CRANSWICK plc: PRELIMINARY RESULTS

A year of strong financial and strategic progress

21 May 2024

Cranswick plc ("Cranswick" or "the Company" or "the Group"), a leading UK food producer, today announces its audited preliminary results for the 53 weeks ended 30 March 2024.

Commercial and strategic progress*:

·     Strong reported revenue growth of 11.9%, with like-for-like^† revenue growth of 11.6%

·     On a comparable 52-week basis, revenue up 9.8% reflecting effective inflation recovery and underpinned by 4.5% volume growth in UK food with growth accelerating through the second half of the year

·     Excellent customer service levels delivered throughout the year; 98% fulfilment across extensive product portfolio

·     Adjusted operating margin increased from 6.3% to 7.1%, reflecting a strong contribution from expanded pig farming operations, tight cost control and robust returns from the effective deployment of capital

·     Free cash conversion of 142.3%, with ROCE^‡ up 264bps to 18.5% and leverage reduced to 0.4x (including IFRS 16 lease liabilities)

·     Substantial ongoing investment in feed milling and pig farming operations to ensure security of supply and drive enhanced returns

·     £46.1m^¥ invested in two strategic acquisitions:

o  £32.8m acquisition of Elsham Linc indoor pig farming business furthers diversifies the Group's pig farming operations and adds additional feed milling capability, with self-sufficiency in UK pigs now over 50%

o  £13.3m acquisition of Froch Foods adding further cooked meat and bacon processing capacity

·     Total capital expenditure of £91.4m to add capacity, capability and drive operating efficiencies

·     Three earnings enhancing capital projects totalling £112m in progress, with £17.1m spent in year:

o  £62m multi-phased expansion project ongoing at the Hull pork primary processing site

o  £23m fit out of new houmous facility at Worsley, Manchester progressing to plan

o  £27m  expansion of value-added poultry across both Hull sites now underway

·     £10m investment in Lincoln pet food site nearing completion, with new national retail customer on board

Financial highlights*:

·     Statutory profit before tax 13.5% higher at £158.4m (2023: £139.5m), net of £15.4m non-cash Pet intangible assets impairment

·     Statutory earnings per share up 1.0% to 210.4p (2023: 208.3p)

·     Full year dividend increased by 13.4% to 90.0p (2023: 79.4p); 34 years of unbroken dividend growth

·     Return on capital employed^‡ up 264bps to 18.5% (2023: 15.8%)

·     Strong free cash flow of £223.4m, with free cash conversion of 142.3%

·     Net debt (excluding IFRS 16 lease liabilities) lower at £0.1m (2023: £20.2m)

·     Robust balance sheet with £250m bank facility providing significant headroom

Adam Couch, Cranswick's Chief Executive Officer, commented:

"Our ongoing successful performance is down to the unwavering passion, commitment, and professionalism of our teams across the business.  I would like to extend my gratitude to all of our colleagues at Cranswick for their continued dedication and support which has enabled us to deliver a strong set of results and make progress towards our strategic objectives.

"Alongside our colleagues, I would also like to thank our suppliers and customers, with whom we continue to work in close partnership.

"Our successful performance owes a great deal to the substantial investment we have put into enhancing our farming infrastructure and expanding our vertical integration.  We have increased the size, scale and quality of our pig herds through ongoing organic growth and the acquisitions of new indoor and premium outdoor pigs.

"Over the last 12 months we have strengthened our asset base, substantially expanded our farming operations, enhanced market positions and developed new customer relationships.  We continue to make good progress against each of our strategic objectives and we are well placed to continue our successful development in the current financial year and over the longer term."

Presentation

A presentation of the results will be made to analysts and institutional investors today at 10.30am at The Worshipful Company of Butchers, 87 Bartholomew Close, London, EC1A 7BN.  Analysts and institutional investors will also be able to join the presentation via a conference call facility.   The slides will be made available on the Company website.  For the dial-in details please contact Powerscourt on the details below.

Enquiries:

Cranswick plc

Mark Bottomley, Chief Financial Officer                                                                                                      01482 275 000

Powerscourt

Nick Dibden / Elizabeth Kittle / Louisa Henry                                                                                             020 7250 1446

cranswick@powerscourt-group.com

Note to Editors:

Cranswick is a leading and innovative supplier of premium, fresh and added-value food products.  The business employs over 14,500 people and operates from 23 well-invested, highly efficient facilities in the UK.

Cranswick was formed in the early 1970s by farmers in East Yorkshire to produce animal feed and has since evolved into a business which produces a range of high quality, predominantly fresh food, including fresh pork, poultry, convenience, gourmet products and pet food.  The business develops innovative, great tasting food products to the highest standards of food safety and traceability.  The Group supplies the major grocery multiples as well as the growing premium and discounter retail channels.  Cranswick also has a strong presence in the 'food-to-go' sector and a substantial export business.  For more information go to: www.cranswick.plc.uk

At Cranswick, it is second nature for us to protect and nurture our environment while supporting people and communities to thrive.  Guided by our sustainability strategy, Second Nature, we have seamlessly integrated our sustainability commitments into the core of our business model, which in turn shapes our decision-making, culture, and actions.  Notable achievements to date include:

a)        Approved Science Based Targets (SBTi) emission reduction plans in place for scope 1, 2 and 3

b)        All major production facilities are powered by renewable grid supplied electricity

c)        30% of manufacturing sites use on-site solar generation

d)        Northern HGV fleet run on renewable diesel (HVO), reducing emissions by 95%

e)        Committing to purchase 100% certified deforestation-free soya

f)         Reducing the use of unnecessary plastic across our operations by 19.8 per cent

g)        Building strong relationships with national food redistribution organisations FareShare and Company Shop

h)        Ranked No.1 in the 2023 Better Food Index, which ranks 30 of the largest food and drink companies in the UK on their actions and commitments towards a fair and sustainable food system

Find out more information on our sustainability journey at www.cranswick.co.uk

Chairman's Statement

I am pleased to report on the encouraging strategic progress achieved this year.  Continued growth and success have been achieved through exceptional customer service and the highest product quality, complemented by the value and versatility of our product categories.

Our management team's expertise and experience has skilfully transformed industry challenges into valuable opportunities. On behalf of the Board, I would like to express our gratitude to all Cranswick colleagues for their exceptional resourcefulness, innovative ideas and steadfast commitment which resulted in the record performance for the business.

I am very pleased with the progress we have made towards our strategic priorities this year, supported by significant investments in targeted capital expenditure and carefully chosen acquisitions.  Our investment programme has continued at pace with a relentless focus on automation, adding scale and delivering further quality, capacity and efficiency improvements.

The persistent effects arising from broad-based cost inflation have been proactively addressed through effective and timely cost management and recovery measures throughout the period.  By sustaining our partnerships with customers, we provided cost-effective solutions across our product ranges, concurrently enhancing operational efficiencies and driving automation projects.

This year's success has also been achieved in the face of considerable ongoing challenges in the UK food and farming industry, with labour shortages, financial pressures and political uncertainty all proving to be major concerns for many independent producers.  It is now more crucial than ever for the UK to have a thriving and resilient food and farming sector, especially given the challenges our food system is currently facing.  The Government has identified that our national security depends on addressing a small number of critical risks which include food security.  It seems imperative to me that the Government should better concentrate its resources on improving our resilience to those risks.

We have further developed and grown our farming and milling operations which has strengthened our vertical integration and enhanced our business resilience.  The expansion of our farming capability helps us to ensure full farm-to-fork traceability as the acquisition of Elsham Linc indoor pig farming business significantly increases the size of our Red Tractor-assured indoor pig herd and adds additional feed milling capability, increasing our self-sufficiency in UK pigs to over 50 per cent.  Looking forward, we anticipate further sector consolidation, and Cranswick is committed to expanding its farming capability to ensure the continuity of supply, sustainability leadership, and the highest animal welfare standards.

Results

Total revenue for the 53 weeks to 30 March 2024 was £2,599.3 million, showing an increase of 11.9 per cent from the previous year's reported figure of £2,323.0 million.  Adjusting for contributions of the acquisitions made in the previous and current financial years, revenue grew by 11.6 per cent on a like-for-like basis.

Adjusted profit before tax for the period at £176.6 million was 26.1 per cent higher than the £140.1 million reported last year. Adjusted earnings per share on the same basis was up 15.6 per cent at 242.8 pence from 210.0 pence last year.

Cash flow and financial position

At the end of the year, net debt was £99.4 million, down from £101.4 million in the previous year.  Net debt excluding IFRS 16 lease liabilities was also reduced to just £0.1 million compared to £20.2 million previously.  The Group has access to an unsecured, sustainability linked £250 million facility which runs through to November 2026.

Dividend

The Board is proposing a final dividend of 67.3 pence per share, 14.5 per cent higher than the 58.8 pence paid last year.  Together with the interim dividend of 22.7 pence per share, this equates to a total dividend for the year of 90.0 pence per share, an increase of 13.4 per cent on last year, extending the period of consecutive years of dividend growth to 34 years.

The final dividend, if approved by Shareholders, will be paid on 30 August 2024 to Shareholders on the register at the close of business on 19 July 2024. Shares will go ex-dividend on 18 July 2024.

Board changes

During the year, we have continued to evolve the Board to ensure it provides the appropriate skills and experience to support and challenge Cranswick's executive team.

With effect from 23 May 2023, Yetunde Hofmann was appointed as the Company's designated Non-Executive Director for engagement with the workforce.  This is an important position that I had the honour of undertaking before my appointment as Chairman. It was a pleasure to welcome Yetunde to the role, and her extensive experience brings a valuable perspective to our team.

Liz Barber succeeded Mark Reckitt as the Company's Senior Independent Director following his retirement as a Non-Executive Director of the Company on 24 July 2023.  As of this date, the Board appointed Alan Williams to take on Liz's previous role as Chair of the Audit Committee.

Pam Powell retired as an Independent Non-Executive Director with effect from 1 September 2023 and her position as Chair of the Remuneration Committee is succeeded on an interim basis by Liz Barber.

On 21 March 2024 we announced the appointment of Rachel Howarth as a Non-Executive Director with effect from 30 April 2024.  Rachel is the Group People Officer at Whitbread plc.  Rachel was previously the Group HR Director with SSP Group PLC, before which she spent sixteen years with Tesco Plc.  On appointment, Rachel became a member of the Remuneration, Nomination and ESG committees. It is intended that Rachel will succeed Liz Barber as Chair of the Remuneration Committee in August, following conclusion of the scheduled review of the Company's Directors' Remuneration Policy.

On behalf of the Board, I welcome Rachel and thank Mark and Pam for their positive contribution to Cranswick's successful development over their respective tenures. 

Outlook

We have made strong strategic and commercial progress in the past year which has strengthened the base from which to deliver the ongoing plans of the Group. The start to the current year has been in line with the Board's expectations and the outlook for the current financial year is unchanged.  The strengths of our business, which include our diverse and long-standing customer base, breadth and quality of products and channels, robust financial position and industry-leading infrastructure will support the further development of Cranswick over the longer-term.

Tim J Smith CBE

Chairman

21 May 2024

Chief Executive's Review

We have delivered a strong financial performance in the year and made further progress in delivering our strategy. We grew revenue by 11.9 per cent and increased adjusted profit before tax by 26.1 per cent.

Our ongoing successful performance is down to the unwavering passion, commitment, and professionalism of our teams across the business.  I have said many times that our people are our greatest asset and I would like to extend my gratitude to all of our colleagues at Cranswick for their continued dedication and support which has enabled us to deliver a strong set of results and make progress towards our strategic objectives.

Alongside our colleagues, I would also like to thank our suppliers and customers, with whom we continue to work in close partnership.  In last year's report, I highlighted numerous challenges impacting the UK farming sector and broader food supply chains stemming from the Ukraine war and widespread cost inflation.  This year, we experienced a more stable environment for farmers, leading to the recovery of pig prices, contributing to the achievement of our robust results.  We have increased our self-sufficiency enabling us to maintain our pig volumes against a double-digit percentage reduction in the national herd.

Our successful performance owes a great deal to the substantial investment we have put into enhancing our farming infrastructure and expanding our vertical integration.  We have increased the size, scale and quality of our pig herds through ongoing organic growth and the acquisitions of new indoor and premium outdoor pigs.  Notably, our acquisition of Elsham Linc has substantially bolstered our Red Tractor assured indoor pig herd.  This business comprises 18 sites in North Lincolnshire, including a feed mill, and has 8,000 sows producing in excess of 3,200 finished pigs per week.  We also acquired a second pig herd during 2023 as part of a wider agreement to lease and operate, on a long-term basis, a fully integrated pig and arable farming enterprise in North Yorkshire.  Thanks to these investments, our self-sufficiency in UK pigs is now over 50 per cent.

Access to labour remains one of our most important challenges.  To address this, we expanded our recruitment programme and now have more than 650 colleagues from the Philippines in the business who form a key part of our workforce.  We continue to put forward the case for the farming and food producer sector to the UK government and through various industry bodies.  One of the measures introduced in Spring 2024 was an increase in the salary threshold to £38,700, for those arriving in the UK on Skilled Worker visas.  This figure marks a significant rise from the previous level of £26,200; a shift that is poised to considerably limit labour accessibility for our Group in the foreseeable future.  The scarcity of labour resources presents a critical challenge, threatening our ability to consistently deliver the exceptional service levels our customers have come to rely on.  We continue to press government for a greater understanding of this issue and appreciation of the importance of food security.

Strong performance

We have again delivered record results with reported revenue growing by 11.9 per cent to £2,599.3 million and adjusted operating profit increasing 26.3 per cent to £185.1 million.  We have reduced net debt on a pre IFRS 16 basis from £20.2 million in March 2023 to just £0.1 million, whilst also investing £91.4 million across our asset base.

We saw operating margin strengthen during the year, driven by proactive management and mitigation of cost inflation, as well as benefits arising from capital expenditure and efficiencies achieved in our operations.  In addition, our return on capital employed has improved by 2.6 per cent to 18.5 per cent, reflecting our ability to deploy capital at pace to drive strong returns.  We are proposing to increase our full year dividend by a further 13.4 per cent this year, marking our 34^th year of consecutive dividend growth.

This strong performance was driven in part by the value offered by pork and poultry which provide customers and UK consumers with affordable proteins, value for money and versatility.  Following the initial inflation shock last year, we are seeing the recovery in demand, reflected in a substantial growth in premium products and across all four core UK food categories.  Our commitment to delivering exceptional service to our customers is reflected in our record-breaking Christmas trading results, continuing the momentum into the last quarter of the year, with an impressive 98 per cent accomplishment of customer service levels.

Year-on-year, there was a significant decrease in total export sales.  Far East exports were driving this momentum, with lower prices and lower demand resulting from the slowdown in China's food and agricultural sector.  Our Norfolk primary processing facility continues to operate without an export license.  It has been nearly four years since we voluntarily suspended this license, and we remain fully committed to resolving this issue.  We will continue to raise the matter with DEFRA and other relevant government departments at every opportunity until the matter is successfully resolved.

Progress on our strategy

We are putting our strategy into action across our three strategic pillars - Consolidate, Expand and Diversify - to deliver growth across all areas of our business.

We continue to invest to further strengthen our vertical integration.  I have already mentioned the acquisition of Elsham Linc, which further diversifies the Group's pig farming operations and adds additional feed milling capability.  Our acquisition of Froch Foods complements our existing bacon and cooked meats production capability and demonstrates our commitment to consolidating our presence in these categories, whilst adding capacity and driving efficiencies.

We are also investing at pace across our three fresh pork primary processing operations to increase capacity and drive further operational efficiencies in our rapidly growing value-added pork business.  This investment programme includes a £62 million multi-phased redevelopment of the Hull primary processing site, which will add substantial capacity, drive further efficiencies and add onsite cold storage capability.

We are increasing our presence in growth markets such as poultry and Mediterranean foods by investing in new and existing sites.  We are redeveloping our site at Worsley, near Manchester, which was acquired at the end of the last financial year.  The £23 million fit out occupies half of the site's 50,000 square foot footprint providing substantial additional houmous manufacturing capacity.

In our cooked and prepared poultry category we are making a £27 million capital investment to increase our cooking and roasting capacity and enhance our ability to deliver value-add products.  Our ambition to expand our business in East Anglia by increasing our fresh poultry operations remains, but we continue to encounter obstacles primarily arising from the complexities involved in navigating through the lengthy and overly complex planning application process.

The present year marks a transformative period for Cranswick Pet Products, albeit the progress has not been as quick as we initially envisaged.  Nonetheless, our ongoing investments into the business coupled with the strategic long-term supply agreement with Pets at Home and marketing efforts position us well for sustained growth and success in the foreseeable future.  The outlook remains optimistic, both for our business and the broader market landscape.

Second Nature

Besides our financial performance, we are also dedicated to fulfilling our sustainability objectives and generating long-term value for all our stakeholders.  This year, we have accomplished several milestones in our journey to become a more responsible and resilient business.  We recently refreshed our hugely impactful Second Nature sustainability strategy, making it more accessible, relevant and relatable for all our stakeholders.  We are proud of these achievements, but we acknowledge that there is still more to do.  We will persist in working with our customers, suppliers, farmers and other partners to drive positive change.

A people business

Cranswick is very much a people business, and I believe strongly that our colleagues are our greatest and most valuable asset.  We know that being an employer of choice in a highly competitive labour market is crucial for attracting and retaining the best people which is why we have worked hard to establish ourselves as a sector leader in pay, working conditions, health and safety, inclusivity and employee wellbeing.

This year alone, I was pleased to see that we have welcomed several more graduates into our program, taking the total to 97 since 2013, with 30 of these individuals now promoted into senior full-time roles.  We also have around 150 apprentices across the Group, who are undertaking a range of apprenticeship qualifications.

As an organisation, we actively promote and support diversity and inclusion, and our Diversity, Equality and Inclusion (DEI) programme is driven by a dedicated steering group who are responsible for taking our DEI goals and aspirations forward.  By nurturing and developing talent through effective succession planning, we have also been able to maintain a deep and continually replenished pool of great people, who have been vital to achieving the success we have today.

Adam Couch

Chief Executive Officer

21 May 2024

Operating and Financial Review

Operating review

Revenue and adjusted Group operating profit

*See Note 11

Revenue

Reported revenue increased by 11.9 per cent to £2,599.3 million. Like-for-like revenue which excludes the contributions from acquisitions prior to the anniversary of their acquisition date increased by 11.6 per cent with corresponding volumes 1.5 per cent higher.  On a 52-week basis, reported revenue increased by 9.8 per cent, underpinned by core UK food volume growth of 4.5 per cent with all four categories delivering positive volume momentum.  Growth accelerated through the second half of the year to 6.6 per cent, from 2.6 per cent in the first half.

Fresh Pork revenue growth reflected the pass through of higher pig prices, with volume growth delivered in both retail and wholesale channels.  Poultry volumes were positive with strong growth in Prepared Poultry as the business continues to mature following its initial start-up phase.  Convenience revenue was also ahead reflecting further inflation recovery and onboarding of new customers.  Growth in Gourmet Products continued with new product launches driving strong volume growth at the Hull Cooked Sausage and Bacon facility. 

Customer service levels remained consistently high throughout the year, with over 98 per cent fulfilment, including during the record Christmas trading period.

Adjusted Group operating profit

Adjusted Group operating profit increased by 26.3 per cent to £185.1 million with adjusted Group operating margin at 7.1 per cent.  Excluding the final insurance receipts in respect of the May 2022 product recall claim and the contribution from the 53^rd week, adjusted operating profit was 20.7 per cent higher than the prior year.  This improvement reflected the strong returns we are now generating from ongoing investment in our farming and milling operations together with inflation recovery in the first half of the year, easing input prices, operational efficiency improvements and tight cost control.  The positive recovery was partly offset by the losses incurred in our Pet Food business which is still partway through a major transformation process.

Category review

Fresh Pork

Fresh Pork revenue, which represented 25 per cent of Group revenue, increased by 7.7 per cent, with like-for-like revenue excluding the impact of acquisitions up 6.9 per cent reflecting the further recovery of high UK pig prices which peaked at 225.65p/kg in August.  UK Fresh Pork volumes were strongly ahead of the prior year, offset by lower Far East export volumes.

Retail performance was strong with volumes up 4.5 per cent driven by an uplift in retailer promotional plans throughout the year with special buys and premium tier promotions contributing strongly.  UK wholesale revenue also benefitted from increased pricing and more volume directed into the UK trade as export demand slowed.

Far East export revenue was 31.1 per cent behind the prior year as both pricing and demand from the key Chinese market remained subdued.

During the year we invested £31 million across the three primary processing facilities and our farming infrastructure.  £7.6 million related to the £62 million ongoing multi-phased redevelopment of the Hull primary processing site which will add substantial capacity and drive further efficiency improvements along with the added benefit of onsite cold storage capability.  This ongoing investment in our primary processing asset base provides the platform to not only grow our fresh pork business but also to feed into our rapidly growing wider value-added pork businesses.

The acquisition of Elsham Linc, a large-scale indoor farming business with 18 sites in North Lincolnshire, including a feed mill, and the purchase of an additional pig herd during the year substantially increased the scale of our farming operations at a time when the overall size of the UK pig herd has fallen by 15 per cent.  The continued investment in, and expansion of, our higher welfare and Red Tractor assured pig herds has lifted our self-sufficiency in UK pigs to over 50 per cent.  Moving forward we will continue to invest at pace in our pig farming operations and consider further acquisitions to ensure we have the right quantity and mix of pigs to service our customers' requirements.

Convenience

Convenience revenue increased 13.3 per cent and represented 39 per cent of Group revenue.  Revenue growth reflected both ongoing inflation recovery and stronger volumes driven by a strong performance in Katsouris Brothers through business wins and category growth. 

Cooked Meats revenue growth reflected ongoing inflation recovery and underlying volume growth in our 'slow cook' and 'sous vide' product ranges.  Towards the end of the financial year, across the wider cooked meats category, we signed a new long-term supply agreement with one of our strategic retail customers.

The expansion of our Hull Cooked Meats facility enabled the successful launch of our 'slow cook range' with two new major retail customers.  Leading Christmas products have become 'hero lines' with new, modern flavours and formats added to the range.  The award-winning 'Turkey with all the trimmings' product was the first to market full meal solution. 

At the Milton Keynes facility the extension works are now complete with the additional capacity enabling new business to be brought on board.

Shortly after the year end the Valley Park site in South Yorkshire relinquished some lower margin business.  New retail business has however since been secured and an ongoing cost-out plan at the site leaves the business better able to serve its anchor strategic customer and search for new accretive business opportunities going forward.

Continental Products revenue increased with inflation recovery offsetting modestly lower volumes.  We achieved a great result with our Christmas range which included 1.9 million platters that are becoming a popular choice for modern Christmas celebrations.  The creative 'Charcuter-tree' was an integral part of one of our customer's Christmas marketing campaign.  Our premium grazing platters are ideally suited to party and sharing occasions, combining charcuterie, olives, antipasti and crackers.  We have invested heavily in automation and complex assembly equipment at our Bury facility to facilitate growth in this attractive market segment.

Katsouris Brothers revenue increased reflecting both inflation recovery and strong volume growth.  Our halloumi products have performed particularly well with business wins in retail and food service.  Strong sales of ambient products under the Cypressa brand also drove positive year-on-year growth with the range's success recognised with the Grocer Gold for the Cypressa Halkidiki Olives double stuffed with Garlic and Red Pepper and Cypressa Greek Extra Virgin Olive Oil.

The Ramona's business continued to perform well and is now the number one houmous brand by volume in the UK.  The Watford facility is now running at maximum capacity with some volume needing to be outsourced in the short-term ahead of the planned move to the new Worsley facility later in the year.  Redevelopment of the Worsley facility, which was acquired at the end of the last financial year, is ongoing.  The £23 million fit-out, which will be complete in the second half of 2024, will deliver a best-in-class houmous and dips production facility enabling a significant increase in capacity using new and innovative production processes.

Gourmet Products

Gourmet Products revenue increased 20.8 per cent year-on-year and represented 18 per cent of Group revenue, with all businesses contributing positively to the strong revenue momentum.

The acquisition of Froch Foods Holdings Limited ('Froch Foods') completed during the year adds capacity to our added-value processing of predominantly pork and poultry related products.  Froch Foods supplies one of our large retail customers in this category and the acquisition aligns with our commitment to invest in, and add capacity to, our core categories to drive further growth.

Revenue from the Cooked Bacon and Sausage facility was significantly ahead, underpinned by double-digit percentage volume growth.  Successfully onboarding a second depot for a quick service restaurant customer and the addition of new retail customers for our premium cooked sausage range both contributed to the strong performance.

Sausage and bacon sales increased strongly with both retail and food service segments delivering good volume performance during the year.  Volume growth was boosted by more retail promotions involving multi-buy deals, with premium products performing especially well.  Food service volumes were robust as eating breakfast outside the home continues to gain in popularity.  Our Christmas output of pigs in blankets increased by 25 per cent with over 75 million single units delivered to our customers across the festive period.

Pastry revenue improved year-on-year with promotional mechanics and an innovative product range boosting demand.  New premium tier products were launched during the year with underlying strong performance in the core product range.

Poultry

Poultry revenue increased by 7.6 per cent and represented 17 per cent of Group revenue.  Volumes increased year-on-year with strong growth from Prepared Poultry.

Fresh Poultry continued to perform well with an average 1.4 million birds processed each week.  Volume growth in the year was driven through stronger retail sales performance with the site's anchor customer, in part facilitated by investment in additional automated portioning and thigh deboning in the prior year.

Cooked Poultry revenue was modestly ahead of the previous year, with the site successfully launching new products into a premium retail category.  A substantial £17 million capital investment programme, which will increase cooking and cooling capacity, along with additional roasting capability for portions and bone-in products, is progressing well with completion targeted before the end of the current financial year.  During the year, the May 2022 product recall claim was successfully concluded with final insurance receipts of £4.7 million received and recognised in other operating income.

The Prepared Poultry facility, in its second year of operation, delivered strong volume growth albeit the site continued to operate well below optimum capacity.  With the site carrying a high fixed overhead base, additional volume is needed to meet margin expectations.  The recent onboarding of a new retail customer will go some way to addressing this issue.  The outlook for the business remains positive with a further £10 million expansion project now underway to support the category growth pipeline.

Following on from the highly virulent Avian Influenza ('AI') season in the previous financial year, it is pleasing to report that the disease has been far more benign in the current financial year with Cranswick farms unaffected.  Indeed, the UK has self-declared zonal freedom from AI with effect from 29 March 2024.  The UK does not currently have outbreaks occurring in poultry or other captive birds and the level of risk is low with no disease control zones in place in England.  This said, strict bio-security protocols remain in place at the Suffolk plant and across all our farms in the southeast of England.

Pet Products

Cranswick Pet Products represented 1 per cent of Group revenue, with revenue down 4.7 per cent primarily due to the timing of onboarding the new Pets at Home (PaH) contract.  During the first half of the year the focus was on building stock ahead of deliveries into PaH depots which started in the second half of the year.

We have reduced complexity in the factory, consolidated the customer base and invested for future growth, alongside investing heavily in our Alpha and Vitalin brands.  We have taken positive steps to upgrade the facility, with a multi-year £10 million investment programme at the Lincoln site to increase capacity and add capability nearing completion.

The financial performance of the pet food business, whilst disappointing, reflected the profound changes taking place in the business, with a strategic review of the customer base, brand investment, stock build ahead of the PaH launch and disruption resulting from the major investment programme all contributing.  Following a review of the carrying value of goodwill and other intangibles at the year end, we made a non-cash impairment charge of £15.4 million against these assets.  The business is now on a stronger footing, well placed to grow rapidly and ultimately deliver a level of return in line with the wider Group.  We will continue to reshape the customer base of the business and our appetite to invest in the long-term production capability of the site is undiminished.

Finance review

Revenue

Reported revenue increased by 11.9 per cent to £2,599.3 million (2023: £2,323.0 million).  Like-for-like revenue, excluding the impact from acquisitions, increased by 11.6 per cent.

Adjusted gross profit and adjusted EBITDA

Adjusted gross profit increased by 24.5 per cent to £374.7 million (2023: £300.9 million) with adjusted gross profit margin at 14.4 per cent (2023: 13.0 per cent).  Adjusted EBITDA increased by 23.9 per cent to £266.8 million (2023: £215.3 million) and adjusted EBITDA margin increased by 100 basis points to 10.3 per cent (2023: 9.3 per cent).

Adjusted Group operating profit

Adjusted Group operating profit increased by 26.3 per cent to £185.1 million (2023: £146.5 million) and adjusted Group operating margin improved by 81 basis points to 7.1 per cent (2023: 6.3 per cent).

Full reconciliations of adjusted measures to statutory results can be found in Note 11.  The net IAS 41 movement on biological assets results in a £2.2 million credit (2023: £7.6 million credit) on a statutory basis primarily reflecting the movement in the UK pig price during the year.

Finance costs and funding

Net financing costs of £8.9 million (2023: £6.4 million) included £3.6 million (2023: £2.5 million) of IFRS 16 lease interest.  Bank finance costs were £1.3 million higher than the prior year at £5.3 million (2023: £4.0 million) primarily reflecting the increase in the bank base rate during the year.

The Group has access to a £250 million revolving credit facility, including a committed overdraft of £20 million running until November 2026.  It also includes the option to access a further £50 million on the same terms at any point during the term of the agreement.  The facility provides the business with almost £250 million of headroom at 30 March 2024.  The adequacy of this facility has been confirmed as part of robust scenario testing performed over the three-year viability period for the Group.

Adjusted profit before tax

Adjusted profit before tax was 26.1 per cent higher at £176.6 million (2023: £140.1 million).

Taxation

The tax charge of £45.3 million (2023: £28.1 million) was 28.6 per cent of profit before tax (2023: 20.1 per cent).  The standard rate of UK corporation tax was 25.0 per cent (2023: 19.0 per cent).  The effective rate was higher than the standard rate due to the impairment of goodwill and other expenses which are not deductible for tax purposes.  The effective tax rate on adjusted profit before tax was 26.1 per cent (2023: 19.8 per cent).

Adjusted earnings per share

Adjusted earnings per share increased by 15.6 per cent to 242.8 pence (2023: 210.0 pence).  The average number of shares in issue was 53,776,235 (2023: 53,461,000).

Statutory profit measures

Statutory profit before tax was £158.4 million (2023: £139.5 million), with statutory Group operating profit at £166.9 million (2023: £145.9 million) and statutory earnings per share of 210.4 pence (2023: 208.3 pence).  Statutory gross profit was £376.9 million (2023: £308.5 million).

Cash flow and net debt

The net cash inflow from operating activities in the year was £228.4 million (2023: £153.0 million).  The increase of £75.4 million was primarily due to an increase EBITDA of £46.5 million.  Net debt, including the impact of IFRS 16 lease liabilities, fell to £99.4 million (2023: £101.4 million) with the inflow from operating activities offset by £90.6 million, net of disposal proceeds, invested in the Group's asset base, £43.9 million of dividends paid to the Group's Shareholders, £15.6 million of own shares purchased and placed into the Cranswick Employee Benefit Trust, £17.8 million of IFRS 16 lease charges and £41.4 million of tax paid.

Pensions

The Group operates defined contribution pension schemes whereby contributions are made to schemes administered by major insurance companies.  Contributions to these schemes are determined as a percentage of employees' earnings.

The Group also operates a defined benefit pension scheme which has been closed to further benefit accrual since 2004.  On 2 December 2022, the Trustees of the defined benefit pension scheme purchased a buy-in insurance policy to secure the majority of the benefits provided by the scheme.  The surplus on this scheme at 30 March 2024 was £0.2 million (2023: £0.2 million).  The present value of funded obligations was £20.8 million, and the fair value of plan assets was £21.0 million.  The Group did not make any contributions in the year and does not expect to make any further contributions to the scheme during the year ending March 2025.

Group income statement

For the 53 weeks ended 30 March 2024

Group statement of comprehensive income

For the 53 weeks ended 30 March 2024

Group balance sheet

At 30 March 2024

* See note 2 for details regarding the restatement as a result of a change in accounting policy.                                                                                  

Group statement of cash flows

For the 53 weeks ended 30 March 2024

Group statement of changes in equity

For the 53 weeks ended 30 March 2024

* See note 2 for details regarding the restatement as a result of a change in accounting policy.                                                                                                                                                                                          

Notes to the accounts

1.   Basis of preparation

The results comprise those of Cranswick plc and its subsidiaries for the 53 weeks ended 30 March 2024. This preliminary announcement has been prepared on the basis of accounting policies as set out in the statutory accounts for the 53 weeks ended 30 March 2024, except for the change in accounting policy detail below.  This announcement does not constitute the Company's statutory accounts within the meaning of Section 435 of the Companies Act 2006.

The consolidated financial statements of Cranswick plc have been prepared under the historical cost convention except where measurement of balances at fair value is required as explained in the accounting policies below.  The Group's financial statements have been prepared in accordance with UK-Adopted International Accounting Standards ('UK-Adopted IAS').  The Group's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The Financial Statements of the Group are prepared to the last Saturday in March.  Accordingly, these Financial Statements are prepared for the 53 week period ended 30 March 2024.  Comparatives are for the 52 week period ended 25 March 2023.  The Balance Sheets for 2024, 2023 and 2022 have been prepared as at 30 March 2024, 25 March 2023 and 27 March 2022 respectively.  The 2023 and 2022 Balance Sheets have been restated following a change in accounting policy.  For more details, please see below.

Statutory accounts for the 53 weeks ended 30 March 2024, 52 weeks ended 25 March 2023 and 26 March 2022 have been reported on by the auditors who issued an unqualified opinion in respect of all years and the auditors' reports for 2024, 2023 and 2022 did not contain statements under 498(2) or 498(3) of the Companies Act 2006.  Statutory accounts for the 52 weeks ended 25 March 2023 and 26 March 2022 have been filed with the Registrar of Companies.  The statutory accounts for the 53 weeks ended 30 March 2024, which were approved by the Board on 21 May 2024, will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Viability and Going Concern

In accordance with the provisions of the UK Corporate Governance Code, the Board has assessed the going concern and viability of the Group over an appropriate time period, taking into account the current position, future prospects and the potential impact of the principal risks to the Group's business model and ability to deliver its strategy.

The Board has reviewed management's forecasts that have been sensitised to reflect severe yet plausible downside scenarios which consider the principal risks faced by the Group, including but not limited to a loss of consumer demand, an outbreak of Avian Influenza impacting our chicken flock and a widespread outbreak of African Swine Fever in the UK and Europe, as well as the Group's considerable financial resources and strong trading relationships with its key customers and suppliers.  These forecasts, which have been reviewed by the Board, lead the Board to believe that the Group is well placed to manage its business risk successfully.

After reviewing the available information, including business plans and downside scenario modelling and making enquiries, the Board has reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of signing Group financial statements.  For this reason, they continue to adopt the going concern basis for preparing these financial statements.

The Board has determined that a three-year period to March 2027 is an appropriate period over which to provide its Viability Statement.  This timeframe has been specifically chosen due to the fast-moving nature of the food industry and the current financial and operational forecasting cycles of the Group.

The sensitivity analysis utilised the Group's robust three-year budget and forecasting process to quantify the financial impact on the strategic plan and on the Group's viability against specific measures including liquidity, credit rating and bank covenants.

Given the strong liquidity of the Group; the committed banking facilities and the diversity of operations, the results of the sensitivity analysis highlighted that the Group, would, over the three-year period, be able to withstand the impact of the most severe combination of the risks modelled by making adjustments to its strategic plan and discretionary expenditure, with strong headroom against current available facilities and full covenant compliance in all modelled scenarios.

Based on the results of this analysis, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 27 March 2027.

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 52 weeks ended 25 March 2023, except for the new standards, interpretations and  change in accounting policy explained below.

Accounting standards or interpretations which have been adopted in the year

From 26 March 2023, the following standards and amendments are effective in the Group's consolidated Financial Statements:

·     IFRS 17 'Insurance Contracts';

·     Amendments to IAS 8 'Accounting policies, Changes in Accounting Estimates and Errors', distinguishing changes in accounting estimates from changes in accounting policies;

·   Amendments to IAS 1 'Presentation of Financial Statements', disclosure of accounting policies and materiality judgements;

There has been no material impact on the consolidated Financial Statements from any amendments effective during the year.

Amendments to IAS 12 'Income Taxes': on 7 May 2021, the IASB issued amendments to IAS 12 'Income Taxes' relating to deferred tax on assets and liabilities arising from a single transaction.  The amendments require companies to recognise deferred tax on transactions that on initial recognition give rise to equal amounts of taxable and deductible temporary differences.  This amendment has been adopted by the Group from 26 March 2023 and has resulted in an increase in the deferred tax asset and liability by the same amount.  The prior year comparative figures have been amended in line with IAS 12 'Income Taxes'.

Accounting standards or interpretations issued but not yet effective

Apart from IFRS 18 'Presentation and Disclosure in Financial Statements', there were no accounting standards or interpretations issued which have an effective date after the date of these consolidated financial statements that the Group reasonably expects to have an impact on disclosures, financial position or performance.

Change in accounting policy

The Group changed its accounting policy for share-based payments such that the value of shares that have exercised, lapsed or forfeit is now credited to Retained earnings as opposed to remaining within the Share-based payment reserve.

The change in accounting policy had no impact upon the Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Cash Flows, net assets of the Group, or the Group distributable reserves. The change in accounting policy enables the readers of the financial statements to identify the cumulative value of share-based payments that are still to be exercised, lapse or forfeit.

The impact of the change in accounting policy is detailed in the Group Statement of Changes in Equity.

There is no change to basic and diluted earnings per share arising from the change in accounting policy.

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 principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts.

The reporting segments are organised based on the nature of the end markets served.  The 'Food' segment entails manufacture and supply of food products to UK grocery retailers, the food service sector and other UK and global food producers.  The 'Other' segment represents all other activities which do not meet the above criteria, principally Cranswick Pet Products.            

The reportable segment 'Food' represents the aggregation of four operating segments which are aligned to the product categories of the Group; Fresh Pork, Convenience, Gourmet Products and Poultry, all of which manufacture and supply food products through the channels described above.  The acquisition of Elsham Linc Limited is included within the Fresh Pork product category, and the acquisition of Froch Foods Holdings Limited is included within the Gourmet Product category.  The operating segments have been aggregated into one reportable segment as they share similar economic characteristics.  The economic indicators, which have been assessed in concluding that these operating segments should be aggregated, include the similarity of long-term average margins; expected future financial performance; and operating and competitive risks.  In addition, the operating segments are similar with regard to the nature of the products and production process, the type and class of customer, the method of distribution and the regulatory environment.

4.   Group operating profit                                                                                      

Group operating costs comprise:

\* This represents the difference between operating profit prepared under IAS 41 and operating profit prepared under historical cost accounting, which forms part of the reconciliation to adjusted operating profit.

Included within other operating income are credits of £5.7 million for insurance claims received in the period (2023: £9.9 million). The net impact of these claims is not material.

5.   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 £113.1 million (2023: £111.4 million) 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:

Adjusted earnings per share are calculated using the weighted average number of shares for both basic and diluted amounts as detailed above (see Note 11).

6.   Dividends

Subject to Shareholders' approval the final dividend will be paid on 30 August 2024 to Shareholders on the register at the close of business on 19 July 2024.

7.   Analysis of changes in net debt

Net (debt)/funds are defined as cash and cash equivalents less interest-bearing liabilities net of unamortised issue costs.

8.   Related party transactions

During the year the Group and Company entered into transactions, in the ordinary course of business, with related parties, including transactions between the Company and its subsidiary undertakings.  In the Group accounts transactions between the Company and its subsidiaries are eliminated on consolidation.

9.   Intangible assets

The losses incurred by Cranswick Pet Products in the year suggested a potential goodwill and intangible asset impairment. Impairment modelling indicated that the discounted present value of future pre-tax cash flows attributable to Cranswick Pet Products did not support the carrying value of the goodwill asset, resulting in a full £15.1 million impairment charge.

Management concluded that the fair value less cost of disposal was not materially different to the value-in-use model. Therefore, considering all relevant factors, a value in use model has been used to assess the impairment of goodwill.  The value in use model considers the specific operational and strategic factors affecting the business, without the need to rely on uncertain market conditions.

Two additional intangible assets were recognised on acquisition, customer relationships and trade names. Both assets were separately tested for impairment given the change in business model and a greater focus on new customer relationships.  The recalculated customer relationships value of £3.0 million, indicates that £0.3 million of impairment is required to the fair value of £3.3 million.

10. Acquisitions

i) Froch Foods Limited

On 19 January 2024, the Group acquired 100 per cent of the share capital of a holding entity Froch Foods Holding Limited and its subsidiary Froch Foods Limited, an added-value processor of predominantly pork and poultry related products, together with associated leasehold buildings, for a total cash consideration of £9.8 million.

The following table sets out the fair values of the identifiable assets and liabilities acquired by the Group:

The fair values on acquisition are provisional and will be concluded within twelve months of the acquisition date.

Following management's assessment, the Group recognised a customer relationship intangible asset of £5.0 million.  No further intangible assets were identified.  Included in the £2.6 million 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 and an assembled workforce.

The fair value of trade and other receivables acquired is the same as the gross contractual amounts.  All of the trade and other receivables acquired are expected to be collected in full.

Transaction costs in relation to the acquisition of £0.3 million have been expensed within administrative expenses.

From the date of acquisition to 30 March 2024, the external revenue of Froch Foods Limited was £1.3 million and the business contributed net profit after tax of £0.1 million to the Group.  Had the acquisition taken place at the beginning of the financial year, Group revenue would have been £2,604.9 million, and Group profit after tax would have been £114.6 million.

In addition to the net cash outflow on acquisition of £7.8 million, the Group immediately paid a further £5.5 million consisting of a £1.7 million bank loan and £3.8 million other payables settled on acquisition.

ii) Elsham Linc Limited

On 4 August 2023, the Group acquired 100 per cent of the issued share capital of Elsham Linc Limited, a commercial pig farming enterprise operating from numerous sites predominately across North Lincolnshire and the Humber, for a net cash consideration of £14.7 million.

Included within the assets acquired is Elsham Linc Limited's 50 per cent share of the Mere Pigs joint venture, a commercial pig farming business.  Beechgrove Farms Limited, the other party to the joint venture, holds the remaining 50 per cent interest in Mere Pigs.

The following table sets out the provisional fair values of the identifiable assets and liabilities acquired by the Group in relation to Elsham Linc Limited:

The deferred consideration of £1.1 million was settled within the year. No further amounts payable are recognised at the year end.

Included in the £3.1 million 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 and an assembled workforce.

The fair value of trade and other receivables acquired is the same as the gross contractual amounts.  All of the trade and other receivables acquired are expected to be collected in full.

Following management's assessment, no customer relationship intangibles have been recognised and there are no trademarks linked to Elsham Linc Limited.

Transaction costs in relation to the acquisition of £0.3 million have been expensed within administrative expenses.

From the date of acquisition to 30 March 2024, the external revenue of Elsham Linc Limited was £4.7 million and the business contributed net profit after tax of £1.5 million to the Group.  The share of profit in the joint venture from the date of acquisition was £0.4 million.  Had the acquisition taken place at the beginning of the financial year, Group revenue would have been £2,611.5 million, and Group profit after tax would have been £113.7 million.

In addition to the cash consideration paid of £11.6 million, the Group immediately paid a further £21.2 million consisting of a £3.1 million bank overdraft, £4.8 million bank loan, £9.1 million for property, plant and equipment acquired and £4.2 million other payables settled on acquisition.

iii) Financial asset investment - BIA Analytical Ltd

On 22 September 2023, the Group acquired 2.77 per cent of the ordinary share capital of BIA Analytical Ltd, a lab-based authenticity testing business, for £0.1 million.  BIA Analytical is registered in Northern Ireland, company number NI657772.

iv) Deferred and Contingent Consideration

The Sale and Purchase agreements for Atlantica UK Limited and Ramona's Kitchen Limited included contingent consideration payable in cash to the previous owners based on the performance of the businesses in the period to 30 June 2024.

The fair value of the contingent consideration on acquisition was estimated at £2.7 million and was estimated calculating the present value of the future expected cash flows.  During the year, deferred contingent consideration of £1.0 million was paid.  The remaining value has been reassessed at the end of the reporting period based on latest Board approved cash flows, resulting in £1.7 million recognised as at the year end.

The Sale and Purchase agreement for Froch Foods Holdings Limited included deferred consideration payable in cash to the previous owners based on the finalisation of completion accounts.  The amount payable is estimated at £0.4 million, and will be paid within the year.

v) Pig herd acquisition

In the year the Group purchased a pig herd, along with some plant and machinery for £3.1 million, as part of a wider agreement to lease and operate, on a long-term basis, a fully integrated pig and arable farming enterprise in North Yorkshire.  In accordance with IFRS 3 Business Combinations, this has been accounted for as an asset acquisition.

11. Alternative performance measures

The Board monitors performance principally through adjusted and like-for-like performance measures.  Adjusted profit and earnings per share measures exclude certain non-cash items including the net IAS 41 valuation movement on biological assets, amortisation and impairment of acquired intangible assets, and profit on sale of a business.  Free cash flow is defined as net cash from operating activities less net interest paid and free cash conversion measures the conversion of adjusted profit for the year into cash.  Like-for-like revenue excludes the impact of current year acquisitions and the contribution from prior year acquisitions prior to the anniversary of their purchase.

The Board believes that such alternative measures are useful as they exclude volatile (net IAS 41 valuation movement on biological assets), one-off (impairment of intangible assets and profit on sale of a business) and non-cash (amortisation of intangible assets) items which are normally disregarded by investors, analysts and brokers in gaining a clearer understanding of the underlying performance of the Group when making investment and other decisions.  Equally, like-for-like revenue provides these same stakeholders with a clearer understanding of the organic sales growth of the business.

Like-for-like revenue

Adjusted gross profit

Adjusted Group operating profit and adjusted EBITDA

11. Alternative performance measures (continued)

Adjusted profit before tax

Adjusted earnings per share

Free cash flow

Free cash conversion

11. Alternative performance measures (continued)

Return on capital employed

12. Principal risks and uncertainties

The Group has an established risk management framework which identifies, assesses, and mitigates key risks facing the business. The principal risks and uncertainties facing the Group are set out in detail on pages 71 to 76 of the Report and Accounts for the 52 weeks ended 25 March 2023, dated 23 May 2023, a copy of which is available on the Group's website.

These risks include: competitor activity, climate change, growth and change, reliance on key customers and exports, consumer demand, pig meat availability and price, adverse media attention, health and safety, food scares and product contamination, disruption to Group operations, IT systems and cyber security, labour availability and cost, disease and infection within livestock, recruitment and retention of key personnel, and interest rate, currency, liquidity and credit risk.

With the exception of COVID-19 and Brexit Disruption principal risks, which have been removed, as management of these risks is now embedded within our day-to-day operations, the Board considers the principal risks and uncertainties as at 30 March 2024 to be the same as those described in the Report and Accounts for the 52 weeks ended 25 March 2023.

Major events over recent times, such as the ongoing war between Russia and Ukraine, the conflict in Gaza and shipping disruption in the Red Sea, have presented challenges and uncertainties to the Group, specifically across our supply chain and operations.  In addition, the Group is also aware that Government policies may change following the forthcoming UK General Election.  Going forward, ongoing economic uncertainty, inflation, and interest rates continue to put pressure on household budgets and despite indications that inflation continues to fall, the timeline of the current cost of living crisis remains uncertain.  The Group continues to closely monitor these situations to ensure our operational resilience remains strong and has robust measures in place to identify and manage potentially disruptive events should they arise.

13. Report and accounts

The Report and Accounts will be available on the Company's website at www.cranswick.plc.uk on 28 June 2024. Further copies will be available upon request from the Company Secretary, Cranswick plc, Crane Court, Hesslewood Country Office Park, Ferriby Road, Hessle, HU13 0PA.