CARLISLE, ENGLAND — Carr’s Milling Industries PLC announced on April 16 that during the 26 weeks ended March 2 profit before tax increased by 36.2% to £10.1 million from £7.4 million for the same period in 2012, reflecting increased levels of activity across all its businesses.

The construction of the new-state-of-the-art mill at Kirkcaldy at a cost of £17 million is progressing well and is on target to start production in September. The efficiencies of the new mill are expected to further improve operating margins in the next financial year.

In Agriculture, adverse weather conditions over the winter greatly helped the growth of its proprietary brands in the U.K., Europe and the U.S. Progress was also made in its Food and Engineering divisions where strategic major capital investments will benefit future profitability.

The combination of increasing revenue and a continuing focus on cost control has resulted in an improvement in group operating margin to 3.8% (2012: 3.4%), and group operating profit increasing by 31% to £8.8 million (2012: £6.7 million). The group's share of profit after tax from associate and joint venture companies increased to £1.7 million (2012: £800,000).

As compared to the same period in the previous year, revenue in the Agriculture division has increased by 17.8% and profit before tax is up by 21.4%, with the impact of the adverse global weather contributing approximately £1.1 million to this profit increase in the first half of the current financial year.

The inclement global weather patterns have had a significant positive effect on demand for Carr's feed and feed block products. In the U.K., the wet summer and autumn had an adverse impact on the quality of forage available and the duration and intensity of the 2012-13 winter has stimulated demand for compound feeds, in particular. With extremely wintry conditions persisting into the Easter period, a high level of demand for our feed and feed blocks has continued into the second half of the financial year.

In compound feeds, which operate in a more competitive market, the recovery in sales volumes, from the declines seen in 2012, owed much to weather-stimulated demand and also reflected Carr's product and service levels. The increase in compound feed revenue was largely volume-related; although selling price increases were made to offset raw material input increases, margins remained under pressure during the period. The manufacture of the feed by our associate company benefited from weather related volume increase and profit after tax increased by 72.5% compared to the same period last year.

The exceptionally poor U.K. harvest of 2012 led to a significantly greater dependence on overseas wheat, which combined with higher transport and storage costs as well as lower than normal flour extraction rates, made for a difficult trading environment in the U.K. milling industry. Against this backdrop, Carr's Flour Mills has operated exceptionally well. Given the continuing overcapacity in the industry, margins remain low but in the period revenue increased by 8% and profit before tax rose by 10.9%.

The quantity and quality of the U.K. wheat harvest was the poorest on record, with only 2% of all milling grade samples passing the normal specification parameters. Wheat prices were volatile driven by declining supplies from Eastern Europe and concerns over the impact of the drought in the American Midwest. The outlook for the U.K. is for another small harvest from this coming season, as farmers were simply unable to plant the normal acreage due to persistently wet conditions.

Accordingly, the reliance on imported wheat is likely to continue in the short to medium term. Consequently, the group’s two mills, Kirkcaldy and Silloth, located at ports enable Carr's Flour Mills to leverage cost-effective access to both U.K. and European wheat. With the closure of a competitor mill, Rank Hovis in Glasgow, at the end of March, some over-capacity has been removed from the Scottish market, which will further benefit the mill at Kirkcaldy. The on-going rationalization, coupled with the poor harvest, marks a change in the U.K. milling market. Carr's Flour Mills is poised to capitalize on this with its port-located mills and the commissioning of the new mill at Kirkcaldy, the company said.