Carr’s Group plc
(“Carr’s” or the “Company”)
Sale of Engineering Division for £75m
Carr’s (CARR.L) is pleased to announce that it has agreed to dispose of its interests in Carr’s Engineering Limited (the “UK Target“) and Carr’s Engineering (US), Inc. (the “US Target“) (together, the “Engineering Division“) to Cadre Holdings, Inc. (“Cadre“) for cash consideration on a cash free, debt free basis, representing an enterprise value of £75m (the “Transaction“).
Transaction Highlights
· Sale of the Engineering Division (which, for the avoidance of doubt, excludes Chirton Engineering, which is subject to a separate sale process as outlined in further detail below) on a cash free, debt free basis representing an enterprise value of £75m and multiple of 7.1x FY24 Adjusted EBITDA
· Unlocks significant shareholder value and provides cash to the Group for the benefit of all stakeholders concluding an extensive process conducted by the Board of Carr’s
· The Board views Cadre as a compelling strategic buyer of, and suitable custodian for, the employees and customers of the Engineering Division on the next phase of its growth journey
· The Company intends to return up to approximately £70m of the net proceeds to shareholders by way of a tender offer (the “Capital Return“), with any remaining proceeds expected to be used for general corporate purposes
· The Transaction simplifies the Group’s structure and enables the Continuing Group to concentrate future investments and allocate resources more effectively to the Agriculture Division, supported by the recently launched focussed strategy under a single management team
· Upon Completion, the Continuing Group will be in a net cash position and have the financial flexibility to implement the focused strategy and capitalise on its market leading positions
· The consideration for the Transaction is calculated on the basis of an enterprise value of £75m, subject to customary adjustments in respect of certain amounts such as working capital, cash intercompany balances and external debts. In addition, the Transaction includes a contingent consideration element in respect of certain R&D expenditure credit and other tax claims
· Completion of the Transaction is expected to occur during the first half of 2025, subject to receipt of customer and customary regulatory clearances
· In addition, the Group is pleased to announce the following updates:
o A separate sale process for Chirton Engineering, which forms a part of the Wider Engineering Division and which is a wholly owned subsidiary located in North Tyneside, UK, specialising in the precision machining of highly complex components and assemblies, is underway and progressing positively;
o Completion of the disposal of six non-core properties since 31 August 2024, generating proceeds of approximately £4.0m, with two remaining property sales in progress and expected to complete in FY25;
o Defined Benefit Pension Scheme buy-in near finalisation, with de-risking expected to be in place by the second half of FY25; and
o Rightsizing of central resources to support the ongoing Agricultural Division, with FY25 being a transitional year, with approximately £1.0m+ p.a. expected to be removed from the cost base and the medium-term objective to reduce net central costs to nil continues to progress as planned.
This summary should be read in conjunction with the whole of this announcement, including its Appendices. Certain capitalised terms in this announcement bear the meanings set out in Appendix 4.
Tim Jones, Non-Executive Chairman of Carr’s, commented:
“This is a transformative moment for Carr’s and one which we expect to deliver real value to all shareholders. The Agriculture business is particularly well-positioned for growth, with strong product offerings, strategic market presence and a clear focus on delivering ongoing shareholder value.”
David White, Chief Executive Officer of Carr’s, commented:
“I am delighted that we have been able to execute this critical step in our strategy, one which leaves us able to focus on the global opportunities for our Agriculture business. Our specialist product portfolio provides a strong base for profitable growth in both existing and new markets. The hard work of all colleagues across the Engineering Division has been key to the success of the Group in recent years and I wish them the very best for the future.”
Strategic Rationale
Today’s announcement represents a significant milestone in Carr’s’ pursuit to maximise shareholder value. The Transaction follows the previously announced review of the Group’s operational performance, structure, and composition. It had become clear that driving performance across two divisions (Agriculture and Engineering) was an inefficient and generalist operating model, particularly in light of the absence of synergistic benefits and the resulting central overhead costs.
The Engineering Division is comprised of quality businesses, supported by its increasing profitability and promising future prospects. The Engineering Division manufactures vessels, precision components and remote handling systems, and provides specialist engineering services, for the nuclear and defence industries. It is located across six sites in the UK, the US and Germany. Revenue for FY24 was approximately £51.1m, supported by an order book of approximately £54.0m at 31 August 2024. This makes it an optimal time to dispose of the Engineering Division and capitalise on the current value opportunity.
The Board believes that this strategic bifurcation will enable the Continuing Group to operate as a pure-play global Agriculture business, streamlining the organisational structure, developing the specialist product portfolio, enhancing financial and operational efficiencies, and sharpening management and investment focus. The transformation of the Agriculture business, under the new leadership team, is progressing well and at an accelerated pace.
While trading conditions remain challenging, Carr’s is leveraging its strong brands and solid foundations to prepare for growth and further enhance its market position in alignment with the anticipated macroeconomic recovery. Carr’s remains confident in its ability to create significant incremental value within the Agriculture Division over the long term.
Agriculture Strategy
The Agriculture Division manufactures and sells research proven livestock supplements as feed licks, blocks, bagged minerals and boluses. The business operates manufacturing sites across three different countries and sells to over 20 countries under five market leading brands.
It has recently been reorganised into a single, global specialist business with an integrated leadership team. New leadership has set out a strategic plan designed to drive shareholder returns and growth by leveraging our feed supplement expertise as a global specialist for extensive, grazing based food systems. The team is led by Josh Hoopes, CEO of the global Agriculture business, supported by Zach Westberg (President, New Generation Supplements (US)), Charlie Battle (UK Commercial Director) and Mark Meyrick (UK Operations Director).
The ‘Agriculture Strategy’ is comprised of three elements:
1. Improve operating margin across the global portfolio;
2. Deliver profitable commercial growth in the core business; and
3. Expand into new, extensive, grazing based growth geographies.
Good progress is already being made across all three pillars with early deliverables including:
· the recent sale and disposal of the assets of Afgritech, a non-core, commodity-based business;
· the introduction of operational excellence and cost improvement programmes;
· local personnel changes made in US Oklahoma and UK Animax manufacturing sites;
· the establishment of the ‘Global New Product Development’ programme with an increased budgeted spend; and
· the agreement of a new distribution model for the New Zealand market.
The Group also expects underlying market conditions in the UK to continue to improve in the near term with US market contraction to end during 2025 and rebuilding of cattle herds to commence thereafter.
Globally, the Organisation for Economic Co-operation and Development (OECD) has forecast beef consumption will increase to 76Mt between 2020 and 20291, while the Food and Agriculture Organisation (FAO) predicts global protein availability from beef will rise 8% in the 10 years to 2031.1 The Directors believe the Agriculture Division is well-positioned to benefit from this growth with its strong product offerings. This, coupled with the Division’s existing strategic market presence and core business focus, the Board expects to deliver shareholder value as a pure-play strategic agriculture business.
Use of Proceeds
Following Completion, it is the Board’s intention to use the net proceeds from the Transaction to return capital to shareholders. The intention is to return capital by way of a tender offer of up to £70m, subject to market conditions and, if required, the approval of shareholders. The quantum, timing and form of any such return of capital shall be at the discretion of the Board and is subject to the Board continuing to believe that such action is in the best interests of shareholders at the time. Further details of the Capital Return (including the quantum, timing and form) will be announced in due course.
Next steps and timetable
Completion of the Transaction is, as noted above, conditional on the receipt of customer and customary regulatory clearances.
Completion is expected to take place in the first half of 2025.
Notes:
1 Source: OECD-FAO Agricultural Outlook 2023-2032
ENDS