As a result of challenges to mitigating the impacts of a previously announced delay to a significant contract in the UK Manufacturing business, together with a slower than anticipated recovery in USA cattle prices impacting our feed block performance in that region, the Group's performance for the current financial year is anticipated to be significantly below the Board's existing expectations.
Engineering
As previously announced in the Group's trading update on 10 January 2017, the Engineering division had a slower than expected start to the current financial year as a result of a significant contract delay in the UK Manufacturing business that was expected to impact upon production activity throughout this financial year. The Board has focused on mitigating the financial impact of this delay through (i) cost-cutting, (ii) winning new work to replace the delayed contract and (iii) accelerating the existing order book. While progress has been made with cost-cutting, winning sufficient new work in the short term and accelerating the existing order book has been challenging, especially in the oil and gas market. Consequently, despite some success, the level of new work secured has been insufficient to mitigate the impact of the delay.
The Remote Handling business continues to perform well, ahead of the Board's expectations, including certain large contract wins in China. The integration of the recently acquired STABER business is also progressing in line with Board's expectations.
In the medium term, the engineering division continues to operate in a recovering nuclear market, with some significant contract wins in the last 18 months, and management has identified further potentially material opportunities in adjacent markets of defence, new nuclear and aerospace.
Agriculture
As also announced in the 10 January 2017 trading update, volumes and margins in our USA feed block business have been under pressure as a result of falling cattle prices for producers. This pressure continued for a longer period than originally forecast and although cattle prices have begun to increase, the recovery in that market is now expected to be slower than anticipated. Consequently, this will result in significantly reduced profitability in our USA feed block business as the market recovers in the short to medium term.
In contrast, UK Agriculture continues to see encouraging signs of returning customer confidence, driven by improving returns for dairy farmers. The UK Agriculture business has continued to perform well and is now anticipated to exceed the Board's expectations for the current financial year. Feed blocks continue to be an exciting opportunity for growth, and our strategy of international expansion, particularly penetrating into some of the South American markets, remains unchanged.
The Company will provide a further update on trading with its Interim Results on 12 April 2017.