ANALYSTS have cut the 2016-17 profit forecast for Carr's Group after the company warned of “significant challenges” ahead.

The Carlisle-based agriculture, food and engineering group last week reported a slight dip in half-year profits.

It made £10.5m before tax in the six months to February, down from £10.6m in the same period last year.

Turnover was 9.4 per cent lower, at £189.1m, largely, the company says, due to lower commodity prices.

But Carr's warned of “significant challenges” in the next financial year, particularly in UK agriculture, prompting its house broker Investec to downgrade the profit forecast from £17.8m to £17.2m.

Investec stands by its prediction of £17.5m profits for 2015-16, on a par with the year before.

Carr's chief executive Tim Davies told  in-Cumbria  that the company was being “realistic”, given the difficulties facing agriculture, especially dairy farmers.

He said: “The trading situation in UK agriculture is particularly difficult.  It's getting worse and there is no end in sight.”

Carr's has more than 50 UK sites, a robotics business in Germany and animal-feed plants in the US.

The Cumbrian operations include Silloth flour mill, the Carrs Billington agricultural machinery dealerships and country retail stores, and Bendalls Engineering in Carlisle.

While animal feed sales in Europe fell in the first half of 2015-16, the lost volumes were partly offset by strong growth in the US.

And while farm machinery sales fell 11.7 per cent, the country store network and fuel-supply business saw sales increase.

Flooding caused by Storm Desmond in December affected several Carr's sites, including a feed mill in Lancaster, and one of its key customers, McVitie's in Carlisle. It said insurance would cover the losses incurred. 

Engineering suffered a difficult start to the financial year, with operating profits down 58 per cent, but new contracts from Sellafield should reverse that trend in the second half.

Mr Davies said: “We had a slow start [in engineering] as we switched out of oil and gas and into nuclear.

"We have done extremely well in terms of securing contracts at Sellafield and have a fantastic order book going forward.”

Despite the fall in profits, Carr's is raising the interim dividend from 0.925p to 0.95p.

Net debt increased from £24.4m in August to £27m, driven by working capital requirements within agriculture and engineering.

The period also saw the company close its defined-benefit pension scheme to further accrual, even though the scheme is in surplus.

Mr Davies said that the inherent risks of defined-benefit schemes, where liabilities can increase sharply without warning, meant that closure to further accrual was “the right thing to do”.