval of these financial statements (“The going concern period”). The Group has operated within all its banking covenants throughout the year. In addition, the Group’s main banking facility is in place until November 2023 and an invoice discounting facility has been recently renewed for a three-year period to August 2023. For the purpose of assessing the appropriateness of the preparation of the Group’s accounts on a going concern basis, the Directors have prepared financial forecasts for the Group, comprising profit before and after taxation, balance sheets and cash flows through to the year ended 2023. The forecasts consider the current cash position, the availability of banking facilities and an assessment of the principal areas of risk and uncertainty, paying particular attention to the impact of COVID-19. These forecasts have been sensitised for severe but plausible downside scenarios. The scenarios tested included significant reductions in profitability and associated cashflows linked to the six principal risks highlighted in the viability statement on page 31, with consumer demand affecting all business units, additional impacts on Agriculture business units from Brexit and a larger impact on Engineering from disruption caused by COVID-19. The results of this stress testing showed that, due to the stability of the core business, the Group would be able to withstand the impact of these severe but plausible downside scenarios occurring over the period of the financial forecasts. In addition, several other mitigating measures remain available and within the control of the Directors that were not included in the scenarios. These include withholding discretionary capital expenditure and reducing or cancelling future dividend payments. In all the scenarios, the Group complied with its financial bank covenants, operated within its existing bank facilities, and met its liabilities as they fall due. Consequently, the Directors are confident that the Group and the Company will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis. 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. Results of subsidiary undertakings acquired or disposed of during the current and prior financial year were included in the financial statements from the effective date of control or up to the date of cessation 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. Carr’s Group plc Annual Report and Accounts 2020 85 Principal Accounting Policies continued Basis of consolidation continued 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 this definition of control. 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's and joint ventures’ post-tax results 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. Contingent consideration is measured initially at fair value and is revalued to fair value at each subsequent period end until the period in which it is settled. 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 and Company 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 is recognised when the Group transfers control over a product or service to its customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Inter-segmental transactions are on an arm’s length basis. The Group recognises revenue both at a point in time and over time. Revenues generated by the Group’s Agriculture division are recognised at a point in time. Revenues generated by the Group’s Engineering division are recognised over time where the contract with the customer does not create an asset with an alternative use and where there is an enforceable right to payment for performance completed to date. Where this is not the case revenue is recognised at a point in time. In respect of contracts that meet the criteria to be recognised over time, revenue is calculated on the basis of the stage of completion of each contract. The Group applies a single method of measuring progress for each performance obligation satisfied over time and applies this method consistently to similar performance obligations and in similar circumstances. Depending on the nature and circumstances of the performance obligation, the stage of completion is determined with reference to either: • The proportion that contract costs incurred for work performed to date bear to the total estimated contract costs; or • The proportion that contract output is delivered towards complete satisfaction of the performance obligation with reference to certified contract works. 86 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Revenue recognition continued Revenue is recognised for a performance obligation satisfied over time only if the Group can reasonably measure its progress towards complete satisfaction of the performance obligation. In circumstances when it cannot reasonably measure the outcome, but expects to recover the costs incurred in satisfying the performance obligation, the Group recognises revenue only to the extent of the costs incurred. The Group would not be able to reasonably measure its progress towards complete satisfaction of a performance obligation if it lacks reliable information that would be required to apply an appropriate method of measuring progress. 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. Contract modifications such as variations to the original order are not accounted for until they are approved by the customer. Where a modification to an existing contract occurs, the nature of the modification is assessed to determine whether it represents a separate performance obligation required to be satisfied by the Group or whether it is a modification to the existing performance obligation. The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not apply the time value of money to its transaction prices. Incremental costs of obtaining a contract with a customer are only recognised when it is expected that these costs will be recovered. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. Where the amortisation period of an asset that would otherwise have been recognised is one year or less, the incremental costs of obtaining a contract are expensed when incurred. Contract assets exist when the Group has a right to consideration in exchange for goods or services transferred to a customer when that right is conditional on something other than the passage of time (e.g. future performance). Contract liabilities exist when the Group has an obligation to transfer goods or services to a customer for which the Group has already received consideration. Retirement benefit asset/obligation The Group offers various pension schemes to employees including a defined benefit pension scheme and several defined contribution schemes. The assets of the Group’s pension 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. Carr’s Group Pension Scheme The asset recognised in the consolidated and Company balance sheet at the year end is the fair value of scheme assets at the balance sheet date less the present value of the defined benefit obligation. Independent actuaries calculate the defined benefit asset 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 credit is made within interest 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 at the beginning of the year. The net interest amount also takes into account changes to the net asset during the year. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the consolidated and Company statement of comprehensive income. The pension scheme deficit or surplus, to the extent considered recoverable, is 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. Following a review of the Scheme’s Trust deed the Directors believe that there is a right to recognise, and that there is no restriction on the recognition of, the IAS 19 pension surplus. At 29 August 2020 and 31 August 2019, the consolidated and Company balance sheet recognises the full surplus on the Carr’s Group defined benefit pension scheme. The Company intends to recover the surplus through reduced contributions. Carrs Billington Agriculture Pension Scheme One of the Group’s subsidiaries is a participating employer in the Carrs Billington Agriculture Pension Scheme, which is a multi-employer defined benefit pension scheme. Note 28 provides further information on this scheme and how it has been accounted for in the consolidated accounts. Carr’s Group plc Annual Report and Accounts 2020 87 Principal Accounting Policies continued 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 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. 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. Reportable operating segments have been identified as Agriculture and Engineering. Adjusting items Adjusting items that are material by size and/or by nature are presented within their relevant income statement category, but highlighted separately on the face of the income statement. Items that management consider fall into this category are also disclosed within note 5 to the financial statements. The separate disclosure of profit before adjusting items is consistent with how business performance is measured internally and is presented to aid comparability of performance. Events which may give rise to adjusting items include, but are not limited to, amortisation of acquired intangible assets, adjustments to contingent consideration arising from fair value revaluation, restructuring/closure costs including the impairment of assets to recoverable amounts, acquisition related costs and the past service costs in respect of GMP equalisation. 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. 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 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 1 – 10 years 6 – 25 years 15 years 88 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements Other intangible assets continued Proprietary technology Development costs Patents and trademarks Contract backlog Software 5 – 13 years 5 – 15 years contractual life 3 years 3 – 10 years Intangible assets 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 IAS 38 ‘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 improvements 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 inflows 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. Carr’s Group plc Annual Report and Accounts 2020 89 Principal Accounting Policies continued 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. Cash and cash equivalents Cash and cash equivalents for the purposes of the consolidated and Company 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 and Company balance sheet. 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. Revenue grants and contributions are taken to the consolidated income statement in the year to which they apply. Leases The Group and Company adopted IFRS 16 ‘Leases’ with effect from 1 September 2019 and have applied the standard using the modified retrospective approach under which the cumulative effect of initially applying the standard is recognised at the date of initial application. Further details of the effect of the adoption of IFRS 16 and the new accounting treatment for leases where the Group or Company is the lessee can be found within the new standards and interpretations section on pages 91 to 93. Prior to transition to IFRS 16 the accounting policy was: 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 on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated and Company 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. 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 and Company statement of comprehensive income. 90 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements 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. Classification of financial instruments issued by the Group and Company Financial instruments issued by the Group and Company are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group or Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group or Company; and (b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Financial instruments Financial assets and liabilities are recognised on the consolidated and Company balance sheet when the Group and Company becomes a party to the contractual provisions of the instrument. The Group and Company classifies its financial assets under the measurement categories of amortised cost, for non-derivative financial assets, or measured subsequently at fair value through either profit or loss or comprehensive income. Non-derivative financial assets Non-derivative financial assets include contract assets, trade and other receivables and non-current receivables. As these categories of financial assets do not carry a significant financing element, expected credit losses are measured using the simplified impairment approach. This requires expected lifetime losses to be recognised upon the initial recognition of the asset. Non-derivative financial assets are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 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 remeasured at their fair value at each balance sheet date. The Group’s policy is to hedge its international assets and it has designated foreign currency loans 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. The Group continues to apply IAS 39 for the purposes of hedge accounting as permitted by IFRS 9. New standards and interpretations From 1 September 2019 the following became effective and were adopted by the Group and Company: IFRS 16 ‘Leases’ IFRIC 23 ‘Uncertainty over income tax treatments’ Amendment to IFRS 9 ‘Financial instruments on prepayment features with negative compensation’ Amendments to IAS 28 ‘Investment in associates’, on long-term interests in associates and joint ventures Annual improvements to IFRSs – 2015-2017 cycle Amendments to IAS 19 ‘Employee benefits’ With the exception of IFRS 16, which is discussed further below, the adoption of the above amendments and interpretations has had no impact on the Group or Company’s profit for the year or equity. Carr’s Group plc Annual Report and Accounts 2020 91 Principal Accounting Policies continued New standards and interpretations continued IFRS 16 'Leases' The Group adopted IFRS 16 with effect from 1 September 2019 and has applied the standard using the modified retrospective approach under which the cumulative effect of initially applying the standard is recognised at the date of initial application. The Group has restated its opening total equity position as at 1 September 2019 by a charge of £1.4m. Comparative information has not been restated and is therefore still reported under IAS 17 ‘Leases’ and related interpretations. To assist comparability, note 37 shows the balance sheet as at 29 August 2020 had the Group continued to adopt IAS 17 and related interpretations. Under the modified retrospective approach used, the Group has recognised right-of-use assets at their carrying amounts as if the standard had been applied since the commencement date, but discounted using the Group’s incremental borrowing rate at the date of initial application. The liability has been recognised at an amount equal to the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate at the date of initial application. The incremental borrowing rates used range between 1.3% – 3.88% based on the geographic location and economic circumstances of the lessee. In addition to existing finance leased assets with a net book value of £4.4m being transferred to right-of-use assets on transition, £11.5m of right-of-use assets were recognised on transition in respect of leases previously accounted for as operating leases under IAS 17. An additional lease obligation of £12.7m was recognised on transition in respect of leases previously accounted for as operating leases. Prepayments and accruals totalling £0.5m have been removed from the balance sheet on transition. A reconciliation of operating lease commitments disclosed as at 31 August 2019 to the lease liabilities recognised on transition is as follows: Operating lease commitments as at 31 August 2019 Discounted using the incremental borrowing rate at initial application Inclusion of liabilities beyond break clauses Other Lease liabilities (excluding existing finance lease liabilities) at 1 September 2019 Included within: Current liabilities Non-current liabilities The following table shows the effect of IFRS 16 on the income statement for the period ended 29 August 2020. Reduction in lease expense recognised Depreciation on right-of-use assets Profit on disposal of right-of-use leases Interest cost of lease liabilities Impact on Group profit before tax £’000 12,917 (4,365) 3,746 357 12,655 1,618 11,037 12,655 £’000 2,100 (1,832) 37 (362) (57) Depreciation, profit on disposal and interest costs in the table above exclude amounts in respect of finance leases that would have been recognised in the income statement under IAS 17. On transition to IFRS 16 the Group has applied the following practical expedients permitted by the standard on a lease-by-lease basis: • Accounting for leases where the lease term ends within 12 months of the date of initial application as short-term leases; • Exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application; and • Use of hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease. The Group is not required to make any transition adjustment for leases previously classified as operating leases under IAS 17 where the underlying asset is of low value. The Group is also not required to reassess whether a contract is, or contains, a lease at the date of initial application. IFRS 16 permits the Group to apply the standard only to contracts that were previously identified as containing a lease under IAS 17 and IFRIC 4 ‘Determining whether an arrangement contains a lease’. 92 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements New standards and interpretations continued The Group leases properties, motor vehicles, plant and machinery and other equipment. Lease terms are negotiated on an individual basis and contain a wide range of terms and conditions. Prior to transition to IFRS 16 the Group classified leases as either finance leases or operating leases in accordance with IAS 17. Payments made under operating leases were charged to the income statement on a straight-line basis over the term of the lease. Since transition to IFRS 16, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the repayment of the lease liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis and is also subject to regular impairment reviews. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • Fixed payments (including in-substance fixed payments), less any lease incentives receivable; • Variable lease payments that are based on an index or rate; • Amounts expected to be payable by the lessee under residual value guarantees; • The exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and • Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease. Where this cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost comprising the following: • The amount of the initial measurement of the lease liability; • Any lease payments made at of before the commencement date less any lease incentives received; • Any initial direct costs incurred by the lessee; and • Restoration costs required by the terms and conditions of the lease. At the commencement date of property leases the Group normally determines the lease term to be the full term of the lease, assuming that any option to break or extend the lease is unlikely to be exercised and it is not reasonably certain that the Group will continue in occupation for any period beyond the lease term. Leases are regularly reviewed and will be revalued if it becomes likely that a break clause or option to extend the lease is exercised. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets generally comprise minor office and IT equipment. The Group acts as lessor in certain operating lease arrangements. Rental income is recognised on a straight-line basis in the income statement. The Group is not a lessor in any finance lease arrangements. New standards, amendments and interpretations issued but not yet effective and not early adopted Amendments to References to the Conceptual Framework in IFRS standards Amendments to IFRS 3 'Business combinations’ Amendments to IAS 1 and IAS 8 to update the definition of material Amendments to IFRS 7, IFRS 9 and IAS 39 addressing issues affecting financial reporting in the period leading up to IBOR reform Amendment to IFRS 16 ‘Leases’ for COVID-19 related rent concessions It is considered that the above amendments will not have a significant effect on the results or net assets of the Group or Company. 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 following is considered to be a significant judgement: Leases Significant judgements are required, principally in respect of property leases, when determining the lease term where the lease contains break clauses or options to extend the term. The Group has several property leases and in valuing these assets the Group has assumed that the right to break or extend the lease is not exercised. The Group will regularly monitor these leases and should this assumption become inappropriate the asset and liability will be revalued accordingly. Carr’s Group plc Annual Report and Accounts 2020 93 Principal Accounting Policies continued Significant judgements, key assumptions and estimates continued The following are considered to be accounting estimates: Valuation of pension obligations The valuation of the Group’s defined benefit pension scheme is determined each year following advice from a qualified 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 28 and actual returns on scheme assets compared to those predicted in the previous scheme valuation. It is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumption could require a material adjustment to the carrying amount of the assets affected. An income statement charge of £795,000 has been recognised in the prior year in respect of the impact of GMP equalisation for the Carr's Group Pension Scheme. The carrying value of the defined benefit pension scheme surplus at 29 August 2020 is £8.0m (2019: £7.8m). More information on the pension scheme is given in note 28. The associate’s defined benefit pension scheme is also subject to these estimation uncertainties. In addition, for assets falling within the IFRS 13 fair value hierarchy level 3 inputs category, there is exposure to estimation uncertainty when estimating the asset value. The surplus being recognised by the associate is £3.5m (2019: £1.9m) of which the Group recognises 49% in its balance sheet within its ‘Investment in associate’. 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 was identified in the current or prior year. The carrying value of goodwill at 29 August 2020 is £32.0m (2019: £32.9m). Further details of cash generating units and stress testing performed on the carrying values can be found in note 11. Provision for impairment of trade receivables The financial statements include a provision for impairment of trade receivables 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. The carrying value of the provision for impairment of trade receivables at 29 August 2020 is £1.9m (2019: £1.3m). Further details of the provision, including ageing profile, can be found in note 22. Revenue recognition on contracts For contracts recognised over time the Group recognises revenue and profits based on the stage of completion. This requires management to make an assessment of performance obligations under each contract, the ability to reasonably estimate the outcome, and the point at which those obligations have been fulfilled. Management uses estimates and judgements when assessing the total expected costs on a contract. The Group has controls in place to review and monitor the estimates used to ensure they are appropriate. Disclosures relating to the disaggregation of revenue for revenues recognised at a point in time and revenues recognised over time can be found in note 3. Valuation of acquired intangible assets IFRS 3 ‘Business combinations’ requires the acquiror to fair value identifiable assets of an acquired business including intangible assets. The fair value of intangible assets is determined using valuation techniques such as relief-from-royalty, replacement cost and multi-period excess earnings method. These techniques and models require inputs based on estimations such as forecasted profits, technology obsolescence rates, royalty rates, discount rates and useful economic lives. There were no acquisitions during the year. In the prior year the Group made acquisitions with a combined intangible asset fair value of £6.6m (note 11). Valuation of contingent consideration IFRS 3 ‘Business combinations’ requires contingent consideration to be measured initially at fair value and then subsequently revalued to fair value at each period end. This involves an estimate of expected future payments based on profit forecasts and discount rates to reflect the time value of money. Further details in respect of contingent consideration, including movements in fair value between opening and closing balances, is included in note 27. 94 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statements Strategic Report Governance 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 £6,739,000 (2019: £6,768,000). 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. Reportable operating segments have been identified as Agriculture and Engineering. Central comprises the central business activities of the Group's head office, which earns no external revenues. 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, feed blocks and animal health products together with retail sales of farm equipment, fuels and farm consumables. Engineering derives its revenue from the provision of engineering services and the design and manufacture of bespoke equipment for use in the nuclear, naval defence, oil and gas, and petrochemical industries. Products include manipulators, robotics, specialist fabrication and precision machining. Performance is assessed using operating profit. For internal purposes the CODM assesses operating profit before material adjusting items (note 5) consistent with the presentation in the financial statements. Inter-segmental transactions are all undertaken on an arm’s length basis. 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 2020 is as follows: Total segment revenue Inter-segment revenue Revenue from external customers Adjusted1 EBITDA2 Depreciation, amortisation and profit/(loss) on disposal of non-current assets Share of post-tax results of associate and joint ventures Adjusted1 operating profit Adjusting items (note 5) Operating profit Finance income Finance costs Adjusted1 profit before taxation Adjusting items (note 5) Profit before taxation Agriculture £’000 Engineering £’000 Central £’000 Group £’000 342,627 (5) 53,020 (12) — 395,647 (17) — 342,622 53,008 — 395,630 14,798 (4,031) 2,633 13,400 42 13,442 6,754 (2,944) (781) (182) 20,771 (7,157) — — 2,633 3,810 (2,449) (963) — 16,247 (2,407) 1,361 (963) 13,840 313 (1,656) 14,904 (2,407) 12,497 1 Adjusted results are consistent with how business performance is measured internally and is presented to aid comparability of performance. Adjusting items are disclosed in note 5. 2 Earnings before interest, tax, depreciation, amortisation, profit/(loss) on the disposal of non-current assets and share of post-tax results of associate and joint ventures. Carr’s Group plc Annual Report and Accounts 2020 95 2 Segmental information continued Assets and liabilities Segment gross assets Segment gross liabilities Agriculture £’000 Engineering £’000 Central £'000 Group £’000 145,413 83,852 18,078 247,343 (53,509) (31,156) (28,509) (113,174) The segmental information for the year ended 31 August 2019 is as follows. This has been restated to present Central costs separately. This is to aid comparability with the segmental information presented for the current year. Total segment revenue Inter-segment revenue Revenue from external customers Adjusted1 EBITDA2 Depreciation, amortisation and profit/(loss) on disposal of non-current assets Share of post-tax results of associate (adjusted1) and joint ventures Adjusted1 operating profit Adjusted items Operating profit Finance income Finance costs Adjusted1 profit before taxation Adjusted items Profit before taxation Agriculture £’000 Engineering £’000 Central £'000 Group £’000 357,399 (11) 46,556 (39) — 403,955 (50) — 357,388 46,517 — 403,905 14,914 (2,946) 2,683 14,651 (531) 7,796 (1,879) — 5,917 65 (1,554) (84) — (1,638) (1,269) 21,156 (4,909) 2,683 18,930 (1,735) 14,120 5,982 (2,907) 17,195 463 (1,349) 18,044 (1,735) 16,309 1 2 Adjusted results are consistent with how business performance is measured internally and is presented to aid comparability of performance. Adjusting items are disclosed in note 5. Earnings before interest, tax, depreciation, amortisation, profit/(loss) on the disposal of non-current assets and share of post-tax results of associate and joint ventures. Assets and liabilities Segment gross assets Segment gross liabilities Agriculture £’000 Engineering £’000 Central £'000 Group £’000 157,685 82,436 16,229 256,350 (67,476) (25,678) (32,206) (125,360) Entity-wide disclosures Revenues from external customers are derived from the sale of products/services by individual business segment. The breakdown of revenue by business segment is provided above. Revenues from external customers: UK Europe USA New Zealand Other 96 Carr’s Group plc Annual Report and Accounts 2020 2020 £’000 2019 £’000 337,126 346,824 10,680 12,012 46,186 43,734 1,628 1,298 10 37 395,630 403,905 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 2 Segmental information continued Non-current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Investment property Investment in associate Interest in joint ventures Other investments Non-current receivables Retirement benefit asset UK £’000 17,855 7,684 21,670 14,283 158 14,307 2,928 50 — 8,037 Europe £’000 5,929 519 8,183 — — — 3,462 1 — — 2020 USA £’000 8,257 967 8,373 573 — — 4,161 22 20 — New Zealand £’000 Total £’000 UK £’000 — 32,041 17,855 9,171 1 7,516 33 38,259 25,690 — 164 13,392 2,470 50 — 7,769 — 14,856 — 158 — 14,307 10,551 — 73 — — 20 8,037 — Europe £’000 5,997 560 8,629 — — — 3,102 1 — — 2019 USA £’000 9,025 1,242 7,561 — — — 4,099 25 22 — New Zealand £’000 Total £’000 — 32,877 9,318 — 41,917 37 — — 164 — 13,392 — 9,671 — 76 — 22 — 7,769 — 86,972 18,094 22,373 34 127,473 74,906 18,289 21,974 37 115,206 Major customers There are no revenues from transactions with individual customers which amount to 10% or more of Group revenue. 3 Revenue Disaggregation of revenue In accordance with IFRS 15 ‘Revenue from Contracts with Customers’ the following table presents the Group’s reported revenue disaggregated based on the timing of revenue recognition. Timing of revenue recognition Over time At a point in time Transaction price allocated to the remaining performance obligations 2020 £’000 2019 £’000 34,790 27,840 360,840 376,065 395,630 403,905 2021 £’000 2022 £’000 2023 onwards £’000 Total £’000 Total transaction price allocated to the remaining performance obligations 23,968 4,660 569 29,197 The total transaction price allocated to the remaining performance obligations represents the contracted revenue to be earned by the Group for distinct goods and services which the Group has promised to deliver to its customers. These include promises which are partially satisfied at the period end or those which are unsatisfied but which the Group has committed to providing. In deriving this transaction price, any element of variable revenue is estimated at a value that is highly probable not to reverse in the future. The transaction price above does not include any estimated revenue to be earned on framework contracts for which a firm order or instruction has not been received by the customer. Carr’s Group plc Annual Report and Accounts 2020 97 4 Operating profit Group operating profit is stated after (crediting)/charging: Amortisation of grants Loss/(profit) on disposal of property, plant and equipment Profit on disposal of right-of-use leases Depreciation and impairment of property, plant and equipment Depreciation of right-of-use assets Depreciation of owned investment property Amortisation of intangible assets Business combination expenses (note 5) Restructuring/closure costs (note 5) Foreign exchange losses/(gains) Derivative financial instruments (gains)/losses Operating lease charges (IAS 17) Research and development expense Auditors’ remuneration: Audit services (Company £17,137; 2019: £16,719) The auditing of accounts of subsidiaries of the Company pursuant to legislation (including overseas) Total 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 2020 £’000 2019 £’000 (55) 265 (37) 4,567 2,462 6 1,513 — 1,964 57 (3) — 2,066 75 290 365 (54) (30) — 4,804 — 6 943 509 437 (153) 26 2,094 3,111 73 184 257 (42) 43 1 (40) 42 2 The auditors' remuneration of £365,000 includes a £50,000 additional fee raised in the year in respect of the audit of the prior year. 5 Adjusting items In reporting financial information, the Group presents alternative performance measures (“APMs”), which are not defined or specified under the requirements of IFRS. These APMs are consistent with how business performance is measured internally and therefore the Group believes that these APMs provide stakeholders with additional useful information on the performance of the business. The following adjusting items have been added back to reported profit measures. Amortisation of acquired intangible assets (i) Adjustments to contingent consideration (ii) Restructuring/closure costs (iii) Business combination expenses (iv) Past service cost – Group (v) Past service cost – share of associate (v) 2020 £’000 1,380 (937) 1,964 — — — 2,407 2019 £’000 814 (1,126) 437 509 795 306 1,735 (i) Amortisation of acquired intangible assets which do not relate to the underlying profitability of the Group but rather relate to costs arising on acquistion of businesses. (ii) Adjustments to contingent consideration arise from the revaluation of contingent consideration in respect of acquisitions to fair value at the year end. Movements in fair value arise from changes to the expected payments since the previous year end based on actual results and updated forecasts. Any increase or decrease in fair value is recognised through the income statement. (iii) Restructuring/closure costs include redundancy costs and impairments of assets to recoverable amounts. The impairment to property, plant and equipment was £239,000 (2019: £nil). (iv) Business combination expenses relate to acquisition costs incurred. (v) The scheme actuary's estimated effect on the Group's, and share of associate's, pension scheme liabilities following the equalisation of Guaranteed Minimum Pensions (“GMPs”). For further details of the past service costs see note 28. 98 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 6 Staff costs The tables below include Directors. Wages and salaries Social security costs Pension costs Share-based payments Strategic Report Governance Financial Statements 2020 £’000 44,627 5,045 2,683 (137) 2019 £’000 39,868 4,460 3,189 880 52,218 48,397 Included within pension costs is a charge of £13,000 (2019: £816,000) in respect of the defined benefit pension scheme. The prior year charge includes £795,000 in respect of GMP equalisation. Further details of this charge can be found in note 28. The average monthly number of employees during the year was made up as follows: Sales, office and management Manufacture and distribution 2020 Number 638 572 1,210 2019 Number 614 539 1,153 Key management is considered to be the Directors of the Group. The following amounts are disclosed in accordance with Schedule 5 of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008. Aggregate Directors’ remuneration1 Aggregate pension contributions2 Aggregate amount of gains on exercise of share options3 2020 £’000 1,004 20 474 1,498 2019 £’000 1,012 20 471 1,503 1 Salary (after salary sacrifice of pension), fees, bonuses, pay in lieu of pension and benefits in kind. 2 Cash contributions paid in the year into the defined contribution pension scheme. 3 Gains realised in the year in respect of the LTIP. The number of Directors in the defined contribution pension scheme during the year was two (2019: two). Further details of the Directors’ emoluments, pension benefits and share options are given in the Remuneration Committee Report on pages 53 to 66. 7 Finance income and finance costs Finance income Bank interest Net interest on the net defined benefit retirement asset (note 28) Other interest Total finance income Finance costs Interest payable on bank overdrafts Interest payable on bank loans and other borrowings Interest payable on leases Other interest Total finance costs 2020 £’000 151 139 23 313 (149) (934) (461) (112) 2019 £’000 127 284 52 463 (117) (1,016) (82) (134) (1,656) (1,349) Interest payable on leases recognises an additional £0.4m following the adoption of IFRS 16. Carr’s Group plc Annual Report and Accounts 2020 99 8 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 19) Tax on profit 2020 £’000 2019 £’000 1,077 (150) 356 (217) 1,066 1,447 45 1,557 109 3,158 450 59 509 (357) (116) (473) 1,575 2,685 Deferred tax recognised in equity is disclosed in note 19. (b) Factors affecting tax charge for the year The tax assessed for the year is lower (2019: lower) than the rate of corporation tax in the UK of 19% (2019: 19%). The differences are explained below: Profit before taxation Tax at 19% (2019: 19%) Effects of: Tax effect of share of results of 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 deferred tax rates Unrecognised deferred tax on losses Adjustment in respect of prior years Total tax charge for the year 2020 £’000 2019 £’000 12,497 16,309 2,374 3,099 (500) 184 (633) 83 304 71 (308) (452) 180 (482) 256 (24) 70 38 1,575 2,685 The tax effect of expenses that are not allowable in determining taxable profit includes adjustments for share-based payments, depreciation and amortisation of non-qualifying assets, and other expenses disallowable for UK corporation tax. The prior year also includes business combination expenses (note 5) which were treated as disallowable for tax purposes. The tax effect of non-taxable income includes adjustments to contingent consideration (note 5) and the effect of income within the patent box regime. (c) Change in corporation tax rate The prevailing UK corporation tax rate of 19% was substantively enacted as part of the Finance Act 2019 on 12 March 2019. The rate was due to reduce to 17% from April 2020, however, in the budget on 12 March 2020 it was announced that the main rate of UK corporation tax will be held at 19%. Deferred tax is therefore provided at 19%. UK deferred tax balances at the prior year end were provided at 17%. 100 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 9 Dividends Equity Second interim paid for the year ended 31 August 2019 of 1.125p per 2.5p share (2018: 1.075p) Final dividend for the year ended 31 August 2019 of 2.5p per 2.5p share (2018: 2.35p) First interim paid for the year ended 29 August 2020 of nil per 2.5p share (2019: 1.125p) Strategic Report Governance Financial Statements 2020 £’000 1,034 2,310 — 3,344 2019 £’000 983 2,156 1,034 4,173 Since the year end an interim dividend of £2,079,551, being 2.25p per share, has been paid. This includes the deferred first interim dividend that, under normal circumstances, would have been paid in May 2020. This was deferred due to the uncertainty associated with the COVID-19 pandemic. The financial statements do not reflect the dividend payable. The proposed final dividend for the year ended 29 August 2020 to be considered by shareholders at the Annual General Meeting is £2,310,612 being 2.5p per share, making a total for the year of 4.75p (2019: 4.75p). Shares held in treasury do not carry entitlement to a dividend. The financial statements do not reflect this proposed final dividend as payable. 10 Earnings per ordinary share Earnings per share are calculated by reference to a weighted average of 92,346,828 shares (2019: 91,828,015) in issue during the year. Adjusting items disclosed in note 5 that are charged or credited to profit do not relate to the underlying profitability of the Group. The Board believes adjusted profit before these items provides a useful measure of business performance. Therefore an adjusted earnings per share is presented as follows: 2020 2019 Earnings per share – basic Adjusting items: Amortisation of acquired intangible assets Adjustments to contingent consideration Restructuring/closure costs Business combination expenses Past service cost — Group Past service cost — share of associate Taxation effect of the above Non-controlling interest in the above Earnings per share – adjusted Earnings £’000 9,533 1,380 (937) 1,964 — — — (639) (273) Earnings per share pence Earnings £’000 Earnings per share pence 10.3 12,049 13.1 1.5 (1.0) 2.1 — — — (0.7) (0.3) 814 (1,126) 437 509 795 306 (367) (57) 0.9 (1.2) 0.5 0.6 0.9 0.3 (0.4) (0.1) 14.6 11,028 11.9 13,360 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 30. Carr’s Group plc Annual Report and Accounts 2020 101 10 Earnings per ordinary share continued Earnings per share Effect of dilutive securities: Share Save Scheme Long Term Incentive Plan Diluted earnings per share 2020 Weighted average number of shares Earnings £’000 Earnings per share pence Earnings £’000 2019 Weighted average number of shares 9,533 92,346,828 10.3 12,049 91,828,015 — — 978,350 405,866 9,533 93,731,044 (0.1) — 10.2 — — 748,265 1,771,378 12,049 94,347,658 Adjusted earnings £’000 Weighted average number of shares Earnings per share pence Adjusted earnings £’000 Weighted average number of shares Diluted adjusted earnings per share 11,028 93,731,044 11.8 13,360 94,347,658 11 Goodwill and other intangible assets Earnings per share pence 13.1 (0.1) (0.2) 12.8 Earnings per share pence 14.2 Group Company Goodwill £’000 Customer relationships £’000 Know-how, technology and development costs £’000 Brands, patents and trademarks £’000 Contract backlog £’000 Software £’000 Total £’000 Software £’000 235 15 — — 250 (21) — — 229 85 9 80 174 (18) 73 1,100 8 — 1,165 2,273 (10) 1,416 (3) 30,466 732 14,603 1,351 47,152 (1,012) 1,459 (3) 3,676 47,596 719 7 75 801 (13) 70 3,971 43 943 4,957 (86) 1,513 229 858 6,384 530 7 1,999 178 2,714 (12) 37 — 1,699 96 1,302 8 3,105 (133) 6 — 2,739 2,978 461 26 205 692 (46) 243 889 76 1 461 538 (9) 474 1,003 454 2,176 1,736 1,238 2,413 2,089 150 76 — 381 26,495 1,472 42,195 2,818 41,212 328 — — 89 417 — — — 417 — — 41 41 — 42 83 328 376 334 Cost At 2 September 2018 Exchange differences Subsidiaries acquired Additions At 31 August 2019 Exchange differences Additions Disposals At 29 August 2020 Accumulated amortisation and impairment At 2 September 2018 Exchange differences Charge for the year At 31 August 2019 Exchange differences Charge for the year At 29 August 2020 Net book amount At 1 September 2018 At 31 August 2019 At 29 August 2020 26,813 606 7,999 — 35,418 (836) — — 34,582 2,541 — — 2,541 — — 2,541 24,272 32,877 89 — 3,303 — 3,392 — — — 3,392 89 — 122 211 — 653 864 — 3,181 32,041 2,528 102 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 11 Goodwill and other intangible assets continued During the prior year goodwill of £7,999,000 arose on acquisitions. 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. The carrying value of goodwill has been allocated to the following cash generating units: Carrs Billington Agriculture (Sales) Ltd Carrs Agriculture Ltd – UK feed blocks Animal Feed Supplement, Inc. Wälischmiller Engineering GmbH Carr’s Engineering Ltd – Chirton profit centre NuVision Engineering, Inc. Animax Ltd NW Total Engineered Solutions Ltd 2020 £’000 5,285 2,068 19 5,929 2,526 8,238 1,742 6,234 2019 £’000 5,285 2,068 21 5,997 2,526 9,004 1,742 6,234 32,041 32,877 Goodwill arising on the acquisition of overseas subsidiaries has been retranslated at the balance sheet date. During the year there was an internal restructuring of Carrs Billington Agriculture (Sales) Ltd, the primary purpose of which was to better leverage economies of scale within the business and to operate more efficiently across its core components rather than operating as regional profit centres working semi-independently of each other. Internal financial reporting, such as the budget for the year to August 2021 and forecast information for the four years to August 2025, have been prepared on this basis. Given that it is no longer possible to separate revenues and cash inflows over historic profit centres, it is no longer appropriate to view the profit centres as cash generating units for this business. A reassessment of cash generating units was undertaken, and it was determined that the business comprised one integrated cash generating unit, which is consistent with the lowest level of monitoring of goodwill that is undertaken. The table above therefore now includes goodwill of £5.3m against a single cash generating unit. To aid comparability the prior year has been restated to also show goodwill against a single cash generating unit. 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 those 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. The key assumptions in this calculation are the levels of future cash flows, particularly in the perpetuity period, and the discount rate. 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. Carr’s Group plc Annual Report and Accounts 2020 103 11 Goodwill and other intangible assets continued Cash flows are estimated using the most recent budget information for the year to August 2021, which has been approved by the Board and forecast information for the four years to August 2025 based on medium-term business plans and an assumption for long-term growth of between 1-3% excluding inflation. The pre-tax discount rates used to discount the forecast cash flows for all cash generating units are in the range 4.82% – 8.18% (2019: 3.42% – 10.29%). 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, other than potentially for Animax and the Chirton profit centre. For the Animax cash generating unit, the assumptions underpinning the cash flow projections used in the value in use calculation reflect an appropriate view of past experience adjusted for the potential growth including benefits in respect of the new automation system to improve future profitability. The estimated recoverable amount of the cash generating unit significantly exceeded its carrying value and therefore the Directors concluded that no impairment was required; however the calculations are sensitive to changes in key assumptions. The key assumptions considered by the Directors, where a reasonably possible change could give rise to an impairment, were the long-term growth rate and discount rate. If the pre-tax discount rate assumption was increased by 14.7%, the cash generating unit's recoverable amount would be reduced to a level comparable with its carrying value. If this higher discount rate assumption was combined with a 1% decrease in the long-term growth rate, which, although not management’s current expectation is considered to be reasonably possible, this would lead to an impairment charge of £0.3m. For the Chirton profit centre cash generating unit, the estimated recoverable amount of the cash generating unit exceeded its carrying value by approximately £6.5m and therefore the Directors concluded that no impairment was required; however the calculations are sensitive to changes in key assumptions, in particular reasonably possible changes to the discount rate. If the pre-tax discount rate assumption was increased by 4.8%, the cash generating unit's recoverable amount would be reduced to a level comparable with its carrying value. To trigger a material impairment the discount rate would have to increase to over 14.3%. Amortisation and impairment charges are recognised within administrative expenses and have been highlighted separately within adjusting items (note 5) where they relate to acquired intangible assets. There is no goodwill in the Company (2019: none). Significant cash generating units The following key assumptions have been used in the impairment testing for goodwill with a significant carrying value: Cash generating unit NuVision Engineering, Inc. NW Total Engineered Solutions Ltd Wälischmiller Engineering GmbH Carrs Billington Agriculture (Sales) Ltd Carr’s Engineering Ltd – Chirton profit centre Carrs Agriculture Ltd – UK feed blocks Animax Ltd Goodwill carrying value £’000 Pre-tax discount rate % Long-term average growth in EBIT1 % Long-term growth rate % 8,238 6,234 5,929 5,285 2,526 2,068 1,742 8.18 8.18 8.18 4.82 8.18 4.82 4.82 1.9 3.0 3.8 3.7 57.8 2.3 16.7 2 2 2 2 2 2 2 Stress testing of the future cash flows generated from these cash generating units shows that an impairment of goodwill would potentially arise should cash flows fall by 64% in NuVision Engineering Inc. by 59% in NW Total Engineered Solutions Ltd, by 67% in Wälischmiller Engineering GmbH, by 91% in Carrs Billington Agriculture (Sales) Ltd, by 47% in Carr’s Engineering Ltd – Chirton profit centre, by 96% in Carrs Agriculture Ltd – UK feed blocks and by 91% in Animax Ltd. 1 Earnings before interest and tax 104 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 12 Property, plant and equipment Cost At 2 September 2018 Exchange differences Subsidiaries acquired Additions Disposals Reclassifications At 31 August 2019 Exchange differences Additions Transfers to right-of-use assets Transfers from right-of-use assets Disposals Reclassifications At 29 August 2020 Accumulated depreciation and impairment At 2 September 2018 Exchange differences Charge for the year Disposals At 31 August 2019 Exchange differences Charge for the year Impairment during the year Transfers to right-of-use assets Transfers from right-of-use assets Disposals At 29 August 2020 Net book amount At 1 September 2018 At 31 August 2019 At 29 August 2020 Strategic Report Governance Financial Statements Group Company Land and buildings £’000 Plant and equipment £’000 Assets in the course of construction £’000 Total £’000 Plant and equipment £’000 28,225 366 1,405 626 — 1,796 32,418 (534) 502 — — (145) 893 45,369 763 811 4,796 (3,187) 104 48,656 (1,100) 1,815 (5,730) 672 (2,488) (292) 1,682 17 — 944 — (1,942) 701 (5) 4,045 — — — (598) 75,276 1,146 2,216 6,366 (3,187) (42) 81,775 (1,639) 6,362 (5,730) 672 (2,633) 3 33,134 41,533 4,143 78,810 7,372 118 983 — 8,473 (231) 1,101 — — — (88) 29,420 530 3,821 (2,386) 31,385 (831) 3,227 239 (1,138) 272 (1,858) 9,255 31,296 — — — — — — — — — — — — 36,792 648 4,804 (2,386) 39,858 (1,062) 4,328 239 (1,138) 272 (1,946) 40,551 20,853 15,949 1,682 38,484 23,945 17,271 701 41,917 23,879 10,237 4,143 38,259 605 — — 46 (11) — 640 — — — — (1) — 639 450 — 43 (11) 482 — 40 — — — (1) 521 155 158 118 Transfers to right-of-use assets represent finance leased assets being transferred from property, plant and equipment on transition to IFRS 16. Transfers from right-of-use assets represent finance leased assets that became owned assets on maturity of the lease term. Carr’s Group plc Annual Report and Accounts 2020 105 12 Property, plant and equipment continued Freehold land amounting to £3,025,704 (2019: £2,994,878) has not been depreciated. Under the Group’s banking facilities the lenders have legal charges over certain properties together with floating charges over the assets of certain businesses. The net book amount of specific assets held under legal charges at the balance sheet date was £1,450,000 (2019: £1,504,000). Included in the above table in respect of assets held under floating charges are assets with a net book amount of £7,653,000 (2019: £7,668,000). This excludes specific assets under legal charge which are separately disclosed above. Depreciation is recognised within the Consolidated Income Statement as shown below: Cost of sales Distribution costs Administrative expenses 13 Right-of-use assets and lease liabilities Amounts recognised in the balance sheet The balance sheet shows the following amounts relating to leases: Cost At 31 August 2019 Transition to IFRS 16 (note 37) Exchange differences Additions Transfers to property, plant and equipment Transfers from property, plant and equipment Disposals At 29 August 2020 Accumulated depreciation At 31 August 2019 Exchange differences Charge for the year Transfers to property, plant and equipment Transfers from property, plant and equipment Disposals At 29 August 2020 Net book amount At 31 August 2019 At 29 August 2020 Group Company 2020 £’000 3,276 10 1,042 2019 £’000 3,696 8 1,100 4,328 4,804 2020 £’000 — — 40 40 2019 £’000 — — 43 43 Group Company Land and buildings £’000 Plant, equipment and vehicles £’000 Plant, equipment and vehicles £’000 Total £’000 — 10,096 (74) 195 — — (622) — 1,398 (1) 2,228 (672) 5,730 (273) — 11,494 (75) 2,423 (672) 5,730 (895) 9,595 8,410 18,005 — (11) 1,187 — — (85) — — 1,275 (272) 1,138 (83) — (11) 2,462 (272) 1,138 (168) 1,091 2,058 3,149 — — — 8,504 6,352 14,856 — 267 — 429 — — (205) 491 — — 96 — — (62) 34 — 457 Transfers from property, plant and equipment represent finance leased assets being transferred to right-of-use assets on transition to IFRS 16. Transfers to property, plant and equipment represent finance leased assets that became owned assets on maturity of the lease term. 106 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 13 Right-of-use assets and lease liabilities continued Lease liabilities Current liabilities Non-current liabilities Strategic Report Governance Financial Statements Group £’000 Company £’000 2,778 11,171 13,949 97 354 451 Finance lease liabilities recognised on the balance sheet under IAS 17 in the comparative year are included within borrowings on the balance sheet. The remaining contractual maturities of the lease liabilities, which are gross and undiscounted, are as follows: Less than one year One to two years Two to three years Three to four years Four to five years More than five years Amounts recognised in the income statement The income statement shows the following amounts relating to leases: Depreciation (Profit)/loss on disposal Interest expense Short-term leases and low-value assets Group £’000 Company £’000 3,204 2,359 1,830 1,298 992 8,512 18,195 105 111 87 87 87 — 477 Group £’000 Company £’000 2,462 (37) 483 111 3,019 96 4 8 — 108 There is no expense recognised in the income statement in respect of variable lease payments that are not included in the measurement of the leases liabilities. The total Group cash outflow for leases in the year ended 29 August 2020 was £3,654,000. The total Company cash outflow for leases in the year ended 29 August 2020 was £122,000. The Group receives income on one right-of-use property sublease. A maturity analysis of lease payments, showing the undiscounted lease payments to be received on an annual basis is as follows: Less than one year One to two years Two to three years Three to four years Four to five years More than five years The Company has no income arising from leases. Group £’000 71 71 71 71 71 27 382 Carr’s Group plc Annual Report and Accounts 2020 107 14 Investment property Group Cost At 2 September 2018, 31 August 2019 and 29 August 2020 Accumulated depreciation At 2 September 2018 Charge for the year At 31 August 2019 Charge for the year At 29 August 2020 Net book amount At 1 September 2018 At 31 August 2019 At 29 August 2020 Total £’000 299 129 6 135 6 141 170 164 158 The fair value of investment properties at 29 August 2020 is £360,000 (2019: £360,000). Investment properties were valued by independent professionally qualified valuers in October 2016. The Directors are satisfied that there has been no significant change in fair value since that date. There is no investment property in the Company (2019: none). 15 Investments Group Cost At 2 September 2018 Exchange difference Share of post-tax result Share of (losses)/gains recognised directly in equity Dividend paid by associate and joint ventures At 31 August 2019 Exchange difference Share of post-tax result Share of gains/(losses) recognised directly in equity Dividend paid by associate and joint ventures At 29 August 2020 Accumulated provision for impairment At 2 September 2018, 31 August 2019 and 29 August 2020 Net book amount At 1 September 2018 At 31 August 2019 At 29 August 2020 Other investments comprise shares in several private limited companies. 108 Carr’s Group plc Annual Report and Accounts 2020 Associate £’000 13,129 — 924 (73) (588) 13,392 — 1,191 312 (588) Joint ventures £’000 Other investments £’000 8,004 194 1,453 143 (123) 9,671 (238) 1,442 (211) (113) 83 2 — — — 85 (3) — — — Total £’000 21,216 196 2,377 70 (711) 23,148 (241) 2,633 101 (701) 14,307 10,551 82 24,940 — — 13,129 8,004 13,392 9,671 14,307 10,551 9 74 76 73 9 21,207 23,139 24,931 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 15 Investments continued Company Cost At 2 September 2018 Share-based payment charge in respect of employees of subsidiary undertakings At 31 August 2019 Recapitalisation Dissolution of dormant subsidiary undertakings Share-based payment charge in respect of employees of subsidiary undertakings At 29 August 2020 Accumulated provision for impairment At 2 September 2018 and 31 August 2019 Dissolution of dormant subsidiary undertakings At 29 August 2020 Net book amount At 1 September 2018 At 31 August 2019 At 29 August 2020 Shares in subsidiaries £’000 Associate £’000 Joint ventures £’000 Total £’000 31,355 (23) 31,332 11,866 (6,479) (158) 36,561 4,794 (801) 3,993 26,561 26,538 32,568 245 — 245 — — — 245 — — — 245 245 245 272 — 272 — — — 272 31,872 (23) 31,849 11,866 (6,479) (158) 37,078 — — — 4,794 (801) 3,993 272 272 27,078 27,055 272 33,085 The recapitalisation of £11,866,000 represents the increased shareholding in a subsidiary following the capitalisation of inter-company debt. During the year the Company began the process of dissolving several dormant subsidiaries. They have been officially dissolved post-year end. Details of dissolved dormant subsidiaries can be found on page 146. 16 Investment in associate The associated undertaking at 29 August 2020 is: Group and Company Name Proportion of shares held Ordinary % Country of incorporation Country of operation Activity Carrs Billington Agriculture (Operations) Ltd 49 England UK Manufacture of animal feed The investment in Carrs Billington Agriculture (Operations) Ltd is held directly by the Company. The registered office of the associate is Cunard Building, Water Street, Liverpool L3 1EL. The Group does not have the ability to control the financial and operating policies of its associate. The Group has a 49% shareholding and a 43% representation on the Board of Directors of Carrs Billington Agriculture (Operations) Ltd. The associate is accounted for using the equity method. At the year end Carrs Billington Agriculture (Operations) Ltd had capital commitments of £nil (2019: £1,269,000). 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 2020 £’000 2019 £’000 41,031 (11,833) 121,371 2,431 43,407 (16,076) 134,758 1,885 Carr’s Group plc Annual Report and Accounts 2020 109 17 Interest in joint ventures The joint ventures at 29 August 2020 are: Group Name Crystalyx Products GmbH Bibby Agriculture Ltd Afgritech Ltd Afgritech LLC Gold-Bar Feed Supplements LLC ACC Feed Supplement LLC Silloth Storage Company Ltd Equity interest held % 50 26 50 50 50 50 50 Country of incorporation Country of operation Germany1 Germany England2 England2 USA3 USA4 USA5 England6 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 molasses 1 Registered Office address: Industrieweg 110, 48155 Munster, Germany. 2 Registered Office address: Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA. 3 Registered Office address: 810 Waterman Drive, Watertown, New York 13601, USA. 4 Registered Office address: 783 Eagle Boulevard, Shelbyville, Tennessee 37160, USA. 5 Registered Office address: 5101 Harbor Drive, Sioux City, Iowa 51111, USA. 6 Registered Office address: 3 Filers Way, Weston Gateway Business Park, Weston-Super-Mare BS24 7JP. Crystalyx Products GmbH and Silloth Storage Company Ltd have a 31 December accounting year end. The Company directly holds the interest in Crystalyx Products GmbH and Afgritech Ltd. Afgritech Ltd has 100% control of Afgritech LLC. Carrs Billington Agriculture (Sales) Ltd directly holds the interest in Bibby Agriculture Ltd. Animal Feed Supplement, Inc. directly holds the interest in Gold-Bar Feed Supplements LLC and ACC Feed Supplement LLC. Carrs Agriculture Ltd directly holds the interest in Silloth Storage Company Ltd. Joint ventures are accounted for using the equity method. At the year end the joint ventures had capital commitments of £nil (2019: £291,553). 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 2020 £’000 2019 £’000 8,742 8,384 (4,977) (1,615) 39,478 (37,666) (88) 9,133 7,616 (5,356) (1,739) 40,735 (38,880) (94) Goodwill of £17,000 arose on the investment in Silloth Storage Company Ltd. This is included in the carrying amount of the Group’s interest in joint ventures and is not shown as a separate asset. 110 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 18 Investment in subsidiary undertakings Name Carrs Agriculture Ltd Carrs Billington Agriculture (Sales) Ltd Animal Feed Supplement, Inc. Carr’s Supplements (NZ) Ltd Conegar S.A. Carr’s Engineering Ltd Wälischmiller Engineering GmbH Carr’s Engineering (US), Inc. NuVision Engineering, Inc. Carrs Properties Ltd Carr’s International Finance Ltd Animax Ltd Animax NZ Ltd Strategic Report Governance Financial Statements Ordinary Shares held % Country of incorporation Country of operation Activity 100 England1 England1 51 UK USA2 100 USA 100 New Zealand3 New Zealand 100 Uruguay 100 UK 100 Germany 100 USA 100 USA 100 UK 100 UK 100 UK Uruguay6 England1 Germany4 USA5 USA5 England1 England1 England7 100 New Zealand8 New Zealand UK Manufacture of animal feed/mineral blocks and ingredients of animal feed Agricultural retailers Manufacture of animal feed blocks Distributor of animal feed blocks Distributor of animal feed blocks Engineering Engineering Holding company Engineering Property holding Finance company Manufacture of animal health products Distributor of animal health products UK Manufacture of specialist disinfectants Engineering UK Clinimax Ltd NW Total Engineered Solutions Ltd 100 100 England7 England1 1 Registered Office address: Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA. 2 Registered Office address: 101 Roanoke Avenue, Poteau, Oklahoma 74953, USA. 3 Registered Office address: 515a Wairakei Road, Burnside, Christchurch 8053, New Zealand. 4 Registered Office address: Schießstattweg 16, 88677 Markdorf, Germany. 5 Registered Office address: 2403 Sidney Street, Suite 700, Pittsburgh, Pennsylvania 15203, USA. 6 Registered Office address: Juncal 1305, Piso 18, Montevideo, Uruguay. 7 Registered Office address: Shepherds Grove West, Stanton, Bury St Edmunds, Suffolk IP31 2AR. 8 Registered Office address: RSM New Zealand (Auckland), Level 2, Building 5, 60 Highbrook Drive, East Tamaki, Auckland 2013, New Zealand. Dormant subsidiaries are listed on page 146 of this Annual Report and Accounts. Investments in the subsidiaries listed above are held directly by the Company with the following exceptions: Carr’s Engineering Ltd holds 100% of the investment in Wälischmiller Engineering GmbH and NW Total Engineered Solutions Ltd; Carrs Agriculture Ltd holds 100% of the investment in Carr’s Supplements (NZ) Ltd, Conegar S.A., Animax Ltd and Clinimax Ltd; Carr’s Engineering (US), Inc. holds 100% of the investment in NuVision Engineering, Inc.; and Animax Ltd holds 100% of the investment in Animax NZ Ltd. Non-controlling interests in subsidiary undertakings The following tables summarise the information relating to Carrs Billington Agriculture (Sales) Ltd, where there is a material non- controlling interest. The amounts presented are before inter-company eliminations with other companies within the Group. The non- controlling interest in the subsidiary was 49% in both the current and prior year. Balance sheet Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net assets attributable to non-controlling interest 2020 £’000 2019 £’000 21,584 56,618 (5,087) (41,132) 31,983 15,672 17,885 73,901 (2,290) (57,747) 31,749 15,557 Carr’s Group plc Annual Report and Accounts 2020 111 18 Investment in subsidiary undertakings continued Income statement and statement of comprehensive income Revenue Profit after tax Profit after tax allocated to non-controlling interest There is no other comprehensive income in the current or prior year. Statement of cash flows Cash flows from operating activities Cash flows from investment activities Cash flows from financing activities Net (decrease)/increase in cash and cash equivalents 2020 £’000 2019 £’000 280,741 296,295 2,783 1,364 2,448 1,200 2020 £’000 10,227 (1,638) (17,505) (8,916) 2019 £’000 5,766 (1,441) (3,551) 774 During the year dividends of £588,000 (2019: £588,000) were paid to the non-controlling interest. 19 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 2020 £’000 — — — — 2019 £’000 — — 410 410 2020 £’000 (2,727) (1,527) (529) 2019 £’000 (2,934) (1,321) (732) 2020 £’000 (2,727) (1,527) (529) 2019 £’000 (2,934) (1,321) (322) (4,783) (4,987) (4,783) (4,577) Deferred tax net liabilities are expected to reverse after more than one year from the balance sheet date. Movement in deferred tax during the year Assets: Other Liabilities: Accelerated tax depreciation Employee benefits Other Net liabilities At 1 September 2019 £’000 410 410 (2,934) (1,321) (732) (4,987) (4,577) Transition to IFRS 16 £’000 Exchange differences £’000 Recognised in income £’000 Recognised in equity £’000 — — — — 266 266 266 — — 69 — 24 93 93 (410) (410) 138 (179) (58) (99) (509) — — — (27) (29) (56) (56) At 29 August 2020 £’000 — — (2,727) (1,527) (529) (4,783) (4,783) Other deferred tax assets and liabilities includes deferred tax on short-term timing differences, leases, rolled over capital gains, trading losses, capital losses, business combinations and overseas deferred tax. 112 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 19 Deferred tax assets and liabilities continued Movement in deferred tax during the prior year Assets: Other Liabilities: Accelerated tax depreciation Employee benefits Other Net liabilities Company Accelerated tax depreciation Employee benefits Other Tax assets/(liabilities) Movement in deferred tax during the year Assets: Accelerated tax depreciation Other Liabilities: Employee benefits Net liabilities At 2 September 2018 £’000 — — (1,604) (1,725) (652) (3,981) (3,981) Exchange differences £’000 In respect of acquisitions £’000 Recognised in income £’000 Recognised in equity £’000 — — (56) — 1 (55) (55) 30 30 (1,381) — 23 (1,358) (1,328) 380 380 107 90 (104) 93 473 — — — 314 — 314 314 At 31 August 2019 £’000 410 410 (2,934) (1,321) (732) (4,987) (4,577) Assets Liabilities Net 2020 £’000 22 — 140 162 2019 £’000 20 — 265 285 2020 £’000 — (1,527) — 2019 £’000 — (1,321) — 2020 £’000 22 (1,527) 140 2019 £’000 20 (1,321) 265 (1,527) (1,321) (1,365) (1,036) At 1 September 2019 £’000 Transition to IFRS 16 £’000 Recognised in income £’000 Recognised in equity £’000 20 265 285 (1,321) (1,321) (1,036) — 1 1 — — 1 2 (101) (99) (179) (179) (278) — (25) (25) (27) (27) (52) At 29 August 2020 £’000 22 140 162 (1,527) (1,527) (1,365) Carr’s Group plc Annual Report and Accounts 2020 113 19 Deferred tax assets and liabilities continued Movement in deferred tax during the prior year Assets: Accelerated tax depreciation Other Liabilities: Employee benefits Net liabilities At 2 September 2018 £’000 Recognised in income £’000 Recognised in equity £’000 16 217 233 (1,725) (1,725) (1,492) 4 46 50 90 90 140 — 2 2 314 314 316 At 31 August 2019 £’000 20 265 285 (1,321) (1,321) (1,036) Tax of £41,000 (2019: £53,000) in respect of tax losses has not been recognised as a deferred tax asset in the Group balance sheet. The Company has no unrecognised tax losses (2019: none). 20 Inventories Group Raw materials and consumables Work in progress Finished goods and goods for resale 2020 £’000 13,268 2,351 25,342 2019 £’000 12,813 3,887 29,570 40,961 46,270 Inventories are stated after a provision for impairment of £1,546,000 (2019: £912,000). The amount recognised as an expense in the year in respect of the write down of inventories is £691,000 (2019: £416,000). The amount recognised as a credit in the year in respect of reversals of write downs of inventories is £45,000 (2019: £55,000). The cost of inventories recognised as an expense and included in cost of sales is £341,791,000 (2019: £348,430,000). The Company has no inventories (2019: none). 21 Contract balances The timing of revenue recognition, billings and cash collection results in trade receivables (billed amounts), contract assets (unbilled amounts) and customer advances and deposits (contract liabilities) on the Group’s balance sheet. For services in which revenue is earned over time, amounts are billed in accordance with contractual terms, either at periodic intervals or upon achievement of contractual milestones. The timing of revenue recognition is measured in accordance with the progress of delivery on a contract which could either be in advance or in arrears of billing, resulting in either a contract asset or a contract liability. Contract assets At the beginning of the year Exchange differences Subsidiaries acquired Transfers from contract assets recognised at the beginning of the year to receivables Increase related to services provided in the year At the end of the year 2020 £’000 9,466 112 — (8,080) 6,616 2019 £’000 6,909 125 102 (5,711) 8,041 8,114 9,466 114 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 21 Contract balances continued Contract liabilities At the beginning of the year Exchange differences Subsidiaries acquired Revenue recognised against contract liabilities at the beginning of the year Increase due to cash received, excluding any amounts recognised as revenue during the year At the end of the year Strategic Report Governance Financial Statements 2020 £’000 1,269 (58) — (1,048) 898 1,061 2019 £’000 1,458 11 573 (1,601) 828 1,269 The Group has assessed expected credit losses and the loss allowance for contract balances as immaterial. The Company has no contract assets or contract liabilities (2019: none). 22 Trade and other receivables Current: Trade receivables Less: provision for impairment of trade receivables Trade receivables – net Amounts owed by Group undertakings (note 36) Amounts owed by other related parties (note 36) Other taxes and social security receivable Other receivables Prepayments and accrued income Non-current: Amounts owed by Group undertakings (note 36) Other receivables Group Company 2020 £’000 2019 £’000 2020 £’000 49,077 (1,873) 51,438 (1,285) 47,204 — 1,989 317 889 1,287 50,153 — 1,997 376 1,661 2,162 — — — 219 1,776 — 212 410 2019 £’000 88 — 88 33,097 1,764 13 824 399 51,686 56,349 2,617 36,185 — 20 20 — 22 22 34,735 — 34,735 16,413 — 16,413 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. During the year a charge of £652,000 (2019: credit of £316,000) has been recognised within administrative expenses in the consolidated income statement in respect of the movement in provision for impairment of trade receivables. For all other receivables presented above the Group has assessed expected credit losses and the loss allowance as immaterial. Carr’s Group plc Annual Report and Accounts 2020 115 22 Trade and other receivables continued Interest bearing, non-trading amounts owed by Group undertakings within current trade and other receivables carry interest at 4.50% or Bank of England base rate + 2.50%. Such amounts are unsecured and repayable on demand. Interest bearing, non-trading amounts owed by Group undertakings within non-current receivables carry interest at 4.50%, 6.25% or Bank of England base rate + 2.50%. Such amounts are unsecured and have remaining terms of 1.5 – 2 years. Group The ageing of trade receivables is as follows: Not past due Past due 1 – 30 days Past due 31 – 60 days Past due 61 – 90 days Past due 91 – 120 days Past 121 days Company The ageing of trade receivables is as follows: Past 121 days 2020 2019 Gross £’000 Impairment £’000 34,347 6,517 2,347 1,219 940 3,707 (109) (28) (21) (15) (12) (1,688) Past due but not impaired £’000 N/A 6,489 2,326 1,204 928 2,019 Gross £’000 Impairment £’000 33,451 5,713 4,345 1,729 1,703 4,497 (193) (20) (47) (40) (47) (938) Past due but not impaired £’000 N/A 5,693 4,298 1,689 1,656 3,559 49,077 (1,873) 12,966 51,438 (1,285) 16,895 2020 2019 Gross £’000 Impairment £’000 Past due but not impaired £’000 Gross £’000 Impairment £’000 Past due but not impaired £’000 — — — — — — 88 88 — — 88 88 In relation to trade receivables, the major source of estimation uncertainty is the recoverable value of those receivables. The judgements applied to this include the credit quality of customers, taking into account their financial positions, past experiences and other relevant factors. Individual customer credit limits are imposed based on these factors, and provisions for impairment are made using those judgements. Provisions for impairment are reviewed monthly by divisional management. Trade receivables are assessed by management for credit risk and are considered past due when a counterparty has failed to make a payment when that payment was contractually due. Management assesses trade receivables that are past the contracted due date by the ageing periods as presented in the tables above, consistent with how it views the credit risk of trade receivables. A default is determined to have occurred if the Group becomes aware of evidence that it will not receive all contractual cash flows that are due. 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 (2019: none). The carrying value of trade receivables is denominated in the following currencies: Sterling US Dollar Euro New Zealand Dollar Other Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 41,416 1,960 2,955 870 3 46,251 1,326 2,023 544 9 47,204 50,153 — — — — — — 88 — — — — 88 116 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued23 Current tax assets Corporation tax recoverable Group taxation relief 24 Cash and cash equivalents and bank overdrafts Cash and cash equivalents per the balance sheet Bank overdrafts (note 26) Cash and cash equivalents per the statement of cash flows 25 Trade and other payables Current: Trade payables Amounts owed to Group undertakings (note 36) Amounts owed to other related parties (note 36) Other taxes and social security payable Contingent, deferred and unpaid cash consideration Other payables Accruals and deferred income Non-current: Contingent consideration Accruals and deferred income Strategic Report Governance Financial Statements Group Company 2020 £’000 1,535 — 1,535 2019 £’000 — — — 2020 £’000 1,411 543 1,954 2019 £’000 840 — 840 Group Company 2020 £’000 2019 £’000 17,571 (7,267) 28,649 (4,354) 10,304 24,295 2020 £’000 7,984 — 7,984 2019 £’000 6,778 — 6,778 Group Company 2020 £’000 2019 £’000 16,669 — 19,820 2,524 2,169 9,270 5,070 16,564 — 24,654 1,970 5,271 9,338 4,856 2020 £’000 550 2 — 543 — 171 394 2019 £’000 600 2 — 741 — 354 836 55,522 62,653 1,660 2,533 1,276 109 1,385 2,835 164 2,999 — — — — — — Amounts owed to Group undertakings and other related parties are interest free, unsecured and repayable on demand. Trade and other payables includes deferred and contingent consideration on prior year acquisitions. After retranslation at the balance sheet date of foreign currency denominated amounts, £2,169,000 (2019: £5,271,000) of these outstanding payables are recognised within current liabilities and £1,276,000 (2019: £2,835,000) are recognised within non-current liabilities. Carr’s Group plc Annual Report and Accounts 2020 117 25 Trade and other payables continued Included within accruals and deferred income is the following in respect of government grants: At the beginning of the year Exchange differences Subsidiaries acquired Amortisation in the year At the end of the year Included within:  Current liabilities  Non-current liabilities 26 Borrowings Current: Bank overdrafts Bank loans and other borrowings Loans from Group undertakings (note 36) Finance leases (IAS 17) Non-current: Bank loans Finance leases (IAS 17) Borrowings are repayable as follows: On demand or within one year In the second year In the third to fifth years inclusive Group Company 2020 £’000 169 — — (55) 114 5 109 114 2019 £’000 214 (2) 11 (54) 169 5 164 169 2020 £’000 2019 £’000 — — — — — — — — — — — — — — — — Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 7,267 4,153 — — 4,354 18,319 — 1,183 11,420 23,856 — 2,340 110 — 2,450 — 2,340 5,466 — 7,806 25,021 — 26,846 1,740 22,947 — 26,846 — 25,021 28,586 22,947 26,846 11,420 3,106 21,915 23,856 3,295 25,291 2,450 2,340 20,607 7,806 2,340 24,506 36,441 52,442 25,397 34,652 Group and Company borrowings are shown in the balance sheet net of arrangement fees of £181,000 (2019: £241,000) of which £60,000 (2019: £60,000) is deducted from current liabilities and £121,000 (2019: £181,000) is deducted from non-current liabilities. The net borrowings are: Borrowings as above Cash and cash equivalents Net borrowings Net borrowings (excluding leases under IAS 17) Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 36,441 (17,571) 52,442 (28,649) 25,397 (7,984) 34,652 (6,778) 18,870 23,793 18,870 20,870 17,413 17,413 27,874 27,874 Bank loans and other borrowings includes an amount of £62,000 (2019: £14,570,000) which is secured on trade receivables and represents the amount drawn down on an invoice discounting facility with The Royal Bank of Scotland PLC. The Company, together with certain subsidiaries, act as guarantors on the bank loans. In addition, The Royal Bank of Scotland PLC has legal charges over certain properties. Loans from Group undertakings are non-interest bearing. Such amounts are unsecured and repayable on demand. The bank loans are repayable by instalments and the overdraft is repayable on demand. Non-current bank loans includes a drawn down revolving credit facility of £18.3m (2019: £19.8m) which is repayable in November 2023. At the year end the Group had £10.3m of undrawn revolving credit facilities (2019: £7.2m). 118 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued 27 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. Currency rate risk – financial instruments by currency Strategic Report Governance Financial Statements Group Assets Other investments Non-current receivables Contract assets Current trade and other receivables Current derivatives Cash and cash equivalents Liabilities Current borrowings Current leases Contract liabilities Current trade and other payables Non-current borrowings Non-current leases Other non-current 2020 2019 Sterling £’000 US Dollar £’000 Euro £’000 NZ Dollar £’000 Other £’000 Total £’000 Sterling £’000 US Dollar £’000 50 — 4,407 22 20 1,850 1 — 1,857 — — — — — — 73 20 50 — 8,114 4,455 25 22 1,590 Euro £’000 1 — 3,421 NZ Dollar £’000 Other £’000 Total £’000 — — — — — — 76 22 9,466 43,055 — 3,182 2,972 3 — 870 — 3 50,082 46,975 3 — — 4,239 — 2,033 — 544 — 20 53,811 — — 10,228 4,625 2,231 487 — 17,571 18,787 7,537 1,711 592 22 28,649 57,740 9,699 7,064 1,357 3 75,863 70,267 13,413 7,166 1,136 42 92,024 9,430 2,514 377 648 264 418 1,342 — 266 47,169 3,565 2,098 6,513 18,179 — 10,869 329 302 — — — 161 — — — 161 — — — 11,420 22,307 2,778 — 1,061 699 141 — 401 1,408 — 169 — 52,993 53,374 — 25,021 23,759 — — 11,171 5,311 — — 1,864 4,827 — — 1,276 2,835 — — — 105,720 102,974 5,853 8,268 2020 — — — 122 — — — 122 2019 — 23,856 — — 1,269 — 7 60,678 — 28,586 — — — 2,835 7 117,224 liabilities 1,276 — — 89,814 5,526 10,219 Company Assets Non-current receivables Current trade and other receivables Cash and cash equivalents Liabilities Current borrowings Current leases Current trade and other payables Non-current borrowings Non-current leases Sterling £’000 US Dollar £’000 Euro £’000 Total £’000 Sterling £’000 US Dollar £’000 Euro £’000 Total £’000 11,329 999 6,832 15,018 1,208 634 8,388 — 518 34,735 2,207 7,984 — 24,157 6,206 16,413 1,993 120 — 9,623 452 16,413 35,773 6,778 19,160 16,860 8,906 44,926 30,363 18,526 10,075 58,964 2,450 97 1,117 18,178 354 22,196 — — — — — — — — — 4,769 — 2,450 97 1,117 22,947 354 4,769 26,965 7,806 — 1,792 22,019 — 31,617 — — — — — — — — — 4,827 — 7,806 — 1,792 26,846 — 4,827 36,444 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. Deferred income in respect of government grants is excluded as it is not a financial liability. Carr’s Group plc Annual Report and Accounts 2020 119 27 Derivatives and other financial instruments continued 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% (2019: 10%) weakening or strengthening in Sterling against other currencies represents reasonable possible changes. Impact on profit after taxation Impact on total equity 2020 2019 10% weakening £’000 10% strengthening £’000 10% weakening £’000 10% strengthening £’000 784 5,602 (641) (4,584) 860 5,731 (703) (4,689) 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. 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 borrowings Bank overdrafts Bank loans and other borrowings Finance lease liabilities (IAS 17) Fixed rate Floating rate 2020 2019 Weighted average effective interest rate % 1.87 1.68 — Weighted average effective interest rate % 2.57 2.14 2.82 £’000 7,267 29,174 — 36,441 2,483 33,958 36,441 £’000 4,354 45,165 2,923 52,442 2,923 49,519 52,442 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 + 0.5% margin; Bank of England base rate + 1.7% margin Libor + 1.7%; Libor + 1.8%; Euribor + 1.7%; Bank of England base rate + 1.15% margin; 1.5% Company borrowings Bank loans Loans from Group undertakings Floating rate The Company’s floating rate financial liabilities bear interest determined as follows: Bank loans Libor + 1.7%; Libor + 1.8%; Euribor + 1.7% 2020 2019 Weighted average effective interest rate % 1.69 — Weighted average effective interest rate % 2.30 — £’000 25,287 110 25,397 £’000 29,186 5,466 34,652 120 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 27 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 a reasonable possible change. Impact on profit after taxation Impact on total equity 2020 2019 1% decrease £’000 1% increase £’000 1% decrease £’000 1% increase £’000 542 542 (542) (542) 396 396 (396) (396) 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. Group Bank overdrafts Bank loans and other borrowings Finance lease liabilities (IAS 17) Contract liabilities Trade and other payables Other non-current liabilities Company Bank loans Loans from Group undertakings Trade and other payables 2020 2019 Total £’000 7,267 30,639 — 1,061 52,993 1,320 Within one year £’000 7,267 4,668 — 1,061 52,993 — One to two years £’000 — 3,563 — — — 1,320 Two to five years £’000 — 22,408 — — — — Total £’000 4,354 47,717 3,111 1,269 60,678 3,010 Within one year £’000 4,354 19,023 1,263 1,269 60,678 — One to two years £’000 — 2,984 1,016 — — 1,700 Two to five years £’000 — 25,710 832 — — 1,310 93,280 65,989 4,883 22,408 120,139 86,587 5,700 27,852 2020 Within one year £’000 2,808 110 1,117 One to two years £’000 2,764 — — Total £’000 26,629 110 1,117 Two to five years £’000 21,057 — — Total £’000 31,739 5,466 1,792 2019 Within one year £’000 3,045 5,466 1,792 One to two years £’000 2,984 — — Two to five years £’000 25,710 — — 27,856 4,035 2,764 21,057 38,997 10,303 2,984 25,710 The above tables exclude leases accounted for under IFRS 16. Details of the contractual undiscounted cash flows for leases under IFRS 16 can be found in note 13. 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. Deferred income in respect of government grants has also been excluded as it does not give rise to a contractual obligation to pay cash. Carr’s Group plc Annual Report and Accounts 2020 121 27 Derivatives and other financial instruments continued Borrowing facilities The Group has various undrawn facilities. The undrawn facilities available at 29 August 2020, 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 2020 Floating rate £’000 6,883 28,200 35,083 2019 Floating rate £’000 3,565 18,626 22,191 Undrawn facilities include overdraft facilities of £2.5m (2019: £2.5m) that are renewable on an annual basis. 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 2020 the Group had net debt of £18.9m (2019: net debt, excluding leases, of £20.9m). Based on net debt, excluding leases, gearing was 14.1% at the year end (2019: 15.9%). 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 Transfers between levels are deemed to have occurred at the end of the reporting period. There were no transfers between levels in the above hierarchy in the period. All derivative financial instruments are measured at fair value using level 2 inputs. The Group’s bankers provide the valuations for the derivative financial instruments at each reporting period end based on mark to market valuation techniques. Contingent consideration is measured at fair value using level 3 inputs. Fair value is determined considering the expected payment, which is discounted to present value. The expected payment is determined separately in respect of each individual earn-out agreement taking into consideration the expected level of profitability of each acquisition. The significant unobservable inputs are the projections of future profitability, which have been based on the budget for the year to August 2021 and forecast information for future periods, and the discount rate, which has been based on the incremental borrowing rate. A significant amount of the contingent consideration payable is included within current liabilities and has therefore not been discounted. A reasonable change in the discount rate applied would not have a material impact on the balances recognised within non-current liabilities. 122 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 27 Derivatives and other financial instruments continued The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (level 3). Fair value at the beginning of the year Exchange differences Acquisitions in the year Payments made to vendors Change in fair value Fair value at the end of the year 2020 £’000 7,954 (184) — (2,513) (1,835) 3,422 2019 £’000 3,532 211 5,337 — (1,126) 7,954 The change in fair value has been included within the credit of £937,000 shown as an adjusting item in note 5. Also included in the adjusting item are expenses incurred by the Group related to payments made to the vendors. Fair values of financial assets and liabilities The fair values 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 loans against its investment in foreign subsidiaries. A foreign exchange pre-tax loss of £112,000 (2019: pre-tax gain of £81,000) was recognised in equity during the year on translation of US Dollar denominated loans with a fair value of $1,608,000 (2019: $1,608,000) to Sterling. A foreign exchange pre-tax gain of £58,000 (2019: pre-tax loss of £44,000) was recognised in equity during the year on translation of Euro denominated loans with a fair value of €5,330,000 (2019: €5,330,000) to Sterling. The Group’s net investment hedge was fully effective in both the current and prior year and therefore no gain or loss is recognised in the consolidated income statement. Currency derivatives The Group and Company use forward foreign currency contracts to manage exchange risk exposure. At the balance sheet date, the fair value of outstanding forward foreign currency contracts are as below: Group At the beginning of the year Gains/(losses) during the year At the end of the year – included within current assets The Company has no forward foreign currency contracts (2019: none). 2020 2019 Fair value £’000 Contractual or notional amount £’000 — 3 3 — 105 105 Fair value £’000 13 (13) — Contractual or notional amount £’000 1,206 (1,206) — Carr’s Group plc Annual Report and Accounts 2020 123 27 Derivatives and other financial instruments continued 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 the beginning of the year Losses during the year At the end of the year The Company has no currency swaps (2019: none). 2020 2019 Fair value £’000 Contractual or notional amount £’000 — — — — — — Fair value £’000 13 (13) — Contractual or notional amount £’000 124 (124) — Fair value has been determined by reference to the value of equivalent forward foreign currency contracts and currency swaps at the balance sheet date. Gains and losses on currency related derivatives are included within administrative expenses. 28 Retirement benefits The Group participates in two defined benefit pension schemes: Carr’s Group Pension Scheme and Carrs Billington Agriculture Pension Scheme. Carr’s Group Pension Scheme (Group and Company) The Company sponsors the Carr’s Group Pension Scheme and offered 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. From 1 September 2015 the defined contribution section was closed. Members of that section were enrolled in a new defined contribution scheme, the Carr’s Group Retirement Savings Scheme (“Carr’s Group RSS”), set up under a Master Trust arrangement. The defined benefit section of the scheme was previously closed to new members, and has closed to future accrual with effect from 31 December 2015. Members of this section became entitled to become members of the Carr’s Group RSS from 1 January 2016. There were no pension contributions made by the Group over the year to the defined benefit section (2019: £nil). 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 2017 and updated on an approximate basis to 29 August 2020 by a qualified independent actuary. Major assumptions: Inflation (RPI) Inflation (CPI) 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 2020 % 2.90 2.00 1.80 2.90 3.50 2019 % 3.00 2.10 1.80 3.00 3.50 124 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 28 Retirement benefits continued The mortality tables used in the valuation as at 29 August 2020 are 100% of S2PA with allowance for mortality improvements using CMI_2019 with a 1.25% p.a. underpin. The mortality assumptions adopted imply the following life expectancies at age 65 as at 29 August 2020: 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: Administrative expenses Past service cost Net interest on the net defined benefit asset Total (income)/expense At 29 August 2020 23.1 years 25.3 years 21.8 years 23.7 years At 31 August 2019 23.2 years 25.2 years 21.8 years 23.7 years 2020 £’000 13 — (139) (126) 2019 £’000 21 795 (284) 532 The past service cost in the prior year of £795,000 represents the scheme actuary's estimated effect on the Group's pension scheme liabilities following the equalisation of Guaranteed Minimum Pensions (“GMPs”). The Group continues to monitor further clarifications arising from the High Court case of Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others. This was recognised as a past service cost through the Income Statement and disclosed as an adjusting item in the prior year (note 5). The (income)/expense is recognised within the Income Statement as shown below: Within operating profit: Administrative expenses Within interest: Finance income Total (income)/expense Remeasurements of the net defined benefit asset to be shown in the Statement of Comprehensive Income: Actual gains and losses arising from changes in: Financial assumptions Demographic assumptions Return on assets, excluding interest income Total remeasurement of the net defined benefit asset 2020 £’000 13 (139) (126) 2020 £’000 422 173 (453) 142 2019 £’000 816 (284) 532 2019 £’000 (9,373) 589 6,939 (1,845) Carr’s Group plc Annual Report and Accounts 2020 125 28 Retirement benefits continued 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 Past service cost Interest cost Net measurement (gains)/losses – financial Net measurement gains – demographic Benefits paid Benefit obligation at the end of the year Benefit obligation by participant status: Vested deferreds Retirees 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 Benefits paid Scheme administrative cost Fair value of scheme assets at the end of the year Analysis of the scheme assets and actual return: Equity instruments Property Bonds Cash Other Actual return on scheme assets 126 Carr’s Group plc Annual Report and Accounts 2020 2020 £’000 2019 £’000 (65,834) 73,871 (68,037) 75,806 8,037 7,769 2020 £’000 2019 £’000 68,037 — 1,199 (422) (173) (2,807) 60,488 795 1,642 9,373 (589) (3,672) 65,834 68,037 2020 £’000 2019 £’000 22,615 43,219 22,930 45,107 65,834 68,037 2020 £’000 2019 £’000 75,806 1,338 (453) (2,807) (13) 70,634 1,926 6,939 (3,672) (21) 73,871 75,806 Fair value of assets 2020 £’000 11,563 2,328 52,274 5,360 2,346 2019 £’000 11,753 2,388 57,153 70 4,442 73,871 75,806 885 8,865 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 28 Retirement benefits continued Equity instruments, bonds and 'other' assets are held in unquoted Mercer fund portfolios and are not held directly by the Pension Scheme. These Mercer portfolios in turn invest in a mix of quoted and unquoted underlying assets. Property assets are held by Legal & General Investment Management. 'Other' assets relate to assets held in the Mercer's Alternative Strategies funds within the Scheme's growth portfolio. Cash includes investments in UK Cash Funds within the Mercer fund portfolios. In accordance with IAS 19 Scheme assets must be valued at the fair value at the balance sheet date. The following applies to the assets in the Scheme: Asset Equity instruments Property Bonds Other Valuation Fair value being the net asset value provided by the investment manager Closing bid price for unit holdings in managed property fund Fair value being the net asset value provided by the investment manager Fair value being the net asset value provided by the investment manager Sensitivity analysis A sensitivity analysis of the principal assumptions used to measure the scheme liabilities: Discount rate Price inflation rate Post-retirement mortality assumption Change in assumption -25 basis points +25 basis points -25 basis points +25 basis points -1 year age rating +1 year age rating Present value of defined benefit obligation £’000 68,468 63,349 64,315 67,162 68,603 63,123 The sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. It is not an indication of actual results which may materially differ, for example, changes in some assumptions may actually be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet. The methodology and principal assumptions used in preparing the sensitivity analysis did not change compared to the prior year. The weighted average duration of the defined benefit obligation is approximately 16 years (2019: 16-17 years). Expected cash flows for the following year: Expected employer contributions Expected contributions to reimbursement rights Expected total benefit payments by the scheme:  Year 1  Year 2  Year 3  Year 4  Year 5  Next 5 years £’000 — — 2,885 2,966 3,048 3,133 3,220 17,494 Carr’s Group plc Annual Report and Accounts 2020 127 28 Retirement benefits continued Characteristics and the risks associated with the Scheme Information about the characteristics of the Scheme: The Scheme provides pensions in retirement and death benefits to members. Pension benefits are linked to a member’s final salary at 31 December 2015 (or date of leaving, if earlier) and their length of service. Since 31 December 2015 the Scheme has been closed to future accrual. The Scheme is a registered scheme under UK legislation. The Scheme is subject to the scheme funding requirements outlined in UK legislation. As at 31 December 2017, being the date of the most recent finalised actuarial valuation, the scheme funding valuation of the Scheme revealed a surplus of £7.7m equating to a funding level of 112%. On a solvency basis the scheme had a deficit of £18.8m equating to a funding level of 80%. The purpose of the scheme funding valuation is to monitor the progress towards achieving the Trustees’ funding objectives and to determine the past service contributions and future service contributions that may be required. The solvency valuation provides an indication of the financial impact on members were the scheme to wind up with no money recoverable from the employer. The Trustees agreed that deficit contributions were not required and therefore contributions to the Scheme by the Group and Company in the year ending August 2021 are expected to be £nil. The next full triennial actuarial valuation will be as at 31 December 2020 at which point the funding requirements will be revisited. 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 Company. Risk exposure and investment strategy The Scheme’s investment strategy is to invest in return-seeking assets and lower risk assets, such as bonds. This strategy reflects the Scheme’s liability profile and the Trustees’ attitude to risk. The objective is to achieve a 110% funding level on a gilts +0.25% p.a. basis by 2026. The Trustees have a fiduciary management arrangement with Mercer who have certain delegated responsibilities over investment decisions within parameters set by the Trustees. These parameters are reviewed on a regular basis to ensure they are still appropriate. Assets are invested in Mercer portfolios and in respect of property, Legal & General Investment Management. The Scheme aims to reduce risks such as market (investment) risk, interest rate risk, inflation risk, currency risk and longevity risk through liability hedging, diversification and de-risking triggers. Where de-risking triggers are met, assets are transferred from growth asset portfolios to matching asset portfolios. The objective of the matching asset portfolio is to manage the impact on the funding level of interest rate risk and inflation risk such that the majority of the Scheme’s risk is allocated to the growth portfolio. Carr’s Group Retirement Savings Scheme The Company offers membership in a Master Trust arrangement, Carr’s Group RSS, following the closure of both sections of the Carr’s Group Pension Scheme. The pension expense for this scheme for the year was £1,815,000 (2019: £1,647,000). Carrs Billington Agriculture Pension Scheme One of the Group’s subsidiaries, Carrs Billington Agriculture (Sales) Ltd, is a participating employer in the Carrs Billington Agriculture Pension Scheme, which is a multi-employer defined benefit pension scheme. For the reasons explained below this scheme is accounted for as a defined contribution scheme. The scheme is closed to new entrants and has been closed to future accrual since 1 December 2007. There is currently a surplus, calculated in accordance with IAS 19, of £3.5m (2019: £1.9m). The sponsoring employer, Carrs Billington Agriculture (Operations) Ltd, is currently paying £0.8m per annum under the terms of the recovery plan agreed between them and the Trustees of the scheme. Under the rules of the scheme, any employer wishing to exit the scheme would trigger a partial wind-up of the scheme and would therefore be responsible for their s75 debt. A full wind-up of the plan would also trigger s75 debts for each participating employer. 128 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial StatementscontinuedStrategic Report Governance Financial Statements 28 Retirement benefits continued The history of the scheme is that it was brought together from many other pension schemes and employers following multiple acquisitions over several years. Many of those acquisitions had little or no records of employee histories. Because of this, approximately 85% of the scheme liabilities are ‘orphan liabilities’. Under the rules of the scheme, on a wind-up the orphan liabilities would be split between the participating employers in the same proportion as their calculated share of non-orphan liabilities. At the last finalised actuarial valuation, the buy-out deficit was £13.7m and the Group’s estimated liability on the wind-up of the scheme was £6.6m. Because of the scheme history described above, it is not possible to calculate the Group’s share of the assets and liabilities of the scheme, and consequently despite it being a defined benefit pension scheme, the Group treats it as a defined contribution pension scheme for accounting purposes. The Group does not expect to pay any contributions to the scheme in the next reporting period (2019: £nil). Currently the deficit repair contributions are being funded solely by the sponsoring employer and this is expected to remain the case in the future. Those deficit repair contributions are based on the last finalised triennial valuation of the scheme as at 31 December 2018, which showed that the scheme had a deficit of £2.6m on a technical provisions basis. The Group’s level of participation in the scheme is estimated at 48.5%, which is based on its estimated share of the total buy-out liabilities. The Group has a 49% shareholding in its associate company which is the sponsoring company of the pension scheme. As a result of equity accounting for its share of the net assets of the associate, the Group recognises 49% of the surplus calculated on an IAS 19 accounting basis within ‘Investment in associate’ in its consolidated balance sheet. Included in the Group's 'Share of post-tax results of associate' in the prior year is £306,000 in respect of the effect of the GMP equalisation on the Carrs Billington Agriculture Pension Scheme's liabilities. This was disclosed as an adjusting item (note 5). Other pension schemes The pension expense in respect of defined contribution pension arrangements in foreign subsidiaries during the year was £581,000 (2019: £526,000). Pension contributions into NEST during the year amounted to £95,000 (2019: £84,000). The Group also pays contributions into various defined contribution schemes acquired through business combinations. The pension expense during the year in respect of these schemes was £31,000 (2019: £64,000). 29 Share capital Group and Company Shares £’000 Shares £’000 Allotted and fully paid Ordinary Shares of 2.5p each: At the beginning of the year Allotment of shares At the end of the year 91,942,005 523,828 2,299 13 91,403,112 538,893 92,465,833 2,312 91,942,005 2,285 14 2,299 2020 2019 The table above includes 41,352 (2019: 3) shares held in the Employee Share Trust. The consideration received on the allotment of shares during the year was £23,688 (2019: £37,787). For details of share-based payment schemes see note 30. Carr’s Group plc Annual Report and Accounts 2020 129 30 Share-based payments Group The Group operates three active share-based payment schemes at 29 August 2020. The Executive Directors participate in a deferred bonus share plan under which 25% of any bonus earned will be deferred into awards over shares in the Company, with awards subject to a two-year post-vesting holding period. 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 December 2017, December 2018 and November 2019 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 three-year vesting period plans. The exercise period is six months from the vesting date. The fair value per option granted and the assumptions used in the calculation of fair values for Long Term Incentive Plans and Share Save Schemes are as follows: Grant date Share price at grant date (weighted average) Exercise price (weighted average) Fair value per option at grant Number of employees at grant Shares under option at grant 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 Long Term Incentive Plan November 2019 Long Term Incentive Plan December 2018 Long Term Incentive Plan December 2017 Share Save Scheme (3-Year Plan 2020) Share Save Scheme (3-Year Plan 2019) Share Save Scheme (3-Year Plan 2018) 11/11/19 19/12/18 22/12/17 16/12/19 17/12/18 18/12/17 £1.240 £0.00 £1.119 7 611,596 3 £1.43 £0.00 £1.277 8 610,464 3 £1.485 £0.00 £1.348 8 579,788 3 £1.44 £1.275 £0.36 153 420,851 3 Market value* Market value* Market value* Black-Scholes Black-Scholes 34.8% 3.65 3.4 0.81% £1.565 £1.223 £0.46 157 508,407 3 36.4% 3.65 3.4 0.61% — 10 6.5 — — 10 6.5 — — 10 6.5 — £1.20 £1.061 £0.28 290 1,465,455 3 Binomial 32.7% 3.5 3.25 0.6% 2.33% 0% 2.05% 0% 1.68% 50% 3.04% 95% 2.56% 95% 2.7% 95% * Discounted for dividends forgone over the three-year vesting period. The fair value of the deferred bonus plan offered to the Executive Directors is calculated with reference to the market value of the shares under award discounted to reflect illiquidity during the post vesting two-year period. 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. 130 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 30 Share-based payments continued Number of options (LTIP and Share Save) Outstanding: At 2 September 2018 Granted in the year Exercised in the year Forfeited in the year At 31 August 2019 Granted in the year Exercised in the year Forfeited in the year At 29 August 2020 Exercisable: At 31 August 2019 At 29 August 2020 Weighted average: Remaining contractual life (years) Remaining expected life (years) Long Term Incentive Plan November 2019 Number ’000 Long Term Incentive Plan December 2018 Number ’000 Long Term Incentive Plan December 2017 Number ’000 Long Term Incentive Plan November 2016 Number ’000 Share Save Scheme (3-Year Plan 2020) Number ’000 Share Save Scheme (3-Year Plan 2019) Number ’000 Share Save Scheme (3-Year Plan 2018) Number ’000 — — — — — 610 — — 610 — — 9 — 580 — — 580 — — — 580 — — 8 612 — — — 612 — — — 612 — — 7 542 — — — 542 — (514) (28) — — — 6 — — — — — 508 — (57) 451 — — — 421 — (43) 378 — — (52) 326 — — 1,337 — (8) (140) 1,189 — (10) (192) 987 — — 3.07 2.07 0.83 5.50 4.50 3.50 2.50 2.82 1.82 0.58 The total (credit)/charge recognised for the year arising from share-based payments are as follows: Deferred Bonus Share Plan 2019 Long Term Incentive Plan December 2018 Long Term Incentive Plan December 2017 Long Term Incentive Plan November 2016 Long Term Incentive Plan November 2015 Share Save Scheme (3-Year Plan 2020) Share Save Scheme (3-Year Plan 2019) Share Save Scheme (3-Year Plan 2018) Share Save Scheme (5-Year Plan 2014) 2020 £’000 (13) (175) (121) — — 55 42 75 — (137) 2019 £’000 75 175 228 227 22 — 32 113 8 880 Carr’s Group plc Annual Report and Accounts 2020 131 30 Share-based payments continued Company The movement in the number of outstanding options under the share schemes for the Company is shown below. Number of options (LTIP and Share Save) Outstanding: At 2 September 2018 Granted in the year Exercised in the year Forfeited in the year At 31 August 2019 Granted in the year Exercised in the year Forfeited in the year At 29 August 2020 Exercisable: At 31 August 2019 At 29 August 2020 Weighted average: Remaining contractual life (years) Remaining expected life (years) Long Term Incentive Plan November 2019 Number ’000 Long Term Incentive Plan December 2018 Number ’000 Long Term Incentive Plan December 2017 Number ’000 Long Term Incentive Plan November 2016 Number ’000 Share Save Scheme (3-Year Plan 2020) Number ’000 Share Save Scheme (3-Year Plan 2019) Number ’000 Share Save Scheme (3-Year Plan 2018) Number ’000 — — — — — 443 — — 443 — — 9 — 470 — — 470 — — — 470 — — 8 486 — — — 486 — — — 486 — — 7 381 — — — 381 — (379) (2) — — — 6 — — — — — 42 — — 42 — — — 58 — — 58 — — (23) 35 — — 203 — — (5) 198 — — (42) 156 — — 3.07 2.07 0.83 5.50 4.50 3.50 2.50 2.82 1.82 0.58 The total (credit)/charge recognised for the year arising from share-based payments are as follows: Deferred Bonus Share Plan 2019 Long Term Incentive Plan December 2018 Long Term Incentive Plan December 2017 Long Term Incentive Plan November 2016 Long Term Incentive Plan November 2015 Share Save Scheme (3-Year Plan 2020) Share Save Scheme (3-Year Plan 2019) Share Save Scheme (3-Year Plan 2018) Share Save Scheme (5-Year Plan 2014) 2020 £’000 (13) (133) (80) — — 12 7 18 — (189) 2019 £’000 75 133 181 168 22 — 4 17 2 602 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 December 2018 Long Term Incentive Plan December 2017 Long Term Incentive Plan November 2016 Long Term Incentive Plan November 2015 Share Save Scheme (3-Year Plan 2020) Share Save Scheme (3-Year Plan 2019) Share Save Scheme (3-Year Plan 2018) Share Save Scheme (5-Year Plan 2014) Total carrying amount of investments 132 Carr’s Group plc Annual Report and Accounts 2020 2020 £’000 — 53 — — 33 49 191 — 2019 £’000 43 94 178 — — 21 146 2 326 484 Notes to the Financial Statementscontinued 31 Cash generated from/(used in) continuing operations Profit for the year from continuing operations Adjustments for: Tax Tax credit in respect of R&D Dividends received from subsidiaries Dividends received from associate Depreciation and impairment of property, plant and equipment Depreciation of right-of-use assets Depreciation of investment property Intangible asset amortisation Loss/(profit) on disposal of property, plant and equipment (Profit)/loss on disposal of right-of-use assets Loss on dissolution of dormant subsidiaries Business combination expenses Adjustments to contingent consideration Net fair value (credit)/charge on share-based payments Release of loan provision Other non-cash adjustments Finance costs:  Interest income  Interest expense and borrowing costs Share of results of associate and joint ventures IAS 19 income statement charge (excluding interest):  Administrative expenses (note 28)  Past service cost (note 28) Changes in working capital (excluding the effects of acquisitions): Decrease/(increase) in inventories Decrease/(increase) in receivables (Decrease)/increase in payables Strategic Report Governance Financial Statements Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 10,922 13,624 6,739 6,768 1,575 (250) — — 4,567 2,462 6 1,513 265 (37) — — (937) (137) (783) (504) 2,685 (526) — — 4,804 — 6 943 (30) — — 509 (1,126) 880 — (139) (313) 1,716 (2,633) (463) 1,399 (2,377) 13 — 21 795 4,811 3,862 (3,479) (670) (1,008) (3,323) (264) — (14,016) (588) 40 96 — 42 — 4 5,337 — — (189) — 1,624 (1,911) 750 — 13 — — 637 (834) (89) — (6,805) (588) 43 — — 41 — — — — — 602 — (1,384) (2,055) 666 — 21 795 — (804) 202 Cash generated from/(used in) continuing operations 22,639 16,004 (2,520) (2,587) 32 Analysis of net debt Group Cash and cash equivalents Bank overdrafts Loans and other borrowings: – Current – Non-current Net debt (excluding finance lease liabilities – IAS 17) Finance leases (IAS 17): – Current – Non-current Net debt (including finance lease liabilities – IAS 17) At 1 September 2019 £’000 Cash flow £’000 Other non-cash changes £’000 Exchange movements £’000 At 29 August 2020 £’000 28,649 (4,354) (10,089) (2,913) 24,295 (13,002) — — — (989) — 17,571 (7,267) (989) 10,304 (18,319) (26,846) 13,615 1,463 (20,870) 2,076 528 (60) 468 23 422 (4,153) (25,021) (544) (18,870) (1,183) (1,740) (23,793) Other non-cash changes relate to the release of a loan forgiven by the lender and the release of deferred borrowing costs to the consolidated income statement. Carr’s Group plc Annual Report and Accounts 2020 133 32 Analysis of net debt continued Company Cash and cash equivalents Loans and other borrowings: – Current – Non-current Net debt At 1 September 2019 £’000 Cash flow £’000 Other non-cash changes £’000 Exchange movements £’000 At 29 August 2020 £’000 6,778 1,246 — (40) 7,984 (7,806) (26,846) (110) 3,900 5,466 (60) — (2,450) 59 (22,947) (27,874) 5,036 5,406 19 (17,413) Other non-cash changes relate to loans eliminated on dissolution of dormant subsidiaries and the release of deferred borrowing costs to the consolidated income statement. 33 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 (2019: none). 34 Other financial commitments Group The Group had commitments under non-cancellable operating leases as follows: 2020 £’000 2019 £’000 860 173 Within one year Within two and five years inclusive After five years Group Company 2020 2019 2020 2019 Land and buildings £’000 — — — — Other £’000 — — — — Land and buildings £’000 1,379 3,514 6,556 Other £’000 634 805 29 11,449 1,468 Other £’000 — — — — Other £’000 87 177 — 264 The table above excludes leases accounted for under IFRS 16 ‘Leases.’ Details of contractual undiscounted cash flows for leases under IFRS 16 can be found in note 13. 35 Financial guarantees and contingent liabilities 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 2020 amounted to £5,973,000 (2019: £2,582,000). 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 2020 was £5,635,000 (2019: £4,386,000). The Company has provided specific guarantees to certain customers of subsidiaries. These are in place to guarantee the completion of the contract in any event. The contracts under these guarantees had a total contract value of £14,314,000 (2019: £14,070,000) and as at 29 August 2020 £933,000 (2019: £1,572,000) remained uncompleted. 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 2020 the cumulative rent payable over the remaining term of the lease is £932,000 (2019: £1,040,000). 134 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Strategic Report Governance Financial Statements 35 Financial guarantees and contingent liabilities continued 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 (2019: £1,500,000). One of the Group’s subsidiary undertakings is a participating employer in the Carrs Billington Agriculture Pension Scheme. On a wind-up of the scheme the buy-out deficit would be split between the participating employers with the Group’s level of participation in the scheme estimated at 48.5%. At the last actuarial valuation, the Group’s estimated liability on the wind-up of the scheme was £6.6m (2019: £7.6m). The Group and Company do not expect any of the above to be called in. 36 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. Transactions with key management personnel Key management personnel are considered to be the Directors and their remuneration is disclosed within the Remuneration Committee Report. 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 Revenue Transactions with subsidiaries 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 Purchases Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 104 474 18 72 — — — — Company 2020 £’000 2019 £’000 34,735 219 49,231 279 34,954 49,510 (110) (2) (112) (5,466) (2) (5,468) 2,857 14,016 1,653 (1) 2,967 6,805 1,725 (1) Carr’s Group plc Annual Report and Accounts 2020 135 36 Related parties continued Transactions with associate Balances reported in the Balance Sheet Amounts owed by associate: Trade and other receivables Amounts owed to associate: Trade and other payables Transactions reported in the Income Statement Revenue Rental income Management charges receivable Dividends received Management charges payable Purchases 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 Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 246 185 169 (19,815) (24,628) — 514 20 106 — (253) (106,072) 695 20 166 — (153) (116,074) — — 106 588 — — 45 — — — 113 588 — — Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 1,639 1,794 1,607 1,719 (5) (3) — — Included within Group and Company trade and other receivables is £1,605,000 (2019: £1,717,000) in respect of loans owed by joint ventures. Transactions reported in the Income Statement Revenue Management charges receivable Purchases Group Company 2020 £’000 2019 £’000 2020 £’000 2019 £’000 417 166 (200) 836 165 (310) — — — — — — Other related parties NW Total Engineered Solutions Ltd occupies its premises under a 15-year lease with Ironworks Properties LLP. The owners of Ironworks Properties LLP are employed by NW Total Engineered Solutions Ltd. This lease was accounted for under IFRS 16 on the transition date of 1 September 2019, and at 29 August 2020 the liability included in the consolidated balance sheet was £1,114,000. Lease payments made in the year were £98,000. At the prior year end, under IAS 17, £23,000 was owed to Ironworks Properties LLP. 136 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial StatementscontinuedStrategic Report Governance Financial Statements 37 Adoption of IFRS 16 ‘Leases’ The Group adopted IFRS 16 with effect from 1 September 2019 and has applied IFRS 16 using the modified retrospective approach with the cumulative effect of initially applying the standard recognised at the date of initial application. Comparative information has not been restated and is therefore still reported under IAS 17. Adjustments to the opening balance sheet arising from the adoption of IFRS 16 are as follows. Non-current assets Property, plant and equipment Right-of-use assets Current assets Trade and other receivables Current liabilities Borrowings Leases Trade and other payables Non-current liabilities Borrowings Leases Deferred tax liabilities Equity Retained earnings Non-controlling interests Headline figures Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Total shareholders’ equity Total equity 31 August 2019 £’000 41,917 — Adjustments £’000 1 September 2019 £’000 (4,409) 15,903 37,508 15,903 56,349 (776) 55,573 (23,856) — (62,653) (28,586) — (4,987) 94,864 16,740 115,616 140,734 256,350 (88,788) (36,572) (125,360) 130,990 114,250 130,990 1,183 (2,801) 229 1,740 (12,777) 266 (22,673) (2,801) (62,424) (26,846) (12,777) (4,721) (931) (511) 93,933 16,229 11,494 (776) 10,718 (1,389) (10,771) (12,160) (1,442) (931) (1,442) 127,110 139,958 267,068 (90,177) (47,343) (137,520) 129,548 113,319 129,548 The adjustments to the opening position reflect the recognition of £11.5m of right-of-use assets previously accounted for as operating leases under IAS 17 together with £4.4m of existing assets held under finance lease arrangements reclassified to the new balance sheet category of right-of-use assets. Prepayments and accruals in respect of leases recognised on the balance sheet as at 31 August 2019 have been removed and additional lease liabilities of £12.7m have been recognised in respect of leases previously accounted for as operating leases under IAS 17. Finance lease liabilities of £2.9m have been reclassified from borrowings to leases on transition. Carr’s Group plc Annual Report and Accounts 2020 137 Notes to the Financial Statements continued 37 Adoption of IFRS 16 ‘Leases’ continued To enable users of these accounts to compare the years presented in this Annual Report and Accounts the following table shows the balance sheet of the Group as at 29 August 2020 as though IAS 17 still applied. Non-current assets Property, plant and equipment Right-of-use assets Current assets Trade and other receivables Current tax assets Current liabilities Borrowings Leases Trade and other payables Non-current liabilities Borrowings Leases Deferred tax liabilities Equity Retained earnings Non-controlling interests Headline figures Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Total shareholders’ equity Total equity 29 August 2020 (as reported) £’000 Adjustments £’000 29 August 2020 (IAS 17) £’000 38,259 14,856 51,686 1,535 (11,420) (2,778) (55,522) (25,021) (11,171) (4,873) 101,202 17,043 127,473 119,870 247,343 (70,814) (42,360) (113,174) 134,169 117,126 134,169 4,851 (14,856) 43,110 — 806 (17) 52,492 1,518 (1,259) 2,778 (175) (1,558) 11,171 (285) 1,029 427 (10,005) 789 (9,216) 1,344 9,328 10,672 1,456 1,029 1,456 (12,679) — (55,697) (26,579) — (5,158) 102,231 17,470 117,468 120,659 238,127 (69,470) (33,032) (102,502) 135,625 118,155 135,625 The adjustments to the reported figures as at 29 August 2020 reflect the derecognition of right-of-use assets and lease liabilities except for finance leases that would have been capitalised under IAS 17. It also reinstates prepayments in respect of lease premiums paid at the commencement of the lease together with prepayments and accruals in respect of the regular lease payments for those leases that were accounted for as operating leases under IAS 17. 138 Carr’s Group plc Annual Report and Accounts 2020 Strategic Report Governance Financial Statements 38 Prior year acquisitions There were no acquisitions during the current year. To provide users of these financial statements with an understanding of the effect of acquisitions to the prior year income statement and balance sheet the following disclosures are presented, all of which relate to the year ended 31 August 2019. Animax Ltd On 21 September 2018 Carrs Agriculture Ltd acquired the entire issued share capital of Animax Ltd ("Animax") a producer of market- leading animal health products, for a total cash consideration of up to £8.5m. As part of the acquisition, Carrs Agriculture Ltd also acquired the entire issued share capital of Animax’s related party, Clinimax Ltd. Clinimax Ltd is a manufacturer of specialist disinfectant products for use in the medical industry. Both businesses were acquired for an initial cash consideration of £6.0m, with an additional cash consideration of up to a maximum of £2.5m payable over the period to November 2020, based on the achievement of agreed financial targets. The acquisition of Animax aligns with the Group’s stated strategy of investing in growing agriculture markets in the UK and internationally. NW Total Engineered Solutions Ltd On 28 June 2019 Carr’s Engineering Ltd acquired the entire issued share capital of NW Pump & Valve Ltd, the holding company of NW Engineered Solutions Ltd ("NW Total"), a service and manufacturing company providing value-added solutions to the nuclear defence, nuclear decommissioning, nuclear power generation and other highly regulated markets, for a total cash consideration of up to £9.6m. NW Total has been acquired for an initial cash consideration of £6.0m, with further contingent cash consideration of up to a maximum of £3.6m payable over three years, based on the achievement of agreed financial targets. The acquisition of NW Total adds a specialist engineering solutions provider to the Group’s Engineering division and will bring a range of benefits and synergies. NW Total will also benefit significantly from being part of a larger group with access to increased manufacturing capacity alongside greater financial and technical resources. Other On 8 July 2019 Carrs Billington Agriculture (Sales) Ltd acquired the entire issued share capital of Paul Chuter Agricultural Services Ltd ("Paul Chuter") for a cash consideration of £0.4m. The acquisition expands the existing Agriculture business. All of the above purchases have been accounted for as acquisitions. Aggregate disclosures The total goodwill arising from acquisitions in the prior year ended 31 August 2019 amounted to £7,999,000. Goodwill 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 amounts were recognised within the consolidated income statement for the year ended 31 August 2019 in respect of acquisitions made in that year: Revenue Profit before taxation Animax £’000 6,148 429 NW Total £’000 1,880 352 Other £’000 117 (34) Total £’000 8,145 747 There were no other recognised gains and losses other than the results shown above. Total acquisition related costs amounted to £630,000, which have been recognised within administrative expenses in the consolidated income statement for the year ended 31 August 2019 and have been included in business combination expenses within adjusting items (note 5). £509,000 has been charged to the income statement in the year ended 31 August 2019 and £121,000 has been recognised in earlier years as incurred. Carr’s Group plc Annual Report and Accounts 2020 139 38 Prior year acquisitions continued The assets and liabilities recognised in the acquisition accounting are set out below. Intangible assets Property, plant and equipment Inventories Receivables Cash at bank Payables Bank loans Taxation – Current – Deferred Net assets acquired Goodwill Satisfied by: Cash consideration Contingent consideration Initial cash consideration comprises: Enterprise value Adjustments for: Profit and normalised working capital Cash and debt like items Total initial cash consideration Fair value Animax £’000 3,017 1,868 948 1,355 1,430 (1,268) (340) 34 (680) 6,364 1,742 Fair value NW Total £’000 3,520 279 267 1,210 4,246 (2,571) (120) (333) (633) 5,865 6,234 Fair value Other £’000 67 69 258 132 147 (189) — (54) (15) 415 23 Total fair value £’000 6,604 2,216 1,473 2,697 5,823 (4,028) (460) (353) (1,328) 12,644 7,999 8,106 12,099 438 20,643 6,000 2,106 8,868 3,231 8,106 12,099 438 — 438 15,306 5,337 20,643 Fair value Animax £’000 Fair value NW Total £’000 Fair value Other £’000 Total fair value £’000 6,000 6,000 438 12,438 — — 555 2,313 — — 555 2,313 6,000 8,868 438 15,306 The contingent consideration and £124,000 of cash consideration remained unpaid at the year ended 31 August 2019. Intangible assets represents the fair value of IP, brand names and customer relationships. Pro forma full year information (year ended 31 August 2019) IFRS 3 (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 2 September 2018. 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. Year ended 31 August 2019: Revenue Profit before taxation £’000 414,536 17,406 140 Carr’s Group plc Annual Report and Accounts 2020 Notes to the Financial Statementscontinued Five Year Statement Continuing operations Revenue and results Revenue Operating profit Analysed as: Adjusted operating profit Adjusting items Operating profit Finance income Finance costs Profit before taxation Analysed as: Adjusted profit before taxation Adjusting items Profit before taxation Taxation Profit for the year from continuing operations Profit for the year from discontinued operations Profit for the year Ratios (continuing operations) Operating margin (excluding adjusting items)1 Return on net assets (excluding adjusting items) Earnings per share – basic – adjusted Dividends per ordinary share Strategic Report Governance Financial Statements (Restated)1 2016 £’000 (Restated)1 2017 £’000 2018 £’000 2019 £’000 2020 £’000 314,907 346,224 403,192 403,905 395,630 14,851 10,690 16,405 17,195 13,840 15,063 (212) 12,091 (1,401) 17,464 (1,059) 18,930 (1,735) 16,247 (2,407) 14,851 10,690 16,405 17,195 13,840 236 (1,009) 176 (864) 358 (1,261) 463 (1,349) 313 (1,656) 14,078 10,002 15,502 16,309 12,497 14,290 (212) 14,078 (2,907) 11,171 2,817 11,403 (1,401) 10,002 (1,707) 16,561 (1,059) 15,502 (1,855) 18,044 (1,735) 16,309 (2,685) 14,904 (2,407) 12,497 (1,575) 8,295 13,647 13,624 10,922 — — — — 13,988 8,295 13,647 13,624 10,922 4.8% 13.0% 10.7p 10.9p 3.8p 3.5% 10.8% 7.7p 8.9p 4.0p 4.3% 13.7% 13.0p 13.9p 4.5p 4.7% 13.8% 13.1p 14.6p 4.75p 4.1% 11.1% 10.3p 11.9p 4.75p 1 Restated for the reclassification to operating profit of the share of post-tax results of the associate and joint ventures. Carr’s Group plc Annual Report and Accounts 2020 141 Five Year Statement continued Net assets employed Non-current assets Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Investment property Investments Financial assets – Non-current receivables Retirement benefit asset Deferred tax assets Current assets Inventories Contract assets Trade and other receivables Current tax assets Financial assets – Derivative financial instruments – Cash and cash equivalents Total assets Current liabilities Financial liabilities – Borrowings – Leases – Derivative financial instruments Contract liabilities Trade and other payables Current tax liabilities Non-current liabilities Financial liabilities – Borrowings – Leases Deferred tax liabilities Other non-current liabilities Total liabilities Net assets 2016 £’000 (Restated)1 2017 £’000 2018 £’000 2019 £’000 2020 £’000 11,440 286 35,811 — 182 14,996 50 311 — 24,293 2,266 37,149 — 176 18,106 444 5,209 — 24,272 2,223 38,484 — 170 21,207 21 10,146 — 32,877 9,318 41,917 — 164 23,139 22 7,769 410 32,041 9,171 38,259 14,856 158 24,931 20 8,037 — 63,076 87,643 96,523 115,616 127,473 33,423 — 56,940 303 37,023 — 59,723 297 42,371 — 67,516 119 46,270 9,466 56,349 — — 48,411 13 23,887 26 24,632 — 28,649 40,961 8,114 51,686 1,535 3 17,571 139,077 120,943 134,664 140,734 119,870 202,153 208,586 231,187 256,350 247,343 (21,642) — (20) — (46,823) (470) (17,060) — (18) — (56,181) (673) (34,994) — — — (64,290) (175) (23,856) — — (1,269) (62,653) (1,010) (11,420) (2,778) — (1,061) (55,522) (33) (68,955) (73,932) (99,459) (88,788) (70,814) (18,625) — (1,817) (2,668) (20,966) — (4,010) (3,755) (4,997) — (3,981) (1,784) (28,586) — (4,987) (2,999) (25,021) (11,171) (4,783) (1,385) (23,110) (28,731) (10,762) (36,572) (42,360) (92,065) (102,663) (110,221) (125,360) (113,174) 110,088 105,923 120,966 130,990 134,169 1 Restated for the finalisation of the fair value acquisition accounting for NuVision Engineering, Inc. 142 Carr’s Group plc Annual Report and Accounts 2020 Alternative Performance Measures Glossary Strategic Report Governance Financial Statements The Annual Report and Accounts includes alternative performance measures (“APMs”), which are not defined or specified under the requirements of IFRS. These APMs are consistent with how business performance is measured internally and therefore the Directors believe that these APMs provide stakeholders with additional useful information on the Group's performance. Alternative performance measure Definition and comments Adjusted EBITDA Adjusted operating profit Adjusted profit before taxation Earnings before interest, tax, depreciation, amortisation, profit/(loss) on the disposal of non-current assets, share of post-tax results of the associate and joint ventures and excluding items regarded by the Directors as adjusting items. This measure is reconciled to statutory operating profit and statutory profit before taxation in note 2. EBITDA allows the user to assess the profitability of the Group's core operations before the impact of capital structure, debt financing and non-cash items such as depreciation and amortisation􀀁. Operating profit after adding back items regarded by the Directors as adjusting items. This measure is reconciled to statutory operating profit in the income statement and note 2. Adjusted results are presented because if included, these adjusting items could distort the understanding of the Group's performance for the year and the comparability between the years presented. Profit before taxation after adding back items regarded by the Directors as adjusting items. This measure is reconciled to statutory profit before taxation in the income statement and note 2. Adjusted results are presented because if included, these adjusting items could distort the understanding of the Group's performance for the year and the comparability between the years presented. Adjusted earnings per share Profit attributable to the equity holders of the Company after adding back items regarded by the Adjusted diluted earnings per share Net debt Underlying sales growth/decline Free cash flow Gross margin Adjusted Group operating margin Return on net assets Directors as adjusting items after tax divided by the weighted average number of Ordinary Shares in issue during the year. This is reconciled to basic earnings per share in note 10. Profit attributable to the equity holders of the Company after adding back items regarded by the Directors as adjusting items after tax divided by the weighted average number of Ordinary Shares in issue during the year adjusted for the effects of any potentially dilutive options. Diluted earnings per share is shown in note 10. The net position of the Group's and Company’s cash at bank and borrowings. Details of the movement in net debt is shown in note 32. Year-on-year increase/(decrease) in sales revenue excluding the impact of acquisitions and disposals. This performance measure allows the user to have a clearer understanding of the organic sales growth/ decline of the Group. A reconciliation of underlying sales growth/decline to reported revenue is shown below. Cash generated from operating activities less maintenance capital expenditure. The calculation of free cash flow is shown below. Free cash flow demonstrates how much cash is available for the Group to utilise for expansionary capital investment, paying dividends, or financing/repaying borrowings. Reported gross profit as a percentage of reported revenue. Gross margin is a reflection of how successfully the Group manages raw material price volatility and its selling prices in competitive markets. A calculation of gross margin is shown below. Operating profit after adding back items regarded by the Directors as adjusting items as a percentage of revenue. Adjusted Group operating margin excluding adjusting items is presented because if included, these items could distort the understanding of the Group’s performance for the year and the comparability between the years presented. The calculation of adjusted Group operating margin to the statutory equivalent is shown below. Profit before tax after adding back items regarded by the Directors as adjusting items as a percentage of net assets. This financial performance metric allows users to understand how effectively and efficiently the Group is using its assets to generate earnings. The calculation of return on net assets is shown below. Ratio of net debt to EBITDA The ratio of net debt to EBITDA is a measurement of leverage and reflects the Group’s ability to service its debt. The calculation of net debt to EBITDA is shown below. Carr’s Group plc Annual Report and Accounts 2020 143 Alternative Performance Measures Glossary continued The following tables show reconciliations and calculations that are not presented elsewhere in this Annual Report and Accounts. Underlying sales growth/decline Reported revenue NW Total Underlying revenue 2020 £’000 2019 £’000 395,630 403,905 (1,880) (11,740) Change -2.0% 383,890 402,025 -4.5% The impact on year-on-year organic revenue growth/decline of other acquisitions in the comparative year are immaterial and have therefore not been included in the calculation of underlying sales growth/decline. Free cash flow Cash generated from operating activities per the consolidated statement of cash flows Maintenance capital expenditure Free cash flow Gross margin Reported revenue Reported gross profit Gross profit as a percentage of revenue Adjusted Group operating margin Reported operating profit Adjusting items (note 5) Adjusted operating profit Reported revenue Adjusted operating profit as a percentage of reported revenue Return on net assets Reported profit before taxation Adjusting items (note 5) Adjusted profit before taxation Net assets per the consolidated balance sheet Adjusted profit before taxation as a percentage of net assets Ratio of net debt to EBITDA Adjusted EBITDA (note 2) Net debt excluding leases (note 32) Ratio of net debt excluding leases to adjusted EBITDA 144 Carr’s Group plc Annual Report and Accounts 2020 2020 £’000 2019 £’000 18,060 (5,372) 12,600 (3,670) Change +43.3% 12,688 8,930 +42.1% 2020 £’000 2019 £’000 395,630 403,905 54,107 13.4% 52,249 13.2% Change -2.0% 2020 £’000 13,840 2,407 2019 £’000 17,195 1,735 16,247 18,930 395,630 403,905 4.7% 4.1% Change -19.5% -14.2% 2020 £’000 12,497 2,407 14,904 134,169 11.1% 2019 £’000 16,309 1,735 18,044 130,990 13.8% Change -23.4% -17.4% 2020 £’000 20,771 18,870 0.91 2019 £’000 21,156 20,870 0.99 Change -1.8% Directory of Operations Strategic Report Governance Financial Statements Carr’s Group plc Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA Tel: 01228 554600 Web: www.carrsgroup.com AGRICULTURE ACC Feed Supplement LLC* 5101 Harbor Drive, Sioux City, Iowa 51111 USA Tel: 001 712 255 6927 Afgritech LLC* 810 Waterman Drive, Watertown, New York 13601 USA Tel: 001 315 785 3625 AminoMax Lansil Way, Lancaster LA1 3QY Tel: 01524 597 200 Animal Feed Supplement, Inc. East Highway 212, PO Box 188, Belle Fourche, South Dakota 57717 USA Tel: 001 605 892 3421 Animal Feed Supplement, Inc. PO Box 105, 101 Roanoke Avenue, Poteau, Oklahoma 74953 USA Tel: 001 918 647 8133 Animal Feed Supplement, Inc. PO Box 569, 1700 US, 50 East, Silver Springs, Nevada 89429 USA Tel: 001 775 577 2002 Animax Limited Shepherds Grove West, Stanton, Bury St Edmund’s, Suffolk IP31 2AR Tel: 01359 252 181 Animax NZ Limited 86 Highbrook Drive, Auckland 2013, New Zealand Bibby Agriculture* Priory House, Priory Street, Carmarthen SA31 1NE Tel: 01267 232 041 Bibby Agriculture* 1A Network House, Badgers Way, Oxon Business Park, Shrewsbury, Shropshire SY3 5AB Tel: 01743 237 890 Caltech Solway Mills, Silloth, Wigton, Cumbria CA7 4AJ Tel: 016973 32592 Carr’s Billington Agriculture (Operations)** Warren Road, Brecon, Powys LD3 8EF Tel: 01874 623470 Carr’s Billington Agriculture (Operations)** Parkhill Road, Kingstown Industrial Estate, Carlisle CA3 0EX Tel: 01228 518860 Carr’s Billington Agriculture (Operations)** Lansil Way, Lancaster LA1 3QY Tel: 01524 597 200 Carr’s Billington Agriculture (Operations)** High Mill, Langwathby, Penrith CA10 1NB Tel: 01228 518 860 Carr’s Billington Agriculture (Operations)** Lion Works, Pool Road, Newtown, Powys SY16 3AG Tel: 01686 626680 Carr’s Billington Agriculture (Operations)** Cold Meece, Stone, Staffordshire ST15 0QW Tel: 01785 760 535 Carr’s Billington Agriculture (Operations)** Micklow House Farm, Eccleshall Road, Stone, Staffordshire ST15 0BY Tel: 01782 374387 Carr’s Billington Agriculture (Operations)** Cilherwydd Store, Llanboidy, Whitland, Carmarthenshire SA34 0LL Tel: 01994 448209 Carr’s Billington Agriculture (Operations)** Pow Hill, Kirkbride, Wigton, Cumbria CA7 5LF Tel: 01697 352229 Carr’s Billington Agriculture (Sales) Annan 2 Annan Business Park, Annan, Dumfriesshire DG12 6TZ Tel: 01461 202772 Carr’s Billington Agriculture (Sales) Appleby Crosscroft Industrial Estate, Appleby, Cumbria CA16 6HX Tel: 01768 352999 Carr’s Billington Agriculture (Sales) Ayr 1A Whitfield Drive, Heathfield Industrial Estate, Ayr, Ayrshire KA8 9RX Tel: 01292 263635 Carr’s Billington Agriculture (Sales) Ayr Livestock Auction Mart, Whiteford Hill, Ayr KA6 5JW Tel: 01292 619229 Carr’s Billington Agriculture (Sales) Bakewell Unit 4-6, Kingfisher Building, Buxton Road, Bakewell, Derbyshire DE45 1GZ Tel: 01629 814126 Carr’s Billington Agriculture (Sales) Balloch Ballagan, Stirling Road, Balloch G83 8LY Tel: 01389 752800 Carr’s Billington Agriculture (Sales) Barnard Castle Montalbo Road, Barnard Castle, Durham DL12 8ED Tel: 01833 637537 Carr’s Billington Agriculture (Sales) Brecon Warren Road Stores, Warren Road, Brecon, Powys LD3 8EF Tel: 01874 623470 Carr’s Billington Agriculture (Sales) Brock Brockholes Way, Claughton Trading Estate, Lancaster Old Road, Claughton on Brock, Preston PR3 0PZ Tel: 01995 643 200 Carr’s Billington Agriculture (Sales) Carlisle Montgomery Way, Rosehill Estate, Carlisle CA1 2UY Tel: 01228 520212 Carr’s Billington Agriculture (Sales) Cockermouth Unit 5, Lakeland Agricultural Centre, Cockermouth CA13 0QQ Tel: 01900 824 105 Carr’s Billington Agriculture (Sales) Gisburn Pendle Mill, Mill Lane, Gisburn, Clitheroe, Lancashire BB7 4ES Tel: 01200 445 491 Carr’s Billington Agriculture (Sales) Hawes Burtersett Road, Hawes, North Yorkshire DL8 3NP Tel: 01969 667334 Carr’s Billington Agriculture (Sales) Hexham Tyne Mills Industrial Estate, Hexham, Northumberland NE46 1XL Tel: 01434 605371 Carr’s Billington Agriculture (Sales) Jedburgh Mounthooly, Crailing, Jedburgh TD8 6TJ Tel: 01835 850250 Carr’s Billington Agriculture (Sales) Kendal Unit 1, J36, Rural Auction Centre, Crooklands, Milnthorpe, Kendal, Cumbria LA7 7FP Tel: 01539 566035 Carr’s Billington Agriculture (Sales) Leek Macclesfield Road, Leek, Staffordshire ST13 8NR Tel: 01538 383277 Carr’s Billington Agriculture (Sales) Milnathort Stirling Road, Milnathort, Kinross KY13 9UZ Tel: 01577 862381 Carr’s Billington Agriculture (Sales) Morpeth Unit 20c, Coopies Lane Industrial Estate, Morpeth, Northumberland NE61 6JN Tel: 01670 503930 Carr’s Billington Agriculture (Sales) Morpeth Old Station Buildings, Coopies Lane, Morpeth, Northumberland NE61 2SL Tel: 01670 518474 Carr’s Billington Agriculture (Sales) Oban Unit 3 Oban Livestock Centre Soroba, Oban, Argyll PA34 4SD Tel: 01631 566279 Carr’s Billington Agriculture (Sales) Penicuik 4 Eastfield Park Road, Penicuik, Midlothian, EH26 8EZ Tel: 01968 707040 Carr’s Billington Agriculture (Sales) Penrith Haweswater Road, Penrith Industrial Estate, Penrith, Cumbria CA11 9EU Tel: 01768 866354 Carr’s Billington Agriculture (Sales) Rothbury The Store, Coquet View, Rothbury, Morpeth, Northumberland, NE65 7RZ Tel: 01669 620320 Carr’s Billington Agriculture (Sales) Skipton Skipton Auction Mart, Gargrave Road, Skipton, North Yorkshire BD23 1UD Tel: 01756 792166 Carr’s Billington Agriculture (Sales) Spennymoor Southend Works, Byers Green, Spennymoor, Durham DL16 7NL Tel: 01388 662266 Carr’s Billington Agriculture (Sales) Stirling Stirling Agricultural Centre, Stirling FK9 4RN Tel: 01786 474826 Carr’s Billington Agriculture (Sales) Wigton Hopes Auction Co Ltd, Skye Road, Wigton, Cumbria, CA7 9NS Tel: 016973 45874 Carr’s Billington Agriculture (Sales) Wooler Bridge End, South Road, Wooler, Northumberland, NE71 6QE Tel: 01668 281567 Carr’s Billington Fuels Carlisle Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 534 342 Carr’s Billington Fuels Castle Douglas Abercromby Industrial Park, Castle Douglas, Dumfriesshire, DG7 1BA Tel: 01387 750747 Carr’s Billington Fuels Dumfries Dargavel Stores, Lockerbie Road, Dumfries, Dumfriesshire DG1 3PG Tel: 01387 750747 Carr’s Billington Fuels Cockermouth Lakeland Agricultural Centre Cockermouth, Cumbria CA13 0QQ Tel: 01900 828800 Carr’s Billington Fuels Hexham Tyne Mills Industrial Estate, Hexham, Northumberland NE46 1XL Tel: 01434 600404 Carr’s Billington Fuels Lancaster Lancaster Mill, Lansil Way Lancaster, Lancashire LA1 3QY Tel: 01524 599333 Carr’s Billington Fuels Penrith High Mill, Langwathby, Penrith, Cumbria CA10 1NB Tel: 01768 889899 Carr’s Billington Fuels Stranraer Droughduil, Dunragit, Stranraer DG9 8QA Tel: 01387 750747 Carr’s Supplements (NZ) Limited 515a Wairakei Road, Burnside, Christchurch, 8053, New Zealand Tel: 0064 03 974 9274 Crystalyx Products GmbH* Am Stau 199-203, 26122, Oldenburg, Germany Tel: 00 49 441 2188 92142 Gold-Bar Feed Supplements LLC* 783 Eagle Boulevard, Shelbyville TN 37160, USA Tel: 001 877 618 6455 Scotmin 13 Whitfield Drive, Heathfield Industrial Estate, Ayr KA8 9RX Tel: 01292 280 909 Silloth Storage Company* Station Road, Silloth, Wigton, Cumbria CA7 4JQ Workware Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 591 091 ENGINEERING Bendalls Engineering Brunthill Road, Kingstown Industrial Estate, Carlisle CA3 0EH Tel: 01228 815 350 Carrs MSM Unit 1, Oak Tree Business Centre, Spitfire Way, Hunts Rise, South Marston Park, Swindon, Wiltshire SN3 4TX Tel: 01793 824 891 Chirton Engineering Unit 4A, Tyne Tunnel Trading Estate, High Flatworth, North Shields, Tyne and Wear NE29 7SW Tel: 0191 296 2020 NuVision Engineering, Inc. 2403 Sidney Street, Suite 700, Pittsburgh, Pennsylvania 15203, USA Tel: 001 888 748 8232 NuVision Engineering, Inc. 184 B Rolling Hill Road, Mooresville, North Carolina 28117, USA Tel: 001 704 799 2707 NW Total Engineered Solutions Limited Unit 2 Andrews Way, Barrow in Furness, Cumbria LA14 2UE Tel: 01229 811000 R Hind Bendalls Kingstown Broadway, Kingstown Industrial Estate, Carlisle CA3 0HA Tel: 01228 523 647 Wälischmiller Engineering GmbH Schießstattweg 16, 88677 Markdorf, Germany Tel: 0049 7544 95140 * joint venture company ** associate company Carr’s Group plc Annual Report and Accounts 2020 145 Dormant Subsidiaries at 29 August 2020 Company Name B. E. Williams Ltd1 B.R.B Trust Ltd1 Caltech Biotechnology Ltd1 Carrs Animal Feed Supplements Ltd1 Carrs Feeds Ltd1 Carrs Fertilisers Ltd1 Carr’s Group Corporate Trustee Ltd Carr’s International Industries Ltd1 Carr’s Milling Industries Ltd1 Carrs Milling Ltd1 Carrs Natural Feeds Ltd1 Carr's Supplements (ROI) Ltd Chirton Engineering Ltd Forsyths of (Wooler) Ltd1 Greens Flour Mills Ltd1 Horse and Pet Warehouse Ltd Johnstone Fuels and Lubricants Ltd1 NW Pump & Valve Ltd1 Paul Chuter Agricultural Services Ltd Pearson Farm Supplies Ltd Phoenix Feeds Ltd R Hind Ltd1 Reid and Robertson Ltd1 Robert Hutchison Ltd1 Safe at Work Ltd1 Scotmin Nutrition Ltd1 Simarghu Ltd1 Walischmiller Solutions Ltd1 Wallace Oils Ltd1 WM. Nicholls & Company (Crickhowell) Ltd1 Registered and Located Ownership England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales England and Wales Republic of Ireland England and Wales England and Wales England and Wales Scotland Scotland England and Wales England and Wales England and Wales England and Wales England and Wales Scotland England and Wales England and Wales Scotland England and Wales England and Wales England and Wales England and Wales 51%2 100% 100% 100% 51%2 100% 100% 100% 100% 100% 100% 100% 100% 51%2 100% 51%2 51%2 100% 51%2 51%2 51%2 100% 51%2 100% 51%2 100% 51%2 100% 51%2 51%2 1 Dissolution process commenced prior to 29 August 2020 and officially dissolved post-year end. 2 100% owned by Carrs Billington Agriculture (Sales) Ltd which is a 51% subsidiary of Carr’s Group plc. Companies registered in England and Wales have a registered office of Old Croft, Stanwix, Carlisle, Cumbria CA3 9BA. Companies registered in Scotland have a registered office of 13 Whitfield Drive, Heathfield Ind. Est., Ayr KA8 9RX, with the exception of Horse and Pet Warehouse Ltd which has a registered office of 1a Whitfield Drive, Heathfield Ind. Est., Ayr KA8 9RX. Companies registered in the Republic of Ireland have a registered office of Trinity House, Charleston Road, Ranelagh, Dublin 6 D06C8X4. 146 Carr’s Group plc Annual Report and Accounts 2020 Registered Office and Advisers Strategic Report Governance Financial Statements Registered Office Carr’s Group plc Old Croft, Stanwix, Carlisle CA3 9BA Registered No. 98221 Chartered Accountants and Statutory Auditors KPMG LLP Quayside House, 110 Quayside, Newcastle upon Tyne NE1 3DX Bankers Clydesdale Bank PLC 82 English Street, Carlisle CA3 8HP The Royal Bank of Scotland PLC Glasgow City Office, 10 Gordon Street, Glasgow G1 3PL Financial Adviser and Broker Investec Bank (UK) Ltd 30 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 Registrar Link Asset Services The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Carr’s Group plc Annual Report and Accounts 2020 147 Notes 148 Carr’s Group plc Annual Report and Accounts 2020 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 2 0 Carr’s Group plc Old Croft Stanwix Carlisle CA3 9BA United Kingdom 

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