Carr's doubles flour business
business by acquiring two new flour mills, giving the company a
good footing in new regional markets and helping it to keep up with
ever increasing customer demand, writes Chris Mercer.
Carr's Milling Industries has conditionally agreed to buy Meneba UK Holdings - which owns a mill in Kirkcaldy, near Fife in Scotland, and another in Maldon, Essex - for around £4.7 million (€6.8 million).
If Carr's shareholders endorse the move, it will give the company solid foundations from which to expand its business into new sectors; supplying more in-store and craft bakeries in the north of the UK as well as craft and ethnic bakery sectors in south east England, according to Carr's directors.
Chris Holmes, Carr's chief executive, said: "The Meneba UK business represents an excellent strategic fit for Carr's. Meneba UK will more than double the size of our flour business and provide an entry into some exciting niche markets. We fully expect the acquisition to be increasing company earnings in the first year of ownership."
The Robert Hutchinson mill at Kirkcaldy has an annual capacity of 90,000 tons of flour and already boasts a strong position among industrial and craft bakers in Scotland. Green's Mill in Maldon has a 45,000 ton capacity.
This combined extra production of 135,000 tons of flour per year will not only help the Carr's to penetrate new markets, but will also allow it to consolidate its position in existing ones. Without this the company believes that "the continued growth in sales volumes to its large bread and biscuit making customers and of its branded retail Breadmaker flour is likely to result in sales outstripping production capacity".
But the move is not without risk and Carr's will be looking to raise Meneba's average operating profit, which has lingered just above break-even point at around £0.75 million (€1.1m) for the last three years. This is even more important considering the financial obligations any deal would place on Carr's.
If it buys Meneba, Carr's will have to repay approximately £5.4 million of Meneba's debt owed to parent company Maxeres. There is thought to be about £1.8 million of cash currently in Meneba which will be used to help pay off the debt.
And the company will need returns on its new mills in order to help pay back a loan of up to £8 million from Clydesdale Bank.
Carr's directors believe that the two new mills will reduce annual company costs by £0.35 million through"rationalising production processes between new and existing mills".
Carr's flour business also briefly went into the red during the first half of 2004, suffering from a 60 per cent rise in wheat prices, and prices remain volatile after bad weather disrupted this year's UK wheat harvest. But the company says its sales have been in line with expectations since the start of fiscal 2005 on 3 September.
