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7
Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000
www.cranswick.co.uk
REPORT & ACCOUNTS
Year ended 31 March 2007
Cranswick was formed in the 1970’s by farmers in East Yorkshire to produce animal feed.
The Company went onto the Stock Market in 1985 and since that time has evolved into
a business that is highly focused on the food sector. Activities include the marketing of
pigs, the supply of fresh pork, gourmet sausages, charcuterie, cooked meats, sandwiches
and traditional dry cured bacon. This represents over 90 per cent of sales.
Sales are also made into the pet and aquatic sector through the supply of bird and small
animal food, marine fish and aquatic products.
Share price 1985-2007
(pence)
Start date is entry onto Stock Market, 4 December 1985
Source: Investec
Financial highlights
Turnover
(£m)
Profit before tax*
(£m)
Earnings per share*
(pence)
Dividends per share
(pence)
525
32.4
29.0
23.5
441
319
50.1
47.8
18.1
16.5
41.6
14.5
35
30
25
20
15
10
5
0
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
1
2
3
• Turnover up 19 per cent to £525m
• Profit before tax up 12 per cent at £32.4m*
• Increase of 5 per cent in earnings per share to 50.1p*
• Dividend up 10 per cent to 18.1p per share
• Strong cash generation
‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95
‘96 ‘97
‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04
* Pre-exceptional gain
‘05 ‘06 ‘07
1
Cranswick plc – Report & Accounts 2007
2
Contents
Chairman’s statement
Review of activities
Group operating and financial review
Group Directors and business locations
Directors
Report of the Directors
Cranswick and the environment
Group income statement
Group statement of recognised income and expense
Company statement of recognised income and expense
Group balance sheet
Company balance sheet
Group cashflow statement
Company cashflow statement
Notes to the accounts
Corporate governance statement
Statement of Directors’ responsibilities in relation to the financial statements
Directors’ remuneration report
Report of the auditors to the members of Cranswick plc
Advisers
Shareholder information
Some of the awards in recent years to Cranswick businesses
Production facilities
5
11
17
24
25
27
31
32
33
33
34
35
36
37
38
68
72
73
77
79
80
82
84
3
Cranswick plc – Report & Accounts 2007
4
“ The Board is proposing an increase in the final
dividend of 10 per cent to 12.2p per ordinary share ”
Chairman’s statement
I am pleased to be able to report to Shareholders that Cranswick has continued its
successful development and is once again reporting record profits. Underlying sales
growth was particularly strong resulting in an increase in market share which was
further enhanced by the strategic acquisition of DeliCo on 1 November 2006.
Results
The Company achieved an increase in sales of 19 per cent to £525 million. Turnover in the food division
was up by 21 per cent at £493 million and this accounted for 94 per cent of total Company sales. The
increase in sales largely reflected organic growth although the DeliCo acquisition during the year added
£9 million. Strong sales increases were evident across most food categories highlighting the success of
the Company’s strategy in positioning itself in a number of growing, premium areas of the market. The
Company’s other activity which is involved in the pet and aquatic sector saw a marginal reduction in
sales reflecting higher aquatic sales but a decline in bird food.
Profit before tax and exceptional gains increased by 12 per cent from £29.0 million to £32.4 million.
Earnings per share on a similar basis rose to 50.1 p (2006 – 47.8p). The increase of 5 per cent in earnings
per share reflects a normal tax charge this year compared to a lower charge previously following the
acquisition of Perkins, as well as additional shares in issue. Exceptional gains in both this year and last
year relate to profits on disposal of surplus properties. The exceptional gain before tax this year was
£0.3m and in 2006 amounted to £2.1m.
The results are considered in more detail in the review of activities section.
Cash Flow
Cash flow was again very strong with cash generated from operations of £41.8 million, the same as the
previous year. This allowed the Company to purchase DeliCo without increasing year-end borrowings.
The net cash cost of the acquisition was £13.4 million with a further £3.6 million satisfied by shares.
Capital expenditure, net of disposal proceeds, was slightly ahead of last year at £10.8 million resulting in
borrowings of £75.9 million compared with £77.1 million a year ago. Interest cover pre exceptional gains
was 7.9 times compared with 6.7 times in 2006.
Dividend
The Board is proposing an increase in the final dividend of 10 per cent to 12.2p per ordinary share. Along
with the interim dividend of 5.9p per ordinary share paid in January 2007 this makes a total dividend for
the year of 18.1p per ordinary share, an increase of 10 per cent on last year’s 16.5p. The final dividend,
if approved by Shareholders, will be paid on 7 September 2007 to Shareholders on the register at the
close of business on 6 July 2007. Shares will go ex-dividend on 4 July 2007. Shareholders will have the
option to receive the dividend by way of scrip issue.
5
Cranswick plc – Report & Accounts 2007
6
Chairman’s statement
“ Through a combination of
acquisitions and organic development
the business has evolved into one
focused predominantly on the supply
of premium food products ”
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Employees
The year has not been without its challenges, which included a fire in December 2006 at the Chorleywood
aquatics site. The Company has continued to progress and on behalf of my colleagues on the Board I
would like to express our sincere thanks to all members of staff for the expertise and commitment which
they bring to the business.
Strategic Development
The Company 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. Through a combination of acquisitions and organic
development the business has evolved into one focused predominantly on the supply of premium food products.
As part of this strategy the Company today announces the sale of the feed milling business of Cranswick
Mill, the group’s original activity. There will be a cash inflow resulting from the sale and the reduction
in working capital of approximately £7 million. The trading environment for this business has been
particularly challenging in recent years following the substantial reduction in the UK pig herd. Despite some
rationalisation of milling capacity in the industry there continues to be oversupply. Efforts to mitigate the
impact of this have included the further development of the starter feed business and tight cost control.
Feed sales in the year totalled £25 million and a small profit was achieved. The opportunity to develop
a solution to the challenges facing the business was explored and successfully concluded with BOCM
Pauls, a leading supplier of animal feed. BOCM have plans for investment in the site and for the further
development of the business. The sale of the feed milling business follows the sale of the pig production
business in the previous financial year. The pig marketing business of Cranswick Mill, the procurement arm
of Cranswick Country Foods, is to continue as an integral part of the Group. We wish David Ball, managing
director of Cranswick Mill, his colleagues and BOCM every future success.
The food division was expanded in November with the acquisition of DeliCo, producer of sliced cooked
meats, a growing category in the food sector. The business has been successfully integrated by the
management team in the Cranswick Convenience Foods division. At the time of acquisition there
7
Cranswick plc – Report & Accounts 2007
8
Chairman’s statement
“ The current year has commenced in an encouraging manner
and the Board looks to the future with confidence ”
was substantial unutilised capacity in the relatively new production facility. Our plans for filling this
capacity have been successful and the business is on track for a substantial increase in sales over the
next year.
Cranswick Gourmet Bacon, producer of traditional air-dried bacon, was established by way of joint venture
in 2004 with Cranswick holding 70 per cent of the equity. This was increased to 85 per cent during the
year and we anticipate that this will be increased to 100 per cent in the near future. The quality of the
premium bacon produced by this business is underlined by the numerous awards it continues to pick up.
The Company has recently received planning permission for the further development of the primary
pork processing site in East Yorkshire which secures the longer term plans of this important part of the
Company’s activities.
Outlook
Compound annual growth in sales over the past five years has been 18 per cent per annum and is a
combination of both organic and acquisitive development. The past year has seen sales rise by 19 per cent
and we anticipate further sales increases over the next year although, as reported previously, there are
signs that the Company is facing a more competitive trading environment. The Board is confident that,
with activities in a number of growing premium food categories and strong operational management
teams, the maintenance of an unchanged strategy will continue the successful development of Cranswick.
The current year has commenced in an encouraging manner and the Board looks to the future with
confidence.
Martin Davey
Chairman, 21 May 2007
9
Cranswick plc – Report & Accounts 2007
10
have achieved the highest ‘A’ grade BRC
“ All the Cranswick food producing sites
(British Retail Consortium) standards ”
Review of activities – Food
By the Chief Executive Bernard Hoggarth
The strong sales growth continued, as in recent years, with sales up 21 per cent
at £493 million. Sales of food products rose by 20 per cent, with agricultural
products up 32 per cent.
The food group’s businesses have all shown strong growth in the premium sectors, with our sausage and
bacon sales growth being exceptional. The focus and investment in developing our foodservice sales is now
bearing fruit with sales in the year exceeding £20 million. The vast majority of this growth has come from
specialist lines sold into the gastro-pub chains and supplying the high street dining outlets.
All the Cranswick food producing sites have achieved the highest ‘A’ grade BRC (British Retail Consortium)
standards. We are also proud to have the first food factory in the UK to score zero minor non-compliance
at a recent audit. New product development continues to be the life blood of the business across the food
operations. To put this into perspective fresh pork, sausage and bacon currently have 25 products under
development and launched 88 new products during the year. As part of this process, it is very pleasing to
report the food businesses collected 11 industry awards during the financial year.
The fresh pork business has been successful in gaining planning permission for a new replacement processing
facility at the Preston site in East Yorkshire. This should be completed during the next two years. This
development, coupled with investment we have made previously in the centrally packed meat plant adjoining,
will consolidate its position as one of the most efficient primary facilities, and is currently the largest pig
processing plant in the UK. This will facilitate the continued development of our customer base and growth
going forward. Overall, fresh pork sales in the UK grew by 2 per cent in the year, whilst the Cranswick pork
business achieved an impressive 23 per cent increase. Recent investment in new equipment is facilitating
the processing of by-product into organic matter which can be used as fertilizer. The tallow extracted in the
process is utilised in the production of bio-fuel. We are currently exploring the possibility of using the recycled
fuel to power the factory boilers for hot water and steam production and to fuel part of our own fleet of
vehicles. In addition we have immediately reduced vehicle movements, due to the previous removal off site
of all such by products via HGV’s.
The Lazenby’s sausage factory is just 2 years old, but due to the phenomenal success achieved in sales,
and the development of new business, we are installing three new production lines to meet demand.
This will require capital expenditure in excess of £2 million. The total sausage market showed no growth
in the year, but premium categories grew by 19 per cent. The Cranswick business however achieved
growth of 28 per cent. Lazenby’s was successful in becoming the licensee for the ‘Weight Watchers’
brand of sausage which we launched during the second half of the year. We also produce the “Black
Farmer” brand, which was launched during the year, and Duchy Originals. The latter grew at almost
23 per cent, and reinforces again the continuing trend for consumers to ‘trade up’ in fresh prepared
foods.
11
Cranswick plc – Report & Accounts 2007
12
Review of activities – Food
Recently the Cranswick Gourmet Sausage Company launched the ‘Simply Sausage’ brand at The Ivy in
London. This event was attended by buyers from the main retailers and a myriad of journalist and food
writers and was hosted by celebrity chef James Martin. You can log onto the new website for information on
this exciting new range at: www.simplysausages.com.
The cooked meat business, Cranswick Convenience Foods, has continued to grow its sales well above the
market place. Pre-packed cooked meat sales nationally rose by almost 7 per cent whereas Cranswick grew
by 16 per cent. Deli sales declined slightly in line with the national fall of 3 per cent as consumers continue
to switch to more pre-packed convenient formats. The DeliCo acquisition has integrated into the group well
and is performing in line with expectations. By the summer this facility will be operating at over 90 per cent of
capacity, again in line with our plans. There has been continued capital expenditure, in excess of £6.6 million
across the cooked meat facilities during the year. This enables us to continue to be at the forefront of the
sector, by incorporating the most modern, efficient equipment into our specialist business units. This coupled
with new product development and significant growth in our customer base, bodes well for the future.
Bacon sales were up a very healthy 65 per cent with which we are delighted. With further growth anticipated we
are planning for additional production capacity. We have acquired a new freehold site ‘twixt Leeds and York of
over 8,000 square meters which will enable us to continue to grow this business. We anticipate a weekly capacity
from this new facility of in excess of 400 tonnes per week, this compares with a current peak of approximately 75
tonnes. The expected project cost will be approaching £9 million. This large investment will allow the continued
focus on the development of the premium bacon category, in the same way that we have developed our sausage
business over the last decade. Across the UK bacon market as a whole, we currently have less than a 2 per cent
market share. Taking the premium categories on the other hand, Cranswick Gourmet Bacon Company has a 22
per cent market share. Our bacon business received 2 Gold Medals and 2 Silver Medals in the BPEX Foodservice
awards and was awarded the Foodservice ‘Pork Product of the Year’ 2007.
Continental Fine Foods, Cranswick’s Manchester based charcuterie business had an exceptional year with sales
up 21 per cent to almost £70 million. The business invested in a new high speed slicing line during the year
at a cost of £1 million which helped achieve average weekly volumes of over 700,000 packs, compared with
520,000 packs a year ago. Corned beef continues its revival with sales volumes up 22 per cent in the year.
We are working with a small artisan producer of fresh filled pasta in Italy to bring all their facilities up to BRC
standards, ready for serving the UK retail market. Following this accreditation we will launch this very special
product with a major retail customer later this year. This highlights perfectly one of the main routes to market
for Continental Fine Foods, driven by our skilled buyers, researchers and development teams.
The Sandwich Factory (TSF) saw sales rise by 5 per cent in the year with sales of £36m. New business wins
in the year include, Ryan Air, Flybe, BMI Baby, First Great Western Railways and the further development of
exciting ranges with our retail customers.
TSF has been working with Duchy Originals on a new organic range of sandwiches. The first products should
be launched during summer this year. These products will target the premium category with research having
shown that there is demand for such premium products in the sector. Within the product portfolio are
three new categories. We now produce and supply “food to go” solutions, salads and pizzas. Total units
produced were 40 million, with approximately 25 per cent being alternatives to the standard skillet, or sliced
sandwich.
TSF has developed it’s plan to use more recyclable packaging during the year with the introduction of
cardboard skillets, biodegradable webs and ‘returnable’ plastic distribution trays. Further “green “ initiatives
include the development of an electrolyzed water supply to reduce the amount of chemicals used by the
business in the factory cleaning process by 40 per cent.
In summary, we believe our food businesses now operate from some of the best invested and most modern
production facilities in the UK. This, coupled with the strong management teams we have in situ and the
strength of our new product development teams, leads us to believe we are well placed to continue the
profitable growth and development of the food business.
13
Cranswick plc – Report & Accounts 2007
14
high profile projects including seven large ocean
“ During the year TMC supplied a number of
exhibits to Sea Life centres around the UK ”
Review of activities – Pet
By the Chief Executive Derek Black
Total sales were marginally down for the year at £31.5 million (2006 – £32.1 million) with
increased sales of aquatic products and a reduction in food.
In Pet Products, predominantly bird and small animal food, sales were a little under £20.5 million down
8 per cent. This was due mainly to an extremely hot summer, coupled with a mild autumn and winter.
The public’s perception is that wild birds do not need feeding during a mild winter. Changing habitats
and the need to protect endangered native birds means it is imperative to feed birds not only in winter
but all year round and we, along with the RSPB, strive to get this message over to the public. Our target
markets remain unchanged and include high street retail chains, wholesale discount multiples, retail
membership groups, grocery and mail order.
Sales in the TMC aquatic business were ahead of last year at almost £11 million (2006 – £9.7 million)
up 12 per cent. Sales of marine livestock increased by 20 per cent. It is particularly pleasing to report
the continued growth and development of the branch businesses. Manchester saw sales up 10 per
cent and Bristol an increase of 26 per cent. Sales of dry goods were adversely impacted following a
major fire in the warehouse in December at the Chorleywood site and, as a consequence, there was
a more modest rise in sales of 6 per cent on last year in this category. The building is presently being
reconstructed and will be fully operational by July 2007. There will be no impact to profit, due to the
comprehensive levels of insurance cover in place.
During the year TMC supplied a number of high profile projects including 7 large ocean exhibits to Sea
Life centres around the UK, including the new aquarium in Loch Lomond, a large recirculation and water
treatment system for a cod hatchery in Scotland, and four large marine holding systems to a shellfish
supplier. New product launches has also been a key feature for the business with the development of
the V2 ultra-violet skimmers, which was voted best Marine Product in 2006 by Practical Fishkeeping.
15
Cranswick plc – Report & Accounts 2007
16
and profit through a combination of investing in modern,
efficient factories, developing a range of quality products
“ Cranswick has a long record of increasing sales
and making sound acquisitions ”
Group operating and financial review
Nature, objectives and strategies
The Group’s businesses
The Group’s operations are organised into two business divisions, food and pet. The performance of
these two divisions in the year is discussed in the review of activities within the Statement to Shareholders
on pages 11 to 15. The food business operates predominantly in the UK with the exception of a small
operation selling specialist animal feed into Continental Europe, and the pet business operates entirely
within the UK although a proportion of sales are export. The food business manufactures a range of high
quality, predominantly fresh products including fresh pork, sausages, bacon and cooked meats for sale
to the high street food retailers. It also supplies a range of pre-sliced, pre-packaged charcuterie products
for sale into these same customers, sandwiches into the foodservice sector and manufactures pig and
poultry feed for sale to pig farmers in the UK and Europe. The pig and poultry feed operation has been
sold subsequent to the year-end. The markets in which the food business operates are competitive both
in terms of pricing from fellow suppliers and the retail environment in general. The UK food retail market
is known to be amongst the most competitive in the world. Despite this, Cranswick has a long record of
increasing sales and profits through a combination of investing in modern efficient factories, developing
a range of quality products and making sound acquisitions. The businesses are under the control of
stable, experienced and talented operational management teams supported by a skilled workforce. The
pet business produces a range of bird and small animal food for sale into specialist pet and more general
retail outlets, as well as selling tropical marine fish and aquatic products largely into specialist retailers
both in the UK and abroad.
Environmental matters
The Board believes that good environmental practices support the Board’s strategy by enhancing the
reputation of the Company, the efficiency of production and the quality of products. The industry is
subject to a range of UK and EU legislation. Environmental standards are being tightened on a regular
basis and require increasing levels of investment. Compliance imposes costs and prolonged failure to
comply could materially affect the Group’s ability to operate.
Further information on the Group’s policies on minimising its environmental impact is given in our Environmental
Report on page 31.
Business objectives
It is the Board’s view that meeting the following business objectives is key to achieving the financial and
non-financial measures that increase shareholder value:
• Delivering innovative, quality products to our customers
17
Cranswick plc – Report & Accounts 2007
• Maintaining the highest level of service to our customers
• Improving operational efficiency
• Securing employee health and safety
• Maximising returns on investment
Business strategies
The Group’s market strategy is to focus on the growing quality end of the markets in which we operate, to
establish meaningful and long-lasting relationships with our major customers by a combination of product
development and high service levels and to invest in quality facilities and the latest equipment to enable
us to operate as efficiently as possible. Each operating unit within the Group is given the responsibility
for developing its own plans to deliver the objectives of the Group with particular emphasis on growing
sales through product innovation and high service levels, improving operational efficiency and securing
employee health and safety. The role of the Board in achieving Group objectives is to support operational
management and to identify suitable acquisitions that will take the Group into new and growing areas
of the market, will open up new customer relationships to the Group or will consolidate existing market
positions.
Business KPIs
The Board has assessed that the following KPIs are the most effective measures of progress towards
achieving the Group’s objectives. A report on performance against these KPIs is given on page 19.
Organic sales growth – year on year increase in sales revenue excluding the impact of acquisitions and
disposals.
Gross return on sales – gross profit as a percentage of sales revenue
Net return on sales – operating profit as a percentage of sales revenue
Free cashflow – cash generated from operations less tax and interest paid.
Current and future development and performance
Business development and performance
The key features of the year have been the record profit before tax for the Group, the strong cash
generation and the acquisition of Delico that has given us the additional capacity in cooked meats to
supply new retail customers. The record of unbroken growth in profits now goes back 19 years. The
trading environment in which we operate has remained challenging; in particular it has proved difficult to
pass on inflationary increases in costs and we have experienced increasing competitor pressure although
the efficiencies that we are achieving as we put extra volumes through our factories have mitigated to
some extent against those pressures.
Group revenue
Group revenue from continuing activities
2007
£524.8m
2006
£441.2m
The Group’s revenue from continuing activities has increased by 19 per cent, of which 17 per cent is
organic and the balance relates to the November 2006 acquisition of Delico. Food sales excluding Delico
increased by 18 per cent with fresh pork growing at 23 per cent, sausages at 28 per cent, bacon at 65
per cent, cooked meats at 16 per cent, charcuterie at 22 per cent and sandwiches at 5 per cent. Sales in
the pet activities were slightly down on the previous year following disappointing bird food sales offset
by excellent sales growth at Tropical Marine.
Profit before tax
Group operating profit before exceptional items
Net finance costs
Pre-tax profit before exceptional items
Exceptional items
Profit before tax
18
2007
£m
37.1
4.7
32.4
0.3
32.7
2006
£m
34.1
5.1
29.0
2.1
31.1
Group operating and financial review
The increase in group operating profit before exceptional items is entirely attributable to the growth in
both sales and profits in the food activities. The animal feed and pet operations were down slightly. The
reduction in net finance costs was as a result of the strong cashflow in the year notwithstanding the
acquisition of Delico for £17.9 million (excluding costs) of which £14.3 million was cash, partially offset
by the increase in UK interest rates in the year.
Performance against KPIs
Organic sales growth
Gross return on sales
Net return on sales
Free cashflow
2007
17.0%
16.4%
7.1%
2006
9.0%
17.4%
7.7%
£29.9m
£29.8m
The Company has seen substantial growth in organic food sales over the past year driven by its expertise
in product development, service levels, quality and value. Whilst further sales growth is anticipated in
the forthcoming twelve months there are signs that the Company is facing a more competitive trading
environment.
Future development
The Group will continue to seek to increase sales through a combination of product development with
existing customers and business gains with new ones. The standard of our factories will be maintained
at the highest level and suitable acquisition opportunities will be pursued.
Resources, risks and relationships
Resources
The Group aims to safeguard the assets that give it competitive advantage, being its reputation for
product innovation, product quality, food safety and service levels, its modern well-equipped factories,
its operational management and its skilled workforce.
Reputation
It is the responsibility of local operational management assisted by their own product development team
and Group Technical and Group Health & Safety to maintain and where possible enhance the Group’s
reputation for product innovation, product quality, food safety and service levels.
Factories
The Group has some of the best-invested, modern facilities in the industry, having invested £55 million over
the past four years, and it intends to continue investing to ensure that it maintains its competitive edge.
Employees
The Group aims to recruit, train and retain employees who are valued for their contribution and able to
fulfill their potential in meeting the business objectives of their operating unit. The Group companies
each have their strategies for retaining staff, including the provision of competitive terms and conditions
and share options. The Group has had a Savings-related Share Option Scheme in place for over 10 years,
which is open to all employees with 2 years’ service and has proved very successful with many staff now
also shareholders.
Principal risks and uncertainties
The Group annually carries out a formal exercise to identify and assess the impact of risks on their
businesses and the exercise has recently been reviewed. The more significant risks and uncertainties
faced by the Group, in line with the rest of the food manufacturing sector, were identified as customer
retention, food scares, margins and profitability, and competition. The corporate governance report on
pages 68 to 71 describes more about the Group’s risk management processes.
Relationships
The Board encourages businesses to support local community organisations and charities in the locations
in which they operate.
19
Cranswick plc / Report & Accounts 2006/07
20
Group operating and financial review
Financial position and performance
Exceptional items
The exceptional item in 2007 relates to the profit on sale of the former pet products facility at Beverley,
East Yorkshire. Deferred tax of £229,000, of which £150,000 relates to the prior year, was provided on
the rolled-over gain. The exceptional item in 2006 relates to the profit of £2.1 million on sale of the
former sausage factory at Cottingham, East Yorkshire less taxation of £0.6 million.
Finance costs
Finance costs have decreased from £5.1 million in 2006 to £4.7 million in the current year reflecting
reduced bank borrowings on the back of the strong cashflow in the year partially offset by higher UK
interest rates and the acquisition of DeliCo.
Taxation
An analysis of the tax charge is set out in note 8 to the financial statements. The total tax charge as a
percentage of profit before taxation was 30.6 per cent in the current year and 26.6 per cent in 2006,
the latter rate reflecting the impact of tax losses acquired. The standard rate of UK Corporation tax was
30 per cent in both years. In addition the Group benefits from tax amounts taken directly to equity and
included in the Group Statement of Recognised Income and Expense.
Earnings per share
Basic earnings per share before exceptionals increased by 5 per cent to 50.1 pence. Due to the large
exceptional gain in the prior year, there was a reduction in earnings per share after exceptionals of 1.0
pence. The average number of shares in issue, which is the basis of both calculations, was 1 per cent
higher in 2007 than 2006.
Cashflow
Operating activities were in line with the previous year generating £41.8 million (2006 - £41.8 million)
of cash and cash equivalents. The net cash outflow from investing activities of £24.3 million reflects
the cash component of the Delico acquisition of £13.5 million plus capital additions of £12.0 million
less sales proceeds of £1.1 million. The previous year’s outflow was £10.1 million and comprised capital
additions of £14.0 million less disposals of £3.9 million. The £10.1 million of net cash used in financing
activities in 2007 is largely due to interest paid of £4.0 million and dividends paid of £6.5 million. The
additional borrowings of £10.0 million to fund the DeliCo acquisition, and £1.8 million proceeds from
the issue of share capital were almost offset by the repayment of borrowings of £11.4 million. The prior
year cash outflow from financing comprised repayment of borrowings of £18.8 million, interest paid
of £5.1 million and dividends paid of £5.8 million. The overall result is a net decrease in cash and cash
equivalents of £0.5 million (2005 – £3.3 million).
Capital structure
The Group’s capital structure is as follows:
Net debt (note 26)
Cranswick plc shareholders’ equity
Capital employed
2007
£m
75.9
135.7
211.6
2006
£m
77.1
112.4
189.5
More details about the Group’s capital structure are set out in Note 22 Financial Instruments.
Distributions, capital raising and share repurchases
Under IFRS dividends paid and proposed during the year are no longer shown on the profit and loss
account but are charged against reserves when they are paid. Details of dividends paid and proposed
during the year are given in the Directors’ Report on page 27. The proposed final dividend for 2007
together with the interim paid in January 2007 amount to 18.1 pence per share which is 10 per cent
higher than the previous year. The increase in share capital of the Group comprises 478,766 in respect
of the Delico acquisition, 195,000 shares allotted to Cranswick Trustees Limited at par in respect of the
Long Term Incentive Plan approved at last year’s Annual General Meeting, 458,693 of share options
21
Cranswick plc / Report & Accounts 2006/07
22
Group operating and financial review
exercised during the year and 152,236 in respect of scrip dividends. There were no share repurchases
during the year.
Treasury policies
Foreign currency risk
The major foreign exchange risk facing the Group is in the purchasing of product in the charcuterie and
pet food operations. The major currencies involved are the Euro and the US dollar. The policy of the
Group is to seek to mitigate the impact of this risk by taking out forward contracts with UK banks for up
to 12 months ahead and for amounts that commence at approximately 25 per cent of the requirement
and move progressively towards full cover. At least 2 members of the main board attend the monthly
meetings of the subsidiary boards at which the key decisions on currency cover are taken.
Interest rate risk
The main board set the policy on interest rate risk at the time of the Perkins acquisition when borrowings
increased significantly. Cover was implemented by taking out an interest rate swap agreement with
a UK bank on the amortising portion (£45 million) of the medium term loan drawn down to finance
the acquisition. This is being repaid at the rate of £5.625 million every 6 months from March 2006 to
September 2009. The policy is reviewed from time to time as circumstances change. The monitoring
of interest rate risk is handled entirely at head office based on the monthly consolidation of cashflow
projections and the daily borrowings position.
Credit risk
Practically all sales are made on credit terms, the majority of which are to the major UK food retailers.
Overdue accounts are reviewed at the monthly board meetings of the operations. The incidence of bad
debts is very low. Every attempt is made to resist advance payments for goods and services; where this
proves impossible arrangements are put in place wherever possible to guarantee the repayment of the
monies in the event of default.
Liquidity risk
The Group has historically been very cash generative. The bank position for each operation is monitored
on a daily basis and capital expenditure above a certain level is approved at the monthly board meeting
of each operation at which at least two members of the main board are present and reported at the
subsequent monthly main board meeting. Each operation has access to the Group’s overdraft facility
and all term debt is arranged centrally. The current bank facilities available to the Group are a term loan
of £45.0 million repayable in January 2010, an amortising loan facility of £28.125 million repayable at
the rate of £11.25 million per annum, a revolving credit facility of £20.0 million and an overdraft facility
of £10.0 million. Unutilised facilities at 31 March 2007 were £25.2 million (2006 – £23.0 million).
Price risk
The major exposure the Group has to raw material price fluctuations is pig meat part of which is as a
result of currency movements. Historically this has been volatile across Europe but recently the market
has been more stable. The Group does not seek to hedge against pig price movements because of the
downside risk.
Further details of the Group’s financial instruments are disclosed in Note 22 to the accounts.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For this reason, they continue
to adopt the going concern basis in preparing the financial statements.
On behalf of the Board,
John Lindop
Finance Director, 21 May 2007
23
Cranswick plc – Report & Accounts 2007
24
Directors
Executive Directors
Martin Davey, Chairman
Martin qualified as a chartered accountant with Pannell Kerr Forster. He joined Cranswick and became
Finance Director in 1985. He was appointed Chief Executive in 1988 and became Chairman in 2004.
Since 2004 Martin has been a non-executive director of Thorntons plc, on which he spends one day per
month. All fees receivable are paid to the Company.
John Lindop, Finance
John qualified as a chartered accountant with Robson Rhodes’ London office. He spent ten years with
Northern Foods plc where he was latterly Group Financial Controller and Company Secretary. In 1992
he joined Cranswick as Company Secretary and was appointed to the Board as Finance Director in 1993.
Since 2006 John has been a non-executive director of Black Sheep Brewery plc, on which he spends one
day per month. All fees receivable are paid to the Company.
Bernard Hoggarth, Chief Executive Food
Bernard holds a National Diploma in Agriculture from the Norfolk College of Agriculture. He joined
Cranswick in 1978, focusing on the agribusiness activity before becoming involved in the development
of the food manufacturing business during the 1990’s. He was appointed a director in 1988 and Chief
Executive of Food in 2004.
Derek Black, Chief Executive Pet
Derek gained experience in the agricultural industry before joining Cranswick in 1980. He was responsible
for the development of the grain trading business until its sale in 1996. He became involved in the
formation of the pet business in 1993 and has focused exclusively on its activities since 1996. He was
appointed a director in 1988 and Chief Executive of Pet in 2004.
Adam Couch, Food
Adam joined Cranswick in 1991 as a graduate trainee from Hull University, where he graduated in
accountancy. Adam was appointed a director in 2003 and is Managing Director of the fresh pork
operations.
Non-executive Directors
John Worby
John is a chartered accountant with many years experience in the food industry, having worked for Uniq
plc (previously Unigate PLC) from 1978 until 2002, in various roles including group finance director and
deputy chairman. He was appointed a non-executive director of Cranswick plc in 2005 and is Senior
Independent Director and Chairman of the Audit Committee. John has a number of non-executive
directorships including Genus plc and Smiths News plc. He is also a trustee of Uniq Pension Trustees
Limited.
Noel Taylor
Noel is a qualified engineer with many years experience in the pork and bacon sector. He joined the
board of F T Sutton & Son (Rossendale) Limited (“Suttons”) as commercial director in 1983, subsequently
becoming managing director. Suttons was acquired by Cranswick in 1992 and Noel was appointed a
director. He became a non-executive director in 1999.
Patrick Farnsworth
Patrick has many years experience in the food industry, having worked for William Jackson & Son Limited,
a Hull-based private company, since 1965, where he was Joint Group Managing Director from 1995 until
his retirement in 2005. He was appointed a non-executive director of Cranswick plc in 2004 and was the
senior independent director until 2005.
Member of Remuneration Committee
Member of Audit Committee
Member of Nomination Committee
25
Cranswick plc – Report & Accounts 2007
26
Report of the Directors
The Directors submit their report and the audited accounts
of the Company for the year ended 31 March 2007.
Principal activities, business review and future developments
The Company’s activities are focused in the food and pet sectors. A review of the business and future
development of the group and a discussion of the principal risks and uncertainties faced by the group is
presented in the Statement to Shareholders on pages 5 to 15 and in the Group Operating and Financial
Review on pages 17 to 23.
Results and dividends
The profit on ordinary activities before taxation was £32.7 million (2006 – £31.1 million). After a taxation
charge of £10.0 million (2006 – £8.3 million), the profit for the year is £22.7 million (2006 – £22.8 million).
An interim dividend of 5.9p per ordinary share was paid on 26 January 2007. The directors recommend
the payment of a final dividend for the year, which is not reflected in these accounts, of 12.2p per ordinary
share which, together with the interim dividend, represents 18.1p per ordinary share, totaling £8.3 million
(2006 – 16.5p per ordinary share, totaling £7.4 million). Subject to approval at the Annual General Meeting,
the final dividend will be paid in cash or scrip form on 7 September 2007 to members on the register at the
close of business on 6 July 2007. The shares will go ex-dividend on 4 July 2007.
Financial instruments
The Group’s risk management objectives and policy are discussed in the Treasury Policies section of the
Group Operating and Financial Review on page 23.
Directors and their interests
The Directors of the Company currently in office are as stated on page 25. Each of the current Directors
served for the whole of the year under review. Martin Davey and Bernard Hoggarth retire in accordance
with the Articles of Association and, being eligible, each offers himself for re-election.
The interests of the Directors, as defined by the Companies Act 1985, in the ordinary shares of the
Company, other than in respect of options to acquire ordinary shares (which are detailed in the analysis
of options included in the Directors’ Remuneration Report on pages 73 to 76), are as follows:
At 31 March 2007 – Ordinary Shares
At 31 March 2006 – Ordinary Shares
MTP Davey
DJ Black
AH Couch
B Hoggarth
JD Lindop
RN Taylor
PW Farnsworth
JG Worby
All the above interests are beneficial.
183,036
82,883
44,627
101,642
101,778
297,200
1,058
1,641
182,118
78,793
43,620
101,642
97,763
297,200
1,034
1,641
27
Cranswick plc – Report & Accounts 2007
28
Report of the Directors
There have been no other changes to the above interests in the period from 1 April 2007 to 11 May 2007.
Major shareholders
The Company has been informed of the following interests at 11 May 2007 in the 45,956,062 ordinary
shares of the Company, as required by the Companies Act 1985:
AMVESCAP PLC
Legal & General Investment Management
Number of shares
% of issued share capital
13,230,968
2,555,694
28.8
5.6
Employment policies
The Company’s policy on employee involvement is to adopt an open management style, thereby
encouraging informal consultation at all levels about aspects of the Company’s operations. Employees
participate directly in the success of the business by participation in the SAYE share option schemes.
Employment policies are designed to provide equal opportunities irrespective of colour, ethnic or natural
origin, nationality, sex, religion, marital or disabled status. Full consideration is given to applications for
employment by and the continuing employment, training and career development of disabled people.
Payment of suppliers
Payment terms are agreed with each supplier and every endeavour is made to adhere to the agreed
terms. The average credit terms for the Group as a whole, based on the year-end trade creditors figure
and a 365 day year, is 38 days. The average credit taken by our customers on a similar basis is 35 days.
Events since the balance sheet date
On 18 May 2007, the Group disposed of its feed milling business. Sale proceeds of £3.0m in respect of certain
fixed assets and goodwill were received with a further £1.0m for other fixed assets in 12 months time. The
net book value of these assets was £2.7m at the balance sheet date. Further cash of approximately £3.0m
will be received as working capital is realised. No adjustment has been made in these financial statements for
the profit on disposal.
Auditors
Ernst & Young LLP have expressed their willingness to continue in office and a resolution proposing their
re-appointment will be submitted at the Annual General Meeting.
Directors’ statement as to disclosure of information to auditors
The Directors who were members of the Board at the time of approving the Directors’ Report are listed
on page 25. Having made enquiries of fellow Directors and of the Company’s auditors, each of these
directors confirm that:
• to the best of each Director’s knowledge and belief, there is no information relevant to the
preparation of their report of which the Company’s auditors are unaware; and
• each Director has taken all the steps a director might reasonably be expected to have taken to be
aware of relevant audit information and to establish that the Company’s auditors are aware of
that information.
Annual General Meeting and Special Business to be transacted at the Annual General
Meeting
The Notice convening the Annual General Meeting can be found in the separate Notice of Annual
General Meeting accompanying this Report & Accounts.
Details of the Special Business to be transacted at the Annual General Meeting are contained in the
separate letter from the Chairman, which also accompanies this Report & Accounts.
By Order of the Board
John Lindop
Secretary, 21 May 2007
29
Cranswick plc – Report & Accounts 2007
30
Cranswick and the Environment
Managing the impact that the business has on the environment is an important measure of the Company
performance. Retail customers, financial investors and consumers all have a growing interest in the preservation
of the environment, and seek assurances that the business is operated with the upmost care.
A commitment to safe guarding the environment is increasingly influencing the business both in terms of reducing
greenhouse gas emissions and tightening controls for the disposal of waste and the treatment of effluent.
The costs associated with the use of fossil fuels and the disposal of waste has in recent years risen significantly
and will continue to do so in the future. This challenge is being met by progressing a proactive environmental
management initiative which is aimed at identifying those areas which will minimise the carbon footprint, and/or
reduce waste, and at the same time improve business efficiency by managing operating costs.
Two of the largest manufacturing sites, Preston and Valley Park, are already benefiting by being certified against
ISO 14001 which is the international recognized operating standard for environmental management.
To identify where the environmental impact of our business can be further reduced the expertise within these
two sites has been utiliesed to carry out our own in-house environmental health checks, and work with the
Carbon Trust and Envirowise has begun to benefit from their experience and knowledge in assessing the current
environmental performance of each of our sites in the key areas of energy, water, waste, packaging & emissions
reduction. This will allow the business to set specific reduction targets for each of these key performance
indicators and the results will be reviewed by the Board.
Other performance environmental benchmarking indicators are being sought to assess progress when measured
against other businesses operating in a similar market.
Cranswick will also encourage all employees to address their individual environmental responsibilities within the
framework of their normal operating procedures.
Future investment in sites, processes and equipment will benefit from the use of best available technology in
minimizing the impact that our business has on the environment.
Examples of the good environmental work that is already going on within group are:
The Preston based meat processing site has invested in equipment to minimize waste streams from the site by
employing the latest technology in waste reduction by the use of separation through centrifuges. The resulting
effect will be to dramatically reduce vehicle demand for removing waste and to eventually eradicate the need
for further processing once it has left the site. Further benefits of the by-product processing system include the
production of an organic compostible material that can be spread on land, and the extraction of tallow for the
production of bio-fuel which ultimately could fuel the sites boilers and part of its own fleet of vehicles.
One of the largest sites, Valley Park, will significantly reduce its landfill volume with part of the waste stream
going to a local Waste to Energy Plant. Improved separation of the plastic wastes in the factory will enable a
higher proportion to be recycled with reciprocal benefits in income from the recycled material.
The Sandwich Factory has recently completed 6 months of trial work in assessing the use of on-site generated
electrolysed water disinfectant solutions and this has been rolled out to a number of sites. In so doing the site has
substantially reduced its reliance on the use of quaternary ammonium compound based disinfectants by 90 per
cent and chemical based detergents by 40 per cent, thereby benefiting the environment, and operating costs.
The recently launched Simply Sausage range incorporates printed sleeves manufactured from 100 per cent
recycled material, and uses trays which contain 85 per cent recycled material. In addition to this we are working
on converting all of our sausage range packaging to recycled board and are also evaluating other compostible
materials.
A copy of the full environmental policy is available on request from Cranswick.
31
Cranswick plc – Report & Accounts 2007
Group income statement
for the year ended 31 March 2007
2007
2006
Before
exceptionals
Exceptionals
Total
Before
exceptionals
Exceptionals
Total
Notes
£’000
£’000
£’000
£’000
£’000
£’000
Revenue
3
524,823
-
524,823
441,178
Cost of sales
Gross profit
(438,508)
86,315
Operating expenses
(49,239)
-
-
-
-
(438,508)
(364,388)
86,315
76,790
(49,239)
(42,720)
37,076
34,070
-
-
-
-
-
441,178
(364,388)
76,790
(42,720)
34,070
37,076
Operating profit
Profit on disposal of property,
plant and equipment
Profit before finance and
taxation
Finance revenue
Finance costs
4
5
3
-
281
281
-
2,079
2,079
37,076
281
37,357
34,070
2,079
36,149
7
7
6
(4,707)
-
-
6
25
(4,707)
(5,076)
-
-
25
(5,076)
Profit before tax
32,375
281
32,656
29,019
2,079
31,098
Taxation
8
(9,773)
(229)
(10,002)
(7,716)
(562)
(8,278)
Profit for the year
25
22,602
52
22,654
21,303
1,517
22,820
22,574
80
22,654
22,784
36
22,820
11
11
50.1p
49.7p
0.1p
0.1p
50.2p
49.8p
47.8p
47.4p
3.4p
3.4p
51.2p
50.8p
Profit for the year
attributable to:
Equity holders of the parent
Minority interest
Earnings per share:
(total and continuing)
Basic
Diluted
32
Group statement of recognised income and expense
for the year ended 31 March 2007
Income and expense recognised directly in equity
Profit/(losses) on effective cash flow hedges taken to equity
Exchange differences on retranslation of foreign operations
Deferred tax recognised directly in equity
Corporation tax recognised directly in equity
Transitional adjustment on adoption of IAS 32 and IAS 39 at 1 April 2005
Deferred tax on transitional adjustment
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
Attributable to:
Equity holders of the parent
Minority interest
Company statement of recognised
income and expense
for the year ended 31 March 2007
Income and expense recognised directly in equity
Gain/(loss) on effective cash flow hedges taken to equity
Deferred tax recognised directly in equity
Corporation tax recognised directly in equity
Transitional adjustment on adoption of IAS 32 and IAS 39 at 1 April 2005
Deferred tax on transitional adjustment
Net income recognised directly in equity
Profit for the year
Total recognised income and expense for the year
2007
£’000
2006
£’000
369
(5)
300
712
-
-
1,376
22,654
24,030
(85)
6
124
529
45
(14)
605
22,820
23,425
23,950
23,389
80
36
24,030
23,425
2007
£’000
2006
£’000
452
(118)
712
-
-
1,046
6,665
7,711
(191)
100
529
45
(14)
469
10,160
10,629
33
Cranswick plc – Report & Accounts 2007
Group balance sheet
31 March 2007
Non-current assets
Goodwill
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total current assets
Non-current assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Other payables
Other financial liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
Share-based payments
Hedging and translation reserves
Retained earnings
Equity attributable to members of the parent company
Minority interests
Total equity
J Lindop
Finance Director
M Davey
Chairman
21 May 2007
34
Notes
12
13
15
16
17
26
18
19
20
21
19
20
8
21
23
25
25
25
25
2007
£’000
117,520
80,277
197,797
24,626
66,416
330
2,262
93,634
2006
£’000
111,921
67,725
179,646
18,555
54,027
106
5,000
77,688
-
688
291,431
258,022
(65,073)
(16,933)
(3,834)
(289)
(86,129)
(37)
(61,544)
(6,150)
(1,736)
(69,467)
(53,376)
(19,422)
(3,138)
(334)
(76,270)
(76)
(62,720)
(4,657)
(1,877)
(69,330)
(155,596)
(145,600)
135,835
112,422
4,595
47,204
1,018
351
82,564
135,732
103
135,835
4,467
40,797
531
(13)
66,604
112,386
36
112,422
Company balance sheet
31 March 2007
Non-current assets
Property, plant and equipment
Investments in subsidiary undertakings
Current assets
Trade and other receivables
Other financial assets
Income tax receivable
Total current assets
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Income tax payable
Total current liabilities
Non-current liabilities
Other financial liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
General reserve
Merger reserve
Share-based payments
Hedging reserve
Retained earnings
Equity attributable to members of the parent company
M Davey
Chairman
21 May 2007
J Lindop
Finance Director
Notes
13
14
16
17
19
20
20
8
23
25
25
25
25
25
25
2007
£’000
2,339
155,430
157,769
2006
£’000
2,368
137,231
139,599
25,660
30,794
306
1
-
51
25,967
30,845
183,736
170,444
(41,654)
(16,279)
-
(57,933)
(61,544)
(403)
(61,947)
(31,372)
(18,948)
-
(50,320)
(62,720)
(236)
(62,956)
(119,880)
(113,276)
63,856
57,168
4,595
47,204
4,000
1,806
210
306
5,735
63,856
4,467
40,797
4,000
1,806
142
(146)
6,102
57,168
35
Notes
2007
£’000
2006
£’000
37,357
36,149
9,252
487
(39)
(250)
(5,329)
(9,141)
9,493
41,830
(7,936)
33,894
6
(13,506)
(11,979)
1,147
(24,332)
(3,966)
1,776
10,000
(40)
(11,395)
(6,467)
(10,092)
(530)
46
(10)
(494)
8,087
284
(36)
(2,220)
1,125
(5,751)
4,200
41,838
(6,954)
34,884
25
-
(14,064)
3,929
(10,110)
(5,119)
1,691
-
-
(18,753)
(5,847)
(28,028)
(3,254)
3,291
9
46
Cranswick plc – Report & Accounts 2007
Group cash flow statement
for the year ended 31 March 2007
Operating activities
Profit before finance and taxation
Adjustments to reconcile group operating profit
to net cash inflows from operating activities
Depreciation
Share based payments
Release of government grants
Profit on sale of property, plant and equipment
(Increase)/decrease in inventories and biological assets
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Tax paid
Net cash from operating activities
Cash flows from investing activities
Interest received
Acquisition of subsidiaries
Purchase of property, plant and equipment
Proceeds from sale of equipment
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Proceeds from issue of share capital
Proceeds from borrowings
Issue costs of long-term borrowings
Repayment of borrowings
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rates
Cash and cash equivalents at end of period
26
26
36
Company cash flow statement
for the year ended 31 March 2007
Operating activities
Profit before finance and taxation
Adjustments to reconcile operating profit to
net cash inflows from operating activities
Depreciation
Share based payments
Decrease in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Tax received
Net cash from operating activities
Cash flows from investing activities
Interest received
Dividends received
Purchase of property, plant and equipment
Payments to acquire investments in subsidiaries
Net cash generated/(used) in investing activities
Cash flows from financing activities
Interest paid
Dividends paid to equity shareholders
Proceeds from issue of share capital
Proceeds from borrowings
Issue costs of long-term borrowings
Repayment of borrowings
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
26
26
Notes
2007
£’000
2006
£’000
9,089
5,843
35
68
5,135
10,838
25,165
744
25,909
-
6,466
(6)
(14,599)
(8,139)
(9,266)
(6,467)
1,776
10,000
(40)
(11,395)
(15,392)
2,378
(4,480)
(2,102)
25
70
9,213
11,140
26,291
490
26,781
7
102
(51)
-
58
(7,317)
(5,847)
1,691
-
-
(18,753)
(30,226)
(3,387)
(1,093)
(4,480)
37
Cranswick plc – Report & Accounts 2007
Notes to the accounts
1. Authorisation of financial statements and statement of compliance with IFRS
The Group and Company financial statements of Cranswick plc (the “Company”) for the year ended 31 March 2007
were authorised for issue by the Board of Directors on 21 May 2007 and the balance sheets were signed on the
Board’s behalf by M Davey and J Lindop. Cranswick plc is a public limited company incorporated and domiciled in
England and Wales. The Company’s ordinary shares are traded on the London Stock Exchange.
The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union. The Company’s financial statements have been prepared in accordance
with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act
1985. The principal accounting policies adopted by the Group and by the Company are set out in note 2.
The Company has taken advantage of the exemption provided under section 230 of the Companies Act 1985 not
to publish its individual income statement and related notes.
2. Accounting policies
Basis of preparation
The financial statements of Cranswick plc, both consolidated and company, have been prepared under IFRS as
adopted by the European Union. A summary of the principal accounting policies, which have been consistently
applied throughout the year and the preceding year, is as follows:
Basis of consolidation
The Group financial statements consolidate the financial statements of Cranswick plc and its subsidiaries. The
results of undertakings acquired or sold are consolidated for the periods from the date of acquisition or up to the
date of disposal. Acquisitions are accounted for under the purchase method of accounting.
Foreign currencies
In the accounts of the Group’s companies, individual transactions denominated in foreign currencies are translated
into functional currency at the actual exchange rates ruling at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are translated into functional currency at the rates ruling at the balance
sheet date. Profits and losses on both individual foreign currency transactions during the year and monetary assets
and liabilities are dealt with in the income statement.
On consolidation, the income statements of the overseas subsidiaries are translated at the average exchange rates
for the year and the balance sheets at the exchange rates at the balance sheet date. The exchange differences
arising as a result of translating income statements at weighted average rates and restating opening net assets
at closing rates are taken to the translation reserve and the gain or loss on disposal of an overseas subsidiary is
calculated after taking into account cumulative exchange gains or losses in respect of that subsidiary. Cumulative
exchange differences at the date of transition to IFRS were deemed to be nil.
Revenue
Revenue excludes inter-company sales and value-added taxes and represents the invoiced value of goods sold less
estimated returns. Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group
and the revenue, and any associated costs, can be measured reliably. Revenue on the sale of goods is recognised when
the significant risks and rewards of ownership of the goods have passed to the buyer on despatch.
Intangible assets
Goodwill is the excess of the fair value of the consideration paid for a business over the fair value of the identifiable
assets, liabilities and contingent liabilities acquired. Goodwill is capitalised and subject to an impairment review,
both annually and when there are indications that the carrying value may not be recoverable.
38
Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill
relates. Where the recoverable amount is less than the carrying amount, an impairment loss is recognised. When
an entity is disposed of, any goodwill associated with it is included in the carrying amount of the operation when
determining the gain or loss on disposal except that goodwill arising on acquisitions prior to 31 March 2004 which
was previously deducted from equity is not recycled through the income statement.
Intangible assets acquired as part of an acquisition of a business are capitalised at fair value separately from goodwill
only if the fair value can be measured reliably on initial recognition and the future economic benefits are expected
to flow to the Group.
Taxation
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Deferred tax is provided on temporary differences at the balance sheet date between the tax base of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable temporary differences:
i. except where the deferred income tax liability arises from the initial recognition of goodwill or the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither accounting profit nor taxable profit or loss; and
ii. in respect of taxable temporary differences associated with investments in subsidiaries, except where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent that it is probable that the temporary differences will reverse in the
foreseeable future and taxable profits will be available against which the temporary differences can be utilised:
i. except where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or a liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
ii. in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets
are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the tax rates that apply to the period when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted
at the balance sheet date.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.
Otherwise income tax is recognised in the income statement.
Property, plant and equipment
Property, plant and equipment are included at cost less accumulated depreciation and any provision for
impairment.
Freehold land is not depreciated. Depreciation is charged on property, plant and equipment on the depreciable
amount, being cost less the estimated residual value (based on prices prevailing at the balance sheet date) on
a straight line basis over their estimated useful economic lives, or the estimated useful economic lives of their
individual parts.
39
Cranswick plc – Report & Accounts 2007
Useful economic lives are principally as follows:
Freehold buildings
Short leasehold improvements
Plant and equipment
Motor vehicles
50 years
Residue of lease
5-11 years
4 years
The carrying value of property, plant and equipment is reviewed for impairment individually or at the cash generating
unit level when events or changes in circumstances indicate that the carrying value may not be recoverable.
Capitalised borrowing costs
Borrowing costs incurred in financing the construction of qualifying assets such as property, plant and equipment
are capitalised up to the date at which the relevant asset is substantially complete. Borrowings costs are calculated
using the Group’s weighted average cost of borrowing during the period of capitalisation. All other borrowing
costs are expensed as incurred.
Accounting for leases
i. Finance leases
Assets which are financed by leasing agreements that transfer substantially all the risks and rewards of ownership
to the lessee (finance leases) are capitalised at the inception of the lease at fair value or, if lower, the present value
of the minimum lease payments, in property, plant and equipment and the corresponding capital cost is shown
as an obligation to the lessor in borrowings. Depreciation is charged to the income statement over the shorter
of the estimated useful life and the term of the lease. The interest element of the rental obligations is allocated
to accounting periods during the lease term to reflect a constant rate of interest on the remainder of the capital
amount outstanding.
ii. Operating leases
Leases, which are not finance leases, are classified as operating leases. Lease payments are charged to the income
statement on a straight line basis over the term of the lease.
Government grants and contributions
UK Regional Development Grants and grants receivable from the European Union and DEFRA in respect of property,
plant and equipment are credited to deferred income and released to the income statement over the relevant
depreciation period.
Inventories
Inventories, with the exception of biological assets such as tropical marine fish, are stated at the lower of cost, on
a first in, first out basis, and net realisable value after making allowance for any obsolete or slow-moving items.
In the case of finished goods, cost comprises direct materials, direct labour and an appropriate proportion of
manufacturing fixed and variable overheads based on a normal level of activity.
Biological assets
Biological assets are included in the balance sheet at fair value less estimated point of sale costs. Gains and losses
are charged to the income statement in the period in which they arise.
Cash and cash equivalents
Cash equivalents are defined as cash at bank and in hand including short term deposits with original maturity
within 3 months. For the purposes of the group cashflow statement, cash and cash equivalents consist of cash and
cash equivalents net of outstanding bank overdrafts.
Financial instruments
i. Debt instruments, including bank borrowings
Debt instruments are initially recognised at the fair value of net proceeds received after the deduction of issue
costs. Subsequently debt instruments are recognised at amortised cost using the effective interest method. Issue
costs are charged to the income statement over the term of the debt at a constant rate on the balance sheet
carrying amount under the effective interest method.
40
Notes to the accounts
ii. Derivative financial instruments
The Group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to
hedge its cash flow risks associated with interest rate and foreign currency fluctuations. Such derivative financial
instruments are stated at fair value.
The fair value of forward contracts is calculated by reference to current forward exchange rates for contracts with a
similar maturity profile. The fair value of interest rate swaps is determined by reference to market values for similar
instruments.
Where derivatives meet the special hedging criteria under IAS 39 for cash flow hedges the portion of the gain or
loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the
ineffective portion is recognised in net profit or loss. Gains or losses recognised in equity are transferred to the
income statement in the same period in which the hedged item affects the net profit and loss.
For derivatives that do not qualify for special hedge accounting under IAS 39, any gains or losses arising from
changes in fair value are taken directly to net profit or loss for the period.
Employee benefits
i. Pensions
The Group operates a number of defined contribution schemes for employees under which contributions are paid
into schemes managed by major insurance companies. Contributions are calculated as a percentage of employees’
earnings and obligations for contributions to the schemes are recognised as cost of sales or operating expenses in
the income statement in the period in which they arise.
ii. Equity settled share based payments
The Company operates a savings related share option scheme under which options have been granted to Group
employees (SAYE scheme). The company reflects in the income statement the cost of share based payments granted
to its own employees. The fair value of options granted after 7 November 2002 which have not vested prior to 1
January 2005 is calculated using the Black-Scholes model and the resulting cost is charged to the income statement
over the vesting period.
In addition, the Company operates an executive share option scheme for senior executives. Share options issued
are exercisable subject to the attainment of certain market-based performance criteria. The fair value of options
granted after 7 November 2002 which have not vested prior to 1 January 2005, is calculated using mathematical
models, including the Black-Scholes model, modified for the impact of market-based performance criteria and the
resulting cost is charged to the income statement over the vesting period.
The Company and Group re-assesses its estimate of the number of options that are expected to become exercisable at
each balance sheet date as a result of changes in the expectation of achievement of non-market based performance
conditions. Any adjustments to the original estimates are recognised in the income statement.
Non-current assets held for sale
On classification as held for sale, non-current assets are recognised at the lower of carrying amount and fair value
less costs to sell and no further depreciation is charged. Impairment losses on initial classification as held for sale
are included in profit or loss, as are any gains and losses on subsequent re-measurement.
Exceptional items
Exceptional items are material items which derive from events or transactions that fall within the ordinary activities
of the reporting entity and which individually or, if of a similar type, in aggregate need to be disclosed by virtue of
their size or incidence if the financial statements are to give a true and fair view.
Dividends
Dividends receivable by the Company are recognised in the income statement if they are declared, appropriately
authorised and no longer at the discretion of the entity paying the dividend, prior to the balance sheet date.
Dividends payable by the Company are recognised when declared and therefore final dividends proposed after the
balance sheet date are not recognised as a liability at the balance sheet date. Dividends paid to shareholders are
shown as a movement in equity rather than on the face of the income statement.
41
Cranswick plc – Report & Accounts 2007
Investments
Investments in subsidiaries are shown at cost less any provision for impairment.
New standards and interpretations not applied
During the year, the IASB and IFRIC have issued a number of new standards and interpretations with an effective
date after the date of these financial statements. The Directors do not consider that the adoption of these standards
and interpretations will have a material impact on the Group’s and Company’s financial statements in the period of
initial application. The standards not applied are as follows:
International Accounting Standards (IAS/IFRS’s)
IFRS 7
IFRS 8
IAS 1
Financial Instruments: Disclosures
Operating Segments
Amendment – Presentation of Financial Statements: Capital Disclosures
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 8
IFRIC 9
IFRIC 10
IFRIC 11
IFRIC 12
Scope of IFRS 2
Reassessment of Embedded Derivatives
Interim Financial Reporting and Impairment
IFRS 2 – Group and Treasury Share Transactions
Service Concession Arrangements
Effective date
1 January 2007
1 January 2009
1 January 2007
1 May 2006
1 June 2006
1 November 2006
1 March 2007
1 January 2008
Upon adoption of IFRS 7, the Group will have to disclose additional information about its financial instruments,
their significance and the nature and extent of risks that they give rise to. More specifically the Group will need to
disclose the fair value of its financial instruments and its risk exposure in greater detail. There will be no effect on
reported income or net assets.
Upon adoption of IFRS 8, the Group will have to disclose additional information about its operating segments,
although it is anticipated there will be no effect on reported income or net assets.
3. Revenue and segmental analysis
The Group’s primary segments are Food and Pet business segments as the Group’s management and reporting
structure is set out along these lines and the two segments exhibit different risks and rates of return. The results
are discussed in the review of activities. Secondary segment information is presented geographically. There are no
significant transactions between the primary segments.
42
Notes to the accounts
Business segments
Food
£’000
2007
Pet
£’000
Total
£’000
Food
£’000
2006
Pet
£’000
Total
£’000
Revenue
493,365
31,458
524,823
409,119
32,059
441,178
38,936
-
38,936
566
281
847
Result before exceptionals
Exceptionals
Results
Central costs
Profit before finance and taxation
Net finance costs
Profit before taxation
Income taxes
Profit for the year
All revenue derives from sales of goods from continuing operations.
Assets and liabilities
Assets (excluding goodwill)
Goodwill
Assets (including goodwill)
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
152,516
117,520
270,036
18,745
-
18,745
57,012
2,985
39,502
281
39,783
(2,426)
37,357
(4,701)
32,656
(10,002)
22,654
171,261
117,520
288,781
2,650
291,431
59,997
95,599
155,596
35,433
2,079
37,512
796
-
796
119,753
111,921
231,674
20,401
-
20,401
48,277
2,724
36,229
2,079
38,308
(2,159)
36,149
(5,051)
31,098
(8,278)
22,820
140,154
111,921
252,075
5,947
258,022
51,001
94,599
145,600
Unallocated assets and liabilities comprise certain items of property, plant and equipment, non-current assets classified as
held for sale, loan notes, net debt and taxation balances.
Other segment information
Capital expenditure:
Property, plant and equipment
Depreciation
Impairments of property plant &
equipment
11,383
8,697
-
424
555
-
11,807
9,252
-
13,384
7,567
-
916
520
-
14,300
8,087
-
In addition, £10,206,000 of property, plant and equipment was acquired as part of the Delico acquisition which relates to
the Food and UK segments.
Geographical segments
The following table sets out sales by destination, regardless of where the goods were produced:
UK
Continental Europe
Rest of World
Sales revenue by geographical market
2007
£’000
2006
£’000
513,738
10,599
486
524,823
430,707
10,218
253
441,178
43
Cranswick plc – Report & Accounts 2007
The following table sets out the geographical location of the group’s assets and of additions to property, plant and
equipment and intangible assets:
UK
Continental Europe
Unallocated assets
4. Group operating profit
This is stated after charging:
Operating costs
Selling and distribution
Administration
Depreciation of property, plant and equipment
Release of government grants
Operating lease payments – minimum lease payments
Net foreign currency differences
Cost of inventories recognised as an expense
(Decrease)/Increase in provision for inventories
Audit of the financial statements*
* £26,000 relates to the Company (2005 – £25,000).
Carrying amount
of segment assets,
including goodwill
Additions to property,
plant and equipment and
intangible assets
2007
£’000
2006
£’000
2007
£’000
2006
£’000
288,529
252
2,650
291,431
251,737
338
5,947
258,022
11,803
14,275
4
-
25
-
11,807
14,300
2007
£’000
22,043
27,196
49,239
9,252
(39)
3,744
(303)
2006
£’000
18,347
24,373
42,720
8,087
(36)
2,858
208
358,706
289,481
(81)
149
78
140
In addition, payments to Ernst & Young LLP for non audit services amounted to £156,000 (2006 – £126,000) of
which £nil related to the transition to IFRS (2006 – £55,000), £5,000 for an audit related service (2006 – nil),
£73,000 (2006 – £nil) related to due diligence services and £78,000 (2006 – £71,000) to taxation.
5. Exceptional items
Non-recurring income during the year was as follows:
Recognised below operating profit
Profit on disposal of property, plant and equipment
2007
£’000
2006
£’000
281
2,079
The corporation tax charge associated with these exceptional items amounted to £nil (2006 – £nil). Deferred tax of
£229,000, of which £150,000 relates to the prior year, (2006 – £562,000) was provided on the rolled-over gain.
The cash flow impact of exceptional items is £770,000 (2006 – £2,975,000) received in relation to asset disposals
after associated costs.
44
Notes to the accounts
6. Employees
Group
Staff costs:
Wages and salaries
Social security costs
Other pension costs
2007
£’000
59,130
5,293
921
65,344
2006
£’000
53,229
4,559
765
58,553
Included within wages and salaries is a total expense for share based payments of £487,000 (2006 – £284,000) all
of which arises from transactions accounted for as equity-settled share based payment transactions.
Company
Staff costs:
Wages and salaries
Social security costs
Other pension costs
2007
£’000
1,610
188
219
2,017
2006
£’000
1,248
144
197
1,589
Included within wages and salaries is a total expense for share based payments of £68,000 (2006 – £70,000) all of
which arises from transactions accounted for as equity-settled share based payment transactions.
The average monthly number of employees during the year was:
Production
Selling and distribution
Administration
2007
No
2,567
204
253
3,024
2006
No
2,320
180
222
2,722
The Group and Company consider the Directors to be the Key Management Personnel. Details of each Director’s
remuneration, pension contributions and share options are detailed in the Report on Directors’ Remuneration on
pages 73 to 76. The employee costs shown above include the following emoluments in respect of Directors of the
Company:
Group and Company
2007
£’000
2006
£’000
Directors’ remuneration (excluding IFRS 2 share option charge)
3,724
2,832
Aggregate gains made by directors on exercise of share options
487
693
7. Finance revenue and costs
Bank interest received
Loan note interest paid
Bank interest paid and similar charges
Movement in discount on provisions
2007
£’000
2006
£’000
(6)
(25)
45
4,610
52
4,707
42
4,974
60
5,076
45
Cranswick plc – Report & Accounts 2007
8. Taxation
a) Analysis of tax charge in the year
Tax charge based on the profit for the year:
UK corporation tax
UK corporation tax on profits of the year
Adjustments in respect of previous years
Overseas taxation
Overseas taxation on profits of the year
Adjustments in respect of previous years
Total current tax
UK deferred tax
Originating and reversal of temporary differences
Adjustments in respect of previous years
Total deferred tax
2007
£’000
9,323
(6)
9,317
25
-
9,342
430
230
660
2006
£’000
7,720
12
7,732
101
-
7,833
1,436
(991)
445
Tax on profit on ordinary activities
10,002
8,278
The prior year’s tax charge was reduced by £941,000 due to the purchase of group relief at a discount from the
former owners of subsidiary companies which has increased the capital allowances available to the Group.
Tax relating to items charged or credited directly to equity:
Group
Share based payments
Net gain/(loss) on revaluation of cash flow hedges
Corporation tax credit on share options exercised
Transitional adjustments on adoption of IAS 32 and IAS 39
Tax credit in the statement of recognised income and expense
Company
Net gain/(loss) on revaluation of cash flow hedges
Corporation tax credit on share options exercised
Deferred tax credit on share options exercised
Transitional adjustments on adoption of IAS 32 and IAS 39
Tax credit in the statement of recognised income and expense
b) Factors affecting tax charge for the period
2007
£’000
(411)
111
(712)
-
(1,012)
135
(712)
(17)
-
(594)
2006
£’000
(98)
(26)
(529)
14
(639)
(58)
(529)
(42)
14
(615)
The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained
below:
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by standard rate
2007
£’000
2006
£’000
32,656
31,098
of corporation tax in the UK of 30 per cent (2005 – 30 per cent)
9,797
9,329
Effect of:
Disallowed expenses
Rollover and indexation
Other
Adjustments in respect of prior years
Total tax charge for the year
46
44
(40)
(23)
224
10,002
75
(137)
(10)
(979)
8,278
Notes to the accounts
c) Deferred tax
Group
Deferred tax liability in the balance sheet
Accelerated capital allowances
Rollover and holdover relief
Other temporary differences
Share based payments
Deferred tax liability
Deferred tax in the income statement
Accelerated capital allowances
Payment for group relief
Share based payments
Rollover relief
Other temporary differences
Deferred income tax expense
Company
Deferred tax liability in the balance sheet
Accelerated capital allowances
Rollover relief
Other temporary differences
Share based payments
Deferred tax liability
2007
£’000
5,424
938
592
(804)
6,150
918
-
(80)
66
(244)
660
153
41
294
(85)
403
2006
£’000
3,372
873
725
(313)
4,657
(1,131)
468
(98)
562
644
445
135
41
158
(98)
236
d) Temporary differences associated with Group investments
At 31 March 2007 no deferred tax liability has been recognised (2006 – £nil) in respect of any taxes that would be
payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group can control the timing of any
such payments. There are no income tax consequences to the Group in relation to dividends paid to shareholders.
9. Profit attributable to members
Of the profit attributable to members, the sum of £6,665,000 (2006 – £10,160,000) has been dealt with in the
accounts of Cranswick plc.
10. Equity dividends
Declared and paid during the year
Final dividend for 2006 – 11.1p per share (2005 – 9.8p)
Interim dividend for 2007 – 5.9p per share (2006 – 5.4p)
Dividends paid
Proposed for approval of shareholders at the Annual General Meeting on 30 July 2007
Final dividend for 2007 – 12.2p (2006 – 11.1p)
2007
£’000
4,959
2,667
7,626
5,607
2006
£’000
4,335
2,406
6,741
4,958
11. 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 £22,574,000 (2006 – £22,784,000) 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
47
Cranswick plc – Report & Accounts 2007
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 Group discloses in its consolidated income statement as exceptional items those material items which individually
or, if of a similar type, in aggregate need to be disclosed by virtue of their size or incidence if the financial statements
are to give a true and fair view. Accordingly, basic and diluted earnings per share are also presented on this basis
using the weighted average number of ordinary shares for both basic and diluted amounts as per the table below.
Basic weighted average number of shares
Dilutive potential ordinary shares – share options
2007
2006
Thousands
Thousands
44,967
366
45,333
44,477
359
44,836
Basic weighted average number of shares for 2007 excludes shares held during the year by the Cranswick plc
Employee Benefit Trust.
12. Intangible fixed assets
Group
Cost
At 31 March 2005 and at 31 March 2006
Acquisition of subsidiary undertakings
At 31 March 2007
Impairments as at 31 March 2005, 2006 and 2007
Net book amounts at 31 March 2006
Net book amounts at 31 March 2007
Goodwill
£’000
111,921
5,599
117,520
-
111,921
117,520
In August 2006, the Group increased its investment in Cranswick Gourmet Bacon Company Ltd from 70 per cent to
85 per cent. Goodwill arising from this amounted to £60,000.
Goodwill of £5,539,000 arising on the acquisition of Delico Limited is detailed further in Note 14.
The Company has no intangible assets.
As from 1 April 2004, the date of transition to IFRS, goodwill is no longer amortised but is instead subject to annual
impairment testing.
Goodwill acquired through business combinations has been allocated for impairment testing purposes to the
following principal cash generating units:
Cash generating unit
Cooked meats
Sandwiches
Continental Fine Foods
Other
48
2007
£’000
86,903
16,526
10,968
3,123
117,520
2006
£’000
81,364
16,526
10,968
3,063
111,921
Notes to the accounts
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 the assumed long-term trend in UK GDP of circa 2.5 per
cent derived from third party market information.
A discount rate of 9.8 per cent has been used (2006 – 8.5 per cent) being management’s estimate of the Group’s
weighted average cost of capital.
The calculation is most sensitive to the following assumptions:
• Sales volumes
• Gross margin
• Discount rate
Sales volumes are influenced by the growth of the underlying food segment, the market shares of our customers,
selling prices, and the quality of our products and service. Historical volumes are used as the base and adjusted
over the projection period in line with current growth rates. These sectors have historically demonstrated growth
rates higher than GDP but for these purposes a reversion to long-term GDP growth is assumed beyond the five year
period of cash flow projections.
Gross margin depends upon average selling prices, the cost of raw materials and changes in the cost of production
overheads. Historical margins are used as the base, adjusted for management’s expectations derived from
experience.
All calculations of this nature are sensitive to the discount rate used. Management’s estimate of the Group’s weighted
average cost of capital has been used for each cash generating unit.
Management believes that currently the assumptions used are unlikely to change to an extent which reduced value
in use below that of recoverable amount. Assumptions and projections are updated on an annual basis.
49
Cranswick plc – Report & Accounts 2007
13. Property, plant and equipment
Group
Cost
At 31 March 2005
Additions
Transfers to assets held for resale
Disposals
At 31 March 2006
On acquisition of subsidiary undertaking
Additions
Transfer from/(to) assets held for resale
Disposals
At 31 March 2007
Depreciation
At 31 March 2005
Charge for the year
Transfers to assets held for resale
Relating to disposals
At 31 March 2006
On acquisition of subsidiary undertaking
Charge for the year
Transfer from/(to) assets held for resale
Relating to disposals
At 31 March 2007
Net book amounts
At 31 March 2005
At 31 March 2006
At 31 March 2007
Freehold
land and
buildings
Leasehold
improvements
Plant
equipment
and vehicles
Total
£’000
£’000
£’000
£’000
27,106
1,582
(952)
(156)
27,580
-
132
231
(140)
15,627
863
-
(3)
16,487
-
318
-
-
27,803
16,805
1,957
470
(264)
(15)
2,148
-
466
10
(76)
2,548
5,113
869
-
(3)
5,979
-
919
-
-
6,898
25,149
25,432
25,255
10,514
10,508
9,907
60,096
11,855
-
(3,396)
68,555
16,363
11,357
(61)
(2,051)
94,163
32,603
6,748
-
(2,581)
36,770
6,157
7,867
(39)
(1,707)
49,048
27,493
31,785
45,115
102,829
14,300
(952)
(3,555)
112,622
16,363
11,807
170
(2,191)
138,771
39,673
8,087
(264)
(2,599)
44,897
6,157
9,252
(29)
(1,783)
58,494
63,156
67,725
80,277
Included in freehold land and buildings is land with a cost of £2,952,000 (2006 – £2,952,000) which is not
depreciated relating to the Group and £1,210,000 (2006 – £1,210,000) relating to the Company. The cost of
freehold land and buildings includes £538,000 (2006 – £538,000) in respect of capitalised interest. £nil of interest
was capitalised during the year (2006 – £71,000).
50
Notes to the accounts
Company
Cost
At 31 March 2005
Additions
At 31 March 2006
Transfers from other group companies
Additions
At 31 March 2007
Depreciation
At 31 March 2005
Charge for the year
At 31 March 2006
Transfers from other group companies
Charge for the year
At 31 March 2007
Net book amounts
At 31 March 2005
At 31 March 2006
At 31 March 2007
14. Investment in subsidiary undertakings
Company
Shares at cost
At 31 March 2005
Additions in year
At 31 March 2006
Additions in year
At 31 March 2007
Freehold
land and
buildings
Plant and
machinery
Total
£’000
£’000
£’000
2,431
-
2,431
-
-
2,431
89
21
110
-
21
131
2,342
2,321
2,300
-
51
51
18
3
72
-
4
4
15
14
33
-
47
39
2,431
51
2,482
18
3
2,503
89
25
114
15
35
164
2,342
2,368
2,339
£’000
137,211
20
137,231
18,199
155,430
Delico Limited was acquired on 1 November 2006 and has been accounted for as an acquisition from that date. The
fair values of the assets acquired are the same as the book values and are detailed below:
Property, plant and equipment
Inventories
Cash and short term deposits
Trade and other receivables
Trade and other payables
Deferred taxation
Net assets
Goodwill arising on acquisition
Cost of acquisition
Discharged by:
Cash consideration
Issue of new shares (478,766 shares at £7.52)
Acquisition costs
Fair value
£’000
10,206
742
1,168
3,248
(1,570)
(1,134)
12,660
5,539
18,199
14,272
3,600
327
18,199
51
Cranswick plc – Report & Accounts 2007
The fair values on acquisition of Delico Limited can be restated within one year of acquisition.
From the date of acquisition to 31 March 2007, Delico Limited has contributed £181,000 to the profit of the Group.
If the combination had taken place at the beginning of the year, the consolidated profit of the Group would have
been £22,851,000 and the revenue from continuing operations would have been £536,503,000.
Included in the £5,539,000 of goodwill recognised above are certain intangible assets that cannot be individually
separated and reliably measured from the acquiree due to their nature. These items include capacity and an
assembled workforce.
The principal subsidiary undertakings are:
Food
Cranswick Country Foods plc
Studleigh-Royd Limited
Brookfield Foods Limited
The Sandwich Factory Group Limited (registered in Scotland)
Cranswick Gourmet Bacon Company Limited (85% ownership, holding via Cranswick Country Foods plc)
Cranswick Mill Limited
Delico Limited
Pet
Cranswick Pet & Aquatics plc
Except where stated otherwise, each of the companies is registered in England and Wales and Cranswick plc holds
directly 100 per cent of the shares and voting rights of each subsidiary undertaking.
15. Inventories (including biological assets)
Group
Raw materials
Finished goods and goods for resale
Biological assets (see below)
2007
£’000
20,334
4,155
137
24,626
2006
£’000
13,672
4,726
157
18,555
The Group breeds and imports tropical marine fish and other invertebrates for supply to specialist aquatic retailers. At
31 March 2007 marine stock represented approximately 56,000 fish (2006 - approximately 57,000 fish). The fair value
of tropical marine fish is determined from retail selling price less a margin and reduced by £4,000 in the year.
16. Trade and other receivables
Trade receivables
Amounts owed by group undertakings
Other receivables
Prepayments and accrued income
Group
Company
2007
£’000
58,585
-
3,457
4,374
66,416
2006
£’000
46,909
-
1,971
5,147
54,027
2007
£’000
-
25,602
58
-
2006
£’000
-
30,640
154
-
25,660
30,794
52
Notes to the accounts
17. Other financial assets – Current
Forward currency contracts
Interest rate swaps
Group
Company
2007
£’000
24
306
330
2006
£’000
106
-
106
2007
£’000
-
306
306
2006
£’000
-
-
-
Forward currency contracts are used to hedge a proportion of anticipated purchases denominated in foreign
currencies and are held at fair value in the balance sheet. To the extent that these forward contracts represent
effective hedges, movements in fair value are taken directly to equity and are then recycled through the income
statement in the period during which the hedged item impacts the income statement. A description of amounts
and maturities is contained in note 22.
Under the terms of the interest rate swap the Group receives LIBOR interest and pays fixed interest of 4.98 per
cent. The notional principal amount stands at £27,000,000 as at 31 March 2007 and reduces in equal semi-annual
amounts to £nil by January 2010.
18. Non-current assets classified as held for sale
Group
At 1 April 2005
Additional costs
Transfer from property, plant and equipment
Sold in the year
At 31 March 2006
Additional costs
Transfer to property, plant and equipment
Sold in the year
At 31 March 2007
£’000
891
5
688
(896)
688
35
(199)
(524)
-
Following the rationalisation of small animal feed production on to a single site in 2006 a factory became vacant
and was reclassified as a non-current asset held for sale as at 31 March 2006. The property, with a carrying value
of £489,000, was sold in September 2006 for gross consideration of £805,000 realising a profit of £281,000 after
associated costs, but before taxation. This profit has been treated as an exceptional item as described in note 5 and
relates to the pet segment.
19. Trade and other payables
Current
Trade payables
Amounts owed to group undertakings
Other payables
Non-current
Deferred income
Group
Company
2007
£’000
43,882
-
21,191
65,073
2006
£’000
36,489
-
16,887
53,376
2007
£’000
-
36,541
5,113
41,654
2006
£’000
-
28,922
2,450
31,372
37
76
-
-
53
Cranswick plc – Report & Accounts 2007
20. Financial liabilities
Current
Bank overdrafts
Amounts outstanding under revolving credit facility
Current instalments due on bank loan
Loan notes
Interest rate swaps
Non-current
Group
Company
2007
£’000
2,756
2,000
11,250
927
-
16,933
2006
£’000
4,954
2,000
11,250
1,072
146
19,422
2007
£’000
2,102
2,000
11,250
927
-
16,279
2006
£’000
4,480
2,000
11,250
1,072
146
18,948
Non-current instalments due on bank loan
61,544
62,720
61,544
62,720
A bank overdraft facility of £10 million (2006 – £10m) is in place until December 2009, of which £2,756,000 (2006
– £4,954,000) was utilised at 31 March 2007. Interest is payable at a margin over base rate.
A revolving credit facility of £20 million is in place of which £2 million was utilised as at 31 March 2007 (2006
– facility of £20 million of which £2 million was utilised). This facility expires in December 2009. Interest is payable
on the loan at a margin between 0.5 and 0.8 per cent above LIBOR.
The maturity profile of bank loans is as follows:
In one year or less
Between one year and two years
Between two and five years
Unamortised issue costs
Group
Company
2007
£’000
11,250
11,250
50,625
73,125
(331)
72,794
2006
£’000
11,250
11,250
51,875
74,375
(405)
73,970
2007
£’000
11,250
11,250
50,625
73,125
(331)
72,794
2006
£’000
11,250
11,250
51,875
74,375
(405)
73,970
The balance outstanding on the bank loan is repayable in 5 semi-annual instalments of £5,625,000 from September
2007, followed by a single payment of £45,000,000 in December 2009. Interest is payable on the loan at a margin
between 0.5 and 0.8 per cent above LIBOR. The loan is unsecured. The loan is subject to normal bank covenant
arrangements. Under the terms of the interest rate swap the Group receives LIBOR interest and pays fixed interest
of 4.98 per cent.
Loan notes bear interest based on base rate and are repayable on demand at six-monthly intervals.
54
Notes to the accounts
21. Provisions
Group
At 1 April 2006
Utilisation in the year
Unwinding of discount
At 31 March 2007
Analysed as:
Current liabilities
Non-current liabilities
Lease
provisions
£’000
2,211
(238)
52
2,025
2006
£’000
334
1,877
2,211
Group
2007
£’000
289
1,736
2,025
Lease provisions are held against dilapidations obligations on leased properties and for the costs of onerous leases
for property and plant and machinery. These provisions are expected to be utilised over the next six years. There are
no provisions held by the Company.
55
Cranswick plc – Report & Accounts 2007
22. Financial instruments
An explanation of the Company and Group’s financial instruments risk management strategy is set out on page 23
in the Financial Review.
Interest rate risk profile of financial assets and liabilities
The interest rate profile of the interest earning financial assets and interest bearing liabilities of the Group as at 31
March 2007 and their weighted average interest rates is set out below:
Group
As at 31 March 2007
Weighted
average
effective
interest
rate
%
Total
At floating
interest
rates
1 year
or less
Fixed interest
1-2 years
2-3 years
3-4 years
£’000
£’000
£’000
£’000
£’000
£’000
Financial liabilities:
Bank overdrafts
6.25%
(2,756)
(2,756)
Revolving credit facility
6.05%
(2,000)
(2,000)
Bank loan (including the
effect of interest rate swaps)
5.50%
(73,125)
(46,125)
(9,000)
(9,000)
(9,000)
Loan notes
5.25%
(927)
(927)
(78,808)
(51,808)
(9,000)
(9,000)
(9,000)
-
(27,000)
9,000
9,000
9,000
Less: effect of interest rate
swaps
Total financial liabilities
excluding the effect of
interest rate swaps
Financial assets: Cash at bank
4.25%
2,262
2,262
(76,546)
(76,546)
(78,808)
(78,808)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
As at 31 March 2006
Weighted
average
effective
interest
rate
%
Total
At floating
interest
rates
1 year
or less
Fixed interest
1-2 years
2-3 years
3-4 years
£’000
£’000
£’000
£’000
£’000
£’000
Financial liabilities:
Bank overdrafts
5.50%
(4,954)
(4,954)
Revolving credit facility
5.30%
(2,000)
(2,000)
Bank loan (including the
effect of interest rate swaps)
5.50%
(74,375)
(38,375)
(9,000)
(9,000)
(9,000)
(9,000)
Loan notes
4.50%
(1,072)
(1,072)
(82,401)
(46,401)
(9,000)
(9,000)
(9,000)
(9,000)
-
(36,000)
9,000
9,000
9,000
9,000
Less: effect of interest rate
swaps
Total financial liabilities
excluding the effect of
interest rate swaps
(82,401)
(82,401)
Financial assets: Cash at bank
3.50%
5,000
5,000
(77,401)
(77,401)
The maturity profile of bank loans is set out in note 20.
-
-
-
-
-
-
-
-
-
-
-
-
The interest rate profile of the interest earning financial assets and interest bearing liabilities of the Company as at
31 March 2007 and their weighted average interest rates is set out on the following page:
56
Notes to the accounts
Company
As at 31 March 2007
Weighted
average
effective
interest
rate
%
Total
At floating
interest
Rates
1 year
or
less
Fixed interest
1-2 years
2-3 years
3-4 years
£’000
£’000
£’000
£’000
£’000
£’000
Financial liabilities:
Bank overdrafts
6.25%
(2,102)
(2,102)
Revolving credit facility
6.05%
(2,000)
(2,000)
Bank loan (including the
effect of interest rate swaps)
5.50%
(73,125)
(46,125)
(9,000)
(9,000)
(9,000)
Loan notes
5.25%
(927)
(927)
(78,154)
(51,154)
Less: effect of interest rate
swaps
Total financial liabilities
excluding the effect of
interest rate swaps
Financial assets: Cash at bank
-
(27,000)
9,000
9,000
9,000
(78,154)
(78,154)
-
-
(78,154)
(78,154)
-
-
-
-
-
-
-
-
-
-
-
-
-
As at 31 March 2006
Weighted
average
effective
interest
rate
%
Total
At floating
interest
Rates
1 year
or
less
Fixed interest
1-2 years
2-3 years
3-4 years
£’000
£’000
£’000
£’000
£’000
£’000
Financial liabilities:
Bank overdrafts
5.50%
(4,480)
(4,480)
Revolving credit facility
5.30%
(2,000)
(2,000)
-
-
-
-
-
-
-
-
Bank loan (including the
effect of interest rate swaps)
5.50%
(74,375)
(38,375)
(9,000)
(9,000)
(9,000)
(9,000)
Loan notes
4.50%
(1,072)
(1,072)
-
-
-
-
Less:
effect of interest rate swaps
Total financial liabilities
excluding the effect of
interest rate swaps
Financial assets: Cash at bank
(81,927)
(45,927)
(9,000)
(9,000)
(9,000)
(9,000)
-
(36,000)
9,000
9,000
9,000
9,000
(81,927)
(81,927)
-
-
(81,927)
(81,927)
-
-
-
-
-
-
-
-
-
-
-
-
Currency profile
The Group’s financial assets at 31 March 2007 include sterling denominated cash balances of £894,000 (2006 –
£2,315,000), Danish Krona £195,000 (2006 – £342,000), Euro £902,000 (2006 – £1,792,000) and US Dollar £271,000
(2006 – £551,000), all of which are held in the UK with the exception of Danish Krona £83,000 (2006 – £88,000) and
Euro £218,000 (2006 – £271,000). The Group’s financial liabilities are denominated in sterling.
The proportion of the Group’s net assets denominated in foreign currencies is immaterial.
The Company’s financial assets and liabilities are denominated in sterling.
57
Cranswick plc – Report & Accounts 2007
Credit risk
The Group makes a significant proportion of its sales to the major UK supermarket groups, which correspondingly
represent a significant proportion of the Group’s trade receivables at any one time. Based on the financial strength
of these customers, the directors do not consider that the Group faces a significant credit risk in this regard.
All cash financial assets are held by UK financial institutions. The maximum credit exposure relating to financial
assets is represented by their carrying values as at the balance sheet date.
Fair value of financial instruments
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties on an arm’s length basis. Fair value is determined by reference to market prices where an active
market exists or from discounting future cash flows based on market yield curves. All derivative financial instruments
are shown on the balance sheet at fair value.
The fair value of floating rate assets and liabilities is estimated to be equivalent to book value.
Group
2007
2006
Financial assets
Cash
Forward currency contracts
Interest rate swap
Financial liabilities
Bank overdraft
Amounts outstanding under revolving credit facility
Bank loan, gross of issue costs
Loan notes
Interest rate swap
Book
value
£’000
2,262
24
306
2,592
(2,756)
(2,000)
(73,125)
(927)
-
Fair
value
£’000
2,262
24
306
2,592
(2,756)
(2,000)
(73,125)
(927)
-
(78,808)
(78,808)
Book
value
£’000
5,000
106
-
5,106
(4,954)
(2,000)
(74,375)
(1,072)
(146)
(82,547)
Fair
value
£’000
5,000
106
-
5,106
(4,954)
(2,000)
(74,375)
(1,072)
(146)
(82,547)
At 31 March
(76,216)
(76,216)
(77,441)
(77,441)
Company
Financial asset
Interest rate swap
Financial liabilities
Bank overdraft
Amounts outstanding under revolving credit facility
Bank loan, gross of issue costs
Loan notes
Interest rate swap
2007
Book
value
£’000
Fair
value
£’000
2006
Book
value
£’000
Fair
value
£’000
306
306
-
-
(2,102)
(2,000)
(73,125)
(927)
-
(2,102)
(2,000)
(73,125)
(927)
-
(78,154)
(78,154)
(4,480)
(2,000)
(74,375)
(1,072)
(146)
(82,073)
(4,480)
(2,000)
(74,375)
(1,072)
(146)
(82,073)
At 31 March
(77,848)
(77,848)
(82,073)
(82,073)
The book value of trade and other receivables and trade and other payables equates to fair value for the Group and
Company. Details of these financial assets are included in notes 16 to 19.
58
Notes to the accounts
Hedges
Financial instruments designated as cash flow hedges are held at fair value in the balance sheet. The Group hedges
two types of cash flows:
Forward contracts to hedge expected future purchases
The Group hedges a proportion of its near-term expected purchases denominated in overseas currencies. Where
these hedges meet the hedge criteria of IAS 39 changes in fair value are posted directly to equity and subsequently
recycled through the income statement at the time that the hedged item affects profit and loss.
Group
Dollars
Euros
Amount
Maturities
Exchange rates
$5,550,000
€14,350,000
2 April 2007 to
4 December 2007
26 April 2007 to
21 April 2008
$1.90-$1.97
€1.4563 -€1.503
Fair value
£’000
32
(8)
These contracts were effective cash flow hedges under the criteria set out in IAS 39 and therefore these fair value
gains were recognised directly in equity.
The Company does not hold any forward contracts.
Interest rate swap
The Group hedges a proportion of the interest cash flows payable in respect of bank loans. Under the terms of the
interest rate swap the Group receives LIBOR interest and pays fixed interest of 4.98 per cent. The notional principal
amount of the swap stands at £27,000,000 as at 31 March 2007 and reduces in equal semi-annual amounts to £nil
by January 2010.
The swap was an effective cash flow hedge under the criteria set out in IAS 39 and therefore movements in fair
value have been posted directly to equity.
23. Called-up share capital
Group and Company
Authorised
2007
Number
2006
Number
Ordinary shares of 10p each
63,600,000
53,000,000
Allotted, called-up and fully paid
Ordinary shares of 10p each
2007
Number
2006
Number
2007
£’000
6,360
2007
£’000
2006
£’000
5,300
2006
£’000
At 1 April
On exercise of share options
Scrip dividends
Issues on acquisition of subsidiary
At 31 March
44,669,630
44,051,460
4,467
4,405
653,694
152,236
478,766
468,349
149,821
-
65
15
48
47
15
-
45,954,326
44,669,630
4,595
4,467
On 6 September 2006, 61,081 ordinary shares were issued at 714.8p as a result of shareholders exercising the scrip
dividend option in lieu of the cash payment for the 2006 final dividend.
On 26 January 2007, 91,155 ordinary shares were issued at 792.9p as a result of shareholders exercising the scrip
dividend option in lieu of the cash payment for the 2007 interim dividend.
During the course of the year, 243,694 ordinary shares were issued to employees exercising SAYE options at prices
between 255p and 415p, 215,000 ordinary shares were issued to directors and employees exercising executive
share options at a price of 518.5p per ordinary share and 195,000 ordinary shares were allotted at par to Cranswick
59
Cranswick plc – Report & Accounts 2007
Trustees Limited in respect of the Cranswick plc Long Term Incentive Plan approved at last year’s Annual General
Meeting.
On 1 November 2006, 478,766 ordinary shares were issued at £7.52 each as part of the consideration for Delico
Limited.
Of the unissued ordinary share capital £114,087 is reserved for allotment under the Savings Related and Executive
Share Option Schemes. The options are exercisable as follows:
Savings related
Savings related
Savings related
Savings related
Savings related
Savings related
Executive
Number
26,443
34,117
80,328
167,269
144,735
152,978
535,000
Exercise price
Exercise period
264p
415p
255p
375p
471p
679p
601p
March 2007 to October 2009
March 2008 to October 2010
March 2007 to October 2011
March 2008 to October 2012
March 2009 to October 2013
March 2010 to October 2014
July 2008 to July 2015
On 9 September 2005, 68,119 ordinary shares were issued at 648p as a result of shareholders exercising the scrip
dividend option in lieu of the cash payment for the 2005 final dividend.
On 27 January 2006, 81,702 ordinary shares were issued at 584p as a result of shareholders exercising the scrip
dividend option in lieu of the cash payment for the 2006 interim dividend.
During the course of the previous year, 38,349 ordinary shares were issued to employees exercising SAYE options
at prices between 121p and 415p, and 430,000 ordinary shares were issued to directors and employees exercising
executive share options at a price of 362p per ordinary share.
24. Share based payments
Executive Share Options
The Company operates two executive share option schemes, a Revenue approved scheme and an unapproved
scheme both of which are equity settled.
Share options are granted periodically to promote the involvement of senior management in the longer term success
of the Company. Options can only be exercised if certain performance conditions are met by the Company. These
conditions are based on total shareholder return over the performance period and require the Company to be in
the top half of a basket of food companies quoted on the London Stock Exchange selected by the Remuneration
Committee. Options have a contractual life of ten years.
Directors may also apply for SAYE options on the same terms as apply to all other employees.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in,
share options during the year.
60
Notes to the accounts
Group
Outstanding as at 1 April
Granted during the year
Forfeited during the year
Exercised during the year (note i)
Expired during the year
Outstanding as at 31 March
Exercisable at 31 March
Company
Outstanding as at 1 April
Granted during the year
Forfeited during the year
Exercised during the year (note i)
Expired during the year
Outstanding as at 31 March
Exercisable at 31 March
2007
Number
795,000
-
(45,000)
(215,000)
-
535,000
-
2007
Number
400,000
-
-
(135,000)
265,000
-
2007
WAEP
£
5.79
-
6.01
5.19
6.01
-
2007
WAEP
£
5.79
5.19
6.01
-
2006
Number
645,000
610,000
(30,000)
(430,000)
-
795,000
-
2006
Number
405,000
265,000
-
(270,000)
-
400,000
-
2006
WAEP
£
4.14
6.01
6.01
3.62
-
5.79
-
2006
WAEP
£
4.14
6.01
-
3.62
-
5.79
-
i. The weighted average share price at the date of the exercise for the options exercised is £9.50 (2005 – £6.21).
For the share options outstanding as at 31 March 2007, the weighted average remaining contractual life is 1.6 years.
(2006 – 2.6 years).
There were no options granted during the year.
The weighted average fair value of options granted during the previous year was £6.01. The range of exercise prices
for options outstanding at the end of the year was £6.01.
Long Term Incentive Plan
The Long Term Incentive Plan was approved at last year’s Annual General Meeting. During the course of the year
195,000 options were granted to directors and senior executives. There is a three year performance period at the
end of which half the options will be measured against earnings per share targets and the other half measured
against total shareholder return targets. The EPS target allows 25 per cent of the shares subject to the target to be
issued at nil cost at an outperformance of 3 per cent and 100 per cent of the shares at an outperformance of 7 per
cent with outperformance between 3 and 7 per cent rewarded pro-rata. The TSR target allows 50 per cent of the
shares subject to the target to be issued at nil cost at the 50th percentile and 100 per cent at the 75th percentile
with performance between the 50th and 75th percentiles rewarded pro-rata. The comparison companies are Carrs
Milling Industries plc, Dairy Crest Group plc, Devro plc, Arla Foods plc, Glanbia plc, Greencore Group plc, Northern
Foods plc, Robert Wiseman Dairies plc, Premier Foods plc, RHM plc and Uniq plc. The options have a contractual life
of ten years. 5,000 options were forfeited during the year leaving 190,000 outstanding.
All Employee Share Options (SAYE scheme)
All employees are entitled to a grant of options once they have been in service for two years or more. The exercise
price is equal to the market price of the shares less 20 per cent on the date of the grant. The contractual life of the
options is 3, 5 or 7 years.
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in,
share options during the year.
61
Cranswick plc – Report & Accounts 2007
Group
Outstanding as at 1 April
Granted during the year (note i)
Forfeited during the year
Exercised during the year (note ii)
Expired during the year
Outstanding as at 31 March (note iii)
Exercisable at 31 March
Company
Outstanding as at 1 April
Granted during the year (note i)
Forfeited during the year
Exercised during the year (note ii)
Expired during the year
Outstanding as at 31 March
Exercisable at 31 March
2007
Number
739,063
153,033
(42,532)
(243,694)
-
605,870
1,736
2007
Number
24,542
1,069
-
(9,224)
-
16,387
-
2007
WAEP
£
4.15
6.79
3.71
2.75
4.42
2.55
2007
WAEP
£
3.50
6.79
-
2.64
-
4.20
-
2006
Number
645,337
162,586
(28,381)
(40,479)
-
739,063
3,536
2006
Number
23,381
2,071
-
(910)
-
24,542
-
2006
WAEP
£
3.19
4.71
3.15
3.63
-
4.15
4.15
2006
WAEP
£
3.42
4.71
-
4.15
3.50
-
i. The share options granted during the year were at 679p, representing a 20 per cent discount on the price at the
relevant date.
ii. The weighted average share price at the date of the exercise for the options exercised is £9.68 (2006 – £5.95).
iii. Included within this balance are options over 26,444 shares (2006 – 147,412 shares) that have not been recognised
in accordance with IFRS 2 as options were granted on or before 7 November 2002. These options have not been
subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
For the share options outstanding as at 31 March 2007 the weighted average remaining contractual life is 2.70 years
(2006 – 3.05 years).
The weighted average fair value of options granted during the year was £6.79 (2006 – £1.67). The range of exercise
prices for options outstanding at the end of the year was £2.55-£6.79 (2006 – £2.55-£4.71).
The fair value of both Executive and All Employee equity settled options granted is estimated as at the date of grant
using the Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were
granted. The following table lists the inputs to the model used for the years ended 31 March 2007 and 31 March 2006.
Group and Company
Dividend yield
Expected share price volatility
Risk free interest rate
Expected life of option (years)
Exercise prices
2007
1.9%-4.1%
24.5%-31%
4.29%-5.0%
3, 5, 7 years
£nil - £6.79
2006
2.41% - 2.6%
31%
4.51% - 4.81%
3, 5, 7 years
£4.71 - £6.01
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that
may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends,
which may not necessarily be the actual outcome.
The initial fair value of executive options is adjusted to take into account the market-based performance condition.
62
Notes to the accounts
25. Reconciliation of movements in equity
Group
Attributable to equity holders of the parent
Minority
Total
Share
capital
Share
premium
(Note 1)
(Note 2)
Share
based
payments
(Note 3)
Hedging
reserve
Translation
reserve
Retained
earnings
Total
Interest
Equity
(Note 4)
(Note 5)
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
At 1 April 2005
4,405
38,250
247
Impact of adoption of
IAS 32 and IAS 39
Cash flow hedges
Exchange differences
Profit for the year
Exercise of options
Scrip dividends
Share based payments
Deferred tax
recognised directly in
equity
Corporation tax
recognised directly in
equity
Dividends
-
-
-
-
-
-
-
-
47
15
1,644
903
-
-
-
-
-
-
-
-
-
-
-
-
-
-
284
-
-
-
-
45
(85)
-
-
-
-
-
-
-
-
21
49,922
92,845
(14)
31
-
-
(85)
6
-
-
-
-
92,845
31
(85)
6
22,784
22,784
36
22,820
-
-
-
1,691
918
284
124
124
529
529
(6,741)
(6,741)
-
-
-
-
-
-
1,691
918
284
124
529
(6,741)
-
-
6
-
-
-
-
-
-
-
At 1 April 2006
4,467
40,797
531
(40)
27
66,604
112,386
36
112,422
Cash flow hedges
Exchange differences
Profit for the year
Exercise of options
Scrip dividends
-
-
-
65
15
-
-
-
1,711
1,144
Share issues
48
3,552
Share based payments
Deferred tax
recognised directly in
equity
Corporation tax
recognised directly in
equity
Purchase of minority
interest
Dividends
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
487
-
-
-
-
369
-
-
-
-
-
-
-
-
-
-
-
(5)
-
-
-
-
-
-
-
-
-
369
-
369
-
(5)
(5)
22,574
22,574
80
22,654
-
-
-
-
1,776
1,159
3,600
487
300
300
712
712
-
-
-
-
-
-
1,776
1,159
3,600
487
300
712
-
-
(13)
(13)
(7,626)
(7,626)
-
(7,626)
At 31 March 2007
4,595
47,204
1,018
329
22
82,564
135,732
103
135,835
63
Cranswick plc – Report & Accounts 2007
Company
Share
capital
Share
premium
Share
based
payments
Hedging
reserve
Merger
reserve
General
reserve
Retained
earnings
Total
(Note 1)
(Note 2)
(Note 3)
(Note 4)
(Note 6)
(Note 7)
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
At 1 April 2005
4,405
38,250
72
-
1,806
4,000
2,068
50,601
Impact of adoption of IAS 32 and
IAS 39
Cash flow hedges
Profit for the year
Exercise of options
Scrip dividends
Share based payments
Deferred tax recognised directly
in equity
Corporation tax recognised
directly in equity
Dividends
-
-
-
47
15
-
-
-
-
-
-
-
1,644
903
-
-
-
-
-
-
-
-
-
70
-
-
-
45
(191)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14)
31
-
(191)
10,160
10,160
-
-
-
1,691
918
70
100
100
529
529
(6,741)
(6,741)
At 1 April 2006
4,467
40,797
142
(146)
1,806
4,000
6,102
57,168
Cash flow hedges
Profit for the year
Exercise of options
Scrip dividends
Share issues
Share based payments
Deferred tax recognised directly
in equity
Corporation tax recognised
directly in equity
Dividends
-
-
65
15
-
-
1,711
1,144
48
3,552
-
-
-
-
-
-
-
-
-
-
-
-
-
68
-
-
-
452
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
452
6,665
6,665
-
-
-
-
1,776
1,159
3,600
68
(118)
(118)
712
712
(7,626)
(7,626)
-
-
-
-
-
-
-
-
At 31 March 2007
4,595
47,204
210
306
1,806
4,000
5,735
63,856
Notes:
1. Share capital
The balance classified as share capital represents the nominal value of ordinary 10p shares issued.
2. Share premium
The balance classified as share premium includes the net proceeds in excess of nominal value on issue of the
company’s equity share capital, comprising 10p ordinary shares.
3. Share based payments reserve
This reserves records the fair value of share based payments expensed in the income statement.
64
Notes to the accounts
4. Hedging reserve
This reserve includes the portion of the gain or loss on a hedging instrument in a cash flow hedge that is
determined to be an effective hedge.
5. Translation reserve
This reserve records exchange differences arising from the translation of the financial statements of foreign
subsidiaries.
6. Merger reserve
Where shares have been issued as consideration for acquisitions, the value of shares issued in excess of nominal
value has been credited to the merger reserve rather than to the share premium account.
7. General reserve
This reserve arose in 1993 when the High Court of Justice granted permission to reduce the Company’s share
premium account by £4,000,000 which was credited to a separate reserve named the general reserve.
26. Additional cash flow information
Analysis of Group net debt
Cash and cash equivalents
Overdrafts
Other financial assets
Other financial liabilities
Revolving credit
Bank loans
Loan notes
Net debt
At
31 March
2006
£’000
5,000
(4,954)
46
-
46
(146)
(2,000)
(73,970)
(1,072)
(77,142)
Cash
flow
£’000
(2,728)
2,198
(530)
-
(530)
-
-
1,290
145
905
Other
non cash
changes
£’000
At
31 March
2007
£’000
(10)
-
(10)
306
296
146
-
(114)
-
328
2,262
(2,756)
(494)
306
(188)
-
(2,000)
(72,794)
(927)
(75,909)
Net debt is defined as cash and cash equivalents and derivatives at fair value less interest bearing liabilities (net of
unamortised issue costs).
At
31 March
2005
Cash
flow
Other
non cash
changes
At
31 March
2006
£’000
£’000
£’000
£’000
Cash and cash equivalents
Overdrafts
Other financial liabilities
Revolving credit
Bank loans
Loan notes
Net debt
5,025
(1,734)
3,291
-
(5,000)
(89,487)
(1,200)
(92,396)
(34)
(3,220)
(3,254)
-
3,000
15,625
128
15,499
9
-
9
(146)
-
(108)
-
(245)
5,000
(4,954)
46
(146)
(2,000)
(73,970)
(1,072)
(77,142)
65
Cranswick plc – Report & Accounts 2007
Analysis of Company net debt
Cash and cash equivalents
Overdrafts
Other financial assets
Other financial liabilities
Revolving credit
Bank loans
Loan notes
Net debt
Cash
Overdrafts
Other financial liabilities
Revolving credit
Bank loans
Loan notes
Net debt
27. Contingent liabilities
At
31 March
2006
Cash
flow
Other
non cash
changes
At
31 March
2007
£’000
£’000
£’000
£’000
-
(4,480)
(4,480)
-
(4,480)
(146)
(2,000)
(73,970)
(1,072)
(81,668)
At
31 March
2005
£’000
-
(1,093)
(1,093)
(5,000)
(89,487)
(1,200)
(96,780)
-
2,378
2,378
-
2,378
-
-
1,290
145
3,813
Cash
flow
£’000
-
(3,387)
(3,387)
3,000
15,625
128
15,366
-
-
-
306
306
146
-
(114)
-
338
Other
non cash
changes
£’000
-
-
-
(146)
-
(108)
-
(254)
-
(2,102)
(2,102)
306
(1,796)
-
(2000)
(72,794)
(927)
(77,517)
At
31 March
2006
£’000
-
(4,480)
(4,480)
(146)
(2,000)
(73,970)
(1,072)
(81,668)
The Company, together with its subsidiary undertakings, has entered into a guarantee with Lloyds TSB Bank plc and
The Royal Bank of Scotland plc in respect of the Group’s facilities with those banks. Drawn down amounts totalled
£78,808,000 as at 31 March 2007 (2006 – £82,401,000).
28. Commitments
a. The Directors have contracted for future capital expenditure for property, plant and equipment totalling £475,000
(2006 – £531,000).
b. The Group’s future minimum rentals payable under non-cancellable operating leases are as follows:
Not later than one year
After one year but not more than five years
After five years
Group
Company
2007
£’000
1,345
6,178
21,824
29,347
2006
£’000
1,147
5,535
22,510
29,192
2007
£’000
2006
£’000
-
-
-
-
-
-
-
-
66
Notes to the accounts
29. Pension commitments
The Group operates a number of defined contribution pension schemes whereby contributions are made to schemes
operated by major insurance companies. Contributions to these schemes are determined as a percentage of employees’
earnings and the amount charged to the profit and loss account is disclosed in note 4. Contributions owing to the insurance
companies at the year-end, included in trade and other payables, amounted to £218,000 (2006 – £196,000).
30. 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 but these transactions are reported for the Company below:
Company only
Related party
Subsidiaries
2007
2006
Services rendered to the
related party
Dividends received from
related party
£’000
13,640
8,000
£’000
6,467
11,503
Amounts owed by or to subsidiary undertakings are disclosed in the Company balance sheet on page 35. Any such
amounts are unsecured and repayable on demand.
Remuneration of key management personnel
Short-term employee benefits
Post-employment benefits
Share-based payments
31. Events since the Balance sheet date
2007
£’000
3,211
383
170
3,764
2006
£’000
2,376
337
114
2,827
On 18 May 2007, the Group disposed of its feed milling business. Sale proceeds of £3.0m in respect of certain fixed assets
and goodwill were received with a further £1.0m for other fixed assets in 12 months time. The net book value of these
assets was £2.7m at the Balance Sheet date. Further cash of approximately £3.0m will be received as working capital is
realised. No adjustment has been made in these financial statements for the profit on disposal.
67
Cranswick plc – Report & Accounts 2007
Corporate governance statement
Statement by the Directors on compliance with the provisions of the Combined Code.
Principles of good governance
The Board is committed to high standards of corporate governance. The adoption and maintenance of good
governance is the responsibility of the Board as a whole. This report, together with the Directors’ Remuneration
Report on pages 73 to 76, describes how the Board applies the principles of good governance and best practice
as set out in the Combined Code on Corporate Governance (the “Combined Code”) which came into effect
for reporting years commencing after 30 November 2003 and therefore applies to the full year under review. A
statement of compliance can be found at the end of this report.
The Board
The Board consists of an Executive Chairman, two Chief Executives, two other executive directors and three non-
executives, two of whom are deemed to be independent. Noel Taylor is not deemed to be independent due to his long
association with the Company. The Combined Code recommends that the board of directors of a UK public company
should include a balance of executive and non-executive directors (including independent non-executives) such that no
individual or small group of individuals can dominate the board’s decision-making. The Board is confident that it meets
the requirements of the Combined Code in full that apply to a company the size of Cranswick.
The Board meets each month throughout the year to direct and control the overall strategy and operating
performance of the Group. To enable them to carry out these responsibilities all directors have full and timely access
to all relevant information. A formal schedule of matters reserved for decision by the Board covers key areas of the
Group’s affairs including acquisition and divestment policy, approval of budgets, major capital expenditure projects,
profit and cashflow performance and general treasury and risk management policies. Responsibility for the Group’s
day-to-day operations is delegated to the Chief Executives of the two divisions who, supported by the executive
directors and executive management, implement the Board’s strategy and manage the Group’s business. Upon
appointment, all directors undertake a formal introduction to all the Group’s activities and are also provided with
the opportunity for on-going training to ensure that they are kept up-to-date on changes in relevant legislation
and the general business environment. Procedures are in place for directors to seek both independent advice at
the expense of the Company and the advice and services of the Company Secretary in order to fulfil their duties.
The Company Secretary is responsible to the Board for ensuring that Board procedures are complied with and
for advising the Board, through the Chairman, on all governance matters. The appointment and removal of the
Company Secretary is determined by the Board as a whole.
The Chairman carries out a performance appraisal of the Board, its committees and directors and meets with the
non-executive directors at least once a year to consider his conclusions. In addition, the non-executive directors
meet, without the Chairman present, in order to appraise his performance.
The Company’s Articles of Association provide that one third (but not more than one third) of the Directors retire
by rotation each year and with the proviso that each Director shall seek re-election at the Annual General Meeting
every three years. All new directors are subject to election by shareholders at the first opportunity following their
appointment.
Directors’ biographies and membership of the various committees are shown on page 25. The formal terms of
reference for the main Board Committees together with the terms and conditions of appointment of non-executive
directors are available for inspection at the Company’s Registered Office and at the Annual General Meeting.
Board Committees
Audit Committee
The Audit Committee comprises the three non-executives, John Worby, Patrick Farnsworth and Noel Taylor. The
Committee is chaired by John Worby, the Company’s Senior Independent Director, who is a Chartered Accountant
and has considerable recent relevant financial experience. It is a requirement of the Combined Code that the Audit
Committee should comprise all independent non-executive directors. The Board is confident that the Company
complies with this requirement, with the exception of Noel Taylor as outlined on page 71.
68
The Chairman, the Finance Director and the Group Financial Controller, who is responsible for assessing the Group’s
internal financial controls, together with the external auditors attend the meetings as appropriate. The external
auditors have the opportunity for direct access to the Committee without the Executive Directors being present and
the Committee formally meets at least once a year without the Executive Directors being present.
The Committee reviews the Group’s accounting policies and internal reports on accounting and internal financial
control matters together with reports from the external auditors. The Audit Committee has overall responsibility for
monitoring the integrity of financial statements and related announcements and for all aspects of internal control
and meets at least three times a year, two of which involve a review of the Group’s interim and full year statements
together with the fourth quarter update. The Audit Committee considers annually the extent and effectiveness
of the work of the internal audit function. The Audit Committee is also responsible for recommendations for
the appointment, reappointment or removal of the external auditors and for reviewing their effectiveness. It also
approves the terms of engagement and remuneration of the external auditors, and monitors their independence
including the nature and levels of non-audit services. There is a whistleblowing policy in place which includes
arrangement by which staff can, in confidence, raise concerns about possible improprieties in matters of financial
reporting and other matters.
The Chairman of the Audit Committee will be available at the Annual General Meeting to respond to any shareholder
questions that might be raised on the Committee’s activities.
Remuneration Committee
The Remuneration Committee comprises Patrick Farnsworth (Chairman), Noel Taylor and John Worby. It is a
requirement of the Combined Code that the Remuneration Committee should, in the case of smaller companies,
consist of at least two members who are considered by the Combined Code to be independent. It is a requirement
of the Combined Code that the Remuneration Committee should comprise all independent non-executive directors.
The Board is confident that the Company complies with this requirement, with the exception of Noel Taylor as
outlined on page 71. Martin Davey, Chairman, attends meetings of the Remuneration Committee by invitation and
in an advisory capacity. No director attends any part of a meeting at which his own remuneration is discussed. The
executive directors determine the remuneration of the non-executive directors.
The Committee recommends to the Board the policy for executive remuneration and determines, on behalf of the
Board, the other terms and conditions of service for each executive director. It determines appropriate performance
conditions for the annual cash bonus and long term incentive schemes and approves awards and the issue of
options in accordance with the terms of those schemes. The Remuneration Committee also recommends and
monitors the level and structure of remuneration of senior management below that of main board director. The
Remuneration Committee has access to advice from the Company Secretary and to detailed analysis of executive
remuneration in comparable companies. Details of the Committee’s current remuneration policies are given in the
Directors’ Remuneration Report on pages 73 to 76.
The Chairman of the Remuneration Committee attends the Annual General Meeting to respond to any shareholder
questions that might be raised on the Committee’s activities.
Nomination Committee
The Nomination Committee comprises Martin Davey, Executive Chairman, who also acts as the Committee’s
Chairman, Patrick Farnsworth, independent non-executive, and John Worby, independent non-executive. It is a
requirement of the Combined Code that a majority of the members of the Nomination Committee should be non-
executive directors, and the Chairman should be either the chairman of the board or a non-executive director. The
Board is confident that it fully complies with these requirements of the Combined Code. Due to the size of the
Company and the stability of the Board the Chairman’s time commitment to the Committee is not anticipated to
be heavy.
69
Cranswick plc – Report & Accounts 2007
The Committee meets as required and is authorised to propose to the Board new appointments of executive and
non-executive directors.
The Chairman of the Nomination Committee will attend the Annual General meeting to respond to any shareholder
questions that might be raised on the Committee’s activities.
Meetings attendance
Details of the number of meetings of, and members’ attendance at, the Board, Audit, Remuneration and Nomination
Committees during the year are set out in the table below.
Board
Audit Committee
Remuneration
Committee
Nomination
No. of meetings
DJ Black
AH Couch
MTP Davey
B Hoggarth
JD Lindop
RN Taylor
PW Farnsworth
JG Worby
12
11
12
12
11
12
11
12
12
3
2
3
3
5
-
5
5
5
Shareholders
The views of shareholders expressed during meetings with them are communicated by the Chairman to the Board
as a whole, and through this process of communication the Board’s executive and non-executive directors are
able to gain a sound understanding of the views and concerns of the major shareholders. The Chairman discusses
governance and strategy with major shareholders. Other directors are available to meet the company’s major
shareholders if requested. The Senior Independent Director is available to listen to the views of shareholders,
particularly if they have concerns which contact with the Chairman has failed to resolve or for which such contact
is inappropriate. Principles of corporate governance and voting guidelines issued by the Company’s institutional
shareholders and their representative bodies are circulated to and considered by the Board. The Board also
welcomes the attendance and questions of shareholders at the Annual General Meeting which is also attended by
the Chairmen of the Audit, Remuneration and Nominations Committees.
Going Concern
The Directors have prepared the accounts on a going concern basis, having satisfied themselves from a review of
internal budgets and forecasts and current bank facilities that the Group has adequate resources to continue in
operational existence for the foreseeable future.
Internal Control
The Board of Directors has overall responsibility for the Group’s systems of internal control, which safeguards
the shareholders’ investment and the Group’s assets, and for reviewing its effectiveness. Such a system can only
provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage
rather than eliminate the risk of failure to achieve business objectives.
The Group operates within a clearly defined organisational structure with established responsibilities, authorities
and reporting lines to the Board. The organisational structure has been designed in order to plan, execute, monitor
and control the Group’s objectives effectively and to ensure that internal control becomes embedded in the
operations. The Chairman of the Audit Committee reports to the Board on issues relating to internal controls
and risk management issues following each Audit Committee meeting. The Board confirms that the key on-
going processes and features of the Group’s internal risk based control system, which accord with the Turnbull
guidance, have been fully operative throughout the year and up to the date of the Annual Report being approved.
These include; a process to identify and evaluate business risk; a strong control environment; an information and
70
Corporate governance statement
communication process; a monitoring system and a regular Board review for effectiveness. The Group Financial
Controller is responsible for overseeing the Group’s internal controls.
During the year the management of the Food and Pet businesses identified the key business risks within their
operations, considered the financial implications and assessed the effectiveness of the control processes in place
to mitigate these risks. The Board reviewed a summary of the findings and this, along with direct involvement in
the strategies of the businesses, investment appraisal and budgeting process, enabled the Board to report on the
effectiveness of internal control. Following its review the Board determined that it was not aware of any significant
deficiency or material weakness in the system of internal control.
Auditor Independence
The Board is satisfied that Ernst & Young LLP has adequate policies and safeguards in place to ensure that auditor
objectivity and independence is maintained. The Company meets its obligations for maintaining the appropriate
relationship with the external auditors through the Audit Committee whose terms of reference include an obligation
to consider and keep under review the degree of work undertaken by the external auditor, other than the statutory
audit, to ensure such objectivity and independence is safeguarded. In addition, the Chairman of the Audit Committee
is consulted prior to awarding to the external auditors any non audit services in excess of £20,000.
During the year the Audit Committee considered the following factors in assessing the objectivity and independence
of Ernst & Young LLP:
i. The auditors’ procedures for maintaining and monitoring independence, including those to ensure that the
partners and staff have no personal or business relationships with the Company, other than those in the normal
course of business permitted by UK ethical guidance.
ii. The auditors’ policies for the rotation of the lead partner and key audit personnel.
iii. Adherence by management and the auditor to the Group’s policy for the procurement of non-audit services
which was adopted during the year.
Compliance with the Revised Combined Code
The Directors consider that the Company has, during the year ended 31 March 2007, complied with the requirements
of the revised Combined Code other than as set out below.
i. The Board did not comply with Combined Code provisions A.7.2 and B.1.6 for the first month of the year in that
notice periods contained in the service agreements dated 1 May 2004 for M.Davey, D.Black and B. Hoggarth
contain notice periods that reduced progressively to 1 year by 1 May 2006. In addition, in the case of a takeover
of the Company the notice period is two years for the first six months following takeover. Also, N. Taylor,
non-executive director, does not have a fixed term contract, but is employed subject to a notice period of six
months.
ii. The Board did not comply throughout the year with Combined Code provisions B2.1 and C3.1 regarding the
composition of the Audit and Remuneration Committees as Noel Taylor is not an independent non-executive
director.
71
Cranswick plc – Report & Accounts 2007
Statement of directors’ responsibilities
in relation to the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European
Union.
The Directors are required to prepare financial statements for each financial year which present fairly the financial
position of the Company and of the Group and the financial performance and cash flows of the Company and of
the Group for that period. In preparing those financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information; and
• provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity’s financial
position and financial performance; and
• state that the company has complied with IFRSs, subject to any material departures disclosed and explained in the
financial statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at
any time the financial position of the company and of the group and enable them to ensure that the financial
statements comply with the Companies Act 1985 and Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
72
Directors’ remuneration report
Information not subject to audit
Remuneration committee
The Remuneration Committee comprises the non-executive directors Patrick Farnsworth (chairman of the
committee), Noel Taylor and John Worby. The Executive Chairman attends the meetings in an advisory capacity as
requested. The Committee determines the remuneration of the Company’s executive directors and puts forward
its recommendations for approval by the Board. The committee has not used remuneration consultants in the year,
but has undertaken a review of remuneration levels at quoted companies of comparable size. The remuneration of
the non-executives is determined by the executive directors and reflects the time, commitment and responsibility
of their roles.
Remuneration policy
The Company’s policy is that the overall remuneration package offered by the Company should be sufficiently
competitive to attract, retain and motivate high quality executives and to align the rewards of the executives with
the progress of the Company whilst giving consideration to salary levels in similar sized quoted companies in the
sector and in the region. The remuneration package includes a significant performance related element in the
form of a profit related bonus and share based awards. The share based awards are granted by the Remuneration
Committee and only vest on the achievement of demanding targets aligned to shareholder returns. The details of
individual components of the remuneration package and service contracts are set out below:
Basic salary and benefits
Basic salary, car allowance and benefits are reviewed annually. Benefits principally comprise medical insurance.
Bonus scheme
The bonus scheme in operation is based on the achievement of group profit targets. The profit targets and bonuses
are the same for all executive directors. Total bonus is capped at 150 per cent of basic salary. Non-executive directors
do not participate in the Company’s bonus scheme. Incentive payments and benefits are not pensionable.
Share options
The basic salary and the bonus scheme are intended as the most significant part of directors’ remuneration; in
addition, executive share options can be proposed by the Remuneration Committee and are granted periodically
to promote the involvement of senior management in the longer term success of the Company. Options can only
be exercised if certain performance criteria are achieved by the Company. For executive options these criteria are
based on total shareholder return over the 3 year performance period and require the Company to be in the top
half against a basket of food companies quoted on the London Stock Exchange. The comparison companies are
ABF, Carrs Milling, Dairy Crest, Devro, Arla Foods, Glanbia, Greencore, Northern Foods, Robert Wiseman, Richmond
Foods and Uniq. For the Long Term Incentive Plan (“LTIP”) approved at the 2006 Annual General Meeting half the
shares granted under the LTIP are subject to an earnings per share (”EPS”) target measured against increases in
the retail price index (“RPI”) and the other half to a total shareholder return (“TSR”) target measured against a
comparable group of food companies. The comparison companies are Carrs Milling Industries plc, Dairy Crest Group
plc, Devro plc, Arla Foods plc, Glanbia plc, Greencore Group plc, Northern Foods plc, Robert Wiseman Dairies plc,
Premier Foods plc, RHM plc and Uniq plc. The EPS target allows 25 per cent of the shares subject to the target to
be issued at nil cost at an outperformance of 3 per cent and 100 per cent of the shares at an outperformance of 7
per cent with outperformance between 3 and 7 per cent rewarded pro-rata. The TSR target allows 50 per cent of
the shares subject to the target to be issued at nil cost at the 50th percentile and 100 per cent at the 75th percentile
with performance between the 50th and 75th percentiles rewarded pro-rata. The Remuneration Committee, who
decides whether performance conditions have been met, considers these to be the most appropriate measures of
the long term performance of the Company. Directors may also apply for SAYE options on the same terms as apply
to all other employees.
Pensions
Executive Directors are members of the Company “money-purchase” pension scheme. Employer contributions are
determined by the service contracts. In some cases there are payments in lieu of pension contributions at the option
of the individual.
73
Share price
Pence
1150
1050
Cranswick plc – Report & Accounts 2007
Cranswick
FTSE All share
FTSE 350 Food producers
950
850
750
650
Service contracts
550
The service contracts for M. Davey, D. Black and B. Hoggarth first commenced on 30 June 2004 and include notice
periods which reduced to one year on 1 May 2006 except in the case of a takeover of the Company when the notice
450
period is 2 years for the first six months following the takeover. J. Lindop and A. Couch have 1 year rolling contracts
350
which commenced on 30 June 2004 and 1 May 2006 respectively. N. Taylor has a 6 month rolling service contract,
250
which commenced on 4 September 1992, and P. Farnsworth and J. Worby have three year appointment letters from
150
1 August 2004 and 1 August 2005 respectively. The contracts for M. Davey, D. Black, B. Hoggarth and J. Lindop
have special provisions relating to liquidated damages requiring that the notice period stipulated in the contract will
be paid in full. For the other contracts the Remuneration Committee will consider the circumstances of an early
November
2004
termination and determine compensation payments accordingly.
November
2003
November
2002
November
2006
November
2005
May
2007
May
2006
May
2005
May
2002
May
2003
May
2004
50
Performance graph
The graph below shows the percentage change (from a base of 100 in May 2002) in the total shareholder return
(with dividends reinvested) for each of the last five years on a holding of the Company’s shares against the
corresponding change in a hypothetical holding in the shares in the FTSE 350 Food Producers and Processors Price
Index (“FTSE FPP”) and the FTSE All Share Index (“FTSE All Share). The FTSE FPP and the FTSE All Share were chosen
as representative benchmarks for the business of the sector and the market as a whole for the business.
Total shareholder return
%
Cranswick
FTSE All share
FTSE 350 Food producers
250
200
150
100
50
0
May
2002
November
2002
May
2003
November
2003
May
2004
November
2004
May
2005
November
2005
May
2006
November
2006
May
2007
Information subject to audit.
Directors’ Remuneration
The remuneration of directors for the year was as follows:
Salary and fees
Bonuses
Benefits
Payment in lieu of pension contribution
Pension contribution
Aggregate notional gains made by directors on exercise of options
74
Source: Investec
2007
£’000
1,801
1,275
5
249
3,330
394
3,724
487
2006
£’000
1,827
402
6
249
2,484
348
2,832
693
Directors’ remuneration report
Individual directors, including pension contributions:
Salary
and fees
Bonus
Other*
Benefits
Total
2007
Total
2006
Pension
2007
Pension
2006
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Non-executive directors:
PW Farnsworth
RN Taylor
JG Worby
(2006 - from date of appointment)
Executive directors:
Dr. B Bell (to date of retirement)
DJ Black
MTP Davey
B Hoggarth
JD Lindop
AH Couch
32
55
32
-
294
485
377
232
294
-
-
-
-
255
255
255
255
255
-
-
-
-
81
76
92
-
-
* Other comprises payments in lieu of pension contribution.
-
-
-
-
1
1
1
1
1
32
55
32
-
631
817
720
488
550
31
55
21
214
435
589
504
302
333
-
11
-
-
55
94
71
108
55
-
11
-
3
53
84
65
84
48
The number of directors who were active members of the money purchase pension scheme during the year was 6
(2006 – 7). Benefits principally comprise medical insurance.
M Davey is a non-executive director of Thorntons plc. His fees in this capacity are paid to the Company; amounts
receivable for the year ended 31 March 2007 were £34,458 (2006 – £31,125). J Lindop is a non-executive director
of Black Sheep Brewery plc. His fees in this capacity are paid to the Company; amounts receivable for the year ended
31 March 2007 were £10,275 (2006 – £nil).
Share Options
The Company operates an executive share option scheme and a long term incentive plan for senior executives,
including directors, and a savings related share option scheme which is available to all employees. The interests of
the directors in these schemes were as follows:
Executive share option scheme
At 1 April
2006
Granted
in the year
Exercised
in the year
Lapsed
At 31
March 2007
Exercise
price
Range of exercise dates
No
No
No
No
p
MTP Davey
DJ Black
AH Couch
B Hoggarth
JD Lindop
25,000
50,000
25,000
50,000
10,000
50,000
25,000
50,000
25,000
50,000
-
-
-
-
-
-
-
-
-
-
(25,000)
-
(25,000)
-
(10,000)
-
(25,000)
-
(25,000)
-
-
-
-
-
-
-
-
-
-
-
-
50,000
-
50,000
-
50,000
-
50,000
-
50,000
518.5
601.0
23 Dec 2005/22 Dec 2012
4 July 2008/3 July 2015
518.5
601.0
23 Dec 2005/12 Dec 2012
4 July 2008/3 July 2015
518.5
601.0
23 Dec 2005/22 Dec 2012
4 July 2008/3 July 2015
518.5
601.0
23 Dec 2005/22 Dec 2011
4 July 2008/3 July 2015
518.5
601.0
23 Dec 2005/22 Dec 2012
4 July 2008/3 July 2015
The executive share options of each director are exercisable subject to the attainment of performance criteria based
on the total return to shareholders during the 3 year performance period being in the top half against a basket of
food companies quoted on the London Stock Exchange.
75
Cranswick plc – Report & Accounts 2007
The following directors exercised executive share options during the year:
MTP Davey
DJ Black
AH Couch
B Hoggarth
JD Lindop
Number
Date exercised
Exercise price
p
Market price
p
Notional gain
£’000s
25,000
25,000
10,000
25,000
25,000
8 Mar 2007
8 Mar 2007
8 Mar 2007
8 Mar 2007
8 Mar 2007
518.5
518.5
518.5
518.5
518.5
930.0
930.0
930.0
930.0
930.0
103
103
41
103
103
Long term incentive plan
At 1 April
2006
Granted
in the year
Exercised
in the year
Lapsed At 31 March
2007
MTP Davey
DJ Black
AH Couch
B Hoggarth
JD Lindop
No
-
-
-
-
-
No
25,000
25,000
25,000
25,000
25,000
No
-
-
-
-
-
No
25,000
25,000
25,000
25,000
25,000
-
-
-
-
-
Weighted
average
exercise price
p
Range of
exercise dates
Nil 1 Sept 2009/1 Sept 2016
Nil 1 Sept 2009/1 Sept 2016
Nil 1 Sept 2009/1 Sept 2016
Nil 1 Sept 2009/1 Sept 2016
Nil 1 Sept 2009/1 Sept 2016
The options of each director under the Long term incentive plan are exercisable after 3 years on the attainment of
certain performance criteria detailed on page 73.
Savings related share option scheme
At 1 April
2006
Granted
in the year
Exercised
in the year
Lapsed At 31 March
2007
MTP Davey
DJ Black
AH Couch
B Hoggarth
JD Lindop
No
2,526
5,030
5,689
2,310
5,030
No
-
534
-
-
534
No
-
(2,406)
-
-
(2,406)
No
2,526
3,158
5,689
2,310
3,158
-
-
-
-
-
Weighted
average
exercise price
p
Range of
exercise dates
375 1 Mar 2008/1 Sept 2008
449 1 Mar 2008/1 Sept 2011
310 1 Mar 2009/1 Sept 2013
408 1 Mar 2008/1 Sept 2009
449 1 Mar 2008/1 Sept 2010
The Directors are eligible, as are other employees of the Group, to participate in the SAYE scheme, which by its
nature does not have performance conditions.
The following directors exercised savings related share options during the year:
Number
Date exercised
Exercise Price
p
Market Price
p
Notional gain
£’000s
D J Black
J D Lindop
2,406
2,406
1 March 2007
1 March 2007
264.0
264.0
985.0
985.0
17
17
The market price of the Company’s shares at 31 March 2007 was 940.0p per share. The highest and lowest market
prices during the year for each share option that is unexpired at the end of the year are as follows:
Options in issue throughout the year
Options issued during the year: SAYE
Executive
Highest
1,021.0p
984.5p
1,021p
Lowest
592.0p
927.0p
722.0p
There have been no changes to the above interests in the period from 1 April 2007 to 11 May 2007.
On behalf of the Board
Patrick Farnsworth
Chairman of the Remuneration Committee
21 May 2007
76
Report of the auditors
to the members of Cranswick plc
Independent auditor’s report to the members of Cranswick plc
We have audited the Group and parent company financial statements (the “financial statements”) of Cranswick plc
for the year ended 31 March 2007 which comprise the Group Income Statement, Group and Company Statements of
Recognised Income and Expense, Group and Company Balance Sheets, Group and Company Cash Flow Statements
and the related notes 1 to 31. These financial statements have been prepared under the accounting policies set out
therein. We have also audited the information in the Directors’ Remuneration Report that is described as having
been audited.
This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies
Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters
we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
Directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial
statements in accordance with applicable United Kingdom law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be
audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK
and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether
the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly
prepared in accordance with the Companies Act 1985 and, as regards the group financial information, Article 4
of the IAS Regulation. We also report to you whether in our opinion the information given in the Report of the
Directors is consistent with the financial statements. The information given in the Directors’ Report includes that
specific information presented in the Operating and Financial Review that is cross referred from the Report of the
Directors.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not
received all the information and explanations we require for our audit, or if information specified by law regarding
directors’ remuneration and other transactions are not disclosed.
We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine
provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services
Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal
control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance
procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited
financial statements. The other information comprises only the Report of the Directors, the unaudited part of the
Directors’ Remuneration Report, the Statement to Shareholders, Review of Activities Food, Review of Activities
Pet, the Group Operating and Financial Review, the Corporate Governance Statement and the Five Year Statement
and Shareholder Information. We consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any
other information.
77
Cranswick plc – Report & Accounts 2007
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also
includes an assessment of the significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements
and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether
caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be
audited.
Opinion
In our opinion:
• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European
Union, of the state of the group’s affairs as at 31 March 2007 and of its profit for the year then ended;
• the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the
European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the
parent company’s affairs as at 31 March 2007;
• the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly
prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and
• the information given in the Report of the Directors is consistent with the financial statements.
Ernst & Young LLP
Registered auditor
Hull, 21 May 2007
78
Advisers
Secretary
John Lindop FCA
Company Number 1074383
Registered Office 74 Helsinki Road
Sutton Fields
Hull HU7 0YW
Stockbrokers
Investec Investment Banking – London
Brewin Dolphin Securities – Newcastle
Registrars
Capita IRG plc
The Registry
34 Beckenham Road
Beckenham
Kent, BR3 4TU
Auditors
Ernst & Young LLP – Hull
Solicitors
Rollits – Hull
Bankers
Lloyds TSB Bank plc
The Royal Bank of Scotland plc
Merchant Bankers N M Rothschild & Sons – Leeds
79
Cranswick plc – Report & Accounts 2007
Shareholder information
Five year statement
2007
£’m
IFRS
2006
£’m
2005
£’m
Turnover
524.8
441.2
318.5
UK GAAP
2004
£’m
270.1
21.2
2003
£’m
237.7
19.8
Profit before tax *
Earnings per share *
Dividends per share
Capital expenditure
(Net debt)/net funds
Net assets
32.7
50.2
18.1
11.8
(75.9)
135.8
21.6
31.1
51.2
38.6p
35.8p
34.2p
16.5p
14.5p
13.2p
12.0p
14.3
(77.1)
112.4
19.1
10.0
(92.4)
(13.3)
92.8
68.8
6.7
1.6
61.2
* prior to goodwill amortisation under UK GAAP; this is the principal difference between UK GAAP and IFRS.
Dividends per share relate to dividends declared in respect of that year.
(Net debt)/net funds is defined as per note 26 to the accounts.
Financial calendar
Preliminary announcement of full year results
Publication of Annual Report
Annual General Meeting
May
July
July
Payment of final dividend
September
Announcement of interim results
November
Payment of interim dividend
January
80
Shareholder analysis
at 11 May 2007
Classification
Private shareholders
Corporate bodies and nominees
Size of holding (shares)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 100,000
Above 100,000
Share price
Share price at 31 March 2006
Share price at 31 March 2007
High in the year
Low in the year
Number of
holdings
Number of
shares
1,073
520
1,593
6,287,837
39,668,225
45,956,062
707
529
117
121
45
74
293,548
1,217,552
821,044
2,833,732
3,230,767
37,559,419
1,593
45,956,062
631.5p
940.0p
1,021.0p
592.0p
Share price movement
Cranswick’s share price movement over the five year period to May 2007 and comparison against the FTSE 350
Food Producers and Processors Price Index (“FTSE FPP”) and against the FTSE All Share Price Index (“FTSE All Share”)
is shown below:
1150
1050
950
850
750
650
550
450
350
250
150
50
250
200
150
100
50
0
Share price
Pence
Cranswick
FTSE All share
FTSE 350 Food producers
May
2002
November
2002
May
2003
November
2003
May
2004
November
2004
May
2005
November
2005
May
2006
November
2006
May
2007
Source: Investec
Total shareholder return
%
Cranswick
FTSE All share
FTSE 350 Food producers
81
May
2002
November
2002
May
2003
November
2003
May
2004
November
2004
May
2005
November
2005
May
2006
November
2006
May
2007
Cranswick plc – Report & Accounts 2007
Some of the awards in recent years
to Cranswick businesses
BPEX Foodservice Pork Product of the Year Competition
2007 Gold
Gold
Silver
Silver
Best Innovative Pork Product – Pork Shanks
Best Cured Product – Muscavado Sweetcure Streaky Bacon
Best Cured Product – Muscavado Sweetcure Back Bacon
Best Fresh Pork Cut – Hampshire Outdoor Reared Rib Roast
Super Meat Awards
2007 Winner Best Pork or Bacon Product – Truly Irresistible Oak Smoked Dry Cured Back Bacon
Finalist Best Pork or Bacon Product – Sainsburys Taste the Difference Slow Cook Outdoor Reared
British Pork Belly
Finalist Best Sausage Product – Sainsburys Taste the Difference British Pork and Caramelised Red
Onion Sausages
Finalist Best Organic Product – Sainsburys So Organic Dry Cured British Bacon
2005 Finalist Best Sausage Product – Aberdeen Angus Beef Sausage
2004 Winner Best Pork & Bacon Product
Winner Best Product Overall – Both with Pork Rib Roast
2003 Finalist Best Beef Product – Monterey Jack Cheeseburger
Meat Industry Award
2006 Winner Sausage of the Year – Sainsburys ‘Pancetta & Parmesan’ sausage
Food Awards 2006
2006 Winner Best Packaging for a Product – Sainsburys Taste The Difference Dry Cured Sweet Cure Back Bacon
British Turkey Awards
2006 Winner Best Ready to Eat Product award – Sainsburys Taste the Difference Free Range Turkey Breast
2003 Finalist Best Catering Product – Turkey & Pepper Kebabs
Meat and Poultry News Awards
2005 Winner Manufacturer of the Year
2004 Winner Organic Meat Product of the Year – Duchy Organic Honey & Rosemary Chipolatas
2002 Winner Manufacturer of the Year
Winner Organic Meat Product of the Year – Organic Pork Joint with Sage & Apple Stuffing
Guild of Fine Food Retailers ‘Great Taste’ Awards
2005 Gold
Smoked Streaky Bacon
Silver Unsmoked Streaky Bacon
Silver
Bronze Pork Sausage
Chilli and Coriander Sausage
2002 Gold
Gold
Silver
Bronze Green Greek Olives
Arista Pork Loin
Chorizo
Bavarian Ham
82
British Sandwich Association Awards
2005 Winner En-Route Retailer of the Year category
Finalist British Sandwich Designer of the Year
2004 Winner En-Route Retailer of the Year category
Winner Tuna Sandwich Designer of the Year
Winner Hot & Spicy Sandwich Designer of the Year
Winner British Sandwich Designer of the Year
2002 Winner En-Route Retailer of the Year category
Food Development Agency Awards
2004 Winner Best Retail Product – Pork Range
Yorkshire Annual Report Awards
2004 Winner Shareholder Value category
2003 Winner Shareholder Value category
2002 Winner Medium Quoted Company category
Winner Shareholder Value category
PFK Aquatic Awards
2004 Winner Best Test Kit – Salifert ph Profi
2001 Winner Best Fish Food Product – Gamma
Winner Best Test Kit – Salifert
Winner Best Pond Clarifier – Pond Clear UV
Winner Best Pump – Rio Aqua Pump
Meat and Livestock Commission Awards
2003 Silver Best Catering Sausage – Smithfield Sausage
Pizza, Pasta and Italian Food Association Awards
2003 Winner Manufactured Pasta Product of the Year – Garlic Mushroom filled Pasta
2002 Finalist Pasta Retailer of the Year category
Meat and Livestock Commission Awards
2002 Winner Retail Category – Ready to Eat/Heat to Eat – Smokey Joe Pork Wrap & Trinidad Pork Tortilla
2001 Winner Retail Category – Ready to Eat/Heat to Eat – Cajun Beef Ciabatta
British Meat Awards
2002 Winner Food Service Lamb Product – Aloo Saag Lamb Chapatti
Winner Retail Pork Product – Creole Pork Enchilada Wrap
The London Stock Exchange PLC Awards
2002 Finalist Company of the Year
2001 Finalist Company of the Year
83
Cranswick plc – Report & Accounts 2007
Production facilities
“ ...well invested quality assets ”
Fresh pork
Sausages
Charcuterie
Cooked meats
84
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Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000
www.cranswick.co.uk
REPORT & ACCOUNTS
Year ended 31 March 2007