Disposal

RNS Number : 6988I

Carr's Milling Industries PLC

20 June 2011

 



20 June 2011

Carr's Milling Industries PLC

Proposed Disposal of Carrs Fertilisers

The Board of Carr's is pleased to announce that it has entered into an agreement with Origin Enterprises plc to dispose of Carrs Fertilisers for a cash consideration of £19.0 million. The Disposal is conditional upon the approval of Carr's Shareholders and the passing of the Finance (No 3) Bill 2010/2011 (expected in July 2011) without modification from its present form.

Carrs Fertilisers is engaged in the blending of raw fertiliser materials into finished product at Silloth in England and at Invergordon and Montrose in Scotland. It sells finished fertiliser product to merchants (including CBASL), agents and direct to the farming community.

HIGHLIGHTS

·      Disposal of Carrs Fertilisers for a cash consideration of £19.0 million with net proceeds amounting to approximately £18.45 million after transaction costs.

·      Origin to assume and discharge the net debt of Carrs Fertilisers, which is expected to amount to approximately £5.9 million at Completion.

·      £3.0 million of the proceeds will be used to reduce Carr's Pension Fund deficit.

·      CBASL will enter into a five year contact with Origin for the distribution of fertiliser products.

·      Disposal will strengthen Carr's balance sheet with the net cash placed on deposit.

Lord (Richard) Inglewood, Chairman, commented:

"We believe that the benefits of selling Carrs Fertilisers are substantial and the Board unanimously recommends that shareholders vote in favour of the disposal."

Chris Holmes, Chief Executive Officer, commented:

"The sale of Carrs Fertilisers to Origin removes a large exposure to commodity price fluctuations, which should reduce the volatility of Carr's profits.

The supply agreement entered into with Origin ensures the continuation of CBASL selling Carr's Fertilisers to its customers.

The strong balance sheet and low gearing leaves Carr's in a strong position for further investing in existing parts of the business and to seek further acquisitions."

ENQUIRIES:

Carr's Milling Industries PLC	01228 554600
Christopher Holmes, Chief Executive Officer
Ron Wood, Finance Director
Investec Investment Banking	020 7597 4000
James Grace
Duncan Williamson
Carlton Nelson
Sam Hart
Bankside Consultants Limited	020 7367 8888
Simon Bloomfield James Irvine-Fortescue

Investec, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Carr's and no one else in connection with the Disposal and this announcement and will not be responsible to anyone other than Carr's for providing the protections afforded to clients of Investec nor for providing advice in connection with the Disposal or this announcement or any matter referred to herein.  

Proposed disposal of Carrs Fertilisers

1. Introduction

The Board of Carr's is pleased to announce that it has entered into an agreement to sell Carrs Fertilisers to Origin Fertilisers (UK) Limited, a subsidiary of Origin Enterprises plc, for a consideration of £19.0 million. Under the agreement, Origin will also discharge the net debt of Carrs Fertilisers, which is expected to amount to approximately £5.9 million at Completion. The purchase price is payable in cash on Completion and is subject to customary adjustment for a normal level of working capital and net debt. The sale of Carrs Fertilisers will be effected through the sale of the entire issued share capital of CM Fertilisers, a newly-incorporated, wholly-owned subsidiary of Carrs Agriculture, to Origin Fertilisers, a wholly-owned subsidiary of Origin. The trade, assets and liabilities (save for certain excluded liabilities) of Carrs Fertilisers which were owned by Carrs Agriculture until the date of the Agreement have been transferred into CM Fertilisers in order to facilitate the Disposal.

The Disposal is of sufficient size relative to the Group to constitute a class 1 transaction under the Listing Rules and is, therefore, conditional upon the approval of Shareholders. A General Meeting is being convened for this purpose and will be held at the Radisson Blu Manchester Airport, Chicago Avenue, Manchester, M90 3RA at 1 p.m. on 13 July 2011.

The Board intends to take advantage of the provisions of the Finance (No 3) Bill 2010/2011 and, as such, the Disposal is also conditional upon the passing of the Finance (No 3) Bill 2010/2011 (expected in July 2011) without modification from its present form or, if the Finance (No 3) Bill 2010/2011 is modified, in a form which does not in any way result in a tax liability arising in CM Fertilisers under section 179 TCGA 1992 as a result of the Disposal.

The purpose of this announcement is to provide you with information relating to the Disposal, to explain the reasons for the Disposal and why the Board considers the Disposal to be in the best interests of Shareholders as a whole.

2. Information on Carrs Agriculture, Carrs Fertilisers and CM Fertilisers

Carrs Agriculture is a wholly-owned subsidiary of Carr's with three operating divisions: Carrs Fertilisers, Caltech and Scotmin.

Carrs Fertilisers is engaged in the blending of raw fertiliser materials into finished product at Silloth in England and at Invergordon and Montrose in Scotland. It sells finished fertiliser product to merchants (including CBASL), agents and direct to the farming community.

CM Fertilisers is a wholly-owned subsidiary of Carrs Agriculture. CM Fertilisers was incorporated on 5 May 2011 and commenced trading on the date of the Agreement. CM Fertilisers has not produced any financial information since its incorporation. The trade, assets and liabilities (save for certain excluded liabilities) of Carrs Fertilisers which were owned by Carrs Agriculture until the date of the Agreement have been transferred into CM Fertilisers in order to facilitate the Disposal.

The table below summarises the results of Carrs Fertilisers for the years ended 30 August 2008, 29 August 2009 and 28 August 2010 and 26 weeks ended 26 February 2011.

	Year ended 30 Aug 08 £m	Year ended 29 Aug 09 £m	Year ended 28 Aug 10 £m	26 weeks ended 26 Feb 11 £m
Revenue	78.6	56.4	59.3	35.5
Operating profit/(loss)	7.3	(1.0)	1.9	2.4
Profit/(loss) before tax	7.0	(1.3)	1.8	2.3

In the first half of the current financial year, Carrs Fertilisers experienced strong demand as continuing high cereal prices and anticipation of higher fertiliser raw material prices caused a larger than expected number of farmers to buy stock. Subsequently, raw material prices have continued to rise, although the increases are modest compared to the fluctuations seen in 2008 and 2009. At 26 February 2011, Carrs Fertilisers had net assets of £1.6 million and gross assets of £34.9 million.

3. Background to and reasons for the Disposal

The level of profit generated by Carrs Fertilisers is heavily dependent on the prices of fertiliser raw materials, including nitrogen, potash and phosphate. Fertiliser raw material price inflation typically generates stronger demand for fertiliser as farmers look to increase their stock holdings, with Carrs Fertilisers benefiting from this stronger than average demand for finished fertiliser product and from inventory gains on raw materials held by the Group. Such market dynamics existed in the year ended 30 August 2008, for which Carrs Fertilisers reported an operating profit of £7.3 million.

In the converse situation, where weaker than average demand is experienced due to falling fertiliser prices, Carrs Fertilisers typically suffers the combined effects of its raw material stock being marked down to market prices and weaker demand for finished fertiliser product. Such was the situation in the year ended 29 August 2009 when Carrs Fertilisers generated an operating loss of £1.0 million.

Carrs Fertilisers is also a working capital intensive business with significant seasonal working capital requirements.

The Directors believe that the Disposal is in the best interests of Shareholders for the following reasons:

·      it will reduce Carr's exposure to commodity prices which should reduce the volatility of Carr's profits;

·      it will result in significantly reduced levels of seasonal working capital;

·      it will allow the Group to realise an attractive valuation for Carrs Fertilisers;

·      £3 million of the net sale proceeds will be used to reduce the Group's pension deficit; and

·      CBASL will enter into a five year contract with Origin for the distribution of fertiliser products

4. Terms of the Disposal

Origin Fertilisers has conditionally agreed to purchase CM Fertilisers for a consideration of £19.0 million. In particular, Origin Fertilisers shall pay £1 for the entire issued share capital of CM Fertilisers and inject £19.0 million into CM Fertilisers and will procure on Completion that CM Fertilisers repays to Carrs Agriculture the consideration payable under the Hive Down, namely £19.0 million. The purchase price is payable in cash on Completion and is subject to a customary adjustment for a normalised level of working capital and net debt. Origin Fertilisers will also discharge the net debt of CM Fertilisers, which is expected to amount to approximately £5.9 million on Completion.

The terms of the Group's banking arrangement include a clause which requires the Group to obtain the approval of its lender prior to entering into a material transaction. The Group has obtained the written consent of its lender for the Disposal.

The Disposal is conditional upon:

(i) the approval of Shareholders, which is to be sought at the General Meeting; and

(ii) the Finance Bill Condition.

5. Information on the Finance (No 3) Bill 2010/2011

Legislation will be introduced in Schedule 10 of the Finance (No 3) Bill 2010/2011 (Company Ceasing to be a Member of Group) to simplify the rules for the calculation of chargeable gains degrouping charges for companies.

The current legislation states that if a company transfers an asset to another company that is a member of the same group and the transferee company leaves the group within six years of the transfer, the transferee company is treated as making a market value disposal of that asset at the time of the intra group transfer. The tax on any gain that accrues on this deemed disposal is known as a "degrouping charge" and arises under section 179 Taxation of Chargeable Gains Act 1992.

The new legislation proposes that where a company leaves a group as a result of a disposal of its shares, any degrouping charge arising will be treated as additional consideration for the disposal. The new legislation also extends the shareholder relief, substantial shareholding exemption under Schedule 7AC TCGA 1992, to apply to the degrouping charge (provided all other conditions for the substantial shareholding exemption to apply are met).

The consequence on the Disposal of Schedule 10 of the Finance (No 3) Bill 2010/2011 (Company Ceasing to be a Member of Group) being granted Royal Assent without modification (or if modified from its present form to a form which does not in any way result in a tax liability arising in CM Fertilisers under section 179 TCGA 1992 in respect of the Disposal) is that it will result in no chargeable gains degrouping charge being levied as a result of the Hive Down on CM Fertilisers.

The Board expects that the Finance (No 3) Bill 2010/2011 will be given Royal Assent by the end of July 2011, following the date of the General Meeting. If the Finance (No 3) Bill 2010/2011 is not granted Royal Assent by 29 July 2011 or Schedule 10 (Company Ceasing to be a Member of Group) is modified from its present form to a form which results in a tax liability arising in CM Fertilisers under section 179 TCGA 1992 in respect of the Disposal, the Finance Bill Condition is waivable at the agreement of Carr's and Origin Fertilisers. If, subsequently, the Finance Bill Condition is not waived by Carr's and Origin Fertilisers, the Disposal will not complete.

6. Information on Origin Fertilisers and Origin

Origin Fertilisers is a wholly owned subsidiary of Origin. Origin is a focused agri-services group with strategic investments in consumer foods and marine proteins and oils. Origin's Agri-Services division comprises on-farm integrated agronomy services and business-to-business agri-inputs (feed and fertiliser sourcing, handling and distribution). These businesses provide customised solutions that address the efficiency, quality and output requirements of primary food producers in Ireland, the UK and Poland.

Origin's strategy is to be the leading provider of value added services, technologies and strategic inputs that support the delivery of sustainable and profitable food production solutions for primary producers.

Origin is quoted on the Enterprise Securities Market of the Irish Stock Exchange and the Alternative Investment Market of the London Stock Exchange and is headquartered in Dublin, Ireland.

7. Information on the Resultant Group

Following the Disposal, the Group will continue to comprise four operating divisions: Agriculture - Trading, Agriculture - Manufacturing, Food and Engineering.

Agriculture - Trading

The Agriculture - Trading division sells and distributes animal feed and low moisture feed blocks, retails agricultural products, animal health products and fertiliser through CBASL's branch network and distributes fuel oil through a network of depots. Sales of feed and feed blocks are in the UK and through various export markets including Germany, France, the United States and New Zealand. The retail operation sells a wide range of farm inputs, rural supplies and other agricultural machinery from 19 branches across Northern England and Scotland andMassey Ferguson and Kuhn agricultural machinery brands from six of these branches. Through Johnstone Wallace Fuels and Wallace Oils, CBASL supplies a range of fuel products and services for domestic, agricultural and commercial customers in Cumbria, Dumfries, Galloway and Lancashire. Following Completion, sales of fertiliser will continue through a supply agreement between CBASL and CM Fertilisers.

Agriculture - Manufacturing

The Agriculture - Manufacturing division produces animal feed blocks and animal feed supplements. Carr's owns two specialist patented animal feed production plants in the USA and one in the UK. The brands produced and marketed are Crystalyx, Calflyx, Horslyx and Megalix in the UK and Continental Europe. In the USA, the brands produced and marketed are Smartlic and Feed in a Drum.

Food

The Food Division comprises three flour mills based in Cumbria, Fife and Essex. It supplies most sectors of the market, including industrial bakers, craft bakers, food manufacturers and multiple retailers.

Engineering

The Engineering Division comprises Bendalls Engineering and R Hind, which are based in Carlisle, Carrs MSM, which is based in Swindon, and Wälischmiller Engineering GmbH, which is based in Markdorf in Southern Germany. Bendalls Engineering designs and manufactures process plant and equipment for the petrochemical, oil and gas, nuclear power, pharmaceutical, process and water industries. Carrs MSM designs and manufactures master slave manipulators, which are key components for nuclear and other engineering businesses. Wälischmiller Engineering GmbH is involved in remote handling technology, robotics and radiation protection equipment.

8. Use of proceeds and financial effects of the Disposal on the Group

The net cash proceeds arising from the Disposal are expected to be approximately £18.45 million, after estimated transaction costs of £0.55 million. The net cash proceeds will be used to make a payment of £3.0 million to the Pension Fund with the balance placed on deposit pending a decision on its investment. In the short-term and prior to the reinvestment of any proceeds, the Directors expect the Disposal to be earnings dilutive for shareholders.

9. Current trading and prospects

On 11 April 2011, the Company released its interim results for the 26 weeks to 26 February 2011. The following is an extract from that announcement:

"We have made encouraging strategic progress in our markets during 2010 and into 2011. Our decision to expand the geographical cover of our agricultural branch network in the Borders and North of England, the expansion of our fuel business and our feed supplements business, and the development of the New Zealand market for our animal feed block Crystalyx, leave Carr's well placed to take advantage of the improving agricultural markets. Focus is beginning to return to the long-term positive fundamentals for agricultural markets and increasing demand for food, driven by global and UK population growth. This is creating more demand for protein which, in turn, creates the need for improved farmer productivity. The continuing over-capacity in the UK flour market will present management with challenges and we anticipate that the Food division will, at best, sustain its first half performance in the second half. Our engineering businesses have excellent skills, with good order books, and are well positioned to take advantage of the increasing demand in the nuclear, oil and gas sectors. With a business environment that remains challenging it is pleasing to report growth in profitability and announce a rise in the first interim dividend. We are confident that Carr's will continue to trade in line with management's expectations for the full year."

The Directors believe that this statement remains valid as at the date of this announcement.

10. Recommendation

The Board considers the Disposal to be in the best interests of the Shareholders of the Company as a whole.

Accordingly, the Board unanimously recommends that you vote in favour of the Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, which amount in aggregate to 257,543 Ordinary Shares and represent approximately 2.9 per cent. of Carr's issued share capital as at 17 June 2011 (the latest practicable date prior to this announcement).

Shareholders should read the whole of the circular to be sent to them and not just rely on the summarised information set out in this announcement. 

The following definitions apply throughout this announcement unless the context requires otherwise:

"Board" or "Directors"	the directors of Carr's
"Caltech"	the trading division of Carrs Agriculture
"CBASL"	Carrs Billington Agriculture (Sales) Limited, a 51 per cent. owned subsidiary of Carr's
"Carr's" or "the Company"	Carr's Milling Industries PLC
"Carrs Agriculture"	Carrs Agriculture Limited, a wholly-owned subsidiary of Carr's
"Carrs Fertilisers"	the fertiliser division of Carrs Agriculture known prior to the date of the Sale & Purchase Agreement as "Carrs Fertilisers"
"CM Fertilisers"	CM Fertilisers Limited
"Completion"	completion of the Disposal
"Consideration"	the consideration payable by Origin Fertilisers to Carrs Agriculture for CM Fertilisers, being approximately £19.0 million (inclusive of repayment by CM Fertilisers (having been put in funds by Origin Fertilisers) to Carrs Agriculture of the Hive Down consideration) together with the discharge by Origin of the Net Debt
"Disposal"	the proposed Disposal of CM Fertilisers by Carrs Agriculture
"Finance Bill Condition"	the granting of Royal Assent to the Finance (No 3) Bill 2010/2011 without modification from its present form or, if the Finance (No 3) Bill 2010/2011 is modified, in a form which does not in any way result in a tax liability arising in CM Fertilisers under section 179 TCGA 1992 as a result of the Disposal
"General Meeting"	the General Meeting of the Company to be held at 1 p.m. on 13 July 2011
"Group"	Carr's and its subsidiary undertakings
"Hive Down"	the transfer of the trade, assets and liabilities of Carrs Fertilisers to CM Fertilisers
"Investec"	Investec Investment Banking, a division of Investec Bank PLC
"issued share capital" or "issued shares"	Ordinary Shares in issue
"Listing Rules"	the rules and regulations of the UKLA
"London Stock Exchange"	London Stock Exchange PLC
"Net Debt"	the net debt of CM Fertilisers at Completion
"Ordinary Shares"	ordinary shares of 25p each in the capital of the Company
"Origin"	Origin Enterprises plc
"Origin Fertilisers"	Origin Fertilisers (UK) Limited
"Pension Fund"	Carr's Pension Scheme 1993
"Resolution"	the resolution set out in the Notice
"Resultant Group"	Carr's and its subsidiaries and subsidiary undertakings, excluding CM Fertilisers
"Sale and Purchase Agreement" or "Agreement"	the agreement between (1) Carrs Agriculture, (2) Origin Fertilisers, (3) Carr's and (4) Origin dated 20 June 2011
"Scotmin"	the trading division of Carrs Agriculture
"Shareholders"	holders of Ordinary Shares

 

END

 

 

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