Country Food & Dining Tax-efficient Investment Start-up With Strong Asset Backing

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1 Leaders in Corporate Research Tel: Castle Court Fax: London EC3V 9DL Country Food & Dining Tax-efficient Investment Start-up With Strong Asset Backing Share Price: 100p Shares In Issue: 10m proposed Country Food & Dining is a new Enterprise Investment Scheme fund investing in a series of EIS qualifying companies. It is chaired by David Bruce, who masterminded the very successful Capital Pub Company EIS ventures. It intends, by acquisition, to create a chain of asset-rich, vertically integrated food companies. These will encompass: Own-grown produce. Farm shops selling own-grown produce as well as a wider range of healthy quality food. Sale of manufactured food products, such as jams, ready meals and bakery, made whenever possible from produce from the organisation s own farm. On-site cafes and restaurants, open daytime and evening, with menus based around produce grown on the farms and sold in the shops. Market Cap: maximum 10m Gearing: Nil no borrowing expected initially Promoters: Contact: Christian Elmes Timing: Issue closes end- March 2008 There are no direct comparisons to Country Food & Dining. There are no chains or groups of businesses operating in this the farm shop marketplace in fact Country Food & Dining is the first organisation to recognise it as such. We foresee either a trade sale or a float on AIM (the route chosen by Bruce s Capital Pub Company) after three to five years of operation. However, the companies are trading straight into a growing awareness nationally that quality is critical in today s food marketplace. Country Food & Dining answers concerns about food quality and sourcing raised by prominent TV chefs such as Jamie Oliver and Hugh Fearnley- Whittingstall. Portfolio managers will, for tax reasons, be permitted to invest directly in the subsidiary companies. Analysts: Roger Hardman/ Yingheng Chen Country Food & Dining has exceptional defensive qualities for a startup, and will appeal to sophisticated investors searching for a relatively safe tax efficient investment that also has an exciting edge to it.

2 SWOT Analysis Strengths David Bruce, the Non-Executive chairman, has an extraordinary track record via his Capital Pub Company, which began life as an investment scheme of this type and is now a very successful AIM company. Kris Grumbrell, a Non-Executive director, has experience of rolling out leisure concepts through his years at Greene King, the brewer. The market is growing fast. Dining, locally sourced food and ingredients, farm shops and farmers markets are all rapidly expanding areas. There is strong asset backing without this being categorised as a property company. It is ideally structured for Inheritance Tax and other tax minimisation purposes. All the new sites will be existing businesses, eliminating start-up risk. If the trading activities fail to make a profit then the component parts can be sold off and a significant proportion of the original investment should be returned to investors. No other food-based organisation is as vertically integrated as this will be. Management charges are modest. Management is investing significant sums the chief executive has invested substantially his entire savings and management has sensible incentives in addition to this (pages 6,7). The one unit currently operational is clearly trading well and has plenty of opportunity for expansion. Weaknesses This is an early stage/start-up investment and therefore carries significant trading risks. Each site will be very dependent upon its manager. There is no financial or trading track record worthy of the name. The Chief Executive has previous industry experience limited only to the last 14 months. Opportunities This is a market ripe for consolidation. There is no chain of country farm shops/cafes/restaurants at present, and there are plenty available for purchase. There is considerable scope for economies of scale. There will be opportunities for exceptional profits from property development/obtaining planning permission on parts of the company s land. There is opportunity to build a flagship presence and beyond that, by using branding, to cross-sell as a food manufacturer to supermarkets. Indeed, there is opportunity to build a brand. Threats Another major Foot & Mouth outbreak or similar would create serious problems even though there are no plans at present for animals on the farming units. A serious economic recession would create difficulties for an organisation trading at the quality end of the food retail market. 2

3 Background Country Food & Dining will be Britain s first chain of vertically integrated farm-retail-restaurant units. It intends its units to have an area of 6 to 15 acres, and support a combination of outdoor activities, a farm shop, and a café/restaurant. These units will all be acquired from private owners, who will not necessarily be running the sites in the way planned by Country Food & Dining. Some may be small scale garden centres, others smallholdings with a very small retail element and no catering, or a café or butchery with large quantities of unexploited land. This is a gap in the market which no major chain has yet attempted to exploit. As a result, the businesses that management would like to buy are usually too small to qualify as new units for major chains of garden centres such as Wyevale and Dobbies, and not centrally located enough or themed enough to be of interest to a restaurant or retail group. As each business will already be operating, Country Food & Dining will be considerably less risky than a conventional business start-up. There will be strong asset backing (6-15 acres of land near a population centre is always worth something) and, at least until the concept has proved itself, there will be no gearing. The business is being launched by people with a good track record. David Bruce, the Non-Executive chairman, has already made a great deal of money for investors with his Capital Pub Company (now quoted on AIM), Kris Grumbrell has a strong track record of building leisure businesses and promoter Smith & Williamson has a history of successful tax efficient business formations behind it. Management is backing the new business with considerable sums of its own money, and is taking very little in salary until the business has been successfully established. Eating Out The value of households spending on eating out passed spending on food sector products eaten at home in 2004, and more than doubled between 1992 and Cultural changes in food consumption, with people eating out more regularly and enjoying a wider range of cuisine, continue to have an impact on the UK economy. Household spending on fresh and processed food and drink products was 85.8 billion in 2004, up 53.4% between 1992 and 2004, according to a report published by the Office for National Statistics. Over the same period, spending on food and drink products consumed outside the home grew by 102.2%, to 87.5 billion in UK Spending on Food and Drink The report UK Purchases and Expenditure on Food and Drink in showed that total expenditure on all food and drink rose by 1.7% to per person per week, compared to the previous period. The expenditure on food and drink recorded as eating out rose by 0.7%. 3

4 The British like to eat out. Over 70% of the adult population will take the opportunity at least once every three months. A third of all food and drink expenditure is now on meals out of the home. Expenditure on Food and Drink (source: Defra) Dining Trends The UK eating-out market is worth between 24 billion and 38 billion in sales. It is a substantial market and a major driver for the UK economy. Research, carried out in July 2007 by the Peach Factory, shows that in London casual dining restaurants are now the number one choice when eating out, with 31% of Londoners visiting a casual dining restaurant at least twice a month. Quality of food 4.5 Type of food served 4.2 Service 4.1 Value for money 4.1 Location, convenience 3.8 Atmosphere, ambience 3.8 Number of healthy options 3.1 Decor 2.9 Source: Peach Factory Eating-out and the Consumer survey, March 2007, (sample 2,044 adults) The survey shows that travel and eating-out are the top two leisurespending activities for the British. Not surprisingly, the richest 20% of the population spends significantly more on eating and drinking out, especially on eating. By age group, the biggest spenders on eating out are the 50-65s. Conversely, families are not so good for the eating-out market as a whole. The biggest spenders on eating and drinking out of home are adults with no children at home. The table, left, lists answers in reply to the question How important are the following factors in influencing your choice of restaurant? (Average marks out of 5; with 5 extremely important and 1 not important at all ) Regionality People in London are the biggest spenders on eating out, followed by the South East, while those in the North spend the most on going to the pub or club. Government figures from the Office of National Statistics show that Londoners on average spend 60% more on eating out than their counterparts in the Northeast of England. Consumers outside of London are no less demanding either. While 61% of adults in London think pubs and restaurants should be doing more to improve the eating-out experience, that figure rises to 67% in the North West, 69% in the Midlands and 70% in Wales. 4

5 Farmers Markets While Country Food & Dining only rarely hosts farmers markets, this is a marketplace that attracts the same type of customer and is therefore worth examination. 5 Farmers have been selling their produce in markets for centuries and the original medieval market towns grew up around the regular trade. It was a tradition that only really began to disappear with the rise of the supermarkets and the development of a supply chain more suited to their needs. Many smaller farms found alternate routes to a market, such as farm shops, pick-your-own and box schemes. The first successful farmers market was held at Green Park Station, Bath in August This market attracted a lot of media attention and from then on farmers markets were on the map. From this small start, farmers markets are held on a regular basis at some 550 locations in cities, towns and villages around the UK with an estimated income of more than 220m a year, creating an estimated 9,500 market days a year and 230,000 stallholder opportunities. Under the FARMA s rules, the National Farmers Retail & Markets Association, produce must typically be sourced from within a 30-mile radius, although this can be extended for some urban and coastal areas. Most farmers markets in the UK are held once a month although there is a trend to greater frequency. London Farmers Markets are held weekly, as are the farmers markets in Taunton, Gloucester and Cardiff. Winchester farmers market is fortnightly, as is Edinburgh s. The average size is 24 stalls per market. Winchester, Hampshire is the largest with around 100 stalls. According to a survey from IGD Consumer Research, supermarkets are the most popular place to buy local food, particularly when products are merchandised together in one local area. We can also see that there are 47% of consumers who would like to buy local food from their local farm shops and farmers market. FARMA has published 21 reasons to support local foods on its site, one of them is to encourage people to try pick-your-own. Country Food & Dining fits right into this category. Modern food is a very complicated business. Sales of organic food rose by 22% in 2006, with the industry sales of 2 billion in The Soil Association, which regulates organic food, argues that meat, vegetables and dairy produced without pesticides are likely to be healthier. However, David Miliband, the previous Secretary of State for the Envionment, dealt the organic food industry a blow when he called it a lifestyle choice and said there was no evidence that it was healthier for consumers. To gain free range egg status, chickens must have had continuous daytime access to open-air runs for at least half their lifetime. Free range eggs cost 90p to 1 for six eggs, compared with 40p to 50p for factory farm eggs. There are also other complications about food, such as, GM food, labelling, old food, advertising, supermarket power and fair-trade, etc.

6 The chart on p5 shows that the most popular product categories are vegetables and fruit, purchased by 61% and 45% of buyers respectively. Other popular categories include eggs, bread, milk, red meat and poultry. Penetration in categories such as confectionery, cooking sauce, soft and alcoholic drinks remains low. Potential Based on extrapolation from population figures comparing the UK with the USA, FARMA estimates that around 800 farmers market locations could be sustainably developed within the current framework. 70% of British consumers would like to buy local food and 49% want to buy more than they do at the moment. There is clearly potential for growth in this market. Problems Market Charters are ancient rights to hold markets in specific locations which forbid the setting up of any other market, often within six and two-third miles of the chartered market. If a farmers market wishes to set up (and it is not being run by the local authority or Charter owner) the Charter owner can be approached for permission. The new licensing laws which came into force in 2005 have proved very difficult and expensive for farmers market operators and stallholders. Many wine and beer producers have pulled out of farmers markets to the detriment of the markets and their business. Corporate Structure Operating Margins Restaurant Companies Operating Margins Food Manufacturers Normalised Operating Margin % Capital Pub Co. 21.8% Carluccio s 9.5% Clapham House Group 7.4% Domino s Pizza 15.6% Individual Restaurant Co. 7.3% Restaurant Group (The) 12.1% Prezzo s 17.1% Group Average 11.7% Normalised Operating Margin % Cranswick 7.1% Dairy Crest 6.5% Dobbies Garden Centres 11.6% Finsbury Foods 5.0% Glisten 10.6% Gourmet Holdings 6.2% Greggs 8.1% Premier Foods 12.4% Zetar 7.8% Group Average 8.4% Country Food & Dining is an Enterprise Investment Scheme qualifying business. This allows private investors to obtain EIS income tax relief of 20% on their investments, plus exemption from Capital Gains Tax on disposal. Capital gains from the previous three years or the subsequent twelve months can be rolled over into the company. After two years the investment will qualify for exemption from Inheritance Tax. On sale of the business, 25% of capital gains above certain hurdle rates will be taken by the directors and promoters. Any exit must be recommended by the directors, otherwise the split reverses, with directors and promoters having rights to 75% of gains above the hurdle rate. This protection has been introduced to prevent the sale of the group piece-meal. Each separate site will operate as an individual limited company. If any individual subsidiary produces a pre-tax profit margin higher than 15%, then bonuses for the management team and the promoters kick in. These take 10% of the subsidiary s profit. 6

7 It is theoretically possible to have a situation where of five properties (and therefore separate subsidiary companies) in the Country Food & Dining Group, one company is earning very high margins and the others are losing money. In this set of circumstances, the directors and Smith & Williamson would earn a bonus in spite of outside shareholders receiving no benefit. In practice, very few food retailers or restaurant groups earn margins of in excess of 15%: It will be slightly easier for Country Food & Dining to hit a 15% profit margin for individual subsidiaries for the following reasons: Management is incentivised with this as its key performance indicator. The business will be vertically integrated, and vertically integrated businesses have higher pre-tax margins than normal. Profits of the subsidiaries will not bear a charge for management salaries or Head Office costs. However, even taking a disadvantageous scenario for outside shareholders, in which one unit performs spectacularly well and all others underperform, the management incentives have little impact on the p & l: Unit No. Sales Margin Profit Incentives Net m % m m m % % % % % TOTAL m It can be seen that under this particular set of circumstances the incentive scheme appears to reduce the amount of profit reaching non-insiders by only 5%. The costs of operating the scheme are as follows: Total front-end fees of 7.5% are to be taken by the scheme s promoters, Smith & Williamson. This is very much average for the industry. Stockbrokers commonly take 4% - 6% even for AIM flotations of companies this size. Unit trust front end loading is usually 5%. Smith & Williamson is taking an annual fee of 1%. This appears modest to us. Most investment management companies charge 1.5% for unit trusts, which are far simpler to administer, and Smith & Williamson is providing a director without additional charge. Salaries for the 5 directors are modest. They aggregate 135,000 assuming a full 10m subscription to the scheme; in the event of less than 10m being raised, the salaries will be less. The Directors The Promoters of the scheme are Smith & Williamson, a well-established firm with a good reputation in tax efficient scheme creation and operation. Its successful past launches in this area include British Country Inns, which operates pubs throughout England via four separate investment schemes, and the residential house builder Leighton & Henley. The Tax Efficient Solutions arm of the business has grown out of an organisation that originated as an accountancy firm and has grown into corporate advice and corporate finance of all kinds. It probably ranks in the Top Five businesses of its kind in the UK. The Non-Executive Chairman is David Bruce. He is the Chief Executive of The Capital Pub Company PLC, which was formed in 2001 as a start-up tax efficient private investment scheme very similar to Country Food & Dining. Investors have seen their capital value increase during that time at a very satisfactory rate, before making allowance for tax benefits, and before dividend payments. Capital Pub Company now has an AIM quote, and owns 24 freehold and 3 leasehold high quality pubs in London. Bruce lives close to Country Food & Dining s first unit near Hungerford and is a regular customer. He began working life as a trainee brewer with Courage, and his past successes include founding the Firkin pub chain and being responsible for developing and marketing the Slug and Lettuce chain. 7

8 The Chief Executive is Gordon Leatherdale. Before forming Country Food & Dining he was an investment banker specialising in tax efficient investment funds at Noble, the investment bank that was responsible for forming and promoting The Capital Pub Company PLC with David Bruce. He left Noble to set up the venture in August 2006, by June 2007 had raised 2.3m of capital under the EIS and purchased the Hungerford unit for the group in October He has invested largely the entirety of his own resources in the venture. Executive Director. Jonathan Shearme has 20 years experience in setting up and operating out of town and urban food retail and dining sites, including the Gustoso Deli chain, which was a finalist in the Gary Rhodes Local Food Heroes competition in Non-Executive Director. Kris Grumbrell has 20 years experience of the hospitality industry. Most recently he was Chief Operating Officer of Close Imperial Pub Company having previously been the longest serving operations director at Greene King. Non-Executive Director. Martin Sherwood is head of the Tax Efficient Solutions division of Smith & Williamson, and will represent the interests of outside investors. He will take no salary for this function. The Hungerford Farm Shop The first unit in the chain is one mile to the west of Hungerford, Berkshire, on a busy stretch of the A4. It is a smallholding with an attached farm shop and café. The site extends to 54 acres. The building on the site was erected in 1997 and has a footprint of 4,800 sq. ft. A mezzanine floor has been built over part of this. The mezzanine area houses the Country Food & Dining administration and management. The ground floor contains a shop that sells both groceries and fresh produce, and a small café with 34 seats that operates in daytime only. Approximately a quarter of the footprint is storage for the farm produce. In the summer months the trading area is overcrowded and an extension to the floor area is badly needed. Planning consent has been obtained for an extension that will take the total space up to 6,500 sq. ft. a 35% increase in the trading area. Construction work is currently scheduled to start at end-march. The shop will trade throughout the building work. First benefits of the additional trading area should be seen in May, although the full advantages are unlikely to be evident until after the peak summer trading period. Country Food & Dining has paid 1.4m for the Hungerford business, and the extension is currently budgeted to cost 0.275m. Meat and Cheese 7% Pick Your Own 15% Hungerford Sales Split Other 17% Grocery 21% Coffee Shop 24% Greengrocery 16% Trading at Hungerford The Hungerford site is trading profitably, with a turnover that appears to be in the region of 0.6m. p.a. It is not possible to be too precise with this number, because of the bookkeeping methods of the previous owner, and because the business is seasonal and has only been in the hands of the current owners for three months. Trading like-for-like has been up about 7% since the new management took over however. Also, there are good reasons for believing that the site is operating some way below its full potential. 8

9 Possible Increases In Turnover The site appears to have traded on turnover of > 1m. p.a. in the past. The increased size of the shop and restaurant should lead to higher turnover. No marketing of the business has been undertaken in recent times and in particular signage of the site is capable of being improved. The restaurant is being doubled in size from 34 to 64 covers indoors, and will in future be open in the evenings. Even at present the café/restaurant generates 25% of turnover. An outdoor area is to be added to the restaurant, with >100 covers. Advisers to the company have identified several ways in which crop yields can be increased. As an example, raspberry yields could be raised to as much as double their current level by installing deerproof fencing. Greater use can be made of sales of own produce in the shop, and of processing farm produce for sale on site (such as jams and chutneys). More economic use of the land area can be made by changing some of the crops being produced. Sales of alcohol can be increased. At present these account for only 1% of turnover. At present no alcohol sales have taken place through the café/restaurant, which has not had a licence. An application is currently being processed. There is at present nothing on the site for children, therefore nothing to attract parents. Also, the farm has not previously marketed itself to schools for school visits beyond promoting itself on the FARMA website. To date the site has rarely been used for Farmers Markets or other functions. A new 80 berth marina with associated chandlery and hotel is nearing completion on the Kennet & Avon Canal directly opposite the shop on the opposite side of the A4. Gaining additional business from the canal boat owners on this site will not be straightforward because of the problems crossing such a wide and busy road, but there is potential here nonetheless. Seasonality 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Hungerford - Seasonality 2006/7 D J F M A M J J A S O N Monthly sales figures for Hungerford show a very marked seasonality. Four key months of the year account for well over half annual turnover. These critical months are December (for the Christmas trade) and May to August (the peak both for pick-your-own and for the good weather). The trading figures we have reproduced in the chart, left, largely concern trading undertaken by the previous management. Surprisingly, the 2006/7 sales figures appear to show no growth over 2005/6; we put this down to the old management losing its impetus while the business was up for sale. We expect the figures for 2007/8 to show a considerable improvement, even allowing for disruption to the site during the spring while the building work is undertaken. As the chart shows, a maximum of 40,000 of turnover is at risk. Possible Improvements In Margins Management feels that some improvement can be made in purchasing. A 5% reduction in purchasing costs would increase profits by 25,000 p.a. There is at present no EPOS system. Installing EPOS and linking it to control of stock levels should produce margin improvement. Greater vertical integration greater use of farm produced food in the shop and in the restaurant, and the processing of herbs, fruit etc. into finished goods for the grocery section should increase margins. Greater use can be made of seasonal labour. This is a business with very significant variations in turnover levels month by month. At present, the wage bill shows relatively little variation month by month. 9

10 As other sites are added to the Country Food & Dining operation, creating a chain, the company will have greater buying power and be able to strike better deals with suppliers. Hungerford The Property Potential A previous owner applied for and obtained outline planning permission for a farmhouse on the site. This permission has long since lapsed. However, there is a possibility that an attempt may be made to resurrect this defunct planning approval at some future date. A successful application would of course considerably increase the capital value of the site. The importance of the possibility of uplift in value from planning gains is an important one generally, and has significance far beyond the Hungerford site. Many of the sites that Country Food & Dining purchases will have the potential for new building that will either increase the value of the site or create a non-core asset that can be sold off at a profit. In fact, even the 35% increase in footprint for the Hungerford main building will have increased the capital value of the Hungerford property. Possible Acquisitions Property agent Knight Frank & Rutley has conducted an analysis into the most suitable areas of the country for acquisitions. These are primarily in the South East of England and in the technology corridor stretching from Reading to Bristol. The KFR study is heavily weighted in favour of areas of high population density - >1,000 people per square mile and high net worth individuals. We believe that KFR s criteria which were actually set by the company s management - are unnecessarily tight. Country areas with a lower population density frequently support very successful farm shops and restaurants. Also, a desire for good quality healthy food is not restricted to the 25% highest earners in the population, the cutoff point for the KFR study. It is interesting to note that the existing shop at Hungerford would not qualify for inclusion in the portfolio using the KFR hurdles, but it is clearly trading very satisfactorily. Even with these very tight criteria, however, KFR has managed, from the top 5 postcodes only as at the time of writing, to highlight 17 apparently successful independent businesses trading in core geographical locations that could qualify as acquisition targets. Country Food & Dining s own management has in addition identified a further 18 potential acquisitions, five of which have been introduced by a respected regional firm of property agents. Discussions are in progress with several of the potential acquisition targets. We have visited a few of these sites. Each has its own individual business mix and trading pattern. Of those we have visited, however, one clear common factor emerges; these are not businesses with problems. The current trading environment, with the well documented credit squeeze affecting even the best quoted retailers and restaurant groups, is clearly not creating serious problems for this kind of business. In one respect of course this is not helpful to Country Food & Dining. As a buyer, Country Food & Dining would probably prefer adverse trading conditions because they could force owners of target companies to sell. On the other hand the following factors are in the company s favour in terms of bringing potential sellers to the negotiation table: The sites are in the main too small to be of interest to the national chains of garden centre operators. Indeed few of the potential acquisitions operate as garden centres in the commonly understood sense. There has until now been no natural buyer for this type of business. This is because until now no organisation has attempted to build a nationwide business on this format. Indeed, there may even be pent-up demand from owners who would like to sell but have had no obvious purchaser to approach. The banking crisis has restricted the availability of funds to private buyers. These businesses will all have a high property content, and property investment has suddenly fallen out of favour. Indeed several property investment funds have suspended withdrawals because of liquidity problems. The Management Buyout market has, temporarily, almost ceased to exist. The Private Equity and Venture Capital Association has stated that buy-out spend slumped to a five year low in Q4 2007, and 10

11 that the quarter saw no secondary buyouts at all. This is another source of competition for these sites removed. Because of these factors we believe it highly likely that Country Food & Dining will be able to conclude several acquisitions relatively speedily. Likely Shape Of The Group The business will be asset rich and therefore will generate relatively modest levels of turnover, and profit, for the capital outlay involved. We do not believe that this will be a business to generate high Earnings Per Share. The key return to shareholders will come from the uplift in asset value generated by better use of the land and supported by the higher sales and profits produced together with a new anticipated brand. It should be pointed out that Hungerford is far larger in terms of acreage than the group would ideally choose to operate. To have just 4,500 sq. ft. of buildings on a 53 acre site is scarcely the optimum configuration. This will have two implications for the future shape of the business: Future acquisitions will probably generate more turnover per of acquisition cost than Hungerford. There will be some inter-company trading, as the surplus land at Hungerford is used to grow produce sold in the other farm shops. In all probability the other units, yet to be acquired, will develop their own specialisations, such as food processing (less than ideal at Hungerford because of its very limited interior space) and possibly growing crops that are not suited to the soil at Hungerford. We believe that half or more of group turnover will eventually be generated by the catering activities. Exit Route The current plan is for the scheme to operate for between three and five years before seeking an exit. In the event of the business being successful, the most likely exit would be a trade sale. Buyers for successful restaurant concepts are legion, and pay good money. The La Tasca Tapas Bar chain was taken over last year at 2m per unit for units with short term leases - and Capricorn Ventures, the owner of Nandos, has recently built a share stake in Clapham House Group that is widely regarded as predatory. Also trade buyers for garden centres, whether as individual units or as chains, have been aggressively active for many years. Wyevale Garden Centres was purchased for 320m by West Coast Capital after being stalked for over a year by rival garden centre chains. We believe that Country Food & Dining should fetch a premium on exit, partly because it will have been the pioneer (and will almost certainly be the largest operator) in this particular kind of business, and partly because a lotting premium will take effect, in the same way that a chain of pubs will sell at a premium to the value of each individual unit. Conclusion Country Food & Dining is a tax efficient start-up business with defensive characteristics and is trading into a growing market. Its first mover advantage will give it significant advantages if the concept takes off, and in the event of failure the strong asset backing should ensure that there is a fall-back position for investors. Indeed, the likely strength of the asset position will be a key attraction for many investors. It deserves to find a warm reception in the marketplace. 11

12 FARM SHOPS IN ENGLAND THE COUNTRY FOOD & DINING MARKETPLACE Farms Farms with shops Farms with Café Farms with 'Pick Your Own' Option Bedfordshire Berkshire Berwickshire Birmingham Borders Buckinghamshire Cambridgeshire Cheshire Cornwall County-Durham Cumbria Derbyshire Devon Dorset Essex Gloucestershire Hampshire Herefordshire Hertfordshire Isle of Wight Jersey Kent Lancashire Leicestershire Lincolnshire Greater London/Middlesex Norfolk Northamptonshire Northumberland Nottinghamshire Oxfordshire Rutland Shropshire Somerset Staffordshire Suffolk Surrey Sussex (East & West) Warwickshire Wiltshire Worcestershire Yorkshire Total Source: FARMA. Some of the farms may be double counted due to regions overlapping. About Hardman & Co Hardman & Co does not trade in shares, and it does not earn commission on shares traded. This research is circulated without charge to Authorised Investment Organisations and suitably qualified private individuals. The companies researched meet the costs of this. Comments, queries and suggestions are welcomed from the professional investment community. The estimates and research are independent, and the work of Hardman & Co, not the companies concerned. The work includes input from sources that have no links with the companies. Hardman & Co. research is available on the Bloomberg, Thomson First Call, Factset and Reuters Multex networks. The information in this document has been obtained from sources believed to be reliable, but cannot be guaranteed. Hardman & Co. can accept no liability for its contents. In the UK, this information is provided for the use of ordinary business investors, market counterparties and sophisticated investors, as defined in the rules of the Regulator, and is not intended to be made available to unsophisticated individuals. Hardman & Co. does not undertake investment business in the UK and therefore does not buy or sell shares, although it and individuals associated with it may own shares as long term investments. Hardman & Co. is commissioned by companies to produce research material, but estimates and content are, in all cases, those of Hardman & Co., not the companies concerned. Past performance cannot be relied upon as a guide to future performance. 12