Strategy drives profits growth in challenging markets

Carr's Group 26 November 2015 Outlook

Carr's Group

Strategy drives profits growth in challenging markets

Update on strategy

Food producers

26 November 2015

Price

168.00p

Market cap

£151m

Net debt (£m) at end August 2015

24.4

Shares in issue

89.8m

Free float

78%

Code

CARR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.2

13.5

(3.2)

Rel (local)

11.8

9.4

0.2

52-week high/low

178.0p

134.0p

Business description

Carr’s Agriculture division serves farmers in the North of England, South Wales, the Borders and Scotland, the US, Germany and New Zealand. The Food division mills flour in the UK. The Engineering division offers remote handling equipment and fabrications to the global nuclear and oil and gas industries.

Next event

AGM

5 January 2016

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Carr's Group is a research client of Edison Investment Research Limited

Carr’s Group operates in fairly defensive markets and has further reduced risk through diversification in each market served, supported by a sequence of acquisitions. Management achieved another year of record profits in FY15 through sustained investment in product innovation and infrastructure. We expect this strategy to maintain FY16 profits at these record levels despite challenging conditions in some of the markets served. Our sum-of-the-parts analysis indicates that the stock is undervalued at current levels.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

08/14

429.0

17.0

13.2

3.4

12.7

2.0

08/15

411.6

18.1

14.0

3.7

12.0

2.2

08/16e

403.2

18.1

13.9

3.8

12.1

2.3

08/17e

409.2

18.3

14.1

3.9

12.0

2.3

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Strategy decouples prospects from UK agriculture

In our opinion, Carr’s stands out from other listed companies in the agricultural supply sector, because its innovative feed supplement products address the global trend for farmers to adopt more sophisticated feed regimes. These are required in order to keep up with the growing demand for meat and dairy products, driven by a rising global population and increased adoption of westernised diets. This gives scope for substantial growth in both the UK and international agricultural markets, decoupling Carr’s prospects from those of the fairly static UK feed market and reducing exposure to the vagaries of the British climate and EU farming policy.

Strategy delivered another year of record profits

Carr’s FY15 performance demonstrates the success of management’s sustained investment in product innovation and infrastructure and the development of international markets. Adjusted group profit before tax grew by 6% year-on-year. Strong profit growth in the Agriculture division was driven by international feed block sales, acquisitions and investment in the Country Store portfolio. Targeted investment in the Flour division supported sales volume growth and a modest improvement in divisional profit. Growth in these two divisions offset a reduction in Engineering profits caused by weak demand from the oil and gas sector. The 4% reduction in group revenues reflects lower commodity prices. Our estimates show group revenue reducing by 2% year-on-year in FY16 as a result of low commodity prices, while group profit before tax remains at FY15’s record levels despite challenging markets.

Valuation: Potential for share price appreciation

Our sum-of-the-parts analysis gives fair value at 205p/share (previously 199p) due to share price movements in the company’s peers. Triggers to close the valuation gap include an improvement in farmgate milk prices (although Carr’s is less affected by this than its peers) and news of further engineering contract wins.

Investment summary

Company description: Diversified base in defensive markets

Carr’s Group (Carr’s) serves three diverse sectors: agriculture, food and engineering. The Agriculture division is increasingly focused on proprietary products developed to improve livestock performance and thus farmers’ profitability. The Food division has benefited from £17m investment in a new mill in Kirkcaldy, which quadrupled divisional profitability following its commissioning in September 2013 and has helped expand market share. The Engineering division’s portfolio includes highly-specialised equipment used in operating and decommissioning nuclear power stations worldwide.

Carr’s operates in relatively defensive markets. Demand for agricultural outputs worldwide is being driven by a rising global population, a switch to westernised diets in the developing world and the adoption of biofuels. Changes in UK disposable incomes have relatively little impact on the volumes of bread, cake and biscuits purchased. Demand for products and services from the Engineering division is primarily related to investment in the global nuclear industry, where decommissioning activities provide a good base level of demand. It benefits from the increased concern of employers to remove personnel from hazardous environments. While participating in the beneficial impact of these macro trends, management’s focus on innovation and internationalisation reduces the exposure to disease and variations in weather patterns or government farming policies, from which agricultural supply stocks typically suffer.

Valuation: Potential for share price appreciation

We adopt a sum-of-the-parts analysis for our valuation, as this approach reflects the diversity of activities in which Carr’s is engaged. This gives fair value at 205p/share (previously 199p).

Financials: Strategy gives protection from market challenges

Industry analysts expect lower farmgate milk prices in the UK and the US to persist throughout FY16. We expect this to have a negative impact on demand for feed supplements and farm machinery and on feed margins, balancing growth in feed block demand in the US following redevelopment of the Nevada manufacturing facility. We expect changing consumer purchasing patterns and associated supply-chain pressures to adversely affect margins in the Flour division. On the other hand, the Engineering division has reported a revival in contracts from the nuclear sector. We model group-adjusted profit before tax remaining at FY15’s record profit levels (£18.1m) during FY16, before growing again in FY17 and FY18.

Sensitivities

Weather: the performance of Carr’s agricultural division is significantly affected by the weather. This sensitivity is reduced by having agricultural activities both within and outside the UK as well as involvement in the UK food producing and global engineering sectors.

Commodity prices: the cost of raw materials for compound feeds, feed blocks and flour is determined by global commodity prices. Demand for products such as AminoMax, which improve dairy cow yields, are adversely affected by weak global farmgate milk prices.

EU farming policy: in the EU, total farm incomes are affected by the level of subsidies provided under the Common Agricultural Policy (CAP). Diversification, as discussed above, reduces the potential impact of any proposed changes to the CAP.

Investment in the global nuclear industry: the Engineering division’s performance is affected by investment in the global nuclear industry. Investment in new capacity fluctuates, but decommissioning activities provide a good base level of demand.

Company description: International business at forefront of technology and innovation

Carr’s is headquartered in Carlisle, UK. It has three divisions: Agriculture, Food and Engineering, as well as investments in several associates and JVs engaged primarily in agricultural-related activities. It is growing through a strategy which combines internationalisation, investment and innovation. The Agriculture business is effectively a one-stop shop for farmers in Northern England, the Borders, South Wales and Scotland. It manufactures and distributes animal feed, operates a network of 30 stores dedicated to the needs of rural dwellers and distributes fuel in rural areas. This regionalised activity is complemented by international activities: the manufacture and sale of low-moisture feed blocks and AminoMax, a bypass protein that helps improve milk yields in dairy herds. The Food division has three mills in the UK where it produces flour and flour-based products. The Engineering division designs and manufactures remote handling equipment for the global nuclear industry and bespoke steel fabrications, primarily for the global oil and gas and nuclear industries. This diversification both within and outside the UK agricultural market reduces Carr’s exposure to the vagaries of the British climate, EU farming policy and volatile commodity prices.

Exhibit 1: FY15 revenue split

Exhibit 2: FY15 profit contribution split

Source: Carr’s Group

Source: Carr’s Group

Exhibit 1: FY15 revenue split

Source: Carr’s Group

Exhibit 2: FY15 profit contribution split

Source: Carr’s Group

Strategy

Internationalisation

Unlike its peers in the agricultural supply segment, NWF Group and Wynnstay, whose activities are confined to the UK, Carr’s is currently active in 35 countries. Its innovative feed blocks are manufactured in the UK, Germany and North America and sold to farmers on four continents to help them improve productivity. AminoMax is manufactured and sold in the UK and North America. The Engineering division has operations in both the UK and Germany and serves customers in Europe, Russia, the Far East, Australia, South Africa, the US and Latin America. Around half of the group’s profit is derived from international activities.

Investment

The group has grown both organically and through a series of acquisitions, most recently that of independent agricultural wholesaler Green Agriculture in September 2015. The acquisition of animal heath merchants Reid & Robertson in May 2015, which has a country store and two satellite outlets, strengthens the group’s presence in Western Scotland. The acquisition of BE Williams and of WM Nichols & Co, both suppliers of animal feed, in July 2014 and October 2014 respectively, strengthened the group’s presence in South Wales. In the Engineering division, the acquisition of Chirton Engineering in April 2014 strengthens Bendall’s in-house precision machining capability. Management also invests in existing operations to gain long-term competitive advantage, for example expending £17m on a state-of-the art flour mill in Kirkcaldy, which became operational in September 2013.

Innovation

Management continues to grow the business through the introduction of innovative products, rather than relying on existing product applications to drive growth. Examples of innovation are the Piglyx feed blocks offered by the Agriculture division and a variant of the Telbot robotic arm for tank inspection, which strengthens the Engineering division’s offer for the oil and gas sector.

Agriculture division (FY15 £297.7m revenues, £12.7m PBT)

Carr’s agricultural activities, (which include substantially all the operations of its associates and JVs), encompass a broad range of services for farmers and other rural dwellers. Carr’s range of agricultural activities provides a level of protection against negative influences affecting one part of the agricultural sector. For example, although demand for feed blocks from UK sheep farmers was weak during FY15 because of the mild winter, demand in the US from beef cattle farmers was strong.

Within the Agriculture division, Carr’s frequently opts to form JVs with established industry partners in regions outside the UK, as this gives an accelerated market entry. For example Carr’s approached the feed block market in mainland Europe through a JV with AGRAVIS, commissioning a block plant in Germany in 2006. AGRAVIS is a major German farmers’ co-operative that produces around 4m tonnes of compound feed annually. The Iowa feed block facility is 50% owned by Carr’s, 25% by CHS, a Fortune 100 diversified grains and food company, which was already distributing feed blocks for Carr’s in the US, and 25% by Consumers Supply Distributing, another wholesale distributor.

Segmental growth is primarily driven by innovative products such as feed supplement blocks. These address the requirements of more sophisticated farming practices where the calorific, protein, mineral and vitamin content of forage and feed is controlled as precisely as the diet of an athlete in training.

Exhibit 3: Recent and scheduled investment in Agriculture division

Silver Springs, Nevada, feed block plant acquisition

£0.6m

Opened June 2013

Lancaster relocation and expansion of AminoMax capacity

£1.4m

Operation commenced June 2013

Watertown, USA, expansion of AminoMax capacity

£1.6m

Completed November 2013

Crystalyx GmbH, high moisture block, poultry block and warehousing development

€1.9m

Opened FY14

Annan Country Store

£2.0m

Opened June 2014

Malton and Bakewell Country Store upgrades

£0.1m

Completed FY14

Merit Feeds acquisition

£1.2m

Completed July 2014

Sioux City, Iowa, construction of low-moisture block plant

$4.1m

Operation commenced July 2014

Brock Country Store, land purchased and redeveloped

£0.4m

Completed July 2014

BE Williams acquisition

£1.1m

Completed July 2014

WM Nichols acquisition

£1.1m

Completed October 2014

Watertown, USA, expansion of AminoMax capacity

$1.9m

Completed March 2015

Poteau, Oklahoma block plant redevelopment

£0.8m

Completed FY15

Appleby and Selkirk Country Stores redevelopment, new Country Store in Rothbury

£0.2m

Opened FY15

Reid & Robertson acquisition

£0.9m

May 2015

Green Agriculture acquisition

£0.3m

September 2015

Silver Springs, Nevada, low moisture block plant redevelopment

$2.3m

Completed November 2015

Wigton Country Store redevelopment

£0.1m

FY16

Morpeth machinery branch expansion

£0.3m

FY16

14 research projects

£1.1m per annum

Ongoing

Source: Carr’s Group

Feed supplements

Feed blocks

Carr’s Crystalyx and Smartlic branded feed blocks are formulated to include key nutrients that increase the utilisation of forage, thus maximising the economic performance of the animal. Other types improve the health of livestock. The patented production process, which was purchased from Pfizer in 1993, means that the top layer absorbs moisture from the atmosphere and is therefore removed when livestock lick it but the underlying layers are too hard to be removed. This regulates the amount of the block that can be consumed by livestock each day and thus the amount of nutrient taken up. Different blocks are formulated for beef cattle, dairy cattle, pigs, sheep, horses, goats and deer, with variants to address specific life stages such as pre-calving, post-calving or finishing lambs. The benefits to livestock have been proven by independent research. For example research carried out at Osnabrűck University of Applied Sciences confirmed that pigs with access to Crystalyx Piglyx grew faster than control beasts, achieving a 1.1Kg per pig higher live weight after 56 days. Crucially, this new product also reduces the incidence of tail-biting, which for a 300 sow breeder-feeder farm can result in 140 lost pigs per year, equivalent to £10,000 pa. Feed blocks are made in Cumbria, Germany and North America and sold throughout the UK, Europe, the Middle East, North America and New Zealand. Currently over 100,000 tonnes of feed blocks are sold worldwide each year.

The feed block activity is growing rapidly. In June 2013, the Western Feed Supplements plant in Nevada was acquired in order to gain access to the significant cattle population in California. This area could not be accessed economically from the group’s existing plants in Oklahoma, South Dakota and Tennessee (a JV with Gold River Feed). Production at the Nevada facility has recently been upgraded so the plant is able to sell higher-margin Smartlic branded blocks rather than white-label product. Following work strengthening the distribution network in New Zealand, exports to the country now total over 1,500 tonnes annually, justifying the construction of a production facility there. This would serve the Asian market as well as the domestic market, which is estimated to be 100,000 tonnes. Management continue to evaluate the potential construction of a New Zealand facility. This programme stalled while the potential partner went through a substantial restructuring, but is now active again. Brazil is the next country to be addressed, since it is a temperate climate where cattle are reared on forage-based systems. Carr’s has recently engaged a business development manager based in the country, who is tasked with evaluating the opportunity and helping support local product trials. As well as geographic expansion, the feed block activity is growing through the introduction of new variants such as Piglyx, discussed above, and FlaxLic. FlaxLic is a nutritional supplement containing a high level of alpha-linolenic acid, an omega-3 fatty acid, which is sold in the US to horse owners and beef cattle farmers.

AminoMax

Carr’s AminoMax, which is manufactured under an exclusive licence from the US patent holder, is a bypass protein that contains soya meal or canola treated so that a higher proportion of the protein is assimilated by the animal, thus improving the growth rates of beef cattle and milk yields of dairy cows. Carr’s is the only company in the world that has been able to use canola as well as soybean as a bypass protein ingredient. The north-east area of the US has a dairy cow population of 1.4m within 350 miles of Carr’s US AminoMax facility. Over half of these cows are on diets that contain plant-based bypass protein such as AminoMax. Around 85,000 tonnes of AminoMax is currently being produced across both the US and UK (Lancaster) plants. Research and development of complementary products is ongoing, as management would like the division to be able to offer a portfolio of value-added items.

Market

Demand for feed blocks in the US is primarily driven by beef cattle farmers and is linked to both weather conditions and consumer demand for quality beef. Demand for feed blocks in the UK is primarily from sheep farmers and is linked to weather conditions at lambing time. Demand for feed blocks in continental Europe and New Zealand is primarily from dairy farmers and is linked to the adoption of more sophisticated feeding regimens that deliver increased output from the same number of animals. Demand for AminoMax is linked to farmgate milk prices, as there is no incentive for farmers to pursue higher yields when the prices obtainable for raw milk are low. Sales were consequently flat globally during FY15, but are expected to pick up when farmgate milk prices recover. As demand grows, management will evaluate commissioning a second production line in the US and licensing options. Management estimates that the total market opportunity for AminoMax in the US is at least 650,000 tonnes.

There is currently limited competition for low-moisture feed blocks in either the UK or in New Zealand, which is a relatively new market where farmers are beginning to adopt the more sophisticated feed regimes common in the US. Ridley, which was acquired by animal nutrition and health specialists Alltech in April 2015, is the North American market leader, with an estimated 40% share compared with Carr’s 20%. In the US, Carr’s competes through branding, with its iconic ‘Feed in a Drum’ returnable steel packaging.

Animal feed

Carr’s manufactures around 500,000 tonnes of compound and blended feeds annually. These are sold to sheep, dairy and beef cattle farmers in the North of England, Scotland, Wales and the Midlands. The feed is manufactured by an associate company at three compound feed mills in Staffordshire, Carlisle and Lancaster and at four blends plants.

Market

Carr’s has an estimated 12% share of the UK ruminant feed market, making it the third largest manufacturer in the UK behind ForFarmers and NWF Group. NWF output 567,000 tonnes of feed in the year ended May 2015. It is focused on dairy feed. Wynnstay Group operates in different regions from Carr’s except for the Welsh borders, where it has formed a JV with Carr’s, Bibby Agriculture. There are numerous small feed suppliers in the area served by Carr’s, some of which, including the recent Nichols acquisition, purchase feed from Carr’s. Carr’s is able to differentiate itself from these smaller players through a more technically-developed offer that includes agronomy services and products such as AminoMax. These appeal to farmers with more advanced and profitable production systems. Although there continues to be modest oversupply in the feed industry, a JV backed by Mole Valley Farmers recently opened a new mill with capacity of over 140,000 tonnes compound and blended feed in South-West Scotland costing £7m.

Underlying demand for dairy feed in the UK is linked to the volume of milk produced, which was 2% higher year-on-year for the twelve months ended September 2015 (source: Agriculture and Horticulture Development Board). The number of dairy farms and of dairy cattle have both declined over the last decade, as the industry moves to larger herds and more intensive rearing regimens. This trend favours a more technical approach to feeding cattle, which benefits larger operations such as Carr’s, which are able to advise farmers on feeding regimens. This technical approach is also important when farmgate milk prices are low, as farmers are keen to investigate changes to feed regimens that can help improve profitability. Demand for feed varies from year-to-year depending on weather conditions. These affect how long cows are out at pasture, the nutritional content of forage materials and the relative cost of purchased feed versus home-grown materials.

Retail

Carr’s operates a chain of 30 retail outlets in Scotland, the North of England, Staffordshire, Derbyshire and South Wales. These stores specialise in products for farmers and the broader rural community, including animal health products, agricultural sundries such as fencing and farm consumables, pet and equine products and rural clothing. The product offer varies from store to store to reflect the type of farming in the area. Farmers are typically conservative in nature and cautious about purchasing from brand-new outlets. Carr’s has therefore expanded its retail operations predominantly by purchasing smaller agricultural suppliers with a limited retail offer but a solid customer base. Post-acquisition it then broadens the product portfolio to appeal to both farmers and other rural dwellers and expands the retail space, relocating the premises if necessary. For example, Reid & Robertson originally specialised in animal health products. Its product portfolio has been broadened post-acquisition. The activities of B E Williams and W M Nicholls will be consolidated at a new store in Brecon. Carr’s continues to invest in its existing store portfolio. The Selkirk and Appleby stores were enhanced during FY15 and a new store opened in Rothbury in July 2015. Looking forward, a new store in Wigton is scheduled for the current financial year and store relocations in Leek and Morpeth are planned to take place over the next 12 to 18 months.

An estimated 85% of sales at Carr’s Country Stores relates to non-discretionary farming expenditure, so underlying demand is linked to farm incomes. Carr’s has been able to grow sales independently of this by broadening the product offer to include higher-margin animal healthcare products. Seven of the outlets offer farm machinery, making Carr’s the largest Massey Ferguson distributor in the UK. The competitive environment for Carr’s Country Stores has become more intense following Mole Valley Farmers’ acquisition of Farmway Country Stores’ eight outlets in the north-east of England in March 2013. Both Wynnstay and Carr’s have retail outlets at the Kendal and Skipton auction market sites. Wynnstay’s other store in the region, in Lancaster, is 12 miles from the nearest Carr’s outlet. The remaining competition is from independent stores. Countrywide Farmers serves a completely different geographic area. Carr’s is addressing the increased competition through a more sophisticated approach to retailing and by entering new geographic areas such as Brecon.

Fuel

Carr’s operates eight fuel distribution depots, which service rural premises in Dumfries, Galloway, Cumbria and Lancashire. At over 100m litres/year, the operation is significantly smaller than that of NWF Group (over 450m litres), which is the third-largest supplier in the UK. However, Carr’s is not intending to become a national player in the sector, but views this as a service within its agricultural supply offer. The operation is highly complementary to the feed and machinery sales operations, providing significant opportunities for cross-selling. Demand for heating oil is dependent on weather conditions. This dependence is reduced by selling tractor fuel as well.

FY15 performance

Divisional revenues declined by 5% year-on-year in FY15 reflecting lower commodity prices. Divisional profit before tax rose by 6%. The key driver was the continued growth in sales of feed blocks in the US, supported by a recovery in the beef industry following a period of protracted drought, and market share gains following the commissioning of the low-moisture feed block plant in Iowa. However, demand for feed blocks in the UK was adversely affected by the availability of forage and constraints on farm incomes. Retail sales rose by 9% (5% like-for-like). This growth was supported by recent acquisitions and investment in the Country Store portfolio. Volumes of feed sold increased by 4% as Carr’s took market share, but margins were under pressure in localised areas because of the dip in farmgate milk prices and intensified competitive activity in south-west Scotland. Low milk prices globally mean that dairy farmers in both the UK and the US were less incentivised to boost milking cows’ productivity, so there was a reduction in demand for high-margin AminoMax bypass proteins in both regions. Volumes of fuel sold rose by 4%, despite the mild winter, demonstrating the success of cross-selling initiatives.

Prospective performance

In the longer term, we expect the division to benefit from the adoption of more sophisticated feed regimens for dairy and beef cattle across the developed world. Nearer term, the division is operating in a challenging environment with pressure on farm incomes caused by low grain and farmgate milk prices. We note however, that only half of the division’s feed sales are for dairy cows, the remainder are for beef cattle or sheep rearing, reducing exposure to the dairy sector. Moreover, given the location of the rural areas that Carr’s serves in the UK, the division has little exposure to the arable sector, so it is not affected significantly by a reduction in demand for arable inputs such as pesticides or seeds, caused by low wheat prices. We expect the group’s investment in feed block capacity, with the low-moisture block line in Nevada coming on line in November, and in its retail network, to offset margin pressure on feeds. We therefore model a 2% reduction in divisional revenue for FY16 to £291.7m to reflect continued low commodity prices but maintain FY16 profit before tax at the record levels (£12.7m) achieved in FY15.

Food division (FY15 £80.3m revenues, £2.4m PBT)

Exhibit 4: Recent investment in Food division

Kirkcaldy, new port-side mill

£17m

Opened September 2013

Silloth, final line redresser

£0.3m

FY15

Source: Carr’s Group

The Food division has three mills located in Cumbria, Kirkcaldy and Maldon, Essex. Around 90% of the output is flour sold in bulk to the independent bakery trade and major food manufacturers. The remainder is higher-margin bags of flour and flour-based products such as bread sauce or chapatti mixes, which are sold to retail multiples. Carr’s is one of the top-three independent UK flour millers, with an annual output of over 240,000 tonnes.

The group invested £17m in a replacement mill located at the port in Kirkcaldy, which has been operational since September 2013. The capacity of the new mill is 15% greater than that of the mill it replaced, which was nearing the end of its useful life. The new equipment gives higher extraction rates and more flexible working, and is more energy and labour efficient, thus improving margins. Importantly, the new equipment makes it easier to ensure compliance with modern food standards, which helps attract customers. As capacity at the Kirkcaldy mill has been filled, there has been investment in the Silloth mill to ensure compliance with newer food-handling standards, so that work for customers can be shifted from Kirkcaldy to Silloth if required.

The Kirkcaldy mill also benefits financially from its port-side location. Fife is a good location for a flour mill because it is close to the source of the soft wheats used by bakers in the region to manufacture biscuits such as Scottish shortbread. The mill’s port-side location makes it less expensive to bring in the hard wheat required for bread flours from the other parts of the UK and overseas. The mill in Cumbria also benefits from a port-side location at Silloth. The majority of the wheat used in this mill is delivered by vessel rather than by road. This ability to source wheat from multiple markets, including the UK, is key to reducing risk in any milling business. During H115, the port-side locations enabled the two northern mills to source imported wheat cost-effectively, the 2014 UK harvest was generally of insufficient quality for producing bread-making flour. By contrast, the 2015 UK harvest was of consistently good quality, so during H215 the mills were able to ship wheat from Kent in a cost-effective manner.

Unlike the other two, Carr’s Maldon mill is inland. It is located at the centre of the best area for growing wheat suitable for milling into bread flour in the UK and sources most of its wheat from within a 30-mile radius of the mill.

Market

Historically, the UK flour milling industry has suffered from overcapacity. In response to this, Premier Foods closed three mills between 2008 and 2013. This has helped balance capacity and demand in Scotland and northern England, where Carr’s has a strong customer base, including United Biscuits (incorporating McVities) and Warburtons, and an estimated 65% share of the independent market where a key product is soft breakfast rolls. Elsewhere in the UK, capacity continues to exceed demand. It is likely that owners of older mills will eventually have to choose between investing to meet more stringent food-safety requirements or closure, thus taking capacity out of the market. Carr’s Maldon mill produces speciality products such as chapatti flour, so it is partially protected from the more challenging competitive environment in the South of England.

Underlying demand for flour in the UK is relatively unaffected by consumer spending. Households tend to purchase the same volumes of food regardless of disposable income, trading up or down depending on their budget. However, the UK market is changing from sliced bread to other bread-based products such as tortilla wraps and flatbreads. This is beneficial for the Maldon mill, where over 60% of output is for ethnic breads. Further investment is planned at this mill to broaden the portfolio of specialist flours for this market segment. The shift away from sliced bread is more problematic for the northern mills, as one of the major customers operates a bakery dedicated to sliced bread production. Demand from this customer is also vulnerable to any action taken by supermarkets to change sliced bread suppliers in an attempt to woo consumers with discounted product. Carr’s strong presence in the independent bakery sector provides some protection against the supermarket ‘sliced-bread’ wars.

FY15 performance

Volumes increased by 5% year-on-year during FY15, as the two northern mills won new customers. Divisional revenues declined by 8% year-on-year because of lower commodity prices. Divisional profit before tax grew by 6% (£0.1m), reflecting improved operational efficiencies on higher volumes. The reduced freight costs related to port-side location and improved operating efficiencies at the Kirkcaldy mill helped offset pricing pressures caused by intense competition between supermarkets.

Prospective performance

Noting continued low commodity prices, we model a 7% reduction in divisional revenues year-on-year to £75.0m. We expect pricing pressures to continue. Management expect to be able to partially combat this through the implementation of further operational efficiencies, for example deploying software in the Kirkcaldy mill to reduce power consumption and optimising logistics. We model a 10% reduction in divisional profit before tax to £2.2m.

Engineering division (FY15 £33.5m revenues, £3.1m PBT)

Exhibit 5: Recent and scheduled investment in Engineering division

Wälischmiller factory and office redevelopment

£4.5m

Phase 3 completed February 2014

Chirton Engineering acquisition

£5.3m

Completed April 2014

Chirton Engineering relocation and expansion

£0.7m

Completed spring 2015

Source: Carr’s Group

The Engineering division has four operating subsidiaries, Wälischmiller Engineering, which was acquired in March 2009, Carr’s MSM, Bendalls Engineering and Chirton Engineering, which was acquired in April 2014, enhancing the division’s precision machining capability and strengthening its presence in the oil and gas sector.

Wälischmiller Engineering

Wälischmiller Engineering is based in Markdorf, Germany. It designs and manufactures remote handling equipment, offering robotic-based systems such as the Telbot and the V1000 remote-controlled handling vehicle as well as master-slave manipulator units that are complementary to those offered by the Swindon subsidiary. Its customers are primarily engaged in the nuclear industry in France, Germany and the Far East. Under a contract with Statoil and Shell, Wälischmiller has developed a variant of the Telbot, a robotic arm that is controlled remotely and can move loads of 5kg to 150kg with great precision, for the remote inspection of welds inside gas tanks and tank cleaning, which is a large potential market. The V1000 mobile power manipulator is a fully remote-controlled handling vehicle for use in harsh environments. Variants of this are being developed for the Japanese market.

Carr’s MSM

Carr’s MSM designs and manufactures remote-handling equipment known as master-slave manipulators for the nuclear industry. The ‘slave’ part, which is in contact with radioactive material, mimics the actions of the ‘master’ part, which is moved by an operator who is protected from the radioactive material by heavy shielding. These devices are used in post-irradiation examination laboratories and fuel element reprocessing cells. Carr’s MSM is based in Swindon and its main customer is Sellafield, though it is involved in some export activity. In calendar 2012, Carr’s MSM was awarded a ‘life of plant’ contract with Sellafield, under which it supplies master-slave manipulator parts for the major operating plants at Sellafield. This contract extends until at least 2020 and generates revenues of over £2m each year.

Bendalls Engineering

Bendalls Engineering is based in Carlisle. It designs and manufactures bespoke steel fabrications such as pressure vessels, process columns, chemical reactors, tanks and tidal turbines. It specialises in the design and manufacture of pressure vessels up to 5.0m in diameter, 100mm wall thickness, lengths up to 50m and up to 100 tonnes in weight, which are compliant with the ASME “U”/PD 5500/EN standard. These are typically sold to customers in the oil and gas, petrochemical and nuclear sectors. Safety is critical in these sectors, so full material traceability along with radiographic weld testing, hydraulic testing and documentation packages are offered as standard. Load testing, painting and transport to site are offered as options. Where required, vessels and columns are provided in fully-dressed condition with insulation, ladders, platforms, installation of internals, fireproofing, overhead lines and instrumentation. Specialist fabrications are also sold to customers in the process industry. Customers include Aker Kvaerner, BP, Chevron Texaco, Chiyoda, Costain, KBR, Pfizer, Roche, Royal Dutch Shell and Sellafield. Bendalls also has some precision machining capability, following the acquisition of Clive Walton Engineering in 2012, which is fully integrated within Bendalls. During FY15, Bendalls opened its own design business. This is intended to help it become engaged in projects earlier on, enabling Bendalls itself to win a greater variety of work and promoting the capabilities offered by the other engineering businesses in the group. The new business has already been awarded its first project, the design of a skip conveyor system.

Chirton Engineering

Chirton Engineering was acquired in April 2014 in order to strengthen Bendall’s in-house precision machining capability. Chirton is a manufacturer of precision engineering components. Historically, its primary focus was the offshore oil and gas industry, where it has an extensive customer base including IHC Merwede, Oceaneering and Proserv Offshore. These customers are based in the UK, China, France, Germany, Norway and the US. It has also expanded into the automotive sector with component manufacturing for McLaren. Chirton is based near Newcastle upon Tyne and employs over 50 people. The business was moved to larger premises in Tyneside during FY15, enabling it to cope with higher levels of demand going forward. Bendall’s has recently been given overall responsibility for Chirton, making it easier for them to work together on joint projects requiring both fabrication and significant precision machining capabilities and accelerating Chirton’s entry into the nuclear sector while the off-shore oil and gas industry is cutting back on investment. Post-acquisition Chirton has started to supply machined parts to Wälischmiller.

Market

Currently a high proportion of the division’s contracts are related to the nuclear energy industry in the UK and overseas. The UK government’s controversial agreement to build a new nuclear reactor at Hinkley Point represents the first order for a new reactor in the western hemisphere since the disaster at Fukushima in March 2011, and is likely to provide opportunities for the division longer-term. This is part of the government’s energy policy, outlined this month, which sees new nuclear power stations as a vital part of the portfolio, potentially providing up to 30% of low-carbon electricity during the 2030s. In addition, NuGen, a joint venture between Toshiba and ENGIE, held the first phase of the public consultation earlier this year regarding its proposal to construct a new nuclear power station (Moorside) near to Sellafield. Meanwhile, decommissioning activities on their own provide a good base level of activity for the group. Western Europe has 150 plants to decommission by 2030 (Global Data, Washington Post). Considering the UK alone, the cost of decommissioning 17 sites across the UK, some dating back to the 1940s, is estimated by the National Audit Office to exceed £70bn, with the work extending over several decades. For the year-ending March 2016, the Nuclear Decommissioning Authority’s planned expenditure on site programmes is expected to be £2.91 billion. The acquisition of Wälischmiller gives Carr’s access to markets outside the UK, primarily Germany, France, Japan and China, reducing the group’s dependence on investment in the UK. During FY14, Wälischmiller made its first sale to the US, where competitor CRL had previously held a virtual monopoly. This is a key potential market going forward. The Japanese and Russian markets are difficult – the Japanese because of uncertainty regarding the future of the 45 reactors which are still shut down, probably half of which will begin to be decommissioned in two or three years and the Russian because of sanctions.

There are half-a-dozen competitors worldwide for Carr’s MSM and Wälischmiller and none of these have as broad a product range as that offered by the two group companies combined. The group has approximately 45% share of the global powered master-slave manipulator market, and 35% for smaller manipulators. Bendalls is in a good position in the UK nuclear market when contracts are awarded because it is able to offer the full traceability required and has good relationships with Sellafield. The oil and gas sector is more competitive. Bendalls’ primary competitors here are based in South Korea, hence the lower margins attributable to contracts for this sector. Within the group, Chirton has the greatest exposure to the oil and gas industry. The continued weakness in oil prices has resulted in a lack of capital investment in the oil exploration sector, which has had an adverse impact on Chirton’s order intake.

FY15 performance

During FY15, divisional revenues rose by 25% year-on-year. This was partly the result of a full year’s contribution from Chirton Engineering acquired in April 2014. It was also the result of high levels of utilisation at Bendalls as it worked on a £9m contract to deliver 33 pressure vessels for the BP Shah Deniz gas pipeline in Azerbaijan. Wälischmiller and Carr’s MSM, both of which are focused on the nuclear industry, continued to perform well. Improved performance in these three businesses was insufficient to offset weakness in the oil exploration sector resulting in low utilisation levels at Chirton, exacerbated by delays in moving the business to larger premises. Divisional profit before tax reduced by 17% year-on-year.

Prospective performance

Although cutbacks in the global oil and gas industry will continue to affect the division’s profitability in the short term, management expects this to be more than offset by a recovery in the UK nuclear sector, which is already reflected in the order books at Bendalls, Carr’s MSM and Wälischmiller. We note that historically a relatively high proportion of Bendalls’ order book was related to the UK nuclear industry, with the business pursuing lower-margin work in the oil and gas sector more recently to make up the shortfall caused by a slowdown in the UK nuclear energy programme. Our estimates show a 9% rise in divisional revenues year-on-year during FY16 to £36.5m and a 16% increase in divisional profit before tax to £3.6m.

Management

Chris Holmes – non-executive chairman: Chris joined Carr’s in January 1991 and was appointed to the board in January 1992 and as CEO in September 1994. He moved to a non-executive position in March 2013. Prior to joining Carr’s, he held senior management positions in the agricultural division of J Bibby & Sons.

Tim Davies – chief executive officer: Tim was appointed CEO of Carr’s in March 2013. Following graduation from the University of Newcastle upon Tyne with a BSc in agriculture, Tim worked in various commercial roles with ICI’s agriculture division for six years. In 1990, he moved to BDR Agriculture, a regional grain, seed and fertiliser business based in the East of England, which became part of Grainfarmers, a national grain marketing business, following a sequence of acquisitions. Tim became sales director and then group managing director of Grainfarmers. He led its successful merger with Centaur Grain to form the largest farmer-owned grain marketing business in the UK with a turnover of £765m and a 22% market share.

Neil Austin – group finance director: Neil joined Carr’s in January 2013, and was appointed group finance director in May 2013 on the retirement of his predecessor. Neil joined the group from PricewaterhouseCoopers, where he worked for over 15 years, becoming a director in its Newcastle office in 2007. He holds a degree in economics and management studies from Cambridge University, and is a fellow of the ICAEW.

Robert Heygate – non-executive director: Robert has been a non-executive director of Carr’s since 1991 and will be retiring in April 2016. He is also an executive director of Heygate & Sons, the UK’s fifth largest independent flour miller, which is also engaged in animal feed compounding and other agricultural activities.

Alistair Wannop – non-executive director: Alistair has been a non-executive director since September 2005. He is also a director of the English Food and Farming Partnership, of Rural Regeneration Cumbria and of Cumbria Vision. He has been county chairman of the NFU, as well as county milk delegate to NFU headquarters, and chair of the minister of agriculture’s regional advisory panel.

John Worby – non-executive director: John was appointed in April 2015. He is currently also a non-executive director of Fidessa and Connect Group. He retired from his position as finance director of Genus in 2013 and was a non-executive director of Cranswick for nine years until July 2014. His appointment adds valuable experience of finance, risk management and the food industry to the board.

Ian Wood – non-executive director: Ian was appointed in October 2015. He is currently commercial director, International Business Development at Centrica. His appointment adds valuable experience of the engineering industry to the board.


Sensitivities

Weather: in common with all other companies involved in the agricultural sector, the performance of Carr’s agricultural division is significantly affected by the weather. Carr’s presence in agricultural markets in the US, mainland Europe and New Zealand makes it less dependent on weather conditions in the UK, as do its activities in the UK food producing and global nuclear engineering sectors.

Commodity prices: the cost of raw materials for compound feeds, feed blocks and flour is determined by global commodity prices. Derivatives are used where possible to hedge exposure to movements in future prices of commodities, although most of the futures risk is borne by suppliers. Within the agricultural sector, there is typically a delay in passing price increases on in full to feed customers. The UK food processing sector is highly competitive, so it is difficult for the Food division to fully pass price increases on to customers.

EU farming policy: in the EU, total farm incomes are affected by the level of subsidies provided under the CAP. Currently direct payments and price support provide, on average, nearly half of farmers’ income in the EU. Since CAP expenditure accounts for 43% of the EU budget, reforms continue to be discussed.

Investment in the global nuclear industry: demand for Wälischmiller and Carr’s MSM’s remote-handling equipment, and to a lesser extent Bendalls’ fabrication services, is determined by investment in the global nuclear industry. Investment in new capacity fluctuates, but demand from decommissioning activities represents a good base level of demand for the group.

Valuation

Exhibit 6: Comparative valuations of listed companies involved in agricultural supply

Company

Market cap (£m)

Current P/E (x)

Next P/E (x)

BayWa

691

15.7

11.4

NWF Group

86

13.1

12.8

Origin Enterprises

633

14.1

13.4

Wynnstay Group

106

15.0

14.9

Mean

14.5

13.1

Carr’s Group

153

12.2

12.0

Source: Edison Investment Research, Bloomberg. Note: Prices at 18 November 2015

Our valuation is based on a sum-of-the-parts analysis of the group and sees fair value at 205p/share. We have determined an appropriate prospective P/E ratio for each division, and then calculated a blended P/E multiple, which is weighted according to the proportion of pre-tax profits contributed by each division.

Exhibit 7: Sum-of-the-parts analysis

Year 1 PTP (%)

Year 1 P/E (x)

Comment

Agriculture including JVs and assoc.

68.6

14.5

Average for sample of agricultural supply companies.

Food

11.9

13.7

Sector average for UK food producers and processors.

Engineering

19.5

16.4

Sector average for German industrial companies.

Weighted

14.7

Year 1 EPS (p)

13.9

Valuation (p)

205

Source: Edison Investment Research. Note: Prices at 18 November 2015.

The prospective multiple for the Agriculture division, together with the associates and JVs, which are primarily involved in agricultural supply-related activities, is based on the mean for our sample of companies engaged in agricultural supply-related activities. The prospective multiple for the Food division is based on the mean for the UK food producers and processors sector (Bloomberg). The prospective multiple for the Engineering division is based on the mean for the German industrial engineering sector (Bloomberg), where the majority of the division’s profits originate. The analysis currently gives fair value at 205p, slightly higher than the 199p in our previous note because of movement in peer share prices.

Financials

Exhibit 8: Segmental analysis

(£m)

FY12

FY13

FY14

FY15

FY16e

FY17e

FY18e

Agriculture

293.8

340.4

314.9

297.7

291.7

294.7

297.6

Food

80.5

94.2

87.1

80.3

75.0

77.0

79.0

Engineering

29.7

33.4

26.9

33.5

36.5

37.5

38.4

Group revenues

404.1

468.1

429.0

411.6

403.2

409.2

415.0

Agriculture (including share of profits of JVs and associates)

9.5

11.6

12.1

12.7

12.7

12.9

13.1

Food

0.4

0.6

2.3

2.4

2.2

2.2

2.2

Engineering

4.7

4.2

3.7

3.1

3.6

3.7

3.8

Head office net expense and other

(1.1)

(0.3)

(0.9)

(0.7)

(0.6)

(0.6)

(0.6)

Retirement benefit charge

(0.5)

(0.7)

(0.7)

(0.1)

(0.4)

(0.4)

(0.4)

Reported group PBT

13.1

15.4

16.6

17.5

17.5

17.8

18.1

Source: Edison Investment Research

Group

P&L

Group revenues reduced by 4% year-on-year to £411.6m, reflecting lower commodity prices. Profit before tax (adjusted for amortisation, share-based payments and exceptional) rose 6% year-on-year to £18.1m. Profit gains in the Agriculture and Food divisions offset a comparatively weak performance from the Engineering division. DPS was raised from 3.4p to 3.7p.

Our estimates show group revenue reducing by 2% year-on-year in FY16 as a result of low commodity prices, while group profit before tax remains at FY15’s record levels. We note that the FY15 retirement benefit charge (see Exhibit 8) was anomalously low because of a credit and expect a higher level going forward. We expect the group to maintain its progressive dividend policy.

Balance sheet and cash flow

Net debt reduced very slightly, by £0.2m during the year to £24.4m. Net capital expenditure was lower at £5.5m (FY14 £6.5m), as the previous year included costs related to completion of the new factory and offices for Wälischmiller in Germany and the Kirkcaldy flour mill. Capex was lower than expected because some of the costs of completing the Nevada Springs facility were deferred until FY16. The retirement benefit surplus reduced from £2.1m at end FY14 to £1.8m at end FY15. Gearing reduced slightly during the year, from 31% to 28%.

Looking forward, we expect the inclusion of some of the Nevada Springs costs to push FY16 capex to a relatively high £8.4m. Our model shows net debt reducing by £2.2m to £22.2m at end FY16e. Net cash generation then improves during FY17e and FY18e as capital expenditure requirements reduce, leaving the group in a net cash position (£1.0m) at the end of FY18e. The group’s banking facilities were extended after the end of FY15 by £5m, giving ample borrowing headroom to invest in fixed assets, to fund acquisitions and to provide the working capital required to support agricultural sales over the winter months before farmers settle their accounts after the harvest.

Exhibit 9: Financial summary

£m

2014

2015

2016e

2017e

2018e

Year-end Aug

PROFIT & LOSS

Revenue

 

 

429.0

411.6

403.2

409.2

415.0

EBITDA

 

 

20.9

22.2

22.0

22.0

22.2

Operating Profit (pre-amort. of acq intangibles & SBP)

 

15.8

17.0

16.6

16.5

16.8

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Share-based payments

(0.4)

(0.6)

(0.6)

(0.6)

(0.6)

Exceptionals

0.0

0.0

0.0

0.0

0.0

Operating Profit

15.4

16.4

16.0

16.0

16.2

Net Interest

(1.4)

(1.2)

(1.0)

(0.8)

(0.8)

Share of post-tax profits in JVs and associates

2.5

2.3

2.5

2.6

2.7

Profit Before Tax (norm)

 

 

17.0

18.1

18.1

18.3

18.7

Profit Before Tax (FRS 3)

 

 

16.6

17.5

17.5

17.8

18.1

Tax

(3.7)

(3.8)

(3.8)

(4.0)

(4.0)

Profit After Tax (norm)

13.3

14.3

14.2

14.4

14.6

Profit After Tax (FRS 3)

12.9

13.7

13.6

13.8

14.1

Minority interest

(1.5)

(1.7)

(1.7)

(1.7)

(1.7)

Net income (norm)

11.8

12.6

12.5

12.7

12.9

Net income (FRS 3)

11.4

12.0

11.9

12.1

12.4

Average Number of Shares Outstanding (m)

89.0

89.6

89.8

89.8

89.8

EPS - normalised (p)

 

 

13.2

14.0

13.9

14.1

14.4

EPS - normalised fully diluted (p)

 

 

12.8

13.6

13.5

13.6

13.9

EPS - FRS 3 (p)

 

 

12.3

13.4

13.3

13.4

13.8

Dividend per share (p)

3.4

3.7

3.8

3.9

4.0

EBITDA Margin (%)

4.9

5.4

5.4

5.4

5.4

Operating Margin (before GW and except.) (%)

3.7

4.1

4.1

4.0

4.0

BALANCE SHEET

Fixed Assets

 

 

83.4

86.5

90.3

89.2

88.2

Intangible Assets

10.3

11.3

11.1

10.9

10.9

Tangible Assets and Deferred tax assets

73.1

75.2

79.2

78.3

77.4

Current Assets

 

 

114.3

116.9

113.1

105.1

108.2

Stocks

33.3

35.0

35.4

29.1

29.6

Debtors

63.7

65.3

66.1

56.9

57.7

Cash

17.3

16.5

11.7

19.0

20.9

Current Liabilities

 

 

(75.6)

(70.2)

(66.8)

(53.4)

(51.0)

Creditors including tax, social security and provisions

(55.9)

(55.0)

(54.7)

(44.3)

(44.9)

Short term borrowings

(19.7)

(15.2)

(12.2)

(9.2)

(6.2)

Long Term Liabilities

 

 

(32.3)

(34.2)

(30.2)

(26.2)

(22.2)

Long term borrowings

(22.2)

(25.7)

(21.7)

(17.7)

(13.7)

Retirement benefit obligation

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(10.1)

(8.5)

(8.5)

(8.5)

(8.5)

Net Assets

 

 

89.8

99.0

106.3

114.7

123.1

Minority interest

(10.2)

(11.9)

(11.9)

(11.9)

(11.9)

Shareholders equity

 

 

79.7

87.1

94.4

102.8

111.2

CASH FLOW

Operating Cash Flow (net of contribution to pension fund)

 

 

17.1

15.1

19.8

27.0

21.6

Net Interest

(1.4)

(1.2)

(1.0)

(0.8)

(0.8)

Tax

(3.2)

(4.0)

(3.8)

(4.0)

(4.0)

Investment activities

(7.5)

(4.0)

(8.4)

(4.4)

(4.4)

Acquisitions/disposals

(3.6)

(1.7)

(1.0)

0.0

0.0

Equity financing and other financing activities

(4.1)

(1.8)

(7.0)

(7.0)

(7.0)

Dividends

(2.9)

(3.1)

(3.3)

(3.4)

(3.5)

Net Cash Flow

(5.7)

(0.7)

(4.8)

7.4

1.9

Opening net debt/(cash)

 

 

22.1

24.6

24.4

22.2

7.9

HP finance leases initiated

(2.3)

0.0

0.0

0.0

0.0

Other

(5.5)

(0.9)

(7.0)*

(7.0)*

(7.0)*

Closing net debt/(cash)

 

 

24.6

24.4

22.2

7.9

(1.0)

Source: Company accounts, Edison Investment Research. Note: *Repayment of long-term debt. EPS and DPS are stated after 10-for-1 share split.

Contact details

Revenue by geography

Old Croft,
Stanwix,
Carlisle CA3 9BA
UK
01228 554600
www.carrs-milling.com

Contact details

Old Croft,
Stanwix,
Carlisle CA3 9BA
UK
01228 554600
www.carrs-milling.com

Revenue by geography

Management team

Non-executive chairman: Chris Holmes

Chief executive officer: Tim Davies

Chris joined Carr’s in January 1991 and was appointed to the board in January 1992 and as CEO in September 1994. Prior to joining Carr’s, he held senior management positions in the agricultural division of J Bibby & Sons.

Tim was appointed CEO of Carr’s Milling Industries in March 2013. Prior to that he was group managing director of Grainfarmers, where he led its successful merger with Centaur Grain to form the largest farmer-owned grain marketing business in the UK with a turnover of £765m and a 22% market share.

Group finance director: Neil Austin

Non-executive director: Robert Heygate

Neil joined Carr’s in January 2013, and was appointed as group finance director in May 2013. Neil joined the group from PricewaterhouseCoopers, where he worked for over 15 years, becoming a director in its Newcastle office in 2007.

Robert has been a non-executive director of Carr’s since 1991. He is also an executive director of Heygate & Sons, the UK’s largest independent flour miller, which is also engaged in animal-feed compounding and other agricultural activities.

Management team

Non-executive chairman: Chris Holmes

Chris joined Carr’s in January 1991 and was appointed to the board in January 1992 and as CEO in September 1994. Prior to joining Carr’s, he held senior management positions in the agricultural division of J Bibby & Sons.

Chief executive officer: Tim Davies

Tim was appointed CEO of Carr’s Milling Industries in March 2013. Prior to that he was group managing director of Grainfarmers, where he led its successful merger with Centaur Grain to form the largest farmer-owned grain marketing business in the UK with a turnover of £765m and a 22% market share.

Group finance director: Neil Austin

Neil joined Carr’s in January 2013, and was appointed as group finance director in May 2013. Neil joined the group from PricewaterhouseCoopers, where he worked for over 15 years, becoming a director in its Newcastle office in 2007.

Non-executive director: Robert Heygate

Robert has been a non-executive director of Carr’s since 1991. He is also an executive director of Heygate & Sons, the UK’s largest independent flour miller, which is also engaged in animal-feed compounding and other agricultural activities.

Principal shareholders

(%)

Heygate & Sons

14.1

Thomas Charlton

6.0

Polar Capital European Forager Fund

4.8

Rathbone Brothers

4.6

Wesleyan Assurance Society

3.9

Charles Stanley

3.7

Hargreaves Lansdown

3.2

Companies named in this report

Aker Kvaerner (AKSO:NO), BayWa (BYW6:GR), BP (BP:LN), Chevron Corp (CVX:US), CSH (CSH:US), Costain (COST:LN), KBR (KBR:US), NWF Group (NWF:LN), Origin Enterprises (OGN:ID), Pfizer (PFZ:LN), Premier Foods (PFD:LN), Roche Holding (ROG:SIX), Royal Dutch Shell (RDSA:NA), Statoil (STL:NO),Wynnstay Group (WYN:LN)

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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