Final Results

RNS Number : 3769M

Cranswick PLC

24 May 2010

 

Embargoed 7am Monday May 24 2010

CRANSWICK PLC: ANOTHER RECORD YEAR

Cranswick plc ("Cranswick" or "the Company"), the food producer, announces its audited preliminary results for the year ended 31 March 2010.

Highlights:

·    Revenues up 22 per cent to £740m (2009: £607m) *

·    Pre-tax profit rose 26 per cent to £43.8m (2009: £34.7m) *

·    Earnings per share up 30 per cent at 69.7p (2009: 53.7p) *†

·    Recommended final dividend of 17.0p - up 16 per cent

·    Interest cover 21 times (2009: 10 times)*

·    Net debt reduced by £11.9m to £54.7m

* on continuing operations

† before exceptional (non-cash) deferred tax charge in 2009

Cranswick Chairman Martin Davey said:  "During the past year the Company has continued to progress and has further established its presence in the UK food sector. There has again been significant investment in the Group's asset base to enable the organic growth of the business to be maintained.

"The borrowings of the business are conservatively structured and interest was covered 21 times compared to 10 times a year ago.

"The Company is well positioned to meet the increasing demand for UK pork products. The business has developed significant expertise in the supply chain, building on its origins in pig feed production and the rearing of pigs, and through acquisitions, joint ventures and organic initiatives it now has market leading positions in a number of categories.

"The past year has seen increased expenditure by the consumer on products such as air-dried bacon, premium sausages, fresh pork and ham and this looks set to continue as the value and versatility of pork, the 'alternative white meat', are increasingly appreciated.

"With experienced management throughout the Group and a well invested asset base the Board is confident in the successful long term development of the business and is encouraged by the positive start made in the current financial year."

-ends-

For further information:

Paul Quade                                                                  020 7248 8010

CityRoad Communications                                            07947 186694

Chairman's statement

I am pleased to report to Shareholders that during the past year the Company has continued to progress and has further established its presence in the UK food sector. There was a very strong increase in turnover and the Company's strategy to focus on food production was evidenced by the sale of the pet business and the acquisition of the pork processing activities of Bowes of Norfolk ('CCF Norfolk'). Shareholders were notified of these transactions previously. In addition there has again been significant investment in the Group's asset base to enable the organic growth of the business to be maintained.

Results

Sales for the year increased to £740 million, a rise of 22 per cent compared to the previous year. Organic growth represented 11 per cent of the increase and CCF Norfolk contributed 11 per cent. There were very strong increases in certain product categories. Sales of cooked meats rose by 13 per cent, sausages by 23 per cent and bacon by 61 per cent which substantiates the decision to invest significantly in these categories in recent years. There are plans for investment in certain areas and, in addition, the coming year will see completion of the investment project at the fresh pork facility in Hull. The provision of a high quality fixed asset base to meet the organic growth aspirations of the business in the most efficient way possible is a key strategic priority for the Board.

The operating margin in the underlying business was comparable to that achieved in the previous year which is pleasing given the continued raw material cost inflation during the first six months. Significant inflation was experienced in the prior year, continued into this year and peaked in the summer. Prices then came back and more recently there have been modest increases leaving prices slightly below the peak of last summer. Strong growth in sales and maintained operating margin along with lower financing costs, resulting from the strong cash flow of the business and lower interest rates, contributed to an increase in profit before taxation of 26 per cent to £43.8 million. Earnings per share rose 30 per cent to 69.7p per share from 53.7p previously. The strong cash flow resulted in a reduction in net debt from £66.6 million a year ago to £54.7 million at the end of March. The borrowings of the business are conservatively structured and interest was covered 21 times compared to 10 times a year ago. There is further information on trading and finance in the Reviews by the Chief Executive and Finance Director which follow.

Dividend

The Board is proposing an increase in the final dividend of 15.6 per cent to 17.0p per ordinary share. Along with the interim dividend of 8.0p per ordinary share paid in January 2010 this makes a total for the year of 25.0p per ordinary share an increase of 15.2 per cent on last year's 21.7p. The final dividend, if approved by Shareholders, will be paid on 3 September 2010 to Shareholders on the register at the close of business on 2 July 2010. Shareholders will again have the option to receive the dividend by way of scrip issue.

Richard Marginson

It is with sadness that I report to Shareholders the death during the year of Richard Marginson. Richard was one of the original 23 Shareholders, a founder Director of the Company and the first Chairman. He made an enormous contribution to the development of the business in those early days and served as Chairman until retiring from the Board in 1991. On behalf of all at Cranswick we extend our sympathy to Richard's wife Gladys and family.

Board

Steven Esom was appointed as a Non Executive Director during the second half of the year. Steven has a wealth of experience within the food sector including twelve years at Waitrose where he was Managing Director and at Marks & Spencer where he was Executive Director of Food.

Staff

Cranswick is operated on a decentralised basis with a number of product categories each with its own management team. The continued successful growth of the Company is a reflection of their expertise and commitment and on behalf of the Board I would like to thank them and their colleagues for their contribution in driving the business forward.

Outlook

The Company is well positioned to meet the increasing demand for UK pork products. The business has developed significant expertise in the supply chain, building on its origins in pig feed production and the rearing of pigs, and through acquisitions, joint ventures and organic initiatives it now has market leading positions in a number of categories. The past year has seen increased expenditure by the consumer on products such as air-dried bacon, premium sausages, fresh pork and ham and this looks set to continue as the value and versatility of pork, the 'alternative white meat', are increasingly appreciated. With experienced management throughout the group and a well invested asset base the Board is confident in the successful long term development of the business and is encouraged by the positive start made in the current financial year.

Martin Davey

Chairman

24 May 2010

Review of activities

by the Chief Executive, Bernard Hoggarth

It is very satisfying to report continued growth in sales. Total external sales increased by 22 per cent to £740 million. Underlying sales grew by 11 per cent after stripping out the contribution from the CCF Norfolk fresh pork business which was acquired during the year. Internal sales within the Group also grew strongly to £123 million. Internal sales are generated by the supply to the further processing sites of primal fresh pork for conversion into sausages and air-dried bacon, and fresh pork legs to be cured, cooked and processed into ham products.

During the second half of the year the pig price and the price of most other proteins eased from the highs seen earlier in the year. However, prices are now firming again and with demand from the major UK grocery retailers for British pork products increasing, the requirement for British pig meat is expected to remain strong. The continued price competitiveness of pork against the other major proteins including beef and lamb should also ensure that demand for pork remains strong and that prices remain relatively firm. The continuing volatility of sterling against the euro will be one of the major factors in the competitiveness of imported pig meat going forward.during the year the Board has approved several large capital projects to ensure that the Group continues to have sufficient headroom in production capacity to facilitate future growth. It is vital that the Company remains at the forefront of the sector with some of the best invested and efficient plants in the UK pork industry, so maintaining the Group's competitive edge going forward.

One such project is the planned investment to expand the air-dried bacon facility at Sherburn. The factory, which was commissioned just over two years ago, is already hitting capacity during peaks in seasonal demand. Investment in the latest generation of high speed slicers, together with doubling of throughput by the commissioning of the second adjacent unit, will ensure the business is well placed to meet growing demand. Air-dried bacon has created a new premium category in the market. This is still a developing and immature category and new business wins coupled with growth of existing accounts, saw sales increase by 61 per cent in the year.

The extension of the Lazenby's sausage factory in Hull on land purchased adjacent to the existing site is nearing completion. Sales have grown strongly over the five years since the new factory was completed, and during the year grew by a further 23 per cent. The extension which includes new despatch facilities is essential to meet peak volume requirements during the barbecue season and at Christmas. The new extended facility will provide a maximum weekly capacity of 700 tonnes, an increase of 50 per cent. Licensed brands including 'The Black Farmer' and 'Weight Watchers' have continued to grow strongly, helped by increased listings. It is pleasing to see that even in the current economic climate many consumers are continuing to trade up in the sausage category, looking for high meat content products with good flavour profiles and provenance. These are products which are trusted to provide a quality, simple, home meal solution, either for a family meal, or a special dining-in occasion. Trading up and buying the best products for home consumption still appears to be a consideration for  many families as they cut back on expenditure and  dining out occasions become less frequent. This is not to say that 'red label' shoppers are any less active; they are still price focused and are quite prepared to switch between retailers to find the best value deals.

The largest project the Group has undertaken to date is the redevelopment of the primary pork processing facility at the Preston site near Hull.  When completed later this year, it will lift production capacity at the site by 50 per cent. This is an essential development for several reasons. The plant is situated in the middle of the largest pig rearing area in the UK and with other factories in the region now processing fewer animals than previously, the Preston site will be providing a first class local service to the area's pig farming community. This also helps to reduce 'food miles' which is a high priority for the industry. This, together with the growing requirement for British pork, as mentioned earlier, meant it was imperative that the business was able to satisfy the increasing demand from retail customers and also ensure the shortest journeys for contracted livestock.

The continued development of specialist pig breeds for premium lines has helped the business become the lead supplier of fresh pork to the Group's largest customer. In tandem with the investment at Preston the Norfolk facility is also being upgraded. Investment to date has again seen production capacity increased by 50 per cent. Specialist boning lines have been added to simplify the butchery process and increase efficiency and productivity. Management has been strengthened and it is pleasing to report the good progress being made in integrating the Norfolk site with the Group's existing fresh pork operations.

Cooked meat sales were strong with growth of 13 per cent. With sales to most of the multiple retailers it is vital that new product development, which is essential in building new accounts, is of the highest standard. This programme includes the development of an integrated supply chain by entering into longer term supply agreements with certain key pig producers which gives them security to develop with Cranswick. The supply of specific standards of British pork legs including 'Freedom Foods' and 'Outdoor Reared' is of increasing importance to the Group's customers. This, coupled with work on the incorporation of certain rare breeds into breeding programmes, forms part of the ongoing research into eating quality.

The sandwich category had a successful year and whilst sales were down 1 per cent for the year as a whole, they recovered strongly and were ahead of the prior year for the second half, with profitability also much improved. Sales to airline operators continued to grow, benefitting from some global agreements and contracts. Frozen solutions for retail and foodservice customers now account for more than 5 per cent of sales with a range of frozen sandwich platters launched with a retail customer at Christmas. Licensee agreements with the 'Chicago Town Pizza' and 'Reggae, Reggae' brands will help drive sales going forward. The sandwich filling category is very much a focus too and recently there have been business wins in the convenience sector with the new fillings range. The trading environment now looks much healthier, with longer term contracts secured and new accounts growing strongly.

Continental products performed well during the year with sales up 8 per cent. 'Round pound' deals with retailer customers using the 'Premier Deli' brand drove sales exceptionally well throughout the year. There have been other notable successes during the year too, including sales of fresh olives and antipasti. Following investment in a new production area and specialist equipment at the Guinness Circle site in Manchester, olive sales grew by over 50 per cent. The business is now able to produce mixed packs and marinated products. The choice and availability of Mediterranean products is exceptional at a time when the consumer's interest in this style of food is so high. New retail customers have been brought on board and business with existing customers has been increased through the addition of olives and Italian cheeses to the category. The Company was also first to market with a premium offering of 'soft slice' charcuterie products. This range is produced without the need to deep chill prior to slicing and the impact of this process on eating quality and flavour has been exceptional.

A new and exciting project is the planned launch of a range of charcuterie products under the 'Jamie Oliver' brand in the autumn. The range will also include fresh pasta, sausage, fresh pork and bacon products. Jamie is well respected by the public for his simple approach to food and cooking and the success of his television series and book sales bear testament to this. This new range has fantastic potential to drive sales across all categories with many of the major grocery retailers.

These are exciting times for the Company. The business continues to grow and there are still many opportunities to be developed. Cranswick is one of the best invested meat based food producers in the UK and this, coupled with the ongoing work on innovation, efficiency, service levels and, most importantly, with the quality of the people in the businesses, should keep Cranswick as the supplier of choice for its customers.

Bernard Hoggarth

Chief Executive

24 May 2010

Group operating and financial review

Nature, objectives and strategies

The Group's business

Following the sale of the pet activities on 24 April 2009, the Group's operations are focused entirely on the production and supply of food products. The Company's strategy to focus on food production was further evidenced by the acquisition of the pork processing activities of Bowes of Norfolk Limited, now renamed 'CCF Norfolk', on 24 June 2009.  Both transactions are referred to in more detail below.  The performance of the business in the year is discussed in the Review of activities. The business operates entirely in the UK, although a small proportion of sales are exported. It produces a range of high quality, predominantly fresh products including fresh pork, sausages, bacon and cooked meats for sale to the high street food retailers. It also supplies a range of pre-sliced, pre-packaged charcuterie products for sale into these same customers, together with a range of pre-packed sandwiches predominantly for sale into food service outlets.  The markets in which the food business operates are competitive both in terms of pricing from fellow suppliers and the retail environment in general. The UK food retail market is known to be amongst the most competitive in the world. Despite this, Cranswick has a long record of increasing sales and profits through a combination of investing in modern efficient factories, developing a range of quality products and making sound acquisitions. The businesses are under the control of stable, experienced and talented operational management teams supported by a skilled workforce.

Business objectives

It is the Board's view that meeting the following business objectives is key to achieving the financial and non-financial measures that increase value to Shareholders and other stakeholders:

·    Delivering innovative, quality products to our customers

·    Maintaining the highest level of service to our customers

·    Improving operational efficiency

·    Securing employee health and safety

·    Maximising returns on investment

Business strategies

The Group's market strategy is to focus primarily on the growing quality end of the markets in which it operates, to establish meaningful and long-lasting relationships with its major customers by a combination of product development and high service levels and to invest in quality facilities and the latest equipment to enable it to operate as efficiently as possible. Operational management is given responsibility for developing plans to deliver the objectives of the Group with particular emphasis on growing sales through product innovation and high service levels, improving operational efficiency and securing employee health and safety. The role of the Board in achieving Group objectives is to support operational management and to identify suitable acquisitions that will take the Group into new and growing areas of the market, will open up new customer relationships to the Group or will consolidate existing market positions.

  

Current and future development and performance

Business development and performance

The key features of the year have been the record profit before tax for the Group and the continuing strong cash generation from operating activities. The record of unbroken growth in profits now goes back more than 20 years. The trading environment in which we operate has remained challenging; in particular we experienced delays in passing on increases in raw material costs through the first half of the year as the input cost inflation experienced in the prior year continued with prices peaking in the summer. Prices subsequently eased slightly but more recently have moved moderately higher. The Group has experienced continuing competitor pressure although the efficiencies achieved as extra volumes are put through our factories have mitigated to some extent against those pressures.

Revenue	2010		2009
	£m		£m
Revenue from continuing operations	740.3		606.8

The Group's revenue from continuing operations has increased by 22 per cent, of which 11 per cent was organic, with the balance from CCF Norfolk.  Sales of fresh pork have grown by 48 per cent, reflecting the contribution of CCF Norfolk, sausages by 23 per cent, bacon by 61 per cent, cooked meats by 13 per cent and charcuterie by 8 per cent whilst sandwich sales which, as anticipated, recovered strongly in the second half of the year, were 1 per cent lower.  Revenue in the income statement excludes the activities of the pet business, since under IFRS the results of discontinued operations are disclosed as a single line item at the foot of the income statement.

Profit before tax	2010		2009
	£m		£m
Operating profit from continuing operations	45.9		38.4
Net finance costs	(2.1)		(3.7)
Profit from continuing operations before tax	43.8		34.7

The increase in operating profit from continuing operations is attributable to a combination of strong sales growth and improved operational efficiency.  The reduction in net finance costs was as a result of the strong cash flow and the full year benefit of the reduction in UK interest rates seen in the latter part of the previous financial year.

Discontinued operations

On 24 April 2009 the Board announced that the pet division activities had been sold, following a competitive process, to a management buyout team.  Accordingly the results of the pet division have been reported as discontinued at 31 March 2010 and 31 March 2009.  The pet business produced a range of bird and small animal food for sale into specialist pet and more general retail outlets, as well as selling tropical marine fish and aquatic products largely into specialist retailers both in the UK and abroad.  The sale proceeds of £18.4 million were received in cash.

In the four week period prior to its sale, the pet division generated a profit before tax of £30,000 (Year ended 31 March 2009 - £2,038,000 before an impairment charge of £2,544,000).  Turnover for the same period was £3.6 million (Year ended 31 March 2009 - £46.5 million).

Acquisition of Bowes of Norfolk Limited

On 24 June 2009, after receiving clearance from the UK Competition Authorities, the Company acquired the whole of the issued share capital of Bowes of Norfolk Limited ('CCF Norfolk') for a net cash consideration, before costs, of £10.5 million.  CCF Norfolk is a significant operator in the pork processing sector and the acquisition reinforces Cranswick's position in that industry.

 

Business KPIs

The Board has assessed that the following KPIs are the most effective measures of progress towards achieving the Group's objectives:

·    Organic sales growth - year on year increase in sales revenue excluding the impact of acquisitions and disposals

·    Gross margin - gross profit as a percentage of sales revenue

·    Operating margin - operating profit as a percentage of sales revenue

·    Free cash flow - cash generated from operations less tax and interest paid

Performance against KPIs

	2010		2009
Organic sales growth (continuing)	11.2%		9.2%
Gross margin (continuing)	13.1%		14.1%
Operating margin (continuing)	6.2%		6.3%
Free cash flow	£29.6m		£41.2m

The Company has seen substantial organic sales growth in the underlying business of 11.2 per cent over the past year driven by its expertise in product development, service levels, quality and value with further sales growth anticipated in the next twelve months.  CCF Norfolk contributed a further 10.8 per cent of sales growth in the period following its acquisition on 24 June 2009.  Gross margin including the contribution from CCF Norfolk was 13.1 per cent of sales compared to 14.1 per cent a year ago.  Excluding CCF Norfolk, gross margin at 13.9 per cent was only slightly below the prior year level, despite the continued raw material cost inflation experienced during the first half of the year as the business achieved improved operating efficiencies.  Operating margin on the same basis at 6.7 per cent was 0.4 per cent higher.  Margins were lower in the newly acquired CCF Norfolk business, but this is being addressed through a combination of capital investment and operational efficiency improvements. Principal cash flows are discussed under financial position and performance, below.

 

Future development

The Group will continue to seek to increase sales through a combination of product development with existing customers and business gains with new ones. The standard of the Group's factories will be maintained at the highest level and further suitable acquisition opportunities will be pursued.

Resources, risks and relationships

Resources

The Group aims to safeguard the assets that give it competitive advantage, being its reputation for product innovation, product quality, food safety and service levels; its modern well-equipped factories; its operational management and its skilled workforce.

Reputation

It is the responsibility of local operational management assisted by their own product development team, Group Technical and Group Health & Safety to maintain and where possible enhance the Group's reputation for product innovation, product quality, food safety and service levels.

Factories

The Group has some of the best-invested, modern facilities in the industry, having invested £94 million over the past five years, and it intends to continue investing to ensure that it maintains its competitive edge.

Employees

The Group aims to recruit, train and retain employees who are valued for their contribution and able to fulfil their potential in meeting the business objectives of their operating unit. The Group companies each have their strategies for retaining staff, including the provision of competitive terms and conditions, share options and a stimulating and challenging working environment. The Group has had a savings-related share option scheme in place for over 10 years, which is open to all employees with 2 years' service and has proved very successful with many staff now also Shareholders.

Principal risks and uncertainties

The Group annually carries out a formal exercise to identify and assess the impact of risks on its businesses and the exercise has recently been reviewed.

The more significant risks and uncertainties faced by the Group, in line with the rest of the food production sector, are identified as competition and customer retention, food safety, business continuity, environmental matters, raw material prices and legislation. These are discussed in more detail below.

Competition and customer retention - the Company manages the risk of operating in a consolidated sector by maintaining strong customer relationships. This process is supported by delivering high levels of service and quality and by continued focus on product development and technical innovation.

Food safety - the risk of food scares is mitigated by ensuring that all raw materials are traceable to source and that manufacturing, storage and distribution systems are continually monitored by experienced and well qualified site based and Group technical teams. 

Business continuity - The Group faces the risk of incidents such as a major fire, which may result in significant and prolonged disruption to its operating facilities.  Business continuity plans are in place across the Group's manufacturing facilities and appropriate insurance cover is in place to mitigate any financial loss.  Business continuity has been further enhanced by the acquisition of a second pork processing site in Norfolk during the year.

Environmental matters - The Directors believe that good environmental practices support the Board's strategy by enhancing the reputation of the Group, the efficiency of production and the quality of products. The industry is subject to a range of UK and EU legislation. Environmental standards are being tightened on a regular basis and require increasing levels of investment. Compliance imposes costs and prolonged failure to comply could materially affect the Group's ability to operate. Further details of these initiatives are set out in the Group's Corporate Social Responsibility report and on the Group's website under the 'Greenthinking' banner.

Raw material prices - The major exposure the Group has to raw material price fluctuations is pig meat, part of which is as a result of currency movements.  Purchasing of pigs and pig meat is coordinated centrally and whilst the Company does not generally seek to hedge against pig price movements because of the downside risk, longer term contracts have been negotiated in certain instances with key pig suppliers.

Legislation - Legislation in all the markets we serve changes on a regular basis, and interpretation of existing laws can also change to create ever tightening standards, often requiring additional human resources and the provision of new assets and systems.  We are committed to respond positively to new regulation and ensure that our views are expressed during consultation exercises.

Financial position and performance

Exceptional items

The exceptional charge of £6.1 million in 2009 related to a one-off, non-cash, exceptional deferred tax charge arising from a change in UK corporation tax legislation in the Finance Act 2008 to phase out Industrial Buildings Allowances and is referred to in more detail below.

Finance costs

Finance costs of £2.1 million (2009 - £3.7 million) were lower than the previous year reflecting the strong cash generation in the year and the full year benefit of the reduction in UK interest rates seen in the second half of the last financial year.

Taxation

The tax charge as a percentage of profit from continuing operations before taxation was 25.8 per cent in the current year and 28.7 per cent in 2009 excluding the one-off exceptional deferred tax charge of £6.1 million.  This charge had no impact on the cash flow of the business during the prior year and represented the additional tax payable over the twenty five year period the allowances would have been available to the Group.   The standard rate of UK Corporation Tax was 28 per cent for both 2010 and 2009. The lower than standard rate of tax in the current year primarily relates to prior year deferred tax adjustments and should not therefore be interpreted as an ongoing feature.  In addition the Group benefits from tax amounts taken directly to equity and included in the Group Statement of Comprehensive Income and Group Statement of Changes in Equity.

Earnings per share

Basic earnings per share from continuing operations, and before the exceptional deferred tax charge in the prior year, increased by 30 per cent to 69.7 pence.  The average number of shares in issue was 46,534,000 (2009 - 46,099,000).  

 

Cash flow

The Group has continued to generate strong operational cash flows.  Cash generated from operating activities was £32.2 million (2009 - £44.8 million) with higher Group profit offset by higher tax payments and an increase in working capital, a significant part of which was attributable to the newly acquired CCF Norfolk.  The net cash outflow from investing activities of £11.8 million reflects capital additions, net of fixed asset sale proceeds, of £19.9 million and the net inflow from acquisitions and disposals of £8.1m.  The previous year's outflow was £20.7 million and comprised entirely of capital additions, net of fixed asset sale proceeds, of £20.7m.    

The £8.4 million of net cash used in financing activities in 2010 is largely due to interest paid of £2.7 million, dividends paid of £8.8 million and proceeds from issue of share capital of £2.9 million. The prior year cash outflow from financing of £24.4 million was largely due to interest paid of £3.6 million, dividends paid of £8.8 million, issue costs of long term borrowings of £1.3 million and net repayment of borrowings of £11.2 million.  The overall result is a net increase in cash and cash equivalents of £12.0 million (2009 - decrease of £0.3 million).

Net debt

Net debt reduced by £11.9 million to £54.7 million (2009 - £66.6 million) at the year end, resulting from strong operating cash flows and the net cash inflow from acquisitions and disposals.

Pensions

The Company operates a number of defined contribution schemes, whereby contributions are made to schemes operated by major insurance companies.  Contributions to these schemes are determined as a percentage of employees' basic salary.  CCF Norfolk operates a defined benefit scheme which has been closed to further accrual since 2004. Under International Accounting Standard (IAS) 19, the deficit at the date of acquisition was £5.8 million and this had reduced to £5.4 million at 31 March 2010.  The present value of funded obligations was £17.1 million and the fair value of plan assets was £11.8 million.

 

Capital structure

The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise value for Shareholders and other stakeholders.

The Group regards its Shareholders' equity as its capital and manages its capital structure and makes adjustments to it in light of changes in economic conditions.  To maintain or adjust the capital structure, the Group may adjust the dividend payment to Shareholders, return capital to Shareholders or issue new shares.  No changes were made in the objectives, policies or processes during the years end 31 March 2010 and 31 March 2009.

The Group's capital structure is as follows:

	2010		2009
	£m		£m
Net debt	54.7		66.6
Cranswick plc Shareholders' equity	193.6		166.5
Capital employed	248.3		233.1

Distributions, capital raising and share repurchases

The proposed final dividend for 2010 together with the interim paid in January 2010 amount to 25.0 pence per share which is 15 per cent higher than the previous year. The increase in the share capital of the Group comprises 504,196 of share options exercised during the year, 265,913 in respect of scrip dividends and 100,000 shares allotted to the Cranswick plc Employee Benefit Trust. There were no share repurchases during the year.

 

Treasury policies

Functional currency

The functional currency of all Group undertakings is sterling.

 

Foreign currency risk

The major foreign exchange risk facing the Group is in the purchasing of charcuterie products. The major currency involved is the euro. The policy of the Group is to seek to mitigate the impact of this risk by taking out forward contracts with UK banks for up to 12 months ahead and for amounts that commence at approximately 25 per cent of the requirement and move progressively towards full cover. At least 2 members of the main Board attend the monthly meetings of the subsidiary Board at which the key decisions on currency cover are taken.

Interest rate risk

The Group's policy is to manage its cost of borrowing using a mix of fixed and variable rate debt.  Whilst fixed rate interest bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a reduction in borrowing costs in markets where rates are falling. In addition, the fair value risk inherent in fixed rate borrowing means that the Group is exposed to unplanned costs should debt be restructured or repaid early as part of the liquidity management process. In contrast, whilst floating rate borrowings are not exposed to changes in fair value, the Group is exposed to cash flow risk as costs increase if market rates rise.  Cover was implemented by taking out an interest rate swap agreement with three UK banks on the amortising portion (£35 million) of the medium term loan drawn down when the Group renewed its credit facilities in December 2008. This is being repaid at the rate of £2.5 million every 3 months from March 2009 to September 2011, with the balance of £7.5 million repayable in December 2011. The hedging policy is reviewed from time to time as circumstances change. The monitoring of interest rate risk is handled entirely at head office based on the monthly consolidation of cash flow projections and the daily borrowings position.

Credit risk

Practically all sales are made on credit terms, the majority of which are to the major UK food retailers. Overdue accounts are reviewed at the monthly Board meetings of the operations. The incidence of bad debts is low. For all major customers, credit terms are agreed by negotiation and for all other customers, credit terms are set by reference to external credit agencies.  Every attempt is made to resist advance payments to suppliers for goods and services; where this proves impossible, arrangements are put in place, where practical, to guarantee the repayment of the monies in the event of default.

Liquidity risk

The Group has historically been very cash generative. The bank position for each operation is monitored on a daily basis and capital expenditure is approved at the monthly Board meeting of each operation at which at least two members of the main Board are present and reported at the subsequent monthly main Board meeting. Major projects are approved by the main Board.  Each operation has access to the Group's overdraft facility and all term debt is arranged centrally. The facilities currently available to the Group are a term loan of £35.0 million (£20.0 million of which was drawn down during the year) repayable in December 2011, an amortising loan facility of £25.0 million repayable in seven quarterly instalments of £2.5 million, with a final repayment of £7.5 million in December 2011, a revolving credit facility of £30.0 million and an overdraft facility of £20.0 million.   Unutilised facilities at 31 March 2010 were £54.0 million (2009 - £53.0 million).

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Review of activities.  The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described above, as are the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.

The Group has considerable financial resources together with strong trading relationships with its key customers and suppliers.  As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

On behalf of the Board                                                                        

Mark Bottomley

Finance Director

24 May 2010

Group income statement

for the year ended 31 March 2010

		2010			2009
		Total		Before exceptionals	Exceptionals	Total
	Notes	£'000		£'000	£'000	£'000
Revenue	3	740,338		606,774	-	606,774
Cost of sales		(643,535)		(521,402)	-	(521,402)
Gross profit		96,803		85,372	-	85,372
Operating expenses		(50,895)		(46,984)	-	(46,984)
Operating profit from continuing operations	3	45,908		38,388	-	38,388
Finance revenue		48		3	-	3
Finance costs		(2,204)		(3,703)	-	(3,703)
Profit  from continuing operations before tax		43,752		34,688	-	34,688
Taxation		(11,295)		(9,951)	(6,063)	(16,014)
Profit for the year from continuing operations		32,457		24,737	(6,063)	18,674
Discontinued operations:
Profit for the year from discontinued operations		125				314
Profit for the year attributable to owners of the parent		32,582				18,988
Earnings per share (pence)
From continuing operations:
Basic	4	69.7p		53.7p		40.5p
Diluted	4	69.6p		53.5p		40.4p
On profit for the year:
Basic	4	70.0p		55.5p		41.2p
Diluted	4	69.8p		55.4p		41.1p

Group statement of comprehensive income

for the year ended 31 March 2010

				2010 £'000		2009 £'000
Profit for the year				32,582		18,988
Other comprehensive income
Movement on hedging items:
Gains arising in the year				186		263
Reclassification adjustment for gains included in the income statement				(573)		(1,029)
Exchange differences on retranslation of foreign operations				24		(29)
Actuarial losses on defined benefit pension scheme				(87)		-
Deferred tax relating to components of other comprehensive income				132		213
Other comprehensive income for the year, net of tax				(318)		(582)
Total comprehensive income for the year attributable to owners of the parent				32,264		18,406

Group balance sheet

at 31 March 2010

	2010 £'000		2009 £'000
Non-current assets
Goodwill	128,739		117,756
Property, plant and equipment	106,137		91,688
Financial assets	1,500		-
Total non-current assets	236,376		209,444
Current assets
Inventories	35,960		28,464
Trade and other receivables	84,066		73,655
Other financial assets	263		263
Cash and cash equivalents	5,922		4,399
Total current assets	126,211		106,781
Assets held for sale	-		20,387
Total assets	362,587		336,612
Current liabilities
Trade and other payables	(86,745)		(75,273)
Other financial liabilities	(12,487)		(34,872)
Income tax payable	(3,509)		(5,955)
Provisions	(149)		(334)
Total current liabilities	(102,890)		(116,434)
Non-current liabilities
Other payables	(82)		-
Other financial liabilities	(49,866)		(36,382)
Deferred tax liabilities	(9,829)		(11,557)
Provisions	(982)		(1,166)
Defined benefit pension scheme deficit	(5,353)		-
Total non-current liabilities	(66,112)		(49,105)
Liabilities held for sale	-		(4,591)
Total liabilities	(169,002)		(170,130)
Net assets	193,585		166,482
Equity
Called-up share capital	4,733		4,646
Share premium account	54,322		49,760
Share-based payments	3,449		2,939
Hedging and translation reserves	(124)		239
Retained earnings	131,205		108,898
Equity attributable to members of the parent company	193,585		166,482

Group statement of cash flows

for the year ended 31 March 2010

	Notes	2010	2009
		£'000	£'000
Operating activities
Profit for the year		32,582	18,988
Adjustments to reconcile Group profit for the year to  net cash inflows from operating activities
Tax on discontinued operations		(95)	(820)
Tax on continuing operations		11,295	16,014
Net finance costs		2,166	3,971
Depreciation and impairment of property plant and equipment		11,852	13,859
Share based payments		510	1,000
Difference between pension contributions paid and amounts recognised in the income statement		(512)	-
Release of government grants		(6)	(7)
Profit on sale of property, plant and equipment		(189)	(87)
Increase in inventories		(5,817)	(3,966)
Increase in trade and other receivables		(1,954)	(1,971)
Increase in assets held for sale		(2,589)	-
(Decrease)/ Increase in trade and other payables		(1,356)	6,381
Cash generated from operations		45,887	53,362
Tax paid		(13,683)	(8,602)
Net cash from operating activities		32,204	44,760
Cash flows from investing activities
Interest received		48	3
Reimbursement of consideration paid in prior years		1,248	-
Acquisition of subsidiaries		(11,233)	-
Purchase of property, plant and equipment		(20,294)	(20,948)
Proceeds from sale of property, plant and equipment		376	258
Proceeds from sale of discontinued operations		18,067	-
Net cash used in investing activities		(11,788)	(20,687)
Cash flows from financing activities
Interest paid		(2,670)	(3,591)
Proceeds from issue of share capital		2,924	462
Proceeds from borrowings		20,000	59,000
Issue costs of long-term borrowings		-	(1,280)
Repayment of borrowings		(19,762)	(70,206)
Dividends paid		(8,808)	(8,769)
Repayment of capital element of finance leases and hire purchase contracts		(120)	-
Net cash used in financing activities		(8,436)	(24,384)
Net increase/ (decrease) in cash and cash equivalents		11,980	(311)
Cash and cash equivalents at beginning of year		(8,038)	(7,698)
Effect of foreign exchange rates		24	(29)
Cash and cash equivalents at end of year	6	3,966	(8,038)

Group statement of changes in equity

for the year ended 31 March 2010

	Share capital £'000	Share premium £'000	Share- based payments £'000	Hedging reserve £'000	Translation reserve £'000	Retained earnings £'000	Total equity £'000
As at 1 April 2008	4,623	48,693	1,939	1,029	5	98,965	155,254
Profit for the period	-	-	-	-	-	18,988	18,988
Other comprehensive income	-	-	-	(766)	(29)	213	(582)
Total comprehensive income	-	-	-	(766)	(29)	19,201	18,406
Share-based payments	-	-	1,000	-	-	-	1,000
Scrip dividend	11	617	-	-	-	-	628
Share options exercised	12	450	-	-	-	-	462
Dividends	-	-	-	-	-	(9,397)	(9,397)
Deferred tax relating to changes in equity	-	-	-	-	-	90	90
Corporation tax relating to changes in equity	-	-	-	-	-	39	39
At 31 March 2009	4,646	49,760	2,939	263	(24)	108,898	166,482
Profit for the period	-	-	-	-	-	32,582	32,582
Other comprehensive income	-	-	-	(387)	24	45	(318)
Total comprehensive income	-	-	-	(387)	24	32,627	32,264
Share-based payments	-	-	510	-	-	-	510
Scrip dividend	27	1,698	-	-	-	-	1,725
Share options exercised	60	2,864	-	-	-	-	2,924
Dividends	-	-	-	-	-	(10,533)	(10,533)
Deferred tax relating to changes in equity	-	-	-	-	-	78	78
Corporation tax relating to changes in equity	-	-	-	-	-	135	135
At 31 March 2010	4,733	54,322	3,449	(124)	-	131,205	193,585

1. Basis of preparation

The results comprise those of Cranswick plc and its subsidiaries for the year ended 31 March 2010.  This preliminary announcement has been prepared on the basis of accounting policies as set out in the statutory accounts for the year ended 31 March 2009 (except as detailed below) and International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board as adopted by the European Union ("IFRS") and does not constitute the Company's statutory accounts within the meaning of Section 435 of the Companies Act 2006. 

Statutory accounts for the years ended 31 March 2010 and 31 March 2009 have been reported on by the auditors who issued an unqualified opinion in respect of both periods and the auditors' reports for 2010 and 2009 did not contain statements under 498(2) or 498(3) of the Companies Act 2006 or 237(2) or 237(3) of the Companies Act 1985 respectively. Statutory accounts for the year ended 31 March 2009 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 March 2010, which were approved by the Board on 24 May 2010, will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

2. Accounting policies

The accounting policies applied by the Group in this preliminary announcement are the same as those applied by the Group in the financial statements for the year ended 31 March 2009 except for the following policies which have been adopted during the year ended 31 March 2010.

In relation to a subsidiary acquired in the year (note 7):

Defined benefit pension scheme

The group operates a defined benefit pension scheme for certain employees which requires contributions to be made to a separate trustee administered fund.  The scheme was closed to new members on 30 June 2004.

The liability recognised in the balance sheet in respect of the defined benefit pension scheme is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in sterling, and that have terms to maturity approximating to the terms of the related pension liability.

The amounts charged to operating profit are any gains and losses on settlements and curtailments, and these are included as part of staff costs.

Past-service costs are recognised immediately in income, unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

The difference between the interest cost on plan liabilities and the expected return on plan assets is recognised in the income statement as other finance revenue or costs.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the statement of comprehensive income in the period in which they arise.

Financial assets - Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale.  Such assets are carried at amortised cost using the effective interest method if the time value of money is significant.  Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. 

In relation to new and revised standards and interpretations which have impacted the Group:

Presentation of financial statements

The application of IAS 1 (Revised) 'Presentation of Financial Statements' has resulted in the Group presenting both a Group statement of comprehensive income (which replaces the Group statement of recognised income and expense) and a Group statement of changes in equity (which replaces the Group reconciliation of movements in equity) as primary statements. The Group statement of changes in equity presents all changes in equity, and the Group statement of comprehensive income presents all changes in financial position other than through transactions with owners. This presentation has been applied in this preliminary announcement for the year ended 31 March 2010.  Comparative information has also been presented so that it is also in conformity with the revised standard.

Operating segments

IFRS 8 'Operating Segments' replaces IAS 14, 'Segment Reporting' and requires the disclosure of segment information on the same basis as the management information provided to the chief operating decision maker.  The adoption of this standard has not resulted in a change in the Group's reportable segments.

The application of other new and revised standards and interpretations which became effective during the year has not had a material effect on the net assets, results and disclosures of the Group.

3. Segment revenues and results

		2010				2009
	Food	Pet	Total		Food	Pet	Total
	Continuing	Discontinued			Continuing	Discontinued
	£'000	£'000	£'000		£'000	£'000	£'000
Revenue	740,338	3,620	743,958		606,774	46,491	653,265
Operating profit before central costs	50,882	40	50,922		43,481	2,309	45,790
Central costs	(4,974)	-	(4,974)		(5,093)	-	(5,093)
Operating profit	45,908	40	45,948		38,388	2,309	40,697
Net finance costs	(2,156)	(10)	(2,166)		(3,700)	(271)	(3,971)
Fair value remeasurement loss	-	-	-		-	(2,544)	(2,544)
Profit before tax (Segment results)	43,752	30	43,782		34,688	(506)	34,182
Income taxes	(11,295)	95	(11,200)		(16,014)	820	(15,194)
Profit for the year	32,457	125	32,582		18,674	314	18,988

4. Earnings per share

Basic earnings per share are based on profit attributable to Shareholders and on the weighted average number of shares in issue during the year of 46.5 million shares (2009: 46.1 million shares). The calculation of diluted earnings per share is based on 46.6 million shares (2009: 46.2 million shares).

5. Dividends

Subject to Shareholders' approval the final dividend will be paid on 3 September 2010 to Shareholders on the register at the close of business on 2 July 2010.

6. Analysis of changes in net debt

	At 31 March 2009		Cash flow		Other non cash changes		At 31 March 2010
	£'000		£'000		£'000		£'000
Cash and cash equivalents	4,399		1,499		24		5,922
Overdrafts	(12,437)		10,481		-		(1,956)
	(8,038)		11,980		24		3,966
Other financial assets	263		-		1,500		1,763
	(7,775)		11,980		1,524		5,729
Other financial liabilities	(173)		-		(214)		(387)
Revolving credit	(9,000)		9,000		-		-
Bank loans	(48,882)		(10,000)		(648)		(59,530)
Loan notes	(762)		762		-		-
Finance leases and hire purchase contracts	-		120		(600)		(480)
Net debt	(66,592)		11,862		62		(54,668)

Non-cash movements include £1,500,000 of loans receivable (non-current financial assets) and £600,000 of finance lease obligations which were acquired as part of the acquisition described in note 7.

7. Acquisition

On 24 June 2009, the Group acquired 100 per cent of the issued share capital of Bowes of Norfolk Limited for a cash consideration of £17.2 million.  The principal activity of Bowes of Norfolk Limited is that of pork processing.

Book and fair values of the net assets at the date of acquisition were as follows:

		Acquiree's book value before combination £'000					Fair value £'000
Net assets acquired:
	Property, plant and equipment				8,489		6,031
	Financial assets				1,500		1,500
	Deferred tax asset				656		1,344
	Inventories				1,679		1,679
	Trade receivables				7,809		7,809
	Bank and cash balances				6,658		6,658
	Retirement benefit obligations				(5,778)		(5,778)
	Trade payables				(12,883)		(12,883)
	Government grants				(100)		(100)
	Finance lease obligations				(600)		(600)
					7,430		5,660
Goodwill arising on acquisition							12,231
Total consideration							17,891
Satisfied by:
	Cash						17,157
	Costs associated with acquisition, settled in cash						734
							17,891
Net cash outflow arising on acquisition:
	Cash consideration paid						17,157
	Costs associated with acquisition, settled in cash						734
	Cash and cash equivalents acquired						(6,658)
							11,233

From the date of acquisition, the acquired business has contributed a net profit after tax of £0.5 million to the Group.  If the combination had taken place at the beginning of the period, the profit after tax from continuing operations for the period would have been £32.6 million and revenue from continuing operations would have been £762.2 million.

Included in the £12,231,000 of goodwill recognised above, are certain intangible assets that cannot be individually separated from the acquiree and reliably measured due to their nature.  These items include the expected value of synergies, business continuity planning through access to a further pork processing facility and an assembled workforce.

8. Sale of a business (discontinued operations)

On 24 April 2009, the Group sold the trade and certain assets and liabilities of the Group's Pet Division to a management buyout team.  Cranswick plc has retained a 5.5 per cent share in the business.  The Pet Division manufactured and sold bird food and also imported and sold tropical marine fish and related products.  The initial proceeds of the disposal of £17.0 million, plus a subsequent working capital adjustment of £1.4 million, were received in cash.  As at 31 March 2009 the assets and liabilities of the Pet Division, which were later disposed, were classified as held for sale and carried at their fair value; with the loss on reclassification to held for sale being recognised in the income statement in that period.  In accordance with IFRS 5 the results of the pet business to the date of sale have been treated as discontinued and shown as a single line item at the foot of the income statement and the prior year comparatives have been similarly disclosed.

The results of the Pet Division are presented below:

				2010 £'000		2009 £'000
Revenue				3,620		46,491
Expenses				(3,580)		(44,182)
Operating profit				40		2,309
Finance costs				(10)		(271)
Loss recognised on remeasurement to fair value				-		(2,544)
Profit/(loss) before tax from discontinued operations				30		(506)
Tax credit				95		820
Profit for the period from discontinued operations				125		314

The tax credit is analysed as follows:

On profit on ordinary activities for the period				95		(607)
Exceptional charge on abolition of IBAs				-		(541)
On reclassification to assets held for resale				-		1,968
				95		820

The net assets of the Pet Division which were disposed were as follows:

				£'000
Net assets disposed of:
Property, plant and equipment				8,210
Inventories				6,447
Trade and other receivables				6,524
Trade and other payables				(2,796)
				18,385
Total consideration satisfied by cash				18,385
Costs associated with disposal, settled in cash				(318)
Net cash inflow arising on disposal				18,067

The cash flow impact of the exceptional charge on abolition of Industrial Building Allowances in the year ended 31 March 2009 was £nil.

For the year ended 31 March 2009, on recognition of the Pet Division as discontinued, £20,387,000 of assets and £4,591,000 of liabilities were classified as held for resale.

The net cash flows attributable to the discontinued Pet Division, excluding disposal cash flows, were as follows:

		2010		2009
		£'000		£'000
Operating cash flows		(448)		2,576
Investing cash flows		-		(1,068)
Financing cash flows		(10)		(562)
Net (outflow)/ inflow		(458)		946

Profit per share from discontinued operations:

Basic		0.3p		0.7p
Diluted		0.2p		0.7p

9. Report and accounts

The Company intends to post the Report and Accounts to shareholders on 2 July 2010. Further copies will be available upon request from the Company Secretary, Cranswick plc, 74 Helsinki Road, Sutton Fields, Hull, HU7 0YW and will also be available on the Company's website at www.cranswick.co.uk.

 

END

 

 

FR BUGDUBSDBGGB