Preliminary Results

Cranswick PLC 24 May 2005 Embargoed until 07.00 Tuesday May 24 2005 CRANSWICK plc: RECORD RESULTS Cranswick plc, the Yorkshire-based food producer, announces its audited results for the year ended March 31 2005. Highlights: • Turnover increased by 18 per cent to £318.5 million (2004: £270.1m) • Profit before tax up 12 per cent to £23.6 million (2004: £21.1m)* • Earnings per share rise by 15 per cent to 41.1p (2004: 35.8p)* • Proposed final dividend of 9.8p - up 11 per cent • Perkins acquisition integrating well * Prior to goodwill amortisation and exceptionals Chairman Martin Davey said: 'It gives me immense pride to be reporting further increases in turnover, profit and earnings per share, each to new highs, and with confidence in Cranswick's future prospects the Board is proposing an increase of 11 per cent in the final dividend.' 'The Company is well positioned to continue its successful development. It has products in growing sectors of the market. Significant investment has been made in operational facilities to ensure that it continues to produce at the highest level of quality and on the most efficient basis.' 'Operational teams with successful track records continue to drive their businesses forward supported by the resources and expertise within the Group. Initiatives to broaden the customer base and the product range are meeting with success.' -ends- For further information: Martin Davey, Chairman 07775 576426 Bernard Hoggarth, Chief Executive 07836 703434 John Lindop, Finance Director 07768 362592 CityRoad Communications 020 7248 8010 Paul Quade 07947 186694 STATEMENT TO SHAREHOLDERS It is a tremendous compliment to the management team and staff that, in what was an eventful year for the Company, Cranswick continued its record of growth. There were a number of challenges in the period including a serious fire at the Cottingham site. The year also saw the rationalisation of feed milling capacity, completion of a major capital investment programme, the setting up of a joint venture to produce traditional dry cured bacon and the acquisition of Perkins Chilled Foods along with an associated fund raising exercise. The Company has made significant progress during the year. It gives me immense pride to be reporting further increases in turnover, profit and earnings per share, each to new highs, and with confidence in Cranswick's future prospects the Board is proposing an increase of 11 per cent in the final dividend. Results Turnover in the year increased by 18 per cent to £318.5 million. Sales in the food operations, including agribusiness, increased significantly rising 19 per cent from £240.0 million to £286.6 million this year. The latter includes sales of £26.7 million made by Perkins Chilled Foods since acquisition in January 2005. Sales in the pet business rose 6 per cent to £31.9 million. Profit before taxation, prior to goodwill amortisation and exceptionals, was up by 12 per cent to £23.6 million. Earnings per share on the same basis, allowing for the additional shares in issue and a lower tax charge, were up 15 per cent to 41.1p. Profit for the financial year attributable to members was £12.8m, up 2%. Exceptional costs totalling £1.9 million (net) are attributable to the reorganisation of production facilities following the capital investment programme and insurance in connection with the fire at the Cottingham site. The exceptional items gave rise to a net cash inflow of £1.0 million and we anticipate further cash receipts in the medium term from the sale of three freehold sites which are surplus to requirements following the reorganisation. The results are considered in more detail in the review of activities by the chief executives of the food and pet businesses. Cash Flow The underlying cashflow of the business continued to be very strong with the net cash inflow from operating activities generating £25.6 million compared with £21.3 million the previous year. The cash outflow on capital expenditure was £18.7 million compared with a depreciation charge of £5.8 million, the main items being the new facilities for sausage, charcuterie and pet food. The cost of the Perkins acquisition was £83.3 million which was funded out of new borrowing facilities totalling £120 million (which also replaced existing debt) and a small share placing of £9.1 million. Interest cover for the year was 13 times and remains at a comfortable level with the acquisition and funding costs included on a full year basis based on historic performance. We ended the year with net debt of £92.4 million, 107 per cent of shareholders funds. Dividend The Board is proposing an increase in the final dividend of 11 per cent to 9.8p per ordinary share. Along with the interim dividend of 4.7p per ordinary share paid in January 2005 this makes a total dividend for the year of 14.5p per ordinary share, an increase of 10 per cent on last year's 13.2p. The final dividend, if approved by shareholders, will be paid on 9 September 2005 to shareholders on the register at the close of business on 29 July 2005. Shareholders will again have the option to receive the dividend by way of scrip issue. Strategic Development Cranswick was formed by farmers in the early 1970's to produce pig feed. In 1988 the Board embarked on a strategy to broaden the base of the Company's activities and to seek opportunities to develop into related areas offering greater scope to add value to the Company's processes. Activities have since been extended from this agricultural base into the food and pet sectors. The development of the pet activities commenced with the acquisition of a bird seed business local to the feed mill and was an extension of the Company's expertise in raw materials and milling. Subsequent acquisitions have extended the activities into the production of small animal food and the supply of fish and aquatic products. The food division incorporates the original agribusiness activities and accounted for 90 per cent. of overall sales in the year. It has evolved into a business focused predominantly on the supply of fresh and processed food to the UK food retail, food manufacturing and food service sectors. This development has been achieved through a combination of acquisitions and subsequent organic growth, with Cranswick now supplying a range of fresh pork, gourmet sausages, premium cooked meats, traditional dry cured bacon, charcuterie and sandwiches to its customers from a number of production facilities in the UK. The acquisition of Perkins Chilled Foods, one of the UK's leading providers of cooked meats and poultry to the UK food retail and food service sectors, in January 2005 was an important step in Cranswick's strategic development. It provides the Company with increased critical mass in the growing UK cooked meats market, including the premium pre-sliced and pre-packed segment, an area which we had been targeting for future growth; greater market share in relation to the supply of cooked meats to the major UK food retailers, continuing the trend of consolidation within the UK pig meats sector; and a broader range of products, enabling us to offer our customers a more comprehensive service across the UK cooked meats category. I would like to welcome Nick Tranfield, managing director of Perkins Chilled Foods, his fellow directors and staff to Cranswick and look forward to their contribution towards the Company's continuing development. As anticipated the business has made a positive contribution towards the results of the Company, has been successfully merged with our pre-existing cooked meats business and is integrating well into the Group. Board Structure There have been a number of changes to the Board during the year. Jim Bloom, who was one of the founders of the Company, retired at the 2004 AGM. Jim's involvement was greatly valued by all and on behalf of everyone at Cranswick I would like to thank him for the enormous contribution he made to the successful development of the business from its origins as a local feed mill to where it is today. On Jim's retirement I was appointed executive chairman, Bernard Hoggarth appointed chief executive of the food activities and Derek Black appointed chief executive of the pet business. Bernard and Derek were previously managing directors of their respective areas. The non-executive presence on the Board has been increased with two new appointments. Patrick Farnsworth joined the Board in August 2004 and the appointment of John Worby, with effect from August 1st 2005, has been announced today. They have a number of years experience in the food sector and we welcome them to the Company. Employees Cranswick has a devolved operational culture which seeks to harness the benefits of autonomous business units whilst utilising the expertise within the Company to coordinate strategies in a number of key areas such as sales and marketing, buying and technical. Whilst there is considerable expertise within the management teams at the individual units there can be no underestimating the importance of all the people at Cranswick in achieving the growth to date and in the continuation of the Company's successful track record. One way in which employees participate in the success of the Company is through the SAYE share scheme and it was good to see a large number benefiting this year. I mentioned earlier that the year had not been without its challenges. To have continued the growth record of the Company was especially encouraging. On behalf of the Board I thank all our people at Cranswick. Outlook The Company is well positioned to continue its successful development. It has products in growing sectors of the market. Significant investment has been made in operational facilities to ensure that it continues to produce at the highest level of quality and on the most efficient basis. Operational teams with successful track records continue to drive their businesses forward supported by the resources and expertise within the Group. Initiatives to broaden the customer base and the product range are meeting with success. The Board looks forward to the opportunities and challenges that will arise as we continue the Company's progress. Martin Davey Chairman 24 May 2005 Review of Activities food By the chief executive Bernard Hoggarth The continued sales growth is most encouraging. Sales of £287 million were 20 per cent up on last year and included £27 million from Perkins Chilled Foods which was acquired in January 2005 and is integrating well. The main focus of the food business is still the premium end of the retail sector. Strong growth has been achieved and we believe can continue through innovation, convenience and by offering consistent quality at affordable prices. We firmly believe that 'Quality does not go out of fashion'. To support this growth, significant investment has been made in production facilities to provide capacity and to improve efficiencies. In addition to the growth at the retail level we are also experiencing good sales growth and see continuing marketing opportunities in the food service sector where our presence has been boosted by combining the Cranswick and Perkins teams. The production of pig feed, our original activity, was consolidated onto the Cranswick Mill site during the year reflecting the overcapacity nationally in feed milling. The Wellingore site was closed and sold. This improved efficiency and along with a return of raw material prices to more normal levels restored margins. Exports of specialist piglet feed have developed well in recent years. Pig marketing and the production of 'Tendalean' pigs are key sources of supply for the Company's fresh pork business. The fresh pork market in the UK has grown by almost 4 per cent in the last year which is encouraging considering that the market has been relatively flat previously. Against this we achieved growth in sales of fresh pork of 30 per cent to record levels with volumes in the new retail pack facility and in BBQ products rising significantly. Sales of 'Tendalean' pork, developed through the use of specific breeds of pigs and maturation techniques, also rose during the year. The 'Tendalean' pork rib roast was successful in the 2004 SuperMeat Awards winning the 'Best Pork Product' category and being named 'Overall Winner' against other categories covering beef, lamb, seafood and ready meals. The joint venture for the production of traditional dry cured bacon, Cranswick Gourmet Bacon, has absorbed first year start up costs and been successful in gaining business such that following a nationwide launch during May we anticipate that we will be heading towards 50 per cent capacity utilisation. The bacon is produced as smoked and un-smoked and is available under private label, Lazenby's and Jack Scaife brands. This 'Super Premium' tier of bacon is quite new to the major grocery retailers and gives us the entry opportunities we experienced ten years ago with the launch of the Cranswick Gourmet Sausage business, which effectively created a new tier in the sausage category. Sales in the sausage business were adversely impacted following the fire at the Cottingham site in June 2004 although the profit impact of this in the year was not material because of the level of insurance cover in place. Whilst the damage was restricted to one part of the factory this was not rebuilt because construction had already commenced on a new facility nearby. Following the commissioning in January 2005 of the new £6 million sausage production facility at Sutton Fields in Hull the previously separate businesses of Lazenby's and Cranswick Gourmet Sausage were relocated and consolidated. The factory was officially opened by the Chief Executive of Sainsbury's, Justin King. This investment provides us with a very efficient unit that has the capacity to support significant growth in our sausage sales and the sales and marketing team are very much focused on this. Growth in the market for the 'Super Premium' sausage tier exceeds 9 per cent year on year and that for the 'Premium' tier overall is almost 6 per cent. This is particularly encouraging as these are our main target categories. Cranswick's sausages are available under private label, including Sainsbury's 'Taste the Difference', Duchy Originals and Lazenby's. Product development is an integral part of growing the business and the range includes low fat, low salt and gluten free sausages to meet consumer requirements. Development work also extends to the use of innovative equipment such as that which enables the spraying of a vegetarian based sausage casing. An additional facility was opened during the year to handle the growing charcuterie sales at Continental Fine Foods. The investment in these new premises and in additional product slicing equipment was almost £4 million. This has eliminated impending capacity constraints and improved efficiencies which were factors in enabling Continental to gain the Italian charcuterie business with one of the leading grocery retailers. Following a successful launch sales, under the 'Simply Italian' and 'Negroni' brands, are growing strongly and we anticipate this to continue. Specialist areas such as pasta, stuffed olives and feta, pre-pack pates and bulk pates for the delicatessen counters continue to be a feature of our charcuterie business which has seen growth in sales of almost 90 per cent since acquisition four years ago reflecting a broadening of the customer base and growth in the market. We now have four sites, three in Yorkshire and one in Deeside, producing cooked meats following the acquisition of Perkins compared to one previously. The combined business has been renamed Cranswick Convenience Foods and operates under a single management team. The integration process, which is ongoing, has led to some reorganisation so as to facilitate the most cost efficient production of specific lines, to optimise the use of sales and marketing resources and to enhance efficiencies in buying. A broader range of products is now available including high quality poultry, beef, lamb and pork products a high proportion of which are in consumer pre-packs. In addition cooked meats are supplied in bulk format for slicing at delicatessen counters and cooked poultry is supplied for in-store rotisseries. Development initiatives in both products and packaging formats are a key part of the enlarged business. Sales of cooked meats, for which the market continues to grow, were substantially higher this year following the acquisition and the customer base now includes most of the grocery retailers. Sales of sandwiches, a market which is still growing, were considerably ahead of last year and look set to increase further this year. Business lost in the previous year was regained and two substantial trading agreements extended. Production at the Denbigh site ceased and was transferred to The Sandwich Factory ('TSF') base in Warwickshire. TSF, which is focused predominantly on the food service and convenience store sectors, was successful at the 2004 British Sandwich Association Awards winning four of the categories including 'En-Route Retailer of the Year' and 'British Sandwich Designer of the Year'. The Denbigh activities are now concentrated on the distribution of sandwiches and sandwich fillings under 'North Wales Foods'. Review of Activities pet By the chief executive Derek Black Turnover continued to increase with sales up 6 per cent to £32 million. The year has been one of major change in the food business with the opening of the new 'state of the art' fully automated production facility at Driffield. This plant is regarded as the largest of its type in Europe and has the production capacity to double our output of bird and small animal foods. Activities previously undertaken at the Beverley and Carlisle sites, old premises operating at full capacity, have been relocated, consolidated and renamed Cranswick Pet Products. Food sales in the year were 4 per cent ahead at almost £22 million. Whilst there was some reduction in sales of pigeon feed and cage and aviary bird food this was offset by the continued development of our garden bird food and accessory products under the brand 'Natures Feast'. The increased interest in garden bird products reflects changing lifestyles and the positive approach to wild bird conservation. Sales in the aquatic business at Tropical Marine Centre increased 10 per cent to more than £10 million. Although last year's poor summer impacted on the sales of garden pond products increases elsewhere more than offset this. Sales of marine livestock, including those from our own hatchery, were up as were dry goods which incorporate the supply of commercial livestock filtration systems and consumables. The Manchester site, opened three years ago, continued to develop sales and the Bristol site, opened a year ago, achieved the targets set. The development of these two sites has freed up capacity to allow the original Hertfordshire site to focus on niche European sales expansion. Exports account for 20 per cent of sales and during the year the business was involved in a number of high profile projects including the supply of marine livestock and related consumables to two large aquarium displays in prestigious retail malls in Berlin and Prague. In the UK similar products were supplied to the new exhibit extension at The Deep in Hull. CRANSWICK plc: AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT year ended 31 March 2005 2005 2004 Before exceptionals Exceptionals Total £'000 £'000 £'000 £'000 Turnover - continuing operations - Ongoing 291,827 - 291,827 270,116 - Acquisition 26,711 - 26,711 - 318,538 - 318,538 270,116 Cost of sales (259,293) (2,642) (261,935) (219,162) Gross profit 59,245 (2,642) 56,603 50,954 Operating expenses before goodwill amortisation (33,633) - (33,633) (29,112) Operating profit before goodwill amortisation 25,612 (2,642) 22,970 21,842 Goodwill amortisation (3,235) - (3,235) (2,240) Operating profit - continuing operations -Ongoing 20,593 (2,642) 17,951 19,602 -Acquisition 1,784 - 1,784 - 22,377 (2,642) 19,735 19,602 Profit on disposal of tangible fixed assets - 707 707 - Net interest payable and similar charges (1,972) - (1,972) (683) Profit on ordinary activities before taxation 20,405 (1,935) 18,470 18,919 Profit on ordinary activities before 23,640 (1,935) 21,705 21,159 taxation and goodwill amortisation Tax on profit on ordinary activities (6,341) 657 (5,684) (6,356) Profit for the financial year attributable to 14,064 (1,278) 12,786 12,563 members of the parent company Equity dividends (6,268) (5,462) Retained profit for the year 6,518 7,101 Earnings per share: Basic 30.4p 30.4p Diluted 30.2p 30.2p Adjusted for goodwill amortisation 41.1p 35.8p Dividends 14.5p 13.2p CRANSWICK plc: AUDITED CONSOLIDATED BALANCE SHEET 31 March 2005 2005 2004 £'000 £'000 Fixed assets Intangible assets 106,884 41,451 Tangible assets 63,156 38,047 170,040 79,498 Current assets Stocks 19,635 11,884 Assets held for sale 891 - Debtors 48,127 33,212 Cash at bank and in hand 5,025 2,801 73,678 47,897 Creditors - amounts falling due within one year 68,450 56,099 Net current assets / (liabilities) 5,228 (8,202) Total assets less current liabilities 175,268 71,296 Creditors - amounts falling due after more than one year 83,974 148 Provision for liabilities and charges 5,297 2,302 85,997 68,846 Capital and reserves Called-up share capital 4,405 4,157 Share premium account 38,250 27,886 Profit and loss account 43,342 36,803 Equity shareholders' funds 85,997 68,846 CRANSWICK plc: AUDITED CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 March 2005 2005 2004 £'000 £'000 Operating activities Net cash inflow from operating activities 25,565 21,308 Returns on investment and servicing of finance Hire purchase interest - (1) Net bank interest (1,734) (618) Issue costs on new bank loans (540) - Loan note interest (59) (139) (2,333) (758) Taxation paid (6,864) (5,842) Capital expenditure and financial investment Purchase of tangible fixed assets (18,682) (9,565) Proceeds of sale of tangible fixed assets 1,806 180 (16,876) (9,385) Acquisitions and disposals Purchase of subsidiary undertakings (83,321) (15,122) Net overdraft acquired with subsidiary undertaking - (493) (83,321) (15,615) Equity dividends paid (4,815) (4,608) Cash outflow before financing (88,644) (14,900) Financing Issue of ordinary share capital 9,834 - Bank loans 95,000 - Loan note repayments (808) (3,643) Capital element of hire purchase payments (49) (100) Net cash inflow/(outflow) from financing 103,977 (3,743) Increase / (decrease) in cash in the year 15,333 (18,643) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2005 2004 £'000 £'000 Operating profit 22,377 19,602 Goodwill amortisation 3,235 2,240 Depreciation, net of government grants 5,822 4,611 Release of government grants (36) (36) Cash cost of exceptional items (915) - (Profit)/loss on sale of tangible fixed assets (221) 12 Increase in stocks (492) (2,429) Increase in debtors (3,141) (3,944) (Decrease)/increase in creditors (1,064) 1,252 Net cash inflow from operating activities 25,565 21,308 ANALYSIS OF NET DEBT At Issue Cash Other At 31 March of loan flow non cash 31 March 2004 notes changes 2005 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 2,801 2,224 5,025 Overdrafts (14,843) 13,109 (1,734) (12,042) 15,333 - 3,291 Bank loans - (94,460) (27) (94,487) Loan notes (1,173) (835) 808 - (1,200) Hire purchase (49) 49 - - (13,264) (835) (78,270) (27) (92,396) Notes 1. The profit and loss accounts for the years ended 31 March 2005 and 2004 are not statutory accounts within the meaning of Section 240 (5) of the Companies Act 1985. The auditors of Cranswick, Ernst & Young LLP, have made a report under Section 235 of the Act on the statutory accounts of Cranswick for the financial year ended 31 March 2004. Such report was unqualified and did not contain a statement under Section 237(2), (3) or (4) of the Act and such accounts have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 March 2005 incorporate an unqualified audit report (which does not contain a statement under Section 237 (2), (3) or (4) of the Act) and will be delivered to the Registrar of Companies following the Annual General Meeting of Cranswick. 2. Basic earnings per share are based on profit attributable to shareholders and on the weighted average number of shares in issue during the year of 42,072,481 (2004 - 41,318,512 ). Adjusted earnings per share are based on profit attributable to shareholders adjusted for goodwill amortisation and exceptional items. 3. Subject to shareholders' approval the final dividend will be paid on 9 September 2005 to shareholders on the register on 29 July 2005. 4. The Company intends to post the Report and Accounts to shareholders on 1 July 2005. Further copies will be available upon request from the Company Secretary, Cranswick plc, Cranswick, Driffield, East Yorkshire, YO25 9PF This information is provided by RNS The company news service from the London Stock Exchange

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