Final Results

RNS Number : 7124D

Cranswick PLC

21 May 2012

 

CRANSWICK PLC:  STRONG SECOND HALF PERFORMANCE

Cranswick plc ("Cranswick" or "the Company"), the food producer, announces its audited preliminary results for the year ended 31 March 2012.

Highlights:

·    Strong recovery in H2 from first half challenges

·    Underlying sales ahead by 10 per cent at £821m

·    Reported revenues up 8 per cent to £821m (2011: £758m)

·    Operating profit down 5 per cent at £46.7m* (2011: £49.2m)

·    Pre-tax profit rose 3 per cent to £ 48.4m** (2011: £47.1m)

·    Earnings per share up 6 per cent at 78.6p** (2011: 74.5p)

·    Adjusted earnings per share up to 72.9p (2011: 72.8p)

·    Recommended final dividend of 19.5p - up 4 per cent

·    Interest cover 49 times** (2011: 30 times)

·    Net debt reduced by £26.6m to £21.7m (2011: £48.3m)

·    Associate sold for cash consideration of £14.5m

*prior to goodwill impairment charge of £4.9m

**after non-recurring gain of £2.6m (net)

Cranswick Chairman Martin Davey said:  "Against a background of strong raw material price increases early in the financial year and a continued challenging environment for the consumer, the Company recovered strongly during the second half and recorded its highest ever sales and second best trading profit in its history.

"Underlying sales rose 10 per cent in the year and reflected growth across most product sectors.

"Cash flow in the period was robust notwithstanding the investment in the Company's asset base of £20 million to expand production capacity, improve efficiency and broaden the product range.

"The Board announces today that, as planned for some time, Bernard Hoggarth will be standing down from his position as Chief Executive at the forthcoming Annual General Meeting, to be held on 1 August 2012, and will take up the part-time role of Commercial Director.  Adam Couch will be appointed CEO when Bernard stands down.  Adam was appointed COO a year ago as part of the Board's strategy for succession planning, and has been with the Company for over 20 years."

-ends-

For further information:

Paul Quade                                                                  020 7248 8010

CityRoad Communications                                            07947 186694

Chairman's statement

Against a background of strong raw material price increases early in the financial year and a continued challenging environment for the consumer, the Company recovered strongly during the second half and recorded its highest ever full year sales and second best trading profit in its history.  In fact taking into account non-recurring items Cranswick achieved a record profit before taxation for the year.

The business worked closely with its customers to offer competitively priced food to consumers so as to alleviate some of the economic pressures facing them. Whilst this adversely impacted operating margins it contributed, along with the increasing popularity of pork products, to an increase in sales volumes.

Non-recurring items comprised a gain on the sale of the shareholding in the associated company, Farmers Boy (Deeside) Limited ("FBD"); Cranswick's share of trading losses at FBD and a non-cash charge for goodwill impairment at The Sandwich Factory.

Results

Underlying sales rose 10 per cent in the year and reflected growth across most product sectors. Especially strong growth was seen in sales of bacon, fresh pork and sausages. Total revenue for the year was 8 per cent higher than previously at £821 million. The decline in the operating margin referred to earlier was partially offset by lower financing costs and along with net income from non-recurring items of £2.6 million gave rise to a profit before taxation of £48.4 million.  Earnings per share were 6 per cent higher than last year at 78.6 pence.  Excluding the overall effect of goodwill impairment this year and FBD in both years, adjusted earnings per share were 0.1 pence higher than the prior year at 72.9 pence.

Net finance costs of £1.0 million were covered 49 times by profit before net finance costs and tax, compared to 30 times in the previous year.  Cash flow in the period was robust notwithstanding the investment in the Company's asset base of £20 million to expand production capacity, improve efficiency and broaden the product range.  Debt at the end of the year was further reduced by the proceeds of the sale of the FBD shareholding and stood at £21.7 million, substantially lower than £48.3 million a year earlier.

There is further information on trading and finance in the reviews by the Chief Executive and Finance Director which follow.

FBD

Investment was made in FBD during 2010 when Cranswick's site at Deeside was put into a newly formed company, owned jointly with Wm Morrison Supermarkets PLC, in exchange for a 49 per cent shareholding.  It was felt by both parties that it was now an appropriate time for the site to come under single ownership. Cranswick's shareholding was sold for cash at the end of March 2012 and we wish the business every success.

Dividend

The Board is proposing to increase the final dividend by 4.3 per cent to 19.5 pence per share from 18.7 pence per share previously. Together with the interim dividend, which was raised 2.3 per cent to 9 pence per share and paid in January 2012, this makes a total dividend for the year of 28.5 pence per share compared to 27.5 pence last year. The final dividend, if approved by Shareholders, will be paid on 7 September 2012 to Shareholders on the register at the close of business on 6 July 2012.  Shareholders will again have the option to receive the dividend by way of scrip issue.

Board

The Board announces today that Bernard Hoggarth will be standing down from his position as Chief Executive at the forthcoming Annual General Meeting, to be held on 1 August 2012.  After joining Cranswick in 1978 Bernard was appointed CEO in 2004 as the Company continued its successful development.  He reaches a landmark birthday this summer and has planned for some time to reduce his input to allow him the opportunity to focus on other interests.  He will though continue with Cranswick on a part-time basis in the role of Commercial Director.  Adam Couch will be appointed CEO when Bernard stands down.  Adam has been with the Company for over 20 years, since graduation, and was appointed to the Board in 2003 with specific responsibility for the fresh pork activities.  Adam was appointed COO a year ago as part of the Board's strategy for succession planning.

On behalf of all at Cranswick I thank Bernard for his contribution as CEO, look forward to his continued involvement in the business and wish Adam every success as Cranswick continues its progress.

Staff

The year has not been without its challenges and for the business to have continued its development in the manner outlined both above and in the reviews that follow is a true reflection of the quality, determination, experience and expertise that prevails throughout the Company. On behalf of the Board I express our sincere thanks and appreciation to the management teams and their colleagues.

Outlook

The Company is well positioned.  There is a strong and experienced management team in place, a robust balance sheet, high quality assets and a range of products that, by working closely with our customers, are proving popular with the consumer. Continued focus on product development and operational efficiencies are key to maintaining this popularity in the current economic environment. The Board looks forward to the opportunities and challenges which lie ahead as it continues Cranswick's successful long-term development.

Martin Davey

Chairman

21 May 2012

Review of activities

The Group has not previously had to contend with such a diverse trading environment in one financial year.   During the first half of the year, the business faced the challenge of passing on raw material inflation which was met with unprecedented resistance by customers and proved more difficult than previously to achieve.  The second half of the year, on the other hand, saw a partial recovery of certain raw material increases which was further aided by a steady decrease in input costs, to help bridge the gap.  These two factors, together with very pleasing increases in sales in all categories, made for an excellent second half; something which would have been very difficult to foresee only a few months earlier.  How pleasing it is therefore to report so many areas of  the Group's portfolio delivering double digit growth and the business overall reporting revenue growth of over 8 per cent, with  underlying sales increasing in excess of 10 per cent.

Fresh pork had an excellent year with sales ahead 15 per cent.  The continuing capital expenditure programme has seen the commissioning of the new breaded line at the Norfolk plant with the capability to produce a range of escalope and schnitzel products for the convenience sector.  These new, whole muscle, reformed or stuffed 'cordon bleu' style products are proving extremely popular, thanks, in no small part, to the very competitive price of pork compared to most other proteins.  This price advantage led to the Group's most successful Christmas trading period for its fresh pork, premium sausage and bacon products.  Further investment in the Hull fresh pork site is taking place, with the reorganisation of the butchery area, which will lead to greater efficiencies and the installation of a rapid chill system for pig carcases, which will deliver increased yields.  Sales to Far Eastern markets have continued to gain momentum.  Exports both to Europe and further afield are becoming areas of increased focus for the Group.   In the UK, the Company has continued to increase its customer base, both in standard pork and in niche areas such as the pedigree Gloucester Old Spot fresh pork products, which are being produced specifically for one of the Group's large retail customers. 

Sausage sales increased by a very healthy 12 per cent.  This performance further confirms Cranswick's long term commitment to the quality sector of the market place.  The Group's second sausage production facility in Norfolk is now complete and performing well.  A new range of products under the 'Norfolk Sausage Company' banner was launched, focusing on a real value offering with larger packs and an impactful promotional programme.  At the Lazenby's production facility in Hull, focused and well researched new product development has led to twelve new sausage lines being launched during the year including duck, honey and apple, sun-dried tomato and mozzarella, pork and jalapeno chilli sausage and West Country cheddar with chives.  A range of burgers was also launched including beef and caramelised onion, pork and Bramley apple and beef with mature cheddar.  A new range of burgers and meat balls under the 'Black Farmer' brand was launched recently in advance of the new barbeque season.  Further business wins have been achieved with the launch of new flavours and products across several of the Group's major grocery retail customers.

The bacon category performed particularly strongly with sales up 39 per cent.  The customer base has expanded throughout the course of the year, as has the product range.  New equipment has been installed and commissioned which has significantly reduced the labour cost of producing diced bacon.  Cranswick's air-dried, dry-cured bacon now features in the premium tier ranges of the seven largest multiple retailers in the UK.  As well as developing new air dried hams, value wet cured or injected sliced products are being produced to service the 'Butchers Choice' tier.

Sandwich sales increased by 4 per cent. Traditionally Cranswick has been a sandwich supplier to the 'on-the-move' foodservice sector, which has proved increasingly challenging in recent years particularly in relation to rising input costs.  However, following a review of the cost base and investment in both equipment and infrastructure at the Atherstone production facility, the business is now well placed to take advantage of the changing dynamic of the sandwich market.

Pastry sales showed good growth from modest beginnings.  Sales were strong over the key Christmas trading period with party food high on the agenda.  During the year a range of products was developed for one of our key retail customers which has been very well received by the consumer, with the result that the original product range has now been doubled.  A range of hot eating pies, together with flans and quiches are planned subject to additional production capacity being developed. 

Underlying cooked meat sales increased by 6 per cent.  Recent developments in this category include the launch of a range of air dried hams - a unique proposition, as a British product, in the UK retail sector.  Legs from the Hull fresh pork site are dry-cured and air-dried at the Gourmet Bacon facility in Sherburn, before being transported to the cooked meat plant in Barnsley to be cooked and retail packed.  This further demonstrates Cranswick's successful track record of winning business through collaboration and by producing a step change in product quality.  Also, due to volume pressure from increased sales at the Delico factory at Milton Keynes, further investment has been made there in both the fabric of the building and more efficient slicing lines. 

Sales of continental products were broadly similar to the previous year.  This performance reflected one retail customer procuring and slicing more products in-house, however, new business wins and growth from existing products and customers helped mitigate this loss.  A new Cranswick brand of olives under the "Bodega" label has been launched successfully.  These products are of the highest quality with a real point of difference and have been brought to market at a time when olives and antipasti products are really growing in popularity with the UK consumer.  Sales of Parma ham reached record levels, with charcuterie sales to one specific discounter more than doubling which further demonstrates the consumer's growing interest in this style of product.

Foodservice business currently represents less than 6 per cent of Group revenues.  This figure includes sandwich sales, which, historically, have been made predominantly to this sector.  The internal appointment of a director to lead a new team with specific foodservice expertise adds focus and provides increased resource to grow sales across the Group's full spectrum of products.  The total foodservice industry in the UK is worth approximately £48 billion.  A market of this size provides tremendous scope to introduce Cranswick's brand of quality and innovation, using the model that has been so successful with the Group's retail customers. 

Cranswick has well invested facilities which, across the sectors in which it operates, are amongst the most efficient production sites in the UK.  The quality of the Group's product range, together with class leading development chefs and a senior marketing team which, working closely with its customers, continues to innovate and search for new growth opportunities, provides for an extremely positive outlook for the Group.

It has been my intention for some time to stand down as Chief Executive, and this I intend to do at the Company's Annual General Meeting on 1 August, after 34 years' service with the Group.  I am extremely proud of what Cranswick has achieved over the last three decades.  I have had the good fortune to work with a great team of dedicated and innovative colleagues, whose commitment, vision and teamwork have made the business what it is today.  I hand over to Adam Couch, a colleague of many years.  I admire Adam's energy and ambition for the business and I am sure that Cranswick will continue to prosper under his stewardship.

Bernard Hoggarth

Chief Executive

21 May 2012

Financial review

Business development and performance

The key features of the year have been the record profit before tax for the Group, continued capital investment and strong cash generation. Both profitability and cash flow were augmented by the sale of the Group's 49 per cent stake in Farmers Boy (Deeside) Limited ("FBD") on 30 March, details of which are discussed in more detail below. The trading environment in which the Group operates has remained challenging.  During the first half of the year, the business had to manage rapid raw material price inflation, which it looked to recover through a combination of selling price increases and operational efficiency improvements.  During the second half of the year input costs eased, the Group enjoyed buoyant export sales, particularly to Far Eastern markets and enjoyed record production and sales volumes across the Christmas trading period.  The Group has experienced continuing competitor pressure, although the efficiencies achieved through on-going capital investment and as extra volumes are put through its factories, have mitigated to some extent against these pressures.

Revenue

Reported sales were 8 per cent ahead of last year reflecting growth across most product sectors and the benefit of a 53 week year.  The Deeside cooked meats business was transferred into FBD on 9 July 2010 and from this date onwards sales from FBD have been excluded from Group total sales.  Adjusting for the impact of FBD, underlying, like-for-like sales increased by 10 per cent.  Fresh pork sales increased by 15 per cent, sausage sales by 12 per cent, bacon sales by 39 per cent and sandwich sales by 4 per cent.  Sales of charcuterie products were 1 per cent lower as new products and customers together with increased sales to existing customers helped mitigate the decision of one retail customer to move to a direct sourcing policy.  Reported cooked meat sales were 1 per cent lower, but after adjusting for sales transferred to FBD, like-for-like sales were 6 per cent ahead.

Operating profit             

Group operating profit of £41.8 million is stated after a goodwill impairment charge of £4.9 million which followed a reassessment of the carrying value of goodwill attributable to the Sandwiches cash generating unit.  Group operating profit before impairment at £46.7 million fell by 5 per cent and at 5.7 per cent of sales, operating margin on the same basis was 0.8 per cent below the level achieved last year.  Notwithstanding the impairment charge, the reduction in operating profit is entirely attributable to the input cost inflation pressure experienced in the first half of the year. A combination of sales growth, continued improvements in operational efficiencies, strong export margins and more moderate raw material prices allowed the Group to report a much stronger second half performance.

Share of results of associate

The Group's share of the post-tax result of its associate, FBD, in the year to 31 March 2012 was a loss of £0.7 million (2011: loss of £0.4 million).  On 30 March 2012 the Group sold its 49 per cent holding in FBD to Wm Morrison Supermarkets PLC for a cash consideration of £14.5 million.  The transaction gave rise to a profit on sale of £8.3 million.

Finance costs

Net finance costs of £1.0 million (2011: £1.6 million) were substantially lower than the previous year reflecting the strong cash generation in the year and the improved terms negotiated when the Group's bank facilities were renewed in March 2011.  As a consequence, interest cover strengthened from 30.0 times to 49.2 times.

Profit before tax

Profit before tax at £48.4 million (2011: £47.1 million) was 3 per cent ahead.  Adjusting for the effects of the associate in both years and the goodwill impairment charge in the current year referred to above, underlying profit before tax was £45.6 million (2011: £47.3 million).

Taxation

The tax charge as a percentage of profit before taxation was 22.5 per cent (2011: 25.0 per cent). The standard rate of UK Corporation Tax was 26 per cent for 2012 and 28 per cent for 2011. The lower than standard rate of tax in the current year primarily relates to the gain on sale of the Group's 49 per cent stake in FBD which did not attract a charge to tax, together with a deferred tax credit of £0.7 million following the substantial enactment of the Finance Act 2012 which reduces the corporation tax rate from 26 per cent to 24 per cent in the year to 31 March 2013. The lower than standard rate in the previous year related to a deferred tax credit of £1.0 million on the transfer of assets from the Deeside cooked meats business to FBD and a further deferred tax credit of £0.7 million in relation to the planned reduction in the Corporation tax rate from 28 per cent to 26 per cent in the current year.

Earnings per share

Basic earnings per share increased by 5.5 per cent to 78.6 pence, reflecting the profit on sale of the Group's 49 per cent stake in FBD, lower financing costs and the lower effective corporation tax rate, partly offset by lower operating profits, the goodwill impairment charge and an increase in the average number of shares in issue during the year to 47,709,000 (2011: 47,408,000).   Adjusted earnings per share, which excludes the effect of the goodwill impairment charge this year and FBD from both years, increased by 0.1 pence from 72.8 pence to 72.9 pence.

Cash flow and net debt

The Group has continued to deliver strong operational cash flows.  Cash generated from operating activities was £45.5 million (2011: £51.6 million), with the reduction compared to the previous year reflecting lower Group operating profits, a modest increase in working capital and higher tax payments.  The net cash outflow from investing activities of £3.3 million is accounted for by capital additions, net of fixed asset sale proceeds and grants received, of £19.9 million, loan repayments received of £1.9 million and the proceeds from the sale of the Group's 49 per cent stake in FBD of £14.5 million.  The previous year's outflow was £36.3 million.  The £20.8 million of net cash used in financing activities in 2012 is largely due to interest paid of £1.3 million, dividends paid of £11.8 million, issue costs of long term borrowings of £1.0 million, loan repayments of £7.0 million and proceeds from issue of share capital, net of shares repurchased of £0.6 million. The prior year cash outflow from financing was £21.9 million.  The overall result is a net increase in cash and cash equivalents of £21.4 million (2011: decrease of £6.6 million).  Net debt reduced by £26.6 million to £21.7 million (2011: £48.3 million) at the year end, and gearing fell from 22 per cent to 9 per cent.

Pensions

The Group 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 31 March 2012 was £5.3 million (2011: £2.9 million); with the increase mainly relating to lower discount rates on scheme liabilities driven by lower bond yields.  The present value of funded obligations was £21.2 million (2011: £16.5 million) and the fair value of plan assets was £15.8 million (2011: £13.6 million).

Investment in associate

On 9 July 2010, the principal assets and trade of the Deeside cooked meats facility were transferred to Farmers Boy (Deeside) Limited, a company within the Wm Morrison Supermarkets PLC group, to provide them with a dedicated facility in return for a 49 per cent stake in that company.  The transaction gave rise to a profit before tax in the period to 31 March 2011 of £0.3 million, together with an associated deferred tax credit of £1.0 million.  On 30 March 2012 the Group sold its 49 per cent stake to Wm Morrison Supermarkets PLC group.  Further details of the disposal are disclosed above and in note 8.

Principal risks and uncertainties

There are a number of potential risks and uncertainties, which could have a material impact on the Group's long-term performance and could cause actual results to differ materially from expected and historical results.  During the year, the Group established a Risk Committee with representatives from key operations and functions across the business. The Risk Committee aims to identify and assess the impact of risks facing the business as well as understand the controls in place to mitigate them.  The principal risks and uncertainties facing Cranswick and the actions taken to mitigate their impact are set out below:

Risk area	Nature of risk and potential impact	Risk mitigation
Industry risks
State of the economy	A deterioration in the world and, in particular, UK economies may adversely affect the activity levels of consumers and the Group's immediate customers, leading to a fall in demand for the Group's products and ultimately lower profitability and cash flow.	Although Cranswick is unable to influence general economic conditions, the business offers a range of products across premium, standard and value tiers which it is able to flex in response to consumer and market trends.
Risk area	Nature of risk and potential impact	Risk mitigation
Competition, customer retention and reliance on key customers	The Group trades in highly competitive markets which tend to operate without long term contracts.  Product innovation and changing consumer trends provide a constant challenge to the future success of the Group and its ability to compete effectively. A significant proportion of the Group's revenues are generated from a small number of major grocery retailer customers, loss of all or part of the Group's business with one or more of these customers would adversely impact the Group's results.	The Group 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.  The commercial teams continually look for opportunities to expand the customer base across all product categories and work closely with key customers to ensure that service, quality and new product development are of the highest standard.
Raw material price fluctuations	The major exposure the Group has to raw material price fluctuations is pig meat.  An increase in raw material input costs may impact Group profitability.	Purchasing of pigs and pig meat is coordinated centrally and whilst the Group 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.
Environmental matters	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.	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. 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.
Food scares and product contamination	As a food producer, Cranswick is subject to industry related risks of contamination of products and/or raw materials and potential health related issues. Such an incident may lead to product recall costs, reputational damage and regulatory penalties.	The risk of such events is mitigated by ensuring that all raw materials are traceable to source and that the manufacturing, storage and distribution systems of both Group sites and those of suppliers are continually audited and monitored by experienced and well qualified site based and Group technical teams.
Supplier standards	Cranswick is reliant upon its suppliers meeting the Group's high quality and welfare standards.  Failure on their part could lead to customer complaints and reputational damage.	The Group ensures all suppliers of key raw materials have independent third party accreditations.  Detailed technical specifications are in place for all products, and all sites have trained product inspection and Quality Assurance teams.
Operational risks
Food safety	A breach of food safety legislation or the introduction of more stringent regulations may lead to reputational damage and regulatory penalties including restrictions on operations, damages or fines.	Cranswick conforms to all relevant food safety regulations and adopts best practice across its production facilities.
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 and ensuing loss of sales and reduced profitability.	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 is enhanced by multi-site operations across the majority of the Group's product lines.
Legislation	Legislation in all the markets the Group serves 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.  Failure to comply with existing or new legislation may adversely affect the Group's results.	Cranswick is committed to responding positively to new regulation and ensuring that the Group's views are expressed during consultation exercises.
Overseas markets	Cranswick trades in a growing number of overseas markets, and may not be familiar with local practices and regulations.  Failure to comply could lead to prosecution and loss of raw material supply or customer.	Extensive research is carried out into new markets ahead of commencement of trade. The Group uses reputable local experts wherever possible to ensure that local laws are complied with.
Technology	The Group is increasingly reliant on both IT and operational technology and operations could be significantly impacted if these systems are not well maintained and updated on a regular basis.	The Group has well trained, operational engineers at each site who carry out regular checks, calibration and maintenance on all key machinery. It also has central and site based IT teams to maintain computer systems.
Business integration	The Group has grown by acquisition as well as organically, and faces the challenge of integrating new businesses into the Cranswick group and achieving operational targets.	The Group ensures suitable incentives are in place to retain key management, who work closely with existing group management to help smooth the transition. There is also rigorous review of operations and results by the Group board.
Risk area	Nature of risk and potential impact	Risk mitigation
Human resource risks
Health & safety	A breach of health & safety regulations would leave the Group exposed to reputational damage and regulatory penalties.	A dedicated Group health & safety team supported by site based coordinators proactively monitor, manage and improve performance.  All team members receive continual training to industry approved standards.  Quarterly reports on performance against KPIs are issued to site management and the Group Board.
Ethical management	Good employee working conditions are core to Cranswick's values however poor practice in this area could lead to prosecution, industrial action and adverse media attention.	The Group is a member of SEDEX and ALP, and has agreed to comply with the ETI base code.  Additionally, all sites will undergo SMETA ethical audits at least once every two years and carry out labour provider audits each year. The Group also has an independent whistleblowing hotline in place so that employees can raise any concerns they might have.
Staff recruitment and retention	The success of the Group is dependent on attracting and retaining high quality senior management and staff.	The Group mitigates the risk associated with loss of key personnel through robust succession planning, strong recruitment processes, effective incentives and retention initiatives and on-going training and development.
Access to workforce	The Group experiences periods of heightened demand across peak periods, and has the potential to experience mass absence due to sickness.  Without flexibility in the workforce, customer orders may not be fulfilled.	All Group sites have access to multiple approved agencies for the supply of temporary, skilled and unskilled labour.  Strict hygiene rules and return to work procedures are in operation at all sites.
Financial risks
Interest rates, currency, liquidity and credit risk	The Group is exposed to interest rate risk on borrowings and foreign currency risk on purchases, particularly of charcuterie products.  In addition the Group needs access to funding for current business and future growth.	Interest rate and foreign currency risks are managed using effective hedging policies, which are coordinated and controlled by the Group's treasury function.  Each operation has access to the Group's overdraft facility and bank positions are monitored on a daily basis.  All term debt is arranged centrally and appropriate headroom is maintained.
Granting of credit and recoverability of debt	The majority of sales are made to major UK retailers and practically all sales, to these and other customers, are made on credit terms. Granting of credit to inappropriate parties or failure to collect debts on a timely basis could leave the Group exposed to losses.	Control procedures over acceptance of new customers and review of the level of credit granted with reference to external credit agencies take place at all sites.  Debts are recovered on a pro-active basis and management teams aim to ensure customers trade within the agreed terms.
Business acquisitions	Businesses may be acquired based on inaccurate information, unachievable forecasts or without appropriate consideration being given to the terms of purchase.	Rigorous due diligence is carried out in advance of any new business acquisition, using internal and external specialists where required.

Going concern

After reviewing the available information, including business plans and 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.

Mark Bottomley

Finance Director

21 May 2012

Group income statement

for the year ended 31 March 2012

			2012		2011
	Notes		£'000		£'000
Revenue			820,775		758,442
Cost of sales			(718,605)		(657,166)
Gross profit			102,170		101,276
Operating expenses excluding impairment			(55,434)		(52,125)
Group operating profit before impairment			46,736		49,151
Impairment of goodwill	7		(4,924)		-
Group operating profit			41,812		49,151
Share of results of associate	8		(712)		(434)
Profit on disposal of associate	8		8,254		-
Profit before net finance costs and tax			49,354		48,717
Finance revenue			151		106
Finance costs			(1,154)		(1,729)
Profit before tax			48,351		47,094
Taxation			(10,871)		(11,768)
Profit for the year			37,480		35,326
Earnings per share (pence)
On profit for the year:
Basic	4		78.6p		74.5p
Diluted	4		78.4p		74.3p
Adjusted (excluding effect of associate and goodwill impairment):
Basic	4		72.9p		72.8p
Diluted	4		72.7p		72.5p

Group statement of comprehensive income

for the year ended 31 March 2012

					2012 £'000		2011 £'000
Profit for the year					37,480		35,326
Other comprehensive income
Movement on hedging items:
(Losses)/ gains arising in the year					(69)		22
Reclassification adjustment for (gains)/ losses included in the income statement					(146)		248
Actuarial (losses)/ gains on defined benefit pension scheme					(3,504)		624
Deferred tax relating to components of other comprehensive income					892		(234)
Other comprehensive income for the year, net of tax					(2,827)		660
Total comprehensive income for the year attributable to owners of the parent					34,653		35,986

Group balance sheet

at 31 March 2012

	Notes	2012 £'000		2011 £'000
Non-current assets
Goodwill	7	122,839		127,763
Property, plant and equipment		130,853		123,262
Investment in associate	8	-		5,791
Financial assets		1,398		4,722
Total non-current assets		255,090		261,538
Current assets
Inventories		38,516		35,694
Trade and other receivables		85,534		78,665
Financial assets		696		496
Cash and short-term deposits	6	20,100		1,302
Total current assets		144,846		116,157
Assets held for sale		221		-
Total assets		400,157		377,695
Current liabilities
Trade and other payables		(91,078)		(84,941)
Financial liabilities		(1,624)		(4,356)
Income tax payable		(5,936)		(5,954)
Provisions		(389)		(59)
Total current liabilities		(99,027)		(95,310)
Non-current liabilities
Other payables		(462)		(354)
Financial liabilities		(42,301)		(49,286)
Deferred tax liabilities		(7,093)		(8,490)
Provisions		-		(409)
Defined benefit pension scheme deficit		(5,342)		(2,914)
Total non-current liabilities		(55,198)		(61,453)
Total liabilities		(154,225)		(156,763)
Net assets		245,932		220,932
Equity
Called-up share capital		4,803		4,764
Share premium account		58,642		56,609
Share-based payments		5,603		4,102
Hedging and translation reserves		(69)		146
Retained earnings		176,953		155,311
Equity attributable to owners of the parent		245,932		220,932

Group statement of cash flows

for the year ended 31 March 2012

	Notes	2012		2011
		£'000		£'000
Operating activities
Profit for the year		37,480		35,326
Adjustments to reconcile Group profit for the year to net cash inflows from operating activities
Taxation		10,871		11,768
Net finance costs		1,003		1,623
Non-cash items on transfer of business to associate	8	-		(465)
Fair value adjustment to put option in relation to associate		(95)		55
Share of result of associate	8	712		434
Gain on sale of associate	8	(8,254)		-
Gain on sale of property, plant and equipment		(140)		(96)
Depreciation of property, plant and equipment		13,972		12,440
Impairment of goodwill	7	4,924		-
Share-based payments		1,501		1,013
Difference between pension contributions paid and amounts recognised in the income statement		(1,076)		(1,815)
Release of government grants		(55)		(12)
(Increase)/ decrease in inventories		(2,822)		266
(Increase)/ decrease in trade and other receivables		(6,610)		4,858
Increase/ (decrease) in trade and other payables		5,405		(3,172)
Cash generated from operations		56,816		62,223
Tax paid		(11,283)		(10,639)
Net cash from operating activities		45,533		51,584
Cash flows from investing activities
Interest received		173		90
New loans advanced		-		(2,500)
Principal amounts received in relation to loans advanced		1,906		-
Purchase of property, plant and equipment		(20,311)		(34,759)
Receipt of government grants		149		350
Proceeds from sale of property, plant and equipment		308		498
Proceeds from sale of associate	8	14,500		-
Net cash used in investing activities		(3,275)		(36,321)
Cash flows from financing activities
Interest paid		(1,305)		(1,683)
Proceeds from issue of share capital		702		599
Purchase of own shares		(136)		-
Proceeds from borrowings		-		50,000
Issue costs of long term borrowings		(1,005)		-
Repayment of borrowings		(7,000)		(60,000)
Dividends paid		(11,831)		(10,508)
Repayment of capital element of finance leases and hire purchase contracts		(272)		(260)
Net cash used in financing activities		(20,847)		(21,852)
Net increase/ (decrease) in cash and cash equivalents		21,411		(6,589)
Cash and cash equivalents at beginning of year	6	(2,623)		3,966
Cash and cash equivalents at end of year	6	18,788		(2,623)

Group statement of changes in equity

for the year ended 31 March 2012

	Share capital £'000	Share premium £'000	Share- based payments £'000	Hedging reserve £'000	Treasury shares £'000	Retained earnings £'000	Total equity £'000
As at 1 April 2010	4,733	54,322	3,449	(124)	-	131,205	193,585
Profit for the year	-	-	-	-	-	35,326	35,326
Other comprehensive income	-	-	-	270	-	390	660
Total comprehensive income	-	-	-	270	-	35,716	35,986
Share-based payments	-	-	1,013	-	-	-	1,013
Scrip dividend	20	1,699	-	-	-	-	1,719
Share options exercised	11	588	-	-	-	-	599
Dividends	-	-	-	-	-	(12,227)	(12,227)
Transfer between categories	-	-	(360)	-	-	360	-
Deferred tax related to changes in equity	-	-	-	-	-	180	180
Corporation tax related to changes in equity	-	-	-	-	-	77	77
At 31 March 2011	4,764	56,609	4,102	146	-	155,311	220,932
Profit for the year	-	-	-	-	-	37,480	37,480
Other comprehensive income	-	-	-	(215)	-	(2,612)	(2,827)
Total comprehensive income	-	-	-	(215)	-	34,868	34,653
Own shares acquired	-	-	-	-	(136)	-	(136)
Share-based payments	-	-	1,501	-	-	-	1,501
Scrip dividend	19	1,351	-	-	-	-	1,370
Share options exercised (proceeds)	20	682	-	-	-	-	702
Share options exercised (transfer)	-	-	-	-	136	(136)	-
Dividends	-	-	-	-	-	(13,201)	(13,201)
Deferred tax related to changes in equity	-	-	-	-	-	(52)	(52)
Corporation tax related to changes in equity	-	-	-	-	-	163	163
At 31 March 2012	4,803	58,642	5,603	(69)	-	176,953	245,932

1. Basis of preparation

The results comprise those of Cranswick plc and its subsidiaries for the year ended 31 March 2012.  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 2011 (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 2012 and 31 March 2011 have been reported on by the auditors who issued an unqualified opinion in respect of both periods and the auditors' reports for 2012 and 2011 did not contain statements under 498(2) or 498(3) of the Companies Act 2006.  Statutory accounts for the year ended 31 March 2011 have been filed with the Registrar of Companies.  The statutory accounts for the year ended 31 March 2012, which were approved by the Board on 21 May 2012, 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 2011 except for the following policies which have been adopted during the year ended 31 March 2012.

Treasury shares

Cranswick plc shares held by the Group are deducted from equity as "treasury shares" and are recognised at cost.  Consideration received on the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings.  No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of equity shares.

New and revised standards

The application of new and revised standards and interpretations has not had a material effect on the net assets, results and disclosures of the Group.

3. Business and geographical segments

IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the Chief Operating Decision Maker ('CODM').  The Group's CODM is deemed to be the Executive Directors on the Board, who are primarily responsible for the allocation of resources to segments and the assessment of performance of the segments.

The CODM assesses profit performance using profit before taxation measured on a basis consistent with the disclosure in the Group accounts.

The Group reports on one reportable segment:

·     Food - Manufacture and supply of food products to UK grocery retailers, the food service sector and other food producers.

All Group revenues are received for the provision of goods; no revenues are received in relation to the provision of services.

4. Earnings per share

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to members of the parent company of £37,480,000 (2011: £35,326,000) by the weighted average number of shares outstanding during the year. In calculating diluted earnings per share amounts, the weighted average number of shares is adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

The weighted average number of ordinary shares for both basic and diluted amounts was as per the table below:

	2012		2011
	Thousands		Thousands
Basic weighted average number of shares	47,709		47,408
Dilutive potential ordinary shares - share options	92		162
	47,801		47,570

Basic weighted average number of shares for 2012 excludes a weighted average of 17,377 shares (2011: 69,431 shares) held during the year by the Cranswick plc Employee Benefit Trust and a weighted average of 7,806 treasury shares (2011: nil treasury shares) held during the year by the Group .  At 31 March 2012 no shares were held by either the Trust or the Group (2011: 39,363 held by the Trust).

Adjusted earnings per share

The Group acquired an interest in associate Farmers Boy (Deeside) Limited in the prior year, and disposed of the investment in the current year (note 8).  In addition, the Group impaired the carrying value of goodwill in relation to its Sandwiches cash generating unit (note 7).  As the investment in the associate and the goodwill impairment do not form part of the on-going business of the Group the directors consider it appropriate to present an adjusted EPS on the face of the income statement which excludes the effect of the associate from both years and the goodwill impairment from the current year, thus facilitating better comparison with prior and future periods.  Adjusted earnings per share are calculated using the weighted average number of shares for both basic and diluted amounts as per the table above.

Net profits excluding the effect of the associate and goodwill impairment are derived as follows:

	2012		2011
	£'000		£'000
Profit for the year	37,480		35,326
Share of results of associate	712		434
Profit on disposal of associate	(8,254)		-
Fair value adjustment to put option in relation to associate	(95)		55
Gain arising on transfer of business to associate	-		(297)
Deferred tax credit on transfer of business to associate	-		(1,019)
Impairment of goodwill	4,924		-
Profit for the year excluding effect of associate and goodwill impairment	34,767		34,499

5. Dividends

Subject to Shareholders' approval the final dividend will be paid on 7 September 2012 to Shareholders on the register at the close of business on 6 July 2012.

6. Analysis of changes in net debt

	At 31 March 2011		Cash flow		Other non cash changes		At 31 March 2012
	£'000		£'000		£'000		£'000
Cash and cash equivalents	1,302		18,798		-		20,100
Overdrafts	(3,925)		2,613		-		(1,312)
	(2,623)		21,411		-		18,788
Other financial assets	4,000		(1,906)		-		2,094
	1,377		19,505		-		20,882
Other financial liabilities	(160)		-		160		-
Revolving credit	(48,987)		7,000		(259)		(42,246)
Finance leases and hire purchase contracts	(570)		272		-		(298)
Net debt	(48,340)		26,777		(99)		(21,662)

7. Intangible fixed assets

	Goodwill
	£'000
Cost
At 31 March 2010 On transfer of business to associate (note 8)	128,739 (976)
At 31 March 2011 and 31 March 2012	127,763
Impairments As at 31 March 2010 and 2011	-
Impairment loss	4,924
As at 31 March 2012	4,924
Net book value
At 31 March 2010	128,739
At 31 March 2011	127,763
At 31 March 2012	122,839

Assumptions used

The recoverable amount for each cash generating unit has been determined based on value in use calculations using annual budgets for each business for the following year, approved by the Board of Directors, and cash flow projections for the next four years. Forecast replacement capital expenditure is included from budgets and thereafter capital is assumed to represent 100 per cent of depreciation.

Subsequent cash flows are forecast to grow in line with an assumed long-term industry growth rate of between 3 and 5 per cent derived from third party market information, including Kantar Worldpanel data.

A pre-tax discount rate of 8.8 per cent has been used (2011: 8.8 per cent) being management's estimate of the weighted average cost of capital.

Sensitivity

Following the impairment of goodwill attributable to the Sandwiches cash generating unit, as described below, management believes that currently there is no reasonably possible change to the assumptions that would reduce the value in use below the value of the carrying amount for any of the Group's other cash generating units.  Assumptions and projections are updated on an annual basis.

Impairment of Sandwiches cash generating unit

The Group performed its annual impairment test as at 31 March 2012, in line with the process described above.  The Sandwiches cash generating unit has historically been the most sensitive to a reasonably possible change in assumptions.  In the prior year, we noted that a 0.3 per cent reduction in the growth of operating cash flows to 2.7 per cent would reduce the value in use to a level equal to its carrying value.

The projected cash flows for the current year were updated to reflect the latest Sandwiches budget for the year ending 31 March 2013, expected future growth rate assumptions of 3 per cent (2011: 3 per cent) and post year end trading.  Based on these calculations, which gave a value in use below the value of the carrying amount, and on-going economic uncertainty, the Group has recognised an impairment loss within administration expenses for goodwill allocated to the Sandwiches cash generating unit of £4,924,000 (2011: £nil).

Following the recognition of this impairment loss the carrying amount is the same as the recoverable amount, so any further adverse change in key assumptions would lead to an additional impairment loss.

8. Investment in associate

On 9 July 2010, the principal assets and trade of the Group's Deeside cooked meats facility were transferred to Farmers Boy (Deeside) Limited, with 49 per cent of the shares in Farmers Boy (Deeside) Limited being received as consideration.  The Group treated its 49 per cent shareholding in Farmers Boy (Deeside) Limited, over which it had significant influence, as an associate and accounted for it using the equity method, initially recognising the associate at its fair value.  As a result of the Deeside cooked meats facility leaving the Group, a proportionate amount of goodwill relating to the cooked meats cash generating unit was disposed of (note 7).  The transaction also included a put and call option over the Group's 49 per cent shareholding exercisable during a six month period commencing three years from the date of the transaction.

The initial transaction in the prior year was accounted for as follows:

				2011 £'000
Book value of assets disposed				(5,911)
Fair value of 49 per cent shareholding acquired				6,225
Difference between acquisition fair value and cost of associate				314
Disposal of goodwill on transfer of business to associate (note 7)				(976)
Recognition of put option at fair value				1,127
Non-cash total				465
Legal expenses				(168)
Total within profit before tax				297
Related deferred tax credit				1,019
Cash flow impact				(168)

On 30 March 2012 the Group sold its shareholding in Farmers Boy (Deeside) Limited to the majority shareholder.  Details of the assets disposed and the consideration received are as follows:

				2012 £'000
Book value of associate				5,079
Book value of put option in relation to associate				1,167
Total book value of assets disposed				6,246
Consideration received in cash				14,500
Exceptional profit on disposal of associate				8,254

If the disposal had not occurred, the put and call options would have been remeasured at their fair value at the reporting date based on a valuation model, since the shares that were held in the associate were unquoted.  However, in view of the disposal of the interest in the associate together with the associated option arrangements, the directors do not consider it meaningful to distinguish the fair value movements of the options during the second half of the financial year from the overall disposal gains.

The following table illustrates the summarised financial information of the Group's investment in Farmers Boy (Deeside) Limited from the date of the transaction in the prior year and to the date of disposal in the current year:

			2012 £'000		2011 £'000
Share of the associate's balance sheet:
	Non-current assets		-		15,070
	Current assets		-		6,573
	Current liabilities		-		(6,427)
	Non-current liabilities		-		(9,425)
	Share of net assets		-		5,791
Share of the associate's results:
	Revenue		42,821		17,684
	Loss for the period		(712)		(434)

9. Related party transactions

During the year the Group entered into transactions, in the ordinary course of business, with related parties.  In the Group accounts transactions between the Company and its subsidiaries are eliminated on consolidation.  Other transactions with related parties were as follows:

		Sales to related party £'000	Service rendered to related party £'000	Amounts owed by related party £'000
Associate - Farmers Boy (Deeside) Limited
2012		12,422	259	-
2011		13,521	289	1,583

Farmers Boy (Deeside) Limited ceased to be a related party upon sale of the Group's 49 per cent shareholding on 30 March 2012.

10. Report and accounts

The Report and Accounts will be available on the Company's website at www.cranswick.co.uk on 29 June 2012.  Further copies will be available upon request from the Company Secretary, Cranswick plc, 74 Helsinki Road, Sutton Fields, Hull,  HU7 0YW.

 

END

 

 

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