Boparan - pass throughs, puzzles and purchases

All,

The Q&A session today had some interesting nuggets and one outright surprise:

1) The surprise was that the company now has 70-80% of its contracts on pass-through. That wrecks the thesis that Boparan would enjoy material upside through rising feed prices over the coming 12 months, as it would have done only a year or so ago.

2) Nevertheless, the company guided towards a poultry margin of 4% for the fiscal year, which would imply EBITDA of ~GBP75m for Poultry alone and a near GBP 130m in total.

3) Attempts to reconcile the gap from (GBP 40m now) of 35m only went as far as:

a) Low single digits for benefit associated with Witham plant closure

b) Mid single digits for ramp-up of Polish plant.

c) Vaguely described cost savings and “better execution”

- Safe to say that left investors puzzled.

4) The company said it had not bought any bonds in the market. However, it did not include the shareholder in that comment. Note that management stated on the last call that it did not believe it had a duty to report affiliate purchases. Rumour last week had it that the shareholder was buying GBP10m bonds.

Poultry Margin: The margin for the poultry business lies only just under 2.5% of sales. Raising that margin by 1.5% therefore does not seem outlandish. But Margins have rarely been above 5% for that business. Moreover, if better execution were that easy, we are sure it’d have been done all along.

More work to be done on Boparan then.

Wolfgang