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2023 Reportreport & accounts Year ended 31 March 2008 C r a n s w i c k p l c R e p o r t & A c c o u n t s Y e a r e n d e d 3 1 M a r c h 2 0 0 8 Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000 www.cranswick.co.uk Production facilities “ ...well invested quality assets ” Fresh pork Sausages Bacon Cooked meats Cranswick was formed in the 1970s by farmers in East Yorkshire to produce animal feed. The Company went on to 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 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 1985-2008 (pence) 1200 1000 800 600 400 200 0 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 Start date is entry on to Stock Market, 4 December 1985 – Source: Investec Financial highlights Turnover (£m) Profit before tax* (£m) Earnings per share* (pence) Dividends per share (pence) 599 33.7 32.4 51.9 50.1 47.8 510 29.0 19.9 18.1 16.5 433 2006 2007 2008 2006 2007 2008 2006 2007 2008 2006 2007 2008 • Turnover up 17 per cent to £599m • Profit before tax up 4 per cent at £33.7m* • Increase of 4 per cent in earnings per share to 51.9p* • Dividend up 10 per cent to 19.9p per share * Pre-exceptional gain 1 Cranswick plc - Report & Accounts 2008 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 cash flow statement Company cash flow 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 - see inside back cover 4 9 15 22 23 25 29 30 31 31 32 33 34 35 36 68 72 73 78 80 81 83 3 Cranswick plc - Report & Accounts 2008 Chairman’s statement Continued growth delivers record profits. The past year has seen continued growth for Cranswick. Turnover, which has been restated in accordance with IAS 18, rose 17 per cent to £598.9 million and profit before tax rose 8 per cent to £35.3 million. Earnings per share rose 11 per cent to 55.9 pence. The results for both this year and last year include the benefit of exceptional gains. This year the amount is £1.6 million and is principally attributable to the sale of the feed milling business, reported to Shareholders previously. The balance relates to other asset disposals as does the exceptional gain of £0.3 million in the previous year. Prior to these exceptional gains, profit before tax increased by 4 per cent to £33.7 million and earnings per share were up by 4 per cent to 51.9 pence per share. There were strong increases in sales in both the food and pet businesses and this is considered in more detail in the review of activities. Turnover in the food activities was 17 per cent higher than the previous year which was particularly pleasing. As indicated to Shareholders earlier in the year the Company came under margin pressure as a result of sales price deflation, rising raw material prices in the second half of the year and the devaluation of Sterling against the Euro, the latter, in particular, impacting the charcuterie business. As is usual, there is a time lag before increased costs suffered by manufacturers can be reflected in selling prices. I am pleased to report that following increased selling prices in the primary processing activities towards the end of the year we are now also starting to see selling price increases in our further processing activities. Major projects encompassing the integration of DeliCo, acquired in November 2006, and the commissioning of the new ‘air-dried bacon’ factory were completed during the year and the benefits that they bring are important elements of our strategic growth plans. During the year the minority shareholding in the bacon business was acquired. All Cranswick businesses are now wholly owned. The pet business, which accounts for 7 per cent of overall Company sales, had a good year and saw turnover rise by 29 per cent. The aquatics activity had to cope with the disruption of a fire at the Chorleywood site in December 2006 but still went on to deliver record results. The premises damaged by the fire were replaced and the site was fully operational a year later. The pet products business was impacted by soaring raw material costs early in the year but recovered strongly during the second half as these were incorporated into increased selling prices. Cash generation a key feature The cash generated from operations was strong at £40.2 million, notwithstanding an increase in working capital of £8.6 million. Tax, interest and dividend payments amounted to £22.1 million and the cash spent on the purchase of fixed assets, as part of the strategy for continued growth, was more than double the previous year at £25.3 million. This produced a cash outflow of £1.8 million, leaving year-end net borrowings at £78.4 million, 50 per cent of shareholders' funds. The total borrowing facility available to the Group at the year-end was substantially ahead of that figure. Interest cover improved from 7.9 to 8.3 times. Dividend increase of 10 per cent The Board is proposing an increase in the final dividend of 10 per cent to 13.4p per ordinary share. Along with the interim dividend of 6.5p per share paid in January 2008 this makes a total for the year of 19.9p per ordinary share, an increase of 10 per cent on last year’s 18.1p. The final dividend, if approved by Shareholders, will be paid on 5 September 2008 to Shareholders on the register at the close of business on 4 July 2008. Shares will go ex-dividend on 2 July 2008. Shareholders will again have the option to receive the dividend by way of scrip issue. 4 5 Cranswick plc - Report & Accounts 2008 6 The past year has seen continued growth for Cranswick. 35.3 32.7 31.1 21.6 21.2 19.8 17.5 11.7 9.3 7.1 Profit before tax 1990 - 2008 (£m) 5.0 4.0 3.0 3.1 2.2 2.3 1.7 1.4 0.9 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 Board confident in its strategy for Cranswick The Board’s strategy in developing the business has been to establish a presence in a number of related and growing areas of the food sector emanating from its origins in pig feed and pig production. This has seen the Company establish a significant presence within fresh pork, cooked meats, bacon, sausage, charcuterie and sandwiches. Within this sphere of activities the Company has focused on premium categories which have been the stronger growing areas of the market. The activities in the pet sector evolved from the original agribusiness activity and once again the Company has a presence in growth categories. This strategy, which has been coordinated through acquisitive and organic developments, has delivered strong growth for Shareholders. Over the past 10 years, compound annual rates of growth in turnover, profit before tax, earnings per share and dividends per share have all been well into double digits. The Board is confident that Cranswick with its modern, efficient facilities producing a range of quality products which appeal to the tastes of today’s consumer can continue to generate strong growth in its business over the next 10 years. Board change Following a period of illness Noel Taylor resigned from the Board in March 2008. Noel joined the Board in 1992 as Managing Director of the cooked meat operation and has been a non-executive director since 1999. On behalf of everyone at Cranswick, I would like to thank Noel for the contribution he has made to the business and wish him well in his recovery. The key asset of the business is the staff The results for the past year have been delivered by operational management teams at each of our business units who possess great expertise and who have been supported by an enthusiastic and talented team of employees. To all of these, many of whom have an interest in the share capital of the Company through share ownership and employee share option schemes, I extend the thanks and appreciation of the Board. We look ahead with confidence The Company has had to absorb increases in its cost base during the second half of the year and further increases are anticipated. Cost increases to date are being incorporated into selling prices on a phased basis, as anticipated, during the first quarter of the new financial year. With this positive development and with the underlying growth in the categories in which we operate set to continue, we look forward to Cranswick’s further successful development. Martin Davey Chairman, 19 May 2008 7 Cranswick plc - Report & Accounts 2008 8 Review of activities - Food by the Chief Executive Bernard Hoggarth Year of continued growth. It is very pleasing to be able to report continued growth in food group sales over the past year. Sales grew by 17 per cent in the year to £559 million. Almost 80 per cent of these sales (£440 million) were to our multiple retail customers. Food service growth continued to be strong too, with sales in excess of £38 million. The food group’s focus continues to be in the premium sector. During the second half of the year raw material inflation was experienced across most categories which impacted margins. The process of passing on this inflation to our customers and ultimately to the consumer is challenging, due to the competitive nature of the retail sector. Our teams have worked tirelessly on these ‘inflation’ projects and I am pleased to report that there was some success in quarter four, and this has gained momentum into quarter one of the new financial year. The fresh pork business based in East Yorkshire has now commenced work on a new primary processing facility. Construction work will be ring fenced and, I am pleased to say, will not interfere with the smooth running of the business. The project should be completed during 2009 and will make the site the most technically advanced pork processing plant in the UK. It also ensures the local pig farming community has a modern, efficient, well invested facility situated in the centre of the largest pig producing area in the country. Pork sales grew by 15 per cent in the year, with retail-packed volumes for the major multiples and our premium range of fresh pork particularly strong. Extra matured pork in this premium range is produced from an outdoor-based system with farmers using a specialist breed of pig and sire line. The food group will be supplying its summer eating range of pork products for the barbecue season to its major retail customers. Gourmet sausage sales were buoyant during the year with sales increasing by 19 per cent. We successfully launched our new brand ‘Simply Sausages’ into the retail sector and further listings are expected during the year. We also produce, under licence, the ‘Weight Watchers’ sausage range. New production capacity was tested to the limit at Christmas and it proved to be the most successful period ever in the factory with 100 per cent customer service levels, and volume peaking the week prior to Christmas at almost 500 tonnes of sausages. New business wins have helped bolster sales and offer further opportunities for growth going forward. I am pleased to report that the new Cranswick Gourmet Bacon Company facility, one of the largest projects undertaken in the business, was completed on time. With the new site operational, it enabled us to achieve 100 per cent service levels during the hectic Christmas build up. This was even more satisfying considering the level of labour intensive products manufactured at this time of year. Sales grew by a very pleasing 44 per cent year on year. In a relatively new and developing area for the group, we are delighted with this growth. We successfully launched gammon joints, applewood smoked back bacon, organic variations and we also commenced the slicing and packing of product under the ‘Weight Watchers’ brand. We were delighted that the ‘Taste the Difference’ applewood smoked back bacon received The Grocer’s own label excellence award recently. The final phase of the site development was the recent installation of a ‘Wiltshire curing’ facility. The Wiltshire curing process is one of the oldest, traditional methods of curing bacon. In our true gourmet style, we will additionally air dry the product to further enhance the flavour and eating experience. The sales shift into the premium sector seems finally to have arrived in the bacon category. With our new facility we are well placed to capitalise on this trend. Cranswick Convenience Foods, the cooked meat business, had a very busy year with the integration of the DeliCo facility and the introduction of additional business wins into that site. This, along with organic growth, increased sales by 32 per cent. Operating from five sites and producing deli products as well as pre-packed sliced meats, the business cooks beef and poultry as well as pork based products. The cooked meat business experienced significant raw material inflation during the final quarter, which in the case of beef and turkey was exceptional and of such magnitude that the absorption of these increased costs proved difficult. Extra volume and revenue growth helped the business dilute some of this cost 9 Cranswick plc - Report & Accounts 2008 and supported margins until price increases were achieved. The UK pre-packed cooked meat market grew by almost 4 per cent in the past year, but the deli market contracted by just over 1 per cent. These trends are a major focus for the cooked meat business and together with customers’ changing shopping habits and their desire for new and inspirational products is the reason we have a large new product development team of seventeen chefs and technicians spread around the Convenience Foods production facilities. Continental Fine Foods (CFF) sales increased by 20 per cent as the consumer trend to try new continental products continues. New products in the Italian range were launched, from which we anticipate strong growth. Hand-made ‘artisan’ fresh Italian pasta has recently been launched. This project so typifies the role of CFF today. The procurement team received their brief and after much searching, a family firm who produced hand-made pasta products near Modena, in Italy, was identified. We believed the provenance and quality of the ‘home-made’ pasta and fillings were exceptional. We helped the Italian producer achieve its factory accreditation, assisted in the development of ranges for the UK market and arranged visits to Italy by our customer’s technical and development teams. The range was launched, with CFF arranging importation and distribution. We are soon to launch a range of speciality pâtés by the celebrated chef Albert Roux and again this underlines the quality focus of our food business. In addition to raw material inflation, the CFF business had to cope with the devaluation of Sterling against the Euro in the second half of the year although the impact on the business was mitigated to some extent by the use of forward exchange contracts. The Sandwich Factory sales rise of 7 per cent was pleasing and ahead of market rates. The development of the customer base whilst causing some initial impact on margins, looks set to put the business in a stronger position going forward. The business suffered cost inflation in bread and dairy products, but enters the new financial year with more volume and margin recovery underway. It is a credit to our technical teams across the group that all ten food production sites operate from BRC (global standard) ‘A’ grade facilities. As a business we believe that as well as being innovative and efficient food producers we must also be very aware of the ‘impact on the environment’ from our operations. As such, we work with the Carbon Trust and we are the first meat sector company to sign up to FHC2000, with a target of reducing our processed water usage by 20 per cent over the next twelve years. We have set up, through ENVIROWISE, inspections of all sites to establish the carbon footprint for the individual business units and also to establish current usage for water, energy, waste, packaging and emissions expressed per tonne of finished product produced. By using environmental KPI’s our site directors are responsible for reporting progress to the Board going forward, and reducing the environmental impact in subsequent years. Substantial investment over recent years has given Cranswick some of the most modern and efficient facilities in the industry. Our excellent, experienced management teams, with their focus on quality, product development and innovation set us apart from many of our competitors. We are also well placed to continue benefiting from the premiumisation of many of the categories in which we operate. I feel confident that going forward the business is well placed to continue its record of growth. 10 11 Cranswick plc - Report & Accounts 2008 Review of activities - Pet by the Chief Executive Derek Black Strong growth with sales up 29 per cent at £39.7 million (2007 – £30.6 million) with increased sales in both pet and aquatics. Pet Products delivered a strong performance in both bird and small animal food with sales up substantially, reflecting excellent growth in both convenience and bulk pack. During the first half of the year the business suffered from spiralling global raw material prices, which impacted margins. This issue was subsequently rectified by way of increased selling prices. New product launches continue to be at the heart of business expansion with 30 new products being brought to market during the year. It is pleasing to note that sales of wild bird accessories have benefited from this investment with year on year growth of some 80 per cent, with a further 25 new products on stream for this season. The Nature’s Feast brand is now recognised as one of the category leaders and represents innovation, quality, functionality and excellent value for money. Our development strategy remains unchanged. The focus has been on high street budget retail, national grocery and pet retail chains, wholesale discount multiples, retail membership groups and mail order and we have enjoyed continued growth. During the year we obtained the Investors in People (IIP) award. This will be the platform for other accreditations in our structured development. The environment is at the forefront of our decision-making and in excess of 85 per cent of waste produced at the Driffield site is recycled. As an example, hessian sacks from supplies of raw materials are being processed into hanging basket liners. We have streamlined operations, centralised our raw material holding facilities and leased a 50,000 sq ft warehousing facility situated close to the Pet Products site at Driffield. Tropical Marine Centre (TMC) delivered increased sales, despite the disruption caused by a major fire at the Chorleywood facility in December 2006 which has been previously reported. I am pleased to confirm that the re-build and fit out was completed on time and the business has relocated from temporary accommodation in Watford. Sales of marine livestock were boosted by exclusive access to new fisheries at the Great Barrier Reef in Australia, which became available for the first time. Dry goods sales benefited from a strong year for new product introductions in TMC`s highly popular and award winning V2 range. This included products like the V2Skim which is specially designed to fit in the growing range of smaller reef tanks. The V2 range has greatly widened the appeal and affordability of the marine hobby, helping to sustain strong growth in the sector. Other new products included a greatly enlarged and rebranded range of Gamma frozen foods. We have also developed a range of eco–friendly, low carbon footprint LED lighting systems under the Aquaray brand. The “Aquabeam 500” is the first product to be launched under this range and is the first affordable solid state lighting system of its kind, affording substantial energy savings on conventional lighting systems. We believe this product will suit many other business applications and is just the start of many future opportunities. The two satellite sites at Manchester and Bristol continue to perform above expectation and this has provided us with the confidence to expand operations into mainland Europe. We have secured a site under a leasehold arrangement in Lisbon, Portugal and this will be fully operational in early autumn, servicing customers in major towns and cities throughout Portugal and Spain. We have the most advanced pet food manufacturing and aquatic facilities in Europe which, along with dedicated staff and strong management teams, will drive our expansion plans over the years ahead. 12 13 Cranswick plc - Report & Accounts 2008 14 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 9 to 12. Both businesses operate entirely in 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. 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 29. 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 • 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. 15 Cranswick plc - Report & Accounts 2008 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 below. 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 cash flow – 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 and the strong operating cash generation from operating activities, which enabled us to fund a record level of capital expenditure, with only a small increase in borrowings. The record of unbroken growth in profits now goes back 20 years. The trading environment in which we operate has remained challenging; in particular there have been delays in passing on increases in raw material costs and the impact of Sterling’s devaluation against the Euro, particularly in our Charcuterie business. We have experienced continuing 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. In addition we are making good progress in recovering cost price increases. Group revenue Group revenue from continuing activities 2008 £598.9m 2007 (Restated) £510.5m The Group’s revenue from continuing activities has increased by 17 per cent, but sales were 21 per cent ahead on a like-for- like basis after accounting for the sale of the animal feed business in May and the acquisition of DeliCo in November 2006. Food sales increased by 20 per cent on a like-for-like basis, with fresh pork growing at 15 per cent, sausage at 19 per cent, bacon at 44 per cent, cooked meats at 27 per cent, charcuterie at 20 per cent and sandwiches at 7 per cent. Sales in the pet activities increased by 29 per cent, with bird food growing at 42 per cent and aquatic products at 6 per cent. Profit before tax Group operating profit before exceptional items Net finance costs Pre-tax profit before exceptional items Exceptional items Profit before tax £m 38.4 (4.7) 33.7 1.6 35.3 2008 £m 37.1 (4.7) 32.4 0.3 32.7 The increase in group operating profit before exceptional items is largely attributable to the growth in profits in the pet activities. Performance against KPIs Organic sales growth Gross return on sales Net return on sales Free cashflow 2008 21.0% 14.2% 6.4% £25.9m 2007 (Restated) 16.0% 16.7% 7.3% £29.9m The Company has seen substantial growth in organic sales over the past year driven by its expertise in product development, service levels, quality and value and further sales growth is anticipated in the next twelve months. During the year the Company came under margin pressure as a result of sales price deflation, rising raw material prices and devaluation of Sterling against the Euro and this is reflected in the gross and net returns on sales. Principal cash flows are discussed on page 18. 16 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, 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 £81 million over the past five years, and it intends to continue investing to ensure that it maintains its competitive edge. Employees The Group aims to recruit, train and retain employees who are valued for their contribution and able to fulfil their potential in meeting the business objectives of their operating unit. The Group companies each have their strategies for retaining staff, including the provision of competitive terms and conditions 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, raw material prices, 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. Financial position and performance Exceptional items The exceptional item in 2008 relates to the profit on sale of the feed milling business of Cranswick Mill of £1.1 million, profit on disposal of stock and fixed assets at Tropical Marine of £0.8 million following settlement of the material damage insurance claim relating to the fire at the Chorleywood premises in December 2006, less £0.3 million provided against future rental and restatement costs for an unoccupied leasehold property in Thornaby, North Yorkshire, all stated before a tax credit of £0.2 million. 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. Finance costs Finance costs of £4.7 million were in line with the previous year, with increased net debt resulting from the substantial capital investment programme in the year, partially offset by lower UK interest rates. 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 27.4 per cent in the current year and 30.6 per cent in 2007, the current year rate benefiting from the net tax credit on the exceptional items referred to above and a lower deferred tax charge which reflects the reduction in the Corporation Tax rate from 30% to 28% from 1 April 2008. The standard rate of UK Corporation Tax was 30% 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. 17 Cranswick plc - Report & Accounts 2008 Earnings per share Basic earnings per share before exceptionals increased by 4 per cent to 51.9 pence. Due to the large exceptional gain in the year, earnings per share after exceptionals increased by 11 per cent to 55.9 pence. The average number of shares in issue, which is the basis of both calculations, was 45,832,000 (2007 - 44,967,000). Cash flow Cash generated from operating activities was slightly down on the previous year at £40.2 million (2007 - £41.8 million) of cash and cash equivalents. The net cash outflow from investing activities of £20.6 million reflects capital additions of £25.3 million less sales proceeds of £4.7 million. The previous year’s outflow was £24.3 million and comprised the cash component of the Delico acquisition of £13.5 million plus capital additions of £12.0 million less sales proceeds of £1.2 million. The £17.8 million of net cash used in financing activities in 2008 is largely due to interest paid of £5.3 million, dividends paid of £7.7 million and repayment of borrowings of £5.4 million. The prior year cash outflow from financing of £10.1 million was 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 £1.8m proceeds from the issue of share capital were almost offset by the repayment of borrowings of £11.4 million. The overall result is a net decrease in cash and cash equivalents of £7.7 million (2007 - £0.5 million). Capital structure The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group regards its Shareholders’ equity as its capital and manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years end 31 March 2008 and 31 March 2007. The Group’s capital structure is as follows: Net debt (note 25) Cranswick plc shareholders’ equity Capital employed 2008 £m 78.4 155.3 233.7 2007 £m 75.9 135.7 211.6 More details about the Group’s capital structure are set out in Note 21 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 25. The proposed final dividend for 2008 together with the interim paid in January 2008 amount to 19.9 pence per share which is 10 per cent higher than the previous year. The increase in share capital of the Group comprises 167,554 of share options exercised during the year and 103,611 in respect of scrip dividends. There were no share repurchases during the year. Treasury policies Functional currency The functional currency of the Group is Sterling. 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% 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. 18 19 Cranswick plc - Report & Accounts 2008 20 Interest rate risk The main board set the policy on interest rate risk at the time of the Perkins acquisition on 6 January 2005, when borrowings increased significantly. The Group’s policy is to manage its cost of borrowing using a mix of fixed and variable rate debt. Whilst fixed rate interest bearing debt is not exposed to cash flow interest rate risk, there is no opportunity for the Group to enjoy a reduction in borrowing costs in markets where rates are falling. In addition, the fair value risk inherent in fixed rate borrowing means that the Group is exposed to unplanned costs should debt be restructured or repaid early as part of the liquidity management process. In contrast, whilst floating rate borrowings are not exposed to changes in fair value, the Group is exposed to cash flow risk as costs increase if market rates rise. Cover was implemented by taking out an interest rate swap agreement with 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 cash flow projections and the daily borrowings position. Credit risk Practically all sales are made on credit terms, the majority of which are to the major UK food retailers. Overdue accounts are reviewed at the monthly board meetings of the operations. The incidence of bad debts is very low. Every attempt is made to resist advance payments for goods and services; where this proves impossible, arrangements are put in place, where practical, to guarantee the repayment of the monies in the event of default. For all major customers, credit terms are agreed by negotiation and for all other customers, credit terms are set by reference to external credit agencies. Liquidity risk The Group has historically been very cash generative. The bank position for each operation is monitored on a daily basis and capital expenditure is approved at the monthly board meeting of each operation at which at least two members of the main board are present and reported at the subsequent monthly main board meeting. Major projects are approved by the main board. Each operation has access to the Group’s overdraft facility and all term debt is arranged centrally. The current bank facilities available to the Group are a term loan of £45.0 million repayable in January 2010, an amortising loan facility of £16.875 million repayable at the rate of £11.25 million per annum, a revolving credit facility of £10.0 million and an overdraft facility of £20.0 million. Unutilised facilities at 31 March 2008 were £14.3 million (2007 - £25.2 million) following repayment of borrowings of £11.25 million during the year. 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. 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 21 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, 19 May 2008 21 Cranswick plc - Report & Accounts 2008 22 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 Executive Chairman on 26 July 2004. Since 5 April 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 23 March 2007 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 1990s. 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 on 1 August 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. ✤✦ ✲ 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 on 1 August 2004 and was the senior independent director until 1 August 2005. ✲ Member of Remuneration Committee ✦ ✤ Member of Audit Committee Member of Nomination Committee 23 Cranswick plc - Report & Accounts 2008 24 Report of the Directors The Directors submit their report and the audited accounts of the Company for the year ended 31 March 2008. 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 4 to 12 and in the Group Operating and Financial Review on pages 15 to 21. Results and dividends The profit on ordinary activities before taxation was £35.3 million (2007 - £32.7 million). After a taxation charge of £9.7 million (2007 - £10.0 million), the profit for the year is £25.7 million (2007 - £22.7 million). An interim dividend of 6.5p per ordinary share was paid on 25 January 2008. The Directors recommend the payment of a final dividend for the year, which is not reflected in these accounts, of 13.4p per ordinary share which, together with the interim dividend, represents 19.9p per ordinary share, totaling £9.2 million (2007 – 18.1p per ordinary share, totaling £8.3 million). Subject to approval at the Annual General Meeting, the final dividend will be paid in cash or scrip form on 5 September 2008 to members on the register at the close of business on 4 July 2008. The shares will go ex-dividend on 2 July 2008. 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 pages 18 to 21. Directors and their interests The appointment and removal of a director is governed by the Articles of Association and within the Terms of the Nomination Committee. The Directors of the Company currently in office are as stated on page 23. Noel Taylor, following a period of ill health, resigned as a director on 14 March 2008. Each of the other Directors served for the whole of the year under review. Derek Black and Patrick Farnsworth retire in accordance with the Articles of Association and, being eligible, each offers himself for re-election. Details of the Directors’ beneficial interests in the ordinary share capital of the Company are included in the Directors’ Remuneration Report on pages 73 to 77. Major shareholders The Company has been informed of the following interests at 9 May 2008 in the 46,231,031 ordinary shares of the Company: Number of Shares % of issued share capital AMVESCAP PLC Legal & General Investment Management Jupiter Asset Management AXA Framlington Investment Managers Aberforth Partners Insight Investment 13,393,294 3,013,030 2,209,299 1,684,490 1,653,300 1,627,784 28.97 6.52 4.78 3.64 3.58 3.52 Share capital structure The company has one class of shares, being ordinary shares of 10p each. The authorised, allotted and fully paid up share capital is shown in note 22. There are no special rights pertaining to any of the shares in issue. The Directors of Cranswick plc have received limited authority to disapply shareholders pre-emption rights in certain circumstances, to authorise the Company to buy back a proportion of the Company’s share capital and to allow the Directors to allot shares. Further resolutions will be placed before the Annual General Meeting to renew these powers. 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. 25 Cranswick plc - Report & Accounts 2008 Payment policy The Group does not have a formal policy that it follows with regard to payment to 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, are 41 days. The average credit taken by our customers on a similar basis is 35 days. 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 23. 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. Significant agreements There are no agreements that the Company considers significant and to which the Company is party to that would take effect, alter or terminate upon change of control of the Company following a takeover bid. Long term incentive plan In the event of a general offer being made to acquire part or all of the issued share capital of the Company as a result of which the offeror may acquire control of the Company, award holders under the Cranswick plc Long Term Incentive Plan (“LTIP”) will have an opportunity to exercise their awards either: (a) immediately before the time at which the change of control of the Company occurs or any condition subject to which the offer is made has been satisfied (“Take-over Date”) but conditional on the Take-over Date occurring, if the Remuneration Committee issues a written notice in advance of the Take-over Date to award holders; or (b) at any time within 6 months following the Take-over Date, in any other case. In the event that the Court sanctions a scheme of arrangement under section 425 Companies Act 1985 (or its replacement provisions under Companies Act 2006) in connection with a scheme for the Company’s reconstruction or amalgamation with another company, award holders under the LTIP may exercise their awards during the six month period commencing on the date upon which the scheme of arrangement is sanctioned by the Court. The LTIP also contains provisions enabling award holders to exercise their awards if a person becomes entitled to issue a compulsory acquisition notice under the provisions relating to the compulsory acquisition of a company set out in the Companies Act 1985 (or its replacement provision under the Companies Act 2006). The period allowed for exercise in these circumstances is any time up to the seventh day before the final day upon which that person remains entitled to serve such a notice. In each case, the extent to which awards are capable of exercise depends on the extent to which the performance targets (as adjusted or amended) have been satisfied. Articles of association There are no special rules relating to the alteration of the Articles of Association, any amendments are approved by the Shareholders. Revised Articles of Association to comply with the Companies Act 2006 are to be included in the Notice of the Annual General Meeting accompanying this Report and Accounts. 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 and 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 and Accounts. By order of the Board Malcolm Windeatt Company Secretary, 19 May 2008 26 27 Cranswick plc - Report & Accounts 2008 28 Cranswick and the environment Managing and where possible reducing the impact that the business has on the environment continues to be an important measure of the Company’s performance. Retail customers, financial investors and consumers all have a growing interest in the preservation of the environment, and seek assurances that the business operates with the utmost care. In 2007 Cranswick recognised that in order to continue to make meaningful reductions in the environmental impact of the business, there was a need to review and co-ordinate the Group's approach to environmental management. In order to progress this further, an Environmental Project Management Team was established and tasked with assessing the Group’s current performance, identifying and sharing best practice and formulating performance benchmarks that could be used to measure the environmental performance in subsequent years. To meet this commitment the Company would pursue the following environmental objectives: • • • • • • • • • • To continually assess and improve the environmental performance and to raise levels of environmental awareness throughout the business. To ensure compliance with all applicable environmental legislation, regulations and associated codes of practice. To reduce emissions and prevent pollution. To improve waste management practices. To reduce consumption of natural resources. To minimise noise and nuisance. To assist in the management of the ecology. To assist in the investigation of environmental incidents in which the Company may be involved. To encourage customers and suppliers to use sustainable resources wherever this is possible. To make the environmental information available to interested parties. Cranswick has always recognised the importance of preserving the environment hence two of the largest manufacturing sites, Preston (near Hull) and Valley Park (near Barnsley) have held certification against ISO 14001, the international standard for environmental management, for 3 and 5 years respectively, and during 2008 it is anticipated that DeliCo (near Milton Keynes) will be added to the list of certified sites. In addition, Preston continues to utilise the Waste to Energy solution by processing waste from the site’s abattoir and meat cutting operations, and where feasible, from sister sites, to generate tallow which can then be converted into bio fuel and solids which can be converted into biomass. The key achievements of the project to date are: • A new Group Environmental Policy which through more efficient energy management commits the business to target a 20% reduction of the comparative Group carbon footprint i.e. tonnes of CO2 per tonne of product produced, by the end of the 2010/11 financial year. • In partnership with suppliers the Company launched a new Packaging Strategy Policy which commits the business to a target of reducing packaging weight per unit of measure of product produced by 25% by the end of 2010/11 financial year. For the year 2007 the estimate of the savings of virgin raw material was 860 tonnes. • Trials are currently taking place to reduce and then remove PVC in Thermoformed production across the Group throughout 2008. • A formal Carbon Action Plan has been agreed with the Carbon Trust which gives the Company access to environmental expertise and funding support for the next 3 years. • Using GHG protocol we have calculated the carbon footprint per tonne of CO2 produced per tonne of finished product dispatched for each manufacturing site so as to establish 2007 as the bench mark year against which subsequent carbon footprint performance can be measured. For the year 2007 the measurement for the group was 28% of CO2 tonnes per tonne of product. • • Cranswick has become the first meat sector company to sign up to the FHC 2020 agreement with Envirowise and the Food Federation which commits the Group to reducing the use of process water by 20% by 2020. Each of the manufacturing sites has an energy and waste reduction action plan prepared by industry specialists commissioned on the Group’s behalf by the Carbon Trust and Envirowise. • WRAP survey has been carried out to help identify opportunities to reduce/eliminate PVC (substitution and down grading), move to RPET (recycled content), move into recyclable substrates (Mono RPET) and work towards compostability. Environmental progress is reported at board level against performance benchmarks established from the operation of the business during 2007. The necessary personnel and financial resources will be allocated to assist the Company in meeting its environmental objectives and business plans, and in ensuring that these remain current and effective. On behalf of the Board Bernard Hoggarth Chief Executive Food, 19 May 2008 29 Cranswick plc - Report & Accounts 2008 Group income statement for the year ended 31 March 2008 2008 2007 (Restated) Before Exceptionals Total Before Exceptionals Total Notes exceptionals exceptionals £’000 £’000 £’000 £’000 £’000 £’000 Revenue 3 598,893 - 598,893 510,483 Cost of sales Gross profit (513,701) 85,192 - - (513,701) (425,383) 85,192 85,100 Operating expenses (46,824) - (46,824) (48,024) 38,368 - 38,368 37,076 - - - - - 510,483 (425,383) 85,100 (48,024) 37,076 Operating profit Profit on disposal of property, plant and equipment Profit before finance and taxation Finance revenue Finance costs 4 5 3 7 7 - 1,622 1,622 - 281 281 38,368 1,622 39,990 37,076 281 37,357 4 - 4 6 (4,650) - (4,650) (4,707) - - 6 (4,707) Profit before tax 33,722 1,622 35,344 32,375 281 32,656 Taxation Profit for the year Profit for the year attributable to: Equity holders of the parent Minority interest Earnings per share: (total and continuing) Basic Diluted 8 24 11 11 (9,874) 187 (9,687) (9,773) (229) (10,002) 23,848 1,809 25,657 22,602 52 22,654 23,796 52 23,848 25,605 22,522 52 25,657 80 22,602 22,574 80 22,654 51.9p 4.0p 55.9p 50.1p 0.1p 50.2p 51.6p 3.9p 55.5p 49.7p 0.1p 49.8p 30 Group statement of recognised income and expense for the year ended 31 March 2008 Income and expense recognised directly in equity Movement on hedging items: Amount recognised in equity during the period Amount removed from equity and included in the income statement Exchange differences on retranslation of foreign operations Deferred tax recognised directly in equity Corporation tax recognised directly in equity 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 2008 £’000 504 196 (17) (725) 88 46 25,657 25,703 25,651 52 25,703 Company statement of recognised income and expense for the year ended 31 March 2008 Income and expense recognised directly in equity Movement on hedging items: Amount recognised in equity during the period Amount removed from equity and included in the income statement Deferred tax recognised directly in equity Corporation tax recognised directly in equity Net (expense)/income recognised directly in equity Profit for the year Total recognised income and expense for the year 2008 £’000 (432) 196 20 (216) 11,011 10,795 - 2007 £’000 271 98 (5) 300 712 1,376 22,654 24,030 23,950 80 24,030 2007 £’000 354 98 (118) 712 1,046 6,665 7,711 31 Cranswick plc - Report & Accounts 2008 Group balance sheet 31 March 2008 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 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 interest Total equity M Davey Chairman 19 May 2008 32 J Lindop Finance Director Notes 12 13 15 16 17 25 18 19 20 18 19 8 20 22 24 24 24 24 2008 £’000 117,756 92,721 210,477 30,638 77,348 1,029 3,770 112,785 2007 £’000 117,520 80,277 197,797 24,626 66,416 330 2,262 93,634 323,262 291,431 (73,025) (31,811) (3,798) (153) (108,787) (8) (50,414) (7,463) (1,336) (59,221) (65,073) (16,933) (3,834) (289) (86,129) (37) (61,544) (6,150) (1,736) (69,467) (168,008) (155,596) 155,254 135,835 4,623 48,693 1,939 1,034 98,965 155,254 155,254 - 4,595 47,204 1,018 351 82,564 135,732 103 135,835 Company balance sheet 31 March 2008 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 19 May 2008 J Lindop Finance Director Notes 13 14 16 17 18 19 19 8 22 24 24 24 24 24 24 2008 £’000 2,348 155,426 157,774 44,239 70 - 2007 £’000 2,339 155,430 157,769 25,660 306 1 44,309 25,967 202,083 183,736 (54,994) (28,518) (90) (83,602) (50,414) (359) (50,773) (41,654) (16,279) - (57,933) (61,544) (403) (61,947) (134,375) (119,880) 67,708 63,856 4,623 48,693 4,000 1,806 317 70 8,199 67,708 4,595 47,204 4,000 1,806 210 306 5,735 63,856 33 Cranswick plc - Report & Accounts 2008 Group cash flow statement for the year ended 31 March 2008 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 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 property, plant and equipment Proceeds from sale of subsidiary 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 34 Notes 2008 £’000 2007 £’000 39,990 37,357 10,090 921 (29) (2,170) (6,077) (10,209) 7,732 40,248 (9,046) 31,202 4 (54) (25,295) 4,228 500 9,252 487 (39) (250) (5,329) (9,141) 9,493 41,830 (7,936) 33,894 6 (13,506) (11,979) 1,147 - (20,617) (24,332) - - (5,332) 683 (5,420) (7,734) (17,803) (7,218) (494) 14 (7,698) 25 25 (3,966) 1,776 10,000 (40) (11,395) (6,467) (10,092) (530) 46 (10) (494) Company cash flow statement for the year ended 31 March 2008 Operating activities Profit before finance and taxation Adjustments to reconcile operating profit to net cash inflows from operating activities: Notes 2008 £’000 2007 £’000 11,284 9,089 Depreciation Share based payments Decrease in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations Tax (paid)/received Net cash from operating activities Cash flows from investing activities Dividends received Purchase of property, plant and equipment Payments to acquire investments in subsidiaries Proceeds from sale of 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 (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 33 107 25,597 (29,950) 7,071 (151) 6,920 9,772 (42) (16) 500 10,214 (11,073) (7,734) 683 (5,420) (23,544) (6,410) (2,102) (8,512) - - 25 25 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) 35 Cranswick plc - Report & Accounts 2008 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 2008 were authorised for issue by the Board of Directors on 19 May 2008 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. Judgements and key sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Share based payments Note 23 – measurement of share based payments Goodwill Provisions Foreign currencies Note 12 – measurement of the recoverable amount of cash generating units containing goodwill Note 20 – provisions 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. 36 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 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 dispatch and represents the value of sales to customers net of discounts, similar allowances and estimates of returns and excludes value added tax. Restatement The directors have reclassified £14.3 million in 2007 from cost of sales and operating costs to revenue in respect of discounts and similar allowances, a presentation which more appropriately reflects the nature of these amounts. There is no impact on net profit or earnings per share. 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. 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 37 Cranswick plc - Report & Accounts 2008 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. Useful economic lives are principally as follows: Freehold buildings 50 years Short leasehold improvements Residue of lease Plant and equipment Motor vehicles 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. 38 Inventories Inventories, with the exception of biological assets (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. 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 hedging criteria under IFRS 7 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 hedge accounting under IFRS 7, 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. 39 Cranswick plc - Report & Accounts 2008 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. Investments Investments in subsidiaries are shown at cost less any provision for impairment. New standards and interpretations applied The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures. International Accounting Standards (IAS/IFRS) IFRS 7 Financial Instruments: Disclosures IAS 1 Amendment – Presentation of Financial Statements: Capital Disclosures International Financial Reporting Interpretations Committee (IFRIC) IFRIC 8 IFRIC 9 Scope of IFRS 2 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 11 Group Cash-Settled Share Based Payment Transactions New standards and interpretations not applied 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) IFRS 2 Share-based Payment – Vesting Conditions and Cancellations IFRS 8 IAS 1 IAS 1 IAS 32 Operating Segments Revised Presentation of Financial Statements Puttable Financial Instruments Puttable Financial Instruments International Financial Reporting Interpretations Committee (IFRIC) IFRIC 12 IFRIC 13 IFRIC 14 Service Concession Arrangements Customer Loyalty Programmes Effective date 1 January 2009 1 January 2009 1 January 2009 1 January 2009 1 January 2009 1 January 2008 1 January 2008 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 1 July 2008 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. 40 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. Business segments 2008 Pet £’000 Food £’000 2007 (Restated) Total £’000 Food £’000 Pet £’000 Total £’000 Revenue 559,228 39,665 598,893 479,839 30,644 510,483 Result before exceptionals Exceptionals Results Central costs Profit before finance and taxation Net finance costs Profit before taxation Income taxes Profit for the year 39,275 830 40,105 1,885 792 2,677 41,160 1,622 42,782 (2,792) 39,990 (4,646) 35,344 (9,687) 25,657 38,936 - 38,936 566 281 847 39,502 281 39,783 (2,426) 37,357 (4,701) 32,656 (10,002) 22,654 All revenue derives from sales of goods from continuing operations. Assets and liabilities Assets (excluding goodwill) 177,855 22,790 200,645 Goodwill 117,756 - 117,756 152,516 117,520 18,745 171,261 - 117,520 Assets (including goodwill) 295,611 22,790 318,401 270,036 18,745 288,781 Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities 67,912 4,184 4,861 323,262 72,096 95,912 168,008 57,012 2,985 2,650 291,431 59,997 95,599 155,596 Unallocated assets and liabilities comprise certain items of property, plant and equipment, loan notes, net debt and taxation balances. Other segment information Capital expenditure: Property, plant and equipment Depreciation 24,420 9,545 1,330 545 25,750 10,090 11,383 8,697 424 555 11,807 9,252 In addition, £10,206,000 of property plant and equipment was acquired as part of the DeliCo acquisition in November 2006 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: Sales revenue by geographical market UK Continental Europe Rest of World 2008 2007 (Restated) £’000 £’000 588,492 499,398 9,915 486 10,599 486 598,893 510,483 41 Cranswick plc - Report & Accounts 2008 The following table sets out the geographical location of the Group’s assets and of additions to property, plant and equip- ment and intangible assets: UK Continental Europe Unallocated assets 4. Group operating profit This is stated after charging/(crediting): 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 Increase/(decrease) in provision for inventories Audit of the financial statements* Carrying amount of segment assets, including goodwill Additions to property, plant and equipment and tangible assets 2008 £’000 2007 £’000 2008 £’000 2007 £’000 318,401 288,529 25,750 11,803 - 4,861 252 2,650 - - 4 - 323,262 291,431 25,750 11,807 2008 2007 (Restated) £’000 £’000 22,983 23,841 46,824 10,090 (29) 5,015 (41) 20,828 27,196 48,024 9,252 (39) 3,744 (303) 438,759 358,706 129 165 (81) 149 * £28,000 relates to the Company (2007 - £26,000) and £137,000 (2007 - £123,000) relates to the subsidiaries. In addition, payments to Ernst & Young LLP for non audit services amounted to £117,000 (2007 - £156,000) of which £4,000 related to an audit related service (2007 – £5,000), £44,000 (2007 - £73,000) related to due diligence services and £69,000 (2007 - £78,000) to taxation. Fees paid to Ernst & Young LLP for non-audit services to the Company itself are not disclosed in the individual accounts of Cranswick plc because group financial statements are prepared which are required to disclose such fees on a consolidated basis. 5. Exceptional items Non-recurring income during the year was as follows: Recognised below operating profit Profit on disposal of property, plant and equipment 2008 £’000 2007 £’000 1,622 281 The corporation tax credit associated with these exceptional items amounted to £90,000 (2007 - £nil). Deferred tax of £97,000 was released (2007 – £229,000 provided on the rolled over gain). The cash flow impact of exceptional items is £3,826,000 (2007 - £770,000) received in relation to asset disposals after associated costs. 42 6. Employees Group Staff costs: Wages and salaries Social security costs Other pension costs 2008 £’000 72,827 6,103 1,378 80,308 2007 £’000 59,130 5,293 921 65,344 Included within wages and salaries is a total expense for share based payments of £921,000 (2007 - £487,000) 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 2008 £’000 1,376 163 534 2,073 2007 £’000 1,610 188 219 2,017 Included within wages and salaries is a total expense for share based payments of £107,000 (2007 - £68,000) 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: Group Production Selling and distribution Administration 2008 No 2,933 235 260 3,428 2007 No 2,567 204 253 3,024 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 77. The employee costs shown above include the following emoluments in respect of Directors of the Company: Group and Company 2008 £’000 2007 £’000 Directors’ remuneration (excluding IFRS 2 share option charge) 3,458 3,724 Aggregate gains made by directors on exercise of share options 9 487 43 Cranswick plc - Report & Accounts 2008 7. Finance revenue and costs Finance revenue Bank interest received Finance costs Loan note interest paid Bank interest paid and similar charges Total interest expense for financial liabilities not at fair value through profit and loss Movement in discount on provisions Total finance costs 2008 £’000 2007 £’000 (4) (6) 54 4,553 4,607 43 4,650 45 4,610 4,655 52 4,707 The interest relates to financial assets and liabilities carried at amortised cost together with the impact of interest rate swaps. 8. Taxation a) Analysis of tax charge in 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 Tax on profit on ordinary activities Tax relating to items charged or credited directly to equity: Group Share based payments Net gain on revaluation of cash flow hedges Corporation tax credit on share options exercised Tax charge/(credit) in the statement of recognised income and expense Company Net (loss)/gain on revaluation of cash flow hedges Corporation tax credit on share options exercised Deferred tax charge/(credit) on share options exercised Tax credit in the statement of recognised income and expense 44 2008 £’000 9,038 6 9,044 54 9,098 599 (10) 589 9,687 2008 £’000 535 190 (88) 637 2008 £’000 (72) 52 (20) - - 2007 £’000 9,323 (6) 9,317 25 - 9,342 430 230 660 10,002 2007 £’000 (411) 111 (712) (1,012) 2007 £’000 135 (712) (17) (594) b) Factors affecting tax charge for the period The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below: Group Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2007 - 30%) Effect of: Disallowed expenses Rollover and indexation Deferred tax rate difference Other Adjustments in respect of prior years Total tax charge for the year c) Deferred tax Group The deferred tax included in the balance sheet is as follows: Deferred tax liability Accelerated capital allowances Rollover and holdover relief Other temporary differences Share based payments Deferred tax liability 2008 £’000 2007 £’000 35,344 32,656 10,603 9,797 69 (741) (535) 241 50 44 (40) - (23) 224 9,687 10,002 2008 £’000 5,814 933 974 (258) 7,463 2007 £’000 5,424 938 592 (804) 6,150 The Group will benefit from the reduction in the main rate of corporation tax to 28% from 1 April 2008. Deferred tax is required to be measured at the tax rates expected to apply in the periods in which the temporary differences are expected to reverse, hence deferred tax has been provided at 28%. Deferred tax in the income statement Accelerated capital allowances 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 2008 £’000 390 10 (5) 194 589 2008 £’000 165 39 208 (53) 359 2007 £’000 918 (80) 66 (244) 660 2007 £’000 153 41 294 (85) 403 d) Temporary differences associated with group investments At 31 March 2008 no deferred tax liability has been recognised (2007: £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. 45 Cranswick plc - Report & Accounts 2008 9. Profit attributable to members Of the profit attributable to members, the sum of £11,011,000 (2007 - £6,665,000) has been dealt with in the accounts of Cranswick plc. 10. Equity dividends Declared and paid during the year: Final dividend for 2007 – 12.2p per share (2006 – 11.1p) Interim dividend for 2008 – 6.5p per share (2007 – 5.9p) Dividends paid Proposed for approval of shareholders at the Annual General Meeting on 28 July 2008: Final dividend for 2008 - 13.4p (2007 - 12.2p) 11. Earnings per share 2008 £’000 5,587 2,980 8,567 2007 £’000 4,959 2,667 7,626 6,195 5,607 Basic earnings per share amounts are calculated by dividing net profit for the year attributable to members of the parent company of £25,605,000 (2007 - £22,574,000) by the weighted average number of shares outstanding during the year. In calculating diluted earnings per share amounts, the weighted average number of shares is adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares. The 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 2008 2007 Thousands Thousands 45,832 286 46,118 44,967 366 45,333 Basic weighted average number of shares for 2008 excludes 195,000 shares (2007 – 195,000 shares) held during the year by the Cranswick plc Employee Benefit Trust. 12. Intangible fixed assets Group Cost At 31 March 2006 Acquisition of subsidiary undertakings At 31 March 2007 Acquisition of subsidiary undertakings At 31 March 2008 Impairments as at 31 March 2006, 2007 and 2008 Net book amounts at 31 March 2007 Net book amounts at 31 March 2008 46 Goodwill £’000 111,921 5,599 117,520 236 117,756 - 117,520 117,756 In August 2008, the Group increased its investment in Cranswick Gourmet Bacon Company Ltd from 85% to 100% for a cash consideration of £38,000 and loan notes of £336,000. Goodwill arising from this amounted to £219,000. Goodwill of £5,539,000 arising on the acquisition of Delico Limited in November 2006 is detailed further in Note 14. The Company has no other 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 2008 £’000 86,903 16,526 10,968 3,359 2007 £’000 86,903 16,526 10,968 3,123 117,756 117,520 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% 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 9.1 per cent has been used (2007 - 9.8 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 reduces value in use below that of recoverable amount. Assumptions and projections are updated on an annual basis. 47 Cranswick plc - Report & Accounts 2008 13. Property, plant and equipment Group Cost At 31 March 2006 On acquisition of subsidiary undertaking Additions Transfers from/(to) assets held for resale Disposals At 31 March 2007 Additions Disposals At 31 March 2008 Depreciation At 31 March 2006 On acquisition of subsidiary undertaking Charge for the year Transfers from/(to) assets held for resale Relating to disposals At 31 March 2007 Charge for the year Relating to disposals At 31 March 2008 Net book amounts At 31 March 2006 At 31 March 2007 At 31 March 2008 16,860 102,402 155,425 Freehold land and buildings Leasehold improvements Plant, equipment and vehicles £’000 £’000 £’000 27,580 16,487 Total £’000 112,622 16,363 11,807 170 (2,191) 138,771 25,750 (9,096) 68,555 16,363 11,357 (61) (2,051) 94,163 15,779 (7,540) 36,770 6,157 7,867 (39) (1,707) 49,048 8,712 (5,226) 52,534 31,785 45,115 49,868 44,897 6,157 9,252 (29) (1,783) 58,494 10,090 (5,880) 62,704 67,725 80,277 92,721 - 132 231 (140) 27,803 9,916 (1,556) 36,163 2,148 - 466 10 (76) 2,548 467 (654) 2,361 - 318 - - 16,805 55 - 5,979 - 919 - - 6,898 911 - 7,809 25,432 25,255 33,802 10,508 9,907 9,051 Included in freehold land and buildings is land with a cost of £3,853,000 (2007 - £2,952,000) which is not depreciated relating to the Group and £1,210,000 (2007 - £1,210,000) relating to the Company. The cost of freehold land and buildings includes £935,000 (2007 - £538,000) in respect of capitalised interest. £397,000 of interest, which was the whole amount eligible, was capitalised during the year (2007 - £nil). 48 Freehold land and buildings Plant, equipment and vehicles £’000 £’000 2,431 - - 2,431 - - 2,431 110 - 21 131 21 - 152 2,321 2,300 2,279 51 18 3 72 43 (5) 110 4 15 14 33 12 (4) 41 47 39 69 Company Cost At 31 March 2006 Transfers from other group companies Additions At 31 March 2007 Additions Disposals At 31 March 2008 Depreciation At 31 March 2006 Transfer from other group companies Charge for the year At 31 March 2007 Charge for the year Relating to disposals At 31 March 2008 Net book amounts At 31 March 2006 At 31 March 2007 At 31 March 2008 14. Investment in subsidiary undertakings Company Shares at cost: At 31 March 2006 Additions in year At 31 March 2007 Disposals in year At 31 March 2008 Total £’000 2,482 18 3 2,503 43 (5) 2,541 114 15 35 164 33 (4) 193 2,368 2,339 2,348 £’000 137,231 18,199 155,430 (4) 155,426 49 Cranswick plc - Report & Accounts 2008 During the year the Group disposed of its investment in Cranswick GmbH for a cash consideration of £500,000 as part of the disposal of the feed milling business. The profit on disposal is included as part of the exceptional item. 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 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 (holding via Cranswick Country Foods plc) Cranswick Mill Limited Cranswick ApS (registered in Denmark) Delico Limited Pet Cranswick Pet & Aquatics plc Except where otherwise stated, 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 Group Raw materials Finished goods and goods for resale Biological assets (see below) 2008 £’000 24,218 6,278 142 30,638 2007 £’000 20,334 4,155 137 24,626 The Group breeds and imports tropical marine fish and other invertebrates for supply to specialist aquatic retailers. At 31 March 2008 marine stock represented approximately 44,000 fish (2007 - approximately 47,000 fish). The fair value of tropical marine fish is determined from retail selling price less a margin and increased by £6,000 (2007 – reduced by £4,000) in the year. 50 16. Trade and other receivables Financial Assets: Trade receivables Amounts owed by group undertakings - Other receivables Non-financial assets: Prepayments and accrued income Group Company 2008 £’000 2007 £’000 2008 £’000 68,504 58,585 - 3,474 71,978 5,370 77,348 - 3,457 62,042 4,374 66,416 44,177 20 44,197 42 44,239 2007 £’000 - 25,602 58 25,660 - 25,660 Financial assets are carried at amortised cost As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows: Group Trade receivables Of which: Not due Past due date in the following periods: Less than 30 days Between 30 and 60 days More than 60 days £’000 £’000 £’000 £’000 £’000 2008 2007 68,504 57,683 7,718 2,061 1,042 58,585 52,912 4,488 714 471 Trade receivables are non-interest bearing and are generally on 30-60 days’ terms and are shown net of a provision for impairment. As at 31 March 2008, trade receivables at nominal value of £634,000 (2007 - £591,000) were impaired and fully provided for. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote. Movements in the provision for impairment of receivables were as follows: Bad debt provision At 31 March 2006 Provided in year Written off At 31 March 2007 Provided in year Written off At 31 March 2008 There are no bad debt provisions against other receivables. 17. Other financial assets - current Forward currency contracts Interest rate swaps Group Company 2008 £’000 959 70 1,029 2007 £’000 24 306 330 2008 £’000 70 70 - £’000 536 61 (6) 591 167 (124) 634 2007 £’000 - 306 306 51 Cranswick plc - Report & Accounts 2008 Movement on hedged items: Amounts recognised in equity Amounts removed from equity and included in the income statement Group Company 2008 £’000 504 196 700 2007 £’000 271 98 369 2008 £’000 (432) 196 (236) 2007 £’000 354 98 452 Movements on hedged foreign currency contracts are recycled through cost of sales. Interest rate movements on hedged bank borrowings are re-cycled through finance costs. All financial assets are used for hedging. 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 21. Under the terms of the interest rate swap the Group receives LIBOR interest and pays fixed interest of 4.98%. The notional principal amount stands at £18,000,000 as at 31 March 2008 and reduces in equal semi-annual amounts to £nil by January 2010. 18. Trade and other payables Current Trade payables Amounts owed to group undertakings Other payables Non-current Deferred income 19. Other financial liabilities Current Bank overdrafts Amounts outstanding under revolving credit facility Current instalments due on bank loan Loan notes Non-current Group Company 2008 £’000 2007 £’000 52,763 43,882 - 20,262 73,025 - 21,191 65,073 2008 £’000 154 54,057 783 54,994 8 37 - Group Company 2008 £’000 11,468 8,000 11,250 1,093 31,811 2007 £’000 2,756 2,000 11,250 927 16,933 2008 £’000 8,512 8,000 11,250 756 28,518 2007 £’000 - 36,541 5,113 41,654 - 2007 £’000 2,102 2,000 11,250 927 16,279 Non-current instalments due on bank loan 50,414 61,544 50,414 61,544 All financial liabilities are amortised at cost. A bank overdraft facility of £20 million (2007 - £10 million) is in place until December 2009, of which £11,468,000 (2007 - £2,756,000) was utilised at 31 March 2008. Interest is payable at a margin over base rate. A revolving credit facility of £10 million is in place of which £8 million was utilised as at 31 March 2008 (2007 - 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 of 0.6% above LIBOR. 52 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 2008 £’000 11,250 50,625 61,875 (211) 61,664 - 2007 £’000 11,250 11,250 50,625 73,125 (331) 72,794 2008 £’000 11,250 50,625 61,875 (211) 61,664 - 2007 £’000 11,250 11,250 50,625 73,125 (331) 72,794 The balance outstanding on the bank loan is repayable in 3 semi-annual instalments of £5,625,000 from September 2008, followed by a single payment of £45,000,000 in December 2009. Interest is payable on the loan at a margin of 0.6% 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%. Loan notes bear interest based on base rate and are repayable on demand at six-monthly intervals. 20. Provisions Group At 1 April 2007 Utilisation in the year Unwinding of discount At 31 March 2008 Analysed as: Current liabilities Non-current liabilities Lease provisions £’000 2,025 (579) 43 1,489 2007 £’000 289 1,736 2,025 Group 2008 £’000 153 1,336 1,489 Lease provisions are held against dilapidations obligations on leased properties and for the costs of onerous leases for property, plant and machinery. These provisions are expected to be utilised over the next six years. There are no provisions held by the Company. 53 Cranswick plc - Report & Accounts 2008 21. Financial instruments An explanation of the Company and Group’s financial instruments risk management strategy is set out on pages 18 to 21 in the Group Operating and 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 2008 and their weighted average interest rates is set out below: Group As at 31 March 2008 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) Loan notes Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps Weighted average effective interest rate % 6.54% 6.22% 6.05% 5.24% Fixed interest 1-2 years 2-3 years Total At floating interest rates 1 year or less £’000 £’000 £’000 £’000 £’000 (11,468) (11,468) (8,000) (8,000) - - (61,875) (43,875) (9,000) (1,093) (1,093) - (82,436) (64,436) - (18,000) (9,000) 9,000 (9,000) (9,000) 9,000 - - - - - - - - - - - - - - - Financial assets: Cash at bank 4.54% 3,770 3,770 (78,666) (78,666) (82,436) (82,436) - - - Weighted average effective interest rate % 6.25% 6.05% 5.50% 5.25% Fixed interest 1-2 years 2-3 years Total At floating interest rates 1 year or less £’000 £’000 £’000 £’000 £’000 (2,756) (2,000) (2,756) (2,000) - - - - - - (73,125) (46,125) (9,000) (9,000) (9,000) (927) (927) (78,808) (51,808) - (27,000) - (9,000) 9,000 - (9,000) 9,000 - (9,000) 9,000 As at 31 March 2007 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) Loan notes Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps (78,808) (78,808) Financial assets: Cash at bank 4.25% 2,262 2,262 (76,546) (76,546) The maturity profile of bank loans is set out in note 19. - - - - - - - - - The interest rate profile of the interest earning financial assets and interest bearing liabilities of the Company as at 31 March 2008 and their weighted average interest rates is set out on following page: 54 Company As at 31 March 2008 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) Loan notes Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps Financial assets: Cash at bank As at 31 March 2007 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) Loan notes Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps Financial assets: Cash at bank Currency profile Weighted average effective interest rate % 6.54% 6.22% 6.05% 5.24% Fixed interest 1-2 years 2-3 years Total At floating interest rates 1 year or less £’000 £’000 £’000 £’000 £’000 (8,512) (8,000) (8,512) (8,000) - - (61,875) (43,875) (9,000) (756) (79,143) - (756) - (61,143) (18,000) (9,000) 9,000 (79,143) (79,143) - - (79,143) (79,143) - - - (9,000) (9,000) 9,000 - - - - - - - - - - - - - - - Weighted average effective interest rate Total At floating interest rates 1 year or less Fixed interest 1-2 years 2-3 years % £’000 £’000 £’000 £’000 £’000 6.25% 6.05% 5.50% 5.25% (2,102) (2,000) (2,102) (2,000) - - - - - - (73,125) (46,125) (9,000) (9,000) (9,000) (927) (78,154) - (927) (51,154) (27,000) - (9,000) 9,000 - (9,000) 9,000 - (9,000) 9,000 (78,154) (78,154) - - (78,154) (78,154) - - - - - - - - - The Group’s financial assets at 31 March 2008 include Sterling denominated cash balances of £1,648,000 (2007 - £894,000), Danish Krona £99,000 (2007 - £195,000), Euro £611,000 (2007 - £902,000) and US dollar £1,412,000 (2007 - £271,000), all of which are held in the UK with the exception of Danish Krona £98,000 (2007 - £83,000) and Euro £nil (2007 - £218,000). 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. 55 Cranswick plc - Report & Accounts 2008 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 2008 2007 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 At 31 March Company Financial asset Interest rate swap Financial liabilities Bank overdraft Amounts outstanding under revolving credit facility Bank loan, gross of issue costs Loan notes Book value £’000 3,770 959 70 4,799 (11,468) (8,000) (61,875) (1,093) (82,436) Fair value £’000 3,770 959 70 4,799 (11,468) (8,000) (61,875) (1,093) (82,436) Book value £’000 2,262 24 306 2,592 Fair value £’000 2,262 24 306 2,592 (2,756) (2,000) (2,756) (2,000) (73,125) (73,125) (927) (927) (78,808) (78,808) (77,637) (77,637) (76,216) (76,216) 2008 2007 Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 70 70 306 306 (8,512) (8,000) (61,875) (756) (79,143) (8,512) (8,000) (61,875) (756) (2,102) (2,000) (2,102) (2,000) (73,125) (73,125) (927) (927) (79,143) (78,154) (78,154) At 31 March (79,073) (79,073) (77,848) (77,848) 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 and liabilities are included in notes 16 and 18. 56 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 IFRS 7 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 Fair value $13,450,000 €14,000,000 1 April 2008 to 10 October 2008 1 April 2008 to 15 September 2008 $1.98 - $2.00 €1.3050 – €1.4710 £’000 107 852 These contracts were effective cash flow hedges under the criteria set out in IFRS 7 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 £18,000,000 as at 31 March 2008 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 IFRS 7 and therefore movements in fair value have been posted directly to equity and recycled through the income statement at the time the hedged item affects the profit and loss account. Interest rate risk The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit before tax (through the impact on floating rate borrowings). There is no impact on the Group’s equity. The sensitivity analysis excludes all non-derivative fixed rate financial instruments carried at amortised cost but includes those recognised at fair value as well as all non-derivative floating rate financial instruments. Fair value interest rate hedges, that are part of a hedging relationship, have been excluded from the analysis, as gains and losses from fair valuing both the hedging item and hedging instrument almost cancel one another out completely in the income statement. However, for the purpose of the sensitivity analysis hedged loans are treated as floating rate borrowings as a result of the swap relationship, which exposes them to a variable interest expense in the income statement. Currency derivatives have not been included in the sensitivity analysis below as they are not considered to be exposed to interest rate risk. 2008 Sterling 2007 Sterling Increase/ decrease in basis points Effect on profit before tax +25 -25 +25 -25 £000 (201) 201 (202) 202 57 Cranswick plc - Report & Accounts 2008 Liquidity risk The tables below summarise the maturity profile of the Group’s financial liabilities at 31 March 2008 and 2007 based on contractual undiscounted payments. Year ended 31 March 2008 Bank overdraft Revolving credit facility Bank loan Loan notes Trade and other payables Year ended 31 March 2007 Bank overdraft Revolving credit facility Bank Loan Loan notes Trade and other payables Less than 1 year £’000 11,468 8,000 11,715 1,093 73,025 1 to 2 years £’000 - - - 54,591 8 Total £’000 11,468 8,000 66,306 1,093 73,033 105,301 54,599 159,900 Less than 1 year £’000 2,756 2,000 11,715 927 65,073 82,471 1 to 3 years £’000 - - 70,345 - 37 Total £’000 2,756 2,000 82,060 927 65,110 70,382 152,853 22. Called-up share capital Group and Company Authorised: 2008 2007 Number Number Ordinary shares of 10p each 63,600,000 63,600,000 2008 £’000 6,360 2008 £’000 4,595 17 11 2007 £’000 6,360 2007 £’000 4,467 65 15 48 2008 2007 Number Number 45,954,326 44,669,630 167,554 103,611 - 653,694 152,236 478,766 - 46,225,491 45,954,326 4,623 4,595 Allotted, called-up and fully paid Ordinary shares of 10p each: At 1 April On exercise of share options Scrip dividends Issues on acquisition of subsidiary At 31 March 58 On 7 September 2007, 27,239 ordinary shares were issued at 844.1p as a result of shareholders exercising the scrip dividend option in lieu of the cash payment for the 2007 final dividend. On 25 January 2008, 76,372 ordinary shares were issued at 790.0p as a result of shareholders exercising the scrip dividend option in lieu of the cash payment for the 2008 interim dividend. During the course of the year, 137,554 ordinary shares were issued to employees exercising SAYE options at prices between 255.0p and 679.0p and 30,000 ordinary shares were issued to directors and employees exercising executive share options at a price of 601.0p per ordinary share. Of the unissued ordinary share capital £99,467 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 Savings related Executive Number 18,756 11,038 49,887 71,887 130,505 122,126 100,473 490,000 Exercise price Exercise period 264p 415p 255p 375p 471p 679p 665p 601p March 2005 to October 2009 March 2007 to October 2010 March 2008 to October 2011 March 2008 to October 2012 March 2009 to October 2013 March 2010 to October 2014 March 2011 to October 2015 July 2008 to July 2015 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 prior year, 243,694 ordinary shares were issued to employees exercising SAYE options at prices be- tween 255p and 415p, and 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 Trustees Limited in respect of the Cranswick plc Long Term Incentive Plan. 23. Share based payments Executive Share Options The Company operates three executive share option schemes, a Revenue approved scheme, an unapproved scheme and a long term incentive plan, all 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. 59 Cranswick plc - Report & Accounts 2008 The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options during the year. Group 2008 2008 2007 Number WAEP Number Outstanding as at 1 April Forfeited during the year Exercised during the year (note i) Outstanding as at 31 March Exercisable at 31 March - 535,000 (15,000) (30,000) 490,000 £ 6.01 6.01 6.01 6.01 - 795,000 (45,000) (215,000) 535,000 - Company 2008 2008 2007 Outstanding as at 1 April Exercised during the year (note i) Outstanding as at 31 March Exercisable at 31 March Number WAEP Number 265,000 265,000 - - £ 6.01 - 6.01 400,000 (135,000) 265,000 - - 2007 WAEP £ 5.79 6.01 5.19 6.01 - 2007 WAEP £ 5.79 5.19 6.01 - i) The weighted average share price at the date of the exercise for the options exercised is £8.71 (2007 – £9.50). For the share options outstanding as at 31 March 2008, the weighted average remaining contractual life is 0.6 years. (2007 – 1.6 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 During the course of the year 190,000 options at nil cost were granted to directors and senior executives, the share price at that time was 854p. 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% at the 75th percentile with performance between the 50th and 75th percentile rewarded pro-rata. The comparison companies are Carrs Milling Industries plc, Dairy Crest Group plc, Devro 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. No options were forfeited during the year leaving 380,000 outstanding. 60 Group 2008 2008 2007 2007 Outstanding as at 1 April Granted during the year Forfeited during the year Outstanding as at 31 March Exercisable at 31 March Number WAEP Number WAEP 190,000 190,000 380,000 - - £ - - - - - - 195,000 (5,000) 190,000 - £ - - - - - Company 2008 2008 2007 2007 Number WAEP Number WAEP Outstanding as at 1 April Granted during the year Outstanding as at 31 March Exercisable at 31 March - 125,000 125,000 250,000 £ - - - - - 125,000 125,000 - £ - - - - 61 Cranswick plc - Report & Accounts 2008 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: Group 2008 2008 2007 Number WAEP Number Outstanding as at 1 April Granted during the year (note i) Forfeited during the year Exercised during the year (note ii) Outstanding as at 31 March (note iii) Exercisable at 31 March Company Outstanding as at 1 April Granted during the year (note i) Exercised during the year (note ii) Outstanding as at 31 March 605,870 102,204 (66,208) (137,194) 504,672 11,978 2008 £ 4.42 6.65 5.14 3.66 5.16 3.91 2008 739,063 153,033 (42,532) (243,694) 605,870 1,736 2007 Number WAEP Number 16,387 3,793 (9,581) 10,599 £ 4.20 6.65 3.98 5.28 - 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 - Exercisable at 31 March - i) The share options granted during the year were at 665p, 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 £6.58 (2007 - £9.68). iii) Included within this balance are options over 18,756 shares (2007 - 26,444 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 2008 the weighted average remaining contractual life is 2.56 years. (2007 - 2.70 years). The weighted average fair value of options granted during the year was £8.48 (2007 - £8.77). The range of exercise prices for options outstanding at the end of the year was £2.55 - £6.79 (2007 - £2.55 - £6.79). 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 2008 and 31 March 2007: Group and Company Dividend yield Expected share price volatility Risk free interest rate Expected life of option (years) Exercise prices 2008 1.90%-4.10% 24.5%-31.0% 4.29%-5.80% 3,5,7 years £nil - £6.79 2007 1.90%-4.10% 24.5%-31.0% 4.29%-5.00% 3,5,7 years £nil - £6.79 62 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. 24. Reconciliation of movements in equity Group Attributable to equity holders of the parent Minority Total Share Share capital premium Share Hedging Translation Retained based payments reserve earnings reserve Total interest equity (Note 1) (Note 2) (Note 3) (Note 4) (Note 5) £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 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 Share issues Share based payments Deferred tax recognised directly in equity Corporation tax recognised directly in equity Purchase of Minority Interest Dividends - - - 65 15 48 - - - - - - - - 1,711 1,144 3,552 - - - - - - - - - - - 487 - - - - 369 - - - - - - - - - - - (5) - - 369 - (5) 369 (5) 22,574 22,574 80 22,654 - - - - 1,776 1,159 3,600 487 300 300 - - - - - - 1,776 1,159 3,600 487 300 712 (13) 712 - 712 - (13) (7,626) (7,626) - (7,626) At 1 April 2007 4,595 47,204 1,018 329 22 82,564 135,732 103 135,835 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 Purchase of Minority Interest Dividends - - - 17 11 - - - - - - - - 666 823 - - - - - - - - - - 921 - - - - 700 - - - - - - - - - - (17) - - 700 (17) - - 700 (17) 25,605 25,605 52 25,657 - - - 683 834 921 (725) (725) - - - - - 683 834 921 (725) 88 88 88 - - (155) (155) (8,567) (8,567) - (8,567) - - - - - - - - - - - - - - - - - At 31 March 2008 4,623 48,693 1,939 1,029 5 98,965 155,254 - 155,254 63 Cranswick plc - Report & Accounts 2008 Company At 1 April 2006 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 At 1 April 2007 Cash flow hedges Profit for the year Exercise of options Scrip dividends Share based payments Deferred tax recognised directly in equity Dividends At 31 March 2008 Notes: 1. Share capital Share capital Share premium Share based payments Hedging reserve Merger reserve General Retained reserve earnings Total (Note 1) (Note 2) (Note 3) (Note 4) (Note 6) (Note 7) £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 4,467 40,797 142 (146) 1,806 4,000 6,102 57,168 - - 65 15 48 - - - - - - 1,711 1,144 3,552 - - - - - - - - - 68 - - - 452 - - - - - - - - - - - - - - - - - - - - - - - - 6,665 - - - - 452 6,665 1,776 1,159 3,600 68 - (118) (118) - - 712 712 (7,626) (7,626) 4,595 47,204 210 306 1,806 4,000 5,735 63,856 - - 17 11 - - - - - 666 823 - - - - - - - 107 - - (236) - - - - - - - - - - - - - - - - - - - - - (236) 11,011 11,011 - - - 683 834 107 20 20 (8,567) (8,567) 4,623 48,693 317 70 1,806 4,000 8,199 67,708 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. 4. Hedging reserve This reserve records exchange differences arising from the translation of the financial statements of foreign subsidiaries. In addition it 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. 64 25. Additional cash flow information Analysis of Group net debt At 31 March 2007 Cash flow Other non cash changes At 31 March 2008 £’000 £’000 £’000 Cash and cash equivalents Overdrafts Other financial assets Revolving credit Bank loans Loan notes Net debt Cash and cash equivalents Overdrafts Other financial liabilities Revolving credit Bank loans Loan notes Net debt £’000 3,770 (11,468) (7,698) 70 (7,628) (8,000) (61,664) (1,093) (78,385) 14 - 14 (236) (222) - (120) (336) (678) 2,262 (2,756) (494) 306 (188) (2,000) (72,794) (927) (75,909) At 31 March 2006 1,494 (8,712) (7,218) - (7,218) (6,000) 11,250 170 (1,798) Cash flow Other non cash changes At 31 March 2007 £’000 £’000 £’000 £’000 5,000 (4,954) 46 - 46 (146) (2,000) (73,970) (1,072) (77,142) (2,728) 2,198 (530) - (530) - - 1,290 145 905 (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). 65 Cranswick plc - Report & Accounts 2008 Analysis of Company net debt Overdrafts Other financial assets Revolving credit Bank loans Loan notes Net debt Overdrafts Other financial assets Other financial liabilities Revolving credit Bank loans Loan notes Net debt 26. Contingent liabilities At 31 March 2007 Cash flow Other non cash changes At 31 March 2008 £’000 £’000 £’000 £’000 (2,102) 306 (1,796) (2,000) (72,794) (927) (77,517) (6,410) - (6,410) (6,000) 11,250 171 (989) - (236) (236) - (120) - (356) (8,512) 70 (8,442) (8,000) (61,664) (756) (78,862) At 31 March 2006 Cash flow Other non cash changes At 31 March 2007 £’000 £’000 £’000 £’000 (4,480) - (4,480) (146) (2,000) (73,970) (1,072) (81,668) 2,378 - 2,378 - - 1,290 145 3,813 - 306 306 146 - (114) - 338 (2,102) 306 (1,796) - (2000) (72,794) (927) (77,517) The Company, together with its subsidiary undertakings, has entered into a cross 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 £81,343,000 as at 31 March 2008 (2007 - £77,881,000). 27. Commitments (a) The Directors have contracted for future capital expenditure for property, plant and equipment totalling £7,347,000 (2007 - £475,000). (b) The Group’s future minimum rentals payable under non-cancellable operating leases are as follows: Group Company 2008 £’000 3,737 9,890 24,067 37,694 2007 £’000 1,831 8,124 30,905 40,860 - - - - 2008 £’000 2007 £’000 - - - - Not later than one year After one year but not more than five years After five years 66 28. 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 6. Contributions owing to the insurance companies at the year-end, included in trade and other payables, amounted to £nil (2007 - £218,000). 29. 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 2008 2007 Services rendered to the related party Dividends received from related party £’000 15,015 13,640 £’000 9,772 6,466 Amounts owed by or to subsidiary undertakings are disclosed in the Company balance sheet on page 33. Any such amounts are unsecured and repayable on demand. Remuneration of key management personnel Short-term employee benefits Post-employment benefits Share-based payment 2008 £’000 3,010 448 451 3,909 2007 £’000 3,330 394 170 3,894 67 Cranswick plc - Report & Accounts 2008 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 77, 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 November 2006 and therefore applies to the full year under review. A statement of compliance with the Combined Code can be found at the end of this report. The Board Until 14th March 2008 the Board consisted of an Executive Chairman, two Chief Executives, two other executive directors and three non-executives, two of whom were deemed to be independent. Thereafter the number of non-executives reduced to two with the resignation of Noel Taylor. The remaining two non-executive directors are deemed to be independent. Mr Taylor was not formally deemed to be independent due to his long association with the Company although the Board regarded his background and contribution as highly valuable. The Combined Code recommends that for a company the size of Cranswick it should have at least two independent non-executive directors and therefore the Board is confident that it meets the requirements of the Combined Code in full. 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 cash flow 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, including the review of relevant literature and attending external courses on subjects they wish to improve on. 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 Board, led by the Chairman, has carried out a formal evaluation of its performance and that of its committees under a system based on a questionnaire circulated to all directors which were used to facilitate a board discussion. The evaluation exercise showed that the Board and its committees were working well but as expected a number of actions were agreed to improve effectiveness. The Chairman has carried out an evaluation of the performance of individual directors by individual discussions with the Board members. He 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 23. 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. 68 Board Committees Audit Committee The Audit Committee throughout the year comprised of two independent non-executives, John Worby and Patrick Farnsworth and until his resignation on 14th March 2008 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. 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 with the external auditors 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. 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. There is a policy in place in relation to the types of non-audit services the external auditors cannot do so as not to compromise their independence and these would include internal accounting or other financial services, internal audit services or their outsourcing, executive or management roles or functions, and remuneration consultancy. There is also a whistle blowing 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 terms of reference for the Audit Committee are available from the Company Secretary. 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 comprised of Patrick Farnsworth (Chairman), John Worby and Noel Taylor until his resignation on 14th March 2008. 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 following the resignation of Noel Taylor. Martin Davey, Executive 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. During the year the Committee also received remuneration advice from Deloitte & Touche. Details of the Committee’s current remuneration policies are given in the Directors’ Remuneration Report on pages 73 to 77. The terms of reference for the Remuneration Committee are available from the Company Secretary. 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. 69 Cranswick plc - Report & Accounts 2008 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. The Committee meets at least once a year and reviews the structure, size and composition of the Board and is responsible for considering and making recommendations to the Board on new appointments of executive and non-executive directors. It also gives full consideration to succession planning in the course of its work taking into account the challenges and opportunities facing the Company and what skills and expertise are therefore needed on the Board and from senior management in the future. No new Board appointments were considered necessary during the year. The terms of reference for the Nomination Committee are available from the Company Secretary. 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. No. of meetings D.Black A.Couch M.Davey B.Hoggarth J.Lindop N.Taylor P.Farnsworth J.Worby Shareholders Board Audit Remuneration Nomination Committee Committee Committee 12 11 12 12 12 12 5 11 12 3 - - - - - 1 3 3 3 - - - - - 1 3 3 1 - - 1 - - - 1 1 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. 70 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 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. The auditors’ policies for the rotation of the lead partner and key audit personnel. ii) iii) Adherence by management and the auditor to the Group’s policy for the procurement of non-audit services. Compliance with the Revised Combined Code The Directors consider that the Company has, during the year ended 31 March 2008, complied with the requirements of the revised Combined Code other than as set out below: i) ii) The Company did not comply with Combined Code provision A.7.2 for nine months of the year in that Noel Taylor, non-executive director, did not have a fixed term contract, but was employed subject to a notice period of 6 months. On the 1st January 2008 he was given a two year letter of appointment as with the other non-executive directors. The Company 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 deemed an independent non- executive director. Following his resignation on 14th March 2008 the Company believes it now complies. By order of the Board Malcolm Windeatt Company Secretary, 19 May 2008 71 Cranswick plc - Report & Accounts 2008 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 confirm to the best of their knowledge: • the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of Cranswick plc and the undertakings included in the consolidation taken as a whole; and • the management report includes a fair review of the development and performance of the business and the position of Cranswick plc and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The Directors are required to prepare financial statements for each financial year which present fairly the financial position of the cash flows of the Company and of the Group and the financial performance 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 and the Group have 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. By order of the Board M Davey Chairman J Lindop Finance Director 19 May 2008 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) John Worby and, until his resignation, Noel Taylor. 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 used the firm of Deloitte & Touche (who provided no other services during the year) as remuneration consultants in the year and has also 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. A fixed sum is payable when the target is achieved with a percentage being payable for results in excess of the target. The total bonus is capped at 150% 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 plc, Carrs Milling Industries plc, Dairy Crest Group plc, Devro plc, Glanbia plc, Greencore plc, Northern Foods plc, Robert Wiseman Dairies plc, and Uniq plc. 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 average annual increases in the retail price index (“RPI”) over a three year period and the other half to a total shareholder return (“TSR”) target measured against a comparable group of food companies over a three year period. The comparison companies are Carrs Milling Industries plc, Dairy Crest Group plc, Devro plc, Glanbia plc, Greencore 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 average annual outperformance of 3 per cent and 100 per cent of the shares at an average annual 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 Cranswick plc - Report & Accounts 2008 Service contracts The service contracts for M. Davey, D. Black and B. Hoggarth include one year notice periods from 1 May 2006 except in the case of a takeover of the Company when the notice period is 2 years for the first six months following the take-over. J. Lindop and A. Couch have one year rolling contracts which commenced on 30 June 2004 and 1 May 2006 respectively. P. Farnsworth and J. Worby have two year appointment letters from 1 January 2008. 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 termination and determine compensation payments accordingly. Performance graph The graph below shows the percentage change (from a base of 100 in May 2003) 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. Source: Investec 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 2008 £’000 1,967 788 6 249 3,010 448 3,458 9 2007 £’000 1,801 1,275 5 249 3,330 394 3,724 487 Individual directors, including pension contributions: Non-executive directors: PW Farnsworth RN Taylor (to date of resignation) JG Worby Executive directors: DJ Black MTP Davey B Hoggarth JD Lindop AH Couch Salary and fees Bonus Other Benefits Total 2008 Total 2007 Pension 2008 Pension 2007 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 35 52 38 312 542 421 233 334 - - - 170 170 170 108 170 - - - 81 76 92 - - - 1 - 1 1 1 1 1 35 53 38 564 789 684 342 505 - 32 55 11 32 - 631 817 725 488 550 59 105 81 129 63 - 11 - 55 94 71 108 55 “Other” comprises payments in lieu of pension contribution. The number of directors who were active members of the money purchase pension scheme during the year was 6 (2007 - 6). 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 2008 were £41,675 (2007 - £34,458). 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 2008 were £10,980 (2007 - £10,275). 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 2007 No 50,000 50,000 50,000 50,000 50,000 Granted in the year Exercised in the year No No Lapsed At 31 March 2008 No - - - - - - - - - - - - - - - 50,000 50,000 50,000 50,000 50,000 Exercise price Range of exercise dates p 601.0 601.0 601.0 601.0 601.0 4 July 2008/3 July 2015 4 July 2008/3 July 2015 4 July 2008/3 July 2015 4 July 2008/3 July 2015 4 July 2008/3 July 2015 MTP Davey DJ Black AH Couch B Hoggarth JD Lindop No share options were exercised in the year apart from the SAYE Scheme shown below 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 2008 Long term incentive plan At 1 April 2007 Granted in the year Exercised in the year Lapsed MTP Davey DJ Black AH Couch B Hoggarth JD Lindop No No No 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 - - - - - - - - - - At 31 March 2008 No 50,000 50,000 50,000 50,000 50,000 Range of exercise dates Weighted average exercise price p Nil Nil Nil Nil Nil 1 Sept 2009/1 Sept 2017 1 Sept 2009/1 Sept 2017 1 Sept 2009/1 Sept 2017 1 Sept 2009/1 Sept 2017 1 Sept 2009/1 Sept 2017 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 60. The options granted in the year are exercisable between 1 September 2010 and 1 September 2017. Savings related share option scheme At 1 April 2007 Granted in the year Exercised in the year Lapsed MTP Davey DJ Black AH Couch B Hoggarth JD Lindop No No No 2,526 3,158 5,689 2,310 3,158 1,443 (2,526) 288 1,785 866 - (791) - (1,516) (791) - - - - - At 31 March 2008 No 1,443 2,655 7,474 1,660 2,367 Range of exercise dates Weighted average exercise price p 665 468 395 572 444 1 Mar 2011/1 Sept 2011 1 Mar 2010/1 Sept 2011 1 Mar 2009/1 Sept 2015 1 Mar 2009/1 Sept 2011 1 Mar 2010/1 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: D J Black J D Lindop MTP Davey B Hoggarth Number Date exercised 791 1 March 2008 791 1 March 2008 2,526 1 March 2008 1,516 1 March 2008 Exercise Price p 415.0 415.0 375.0 375.0 Market Price p 540.0 540.0 540.0 540.0 Notional Gain £’000s 1 1 4 3 The market price of the company’s shares at 31 March 2008 was 515.0p 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 945.5p 847.5p 900.0p Lowest 495.0p 495.0p 495.0p 76 Directors' beneficial interests (unaudited) M T P Davey D J Black A Couch B Hoggarth J D Lindop P Farnsworth J Worby At 31 March 2008 At 31 March 2007 Ordinary Shares Ordinary Shares 200,426 88,758 55,644 107,594 106,513 1,082 1,641 182,900 82,883 44,627 101,642 101,778 1,058 1,641 All the above interests are beneficial. There have been no other changes to the above interests in the period from 1 April 2008 to 9 May 2008 On behalf of the Board Patrick Farnsworth Chairman of the Remuneration Committee 19 May 2008 77 Cranswick plc - Report & Accounts 2008 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 2008 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Recognised Income and Expense and the related notes 1 to 29. 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 The 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 directors’ report 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 Business Review section of the directors’ report. 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 2006 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 directors’ report, the unaudited part of the Directors’ Remuneration Report, the Chairman’s Statement, 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. 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. 78 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 2008 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 2008; 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 statements, Article 4 of the IAS Regulation; and • the information given in the directors’ report is consistent with the financial statements. Ernst & Young LLP Registered auditor Hull, 19 May 2008 79 Cranswick plc - Report & Accounts 2008 Advisers Secretary Malcolm Windeatt 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 80 Shareholder information Five Year Statement IFRS 2008 £’m 2007 £’m 2006 £’m 2005 £’m UK GAAP 2004 £’m Turnover * 598.9 510.5 432.9 313.9 268.0 Profit before tax ** 35.3 32.7 31.1 21.6 21.2 Earnings per share ** 55.9p 50.2p 51.2p 38.6p 35.8p Dividends per share 19.9p 18.1p 16.5p 14.5p 13.2p Capital expenditure 25.8 11.8 14.3 19.1 10.0 Net debt Net assets (78.4) (75.9) (77.1) (92.4) (13.3) 155.3 135.8 112.4 92.8 68.8 * The directors have reclassified discounts and similar allowances from cost of sales and operating costs to revenue, a presentation which more appropriately reflects the nature of these amounts. ** 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 is defined as per note 25 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 81 Cranswick plc - Report & Accounts 2008 Shareholder analysis at 9 May 2008 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 2007 Share price at 31 March 2008 High in the year Low in the year Share price movement Number of holdings Number of shares 1,142 547 1,689 6,256,748 39,974,283 46,231,031 777 549 119 126 54 64 317,323 1,232,195 852,760 2,858,961 3,856,337 37,113,455 1,689 46,231,031 940p 515p 945p 495p Cranswick’s share price movement over the five year period to May 2008 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”), both rebased at May 2003, is shown below: Source: Investec 82 Some of the awards in recent years to Cranswick businesses Grocer Own Label Excellence Award 2008 Winner Meat & Poultry Grocer Own Label Awards – Applewood Smoked Bacon BPEX Foodservice Pork Product of the Year Competition 2008 Gold Best Cured Product – Jack Scaife Hand Cured, Air Dried Gammon Steak Gold Gold Best Fresh Pork Cut – Outdoor Reared Hampshire Breed Thick Cut Pork Chops Best Pork Ready Meal – Ham Shanks in Dijonnaise Sauce Silver Best Innovative Pork Product – Smokey Flavour Maple BBQ Ribs 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 Yorkshire Company of the Year 2007 2007 Winner Yorkshire Business Enterprise Award 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 Silver Unsmoked Streaky Bacon Chilli and Coriander Sausage Bronze Pork Sausage 2002 Gold Arista Pork Loin Gold Silver Chorizo Bavarian Ham Bronze Green Greek Olives 83 Cranswick plc - Report & Accounts 2008 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 Best Catering Sausage – Smithfield Sausage Silver 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 84 85 Production facilities “ ...well invested quality assets ” Fresh pork Sausages Bacon Cooked meats Cranswick was formed in the 1970s by farmers in East Yorkshire to produce animal feed. The Company went on to 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 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 1985-2008 (pence) 1200 1000 800 600 400 200 0 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 Start date is entry on to Stock Market, 4 December 1985 – Source: Investec report & accounts Year ended 31 March 2008 C r a n s w i c k p l c R e p o r t & A c c o u n t s Y e a r e n d e d 3 1 M a r c h 2 0 0 8 Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000 www.cranswick.co.uk
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