Cushman & Wakefield
Annual Report 2009

Plain-text annual report

C r a n s w C k p l c i R e p o r t & A c c o u n t s 2 0 0 9 Report & Accounts Year ended 31 March 2009 Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000 www.cranswick.co.uk 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 now represents 100 percent of sales as the pet and aquatics business was sold subsequent to the year end and has been treated as discontinued. Financial highlights Turnover (£m) 606.8 559.2 Profit before tax* (£m) Earnings per share* (pence) Dividends per share (pence) 34.7 32.2 53.7 21.7 49.1 19.9 2008 2009 2008 2009 2008 2009 2008 2009 • Turnover from continuing operations up 9 per cent to £607m • Profit before tax from continuing operations up 8 per cent at £34.7m* • Increase of 9 per cent in earnings per share from continuing operations to 53.7p* • Dividend up 9 per cent to 21.7p per share *Before exceptional items Contents Chairman’s statement Review of activities Group operating and financial review Group Directors and business locations Directors Directors’ report Corporate governance statement Directors’ remuneration report Corporate social responsibility statement Statement of Directors’ responsibilities in relation to the financial statements Report of the auditors to the members of Cranswick plc 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 Advisers Shareholder information Shareholder analysis Professional awards Production facilities 3 7 9 16 17 19 25 31 35 37 38 40 41 41 42 43 44 45 46 84 85 86 87 88 Cranswick plc Report & Accounts 2009 1 Cranswick’s record of growth has continued during the past year 2 Cranswick plc Report & Accounts 2009 Chairman’s statement Continued development I am pleased to be reporting to Shareholders that Cranswick’s record of growth has continued during the past year. by Cranswick’s admission to the FTSE 250 during the year which increases the potential investor base. Cash generation strong Total sales increased by 9 per cent to £653 million. In the prior year sales included almost two months trading in the animal feed business which was sold in May 2007. Adjusting for this the underlying increase in sales was 10 per cent. Total profit before tax and exceptional items rose 9 per cent to £36.7 million. The published figures do not take this form because the pet business, which was sold subsequent to the March 2009 year end, has been treated as a discontinued activity in accordance with International Financial Reporting Standard (IFRS) 5. The pet business had an encouraging year and sales for the year were 17 per cent ahead at £46.5 million. Reported sales for the continuing food business increased 9 per cent to £607 million. There were a number of challenges in the year including inflation, the impact of sterling’s devaluation and the pressures faced by the consumer as a result of the difficult economic environment. Sales of pork products have proved resilient in the face of this not least because of pork’s competitive pricing by comparison to other meats. Sales increases were seen across each of the main food categories. Profit before tax in the continuing business rose 8 per cent to £34.7 million from £32.2 million last year. Last year’s figure is stated prior to the exceptional gain recorded on asset disposals and the sale of the animal feed business. Earnings per share rose 9 per cent to 53.7p per share on the same basis. In my Report to Shareholders last year I drew attention to rising raw material prices. These were dealt with either by absorption through efficiency gains, passed on by way of higher selling prices or by a combination of both. There has been further inflation during 2009 which is being handled similarly. The cash generated from operations was extremely strong at £53.4 million, up from £40.2 million the previous year. Working capital reduced by £0.4 million which was pleasing given the strong growth in sales. Tax, interest and dividend payments amounted to £21.0 million, and the cash spent on the purchase of fixed assets, as part of the strategy for continued growth, was £20.9 million following the £25.3 million spent the previous year. This generated a cash inflow of £10.9 million, leaving year-end borrowings of £66.6 million, 40 per cent of shareholders’ funds. Interest cover improved from 8.4 times to 10.4 times. In December the Company agreed new bank facilities for three years. As a result, the Company is well placed to continue its long-term growth strategy through a combination of further investment in fixed assets and acquisitions, as typified by the recently announced purchase of Bowes of Norfolk Limited, subject to clearance by the Competition Authorities. Dividend increased The Board is proposing an increase in the final dividend of 10 per cent to 14.7p per ordinary share. Along with the interim dividend of 7.0p per share paid in January 2009 this makes a total for the year of 21.7p per ordinary share, an increase of 9 per cent on last year’s 19.9p. The final dividend, if approved by Shareholders, will be paid on 4 September 2009 to Shareholders on the register at the close of business on 3 July 2009. Shares will go ex-dividend on 1 July 2009. Shareholders will again have the option to receive the dividend by way of scrip issue. Strategy This has been a successful year for the Company and the continued development of the business was recognised The Board’s strategy for the development of the business has delivered rising profits and strong returns for Cranswick plc Report & Accounts 2009 3 Cranswick is now fully focused on the food business 4 Cranswick plc Report & Accounts 2009 The past year has seen continued growth for Cranswick 34.7 31.1 32.7 33.0 21.6 21.2 19.8 17.5 11.7 9.3 7.1 Profit before tax 1990-2009 (£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 ‘09 Shareholders. Over the past 10 years compound annual rates of growth in total sales, profit before tax, earnings per share and dividends per share have all been well into double digits. and has been Finance Director since 1993. The Board would like to thank John for his invaluable advice and guidance during a period which saw turnover of the business rise from £110 million to £653 million, and to wish him well for the years ahead. The strategy has been to develop a range of complementary activities, in growing sectors of the market, emanating from the Company’s origins in pig feed and pig production. This has seen the business develop, by way of acquisitions and organically, a strong presence in the food sector. The activities in the pet sector evolved from the original agribusiness activity. In recent years the original agribusiness activity was sold and the decision was made last year to focus fully on the food business. Last month the Board announced the sale of the pet activities, following a competitive process, to a management buy-out (MBO) team and that contracts had been exchanged for the acquisition of the Bowes of Norfolk pork processing business. The MBO is headed up by Derek Black, previously main board director responsible for the pet division, and Paul West, managing director of Tropical Marine Centre. Mark Bottomley, Group Financial Controller, joined Cranswick in January 2008 and will be appointed Finance Director on John’s retirement. Mark qualified as a chartered accountant with Binder Hamlyn and has wide commercial experience including time spent within the food sector. Staff I mentioned earlier in my Statement the challenges that the business successfully confronted during the year. It is a tribute to the staff that this was achieved. Around the Company we have a number of management teams each of which are strongly supported by their respective colleagues and on behalf of the Board I thank you all for your expertise and commitment once again. I would also like to thank all employees in the pet activity for their endeavours over the years and wish them enjoyment and success in the business under its new ownership. Board changes Outlook Derek Black resigned from the Board on completion of the sale of the pet business. The Board offers its thanks to Derek for the 29 years of service he gave to the Company, including 21 years as a Director. Derek’s enthusiasm for the business initially in the grain trading activity, prior to its sale, and subsequently in the pet business has been limitless and we wish him well going forward. Cranswick has a well invested asset base, is strongly cash generative, has skilled operational management teams and is positioned in a number of growth categories of the food sector. The Company has commenced the new financial year in line with management expectations and is well placed to continue its successful development. John Lindop is retiring at the end of May on reaching the age of 60 years. John has been with Cranswick for 17 years Martin Davey Chairman, 18 May 2009 Cranswick plc Report & Accounts 2009 5 Total external sales grew by 9 per cent to £607 million 6 Cranswick plc Report & Accounts 2009 Review of activities by the Chief Executive, Bernard Hoggarth The continued growth in sales is pleasing to report. Total external sales grew by 9 per cent to £607 million. Internal sales within the Group have risen and totalled in excess of £87 million. Internal sales consist predominantly of primal fresh pork to the further processing sites where it’s used in the production of cooked meats, sausage and air-dried bacon. Sales to retail multiple customers and discounters also grew and these together represent over 82 per cent of total sales. The balance is divided between food service and third party food producers. Raw material inflation was a feature of the year and dealing with this involved the achievement of improved operating efficiencies, pricing discussions with customers or a combination of both. Inflation has resurfaced in recent months. Demand for British pork is strong and has been favourably publicised by a number of celebrity chefs including Jamie Oliver. Coupled with a national pig herd at relatively low levels, in fact less than half the level of 12 years ago, this has impacted pricing. Inflation has also been influenced by the weakness of sterling against the euro resulting in a higher price for pig meat imported into the UK from traditional sources. Despite this the consumer continues to find pork an attractive proposition compared to other proteins such as beef and lamb on both price and health criteria. There is unlikely to be any significant change in the pork supply side in the short term given that the minimum lead time for pig production expansion is about twelve months. Cranswick is well known as a quality producer and supplier of pork based products. The portfolio of products embraces premium, standard plus, standard and value products and meets the requirements of the consumer in the current economic environment. Substantial volumes have been supplied to customers for ‘round pound’ promotions and equally encouraging has been the volumes at the premium end for the ‘stay-in and dine’ consumer. Whether it is a gourmet meal at home or a value ham pack for sandwiches it’s in the product range. The upgraded primary processing plant for fresh pork referred to previously is due for completion early in 2010. The investment in the plant will make an industry leading facility of what is already the largest single site fresh pork processor in the UK. During the year we successfully assisted our major pig producers to achieve ‘Freedom Foods’ accreditation across their production units and the resulting pork is supplied as part of our range of premium fresh pork. High welfare standards have been a key feature in broadening the customer base for fresh pork and contributed to a rise of 14 per cent in sales. There has been much focus on developing sales from the new bacon factory at Sherburn and this has been helped by the consumer’s increased willingness to buy British. The customer base has been developed further using a 180 year old recipe from Richard Woodall’s artisan bacon operation based in Cumbria. All these products are air-dried and matured in a similar process to that used for the Jack Scaife branded bacon, produced at Sherburn. This and the launch of traditional Wiltshire cured products into customers’ ranges have all helped to generate sales growth of 14 per cent in the year with further growth expected. Recent weeks have seen volumes double those of a year ago. Growth within cooked meats has been predominantly within the major grocery retailers and promotional programmes, including ‘round pound’ offers and the use of tertiary brands have contributed to a sales increase of 4 per cent. Capacity has been increased during the year and work is continuing at both the Valley Park and Deeside sites. During the year the lease ended at the Elland facility where historically cooked poultry products were produced. This has now been totally integrated into the Deeside operation. The freehold of the 7 acre (105,000 sq ft factory) Milton Keynes site was recently acquired, showing savings over previous lease costs. Sausage sales were up 8 per cent in the year helped by increased customer penetration of both the premium Cranswick plc Report & Accounts 2009 7 Our Premier Deli range of continental products has been a great success pre-pack and counter categories with leading retailers and discounters. ‘Simply Sausage’, which is a Cranswick brand, achieved listings with two leading grocery retailers and supply of ‘Weight Watchers’ sausage and ‘The Black Farmer’ under licence continues, with ‘Weight Watchers’ recently gaining additional listings. The Sandwich Factory had a difficult year, but remained profitable. There was significant inflation in input costs and whilst there was some reduction in volumes during the second half, sales for the year were 11 per cent ahead of the previous year. The weakness of sterling had a negative impact on the cost of tuna, prawns, packaging and seasonally imported salads, putting pressure on margins. A more stable pricing environment is anticipated in the current year, new listings have been achieved and the focus on efficiency continues. The product range at Continental Fine Foods is largely supplied from Europe and the continuing weakness of sterling meant the business had to deal with raw material inflation on an ongoing basis. This inevitably leads to pricing discussions with customers and it is pleasing to report that in the main the situation was understood and most have been supportive. During the year a greater presence was developed in the cheese category with listings achieved for Italian cheeses. There has been strong growth in antipasti and olive ranges and our own branded Premier Deli range of continental packs has been a great success with its ‘credit crunch’ pricing. Large volumes of corned beef have also been sold with sole supply in certain areas. Given the trading environment during the year it is a credit to the Continental team that sales have continued to rise, in the last year by an encouraging 12 per cent, and the history of strong growth has continued. In summary the teams have had to deal with a number of challenges, but despite this, record results have been achieved and all employees must be congratulated. Costs have been reviewed rigorously and all major expenditure from packaging to power continues to be monitored. I feel that with the completion of the Bowes acquisition, expanding product portfolios, industry leading facilities and the continued commitment and dedication of our excellent teams, the business can look forward to continuing its successful development. 8 Cranswick plc Report & Accounts 2009 Group operating and financial review Nature, objectives and strategies The Group’s business Business objectives Following the disposal of the pet activities as referred to below, the Group’s operations are focused entirely on the production and supply of food products. The performance of the individual food operations in the year is discussed in the Review of activities on pages 7 to 8. The business operates entirely in the UK, although a small proportion of sales are exported. It 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, together with a range of pre- packed sandwiches predominantly for sale into food service outlets. 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. Environmental matters The Directors believes that good environmental practices support the Board’s strategy by enhancing the reputation of the Group, the efficiency of production and the quality of products. 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 Corporate Social Responsibility Statement on page 35 and 36. 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: • innovative, quality products Delivering customers Maintaining the highest level of service to our customers Improving operational efficiency Securing employee health and safety Maximising returns on investment to our • • • • Business strategies The Group’s market strategy is to focus primarily on the growing quality end of the markets in which we operate, to establish meaningful and long-lasting relationships with our major customers by a combination of product development and high service levels and to invest in quality facilities and the latest equipment to enable us to operate as efficiently as possible. Each operating unit within the Group is given the responsibility for developing its own plans to deliver the objectives of the Group with particular emphasis on growing sales through product innovation and high service levels, improving operational efficiency and securing employee health and safety. The role of the Board in achieving Group objectives is to support operational management and to identify suitable acquisitions that will take the Group into new and growing areas of the market, will open up new customer relationships to the Group or will consolidate existing market positions. Business KPIs The Board has assessed that the following KPIs are the most effective measures of progress towards achieving the Group’s objectives. A report on performance against these KPIs is given on page 10. • Organic sales growth – year on year increase in sales Cranswick plc Report & Accounts 2009 9 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 Maximising returns on investment • • • • 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 continuing strong cash generation from operating activities. The record of unbroken growth in profits now goes back more than 20 years. The trading environment in which we operate has remained challenging; in particular we experienced delays in passing on increases in raw material costs earlier in the year and sterling’s devaluation against the euro impacted in the second half, particularly in respect of our Charcuterie products. 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 have made good progress in recovering cost price increases. Group revenue Total Group revenue Less: Revenue from discontinued operations Group revenue from continuing operations 2009 £m 653.3 2008 £m 598.9 (46.5) (39.7) 606.8 559.2 The Group’s revenue from continuing operations, which relates entirely to the Group’s food activities has increased by 9 per cent. Sales of fresh pork have grown by 14 per cent, sausages by 8 per cent, bacon by 14 per cent, cooked meats by 4 per cent, charcuterie by 12 per cent and sandwiches by 11 per cent. Revenue in the income statement excludes the activities of the pet business, since under IFRS the results of discontinued operations are disclosed as a single line item at the foot of the income statement. Profit before tax 2009 £m 2008 £m Group operating profit continuing exceptional items operations from before Net finance costs Pre-tax profit from continuing operations before exceptional items Exceptional items 38.4 (3.7) 34.7 - 36.5 (4.3) 32.2 0.8 Profit from continuing operations before tax 34.7 33.0 The increase in Group operating profit from continuing operations before exceptional items is entirely attributable to the growth in both sales and profits in the food activities. The reduction in net finance costs was as a result of the strong cash flow and the reduction in UK interest rates during the year. Discontinued operations As reported within the Chairman’s Statement on pages 3 to 5 and in note 9 on pages 59 and 60, during April 2009 the Board announced that the pet division activities had been sold, following a competitive process, to a management buyout (MBO) team. Accordingly the results of the pet division have been reported as discontinued at 31 March 2009. 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. In the year ended 31 March 2009, the pet division generated a profit before tax and impairment of £2,038,000 (2008 - £2,357,000 after crediting an exceptional profit before tax of £792,000). Turnover was £46.5 million (2008 - £39.7 million). The net assets of the pet business which have been classified as assets held for sale at the year-end were £15.8 million, stated after an impairment charge of £2.5 million and associated deferred tax credit of £2.0 million. Performance against KPIs 2009 2008 Organic sales growth (continuing) Gross return on sales (continuing) Net return on sales (continuing) 9.2% 14.1% 6.3% 20.4% 13.5% 6.5% Free cash flow £41.2m £25.9m 10 Cranswick plc Report & Accounts 2009 The record of unbroken growth in profits now goes back more than 20 years... Cranswick plc Report & Accounts 2009 11 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 with further sales growth anticipated in the next twelve months. During the year the Group had some success in passing on the impact of rising raw material prices and devaluation of sterling against the euro and this is reflected in the gross return on sales. Principal cash flows are discussed on page 13. Future development The decision has been made to focus entirely on the food activities. In April the Board announced the sale of the pet activities to a MBO team and that contracts had been exchanged for the acquisition of the Bowes of Norfolk pork processing business, subject to clearance by the competition authorities. 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 further 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 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 its businesses and the exercise has recently been reviewed. The Corporate Governance Statement on pages 25 to 29 describes more about the Group’s risk management processes. The more significant risks and uncertainties faced by the Group, in line with the rest of the food manufacturing sector, are identified as customer retention, food scares, business continuity, environmental matters, raw material prices, margins and profitability, and competition. These are discussed in more detail below. The Group’s financial and treasury risks are discussed on page 14 and in note 22 to the financial statements. Competition and customer retention – the Company manages the risk of operating in a consolidated sector by maintaining strong customer relationships. This process is supported by delivering high levels of service and quality and by continued focus on product development and technical innovation. Food scares – the risk of food scares is mitigated by ensuring that all raw materials are traceable to source and that manufacturing, storage and distribution systems are continually monitored. Further details on raw material procurement and traceability are set out in the Corporate Social Responsibility Statement on pages 35 and 36. Business continuity – business continuity plans are in place across the Group’s manufacturing facilities and appropriate insurance cover is in place to mitigate any financial loss. Environmental matters – the Company’s environmental policies are set out in the Corporate Social Responsibility Statement on pages 35 and 36. The Group has some of the best-invested, modern facilities in the industry, having invested £92 million over the past five years, and it intends to continue investing to ensure that it maintains its competitive edge. Raw material prices – further details of the Group’s exposure to and actions to mitigate raw material price fluctuations are set out on page 14 of this report. 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 Legislation in all the markets we serve changes on a regular basis, and interpretation of existing laws can also change to create ever tightening standards, often requiring additional human resources and the provision of new assets and systems. We are committed to respond positively to new regulations and ensure that our views are expressed during consultation exercises. 12 Cranswick plc Report & Accounts 2009 Relationships Cash flow The Board encourages businesses to support local community organisations and charities in the locations in which they operate and this is set out in the Corporate Social Responsibility Statement on pages 35 and 36. Financial position and performance Exceptional items The exceptional charge of £6.1 million in 2009 relates to a one-off exceptional deferred tax charge arising from a change in UK corporation tax legislation in the Finance Act 2008 to phase out Industrial Buildings Allowances and is referred to in more detail below. The exceptional item in 2008 relates to the profit on sale of the feed milling business of Cranswick Mill of £1.1 million, less £0.3 million provided against future rental and reinstatement costs for an unoccupied leasehold property in Thornaby, North Yorkshire, both stated before a tax credit of £0.4 million. Finance costs Finance costs of £3.7 million (2008 - £4.3 million) were lower than the previous year reflecting the strong cash generation in the year and the reduction in UK interest rates, partially offset by higher margins on the new bank facilities. Taxation An analysis of the tax charge is set out in note 8 to the financial statements. The tax charge as a percentage of profit before taxation was 28.7 per cent in the current year and 29.8 per cent in 2008. The exceptional charge for the year comprises a one-off exceptional deferred tax charge of £6.1 million arising from a change in UK corporation tax legislation in the Finance Act 2008 to phase out Industrial Buildings Allowances. This charge had no impact on the cash flow of the business during the year and represents the additional tax payable over the twenty five year period the allowances would have been available to the Group. The standard rate of UK Corporation Tax was 28 per cent for 2009 and 30 per cent in 2008. In addition the Group benefits from tax amounts taken directly to equity and included in the Group Statement of Recognised Income and Expense. Earnings per share Cash generated from operating activities was ahead of the previous year at £44.8 million (2008 - £31.2 million) of cash and cash equivalents. The net cash outflow from investing activities of £20.7 million reflects capital additions of £20.9 million less fixed asset sales proceeds of £0.2 million. The previous year’s outflow was £20.6 million and comprised capital additions of £25.3 million less fixed asset sales proceeds of £4.7 million. The £24.4 million of net cash used in financing activities in 2009 is largely due to interest paid of £3.6 million, dividends paid of £8.8 million, issue costs of long term borrowings of £1.3 million and net repayment of borrowings of £11.2 million. The prior year cash outflow from financing of £17.8 million was largely due to interest paid of £5.3 million, dividends paid of £7.7 million and repayment of borrowings of £5.4 million. The overall result is a net decrease in cash and cash equivalents of £0.3 million (2008 - £7.2 million). Net debt reduced by £11.8 million to £66.6 million (2008 - £78.4 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 ended 31 March 2009 and 31 March 2008. The Group’s capital structure is as follows: Net debt (note 26) Cranswick equity plc Shareholders’ Capital employed 2009 £m 66.6 166.5 233.1 2008 £m 78.4 155.3 233.7 More details about the Group’s capital structure are set out in Note 22 Financial Instruments. Distributions, capital raising and share repurchases Basic earnings per share (before exceptional items) from continuing operations increased by 9 per cent to 53.7 pence. The average number of shares in issue was 46,099,000 (2008 – 45,832,000). Details of dividends paid and proposed during the year are given in the Directors’ Report on page 19. The proposed final dividend for 2009 together with the interim paid in January 2009 amount to 21.7 pence per share which is 9 per cent Cranswick plc Report & Accounts 2009 13 higher than the previous year. The increase in the share capital of the Group comprises 125,168 of share options exercised during the year and 109,299 in respect of scrip dividends. There were no share repurchases during the year. Treasury policies Functional currency The functional currency of all Group undertakings is sterling. Foreign currency risk The major foreign exchange risk facing the Group is in the purchasing of charcuterie products. The major currency involved is the euro. The policy of the Group is to seek to mitigate the impact of this risk by taking out forward contracts with UK banks for up to 12 months ahead and for amounts that commence at approximately 25 per cent of the requirement and move progressively towards full cover. At least 2 members of the main Board attend the monthly meetings of the subsidiary Board at which the key decisions on currency cover are taken. Interest rate risk The Main Board re-set the policy on interest rate risk following the renegotiation of the Group’s credit facility in December 2008. 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 three UK banks on the amortising portion (£35 million) of the medium term loan drawn down when the Group replaced its existing credit facilities during the year. This is being repaid at the rate of £2.5 million every 3 months from March 2009 to September 2011, with the balance of £7.5 million repayable in December 2011. In addition the Group has an existing interest rate swap which was taken out against the Group’s previous facilities and is due to expire in September 2009. The hedging 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 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 Group replaced its existing bank credit facilities during the year. The facilities currently available to the Group are a term loan of £35.0 million (£15.0 million of which has been drawn down to date) repayable in December 2011, an amortising loan facility of £35.0 million repayable in eleven quarterly instalments of £2.5 million, with a final repayment of £7.5 million in December 2011, a revolving credit facility of £30.0 million and an overdraft facility of £20.0 million. Unutilised facilities at 31 March 2009 were £48.6 million (2008 - £14.3 million). Price risk The major exposure the Group has to raw material price fluctuations is pig meat, part of which is as a result of currency movements. The Group does not seek to hedge against pig price movements because of the downside risk. Further details of the Group’s financial instruments are disclosed in note 22 to the accounts. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Review of activities on pages 7 and 8. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described above, as are the Group’s objectives, policies and processes for managing its capital; its financial risk management 14 Cranswick plc Report & Accounts 2009 objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. The Group has considerable financial resources together with strong trading relationships with its key customers and suppliers. As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully despite the current uncertain economic outlook. 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, 18 May 2009 Cranswick plc Report & Accounts 2009 15 SHERBURN IN ELMET MANCHESTER KINGSTON-UPON-HULL BARNSLEY DEESIDE DENBIGH ATHERSTONE MILTON KEYNES Group Directors & Business Locations Cooked Meats Nick Tranfield Paul Gartside Andy Jenkins Clive Stephens Fresh Pork Neil Willis Bacon Bill Crossland Sausages Linda Watkin Daniel Nolan Sandwiches Tony Cleaver Paul Nicholson Simon Ravenscroft Nick Anderson Charcuterie Rollo Thompson Food Central Jim Brisby Malcolm Windeatt Andrew Caines 16 Cranswick plc Report & Accounts 2009 Directors Executive Directors Non-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. Between 5 April 2004 and 5 December 2008 Martin was a Non-Executive Director of Thorntons plc, on which he spent one day per month. All fees receivable were 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. John will retire from the Company on 31 May 2009. Bernard Hoggarth, Chief Executive 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. Adam Couch Adam joined Cranswick in 1991 as a management 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. John Worby +† * John is a chartered accountant with many years experience in the food industry. John is currently Group Finance Director of Genus plc having previously worked for Uniq plc (formerly 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 is also a non executive director of Smiths News plc. 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. In April 2009 Patrick was elected as the High Sheriff of the East Riding of Yorkshire, an appointment that will last for twelve months. * Member of Remuneration Committee † Member of Audit Committee + Member of Nomination Committee Cranswick plc Report & Accounts 2009 17 18 Cranswick plc Report & Accounts 2009 Directors’ report The Directors submit their report and the audited accounts of the Group for the year ended 31 March 2009. Principal activities, business review and future developments The Group’s activities during the year were 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 Chairman’s Statement and Review of Activities on pages 3 to 8 and in the Group Operating and Financial Review on pages 9 to 15. Results and dividends The profit on ordinary activities before taxation from continuing operations was £34.7 million (2008 - £33.0 million). After a taxation charge of £16.0 million (2008 - £9.2 million), the profit for the year is £19.0 million (2008 - £25.7 million). An interim dividend of 7.0 pence per ordinary share was paid on 23 January 2009. The Directors recommend the payment of a final dividend for the year, which is not reflected in these accounts, of 14.7 pence per ordinary share which, together with the interim dividend, represents 21.7 pence per ordinary share, totalling £10.0 million (2008 - 19.9 pence per ordinary share, totalling £9.2 million). Subject to approval at the Annual General Meeting, the final dividend will be paid in cash or scrip form on 4 September 2009 to members on the register at the close of business on 3 July 2009. The shares will go ex-dividend on 1 July 2009. Financial instruments The Group’s risk management objectives and policy are discussed in the Treasury Policies section of the Group Operating and Financial Review on page 14. 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 17. Each of the Directors served for the whole of the year under review together with Derek Black who resigned as a director on 24 April 2009 following the disposal of the Pet Division. Adam Couch and John Worby retire in accordance with the Articles of Association and, being eligible, each offers himself for re-election. John Lindop will retire as a director on 31 May 2009 and Mark Bottomley, the current group financial controller, has been appointed by the Board as his replacement with effect from 1 June 2009. Mark will stand for election at the Annual General Meeting. Details of the Directors’ beneficial interests in the ordinary share capital of the Company are included in the Directors’ Remuneration Report on pages 31 to 34. Major Shareholders The Company has been informed of the following interests at 8 May 2009 in the 46,464,612 ordinary shares of the Company: AMVESCAP PLC Number of Shares 13,439,679 % of issued share capital 28.92 Legal & General Investment Management 2,849,953 Jupiter Asset Management 2,423,691 JP Morgan Asset Management 2,041,798 6.13 5.22 4.39 Cranswick plc Report & Accounts 2009 19 20 Cranswick plc Report & Accounts 2009 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 23. 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. At the last Annual General Meeting the Directors received authority from the shareholders to: Allot Shares – this gives Directors the authority to allot authorised but unissued shares and it is to maintain the flexibility in respect of the Company’s financing arrangements. The nominal value of ordinary shares which the Directors may allot in the period up to the next Annual General Meeting is limited to £1,540,934 which represents approximately 33 per cent of the issued share capital (excluding treasury shares) as at 23 May 2008. The Directors do not have any present intention of exercising this authority other than in connection with the issue of ordinary shares in respect of the dividend offer and the Company’s share option plans. This authority will expire on the commencement of the Annual General Meeting to be held on 27 July 2009. Disapplication of rights of pre-emption – this disapplies rights of pre-emption on the allotment of shares by the Company and the sale by the Company of treasury shares. The authority will allow the Directors to allot equity securities for cash, and to sell treasury shares for cash, on a pro rata basis to existing shareholders and otherwise on a pro rata basis up to an aggregate nominal amount of £231,163, representing 5 per cent of the Company’s issued share capital as at 23 May 2008. Listed Companies that purchase their own shares are able to hold shares in treasury for subsequent sale, rather than to cancel them immediately. This authority will expire on the commencement of the Annual General Meeting to be held on 27 July 2009. To buy own shares – the authority allows the Company to buy its own shares in the market, as permitted under Article 6 of the Articles of Association of the Company, up to a limit of 10 per cent of the Company’s issued share capital. The price to be paid for any share must not be less than 10p, being the nominal value of a share, and must not exceed 105 per cent of the average middle market quotations for the ordinary shares of the Company as derived from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the day on which the ordinary shares are purchased. The Directors have no immediate plans to exercise the powers of the Company to purchase its own shares and undertake that the authority would only be exercised if the Directors were satisfied that a purchase would result in an increase in expected earnings per share and was in the best interests of the Company at the time. This authority will expire on the commencement of the Annual General Meeting to be held on 27 July 2009. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and for voting rights. There are no restrictions on the transfer of ordinary shares in the Company other than where certain restrictions may apply from time to time, on the Board of Directors and other senior executive staff, which is imposed by laws and regulations relating to insider trading laws and market requirements relating to close periods. Events since the balance sheet date As notified to shareholders on 6 April 2009 Cranswick has exchanged contracts to acquire the whole of the issued share capital of Bowes of Norfolk Limited, a pork processing business based in Norfolk, for a cash consideration of £17.2 million. The completion of the transaction is conditional upon clearance from the UK Competition Authorities which at this moment in time is ongoing. On 24 April 2009 the Pet Division was sold to the management team, headed up by Derek Black, for a consideration of £17.0 million. There is a mechanism in place to normalise working capital through a cash adjustment. Cranswick plc will retain a 5.5 per cent share in the business going forward. Derek Black resigned as a main Board Director on that day. Employment policies The Group’s policy on employee involvement is to adopt an open management style, thereby encouraging informal consultation at all levels about aspects of the Group’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. Cranswick plc Report & Accounts 2009 21 Payment policy The Group and the Company do not have a formal policy that they follow 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 continuing Group, based on the year-end trade creditors figure and a 365 day year, are 40 days. The average credit taken by our customers on a similar basis is 33 days. Auditors Ernst & Young LLP, having been reappointed during the year, 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 17. 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. 22 Cranswick plc Report & Accounts 2009 Change of control Articles of Association 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 other than the following: • The Company is party to a number of banking agreements which upon a change of control of the Company are terminable by the bank upon the provision of 10 working days notice, and There are no agreements between the Company and its directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid other than as stated in the Directors Remuneration Report relating to Martin Davey, Derek Black, Bernard Hoggarth and John Lindop. • 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 Part 26 of the 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 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. The Company’s Articles of Association may only be amended by a special resolution at a general meeting of the shareholders. 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, and covers the Directors’ authority to allot shares, the partial disapplication of pre-emption rights and the authority for the Company to buy its own shares. By order of the Board Malcolm Windeatt Company Secretary, 18 May 2009 Cranswick plc Report & Accounts 2009 23 24 Cranswick plc Report & Accounts 2009 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 31 to 34, 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”). A statement of compliance with the Combined Code can be found at the end of this report. The Board During the year ended 31 March 2009 the Board consisted of an Executive Chairman, two Chief Executives, two other Executive Directors and two Non-Executives who are deemed to be independent. The Combined Code recommends that a group the size of Cranswick should have at least two independent Non-Executive Directors. However, on 22 December 2008 the Company entered the FTSE 250 index and as a result the code requires the Board to include more than two independent Non-Executive Directors. In line with the Code the Company has therefore been searching for a suitable candidate to increase the number of independent Non-Executive Directors. The Board is confident that it has met this requirement of the Combined Code in full during the year. 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. During the year responsibility for the Group’s day-to-day operations was 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. 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 has completed a register relating to potential conflicts of interest with its Directors and confirms that no such conflicts exist. This register will be reviewed annually or at such other time as is necessary. 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 was 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 Cranswick plc Report & Accounts 2009 25 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 17. The formal terms of reference for the main Board Committees together with the terms and conditions of appointment of Non-Executive Directors are available for inspection at the Company’s Registered Office and at the Annual General Meeting. Board Committees Audit Committee The Audit Committee throughout the year comprised of two independent Non-Executive Directors, John Worby and Patrick Farnsworth. The Committee is chaired by John Worby, the Group’s Senior Independent Director, who is a Chartered Accountant and has considerable recent relevant financial experience. Patrick Farnsworth has many years experience in the food industry where he was Joint Managing Director of William Jackson & Son Limited until his retirement in 2005. 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 Group complies with this requirement. function. The Audit Committee is also responsible for recommendations for the appointment, reappointment or removal of the external auditors and for reviewing their effectiveness. After a period of five years it was decided that the external audit function should be put out to tender and the Committee reviewed presentations from four of the major auditing firms. The Committee discussed the various proposals and it was decided that, based on their proposal and knowledge of the business, Ernst & Young should be retained as auditors. There were no contractual obligations in place in reaching this decision and there has been no time limit given with the auditors but their performance is to be assessed each year. The Committee 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 should not carry out 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 arrangements 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 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 The Remuneration Committee comprises of Patrick Farnsworth (Chairman) and John Worby. It is a requirement of the Combined Code that the Remuneration Committee should, in the case of smaller companies, consist of at least two members who are considered by the Combined Code to be independent. It is a requirement of the Combined Code that the Remuneration Committee should comprise all independent Non-Executive Directors. The Board is confident that the Group complies with this requirement. 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 26 Cranswick plc Report & Accounts 2009 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. In addition from time to time the Committee undertakes a more detailed review using external consultants. The last such review was undertaken by Deloitte in 2008. Details of the Committee’s current remuneration policies are given in the Directors’ Remuneration Report on pages 31 to 34. The terms of reference for the Remuneration Committee are available from the Company Secretary. The Chairman of the Remuneration Committee will attend the Annual General Meeting to respond to any Shareholder questions that might be raised on the Committee’s activities. Nomination Committee The Nomination Committee comprises Martin Davey, Executive Chairman, who also acts as the Committee’s Chairman, Patrick Farnsworth, independent Non- Executive, and John Worby, independent Non-Executive. It is a requirement of the Combined Code that a majority of the members of the Nomination Committee should be Non-Executive Directors, and the Chairman should be either the Chairman of the Board or a Non-Executive Director. The Board is confident that it fully complies with these requirements of the Combined Code. Due to the size of the Group and the stability of the Board the Chairman’s time commitment to the Committee is not anticipated to be onerous. 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 Group and what skills and expertise are therefore needed on the Board and from senior management in the future. The Committee recommended the appointment of Mark Bottomley as Finance Director with effect from 1 June 2009 when John Lindop retires and it also continues to seek an additional independent Non-Executive Director. The current directors seeking re-election at the Annual General Meeting will be John Worby and Adam Couch. Their biographical details on page 17 demonstrate the range of experience and skills which each brings to the benefit of the Company. 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: A u d i t C o m m i t t e e 3 - - - - - 3 3 C o m m i t t e e R e m u n e r a t i o n 6 - - - - - 6 6 C o m m i t t e e i N o m n a t i o n 2 - - 2 - - 2 2 B o a r d 12 9 12 12 12 12 12 12 No. of meetings D. Black A. Couch M. Davey B. Hoggarth J. Lindop P. Farnsworth J. Worby Shareholders The views of Shareholders expressed during meetings with them are communicated by the Chairman to the Board as a whole, and through this process of communication the Board’s Executive and Non-Executive Directors are able to gain a sound understanding of the views and concerns of the major Shareholders. The Chairman discusses governance and strategy with major Shareholders. Other Directors are available to meet the Company’s major Shareholders if requested. The Senior Independent Director is available to listen to the views of Shareholders, particularly if they have concerns which contact with the Chairman has failed to resolve or for which such contact is inappropriate. Principles of corporate governance and voting guidelines issued by the Company’s institutional Shareholders and their representative bodies are circulated to and considered by the Board. The Board also welcomes the attendance and questions of Shareholders at the Annual General Meeting which is also attended by the Chairmen of the Audit, Remuneration and Nominations Committees. Cranswick plc Report & Accounts 2009 27 28 Cranswick plc Report & Accounts 2009 Going concern The Directors have prepared the accounts on a going concern basis, having satisfied themselves from a review of internal budgets and forecasts and current bank facilities that the Group has adequate resources to continue in operational existence for the foreseeable future. Internal Control The Board of Directors has overall responsibility for the Group’s systems of internal control, which safeguards the Shareholders’ investment and the Group’s assets, and for reviewing its effectiveness. Such a system can only provide reasonable and not absolute assurance against material misstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives. The Group operates within a clearly defined organisational structure with established responsibilities, authorities and reporting lines to the Board. The organisational structure has been designed in order to plan, execute, monitor and control the Group’s objectives effectively and to ensure that internal control becomes embedded in the operations. The Chairman of the Audit Committee reports to the Board on issues relating to internal controls and risk management 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 Group meets its obligations for maintaining an 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. There is also an established policy for the work the external auditors can and cannot do so as not to compromise their independence and 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: • • • 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 Group, 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. Adherence by management and the auditor to the Group’s policy for the procurement of non-audit services. Compliance with the Combined Code The Directors consider that the Group has, during the year ended 31 March 2009, complied with the requirements of the Combined Code. By order of the Board Malcolm Windeatt Company Secretary, 18 May 2009 Cranswick plc Report & Accounts 2009 29 30 Cranswick plc Report & Accounts 2009 Directors’ remuneration report Information not subject to audit Remuneration Committee The Remuneration Committee comprises the Non- Executive Directors Patrick Farnsworth (Chairman of the Committee) and John Worby. The Executive Chairman attends the meetings in an advisory capacity as requested. The Committee determines the remuneration of the Company’s Executive Directors and puts forward its recommendations for approval by the Board. During the previous year the Committee used the firm of Deloitte as remuneration consultants and the Committee has used their advice together with a review of the remuneration levels at quoted companies of comparable size when assessing the Executive Directors’ remuneration level. The remuneration of the Non-Executive Directors is determined by the Executive Directors and reflects the time, commitment and responsibility of their roles. Remuneration policy The Group’s policy is that the overall remuneration package offered by the Group 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 Group whilst giving consideration to salary levels in similar sized quoted companies in the sector and in the region. The remuneration package is in two parts; a non performance part represented by the basic salary (including benefits) and 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 and earnings per share. The details of individual components of the remuneration package and service contracts are set out below: Basic salary and benefits The non performance basic salary, car allowance and benefits are reviewed annually and are effective from the 1 May. Benefits principally comprise medical insurance. Bonus scheme The bonus scheme in operation is based on the achievement of Group profit targets. The targets are set having regard to the Company’s budget and market outlook for the year. For the year to March 2009, this took into account the challenging economic conditions at the start of the year. 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 per cent of basic salary. Non-Executive Directors do not participate in the Group’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 Group. Options can only be exercised if certain performance criteria are achieved by the Group. For executive options these criteria are based on total shareholder return over the 3 year performance period and require the Group to be in the top half of 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”) 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 Cranswick plc Report & Accounts 2009 31 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 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 Group. Directors may also apply for SAYE options on the same terms as apply to all other employees. Pensions Executive Directors are members of the Group “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. Service contracts The service contracts for Martin Davey, Derek Black and Bernard 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. John Lindop and Adam Couch have one year rolling contracts which commenced on 30 June 2004 and 1 May 2006 respectively. Patrick Farnsworth and John Worby have two year appointment letters from 1 January 2008. The contracts for Martin Davey, Derek Black, Bernard Hoggarth and John Lindop have special provisions relating to liquidated damages requiring that the notice period stipulated in the contract will be paid in Five year sharholder return full. For the other contracts the Remuneration Committee will consider the circumstances of an early termination and determine compensation payments accordingly. As previously stated Derek Black left the Company on 24 April 2009. Performance graph The graph below shows the percentage change (from a base of 100 in May 2005) 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 of the sector and the market as a whole for the business. 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 2009 £’000 2,044 1,794 9 77 3,924 509 4,433 2008 £’000 1,967 788 6 249 3,010 448 3,458 Aggregate notional gains made by Directors on exercise of options 18 9 Cranswick FTSE All Shares FTSE 350 Food Producers Source: Investec 32 Cranswick plc Report & Accounts 2009 Individual Directors’ remuneration, including pension contributions: Salary and fees £’000 Bonus Other Benefits £’000 £’000 £’000 36 - 41 331 359 586 457 234 - - - 75 487 487 487 258 - - - - 77 - - - - - 1 3 2 2 1 Total 2009 £’000 36 - 41 407 849 1,152 946 493 Total 2008 £’000 Pension 2009 £’000 Pension 2008 £’000 35 53 38 564 505 789 684 342 - - - 62 68 114 95 170 - 11 - 59 63 105 81 129 Non-Executive Directors: PW Farnsworth RN Taylor JG Worby Executive Directors: DJ Black AH Couch MTP Davey B Hoggarth JD Lindop “Other” comprises payments in lieu of pension contribution. Benefits principally comprise medical insurance. Sheep Brewery plc. His fees in this capacity are paid to the Company; amounts receivable for the year ended 31 March 2009 were £11,383 (2008 - £10,980). The number of Directors who were active members of the money purchase pension scheme during the year was 5 (2008 - 6). Share options Martin Davey was a Non-Executive Director of Thornton’s plc until his resignation on 5 December 2008. His fees in this capacity were paid to the Company; amounts receivable for the year ended 31 March 2009 were £32,250 (2008 - £41,675). John Lindop is a Non-Executive Director of Black Executive share option scheme The Group 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: At 1 April 2008 No 50,000 50,000 50,000 50,000 DJ Black AH Couch MTP Davey B Hoggarth JD Lindop 50,000 Granted in the year No Exercised in the year No Lapsed At 31 March 2009 No No Exercise price Range of exercise dates - - - - - - - - - - - - - - - 50,000 p 601.0 50,000 601.0 50,000 601.0 50,000 601.0 50,000 601.0 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 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 of a basket of food companies quoted on the London Stock Exchange. The performance criteria relating to these options have been achieved; however the options have not yet been exercised. Cranswick plc Report & Accounts 2009 33 Long term incentive plan At 1 April 2008 No Granted in the year No Exercised in the year No Lapsed At 31 March 2009 No No Exercise price p Range of exercise dates DJ Black AH Couch MTP Davey B Hoggarth JD Lindop 50,000 50,000 50,000 50,000 50,000 25,000 25,000 25,000 25,000 25,000 - - - - - - - - - - 75,000 75,000 75,000 75,000 75,000 Nil Nil Nil Nil Nil 1 Sept 2009/1 June 2018 1 Sept 2009/1 June 2018 1 Sept 2009/1 June 2018 1 Sept 2009/1 June 2018 1 Sept 2009/1 June 2018 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 76. The options granted in the year are exercisable between 1 June 2011 and 1 June 2018. The share price at the time of issue was 632p. Savings related share option scheme At 1 April 2008 Granted in the year Exercised in the year Lapsed At 31 March 2009 No 2,655 7,474 1,443 1,660 2,367 No 3,067 2,484 2,025 2,025 - No - 4,412 - 794 - No 822 1,785 1,443 866 - No 4,900 3,761 2,025 2,025 2,367 Weighted average exercise price p Range of exercise dates 436 472 474 474 1 Mar 2010/1 Sept 2016 1 Mar 2013/1 Sept 2016 1 Mar 2012/1 Sept 2012 1 Mar 2012/1 Sept 2012 442 1 Mar 2010/1 Sept 2010 DJ Black AH Couch MTP Davey B Hoggarth JD Lindop The Directors are eligible, as are other employees of the Group, to participate in the SAYE scheme, which by its nature does not have performance conditions. The following Directors exercised savings related share options during the year: Number Date exercised Exercise Price p Market Price p Notional Gain £’000s DJ Black AH Couch MTP Davey P Farnsworth B Hoggarth AH Couch 4,412 27 Feb ‘09 264.0 644.0 B Hoggarth 794 27 Feb ’09 471.0 644.0 17 1 JD Lindop J Worby Directors’ beneficial interests (unaudited) At 31 March 2009 Ordinary Shares At 31 March 2008 Ordinary Shares 88,758 61,921 200,426 1,121 108,388 109,232 1,641 88,758 55,644 200,426 1,082 107,594 106,513 1,641 Market price of shares The market price of the Company’s shares at 31 March 2009 was 544.5 pence 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 Highest Lowest 745.0p 506.0p Options the year: issued during - SAYE 657.0p 544.5p - Executive 731.5p 511.0p All the above interests are beneficial. There have been no further changes to the above interests in the period from 1 April 2009 to 8 May 2009 except in the case of the holding of Derek Black, who resigned on 24 April 2009, and has pledged 73,749 shares as security as part of the financing of the deal to buy the Pet Division which was sold to the management team led by him on that date. On behalf of the Board Patrick Farnsworth Chairman of the Remuneration Committee, 18 May 2009 34 Cranswick plc Report & Accounts 2009 Corporate social responsibility statement its takes responsibilities Cranswick to employees, customers, Shareholders and the environment very seriously. We increasingly recognise that a balanced and committed approach to all the aspects of Corporate Social Responsibility will bring benefits to all of the Company’s stakeholders and will strengthen our business position and credentials to facilitate future sustainable growth and development. Workplace 20,000 18,000 16,000 14,000 12,000 10,000 8,000 Accidents per 100,000 employees 2005 2006 2007 2008 2,200 2,000 1,800 1,600 1,400 1,200 1,000 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 own strategies for retaining staff, including the provision of competitive terms, conditions and share options. The Group employs 3,541 permanent members of staff compared with 3,428 the previous year. Permanent staff levels are supplemented to take account of promotional or seasonal activity by a further 1200 agency personnel. Careful auditing of the supplying agencies is carried out to ensure adherence to best practice, and for food handlers all supplying agencies are required to be registered under the Gangmasters (Licensing) Act 2004. The business takes the health and safety of its employees very seriously and is committed to high levels of training to ensure that our factories and processes remain safe and fulfilling places to work. Health and safety is reviewed regularly at board level, and each site has NEBOSH trained managers to take local responsibility and carry out risk assessments, training, accident investigation and reduction activities. This information is centrally logged into a database which is managed, coordinated and reported on by the Group Health and Safety Manager. Sites are internally audited to ensure that standards are maintained and improved, and the Group has committed to accredit all operating sites to meet the British Standard 18001 (Occupational Health and Safety Management Systems) over the next three years. Accident rates have shown a decrease over the past four years, and we remain focussed on further reduction in both reportable accidents (under RIDDOR) and total accident rates. Total recorded accidents (LHS) RIDDOR reportable accidents (RHS) Employee training is an important factor in maintaining a safe and efficient workplace, and the Company encourages and supports appropriate development of all staff. The Group has entered a partnership with the East Riding College to help strengthen its training in Food Safety, Health and Safety and HACCP, and over 1000 employees are currently involved in NVQ training at various levels. Environment Following the review of our environmental credentials in 2007, this year has been dedicated to identifying improvements and actioning them at a site level. Base year (2007) data has been reviewed and our carbon footprint recalculated for 2008. Process changes at key sites have resulted in a fall in the comparative carbon footprint by 15%, and we are confident that in the medium term we will deliver energy efficiency improvements and landfill reductions to help us meet our carbon reduction commitments. level Environmental progress at site and Group is measured and reported to the Board against performance benchmarks for energy efficiency, water usage, and landfill, relative to production tonnages. As awareness of both the environmental and cost benefits of these improvements grows, so does the impetus for change. Operational directors are measured against the benchmarks and best practice information is centrally coordinated and communicated around the Group, and discussed at Board level. We continue to work with the Carbon Trust and Envirowise to bring external expertise to the Group. Longer term Cranswick plc Report & Accounts 2009 35 environmental initiatives and innovative solutions to waste and energy use are now being evaluated. One site has been identified which would support the development of wind energy and anaerobic digestion offers a further environmentally attractive route, either in-house or through partnership. Our waste stream to landfill has now been significantly reduced through Waste to Energy Schemes – five sites have shown a double digit fall in landfill per tonne of production over the last year. One site in particular has reduced its landfill by over 90% by this route. As these and biocomposting schemes are further developed, other sites will have a low carbon option for disposing of an increased proportion of “conventional” landfill or rendering material. All sites are now recycling waste cardboard and plastic. Reductions in packaging weights continue through a combination of reduced material thickness and a move away from cardboard sleeves towards printed films. The Cranswick plc website www.cranswick.co.uk has been expanded to cover the environmental initiatives we are taking, entitled Greenthinking. We encourage an open approach to these issues, and a question and answer element and contact facilities are provided to help interested parties find the appropriate detail at the desired level. Three sites are now certified under the international standard for environmental management, ISO14001, with a fourth preparing for accreditation. For the first time we will participate in the Carbon Disclosure Project for 2009 www.cdproject.net in common with over 70% of the FTSE350 companies. Key to our food quality is ensuring that our raw materials (meat, ingredients and packaging) are traceable to source and where raw materials are identity preserved we will challenge the supplier to prove their traceability systems to our satisfaction. The approval of our raw material suppliers is centrally controlled and involves independent third party audit or approval by our own Group Technical Services team. We are committed to clear informative labelling which allows consumers to make informed purchasing decisions. Cranswick’s success has been built on the strength and health of the British pig market and the Group has always been a staunch supporter of the British farmer. Producer groups and development initiatives with retailers, farmers and agricultural colleges are all aimed at improving the business relationships throughout the pig production chain to bolster the market against increasing worldwide competition. The Group does not have a formal policy with regard to payment of suppliers, but it does agree individual payment terms appropriate to their market sector and makes every endeavour to meet those agreements. Sites are separately managed and encouraged to source locally where it serves the Company’s best interests. For instance, approximately 70% of our contracted pigs are sourced within 50 miles of our pork processing unit near Hull. Central purchasing agreements for major purchases of raw materials and consumables are increasingly being implemented to take best advantage of the prevailing markets. We register all our production sites on the SEDEX scheme website to enable our customers and suppliers to share ethical data and assist in continuous performance improvement. Market place Community As a business we recognise our responsibilities to create and produce food and other products which are safe, legal and wholesome. All our food production sites have been independently audited against the requirements of the BRC Global Standard for Food Safety and approved to a Grade A standard. Our customer base is heavily focussed on the major retailers and other suppliers into them, both of whom audit and monitor our performance to exacting standards. Food safety continues to be paramount and qualified technical personnel at site level are centrally coordinated to ensure that our products and processes meet the increasing demands of our customers. We aim to offer our customers a range of products which are ethically acceptable and sustainable. We have actively reduced the level of salt in our products to comply with FSA targets and declare nutritional Guideline Daily Amounts (GDA) on our branded ranges and own-label products for our retail customers and we also make a number of products which are targeted as healthy eating options such as low and reduced fat, including a range for ‘Weight Watchers’. Where allergens are present these are declared on pack and our range includes products which are gluten free. We encourage our sites to involve themselves in charitable activities and participation includes sponsored marathons, cycle rides and other fund raising activities. Overall some 75% of our employees live within 10 miles of their place of work, so local involvement particularly in rural locations can be very beneficial. Cranswick are significant employers in many areas of the country, and we recognise that as well as being a benefit to the community, we can also be an imposition on our immediate neighbours. Through consultation we aim to be sensitive to their needs and take positive steps to limit vehicle movement, noise, odour and other nuisance to co- exist with and benefit the local economy. For example, as part of the redevelopment of our pork processing site, we have put in new roads to relieve traffic flow into the outskirts of the village and planted acres of trees to reduce the visual impact of the site. By order of the Board Malcolm Windeatt Company Secretary, 18 May 2009 36 Cranswick plc Report & Accounts 2009 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. On behalf of the Board M Davey Chairman 18 May 2009 J Lindop Finance Director Cranswick plc Report & Accounts 2009 37 Report of the auditors to the members of Cranswick plc Independent auditor’s report to the members of Cranswick plc audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We have audited the group and parent company financial statements (the “financial statements”) of Cranswick plc for the year ended 31 March 2009 which comprise the Group Income Statement, the Group and Parent Company Statements of Recognised Income and Expense, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements and the related notes 1 to 31. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The Directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable United International Financial Reporting Kingdom Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. law and Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be 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 statements, 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 Principal Activities, Business Review and Future Developments 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 38 Cranswick plc Report & Accounts 2009 of the Directors’ Remuneration Report, the Chairman’s Statement, the Review of Activities, the Operating and Financial Review, the Corporate Social Responsibility Statement, the Corporate Governance Statement, 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. 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 2009 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 2009; 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, 18 May 2009 Cranswick plc Report & Accounts 2009 39 Group income statement for the year ended 31 March 2009 2009 2008 Before exceptionals Exceptionals Total Before exceptionals Exceptionals Total £’000 £’000 £’000 £’000 £’000 £’000 606,774 - 606,774 559,229 - 559,229 N o t e s 3 Revenue Cost of sales Gross profit Operating profit from continuing operations Profit on disposal of property, plant and equipment Profit from continuing operations before finance and taxation Finance revenue Finance costs Profit from continuing operations before tax Operating expenses (46,984) - (46,984) (39,157) - (521,402) - 85,372 - (521,402) (483,589) - 85,372 75,640 - (483,589) 75,640 (39,157) 4 38,388 - 38,388 36,483 - 36,483 5 - - - - 830 830 3 7 7 38,388 - 3 - (3,703) - 38,388 36,483 830 37,313 3 4 - (3,703) (4,330) - 4 (4,330) 32,987 (9,162) 830 425 Taxation 8,5 (9,951) (6,063) (16,014) (9,587) 34,688 - 34,688 32,157 24,737 (6,063) 18,674 22,570 1,255 23,825 314 18,988 - 18,988 18,988 53.7p 53.5p 55.5p 55.4p 40.5p 40.4p 41.2p 41.1p 49.1p 48.8p 51.9p 51.6p 1,832 25,657 25,605 52 25,657 51.9p 51.5p 55.9p 55.5p Profit for the year from continuing operations Discontinued operations: Profit for the year from discontinued operations Profit for the year Profit for the year attributable to: Equity holders of the parent Minority interest Earnings per share (pence) From continuing operations: Basic Diluted On profit for the year: Basic Diluted 9 25 12 12 12 12 40 Cranswick plc Report & Accounts 2009 Group statement of recognised income and expense for the year ended 31 March 2009 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 (expense)/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 2009 £’000 2008 £’000 263 (1,029) (29) 303 39 (453) 18,988 18,535 - 18,535 18,535 504 196 (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 2009 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 Net income/(expense) recognised directly in equity Profit for the year Total recognised income and expense for the year 2009 £’000 2008 £’000 124 (70) 15 69 9,385 9,454 (432) 196 20 (216) 11,011 10,795 Cranswick plc Report & Accounts 2009 41 N o t e s 13 14 16 17 18 26 2009 £’000 2008 £’000 117,756 91,688 209,444 28,464 73,655 263 4,399 106,781 117,756 92,721 210,477 30,638 77,348 1,029 3,770 112,785 9 20,387 - 336,612 323,262 19 20 21 (75,273) (34,872) (5,955) (334) (73,025) (31,811) (3,798) (153) (116,434) (108,787) 19 - 20 8 21 9 23 25 25 25 25 (36,382) (11,557) (1,166) (49,105) (8) (50,414) (7,463) (1,336) (59,221) (4,591) - (170,130) (168,008) 166,482 155,254 4,646 49,760 2,939 239 108,898 166,482 4,623 48,693 1,939 1,034 98,965 155,254 Group balance sheet 31 March 2009 Non-current assets Goodwill Property, plant and equipment Total non-current assets Current assets Inventories Trade and other receivables Other financial assets Cash and cash equivalents Total current assets Assets held for sale Total assets Current liabilities Trade and other payables Other financial liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Other payables Other financial liabilities Deferred tax liabilities Provisions Total non-current liabilities Liabilities held for sale 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 M Davey Chairman 18 May 2009 J Lindop Finance Director 42 Cranswick plc Report & Accounts 2009 Company balance sheet 31 March 2009 Non-current assets Property, plant and equipment Investments in subsidiary undertakings Deferred tax assets Total non-current assets Current assets Trade and other receivables Other financial assets Total current assets Non-current assets held for sale 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 18 May 2009 J Lindop Finance Director 2009 £’000 2008 £’000 1,959 155,426 2,348 155,426 23 - 157,408 157,774 22,167 124 22,291 343 - 44,239 70 44,309 180,042 202,083 N o t e s 14 15 8 17 18 9 19 20 (46,048) (28,290) (216) (74,554) 20 (36,382) 8 - (36,382) (54,994) (28,518) (90) (83,602) (50,414) (359) (50,773) (110,936) (134,375) 69,106 67,708 23 25 25 25 25 25 25 4,646 49,760 4,000 1,806 568 124 8,202 69,106 4,623 48,693 4,000 1,806 317 70 8,199 67,708 Cranswick plc Report & Accounts 2009 43 Group cash flow statement for the year ended 31 March 2009 Operating activities Profit for the year Adjustments to reconcile Group profit for the year to net cash inflows from operating activities Tax on discontinued operations Tax on continuing operations Net finance costs Depreciation and impairment of property, plant and equipment 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 44 Cranswick plc Report & Accounts 2009 N o t e s 2009 £’000 2008 £’000 18,988 25,657 (820) 16,014 3,971 13,859 1,000 (7) (87) (3,966) (1,971) 6,381 53,362 (8,602) 44,760 3 525 9,162 4,646 10,090 921 (29) (2,170) (6,077) (10,209) 7,732 40,248 (9,046) 31,202 4 (54) (20,948) (25,295) 258 4,228 500 (20,687) (20,617) - - (3,591) 462 59,000 (1,280) (70,206) (8,769) (24,384) (311) (7,698) (29) (8,038) (5,332) 683 (5,420) (7,734) (17,803) (7,218) (494) 14 (7,698) - - 26 26 Company cash flow statement for the year ended 31 March 2009 Operating activities Profit for the year Adjustments to reconcile profit for the year to net cash inflows from operating activities Dividends received Taxation Net finance costs Depreciation and impairment of property, plant and equipment Share based payments Decrease in trade and other receivables Decrease in trade and other payables Cash generated from operations Tax paid 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 from investing activities Cash flows from financing activities Interest paid Dividends paid to equity Shareholders Proceeds from issue of share capital Proceeds from borrowings Issue costs of long-term borrowings Repayment of borrowings Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 26 26 N o t e s 2009 £’000 2008 £’000 9,385 11,011 (8,769) 108 8,064 171 251 22,445 (9,245) 22,410 (349) 22,061 8,769 (125) - - (9,772) 163 10,743 33 107 25,597 (30,811) 7,071 (151) 6,920 9,772 (42) (16) 500 8,644 10,214 (7,592) (8,769) 462 59,000 (1,280) (70,171) (28,350) 2,355 (8,512) (6,157) (11,073) (7,734) 683 - - (5,420) (23,544) (6,410) (2,102) (8,512) Cranswick plc Report & Accounts 2009 45 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 2009 were authorised for issue by the Board of Directors on 18 May 2009 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 2006. 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 408 of the Companies Act 2006 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 24 – measurement of share based payments Goodwill Provisions Note 13 – measurement of the recoverable amount of cash generating units containing goodwill Note 21 – provisions 46 Cranswick plc Report & Accounts 2009 Foreign currencies In the accounts of the Group’s companies, individual transactions denominated in foreign currencies are translated into functional currency at the actual exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency at the rates ruling at the balance sheet date. Profits and losses on both individual foreign currency transactions during the year and monetary assets and liabilities are dealt with in the income statement. On consolidation, the income statements of the overseas subsidiaries are translated at the average exchange rates for the year and the balance sheets at the exchange rates at the balance sheet date. The exchange differences arising as a result of translating income statements at weighted average rates and restating opening net assets at closing rates are taken to the translation reserve and the gain or loss on disposal of an overseas subsidiary is calculated after taking into account cumulative exchange gains or losses in respect of that subsidiary. Cumulative exchange differences at the date of transition to IFRS were deemed to be nil. Revenue Revenue is recognised to the extent it is probable that the economic benefits will flow to the Group and the revenue and any associated costs can be measured reliably. Revenue on the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer on despatch and represents the value of sales to customers net of discounts, similar allowances and estimates of returns and excludes value added tax. 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 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. ii) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised: i) except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or a liability in a transaction that is not a business combination Cranswick plc Report & Accounts 2009 47 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 Short leasehold improvements Plant and equipment Motor vehicles 50 years Residue of lease 5 - 11 years 4 years The carrying value of property, plant and equipment is reviewed for impairment individually or at the cash generating unit level when events or changes in circumstances indicate that the carrying value may not be recoverable. Capitalised borrowing costs Borrowing costs incurred in financing the construction of qualifying assets such as property, plant and equipment are capitalised up to the date at which the relevant asset is substantially complete. Borrowing 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. 48 Cranswick plc Report & Accounts 2009 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 cash flow 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 IAS 39 for cash flow hedges the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement. 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 or loss. For derivatives that do not qualify for hedge accounting under IAS 39, any gains or losses arising from changes in fair value are taken directly to net profit or loss for the period. Employee benefits i) Pensions The Group operates a number of defined contribution schemes for employees under which contributions are paid into schemes managed by major insurance companies. Contributions are calculated as a percentage of employees’ earnings and obligations for contributions to the schemes are recognised as cost of sales or operating expenses in the income statement in the period in which they arise. ii) Equity settled share based payments The Group operates a savings related share option scheme under which options have been granted to Group employees (‘SAYE scheme’). The Group 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 had 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 Group operates an Executive share option scheme and a Long Term Incentive Plan (‘LTIP’) for Senior Executives. Share options issued are exercisable subject to the attainment of certain market based and non-market based performance criteria. The fair value of options granted after 7 November 2002 which had not vested prior to 1 January Cranswick plc Report & Accounts 2009 49 2005, is calculated using mathematical models, including the Black-Scholes model, modified for the impact of market based performance criteria and the resulting cost is charged to the income statement over the vesting period. The Company and Group re-assesses its estimate of the number of options that are expected to become exercisable at each balance sheet date as a result of changes in the expectation of achievement of non-market based performance conditions. Any adjustments to the original estimates are recognised in the income statement. Non-current assets held for sale Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. In the consolidated income statement for the reporting period, and for the comparable period of the previous year, income and expenses from discontinued operations are reported separately from continuing income and expenses down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after the sale. The resulting profit or loss (after taxes) is reported separately in the income statement. Property, plant and equipment once classified as held for sale are not depreciated. 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 IFRIC interpretations during the year. Adoption of these interpretations did not have any effect on the financial performance or position of the Group. International Financial Reporting Interpretations Committee (IFRIC) IFRIC 12 IFRIC 14 Service Concession Arrangements The Limit on a Defined Benefit Asset, Minimum Funding Requirement and their Interaction 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: 50 Cranswick plc Report & Accounts 2009 International Accounting Standards (IAS/IFRS) Effective date IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate 1 January 2009 IFRS 2 IFRS 3 IFRS 7 IFRS 8 IAS 1 IAS 23 IAS 27 Share-based Payments – Vesting Conditions and Cancellations Business Combinations (revised January 2008) Financial Instruments - Disclosures (amended) Operating Segments Presentation of Financial Statements (revised September 2007) Borrowing Costs (revised March 2007) Consolidated and Separate Financial Statements (amended) IAS 32 and IAS 1 Financial Instruments Puttable at Fair Value and Obligations arising on Liquidation IAS 39 Eligible Hedged Items Improvements to IFRS International Financial Reporting Interpretations Committee (IFRIC) IFRIC 13 IFRIC 15 IFRIC 16 IFRIC 17 Customer Loyalty Programmes Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Distributions of Non-cash Assets 1 January 2009 1 July 2009 1 January 2009 1 January 2009 1 January 2009 1 January 2009 1 July 2009 1 January 2009 1 July 2009 Various effective dates Effective date 1 July 2008 1 January 2009 1 October 2008 1 July 2009 Upon adoption of IFRS8, the Group will have to disclose additional information about its operating segments, although it is anticipated there will be no effect on reported income and net assets. Cranswick plc Report & Accounts 2009 51 3. Revenue and segmental analysis The Group’s primary business segments during the year were Food and Pet 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 Food 2009 Pet Continuing Discontinued £’000 £’000 Total £’000 Food Continuing £’000 2008 Pet Discontinued £’000 Total £’000 Revenue 606,774 46,491 653,265 559,228 39,665 598,893 Segment results before exceptionals 43,481 2,309 45,790 39,275 1,885 41,160 Exceptional items Segment results Central costs - - - 830 792 1,622 43,481 2,309 45,790 40,105 2,677 42,782 (5,093) - (5,093) (2,792) - (2,792) Profit before finance and tax 38,388 2,309 40,697 Net finance costs (3,700) (271) (3,971) 37,313 (4,326) 2,677 39,990 (320) (4,646) Fair value remeasurement loss - (2,544) (2,544) - - - Profit before tax Income taxes Profit for the year Assets and liabilities 34,688 (16,014) 18,674 (506) 34,182 32,987 2,357 35,344 820 314 (15,194) (9,162) (525) (9,687) 18,988 23,825 1,832 25,657 Assets (excluding goodwill) 193,492 20,387 213,879 177,855 22,790 200,645 Goodwill 117,756 - 117,756 117,756 - 117,756 Assets (including goodwill) 311,248 20,387 331,635 295,611 22,790 318,401 Unallocated assets Total assets 4,977 336,612 4,861 323,262 Segment liabilities 70,970 4,591 75,561 67,912 4,184 72,096 Unallocated liabilities Total liabilities 94,569 170,130 95,912 168,008 Unallocated assets and liabilities comprise certain items of property, plant and equipment, loan notes, net debt and taxation balances. 20,136 10,930 1,069 21,205 718 11,648 24,420 9,545 1,330 545 25,750 10,090 Other segment information Capital expenditure: Property, plant and equipment Depreciation 52 Cranswick plc Report & Accounts 2009 Geographical segments The following table sets out sales by destination, regardless of where the goods were produced: Sales revenue by geographical market 2009 Continuing £’000 2009 Discontinued £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 UK 599,639 43,640 643,279 551,405 Continental Europe Rest of World 7,135 - 2,443 408 9,578 408 7,823 - 606,774 46,491 653,265 559,228 37,087 2,092 486 39,665 2008 Total £’000 588,492 9,915 486 598,893 The following tables set out the geographical location of the Group’s assets and of additions to property, plant and equipment and intangible assets: Carrying amount of segment assets, including goodwill 2009 Continuing £’000 2009 Discontinued £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 2008 Total £’000 UK Continental Europe Unallocated assets 311,248 - 4,977 316,225 19,115 1,272 - 330,363 295,611 22,790 318,401 1,272 4,977 - 4,861 - - - 4,861 20,387 336,612 300,472 22,790 323,262 Additions to property, plant and equipment and intangible assets 2009 Continuing £’000 2009 Discontinued £’000 UK Continental Europe 20,136 - 20,136 444 625 1,069 2009 Total £’000 20,580 625 21,205 2008 Continuing £’000 2008 Discontinued £’000 24,420 - 24,420 1,330 - 1,330 2008 Total £’000 25,750 - 25,750 Cranswick plc Report & Accounts 2009 53 4. Group operating profit This is stated after charging/(crediting): Operating costs: Selling and distribution Administration Depreciation of property, plant and equipment Impairment of property plant and equipment Operating lease payments – minimum lease payments Net foreign currency differences Cost of inventories recognised as an expense Increase in provision for inventories Audit of these financial statements* 2009 2009 Continuing Discontinued £’000 £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 25,979 21,005 46,984 2,700 5,981 8,681 28,679 26,986 55,665 21,259 17,898 39,157 1,724 5,943 7,667 2008 Total £’000 22,983 23,841 46,824 10,930 718 11,648 9,545 545 10,090 Release of government grants (7) - (7) (29) 119 2,092 2,211 - - - - (29) 5,015 (41) 4,717 521 190 402 4,907 923 4,962 (16) 53 (25) 475,070 31,391 506,461 411,785 26,974 438,759 177 128 62 17 239 145 129 - 146 19 129 165 * £25,000 relates to the Company (2008 - £28,000) and £120,000 (2008 - £137,000) relates to audit of the financial statements of subsidiaries. In addition, payments to Ernst & Young LLP for non-audit services amounted to £85,000 (2008 - £117,000) of which £4,000 related to an audit related service (2008 – £4,000), £15,000 (2008 - £44,000) related to due diligence services and £66,000 (2008 - £69,000) to taxation. Fees paid to Ernst & Young LLP for non-audit services by 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. 54 Cranswick plc Report & Accounts 2009 5. Exceptional items Non-recurring (expense)/ income during the year was as follows: 2009 Continuing £’000 2009 Discontinued £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 2008 Total £’000 Recognised below operating profit Profit on disposal of property plant and equipment - Deferred tax on abolition of Industrial Buildings Allowances Corporation tax credit on exceptionals Deferred tax credit/(charge) on exceptionals Cash flow impact of exceptionals - - - (6,063) (6,063) - - - - (541) (541) - - - - 830 792 1,622 (6,604) - - - (6,604) 830 792 1,622 90 - 335 (238) 90 97 2,304 1,522 3,826 6. Employees Group Staff costs: Wages and salaries Social security costs Other pension costs 2009 2009 Continuing Discontinued £’000 £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 69,199 6,370 1,364 76,933 4,769 73,968 447 70 6,817 1,434 5,286 82,219 68,439 5,686 1,316 75,441 4,388 417 62 4,867 2008 Total £’000 72,827 6,103 1,378 80,308 Included within wages and salaries is a total expense for share based payments of £1,000,000, of which £143,000 related to discontinued operations (2008 - £921,000, of which £105,000 related to discontinued operations) 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 2009 £’000 2,661 295 403 3,359 2008 £’000 1,376 163 534 2,073 Included within wages and salaries is a total expense for share based payments of £251,000 (2008 - £107,000) all of which arises from transactions accounted for as equity-settled share based payment transactions. Cranswick plc Report & Accounts 2009 55 The average monthly number of employees during the year was: Group Production Selling and distribution Administration 2009 Continuing Number 2009 Discontinued Number 2009 Total Number 2008 2008 Continuing Discontinued Number Number 2008 Total Number 2,988 193 168 3,349 114 43 35 192 3,102 236 203 3,541 2,815 207 218 3,240 118 28 42 188 2,933 235 260 3,428 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 Directors’ Remuneration Report on pages 31 to 34. The employee costs shown above include the following emoluments in respect of Directors of the Company: Group and Company Directors’ remuneration (excluding IFRS 2 share option charge) Aggregate gains made by Directors on exercise of share options 2009 2009 Continuing Discontinued £’000 £’000 2009 Total £’000 2008 2008 Continuing Discontinued £’000 £’000 2008 Total £’000 3,964 469 4,433 2,835 623 3,458 18 - 18 8 1 9 7. Finance revenue and costs 2009 2009 Continuing Discontinued £’000 £’000 2009 Total £’000 2008 Continuing £’000 2008 Discontinued £’000 Finance revenue Bank interest received Finance costs (3) - Loan note interest paid 27 - (3) 27 2008 Total £’000 (4) (4) - 54 - 54 3,642 271 3,913 4,233 320 4,553 3,669 271 3,940 Total finance costs 3,703 271 34 - 34 3,974 4,287 43 4,330 320 - 320 4,607 43 4,650 The interest relates to financial assets and liabilities carried at amortised cost together with the impact of interest rate swaps. 56 Cranswick plc Report & Accounts 2009 Bank interest paid and similar charges Total interest expense for financial liabilities not at fair value through profit or loss Movement in discount on provisions 8. Taxation a) Analysis of tax charge in the year Tax charge based on the profit for the year: UK corporation tax: UK corporation tax on profits of the year Adjustments in respect of previous years Overseas tax: Overseas tax on profits of the year Adjustments in respect of previous years Total current tax UK deferred tax: Origination and reversal of temporary differences Adjustments in respect of previous years Total deferred tax 2009 £’000 11,112 (314) 10,798 10,798 3,956 440 4,396 - - 2008 £’000 9,038 6 9,044 - 54 9,098 599 (10) 589 Tax on profit on ordinary activities 15,194 9,687 The tax charge in the income statement is disclosed as follows: Income tax expense on continuing operations Income tax (credit)/expense on discontinued operations Tax relating to items charged or credited directly to equity: Group Deferred tax (credit)/charge on share based payments Deferred tax (credit)/charge on revaluation of cash flow hedges Corporation tax credit on share options exercised Tax (credit)/charge in the statement of recognised income and expense Company Deferred tax charge/(credit) on revaluation of cash flow hedges Deferred tax (credit)/charge on share options exercised Tax credit in the statement of recognised income and expense 2009 £’000 16,014 (820) 15,194 2009 £’000 (90) (213) (39) (342) 2009 £’000 15 (30) (15) 2008 £’000 9,162 525 9,687 2008 £’000 535 190 (88) 637 2008 £’000 (72) 52 (20) Cranswick plc Report & Accounts 2009 57 b) Factors affecting tax charge for the period The tax assessed for the year is higher (2008: lower) than the standard rate of corporation tax in the UK. The differences are explained below: - - - - - - 2009 £’000 34,182 9,571 145 619 (872) (456) 6,004 57 126 15,194 2009 £’000 10,883 811 326 (463) 11,557 2009 £’000 (935) (114) (122) 6,004 - (437) 4,396 2008 £’000 35,344 10,603 69 (741) (535) 241 50 9,687 2008 £’000 5,814 933 974 (258) 7,463 2008 £’000 390 10 (5) 194 589 Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 28 per cent (2008 - 30 per cent) Effect of: Disallowed expenses Impairment of assets held for resale Release of deferred tax on discontinued operations Release of deferred tax on change of tax base Industrial buildings allowances 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 in the balance sheet Accelerated capital allowances Rollover and holdover relief Other temporary differences Share based payments Deferred tax liability The deferred tax included in the income statement is as follows: Deferred tax in the income statement Accelerated capital allowances Share based payments Rollover relief Industrial buildings allowances Other temporary differences Deferred income tax expense 58 Cranswick plc Report & Accounts 2009 Company The deferred tax included in the balance sheet is as follows: Deferred tax (asset)/liability in the balance sheet Accelerated capital allowances Rollover relief Other temporary differences Share based payments Deferred tax (asset)/liability 2009 £’000 32 56 36 (147) (23) 2008 £’000 165 39 208 (53) 359 d) Temporary differences associated with Group investments At 31 March 2009 no deferred tax liability has been recognised (2008 - £nil) in respect of any taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries as the Group can control the timing of any such payments. There are no income tax consequences to the Group in relation to dividends paid to Shareholders. 9. Discontinued operations On 17 April 2009, the Board announced its decision to dispose of the trade and certain assets and liabilities of the Group’s Pet Division for an initial consideration of £17.0 million. There is a mechanism in place to normalise working capital through a cash adjustment. Cranswick plc will retain a 5.5 per cent share in the business going forward. The Pet Division manufactures and sells bird food and also imports and sells tropical marine fish and related products. The disposal was completed on 24 April 2009 and the final gain or loss on disposal will be recognised in the income statement in 2010. As at 31 March 2009 the assets of the Pet Division that are being disposed of were classified as held for resale and the assets and liabilities of the division are carried at their fair value. The loss on reclassification to held for resale has been recognised in the income statement in the current year. The results of the Pet Division for 2009 and 2008 are presented below: Revenue Expenses Operating profit Exceptional gain on sale of property, plant and equipment Finance cost Loss recognised on remeasurement to fair value (Loss)/profit before tax from discontinued operations Tax credit/(expense) Profit for the year from discontinued operations The tax credit/(expense) is analysed as follows: On profit on ordinary activities for the year Exceptional charge on abolition of IBAs On exceptional gain on sale of property, plant and equipment On reclassification to assets held for resale 2009 £’000 46,491 (44,182) 2,309 (271) (2,544) - (506) 820 314 (607) (541) 1,968 820 - - 2008 £’000 39,665 (37,780) 1,885 792 (320) 2,357 (525) 1,832 (287) (238) (525) - - The cash flow impact of exceptional items is £nil (2008 - £1,522,000 received in relation to asset disposals after associated costs). Cranswick plc Report & Accounts 2009 59 The major classes of assets and liabilities of the Pet Division being disposed of, as at 31 March 2009 were as follows: Assets Property, plant and equipment Trade and other receivables Inventories Assets classified as held for resale Liabilities Trade and other payables Liabilities classified as held for resale Net assets held for resale 2009 £’000 8,210 6,037 6,140 20,387 4,591 4,591 15,796 Of the property, plant and equipment held for resale, £343,000 (after impairment charge of £119,000) was held by the Company. The net cash flows attributable to the discontinued Pet Division are as follows: Operating cash flows Investing cash flows Financing cash flows Net inflow/(outflow) Profit per share from discontinued operations: Basic Diluted 2009 £’000 2,576 (1,068) (562) 946 0.7p 0.7p 2008 £’000 845 (1,300) (629) (1,084) 4.0p 4.0p 10. Profit attributable to members Of the profit attributable to members, the sum of £9,385,000 (2008 - £11,011,000) has been dealt with in the accounts of Cranswick plc. 11. Equity dividends Declared and paid during the year: Final dividend for 2008 - 13.4p per share (2007 – 12.2p) Interim dividend for 2009 - 7.0p per share (2008 – 6.5p) Dividends paid 2009 £’000 6,169 3,228 9,397 2008 £’000 5,587 2,980 8,567 Proposed for approval of Shareholders at the Annual General Meeting on 27 July 2009: Final dividend for 2009 – 14.7p (2008 – 13.4p) 6,801 6,195 60 Cranswick plc Report & Accounts 2009 12. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for the year attributable to members of the parent company of £18,988,000 (2008 - £25,605,000) 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 2009 2008 Thousands Thousands 46,099 127 46,226 45,832 286 46,118 Basic weighted average number of shares for 2009 excludes 195,000 shares (2008 – 195,000 shares) held during the year by the Cranswick plc Employee Benefit Trust. 13. Intangible fixed assets Group Cost At 31 March 2007 Acquisition of subsidiary undertakings At 31 March 2008 and 31 March 2009 Impairments as at 31 March 2007, 2008 and 2009 Net book amounts at 31 March 2008 and 31 March 2009 Goodwill £’000 117,520 236 117,756 - 117,756 In August 2008, the Group increased its investment in Cranswick Gourmet Bacon Company Ltd from 85 per cent to 100 per cent for a cash consideration of £38,000 and loan notes of £336,000. Goodwill arising from this amounted to £219,000. The Group has no other intangible assets. Goodwill is 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 2009 £’000 86,903 16,526 10,968 3,359 117,756 2008 £’000 86,903 16,526 10,968 3,359 117,756 Cranswick plc Report & Accounts 2009 61 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 is assumed to represent 100 per cent of depreciation. Subsequent cash flows are forecast to grow in line with an assumed long-term industry growth rate of between 4 and 5 per cent derived from third party market information. A discount rate of 9.3 per cent has been used (2008 - 9.1 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. 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 would reduce value in use below the value of the recoverable amount. Assumptions and projections are updated on an annual basis. 62 Cranswick plc Report & Accounts 2009 14. Property, plant and equipment Group Cost At 31 March 2007 Additions Disposals At 31 March 2008 Additions Transfers between categories Transfers to assets held for resale Disposals At 31 March 2009 Depreciation At 31 March 2007 Charge for the year Relating to disposals At 31 March 2008 Charge for the year Transfers to assets held for resale Impairment loss Relating to disposals At 31 March 2009 Net book amounts At 31 March 2007 At 31 March 2008 At 31 March 2009 1,698 5,272 (1,698) - 5,272 161,252 Freehold land and buildings £’000 27,803 8,218 Leasehold improvements Plant, equipment and vehicles Assets in the course of construction £’000 £’000 £’000 16,805 55 94,163 - 15,779 1,698 (1,556) - (7,540) - 34,465 8,347 (5,632) - - - - 16,860 102,402 95 (535) 7,491 1,698 (8,108) (1,103) 37,180 16,420 102,380 2,548 467 (654) - 2,361 472 (2,047) 1,567 6,898 911 7,809 864 (535) 477 - - 49,048 8,712 (5,226) 52,534 10,312 (3,483) 167 (934) 2,353 8,615 58,596 - - - - - - - - - - - 25,255 32,104 34,827 9,907 9,051 7,805 45,115 - 49,868 43,784 1,698 5,272 Total £’000 138,771 25,750 (9,096) 155,425 21,205 (14,275) (1,103) 58,494 10,090 (5,880) 62,704 11,648 (6,065) 2,211 (934) 69,564 80,277 92,721 91,688 Included in freehold land and buildings is land with a cost of £3,198,000 (2008 - £3,853,000) which is not depreciated relating to the Group and £795,000 (2008 - £1,210,000) relating to the Company. The cost of freehold land and buildings includes £935,000 (2008 - £935,000) in respect of capitalised interest. £nil of interest, which was the whole amount eligible, was capitalised during the year (2008 - £397,000). Cranswick plc Report & Accounts 2009 63 Company Cost At 31 March 2007 Additions Disposals At 31 March 2008 Additions Transfers to assets held for resale At 31 March 2009 Depreciation At 31 March 2007 Charge for the year Relating to disposals At 31 March 2008 Charge for the year Transfers to assets held for resale Impairment loss At 31 March 2009 Net book amounts At 31 March 2007 At 31 March 2008 At 31 March 2009 15. Investment in subsidiary undertakings Company Shares at cost: At 31 March 2007 Disposals At 31 March 2008 and 31 March 2009 - - - - Freehold land and buildings £’000 Plant, equipment and vehicles £’000 2,431 2,431 72 43 (5) 110 125 (475) - 1,956 235 - - 131 21 152 21 (132) 119 160 2,300 2,279 1,796 33 12 (4) 41 31 72 39 69 163 Total £’000 2,503 43 (5) 2,541 125 (475) 2,191 164 33 (4) 193 52 (132) 119 232 2,339 2,348 1,959 £’000 155,430 (4) 155,426 During the prior 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 was included as part of the exceptional item in that year. The principal subsidiary undertakings during the year were: Food Cranswick Country Foods plc Studleigh-Royd Limited Brookfield Foods Limited The Sandwich Factory Group Limited (registered in Scotland) Delico Limited Pet Cranswick Pet & Aquatics plc 64 Cranswick plc Report & Accounts 2009 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. On 17 April 2009, the trade and certain assets and liabilities of Cranswick Pet & Aquatics plc were disposed of by the Group (Note 9). 16. Inventories Group Raw materials Finished goods and goods for resale Biological assets (see below) 2009 £’000 24,944 3,520 28,464 - 2008 £’000 24,218 6,278 142 30,638 The Group breeds and imports tropical marine fish and other invertebrates for supply to specialist aquatic retailers. At 31 March 2009 marine stock was held within assets held for resale at fair value. There are no inventories held by the Company. 17. Trade and other receivables Financial Assets: Trade receivables Amounts owed by Group undertakings Other receivables Non-financial assets: Prepayments and accrued income Trade receivables continuing operations Trade receivables held for resale Group Company 2009 £’000 2008 £’000 64,438 68,504 - 2,810 67,248 6,407 73,655 64,438 5,614 70,052 - 3,474 71,978 5,370 77,348 68,504 - 68,504 2009 £’000 - 21,852 253 22,105 62 22,167 - - - 2008 £’000 - 44,177 20 44,197 42 44,239 - - - Cranswick plc Report & Accounts 2009 65 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: £’000 64,438 68,504 £’000 56,425 57,683 Less than 30 days £’000 Between 30 and 60 days £’000 More than 60 days £’000 6,572 7,718 1,006 2,061 435 1,042 2009 2008 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 2009, trade receivables at nominal value of £352,000 (2008 - £634,000) 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 2007 Provided in year Written off At 31 March 2008 Provided in year Transferred to assets held for resale Written off At 31 March 2009 There are no bad debt provisions against other receivables. 18. Other financial assets (current) Forward currency contracts Interest rate swap (1) Interest rate swap (2) Movement on hedged items: Amounts recognised in equity Amounts removed from equity and included in the income statement £’000 591 167 (124) 634 998 (782) (498) 352 Group Company 2009 £’000 139 - 124 263 2008 £’000 959 70 - 1,029 2009 £’000 2008 £’000 - - 124 124 - 70 - 70 Group Company 2009 £’000 263 (1,029) (766) 2008 £’000 2009 £’000 2008 £’000 504 196 700 124 (432) (70) 54 196 (236) Movements on hedged foreign currency contracts are recycled through cost of sales. Interest rate movements on hedged bank borrowings are recycled through finance costs. All ‘Other’ financial assets, are used for hedging. 66 Cranswick plc Report & Accounts 2009 Forward currency contracts Forward currency contracts are used to hedge a proportion of anticipated purchases denominated in foreign currencies and are held at fair value in the balance sheet. To the extent that these forward contracts represent effective hedges, movements in fair value are taken directly to equity and are then recycled through the income statement in the period during which the hedged item impacts the income statement. A description of amounts and maturities is contained in note 22. Interest rate swap (1) Under the terms of this interest rate swap (relating to the Group’s previous bank facilities, which have now been repaid) the Group receives LIBOR interest and pays fixed interest of 4.98 per cent. The notional principal amount of the swap stood at £9,000,000 as at 31 March 2009 and reduces in equal semi-annual instalments of £4,500,000 to £nil by January 2010. Interest rate swap (2) Under the terms of this interest rate swap (relating to the Group’s new bank facilities) the Group receives LIBOR interest and pays fixed interest of 2.04 per cent. The notional principal amount of the swap stood at £33,750,000 as at 31 March 2009 and reduces in equal quarterly instalments of £1,750,000 with a final notional payment of principal of £16,250,000 in December 2011. 19. Trade and other payables Current Trade payables Amounts owed to Group undertakings Other payables Deferred income Non-current Deferred income 20. Other financial liabilities Current Bank overdrafts Amounts outstanding under revolving credit facility Current instalments due on bank loan Loan notes Interest rate swap (1) – (note 18) Group Company 2009 £’000 2008 £’000 50,236 52,763 - - 25,036 20,262 1 - 2009 £’000 201 41,745 4,102 - 2008 £’000 154 54,057 783 - 75,273 73,025 46,048 54,994 - 8 - - Group Company 2009 £’000 12,437 9,000 12,500 762 173 2008 £’000 11,468 8,000 11,250 1,093 - 2009 £’000 6,157 9,000 12,500 460 173 2008 £’000 8,512 8,000 11,250 756 - 34,872 31,811 28,290 28,518 Non-current Non-current instalments due on bank loan 36,382 50,414 36,382 50,414 Cranswick plc Report & Accounts 2009 67 All financial liabilities are amortised at cost. A bank overdraft facility of £20 million (2008 - £20 million) is in place until December 2011, of which £12,437,000 (2008 - £11,468,000) was utilised at 31 March 2009. Interest is payable at a margin over base rate. A revolving credit facility of £30 million is in place of which £9 million was utilised as at 31 March 2009 (2008 - facility of £10 million of which £8 million was utilised). This facility expires in December 2011. Interest is payable on the loan at a margin of 1.75 per cent above LIBOR. The maturity profile of bank loans is as follows: Group Company In one year or less Between one year and two years Between two and five years Unamortised issue costs 2009 £’000 12,500 10,000 2008 £’000 11,250 50,625 2009 £’000 12,500 10,000 27,500 - 27,500 - 50,000 (1,118) 48,882 61,875 (211) 61,664 50,000 (1,118) 48,882 2008 £’000 11,250 50,625 61,875 (211) 61,664 The balance outstanding on the term loan of £50.0 million is repayable in 11 quarterly instalments of £2.5 million from April 2009, followed by a single payment of £22.5 million in December 2011. Interest is payable on the loan at a margin of 1.75 per cent above LIBOR. The loan is unsecured. The loan is subject to normal bank covenant arrangements. Under the terms of the interest rate swap relating to the facilities the Group receives LIBOR interest and pays fixed interest of 2.04 per cent. Loan notes bear interest based on base rate and are repayable on demand at six-monthly intervals. 21. Provisions Group At 1 April 2008 Provided in the year Utilisation in the year Unwinding of discount At 31 March 2009 Analysed as: Current liabilities Non-current liabilities Lease provisions £’000 1,489 87 (110) 34 1,500 2008 £’000 153 1,336 1,489 Group 2009 £’000 334 1,166 1,500 Lease provisions are held against dilapidation 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 five years. There are no provisions held by the Company. 68 Cranswick plc Report & Accounts 2009 22. Financial instruments An explanation of the Company and Group’s financial instruments risk management strategy is set out on pages 9 to 15 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 2009 and their weighted average interest rates is set out below: Group As at 31 March 2009 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 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) 5.11% (12,437) (12,437) - 3.48% (9,000) (9,000) - 3.67% (50,000) (7,250) (16,000) Loan notes 2.40% (762) (762) - - - - - - (7,000) (19,750) - (72,199) (29,449) (16,000) (7,000) (19,750) Less: effect of interest rate swaps - (42,750) 16,000 7,000 19,750 Total financial liabilities excluding the effect of interest rate swaps (72,199) (72,199) - Financial assets: Cash at bank 2.86% 4,399 4,399 - (67,800) (67,800) - - - - - - - As at 31 March 2008 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 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) 6.54% (11,468) (11,468) 6.22% (8,000) (8,000) - - - - 6.05% (61,875) (43,875) (9,000) (9,000) Loan notes 5.24% (1,093) (1,093) - - (82,436) (64,436) (9,000) (9,000) Less: effect of interest rate swaps - (18,000) 9,000 9,000 Total financial liabilities excluding the effect of interest rate swaps (82,436) (82,436) Financial assets: Cash at bank 4.54% 3,770 3,770 (78,666) (78,666) - - - - - - - - - - - - - - - The maturity profile of bank loans is set out in note 20. Cranswick plc Report & Accounts 2009 69 The interest rate profile of the interest earning financial assets and interest bearing liabilities of the Company as at 31 March 2009 and their weighted average interest rates is set out below: Company As at 31 March 2009 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 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) 5.11% 3.48% (6,157) (6,157) - (9,000) (9,000) - 3.67% (50,000) (7,250) (16,000) Loan notes 2.40% (460) (460) - - - - - - (7,000) (19,750) - (65,617) (22,867) (16,000) (7,000) (19,750) Less: effect of interest rate swaps - (42,750) 16,000 7,000 19,750 Total financial liabilities excluding the effect of interest rate swaps (65,617) (65,617) - Financial assets: Cash at bank 2.86% - - - (65,617) (65,617) - - - - - - - As at 31 March 2008 Financial liabilities: Bank overdrafts Revolving credit facility Bank loan (including the effect of interest rate swaps) Loan notes Weighted average effective interest rate % 6.54% 6.22% 6.05% 5.24% Total At floating interest rates 1 year or less Fixed interest 1-2 years 2-3 years £’000 £’000 £’000 £’000 £’000 (8,512) (8,000) (8,512) - (8,000) - - - - - (61,875) (43,875) (9,000) (9,000) - (756) (756) - - - (79,143) (61,143) (9,000) (9,000) - Less: effect of interest rate swaps - (18,000) 9,000 9,000 - Total financial liabilities excluding the effect of interest rate swaps (79,143) (79,143) - Financial assets: Cash at bank 4.54% - - - (79,143) (79,143) - - - - - - - Currency profile The Group’s financial assets at 31 March 2009 include sterling denominated cash balances of £2,853,000 (2008 - £1,648,000), Danish krona £8,000 (2008 - £99,000), euro £1,378,000 (2008 - £611,000) and US dollar £160,000 (2008 - £1,412,000), all of which are held in the UK with the exception of Danish krona £nil (2008 - £98,000) and euro £297,000 (2008 - £nil). The proportion of the Group’s net assets denominated in foreign currencies is immaterial. The Group’s financial assets and liabilities are denominated in sterling. 70 Cranswick plc Report & Accounts 2009 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, with the exception of £297,000 held in euros with a Portugese bank. 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 2009 2008 Financial assets Cash Forward currency contracts Interest rate swap (2) – (note 18) Financial liabilities Bank overdraft Amounts outstanding under revolving credit facility Bank loan, gross of issue costs Loan notes Interest rate swap (1) – (note 18) At 31 March Company Financial asset Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 4,399 139 124 4,662 (12,437) (9,000) (50,000) (762) (173) 4,399 139 124 4,662 (12,437) (9,000) (50,000) (762) (173) 3,770 959 70 4,799 (11,468) (8,000) (61,875) (1,093) - 3,770 959 70 4,799 (11,468) (8,000) (61,875) (1,093) - (72,372) (72,372) (82,436) (82,436) (67,710) (67,710) (77,637) (77,637) 2009 2008 Book value £’000 Fair value £’000 Book value £’000 Fair value £’000 Interest rate swap (2) – (note 18) 124 124 70 70 Financial liabilities Bank overdraft Amounts outstanding under revolving credit facility Bank loan, gross of issue costs Loan notes Interest rate swap (1) – (note 18) (6,157) (9,000) (6,157) (9,000) (50,000) (50,000) (460) (173) (460) (173) (8,512) (8,000) (61,875) (756) - (8,512) (8,000) (61,875) (756) - (65,790) (65,790) (79,143) (79,143) At 31 March (65,666) (65,666) (79,073) (79,073) Cranswick plc Report & Accounts 2009 71 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 17 and 19. 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: i) Forward contracts to hedge expected future purchases The Group hedges a proportion of its near-term expected purchases denominated in overseas currencies. Where these hedges meet the hedge criteria of IAS 39 changes in fair value are posted directly to equity and subsequently recycled through the income statement at the time that the hedged item affects profit or loss. Group euros Amount Maturities Exchange rates €6,500,000 1 April 2009 to 15 July 2009 €1.22 – €1.47 Fair value £’000 139 These contracts were effective cash flow hedges under the criteria set out in IAS 39 and therefore these fair value gains were recognised directly in equity. The Company does not hold any forward contracts. Interest rate swaps ii) The Group hedges a proportion of the interest cash flows payable in respect of bank loans. • • Interest rate swap (1) – (note 18) Under the terms of this interest rate swap (relating to the Group’s previous bank facilities, which have now been repaid) the Group receives LIBOR interest and pays fixed interest of 4.98 per cent. The notional principal amount of the swap stood at £9,000,000 as at 31 March 2009 and reduces in equal semi-annual instalments of £4,500,000 to £nil by January 2010. The swap was an ineffective cash flow hedge under the criteria set out in IAS 39 and therefore movements in fair value have been posted to the income statement. Interest rate swap (2) – (note 18) Under the terms of this interest rate swap (relating to the Group’s new bank facilities) the Group receives LIBOR interest and pays fixed interest of 2.04 per cent. The notional principal amount of the swap stood at £33,750,000 as at 31 March 2009 and reduces in equal quarterly instalments of £1,750,000 with a final notional payment of principal of £16,250,000 in December 2011. The swap was an effective cash flow hedge under the criteria set out in IAS 39 and therefore movements in fair value have been posted directly to equity and are recycled through the income statement at the time the hedged item affects the income statement. 72 Cranswick plc Report & Accounts 2009 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 material impact on the Group’s equity. Currency derivatives have not been included in the sensitivity analysis below as they are not considered to be exposed to interest rate risk. 2009 sterling 2008 sterling Increase / decrease in basis points Effect on profit before tax £000 +100 -100 +100 -100 (565) 565 (576) 576 Liquidity risk The tables below summarise the maturity profile of the Group’s financial liabilities at 31 March 2009 and 2008 based on contractual undiscounted payments. Year ended 31 March 2009 Bank overdraft Revolving credit facility Bank loan Loan notes Trade and other payables Interest rate swap (1) - (note 18) Year ended 31 March 2008 Bank overdraft Revolving credit facility Bank loan Loan notes Trade and other payables Less than 1 year £’000 12,437 9,000 12,715 762 75,273 173 1 to 2 years £’000 - - 2 to 5 years £’000 - - 10,558 30,032 - - - - - - Total £’000 12,437 9,000 53,305 762 75,273 173 110,360 10,558 30,032 150,950 Less than 1 year £’000 11,468 8,000 11,715 1,093 73,025 1 to 2 years £’000 - - 54,591 - 8 105,301 54,599 2 to 5 years £’000 - - - - - - Total £’000 11,468 8,000 66,306 1,093 73,033 159,900 Cranswick plc Report & Accounts 2009 73 23. Called-up share capital Group and Company Authorised 2009 Number 2008 Number 2009 £’000 2008 £’000 Ordinary shares of 10p each 63,600,000 63,600,000 6,360 6,360 Allotted, called-up and fully paid Ordinary shares of 10p each 2009 Number 2008 Number 2009 £’000 2008 £’000 At 1 April On exercise of share options Scrip dividends At 31 March 46,225,491 45,954,326 4,623 4,595 125,168 109,299 167,554 103,611 12 11 17 11 46,459,958 46,225,491 4,646 4,623 On 5 September 2008, 77,905 ordinary shares were issued at 567.7 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2008 final dividend. On 23 January 2009, 31,394 ordinary shares were issued at 593.1 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2009 interim dividend. During the course of the year, 125,168 ordinary shares were issued to employees exercising SAYE options at prices between 255.0 pence and 471.0 pence. Of the unissued ordinary share capital £100,385 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 Savings related Executive Number 6,396 5,816 6,511 59,300 52,258 66,474 47,284 284,808 475,000 Exercise price Exercise period 264p 415p 255p 375p 471p 679p 665p 474p March 2005 to October 2009 March 2006 to October 2010 March 2007 to October 2011 March 2008 to October 2012 March 2009 to October 2013 March 2010 to October 2014 March 2011 to October 2015 March 2012 to October 2016 601p July 2008 to July 2015 On 7 September 2007, 27,239 ordinary shares were issued at 844.1 pence 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 790.0 pence 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 prior year, 137,554 ordinary shares were issued to employees exercising SAYE options at prices between 255.0 pence and 679.0 pence, and 30,000 ordinary shares were issued to Directors and employees exercising Executive share options at a price of 601.0 pence per ordinary share. 74 Cranswick plc Report & Accounts 2009 24. Share based payments The Group operates three share option schemes, a Revenue approved scheme (SAYE), an unapproved scheme (Executive Share Option) and a Long Term Incentive Plan (LTIP), all of which are equity settled. Executive Share Option Scheme Share options are granted periodically to promote the involvement of senior management in the longer term success of the Group. Options can only be exercised if certain performance conditions are met by the Group. These conditions are based on total Shareholder return over the performance period and require the Group to be in the top half of a basket of food companies quoted on the London Stock Exchange selected by the remuneration Committee. Options have a contractual life of ten years. Directors may also apply for SAYE options on the same terms as apply to all other employees. The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, Executive share options during the year: Group Outstanding as at 1 April Forfeited during the year Exercised during the year Expired during the year Outstanding as at 31 March 2009 Number 490,000 (15,000) - - 2009 WAEP £ 6.01 6.01 - - 2008 Number 535,000 (15,000) (30,000) - 475,000 6.01 490,000 Exercisable at 31 March 475,000 6.01 - Company Outstanding as at 1 April Forfeited during the year Exercised during the year Expired during the year 2009 Number 265,000 - - - 2009 WAEP £ 6.01 - - - 2008 Number 265,000 - - - 2008 WAEP £ 6.01 6.01 6.01 - 6.01 - 2008 WAEP £ 6.01 - - - Outstanding as at 31 March 265,000 6.01 265,000 6.01 Exercisable at 31 March 265,000 6.01 - - For the share options outstanding as at 31 March 2009, the weighted average remaining contractual life is 6.25 years. (2008 - 7.25 years). There were no options granted during the year. The range of exercise prices for options outstanding at the end of the year was £6.01. Cranswick plc Report & Accounts 2009 75 Long Term Incentive Plan (LTIP) During the course of the year 177,500 options at nil cost were granted to Directors and senior executives, the share price at that time was 632.0 pence. There is a three year performance period at the end of which half the options will be measured against earnings per share (EPS) targets and the other half measured against total shareholder return (TSR) 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 plc, Northern Foods plc, Robert Wiseman Dairies plc, Premier Foods plc and Uniq plc. The options have a contractual life of ten years. 15,000 options were forfeited during the year leaving 542,500 outstanding. Group Outstanding as at 1 April Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding as at 31 March Exercisable at 31 March Company Outstanding as at 1 April Granted during the year Forfeited during the year Exercised during the year Expired during the year Outstanding as at 31 March Exercisable at 31 March 2009 Number 380,000 177,500 (15,000) - - 542,500 - 2009 Number 250,000 125,000 - - - 375,000 - 2009 WAEP £ - - - - - - - 2009 WAEP £ - - - - - - - 2008 Number 190,000 190,000 - - - 380,000 - 2008 Number 125,000 125,000 - - - 250,000 - 2008 WAEP £ - - - - - - - 2008 WAEP £ - - - - - - - The weighted average fair value of options granted during the year was £5.63 (2008 - £7.83). The range of exercise prices for options outstanding at the end of the year was £nil. All Employee Share Option Scheme (SAYE) 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, SAYE share options during the year. 76 Cranswick plc Report & Accounts 2009 Group Outstanding as at 1 April Granted during the year (note i) Forfeited during the year Exercised during the year (note ii) Expired during the year Outstanding as at 31 March (note iii) 2009 Number 504,672 284,808 (135,068) (125,168) - 529,244 2009 WAEP £ 5.16 4.74 6.28 3.69 - 5.00 2008 Number 605,870 102,204 (66,208) (137,194) - 504,672 Exercisable at 31 March 17,461 3.20 11,978 Company Outstanding as at 1 April Granted during the year (note i) Forfeited during the year Exercised during the year (note ii) Expired during the year Outstanding as at 31 March Exercisable at 31 March 2009 Number 10,599 9,371 (5,339) (2,580) - 12,051 - 2009 WAEP £ 5.28 4.74 6.71 4.71 - 5.08 - 2008 Number 16,387 3,793 - (9,581) - 10,599 - 2008 WAEP £ 4.42 6.65 5.14 3.66 - 5.16 3.91 2008 WAEP £ 4.20 6.65 - 3.98 - 5.28 - i) The share options granted during the year were at £4.74, 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 was £6.37 (2008 - £6.58). iii) Included within this balance are options over 6,396 shares (2008 – 18,756 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 2009 the weighted average remaining contractual life is 3.58 years. (2008 - 2.56 years). The weighted average fair value of options granted during the year was £1.54 (2008 - £2.96). The range of exercise prices for options outstanding at the end of the year was £2.55 - £6.79 (2008 - £2.55 - £6.79). The fair value of the Executive, SAYE and LTIP 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 2009 and 31 March 2008. Group and Company 2009 2008 Dividend yield Expected share price volatility Risk free interest rate Expected life of option (years) Exercise prices 1.9% - 4.3% 24.5% - 31.0% 3.00% - 5.80% 3,5,7 years £nil - £6.79 1.9% - 4.1% 24.5% - 31.0% 4.29% - 5.80% 3,5,7 years £nil - £6.79 Cranswick plc Report & Accounts 2009 77 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. 25. Reconciliation of movements in equity Group Attributable to equity holders of the parent Share capital Share premium (Note 1) £’000 (Note 2) £’000 Share based payments (Note 5) £’000 Hedging reserve Translation reserve Retained earnings Minority interest Total equity Total (Note 6) £’000 (Note 7) £’000 £’000 £’000 £’000 £’000 At 1 April 2007 4,595 47,204 1,018 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 - - - - 329 700 - - - - - - - - - At 1 April 2008 4,623 48,693 1,939 1,029 Cash flow hedges Exchange differences Profit for the year Exercise of options Scrip dividends Share based payments Deferred tax recognised directly in equity Corporation tax recognised directly in equity Dividends - - - 12 11 - - - - - - - 450 617 - - - - - - - - - 1,000 - - - (766) - - - - - - - - 22 - (17) 82,564 135,732 103 135,835 - - 700 (17) - - 700 (17) 25,605 25,605 52 25,657 - - - - - - - - 5 - - - - 683 834 921 (725) (725) 88 - 88 - (8,567) (8,567) 98,965 155,254 213 (553) (29) - (29) - - - - - - - 18,988 18,988 - - - 90 39 462 628 1,000 90 39 (9,397) (9,397) - - - - - 683 834 921 (725) 88 (155) (155) - - - - - - - - - - - - (8,567) 155,254 (553) (29) 18,988 462 628 1,000 90 39 (9,397) 166,482 At 31 March 2009 4,646 49,760 2,939 263 (24) 108,898 166,482 78 Cranswick plc Report & Accounts 2009 Company Share capital Share premium General reserve Merger reserve (Note 1) £’000 (Note 2) £’000 (Note 3) £’000 (Note 4) £’000 Share based payments (Note 5) £’000 Hedging reserve Retained earnings Total (Note 6) £’000 £’000 £’000 At 1 April 2007 4,595 47,204 4,000 1,806 210 306 5,735 63,856 Cash flow hedges Profit for the year Exercise of options Scrip dividends Share based payments Deferred tax recognised directly in equity Dividends At 1 April 2008 Cash flow hedges Profit for the year Exercise of options Scrip dividends Share based payments Deferred tax recognised directly in equity Dividends - - - - - - - - - - 17 11 4,623 12 11 - - - - - - - - - - - - 666 - 823 - - - - - - 48,693 450 - 617 - - - - 4,000 - - - - - - - - - - - - - - 1,806 - - - - - - - - - - - - (236) - (236) 11,011 11,011 - - - - - - 70 54 683 834 107 20 20 (8,567) (8,567) 8,199 67,708 (15) 9,385 39 9,385 462 628 251 30 30 (9,397) (9,397) - - - 107 - 317 - - - - - 251 - - - At 31 March 2009 4,646 49,760 4,000 1,806 568 124 8,202 69,106 Notes: 1. Share capital The balance classified as share capital represents the nominal value of ordinary 10p shares issued. 2. Share premium The balance classified as share premium includes the net proceeds in excess of nominal value on issue of the Company’s equity share capital, comprising 10p ordinary shares. 3. 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. 4. 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. 5. Share based payments reserve This reserve records the fair value of share based payments expensed in the income statement. 6. Hedging reserve This reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. 7. Translation reserve This reserve records exchange differences arising from the translation of the financial statements of foreign subsidiaries. Cranswick plc Report & Accounts 2009 79 26. Additional cash flow information Analysis of Group net debt Cash and cash equivalents Overdrafts Other financial assets Other financial liabilities Revolving credit Bank loans Loan notes Net debt At 31 March 2008 Cash flow £’000 £’000 Other non cash changes £’000 At 31 March 2009 £’000 3,770 (11,468) (7,698) 70 (7,628) - (8,000) (61,664) (1,093) (78,385) 658 (969) (311) - (311) - (1,000) 13,155 331 12,175 (29) - (29) 193 164 (173) - (373) - (382) 4,399 (12,437) (8,038) 263 (7,775) (173) (9,000) (48,882) (762) (66,592) Net debt is defined as cash and cash equivalents and derivatives at fair value less interest bearing liabilities (net of unamortised issue costs). Cash and cash equivalents all relate to continuing operations. At 31 March 2007 Cash flow £’000 £’000 Other non cash changes £’000 At 31 March 2008 £’000 2,262 (2,756) (494) 306 (188) (2,000) (72,794) (927) (75,909) 1,494 (8,712) (7,218) - (7,218) (6,000) 11,250 170 (1,798) 14 - 14 (236) (222) - (120) (336) (678) 3,770 (11,468) (7,698) 70 (7,628) (8,000) (61,664) (1,093) (78,385) Cash and cash equivalents Overdrafts Other financial assets Revolving credit Bank loans Loan notes Net debt 80 Cranswick plc Report & Accounts 2009 Analysis of Company net debt Overdrafts Other financial assets Other financial liabilities Revolving credit Bank loans Loan notes Net debt Overdrafts Other financial assets Revolving credit Bank loans Loan notes Net debt At 31 March 2008 Cash flow £’000 £’000 Other non cash changes £’000 At 31 March 2009 £’000 (8,512) 2,355 - 70 - (8,442) 2,355 - - (8,000) (61,664) (756) (78,862) At 31 March 2007 - - (1,000) 13,155 296 14,806 Cash flow £’000 £’000 (2,102) (6,410) - 306 - (1,796) (6,410) (2,000) (72,794) (927) (77,517) - - (6,000) 11,250 171 (989) 54 54 (173) (6,157) 124 (6,033) (173) (9,000) (373) (48,882) (460) (492) (64,548) Other non cash changes £’000 (236) (236) (120) At 31 March 2008 £’000 (8,512) 70 (8,442) (8,000) (61,664) (756) (356) (78,862) 27. Contingent liabilities The Company, together with its subsidiary undertakings, has entered into a cross guarantee with Lloyds TSB Bank plc, The Royal Bank of Scotland plc and Clydesdale Bank plc in respect of the Group’s facilities with those banks. Drawn down amounts totalled £71,437,000 as at 31 March 2009 (2008 - £81,343,000). For the Company, the amounts drawn down by other group companies which were guaranteed by the Company at the year end totalled £6,280,000 (2008 - £2,956,000). Cranswick plc Report & Accounts 2009 81 28. Commitments a) The Directors have contracted for future capital expenditure for property, plant and equipment totalling £3,083,000 (2008 - £7,347,000). b) The Group’s future minimum rentals payable under non-cancellable operating leases are as follows: Group Not later than one year After one year but not more than five years After five years The Company has no non-cancellable operating leases. 29. Pension commitments 2009 £’000 2,718 7,481 14,007 24,206 2008 £’000 3,737 9,890 24,067 37,694 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 income statement is disclosed in note 6. Contributions owing to the insurance companies at the year-end, included in trade and other payables, amounted to £55,000 (2008 - £nil). 30. Related party transactions During the year the Group and Company entered into transactions, in the ordinary course of business, with related parties, including transactions between the Company and its subsidiary undertakings. In the Group accounts transactions between the Company and its subsidiaries are eliminated on consolidation but these transactions are reported for the Company below: Company only Related party Subsidiaries 2009 2008 Services rendered to the related party £’000 Dividends received from related party £’000 15,660 15,015 8,769 9,772 Amounts owed by or to subsidiary undertakings are disclosed in the Company balance sheet on page 43. Any such amounts are unsecured and repayable on demand. Remuneration of key management personnel Short-term employee benefits Post-employment benefits Share-based payment 82 Cranswick plc Report & Accounts 2009 2009 £’000 3,924 509 579 5,012 2008 £’000 3,010 448 451 3,909 31. Post balance sheet events As notified to shareholders on 6 April 2009 Cranswick has exchanged contracts to acquire the whole of the issued share capital of Bowes of Norfolk Limited, a pork processing business based in Norfolk, for a cash consideration of £17.2 million. The completion of the transaction is conditional upon clearance from the UK Competition Authorities which at this moment in time is ongoing. On 24 April 2009 the Pet Division was sold to the management team, headed up by Derek Black, for a consideration of £17.0 million. There is a mechanism in place to normalise working capital through a cash adjustment. Cranswick plc will retain a 5.5 per cent share in the business going forward. Derek Black resigned as a main board director on that day. Derek Black will be a shareholder and director of the new company. Cranswick plc Report & Accounts 2009 83 Advisers Secretary Malcolm Windeatt FCA Company Number 1074383 Registered Office Stockbrokers Registrars Auditors Solicitors Bankers 74 Helsinki Road Sutton Fields Hull HU7 0YW Investec Investment Banking – London Brewin Dolphin Securities – Newcastle Capita IRG plc Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0GA Ernst & Young LLP – Hull Rollits – Hull Lloyds TSB Bank plc The Royal Bank of Scotland plc Clydesdale Bank plc Merchant Bankers N M Rothschild & Sons – Leeds 84 Cranswick plc Report & Accounts 2009 Shareholder information Five year statement 2009 £’m 2008 £’m 2007 £’m 2006 £’m 2005 £’m Turnover * 606.8 559.2 479.8 401.6 282.8 Profit before tax * 34.7 33.0 32.1 30.6 20.6 Earnings per share * 40.5p 51.9p 49.3p 50.3p 37.2p Dividends per share 21.7p 19.9p 18.1p 16.5p 14.5p Capital expenditure 21.2 25.8 11.8 14.3 19.1 Net debt Net assets (66.6) (78.4) (75.9) (77.1) (92.4) 166.5 155.3 135.8 112.4 92.8 *: excludes discontinued Pet Division operations for all years presented. Dividends per share relate to dividends declared in respect of that year. Net debt is defined as per note 26 to the accounts. Financial calendar Preliminary announcement of full year results Publication of Annual Report Annual General Meeting Payment of final dividend Announcement of interim results Payment of interim dividend May July July September November January Cranswick plc Report & Accounts 2009 85 Shareholder analysis at 8 May 2009 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 2008 Share price at 31 March 2009 High in the year Low in the year Number of holdings Number of shares 6,289,870 40,174,742 46,464,612 331,758 1,254,224 840,234 3,165,142 3,392,412 37,480,842 46,464,612 1,158 591 1,749 816 558 118 138 48 71 1,749 515p 544p 745p 506p Share price movement Cranswick’s share price movement over the five year period to May 2009 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 2004, is shown below: Cranswick FTSE All Shares FTSE 350 Food Producers Source: Investec 86 Cranswick plc Report & Accounts 2009 Professional awards Some of the awards in recent years to Cranswick businesses Meat Management Awards 2009 2009 Winner Manufacturer of the Year Grocer Own Label Excellence Award 2009 Winner Delicatessen Meat Category – Sainsbury Taste The Difference Traditional Spiced Ham Winner Bacon & Sausage Category – Morrisons The Best Lightly Oak Smoked Sweetcure Rindless Back Bacon 2008 Winner Meat & Poultry Grocer Own Label Category – Applewood Smoked Bacon BPEX Foodservice Pork Product of the Year Competition 2008 Gold Gold Gold Best Cured Product – Jack Scaife Hand Cured, Air Dried Gammon Steak 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 Best Innovative Pork Product – Pork Shanks Best Cured Product – Muscavado Sweetcure Streaky Bacon Gold 2007 Gold British Turkey Awards 2006 Winner Best Ready to Eat Product award – Sainsburys Taste the Difference Free Range Turkey Breast Meat and Poultry News Awards 2009 Winner Producer of the Year Award – Cranswick plc supplier- Thomas Dent of Penrith in Cumbria 2005 Winner Manufacturer of the Year 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 Silver Best Cured Product – 2005 Finalist Best Sausage Product – Muscavado Sweetcure Back Bacon Silver Best Fresh Pork Cut – Hampshire Outdoor Reared Rib Roast Yorkshire Company of the Year 2007 2007 Winner Yorkshire Business Enterprise Award Food Awards 2006 2006 Winner Best Packaging for a Product – Sainsburys Taste The Difference Dry Cured Sweet Cure Back Bacon Aberdeen Angus Beef Sausage Meat Industry Awards 2006 Winner Sausage of the Year – Sainsburys ‘Pancetta & Parmesan’ sausage Guild of Fine Food Retailers ‘Great Taste’ Awards 2008 Gold Taste The Difference Ultimate Oak Smoked Bacon Smoked Streaky Bacon 2005 Gold Silver Unsmoked Streaky Bacon Silver Chilli and Coriander Sausage Bronze Pork Sausage British Sandwich Association Awards 2005 Winner En-Route Retailer of the Year category Finalist British Sandwich Designer of the Year Cranswick plc Report & Accounts 2009 87 Production facilities Fresh pork Sausages Bacon Cooked meats 88 Cranswick plc Report & Accounts 2009 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 now represents 100 percent of sales as the pet and aquatics business was sold subsequent to the year end and has been treated as discontinued. Financial highlights Turnover (£m) 606.8 559.2 Profit before tax* (£m) Earnings per share* (pence) Dividends per share (pence) 34.7 32.2 53.7 21.7 49.1 19.9 2008 2009 2008 2009 2008 2009 2008 2009 • Turnover from continuing operations up 9 per cent to £607m • Profit before tax from continuing operations up 8 per cent at £34.7m* • Increase of 9 per cent in earnings per share from continuing operations to 53.7p* • Dividend up 9 per cent to 21.7p per share *Before exceptional items C r a n s w C k p l c i R e p o r t & A c c o u n t s 2 0 0 9 Report & Accounts Year ended 31 March 2009 Registered office: Helsinki Road, Sutton Fields, Hull HU7 0YW Tel. 01482 372000 www.cranswick.co.uk 

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