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2023 ReportCranswick was formed in the 1970’s 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, pastry products and traditional dry cured bacon. FINANCIAL HIGHLIGHTS £820.8m £48.4m* Turnover 2012 2011 2010 820.8m 758.4m 740.3m Pr 2012 2011 2010 e Tax 48.4m* 47.1m 43.8m 78.6p* Earnings Per Share 28.5p Dividends Per Share 2012 2011 2010 78.6p* 74.5p 69.7p 2012 2011 2010 28.5p 27.5p 25.0p • • • • Turnover up 8 per cent to £821m Profit before tax up 3 per cent at £48.4m* Increase of 6 per cent in earnings per share to 78.6p* Dividend up 4 per cent to 28.5p per share * after non-recurring gain of £2.6m (net) 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 Report of the auditors Group income statement Group statement of comprehensive income Company statement of comprehensive income Group balance sheet Company balance sheet Group statement of cash flows Company statement of cash flows Group statement of changes in equity Company statement of changes in equity Notes to the accounts Shareholder information Shareholder analysis Awards Advisers 02 06 10 18 19 20 24 30 36 41 42 44 45 45 46 47 48 49 50 51 52 90 91 92 94 SEASONAL CENTREPIECE FOR A SPECIAL SHARING OCCASION Outdoor reared Hampshire breed rib roast with diamond scored crispy crackling, served alongside barbecue pork belly ribs, streaky bacon wrapped chipolatas and cider and apple sauce CHAIRMAN’S STATEMENT Martin Davey - Chairman Against a background of strong raw material price increases early in the financial year and a continued challenging environment for the consumer, the Company recovered strongly during the second half and recorded its highest ever full year sales and second best trading profit in its history. In fact, taking into account non-recurring items, Cranswick achieved a record profit before taxation for the year. The business worked closely with its customers to offer competitively priced food to consumers so as to alleviate some of the economic pressures facing them. Whilst this adversely impacted operating margins it contributed, along with the increasing popularity of pork products, to an increase in sales volumes. Non-recurring items comprised a gain on the sale of the shareholding in the associated company, Farmers Boy (Deeside) Limited (“FBD”); Cranswick’s share of trading losses at FBD and a non-cash charge for goodwill impairment at The Sandwich Factory. Results Underlying sales rose 10 per cent in the year and reflected growth across most product sectors. Especially strong growth was seen in sales of bacon, fresh pork and sausages. Total revenue for the year was 8 per cent higher than previously at £821 million. The decline in the operating margin referred to earlier was partially offset by lower financing costs and along with net income from non-recurring items of £2.6 million gave rise to a profit before taxation of £48.4 million. Earnings per share were 6 per cent higher than last year at 78.6 pence. Excluding the overall effect of goodwill impairment this year and FBD in both years, adjusted earnings per share were 0.1 pence higher than the prior year at 72.9 pence. Net finance costs of £1.0 million were covered 49 times by profit before net finance costs and tax, compared to 30 times in the previous year. Cash flow in the period was robust notwithstanding the investment in the Company’s asset base of £20 million to expand production capacity, improve efficiency and broaden the product range. Debt at the end of the year was further reduced by the proceeds of the sale of the FBD shareholding and stood at £21.7 million, substantially lower than £48.3 million a year earlier. There is further information on trading and finance in the reviews by the Chief Executive and Finance Director which follow. FBD Investment was made in FBD during 2010 when Cranswick’s site at Deeside was put into a newly formed company, owned jointly with Wm Morrison Supermarkets PLC, in exchange for a 49 per cent shareholding. It was felt by both parties that it was now an appropriate time for the site to come under single ownership. Cranswick’s shareholding was sold for cash at the end of March 2012 and we wish the business every success. Dividend The Board is proposing to increase the final dividend by 4.3 per cent to 19.5 pence per share from 18.7 pence per share previously. Together with the interim dividend, which was raised 2.3 per cent to 9 pence per share and paid in January 2012, this makes a total dividend for the year of 28.5 pence per share compared to 27.5 pence last year. The final dividend, if approved by Shareholders, will be paid on 7 September 2012 to Shareholders on the register at the close of business on 6 July 2012. Shares will go ex-dividend on 4 July 2012. Shareholders will again have the option to receive the dividend by way of scrip issue. 2 Report & Accounts 2012 Cranswick plc Cranswick plc Report & Accounts 2012 3 SUCCULENT BRITISH TERRINE TO START Pork, pistachio and ham hock terrine with a fresh leek base, wrapped with delicate air dried ham to encapsulate the great British tastes Board The Board announces today that Bernard Hoggarth will be standing down from his position as Chief Executive at the forthcoming Annual General Meeting, to be held on 1 August 2012. After joining Cranswick in 1978 Bernard was appointed CEO in 2004 as the Company continued its successful development. He reaches a landmark birthday this summer and has planned for some time to reduce his input to allow him the opportunity to focus on other interests. He will though continue with Cranswick on a part-time basis in the role of Commercial Director. Adam Couch will be appointed CEO when Bernard stands down. Adam has been with the Company for over 20 years, since graduation, and was appointed to the Board in 2003 with specific responsibility for the fresh pork activities. Adam was appointed COO a year ago as part of the Board’s strategy for succession planning. On behalf of all at Cranswick I thank Bernard for his contribution as CEO, look forward to his continued involvement in the business and wish Adam every success as Cranswick continues its progress. Staff The year has not been without its challenges and for the business to have continued its development in the manner outlined both above and in the reviews that follow is a true reflection of the quality, determination, experience and expertise that prevails throughout the Company. On behalf of the Board I express our sincere thanks and appreciation to the management teams and their colleagues. Compliance with the UK Corporate Governance Code A statement relating to compliance with the Code is included in the Corporate Governance Statement on page 24. Outlook The Company is well positioned. There is a strong and experienced management team in place, a robust balance sheet, high quality assets and a range of products that, by working closely with our customers, are proving popular with the consumer. Continued focus on product development and operational efficiencies are key to maintaining this popularity in the current economic environment. The Board looks forward to the opportunities and challenges which lie ahead as it continues Cranswick’s successful long-term development. Martin Davey Chairman 21 May 2012 Profit Before Tax 1990-2012 (£m) Dividend Per Share 1990-2012 (pence) 4 Report & Accounts 2012 Cranswick plc 3.33.84.04.14.34.65.15.86.87.58.310.812.013.214.516.518.119.921.725.027.528.52.8‘90‘91‘92‘93‘94‘95‘96‘97‘98‘99‘00‘01‘02‘03‘04‘05‘06‘07‘08‘09‘10‘11‘121.41.72.22.33.03.14.05.07.19.311.717.519.821.221.631.132.733.034.7 43.80.9‘90‘91‘92‘93‘94‘95‘96‘97‘98‘99‘00‘01‘02‘03‘04‘05‘06‘07‘08‘09‘10‘11‘1247.148.4 Cranswick plc Report & Accounts 2012 5 POSH PORK FOR THE MAIN EVENT Outdoor reared Hampshire bone in pork chop with butternut squash puree, served with fresh leeks and cranberries and finished with a cranberry jus and crispy crackling pork straw REVIEW OF ACTIVITIES Bernard Hoggarth - Chief Executive The Group has not previously had to contend with such a diverse trading environment in one financial year. During the first half of the year, the business faced the challenge of passing on raw material inflation which was met with unprecedented resistance by customers and proved more difficult than previously to achieve. The second half of the year, on the other hand, saw a partial recovery of certain raw material increases which was further aided by a steady decrease in input costs, to help bridge the gap. These two factors, together with very pleasing increases in sales in all categories, made for an excellent second half; something which would have been very difficult to foresee only a few months earlier. How pleasing it is therefore to report so many areas of the Group’s portfolio delivering double digit growth and the business overall reporting revenue growth of over 8 per cent, with underlying sales increasing in excess of 10 per cent. Fresh Pork had an excellent year with sales ahead 15 per cent. The continuing capital expenditure programme has seen the commissioning of the new breaded line at the Norfolk plant with the capability to produce a range of escalope and schnitzel products for the convenience sector. These new, whole muscle, reformed or stuffed ‘cordon bleu’ style products are proving extremely popular, thanks, in no small part, to the very competitive price of pork compared to most other proteins. This price advantage led to the Group’s most successful Christmas trading period for its fresh pork, premium sausage and bacon products. Further investment in the Hull fresh pork site is taking place, with the reorganisation of the butchery area, which will lead to greater efficiencies and the installation of a rapid chill system for pig carcases, which will deliver increased yields. Sales to Far Eastern markets have continued to gain momentum. Exports both to Europe and further afield are becoming areas of increased focus for the Group. In the UK, the Company has continued to increase its customer base, both in standard pork and in niche areas such as the pedigree Gloucester Old Spot fresh pork products, which are being produced specifically for one of the Group’s large retail customers. Sausage sales increased by a very healthy 12 per cent. This performance further confirms Cranswick’s long term commitment to the quality sector of the market place. The Group’s second sausage production facility in Norfolk is now complete and performing well. A new range of products under the ‘Norfolk Sausage Company’ banner was launched, focusing on a real value offering with larger packs and an impactful promotional programme. At the Lazenby’s production facility in Hull, focused and well researched new product development has led to twelve new sausage lines being launched during the year including duck, honey and apple, sun-dried tomato and mozzarella, pork and jalapeno chilli and West Country cheddar with chives. A range of burgers was also launched including beef and caramelised onion, pork and Bramley apple and beef with mature cheddar. A new range of burgers and meat balls under the ‘Black Farmer’ brand was launched recently in advance of the new barbeque season. Further business wins have been achieved with the launch of new flavours and products across several of the Group’s major grocery retail customers. The bacon category performed particularly strongly with sales up 39 per cent. The customer base has expanded throughout the course of the year, as has the product range. New equipment has been installed and commissioned which has significantly reduced the labour cost of producing diced bacon. Cranswick’s air-dried, dry-cured bacon now features in the premium tier ranges of the seven largest multiple retailers in the UK. As well as developing new air dried hams, value wet cured or injected sliced products are being produced to service the ‘Butchers Choice’ tier. Sandwich sales increased by 4 per cent. Traditionally Cranswick has been a sandwich supplier to the ‘on-the-move’ foodservice sector, which has proved increasingly challenging in recent years particularly in relation to rising input costs. However, following a review of the cost base and investment in both equipment and infrastructure at the Atherstone production facility, the business is now well placed to take advantage of the changing dynamic of the sandwich market. 6 Report & Accounts 2012 Cranswick plc Cranswick plc Report & Accounts 2012 7 Pastry sales showed good growth from modest beginnings. Sales were strong over the key Christmas trading period with party food high on the agenda. During the year a range of products was developed for one of our key retail customers which has been very well received by the consumer, with the result that the original product range has now been doubled. A range of hot eating pies, together with flans and quiches are planned subject to additional production capacity being developed. Underlying cooked meat sales increased by 6 per cent. Recent developments in this category include the launch of a range of air dried hams - a unique proposition, as a British product, in the UK retail sector. Legs from the Hull fresh pork site are dry-cured and air-dried at the gourmet bacon facility in Sherburn, before being transported to the cooked meat plant in Barnsley to be cooked and retail packed. This further demonstrates Cranswick’s successful track record of winning business through collaboration and by producing a step change in product quality. Also, due to volume pressure from increased sales at the Delico factory at Milton Keynes, further investment has been made there in both the fabric of the building and more efficient slicing lines. Sales of continental products were broadly similar to the previous year. This performance reflected one retail customer procuring and slicing more products in-house, however, new business wins and growth from existing products and customers helped mitigate this loss. A new Cranswick brand of olives under the Bodega label has been launched successfully. These products are of the highest quality with a real point of difference and have been brought to market at a time when olives and antipasti products are really growing in popularity with the UK consumer. Sales of Parma ham reached record levels, with charcuterie sales to one specific discounter more than doubling which further demonstrates the consumer’s growing interest in this style of product. Foodservice business currently represents less than 6 per cent of Group revenues. This figure includes sandwich sales, which historically have been made predominantly to this sector. The internal appointment of a director to lead a new team with specific foodservice expertise adds focus and provides increased resource to grow sales across the Group’s full spectrum of products. The total foodservice industry in the UK is worth approximately £48 billion. A market of this size provides tremendous scope to introduce Cranswick’s brand of quality and innovation, using the model that has been so successful with the Group’s retail customers. Cranswick has well invested facilities which, across the sectors in which it operates, are amongst the most efficient production sites in the UK. The quality of the Group’s product range, together with class leading development chefs and a senior marketing team which, working closely with its customers, continues to innovate and search for new growth opportunities, provides for an extremely positive outlook for the Group. It has been my intention for some time to stand down as Chief Executive, and this I intend to do at the Company’s Annual General Meeting on 1 August, after 34 years’ service with the Group. I am extremely proud of what Cranswick has achieved over the last three decades. I have had the good fortune to work with a great team of dedicated and innovative colleagues, whose commitment, vision and teamwork have made the business what it is today. I hand over to Adam Couch, a colleague of many years. I admire Adam’s energy and ambition for the business and I am sure that Cranswick will continue to prosper under his stewardship. Bernard Hoggarth Chief Executive 21 May 2012 8 Report & Accounts 2012 Cranswick plc THE ULTIMATE ENGLISH COOKED BREAKFAST Freedom Foods ultimate pork chipolatas with dry cured and air dried British bacon served with black pudding, field mushrooms, vine ripened tomatoes and a free range poached egg Cranswick plc Report & Accounts 2012 9 GROUP OPERATING AND FINANCIAL REVIEW Mark Bottomley - Finance Director Nature, Objectives and Strategies The Group’s business The Group’s operations are focused on the production and supply of food products. The business operates entirely in the UK, although a small, but increasing proportion of sales are exported. It produces 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. More recently the Group has launched a range of artisan pastry products to a number of its retail customers. The markets in which the food business operates are competitive both in terms of pricing from fellow suppliers and the retail environment in general. The UK food retail market is known to be amongst the most competitive in the world. Despite this, Cranswick has a long record of increasing sales and profits through a combination of investing in modern efficient factories, developing a range of quality products and making sound acquisitions. The business is under the control of stable, experienced and talented operational management teams supported by a skilled workforce. The performance of the business in the year is discussed in the Review of Activities on pages 6 to 8. Business objectives It is the Board’s view that meeting the following business objectives is key to achieving the financial and non-financial measures that increase value to Shareholders and other stakeholders: • Delivering innovative, quality products to its customers • Maintaining the highest level of service to its customers Improving operational efficiency • • Securing employee health and safety • Maximising returns on investment Business strategies The Group’s market strategy is to focus primarily on the growing quality end of the markets in which it operates, to establish meaningful and long-lasting relationships with its major customers by a combination of product development and high service levels and to invest in quality facilities and the latest equipment to enable it to operate as efficiently as possible. Operational management is given responsibility for developing 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. 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, continued capital investment and strong cash generation. Both profitability and cash flow were augmented by the sale of the Group’s 49 per cent stake in Farmers Boy (Deeside) Limited (“FBD”) on 30 March, which is discussed in more detail on page 13. The trading environment in which the Group operates has remained challenging. During the first half of the year, the business had to manage rapid raw material price inflation, which it looked to recover through a combination of selling price increases and operational efficiency improvements. The Group has experienced continuing competitor pressure although the efficiencies achieved through on-going capital investment and as extra volumes are put through its factories have mitigated to some extent against these pressures. 10 Report & Accounts 2012 Cranswick plc GASTRO PORK AND BLACK PUDDING PLATE Freedom Foods slow roasted Norfolk pork belly squares and Bury black pudding served with pea puree and finished with fresh pea shoots Cranswick plc Report & Accounts 2012 11 Revenue Reported sales were 8 per cent ahead of last year reflecting growth across most product sectors and the benefit of a 53 week year. The Deeside cooked meats business was transferred into FBD on 9 July 2010 and from this date onwards sales from FBD have been excluded from Group total sales. Adjusting for the impact of FBD, underlying, like-for-like sales increased by 10 per cent. Fresh pork sales increased by 15 per cent, sausage sales by 12 per cent, bacon sales by 39 per cent and sandwich sales by 4 per cent. Sales of charcuterie products were 1 per cent lower as new products and customers together with increased sales to existing customers helped mitigate the decision of one retail customer to move to a direct sourcing policy. Reported cooked meat sales were 1 per cent lower, but after adjusting for sales transferred to FBD, like-for- like sales were 6 per cent ahead. Taxation The tax charge as a percentage of profit before taxation was 22.5 per cent (2011: 25.0 per cent). The standard rate of UK Corporation tax was 26 per cent for 2012 and 28 per cent for 2011. The lower than standard rate of tax in the current year primarily relates to the gain on sale of the Group’s 49 per cent stake in FBD which did not attract a charge to tax, together with a deferred tax credit of £0.7 million following the substantial enactment of the Finance Act 2012 which reduces the Corporation tax rate from 26 per cent to 24 per cent in the year to 31 March 2013. The lower than standard rate in the previous year related to a deferred tax credit of £1.0 million on the transfer of assets from the Deeside cooked meats business to FBD and a further deferred tax credit of £0.7 million in relation to the planned reduction in the Corporation tax rate from 28 per cent to 26 per cent in the current year. Operating Profit Group operating profit of £41.8 million is stated after a goodwill impairment charge of £4.9 million which followed a reassessment of the carrying value of goodwill attributable to the Sandwiches cash generating unit. Group operating profit before impairment at £46.7 million fell by 5 per cent and at 5.7 per cent of sales, operating margin on the same basis was 0.8 per cent below the level achieved last year. Notwithstanding the impairment charge, the reduction in operating profit is entirely attributable to the input cost inflation pressure experienced in the first half of the year. A combination of sales growth, continued improvements in operational efficiencies, strong export margins and more moderate raw material prices allowed the Group to report a much stronger second half performance. Share of Results of Associate The Group’s share of the post-tax result of its associate, FBD, in the year to 31 March 2012 was a loss of £0.7 million (2011: loss of £0.4 million). On 30 March 2012 the Group sold its 49 per cent holding in FBD to Wm Morrison Supermarkets PLC for a cash consideration of £14.5 million. The transaction gave rise to a profit on sale of £8.3 million. Finance Costs Net finance costs of £1.0 million (2011: £1.6 million) were substantially lower than the previous year reflecting the strong cash generation in the year and the improved terms negotiated when the Group’s bank facilities were renewed in March 2011. As a consequence, interest cover strengthened from 30.0 times to 49.2 times. Profit Before Tax Profit before tax at £48.4 million (2011: £47.1 million) was 3 per cent ahead. Adjusting for the effects of the associate in both years and the goodwill impairment charge in the current year referred to above, underlying profit before tax was £45.6 million (2011: £47.3 million). Earnings Per Share Basic earnings per share increased by 5.5 per cent to 78.6 pence, reflecting the profit on sale of the Group’s 49 per cent stake in FBD, lower financing costs and the lower effective corporation tax rate, partly offset by lower operating profits, the goodwill impairment charge and an increase in the average number of shares in issue during the year to 47,709,000 (2011: 47,408,000). Adjusted earnings per share, which exclude the effect of the goodwill impairment charge this year and FBD from both years, increased by 0.1 pence from 72.8 pence to 72.9 pence. Cash Flow and Net Debt The Group has continued to deliver strong operational cash flows. Cash generated from operating activities was £45.5 million (2011: £51.6 million), with the reduction compared to the previous year reflecting lower Group operating profits, a modest increase in working capital and higher tax payments. The net cash outflow from investing activities of £3.3 million is accounted for by capital additions, net of fixed asset sale proceeds and grants received, of £19.9 million, loan repayments received of £1.9 million and the proceeds from the sale of the Group’s 49 per cent stake in FBD of £14.5 million. The previous year’s outflow was £36.3 million. The £20.8 million of net cash used in financing activities in 2012 is largely due to interest paid of £1.3 million, dividends paid of £11.8 million, issue costs of long term borrowings of £1.0 million, loan repayments of £7.0 million and proceeds from issue of share capital, net of shares repurchased of £0.6 million. The prior year cash outflow from financing was £21.9 million. The overall result is a net increase in cash and cash equivalents of £21.4 million (2011: decrease of £6.6 million). Net debt reduced by £26.6 million to £21.7 million (2011: £48.3 million) at the year end, and gearing fell from 22 per cent to 9 per cent. Pensions The Group operates a number of defined contribution schemes, whereby contributions are made to schemes operated by major insurance companies. Contributions to these schemes are determined as a percentage of employees’ basic salary. CCF Norfolk operates a defined benefit scheme which has been closed to further accrual since 2004. Under International Accounting Standard (IAS) 19, the deficit at 31 March 2012 was £5.3 million (2011: £2.9 million); 12 Report & Accounts 2012 Cranswick plc with the increase mainly relating to lower discount rates on scheme liabilities driven by lower bond yields. The present value of funded obligations was £21.2 million (2011: £16.5 million) and the fair value of plan assets was £15.8 million (2011: £13.6 million). Investment in Associate On 9 July 2010, the principal assets and trade of the Deeside cooked meats facility were transferred to Farmers Boy (Deeside) Limited, a company within the Wm Morrison Supermarkets PLC group, to provide them with a dedicated facility in return for a 49 per cent stake in that company. The transaction gave rise to a profit before tax in the period to 31 March 2011 of £0.3 million, together with an associated deferred tax credit of £1.0 million. On 30 March 2012 the Group sold its 49 per cent stake to Wm Morrison Supermarkets PLC group. Further details of the disposal are disclosed above and in note 14. 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 value for Shareholders and other stakeholders. The Group regards its Shareholders’ equity and net debt 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 to the objectives, policies or processes during the years ended 31 March 2012 and 31 March 2011. The Groups capital structure is as follows: Net Debt (note 25) Cranswick plc Shareholders’ equity Capital Employed 2012 £m 21.7 245.9 267.6 2011 £m 48.3 220.9 269.2 Distributions, Capital Raising and Share Repurchases The proposed final dividend for 2012 together with the interim paid in January 2012 amount to 28.5 pence per share which is 4 per cent higher than the previous year. The increase in the share capital of the Group comprises 205,884 of shares issued relating to share options exercised during the year and 192,722 of shares issued in respect of scrip dividends. During the year the Company repurchased 22,000 ordinary shares to satisfy share option awards. Business KPIs The Board has assessed that the following KPIs are the most effective measures of progress towards achieving the Group’s objectives: • Underlying sales growth – year on year increase in sales revenue excluding the impact of acquisitions and disposals • Gross margin – gross profit as a percentage of sales revenue • Group operating margin – Group operating profit as a percentage of sales revenue • Free cash flow – cash generated from operations less tax and net interest paid. Performance Against KPI’s Underlying sales growth Gross margin Group operating margin* Free cash flow 2012 10.3% 12.4% 5.7% £44.4m 2011 3.8% 13.4% 6.5% £50.0m * Before goodwill impairment charge of £4.9 million in the current year The Group reported underlying sales growth of 10.3 per cent 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. Gross margin was 12.4 per cent of sales compared to 13.4 per cent a year ago reflecting the challenge of dealing with input cost inflation during the first half of the year and operating margin before goodwill impairment at 5.7 per cent was 0.8 per cent lower, for the same reason. Principal cash flows are discussed on page 12. Future Development The Group will continue to seek to increase sales through a combination of product development with existing customers and business gains with new ones. The standard of the Group’s 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 The Group has some of the best-invested, modern facilities in the industry, having invested almost £120 million over the past five years, and it intends to continue investing to ensure that it maintains its competitive edge. Employees The Group aims to recruit, train and retain employees who are valued for their contribution and able to fulfil their potential in meeting the business objectives of their operating unit. The Group companies each have their strategies for retaining staff, including the provision of competitive terms and conditions, share options and a stimulating and challenging working environment. 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. Cranswick plc Report & Accounts 2012 13 Principal risks and uncertainties There are a number of potential risks and uncertainties, which could have a material impact on the Group’s long-term performance and cause actual results to differ materially from expected and historical results. During the year, the Group established a Risk Committee with representatives from key operations and functions across the business. The Risk Committee aims to identify and assess the impact of risks facing the business as well as understand the controls in place to mitigate them. The principal risks and uncertainties facing Cranswick and the actions taken to reduce their impact are set out below: Risk area Nature of risk and potential impact Risk mitigation Industry risks State of the economy Competition, customer retention and reliance on key customers A deterioration in the world and, in particular, UK economies may adversely affect the activity levels of consumers and the Group’s immediate customers, leading to a fall in demand for the Group’s products and ultimately lower profitability and cash flow. Although Cranswick is unable to influence general economic conditions, the business offers a range of products across premium, standard and value tiers which it is able to flex in response to consumer and market trends. The Group trades in highly competitive markets which tend to operate without long term contracts. Product innovation and changing consumer trends provide a constant challenge to the future success of the Group and its ability to compete effectively. A significant proportion of the Group’s revenues are generated from a small number of major grocery retailer customers, loss of all or part of the Group’s business with one or more of these customers would adversely impact the Group’s results. The Group 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. The commercial teams continually look for opportunities to expand the customer base across all product categories and work closely with key customers to ensure service, quality and new product development are of the highest standard. Raw material price fluctuations The major exposure the Group has to raw material price fluctuations is pig meat. An increase in raw material input costs may impact Group profitability. Purchasing of pigs and pig meat is coordinated centrally and whilst the Group does not generally seek to hedge against pig price movements because of the downside risk, longer term contracts have been negotiated in certain instances with key pig suppliers. Environmental matters 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. The Directors believe 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. Further details of these initiatives are set out in the Group’s Corporate Social Responsibility report and on the Group’s website under the ‘Greenthinking’ banner. Food scares and product contamination As a food producer, Cranswick is subject to industry related risks of contamination of products and/or raw materials and potential health related issues. Such an incident may lead to product recall costs, reputational damage and regulatory penalties The risk of such events is mitigated by ensuring that all raw materials are traceable to source and that the manufacturing, storage and distribution systems of both Group sites and those of suppliers are continually audited and monitored by experienced and well qualified site based and Group technical teams. Supplier standards Cranswick is reliant upon its suppliers meeting the Group’s high quality and welfare standards. Failure on their part could lead to customer complaints and reputational damage. The Group ensures all suppliers of key raw materials have independent third party accreditations. Detailed technical specifications are in place for all products, and all sites have trained product inspection and Quality Assurance teams. 14 Report & Accounts 2012 Cranswick plc Risk area Nature of risk and potential impact Risk mitigation Operational risks Food safety Business continuity Legislation A breach of food safety legislation or the introduction of more stringent regulations may lead to reputational damage and regulatory penalties including restrictions on operations, damages or fines. Cranswick conforms to all relevant food safety regulations and adopts best practice across its production facilities. The Group faces the risk of incidents such as a major fire, which may result in significant and prolonged disruption to its operating facilities and ensuing loss of sales and reduced profitability. Business continuity plans are in place across the Group’s manufacturing facilities and appropriate insurance cover is in place to mitigate any financial loss. Business continuity is enhanced by multi-site operations across the majority of the Group’s product lines. Legislation in all the markets the Group serves 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. Failure to comply with existing or new legislation may adversely affect the Group’s results. Cranswick is committed to responding positively to new regulation and ensuring that the Group’s views are expressed during consultation exercises. Overseas markets Cranswick trades in a growing number of overseas markets, and may not be familiar with local practices and regulations. Failure to comply could lead to prosecution and loss of raw material supply or customer. Extensive research is carried out into new markets ahead of commencement of trade. The Group uses reputable local experts wherever possible to ensure that local laws are complied with. Technology The Group is increasingly reliant on both IT and operational technology and operations could be significantly impacted if these systems are not well maintained and updated on a regular basis. The Group has well trained, operational engineers at each site who carry out regular checks, calibration and maintenance on all key machinery. It also has central and site based IT teams to maintain computer systems. Business integration The Group has grown by acquisition as well as organically, and faces the challenge of integrating new businesses into the Cranswick group and achieving operational targets. The Group ensures suitable incentives are in place to retain key management, who work closely with existing group management to help smooth the transition. There is also rigorous review of operations and results by the Group board. Human resource risks Health & safety A breach of health & safety regulations would leave the Group exposed to reputational damage and regulatory penalties. Ethical management Good employee working conditions are core to Cranswick’s values however poor practice in this area could lead to prosecution, industrial action and adverse media attention. A dedicated Group health & safety team, supported by site based coordinators, proactively monitor, manage and improve performance. All team members receive continual training to industry approved standards. Quarterly reports on performance against KPIs are issued to site management and the Group Board. The Group is a member of SEDEX and ALP, and has agreed to comply with the ETI base code. Additionally, all sites will undergo SMETA ethical audits at least once every two years and carry out labour provider audits each year. The Group also has an independent whistleblowing hotline in place so that employees can raise any concerns they might have. Cranswick plc Report & Accounts 2012 15 Risk area Nature of risk and potential impact Risk mitigation The success of the Group is dependent on attracting and retaining high quality senior management and staff. The Group mitigates the risk associated with loss of key personnel through robust succession planning, strong recruitment processes, effective incentives and retention initiatives and on-going training and development. The Group experiences periods of heightened demand across peak periods, and has the potential to experience mass absence due to sickness. Without flexibility in the workforce, customer orders may not be fulfilled. All Group sites have access to multiple approved agencies for the supply of temporary, skilled and unskilled labour. Strict hygiene rules and return to work procedures are in operation at all sites. Human resource risks Staff recruitment and retention Access to workforce Financial risks Interest rates, currency, liquidity and credit risk The Group is exposed to interest rate risk on borrowings and foreign currency risk on purchases, particularly of charcuterie products. In addition the Group needs access to funding for current business and future growth. Granting of credit and recoverability of debt The majority of sales are made to major UK retailers and practically all sales, to these and other customers, are made on credit terms. Granting of credit to inappropriate parties or failure to collect debts on a timely basis could leave the Group exposed to losses. Interest rate and foreign currency risks are managed using effective hedging policies, which are coordinated and controlled by the Group’s treasury function. Each operation has access to the Group’s overdraft facility and bank positions are monitored on a daily basis. All term debt is arranged centrally and appropriate headroom is maintained. Treasury policies are discussed in more detail below. Control procedures over acceptance of new customers and review of the level of credit granted with reference to external credit agencies take place at all sites. Debts are recovered on a pro-active basis and management teams aim to ensure customers trade within the agreed terms. Credit risks are also discussed in more detail on page 17. Business acquisitions Businesses may be acquired based on inaccurate information, unachievable forecasts or without appropriate consideration being given to the terms of purchase. Rigorous due diligence is carried out in advance of any new business acquisition, using internal and external specialists where required. Treasury policies Functional Currency The functional currency of all Group undertakings is sterling. Foreign Currency Risk The foreign exchange risk facing the Group is in the purchasing of charcuterie products. The 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 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 management meeting at which the key decisions on currency cover are taken. Interest Rate Risk The Group’s current 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. The Group has reduced its borrowings significantly in recent years and at 31 March 2012 gearing had fallen to 9 per cent (2011: 22 per cent). Given this conservative debt structure the Group has not fixed the interest rate on any part of its current facility. The Board will keep this situation under constant review and will fix the interest rate on a proportion of the Group’s borrowing at such time as it becomes appropriate to do so. 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. 16 Report & Accounts 2012 Cranswick plc 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 monthly management meetings. The incidence of bad debts is low. 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. Every attempt is made to resist advance payments to suppliers 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. Liquidity Risk The Group has historically been very cash generative. The bank position for each site is monitored on a daily basis and capital expenditure is approved at local management meetings 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 part of the Group has access to the Group’s overdraft facility and all term debt is arranged centrally. The Group renewed its bank credit facilities in March 2011. The facility is made up of a revolving credit facility of £100.0 million including a committed overdraft facility of £20.0 million. The Group manages the utilisation of the revolving credit facility through the monitoring of monthly consolidated cash flow projections and the daily borrowings position. The current facility extends the maturity of the Group’s available financing to more than three years, providing it with reduced liquidity risk and long term funding to meet its objectives. Unutilised facilities at 31 March 2012 were £75.8 million (2011: £47.4 million). 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. 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 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. After reviewing the available information, including business plans and 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. Mark Bottomley Finance Director 21 May 2012 Cranswick plc Report & Accounts 2012 17 GROUP DIRECTORS AND BUSINESS LOCATIONS Group Directors Cooked Meats Alan Chapman Ian Fisher Paul Gartside Andy Jenkins Clive Stephens Nick Tranfield Bacon and Sausage Daniel Nolan Linda Watkin Drew Weir Steve Westhead Fresh Pork Chris Aldersley John Fletcher Stuart Kelman James Pontone Neil Willis Sandwiches Nick Anderson Tony Cleaver Paul Nicholson Simon Ravenscroft Charcuterie Rollo Thompson Food Central Andrew Caines Marcus Hoggarth Graeme Watson Chris White Malcolm Windeatt 18 Report & Accounts 2012 Cranswick plc Sherburn In-Elmet Manchester Denbigh Hull Barnsley Atherstone Norfolk Milton Keynes DIRECTORS Executive Directors Non-Executive Directors Martin Davey, Chairman + John Worby +† * Martin qualified as a chartered accountant with Pannell Kerr Forster. He joined Cranswick and became Finance Director in 1985. He was appointed Chief Executive in 1988 and became Chairman on 26 July 2004. 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 in 2004. It has been Bernard’s intention to stand down this year as Chief Executive and he will do so on 1 August 2012. He will remain on the board as Commercial Director. Adam Couch, Chief Operating Officer Adam joined the operational side of the fresh pork business of Cranswick in 1991 after graduating from university in Hull with a finance and accountancy degree. He was appointed a Director in 2003 and Chief Operating Officer on 16 May 2011. He will become Chief Executive on 1 August 2012. Adam is also a committee member of the British Pig Executive, a position he has held since 2005. Mark Bottomley, Finance Director Mark is a chartered accountant, qualifying with Binder Hamlyn. He joined Cranswick as Group Financial Controller in January 2008 and was appointed Finance Director in June 2009. He has several years’ experience in the food production sector where he has held a variety of senior finance roles. Jim Brisby, Sales and Marketing Director Jim joined Cranswick 15 years ago from UMIST in Manchester, where he graduated with a degree in business management. In 2004 he was appointed Sales and Marketing Director of Cranswick Country Foods plc, a major subsidiary of Cranswick, and he has been an integral member of the team that has grown the business over the years. He was appointed Sales and Marketing Director on 26 July 2010. John is a chartered accountant with many years of 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 and is a member of the Financial Reporting Review Panel. 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. He is currently Chairman of the Nomination Committee. Steven Esom +† * Steven joined Cranswick as a Non-Executive Director on 12 November 2009 and is currently Chairman of the Remuneration Committee. He has held a number of senior positions within the food sector including Executive Director of Food at Marks & Spencer plc which followed 12 years at Waitrose, the last 5 years of which he was Managing Director. Until June 2009 he was a Non–Executive Director of Carphone Warehouse plc. He is currently an Operating Partner of Langholm Capital, Non-Executive Chairman of Bart Spices and a Non-Executive Director of Tyrrells Investments Limited and of the British Retail Consortium. * † + Member of Remuneration Committee Member of Audit Committee Member of Nomination Committee Cranswick plc Report & Accounts 2012 19 HEARTY PREMIUM SAUSAGE AND BRITISH VEGETABLE ROAST Pork, pancetta and parmesan sausages served on a bed of British baby roasted beets, red onion and fried potatoes DIRECTORS’ REPORT The Directors submit their report and the audited accounts of the Group for the year ended 31 March 2012. Principal activities, business review and future developments The Group’s activities during the year were focused on the food sector. 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, Review of Activities and the Group Operating and Financial Review on pages 2 to 17. Results and Dividends The profit on ordinary activities before taxation was £48.4 million (2011: £47.1 million). After a taxation charge of £10.9 million (2011: £11.8 million), the profit for the year is £37.5 million (2011: £35.3 million). An interim dividend of 9.0 pence per ordinary share was paid on 20 January 2012. The Directors recommend the payment of a final dividend for the year, which is not reflected in these accounts, of 19.5 pence per ordinary share which, together with the interim dividend, represents 28.5 pence per ordinary share, totalling £13.7 million (2011: 27.5 pence per ordinary share, totalling £13.1 million). Subject to approval at the Annual General Meeting, the final dividend will be paid in cash or scrip form on 7 September 2012 to members on the register at the close of business on 6 July 2012. The shares will go ex-dividend on 4 July 2012. Events after the balance sheet date Subsequent to the year end, on 5 April 2012, Cranswick plc sold its 5.5 per cent investment in the Cranswick Pet Products business for a consideration of £221,000. Further details are provided in note 29. Financial Instruments The Group’s risk management objectives and policy are discussed in the Treasury Policies section of the Group Operating and Financial Review on pages 10 to 17. 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 Company’s Articles of Association provide that 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. The Board is aware that the Corporate Governance Code recommends the re-election of all Directors every year and the Company will comply with this requirement so that now all Directors will stand for re-election at the forthcoming 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 30 to 35. Major Shareholders The Company has been informed of the following significant holdings of voting rights in the ordinary shares of the Company: At 31 March 2012 At 8 May 2012 Number of Shares % of issued share capital Number of Shares % of issued share capital Invesco Perpetual Legal & General Investment Management Jupiter Asset Management Standard Life Investments Aberforth Partners Black Rock 14,133,933 2,486,754 2,434,231 1,994,393 2,043,983 1,535,756 29.42 5.18 5.07 4.15 4.26 3.20 14,116,357 2,423,690 2,420,878 2,123,309 2,043,983 1,579,145 29.38 5.04 5.04 4.42 4.25 3.29 20 Report & Accounts 2012 Cranswick plc Cranswick plc Report & Accounts 2012 21 Share Capital Structure The Company has one class of shares, being ordinary shares of 10 pence each. The allotted and fully paid up share capital is shown in note 22. There are no special rights pertaining to any of the shares in issue. The Directors of Cranswick plc have received limited authority to disapply Shareholders’ pre-emption rights in certain circumstances, to authorise the Company to buy back a proportion of the Company’s share capital and to allow the Directors to allot shares. Further resolutions will be placed before the Annual General Meeting to be held on 1 August 2012 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 maintains 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, to be held on 1 August 2012, is limited to £1,587,896 which represented approximately 33 per cent of the issued share capital (excluding treasury shares) as at 31 May 2011. 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 scrip dividend offer and the Company’s share option plans. This authority will expire at the end of the Annual General Meeting to be held on 1 August 2012. 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 pursuant to the authority to allot shares mentioned above, and to sell treasury shares for cash, on a pro rata basis to existing Shareholders (but subject to any exclusion or arrangements as the Directors consider necessary or expedient in relation to fractional entitlements, any legal, regulatory or practical problems or costs under the laws or regulations of any overseas territory or the requirements of any regulatory body or stock exchange) and otherwise on a pro rata basis up to an aggregate nominal amount of £238,184, representing 5 per cent of the Company’s issued share capital as 31 May 2011. This authority will expire at the end of the Annual General Meeting to be held on 1 August 2012. Allot shares and disapply pre-emption rights in connection with a rights issue – this authorises the Directors to allot relevant securities and empowers the Directors to allot equity securities and to sell treasury shares for cash in connection with a rights issue. This is in addition to the authority to allot shares and the disapplication of pre-emption rights contained in the authorities mentioned above. The nominal value of ordinary shares which the Directors may allot in the period up to the next Annual General Meeting, to be held on 1 August 2012, is limited to £1,587,896 which represented approximately 33 per cent of the Company’s issued ordinary share capital (excluding treasury shares) as at 31 May 2011. The Directors do not have any present intention of exercising this authority and power. This authority will expire at the end of the Annual General Meeting to be held on 1 August 2012. 22 Report & Accounts 2012 Cranswick plc To buy own shares – this authority allows the Company to buy its own shares in the market, as permitted under 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 at the end of the Annual General Meeting to be held on 1 August 2012. The Directors would consider holding any of its own shares that it purchases pursuant to this authority as treasury shares. During the year the Company repurchased 22,000 of its own shares at a cost of £136,000. These shares were held as treasury shares and were subsequently transferred to Directors and senior management of the Group, at nil cost to the individual, to satisfy the exercise of LTIP share options. At the year end the Group held no treasury shares. 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. 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. Payment Policy The Group does 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 Group, based on the year-end trade creditors figure and a 365 day year, are 34 days. The average credit taken by our customers on a similar basis is 28 days. Essential Contracts It is imperative that Cranswick is able to source its high quality raw materials at the most competitive prices and to this end the Company has numerous contracts in place for these supplies. While these contracts are collectively essential to the business, no single contract or supplier is critical to the Company’s business. The Company also has strong relationships with certain major retailers to supply them with product. Charitable Donations As part of the Group’s commitment to the communities in which it operates, contributions totalling £30,000 were made during the year to local charities and community projects. Auditors Ernst & Young LLP have expressed their willingness to continue in office and a resolution proposing their re-appointment will be submitted at the Annual General Meeting. Directors’ statement as to disclosure of information to auditors The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 19. 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. Change of Control There are no agreements that the Company considers significant and to which the Company is party 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 and Bernard Hoggarth. 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: 1) 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 2) at any time within six 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 scope to which the performance targets (as adjusted or amended) have been satisfied. Articles of Association 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 21 May 2012 Company number: 1074383 Cranswick plc Report & Accounts 2012 23 CORPORATE GOVERNANCE STATEMENT Statement by the Directors on compliance with the provisions of the UK Corporate Governance 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 30 to 35, describes how the Board applies the principles of good governance and best practice as set out in the UK Corporate Governance Code (the ‘Code’) which can be found on the Financial Reporting Council’s website www.frc.org.uk. The Directors consider that the Company has, during the year ended 31 March 2012, complied with the requirements of the Code other than with Code provision B.1.2 as the number of independent Non-Executive Directors was less than half the Board, excluding the Chairman. It is the Board’s belief that the current composition of the Board includes the appropriate skills balance, experience, independence and knowledge of the business and that the appointment of a Non-Executive Director should reflect a need to add complementary skills and experience to the Board and not be driven by a requirement to match the number of Executive Directors. The Board will continue to keep this under review, also with diversity in mind, and assess the needs and requirements of the business as it develops. The Board During the year ended 31 March 2012, the Board consisted of an Executive Chairman, a Chief Executive, three other Executive Directors and three Non-Executive Directors. All the Non-Executive Directors are deemed to be independent. The Board met 10 times during 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 and the Board has held meetings at various production facilities so that the Directors can review the operations of those particular sites. All Directors have allocated sufficient time to the Company to discharge their responsibilities effectively. 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. The Chairman was responsible for the leadership of the Board and ensuring its effectiveness, whereas the Group’s day-to-day operations was delegated to the Chief Executive who, supported by the Executive Directors and executive management, implements the Board’s strategy and manages the Group’s business. On 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. During the year all Executive Directors received a presentation on the contents of the Bribery Act. 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. During the year an Executive Committee was set up consisting of the Executive Directors and senior executives of the business. The committee meets on a monthly basis and reports back to the Board. 24 Report & Accounts 2012 Cranswick plc SENSATIONAL BRITISH SUMMER SALAD Freedom Foods finely sliced dry cured and air dried ham with black pepper pastrami and finely sliced butter basted Devonshire Red chicken, served with a rocket and cucumber salad and red onion marmalade Cranswick plc Report & Accounts 2012 25 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 considers the Non-Executive Directors to be independent and has accepted the following definition of an independent director: • has not been an employee of the Company or Group within the last five years; • within the last three years has not had a material business relationship with the Company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the Company; • has not received additional remuneration from the Company apart from a director’s fee, and does not participate in the Company’s share option or performance-related pay scheme, and is not a member of the Company’s pension scheme; • has no close family ties with any of the Company’s advisors or senior employees; • holds no cross-directorships or has no significant links with other directors through involvement in other companies or bodies; • does not represent a significant shareholder; and • has not served on the Board for more than nine years from the date of their first election. The Board has completed its annual review of the register relating to potential conflicts of interest with its Directors and confirm that no such conflicts exist. 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. Based on the evaluation exercise the Board concluded that it, and its Committees, were working well and a number of actions were agreed to make it more effective. The Board is also aware that external facilitated evaluations are required and these will be considered over the next twelve months. The Chairman has evaluated the performance of individual Directors through one-to-one meetings. In addition, the Non-Executive Directors, led by the Senior Independent Director, meet, without the Chairman present, in order to appraise his performance. The Company’s Articles of Association provide that 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. The Board is aware that the Code recommends the re-election of all directors every year and the Company will now comply with this requirement. Directors’ biographies and membership of the various Committees are shown on page 19. The formal terms of reference for the 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. Number of meetings Mark Bottomley Jim Brisby Adam Couch Steven Esom Martin Davey Bernard Hoggarth Patrick Farnsworth John Worby Board Audit Committee Remuneration Committee Nomination Committee 10 10 9 10 10 10 10 10 10 3 - - - 3 - - 3 3 6 - - - 6 - - 6 6 2 - - - 2 2 - 2 2 All the Directors attended the Annual General Meeting. 26 Report & Accounts 2012 Cranswick plc Board Committees Audit Committee The Audit Committee is comprised of the three independent Non-Executive Directors chaired by John Worby, the Group’s Senior Independent Director, who is a chartered accountant, has considerable recent relevant financial experience and has spent many years in the food industry. The Chairman, the Finance Director and the Group Financial Controller, together with the external auditors and internal audit attend the meetings as appropriate. The Company Secretary also attends the meetings as secretary to the Committee. Both the external auditors and internal audit have the opportunity to access the Committee, without the Executive Directors being present, at any time, and the Committee formally meets with both the external auditors and internal audit independently at least once a year. Audit Committee responsibilities The Committee reviews: • • • the Group’s accounting policies; internal audit reports on accounting and internal financial control; and reports from the external auditors. The Audit Committee has overall responsibility for monitoring the integrity of financial statements and related announcements and all aspects of internal control. The Audit Committee meets at least three times a year; two of these meetings involve a review of the Group’s interim and full year financial statements. There is also a whistle blowing policy in place, with an independent help line, which includes arrangements by which staff can, in confidence, raise concerns about possible improprieties in financial reporting and other matters. The Chairman of the Audit Committee will be available at the Annual General Meeting to respond to any Shareholder questions that might be raised on the Committee’s activities. Risk Management and Internal Control The Board of Directors has overall responsibility for the Group’s system 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 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, evaluate and manage business risk (as detailed below and in the Group Operating and Financial Review on pages 10 to 17); • a strong control environment; • an information and communication process; and • a monitoring system and a regular Board review of effectiveness. During the year a Risk Committee was set up to monitor the risk areas within the Group and to report directly to the Audit Committee. The Risk Committee is chaired by Mark Bottomley and includes Jim Brisby and other senior executives representing the commercial, operational, technical, information technology, engineering, health and safety and financial functions. Internal audit and the Company Secretary also attend these meetings. The team identified the key business risks within their operations, considered the financial and operational implications and assessed the effectiveness of the control processes in place to mitigate these risks. The Audit Committee reviewed a summary of the findings and this, along with direct involvement in the strategies of the businesses, investment appraisal and the budgeting process, enabled the Audit Committee to review and report to the Board 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. The Audit Committee reviewed the content of the Annual Report and Accounts and considered them to be a fair reflection of the Company’s performance in the period. Financial Reporting The Group prepares annual budgets that are agreed by the Board. Operational management are required to report to the Board on a monthly basis on financial performance including trading results, balance sheet, cash flows and related key performance indicators. Forecasts are updated on a half yearly basis together with information on key risk areas. The use of a standard reporting pack by all Group entities ensures that information is gathered and presented in a consistent way which facilitates preparation of the consolidated financial statements. Internal Audit The Group’s internal audit function comprises of Company employees supported by Grant Thornton, which provides specialist advice and resources where necessary. The role of internal audit is to advise management and to report to the Audit Committee on the extent to which systems of internal control are effective and to provide independent and objective assurance that the processes by which significant risks are identified, assessed and managed are appropriate and effectively applied. The Audit Committee reviews and approves the annual internal audit plan and receives regular updates on progress in meeting the plan objectives. The internal audit approach is risk based and takes into account the overall Group risk framework, as well as risks specific to individual operations. The plan set out at the beginning of the current year was achieved. Internal audit findings together with responses from management are considered by the Audit Committee and where necessary challenged. The Audit Committee considers annually the extent and effectiveness of the work of the internal audit function. Cranswick plc Report & Accounts 2012 27 External Auditors Ernst & Young LLP has been the Company’s auditors since 1972 following the take-over of a local Hull based practice. The Audit Committee assesses annually the qualification, expertise, resources and independence of the auditor and the effectiveness of the audit process. The assessment as to the effectiveness is conducted through an external audit questionnaire with senior finance management. Remuneration Committee The Remuneration Committee comprises the three independent Non-Executive Directors chaired by Steven Esom. Martin Davey 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 Audit Committee is also responsible for recommendations for the appointment, reappointment or removal of the external auditors. The Committee periodically reviews the tendering of the external audit function, the last such review and tender being in 2008. 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, executive or management roles or functions, and remuneration consultancy. Following consideration of these matters at a meeting of the Audit Committee in May 2012, a unanimous recommendation was made to the Board for the reappointment of Ernst & Young LLP as the Company’s external auditors to be proposed to Shareholders at the 2012 Annual General Meeting. Auditor Independence Ernst & Young LLP have confirmed that they have 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 auditors also provided tax advice and were consulted on corporate transactions. Auditor objectivity and independence was safeguarded through use of a separate tax partner and separate corporate transactions partner. During the year the Audit Committee considered the following factors in assessing the objectivity and independence of Ernst & Young LLP: i) The auditors’ procedures for maintaining and monitoring independence, including those to ensure that the partners and staff have no personal or business relationships with the Group, other than those in the normal course of business permitted by UK ethical guidance. ii) The auditors’ policies for the rotation of the lead partner and key audit personnel. The current audit partner is due to be replaced after this year’s audit having been in the position since 2007. The senior manager changed in 2008. iii) Adherence by management and the auditor to the Group’s policy for the procurement of non-audit services. 28 Report & Accounts 2012 Cranswick plc The Committee recommends to the Board the policy for executive remuneration and determines, on behalf of the Board, the other terms and conditions of service for each Executive Director. It determines appropriate performance conditions for the annual cash bonus and long term incentive schemes and approves awards and the issue of options in accordance with the terms of those schemes. The Remuneration Committee also, in consultation with the Chairman, monitors the total individual remuneration package of senior executives including bonuses, incentive payments and share option and other share awards. The Remuneration Committee has access to advice from the Company Secretary and to detailed analysis of executive remuneration in comparable companies. Details of the Committee’s current remuneration policies are given in the Directors’ Remuneration Report on pages 30 and 32. 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 is chaired by Patrick Farnsworth and includes John Worby, Steven Esom and Martin Davey. 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, after reviewing the requirements of the Company, recommended the promotion of Adam Couch, having spent over a year as Chief Operating Officer, to the position of Chief Executive Officer from 1 August 2012, following Bernard Hoggarth’s decision to stand down from that role on that date. The Committee was also happy to recommend that Bernard Hoggarth remains on the Board part time as Commercial Director. All Directors will seek re-election at the Annual General Meeting in accordance with the Code. The Board has set out in the Notice of Annual General Meeting its reasons for supporting the re-election of the Directors at the forth coming Annual General Meeting. Their biographical details on page 19 demonstrate the range of experience and skills which each brings to the benefit of the Company. 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. Shareholders The Board attaches great importance to maintaining good relationships with all Shareholders who are kept informed of significant Company developments. Presentations are made to analysts and institutional Shareholders on the half year and full year results. Significant matters relating to the trading or development of the business are disseminated to the market by way of Stock Exchange announcements. The views of Shareholders expressed during meetings with them are communicated by the Chairman to the Board as a whole, and through this process 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 from time to time. 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 from Shareholders at the Annual General Meeting which is also attended by the Chairs of the Audit, Remuneration and Nominations Committees. By order of the Board Malcolm Windeatt Company Secretary 21 May 2012 Cranswick plc Report & Accounts 2012 29 DIRECTORS’ REMUNERATION REPORT Information not subject to audit Remuneration Committee The Remuneration Committee comprises the three Non-Executive Directors chaired by Steven Esom. The Executive Chairman attends the meetings in an advisory capacity as requested. The Company Secretary attends the meetings as secretary to the Committee. The Committee determines the remuneration of the Company’s Executive Directors and puts forward its recommendations for approval by the Board. It also monitors the remuneration of the Group’s senior executives. The remuneration policy is reviewed and benchmarked by external consultants every two to three years and last year AON Hewitt carried out such a review. AON Hewitt were also retained by the Remuneration Committee to review the existing management incentive scheme, their recommendations were discussed by the Remuneration Committee and as a result the scheme was amended as set out in this report. In addition PricewaterhouseCoopers continue to give advice to the Remuneration Committee on share option awards and other benefit schemes. 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 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 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 related elements of remuneration which comprise basic salary, car allowance and benefits are reviewed annually and are effective from 1 May. Benefits principally comprise medical insurance and personal tax and pension advice. 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, historical performance and market outlook for the year. A small part of the bonus relates to the achievement of a target performance for the first half of the year, where a fixed sum is paid, with the remaining element based on a percentage of the results in excess of an annual target. The performance is based solely on the Group’s profit before tax, with a sliding scale of targets set around budget performance. The total bonus is capped at 150 per cent of basic salary; however there is a clawback arrangement in place if the need arises. Non-Executive Directors do not participate in the Group’s bonus scheme. Incentive payments, car allowance and benefits are not pensionable. GENEROUS HANDMADE BEEF PIE FOR ONE Handmade shortcrust beef and black pepper pie served with Yorkshire new potatoes and fresh garden peas 30 Report & Accounts 2012 Cranswick plc Cranswick plc Report & Accounts 2012 31 Share options and Long Term Incentive Plan The basic salary and the bonus scheme are intended as the most significant part of Directors’ remuneration. In addition, executive share options (though no options under this scheme have been issued since 2005 and the scheme is unlikely to be used before 2015 when it closes) and the Long Term Incentive Plan (LTIP) 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. Even though both option awards are seen as an important part of rewarding employees the Remuneration Committee is focusing on using the LTIP rather than the executive option scheme for Executive Directors and senior executives. pro rata. The TSR target allowed 30 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. Under the terms of the scheme an award to an individual cannot exceed 100 per cent of that individual’s annual salary except in exceptional circumstances when up to 200 per cent of the annual salary is permitted. The Remuneration Committee, which decides whether performance conditions have been met, considers EPS and TSR to be the most appropriate measures of the long term performance of the Group. Directors may also apply for Save As You Earn (SAYE) options on the same terms as all other employees. Options can only be exercised if certain performance criteria are achieved by the Group. Under the LTIP half the shares granted 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 half to a total shareholder return (‘TSR’) target measured against a comparable group of food companies over a three year period. The comparison companies used prior to 2011 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. For future awards the comparator group has been expanded to 14 companies and in addition to Cranswick these are Associated British Foods plc, A G Barr plc, Britvic plc, Carrs Milling Industries plc, Dairy Crest Group plc, Devro plc, Greencore Group plc, Hilton Food Group plc, Kerry Group plc, McBride plc, Premier Foods plc, Robert Wiseman Dairies plc (no-longer quoted) and Tate and Lyle 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 Pay and conditions across the Group The following are the key aspects of how pay and employment conditions across the Group are taken into account when setting the remuneration of employees including the Executive Directors: • The Group operates within the UK food sector and has many employees who carry out demanding tasks within the business. • All employees, including Directors, are paid by reference to the market rate. • Performance is measured and rewarded through a number of performance related bonus schemes across the Group including LTIP share options for Executive Directors and senior executives. • Performance measures are cascaded down through the organisation. • The Group offers employment conditions that are commensurate with a medium sized quoted company, including high standards of health and safety and equal opportunities. • The Group operates SAYE share schemes which are open to all eligible employees including Executive Directors. Performance graph – Total Shareholder Return The graph below shows the percentage change (from a base of 100 in May 2001) in the total shareholder return (with dividends reinvested) for each of the last eleven years on a holding of the Company’s shares against the corresponding change in a hypothetical holding in the shares of 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. 650 600 550 500 450 400 350 300 250 200 150 100 50 2001 32 Cranswick FTSE 350 Food Producers FTSE All Share 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Investec Report & Accounts 2012 Cranswick plc Service contracts The service contracts for Martin Davey 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. These conditions were incorporated into new contracts several years ago when the Directors changed from contracts which had notice periods of up to three years. The Remuneration Committee’s current policy is not to enter into employment contracts with any element of notice period in excess of one year. Accordingly the other Executive Directors have a one year rolling contract, Adam Couch commencing 1 May 2006, Mark Bottomley from 1 June 2009 and Jim Brisby from 26 July 2010. Appointment letters have been issued to Patrick Farnsworth, for 19 months from 1 January 2012, to John Worby, for 31 months from 1 January 2012 and Steven Esom, for 3 years from 12 November 2011. The contracts for Martin Davey and Bernard Hoggarth have special provisions relating to liquidated damages requiring that the notice period stipulated in the contract will be paid in full. For the other contracts the Remuneration Committee will consider the circumstances of an early termination and determine compensation payments accordingly. Pensions Executive Directors are members of the Group ‘money-purchase’ pension scheme. Employer contributions are determined by service contracts. In some cases pension contributions are paid in lieu of salary and in other cases there are payments of salary in lieu of pension contributions, both at the option of the individual. Information subject to audit Directors’ remuneration The remuneration of Directors for the year was as follows: Salary and fees Bonuses Benefits Payment in lieu of pension contribution Pension contribution Aggregate notional gains made by Directors on exercise of options 2012 £’000 2,442 1,953 16 156 4,567 259 4,826 638 2011 £’000 2,122 390 16 - 2,528 386 2,914 544 Individual Directors’ remuneration, including pension contributions: Salary and fees Bonus Benefits Payments in lieu of pension Total 2012 Total 2011 Pension 2012 Pension 2011 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Non-Executive Directors: Steven Esom Patrick Farnsworth John Worby Executive Directors: Mark Bottomley Jim Brisby (2011 from appointment) Adam Couch Martin Davey Bernard Hoggarth 40 40 45 365 314 422 684 532 - - - 342 300 405 453 453 - - - 3 1 3 5 4 - - - - - 28 76 52 40 40 45 710 615 858 1,218 1,041 37 39 44 354 176 506 757 615 - - - 67 42 50 50 50 - - - 65 24 75 125 97 Benefits principally comprise medical insurance and personal tax and pension advice. Mark Bottomley, Jim Brisby and Adam Couch each sacrificed part of his cash bonus entitlement before its award. Pension contributions equal to the amount sacrificed are made into pension plans for the benefit of their dependants. The amount shown in the bonus column reflects the full bonus earned. The number of Directors who were active members of the money purchase pension scheme during the year was 5 (2011: 5). Cranswick plc Report & Accounts 2012 33 Share options The Group operates an executive share option scheme (no options currently in issue) and a Long Term Incentive Plan for senior executives, including Executive Directors, and a savings related share option scheme which is available to all employees with at least 2 years’ service. The interests of the Executive Directors in these schemes were as follows: Long term incentive plan Year of award At 1 April 2011 No. Granted in the year No. Exercised in the year No. Lapsed in the year No. At 31 March 2012 No. Exercise price p Market price at grant p Mark Bottomley Jim Brisby Adam Couch Martin Davey Bernard Hoggarth 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011 13,200 25,000 - - - 43,600 5,000 6,600 13,200 - - - - 37,200 25,000 32,500 36,000 - - - - 50,500 25,000 32,500 36,000 - - - - 56,800 25,000 32,500 36,000 - - - - 56,800 - - - (5,000) - - - (25,000) - - - (25,000) - - - (25,000) - - - - - - - - - - - - - - - - - - - - - - 13,200 25,000 43,600 - 6,600 13,200 37,200 - 32,500 36,000 50,500 - 32,500 36,000 56,800 - 32,500 36,000 56,800 nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil nil 592 860 785 632 592 860 785 632 592 860 785 632 592 860 785 632 592 860 785 The performance periods commence on 1 April in each year and conclude on 31 March three years later and options are exercisable on the attainment of certain performance criteria detailed on page 32. The range of exercise dates is 1 June 2012 to 1 June 2021. The options granted in the year are exercisable between 1 June 2014 and 1 June 2021. The share price at the time of issue was 785p. The following Directors exercised LTIP share options during the year: Number Date exercised Exercise Market Notional Jim Brisby Adam Couch Martin Davey Bernard Hoggarth 5,000 25,000 25,000 25,000 14 Jun 2011 2 Feb 2012 2 Feb 2012 2 Feb 2012 price p nil nil nil nil price p 757 786 786 786 gain £’000 38 196 196 196 34 Report & Accounts 2012 Cranswick plc Savings related share option scheme At 1 April 2011 No. Granted in the year No. Exercised in the year No. Lapsed in the year No. At 31 March 2012 No. Weighted average exercise price p Range of exercise dates Mark Bottomley 2,200 2,590 Jim Brisby 3,533 - Adam Couch 3,761 936 - - - Martin Davey 2,025 1,554 (2,025) Bernard Hoggarth 2,025 1,554 (2,025) (2,200) 2,590 579 1 Mar 2017/ - - - - 3,533 4,697 1,554 1,554 1 Sept 2017 474 1 Mar 2014/ 1 Sept 2014 494 1 Mar 2013/ 1 Sept 2019 579 1 Mar 2015/ 1 Sept 2015 579 1 Mar 2015/ 1 Sept 2015 The Executive 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 Executive Directors exercised savings related share options during the year: Number Date exercised Exercise price p Market price p Notional Gain £’000 Martin Davey Bernard Hoggarth 2,025 2,025 27 Feb 2012 27 Feb 2012 474 474 782 782 6 6 Market price of shares The market price of the Company’s shares at 31 March 2012 was 805 pence per share. The highest and lowest market prices during the year for each share option that was unexpired at the end of the year are as follows: Options in issue throughout the year Options issued during the year: - SAYE - LTIP Director’s Beneficial Interests (Unaudited) Mark Bottomley Jim Brisby Adam Couch Martin Davey Steven Esom Patrick Farnsworth Bernard Hoggarth John Worby Highest (pence) 841.0 841.0 841.0 Lowest (pence) 588.5 726.5 588.5 At 31 March 2012 Ordinary Shares At 31 March 2011 Ordinary Shares 3,500 36,321 66,946 200,426 1,441 1,243 114,413 1,641 - 27,860 66,079 200,426 - 1,196 112,388 1,641 During the year the Remuneration Committee agreed that Executive Directors should build up a shareholding equivalent to one year’s net salary over a 3 to 5 year period. The Non-Executive Directors also agreed to build up a holding on the same basis. All the above interests are beneficial. There have been no further changes to the above interests in the period from 1 April 2012 to 8 May 2012. On behalf of the Board Steven Esom Chairman of the Remuneration Committee 21 May 2012 Cranswick plc Report & Accounts 2012 35 CORPORATE SOCIAL RESPONSIBILITY STATEMENT Cranswick takes its ethical responsibilities to employees, customers, shareholders, suppliers, producers and the environment extremely seriously. The Company recognises that a balanced and committed approach to all aspects of Corporate Social Responsibility (CSR) will bring benefits to each of the Company stakeholders and will strengthen its business position and credentials to facilitate future sustainable growth and development. Within the last year it has established a working group to look at CSR across the business to facilitate the recognition of best practice and shared learning leading to the development of a Group Corporate Responsibility Policy which clearly defines its core values and aspirations. People Cranswick is committed to the highest standards of responsible behaviour, dignity and integrity in its relationships with employees, customers, business partners and authorities and in so doing endorses the principals of the Ethical Trading Initiative (ETI). All sites within the Group are audited on a regular basis both by internal and external parties to ensure that the spirit of the ETI is being followed at all times as a minimum standard throughout the Group. Every site has demonstrated a high level of compliance with the ETI base code. Where non-conformances have been highlighted these issues have been addressed. A representative from the Group also sits on the taskforce committee for the Equality and Human Rights Commission, which was formed in order to improve working practices within the meat and poultry industry. The Company respects the rights and dignity of every employee and treats them fairly and without discrimination regardless of their employment status and in line with the Group’s Equal Opportunities policy. This confirms the Group’s commitment to being an employer that will take all reasonable steps to employ, train and promote employees on the basis of their experience, abilities and qualifications without regard to race, colour, ethnic origin, nationality, religion, sex, sexual orientation, marital status, age or disability. Cranswick ensures that all of its employees are treated with respect and dignity, and that harassment, in any form, will not be condoned. In order to ensure compliance with the policy, data is collated on a monthly basis to monitor Equal Opportunities across the Group and to implement a relative cultural split across the business with development opportunities accessible at all levels and for every nationality. Similarly training data is compiled to show the number of days training across the Group and therefore identify any training requirements. In April 2012 a Group Human Resources (HR) Manager was appointed to ensure legal compliance across the Group and to standardise policies and procedures in line with best working practice. Previously HR responsibilities were site based. Work performed on behalf of the Company will now be formally based on a recognised employment relationship established in accordance with national law and recognised business practice. The Company recognises that the people it employs either on a temporary or permanent basis are its biggest asset. It will therefore strive to ensure that the standards detailed above are implemented throughout the business and at all levels. All labour supplying agencies are audited before use and re-audited on a scheduled basis to assess on-going compliance with the Gangmasters (Licensing) Act 2004. Details of the Company’s ethical standards are communicated to its stakeholders via SEDEX, an ethical data exchange facility designed to link the full supply chain in an open and transparent manner. The Company’s terms and conditions of employment have been reviewed to ensure that they are fully compliant with the Agency Workers Directive which came into force in October 2011. 36 Report & Accounts 2012 Cranswick plc AMAZING ANTIPASTI TASTING PLATE A selection of finely sliced charcuterie, including; Coppa di Parma, Prosciutto di Spec, Gigante Milano and Spanish chorizo served with fresh Cuquillo and Volos olives, Honeydew melon and pear Cranswick plc Report & Accounts 2012 37 Cranswick recognises the benefits of collaborative working and the sharing of knowledge throughout the organisation. Communication is key to the development and progression of its business. In the interests of developing employee relations and ensuring transparent communication methods are in place, the Group has updated its whistleblowing policy and procedure in 2012 which now enables all workers to contact an independent third party to report any issues of concern. In addition, the anti-bribery and corruption policy has been updated following legislative changes in 2011, with training given to all senior managers. Total reportable accidents, at 1,894 per 100,000 employees (a Health and Safety Executive standard measure) are above the average for the Food Industry (1,433 in 2011) reflecting the additional cut hazards inherent in butchery operation. The Group continues to strive to reduce this figure. Progress to accredit all operating sites to meet the British Standard 18001 (Occupational Health and Safety Management Systems) continues, with six sites now in compliance and those remaining scheduled to have their final audits during the current calendar year. Each business within the Group has its own strategy for the recruitment and training of staff, including the provision of competitive terms and conditions, and a challenging and stimulating working environment. Cranswick is committed to high Health and Safety standards which are endorsed by the Board of Directors. It is committed to yearly improvements and works in partnership with staff and insurers to improve safety standards through training and effective management. Site level Health and Safety Co-ordinators monitor, manage and improve Health and Safety performance and their efforts are co-ordinated by the Group Health and Safety Manager, with the assistance of two Group Co-ordinators. Monthly accident statistics are reported and monitored using Cranswick’s Insurer’s web based recording system which provides full Health and Safety Management, including risk assessments, claims management and audits. A tracker is utilised which prompts the introduction of appropriate control measures to reduce the likelihood of recurrence. The figures are compiled monthly and then reported on for the calendar year for the purpose of this report and quarterly reports are made to the Board. Compared to the previous year*: • The total number of recorded accidents in the group was 18 per cent lower. • The Accident Incident Ratio (accident against number of employees) reduced by 17 per cent. • The total number of RIDDOR accidents was unchanged. • The Accident Incident Ratio (RIDDOR’s against number of employees) rose slightly by 1 per cent. Accident levels have fallen across the Group reflecting the reduction in incident levels attributable to improved working environments, investment in training and effective site Health and Safety team management. A Group Health and Safety DVD was produced during the year and this is used at all sites for training purposes. Cranswick plc Accident Statistics 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 2005 2006 2007 2008 2009 2010 2011 Total Recorded Accidents RIDDOR Reportable Accidents s e e y o p m e l 0 0 0 , 0 0 1 r e p s t n e d i c c A l a t o T 38 Report & Accounts 2012 Cranswick plc l s e e y o p m e 0 0 0 , 0 0 1 r e p s t n e d i c c A r o d d R i Annual internal Health and Safety audits are carried out to measure the standards at each site and produce an action plan for the following 12 months. All sites have continued to improve their audit percentage score in 2011 from the previous year. The Group’s insurers carry out annual external Health and Safety audits in which Cranswick has achieved results that are comparable to the industry leaders. Products and Raw Materials Cranswick is committed to ensuring that the raw materials used (meat, ingredients and packaging) are traceable to source and where raw materials are identity preserved, the supplier is challenged to prove their traceability systems to the Company’s satisfaction. The approval of raw material suppliers is centrally controlled and involves independent third party audit or approval by the Group Technical Services team. Cranswick’s development has been focussed on the British pig market and the Group has always been a staunch supporter of British farming. With two operating abattoirs the Company holds a strong position in the British pig market. 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 bulk of the Group’s contracted pigs are sourced from within Yorkshire, Lincolnshire & East Anglia which are recognised as being some of the best pig breeding areas in the UK. Proximity to the two abattoirs is important to good animal welfare and the reduction of food miles – 39 per cent of the supplying farms lie within 25 miles of Cranswick’s pork processing units in Hull and Norfolk, and 77 per cent within 50 miles*. High standards of animal welfare throughout the Group’s supply chain is of the utmost importance to the business so Cranswick endorses the five freedoms concept proposed by the Farm Animal Welfare Council and the DEFRA Code of Practice for the Welfare of Pigs. All husbandry methods avoid stress and discomfort by ensuring freedom from fear, hunger, thirst, malnutrition and pain. All farms and hauliers are, as a minimum, Red Tractor assured and subject to independent welfare audit by nationally registered third party certification bodies. The Group also invests heavily in other higher welfare schemes such as the RSPCA Freedom Foods which currently accounts for 45 per cent of the animals processed by the Group’s abattoirs, all of which come from outdoor systems. Suppliers and Producers Cranswick believes that integrity and trust in its dealings with its suppliers and producers are essential to building long term supply relationships which will ultimately benefit its products. The Group’s expectations and requirements are articulated to its suppliers and producers prior to supply. The Company works with its business partners to establish and maintain social and environmental compliance standards throughout the supply chain. The Group does not have a formal policy with regard to paying 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 such a policy serves the Company’s best interests. Customers and Consumers Cranswick is committed to working with its retail customers to ensure clear informative labelling of product so that consumers can make an informed purchase decision based on the origin, authenticity, provenance and nutritional values of the foods it produces. Food safety will always be of paramount importance and well qualified and experienced site based technical teams, centrally co-ordinated to share best practice and ensure that all products and processes meet the increasing demands of the Group’s customers. As a food company Cranswick recognises its responsibilities to create and produce products which are safe, legal and wholesome. The production sites are of modern design, well invested and operate to a high standard of food safety, process control, hygiene and housekeeping. All the sites are independently audited annually against the BRC Global Standard for Food Safety and have recently achieved the 60th consecutive Grade A compliance against this exacting standard which is recognised as a technical and food safety benchmark for the industry. The customer base is centred on the major UK retailers, restaurant groups and food service companies. In addition, some of Cranswick products are supplied as raw materials to other food producers. The sites’ food safety and quality management systems are constantly assessed by customers for compliance with their own specific policies and brand standards. The Group is also a member of various food assurance schemes (Organic, BQAP, Red Tractor) which require the sites to undergo scheme compliance and traceability audits, some of which take place unannounced. To ensure that the Company continues to operate in compliance with the requirements of customer policy, brand standards, certified food safety standards, schemes and food law it has a robust internal audit system in place that is managed by the Group Technical Compliance team. The outcome from such audits is used to self- assess the level of compliance, to correct non-conformance where highlighted, and as a means of shared learning across the Group. Impact on the Environment A review of the Group’s commitment to sustainability was conducted at the end of Company’s first target period (2008 - 2010), during which time the reduction in relative carbon footprint was 27 per cent; exceeding the target of 20 per cent set three years earlier. New targets were set over a longer term, to coincide with 2020 and to better align them with Cranswick’s stakeholder ambitions. A further 30 per cent reduction in its relative carbon footprint was agreed, together with commitments towards sustainable paper/ board sourcing. To further encourage the commitment at factory level, the five remaining sites which do not already have ISO14001 accreditation are now going through this process. The Group’s carbon footprint envelope includes all factory activities (energy, f-gas, travel and waste) and all Group owned transport activities. Statistics are collated monthly and the footprint calculated using Carbon Trust software, reported at the half and full calendar year to the Board. Annual review and realignment of the Company’s ambitions and targets takes place to ensure they remain contemporary. To reflect the change in the Group structure, with the acquisition of the Norfolk Abattoir in 2009, and the sale of the Deeside cooked meat plant in July 2010, the Group figures and the graphs below now record the remaining businesses which comprise Cranswick plc from the 2010 report onwards. The first year of the new target period saw a significant improvement in performance, with a 10 per cent fall in the Group’s relative carbon footprint to 282kg of carbon per tonne of production, but more significantly a 6.6 per cent fall in its absolute carbon footprint, amounting to reduction in carbon emissions of 5,844 metric tonnes CO2 equivalent. (“CO2e”) e 2 O C s e n n o T - l e t u o s b A 100,000 80,000 60,000 40,000 Cranswick Carbon Footprint 2008 2009 2010 2011 Absolute Carbon Footprint Relative Carbon Footprint 0.400 0.350 0.300 0.250 0.200 n o i t c u d o r p f o e n n o t / e 2 O C s e n n o T - e v i t a l e R Energy now contributes almost 65 per cent of the annual carbon footprint, so efficiency and economy will be strong drivers in improvements over the next few years. Relative energy consumed per tonne of production was almost unchanged this year, due in the main to the significant expansion of the Lazenby’s site, and additional production space at the Sherburn gourmet bacon plant being brought into use for Christmas 2010. The downward trend in energy use per tonne is expected to resume as production volumes through these additional areas increase. Reduction in Cranswick’s energy footprint is a commercial and environmental necessity. The small part of the Group which was ineligible for Climate Change Agreements is captured under the Carbon Reduction Commitment (CRC). But, with the anticipated revision of the Climate Change Levy Scheme (CCL) in 2013, it is expected that these will be brought under the CCL umbrella. The proposed simplification of both schemes is eagerly awaited. Cranswick Energy Use Per Tonne n o i t c u d o r p f o e n n o t r e p h W k 800 600 400 200 0 2008 2009 2010 2011 * These figures have been subject to review by internal audit. Cranswick plc Report & Accounts 2012 39 Waste to landfill has reduced over the year, falling by 7 per cent despite growth in production volumes, with increased waste to energy and anaerobic digestion contributing. It is anticipated that, as the waste disposal companies commission better sorting facilities, further significant improvements in landfill reduction and recycling levels will be made in the current year. Cranswick Annual Landfill Volume m u n n a r e p s e n n o T 6,200 6,000 5,800 5,600 5,400 2008 2009 2010 2011 Water usage continues to be monitored and reported under the FHC2020 agreement and is well on target to achieve the 20 per cent reduction commitment by 2020. Along with energy use and carbon footprint, this will become an operational KPI as the Group enters the next phase of environmental commitment. The Group’s process water usage per tonne of production rose slightly last year, attributed to the various extensions around the Group which all require cleaning, whether fully utilised or not. Customer focus on the environment and sustainability has grown and the Group’s environmental aspirations are being realigned to meet the common shared goals. The environmental section (‘Greenthinking’) of the Group website: www.cranswick.co.uk will be updated to reflect and report on these targets. Cranswick continues to participate in the Carbon Disclosure and the Forest Footprint projects. Community Charitable activities continue at site level with both individual and corporate sponsorship efforts. The Group’s charity golf day contributed almost £26,000 to the KIDS charity, while the Company’s promotion of Red Lion products helps that business contribute all of its post-tax profits to forces charities. Other charitable donations made by the business during the year totalled £30,000. The environmental and community impact of any site redevelopment is always important to the Company. Over 4,000 trees were planted at the Preston site during the building of the new abattoir and biodiversity is becoming an increasing factor in the Group’s planning. With around 75 per cent of employees living within 10 miles of their place of work, local involvement is an important interest for the Group. Summary Cranswick has again made good progress towards all targets during the year. Various Group wide initiatives have helped in reducing the usage of waste, water and energy, which will benefit the environment and the local communities in which the Group operates. The Company will continue to invest in its facilities to make sure they operate to the highest standards and to focus on employee welfare through training programmes and Health and Safety initiatives. By order of the Board Malcolm Windeatt Company Secretary 21 May 2012 40 Report & Accounts 2012 Cranswick plc STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare Group financial statements for each financial year. Under that law, the Directors are required to prepare Group financial statements under IFRSs as adopted by the European Union. Under Company Law the Directors must not approve the Group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing the Group financial statements the Directors are required to: • present fairly the financial position, financial performance and cash flows of the Group; • select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • make judgements that are reasonable; • provide additional disclosures when compliance with the specific requirements in IFRSs as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group‘s financial position and financial performance; and state whether the Group financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements. • The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group‘s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Directors’ Report, the Directors’ Remuneration Report and the Corporate Governance Statement in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure and Transparency Rules. On behalf of the Board Martin Davey Chairman Mark Bottomley Finance Director 21 May 2012 Cranswick plc Report & Accounts 2012 41 REPORT OF THE AUDITORS to the members of Cranswick plc Independent auditor’s report to the members of Cranswick plc We have audited the financial statements of Cranswick plc for the year ended 31 March 2012 which comprise the Group Income Statement, Group and Parent Company Balance Sheets, the Group and Parent Company Statements of Comprehensive Income, the Group and Parent Company Statements of Cash Flow, the Group and Parent Company Statements of Changes in Equity and the related notes 1 to 29. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditor’s 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 auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 41, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the report and accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2012 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance • with IFRSs as adopted by the European Union; 42 Report & Accounts 2012 Cranswick plc • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance • with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the • adequate accounting records have not been kept by the • parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit; or • a Corporate Governance Statement has not been prepared by the company. Under the Listing Rules we are required to review: Companies Act 2006; • • the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the information given in the Corporate Governance Statement set out on pages 24 to 29 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements. • • the Directors’ statement, set out on page 17, in relation to going concern; the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review; and • certain elements of the report to shareholders by the Board on directors’ remuneration. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: Stuart Watson (Senior Statutory Auditor) or and on behalf of Ernst & Young LLP, Statutory Auditor Hull 21 May 2012 Cranswick plc Report & Accounts 2012 43 Group income statement for the year ended 31 March 2012 Revenue Cost of sales Gross profit Operating expenses excluding impairment Notes 2012 £’000 2011 £’000 3 4 820,775 758,442 ( ) 718,605 ( ) 657,166 102,170 101,276 ( ) 55,434 ( ) 52,125 Group operating profit before impairment 46,736 49,151 Impairment of goodwill Group operating profit Share of results of associate Profit on disposal of associate Profit before net finance costs and tax Finance revenue Finance costs Profit before tax Taxation Profit for the year Earnings per share (pence) On profit for the year: Basic Diluted Adjusted (excluding effect of associate and goodwill impairment): Basic Diluted 4,11 ( ) 4,924 - 4 14 14 6 6 41,812 49,151 ( ) 712 8,254 ( ) 434 - 49,354 48,717 151 ( ) 1,154 106 ( ) 1,729 48,351 47,094 7 ( ) 10,871 ( ) 11,768 37,480 35,326 10 10 10 10 78.6p 78.4p 72.9p 72.7p 74.5p 74.3p 72.8p 72.5p 44 Report & Accounts 2012 Cranswick plc Group statement of comprehensive income for the year ended 31 March 2012 Notes 2012 £’000 2011 £’000 Profit for the year 37,480 35,326 Other comprehensive income Movement on hedging items: (Losses)/ gains arising in the year Reclassification adjustment for (gains)/ losses included in the income statement Actuarial (losses)/ gains on defined benefit pension scheme Deferred tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax 17 17 24 69 ( ) 146 ( ) 3,504 ( ) 892 2,827 ( ) 22 248 624 ( ) 234 660 Total comprehensive income for the year attributable to owners of the parent 34,653 35,986 Company statement of comprehensive income for the year ended 31 March 2012 Notes 2012 £’000 2011 £’000 Profit for the year 24,837 15,924 Other comprehensive income Movement on hedging items: Losses arising in the year Reclassification adjustment for losses included in the income statement Deferred tax relating to components of other comprehensive income Other comprehensive income for the year, net of tax 17 17 - - - - ( ) 124 511 ( ) 108 279 Total comprehensive income for the year attributable to owners of the parent 24,837 16,203 Cranswick plc Report & Accounts 2012 45 Group balance sheet at 31 March 2012 Non-current assets Goodwill Property, plant and equipment Investment in associate Financial assets Total non-current assets Current assets Inventories Trade and other receivables Financial assets Cash and short-term deposits Total current assets Assets held for sale Total assets Current liabilities Trade and other payables Financial liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Other payables Financial liabilities Deferred tax liabilities Provisions Defined benefit pension scheme deficit Total non-current liabilities Total liabilities Net assets Equity Called-up share capital Share premium account Share-based payments Hedging and translation reserves Retained earnings Equity attributable to owners of the parent On behalf of the Board Notes 11 12 14 17 15 16 17 25 29 18 19 20 18 19 7 20 24 22 2012 £’000 122,839 130,853 - 1,398 255,090 38,516 85,534 696 20,100 144,846 2011 £’000 127,763 123,262 5,791 4,722 261,538 35,694 78,665 496 1,302 116,157 221 - 400,157 377,695 91,078 ( ) 1,624 ( ) 5,936 ( ) 389 ( ) 84,941 ( ) 4,356 ( ) 5,954 ( ) 59 ( ) 99,027 ( ) ( ) 95,310 462 ( ) 42,301 ( ) 7,093 ( ) - 5,342 ( ) 55,198 ( ) 354 ( ) 49,286 ( ) ( ) 8,490 409 ( ) 2,914 ( ) 61,453 ( ) 154,225 ( ) 156,763 ( ) 245,932 220,932 4,803 58,642 5,603 69 ( ) 176,953 245,932 4,764 56,609 4,102 146 155,311 220,932 Martin Davey Chairman 21 May 2012 Mark Bottomley Finance Director 46 Report & Accounts 2012 Cranswick plc Company balance sheet at 31 March 2012 Non-current assets Property, plant and equipment Investments in subsidiary undertakings Investment in associate Financial assets Deferred tax assets Total non-current assets Current assets Trade and other receivables Cash and short-term deposits Total current assets Assets held for sale Total assets Current liabilities Trade and other payables Financial liabilities Income tax payable Total current liabilities Non-current liabilities Financial liabilities Total liabilities Net assets Equity Called-up share capital Share premium account General reserve Merger reserve Share-based payments Retained earnings On behalf of the Board Martin Davey Chairman 21 May 2012 Notes 12 13 13 17 7 16 25 29 18 19 2012 £’000 598 158,338 - - 390 159,326 8,834 18,137 26,971 221 2011 £’000 607 157,217 5,911 1,072 281 165,088 11,018 1 11,019 - 186,518 176,107 41,646 ( ) - 1,116 ( ) 42,762 ( ) 36,947 ( ) 2,902 ( ) 844 ( ) 40,693 ( ) 19 42,246 ( ) 48,987 ( ) 22 85,008 ( ) ( ) 89,680 101,510 86,427 4,803 58,642 4,000 1,806 5,603 26,656 101,510 4,764 56,609 4,000 1,806 4,102 15,146 86,427 Mark Bottomley Finance Director Cranswick plc Report & Accounts 2012 47 Group statement of cash flows for the year ended 31 March 2012 Operating activities Profit for the year Adjustments to reconcile Group profit for the year to net cash inflows from operating activities: Taxation Net finance costs Non-cash items on transfer of business to associate Fair value adjustment to put option in relation to associate Share of result of associate Gain on sale of associate Gain on sale of property, plant and equipment Depreciation of property, plant and equipment Impairment of goodwill Share-based payments Difference between pension contributions paid and amounts recognised in the income statement Release of government grants (Increase)/ decrease in inventories (Increase)/ decrease in trade and other receivables Increase/ (decrease) in trade and other payables Cash generated from operations Tax paid Net cash from operating activities Cash flows from investing activities Interest received New loans advanced Principal amounts received in relation to loans advanced Purchase of property, plant and equipment Receipt of government grants Proceeds from sale of property, plant and equipment Proceeds from sale of associate Net cash used in investing activities Cash flows from financing activities Interest paid Proceeds from issue of share capital Purchase of own shares Proceeds from borrowings Issue costs of long term borrowings Repayment of borrowings Dividends paid Repayment of capital element of finance leases and hire purchase contracts Net cash used in financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 48 Report & Accounts 2012 Cranswick plc Notes 2012 £’000 2011 £’000 37,480 35,326 7 14 14 14 12 11 14 25 25 10,871 1,003 - ( ) 95 712 ( ) 8,254 ( ) 140 13,972 4,924 1,501 ( ) 1,076 ( ) 55 ( ) 2,822 ( ) 6,610 5,405 56,816 ( ) 11,283 45,533 173 - 1,906 ( ) 20,311 149 308 14,500 ( ) 3,275 ( ) 1,305 702 ( ) 136 - ( ) 1,005 ( ) 7,000 ( ) 11,831 ( ) 272 ( ) 20,847 21,411 ( ) 2,623 18,788 11,768 1,623 ( ) 465 55 434 - ( ) 96 12,440 - 1,013 ( ) 1,815 ( ) 12 266 4,858 ( ) 3,172 62,223 ( ) 10,639 51,584 90 ( ) 2,500 - ( ) 34,759 350 498 - ( ) 36,321 ( ) 1,683 599 - 50,000 - ( ) 60,000 ( ) 10,508 ( ) 260 ( ) 21,852 ( ) 6,589 3,966 ( ) 2,623 Company statement of cash flows for the year ended 31 March 2012 Operating activities Profit for the year Adjustments to reconcile Company profit for the year to net cash inflows Notes 2012 £’000 2011 £’000 24,837 15,924 from operating activities: Dividends received Taxation Net finance cost Non-cash items on transfer of business to associate Fair value adjustment to put option in relation to associate Gain on sale of associate Depreciation of property, plant and equipment Share-based payments Decrease in trade and other receivables Increase/ (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 Proceeds from sale of property, plant and equipment Proceeds from sale of associate Net cash generated in investing activities Cash flows from financing activities Interest paid Proceeds from issue of share capital Purchase of own shares Proceeds from borrowings Issue costs of long term borrowings Repayment of borrowings Dividends paid Net cash used in financing activities Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 11,831 ( ) 2,435 2,905 - 95 ( ) 7,422 ( ) 74 380 2,443 5,468 19,194 2,262 ( ) 16,932 11,831 65 ( ) - 14,500 26,266 3,050 ( ) 702 136 ( ) - 1,005 ( ) 7,000 ( ) 11,831 ( ) 22,320 ( ) 20,878 2,741 ( ) 18,137 10,508 ( ) 1,596 4,303 1,127 ( ) 55 - 88 226 3,862 6,780 ( ) 7,639 2,068 ( ) 5,571 10,508 23 ( ) 1,280 - 11,765 4,172 ( ) 599 - 50,000 - 60,000 ( ) 10,508 ( ) 24,081 ( ) 6,745 ( ) 4,004 2,741 ( ) 14 12 14 25 25 Cranswick plc Report & Accounts 2012 49 Group statement of changes in equity for the year ended 31 March 2012 Share capital Share premium Share- based payments Hedging Treasury Retained reserve shares earnings Total equity Note (a) Note (b) Note (e) Note (f) Note (g) £’000 £’000 £’000 £’000 £’000 £’000 £’000 As at 1 April 2010 4,733 54,322 3,449 124 ( ) - 131,205 193,585 - - Profit for the year Other comprehensive income Total comprehensive income Share-based payments Scrip dividend Share options exercised Dividends Transfer between categories Deferred tax related to changes in equity Corporation tax related to changes in equity - - - - 20 11 - - - - - - - - 1,699 588 - - - - - - - 1,013 - - - 360 ( ) - - 270 270 - - - - - - - At 31 March 2011 4,764 56,609 4,102 146 Profit for the year Other comprehensive income Total comprehensive income Own shares acquired Share-based payments Scrip dividend Share options exercised (proceeds) Share options exercised (transfer) Dividends Deferred tax related to changes in equity Corporation tax related to changes in equity - - - - - 19 20 - - - - - - - - - 1,351 682 - - - - - - - - 1,501 - - - - - - - 215 ( ) 215 ( ) - - - - - - - - At 31 March 2012 4,803 58,642 5,603 69 ( ) 35,326 390 35,716 - - - 35,326 660 35,986 1,013 1,719 599 12,227 ( ) 12,227 ( ) 360 180 77 - 180 77 155,311 220,932 37,480 2,612 ( ) 34,868 37,480 2,827 ( ) 34,653 - - - - - - - - - - - - - 136 ( ) - - - - - - - 136 136 ( ) 136 ( ) 1,501 1,370 702 - - - - - 13,201 ( ) 13,201 ( ) 52 ( ) 163 52 ( ) 163 176,953 245,932 Notes: a) Share capital The balance classified as share capital represents the nominal value of ordinary 10p shares issued. b) 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. c) 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. 50 Report & Accounts 2012 Cranswick plc Company statement of changes in equity for the year ended 31 March 2012 Share Share General capital premium reserve Merger reserve Share- Hedging Treasury Retained based reserve shares earnings Total equity payments Note (a) Note (b) Note (c) Note (d) Note (e) Note (f) Note (g) £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 April 2010 4,733 54,322 4,000 1,806 3,449 387 ( ) Profit for the year Other comprehensive income Total comprehensive income Share-based payments Scrip dividend Share options exercised Dividends Deferred tax related to changes in equity At 31 March 2011 - - - - 20 11 - - - - - - 1,699 588 - - - - - - - - - - - - - - - - - - - - - 653 - - - - 4,764 56,609 4,000 1,806 4,102 Profit for the year, being total comprehensive income Own shares acquired Share-based payments Scrip dividend Share options exercised (proceeds) Share options exercised (transfer) Dividends Deferred tax related to changes in equity - - - 19 20 - - - - - - 1,351 682 - - - - - - - - - - - - - - - - - - - - - 1,501 - - - - - At 31 March 2012 4,803 58,642 4,000 1,806 5,603 - 387 387 - - - - - - - - - - - - - - - - - - - - - - - - - - 11,564 79,487 15,924 15,924 108 ( ) 279 15,816 16,203 - - - 653 1,719 599 12,227 ( ) 12,227 ( ) 7 ( ) 7 ( ) 15,146 86,427 24,837 24,837 136 ( ) - - - - - - - 136 136 ( ) 136 ( ) 1,501 1,370 702 - - - - 13,201 ( ) 13,201 ( ) 10 10 26,656 101,510 d) 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. e) Share-based payments reserve This reserve records the fair value of share-based payments expensed in the income statement, and in the case of the Company in relation to share-based payments to employees of subsidiary companies, capital contributions to cost of Investments (note 13). f) 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. g) Treasury shares This reserve records the cost of the Group’s own shares acquired to satisfy employee share schemes. Cranswick plc Report & Accounts 2012 51 Notes to the accounts 1. Authorisation of financial statements and statement of compliance with IFRSs The Group and Company financial statements of Cranswick plc (the “Company”) for the year ended 31 March 2012 were authorised for issue by the Board of Directors on 21 May 2012 and the balance sheets were signed on the Board’s behalf by Martin Davey and Mark Bottomley. 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 and in accordance with the Companies Act 2006. A summary of the principal accounting policies, which have been consistently applied throughout the year and the preceding year, is as follows: Basis of consolidation The Group financial statements consolidate the financial statements of Cranswick plc and its subsidiaries. The results of undertakings acquired or sold are consolidated for the periods from the date of acquisition or up to the date of disposal. Acquisitions are accounted for under the purchase method of accounting. Judgements and key sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates. In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: • Share-based payments Note 23 – measurement of share-based payments • Goodwill • Provisions • Pensions • Acquisitions • Put option Note 11 – measurement of the recoverable amount of cash generating units containing goodwill Note 20 – judgements in relation to amounts provided Note 24 – Pension scheme actuarial assumptions Note 14 – fair values on acquisition and investment in associates Note 17 and note 21 – valuation of put option in relation to associate • Trade receivable provisions Note 16 – provision for impairment of trade receivables New standards and interpretations applied The following accounting standards and interpretations became effective for the current reporting period: International Accounting Standards (IAS / IFRSs) Effective date IFRS 7 Financial Instruments: Disclosures (Amendment) - Transfer of Financial Assets 1 July 2011 IAS 24 (revised) Related Party Disclosures 1 January 2011 52 Report & Accounts 2012 Cranswick plc International Financial Reporting Interpretations Committee (IFRIC) IFRIC 14 IFRIC 19 Prepayments of a Minimum Funding Requirement (Amendment) Extinguishing Financial Liabilities with Equity Instruments Effective date 1 January 2011 1 July 2011 The application of these standards and interpretations has not had a material effect on the net assets, results and disclosures of the Group. 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 anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s and Company’s financial statements in the period of initial application. The standards not applied are as follows: International Accounting Standards (IAS / IFRSs) IAS 32 (revised) Financial Instruments: Presentation on Offsetting Financial Assets and Financial Liabilities Financial Instruments: Disclosures Effective date* 1 January 2014 1 January 2013 IFRS 7 IFRS 7 IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 IAS 1 IAS 12 Financial Instruments: Disclosures (Amendment) - Initial Application of IFRS 9 1 January 2015 Financial Instruments: Classification and Measurement Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement Presentation of Items of Other Comprehensive Income (Amendment) 1 January 2015 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 July 2012 Income Taxes (Amendment) - Deferred Taxes: Recovery of underlying assets 1 January 2012 IAS 19 (revised) Employee Benefits IAS 27 (revised) Separate Financial Statements IAS 28 (revised) Investments in Associates and Joint Ventures 1 January 2013 1 January 2013 1 January 2013 *The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretations but the need for endorsement restricts the Group’s discretion to early adopt standards. The Group has not early adopted any of the above standards. 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. Operating profit The Group’s investment in associate Farmers Boy (Deeside) Limited was made in July 2010 and was disposed of in March 2012 and therefore does not form part of the on-going operations of the Group. Previously, the Group income statement included a subtotal of Operating profit which included the share of results of the associate but in light of the disposal, the directors consider it appropriate to present instead new subtotals of Group operating profit prior to the results of the associate, and Profit before net finance costs. 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. Cranswick plc Report & Accounts 2012 53 2. Accounting policies (continued) Taxation Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Deferred tax is provided on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: i) except where the deferred income tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit or loss; and ii) in respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available against which the temporary differences can be utilised: i) except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or a liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and ii) in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are measured at the tax rates that apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income taxes relating to items recognised in other comprehensive income or directly in equity are also recognised in other comprehensive income or directly in equity and not in the income statement. Otherwise income tax is recognised in the income statement. 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. 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. There have been no business combinations giving rise to goodwill or other intangible assets subsequent to 1 April 2010. 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. Property, plant and equipment Property, plant and equipment are included at cost less accumulated depreciation and any provision for impairment. 54 Report & Accounts 2012 Cranswick plc 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. Investments Investments in subsidiaries are shown at cost less any provision for impairment. Interest in associates The Group’s investment in its associate is accounted for using the equity method, initially recognised at fair value. An associate is an entity in which the Group has significant influence. Under the equity method, the investment in an associate is carried in the balance sheet at deemed cost (being its fair value on initial recognition) plus post-acquisition changes in the Group’s share of net assets of the associate, less distributions received and less any impairment in value of individual investments. Any goodwill arising on the acquisition of an associate is included within the carrying amount of the associate and is neither amortised nor tested for impairment. The share of profit or loss of the associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and therefore is profit after tax. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the Group Statement of Changes in Equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The financial statements of the associate were prepared for the period to 30 January 2012 and have been updated to 31 March 2012 with reference to management accounts. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. 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 subsidary 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. Cranswick plc Report & Accounts 2012 55 2. Accounting policies (continued) 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 of the asset and the term of the lease. The interest element of the rental obligations is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remainder of the capital amount outstanding. ii) Operating leases Leases, which are not finance leases, are classified as operating leases. Lease payments are charged to the income statement on a straight line basis over the term of the lease. Government grants and contributions UK Regional Development Grants and grants receivable from the European Union and DEFRA in respect of property, plant and equipment are credited to deferred income and released to the income statement over the relevant depreciation period. Inventories Inventories 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. 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 other comprehensive income and the ineffective portion is recognised in the income statement. Gains or losses recognised in comprehensive income are transferred to the income statement in the same period in which the hedged item affects the net profit or loss. If a forecast transaction is no longer expected to occur, amounts previously recognised in other comprehensive income are transferred to the income statement. 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. 56 Report & Accounts 2012 Cranswick plc Financial assets – Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, do not qualify as trading assets and have not been designated as either fair value through profit and loss or available-for-sale. Such assets are carried at amortised cost using the effective interest method if the time value of money is significant. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Foreign currencies In the accounts of each entity in the Group, 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 settlement of individual foreign currency transactions and movements on monetary assets and liabilities are dealt with in the income statement. Treasury shares Cranswick plc shares held by the Group are deducted from equity as “treasury shares” and are recognised at cost. Consideration received on the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to retained earnings. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of equity shares. Employee benefits i) Pensions A subsidiary of the Group operates a defined benefit pension scheme for certain employees which requires contributions to be made to a separate trustee administered fund. The scheme was closed to new members on 30 June 2004. The liability recognised in the balance sheet in respect of the defined benefit pension scheme is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in sterling, and that have terms to maturity approximating to the terms of the related pension liability. The amounts charged to operating profit are any gains and losses on settlements and curtailments, and these are included as part of staff costs. Past-service costs are recognised immediately in income, unless the changes to the pension scheme are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. The difference between the interest cost on plan liabilities and the expected return on plan assets is recognised in the income statement as other finance revenue or costs. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of comprehensive income in the period in which they arise. The Group also 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’). In addition, the Group operates an Executive share option scheme (albeit currently not in use) and a Long Term Incentive Plan (‘LTIP’) for senior Executives. Share options awarded are exercisable subject to the attainment of certain market based and non-market based performance criteria. Cranswick plc Report & Accounts 2012 57 2. Accounting policies (continued) ii) Equity settled share-based payments (continued) The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using the Black-Scholes option pricing model. In valuing equity-settled transactions, no account is taken of any service and performance (vesting conditions), other than performance conditions linked to the price of the shares of the Company (market conditions). Any other conditions which are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting conditions. Like market performance conditions, non-vesting conditions are taken into account in determining the grant date fair value. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance or service conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated; representing the extent to which the vesting period has expired and management’s best estimate of the number of equity instruments that will ultimately vest. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative. Where an equity-settled award is cancelled (including when a non-vesting condition within the control of the entity or employee is not met), it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement. On transition to IFRS, the Group did not apply the measurement rules of IFRS 2 to equity settled awards granted before 7 November 2002 or granted after that date and vested before 1 January 2005. However later modifications of such equity instruments are measured under IFRS 2. 3. Business and geographical segments IFRS 8 requires operating segments to be identified on the basis of the internal financial information reported to the Chief Operating Decision Maker (‘CODM’). The Group’s CODM is deemed to be the Executive Directors on the Board, who are primarily responsible for the allocation of resources to segments and the assessment of performance of the segments. The CODM assesses profit performance using profit before taxation measured on a basis consistent with the disclosure in the Group accounts. The Group reports on one reportable segment: • Food – Manufacture and supply of food products to UK grocery retailers, the food service sector and other food producers. All Group revenues are received for the provision of goods; no revenues are received in relation to the provision of services. Geographical segments The following table sets out sales by destination, regardless of where the goods were produced: UK Continental Europe Rest of World The Group’s non-current assets were all located within the UK for both 2012 and 2011. 58 Report & Accounts 2012 Cranswick plc 2012 £’000 794,047 26,482 246 820,775 2011 £’000 737,717 19,459 1,266 758,442 Customer concentration The Group has 2 customers which individually account for greater than 10 per cent of the Group’s total net revenue. These customers account for 27 per cent and 25 per cent respectively. In the prior year these same two customers accounted for 27 per cent and 24 per cent respectively. 4. Group operating profit This is stated after charging/ (crediting): Operating costs: Selling and distribution Administration excluding impairment Impairment of goodwill Total operating expenses Depreciation of property, plant and equipment Impairment of goodwill Profit arising on transfer of business to associate Release of government grants Operating lease payments – minimum lease payments Net foreign currency differences Cost of inventories recognised as an expense (Decrease)/ increase in provision for inventories Auditors’ remuneration Audit of these financial statements Other fees: - Local statutory audits of subsidiaries - Tax services - Other services 2012 £’000 32,358 23,076 55,434 4,924 60,358 13,972 4,924 - 55 ( ) 3,662 204 ( ) 559,967 423 ( ) 25 126 124 79 2011 £’000 31,293 20,832 52,125 - 52,125 12,440 - 297 ( ) 12 4,401 9 510,882 337 25 122 74 44 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. Tax services included tax compliance work and a review of allowable expenses. 5. Employees Group Staff costs: Wages and salaries Social security costs Other pension costs 2012 £’000 90,144 8,468 1,286 99,898 2011 £’000 84,277 7,943 1,435 93,655 Included within wages and salaries is a total expense for share-based payments of £1,501,000 (2011: £1,013,000) all of which arises from transactions accounted for as equity-settled share-based payment transactions. Cranswick plc Report & Accounts 2012 59 5. Employees (continued) The average monthly number of employees during the year was: Group Production Selling and distribution Administration 2012 Number 3,591 279 197 4,067 2011 Number 3,655 258 239 4,152 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 30 to 35. The employee costs shown above include the following remuneration in respect of Directors of the Company: Group and Company Directors’ remuneration Pension contribution Aggregate gains made by Directors on exercise of share options Number of Directors receiving pension contributions under money purchase schemes 6. Finance revenue and costs Finance revenue Finance revenue from loans receivable Finance costs Bank interest paid and similar charges Total interest expense for financial liabilities not at fair value through profit or loss Net finance cost on defined benefit pension deficit (note 24) Finance charge payable under finance leases and hire purchase contracts Movement in discount on provisions (note 20) Total finance costs 2012 £’000 4,567 259 4,826 638 5 2012 £’000 151 1,080 1,080 53 17 4 1,154 2011 £’000 2,528 386 2,914 544 5 2011 £’000 106 1,681 1,681 9 26 13 1,729 The interest relates to financial assets and liabilities carried at amortised cost together with the impact of interest rate swaps. 60 Report & Accounts 2012 Cranswick plc 7. Taxation a) Analysis of tax charge in the year Tax charge based on the profit for the year: Current income tax: UK corporation tax on profits for the year Adjustments in respect of prior years Total current tax Deferred tax: Origination and reversal of temporary differences Deferred tax rate change Adjustments in respect of prior years Total deferred tax 2012 £’000 11,998 569 ( ) 11,429 89 736 ( ) 89 558 ( ) 2011 £’000 13,436 275 ( ) 13,161 1,092 ( ) 668 ( ) 367 1,393 ( ) Tax on profit on ordinary activities 10,871 11,768 Tax relating to items charged or credited to other comprehensive income or directly to equity: Group Recognised in Group statement of comprehensive income Deferred tax on revaluation of cash flow hedges Deferred tax on actuarial (loss)/ gain on defined benefit pension scheme Recognised in Group statement of changes in equity Deferred tax on share-based payments Corporation tax credit on share options exercised Total tax credit recognised directly in equity Company Recognised in Company statement of comprehensive income Deferred tax on revaluation of cash flow hedges Recognised in Company statement of changes in equity Deferred tax (credit)/ charge on share-based payments Total tax (credit)/ charge recognised directly in equity 2012 £’000 51 ( ) 841 ( ) 892 ( ) 52 163 ( ) 111 ( ) 1,003 ( ) 2012 £’000 - 10 ( ) 10 ( ) 2011 £’000 72 162 234 180 ( ) 77 ( ) 257 ( ) 23 ( ) 2011 £’000 108 7 115 Cranswick plc Report & Accounts 2012 61 7. Taxation (continued) b) Factors affecting tax charge for the period The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 26 per cent (2011: 28 per cent) Effect of: Disallowed expenses Deferred tax rate change Share-based payment deduction Deferred tax on disposal of assets to associate Non-taxable amount on disposal of associate Impairment of goodwill 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 on defined benefit pension scheme Deferred tax liability The deferred tax included in the income statement is as follows: Deferred tax in the income statement Accelerated capital allowances Rollover relief Other temporary differences Share-based payments Deferred tax on defined benefit pension scheme Deferred tax credit Company The deferred tax included in the balance sheet is as follows: Deferred tax asset in the balance sheet Accelerated capital allowances Other temporary differences Share-based payments Deferred tax asset 62 Report & Accounts 2012 Cranswick plc 2012 £’000 48,351 12,571 453 736 ( ) 199 ( ) - 2,018 ( ) 1,280 480 ( ) 10,871 2012 £’000 9,128 78 27 858 ( ) 1,282 ( ) 7,093 2012 £’000 634 ( ) 42 ( ) 58 ( ) 140 ( ) 317 557 ( ) 2012 £’000 42 ( ) 123 ( ) 225 ( ) 390 ( ) 2011 £’000 47,094 13,186 244 668 ( ) 67 ( ) 1,019 ( ) - - 92 11,768 2011 £’000 9,762 120 135 769 ( ) 758 ( ) 8,490 2011 £’000 2,042 ( ) 9 ( ) 282 203 ( ) 579 1,393 ( ) 2011 £’000 23 139 ( ) 165 ( ) 281 ( ) d) Temporary differences associated with Group investments At 31 March 2012 a £nil tax liability has been recognised (2011: £nil) in respect of any taxes that would be payable on the unremitted earnings of certain subsidiaries, as receipt by the Group of any dividends would be exempt from UK corporation tax. There are no income tax consequences to the Group in relation to dividends paid to Shareholders. e) Change in Corporation Tax rate The March 2011 Budget announced that the UK corporation tax rate would reduce from 28 per cent to 23 per cent over a period of four years from 2011, the March 2012 budget announced a further overall reduction to 22 per cent. The second reduction in the UK corporation tax rate from 26 per cent to 24 per cent was substantively enacted on 21 March 2012 and will be effective from 1 April 2012. This will reduce the Company’s future current tax charge accordingly. As a consequence, deferred tax has been provided at 24 per cent in the year to 31 March 2012. The aggregate impact of the proposed reductions from 24 per cent to 22 per cent would reduce the deferred tax liability of the Group by approximately £591,000 and reduce the deferred tax asset of the Company by £33,000. 8. Profit attributable to members Of the profit attributable to members, the sum of £24,837,000 (2011: £15,924,000) has been dealt with in the accounts of Cranswick plc. 9. Equity dividends Declared and paid during the year: Final dividend for 2011 – 18.7p per share (2010: 17.0p) Interim dividend for 2012 – 9.0p per share (2011: 8.8p) Dividends paid 2012 £’000 8,910 4,291 13,201 2011 £’000 8,047 4,180 12,227 Proposed for approval of Shareholders at the Annual General Meeting on 1 August 2012: Final dividend for 2012 – 19.5p (2011: 18.7p) 9,368 8,901 10. 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 £37,480,000 (2011: £35,326,000) 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 weighted average number of ordinary shares for both basic and diluted amounts was as per the table below: Basic weighted average number of shares Dilutive potential ordinary shares – share options 2012 Thousands 2011 Thousands 47,709 92 47,801 47,408 162 47,570 Basic weighted average number of shares for 2012 excludes a weighted average of 17,377 shares (2011: 69,431 shares) held during the year by the Cranswick plc Employee Benefit Trust and a weighted average of 7,806 treasury shares (2011: nil treasury shares) held during the year by the Group. At 31 March 2012 no shares were held by either the Trust or the Group (2011: 39,363 held by the Trust). Cranswick plc Report & Accounts 2012 63 10. Earnings per share (continued) Adjusted earning per share The Group acquired an interest in associate Farmers Boy (Deeside) Limited in the prior year, and disposed of the investment in the current year (note 14). In addition, the Group impaired the carrying value of goodwill in relation to its Sandwiches cash generating unit (note 11). As the investment in the associate and the goodwill impairment do not form part of the on-going business of the Group the directors consider it appropriate to present an adjusted EPS on the face of the income statement which excludes the effect of the associate from both years and the goodwill impairment from the current year, thus facilitating better comparison with prior and future periods. Adjusted earnings per share are calculated using the weighted average number of shares for both basic and diluted amounts as per the table above. Net profits excluding the effect of the associate and goodwill impairment are derived as follows: Profit for the year Share of results of associate Profit on disposal of associate Fair value adjustment to put option in relation to associate Gain arising on transfer of business to associate Deferred tax credit on transfer of business to associate Impairment of goodwill Profit for the year excluding effect of associate and goodwill impairment 2012 £’000 37,480 712 ( ) 8,254 ( ) 95 - - 4,924 34,767 11. Intangible fixed assets Group Cost At 31 March 2010 On transfer of business to associate (note 14) At 31 March 2011 and 31 March 2012 Impairments As at 31 March 2010 and 2011 Impairment loss As at 31 March 2012 Net book value At 31 March 2010 At 31 March 2011 At 31 March 2012 2011 £’000 35,326 434 - 55 ( ) 297 ( ) 1,019 - 34,499 Goodwill £’000 128,739 976 ( ) 127,763 - 4,924 4,924 128,739 127,763 122,839 During the prior year, the principal assets and trade of the Group’s Deeside cooked meats facility were transferred to Farmers Boy (Deeside) Limited, with 49 per cent of the shares in Farmers Boy (Deeside) Limited being received as consideration (note 14). As a result of the Deeside cooked meats facility leaving the Group goodwill relating to the cooked meats cash generating unit was reduced proportionately, based on assessment of the relative value of the portion of the cash generating unit disposed of compared to the relative value of the portion of the cash generating unit retained. 64 Report & Accounts 2012 Cranswick plc Impairment Testing 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 Fresh pork Cooked meats Sandwiches Continental Fine Foods Other Assumptions used 2012 £’000 12,231 84,679 11,602 10,968 3,359 122,839 2011 £’000 12,231 84,679 16,526 10,968 3,359 127,763 The recoverable amount for each cash generating unit has been determined based on value in use calculations using annual budgets for each business for the following year, approved by the Board of Directors, and cash flow projections for the next four years. Forecast replacement capital expenditure is included from budgets and thereafter capital is assumed to represent 100 per cent of depreciation. Subsequent cash flows are forecast to grow in line with an assumed long-term industry growth rate of between 3 and 5 per cent derived from third party market information, including Kantar Worldpanel data. A pre-tax discount rate of 8.8 per cent has been used (2011: 8.8 per cent) being management’s estimate of the weighted average cost of capital. The calculation is most sensitive to the following assumptions: Sales volumes 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 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 and with reference to budget forecasts. Discount rates All calculations of this nature are sensitive to the discount rate used. Management’s estimate of the weighted average cost of capital has been used for each cash generating unit. Sensitivity Following the impairment of goodwill attributable to the Sandwiches cash generating unit, as described below, management believes that currently there is no reasonably possible change to the assumptions that would reduce the value in use below the value of the carrying amount for any of the Group’s other cash generating units. Assumptions and projections are updated on an annual basis. Impairment of Sandwiches cash generating unit The Group performed its annual impairment test as at 31 March 2012, in line with the process described above. The Sandwiches cash generating unit has historically been the most sensitive to a reasonably possible change in assumptions. In the prior year, we noted that a 0.3 per cent reduction in the growth of operating cash flows to 2.7 per cent would reduce the value in use to a level equal to its carrying value. Cranswick plc Report & Accounts 2012 65 11. Intangible fixed assets (continued) The projected cash flows for the current year were updated to reflect the latest Sandwiches budget for the year ending 31 March 2013, expected future growth rate assumptions of 3 per cent (2011: 3 per cent) and post year end trading. Based on these calculations, which gave a value in use below the value of the carrying amount, and on-going economic uncertainty, the Group has recognised an impairment loss within administration expenses for goodwill allocated to the Sandwiches cash generating unit of £4,924,000 (2011: £nil). Following the recognition of this impairment loss the carrying amount is the same as the recoverable amount, so any further adverse change in key assumptions would lead to an additional impairment loss. The Group has no other intangible assets. 12. Property, plant and equipment Group Cost At 31 March 2010 Additions Disposals Disposal of assets to associate Transfers between categories At 31 March 2011 Additions Disposals Transfers between categories At 31 March 2012 Depreciation At 31 March 2010 Charge for the year Relating to disposals Relating to disposal of assets to associate At 31 March 2011 Charge for the year Relating to disposals At 31 March 2012 Net book amounts At 31 March 2010 At 31 March 2011 At 31 March 2012 Freehold land and buildings £’000 41,960 11,515 15 ( ) 273 ( ) 6,038 59,225 1,442 100 ( ) 7,294 67,861 3,132 949 1 ( ) - 4,080 1,261 13 ( ) 5,328 38,828 55,145 62,533 Leasehold Plant, Assets in the Total improvements equipment course of and vehicles construction £’000 £’000 £’000 £’000 15,682 621 - 7,887 ( ) - 8,416 596 - - 112,263 14,900 3,160 ( ) 11,769 ( ) 7,256 119,490 19,694 631 ( ) 546 9,012 139,099 8,412 551 - 4,507 ( ) 4,456 459 - 4,915 7,270 3,960 4,097 64,499 10,940 2,755 ( ) 9,511 ( ) 63,173 12,252 549 ( ) 74,876 47,764 56,317 64,223 12,275 8,859 - - 13,294 ( ) 7,840 - - 7,840 ( ) - - - - - - - - - 12,275 7,840 - 182,180 35,895 ( ) 3,175 ( ) 19,929 - 194,971 21,732 731 ( ) - 215,972 76,043 12,440 2,756 ( ) 14,018 ( ) 71,709 13,972 562 ( ) 85,119 106,137 123,262 130,853 Included in freehold land and buildings is land with a cost of £5,263,000 (2011: £5,145,000) which is not depreciated relating to the Group and £509,000 (2011: £509,000) relating to the Company. Cost includes £1,001,000 (2011: £1,001,000) in respect of capitalised interest. 66 Report & Accounts 2012 Cranswick plc Company Cost At 31 March 2010 Additions Transfers to other Group companies At 31 March 2011 Additions At 31 March 2012 Depreciation At 31 March 2010 Charge for the year Transfers to other Group companies At 31 March 2011 Charge for the year At 31 March 2012 Net book amounts At 31 March 2010 At 31 March 2011 At 31 March 2012 13. Investments Company Shares at cost: At 31 March 2010 Capital contribution relating to share options Additions (note 14) At 31 March 2011 Capital contribution relating to share options Disposals At 31 March 2012 Freehold land and buildings £’000 1,956 - 1,447 ( ) 509 - 509 181 - 181 ( ) - - - 1,775 509 509 Plant, equipment and vehicles £’000 341 22 22 ( ) 341 65 406 163 88 8 ( ) 243 74 317 178 98 89 Total £’000 2,297 22 1,469 ( ) 850 65 915 344 88 189 ( ) 243 74 317 1,953 607 598 Subsidiary undertakings Associates £’000 £’000 156,790 427 - 157,217 1,121 - 158,338 - - 5,911 5,911 - 5,911 ( ) - During the prior year, the Company acquired a 49 per cent shareholding in Farmer’s Boy (Deeside) Limited. The Company treated its shareholding in Farmer’s Boy (Deeside) Limited, over which it had significant influence, as an associate, recognising the associate at its cost of £5,911,000. On 30 March 2012, the Group sold its shareholding in the associate to the majority shareholder (note 14). Cranswick plc Report & Accounts 2012 67 13. Investments (continued) The principal subsidiary undertakings during the year were: Food Cranswick Country Foods plc Cranswick Country Foods (Norfolk) Limited (Held by Cranswick Country Foods plc) Cranswick Convenience Foods Limited The Sandwich Factory Group Limited (registered in Scotland) 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. 14. Investment in associate Group On 9 July 2010, the principal assets and trade of the Group’s Deeside cooked meats facility were transferred to Farmers Boy (Deeside) Limited, with 49 per cent of the shares in Farmer’s Boy (Deeside) Limited being received as consideration. The Group treated its 49 per cent shareholding in Farmer’s Boy (Deeside) Limited, over which it had significant influence, as an associate and accounted for it using the equity method, initially recognising the associate at its fair value. As a result of the Deeside cooked meats facility leaving the Group, a proportionate amount of goodwill relating to the cooked meats cash generating unit was disposed of (note 11). The transaction also included a put and call option over the Group’s 49 per cent shareholding exercisable during a six month period commencing three years from the date of the transaction. The initial transaction in the prior year was accounted for as follows: Book value of assets disposed Fair value of 49 per cent shareholding acquired Difference between acquisition fair value and cost of associate Disposal of goodwill on transfer of business to associate (note 11) Recognition of put option at fair value Non-cash total Legal expenses Total within profit before tax Related deferred tax credit Cash flow impact On 30 March 2012 the Group sold its shareholding in Farmers Boy (Deeside) Limited to the majority shareholder. Details of the assets disposed and the consideration received are as follows: Book value of associate Book value of put option in relation to associate Total book value of assets disposed Consideration received in cash Profit on disposal of associate 68 Report & Accounts 2012 Cranswick plc 2011 £’000 5,911 ( ) 6,225 314 976 ( ) 1,127 465 168 ( ) 297 1,019 168 ( ) 2012 £’000 5,079 1,167 6,246 14,500 8,254 If the disposal had not occured, the put and call options would have been remeasured at their fair value at the reporting date based on a valuation model, since the shares that were held in the associate were unquoted. However, in view of the disposal of the interest in the associate together with the associated option arrangements, the directors do not consider it meaningful to distinguish the fair value movements of the options during the second half of the financial year from the overall disposal gains. The following table illustrates the summarised financial information of the Group’s investment in Farmers Boy (Deeside) Limited from the date of the transaction in the prior year and to the date of disposal in the current year: Share of the associate’s balance sheet: Non-current assets Current assets Current liabilities Non-current liabilities Share of net assets Share of the associate’s results: Revenue Loss for the year 15. Inw Group Raw materials Finished goods and goods for resale 16. Trade and other receivables Financial assets: Trade receivables Amounts owed by Group undertakings Other receivables Non-financial assets: Prepayments and accrued income Financial assets are carried at amortised cost. 2012 £’000 - - - - - 2011 £’000 15,070 6,573 6,427 ( ) 9,425 ( ) 5,791 42,821 17,684 712 ( ) 434 ( ) 2012 £’000 26,847 11,669 38,516 Group Company 2012 £’000 76,169 - 4,981 81,150 4,384 85,534 2011 £’000 69,398 - 5,119 74,517 4,148 78,665 2012 £’000 - 8,539 27 8,566 268 8,834 2011 £’000 29,929 5,765 35,694 2011 £’000 - 10,581 73 10,654 364 11,018 Cranswick plc Report & Accounts 2012 69 16. Trade and other receivables (continued) As at 31 March, the analysis of trade receivables that were past due but not impaired was as follows: Group Trade receivables 2012 2011 £’000 76,169 69,398 Of which: Not due £’000 64,593 60,771 Past due date in the following periods: Less than Between 30 30 days and 60 days £’000 9,796 5,937 £’000 1,084 1,411 More than 60 days £’000 696 1,279 Trade receivables are non-interest bearing and are generally on 30-60 day terms and are shown net of any provision for impairment. As at 31 March 2012, trade receivables at nominal value of £1,162,000 (2011: £558,000) 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 2010 Provided in year Written off At 31 March 2011 Provided in year Written off At 31 March 2012 There are no bad debt provisions against other receivables. 17. Financial assets Current Forward currency contracts Loans receivable Movement on hedged items: (Losses)/ gains arising in the year Reclassification adjustment for (gains) /losses included in the income statement 70 Report & Accounts 2012 Cranswick plc £’000 639 47 128 ( ) 558 703 99 ( ) 1,162 2011 £’000 - - - 2011 £’000 124 ( ) 511 387 Group Company Group 2012 £’000 - 696 696 2012 £’000 69 ( ) 146 ( ) 215 ( ) 2011 £’000 146 350 496 2011 £’000 22 248 270 Company 2012 £’000 - - - 2012 £’000 - - - Movements on hedged foreign currency contracts are reclassified through cost of sales. Interest rate movements on hedged bank borrowings are reclassified through finance costs. Non-current Loans receivable Put option in relation to associate Financial assets relate to the following: Group Company 2012 £’000 1,398 - 1,398 2011 £’000 3,650 1,072 4,722 2012 £’000 - - - 2011 £’000 - 1,072 1,072 • Forward currency contracts used to hedge a proportion of anticipated purchases denominated in foreign currencies and 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 other comprehensive income and are then reclassified through the income statement in the period during which the hedged item impacts the income statement. A description of amounts and maturities is contained in note 21. • £nil (2011: £1,500,000) receivable from East Anglian Pigs Limited, the management buyout team which acquired the pig rearing division of Bowes of Norfolk Limited concurrently with Cranswick plc’s acquisition of the company. The loan, which was held at amortised cost, was repaid early, in full, on 28 March 2012. Interest was receivable on the loan at Bank of England base rate plus 3 per cent. • £2,094,000 (2011: £2,500,000) receivable from Thomas Dent Limited, a supplier to the Group. Repayment of the loan, which is held at amortised cost, is receivable in 43 equal monthly instalments which commenced on 30 September 2011. Interest is receivable on the loan at Bank of England base rate plus 3 per cent. • The transaction described in note 14 included a put and call option over the Group’s 49 per cent shareholding in Farmers Boy (Deeside) Limited exercisable during a six month period commencing three years from the date of the original transaction. The exercise price of the option was based on an agreed pricing structure. The option was exercised early at the agreement of both parties on 30 March 2012 as described in note 14. 18. Trade and other payables Current Trade payables Amounts owed to Group undertakings Other payables Deferred income – Government grants Non-current Group Company 2012 £’000 62,494 - 28,520 64 91,078 2011 £’000 57,497 - 27,366 78 84,941 2012 £’000 162 36,586 4,898 - 41,646 2011 £’000 80 33,340 3,527 - 36,947 Deferred income – Government grants 462 354 - - Cranswick plc Report & Accounts 2012 71 19. Financial liabilities Current Bank overdrafts Finance leases and hire purchase contracts Interest rate swap Forward currency contracts Non-current Amounts outstanding under revolving credit facility Finance leases and hire purchase contracts Group Company 2012 £’000 1,312 243 - 69 1,624 42,246 55 42,301 2011 £’000 3,925 271 160 - 4,356 48,987 299 49,286 2012 £’000 - - - - - 42,246 - 42,246 2011 £’000 2,742 - 160 - 2,902 48,987 - 48,987 None of the finance leases and hire purchase contracts has amounts due after greater than 5 years. Interest rate swap Under the terms of the interest rate swap (relating to the Group’s previous bank facilities, which have now been repaid) the Group received LIBOR interest and paid fixed interest of 2.04 per cent. The notional principal amount of the swap stood at £nil as at 31 March 2012 (2011: £19,750,000) and reduced in equal quarterly instalments of £1,750,000 with a final notional payment of principal of £16,250,000 in December 2011. All financial liabilities are amortised at cost, except for forward currency contracts and interest rate swaps which are carried at fair value. Interest rate swaps were not hedge accounted in the period. Bank facilities The Group renegotiated its banking facilities during the prior year, on 24 March 2011, with arrangement fees of £1.0 million being paid in the current year. The arrangement fees are being amortised over the period of the facilities. A committed bank overdraft facility of £20 million (2011: £20 million) is in place until July 2015, of which £1,312,000 (2011: £3,925,000) was utilised at 31 March 2012. Interest is payable at a margin over base rate. A revolving credit facility of £100 million (including the £20 million committed overdraft facility) is in place of which £43 million was utilised as at 31 March 2012 (2011: a revolving credit facility of £100 million of which £50 million was utilised). This facility expires in July 2015. Interest is payable on the revolving credit facility at a margin over 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 years and five years Unamortised issue costs 2012 £’000 - - 43,000 43,000 754 ( ) 42,246 2011 £’000 - - 50,000 50,000 1,013 ( ) 48,987 2012 £’000 - - 43,000 43,000 754 ( ) 42,246 2011 £’000 - - 50,000 50,000 1,013 ( ) 48,987 The bank facilities for both years are unsecured and subject to normal bank covenant arrangements. 72 Report & Accounts 2012 Cranswick plc 20. Provisions Group At 1 April 2011 Credited in the year Unwinding of discount At 31 March 2012 Analysed as: Current liabilities Non-current liabilities Lease provisions £’000 468 83 ( ) 4 389 2011 £’000 59 409 468 2012 £’000 389 - 389 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 year. There are no provisions held by the Company. 21. Financial instruments An explanation of the Company and Group’s financial instruments risk management strategy is set out on pages 16 to 17 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 2012 and their weighted average interest rates is set out below: Group As at 31 March 2012 Financial liabilities: Bank overdrafts Revolving credit facility Finance leases and hire purchase contracts Financial assets: Cash at bank Loans receivable Weighted average effective interest rate % 1.50% 1.70% 4.37% Total At floating interest rates 1 year or less Fixed interest 1-2 years 2-3 years £’000 £’000 £’000 £’000 £’000 1,312 ( ) 1,312 ( ) 43,000 ( ) 43,000 ( ) 298 ( ) - 44,610 ( ) 44,312 ( ) - - 243 ( ) 243 ( ) - - - - 55 ( ) 55 ( ) - - - - - - - - - 0.00% 3.50% 20,100 2,094 20,100 2,094 22,416 ( ) 22,118 ( ) 243 ( ) 55 ( ) Cranswick plc Report & Accounts 2012 73 21. Financial instruments (continued) 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 1.50% 3,925 ( ) 3,925 ( ) - (including the effect of interest rate swaps) Finance leases and hire purchase contracts 2.18% 4.37% 50,000 ( ) 30,250 ( ) 19,750 ( ) 570 ( ) 54,495 ( ) - - 34,175 ( ) 19,750 ( ) 271 ( ) 20,021 ( ) 19,750 - - 244 ( ) 244 ( ) - - - 55 ( ) 55 ( ) - As at 31 March 2011 Financial liabilities: Bank overdrafts Revolving credit facility Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps Financial assets: Cash at bank Loans receivable 54,495 ( ) 53,925 ( ) 271 ( ) 244 ( ) 55 ( ) 0.00% 3.50% 1,302 4,000 1,302 4,000 - - - - - - 49,193 ( ) 48,623 ( ) 271 ( ) 244 ( ) 55 ( ) The maturity profile of bank loans is set out in note 19. The interest rate profile of the interest earning financial assets and interest bearing liabilities of the Company as at 31 March 2012 and their weighted average interest rates is set out below: Company Fixed interest As at 31 March 2012 Weighted Total At 1 year 1-2 years 2-3 years Financial liabilities: Amounts owed to Group undertakings Revolving credit facility Financial assets: Cash at bank average effective interest rate % 1.50% 1.70% floating interest rates or less £’000 £’000 £’000 £’000 £’000 133,400 ( ) 133,400 ( ) 43,000 ( ) 43,000 ( ) 176,400 ( ) 176,400 ( ) - - - - - - - - - 0.00% 18,137 18,137 - - - 158,263 ( ) 158,263 ( ) - - - 74 Report & Accounts 2012 Cranswick plc As at 31 March 2011 Weighted Total At 1 year 1-2 years 2-3 years Fixed interest average effective interest rate % floating interest rates or less £’000 £’000 £’000 £’000 £’000 Financial liabilities: Bank overdrafts Amounts owed to Group undertakings Revolving credit facility 1.50% 1.50% 2,742 ( ) 2,742 ( ) 129,400 ( ) 129,400 ( ) - - (including the effect of interest rate swaps) 2.18% 50,000 ( ) 30,250 ( ) 19,750 ( ) 182,142 ( ) 162,392 ( ) 19,750 ( ) - 19,750 ( ) 19,750 182,142 ( ) 182,142 ( ) - - - - - - - - - - - - - 0.00% 1 1 - - - 182,141 ( ) 182,141 ( ) - - - Less: effect of interest rate swaps Total financial liabilities excluding the effect of interest rate swaps Financial assets: Cash at bank Currency profile The Group’s financial assets at 31 March 2012 include sterling denominated cash balances of £18,834,000 (2011: £792,000), euro £1,265,000 (2011: £506,000), US dollar £nil (2011: £4,000) and Danish Krona £1,000 (2011: £nil), all of which are held in the UK. The Group’s financial liabilities include sterling denominated overdraft balances of £1,312,000 (2011: £3,718,000) and euro £nil (2011: £207,000), all of which are held in the UK. The proportion of the Group’s net assets denominated in foreign currencies is immaterial. The Group’s other financial assets and liabilities are denominated in sterling. 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. Debts with other customers, which represent a smaller proportion of the Group’s trade receivables are considered to provide greater risk, particularly in the current economic climate. These debts are reviewed on a regular basis by credit controllers and senior management and prudent provision is made when there is objective evidence that the Group will not be able to recover balances in full. All cash financial assets are held by UK financial institutions. The maximum credit exposure relating to financial assets is represented by their carrying values as at the balance sheet date. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Cranswick plc Report & Accounts 2012 75 21. Financial instruments (continued) The Group’s forward currency contracts are measured using Level 2 of the fair value hierarchy. The Group’s put option in relation to its 49 per cent shareholding in Farmers Boy (Deeside) Limited (note 14) was measured using level 3 of the fair value hierarchy. The fair value of the option was based on discounted cash flows derived from the associate’s budgets and business plan. The option was exercised and the Group’s investment in the associate sold to the majority shareholder on 30 March 2012 (note 14). The Group’s 5.5 per cent retained shareholding in the Aquatics business of Pet and Aquatics Properties Limited would also have been classified as level 3, however as the investment is an unquoted entity and cannot be reliably measured the Directors consider that its value is immaterial and no fair value has been applied. 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. The fair value of floating rate assets and liabilities is estimated to be equivalent to book value. All derivative financial instruments are shown in the balance sheet at fair value. Group 2012 2011 Financial assets Cash Loans receivable Put option in relation to associate Forward currency contracts Book value £’000 20,100 2,094 - - Fair value £’000 20,100 2,094 - - 22,194 22,194 Financial liabilities Bank overdraft 1,312 ( ) Amounts outstanding under revolving credit facility 43,000 ( ) Finance leases and hire purchase contracts Interest rate swap – (note 19) Forward currency contracts 298 ( ) - 69 ( ) 1,312 ( ) 43,000 ( ) 298 ( ) - 69 ( ) Book value £’000 1,302 4,000 1,072 146 6,520 3,925 ( ) 50,000 ( ) 570 ( ) 160 ( ) - Fair value £’000 1,302 4,000 1,072 146 6,520 3,925 ( ) 50,000 ( ) 570 ( ) 160 ( ) - At 31 March 22,485 ( ) 22,485 ( ) 48,135 ( ) 48,135 ( ) 44,679 ( ) 44,679 ( ) 54,655 ( ) 54,655 ( ) 76 Report & Accounts 2012 Cranswick plc Company 2012 2011 Financial assets Cash Put option in relation to associate Financial liabilities Bank overdraft Book value £’000 18,137 - 18,137 - Amounts outstanding under revolving credit facility 43,000 ( ) Interest rate swap – (note 19) - 43,000 ( ) Fair value £’000 18,137 - 18,137 - 43,000 ( ) - 43,000 ( ) Book value £’000 1 1,072 1,073 ( ) 2,742 ( ) 50,000 ( ) 160 ( ) 52,902 Fair value £’000 1 1,072 1,073 ( ) 2,742 ( ) 50,000 ( ) 160 ( ) 52,902 At 31 March 24,863 ( ) 24,863 ( ) ( ) 51,829 ( ) 51,829 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 other comprehensive income and subsequently reclassified through the income statement at the time that the hedged item affects profit or loss. Group Currency euros Amount 7,500,000 Maturities Exchange rates 2 April 2012 to 16 July 2012 1.17 – 1.20 euros Fair value £’000 ( ) 69 These contracts were effective cash flow hedges under the criteria set out in IAS 39 and therefore fair value gains and losses related to the contracts were recognised directly in other comprehensive income. The Company does not hold any forward contracts. ii) Interest rate swaps Until December 2011, the Group hedged a proportion of the interest cash flows payable in respect of bank loans. Under the terms of the interest rate swap (relating to the Group’s previous bank facilities, which have now been repaid) the Group received LIBOR interest and paid fixed interest of 2.04 per cent. The notional principal amount of the swap stood at £nil as at 31 March 2012 (2011: £19,750,000) and reduced 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 ineffective cash flow hedge under the criteria set out in IAS 39 and accordingly hedge accounting had ceased. Therefore movements in fair value have been posted directly to the income statement. Cranswick plc Report & Accounts 2012 77 21. Financial instruments (continued) 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. 2012 sterling 2011 sterling Liquidity risk Increase/ decrease in basis points +100 -100 +100 -100 Effect on profit before tax £’000 ( ) 467 467 ( ) 293 293 The tables below summarise the maturity profile of the Group’s financial liabilities at 31 March 2012 and 2011 based on contractual undiscounted payments: Group Year ended 31 March 2012 Less than 1 year 1 to 2 years 2 to 5 years £’000 £’000 £’000 Bank overdraft Revolving credit facility Finance leases and hire purchase contracts Trade and other payables 1,312 729 251 91,014 93,306 - 729 56 - 785 - 43,974 - - 43,974 Year ended 31 March 2011 Less than 1 year 1 to 2 years 2 to 5 years £’000 £’000 £’000 Bank overdraft Revolving credit facility Interest rate swap Finance leases and hire purchase contracts Trade and other payables 3,925 821 186 287 84,863 90,082 - 810 - 251 - - 51,883 - 56 - 1,061 51,939 Total £’000 1,312 45,432 307 91,014 138,065 Total £’000 3,925 53,514 186 594 84,863 143,082 78 Report & Accounts 2012 Cranswick plc Company Year ended 31 March 2012 Less than 1 year 1 to 2 years 2 to 5 years Revolving credit facility Trade and other payables Cross guarantees (note 26) £’000 £’000 £’000 729 41,646 1,312 43,687 729 - - 729 43,974 - - 43,974 Year ended 31 March 2011 Less than 1 year 1 to 2 years 2 to 5 years £’000 £’000 £’000 Bank overdraft Revolving credit facility Interest rate swap Trade and other payables Cross guarantees (note 26) 2,742 821 186 36,947 1,183 41,879 - 810 - - - 810 - 51,883 - - - 51,883 The interest rate swaps disclosed in the above tables are the net undiscounted cash flows as these amounts are settled net. The impact of liquidity risk on the Group is discussed in detail in the Group Operating and Financial Review on page 17. 22. Called-up share capital Group and Company Allotted, called-up and fully paid Ordinary shares of 10p each 2012 Number 2011 Number At 1 April On exercise of share options Scrip dividends At 31 March 47,636,135 47,330,067 205,884 192,772 105,514 200,554 48,034,791 47,636,135 2012 £’000 4,764 20 19 4,803 Total £’000 45,432 41,646 1,312 88,390 Total £’000 2,742 53,514 186 36,947 1,183 94,572 2011 £’000 4,733 11 20 4,764 On 2 September 2011, 54,802 ordinary shares were issued at 728.1 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2011 final dividend. On 20 January 2012, 137,970 ordinary shares were issued at 704.0 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2012 interim dividend. During the course of the year, 205,884 ordinary shares were issued to employees exercising SAYE, Executive and LTIP options at prices between nil and 679 pence. During the year the Company repurchased 22,000 of its own shares at a cost of £136,000. These shares were held as treasury shares and were subsequently transferred to directors and senior management of the Group, at nil cost to the individual, to satisfy the exercise of LTIP share options. At the year end the Group held no treasury shares. Cranswick plc Report & Accounts 2012 79 22. Called-up share capital (continued) Ordinary share capital of £30,900 is reserved for allotment under the Savings Related, Share Option Schemes, Executive Share Option Schemes and Long Term Incentive Plans (LTIP). The options are exercisable as follows: Savings related Savings related Savings related Savings related Savings related Savings related Savings related Savings related LTIP Number Exercise price 4,766 7,374 12,904 10,576 57,676 109,452 56,618 201,632 786,900 375p 471p 679p 665p 474p 594p 692p 579p Nil Exercise period 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 March 2013 to October 2017 March 2014 to October 2018 March 2015 to October 2019 June 2012 to June 2021 On 3 September 2010, 150,976 ordinary shares were issued at 856.5 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2010 final dividend. On 21 January 2011, 49,578 ordinary shares were issued at 858.9 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash payment for the 2011 interim dividend. During the course of the prior year, 105,514 ordinary shares were issued to employees exercising SAYE and Executive options at prices between 255.0 pence and 679.0 pence. 23. 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. The total expense charged to the income statement during the year in relation to share-based payments was £1,501,000 (2011: £1,013,000). 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, being the maximum term. Directors may also apply for SAYE options on the same terms as apply to all other employees. 80 Report & Accounts 2012 Cranswick plc 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 Exercised during the year (i) Outstanding as at 31 March (ii) Exercisable at 31 March Company Outstanding as at 1 April Exercised during the year (i) Outstanding as at 31 March (ii) Exercisable at 31 March 2012 Number 4,991 4,991 ( ) - - 2012 Number - - - - 2012 WAEP £ 6.01 6.01 - - 2012 WAEP £ - - - - 2011 Number 50,000 45,009 ( ) 4,991 4,991 2011 Number 45,009 45,009 ( ) - - 2011 WAEP £ 6.01 6.01 6.01 6.01 2011 WAEP £ 6.01 6.01 - - i) The weighted average share price at the date of exercise for the options exercised was £7.92 (2011: £8.01). ii) There were no share options outstanding as at 31 March 2012, the weighted average remaining contractual life of the options outstanding at the end of the prior year was 4.25 years. There were no options granted during the year. Long Term Incentive Plan (LTIP) During the course of the year 374,900 options at nil cost were granted to Directors and senior executives, the share price at that time was 785 pence. Details of the performance criteria relating to the LTIP scheme can be found in the Directors’ Remuneration report on page 32. The maximum term of LTIP options is 10 years. Group Outstanding as at 1 April Granted during the year (i) Lapsed during the year Exercised during the year (ii) Outstanding as at 31 March (iii) Exercisable at 31 March 2012 Number 534,500 374,900 - ( ) 122,500 786,900 - 2012 WAEP £ - - - - - - 2011 Number 460,043 229,300 ( ) 17,625 ( ) 137,218 534,500 - 2011 WAEP £ - - - - - - Cranswick plc Report & Accounts 2012 81 23. Share-based payments (continued) Company Outstanding as at 1 April Granted during the year (i) Lapsed during the year Exercised during the year (ii) Outstanding as at 31 March (iii) Exercisable at 31 March 2012 Number 350,800 254,900 - ( ) 80,000 525,700 - 2012 WAEP £ - - - - - - 2011 Number 309,643 153,500 ( ) 11,250 ( ) 101,093 350,800 - 2011 WAEP £ - - - - - - i) The weighted average fair value of options granted during the year was £6.86 (2011: £7.71). The share options granted during the year were at £nil. The share price at the date of grant was £7.85. (2011: £8.60). ii) The weighted average share price at the date of exercise for the options exercised was £7.83 (2011: £8.60). iii) For the share options outstanding as at 31 March 2012, the weighted average remaining contractual life is 8.48 years. (2011: 8.50 years). The exercise price for all 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 maximum term of SAYE options is 3.5, 5.5 or 7.5 years. The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, SAYE share options during the year: Group Outstanding as at 1 April Granted during the year (note i) Lapsed during the year Exercised during the year (note ii) Outstanding as at 31 March (note iii) Exercisable at 31 March Company Outstanding as at 1 April Granted during the year (note i) Lapsed during the year Exercised during the year (note ii) Outstanding as at 31 March (note iii) Exercisable at 31 March 2012 Number 479,562 202,377 ( ) 81,185 ( ) 139,756 460,998 14,127 2012 Number 18,894 14,971 ( ) 8,008 ( ) 7,290 18,567 - 2012 WAEP £ 5.62 5.79 6.20 4.81 5.84 4.97 2012 WAEP £ 5.88 5.79 6.92 4.74 5.90 - 2011 Number 493,950 91,284 45,167 ( ) 60,505 ( ) 479,562 923 2011 Number 10,139 9,620 - 865 ( ) 18,894 - 2011 WAEP £ 5.35 6.92 5.55 5.42 5.62 6.65 2011 WAEP £ 5.14 6.92 - 6.65 5.88 - 82 Report & Accounts 2012 Cranswick plc i) The share options granted during the year were at £5.79 (2011: £6.92), representing a 20 per cent discount on the price at the relevant date. The share price at the date of grant was £7.42 (2011: £8.60). ii) The weighted average share price at the date of exercise for the options exercised was £7.89 (2011: £8.49). iii) For the share options outstanding as at 31 March 2012, the weighted average remaining contractual life is 3.16 years. (2011: 2.94 years). The weighted average fair value of options granted during the year was £1.69 (2011: £2.21). The range of exercise prices for options outstanding at the end of the year was £3.75 - £6.92 (2011: £3.75 - £6.92). The fair value of the 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 2012 and 31 March 2011: Group and Company Dividend yield Expected share price volatility Risk free interest rate Expected life of option Exercise prices 2012 LTIP 4.47% 31.0% 1.30% 3 years £nil 2012 SAYE 4.73% 31.0% 0.49% - 1.50% 3,5,7 years £5.79 2011 LTIP 3.63% 31.0% 1.25% 3 years £nil 2011 SAYE 3.71% 31.0% 1.58% - 2.88% 3,5,7 years £6.92 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 LTIP options is adjusted to take into account market-based performance conditions. 24. Pension schemes Defined benefit pension scheme The Group acquired a defined benefit final salary pension scheme during 2009, which is funded by the payment of contributions to separately administered trust funds. The scheme was closed to new members and future accrual on 30 June 2004. Pension costs are determined with the advice of an independent qualified actuary on the basis of a triennial valuation using the projected unit credit method. The latest available formal actuarial valuation of the scheme was carried out as at 1 January 2010. This valuation was updated to the year end. Plan assets are stated at fair value at the respective balance sheet dates and overall expected rates of return are established by applying published brokers’ forecasts to each category of scheme assets. Cranswick plc Report & Accounts 2012 83 24. Pension schemes (continued) a) Change in benefit obligation Benefit obligation at the beginning of the year Interest cost Actuarial losses/ (gains) Benefits paid from plan Benefit obligation at the end of the year b) Change in plan assets Fair value of plan assets at the beginning of the year Expected return on plan assets Actuarial gain/ (loss) on plan assets Employer contributions Benefits paid from plan Fair value of plan assets at the end of the year c) Amounts recognised in the balance sheet Present value of funded obligations Fair value of plan assets Net liability recorded in the balance sheet d) Components of pension cost Amounts recognised in the income statement Interest cost Expected return on plan assets Total pension cost recognised in the income statement Actual return on assets Actual return on plan assets Amounts recognised in the Group statement of comprehensive income Actuarial losses/ (gains) immediately recognised Cumulative amount of actuarial losses/ (gains) recognised e) Principal actuarial assumptions The weighted average actuarial assumptions used in the valuation of the scheme were as follows: Discount rate Rate of price inflation Expected long term rate of return on plan assets at the end of the year Expected long term rate of return on plan assets during the year Rate of compensation increase 84 Report & Accounts 2012 Cranswick plc 2012 £’000 16,501 906 4,097 343 ( ) 21,161 2012 £’000 13,587 853 593 1,129 343 ( ) 15,819 2012 £’000 21,161 ( ) 15,819 5,342 ( ) 2012 £’000 906 853 ( ) 53 2012 £’000 1,446 3,504 2,967 2012 4.60% 2.90% 5.45% 6.10% 2.90% 2011 £’000 17,141 935 694 ( ) 881 ( ) 16,501 2011 £’000 11,788 926 70 ( ) 1,824 881 ( ) 13,587 2011 £’000 16,501 ( ) 13,587 2,914 ( ) 2011 £’000 935 926 ( ) 9 2011 £’000 856 624 ( ) 537 ( ) 2011 5.55% 3.20% 6.10% 7.55% 3.20% Future expected lifetime of pensioner at age 65: Current pensioners Male Female Future pensioners Male Female 2012 23.0 25.6 25.0 27.6 2011 24.0 26.4 26.0 28.3 The mortality rates used have been taken from Base tables S1PA (2011: PA00). A 0.1 per cent decrease in the discount rate would give rise to a £45,000 decrease in the amounts charged to the income statement during the year, and a £520,000 increase in the deficit at 31 March 2012. The scheme rules require the pension benefits to be uplifted by Retail Price Index (RPI), so there was no financial effect from the statutory requirement to uplift pension benefits by Consumer Price index (CPI) rather than RPI. f) Plan assets 2012 2012 2011 Expected long-term Fair value Expected long-term 2011 Fair value rate of return of plan assets rate of return of plan assets Asset category Equity securities Bonds Cash Diversified growth fund Total - 3.85% 3.70% 6.70% £’000 - 6,705 103 9,011 15,819 7.10% 4.60% 4.10% - £’000 8,139 5,407 41 - 13,587 The expected rates of return on cash and bonds are determined by reference to relevant gilt yield and corporate bond indices respectively. The long term rate of return on equities for the prior year was calculated at a premium of 4 per cent above gilt yields. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plan’s investment portfolio. The plan has not invested in any of the Group’s own financial instruments nor in any properties or other assets used by the Group. g) History of experience gains and losses Fair value of scheme assets Present value of defined benefit obligation Deficit in the scheme Experience adjustments on plan liabilities Experience adjustments on plan assets 2012 £’000 15,819 21,161 ( ) 5,342 ( ) - 593 2011 £’000 13,587 16,501 ( ) 2,914 ( ) - ( ) 70 2010 £’000 11,788 ( ) 17,141 ( ) 5,353 - 1,955 Experience gains and losses are presented from 24 June 2009 when the scheme was acquired by the Group. The Group expects to contribute approximately £1,128,000 to the scheme during the year to 31 March 2013 in respect of regular contributions. Cranswick plc Report & Accounts 2012 85 24. Pension schemes (continued) Defined contribution pension schemes The Group also 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. Contributions owing to the insurance companies at the year-end, included in trade and other payables, amounted to £91,000 (2011: £140,000). Contributions during the year totalled £1,286,000 (2011: £1,435,000). 25. Additional cash flow information Analysis of Group net debt Cash and cash equivalents Overdrafts Other financial assets Other financial liabilities Revolving credit Finance leases and hire purchase contracts Net debt At 31 March 2011 £’000 1,302 3,925 ( ) 2,623 ( ) 4,000 1,377 160 ( ) 48,987 ( ) 570 ( ) 48,340 ( ) Cash flow £’000 18,798 2,613 21,411 1,906 ( ) 19,505 - 7,000 272 26,777 Other non cash changes £’000 - - - - - 160 259 ( ) - 99 ( ) At 31 March 2012 £’000 20,100 ( ) 1,312 18,788 2,094 20,882 - ( ) 42,246 ( ) 298 ( ) 21,662 Net debt is defined as cash and cash equivalents, loans receivable and interest rate swaps at fair value less interest bearing liabilities (net of unamortised issue costs). At 31 March 2010 £’000 5,922 1,956 ( ) 3,966 1,763 5,729 387 ( ) - 59,530 ( ) 480 ( ) 54,668 ( ) Cash flow £’000 4,620 ( ) 1,969 ( ) 6,589 ( ) 2,500 4,089 ( ) - 50,000 ( ) 60,000 260 6,171 Other non cash changes £’000 - - - 263 ( ) 263 ( ) 227 1,013 470 ( ) 350 ( ) 157 At 31 March 2011 £’000 1,302 ( ) 3,925 ( ) 2,623 4,000 1,377 160 ( ) 48,987 ( ) - 570 ( ) 48,340 ( ) Cash and cash equivalents Overdrafts Other financial assets Other financial liabilities Revolving credit Bank loans Finance leases and hire purchase contracts Net debt 86 Report & Accounts 2012 Cranswick plc Analysis of Company net debt Cash and cash equivalents Overdrafts Other financial liabilities Revolving credit Net debt Cash and cash equivalents Overdrafts Other financial liabilities Revolving credit Bank loans Net debt 26. Contingent liabilities At 31 March 2011 £’000 1 ( ) 2,742 ( ) 2,741 ( ) 160 ( ) 48,987 ( ) 51,888 At 31 March 2010 £’000 4,004 - 4,004 ( ) 387 - ( ) 59,530 ( ) 55,913 Cash flow £’000 18,136 2,742 20,878 - 7,000 27,878 Cash flow £’000 ( ) 4,003 ( ) 2,742 ( ) 6,745 - ( ) 50,000 60,000 3,255 Other non cash changes £’000 - - - 160 ( ) 259 ( ) 99 Other non cash changes £’000 - - - 227 1,013 ( ) 470 770 At 31 March 2012 £’000 18,137 - 18,137 - ( ) 42,246 ( ) 24,109 At 31 March 2011 £’000 1 ( ) 2,742 ( ) 2,741 ( ) 160 ( ) 48,987 - ( ) 51,888 The Company, together with its subsidiary undertakings, has entered into a cross guarantee with Lloyds TSB Bank plc, The Royal Bank of Scotland plc, Clydesdale Bank PLC (trading as Yorkshire Bank) and Coöperatieve Centrale Raiffeisen-Boerleenbank B.A. (trading as Rabobank International) in respect of the Group’s facilities with those banks. Drawn down amounts totalled £44,312,000 as at 31 March 2012 (2011: £53,925,000). For the Company, the amounts drawn down by other Group companies which were guaranteed by the Company at the year end totalled £1,312,000 (2011: £1,183,000). Cranswick plc Report & Accounts 2012 87 27. Commitments (a) The Directors have contracted for future capital expenditure for property, plant and equipment totalling £4,836,000 (2011: £584,000). (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. 28. Related party transactions 2012 £’000 2,903 5,777 3,721 12,401 2011 £’000 2,718 6,666 2,670 12,054 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: Group Related party Sales to related party Service rendered to related party Amounts owed by related party Associate – Farmers Boy (Deeside) Limited 2012 2011 £’000 12,422 13,521 £’000 259 289 £’000 - 1,583 Farmers Boy (Deeside) Limited ceased to be a related party upon sale of the Group’s 49 per cent shareholding on 30 March 2012. Company Related party Subsidiaries 2012 2011 Services rendered to related party Interest paid to related party Dividends received from related party £’000 18,165 14,830 £’000 1,890 2,565 £’000 11,831 10,508 Amounts owed by or to subsidiary undertakings are disclosed in notes 16 and 18. Any such amounts are unsecured and repayable on demand. Remuneration of key management personnel Short-term employee benefits Post-employment benefits Share-based payment 88 Report & Accounts 2012 Cranswick plc 2012 £’000 4,990 259 812 6,061 2011 £’000 2,921 386 515 3,822 29. Events after the balance sheet date Following an internal reorganisation within the Cranswick Pet and Aquatics group, Cranswick plc sold its 5.5 per cent investment in the Cranswick Pet Products business on 5 April 2012 for a consideration of £221,000. At 31 March, as a result of the sale, the investment was transferred to assets held for sale. The transaction resulted in the Group retaining its 5.5 per cent interest in the Aquatics business through a 5.5 per cent shareholding in Pet and Aquatics Properties Limited. The investment, being an unquoted entity, the value of which cannot be reliably measured, is held at a carrying value of £nil. Cranswick plc Report & Accounts 2012 89 ShareholDer InForMatIon Five year statement 2012 £’m 2011 £’m 2010 £’m 2009 £’m 2008 £’m Turnover 820.8 758.4 740.3 606.8 559.2 Profit before tax Earnings per share * 48.4 * 78.6p 47.1 43.8 34.7 33.0 74.5p 69.7p 40.5p 51.9p Dividend per share 28.5p 27.5p 25.0p 21.7p 19.9p Capital expenditure 21.7 35.9 20.5 21.2 25.8 Net debt Net assets (21.7) (48.3) (54.7) (66.6) (78.4) 245.9 220.9 193.6 166.5 155.3 * Includes gain on sale of associate and goodwill impairment charge. Dividends per share relate to dividends declared in respect of that year. Net debt is defined as per note 25 to the accounts. May June August September November January 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 90 Report & Accounts 2012 Cranswick plc ShareholDer analySIS Shareholder analysis at 8 May 2012 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 2011 Share price at 31 March 2012 High in the year Low in the year Number of shares 5,317,532 42,724,554 48,042,086 394,576 1,293,908 862,341 3,618,827 2,343,372 39,529,062 48,042,086 Number of holdings 1,201 723 1,924 969 581 120 154 33 67 1,924 830p 805p 841p 589p Share price movement Cranswick’s share price movement over the eleven year period to May 2012 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”), all rebased to 100 at May 2001, is shown below: ) e c n e p ( e c i r p e r a h S 550 500 450 400 350 300 250 200 150 100 50 0 2001 Source: Investec Cranswick FTSE 350 Food Producers FTSE All Share 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Cranswick plc Report & Accounts 2012 91 awarDS Meat Management Awards 2010 Winner Best Pork Product and Best Red Meat Product Richard Woodall Dry Cured Bacon 2009 Winner Manufacturer of the Year Grocer Own Label Excellence Awards 2012 Gold Meat & Poultry Stuffed Category Tesco Finest Extra Matured Norfolk Pork Crown Joint (also collecting the Chairman’s Award) Silver Chilled Bacon Category M&S Juniper Smoked Dry Cure Bacon 2011 Gold Gold Silver Silver 2010 Gold Best Sausage or Bacon Category Sainsbury’s Taste The Difference 6 Outdoor Bred Cumberland Pork Sausages Best Deli Meat Category Sainsbury’s Delicatessen Hand Carved Roast Ham Best Beef, Lamb & Pork product Tesco Finest Extra Matured Norfolk Outdoor Reared Pork Shoulder Joint with Pork & Apricot Stuffing Best Deli Meat Tesco Finest British Outdoor Reared Yorkshire Crumbed Ham Meat Joints Category Sainsbury’s Taste the Difference British Ultimate Outdoor Reared Dry Cured Unsmoked Gammon Joint Silver Chilled Savoury Category Sainsbury’s Taste the Difference British Pork Cocktail Sausages Wrapped in a Butter Puff Pastry 2009 Winner Winner Delicatessen Meat Category Sainsbury’s Taste the Difference Traditional Spiced Ham Bacon & Sausage Category Morrisons’ The Best Lightly Oak Smoked Sweetcure Rindless Back Bacon 2008 Winner Meat & Poultry Category Applewood Smoked Bacon Grocer Food and Drink Awards 2011 Silver Chilled Savoury Category Jamie Oliver - My Delicious British Pancetta Quality Food Awards 2010 Winner 2009 Winner Best ‘Free From’ Category Co-operative Truly Irresistible Gluten Free Pork Sausage Fresh Meat Game and Poultry Award Sainsbury’s Taste the Difference 12 British Ultimate Chipolatas Award Highlights Cranswick were successful at the British Sausage Week Awards 2011 bringing home the Multiple Retailer Bronze Award for Legendary British Bangers for their Sainsbury’s Taste the Difference Outdoor Bred Cumberland Pork Sausages. The award, presented by Noddy Holder to Nicola Whitehead, Sainsbury’s National Account Controller was part of the 14th Annual British Sausage week, which celebrates the Great British Banger and promotes the wide range of exciting sausages currently available in Britain. 92 Report & Accounts 2012 Cranswick plc BPEX Foodservice Pork Product of the Year Competiton Pizza and Pasta Awards 2011 Bronze Best Pork & Poultry Product Original Pork Simply Seasoned Sausage Roll 2011 Winner Asda American Sizzler serve over pizza 2008 Gold Best Cured Product Jack Scaife Hand Cured, Air Dried Gammon Steak Sainsbury’s Supplier Oscar - 2012 Gold Gold Silver Best Fresh Pork Cut Outdoor Reared Hampshire Breed Thick Cut Pork Chops Best Pork Ready Meal Ham Shanks in Dijonnaise Sauce Best Innovative Pork Product Smokey Flavour Maple BBQ Ribs 2012 Winner Making big things bigger through innovation Taste the Difference Air Dried Hams project British Turkey Awards 2010 Winner Best Ready to Eat Product Tesco Finest Hand Carved Butter Basted Turkey BPEX Bacon Connoisseurs’ Week 2012 Winner 2010 Winner Supermarket Traditional Wet Cure Category Sainsbury’s Taste the Difference Wiltshire Cured Unsmoked Back Bacon Overall Winner & Best Retailer ‘Smoked’ Category M&S Outdoor Bred British Smoked Dry Cured Streaky Bacon Meat and Poultry News Awards 2011 Winner 2009 Winner Corrina Firth Young Processor of the Year Award Producer of the Year Award Cranswick plc supplier - Thomas Dent of Penrith in Cumbria Winner Best New Flavour Category M&S Outdoor Bred British Demerara Sweet Cure Bacon Super Meat Awards Great Taste Awards 2012 Winner Fresh Pasta Asda Extra Special Linguine (2 star) Winner Winner Winner Fresh Filled Pasta Asda Extra Special Spinach & Ricotta Pasta (2 star) Plain Olives Asda Extra Special Nocellara Olives (2 star) Continental Style Sausages Asda Spanish Cooking Chorizo (1 star) Q Awards 2011 Winner Delicatessen Asda Extra Special Spicy Sausage Handmade Pasta 2010 Winner Best Sausage Category The Co-operative Truly Irresistible Gluten Free Pork Sausage Guild of Fine Foods Retailers ‘Great Taste Awards’ 2008 Gold Sainsbury’s Taste the Difference Ultimate Oak Smoked Bacon Gold Smoked Streaky Bacon Cranswick plc Report & Accounts 2012 93 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 Shore Capital Stockbrokers - Liverpool Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0871 664 0300 (Calls cost 10p per minute plus network extras; lines are open 8.30am to 5.30pm, Monday - Friday). If calling from overseas please call +44 208 639 3399 email: shareholder.services@capitaregistrars.com www.capitaregistrars.com Ernst & Young LLP – Hull Rollits LLP – Hull Lloyds TSB Bank plc The Royal Bank of Scotland plc Clydesdale Bank PLC (trading as Yorkshire Bank) Coöperatieve Centrale Raiffeisen-Boerleenbank B.A. (trading as Rabobank International) Merchant Bankers N M Rothschild & Sons – Leeds 94 Report & Accounts 2012 Cranswick plc ProDUCtIon FaCIlItIeS Fresh pork Sausages Bacon Cooked meats Cranswick plc Report & Accounts 2012 95 NOTES 96 Report & Accounts 2012 Cranswick plc
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