Soaring prices hit profits at Carr's

Nov 13 2007 by Peter McCusker, The Journal

SOARING grain and milk prices led to a 17% profit fall at a North agriculture, food and engineering group. Chris Holmes, chief executive of the Carlisle-based Carr’s Milling group admitted that its annual profits of £6.1m were at a “level that was not acceptable”.

However he pointed out that this year’s profits were better than analysts had forecast when the company issued a profit warning in February.

Yesterday’s unaudited annual results up until September 1, this year, showed the company’s revenue rose 4.2% to £252.8m. The pre-tax profit on turnover fell 17.1% from 7.3m to £6.1m this year.

Mr Holmes told The Journal the industry needs to ensure that a fair price is paid for flour and milk, although there are signs this is beginning to change.

“Wheat prices rose steadily during the period culminating in a sudden, sharp increases in the summer of 2007 as the markets responded to the intensifying concerns about global supply and demand.

“The divisional profit decrease reflected delays in passing on the full impact of these raw material price increases in a competitive market place.”

However he added: “We need to get the prices up. The levels of profitability in the sector were not acceptable last year. There needs to be more flexibility. Their needs to be more recognition that wheat prices are high and that food manufacturers and farmers need to be able to obtain a true market price. This has to be done through negotiation by all parties concerned.”

Mr Holmes forecast that this particular sector could become stronger and return high yields as prices reach a truer market level.

Referring to the growing demand for grain in emerging markets like China and India. He said: “More and more people are eating Westernised diets.

“This is good for the arable farmer as grain prices will rise and this is also good for the for the dairy farmer as milk prices rise.”

Agriculture accounts for 70% of the company’s business – including stores in Hexham and Barnard Castle. Foods accounts for 25% through the company’s mills in northern England and Scotland and engineering accounts for the remaining 5%.

Highlights in the agriculture arm were the performance of Carr’s 14 stores.

Sales volumes were down in food due to grain prices and the “short-term loss of a major customer”.

Mr Holmes said fuel costs for the coming year had been budgeted at existing prices of a round £1 per litre.

Looking forward to the coming year Chairman Richard Inglewood said: “Agriculture will benefit from improved customer confidence following the recent increase in the farm gate milk price.

“The flour price increases in August and November should enable the food division to return to more acceptable levels of profitability.”

The company employs around 750 staff.In February it issued a profits warning with analysts predicting a return of £5.7m.

Its share price closed up 0.5p at 572.5p.

See page two to read more on Carr's.