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AN APPETITE
FOR GROWTH
Cranswick plc Annual Report & Accounts
Year Ended 31 March 2019
WHAT WE DO
Our purpose is to feed the nation with authentically made, sustainably produced
food that is created with passion.
Our vertically integrated supply chain model provides our customers with assurance
over the integrity and traceability of our high quality, UK farm-assured pigs and chickens.
WE FARM
Ownership of our pig breeding and rearing activities, and
fully integrated chicken operations including feed mills,
hatchery and broiler farms, gives us full control over our
supply chain.
OUR SUPPLY CHAIN MODEL
CRANSWICK OWNED
BRITISH FARMS
WE PRODUCE
We produce a range of high quality,
predominantly fresh food including
fresh pork, poultry, convenience
and gourmet products. Through
our four primary processing and
REVENUE BY PRODUCT CATEGORY
% OF GROUP REVENUE
35%
32%
19%
14%
CONTRACTS WITH
OTHER UK FARMS
CRANSWICK PRIMARY
PROCESSING
EUROPEAN MEAT
IMPORTS
OTHER HIGH QUALITY
INGREDIENTS FROM SUSTAINABLE
& TRUSTED SUPPLIERS
eleven secondary processing facilities
we develop innovative, great tasting food
products to the highest standards of
food safety whilst prioritising traceability.
REVENUE BY PRODUCT CATEGORY
% OF GROUP REVENUE
35%
32%
19%
14%
Fresh Pork
Convenience†
Gourmet Products*
Poultry
† Cooked Meats, Continental
Products and Ingredients.
* Pastry, Sausages and Burgers,
Bacon and Gammon.
FRESH PORK & CHICKEN
RETAIL & WHOLESALE FRESH PORK & CHICKEN
PORK FURTHER PROCESSING
COOKED MEATS
SAUSAGES
BACON
OTHER PRODUCT CATEGORIES
PREMIUM
COOKED POULTRY
CONTINENTAL
PRODUCTS
PASTRY
WE SUPPLY
We supply the top four UK multiple grocers,
as well as the premium grocery and growing
discounter channels. We have a strong presence
in the ‘food-to-go’ sector and other food service
outlets, and a growing export business.
REVENUE BY CUSTOMER TYPE
% OF GROUP REVENUE
UK Retail
Food Service
Manufacturing
Export
73%
8%
12%
7%
RETAIL
CONVENIENCE
& ONLINE
FOOD SERVICE
FOOD-TO-GO
EXPORT
MANUFACTURING
ABOUT US
CRANSWICK IS
A LEADING UK
FOOD PRODUCER
WITH REVENUE
APPROACHING
£1.5 BILLION.
We produce and supply premium food to UK
grocery retailers, the food service sector and
other UK and global food producers.
CONTENTS
STRATEGIC REPORT
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
1
2
4
6
8
10
12
16
Highlights
Chairman’s Statement
Our Operations
Our Business Model
Chief Executive’s Review
Investing in Agriculture
Consumer Trends
Expanding our Poultry Business
18 Our Strategy
22
24
Key Performance Indicators
Sustaining our Business
26 Our Stakeholders
38 Operating and Financial Review
42
Risk Report
47
48
Chairman’s Governance Overview
Board of Directors
86
87
Statement of Directors’ Responsibilities
Independent Auditors’ Report
50 Governance
92 Group Income Statement
53 Meeting Attendance and Key Activities
56
57
Board Committees
Audit Committee Report
63 Nomination Committee Report
93
94
96
98
Statement of Comprehensive Income
Balance Sheets
Statements of Cash Flow
Statements of Changes in Equity
Remuneration Committee Report
100 Notes to the Accounts
65
68
70
76
Remuneration at a Glance
Remuneration Policy
Annual Report on Directors’ Remuneration
82 Directors’ Report
SHAREHOLDER INFORMATION
131 Five Year Statement
131 Financial Calendar
132 Shareholder Analysis
133 Advisers
HIGHLIGHTS
A PLATFORM FOR
FUTURE GROWTH
LIKE-FOR-LIKE REVENUE
£’m*
ADJUSTED PROFIT BEFORE TAX
£’m*†
ADJUSTED EARNINGS PER SHARE
p*†
1,440.0 1,437.1
1,245.1
92.4
92.0
75.5
145.0 144.3
120.9
£1,437.1m
£92.0m
144.3p
2017
2018
2019
2017
2018
2019
2017
2018
2019
REVENUE
PROFIT BEFORE TAX
EARNINGS PER SHARE
£1,437.1m
(FY18: £1,464.5m)
£86.5m
(FY18: £88.0m)
135.5p
(FY18: £137.8p)
DIVIDEND PER SHARE
p
53.7
55.9
44.1
FREE CASH FLOW
£’m* †
111.7
87.3
72.4
NET FUNDS/(DEBT)
£’m
20.6
55.9p
£87.3m
6.3
£6.3m
2017
2018
2019
2017
2018
2019
2017
2018
2019
£79m
c10,300
(11.0)
+16%
Record capital expenditure
Size of workforce
Like-for-like Far East export volumes*
* 2018 included 53 weeks of trading. All measures compare 52 weeks in 2019 to 53 weeks in 2018 apart from like-for-like revenue and like-for-like Far East export volumes which exclude the
53rd week in the prior year.
† Adjusted and like-for-like references throughout the Report and Accounts refer to non-IFRS measures or Alternative Performance Measures (APMs). Definition and reconciliations of the
APMs to IFRS measures are provided in Note 31.
Cranswick plc Annual Report & Accounts 2019
1
Strategic Report CHAIRMAN’S STATEMENT
CONTINUED
STRATEGIC PROGRESS
I’m pleased to report that the past year was particularly encouraging considering
the competitive trading environment. Cranswick showed resilience against the
changeable economic and political background and is strongly positioned both
financially and commercially to continue its long-term success.
RESULTS
Revenue at £1.44 billion was in line with the prior
year after adjusting for the 53rd week.
Adjusted profit before tax came in at £92.0 million
which, when compared on a like-for-like basis with
the previous year, indicates further progress in
what was a challenging trading environment.
Adjusted earnings per share were 144.3 pence
compared to 145.0 pence previously. On a
comparable 52-week period, adjusted earnings
per share were 1.9 per cent ahead.
A record level of investment was made in the
asset base. The year saw the commissioning
of the new Continental Foods site at Bury and
commencement of the construction of the new
Poultry facility at Eye in Suffolk. Other projects
were undertaken elsewhere in the business to
improve efficiency, expand capacity and enhance
the resources available for product development.
29 CONSECUTIVE YEARS OF GROWTH
DIVIDEND PER SHARE (P)
Cranswick has a significant unsecured banking
facility and the balance sheet remains in robust
shape. At the year end, after a year of record
investment, the Group was in a net funds position
of £6.3 million.
CORPORATE GOVERNANCE
The Board embraces the UK Corporate Governance
Code as part of its culture and a statement relating
to compliance with the Code is included within the
Corporate Governance Report on page 51.
DIVIDEND
The Board is proposing an increase in the final
dividend to 40.0 pence per share from 38.6 pence
previously, an increase of 3.6 per cent. Together
with the interim dividend of 15.9 pence per share
this gives a total dividend for the year of 55.9 pence
per share, an increase of 4.1 per cent on the
53.7 pence per share paid previously. This is the
29th consecutive year of dividend growth.
The final dividend, if approved by Shareholders,
will be paid on 6 September 2019 to Shareholders
on the register at the close of business on 19 July
2019. Shares will go ex-dividend on 18 July 2019.
Shareholders will again have the option to receive
the dividend by way of scrip issue.
55.9
53.7
44.1
37.5
34.0
32.0
30.0
28.5
27.5
25.0
21.7
19.9
18.1
16.5
14.5
13.2
12.0
10.8
6.8 7.5
8.3
2.8 3.3 3.8 4.0 4.1 4.3 4.6 5.1 5.8
1990
1991
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2
Cranswick plc Annual Report & Accounts 2019
10 YEAR RECORD
Compound annual growth rates
to 31 March 2019
+9.0%
Revenue
+10.4%
Adjusted earnings per share
+10.2%
Adjusted profit before tax
+9.9%
Dividend per share
SUSTAINABILITY
Sustainability features highly on the Cranswick
agenda and is focused under the theme of
‘Second Nature’. This seeks to address key issues
across the life cycle of the Company’s products
by integrating sustainability as second nature.
This involves major environmental and community
pledges including Courtauld 2025, Champions
12.3 and the UK Plastic Pact. The Company
recognises that a balanced and committed
approach to all aspects of sustainability will
benefit each of its stakeholders and strengthen
its business position and credentials and thus
facilitate growth and development.
CULTURE
Cranswick’s activities are decentralised across
product categories within the food sector and
supported through collaboration in key areas. The
human resource function is particularly important
within this format and is a key element of the
overall strategic plan.
All colleagues are viewed as critical stakeholders.
There is commitment to implementing a
training and development plan that delivers
workforce capabilities, skills and competencies
through apprenticeship schemes, development
programmes and training courses. The number
of internal promotions to meet the needs of the
growing business proves its value.
The Board is committed to this and recognises
that the Company’s continued success would
not be possible without talented and motivated
management teams supported by skilled and
enthusiastic colleagues at each site. On behalf
of the Board I thank all our colleagues for their
commitment and contribution.
OUTLOOK
The past year has seen the business make further
strategic and commercial progress which has
strengthened the base from which to deliver the
ongoing plans of the Group.
Over the longer term, success has been achieved
despite occasional periods of more intense
commercial challenges. The new financial year
is expected to be such a period as outlined in the
announcement released on 7 February 2019.
This highlighted that the Group’s operating
margin is likely to decline, reflecting the potentially
challenging commercial landscape, together with
start-up and commissioning costs associated
with the new Eye Facility, only partly offset by
management actions.
Trading since then has been as anticipated and the
Board’s expectations for the Group’s performance
in the new financial year remain unchanged.
Notwithstanding these short-term challenges,
the new Eye and existing added value, poultry
facilities and the Group’s broadening customer
base, provide a solid platform to further develop
the poultry business and drive future growth
in this attractive and expanding protein category.
Longer term, the Group is well positioned to
continue its successful record of development.
Martin Davey
Chairman
21 May 2019
Cranswick plc Annual Report & Accounts 2019
3
Strategic Report OUR OPERATIONS
A DIVERSIFIED
BUSINESS
Cranswick was started by a group of farmers in the early 1970s
and since then we have grown organically and through targeted
acquisitions to be a leading and innovative British supplier of
premium, fresh and value added food products.
We are a diversified business with fully integrated supply chains
for pork and poultry, and a strong export business.
MARKET-LEADING POSITION
WE PROCESS 33% OF UK PIGS
STRONG GROWTH POTENTIAL
WE PROCESS 2% OF UK CHICKENS
33%
2%
15 BALLYMENA
MALTON
HULL
SHERBURN
BURY
MANCHESTER
BARNSLEY
NORFOLK
EYE
SUFFOLK
14 MILTON KEYNES
LOCATION OF PRODUCTION FACILITIES
Gourmet Pastry
Fresh Pork
Cooked Meats
Gourmet Sausages and Burgers
Premium Cooked Poultry
Traditional Bacon and Gammon
Continental Products
Cooked Meats
Fresh Pork and Sausages
Feed Milling
Fresh Chicken
Cooked Meats
Fresh Pork
New poultry facility at Eye
Agriculture
For further details on our new poultry facility
see page 17
4
Cranswick plc Annual Report & Accounts 2019
OUR PRODUCT RANGE
We produce a range of high quality, fresh food
including Fresh Pork, Poultry, Convenience and
Gourmet Products.
OUR RESOURCES
People
It’s our people who make Cranswick successful.
We have stable, experienced and talented
operational management teams supported
by a highly skilled workforce.
c10,300
Size of our workforce
World-class manufacturing facilities
Our production facilities are some of
the best invested and most efficient in
the UK food sector,
15
Number of our production
facilities in the UK
Natural resources
Our significant investment in our farming
operations expands our pig herd and chicken flock
and supports the future growth of the business.
Increase in size of pig herd
+28%
+9%
Increase in size of chicken flock
Cranswick plc Annual Report & Accounts 2019
5
Strategic Report OUR BUSINESS MODEL
AUTHENTICALLY MADE,
SUSTAINABLY PRODUCED,
CREATED WITH PASSION
Our guiding principles:
Our strategic pillars:
QUALITY
HIGH QUALITY PRODUCTS
We are passionate about making great tasting
food and we want to be recognised for quality.
Our aim is to keep the heritage and integrity
of our food by using authentic, artisan methods
wherever possible to create premium
quality products.
VALUE
We recognise the importance of investing in
our agricultural operations and in our operating
facilities so we can continue to offer innovative,
high quality, great value food to our customers
from some of the most efficient food
production facilities in the UK.
INNOVATION
We have dedicated teams researching
consumer trends and food innovation
opportunities. We are constantly designing tasty
new recipes and culinary ideas, allowing us to
deliver creative food concepts that are healthy
and convenient for today’s modern consumer.
PEOPLE
We know it’s our passionate and dedicated
workforce who drive our business. We create
a supportive but entrepreneurial environment
which aims to give individuals the opportunity
to thrive and ensures the business
continues to grow.
6
Cranswick plc Annual Report & Accounts 2019
• We are well known for upscaling traditional artisan products to
create high quality food that sets us apart from our competitors.
• We continue to focus on premium quality products, innovation,
technical integrity, food safety and animal welfare.
• Cranswick began as a group of farmers so our roots are firmly
in agriculture. Provenance is a priority for us and we create
great tasting food to the highest food safety standards from
our vertically integrated processing facilities.
OPERATING EXCELLENCE
• We produce food from some of the most well-invested facilities
in the UK. We continually improve our agricultural supply chain
and invest in our facilities to deliver our strategy. This drives
a competitive advantage over a generally under invested
infrastructure in the UK food industry. We own our pig breeding
and rearing activities, and a fully integrated chicken supply chain
including feed milling operations, a hatchery and broiler farms.
• We have a strong reputation in food science and food
technology. We demonstrate technical excellence through
our compliance with the highest food standards and our
excellent external compliance audit scores. We also undergo
our own cross-site technical audits to share best practice.
SUSTAINABILITY
• Our vision is to become the most sustainable meat business
in the world. As an industry leader, we embrace many
opportunities to make a difference and our business decisions
are made with a clear focus on our commitment to both
environmental and social responsibility.
• Our Second Nature initiative launched projects to deliver
significant progress against our core sustainability objectives:
- Reduce our environmental impact from farm-to-fork
- Drive agricultural innovation
- Shift from a linear to a circular business model
- Create a great place to work
- Positively impact our community and society
- Act ethically and responsibly
- Embrace collaboration and radical transparency
Read more about Second Nature on pages 34 and 35
£320m
9.0%
Invested in our asset base over the last
8 years
Compound annual growth in revenue
over 10 years
Our sales growth strategy:
Creates value for our stakeholders:
1 DRIVING THE CORE
• We have invested a record £79 million across our
asset base during the year to support long-term
growth, introduce new capabilities and drive
further operating efficiency gains.
• Around 73 per cent of our revenue is generated
from our retail customers, primarily through
their own-label products and particularly in their
premium and super-premium tiers.
2 EXPANDING OUR OFFER
• We have diversified our product range and
customer base in recent years by entering the fast
growing premium fresh and cooked poultry market.
Poultry continues to dominate the market as
consumers consider it to be healthy and versatile
and this represents a key growth area for us.
• We are creating tasty meal kits for today’s health
conscious consumer and we have expanded
our range of products for the rapidly developing
‘Ready to Cook’ and convenience market. We
continue to invest in the popular ‘Slow Cook’
and ‘Sous Vide’ cooking technologies across
our Convenience business.
3 SEEKING NEW OPPORTUNITIES
• We continue to make further progress in
developing our export trade with like-for-like Far
East volumes up 16 per cent. China, the world’s
largest pork producer and consumer, remains our
most important market, but we have developed
strong relationships with customers in countries
such as Japan, Taiwan and Canada. We now supply
to over 30 countries worldwide.
Read more about our strategy on pages 18 to 21
OUR
PEOPLE
Training
Development
Mentoring
103
Apprentices
CUSTOMERS
AND CONSUMERS
Quality
Provenance
Choice
857
New product launches
PRODUCERS
AND SUPPLIERS
Growth
Traceability
Compliance
330
Supplier audits in the year
SHAREHOLDERS
Dividend growth
EPS accreditation
Value creation
29
Years of dividend growth
COMMUNITIES
Support
Engagement
Employment
75%
of our workforce live within
a 10 mile radius of their
workplace
SUSTAINABILITY
Longevity
Awareness
Commitments
4%
Reduction in plastic packaging
Cranswick plc Annual Report & Accounts 2019
7
Strategic Report
CHIEF EXECUTIVE’S REVIEW
A PLATFORM FOR
FUTURE GROWTH
The last year was one of consolidation following three years
of very strong growth.
A SOLID PLATFORM FROM WHICH TO BUILD
We continue to focus on the fundamentals which
we believe set us apart from our competitors and
which our stakeholders value so highly.
We are also actively supporting EU national
colleagues to mitigate any effect that Brexit might
have. Further details on these measures are set
out later in this report.
Cranswick is first and foremost a people business
and our people are our greatest asset. I would
like to thank my Board colleagues, our Senior
Management teams and our highly skilled and
committed colleagues across the business
for their enthusiasm and support in driving our
business forward so successfully.
We work closely with our customers to deliver
great tasting, high quality products to meet
changing consumer demands. Our proactive
approach to product development allows us to
respond quickly to emerging market trends. The
four key trends which we highlight in this report are:
healthy eating; premium products; convenience;
and sustainability. Over the last 12 months we have
enhanced our capability in each of these areas.
We also work closely with our producers and
suppliers to ensure that the raw materials and
ingredients for our products are ethically sourced
through tight and transparent supply chains.
Animal welfare is of paramount importance to us
and we continue to strengthen our leading position
in this area. We recently retained our Tier One
status in the Business Benchmark on Farm Animal
Welfare for the third consecutive year. We are
the only meat processor, and one of only five
companies globally, to be awarded this rating.
We also recognise that our business model needs
to remain sustainable. We launched Second
Nature, our group-wide sustainability initiative,
in February 2018. In a little over a year since launch
we have already delivered some of our initial goals.
We are now resetting baselines and recalibrating
targets which we will use to benchmark our internal
operations and those of our supply chain partners
to drive greater clarity and improved accountability.
We continue to manage our business under the
shadow cast by Brexit. That said, since all our
production facilities are based in the UK and given
over 90 per cent of our revenues are generated
from our home market, we are less exposed than
many UK business to the economic repercussions
of the UK leaving the European Union. We are
though concerned about labour availability and we
have, over recent months, intensified our efforts
across a range of measures to address this issue.
These include: cultivating employee engagement;
continuing to focus on attracting and retaining
talent; and continually improving the general
working environment.
Adjusted profit before tax at £92.0 million increased
by 2.0 per cent on revenues which were just 0.2 per
cent lower after adjusting for the 53rd week in the
previous year. We delivered this years results
against a backdrop of highly competitive market
conditions and ongoing, Brexit related, political and
economic uncertainty. During the year we invested
at record levels across our asset base and made
further strong progress against our strategic
objectives. We continue to build a platform and lay
down the pipeline for future growth.
RECORD CAPITAL INVESTMENT
We spent a record £79 million across our asset
base. This brings the total investment in our
infrastructure over the last eight years to £320
million. We commissioned our new £27 million
Continental Products facility in Bury, Lancashire at
the start of the year. Although the commissioning
process was longer than we initially anticipated,
we now have a high-quality asset with generous
capacity headroom which provides a platform for
expansion in this fast growing sector.
Construction of our new poultry processing facility
in Eye, Suffolk, is progressing to plan. The exterior
building work is now nearing completion and the
interior fit out is underway, with commissioning
anticipated towards the end of the new financial
year as previously indicated. In February we
announced that we had agreed a long-term supply
agreement with Wm Morrison Supermarkets plc
to supply fresh poultry from the new facility.
Investment will be increased to £75 million and
the project is being fast tracked to facilitate this
contract. This will though result in all start up and
commissioning costs of the new plant being
incurred later this coming financial year. The asset
will be industry leading and will more than double
existing capacity. We are also investing heavily in
our upstream agricultural operations to provide
a sustainable supply chain.
We are investing over £10 million in our Hull cooked
meats facility to accommodate a substantial
new contract win with one of our leading retail
customers which is scheduled to start later this
year. We also continue to invest heavily across our
broader asset base including our upstream pig and
poultry farming operations. We will continue to lift
capacity, improve efficiencies and add capability
to ensure that we serve our customers from
high quality, efficient, safe and technically
compliant facilities.
8
Cranswick plc Annual Report & Accounts 2019
A ROBUST GROWTH PIPELINE
Over the last 12 months we have made
further progress in delivering our long-term
growth strategy.
After strong growth in recent years, revenues from
our core Fresh Pork, Convenience and Gourmet
categories declined modestly, although within
Convenience, sales of continental products grew
strongly following the new Bury facility coming on
stream at the beginning of the year. The slowdown
in our pork related categories partly reflected lower
UK pig prices, with this downward trend reflected in
lower selling prices. Retail market conditions also
remained extremely competitive with some of our
large retail customers reducing their promotional
activity including multi-buy offers. Looking ahead
to the current financial year, new business wins
and continued focus on developing innovative
products targeted at the growing premium market
segment, will be the catalysts for further growth
in our core pork categories.
Revenue from our poultry category grew strongly
and now represents 14 per cent of total Group
revenue. Growth in our cooked poultry business
reflected new business and new product launches
which overlaid robust underlying market growth in
the category. Whilst we delivered strong volume
growth in our fresh chicken business, underlying
market conditions were challenging, with higher
input costs and over supply in the market putting
pressure on selling prices. Looking ahead, our new
Eye facility, our deepening relationship with the
site’s anchor customer and a strong innovation
pipeline will generate positive momentum in the
fresh and value added, cooked poultry market.
Our export business grew strongly, particularly in
the second half of the year, with sales volumes to
our strategically important Far Eastern markets
ahead 16 per cent year on year. Looking ahead
African Swine Fever (ASF) is set to have a profound
impact on the global pork market. ASF was first
reported in the Chinese pig herd last August. It is
now endemic across the whole country and is
spreading to neighbouring nations. Over recent
weeks, the full implications of the outbreak have
begun to emerge. The Chinese Ministry of
Agriculture announced an 18 per cent decline in
pig numbers in February. Estimates now range
between 10 and 35 per cent, with a 20 per cent
decline equivalent to annual production in the US.
Cranswick accounts for over 50 per cent of UK pig
meat exports to China, which has become a key
outlet for some products for which there is limited
demand in our domestic market. We now export
to over 30 countries and we continue to scour
the globe in search of new export opportunities.
Closer to home, ASF remains a threat in Eastern
Europe and in Belgium and the risk of ASF
spreading to other countries in Europe remains
high. The UK industry is on full alert with
heightened biosecurity protocols in place.
A POSITIVE LONG-TERM OUTLOOK
As we highlighted in our third quarter trading
update on 7 February, we are facing into some
short-term headwinds including a potentially
challenging commercial landscape and start-up
and commissioning costs associated with the
new Eye facility.
Despite these challenges, the investment we
are making at Eye and across the wider business
is laying firm foundations for the next phase
of growth and development of the business.
Chicken, followed by pork, is the fastest growing,
most competitively priced and environmentally
sustainable meat protein and so is a strategically
attractive category on which to focus. These
strong fundamentals alongside our capability
to execute will be the catalyst for future growth
and expansion in this space.
I am confident that continued focus on the
strengths of our business, which include its
long-standing customer relationships, breadth
and quality of products, robust financial position
and industry leading infrastructure, will support
the further successful development of Cranswick
over the longer term.
Adam Couch
Chief Executive
21 May 2019
TAIN
S
U
S
I
N
V
E
S
T
AN APPETITE
FOR GROWTH
EXPAN D
Invest
We continue to invest in our production
facilities and supporting agricultural operations.
Read more on pages 10 and 11.
Expand
The expansion of our poultry business
continues and this category represents
a huge growth opportunity for us.
Read more on pages 16 and 17.
Sustain
Our sustainability plan supports our
long-term growth strategy. Read more
on pages 24 and 25.
Cranswick plc Annual Report & Accounts 2019
9
Strategic Report
Invest
45 mins
£7.6m
Invested in farming infrastructure
Average travel time for pigs
10
Cranswick plc Annual Report & Accounts 2019
INVESTING IN AGRICULTURE
Our extensive investment in our farming operations
over the last year supports the further development
of our processing facilities across the UK.
Our core focus is the wellbeing of our animals. Over the past year we have
added state-of-the-art housing and feeding facilities for our outdoor pig
herd. We have enhanced our breeding accommodation to better control the
environment, reducing condensation and improving ventilation. We have used
innovative designs, modern materials and accurate feeding equipment which
has led to improved herd performance and better feed usage. We have also
secured a new mill to bring even more of our feed supply in house.
We aim to minimise stress on our animals, so our new livestock trailers have
more space and the loading and unloading process is more efficient.
We have increased the size of our herd and broadened our farming area.
We acquired new farming units near our Norfolk processing facility for
£5.4 million that will be developed over the next two years into an industry
leading pig finishing facility. Animal welfare is a key priority for us and the
new units ensure we keep our average travel time to under 45 minutes.
A further £2.2 million has been invested in our new joint venture White Rose
Farms. The joint venture was set up to secure our commercial pig supply
and improve efficiencies in production.
Across the outdoor breeding farms we have invested in intervention measures
to ensure soil and water are not able to run off the fields during bad weather.
The mixed grass and flower buffer strips around the field edges act as a sponge
for water and silt and in turn provide essential wildlife habitats for insects and
birds. The soil and nutrients in the water captured by silt traps can then be
redistributed back to the field.
“ Cranswick’s continued and steadfast
commitment to animal welfare
across its multitude of sites, supply
chain and general operation is a
great example of what animal
welfare standards are achievable
for producers and suppliers not
only in the UK, but globally.”
Business Benchmark on Farm Animal Welfare
Cranswick plc Annual Report & Accounts 2019
11
Strategic Report CONSUMER TRENDS
As the food industry continues to respond to new
market trends and changing consumer appetites,
we are seeing four key drivers that are underpinning
our business strategy and growth proposition:
healthy eating, premium products, convenience and
sustainability. These have become an essential part
of consumer behaviour and an increasing proportion
of shoppers consider themselves to be informed on
healthy food, nutrition and provenance which raises
their expectations of food quality, flavours and
formats. Today’s consumer is passionate about food
but may lack the time and skillset to prepare the foods
they are used to seeing online or eating out of home.
Consumer
Trends
We are further expanding our range of products
that appeal to health conscious shoppers across
our convenience, recipe-kit and value added lines.
By creating new portion sized packs, we are able
to reduce food waste in both the retail supply
chain and in homes. This means consumers get
to cook different meals every day but without the
need to buy ingredients in larger pack sizes that
may lead to food waste. It is also a great way to
give people a better understanding of portion
sizes and the amount required to create a meal
without excess.
85%
of shoppers are trying to eat healthier
in some way
Source: Category Benchmark Research, IGD, Jun-Sept 2018
1 HEALTHY EATING
Consumers are increasingly basing their food
choices around healthier, personalised diets and
lifestyles. One in three grocery items are chosen
for health reasons, representing an increase of
£1 billion in annual spend.
With 85 per cent of shoppers also seeking to
improve their diet, this opens up a huge opportunity
for healthy, convenience products designed for this
food aware generation. As a food manufacturer,
this gives us the chance to highlight the health
benefits of our products while introducing new,
healthier ‘clean eating’ lines. We now offer
flexitarian sausages for non-meat eaters and
a range of skinny sausages to meet consumer
demand. We have reduced salt content and
developed nitrate-free alternatives for some
of our meat products.
12
Cranswick plc Annual Report & Accounts 2019
2 PREMIUM PRODUCTS
The premium category continues to drive strong
market growth, with premium own-label products
remaining one of the fastest growing areas in retail.
As the discount retail and food service sectors
also seek to expand their premium offerings, this
will drive further operational efficiencies down
the supply chain. We are working hard to make
our premium products as affordable as possible
to meet consumer demand for quality food at
great prices. The premium preferences of today’s
consumers are advancing demand for more
natural, nutritious and high quality products that
help people keep pace with busy schedules
without sacrificing their health goals or curiosity
for new ingredients, flavours or formats.
We have made, and will continue to make,
significant investment in our infrastructure to
enable us to create bespoke products and tailor
our offering to the consumer requirements in both
premium and convenience. We are confident this
will give us the capacity to grow and offer genuine
innovation in premium products whilst delivering
further efficiencies.
Find out more in Our Strategy on
pages 18 to 21
6%
volume growth of premium cooked
meats market
Source: Kantar 52 weeks to 24 March 2019
Cranswick plc Annual Report & Accounts 2019
13
Strategic Report CONSUMER TRENDS CONTINUED
3 CONVENIENCE
4 SUSTAINABILITY
Consumers are not only demanding quick,
easy, healthy and tasty meal solutions, but
are increasingly looking for inspiration in their
shopping baskets. The growth in convenience
‘scratch cooking’ – traditional artisan-style meals
and snacks that can be prepared in a short amount
of time – has led to new product innovations such
as our meal kits, recipe kits, ‘Sous Vide’ products
and ‘Slow Cook’ ranges.
During the year we have seen the demand for
more sustainable and ethical food products grow
as consumers come to understand what is
required to get closer to achieving a truly circular
food and drink economy. Sustainability efforts
will include not only improving access to ethically
sourced products, but ensuring our product
packaging is easy and intuitive for the consumer
to recycle.
As today’s shoppers increasingly look for
convenience in their busy lives, our offering of
pre-prepared cooked meat is designed to help
shoppers and make their lives a little bit easier.
Our convenient solutions include ‘grab and go’
lunchtime products and modern ‘mid-week’
meal solutions.
Looking ahead, we are developing a new
generation of prepared meals, sides, and
sauces that emulate the flavours and formats
of restaurant meals whilst reducing food waste
by controlling portion sizes for the consumer.
The out of home sector represents the ultimate
in convenience and is growing faster than the retail
sector at over 5 per cent per annum as consumers
are increasing the number of meals they eat
outside of the home. We are increasing our market
share in this sector through investment in our
poultry businesses, and plan to further develop
our recipe-kit and ready dish portfolios where we
have seen strong growth.
Our own research report published in 2018 on the
rise of consumer activism highlighted the growing
trend around ‘Radical Transparency’ and as food
supply chains grow more complex, consumers
are setting higher expectations for food quality,
safety and sustainability. The rise in mission-based
brands entering the market promoting high
welfare and farm-assured products reflects the
consumer trend for this greater assurance on
food provenance.
We recognise that like nutrition, sustainability has
become an expectation for consumers and our
Second Nature sustainability strategy sets out our
ambitious commitments in this area underpinned
by our unique integrated supply chain model.
We continue to invest heavily in this to offer full
traceability from farm-to-fork, and we insist on high
standards pertaining to ethics and animal welfare
across our business and from our suppliers.
This means we can offer high-protein, low impact
pork and poultry products that demonstrate the
highest levels of traceability. As the only meat
manufacturer to receive Tier One ranking in the
latest Business Benchmark Farm Animal Welfare
(BBFAW) report, and receive it for the third
consecutive year, our higher welfare products
are a key differentiator, both in the UK and
export markets which we serve.
17%
increase in sales of our convenient
marinated pork
70%
of shoppers in meat and poultry say
ethical production is an important
driver of product choice
Source: Category Benchmark Research, IGD, Jun-Sept 18.
14
Cranswick plc Annual Report & Accounts 2019
Cranswick plc Annual Report & Accounts 2019
15
Strategic Report Expand
£75m
1.2m
Ongoing investment in our new
poultry processing facility
Number of birds we will process
per week; 140 per cent more than
current capacity
16
Cranswick plc Annual Report & Accounts 2019
“ Like-for-like poultry sales grew by 18% year-on-
year and sales growth outperformed the market.
The poultry market represents a huge growth
opportunity for us and we have made
considerable investment in this area.”
Adam Couch, Chief Executive
EXPANDING OUR POULTRY BUSINESS
Our new, purpose built, chicken processing facility in Eye, Suffolk, will more than
double our existing fresh poultry business by producing up to 1.2 million Red
Tractor farm-assured birds each week. The facility will be fully commissioned
before the end of the new financial year.
Marel are supplying the very latest technology and the most advanced
equipment including robotics, automatic deboning, X-ray bone detection and
efficient fifth quarter harvesting. Processing line speeds are paramount and we
will be able to process faster and more efficiently than any of our UK competitors
whilst still focusing on premium quality.
The facility will have a dedicated marinating area and a ‘Ready to Cook’ production
space. This allows us to respond to the current market trend of convenience as
consumers demand quick, healthy and tasty meal solutions.
Sustainability is pivotal in this build and the facility will have full water recycling
capabilities and energy efficiencies from a Combined Heat and Power (CHP)
plant. The highest animal welfare standards will be incorporated with the most
advanced and humane technology in live bird handling. The facility is in the heart
of our chicken rearing operations allowing bird welfare to be optimised as travel
times are minimised.
We have further invested in our agricultural operations to support the expansion
of our poultry business. We have placed bales, perches and pecking objects in
all broiler houses and installed more windows to maintain our industry leading
welfare status.
We have secured an exciting long-term supply agreement with Wm Morrison
Supermarkets plc underpinning much of the throughput of the new facility.
Cranswick plc Annual Report & Accounts 2019
17
Strategic Report OUR STRATEGY
A STRATEGY FOR
LONG-TERM GROWTH
Our purpose is to feed the nation with authentically made, sustainably
produced food that is created with passion. Our aim is to lead sustainability
across agriculture and food production on a global scale.
Our long-term growth strategy is to consolidate existing market positions,
enter new markets and channels in our core UK market, and grow our
international operations and customer base. We do this through:
1 DRIVING
THE CORE
2 EXPANDING
OUR OFFER
3 SEEKING NEW
OPPORTUNITIES
This year has been one of consolidation for the Group, following a number of years of significant capacity expansion
and volume growth.
We have made good progress on delivering our strategy this year by strengthening customer relationships and focusing
on the premium end of the markets in which we operate. Outstanding product quality and customer service levels combined
with a drive to innovate has underpinned this year’s results.
We remain committed to vertically integrating our supply chains so we can maximise internal efficiencies and minimise cost,
whilst demonstrating the highest levels of food quality, traceability and integrity.
OUR STRATEGIC PILLARS
Our long-term growth strategy is underpinned by three strategic pillars:
HIGH QUALITY
PRODUCTS
We produce high quality food, safely, in
technically and legally compliant facilities.
OPERATING
EXCELLENCE
Continued investment ensures that our
factories are some of the most efficient
food production facilities in the UK.
SUSTAINABILITY
We invest heavily to secure our supply chains and
provide career opportunities to our employees,
and these investments provide confidence that
we have a long-term sustainable business.
We measure the success of our strategy against key performance indicators (KPIs) which can be found on pages 22 and 23
The key risks to our strategy can be found on pages 44 and 45
18
Cranswick plc Annual Report & Accounts 2019
DRIVING
THE CORE
1
OUR STRATEGY
Our core products consist of fresh and value added pork, our
gourmet category including bacon, sausages, burgers and
pastry, and convenience foods comprising cooked meats
and continental products.
Our aim is to grow revenues from our core products by creating
meaningful, long-lasting relationships with all our customers.
We establish deeper relationships by having joint objectives
and the same purpose: to provide great tasting food.
We focus on the premium end of the markets in which we
operate and are renowned for quality. This reputation alongside
our exceptional customer service levels has driven a 9 per cent
compound annual growth rate in revenue over the last 10 years.
Continual investment in our infrastructure underpins our core
growth strategy and supports the development of sustainable
long-term contracts with our customers.
PERFORMANCE DURING THE YEAR
We continue to consolidate our existing market positions. Sales
to some of our key retail customers have grown during the year,
with retail sales accounting for 73 per cent of Group revenue.
Retailers have sought to expand their premium offerings and this
was particularly notable with the discount retailers as they look
to provide premium products at low prices. We have secured
additional premium business with discount retailers during the
year across our Continental Products and Sausage businesses.
The launch of our ‘Best Ever Steak Pie’ with a key premium
retailer boosted our pastry performance. Read more in our
Customers and Consumers section on page 27.
Our Continental Products business has grown substantially
over recent years. Volumes have risen significantly in the current
year supported by new business wins and product launches
across a number of key customers.
We have a dedicated team of people sourcing new, tasty
continental products from across the globe. We also produce
British premium charcuterie using traditional artisan methods
prepared with the finest ingredients.
The success of our Continental Products business and growth
of the convenience food market led to the commissioning of our
new facility in Bury in the summer. The facility enables us to drive
further internal efficiencies whilst competing on cost and quality
through increased capacity for product slicing and packing. The
facility provides plenty of space for future growth.
Investment in the year, whilst focused on our poultry processing
facility in Eye, Suffolk, extended across all our production
facilities as we aim to keep our infrastructure world-class.
We have now spent over £320 million over the last eight years
to ensure we can meet our growth aspirations. For further
information on category performance and the projects we
delivered in the year see the Operating and Financial Review on
pages 38 to 40.
Sales of fresh pork products fell reflecting lower wholesale and
export demand in the first half of the year. This was partially
offset by an increase in retail volumes as the 2018 summer
heatwave led to stronger than expected sales of our great
tasting barbecue ranges and value added products. Sales
of sausages also benefitted from the seasonal uplift.
Our food service and wholesale customers account for 20 per
cent of group revenue. During the year, ‘Out of Home’ sales
grew at 5 per cent and we expanded our portfolio and widened
our customer base across hospitality, catering and business-
to-business markets. Food service sales grew as we identified
opportunities to cross-sell our product ranges. We won an
exclusive long-term supply contract with one of our largest
food service customers.
Our pastry products saw strong growth in the forecourt market,
reinforcing our food service proposition.
FUTURE OPPORTUNITIES
Going forward, we will explore further growth opportunities by
leveraging our strong customer relationships, gaining market
share in existing tiers, expanding into adjacent tiers in our
existing category portfolios and investing in our facilities.
At the end of the financial year we won additional contracts to
supply cooked meats to two of our key retail customers which
provides the opportunity for future growth for our cooked
meats business.
Our focus will very much remain on developing innovative
products that support our core offering. This will give us the
ability to deliver premium products relevant to the rapidly
changing markets in which we operate.
Cranswick plc Annual Report & Accounts 2019
19
Strategic Report OUR STRATEGY CONTINUED
EXPANDING
OUR OFFER
2
OUR STRATEGY
During the past three years we have expanded our product
range and customer base by entering the fast growing premium
fresh and cooked poultry market. The poultry market is a huge
growth opportunity for us as we look to develop new products
and channels in this area. As with our core pork products, we
have a fully vertically integrated poultry supply chain to offer
an important point of difference to our customers.
As part of our long-term growth strategy, our intention is to
continue to expand our product range. We have dedicated
teams who research consumer and market trends and develop
food innovation opportunities.
PERFORMANCE DURING THE YEAR
Our fastest growing areas are poultry and convenient meal
solutions – two trends with strategic overlap that we can use
to our advantage. Consumers are demanding healthier and
more convenient meals, which is driving sustained growth
in the poultry market with chicken taking an increasing share
of the protein segment.
On a like-for-like basis poultry sales for the Group increased
by 18 per cent. Much of this growth stemmed from our cooked
poultry products, through new ‘Ready to Eat’ retail launches
with two of our largest customers, capitalising on the trend
for convenience.
Convenient meal solutions remain a key growth area for us.
We have expanded our ‘Slow Cook’ and ‘Ready to Cook’
ranges with value added products such as curry kits. This has
been supported with investment in our ‘Sous Vide’ cooking
technology across the business.
We continue to develop innovative products that are
differentiated, unique and iconic. This year we launched
857 new products, with 7 per cent of Group revenue being
derived from new product development.
FUTURE OPPORTUNITIES
In both chicken and pork, we are expanding our convenience
range with value added products whilst investing in slow
cook technologies to deliver a more authentic taste and
flavour experience.
It is essential that we continue to invest in our asset base
and ensure our infrastructure remains industry leading. The
poultry market represents a huge growth area for us and we
have invested heavily in this area to take advantage of this
opportunity and support our long-term growth strategy.
Our £75 million poultry primary processing facility in Suffolk, set
to come on stream before the end of the new financial year, will
more than double our existing poultry capacity allowing us to
offer more fresh chicken to retail customers. We have secured
an exciting long-term supply agreement with Wm Morrison
Supermarkets plc underpinning much of the throughput and
supporting our growth strategy. For more information on our
investment in poultry see pages 16 and 17.
Looking forward, we will continue to focus on the fast growing
’Ready to Eat‘ and value added chicken segments. Chicken is
increasingly seen as a versatile protein that is also competitively
priced, and we intend to expand our range of chicken burgers
and sausages. We are also developing recipe kits such as stir-fry
meals to complement our poultry offer.
7%
Percentage of total revenue from
new products
18%
Growth in poultry sales
20
Cranswick plc Annual Report & Accounts 2019
SEEKING NEW
OPPORTUNITIES
3
OUR STRATEGY
We want to maximise the value of our meat cuts and reduce
waste. International markets represent an opportunity to sell
fifth quarter products that would not generally be consumed
locally and would otherwise be wasted. This aligns with our
strategic pillar of sustainability.
Over and above the fifth quarter products we export, we
are also seeing increasing overseas demand for our higher
welfare, premium products. Our long-term growth strategy
incorporates this trend as we aim to further develop our
relationships with our international customers in order to
expand our offering in these markets.
PERFORMANCE DURING THE YEAR
Our export sales increased compared to prior year and we
continue to make strategic progress by expanding our presence
in international markets and adding more value to the products
we sell. Our non-EU export sales grew 12.8 per cent and we now
export to over 30 countries around the world.
As the world’s largest pork producer and consumer, China
remains our largest and most important export market.
Although Chinese prices were down at the start of the year,
they have since rebounded and are likely to remain strong for
the foreseeable future as China recovers from an outbreak of
African Swine Fever, which has impacted domestic supply.
China remains a buoyant market for our fifth quarter products,
but we are also seeing increased demand for outdoor bred,
higher welfare products. This is reflective of changing consumer
attitudes and diets, as well as a growing middle class. We expect
this trend to continue, and are well placed to capitalise upon it
as we continue to prioritise the wellbeing of our animals. Read
more in our Producers and Suppliers section on page 29.
Outside of China, we have identified key growth opportunities in
Japan, Canada and the US, and are building strong relationships
with customers in these markets. We are experiencing growing
demand for outdoor bred pork in to Japan where we have
established a new distribution channel for our high quality
meat cuts and sales of our premium pork shoulder have been
very strong.
In Canada we are looking to increase supply of our loin ribs
and are exploring opportunities to establish a stronger base
in North America for the supply of our dry cured bacon into key
retail channels.
FUTURE OPPORTUNITIES
We continue to develop products with which to access both
new and existing export markets. In addition, continued
investment at our primary processing facilities provides
increased capacity which not only adds scale to our UK pork
business, but also provides more product for our international
export trade.
>50
Product lines to the Far East
+16%
Like-for-like Far East export
volume growth
Cranswick plc Annual Report & Accounts 2019
21
Strategic Report KEY PERFORMANCE INDICATORS
MEASURING
OUR SUCCESS
We measure the success of our strategy using
the following key performance indicators.
1 DRIVING
THE CORE
2 EXPANDING
OUR OFFER
3 SEEKING NEW
OPPORTUNITIES
LIKE-FOR-LIKE REVENUE GROWTH
(%)
SALES FROM NEW PRODUCTS
(%)
NON-EU EXPORT SALES GROWTH
(%)
12.7
12.7
11.5
7.2
7.0
37.5
2017
2018
-0.2
2019
-0.2%
+7.0%
12.8
2.4
+12.8%
2017
2018
2019
2017
2018
2019
Revenue was in line with the prior year as higher
year-on-year volumes in the first half of the year were
offset by lower volumes in the second half. Strong
growth in Poultry and Continental Products was
countered by lower sales of other, pork related products.
Our commitment to innovation is ongoing and we
continue to design new products to deliver creative food
concepts to our customers. Sales from new products
during their first six months following launch account
for £103 million of revenue in the current year.
Non-EU export sales, including sales made to non-EU
markets through UK-based meat trading agents, have
shown strong growth in the year. The approval received
at the end of the last financial year to export product
from our Ballymena facility to China has underpinned
much of the non-EU export sales growth. The continued
spread of African Swine Fever through China has further
increased non-EU export sales.
NUMBER OF BRC GRADE As
NUMBER OF SUPPLIER AUDITS
15
14
13
330
230
227
COMPLAINTS PER MILLION UNITS
SOLD
19
18
20
14
330
20
2017
2018
2019
2017
2018
2019
2017
2018
2019
The number of Grade A ratings awarded by the British
Retail Consortium (BRC) against Global Standards for
Food Safety increased reflecting our commitment to
excellence as our Crown Chicken site moved from
a B* to an A* rating during the year. Of our 15 production
facilities, 14 received Grade As.
Our Group Technical Services team carry out audits
of our suppliers in order to assure the safety, traceability,
quality and provenance of the raw materials we use.
The increase in the number of supply chain audits we
undertook shows the significant ongoing effort to
improve the quality of the products we make.
Our long-term commitment to making premium quality
products means the number of customer complaints
per million units sold remains very low. The increase in
the year related to specific products and remedial action
was promptly taken.
22
Cranswick plc Annual Report & Accounts 2019
STRATEGIC PILLARS
HIGH QUALITY
PRODUCTS
OPERATING
EXCELLENCE
SUSTAINABILITY
ADJUSTED OPERATING MARGIN
(%)
FREE CASH FLOW
(£’m)
RETURN ON CAPITAL EMPLOYED*
(%)
6.1
6.3
6.4
111.7
87.3
72.4
20.3
19.0
18.2
6.4%
£87.3m
18.2%
2017
2018
2019
2017
2018
2019
2017
2018
2019
Adjusted operating margin increased to 6.4 per cent
reflecting a change in category mix with an increase in
sales of poultry products. Our continued investment
in our production facilities has also driven margin
improvement with operational efficiencies achieved
from capital expenditure in prior years.
The reduction in free cash flow was largely driven by
changes in working capital; inventory increased towards
the end of the year as we made Group-wide preparations
for Brexit. Biological assets also increased as we invested
further in our agricultural operations and expanded our
pig herd and chicken flock.
We continue to invest in our asset base in order to ensure
our production facilities are industry leading. Return on
capital employed reduced reflecting the investment
made in our new poultry processing facility in Eye, Suffolk,
which will see returns once commissioned at the end of
the current financial year.
* Adjusted operating profit divided by the sum of average
opening and closing net assets, net debt/(funds), pension
liability and deferred tax.
RELATIVE CARBON FOOTPRINT –
TONNES OF CO2e PER TONNE SALES
0.202
0.174
0.114
WASTE TO LANDFILL – TONNES
RIDDOR ACCIDENTS PER 100
EMPLOYEES
222
173
0.98
0.63
0.67
0.114
0
0
0.67
2017
2018
2019
2017
2018
2019
2017
2018
2019
Our relative carbon footprint continued to decrease
reflecting our commitment to our Second Nature
pledges as we aim to minimise our impact on the
environment. Our switch to ammonia refrigeration
has significantly reduced our tonnes of CO2e, as has
our investment in Combined Heat & Power systems.
Read more on page 36.
We have achieved our target of Zero Landfill status
across our sites a year ahead of schedule. We continued
to challenge our more rural locations to convert waste to
energy and recycle any waste in order to minimise our
impact on the environment.
The accident rate reportable to the Health & Safety
Executive fell compared to the prior year following
the implementation of a new and enhanced five year
Health & Safety strategy. New levels of transparency
and increased reporting have led to significant
improvements during the year.
Cranswick plc Annual Report & Accounts 2019
23
Strategic Report Sustain
688
Tonnes of plastic removed
26%
Reduction in food waste
at Milton Keynes site
24
Cranswick plc Annual Report & Accounts 2019
DELIVERING CHAMPIONS 12.3
This year our Milton Keynes factory became our
flagship Champions 12.3 site by working towards
achieving zero edible food waste status to deliver
against the Group commitment to a 50 per cent
reduction by 2030.
To date, the site has achieved week on week improvements and has seen a
26 per cent reduction in food waste so is on track to achieve the 2030 target well
ahead of schedule. The site also now ensures 100 per cent of surplus product is
redistributed to local community groups in need via their partnership with Plan
Zheroes, an online redistribution platform. The impressive scale of results that
the Milton Keynes team has delivered has provided the impetus for Second
Nature and sets a new manufacturing standard in food waste prevention.
We began by mapping where and how food waste was occurring with a root
cause analysis at key production points. This enabled us to undertake swift
remedial action targeting behavioural change at our Milton Keynes site, but we
soon realised a more integrated approach was needed to replicate this success
across the business. This has led to the development of Waste Warriors – our
new Group-wide employee engagement programme to prioritise food waste
prevention that will be rolled out in 2019.
Our Waste Warriors team at Milton Keynes is made up of volunteers who
passionately believe in the vision of Second Nature and will pilot new solutions
using technology, behavioural change techniques and strategic partnerships.
Employees will be taught best practice skills in processing and manufacturing.
They will identify new redistribution opportunities within the community,
participate in interactive monthly workshops and enrol in e-learning to become
CPD-certified for food waste minimisation. Through our Waste Warrior
programme, employees are given opportunities to make an even bigger
difference in tackling food waste, both inside and outside of the business.
We believe we are the first food manufacturer to take such an integrated
approach that is powered by employee engagement. It is our ambition to not
only become a zero edible food waste business by 2030, but to help alleviate
food poverty in the communities we serve.
“ We are excited to lead the way on Champions
12.3 and really act on our food waste and deliver
amazing results. Getting our employees involved
from the start is really helping to drive change
within our business.
Champions 12.3 presents us with a HUGE
opportunity; it’s a chance for us to not only
improve the financial performance of the
business and our reputation within the industry,
but most importantly it gives us the opportunity
to make a difference.”
Sam Pearl, Site Director, Milton Keynes
Cranswick plc Annual Report & Accounts 2019
25
Strategic Report OUR STAKEHOLDERS
WORKING WITH
OUR STAKEHOLDERS
Our long-term growth and success are dependent on how we engage with our
stakeholders. We value regular interaction with them to ensure we can consider their views
and interests when making decisions. We continuously explore how to make our strategic
decision-making process more inclusive in order to involve our key stakeholders.
Over the following pages we explore how we engage with our key stakeholders.
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26
Cranswick plc Annual Report & Accounts 2019
Customers
& Consumers
We aim to create meaningful, long-lasting relationships with all our
customers. By engaging face-to-face with customers and attending
industry conferences we can work collaboratively and develop
products that meet our consumers’ needs.
We have reduced salt content in our gammon
steaks and joints by switching to a sweet curing
process, and developed nitrate-free bacon
alternatives. We are also producing flexitarian
and skinny sausages for a major retail customer.
We continue to review potential areas where quality
improvements can be made, from the breed and
genetics of our pigs through our feed and farming
methods to new production processes.
PRODUCT SAFETY & ASSURANCE
We have increased the number of supply chain
audits carried out by our technical teams to assure
the safety, traceability, quality and provenance of
our raw materials. More detail on our technical
compliance and auditing process can be found
under our Producers & Suppliers section on
page 28.
In recent months the food industry has come under
increasing scrutiny over labelling and allergens.
We ensure lines are tested after cleaning to make
sure they are free from other allergens. We are also
externally audited on our gluten-free products.
Food safety is an area where we expect to see
more stringent compliance in the coming years.
We are already putting measures in place to
mitigate food safety risks. This includes installing
security systems in our primary processing
facilities that go beyond current legislation or
industry standards, and working more closely
with our suppliers to educate them on risks
surrounding food safety.
Around 73 per cent of our revenue is generated
from our retail customers, primarily through
their own-label products in premium and
super-premium tiers. We have a broad retail
customer base, selling products into each of
the top four UK multiple grocers as well as the
premium grocery and discounter channels.
We are strengthening and consolidating our
presence in the food-to-go sector, which is a fast
developing market. Food service continues to be
a growth sector with many of our products listed
by UK hotel, pub and other food service outlet
chains. We also have a growing export business,
particularly in the Far East.
PRODUCT QUALITY & INNOVATION
Our responsible and innovative approach to food
production means we continue to deliver great
tasting, high quality products whilst pioneering
new categories and concepts – especially in the
premium grocery channel – to meet changing
consumer demands.
Over the past year we have worked closely with our
customers to improve the taste, texture, flavour
and appearance for many of our meat products.
We have discovered a process to maintain the pink
colour of medium rare beef joints once sliced and
packed, with no compromise in food safety or shelf
life. We have also developed an artisan-style steak
pie for a premium retailer which has enjoyed
tremendous success,.
Our proactive approach to product development
means we can respond swiftly to market trends
as they emerge. Read more in the Consumer
Trends section on pages 12 to 15. We strongly
advocate the nutritional benefits of eating meat
as part of a balanced diet, but recognise there
is growing concern around the use of additives in
processed meat. We are working to improve the
health credentials of our pork in response to this.
OUR BEST EVER STEAK PIE
We were responsible for making the ‘Best Ever
Steak Pie’, which became Marks and Spencer’s
best-selling new product launch ever. It
features beef skirt, hand butchered and
griddled, in a gravy made from roasting pan
juices, before being encased in all butter pastry.
The hard-working team had to go into 24-hour
production lock down to meet demand
following a viral social media campaign for
the pie which was shared 400,000 times.
THE NEW ACTIVISM AGENDA
Our ‘Food for Thought: the Rise of Radical
Transparency’ report, which we published
last year, highlighted a growing need for food
companies to engage in better disclosure
when it comes to showcasing how food is
produced. This involves lifting traditional veils
of secrecy to expose ‘behind the scenes’
real-time processes in farms and factories.
We are proud of the quality of our farming
and factory facilities and believe in being
transparent in everything we do.
Cranswick plc Annual Report & Accounts 2019
27
Strategic Report OUR STAKEHOLDERS CONTINUED
Producers &
Suppliers
We are passionate about helping people understand where their food
comes from and how it is produced. We work closely with suppliers
who share our beliefs in order to work towards a common goal and
improve transparency.
RESPONSIBLE SOURCING
As demand for meat provenance grows, our
industry is entering a new era of transparency
and we are at the forefront of driving this agenda.
We are committed to raw material integrity and
traceability – this includes the meat, ingredients
and packaging we use in the manufacture of our
products. We approve and control 752 raw
material suppliers, and 6,073 products and
associated specifications through our Group
Technical Services (GTS) division. Suppliers are
approved through audits carried out by our GTS
team or through independent third party audits
such as the BRC Global Standard for Food Safety.
SUPPLIER PERFORMANCE
We monitor supplier performance through Foods
Connected, our supplier management system.
Vulnerability risk assessments are undertaken
for every supplier and ingredient. All of our
suppliers are now fully compliant with our Foods
Connected requirements, up from 92 per cent
in the previous year.
The GTS team are constantly refining these
requirements and any non-conformance will
be raised with suppliers at intake. New risk
assessments are also being developed for
allergens, gluten-free and speciation. We have
achieved recognition for our open book auditing
approach in conjunction with Foods Connected
and Tesco.
During the past 12 months, 330 supply chain audits
were carried out to assure the safety, traceability,
quality and provenance of the raw materials we use.
Currently 99 per cent of our 524 direct suppliers
and 88 per cent of our 752 total suppliers are on
Sedex, enabling us to drive ethical standards within
our supply chain. We also undertake our own
ethical verification audits. Our expectations of our
suppliers are laid out in our Technical Conditions
of Supply and can be found at
www.cranswick.plc.uk.
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Cranswick plc Annual Report & Accounts 2019
Increasingly we are using interactive data
visualisation to map our supply chain and gather
more granular data and intelligence through
software tools like PowerBI. This information is
shared across our technical teams and helps us
communicate more transparently to customers
and other stakeholders.
THE RISE OF RADICAL TRANSPARENCY
Consumer trust in the food industry remains
fragile. We believe companies must respond
to this by increasing clarity so the provenance
of products can be easily understood and
accessed by everyone – an approach we call
Radical Transparency.
Last year we published a report calling on
the industry to strengthen its transparency
efforts. Part of the solution lies in using
smart technology and data to improve
disclosure and verification, and we are working
with various partners on specific projects.
These include:
• The EU-China-Safe’s international ‘track
and trace’ food safety project. This will
deliver a shared vision for improving food
safety and combating food fraud in the
two trading blocks.
• A pork electronic tagging pilot with the
Agriculture & Horticulture Development
Board. We have completed successful
trials using electronic ear tags on our pigs
and DNA profiling to give us the capability
to trace our pork products back to the
individual farm and pig.
• The Food Standards Agency Blockchain
project. This is gathering pathology data
from primary processing facilities to
ensure compliance in the food sector.
Where possible, we look to mitigate emerging risks
like food fraud and are working with Fera Science on
an Early Warning System to detect this. We regularly
communicate with key ingredient suppliers to
better understand how they manage such risk.
SITE COMPLIANCE
During the past year, a total of 1,114 audits were
carried out across the Group. These comprised
GTS, third party and customer audits. Of these,
no red rated third party or customer audits were
recorded reflecting the strong compliance culture
we have built.
This February Issue 8 of the BRC Global Standard
for Food Safety came into effect, making food
safety and quality culture a compulsory
requirement for certified sites. Our Group
Technical Compliance Controller sits on the BRC
working group and was closely involved with its
development. In preparation for the new standard,
the GTS team have been conducting internal
audits against Issue 8.
14 production facilities were audited against Issue
7 of the BRC Global Standard for Food Safety
during the year. Six of our sites achieved the
highest AA* rating. Three sites were awarded A*
and three sites achieved AA ratings. Our Crown
Chicken site moved from B* to A* status.
The GTS team continue to invest in upskilling staff
across our sites, and a Group Compliance Trainer
has been appointed to coordinate this activity.
This will ensure we maintain the highest standards
of site compliance reporting and analysis.
14
Number of BRC grade ‘A‘ ratings
during the year
330
Number of supplier audits
during the year
ANIMAL WELFARE
Animal welfare is intrinsic to meat integrity,
and we take our responsibilities in this area very
seriously. We aim to increase meat sourced
through our own farms, enabling us to have a
greater level of oversight over the wellbeing of
our animals. We have received global recognition
for our leadership on animal welfare issues.
Many of the pigs supplied to us are reared to the
higher welfare standards associated with outdoor
breeding or rearing production methods.
Approximately 30 per cent of pigs processed by
our Hull primary processing facility and 70 per cent
at our Norfolk facility are reared to the exacting
requirements of the RSPCA Freedom Foods
welfare standard. The balance of pigs processed
are reared indoors in compliance with Red Tractor/
BMPA Quality Assured Pork welfare standards. All
of our chickens are reared indoors in compliance
with Red Tractor welfare standards. We are
working with these assurance schemes to
improve welfare outcomes further through
representation on steering group committees.
All of our poultry sheds have perches and windows
to allow in natural light. LED blue lighting has been
installed as standard in both our poultry sheds
and pig lairages to reduce stress levels. Dietary
supplements are given to our animals to improve
nutrition and we emphasise the importance of
farm hygiene such as water cleanliness at all our
sites to optimise livestock health and well being.
Chain Manager to lead on this. Suppliers are
benchmarked and graded through our Welfare
Code of Practice enabling us to monitor and
track performance.
We are involved in industry leading trials with
retailers and universities to help drive wider
transformative change in commercial farming
welfare practice. These include improving the
wellbeing of newly hatched chicks, more space for
sows while breeding and more humane processing
for chickens. We are also developing industry best
practice guidance on the use of antibiotics.
During the past year, our Hull and Norfolk primary
processing sites collectively processed an average
of 45,300 pigs per week. Our Ballymena site has
processed 10,500 pigs per week, a 31 per cent
increase since acquisition. Our sites are
strategically placed in three of the UK’s largest pig
breeding and rearing regions. This ensures that
animal transportation times from farm to
processing facility are minimised with resulting
welfare and food mile reduction benefits.
LEADING THE WAY ON WELFARE
We are the only Business Benchmark on
Farm Animal Welfare (BBFAW) Tier One
recognised meat processor, just one of five
companies worldwide to have achieved this
rating. We are extremely proud to have
received this accolade for the third year
running. More information can be found at:
www.bbfaw.com
We take biosecurity seriously in order to minimise
the introduction of any infection to our livestock.
High hygiene standards are in place and we remain
alert for any outbreaks that could threaten our pig
herd or chicken flock.
Our agricultural team is also working with pig
producer groups to improve welfare standards
where we don’t have direct control, such as key
charcuterie suppliers. Our Continental Foods
business has employed an Agriculture Supply
Last year our Weybread poultry site processed an
average of 500,000 birds per week. All our broiler
farms are within 25 miles of the processing facility.
Our livestock transportation distances from farms
to processing sites are shown in the map below.
PRESTON, NEAR HULL
35% within 25 miles
55% within 40 miles
66% within 50 miles
73% within 60 miles
NORFOLK
46% within 25 miles
86% within 40 miles
90% within 50 miles
95% within 60 miles
BALLYMENA
19% within 25 miles
43% within 40 miles
51% within 50 miles
76% within 60 miles
WEYBREAD
100% within 25 miles
ACTING ON ANTIBIOTICS
Our Wayland Farms division is leading in
reducing antibiotic usage in our herds by
adopting a range of alternative management
and health control strategies. Last year
we won an Antibiotic Guardian Award in
recognition of this work.
Wayland’s rearing strategy means pigs are only
mixed at weaning, significantly boosting their
health and productivity. Dedicated nurseries
are used to rear piglets to help stabilise their
health and build immunity, resulting in lower
mortality rates.
During the year our antibiotic usage increased
slightly as a result of the unusually hot weather
experienced in summer 2018. However, overall
our pig farms are still over 20 per cent below
the pig industry antibiotic usage target set
for 2020 by Responsible Use of Medicines
in Agriculture.
Our long-term objective is to reduce and avoid
antibiotics for prophylactic use across our
supply base.
Cranswick plc Annual Report & Accounts 2019
29
Strategic Report OUR STAKEHOLDERS CONTINUED
Our people
We know it’s our people who make Cranswick successful. We strive
to ensure there is frequent two way interaction with our workforce
through both formal work councils or union membership and
informal communications.
We have a workforce of over 10,300 staff across
our business and recognise the value in inspiring
and developing a multi-skilled, motivated workforce
who can bring our values to life.
Our human resources strategy underpins our
vision and purpose – it is embedded in our
sustainability programme Second Nature and our
overall strategic plan. It aims to attract and retain
talented individuals by not only equipping them with
the skills to deliver our long-term business goals,
but by giving them opportunities to thrive.
It is important our employees feel valued as
they are critical stakeholders in our business.
We encourage staff to express their views via
works councils or through union membership and
each employee also has the opportunity to voice
opinions at every site via internal committees.
But we strive to go beyond this. We want to give
our people a greater voice and are exploring how
to make our strategic decision-making process
more inclusive with initiatives like our Waste
Warriors programme which was voted for by
our staff. Read more on page 25.
EMPLOYEE ENGAGEMENT
Each year we undertake a Group-wide staff survey
and the latest survey in February 2018 achieved
an 83 per cent response rate. The surveys lead to
extensive employee engagement drives across the
business. We installed new communication tools
such as ‘You Said We Did’ boards at each of our
sites to convey and coordinate our engagement
activities, at both a central and local level. The
boards are specific to each site and have resulted
in deeper, more relevant levels of engagement.
We have introduced a new intranet site and a staff
newsletter, Flavour, with monthly incentives and
prizes, published in multiple languages to reflect
the diversity of our workforce. We are continuously
building on our staff engagement efforts and
we are finalising plans for a rewards and benefits
package, which will be rolled out later this year and
will reflect our commitment to flexible benefits
which give our employees what they want.
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Cranswick plc Annual Report & Accounts 2019
ATTRACTING AND RETAINING TALENT
It is our aim to become a destination employer.
Our training and development strategy forms the
backbone of our recruitment and retention drive,
enabling us to deliver what’s required in terms of
workforce capabilities, skills, competencies and
succession planning.
Mentoring
Last year we established an internal mentoring
programme to support the career progression
of some of our key people. We have trained
30 mentors to assist colleagues in progressing
their careers and giving them an invested
‘touch-point’ within the business.
Apprenticeships
We recognise the importance of investing in and
developing young people so they can not only
make a positive impact on the business but act
as future ambassadors for our industry.
We have over 100 apprentices across several
disciplines, with a strong focus on butchery and
engineering. Our scheme enables apprentices
to gain cross-functional skills, which are in high
demand across the sector. In 2018 one of our
apprentices won an Institute of Meat award
for Best Meat Processing Apprentice and was
presented the award by HRH The Princess Royal.
We also use third party coaches at a senior level
to develop the skill sets of our Directors’ and
enable continuous learning and development.
This in turn helps with our strategic decision-
making skills and ensures we are building upon
this leadership capability.
Mentoring also has a valuable role to play in our
outreach work. Six of our employees from across
the business are working with The Prince’s Trust
as part of a three-year enterprise schools
programme, offering work experience to young
people with a view to recruiting them into the
business full-time.
We work closely with local colleges and universities
to promote opportunities within our business,
and to support our apprentices’ ongoing
education needs. We are further developing
our apprenticeship programmes to ensure we
attract and retain the best students to support
our long-term succession planning.
Graduate Development
Our two-year graduate scheme continues to be
highly effective, with six new graduates placed
this year across our Group locations. Over the
last seven years we have recruited 40 graduates,
finding permanent roles for them all, with
the first year’s cohort now entering Senior
Management roles, including running their
own site as a Factory Manager.
All graduates go through a six-week induction
visiting our farms and factories, before spending
time in six different functions and then specialising
in a discipline over their final year. During this time,
they are taught about the Group’s heritage and
core values through our ‘Science of Artisan’
training programme, a course which is available
to all new starters.
WHAT IS A DESTINATION EMPLOYER?
A destination employer is one that people
aspire to work for. Staff are our greatest asset
and we want to recognise this by being a
great place to work. By 2030, we have pledged
to take a leading role on pay, working hours
and agency labour management. We will also
develop a staff wellbeing programme as
we continue to build an equal and inclusive
workplace in which all employees are given
ample opportunity to thrive. This will
differentiate us from our peers and help
futureproof the business, so it continues
to grow and prosper.
Learning for Leadership
Succession planning is a priority for us. In 2018
we trained colleagues in soft skills or management
development either through Group-wide learning
programmes or site level programmes. Our
Management and Leadership training programmes
continue to go from strength to strength with
76 candidates having completed the courses
during the year.
We take a proactive approach to modern slavery
and human trafficking, to ensure this criminality
is excluded from our supply chains and business.
We conduct ethical verification audits to increase
visibility of ethical standards within our supply
chains, which also allows us to gather more
granular data and intelligence on any risks. Further
details of our anti-slavery policy can be found on
the Group’s website: www.cranswick.plc.uk.
This year we launched a new Advanced Leadership
development programme to train those Directors
within the business who have the potential to
go further. This is a bespoke course which builds
on the business traits that have enabled Cranswick
to be so successful to date and uses these to
further cement the skill sets of our main Board.
Ten candidates are undertaking the two-year
programme which involves one-to-one coaching,
targeted training days and ongoing development
initiatives such as business projects.
Over the past year internal succession rates
have increased with several individuals moving
into more senior positions, and Directorships.
We continue to focus on our appraisal process
and development plans to ensure we have the
necessary skill sets in place to facilitate future
succession planning. This process feeds into
development dashboards across the business,
used to identify and target any learning and
succession gaps.
EQUALITY, DIVERSITY AND INCLUSION
Our values are rooted in respect for people.
We aim to provide a workplace culture that
generates equal opportunities for everyone,
where employment decisions are based on
merit, qualification and abilities, and are
not influenced or affected by race, colour,
nationality, religion or belief, gender, marital
status or civil partnership, family status,
pregnancy or maternity, sexual orientation,
gender reassignment, disability or age.
We also provide flexible working opportunities
as part of our ethos of putting people at the
heart of the business.
We employ more than 10,300 staff of whom
more than 7,800 are permanent workers,
encompassing over 55 nationalities. There are
no differences in the pay structure for males
and females performing the same or similar roles.
Our 2018 Gender Pay Gap report can be found on
the Group’s website www.cranswick.plc.uk.
We continue to champion diversity issues, joining
sector-led initiatives like Meat Business Women
(MBW), a networking platform for women working
in the meat industry. Last year both our HR
Director and CEO spoke at two MBW events about
the challenges and opportunities facing female
graduates who wish to enter the industry.
Details of our diversity policy are shown in the
Nomination Committee report on page 64.
We also use the Sedex database to help us
manage supplier performance on business ethics.
Read more in the Producers and Suppliers section
on page 28.
KEEPING OUR PEOPLE SAFE AND HEALTHY
Last year we launched our five-year strategy for
Health & Safety (H&S) and have made excellent
progress in reducing risk and accident rates across
our sites over the past 12 months. New levels of
transparency and increased reporting levels have
resulted in swifter corrective action being taken,
leading to significant improvements.
Our Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations (RIDDOR) rate was
considerably lower than the previous year. Our
RIDDOR accidents per 100 employees fell by
32 per cent compared to 2018.
Our Group H&S Manager has been instrumental
in driving this progress, assisted by the Group
H&S Risk and Claims Manager and a team of H&S
Managers across each of our sites. Our Group
H&S Manager is currently qualified to Diploma in
Occupational Health and Safety and is a graduate
member of the Institute of Safety & Health (IOSH)
and is working towards chartered status. All our
site H&S Managers and coordinators hold a
National Examination Board in Occupational
Safety & Health (NEBOSH) qualification and
continue to build on their skills development
portfolio through the IOSH.
Our target is for all sites to be accredited to the
ISO45001 Health and Safety management system
by 2020, as part of our Second Nature strategy.
Our first site will be put through ISO45001
accreditation in June. This will be supported with
an extensive engagement exercise involving
leadership safety tours, hazard spotting and staff
behaviour change campaigns focused on our
most frequent accident causes – slips and trips,
falling objects, machinery and manual handling.
To further improve our H&S standards, we have
started to measure accident frequency rates in
addition to staff accident rates. This will allow us to
compare site-by-site performance more accurately,
share best practice and link reduction targets.
BECOMING BREXIT PROOF
Our business is reliant on EU workers and we
have actively looked to mitigate any effect that
Brexit might have. We have an EU Settlement
Scheme appraisal system in place and will be
supporting any staff member who needs to
apply so that they can continue to work in the
UK. Any future immigration curbs will pose
challenges to the UK meat processing industry,
and we are actively working with the Migration
Advisory Committee to address these issues.
We are exploring new ways to manage
our H&S-related risk assessments so they can
be integrated into our other reporting systems
through a centralised database.
Each month performance statistics are reviewed
and monitored by management, with the Board
reviewing quarterly to ensure all required
corrective actions are completed within the
specified time period. Annual H&S audits are
undertaken at each site, followed up by an action
plan for the next 12 months.
FIGHTING THE STIGMA
OF MENTAL HEALTH
Tackling mental health in the workplace is key
to our understanding of how we manage our
employees, and we are proud to be leading
on this. Each of our sites has a trained mental
health champion; a staff volunteer, who
employees can talk to in confidence if they are
struggling or experiencing mental wellbeing
issues. We promote this support service
through our intranet site, Flavour newsletter
and posters in communal meeting places.
Cranswick plc Annual Report & Accounts 2019
31
Strategic Report
OUR STAKEHOLDERS CONTINUED
COMMUNITY ENGAGEMENT
Helping communities thrive and prosper is
important to us as a business. It underpins our
sustainability commitments while raising our
profile as a destination employer in the regions we
operate in. As we build on this work, measuring our
contribution to society will become more important
so we can better understand our impacts.
We are now in the fourth year of a partnership
with the Freedom Festival for international arts,
hosted annually in Hull. This event reaches out
to the wider community, providing opportunities
to engage the local population.
In Norfolk, we sponsor the Porkstock Festival
promoting the importance of local produce to
East Anglia. As part of the event, we showcase
the work of our business and share employment
opportunities, within both the area and the wider
Group. Across all our locations we also work
with local schools, colleges and universities
including industry mentoring, attendance at
interview workshops and raising awareness
of the food industry.
We also took part in Open Farm Sunday in the
Midlands and Norfolk to educate and engage
local communities with the farming systems
and the background of our farm-to-fork story.
CHARITY FUNDRAISING
Across the Group, we support a number of
charities which have been nominated by our
employees through a local voting system.
These include local and national organisations
such as Bluebell Children’s Hospice, Yorkshire
Air Ambulance and Macmillan Cancer Support.
We place a strong emphasis on staff volunteering
to help raise money for good causes. Every two
years we host a Cranswick Golf Day. This raised
£70,000 in 2017 with the money going to a children’s
charity in Hull. We also support GroceryAid which
last year raised over £100,000.
In 2018 our Chief Operating Officer was elected
Chairman of the Butchers’ & Drovers’ Charitable
Institution (BDCI), an organisation that supports
working and retired individuals from the butchery
industry in times of need.
CREATING SOCIAL VALUE
Where possible, we look to make a deeper
contribution to society by acting as a positive
force for change. One of our priorities, as part
of our Second Nature and Champion 12.3
commitments, is to redistribute surplus edible
product to local communities and help tackle food
poverty. Read more on page 25. Our Hull Food
Save Project is just one example of how our
business is aligning itself with Sustainable
Development Goals 2 (Zero Hunger) and 3
(Good Health & Wellbeing).
On a national level we work with the Trussell Trust,
Fareshare and Company Shop to ensure our
surplus food products reach those most in need.
Several of our sites also run local initiatives. In
Milton Keynes we are working with food donation
platform Plan Zheroes, in Hull we are working
with homeless charity Project Hotdog which
hosts soup kitchens, and our Pastry site helped
set up a community fridge initiative.
“ Hull foodbank are so excited
and grateful for the work
of Cranswick in initiating
a community and business-
based project to tackle the
issues of food poverty and
food waste in our area.”
Russ Barlow, General Manager, Hull Foodbank
FIGHTING HUNGER
Last year we launched the Hull Food Save
Project to tackle food poverty in Hull – a city
in which 20,000 children are estimated to
be living below the poverty line. Working
alongside project partners Hull Food Bank,
food sharing app OLIO and social enterprise
FULL Food, we have donated freezers and
continue to send weekly supplies of fresh
produce. We have also funded a full-time staff
member to work with OLIO to increase uptake
of the app to ensure maximum impact. Since
its launch, 21,000 food items have been saved
from going to waste across Hull.
We recognise we have an important role in our local communities and
we depend on our communities for customers and people. We want
to give back whenever possible through engagement, education
and employment.
Communities
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Cranswick plc Annual Report & Accounts 2019
We recognise the importance of engaging with all our
Shareholders on a regular basis, and this ensures we
capture and embrace feedback and emerging trends.
Shareholders
INDIVIDUAL SHAREHOLDERS
The Group has a significant number of individual
Shareholders many of whom have been
Shareholders for many years. The Group engages
with individual Shareholders through our website
and at the Annual General Meeting when a
presentation, similar to the presentation made
to institutional Shareholders, is made to those
attending. The Company Secretary also
coordinates communications with individual
Shareholders to make sure we respond
appropriately to individual matters raised
in conjunction with our registrars, Link Asset
Services, where this relates to matters
regarding shareholdings.
INSTITUTIONAL SHAREHOLDERS
The Group engages with institutional
Shareholders through regular meetings.
Presentations are made by the Chief Executive,
the Finance Director and the Commercial Director
to analysts and institutional Shareholders on the
half year and full year results and on Company
strategy. The Chairman, Chief Executive and
Finance Director also discuss governance and
strategy with major Shareholders from time
to time. The Senior Independent Director and
Committee Chairs are also available for direct
meetings with Shareholders where required.
Significant matters relating to the trading or
development of the business are disseminated
to the market by way of Stock Exchange
Announcements. During the year the Group
held an investor day at its new Continental
Products facility in Bury which included
a factory tour, presentations and a Q&A
on various developments in the business.
WAYS WE ENGAGE WITH SHAREHOLDERS
AGM
Annual Report
Press Releases
Results Announcements
Website
The AGM will take place on Monday 29 July 2019 at Mercure Hull Grange Park Hotel, Grange Park Lane, Willerby,
Hull, HU10 6EA at 10.30 am. The Board welcomes the attendance and questions of Shareholders at the AGM
which is also attended by the Chairs of the Audit, Remuneration and Nomination Committees. We encourage
Shareholders who cannot attend to vote by proxy on all resolutions proposed.
We publish our annual report and accounts each year which contains a strategic report, corporate governance
section, financial statements and shareholder information. The report is available in paper format and online.
We encourage Shareholders to opt for our online format to help reduce the amount of paper we use.
We issue press releases for all substantive news relating to the Group’s financial and operational performance,
which can be found on our website at www.cranswick.plc.uk
We release full financial and operational results at the interim and full year stage in November and May
respectively. The Group also releases a trading update at the first and third quarter with reduced disclosure.
The interim and full year results are accompanied by presentations by the Executive Directors, which are also
available on our website.
The website (www.cranswick.plc.uk) is regularly updated and contains a wide range of information relating to
the Group. The Investor Section includes our investor calendar, financial results, presentations, Stock Exchange
Announcements and contact details. Shareholders can make enquires through our website which the Company
responds to promptly.
Cranswick plc Annual Report & Accounts 2019
33
Strategic Report OUR STAKEHOLDERS CONTINUED
Why did we call it Second Nature? Simply put, we
believe sustainability should happen automatically
whenever we make a business decision or develop
a new product or service and become a natural
function of how we operate.
SECOND NATURE PROGRESS REPORT
A year on from its launch we have made good
progress with Second Nature and have already
met some key pledges. Our key performance
highlights are below.
We have designed Second Nature to deliver
against four key principles:
• Materiality – focusing on what matters most
• Regenerative – creating long-term, sustained
and absolute impact
• Systemic – influencing change across
entire systems
• Transparency – sharing progress openly
and honestly
To ensure our aims remain relevant, we have
aligned our Second Nature commitments to the
biggest social and environmental issues of our day.
These include global frameworks such as the UN
Sustainable Development Goals (SDGs), World
Resources Institute Champions 12.3 platform,
the UK Plastics Pact and Courtauld 2025. We are
also taking a leadership position on responsible
business agendas such as the circular economy,
animal welfare, plastic pollution and radical
transparency.
100%
We are committed to achieving 100%
recyclable packaging by 2025
30%
Our long-term target of reducing our
relative carbon footprint by 2020
Plastics
In 2018 we became a founding signatory of the UK
Plastic Pact and we are in the process of changing
our trays to be 100 per cent recyclable. We have
reduced our plastic packaging use by 688 tonnes
(4.9 per cent) against a 2018 baseline of 13,957
tonnes of plastic packaging used per annum. We
have reduced corrugated packaging by 35 tonnes
and are on track to become a PVC-free business
by the end of this year.
Food waste
We have measured our food losses and waste
across all sites using the international Food Loss
and Waste Protocol. Using 2017 as our baseline
year to set our 50 per cent reduction target
against, food waste accounted for just over 1 per
cent of all food we produced, and we achieved a
top five supplier performance ranking with a major
retailer. We are now working with Champions 12.3
and Courtauld 2025 to eliminate all avoidable food
waste ahead of the 2030 target through our
Future Factory and Waste Warriors employee
engagement programmes at our Gourmet Pastry
and Milton Keynes sites. Read more in the Second
Nature case study on page 25.
Renewable Energy
We now source 100 per cent renewable grid
supplied electricity across all of our sites. We are
investing in more heat reclamation projects and
upscaling our Combined Heat & Power (CHP)
infrastructure to increase on-site clean energy
generation. This should make us more self-
sufficient in adopting renewables whilst reducing
our energy spend further.
TOP 5 SDGs WE CAN IMPACT, AS VOTED FOR BY OUR WORKFORCE:
People want to work for, buy from,
invest in, and collaborate with
businesses they believe in. That’s
why in February 2018 we launched
Second Nature – our Group-wide
sustainability strategy.
s
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34
Cranswick plc Annual Report & Accounts 2019
Plastic fantastic
Our work to reduce plastic use has delivered
cost savings in the first 12 months. We
embarked on a targeted action plan which
involved:
• Evaluating our plastic material and
packaging purchases
• Mapping plastic use to determine why,
how and where we were using it
• Eliminating single-use and unnecessary
plastics where viable to do so
• Lightweighting and sourcing alternative
packaging materials
• Embarking on organisational culture change
to reduce, reuse or recycle packaging
We were careful to ensure that any reduction
in plastics would not result in any unintended
consequences such as compromised product
shelf life or food waste.
We have undertaken trials with some of our key
retail customers to develop more sustainable
packaging. Soon our plastic trays for fresh
pork and ham products will be 100 per cent
recyclable in the home. We will also support a
UK circular economy by purchasing plastic trays
with a minimum of 70 per cent recycled content.
We partnered with Canary Wharf Group on
World Environment Day 2018 and co-hosted a
cross sector panel debate with over 100 peers
from the food and retail industry to facilitate
wider discussion around the plastics challenge
and identify new opportunities to collaborate
for wider collective impact.
Over the next 12 months, we will:
• Explore options to recycle more challenging
plastic packaging materials such as
multi-polymer films
• Continue to eliminate single-use plastics
from our internal systems and processes
• Work with UK Plastics Pact as a founding
member to continue to influence positive
change
A NEW BENCHMARK FOR GREATER IMPACT
We are now taking Second Nature to the next level
so we can widen and amplify our impacts. During
the past 12 months, we have benchmarked our
operational site performance against 21 leading
global sustainability standards and metrics – these
include multiple ISOs, B-Impact, Courtauld 2025,
BSI 8001 Circular Economy, LEAF Marque, and
Investors in People.
From this we have established a Group baseline
and undertaken a gap analysis to identify which
areas we need to build on and improve. We have
also integrated this information into our Second
Nature strategy to create a unique, industry leading
sustainability standard for the food industry.
Our new Second Nature Sustainability Standard will
be used to benchmark both our internal operations
and our suppliers against three tiered levels and
time frames – basic by 2020, intermediate by 2025,
and advanced by 2030. This will enable Second
Nature to be translated into a realistic operating
roadmap for each of our sites, turning strategy
into action.
It will also allow us to engage more deeply with
our supply chain to ensure greater clarity and
accountability on the issues that matter most.
Going forward, it is our intention to only work with
suppliers who meet our Second Nature basic level
sustainability requirements as a minimum. This will
ensure that we can deliver on our most ambitious
goals, such as being able to demonstrate full life
cycle transparency for at least 75 per cent of our
products by 2030.
As part of the Second Nature
initiative, we have made some
immediate commitments:
WE WILL ELIMINATE
AVOIDABLE FOOD
WASTE BY 2030
We were the first meat manufacturer to sign
up to Courtauld 2025, a voluntary agreement
to cut the resources associated with food
and drink by one-fifth by 2025. Our Group
Commercial Director has now been invited
to sit on the Steering Committee to help drive
further industry wide change. We are also a
Friend of Champions 12.3, which is committed
to halving all food waste by 2030.
WE WILL HALVE OUR
PLASTIC PACKAGING
USE BY 2025
By 2025, we want to reduce plastic use by
50 per cent, reuse all internal plastic materials
and ensure all packaging is 100 per cent
recyclable by 2025. Together with our industry
peers, packaging providers and recycling
reprocessors we intend to lobby the
Government to implement a cohesive national
recycling infrastructure to achieve this.
WE WILL COLLABORATE
WITH OTHERS TO
DELIVER THE UK
PLASTICS PACT
We were one the first signatories of the UK
Plastics Pact launched in April 2018. As part
of this, we are committed to eliminating
problematic or unnecessary single-use plastic
packaging through redesign, innovation
or reuse delivery models.
WE WILL PURCHASE
100 PER CENT
RENEWABLE ELECTRICITY
We have already met this pledge by tackling
our carbon footprint head on. We are now
working to reduce electricity consumption
across the business and looking to increase
on-site generation of energy in order to
become more self-sufficient.
Cranswick plc Annual Report & Accounts 2019
35
Strategic Report OUR STAKEHOLDERS CONTINUED
Environmental
performance
Energy
Increasing the energy efficiency of our operations
and products remains a high priority, and we
continue to be accredited to ISO50001. Our
overall energy use decreased during the year.
This year we installed sub-metering on all new
builds and significant site extensions to improve
our buildings management systems and better
control our operational costs. We are reducing
our electricity use for lighting by 46 per cent
by switching to LED lighting. All new builds and
projects now have LED lighting installed as
standard, and we continue to upgrade our
existing sites across the Group.
Where possible, we are looking to make further
energy savings by reclaiming the heat generated
from our operations to reduce the heating and
cooling demands of our sites. We have recently
completed several heat recovery projects across
the Group with several more in the pipeline.
We also subscribe to Triad warnings with our
energy suppliers, enabling us to reduce our
consumption during periods of peak demand.
We continue to measure our
environmental performance
against the key material indicators
of carbon, energy, water and waste.
We are also investing in Combined Heat & Power
(CHP) in various forms using both biomass and
gas-fired systems. For a typical site, CHP
represents a 50 per cent saving on our current
energy spend – this includes electricity, steam
and hot water costs.
Increasing our on-site generation capabilities
through solutions like CHP will also help futureproof
us against rising energy costs, and enable us to
engage in demand response with grid networks
by reducing or shifting our electricity usage during
peak periods in response to time-based rates or
other forms of financial incentives.
The majority of our GHG emissions come from
electricity and gas, which are continuously
monitored and we are constantly looking for ways
to reduce these. Our livestock also account for a
significant level of GHG emissions and we are
working to quantify those impacts where possible.
We undertook a carbon footprint assessment
of our Wayland Farms sites to estimate the
carbon footprint of our pigs at each stage of their
development. We achieved a B-rating for carbon
performance per finished pig (3,14 kg CO2e/Kg
LW), above the average C-rating (4,68 kg CO2e/Kg
LW) for our industry. We are now planning to
scale up these carbon assessments across all
of our farms.
We are increasingly focusing on our external
impacts, given the rising importance of Science-
Based Targets that reflect the need to factor in
supply chain emissions, and the circular economy
with its emphasis on life cycle thinking.
In 2019 we will establish a pilot supplier forum to
help us hit key Second Nature targets by 2030,
including our food loss and waste target of
50 per cent reduction from farm-to-fork and
25 per cent reduction in Scope 3 greenhouse
gas (GHG) emissions.
Carbon footprint
Our overall environmental performance is
measured by our carbon footprint, and we include
Scope 1, Scope 2 and significant Scope 3 GHG
emissions within this profile. Our goal is to reduce
our relative carbon footprint by 30 per cent by
2020 (against a 2010 baseline) and we continue to
perform strongly against this target. Our carbon
footprint continued to decrease. We have
improved our refrigeration systems to use
ammonia rather than F-Gas and this has reduced
our absolute carbon footprint by over 10,000
tonnes CO2e as they are significantly more
economical to run.
WASTE DISPOSAL ROUTES
(%)
73.7%
Waste to Energy
26.3%
Recycling
69.6%
Waste to Energy
29.3%
Recycling
91.2%
Waste to Energy
8.4%
Recycling
0%
Landfill
1.1%
Landfill
0.4%
Landfill
2019
2018
2017
36
Cranswick plc Annual Report & Accounts 2019
Waste
We have achieved Zero Landfill status across
the Group a year ahead of our target, but our
motivation is on delivering beyond this. We are
working towards becoming a zero waste business
as we focus our efforts on circularity with greater
reuse, recycling and energy recovery.
Our Second Nature pledges demonstrate our
commitment to making absolute reductions in
food waste and plastics across our value chain
through partnerships with Champions 12.3,
the UK Plastics Pact and Courtauld 2025.
Water
Food manufacturing is water-intensive and we are
taking steps to improve water efficiency levels
across the Group. We are still on track to exceed
our water target – a 20 per cent reduction in intensity
by 2020 (against a 2008 baseline) – by a further
5 per cent.
We are looking to take a more circular approach
to our water use where possible. At our new
poultry facility in Eye, Suffolk, we plan to install
an effluent treatment plant to recycle waste water,
reclaiming up to 60 per cent of it as either grey or
potable water.
NEXT STEPS
As Second Nature evolves, we will work towards our
2030 goals whilst aiming to lead the sustainability
agenda across agriculture and food production
on a global scale. We are already actioning new
projects and campaigns which will position us at
the forefront of our industry in terms of influence
and engagement.
We continue to earn recognition and plaudits
for our work. Last year we won customer awards
for sustainability and progress on packaging
from Asda, OSI and Whitbread. We also won
the 2018 Waste2Zero Award for best Food
Waste Reduction Initiative, achieved a Highly
Commended at the 2019 European Employee
Engagement Awards for Best Social Responsibility
Programme and we were also shortlisted in the
2019 Edie Sustainability Leaders Awards for
Sustainable Business of the Year.
TOWARDS 2020 AND BEYOND
• We will augment our disclosure and
reporting systems as we work towards
becoming the most sustainable global
meat manufacturer by 2030. As part of
this, we plan to build a dynamic digital
communications platform that will bring
our sustainability storytelling to life,
facilitating greater consumer trust
into sustainable food systems from
farm-to-fork.
• Our engagement on social issues such as
food poverty, food ethics and provenance
will intensify in response to growing
consumer demand for business leadership
in these areas.
• We will be championing the Three Cs –
Climate, Clean, and Circular – by
demonstrating how we can put more
back into society and the environment
than we take out.
Performance Measures
Relative carbon footprint –Tonnes CO2e/Tonnes sales
Energy intensity – Kwh/Tonnes sales
Waste to landfill – Tonnes
Water intensity – Cubic metres/Tonnes sales
Performance in
2017/18
2018/19
Target 2019/20
0.174
482
173
2.41
0.114
473
0
2.37
reduce by 5%
reduce by 5%
reduce to zero by 2020
reduce by 5%
ABSOLUTE CARBON FOOTPRINT
(TONNES CO2)
ABSOLUTE ENERGY USE
(kWh MILLION)
ABSOLUTE WATER USE
(M3)
91.2%
Waste to Energy
8.4%
Recycling
0.4%
Landfill
91,538
115,484
102,997
70,612
198
285
292
272
1,421,710
1,460,415
1,420,809
963,311
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
Cranswick plc Annual Report & Accounts 2019
37
Strategic Report OPERATING AND FINANCIAL REVIEW
FIRM FOUNDATIONS
ON WHICH TO BUILD
REVENUE AND ADJUSTED OPERATING PROFIT
Revenue
Adjusted Group Operating Profit*
Adjusted Group Operating Margin*
* See Note 31 of the financial statements
OPERATING REVIEW
REVENUE
Reported revenue decreased by 1.9 per cent
to £1,437.1 million.
Like-for-like revenues were 0.2 per cent lower,
with corresponding volumes down 0.5 per cent.
Strong revenue growth from poultry, sausages
and continental products partly offset lower
year-on-year revenue in other pork related
categories. Poultry and continental products
significantly outperformed overall category
market growth throughout the year.
Like-for-like export revenues increased by 3.1 per
cent year on year, with Far East export volumes
16.1 per cent ahead on an equivalent basis.
ADJUSTED GROUP OPERATING PROFIT
Like-for-like adjusted Group operating profit
increased by 1.8 per cent to £92.3 million and
like-for-like adjusted Group operating margin
at 6.4 per cent was 12 basis points higher than
in the prior year.
CATEGORY REVIEW
Fresh Pork
Fresh Pork includes our three primary processing
facilities and associated farming operations
and represented 32 per cent of Group revenue.
Like-for-like Fresh Pork revenue fell by 3.8 per cent
reflecting lower wholesale and export demand
through the first half of the year, with the average
number of pigs processed during the year falling
to 56,000 per week, from 59,000 in the prior year.
However, retail volumes increased by 0.7 per cent,
as the World Cup and summer weather combined
to deliver a strong barbecue season as well as
growth in added value convenience ranges
launched with our key customers. This growth was
offset by lower sales of roasting joints and other
more traditional products. Overall our retail sales
growth was ahead of the wider Fresh Pork retail
market performance.
We invested £11 million across the three pork
primary processing facilities during the year,
including £3 million spent on phase 1 of the
38
Cranswick plc Annual Report & Accounts 2019
2019
52 weeks
£1,437.1m
£92.3m
6.4%
2018
53 weeks
£1,464.5m
£92.8m
6.3%
Change
(Reported)
-1.9%
-0.5%
+9bps
Change
52 weeks
(Like-for-like*)
-0.2%
+1.8%
+12bps
impact of ASF on China and surrounding countries
may extend beyond three years due to limited
biosecurity and the slow replenishment of pig
herds in the region. ASF was also detected in the
feral pig population in Belgium in mid-September.
The region was quarantined and intensive efforts
to eradicate ASF sources have so far been
successful. However, the UK pork industry remains
vigilant with increased levels of biosecurity in place.
extension to the Hull facility, which included
increasing lairage capacity from 600 to 1,600 pigs
and chiller capacity from 4,800 to 7,000 carcasses.
We are upgrading the refrigeration systems
at our Hull facility and we have commissioned
a combined heat and power (CHP) plant which
provides 40 per cent of the site’s electricity
requirements. The plant has improved energy
efficiency and reduced the site’s environmental
impact. Following the successful implementation
of the Deboflex shoulder deboning system in the
previous financial year we are now working with
the same equipment provider to develop further
automated deboning capability.
Like-for-like export revenues increased by 3.1 per
cent. Export volumes to our key Far Eastern markets
were 16.1 per cent higher as we continue to build
our e-commerce business and strong, direct
relationships with large scale processing
customers in China through our Shanghai office.
We secured approval for direct export to China
from our Ballymena site, plus additional product
lines from our Hull processing facility in the second
half of the prior year and we now export in excess of
50 product lines to the Far East. Softer prices for
Far East exports in the early part of the year
gradually improved as the year progressed moving
ahead of the prior year in the final quarter. Stronger
pricing towards the end of the year reflected supply
tightening in the Chinese market due to a material
contraction in the local herd resulting from the
developing African Swine Fever (ASF) epidemic.
Prices are expected to stabilise over the coming
months before firming in advance of the Chinese
New Year. We are also continuing to increase sales
into our other export markets, with sales of prime
cuts to Japan, Australia and Canada delivering
particularly strong growth.
ASF has now spread to every province in China
and throughout Southeast Asia, disrupting the
local pork industry. It is estimated that between
10 and 35 per cent of the Chinese herd has been
lost, resulting in a potential pork supply shortfall
of 16 million tonnes per year, with export prices
strengthening considerably in the second half of
the year as a direct result. It is anticipated that the
9bps
Increase in adjusted operating margin
£87.7m
Net cash generated from operations
During the year we invested £8 million in our
farming infrastructure, mainly through the
Wayland Farms operation in East Anglia. This
included the purchase of the assets of Woodlark
Farms and expansion of existing operations to
increase breeding and finishing capacity. We
invested a further £2 million in a joint venture with
one of our key commercial pig producers to
increase capability in this sector. In addition, our
Wold Farms operation in Yorkshire has more than
doubled the size of its outdoor reared, RSPCA
Freedom Foods assured herd during the year
through organic growth.
The average UK pig price (EU-spec SPP) was 7 per
cent lower year-on-year. The UK pig price ended
the year 6 per cent lower than at the start of the
year, rising steadily through to the end of July
before falling back consistently through to the end
of the year. The EU reference pig price increased
by 1 per cent during the year, but with the average
price down 11 per cent year-on-year. During April
2019 the EU price increased by 14 per cent to
147p/kg, lifting it above the equivalent UK price,
driven by a significant uplift in demand from China.
It is anticipated that the UK price may start to rise
as a consequence of this shift.
Convenience
Convenience, which comprises Cooked Meats and
Continental Products, represented 35 per cent of
Group revenue. Like-for-like Convenience revenue
decreased by 1.2 per cent reflecting strong growth
in Continental Products offset by lower Cooked
Meats sales.
Cooked Meats sales were lower than the prior
year due primarily to reduced promotional activity.
The premium tier, which is our key area of focus,
continues to outperform the wider category, with
discount customers continuing to develop and
broaden their premium ranges. We have further
developed our ‘Sous Vide’ and ‘Slow Cook’ ranges
and, looking forward, we anticipate further growth
and penetration in this attractive sector. We spent
a further £17 million across the three Cooked
Meats facilities during the year on cooking, cooling
and slicing equipment to add capacity and further
improve efficiencies. An energy efficient CHP
plant was commissioned at the Milton Keynes
facility early in the year with the site spearheading
the Group’s ‘Second Nature’ sustainability
initiative. Following the successful commissioning
of CHP plants at Milton Keynes and Hull we plan
to replicate this capability at other Group sites,
including the new Eye facility, during this next
financial year.
Continental Products revenue grew strongly, with
the new facility providing additional capacity for
new olive business, sales growth with our discount
retail customers and increased sales of pre-pack
corned beef. The new facility in Bury, which
increased capacity by approximately 70 per cent,
was commissioned in May, as planned, with capital
expenditure of £3 million during the year to
complete the £27 million project. Although
commissioning costs were higher than anticipated
and expected efficiency improvements were not
delivered immediately, the business is now making
good progress towards achieving planned returns
and revenue growth is ahead of expectations.
Gourmet Products
Gourmet Products, which comprise Sausage,
Bacon and Pastry, represented 19 per cent of
Group revenue. Like-for-like Gourmet Products
revenue fell 3.3 per cent compared to the prior
year. Sausage sales growth was offset by lower
sales of bacon and pastry products.
The improvement in sausage sales reflected a
strong promotional pipeline and extended summer
barbecue season. We secured additional business
with our discount retail customers as they continue
to expand their premium ranges and we also
secured a long-term supply agreement with our
largest food service customer. The peak Christmas
trading period was well executed with strong sales
of premium festive products.
Lower bacon sales reflected reduced levels
of promotional activity by one of our key retail
customers, particularly during the first half, and the
effect of the hot summer when customers tend
to switch to alternative protein formats. Stronger
second half revenues reflected improving levels
of promotional activity and a Christmas trading
period boosted by seasonal gammon sales and
strong growth in premium festive ranges.
Pastry sales were lower than the prior year
reflecting a range review by the anchor customer
for this category. However, new listings with two
of the business’ forecourt operators highlight the
potential for our Pastry business to participate in
the growing ‘food-to-go’ market. A strong
Christmas and new product listings with the anchor
customer from November delivered an improved
second half performance. A robust growth pipeline
for the Pastry business leaves it well placed
heading into the new financial year.
Poultry
Poultry, which includes Fresh and Cooked Poultry,
represented 14 per cent of Group revenue.
Like-for-like poultry revenue increased by 18.0
per cent year-on-year. The ‘Ready to Eat’ chicken
category continues to grow ahead of the wider
UK meat protein sector and Fresh Chicken also
continues to outperform, with market volumes
ahead by 2.7 and 3.9 per cent respectively over
the last year.
Our Fresh Chicken business operated at full
capacity during the year, processing approximately
500,000 birds per week. The business was affected
during the exceptionally warm summer by reduced
bird growth and increased mortality. In addition,
higher soft commodity prices resulting in
increased feed costs, and lower wholesale chicken
prices, impacted the overall performance of the
business, reflecting the challenging conditions
faced by the wider industry.
The £75 million investment in a new poultry
processing facility in Eye, Suffolk, is progressing to
plan as is the additional investment in the business’
downstream agricultural operations, including the
leasing and development of a second milling
operation in Hoxne, Suffolk. Capital expenditure
of £31 million across the category included £29
million on the new processing facility, with the
building works now nearing completion and the fit
out underway. The factory, which will be capable of
processing 1.2 million birds per week, is expected
to be operational towards the end of the new
financial year, with the project being fast-tracked
to support the anchor customer for the new site
(Wm Morrison Supermarkets plc (Morrison’s)).
The facility will be the first new primary poultry
plant to be constructed in the UK for almost
30 years and will, when fully commissioned, be
the most technologically advanced and efficient
facility in the UK industry. Ahead of the move,
we are recruiting and upskilling additional staff
and we have started supplying Morrison’s with
a limited range of products from the existing
Weybread operation.
Sales of premium Cooked Poultry grew strongly
reflecting the full year contribution from business
wins with two of the Group’s principal retail
customers in the prior year and the launch of
new lateral sliced products with one of those
customers during the year. The site continues to
expand its retail business with a new range being
launched with a third major retail customer from
the start of the new financial year.
Cranswick plc Annual Report & Accounts 2019
39
Strategic Report OPERATING AND FINANCIAL REVIEW CONTINUED
FINANCE REVIEW
REVENUE
Reported revenue at £1,437.1 million (2018:
£1,464.5 million) decreased by 1.9 per cent
compared to the previous year. On a like-for-like
basis revenues were 0.2 per cent lower.
ADJUSTED GROUP OPERATING PROFIT
Adjusted Group operating profit of £92.3 million
(2018: £92.8 million), decreased by 0.5 per cent,
but was 1.8 per cent ahead like-for-like. Adjusted
Group operating margin was 6.4 per cent of sales
compared to 6.3 per cent last year.
SHARE OF LOSS OF JOINT VENTURE
Share of loss of joint venture of £0.1m (2018: £nil)
represents the start up losses of White Rose Farms
during the year. The business is part of the Group’s
longer term strategy to secure commercial pig
supply and current year losses are in line with the
business plan.
FINANCE COSTS
Net financing costs at £0.2 million were £0.2 million
lower than the prior year, reflecting lower average
year on year borrowings and capitalisation of bank
interest incurred on funding the investment in the
new Eye poultry processing facility.
The Group’s banking facility is unsecured, runs to
November 2023 and comprises a revolving credit
facility of £160 million (falling to £120 million from
November 2022), including a committed overdraft
of £20 million. It also includes the option to access
a further £40 million on the same terms at any
point during the term of the agreement. The
facility provides the business with generous
headroom for the future.
ADJUSTED PROFIT BEFORE TAX
Adjusted profit before tax was 0.4 per cent
lower at £92.0 million (2018: £92.4 million), but
was 2.0 per cent ahead on a like-for-like basis.
TAXATION
The tax charge of £16.9 million (2018: £18.0m) was
19.5 per cent of profit before tax (2018: 20.5 per
cent). The standard rate of UK corporation tax was
19.0 per cent (2018: 19.0 per cent). The effective
corporation tax rate in both years was higher than
the standard rate due to disallowable expenses.
TAX STRATEGY
Our tax strategy is aligned with our vision and
core values and fits within our overall Corporate
Governance structure. Our strategy ensures that
we comply with all tax laws wherever we do business
and that we pay all taxes that we are legally
required to pay when they all due. To safeguard our
reputation as a responsible taxpayer we do not
participate in any tax planning arrangements that
do not comply with either the legal interpretation
or the spirit of tax laws. Our tax strategy can be
found on our website: www.cranswick.plc.uk.
DIVIDEND POLICY
We believe in paying a sustainable dividend which
delivers a strong return to investors but is balanced
against the need to invest in the future of the
business. Our policy ensures that shareholder
income streams are strongly aligned to profitability
40
Cranswick plc Annual Report & Accounts 2019
and the sustained growth in the Group’s profits has
been matched by the Group’s dividend per share
growth which is unbroken for 29 years (see page 2).
Our dividend policy can be found on our website:
www.cranswick.plc.uk.
ADJUSTED EARNINGS PER SHARE
Adjusted earnings per share fell by 0.5 per cent to
144.3 pence (2018: 145.0 pence), but were 1.9 per
cent higher on a comparable 52 week basis. The
average number of shares in issue was 51,385,000
(2018: 50,787,000).
STATUTORY PROFIT MEASURES
Statutory profit before tax was £86.5 million (2018:
£88.0 million), with statutory Group operating
profit at £86.8 million (2018: £88.4 million) and
statutory earnings per share of 135.5 pence (2018:
137.8 pence). Full reconciliations of these results to
the adjusted measures can be found in Note 31.
CASH FLOW AND NET DEBT
The net cash inflow from operating activities
in the year was £87.7 million (2018: £112.1 million)
reflecting a higher working capital outflow of
£17.8 million (2018: £4.0 million) due to the Group’s
significant investment in biological assets during
the year and strategic holdings of inventory at the
year end. Net funds at the end of the year were
£6.3 million (2018: £20.6 million) with the inflow
from operating activities offset by a net £78.0
million invested in our asset base and £22.1 million
of dividends paid to our Shareholders.
ALLOCATION OF RESOURCES
Free cash flow: £87.3 million
� Net capital expenditure
� Dividend paid
� Acquisitions/loan to joint venture
� Decrease in net funds
� Other
78.0
22.1
3.0
(14.3)
(1.5)
IFRS 16: ‘LEASES’
The Group has evaluated the effect of IFRS 16
on its current lease arrangements and does not
expect it to have a material impact on the net
assets or profit before tax of the Group. Further
details are provided in Note 2.
PENSIONS
The Group operates defined contribution
pension schemes whereby contributions are
made to schemes administered by major
insurance companies. Contributions to these
schemes are determined as a percentage of
employees’ earnings.
The Group also operates a defined benefit
pension scheme which has been closed to further
benefit accrual since 2004. The deficit on this
scheme at 31 March 2019 was £6.5 million,
compared to £8.1 million at 31 March 2018,
reflecting our commitment to increased funding
for the scheme. Cash contributions to the scheme
during the year, as part of the programme to
reduce the deficit, were £1.8 million. The present
value of funded obligations was £39.7 million, and
the fair value of plan assets was £33.2 million.
During the year, the High Court ruled on the case
of Lloyds Banking Group Pensions Trustees Ltd v
Lloyds Bank plc and others. The ruling that Lloyds
Bank plc must amend its three defined benefit
pension schemes in order to equalise Guaranteed
Minimum Pensions (GMPs) between males and
females impacts how companies account for
pension schemes under IAS 19. The Group’s year
end pension valuation under IAS 19 includes the
impact of equalising GMPs, resulting in a £0.4 million
past service cost which has been recognised in the
income statement within staff costs.
UK REFERENDUM ON EU MEMBERSHIP
The continued uncertainty over the nature of the
UK’s exit from the EU drives volatility in currency
markets and uncertainty within the European
labour market. The Group therefore continues to
monitor and manage its business risks in these
areas with the key issues facing the Group being;
access to and cost of labour; the potential for
import tariffs on EU pork and continental food
products; and the valuation of Sterling versus
the Euro and other world currencies.
In response to these business risks the Group
set up a Brexit taskforce made up of key internal
stakeholders who have met regularly to review
Brexit related risks and develop mitigating plans.
In February 2019 an external review of the Group’s
Brexit plan was completed which has helped to
further inform the Group’s strategy in this area.
88%
As political negotiations continue, the Board will
monitor outcomes, seek to assess the possible
impact on its stakeholders and implement
appropriate responses.
SUMMARY
As anticipated, the year was one of consolidation
after a number of years of substantial growth.
We have however made significant investment
in our asset base during the year, with more
planned in the year ahead to support our strategic
objectives, particularly in relation to our poultry
operations. This leaves us in a strong position
to drive future growth.
Mark Bottomley
Finance Director
21 May 2019
Cranswick plc Annual Report & Accounts 2019
41
Strategic Report RISK REPORT
RISK
MANAGEMENT
As a leading UK food manufacturer it is important that we identify, assess
and prioritise our risks and ensure that appropriate mitigating actions are
deployed to reduce the probability and impact of these risks occurring.
KEY AREAS OF FOCUS
Whilst the Group’s risk profile has continued to
fluctuate over the course of the year, key risks have
remained broadly consistent. During the year we
have continued to focus on specific risks such as
competitor activity and the threat of cyber attacks.
However, we continually seek to enhance our risk
management framework, to ensure both the
quality and robustness of information and
importantly that we have the ability to respond
promptly to emerging risks such as the spread
of African Swine Fever from China and Eastern
Europe, which if it arrived in the UK could adversely
impact on our operations.
Last year we commented on the potential
risks and uncertainties associated with the UK’s
decision, as a result of the national referendum, to
leave the EU (Brexit). Over the course of the year
and against significant uncertainty, a key focus for
the Group has been to plan for the UK’s exit from
the EU. We have a Brexit taskforce in place which
consists of a number of key internal stakeholders
who, over the course of the year, have regularly
met to review the risks associated with Brexit and
develop mitigating plans. In February 2019 an
external review of the Group’s Brexit plans was
completed which helped to inform future actions.
Going forward, given the continuing uncertainty
regarding the exact arrangements and timing of
the UK leaving the EU, the Brexit taskforce will
continue to proactively monitor risks in this area.
It should be noted that the impact of Brexit has not
been specifically presented as a separate risk but
instead is reflected in the relevant principal risks
e.g. availability of agency labour.
RISK APPETITE
The UK Corporate Governance Code requires
companies to determine their risk appetite which
is an expression of the amount and types of risk
that a business is willing to accept. We assess risks
across four key categories namely; strategic,
commercial, financial and operational. As a leading
UK food manufacturer, the Board’s approach is
to minimise risks which are significant and may
impact on the Group’s reputation, in operational
areas such as product quality, Health & Safety
or compliance with laws and regulations. However,
the Board recognises that in the pursuit of the
Group’s strategic objectives there is an appropriate
trade-off between risk and reward, which allows
for specific decisions, such as business acquisitions
or capital expenditure, to be progressed where
a higher level of risk may be accepted. Overall we
use the articulation of risk appetite in decision
making across the business to define and validate
mitigating actions to manage our risks.
OUR PRINCIPAL RISKS AND UNCERTAINTIES
The Group Risk Committee have carried out an
assessment of the principal risks facing the Group,
including those that would threaten its business
model, future performance, solvency and liquidity.
Summarised on pages 44 and 45 are the Group’s
principal risks and uncertainties, which link to the
Group’s strategic pillars, key mitigating actions and
risk rating. However, it should be noted that it is not
possible to identify or anticipate every risk that
may affect the Group.
OUR APPROACH TO RISK MANAGEMENT
In common with other businesses, we face a
variety of risks and uncertainties and it is through a
structured approach to risk management that we
are able to mitigate these risks and pursue new
business opportunities as and when they arise.
The Board has overall responsibility for the risk
management framework. The Board delegates
the ongoing review of the framework, to the Group
Risk Committee which is chaired by the Group
Finance Director and, consisting of key Senior
Managers, has met five times over the course of
the financial year. The Group’s risk management
framework for ensuring the effective identification,
mitigation and management of risks is shown in
the diagram opposite.
A Group risk register is in place which captures
overarching business risks together with
detailed site risk registers which are owned by
site Management. All risk registers are updated
on a quarterly basis using a ‘5x5’ risk assessment
matrix. This considers the likelihood and impact
of risks; where a score up to 4 is graded a low risk,
between 5 and 9 a medium risk and between
10 and 25 a high risk. The results are then reported
to the Group Risk Committee. Where risks are
identified, action plans are developed to mitigate
the risk together with owners and timescales
for completion.
In addition, the Board receives regular updates
on the risk profile facing the Group which enables
them to, at least once a year, review the key risks
facing the Group and validate the principal risks.
We also have a well-established and effective
Group Internal Audit function which reports to
the Audit Committee and provides further
independent assurance that the Group’s risk
management framework, governance and internal
control arrangements are operating effectively.
42
Cranswick plc Annual Report & Accounts 2019
R I N G
O
M O NIT
IDENTIFIC
A
T
I
O
N
RISK
MANAGEMENT
FRAMEWORK
M
I
T
I
G
A
T
I
O
N
T
N
E
M
S
S
E
ASS
PRIORITISAT I O N
BOARD OF DIRECTORS
Responsible for the Group’s risk management framework,
Internal Controls, and for setting the Group’s overall risk appetite.
AUDIT COMMITTEE
Reviews the system of Internal Controls that are in place and
provides assurance to the Board that the risk management
framework and Internal Controls are operating effectively.
GROUP RISK COMMITTEE
Provides oversight and advice to the Audit Committee and
Board in relation to current and future risk exposures and risk
mitigation strategies.
GROUP INTERNAL AUDIT
Provides assurance to the Audit Committee and Board of Directors
that Internal Controls are adequate and risk management
processes are effective.
OPERATIONAL MANAGEMENT
Deploy site level risk management processes to ensure that risks
are adequately identified and controlled.
Cranswick plc Annual Report & Accounts 2019
43
VIABILITY STATEMENT
In accordance with the provisions of the UK
Corporate Governance Code, the Board has
assessed the viability of the Group over an
appropriate period, taking into account the current
position, future prospects and the potential
impact of the principal risks outlined on pages 44
and 45 of the Annual Report.
The Board has determined that a three year period
to 31 March 2022 is an appropriate period over
which to provide its Viability Statement. This
timeframe has been specifically chosen due to the
current financial and operational planning cycles
of the Group.
In making this assessment of viability, the Board
carried out a robust assessment of the principal
risks and uncertainties facing the Group. Risks
assessed to have the highest likelihood of
occurrence or the severest impact, crystallising
both individually and in combination, underwent
detailed sensitivity analysis. These risks were; a
significant decline in consumer demand; loss of
key customer; and a lack of availability of agency
labour driving increased cost.
The sensitivity analysis quantified the financial
impact on the strategic plan and on the Group’s
viability against specific measures including
liquidity, credit rating and bank covenants.
The results of the sensitivity analysis highlighted
that the Group would, over the three year period,
be able to withstand the impact of the most
severe combination of the risks modelled by
making adjustments to its strategic plan and
capital expenditure programme.
Based on the results of this analysis, the Board has
a reasonable expectation that the Group will be
able to continue its operations and meet its
liabilities as they fall due over the period to
31 March 2022.
Strategic Report
RISK REPORT CONTINUED
PRINCIPAL RISKS
AND UNCERTAINTIES
The principal risks and uncertainties facing the Group are summarised below.
RISK AREA
DESCRIPTION OF RISK
MITIGATION
NET RISK
DIRECTION
STRATEGIC
COMPETITOR
ACTIVITY
GROWTH &
CHANGE
COMMERCIAL
CONSUMER
DEMAND
PIG MEAT –
AVAILABILITY
& PRICE
RELIANCE
ON KEY
CUSTOMERS
& EXPORTS
FINANCIAL
INTEREST RATE,
CURRENCY,
LIQUIDITY &
CREDIT RISK
The Group operates in highly competitive
markets. Product innovation and changing
consumer trends provide a constant
challenge to the future success of the
Group and its ability to compete effectively
with its competitors.
The Group maintains and develops strong working
relationships with its customers which are underpinned
by delivering high levels of service, quality products
and by continued focus on product development and
innovation. Emerging trends and risks associated with
competitor activity are regularly discussed by the Board
with appropriate actions being developed.
.
The Group continues to pursue growth
strategies through securing contracts
with new customers, obtaining
additional contracts with existing
customers and through reviewing
acquisition opportunities. The Group
also has to navigate both internal and
external change, such as changes in
regulation which present operational
and compliance challenges and issues.
In common with other food
manufacturers, a deterioration in
the UK economy or a significant
change in food consumption patterns
could lead to a fall in demand for the
Group’s products.
The Group is exposed to issues
associated with the pricing and
availability of pig meat. An increase in pig
prices or a lack of availability of pig meat
could adversely impact the Group’s
operations and the ability to supply
manufacturing sites and key customers.
A significant proportion of the Group’s
results are generated from a small
number of major customers and
export sales. Loss of all or part of the
Group’s business with one or more of
these customers, or loss of an export
licence, could adversely impact the
Group’s operations.
The Board routinely receives updates on the
contractual position of all key customers and where
required implements necessary actions. Regarding
business acquisitions, rigorous due diligence reviews
are carried out. Internal and external change is
appropriately resourced to ensure operational
excellence and compliance, with performance
monitored by operational and Senior Management.
The Group works closely with its key customers to
adapt to changing consumer requirements and
constantly reviews emerging trends in consumer eating
habits. The Group offers a range of products across
premium, standard and value tiers which it is able to
flex accordingly. Pork and poultry remain extremely
competitively priced and sought after products which
are manufactured in an environmentally friendly manner.
The Group has a trusted long standing farming supply
base which is complemented by supply from the
Group’s own farms. These arrangements help to
mitigate the risks associated with pig price volatility
and the availability of supply.
The Group continually pursues opportunities to expand
its customer base across all product categories
and works closely with UK and export customers to
ensure service, quality, food safety and new product
developments are of the highest standard.
In common with other food manufacturers,
the Group is exposed to interest rate risk
on borrowings and, in specific areas,
foreign currency fluctuations. In addition
the Group needs continued access to
funding for both current business, future
growth and acquisitions.
The Group uses currency hedging arrangements
to mitigate risks associated with foreign currency
movements. Sites have access to the Group’s overdraft
facility and bank balances are monitored on a daily basis
by Group Treasury. All bank debt is arranged centrally
and appropriate headroom is always maintained.
The risk in this area over recent
months is starting to increase as
global demand for pig meat increases
together with associated prices which
could impact the Group’s operations.
44
Cranswick plc Annual Report & Accounts 2019
STRATEGIC PILLAR
RISK LEVEL
High Quality
Products
Operating
Excellence
Sustainability
The low, medium and high risk levels are the
Group’s estimate of the net risk after mitigation.
High
Medium
Low
RISK TREND
Risk increased
Risk unchanged
Risk decreased
RISK AREA
DESCRIPTION OF RISK
MITIGATION
NET RISK
DIRECTION
OPERATIONAL
LABOUR
AVAILABILITY
AND COST
IT SYSTEMS &
CYBER SECURITY
Due to political and economic pressures,
including those associated with Brexit,
there is a risk that the Group’s operations
could be adversely impacted by either the
lack of availability of labour or the
associated increased cost. This issue is
particularly prevalent with agency labour
or specialist skill sets e.g. butchery.
The Group is continually reviewing and improving its
recruitment process and relationships with third
party agency providers to reflect changing market
conditions such as those associated with Brexit. In
addition the Group is actively progressing options to
employ more permanent members of staff and to
consider alternative methods of production which
embraces emerging technological developments.
Given the ongoing uncertainties
associated with Brexit, the risk in
relation to the availability and cost
of agency labour has increased.
The Group relies heavily on information
technology and key systems to support the
business. In common with other businesses
the Group is susceptible to cyber-attacks
resulting in the risk of a financial loss and
threat to the overall confidentiality and
availability of data in systems. Whilst no
material cyber security breaches have
occurred over the course of the year, the
Board is mindful of the ongoing risks in this
area given the increasing sophistication
and evolving nature of this threat.
The Group has a robust IT control framework in place,
which is reviewed and tested on a frequent basis by
internal teams and specialist third parties. Detailed
procedures are also in place to reduce the potential
risk of fraudulent payment requests being processed,
together with cyber insurance which provides
specialist technical and legal support in the event
of a cyber incident.
FOOD SCARES
& PRODUCT
CONTAMINATION
In common with other food manufacturers
the Group is subject to the risks of product
and/or raw material contamination and
potential health related industry-wide
food scares. Such incidents could lead to
product recall costs, reputational damage
and regulatory penalties.
The Group ensures that all raw materials are traceable
to original source and site manufacturing, storage and
distribution systems and our suppliers are continually
monitored by experienced and appropriately trained
internal teams. In addition the Group has in place
established crisis management procedures to reduce
potential crisis impacts and improve communication
to key stakeholders.
DISEASE &
INFECTION
WITHIN
LIVESTOCK
HEALTH
& SAFETY
A significant infection or disease outbreak
such as African Swine Fever could result
in the loss of supply of pig or poultry
meat or effect the free movement of
livestock which would impact the supply
of key raw materials into the Group’s sites.
The Group’s pig farming activities, and other farms
from which third party pig meat is sourced, have
a broad geographical spread to avoid reliance on
a single production area. The Group’s own poultry
flock is predominately housed indoors. In addition,
robust vaccination and bio-security procedures
mitigate the risk of disease and infections.
The risk in this area has increased
due to the overseas spread of African
Swine Fever which, if it arrived in
the UK, could adversely impact the
Group’s operations.
A significant breach of Health & Safety
legislation could lead to reputational
damage and regulatory penalties,
including restrictions on operations,
damages or fines.
The Group has robust Health & Safety processes and
procedures in place and conforms to all relevant standards
and regulations as well as pursuing industry best practice
across its sites. All sites are subject to frequent audits
by internal teams, customers and regulatory authorities
to ensure standards are being adhered to.
RECRUITMENT &
RETENTION OF
WORKFORCE
As the Group continues to pursue its
growth strategy, the success of the
Group is dependent on attracting
and retaining quality, skilled and
experienced staff.
Across the Group robust recruitment processes,
competitive remuneration packages and ongoing
training and development plans are in place.
Specifically, for Senior Management, formalised
succession planning is also in place.
Given the current momentum of the
business the risk has increased due
to the need to ensure recruitment,
development and training plans meet
current requirements and future needs.
DISRUPTION
TO GROUP
OPERATIONS
The Group faces the risk of significant
incidents such as fire, flood or loss of
key utilities, together with the risk of
disruption to day to day operations
from issues such as poor operational
management or the breakdown of key
equipment. Such issues could result in
the prolonged disruption to site processes.
Effective business continuity plans are in place across
the Group and appropriate insurance arrangements
exist to mitigate financial loss. Potential business
disruption is minimised through multi-site operations
across many of the Group’s core product lines. As the
construction of the Eye poultry processing facility
continues, business continuity plans are being
developed given the importance of the site to the
Group’s poultry processing capabilities.
Cranswick plc Annual Report & Accounts 2019
45
Strategic Report
46
Cranswick plc Annual Report & Accounts 2019
CHAIRMAN’S GOVERNANCE OVERVIEW
PROVIDING EFFECTIVE
BOARD LEADERSHIP
The Board is committed to upholding high standards
of corporate governance and embracing the requirements
of the new 2018 UK Corporate Governance Code to support
the Group’s long-term success and delivery of its strategy.
On behalf of the Board, I am pleased to present our corporate governance
report and confirm that the Group has continued to comply with the
requirements of the 2016 UK Corporate Governance Code throughout the year.
A new UK Corporate Governance Code was published by the Financial
Reporting Council in July 2018, which will apply to our next Annual Report
and Accounts. Work has been ongoing since summer 2018 in relation to the
new Code to determine how to best apply its provisions to the Group. Whilst
we are currently reporting against the UK Corporate Governance Code 2016,
we have where possible added additional disclosure to comply with the
requirements of the new Code. I have also taken the opportunity to explain
below how we have decided to address the more significant new requirements
being introduced, which we will be reporting on in more detail when the new
reporting requirements apply to the Group in our next financial year.
The Group has historically operated works committees at many of its sites as
a means of engaging with our workforce. In order to enhance this, encourage
participation and comply with the requirements of the new Code, we have
decided to appoint Tim Smith as our designated Non-Executive Director
to further engage with our workforce to share ideas with management
and contribute to the long-term success of the Group and delivery of our
strategy. The Group will also continue to engage with our agency staff
through our retained employment agencies. During the course of the coming
year Tim will be meeting with representatives from each of our business
divisions to supplement our existing established channels of communication
and consultation arrangements. Tim has significant experience of the food
sector and has previously led a number of food manufacturing businesses,
which the Board believes means Tim is particularly well qualified to take on
this new role.
The Board understands the need to properly consider the interests of its
workforce and wider stakeholders in Board discussions and decision making
and its responsibility and duties to them under section 172 of the Companies
Act 2006. Details of our strategy, stakeholder alignment and engagement are
set out on pages 26 to 35 which explain how this has influenced our decisions.
The Board is also mindful of its responsibilities to assess and monitor the
culture of the Group to ensure this is aligned with our purpose, values and
strategy. At a practical level this is undertaken through site visits by Directors,
strategy days, reviewing regular HR and H&S reports and through our
Group-wide employee survey, more details of which are set out on pages 30
and 31. The Board’s activities have supported the delivery of the Group’s
strategy in a number of key areas this year including, in particular, providing
appropriate challenge and oversight in relation to the development of a new
poultry processing site at Eye and related supply chain, which is described
in more detail on page 17.
The new Code requires listed companies to comply generally with its terms
or explain any areas of non-compliance. In particular, the new Code limits the
tenure of the Chairman to nine years from first appointment to the Board,
which given my time with the Company we will not comply with. However, the
Board is of the view that my continuing as Chairman remains appropriate
given my knowledge of the Group and experience of the sector. The Board is
mindful that it needs to ensure that its composition supports the Company’s
long-term strategic objectives and the interests of its stakeholders. The
performance of all directors (including the Chairman), succession planning
for all of our key roles and need to refresh the Board will therefore continue
to be reviewed annually to support this (which will include consultation with
our institutional Shareholders where appropriate).
Whilst we adopted a new Remuneration Policy at last year’s AGM which
anticipated a number of the requirements to be introduced by the
new Code, the Remuneration Committee has made a number of further
recommendations which will be adopted to comply with the requirements
of the new Code. Further details of these changes are included in our
Remuneration Committee Report on pages 65 to 81.
The terms of reference of all of our Board Committees have also been
reviewed in response to the requirements of the new Code. In particular, the
terms of reference of the Remuneration Committee have been broadened
to now cover the remuneration of Senior Executives (in addition to Executive
Directors) and review of workforce and related remuneration policies.
The scope of the Nomination Committee’s role has also been reviewed and
now includes oversight of a diverse pipeline for succession to the Board.
Responsibility for oversight of the Group’s whistleblowing policy has been
reviewed and moved from the Audit Committee to the Board in accordance
with the requirements of the new Code.
Your Board is committed to continuing to maintain a high standard of
governance and adopting best practice as this develops. This report
explains how we have applied the principles of good governance, propose
implementing key changes introduced by the new UK Corporate Governance
Code and have aligned these during the year to our strategic plans and the
interests of Shareholders.
Martin Davey
Chairman
21 May 2019
Cranswick plc Annual Report & Accounts 2019
47
Corporate Governance BOARD OF DIRECTORS
EXECUTIVE DIRECTORS
MARTIN DAVEY
CHAIRMAN
ADAM COUCH
CHIEF EXECUTIVE
MARK BOTTOMLEY
FINANCE DIRECTOR
JIM BRISBY
COMMERCIAL DIRECTOR
Term of Office
Martin was appointed to the
Board in 1985 as Finance
Director, appointed Chief
Executive in 1988 and
became Chairman in 2004.
Adam was appointed
to the Board in 2003 as
Managing Director of Fresh
Pork and became Chief
Executive in 2012.
Mark was appointed
to the Board in 2009
as Finance Director.
Jim was appointed to the
Board in 2010 as Sales
and Marketing Director
and became Commercial
Director in 2014.
Committee Membership
Chair
Independent
Not applicable
Skills and Experience
Martin joined Cranswick in
1985. As Finance Director
he led the Company’s listing
on the London Stock
Exchange and was
subsequently appointed
Chief Executive in 1988.
Through Martin’s guidance
over the last 34 years the
Group has expanded both
organically and through
acquisition and entered
the FTSE 250 in 2008.
He became Executive
Chairman in 2004 and since
2013 has fulfilled the role on
a part-time basis. Martin is
a chartered accountant.
Not applicable
Not applicable
Not applicable
Yes
Yes
Yes
Yes
Adam joined Cranswick’s
Fresh Pork Business in 1991
and was appointed to the
Board in 2003 as Managing
Director of Fresh Pork. He
was appointed as Chief
Operating Officer in 2011
and then Chief Executive in
2012. Under his leadership
Cranswick has continued
to expand and become
a major player in the food
processing industry.
Adam was a committee
member of the British Pig
Executive between 2005
and 2013.
Jim joined Cranswick in
1995. He was appointed
Sales and Marketing
Director in 2010 and
Commercial Director in 2014
and has been a key member
of the team responsible for
the growth of the Group and
the development of its
commercial strategy.
Mark joined Cranswick in
2008 as Group Financial
Controller and was
appointed to the Board as
Finance Director in 2009.
Before joining the Company,
Mark held a number of
senior finance roles in
the food sector. Mark is
responsible for overseeing
the financial operation
of the Group and setting
financial strategy. Mark is
a chartered accountant.
External Appointments and Commitments
None
None
None
None
Board by tenure
Board by age
0-3
years
3-6
years
6-9
years
9 years
or more
41-45
years
46-50
years
51-55
years
56-60
years
61-65
years
48
Cranswick plc Annual Report & Accounts 2019
MARK RECKITT
KATE ALLUM
SENIOR INDEPENDENT
NON-EXECUTIVE
NON-EXECUTIVE
DIRECTOR
DIRECTOR
PAM POWELL
NON-EXECUTIVE
DIRECTOR
TIM SMITH
NON-EXECUTIVE
DIRECTOR
Mark was appointed
as an independent
Kate was appointed
as an independent
Pam was appointed
as an independent
Tim was appointed
as an independent
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
in 2014.
in 2013.
in 2018.
in 2018.
Chair
Chair
Mark has experience across
Kate has experience of the
Pam has international
a number of sectors. He was
food sector both within the
experience in strategy,
Tim has experience in the UK
food sector having worked
Group Strategy Director of
UK and Europe. Kate was
marketing and innovation
in food manufacturing,
Smiths Group plc between
Chief Executive of First Milk
in fast moving consumer
2011 and 2014. Prior to
joining Smiths, Mark was
Limited from 2010 to 2015
goods, including food and
and prior to that was head of
beverages. Pam spent
interim Managing Director
the European supply chain
nine years at SABMiller plc,
for McDonalds.
holding the position of
government regulation and
supermarket retail. Tim was
the Group Quality Director
at Tesco plc between 2012
and 2017. Prior to joining
of Green & Black’s
Chocolate and before that
held a number of finance
and strategy roles at
Cadbury plc. Mark is a
chartered accountant.
Group Director of Strategy
Tesco plc, Tim was the Chief
and Innovation, and prior to
Executive of the Food
this, worked at Coty Europe
Standards Agency (FSA)
in France, Unilever plc in
during which time he led a
London, and Lever Brothers
strategic review of the
in New York.
agency. Before joining the
FSA Tim led a number of
businesses including Express
Dairies plc and Arla Foods plc.
Non-Executive Director
Chief Executive of CeDo
of Hill & Smith Holdings plc.
Limited. Non-Executive
Non-Executive Director
of Premier Foods plc and
Non-Executive Director
of Pret a Manger (Europe)
A.G. Barr plc.
Limited.
Non-Executive Director
of JD Wetherspoon plc
between 2012 and 2016
and Mitie Group plc between
2015 and 2018.
Director of Origin
Enterprises plc and Stock
Spirits Group PLC.
MARTIN DAVEY
CHAIRMAN
ADAM COUCH
CHIEF EXECUTIVE
MARK BOTTOMLEY
FINANCE DIRECTOR
JIM BRISBY
COMMERCIAL DIRECTOR
Term of Office
Martin was appointed to the
Adam was appointed
Board in 1985 as Finance
Director, appointed Chief
Executive in 1988 and
to the Board in 2003 as
Pork and became Chief
became Chairman in 2004.
Executive in 2012.
Managing Director of Fresh
as Finance Director.
Mark was appointed
to the Board in 2009
Jim was appointed to the
Board in 2010 as Sales
and Marketing Director
and became Commercial
Director in 2014.
Committee Membership
Chair
Independent
Not applicable
Skills and Experience
Martin joined Cranswick in
1985. As Finance Director
Adam joined Cranswick’s
Mark joined Cranswick in
Fresh Pork Business in 1991
2008 as Group Financial
he led the Company’s listing
and was appointed to the
Controller and was
on the London Stock
Exchange and was
subsequently appointed
Chief Executive in 1988.
Board in 2003 as Managing
Director of Fresh Pork. He
was appointed as Chief
Operating Officer in 2011
Through Martin’s guidance
and then Chief Executive in
appointed to the Board as
Finance Director in 2009.
Before joining the Company,
and has been a key member
Mark held a number of
senior finance roles in
of the team responsible for
the growth of the Group and
over the last 34 years the
2012. Under his leadership
the food sector. Mark is
the development of its
Group has expanded both
Cranswick has continued
responsible for overseeing
commercial strategy.
Jim joined Cranswick in
1995. He was appointed
Sales and Marketing
Director in 2010 and
Commercial Director in 2014
organically and through
acquisition and entered
the FTSE 250 in 2008.
He became Executive
Chairman in 2004 and since
2013 has fulfilled the role on
a part-time basis. Martin is
a chartered accountant.
to expand and become
a major player in the food
processing industry.
Adam was a committee
member of the British Pig
Executive between 2005
and 2013.
External Appointments and Commitments
the financial operation
of the Group and setting
financial strategy. Mark is
a chartered accountant.
None
None
None
None
NON-EXECUTIVE DIRECTORS
MARK RECKITT
SENIOR INDEPENDENT
NON-EXECUTIVE
DIRECTOR
KATE ALLUM
NON-EXECUTIVE
DIRECTOR
PAM POWELL
NON-EXECUTIVE
DIRECTOR
TIM SMITH
NON-EXECUTIVE
DIRECTOR
Mark was appointed
as an independent
Non-Executive Director
in 2014.
Kate was appointed
as an independent
Non-Executive Director
in 2013.
Pam was appointed
as an independent
Non-Executive Director
in 2018.
Tim was appointed
as an independent
Non-Executive Director
in 2018.
Chair
Chair
Not applicable
Not applicable
Not applicable
Yes
Yes
Yes
Yes
Kate has experience of the
food sector both within the
UK and Europe. Kate was
Chief Executive of First Milk
Limited from 2010 to 2015
and prior to that was head of
the European supply chain
for McDonalds.
Mark has experience across
a number of sectors. He was
Group Strategy Director of
Smiths Group plc between
2011 and 2014. Prior to
joining Smiths, Mark was
interim Managing Director
of Green & Black’s
Chocolate and before that
held a number of finance
and strategy roles at
Cadbury plc. Mark is a
chartered accountant.
Non-Executive Director
of Hill & Smith Holdings plc.
Non-Executive Director
of JD Wetherspoon plc
between 2012 and 2016
and Mitie Group plc between
2015 and 2018.
Chief Executive of CeDo
Limited. Non-Executive
Director of Origin
Enterprises plc and Stock
Spirits Group PLC.
Board by gender
Male
Female
Pam has international
experience in strategy,
marketing and innovation
in fast moving consumer
goods, including food and
beverages. Pam spent
nine years at SABMiller plc,
holding the position of
Group Director of Strategy
and Innovation, and prior to
this, worked at Coty Europe
in France, Unilever plc in
London, and Lever Brothers
in New York.
Tim has experience in the UK
food sector having worked
in food manufacturing,
government regulation and
supermarket retail. Tim was
the Group Quality Director
at Tesco plc between 2012
and 2017. Prior to joining
Tesco plc, Tim was the Chief
Executive of the Food
Standards Agency (FSA)
during which time he led a
strategic review of the
agency. Before joining the
FSA Tim led a number of
businesses including Express
Dairies plc and Arla Foods plc.
Non-Executive Director
of Premier Foods plc and
A.G. Barr plc.
Non-Executive Director
of Pret a Manger (Europe)
Limited.
COMMITTEE MEMBERSHIP
Audit Committee
Nomination Committee
Remuneration Committee
Cranswick plc Annual Report & Accounts 2019
49
Corporate Governance
CORPORATE GOVERNANCE
HOW WE ARE GOVERNED
Cranswick plc Board
BOARD
COMMITTEES
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
AUDIT & RISK
COMMITTEE
CHIEF EXECUTIVE
OPERATING
BOARDS
GOURMET
PRODUCTS
John Armstrong
John Fletcher
Marcus Hoggarth
Andy Mayer
Drew Weir
Adrian Wilson
POULTRY
FOOD CENTRAL
David Brown
Andrew Gleadow
Jason Key
Barry Lock
David Park
Matthew Ward
Chris Aldersley
Jackie Carter
Jez Lake
Kate Maxwell
Andy Napthine
Miranda Walker
Graeme Watson
FRESH PORK
CONVENIENCE
Andy Jenkins
Carl Meade
Sam Pearl
Simon Ravenscroft
Peter Richards
Norman Smith
Rollo Thompson
Steve Westhead
Darren Andrew
Charles Bowes
Neil Clappison
Nick Mitchell
James Pontone
Neil Willis
Edward Wright
DIVERSITY
GROUP DIRECTORS BY TENURE
GROUP DIRECTORS BY AGE
GROUP DIRECTORS BY GENDER
� 0-3 years
� 4-6 years
� 7-9 years
� more than 9 years
15%
� Under 40 years
� 40-45 years
� 46-50 years
�
21%
53%
15%
23%
29%
� Male
� Female
91%
17%
12%
9%
6%
9%
50
Cranswick plc Annual Report & Accounts 2019
51-55 years� 56-60 years� 61-65 years PRINCIPLES OF
GOOD GOVERNANCE
The Board is responsible for the long-term success and
stewardship of the Company, overseeing its conduct and affairs
to create sustainable value for the benefit of its Shareholders
and other stakeholders including customers, suppliers, employees
and the communities in which the business operates.
The Board delegates certain roles and responsibilities to its various committees and to Senior Management. The committees assist the Board by fulfilling
their obligations and reporting back to the Board on the outcomes from their respective activities.
This report, together with the Audit Committee Report on pages 57 to 62, the Nomination Committee Report on pages 63 and 64, and the Remuneration
Committee Report on pages 65 to 81, describes how the Board applies the principles of good governance and best practice as set out in the 2016 UK
Corporate Governance Code (the ‘Code’) which can be found on the Financial Reporting Council’s website: www.frc.org.uk
Our approach to governance is in accordance with best practice as outlined by the key principles of the five sections of the Code: leadership; effectiveness;
accountability; remuneration; and relations with Shareholders.
CHIEF EXECUTIVE AND
EXECUTIVE COMMITTEE
An Executive Committee, consisting
of the Executive Directors and
Senior Executives from the business,
meets occasionally to discuss
strategy, operational and
commercial matters affecting the
business. The feedback from this
committee is shared with the Board.
OPERATING BOARDS
Operating boards (or sub-boards)
consisting of Senior Executives from
each of the relevant businesses
meet regularly to discuss operational
and commercial matters affecting
such businesses. Operating boards
are also attended by the Executive
Directors and relevant members
of the Food Central operating board
as appropriate. The feedback from
the operating boards is shared with
the Board.
BOARD COMMITTEES
The Board delegates certain roles
and responsibilities to its various
committees and to Senior
Management. The committees
assist the Board by fulfilling their
obligations and reporting back to
the Board on the outcomes from
their respective activities.
To assist the Board in carrying out
its functions and to ensure that
there is independent oversight
of internal controls and risk
management, the Board delegates
certain responsibilities to its principal
committees. Read more on page 56.
THE BOARD
The Board consists of Senior
Executive management alongside a
strong team of sector experienced
Non-Executive Directors. All
Non-Executive Directors are
deemed to be independent. The
Board is ultimately responsible for
the business strategy and the
financial robustness of the Group,
for monitoring performance and for
establishing a governance structure
and practice which facilitates
effective decision making and good
governance. To enable the members
of the Board to discharge these
responsibilities, they have full and
timely access to all relevant
information and Board meetings
are held at the Group’s sites
allowing the Directors to review
the operations and meet the
management teams of those
particular sites.
COMPLIANCE STATEMENT
The Board is pleased to report that it has complied with the requirements of the 2016 UK Corporate
Governance Code during the year ended 31 March 2019.
The Board believes that it has the appropriate blend of skills, experience,
independence and knowledge to support the business and will continue
to ensure an optimal level of relevant skills, experience and diversity
amongst its members, appropriate to support the future needs of
the business.
The Board has reviewed the financial statements and, taken as a whole,
considers them to be fair, balanced and understandable, providing
sufficient and appropriate information for Shareholders to assess the
Company’s position and performance, business model and strategy.
The Audit Committee provided guidance to the Board to assist it
in reaching this conclusion.
Cranswick plc Annual Report & Accounts 2019
51
Corporate Governance
CORPORATE GOVERNANCE CONTINUED
ROLES AND RESPONSIBILITIES
CHAIRMAN
Martin Davey
CHIEF EXECUTIVE (CEO)
Adam Couch
EXECUTIVE DIRECTORS
Mark Bottomley and Jim Brisby
SENIOR INDEPENDENT DIRECTOR (SID)
Mark Reckitt
NON-EXECUTIVE DIRECTORS
Kate Allum, Pam Powell
and Tim Smith
COMPANY SECRETARY
Steven Glover
• Primarily responsible for the leadership of the Board, ensuring that it is effective and promoting
critical discussion.
• Chairs the Nomination Committee and the Annual General Meeting.
• Sets the Board meeting agendas in consultation with the Chief Executive and Company Secretary,
ensuring they are aligned to the business strategy.
• Leads the performance evaluation of the Board and ensures its effectiveness in all aspects of its role.
• Sponsors and promotes the highest corporate governance and ethical standards.
• Facilitates contribution from all Directors to the discussions of the Board.
• Provides a sounding board for the Chief Executive on key business decisions and challenges proposals
where appropriate.
• Ensures effective communication with our Shareholders and other stakeholders.
• Develops and implements the Group’s strategy with input from the rest of the Board and its advisers.
• Responsible for the overall operational activity of the Group.
• Manages the day-to-day business of the Group, leads its direction and promotes its culture and values.
• Brings matters of particular significance or risk to the Chairman for discussion and consideration by the
Board where appropriate.
• Responsible for overseeing the delivery of the sustainability agenda within the Group.
• Provide specialist knowledge and experience to the Board.
• Support the CEO in the implementation of the Group’s strategic policies.
• Responsible for the budgeting process and reporting of the financial performance of the Group.
• Responsible for the commercial affairs of the Group.
• Responsible for the successful leadership and management of commercial, risk and finance functions
across the Group.
Is available if Shareholders want to raise concerns which normal channels have failed to resolve.
• Provides a sounding board for the Chairman and supports him in his leadership of the Board.
•
• Chairs the Audit Committee.
• Heads up the Non-Executive Directors on the Board.
• Reviews the Chairman’s annual performance appraisal along with the other Non-Executive Directors.
• Bring complementary skills and experience to the Board.
• Constructively challenge the Executive Directors on matters affecting the Group.
• Chairs the Remuneration Committee (Kate Allum).
• Satisfy themselves as to the accuracy of the financial performance of the Group and the robustness
and effectiveness of financial controls and risk management processes.
• Help develop strategy with an independent outlook.
• Together with the SID review management’s performance.
• Responsible to the Board.
• Acts as secretary to the Board and each of its Committees ensuring compliance with procedures.
• Responsible, under the direction of the Chairman, for ensuring the Board receives timely and
accurate information.
• Provides support to the Non-Executive Directors.
• Responsible for advising the Board on all governance matters.
52
Cranswick plc Annual Report & Accounts 2019
BOARD EFFECTIVENESS
BOARD OPERATION AND ATTENDANCE
There were eight scheduled Board meetings held during the year and a number of other meetings and conference calls were convened for specific business
matters. Board agendas are set by the Chairman in consultation with the Chief Executive and with the assistance of the Company Secretary. All Directors are
expected to attend the scheduled Board meetings and relevant Committee meetings in addition to the Annual General Meeting unless they are prevented
from doing so by prior work or extenuating personal commitments. Where a Director is unable to attend a meeting they have the opportunity to review
relevant papers and discuss any issues with the Chairman in advance of the meeting. Following the meeting the Chairman, or Committee Chair as appropriate,
also briefs any Director not present to update them on key matters discussed and decisions taken.
Details of Board membership and attendance at scheduled Board meetings are set out below:
Meetings held during the year
EXECUTIVE DIRECTORS
Martin Davey
Adam Couch
Mark Bottomley
Jim Brisby
NON-EXECUTIVE DIRECTORS
Mark Reckitt
Kate Allum
Pam Powell
Tim Smith
Steven Esom
Board
Audit Committee
8
4
Nomination
Committee
2
Remuneration
Committee
4
Meetings attended
Meetings attended
Meetings attended
Meetings attended
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
6/8
n/a
n/a
n/a
n/a
4/4
4/4
4/4
4/4
3/4
2/2
n/a
n/a
n/a
2/2
2/2
2/2
2/2
1/2
n/a
n/a
n/a
n/a
4/4
4/4
4/4
4/4
3/4
n/a – not applicable (where Director is not a member of the Committee). Executive Directors do attend the various Committee meetings by invitation as required.
Steven Esom retired from the Board on 22 November 2018 and attended the maximum number of meetings whilst a Director.
PROFESSIONAL DEVELOPMENT
All Directors are provided with the opportunity for ongoing training to keep up to date with relevant legislative changes, including covering their duties and
responsibilities as Directors and the general business environment. Directors can obtain independent advice at the expense of the Company.
In the past year the Board received updates on a number of topics including GDPR, the 2018 UK Corporate Governance Code, African Swine Fever and other
market perspectives from both management and external advisers. The Company Secretary also provides briefings during the year on material developments
in legal, governance and compliance matters.
During the year Non-Executive Directors also met with management to increase their understanding of the business through various informal visits and
briefing sessions.
Cranswick plc Annual Report & Accounts 2019
53
Corporate Governance
CORPORATE GOVERNANCE CONTINUED
KEY ACTIVITIES
STRATEGIC LEADERSHIP
GOVERNANCE AND RISK
• Regularly discussing strategy at Board meetings throughout
the year.
• Receiving presentations from operational management
on future strategic opportunities.
• Considering potential acquisition opportunities and other
strategic initiatives.
• Reviewing the commissioning of the Group’s new £27 million
Continental Foods facility at Bury.
• Reviewing the development of the Group’s new £75 million
primary poultry processing facility at Eye, Suffolk.
• Reviewing the Group’s substantial investment programme
in upstream agricultural operations in both pork and poultry.
• Considering the Group’s sustainability strategy, Second Nature.
• Considering the UK’s exit from the EU and related contingency
planning.
• Reviewing the three year forecasts and other factors in support of
the Viability Statement. (Viability is considered in detail on page 43).
• Reviewing Board and Committees’ effectiveness and Directors’
conflicts of interest.
• Reviewing terms of reference for all Committees.
• Reviewing quarterly Health & Safety, Risk and Technical updates.
• Reviewing the principal financial and non-financial risks,
including cyber, to which the Group is exposed (supported by
the Audit Committee).
• Considering governance reforms introduced by the 2018
Corporate Governance Code.
PEOPLE AND SUCCESSION
PERFORMANCE MONITORING
• Considering proposals on succession planning, when required,
for the Board.
• Approving promotion of new Senior Executives to the
subsidiary boards.
• Reviewing proposals on Senior Executive succession planning.
• Considering the talent management programme and the
need to develop the managers and executives of the future.
• Reviewing the structure, size, composition and diversity
of both the Board and its Committees (supported by the
Nomination Committee).
• Approving the Group’s tax strategy.
• Approving the Company’s dividend strategy.
• Recommending the 2017/18 final dividend and the 2018/19
interim dividend.
• Reviewing and approving the Group’s annual budget, interim
results and Annual Report.
• Considering whether the Annual Report and Accounts are fair,
balanced and understandable.
• Considering monthly operational reports from the Chief Executive,
Finance Director and Commercial Director.
• Reviewing reports from the Chairs of the Audit, Nomination
and Remuneration Committees.
• Reviewing behaviours to ensure these are in line with the
Group’s culture.
• Approving capital expenditure proposals in excess of £1 million.
CONFLICTS OF INTEREST
The Board has completed its annual review of the register relating to potential conflicts of interest with its Directors and confirms that no such conflicts exist.
RISK MANAGEMENT AND INTERNAL CONTROL
It is the Board’s role to protect the business from operational and financial risks and it has established a system of internal control which safeguards the
Shareholders’ investment and the Group’s assets. Such a system provides reasonable but 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 Board is responsible for reviewing the effectiveness
of internal controls. The Audit Committee supports the Board in this process by reviewing the principal risks, and the report on pages 57 to 62 outlines
further this process.
The Group operates within a clearly defined organisational structure with established responsibilities, authorities and reporting lines to the Board. The
organisational structure has been designed in order to develop, plan, execute, monitor and control the Group’s objectives effectively and to ensure that
internal control is embedded within the operations.
The Board confirms that the key ongoing processes and features of the Group’s internal, risk-based, control system have been fully operative throughout
the year and up to the date of approval of the Annual Report.
54
Cranswick plc Annual Report & Accounts 2019
FINANCIAL REPORTING
The culture of the business extends to the provision of financial information. Operational management provide weekly forecasts, monthly trading reports,
and annual budgets and these are forwarded to Group management and are discussed at monthly site operating board meetings. Group Executive Directors
attend most of these meetings and the information is consolidated and reported at Group Board meetings. The Group prepares an annual budget and half
year re-forecast that are agreed by the Board, with the budget including a three year forecast for consideration to support the Viability Statement. The use
of standard reporting software by all Group entities ensures that information is presented in a consistent manner which facilitates the preparation of the
consolidated financial statements. Site directors and finance heads are required to sign a monthly confirmation that their business has complied with the
Group’s accounting policies and procedures, with a more detailed confirmation provided for half year and year end reporting.
Remuneration
The Remuneration Committee monitors the executive remuneration packages and incentive schemes and believes the incentives provide a strong alignment
between Shareholders, the Executive Directors and the wider Senior Executive Management team. The remuneration policy was agreed at the AGM in 2018.
Details of the policy are included in the Remuneration Committee Report on pages 65 to 81 which provides further details on Directors’ remuneration,
together with the activities of the Remuneration Committee during the year.
Relations with Shareholders
Regular engagement with investors provides the Group with the opportunity to discuss certain areas of interest and to ascertain any areas of concern they
may have. Further details of steps taken by the Group to engage with its Shareholders are set out on page 33. Details of the Company’s major Shareholders
are set out on page 83.
By order of the Board
Steven Glover
Company Secretary
21 May 2019
Cranswick plc Annual Report & Accounts 2019
55
Corporate Governance CORPORATE GOVERNANCE CONTINUED
BOARD COMMITTEES
The Board delegates certain roles and responsibilities to its
committees which assist the Board by fulfilling their obligations
and reporting back to the board on their activities.
THE AUDIT COMMITTEE
CHAIR: MARK RECKITT
• Steven Esom*
• Kate Allum
• Tim Smith
• Pam Powell
Integrity of financial statements
KEY RESPONSIBILITIES
•
• Accounting policies
•
• External audit
• Whistleblowing and anti-bribery
• Group viability and related disclosure
Internal controls and risk management
THE NOMINATION COMMITTEE
CHAIR: MARTIN DAVEY
• Steven Esom*
• Mark Reckitt
• Kate Allum
• Tim Smith
• Pam Powell
KEY RESPONSIBILITIES
• Board composition
• Succession planning
• Non-Executive Directors
• Diversity
• Governance and evaluation
THE REMUNERATION COMMITTEE
CHAIR: KATE ALLUM
• Mark Reckitt
• Tim Smith
• Pam Powell
• Steven Esom*
KEY RESPONSIBILITIES
• Review of Remuneration Policy
• Executive Director and Senior
Executive remuneration
• Approval of bonuses
• LTIP awards
• Shareholder engagement
* Until retirement from the Board on 22 November 2018.
56
Cranswick plc Annual Report & Accounts 2019
p57p63p65 AUDIT COMMITTEE REPORT
THE AUDIT COMMITTEE
The Audit Committee assists the Board in discharging its
responsibilities for the integrity of the financial statements
and narrative reporting, the effectiveness of internal
reporting processes and systems of internal controls,
identification and management of risks and the external
and internal audit processes.
COMPOSITION OF THE AUDIT COMMITTEE
The Audit Committee comprises the following Non-Executive Directors:
Committee Members
Mark Reckitt – Chair
Steven Esom*
Kate Allum
Tim Smith
Pam Powell
Meetings
attended
4
3
4
4
4
* Steven Esom retired as a Non-Executive Director, and as a member of the Audit Committee,
on 22 November 2018 and attended the maximum number of meetings whilst a Director.
OTHER REGULAR ATTENDEES
The Chairman, Chief Executive, Group Finance Director, Group Financial
Controller, Group Head of Internal Audit & Risk, External Audit Partner and
External Audit Director attended by invitation as required. The Group
Company Secretary also attended meetings as secretary to the Committee.
FREQUENCY OF MEETINGS
The Committee meets as necessary and at least three times a year.
INDEPENDENCE
All Members of the Committee are independent.
KEY ACTIVITIES IN 2018/19
Integrity of Financial Statements
• Reviewed and challenged the key financial reporting judgements and
concluded that accounting treatments were appropriate.
• Reviewed and challenged the harmonisation of Group accounting policies
on engineering stock and overhead absorption and concluded that this
did not have a material impact on the Financial Statements.
Whistleblowing and anti-bribery
• Reviewed and approved the Group’s anti-bribery policy.
• Reviewed and approved the Group’s whistleblowing policy.
• Reviewed, on behalf of the Board, whistleblowing reports and their
resolution.
• Reviewed and concluded that the Financial Statements and narrative
Internal controls and risk management
reporting are fair, balanced and understandable.
• Reviewed and concluded that the Group is viable over the three-year
review period and that the Viability Statement disclosures are appropriate.
Accounting policies
• Reviewed the Group’s internal controls and risk management systems
including those for assessing emerging risks and concluded that they
are operating effectively.
• Reviewed and assessed the appropriateness of financial resource across
the Group.
• Reviewed the Group’s accounting policies to ensure they remain
• Reviewed and challenged the work, and associated reporting, of the
appropriate and have been consistently applied.
Group Risk Committee.
• Reviewed the disclosure of Alternative Performance Measures
(APMs) and concluded that they are appropriate for monitoring the
Group’s underlying performance.
• Reviewed the impact of new and forthcoming accounting standards
and concluded that disclosures in this year’s Financial Statements
are appropriate.
Internal audit
• Reviewed and challenged the work of the Group’s Internal Audit function
• Reviewed and challenged the Group’s Brexit readiness planning.
• Reviewed and updated the Committee’s terms of reference to take
account of the new 2018 Corporate Governance Code.
Group viability and related disclosures
• Reviewed and concluded that a three-year time horizon for the Group’s
Viability Statement remained appropriate.
• Reviewed the Group’s budget, forecasts and downside sensitivity analysis
and concluded that the Group is viable over the three-year time horizon.
and concluded that it is operating effectively and is appropriately resourced.
• Reviewed and approved the Viability Statement disclosures in the
• Reviewed and approved the Internal Audit Charter.
• Reviewed and approved the Internal Audit plan for the coming year.
Financial Statements.
External audit
• Reviewed and was satisfied with the effectiveness of the external
audit process.
• Approved the terms of engagement and remuneration of the
external auditor.
• Monitored the independence of the external auditor and concluded
that PricewaterhouseCoopers LLP (‘PwC’) is independent.
Cranswick plc Annual Report & Accounts 2019
57
Corporate Governance AUDIT COMMITTEE REPORT CONTINUED
I am pleased to report on the activities of the Audit Committee during the year ended 31 March 2019.
As in previous years, the Committee has focused on its core responsibilities of supporting the Board and protecting the interests of Shareholders in relation
to financial reporting and internal control. This has been achieved by ensuring that the Group has in place a robust risk management process and an effective
internal control framework to manage its risks, in support of going concern and viability confirmations. In addition, the Committee has continued to focus
on ensuring the integrity, quality and compliance of the Group’s external financial reporting.
the role, composition, activities and responsibilities of the Audit Committee;
This report sets out:
•
• a summary of the meetings of the Audit Committee during the year;
the significant financial reporting issues debated by the Committee;
•
the Committee’s oversight of the Group’s Risk Management and internal control systems in support of the Board;
•
the respective roles and effectiveness of the internal and external auditors; and
•
the Committee’s annual review of external auditor independence.
•
The Committee met four times during the year and invited the Company’s Chairman, Chief Executive, Group Finance Director, Group Financial Controller and
Head of Internal Audit & Risk to attend the meetings along with the external Audit Partner and Director. In addition, the Committee also held separate private
meetings with internal and external audit.
The Committee reviewed the appropriateness of the financial results and narrative reporting for the full year and half year and the first and third quarter trading
statements, including applicable accounting policies, key judgement areas, going concern and viability assumptions. The Committee also reviewed the Annual
Report & Accounts taken as a whole to ensure they are fair, balanced and understandable and provide the necessary information for Shareholders to assess
the Company’s performance, business model and strategy.
Specific areas of financial reporting focus during the year included:
the quantum and appropriateness of commercial accruals; and
•
the accounting treatment and disclosure of biological assets.
•
The Committee reviewed Internal Audit’s terms of reference and work plans and oversaw the Group’s relationship with the external auditor including scope,
fees and work performed. The Committee was satisfied with the performance of the Group’s internal audit function and the external auditor.
In the coming year, the Committee will continue to focus on the Group’s risk management processes, internal control frameworks and external financial
reporting to ensure that they remain effective and robust to support the future successful growth and development of the business.
On behalf of the Board
Mark Reckitt
Chair of the Audit Committee
21 May 2019
58
Cranswick plc Annual Report & Accounts 2019
ROLE OF THE COMMITTEE
The Committee’s primary role is to assist the Board in providing effective governance over the appropriateness of the Group’s financial and related narrative
reporting, risk management and internal control systems. It is responsible for monitoring the integrity of the financial statements and other communications
and announcements to the market, and for considering whether accounting policies are appropriate. It reviews the Company’s internal controls and risk
management frameworks, and reviews and approves the activities, plans and effectiveness of both the Group’s internal and external auditors.
The Audit Committee terms of reference, which are reviewed and approved by the Board annually, are available on the Company’s website and at the Annual
General Meeting. The Committee’s terms were updated during the year with reference to the 2018 UK Corporate Governance Code.
The timing of meetings is designed to fit in with the Group’s financial calendar, with meetings in advance of half year and year-end financial reporting in
November and May respectively, and additional meetings in September and March in preparation for the half year and year-end processes.
All members of the Committee have extensive managerial experience in large, complex, food sector organisations and have a wide range of financial,
commercial and operational expertise. It is a requirement of the UK Corporate Governance Code that at least one Committee member has recent and
relevant financial experience. Mark Reckitt, the Committee Chairman, meets this requirement. Full biographical details of the Audit Committee members
can be found on page 49.
ACTIVITIES OF THE COMMITTEE
The Committee is required to meet at least three times a year and its agenda is linked to the Group financial calendar. The Company Chairman, Chief
Executive, Finance Director, Group Financial Controller, Head of Internal Audit & Risk and representatives of the external auditor are invited to attend each
meeting. The Company Secretary also attends the meetings as secretary to the Committee. Both the external auditor and the Head of Internal Audit & Risk
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 auditor and internal audit independently, at least once a year.
PRINCIPAL RESPONSIBILITIES OF THE AUDIT COMMITTEE
The Committee’s principal responsibilities include reviewing and monitoring:
•
•
•
•
•
•
•
•
the integrity of the Group’s financial statements and related narrative reporting;
the Group’s accounting policies and the impact of new and amended accounting standards;
the effectiveness of the Group’s financial reporting, internal control and risk management systems in support of the Board;
the effectiveness of the internal audit function in the context of the Company’s overall risk management framework;
the effectiveness, scope, cost and independence of the Group’s external auditor;
the appropriateness of financial resource across the Group, particularly at those sites experiencing rapid growth;
the Company’s whistleblowing and anti-bribery policies; and
the Group’s viability, and its disclosure within the Annual Report.
The Committee makes recommendations to the Board on the removal, appointment or reappointment of the Group’s external auditor. The Committee also
reviews its terms of reference annually and makes recommendations to the Board for any appropriate changes.
FAIR, BALANCED AND UNDERSTANDABLE
At the request of the Board, the Audit Committee has reviewed and reported to the Board that it is satisfied that the financial statements taken as a whole
are fair, balanced and understandable and provide the necessary information for Shareholders to assess the Company’s position and performance, business
model and strategy.
In order to give this report, the Audit Committee carried out a number of additional procedures including:
• obtaining confirmation from the relevant preparers of the various parts of the Annual Report that they had reviewed the fairness and completeness
of their sections;
• ensuring a thorough verification process had been completed;
• consideration of the Annual Report and Accounts in the context of the Audit Committee’s knowledge and experience of the business;
•
reviewing the disclosure of Alternative Performance Measures (APMs) and considering their appropriateness for monitoring the Group’s
underlying performance;
• holding discussions with both internal and external audit; and
•
reviewing and discussing a paper from the Finance Director outlining issues to consider and why he believed the Annual Report was fair, balanced
and understandable.
The Board and the Committee understand that ‘fair’ should mean reasonable and impartial, ‘balanced’ should mean even-handed with both positive
and negative messages being portrayed and ‘understandable’ should mean simple, clear and free from jargon or unnecessary clutter.
VIABILITY STATEMENT
At the request of the Board, and reflecting the requirement of the UK Corporate Governance Code, the Audit Committee has reviewed and reported
to the Board that it is satisfied with the risk disclosures and Viability Statement which have been presented.
In order to give this report, the Audit Committee carried out a number of additional procedures including:
•
• considering the appropriateness of the three-year time horizon selected for testing the Group’s viability, including consideration of the uncertainty
reviewing risk reporting disclosures in detail;
resulting from the UK’s exit from the European Union;
reviewing the Group’s annual budget and extended three-year forecast and the assumptions therein for reasonableness;
•
• agreeing appropriate downside sensitivities to be applied to the forecasts for stress testing, based on the Group’s principal risks and the work of the
Risk Committee; and
reviewing the availability of debt funding for the Group across the three-year forecast period.
•
Cranswick plc Annual Report & Accounts 2019
59
Corporate Governance AUDIT COMMITTEE REPORT CONTINUED
The Board and the Committee concluded that, based on the results of the analysis provided, they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over a three-year time horizon (see page 43).
PERFORMANCE EVALUATION OF THE AUDIT COMMITTEE
In the current year an internal evaluation of the performance of the Board and its Committees was carried out which concluded that the Audit Committee
continues to provide effective leadership and exerts the required levels of governance and control. Further details of the evaluation are included in the Board
performance evaluation on page 64.
FINANCIAL REPORTING
During the year, the Audit Committee reviewed accounting papers prepared by management and considered, with input from the external auditor, the
appropriateness of the main accounting policies, estimates and judgements made in preparing the financial statements. The key matters that the Committee
considered in reviewing the financial statements for the year ended 31 March 2019 are set out below.
Financial reporting area
Judgement and assurance considered
Commercial accruals
Biological assets
The Committee reviewed the level of commercial accruals for rebates, discounts and promotional activity at the balance sheet
date. The level of commercial accruals is viewed by the Committee, management and the external auditor as an area sensitive
to a moderate degree of commercial judgement, albeit 77 per cent of the year end accrual related to volume rebates and similar
allowances which require a lower level of judgement and estimation due to their mechanical calculation. The Committee also
noted the FRC’s guidance on complex supplier arrangements. Following the adoption of IFRS15, the Group has also reviewed
its accounting practice in respect of aged commercial accruals and has introduced a maximum holding period for aged
balances, under normal circumstances, of three years. After reviewing and challenging the level of accruals and the intra-year
movement, including the profit effect and considering the work of internal and external audit in verifying the underlying
contractual arrangements, the Committee supported management’s assumptions and accounting treatment including
the disclosures provided in the report and accounts. (See Note 20).
In accordance with IAS 41, biological assets (pigs and chickens) are valued at fair value in the Group balance sheet, with the net
valuation movement disclosed separately on the face of the income statement. The valuation requires a significant level of
judgement and is sensitive to the key assumptions used in the models which include mortality rates, growth rates and the fair
value of livestock at the various stages of development. The Audit Committee reviewed the assumptions used within the
models and management’s proposed accounting treatment and was satisfied that the standard had been fairly and
consistently applied and the required disclosures made in the financial statements. (See Note 16).
RISK MANAGEMENT AND INTERNAL CONTROL
The Committee conducted its annual review of the effectiveness of the Company’s internal control and Risk Management Framework through the work of
Internal Audit, the external auditor’s control recommendations on the Group’s financial control environment following their audit and thorough review and
challenge of monthly Board reports. The Committee also reviewed the Group’s whistleblowing and bribery prevention policies and whistleblowing reports
on behalf of the Board.
A Risk Committee chaired by the Group Finance Director and including representatives from all areas of the business meets quarterly, reporting its outputs
directly to the Committee and updating the Board accordingly.
During the prior year, to provide additional assurance that the Group’s Risk Management Framework is operating effectively, the Audit Committee engaged
Aon plc to provide an independent review of the Framework, including the activities of the Risk Committee. The review confirmed that, overall, arrangements
were appropriate for the size of the Group and operating effectively, as well as highlighting several areas for the further development of the Framework.
The recommendations of this review have been incorporated into the Group’s Risk Management Framework during the course of the year.
The Committee reviewed the key conclusions from work performed by the Group Risk Committee during the year to gain assurance over the Risk
Management Framework in place across the Group which is designed to identify, evaluate, monitor and mitigate risk. Particular emphasis was placed on
reviewing and challenging the work of the Risk Committee in respect of Brexit readiness planning (which with hindsight we would have devoted more time
to had we realised quite how difficult the political process would become) and the expansion of the Group’s poultry operations and the attendant HR and
Commercial Risks. The Committee was satisfied that all principal risks, including emerging risks, had been identified (see pages 42 to 45) and that the risk
management framework, including processes for assessing and reporting emerging risks, is operating effectively and is appropriate to support the Group’s
strategy for continued growth.
60
Cranswick plc Annual Report & Accounts 2019
INTERNAL AUDIT
The Audit Committee is responsible for monitoring the performance and effectiveness of the Company’s Internal Audit activities. The Audit Committee
reviewed and approved the annual Internal Audit plan, ensuring that it was aligned to the principal risks of the business and received regular progress updates
on delivery of the plan objectives at each of its meetings during the year. On an annual basis, the Committee reviews and approves the Group’s Internal Audit
Charter which sets out the role and mandate of the Internal Audit function.
The Internal Audit approach takes into account the overall Group risk framework as well as risks specific to individual operations and is regularly updated to take
into account changes to the risk profile of the Group. The plan set out at the beginning of the current year was achieved. Internal Audit findings together with
responses from management were considered by the Audit Committee and where necessary challenged. The Audit Committee also reviewed progress by
management in addressing the issues identified on a timely basis. The Audit Committee was satisfied that the Internal Audit function is operating effectively
and that the level of experience and expertise within the department is appropriate to meet the Group’s needs.
During the year, Internal Audit performed a core financial controls review at all sites and also reviewed specific Group non-financial risk areas. Overall no control
failings or weaknesses were identified that would have a significant impact on the Group; however, recommendations were raised where necessary at specific
sites to strengthen existing processes and controls and follow-up audit visits were carried out at the majority of sites to ensure that agreed corrective actions
were being taken.
The Committee keeps the performance and effectiveness of the Internal Audit function under review and in doing so it also assesses the quality, experience
and expertise within the department. To provide additional assurance that the Internal Audit department is operating effectively, the Committee engaged
Deloitte LLP during the prior year to provide an independent assessment of the function.
The review concluded that audits were ‘in all material aspects’ compliant with Institute of Internal Audit (IIA) standards and also noted that the function has
clarity of purpose, has a good understanding of the business, is taken seriously and respected across the Group, and benefits from strong engagement with
the Board and Audit Committee. A number of recommendations for the further development of the function were proposed and these recommendations
have been incorporated into the work of the Internal Audit function during the course of the year.
The Group operates a decentralised structure where significant accountability is devolved to site operational and financial management. Control weaknesses
identified at site level are taken seriously and management and the Committee seek to ensure that their cause is understood and mitigating actions are taken
to limit the potential for recurrence. In view of the work of internal audit, external audit and Group management, it is considered unlikely that a weakness at an
individual site would have a significant impact on the Group.
EFFECTIVENESS OF THE EXTERNAL AUDIT PROCESS
PricewaterhouseCoopers LLP (‘PwC’) has been the Group’s auditor since 2017. The Audit Committee assesses annually the qualifications, expertise,
resources and independence of the auditor as well as the quality and effectiveness of the audit process.
In addition to the year-end audit, PwC carried out a review on the Group’s interim reporting during the year. The Committee considers that such a review gives
the Board additional assurance over the half year process and reporting.
During the year, the Committee assessed the external auditor’s performance and effectiveness through a questionnaire completed by Audit Committee
members and the Group’s senior finance team. The output from the process was reviewed and discussed by the Audit Committee and with the external
auditors.
The Committee also considered the following factors in assessing the effectiveness of the external audit process:
•
•
•
•
•
the experience and expertise of the Audit Partner and the audit team;
the level of professional scepticism displayed throughout the audit process;
the extent to which the audit plan was met and the quality of its delivery and execution;
the robustness and perceptiveness of work performed on key accounting and audit judgements; and
the content of reports on audit findings and other communications.
Having considered these factors, and having noted the observations made in the auditor’s reporting, the Committee was satisfied with the effectiveness
of the external audit process.
The Audit Committee also approves the terms of engagement and remuneration of the external auditor and monitors their independence. The Committee
confirms that it has complied with the requirements of the CMA Order 2014 as regards audit tendering, auditor appointment, negotiation and agreement of
audit fees and approval of non-audit services.
Cranswick plc Annual Report & Accounts 2019
61
Corporate Governance AUDIT COMMITTEE REPORT CONTINUED
AUDITOR INDEPENDENCE
The Group meets its obligations for maintaining an appropriate relationship with the external auditor through the Audit Committee, whose terms of reference
include a requirement to oversee the commissioning, and monitor the level, of non-audit work performed by the external auditor, to ensure objectivity and
independence is safeguarded. There is an established policy concerning the types of non-audit services the external auditor should not carry out to avoid
compromising their independence and these include internal accounting or other financial reporting services, internal audit, tax advice, legal, actuarial or
valuation services, executive or management roles or functions and remuneration consultancy. The Audit Committee Chair’s approval is required prior to
awarding to the external auditor any reporting accountant, or corporate transaction work or any other non-audit services in excess of £30,000.
During the year, the Audit Committee reviewed and considered the following factors to assess the objectivity and independence of PwC:
• The auditor’s procedures for maintaining and monitoring independence, including those to ensure that the partners and staff have no personal or business
relationships with the Group, other than those in the normal course of business permitted by UK ethical guidance.
• The degree of challenge to management and the level of professional scepticism shown by the audit partner and the audit team throughout the process.
• The auditor’s policies for rotation of the audit partner every five years, and regular rotation of key audit personnel. The current Audit Partner (Ian Morrison)
and the current Audit Director were selected by PwC to lead the audit of the Group from the year ended 31 March 2018.
• The nature of non-audit work undertaken during the year and its approval in accordance with the Audit Committee’s guidelines for ensuring independence.
• Adherence to the Group’s internal policy that, other than in exceptional circumstances, the fees paid to the external auditor for non-audit work in any one
year should not exceed the lower of £500,000 and 50 per cent of the external audit fee on average over the last three years.
• A report from PwC confirming that they have adequate policies and safeguards in place to ensure that auditor objectivity and independence is maintained.
Details of the non-audit work and fees paid during the year are set out below:
Non-audit fees
Interim review
Other services
Total Non-Audit Fees
Total Audit Fees
Ratio of Non-Audit Fees to Audit Fees
£’000
15
–
15
267
0.06:1
The ratio of non-audit fees to audit fees for the year was well below the 50 per cent limit set out in the Group’s policy.
The non-audit work undertaken by the external auditor during the year was limited to the review of the Group’s interim results which the Audit Committee
does not consider would provide a threat to PwC’s independence.
The Audit Committee is aware of, and sensitive to, investor body guidelines on non-audit fees and the policy of awarding non-audit services is kept under
review to ensure that the correct balance is maintained between the Group realising cost-effective benefits from the accumulated knowledge and experience
of PwC, whilst also making sure that their audit independence and objectivity is maintained.
A copy of the Committee terms of reference is available on the Company’s website at www.cranswick.plc.uk.
Following consideration of the performance and independence of the external auditor at its meeting in May 2019, the Audit Committee recommended to the
Board that the reappointment of PwC as the Company’s external auditor should be proposed to Shareholders at the 2019 Annual General Meeting.
Mark Reckitt
Chair of the Audit Committee
21 May 2019
62
Cranswick plc Annual Report & Accounts 2019
NOMINATION COMMITTEE REPORT
THE NOMINATION COMMITTEE
The Nomination Committee 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.
As Chair of the Nomination Committee I am pleased to
introduce its report for the year ended 31 March 2019.
COMPOSITION OF THE NOMINATION COMMITTEE
Committee Members
Martin Davey – Chair
Steven Esom*
Kate Allum
Mark Reckitt
Pam Powell
Tim Smith
Meetings
attended
OTHER REGULAR ATTENDEES
• The Chief Executive and Finance Director attend by invitation as required.
• The Company Secretary also attends meetings as secretary to the
Committee.
FREQUENCY OF MEETINGS
The Committee meets as necessary and at least twice a year.
INDEPENDENCE
Except for the Chair, all Members of the Committee are independent.
2/2
1/2
2/2
2/2
2/2
2/2
* Steven Esom retired as a Non-Executive Director, and as a member of the Nomination Committee,
on 22 November 2018 and attended the maximum number of meetings whilst a Director.
KEY ACTIVITIES IN 2018/19
Board Composition
Diversity
• Supervised Board induction training for new Non-Executive Directors
• Approved the appointment of a designated Non-Executive Director
• Reviewed the Group’s diversity policy.
• Considered implications of the 2018 UK Corporate Governance Code
to facilitate workforce engagement.
for the Group.
Succession planning
Governance and evaluation
• Reviewed and updated succession plans for the Board and Senior
• Reviewed the Governance Section of the 2019 Annual Report
Management.
• Reviewed Group talent management programme.
Non-executive directors
• Reviewed the continued independence of the Non-Executive Directors.
• Reviewed Non-Executive Director time commitments and overboarding.
BOARD APPOINTMENTS
Pam Powell and Tim Smith joined the board on 1 April 2018 and in addition
to attending scheduled board meetings have undertaken a number
of independent site visits to the Group’s key facilities and have met with
operational management and the Group’s advisers to gain an in depth
understanding of Cranswick’s operations and the markets it operates in.
As previously announced, having served for nine years as a Non-Executive
Director, Steven Esom retired in November 2018 in accordance with the
principles of good corporate governance.
Following Steven’s retirement, Mark Reckitt who joined the Board in 2014, has
taken on the role of Senior Independent Director in addition to his role as Chair
of the Audit Committee and Kate Allum, who joined the Board in 2013, has
taken on the role as Chair of the Remuneration Committee. In accordance
with the requirements of the 2018 Corporate Governance Code, Kate has
served more than 12 months as a member of the Remuneration Committee
prior to her appointment as Chair.
Following Pam and Tim’s appointment and Steven’s retirement in 2018, at least
half of the Board are now independent Non-Executive Directors in compliance
with the requirements of the 2018 UK Corporate Governance Code.
and recommended it to the Board for approval.
• Reviewed the Committee’s terms of reference.
•
Internal evaluation of Committee’s effectiveness undertaken.
As explained in my Governance Overview, the Board has decided to further
engage with the Group’s workforce through the appointment of a Designated
Non-Executive Director. I am pleased to report that the Board approved the
appointment of Tim Smith to this new role to lead this initiative. Tim has
significant experience of the food industry having previously led a number
of food processing companies which we believe means he is well qualified
to undertake this role.
All directors (other than Steven Esom) will be standing for re-election at the
Annual General Meeting. The Board has set out in the Notice of the Meeting its
reasons for supporting the re-election of the Directors and their biographical
details on pages 48 and 49 demonstrate the range of experience and skills
which each brings to the benefit of the Company.
SUCCESSION
During the year, the Committee reviewed the Group’s succession plan which
relates to executive members of the Board and key management throughout
the Group. The Committee’s review included arrangements relating to
contingency planning for sudden and unforeseen departures together with
longer term planning focused on identifying potential candidates within the
Cranswick plc Annual Report & Accounts 2019
63
Corporate Governance NOMINATION COMMITTEE REPORT CONTINUED
Group for progression and areas where external recruitment may be required.
Members of the Committee have increasingly met with the wider executive
management team, who gain exposure to the Board through site visits,
Board presentations and ad hoc informal dinners held throughout the year.
In relation to the appointment of any new Non-Executive Directors or Chairman,
the Group’s policy is to engage independent external search consultants
to assist with appointments, who are required to have adopted the Voluntary
Code of Conduct for Executive Search Firms on gender diversity and best
practice. The Group does not advertise Non-Executive positions, but keeps
developments in market practice in relation to this under review.
As part of the planned transition of executive responsibilities in the Group,
I reduced my part time executive responsibilities from September 2018.
Consequently, as explained in the Remuneration Report my participation in
the Group’s bonus scheme was reduced pro rata to 31 August 2018 to reflect
this and I will not participate in any new LTIP awards in 2019, or in the Group’s
2019 bonus scheme.
NON-EXECUTIVE DIRECTORS
Consideration was given by the Committee to the continued independence
of the Non-Executive Directors, including their term in office, the time
commitment required from each of them taking into account the number
of meetings and preparation and attendance at those meetings. It was
concluded that all Non-Executive Directors remained independent and
devoted an appropriate amount of time to fulfil their responsibilities.
The Committee has considered Director ‘overboarding’ and it is pleased
to note that there are no issues at the current time. It believes that the
Non-Executive Directors have sufficient time and energy to be effective
representatives of Shareholders’ interests. During the year Kate Allum
was appointed to the Board of Stock Spirts Group plc as a Non-Executive
Director, however, the Board was satisfied that, taking into account Kate’s
other commitments, she will continue to have sufficient capacity to properly
fulfil her role as a Non-Executive Director of the Company.
In accordance with the 2018 Corporate Governance Code all future additional
external appointments undertaken by any Director will require the prior
approval of the Board.
DIVERSITY POLICY
Cranswick recognises the benefits of bringing together a wide variety
of backgrounds and experiences and is therefore firmly committed to
developing a diverse workforce that is truly representative of all sections of
society. All appointments, including recruitments and internal promotions,
are based on merit, qualification and abilities, and are not influenced or
affected by race, colour, nationality, religion or belief, gender, marital status
or civil partnership, family status, pregnancy or maternity, sexual orientation,
gender reassignment, disability or age.
The Nomination Committee believes that diversity strengthens the Board
and that it is important that the Board is not made up exclusively of like-minded
individuals with similar backgrounds. Whilst management appointments will
continue to be made on the basis of merit, without the adoption of specific
diversity targets, the Group recognises the benefits of a more diverse
management and has a policy of actively increasing diversity at all levels.
The Board is mindful of the targets set out in the Hampton-Alexander and
Parker Reviews when considering future appointments.
Successful delivery of the Group’s strategy and planned growth depends
on the recruitment and retention of a motivated and skilled workforce in an
increasingly competitive and mobile labour market. The Board recognises that
actively broadening diversity to ensure that our workforce is more reflective of
society maximises our available talent pool and the attractiveness of a career
with the Group both at a senior level and more generally.
The gender breakdown of the workforce is set out above and I am pleased
to report that in all categories the proportion of females has increased from
last year.
64
Cranswick plc Annual Report & Accounts 2019
GENDER BREAKDOWN
Male
Female
4,664
64%
2,621
36%
6
75%
95
83%
377
75%
2
25%
125
25%
20
17%
Total
Employees
Board
Senior Managers
and Executives
Graduates and
Apprentices
BOARD PERFORMANCE EVALUATION
The performance evaluation process was undertaken in early 2019 based on
a questionnaire which included questions about Board administration, the role
of the Chairman, strategy, risk oversight, succession planning and the Board
committee structure. The review was facilitated by the Company Secretary
who is considered a suitable and independent person to conduct this process
The questionnaire was completed by all Board members. A report on the
outcome of the evaluation exercise was prepared by the Company Secretary
and was presented to the Board at its March 2019 meeting.
The report concluded from the feedback to the questionnaire that we
operated an extremely unified, highly functional Board, but recognised the
need for continued focus on succession planning and strategy given the
complexity of the Group and dynamic markets it operates in.
As well as considering the results of this year’s performance evaluation, the
Board also reviewed performance against the areas identified in the 2018
evaluation when it was recognised that progress needed to be made in
certain areas such as people development and strategy. Since the 2018
evaluation it was noted that the Board has reviewed the Group’s succession
plan and people development programmes and held a number of strategy
briefing sessions focused on key areas of the Group’s business including
continental and poultry products and the Far East export market at which
the Group’s strategy has been reviewed and debated.
The Chairman has evaluated the performance of individual Directors through
informal discussions and observations. The Senior Independent Non-Executive
Director and the other Non-Executive Directors have met, without the
Chairman present, to appraise his performance.
Overall the Board considered the performance of each Director to be
effective and concluded that both the Board and its committees continue to
provide effective leadership and exert the required levels of governance and
control. The Board will continue to review its procedures, effectiveness and
development in the year ahead.
In accordance with the 2018 UK Corporate Governance Code a triennial
externally facilitated Board evaluation will be undertaken later in 2019, in
relation to which the Board will follow the recommendations of the Financial
Reporting Council’s Guidance on Board Effectiveness.
GOVERNANCE
The Committee considered its terms of reference to ensure they reflect the
Committee’s remit and has updated these to reflect the requirements of the
2018 Corporate Governance Code. A copy of the Committee’s terms of
reference is available on the Company’s website at www.cranswick.plc.uk.
I will be attending the Annual General Meeting to respond to any Shareholder
questions that might be raised on the Committee’s activities.
On behalf of the Committee
Martin Davey
Chairman
21 May 2019
REMUNERATION
THE REMUNERATION COMMITTEE
The Remuneration Committee establishes the policy for
Executive Directors’ remuneration and determines the
appropriate performance conditions for the annual cash bonus
and long-term incentive awards. The Remuneration Committee
also sets remuneration for the chair, Executive Directors and
Senior Management (including the Company Secretary).
COMMITTEE MEETINGS DURING THE YEAR
There were four meetings held during the year. The attendance of members
at the meetings was as follows:
Committee Members
Kate Allum – Chair*
Steven Esom**
Mark Reckitt
Pam Powell***
Tim Smith***
Meetings
attended
4
3
4
4
4
OTHER REGULAR ATTENDEES
• The Chairman, Chief Executive and Finance Director attend by
invitation as required (no individual is involved in decisions relating
to their own remuneration).
• The Company Secretary also attends meetings as secretary
to the Committee.
FREQUENCY OF MEETINGS
The Committee meets as necessary and at least twice a year.
INDEPENDENCE
All Members of the Committee are independent.
* Chair of the Remuneration Committee from 22 November 2018.
** Steven Esom retired as a Director and as a member of the Remuneration Committee on
22 November 2018 and attended the maximum number of meetings whilst a Director.
*** Pam Powell and Tim Smith were appointed as Directors on 1 April 2018.
KEY ACTIVITIES IN 2018/19
Review of 2018 Corporate Governance Code
LTIP awards
• Reviewed requirements of the new Corporate Governance Code.
• Reviewed and amended the Committee’s terms of reference.
Executive Director and Senior Executive remuneration
• Reviewed Executive Directors’ and other Senior Executives’ base salaries.
• Reviewed the outcome of performance conditions for the LTIP awards
which were granted in 2015.
• Approved LTIP awards granted in 2018.
Shareholder engagement
• Engaged with major Shareholders in relation to remuneration.
Approval of bonuses
• Set objectives for the annual bonus arrangements for 2019 for Executive
Directors and Senior Executives.
• Reviewed the achievement of the Executive Directors’ bonus
arrangements against 2018 targets.
Other Activities
• Reviewed the Annual Remuneration Report for 2018.
• Reviewed employee benefit structures and approved the issue of the
SAYE share scheme for 2018.
Cranswick plc Annual Report & Accounts 2019
65
Corporate Governance REMUNERATION CONTINUED
REMUNERATION COMMITTEE REPORT
STATEMENT BY THE CHAIR OF THE REMUNERATION COMMITTEE
On behalf of the Remuneration Committee and the Board, I am pleased
to present, as the newly appointed Chair of the Remuneration Committee,
the Remuneration Committee Report for the year ended 31 March 2019.
Our new Remuneration Policy was approved by Shareholders at the 2018
AGM with over 98 per cent of the votes cast in favour of it, and we were
delighted to see similarly high levels of support for the other resolutions
related to remuneration; further information is given on page 81.
The Company adopted a new Remuneration Policy at its 2018 AGM, which
has been applied this year. However, in July 2018, the Financial Reporting
Council published a new UK Corporate Governance Code which included a
number of new requirements in relation to the operation of listed company
remuneration committees and remuneration policies, which will apply in
relation to the Company’s next financial year.
therefore considered the requirements of the new Code and agreed that a
number of changes will be made to the Committee’s terms of reference and the
way in which the Company’s Remuneration Policy will be applied going forward.
These will be applied in the current financial year and, subject to Shareholder
approval, will be formally adopted into the Company’s remuneration policy
when this is next approved by Shareholders (anticipated to be in 2021).
A summary of the key changes proposed by the 2018 UK Corporate
Governance Code, which the Remuneration Committee’s existing terms of
reference and the Company’s Remuneration Policy do not fully comply with,
together with the approach the Company is taking to address these new
requirements, is set out below.
As with prior years, Shareholders will be asked to pass an advisory vote on the
Annual Report on Remuneration at the forthcoming Annual General Meeting.
Whilst a number of the new requirements were anticipated and incorporated in
our new Remuneration Policy, the new Code includes a number of additional
measures which will need to be addressed. The Remuneration Committee has
We have also included in this report a CEO pay ratio, comparing the
remuneration of our CEO to that of the wider workforce. Although we are not
required to include this until we publish our 2020 Directors’ Remuneration
Report, we have done so on a voluntary basis, the detail is set out on page 79.
Corporate Governance Code Requirement
Changes Adopted
Remuneration Committee role extended to setting
remuneration for Senior Management (in addition
to Executive Directors).
Remuneration Committee role extended to include review
of workforce remuneration and related policies and alignment of
incentives and rewards with culture and taking these into account
when setting the policy for Executive Director remuneration.
Terms of Reference have been revised to include setting remuneration for Senior
Management (including the Company Secretary). The Remuneration Committee has
also reviewed and agreed those Senior Executives within the Group who will now fall
within the scope of the Remuneration Committee’s extended role.
Terms of Reference have been revised to reflect the new requirements. The
Committee has also been considering further practical measures to enable it to engage
with the Group’s workforce to explain how executive remuneration aligns with wider
Group pay policy and to undertake such review. The Committee has, as part of its
forward looking agenda, incorporated updates on wider workforce pay and related
policies so that the Committee can review and understand how pay principles are
applied across the Company. This includes base pay, benefits and all incentives and
aspects of financial and non-financial rewards that drive behaviour.
Remuneration Committee Chair to have served as a
remuneration committee member for at least 12 months prior
to appointment.
Terms of Reference have been revised to require that future appointees as Chair have
served on a remuneration committee for at least 12 months. The current Chair, Kate
Allum, already satisfies this requirement.
The pension contribution rates for Executive Directors, or
payments in lieu, should be aligned to those available to the
workforce.
Remuneration Committee should develop a formal policy for
post-employment shareholding requirements encompassing
both vested and unvested shares.
Remuneration Committee should exercise independent
judgement and discretion taking account of Company and
individual performance and wider circumstances. Consideration
should also be given to setting a limit on individual rewards.
Incentive schemes should include provisions that would enable
the Company to recover or withhold sums or share awards in
various circumstances including in the case of ‘corporate failure’
and ‘serious reputational damage’.
Reputational and other risks from excessive rewards and
behavioural risks that can arise from target-based incentive
plans should be identified and mitigated.
Under the Company’s existing remuneration policy, a maximum employer pension
contribution and/or cash payment in lieu, up to 20 per cent of salary is paid. Pension
contributions for new Executive Directors will be aligned to those applicable to other
employees and will be set at the time of appointment.
The Company does not currently require Directors to continue to maintain a shareholding
in the Company post-employment. Over the course of 2019, the Remuneration
Committee will review developing market practice and emerging trends with regard to
developing a post-employment shareholding policy. During this time, the Committee
will consider developing a post-employment shareholding policy which encompasses
vested and unvested shares.
The Remuneration Committee already has a discretion in relation to annual bonuses
to amend outcomes where these do not reflect overall business performance.
Going forward, new LTIP award performance conditions will be amended so that the
Remuneration Committee is able to also exercise discretion in relation to these so
that formulaic outcomes which do not reflect overall business performance can also
be overridden.
For awards made from 2019 onwards, the existing malus and clawback provisions in the
Group’s bonus scheme and LTIP have been extended to include ‘corporate failure’ and
‘serious reputational damage’.
As noted above, for awards made from 2019 onwards, existing malus and clawback
provisions in the Group’s bonus scheme and LTIP have been extended to include
‘material failure in risk management’. The annual bonus and LTIP are awarded on
a percentage of salary basis which mitigates the risk of excessive rewards.
66
Cranswick plc Annual Report & Accounts 2019
COMPANY PERFORMANCE AND REMUNERATION OUTCOME FOR 2019
Cranswick has over recent years experienced impressive growth year on
year both in relation to revenue and profits which has been reflected in the
remuneration received by the Group’s Executive Directors in relation to both
bonus and LTIP awards. However, over the course of 2019 the Group has
faced challenging conditions which resulted in a marginal decrease in revenue
(on a like-for-like basis) and a 4 per cent decline in the Company’s share price
over the last 12 months. This has resulted in a significant decrease in the
bonus awarded to Executive Directors and a reduction in the Group’s LTIP
award (which is measured over a three-year period), further details of which
are set out below and on the following pages. The Remuneration Committee
believes it is important that the Executive Directors’ interests are aligned with
the Company’s strategic vision and the interests of Shareholders and that the
incentive outcomes reported are appropriate given the performance of the
Group. In the circumstances, the Remuneration Committee did not consider
it necessary to exercise its discretion in relation to such outcomes and
believes that the measures used to judge performance which are explained
in our remuneration policy on pages 70 to 75 remain appropriate.
This report contains the following separate sections;
• Part 1 – The Chair’s annual statement on pages 66 and 67.
• Part 2 – Remuneration at a glance on pages 68 and 69.
• Part 3 – Full details of our remuneration policy approved at the 2018 AGM
on pages 70 to 75.
• Part 4 – The Annual Report on Remuneration on pages 76 to 81 which
discloses how the existing policy has been applied during the year. Those
elements of part 4 subject to external audit are clearly identified.
The Committee also awarded nil-cost share options under the existing LTIP
scheme to Senior Executives, including the Executive Directors, during the
year. The number of shares awarded to each Executive Director was
equivalent to 200 per cent of base salary based on the market value of the
Company’s shares at the date of award (1 August 2018). These awards are
reflected in the table on page 77. Each of the Senior Executives, including
the Executive Directors, was also granted a tax qualifying option over 910
ordinary shares at an exercise price of £32.93 per ordinary share which is
linked to the LTIP awards such that, at the time of exercise, to the extent that
there is a gain in the tax qualifying option, the LTIP will be scaled back to the
value of that gain.
REMUNERATION IN RESPECT OF THE YEAR ENDING 31 MARCH 2020
Executive Directors (other than Martin Davey who waived his contractual
entitlement to an increase this year) were awarded a pay increase of 2.5 per
cent effective from 1 May 2019 in line with the Senior Executives and the
wider workforce. Bonus opportunities and LTIP awards will remain unchanged
at 150 per cent of salary and 200 per cent of salary respectively for the year
ending 31 March 2020. The bonus and LTIP awards will continue to be subject
to stretching targets on the same basis as previous years, namely 100 per
cent on adjusted Group profit before tax for the annual bonus, and 50 per
cent on EPS and 50 per cent on Relative TSR for LTIP awards.
SHAREHOLDER ENGAGEMENT
Ongoing engagement by the Chairman, Chief Executive and Finance Director
has ensured that key Shareholders have been regularly updated on progress
and performance throughout the year.
2019 BONUSES
Bonus awards for 2019 reflect the performance delivered in the year outlined
below*. A bonus of 38 per cent of base salary has been awarded to each of the
Executive Directors. In comparison, bonus awards for 2018 were 150 per cent
of base salary for each of the Executive Directors. Further details are shown
on page 76.
A copy of the Committee’s terms of reference is available on the Company’s
website at www.cranswick.plc.uk.
On behalf of the Board, I would like to thank Shareholders for their continued
support. Should you have any questions on, or would like to discuss any
further aspect of, our remuneration strategy I can be contacted at
kate.allum@cranswick.co.uk.
LTIP AWARDS VESTING IN RESPECT OF THE YEAR ENDING
31 MARCH 2019
The LTIP Awards granted in 2016 were based on the three-year performance
period from April 2016 to March 2019 and were subject to adjusted EPS (50
per cent) and TSR (50 per cent) targets. Performance over the three-year
period as measured against adjusted EPS has been very strong, exceeding
the maximum target of 7 per cent over the average increase in RPI and
vesting at 100 per cent of the maximum. Performance in relation to TSR has
been affected by the decline in the Company’s share price following our third
quarter trading statement with the Company being ranked in the 62nd
percentile of its comparator group and, consequently, only 61 per cent of the
TSR element of the award vesting. Consequently, 80.5 per cent of the overall
maximum award will vest in June 2019 (i.e. 121 per cent of salary) for each
Executive Director versus 100 per cent of the maximum award which vested
in August 2018 (i.e. 150 per cent of salary). This is reflected in the table on
page 77.
*2019 BONUSES
Measure
Adjusted profit before tax
Bonus payable
Kate Allum
Chair of the Remuneration Committee
21 May 2019
Threshold
Maximum
£90.9m
20%
£99.7m
150%
Actual
£92.9m
38%
Note: Adjusted profit before tax targets are stated before deduction of bonuses paid to Executive Directors and the Chief Operating Officer.
Cranswick plc Annual Report & Accounts 2019
67
Corporate Governance REMUNERATION CONTINUED
REMUNERATION CONTINUED
REMUNERATION AT A GLANCE
OUR PERFORMANCE DURING THE YEAR
-0.2%
Like-for-like revenue decrease to
£1,437.1m.
-4.0%
Share price decrease to 2,722p
at 31 March 2019.
ADJUSTED PROFIT BEFORE TAX
(£’m)
ADJUSTED EARNINGS PER SHARE
(p)
92.4
92.0
75.5
145.0 144.3
120.9
£92.0m
144.3p
2017
2018
2019
2017
2018
2019
TOTAL SHAREHOLDER RETURN
700
600
500
400
300
200
100
0
See pages 18 to 23 for Strategic progress
and KPIs
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cranswick
FTSE All Share
FTSE 350 Food Producers
REMUNERATION IN 2019
The Committee ensures that executive remuneration targets are stretching, aligned to business strategy to drive long-term Shareholder value and reflect the
performance of the business during the period under review. Executive Directors’ rewards (excluding base salary and benefits) are two-fold: short term by way
of a cash bonus; and longer term by way of share awards under the Company’s Long Term Incentive Plan (LTIP).
TARGETS
Bonus
100%
Adjusted profit before tax
LTIP
50%
EPS
50%
Relative TSR
See page 76 for more details
Salary
Benefits
Pension
Bonus
LTIP
SAYE
Total
Martin Davey
Adam Couch Mark Bottomley
Jim Brisby
314
33
63
50
427
7
894
635
33
127
240
839
–
420
33
84
159
554
–
420
31
84
159
554
–
1,874
1,250
1,248
OUTCOMES
Achieved Adjusted Group profit before tax of £92.0 million – 25 per cent of the maximum bonus opportunity achieved
(38 per cent of salary). Performance measured over the three-year period ending 31 March 2019, EPS growth was RPI
+10.39 per cent, and TSR was ranked in the 62nd percentile of its comparator group. LTIP awards made in June 2016
will therefore vest in June 2019 in full in respect of the EPS element and 61 per cent of the maximum in respect of the
TSR element, in aggregate 80.5 per cent of maximum (121 per cent of salary).
68
Cranswick plc Annual Report & Accounts 2019
REMUNERATION FOR 2020
Salary
Bonus
2.5% increase to Directors’ salaries (other than Martin Davey) in line with Senior
Executives and the wider workforce.
Opportunities unchanged at 150% of salary for 2019-20.
Stretching target – unchanged from previous years at 100% on Adjusted Group
profit before tax.
LTIP awards
Opportunities unchanged at 200% of salary for 2019-20.
Stretching target – unchanged from previous years at 50% on EPS and 50%
on relative TSR.
>97%
of total votes cast in favour of the
Remuneration Committee’s Policy
and Report at last year’s AGM.
ILLUSTRATION OF APPLICATION OF REMUNERATION POLICY FOR 2019/20
The following chart illustrates the potential pay opportunities for the Executive Directors under three different performance scenarios for the year ending
31 March 2020. The chart has also been amended to illustrate potential pay opportunities reflecting an assumed 50 per cent increase in the share price
across the performance period.
4,000
3,500
3,000
2,500
0
0
0
£
2,000
1,500
1,000
500
410
100%
410
100%
410
100%
3,701
+50% SP
3,065
41%
2,258
+50% SP
1,939
33%
32%
25%
27%
42%
814
100%
2,457
+50% SP
2,036
41%
2,457
+50% SP
2,036
41%
1,504
+50% SP
33%
1,293
25%
42%
549
100%
32%
27%
1,504
+50% SP
33%
1,293
25%
42%
549
100%
32%
27%
0
Maximum
On Target
Fixed
Maximum
On Target
Fixed
Maximum
On Target
Fixed
Maximum
On Target
Fixed
Martin Davey
Adam Couch
Mark Bottomley
Jim Brisby
Fixed Pay
Bonus
LTIP (no share price growth)
LTIP (+50% share price growth)
In illustrating the potential reward, the following assumptions have been made:
Minimum performance
Performance in line with
expectations
Maximum performance
Fixed Pay
Base salary effective at 1 May 2019,
employer pension contributions
of 20% of that salary, and benefits
disclosed in the single figure table
for the year ending 31 March 2019.
Annual Bonus
No bonus
LTIP
No LTIP vesting
Bonus equal to 50% of the opportunity
is earned (i.e. 75% of salary).
LTIP vests as to 50% of the maximum
award (100% of salary).
Bonus equal to 150% of salary
is earned.
LTIP vests in full (200% of salary).
Cranswick plc Annual Report & Accounts 2019
69
Corporate Governance REMUNERATION CONTINUED
REMUNERATION POLICY
This part of the Directors’ Remuneration Report sets out the Directors’ Remuneration Policy (the ’Policy’).
LINK BETWEEN POLICY, STRATEGY AND STRUCTURE
Our remuneration policy is principally designed to align the interests of Executive Directors and Senior Executives with the Company’s strategic vision and
the creation of sustainable long-term value for our stakeholders without encouraging excessive levels of risk taking. The Policy is intended to remunerate
our Executive Directors competitively and appropriately for effective delivery of this goal and allows them to share in this success and the value delivered to
Shareholders. The principles and values that underpin the remuneration strategy are applied on a consistent basis for all Group employees. It is the Group’s policy
to reward all employees fairly, responsibly and by reference to local market practices, by providing an appropriate balance between fixed and variable remuneration.
The remuneration package is in two parts, to provide competitive total remuneration:
• a non-performance part represented by fixed remuneration (basic salary, pension and benefits); and
• a significant performance related element in the form of an annual bonus and long-term share-based awards.
The details of individual components of the remuneration package are set out below:
Purpose and link
to strategy
Base salary
To provide a market
competitive base
salary to attract and
retain executives.
Operation
Performance
metrics
Maximum
entitlement
Periodic reviews of market rates.
Base salaries are ordinarily reviewed annually taking
into account a number of factors including (but not
limited to):
• the individual’s skills, experience and responsibilities;
• pay increases within the Group more generally; and
• performance, group profitability and prevailing
market conditions.
While no formal
performance
conditions apply,
an individual’s
performance in role
is taken into account
in determining any
salary increase.
Any changes will usually take effect from 1 May.
Martin Davey is entitled to an annual increase of not
less than RPI under his service agreement agreed
in 2006.
Whilst there is no maximum salary, increases
will normally be within the range of salary
increases awarded (in percentage of salary
terms) to other employees in the Group.
However, higher increases may be awarded
in appropriate circumstances, such as:
• an increase in scope of the role or the
individual’s responsibilities;
• where an individual has been appointed
to the Board at a lower than typical market
salary to allow for growth in the role, in which
case larger increases may be awarded to
move salary positioning to a typical market
level as the individual gains experience;
• change in size and complexity of the Group;
and/or
• significant market movement.
Such increases may be implemented over
such time period as the Committee deems
appropriate.
Pension
To provide a
framework to save
for retirement.
Executive Directors are entitled to non-contributory
membership of the Group’s defined contribution
pension scheme.
N/A
Maximum employer pension contribution
and/or cash payment in lieu, up to 20 per cent
of base salary.
Alternatively, at their option, Executive Directors may
receive a cash payment in lieu of pension contribution,
subject to the normal statutory deductions.
Pension contributions may also be made in lieu
of salary.
70
Cranswick plc Annual Report & Accounts 2019
Whilst the Committee has not set an absolute
maximum on the level of benefits Executive
Directors may receive, the value is set at
a level which the Committee considers to be
appropriately positioned, taking into account
relevant market levels based on the nature
and location of the role and individual
circumstances.
The maximum opportunity is 150 per cent
of base salary.
The bonus for achieving threshold
performance is 20 per cent of salary
(13 per cent of the maximum opportunity).
Benefits
To provide market
competitive
benefits as part of
the remuneration
package.
Market competitive benefits principally comprise
health insurance (which may include coverage for the
director’s spouse and dependent children), personal
tax advice, pension advice and Company car allowance
or the provision of a Company car and running costs.
N/A
The bonus will
be based on the
achievement of
targets with stretching
performance
measures and
respective weightings
(where more than one
measure is used) set
each year dependent
on the Group’s
strategic priorities.
Annual bonus
To incentivise and
reward Executive
Directors and Senior
Executives for
performance in the
year against targets
linked to the delivery
of the Company’s
strategic priorities.
Additional benefits might be provided from time to
time if the Committee decides payment of such
benefits is appropriate.
Benefits are not pensionable.
Measures and targets are reviewed annually and any
pay-out is determined by the Committee after the
year end, based on performance against targets set
for the financial period.
The Committee has discretion to amend the
pay-out should any formulaic outcome not reflect
the Committee’s assessment of overall business
performance.
Where a bonus opportunity is offered in excess of
100 per cent of salary to an Executive Director
appointed on or after the date on which this policy
becomes effective, any bonus earned in excess of
100 per cent of salary will be deferred into shares for up
to two years until the Executive Director has satisfied
the shareholding guidelines. Deferral of any bonus is
subject to a de minimis limit of £10,000.
The Committee may make an additional payment (in
cash or shares) in respect of deferred shares to reflect
the value of dividends which would have been paid on
those shares during the period from grant to release
(this payment may assume that dividends had been
reinvested in shares on a cumulative basis).
Bonuses are non-pensionable.
There is a clawback and malus arrangement in place
should the need arise, for misstatement, performance
error and misconduct by a participant. Clawback may
be applied for up to two years following the payment of
the cash element of the bonus, and may be effected in
relation to any deferred share award by the
cancellation of that award before it vests.
Share-based awards
A Save As You Earn
(SAYE) share
scheme is available
to all eligible
employees.
Subject to approval by the Board, SAYE options are
made available to eligible staff, including Executive
Directors, in accordance with the scheme rules which
reflect the applicable legislation with an option exercise
price which may be set at a discount of up to 20 per cent
to the share price when the option is offered.
N/A
The limit on monthly savings and maximum
discount that may be applied in setting the
exercise price will be determined in accordance
with the applicable tax legislation from time
to time and will be the same for the Executive
Directors as for other eligible employees.
At the date of approval of this Policy the
maximum saving is £500 per month and
the maximum discount is 20 per cent.
Cranswick plc Annual Report & Accounts 2019
71
Corporate Governance The normal maximum award level under
the LTIP in respect of any financial year is
200 per cent of base salary. In exceptional
circumstances this can be increased to
250 per cent of base salary.
If a qualifying LTIP award is granted, the value
of shares subject to the CSOP option will not
count towards the limits referred to above,
reflecting the provisions for scale back of the
ordinary LTIP award.
REMUNERATION CONTINUED
LTIP
Long Term incentive
(LTIP) awards
provide a clear link
between the
remuneration of
Executive Directors
and the creation
of value for
Shareholders by
rewarding the
achievement of
longer term
strategic priorities
aligned to
Shareholder
interests.
Performance
measures for LTIP
awards are typically
assessed over a period
of three years and will
be based on financial
measures, which may
include but are not
limited to EPS growth
and relative TSR.
Where more than one
measure is used, the
weightings will be
determined by the
Committee taking
into account the
Company’s key
strategic priorities.
Threshold vesting will
not be at more than
41.25 per cent of salary
used to determine the
value of the award at
grant. The award vests
in full for maximum
performance.
The LTIP awards may take the form of nil (or nominal)
cost share options or conditional awards.
The Committee may at its discretion structure awards
as qualifying LTIP awards, consisting of a tax qualifying
CSOP option with an exercise price equal to the
market value of a share at the date of grant and an
ordinary nil-cost LTIP award, with the ordinary award
scaled back at exercise to take account of any gain
made on exercise of the CSOP option.
Awards will usually vest following assessment of the
achievement of demanding targets relating to total
Shareholder return (TSR) and earnings per share (EPS).
Awards held by Executive Directors are then subject
to a two year holding period which may be structured
as either: (1) the Executive Director being entitled
to acquire the shares once vested, but, other than
as regards sales to cover tax, being prevented from
selling shares until the end of the holding period; or (2)
the Executive Director being prevented from acquiring
shares until the end of the holding period. If a holding
period is structured on the latter basis, the participant
may be entitled to an additional payment (in cash or
shares) in respect of vested shares to reflect the value
of dividends paid on shares from the start of the
holding period until the date on which the Executive
Director is entitled to acquire shares.
There is a clawback and malus arrangement in place
should the need arise, for misstatement, performance
error and misconduct by a participant. Clawback may
be applied for up to two years following vesting, and
may be effected in relation to any award during a
holding period by the cancellation of that award before
the participant becomes entitled to acquire shares.
Clawback and malus may be applied to any CSOP
option granted under the LTIP to the extent permitted
by the applicable tax legislation.
Fees and benefits payable to Non-Executive Directors
To pay fees at a level
that reflects market
conditions and are
sufficient to attract
and retain individuals
of the appropriate
calibre.
The fees of the Non-Executive Directors are
determined by the Board and reviewed periodically.
N/A
Fees are set taking into account the
responsibilities of the role and the expected
time commitment
On appointment a non-executive Chairman’s,
fees would be determined by the Committee.
Non-Executive Directors are paid a basic fee with
additional fees paid for chairing Committees and
for the role of Senior Independent Director.
Non-Executive Directors are not eligible to participate
in any of the Group’s share schemes, incentive
schemes or pension schemes.
Non-Executive Directors may be eligible to receive
benefits such as travel costs and other reasonable
expenses.
DIFFERENCES IN POLICY ON REMUNERATION OF EXECUTIVE DIRECTORS FROM POLICY ON REMUNERATION OF EMPLOYEES GENERALLY
The Company aims to provide a remuneration package that is market competitive and which reflects responsibility and role scope. Accordingly Executive
Directors have a greater weighting towards long-term and performance based remuneration.
72
Cranswick plc Annual Report & Accounts 2019
SHAREHOLDING GUIDELINES
To promote alignment between Executive Directors’ and Shareholders’ interests, the Committee has adopted formal shareholding guidelines for Executive
Directors. Each Executive Director is required to hold shares acquired through the LTIP and any deferred bonus award (after sales to cover tax and costs) until
the value of their total shareholding is equal to 200 per cent of their annual base salary.
Where an LTIP or deferred bonus award is subject to a holding period on the basis that the Executive Director is prevented from acquiring shares until the end
of the holding period, the vested shares count towards the shareholding guidelines, on a net of assumed tax basis.
Shares subject to a deferred bonus award count towards the shareholding guidelines, on a net of assumed tax basis.
ANNUAL BONUS PERFORMANCE TARGETS
The structure of the performance targets applicable to annual bonus awards to be made in a particular year will be set out in the implementation section of
the Annual Report on Remuneration which precedes that year rather than in this remuneration policy report. The actual targets will not be disclosed in advance
as they are considered to be commercially sensitive information; however, the details will be disclosed retrospectively, provided they are not considered
commercially sensitive at that time.
Historically, Group profit before tax, as adjusted for acquisitions, disposals and other non-trading items, was the sole metric against which the annual bonus
award was assessed. Although there is currently no intention to move away from PBT, the policy has been amended to allow flexibility for the Committee to
introduce other financial and/or strategic measures, if deemed necessary, to provide an appropriately balanced and stretching incentive. Again, such metrics
will be disclosed in the implementation section.
The Committee may vary or substitute any performance measure if an event occurs which causes it to determine that it would be appropriate to do so,
provided that any such variation is fair and reasonable and, in the opinion of the Committee, would not make the measure materially less demanding. If the
Committee was to make such a variation or substitution, an explanation would be given in the next Directors’ Remuneration Report.
LTIP PERFORMANCE TARGETS
Performance measures for LTIP awards will be based on financial measures, with the chosen measures determined by the Committee taking into account
strategic priorities. Our current use of EPS and relative TSR, weighted equally, ensures an appropriate link to our financial KPIs along with a link to our
performance relative to that of peer companies.
The Committee may vary or substitute any performance measure if an event occurs which causes it to determine that it would be appropriate to do so,
provided that any such variation is fair and reasonable and, in the opinion of the Committee, would not make the measure materially less demanding. If the
Committee was to make such a variation or substitution, an explanation would be given in the next Directors’ Remuneration Report.
OPERATION OF SHARE PLANS
The Committee retains discretion to operate the Company’s share plans in accordance with the plan rules, including the ability to adjust the number of shares
subject to awards in the event of a variation in share capital, or other relevant event and to settle awards in cash or to grant awards as rights to cash payments
calculated by reference to a notional number of shares.
RECRUITMENT REMUNERATION POLICY
When appointing a new Executive Director, the Committee will typically align the remuneration package with the above Policy.
When determining appropriate remuneration arrangements, the Committee may include other elements of pay which it considers are appropriate. However,
this discretion is capped and is subject to the limits referred to below.
• Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed. This may include agreement on future
increases up to a market rate, in line with increased experience and/or responsibilities, subject to good performance, where it is considered appropriate.
• Pension will only be provided in line with the above Policy.
• The Committee will not offer non-performance related incentive payments (for example a ‘guaranteed sign-on bonus’).
• Other elements may be included in the following circumstances:
– an interim appointment being made to fill an Executive Director role on a short-term basis;
–
–
if exceptional circumstances require that the Chairman or a Non-Executive Director takes on an executive function on a short-term basis;
if an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for that year as
there would not be sufficient time to assess performance. Subject to the limit on variable remuneration set out below, the quantum in respect of the
months employed during the year may be transferred to the subsequent year so that reward is provided on a fair and appropriate basis;
if the Director will be required to relocate in order to take up the position, it is the Company’s policy to allow reasonable relocation, travel and subsistence
payments. Any such payments will be at the discretion of the Committee.
–
• The Committee may also alter the performance measures, performance period, vesting period, deferral period and holding period of the bonus or LTIP,
subject to the plan rules, if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be clearly
explained in the next Directors’ Remuneration Report.
• The maximum level of variable remuneration which may be granted (excluding ‘buyout’ awards as referred to below) is 400 per cent of salary.
The Committee may make payments or awards in respect of appointing an Executive Director to ‘buyout’ remuneration arrangements forfeited on leaving
their previous employer. In doing so, the Committee will take into account relevant factors including any performance conditions attached to the forfeited
arrangements and the time over which they would have vested. The Committee will generally seek to structure ‘buyout’ awards or payments on a comparable
basis to the remuneration arrangements forfeited. Any such payments or awards are excluded from the maximum level of variable remuneration referred to
above. ‘Buyout’ awards will ordinarily be granted on the basis that they are subject to forfeiture or ‘clawback’ in the event of departure within 12 months of
joining Cranswick, although the Committee will retain discretion not to apply forfeiture or clawback in appropriate circumstances.
Any share awards referred to in this section will be granted as far as possible under Cranswick’s existing share plans. If necessary and subject to the limits
referred to above, recruitment awards may be granted outside of these plans as permitted under the Listing Rules which will allow for the grant of awards to
facilitate, in unusual circumstances, the recruitment of an Executive Director.
Cranswick plc Annual Report & Accounts 2019
73
Corporate Governance
REMUNERATION CONTINUED
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue in accordance with
their terms.
Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the policy in place at the time of appointment.
POLICY ON PAYMENT FOR LOSS OF OFFICE
Individual Directors’ eligibility for the various elements of remuneration is set out below:
Provision
Treatment upon loss of office
Fixed remuneration Salary/fees, benefits and pension contributions/salary supplement will be paid to the date of termination.
Annual Bonus
LTIP
The Company may make a payment in lieu of notice at any time after notice has been given by either the Company or the Director.
This payment would include basic salary for the unexpired period of notice and may also include benefits (including pension
contributions or applicable salary supplement or contribution in lieu of salary) for that period.
Under the terms of his service agreement, if Martin Davey’s employment is terminated by the Company without giving 12 months’
notice (other than for circumstances justifying summary dismissal) liquidated damages are payable calculated based on Martin
Davey’s annual salary, benefits and pro rata bonus entitlement.
This will be reviewed on an individual basis and the decision whether or not to award a bonus in full or in part will be dependent upon a
number of factors including the circumstances of their departure and their contribution to the business during the bonus period in
question. Any bonus payment would typically be pro-rated from time in service to termination and paid at the usual time (although
the Committee retains discretion to pay the bonus earlier in appropriate circumstances) and to vary the application of (or disapply)
time based prorating.
If bonus deferral would otherwise apply to any bonus for the year of termination or prior year, the Remuneration Committee may
pay the full bonus earned in cash.
Any outstanding deferred bonus awards would typically continue (other than in the event of summary dismissal where the
entitlement would lapse) and vest at the originally anticipated date, although the Remuneration Committee retains discretion to
release any such award at the date of cessation or at an alternative date before the originally anticipated date.
Unvested LTIP awards will lapse on cessation of employment, unless cessation is as a result of death, injury, ill health, disability,
redundancy, retirement with the agreement of the Company or other circumstances at the discretion of the Committee. In these
‘good leaver’ scenarios, awards will usually vest at the normal vesting date subject to the satisfaction of the performance conditions
and, unless the Committee determines otherwise, a pro-rata reduction to reflect the proportion of the vesting period that has
elapsed at the date of cessation. The Committee retains discretion to vest awards early (and to assess performance conditions
early where relevant) and to waive the time based pro-rating reduction. The holding period would typically apply for the two year
period following vesting, although the Committee has discretion to vary the application of the holding period.
If an Executive Director ceases employment during the holding period relating to an LTIP award, the holding period will ordinarily
continue to apply, unless cessation is due to the death of the Executive Director, although the Committee has discretion to bring it
to an end earlier. In the event of death, the holding period would come to an end.
Other payments
In appropriate circumstances, payments may also be made in respect of accrued holiday pay, and outplacement and legal fees.
Options under the SAYE scheme will vest on cessation in accordance with the plan rules, which do not allow for discretionary treatment.
Change of control
In the event of a change of control, unvested awards under the LTIP will be released to the extent determined by the Committee
taking into account the relevant performance conditions and, unless the Committee determines otherwise, the extent of vesting
so determined shall be reduced to reflect the proportion of the vesting period that has elapsed. In the event of a change of control
during the holding period relating to an award under the LTIP, that holding period shall come to an end.
Deferred bonus awards will vest in full on a change of control.
Options under the SAYE scheme will vest on a change of control.
Where appropriate the Committee would have regard to the departing Executive Director’s duty to mitigate loss. Other than as described above, there are
no express provisions within the Director’s service contracts for the payment of compensation or liquidated damages on termination of employment.
Where a ‘buyout’ or other award is made, the leaver provisions would be determined at the time of the award.
The Committee reserves the right to make additional exit payments where such payments are made in good faith in discharge of an existing legal obligation
(or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connection with the termination of a
Director’s office or employment.
The Non-Executive Directors are not entitled to compensation on termination of their appointment in excess of their outstanding fee entitlement.
74
Cranswick plc Annual Report & Accounts 2019
SERVICE CONTRACTS
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 following Executive Directors have a one year rolling contract: Adam Couch commencing 1 May 2006 (revised 1 August 2012), Mark Bottomley from 1 June
2009 and Jim Brisby from 26 July 2010.
The service contract for Martin Davey includes a one year notice period from 1 May 2006 except in the case of a change in control of the Company when the
notice period is two years from the employer and three months’ from the employee for the first six months following the change of control, thereafter it reverts
back to a one year notice period from either party. The contract also has special provisions relating to liquidated damages requiring that the notice period
stipulated in the contract will be paid in full, which has been described above in the policy on termination. These conditions were incorporated into new
contracts several years ago when the Directors changed from contracts that had notice periods of up to three years. Whilst these contractual terms differ
from the current policy, the Remuneration Committee has concluded that it would not be appropriate, in the circumstances, to seek to further amend the
contractual terms agreed with this individual in 2006.
NON-EXECUTIVE DIRECTORS
Each Non-Executive Director has an appointment letter – Kate Allum for three years from 1 July 2016, Mark Reckitt for three years from 1 May 2017, and
Pam Powell and Tim Smith for three years from 1 April 2018. The continuing appointments are subject to annual re-election at the Company’s Annual
General Meeting.
Copies of the service contracts and letters of appointment are held at the Company’s Registered Office and will be available for inspection at the Annual
General Meeting.
LEGACY REMUNERATION ARRANGEMENTS
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in
connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed (i) before
the Policy set out in the 2018 Annual Report came into effect, provided that the terms of payment were consistent with the Shareholder approved Directors’
Remuneration Policy in force at the time they were agreed, or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion
of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes ‘payments’ includes the
Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award
is granted.
These legacy remuneration arrangements include the arrangements for Martin Davey referred to above in relation to the terms of his service agreement
agreed in 2006.
PAY AND CONDITIONS ELSEWHERE IN THE GROUP
The Committee does not directly consult with employees regarding the remuneration of the Executive Directors. However, when considering remuneration
levels to apply, the Committee will take into account base pay increases, bonus payments and share awards made to the Company’s employees generally.
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:
•
• 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
the Group operates within the UK food sector and has many employees who carry out demanding tasks within the business;
Executive Directors and Senior Executives;
• performance measures are cascaded down through the organisation to individual businesses;
•
the Group offers employment conditions that are commensurate with a medium-sized quoted company, including high standards of health and safety
and equal opportunities; and
the Group operates Save As You Earn share schemes which are open to all eligible employees including Executive Directors. (Approximately 20 per cent
of the eligible workforce participate in the SAYE scheme.)
•
CONSIDERATION OF SHAREHOLDERS’ VIEWS
The Committee believes that ongoing dialogue with major Shareholders, who have been updated on progress and performance during the year, is of
key importance.
Cranswick plc Annual Report & Accounts 2019
75
Corporate Governance
REMUNERATION CONTINUED
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
DIRECTORS’ REMUNERATION (AUDITED)
The table below sets out the single figure remuneration details of the Directors for the reporting year:
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Salary and fees
Benefits
Bonus
LTIP*
Pension
SAYE
Total
Executive Directors
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Non-Executive Directors
Kate Allum
Steven Esom**
Mark Reckitt
Pam Powell***
Tim Smith***
420
420
635
314
407
407
616
313
33
31
33
33
31
30
32
31
159
159
240
50
611
611
925
470
554
554
839
427
1,188
1,178
1,793
933
1,789
1,743
130
124
608
2,617
2,374
5,092
53
43
58
51
51
48
56
56
–
–
256
160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84
84
127
63
358
–
–
–
–
–
–
81
81
123
63
348
–
–
–
–
–
–
Total
2,045
1,903
130
124
608
2,617
2,374
5,092
358
348
–
–
–
7
7
–
–
–
–
–
–
7
–
–
–
13
13
–
–
–
–
–
–
1,250
1,248
1,874
894
2,318
2,307
3,489
1,823
5,266
9,937
53
43
58
51
51
48
56
56
–
–
256
160
13
5,522
10,097
* The values of the LTIP awards which vested in August 2018 have been updated for the actual share price on the date of vesting. In line with the regulations the values for 2019 are based on the
average share price over the three month period to 31 March 2019 as these awards will not vest until June 2019 (see tables on page 77).
** Retired from the Board and as a Director on 22 November 2018.
*** Appointed to the Board on 1 April 2018.
As reported last year the Executive Directors had pay awards in the year effective from 1 May 2018 of:
Adam Couch
Jim Brisby
Mark Bottomley
Martin Davey
From 1 May 2018
£636,500
£420,750
£420,750
£314,250
3%
3%
3%
0%
In line with wider workforce
In line with wider workforce
In line with wider workforce
No change
Benefits principally comprise health insurance, personal tax advice, pension advice and Company car allowance.
Pension consists of contributions of up to 20 per cent of base salary which are either paid into a defined contribution pension scheme or are received as
a cash allowance in lieu of the pension contribution, or, as a combination of both. No Director has any entitlement or prospective entitlement under any
defined benefit pension scheme.
The number of Directors who were active members of the money purchase pension scheme in the year was two (2018: two).
Non-Executive Directors are paid a basic fee with additional fees paid for chairing committees and for the role of Senior Independent Director, which are
reviewed triennially. In July 2018, the Non-Executive Directors fees were reviewed and it was agreed that, the basic fee for Non-Executive Directors be
increased to £51,000 from £48,000, effective from 1 August 2018. No changes were made to the additional fees paid for chairing committees and for the
role of Senior Independent Director, which remain at £8,000.
ANNUAL BONUS ARRANGEMENT (AUDITED)
The bonus scheme in operation is based on the achievement of Group profit targets which are set with regard to the Company’s budget, historical performance
and market outlook for the year. There are four bonus profit targets triggering awards of 20 per cent, 50 per cent, 100 per cent and 150 per cent of base salary
with a straight line, pro-rata award for profits falling between the targets.
The performance in the year, before charging bonus awards made to the Executive Directors and the Chief Operating Officer, was £92.9 million. This resulted
in a bonus award of 38 per cent of salary as shown below.
Threshold
On Target
£90.9m
20%
£94.3m
50%
£97.5m
100%
Maximum
£99.7m
150%
Actual
£92.9m
38%
Adjusted profit targets
Bonus payable
This award is reflected in the table above.
76
Cranswick plc Annual Report & Accounts 2019
LTIP AWARD VESTING IS RESPECT OF THE YEAR ENDING 31 MARCH 2019 (AUDITED)
The Remuneration Committee makes awards under the LTIP in order to ensure that Executive Directors and Senior Management are involved in the longer
term success of the Group. Options awarded can only be exercised if certain performance criteria are achieved by the Group. The performance criteria for the
2016 LTIP awards that will vest in June 2019 are as follows:
• 50 per cent of each award is subject to an earnings per share (EPS) target measured against average annual increases in the Retail Price Index (RPI) over
a three year period. The EPS target allows 25 per cent of the shares subject to the target to vest at an average annual outperformance above RPI of 3 per
cent and 100 per cent of the shares to vest at an average annual outperformance of 7 per cent with outperformance between 3 and 7 per cent rewarded
pro-rata.
• 50 per cent is aligned to a total Shareholder return (TSR) target measured against a comparable group of companies over a three year period. The TSR
target allows 30 per cent of the shares subject to the target to vest at the 50th percentile and 100 per cent at the 75th percentile with performance
between the 50th and 75th percentiles rewarded pro-rata.
The comparison companies used are: Associated British Foods plc, AG 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, and Tate and Lyle plc.
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.
The value of the LTIP for the year ended 31 March 2019 relates to awards made in June 2016 with a performance criteria based on the three years ended
31 March 2019 that will vest in June 2019 calculated at the average price for the three months ending on 31 March 2019 of 2,678 pence. Over the three year
performance period the EPS element of the award, based on the criteria set above, gave an outperformance of 10.39 per cent over the average increase
in RPI so achieving a 100 per cent award. For the TSR element of the award, measured against a comparable group of companies, the business achieved an
increase of 34 per cent and put the Company 6th in its comparative group which was at the 62nd percentile achieving an award of 61 per cent. The total award
of 80.5 per cent of maximum (121 per cent of salary) is reflected in the table on page 76, and below.
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Date of grant
1 June 2016
1 June 2016
1 June 2016
1 June 2016
Options
granted
Vesting
performance
Shares
awarded
Average share
price
25,700
25,700
38,900
19,800
80.5%
80.5%
80.5%
80.5%
20,688
20,688
31,314
15,939
2,678p
2,678p
2,678p
2,678p
Value of
shares
£554,025
£554,025
£838,589
£426,846
TRUE-UP OF AWARDS VESTED IN RESPECT OF THE YEAR ENDING 31 MARCH 2018 FOR SHARE PRICE ON VESTING DATE (AUDITED)
The value of the LTIP for the year ended 31 March 2018 relates to awards, made in 2015, with a performance criteria based on the three years ended 31 March
2018 that vested in August 2018, updated for the actual vesting share price of 3,308p. The EPS element of the award achieved 100 per cent of its performance
target and 100 per cent was achieved under the TSR measure giving an overall award of 100 per cent (150 per cent of salary) and this is reflected in the 2018
column of the table on page 76 and in the table below.
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Date of grant
1 August 2015
1 August 2015
1 August 2015
1 August 2015
Options
awarded
35,900
35,600
54,200
28,200
Value of award as
at 31 March 2018 based on an
average price of 3,052p
Value of award when
vested in August 2018 at the
market price of 3,308p
£1,095,522
£1,086,367
£1,653,963
£860,549
£1,187,572
£1,177,648
£1,792,936
£932,856
LTIP AWARDS GRANTED DURING THE YEAR ENDED 31 MARCH 2019 (AUDITED)
Details of the nil-cost LTIP options granted in the year under the LTIP are set out below:
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Date of grant
Basis
of award
1 August 2018 200% of salary
1 August 2018 200% of salary
1 August 2018 200% of salary
1 August 2018 200% of salary
Number
of shares
25,500
25,500
38,600
19,100
Share
price at
grant*
3,293
3,293
3,293
3,293
Face
value of
shares
Vesting at
minimum
performance
End of
performance
period
£839,799
£839,799
£1,271,098
£628,963
20.6% 31 March 2021
20.6% 31 March 2021
20.6% 31 March 2021
20.6% 31 March 2021
* Based on the average of the mean high/low share price for the three days preceding the grant date of the options
Each of the Executive Directors, was also granted a tax qualifying option over 910 ordinary shares at an exercise price of £32.93 per ordinary share which is
linked to the LTIP awards such that, at the time of exercise, to the extent that there is a gain in the tax qualifying option, the LTIP will be scaled back to the value
of that gain.
Cranswick plc Annual Report & Accounts 2019
77
Corporate Governance REMUNERATION CONTINUED
Details of the performance targets for the LTIP granted during the year ending 2019 are as follows:
Average annual percentage growth in EPS
RPI + 3% p.a.
Growth between RPI + 3% p.a. and RPI + 9% p.a.
RPI + 9% p.a.
TSR performance
Median
Between median and upper decile
Upper decile
Vesting percentage
18.75%
Straight-line vesting
100%
Vesting percentage
22.5%
Straight-line vesting
100%
The awards are exercisable between 1 August 2021 and 1 August 2028, subject to performance. 50 per cent of the award depends on the performance of EPS and
50 per cent on TSR for the period from 1 April 2018 to 31 March 2021. If the minimum performance was achieved the EPS element would give 18.75 per cent and
the TSR element would give 22.5 per cent; overall 20.6 per cent of the grant would vest (41.25 per cent of salary). As discussed in the 2018 Directors’ Remuneration
Report, vesting at threshold was set so that the same percentage of salary vested for threshold performance, notwithstanding the increase in opportunity.
SAYE (AUDITED)
The value of the SAYE options relates to awards granted 3, 5 or 7 years ago that have had their full contribution paid by the Executive and have been exercised in
the year. The awards in 2019 exercised by Martin Davey had an exercise price of 1,456 pence and a market value of 2,514 pence. The notional gains are shown in
the 2019 column of the table on page 76.
PAYMENTS TO PAST DIRECTORS (AUDITED)
There have been no payments made to past Directors or payments made for loss of office in the year.
PERFORMANCE GRAPH – TOTAL SHAREHOLDER RETURN (UNAUDITED)
The graph below shows the percentage change (from a base of 100 in March 2009) in the Total Shareholder Return (with dividends reinvested) for each of the
last ten 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.
TOTAL SHAREHOLDER RETURN
700
600
500
400
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Cranswick
FTSE All Share
FTSE 350 Food Producers
The table below illustrates the change in the total CEO remuneration over a period of ten years, with the bonus awards in those years and the LTIP vesting
awards set against a percentage of the maximum available.
£’000
Base salary
Benefits
Pension
Bonus
LTIP
SAYE
CEO total remuneration
Bonus award against maximum
opportunity
LTIP vesting against maximum
opportunity
2010
464
24
93
705
172
–
1,458
2011
483
25
97
107
207
–
919
97%
14%
85%
100%
2012
508
28
102
453
243
6
1,340
56%
93%
2013
505
28
86
639
171
7
1,436
80%
43%
2014
542
31
108
252
149
–
1,082
2015
562
29
112
843
825
–
2,371
2016
588
29
118
882
1,148
38
2,803
2017
599
31
120
898
1,341
–
2,989
2018
616
32
123
925
1,793
–
3,489
2019
635
33
127
240
839
–
1,874
31%
100%
100%
100%
100%
25%
25%
87%
100%
100%
100%
80.5%
Bernard Hoggarth was the Chief Executive up to August 2012 and from that date Adam Couch has fulfilled that role. The 2013 figures are the sum of the
remuneration received by both Directors in that year.
78
Cranswick plc Annual Report & Accounts 2019
CHANGE IN TOTAL REMUNERATION OF THE CHIEF EXECUTIVE COMPARED TO EMPLOYEES (UNAUDITED)
The table below shows the percentage change from 2018 to 2019 in the Chief Executive’s salary compared to the change for all permanent employees of the
business (excluding all Board Directors).
Chief executive
All other employees* (excluding all Board Directors)
*
Includes the impact of pay awards, growth in employee numbers and corporate activity.
Total pay
-46%
+8%
Salary
+2.5%
+11%
Benefits
+3%
+2%
Bonus
-74%
-62%
CHIEF EXECUTIVE PAY RATIO (UNAUDITED)
The table below shows the pay ratio based on total remuneration and salary of the Chief Executive to the 25th, 50th and 75th percentile of all permanent UK
employees of the business.
Year
2019
2019
Method*
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Option A
91:1
79:1
63:1
Chief Executive
25th percentile
Median
75th percentile
Salary
Total Remuneration
635
1,874
18
21
21
24
28
30
* The Company used Option A as defined in The Companies (Miscellaneous Reporting) Regulations 2018, as the calculation methodology for the ratios was considered to be the most accurate
method. The 25th, median and 75th percentile pay ratios were calculated using the full time equivalent remuneration for all UK employees as at the end of 2019. Employees’ involvement in
the Group’s performance is encouraged, with all employees with 12 months service eligible to participate in the SAYE schemes. Certain employees also participate in discretionary bonus
schemes. The Company aims to provide a competitive remuneration package which is appropriate to promote the long-term success of the Company and applies this policy fairly and
consistently to attract and motivate staff. The Company considers the median pay ratio is consistent with the company’s wider policies on employee pay, reward and progression.
RELATIVE IMPORTANCE OF THE SPEND ON PAY (UNAUDITED)
The table below shows the total remuneration paid across the Group together with the total dividend paid and share buybacks in respect of 2019 and the
preceding financial year. There have been no share buybacks during 2019 and 2018.
Pay against distributions
Remuneration paid to all employees*
Total dividends paid and share buybacks in the year
*
Includes the impact of pay awards, growth in employee numbers and corporate activity.
OUTSTANDING SHARE AWARDS (AUDITED)
The interests of the Executive Directors in the LTIP and SAYE schemes were as follows:
Long Term Incentive Plan (audited)
2019
£’m
183.3
28.0
2018
£’m
177.6
23.4
Change
%
3.2%
19.7%
Year of
award
At 1 April 2018
Number
Granted in
the year
Number
Exercised in
the year
Number
Lapsed
in the year
Number
At 31 March
2019
Number
Exercise
price
p
Market price
at grant
p
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
2015
2016
2017
*2018
2015
2016
2017
*2018
2015
2016
2017
*2018
2015
2016
2017
*2018
35,900
25,700
20,800
–
35,600
25,700
20,800
–
54,200
38,900
31,400
–
28,200
19,800
16,000
–
–
–
–
25,500
–
–
–
25,500
–
–
–
38,600
–
–
–
19,100
(35,900)
–
–
–
(35,600)
–
–
–
(54,200)
–
–
–
(28,200)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,700
20,800
25,500
–
25,700
20,800
25,500
–
38,900
31,400
38,600
–
19,800
16,000
19,100
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
1,628
2,333
2,960
3,308
1,628
2,333
2,960
3,308
1,628
2,333
2,960
3,308
1,628
2,333
2,960
3,308
* Each of the Executive Directors, was also granted a tax qualifying option over 910 ordinary shares at an exercise price of £32.93 per ordinary share which is linked to the LTIP awards such that,
at the time of exercise, to the extent that there is a gain in the tax qualifying option, the LTIP will be scaled back to the value of that gain.
Cranswick plc Annual Report & Accounts 2019
79
Corporate Governance REMUNERATION CONTINUED
The performance periods run for three years from 1 April in each year and conclude on 31 March three years later and are exercisable on the attainment
of certain performance criteria detailed on page 77. The range of exercise dates are 1 June 2019 to 1 August 2028.
The LTIP, issued in 2016, which vests in June 2019, will achieve 100 per cent of the EPS target and 61 per cent of the the TSR target giving a share award
of 80.5 per cent of the maximum award.
The following Directors exercised LTIP share options during the year:
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Savings related share option scheme (audited)
Number
35,900
35,600
54,200
28,200
Date
exercised
24 August 2018
24 August 2018
24 August 2018
24 August 2018
Exercise
price
p
nil
nil
nil
nil
Market
price
p
3,246
3,246
3,246
3,246
Gain on
exercise
£’000
1,165
1,156
1,759
915
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Year of
award
At 1 April
2018
Number
Granted
in the year
Number
Exercised
in the year
Number
Lapsed in
the year
Number
At
31 March
2019
Number
Exercise
price
p
2014
2017
2018
2014
2018
2011
2014
2015
2017
2015
2017
2018
1,276
350
–
1,276
–
936
1,276
667
205
618
350
–
–
–
401
–
669
–
–
–
–
–
–
401
–
–
–
–
–
–
–
–
–
618
–
–
–
350
–
–
–
–
–
–
–
–
–
–
1,276
–
401
1,276
669
936
1,276
667
205
–
350
401
1,187
2,565
2,239
1,187
2,239
579
1,187
1,456
2,565
1,456
2,565
2,239
Range of
exercise dates
1 Mar 2020–1 Sep 2020
1 Mar 2021–1 Sep 2021
1 Mar 2022–1 Sep 2022
1 Mar 2020–1 Sep 2020
1 Mar 2022–1 Sept 2022
1 Mar 2019–1 Sep 2019
1 Mar 2020–1 Sep 2020
1 Mar 2021–1 Sep 2021
1 Mar 2023–1 Sep 2023
1 Mar 2019–1 Sep 2019
1 Mar 2021–1 Sep 2021
1 Mar 2022–1 Sep 2022
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 Director exercised savings related share options during the year:
Martin Davey
Number
Date
exercised
618
1 March 2019
Exercise
price
p
1,456
Market
price
p
2,514
Gain on
exercise
£’000
7
MINIMUM SHAREHOLDING
The Remuneration Committee has recommended that the Executive Directors hold shares in the Company worth at least 200 per cent of base salary.
The Directors’ current holdings and value are now all in excess of the 200 per cent target and are shown below.
DIRECTORS’ INTERESTS (AUDITED)
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
Mark Reckitt
Tim Smith
LTIP
(Unvested,
subject to
performance)*
LTIP (Vested**,
unexercised)
SAYE
(Non-
performance
related)
Number of
shares held as
at 31 March
2019
Value of
shares held as
a % of base
salary
46,300
46,300
70,000
35,100
–
–
20,688
20,688
31,314
15,939
–
–
1,677
1,945
3,084
751
–
–
79,068
85,343
144,673
231,013
1,300
1,500
512
552
619
2,001
–
–
Target %
200
200
200
200
–
–
* Not including tax qualifying options granted to each of the Executive Directors.
** LTIP awards are due to vest in June 2019 with the performance criteria now completed.
The share price at 31 March 2019 of 2,722p was used in calculating the percentage figures shown above. Kate Allum and Pam Powell have no interests in the
Company at the present time. Steven Esom’s share interests as at the date of retirement was 1,441 shares. There have been no further changes to the above
interests in the period from 1 April 2019 to 21 May 2019.
80
Cranswick plc Annual Report & Accounts 2019
REMUNERATION FOR THE YEAR ENDING 31 MARCH 2020
The Executive Directors (other than Martin Davey who waived his contractual entitlement to an increase) were awarded an increase of 2.5 per cent which is
consistent with the average increase awarded to Senior Executives and to other employees in the Group taking into account local practices and regional
variations in pay and conditions.
Following the increase in pay, which will be applicable from 1 May 2019, the Executive Directors’ base salaries will be:
Director
Mark Bottomley
Jim Brisby
Adam Couch
Martin Davey
New salary
£431,300
£431,300
£652,450
£314,250
Rationale
Increase in line with workforce
Increase in line with workforce
Increase in line with workforce
No change
The 2020 bonus scheme in operation will be based on the achievement of Group profit targets which are set having regard to the Company’s budget, historical
performance and market outlook for the year. The actual 2020 targets are not disclosed as they are considered to be commercially sensitive. The targets will be
declared retrospectively in the 2020 Annual Report, provided they are not considered commercially sensitive at that time. There are four bonus profit targets
triggering awards of 20 per cent, 50 per cent, 100 per cent and 150 per cent of base salaries with a straight line pro-rata award for profits falling between the targets.
LTIP awards, equivalent to 200 per cent of basic salary, will be made in June 2020 and vesting will be after a three year performance period for both TSR and
EPS. 50 per cent of the award will be based on the target for TSR and 50 per cent on the target for EPS as detailed on page 77.
ADVISERS TO THE COMMITTEE
The Committee keeps itself fully informed on the developments within the industry and in the field of remuneration and seeks advice from external advisers
where appropriate. Deloitte LLP has continued to advise the Committee during 2019 and has provided general remuneration advice and share scheme advice
to the Company. Deloitte’s fees for providing remuneration advice to the Committee were £5,880 for the year ended 31 March 2019. Deloitte also provides
consultancy services to the Group. However, the Committee have reviewed any potential conflicts of interest and judged that Deloitte’s advice is both
objective and independent. The Committee have also been provided advice during the year in relation to its consideration of matters relating to Directors’
remuneration by the Chief Executive Officer, Chief Financial Officer and Company Secretary.
STATEMENT OF SHAREHOLDERS VOTING (UNAUDITED)
The resolutions to approve the Remuneration Policy, 2018 Remuneration Committee Report and other resolutions related to remuneration were passed on
a show of hands at the Company’s last AGM held on 30 July 2018. The votes cast by proxy in respect of those resolutions were:
Remuneration Policy
For
Against
Withheld
Remuneration Committee report
For
Against
Withheld
Approval of amendments to the Company’s Long Term Incentive Plan
For
Against
Withheld
Approval of the Deferred Bonus Plan
For
Against
Withheld
Number
37,739,458
743,793
19,966
Number
37,486,795
1,000,170
16,252
Number
37,781,565
761,323
20,385
Number
38,137,689
225,542
200,892
%
98.1
1.9
–
%
97.4
2.6
–
%
98.0
2.0
–
%
99.4
0.6
–
The share price at 31 March 2019 of 2,722p was used in calculating the percentage figures shown above.
REMUNERATION DISCLOSURE
This report complies with the requirements of the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended
in 2013 (the Regulations), the principles of the 2016 UK Corporate Governance Code, the provisions applied from the 2018 UK Corporate Governance Code
and the Listing Rules of the Financial Conduct Authority.
Kate Allum
Chair of the Remuneration Committee
21 May 2019
Cranswick plc Annual Report & Accounts 2019
81
Corporate Governance DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their Annual Report and the audited financial
statements of the Company and the Group for the year ended 31 March
2019. The Directors’ Report consists of pages 82 to 85 and has been drawn
up and presented in accordance with and in reliance upon applicable English
company law. The liabilities of the Directors in connection with that report
shall be subject to the limitations and restrictions provided by such law.
DIRECTORS INTERESTS AND INDEMNITIES
The membership of the Board and biographical details of the Directors are
given on pages 48 and 49. Details of the Directors’ beneficial interests in the
ordinary shares of the Company and in share options over the ordinary share
capital of the Company are included in the Remuneration Committee Report
on pages 65 to 81. During the year, Steven Esom stepped down from the
Board with effect from 22 November 2018.
DIRECT TAX
47%
45%
INDIRECT TAX
In accordance with the recommendations of the UK Corporate Governance
Code, all Directors (other than Steven Esom) will stand for re-election at the
forthcoming Annual General Meeting.
70%
� Corporation tax £19m
� Employers’ National Insurance £18m
� Business rates £2m
� Apprenticeship levy £1m
� Income tax £31m
� Employees’ National Insurance £13m
5%
3%
30%
The Company has in place directors’ and officers’ liability insurance which
gives appropriate cover against the costs of defending themselves in civil
proceedings taken against them in their capacity as a director or officer of
the Company and in respect of damages resulting from any unsuccessful
defence of any proceedings.
CONFLICTS OF INTEREST
The Company has a register in place for managing conflicts of interest with
the Directors which is reviewed and updated annually. The Directors have
a continuing duty throughout the year to update any changes to these conflicts.
PROFIT AND DIVIDENDS
The profit from continuing operations for the financial year, after taxation
amounts to £69.6 million (2018: £70.0 million). The Directors have declared
dividends as follows:
Interim dividend per share paid on 26 January 2018
Final dividend per share proposed
Total dividend
2019
15.9p
40.0p
£28.9m
2018
15.1p
38.6p
£27.4m
Subject to approval at the Annual General Meeting, the final dividend will be
paid in cash or scrip form on 6 September 2019 to members on the register
at the close of business on 19 July 2019. The shares will go ex-dividend on
18 July 2019. The proposed final dividend for 2019 together with the interim
paid in January 2019 amount to 55.9 pence per share which is 4.1 per cent
higher than the previous year.
TAX CONTRIBUTION
Within the UK our tax contribution to the UK treasury takes two forms: direct
contributions, being a cost to the Company which includes corporation tax
on profits, employer’s National Insurance on wages paid, business rates
and apprenticeship levy; and indirect contributions, being income tax and
employee’s National Insurance on wages paid. The total paid in the year
amounts to £84 million and is analysed as follows:
82
Cranswick plc Annual Report & Accounts 2019
SHARE CAPITAL
The Company has one class of shares, being ordinary shares of 10 pence
each. There are no special rights pertaining to any of the shares in issue;
each share carries the right to one vote at general meetings of the Company.
The allotted and fully paid up share capital is shown in Note 24 on page 123.
During the year the share capital increased by 601,724 shares. The increase
comprised 417,117 of shares issued relating to share options exercised during
the year and 184,607 of shares issued in respect of scrip dividends.
MAJOR SHAREHOLDERS
Notifiable share interests of which the Company has been made aware are
set out on page 83.
CAPITAL RAISING AND SHARE REPURCHASES
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 29 July 2019 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 29 July 2019,
is limited to £1,703,243 which represented approximately 33 per cent of the
issued share capital as at 8 June 2018.
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 29 July 2019.
MAJOR SHAREHOLDERS
The Company has been notified of the following interests of 3 per cent or more in the issued share capital of the Company:
Invesco Perpetual
Fidelity Management & Research
Standard Life Aberdeen
Wellington Management
Black Rock Inc
Franklin Resources
The Vanguard Group Inc
Legal & General Group
At 31 March 2019
Number of shares
% of issued share
capital
8,404,411
3,435,677
2,835,117
2,267,551
1,861,259
1,758,600
1,757,834
1,706,287
16.27
6.65
5.49
4.39
3.60
3.40
3.40
3.30
Nature of holding
Direct & Indirect
Direct & Indirect
Direct & Indirect
Direct & Indirect
Direct & Indirect
Direct
Direct & Indirect
Direct & Indirect
On 26 April 2019, Standard Life Aberdeen notified the Company that it had reduced its shareholding to 2,552,130 shares (representing 4.94 per cent of
issued share capital). There have been no other notifications of any significant changes, a different whole percentage movement, to these shareholdings
as at 21 May 2019.
Disapplication of pre-emption rights
This dis-applies rights of pre-emption on the allotment of shares by the
Company, or to grant rights to subscribe for, or to convert securities into
ordinary shares or sell treasury shares for cash. The authority will allow the
Directors to allot equity securities for cash pursuant to the authority to allot
shares mentioned above, to grant rights for ordinary shares and to sell
treasury shares for cash without a pre-emptive offer to existing Shareholders,
up to an aggregate nominal amount of £255,486 representing 5 per cent of
the Company’s issued share capital as at 8 June 2018 and up to an additional
aggregate nominal amount of £255,486 representing 5 per cent of the
Company’s issued share capital as at 8 June 2018 for the purposes of
financing (or refinancing) a transaction which is an acquisition or other capital
investment. This authority will expire at the end of the Annual General
Meeting to be held on 29 July 2019.
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 10 pence, 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 five 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 29 July 2019. The Directors would consider holding any of
the Company’s own shares that it purchases pursuant to this authority
as treasury shares.
The Company did not repurchase any shares during the year and 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 are imposed by
laws and regulations relating to insider trading laws and market requirements
relating to close periods.
ANNUAL GENERAL MEETING AND SPECIAL BUSINESS TO
BE TRANSACTED AT THE ANNUAL GENERAL MEETING
The Annual General Meeting of Cranswick plc will be held at the Mercure Hull
Grange Park Hotel on Monday 29 July 2019. A notice convening the Annual
General Meeting can be found in the separate Notice of Annual General
Meeting accompanying this Report & Accounts.
Details of the Special Business to be transacted at the Annual General
Meeting are contained in the separate letter from the Chairman which also
accompanies this Report & Accounts, 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.
AUDITORS
A resolution to reappoint PricewaterhouseCoopers LLP as independent
external auditor will be proposed at the Annual General Meeting, together
with the authority for the Audit Committee to determine their remuneration.
A statement on the independence of the external auditors is included in the
report of the Audit Committee on pages 57 to 62.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association may only be amended by a special
resolution at a general meeting of the Shareholders.
Cranswick plc Annual Report & Accounts 2019
83
Corporate Governance DIRECTORS’ REPORT CONTINUED
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.
FINANCIAL INSTRUMENTS
Functional currency
The functional currency of all Group undertakings is Sterling.
Foreign currency risk
The main foreign exchange risk facing the Group is in the purchasing of
charcuterie products and fresh pork cuts from continental Europe in Euros
and the sale of fresh pork to the USA and China denominated in US Dollars.
The policy of the Group is to seek to mitigate the impact of this risk by taking
out forward contracts for up to twelve months ahead and for amounts that
commence at approximately 25 per cent of the requirement and move
progressively towards full cover. The Finance Director is consulted about
the key decisions on currency cover.
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 2019
gearing was nil (2018: nil). 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 borrowings 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.
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
and/or commercial awareness. Every attempt is made to resist advance
payments to suppliers for goods and services; where this proves
commercially unworkable, 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 members of the main Board are
present and reported at the subsequent monthly main Board meeting.
Major projects, in excess of £1 million, 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 has a bank facility made up of
a revolving credit facility of £160.0 million including a committed overdraft
facility of £20.0 million until November 2022. This was extended during the
year to November 2023 by way of a reduced credit facility of £120.0 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 arrangement provides the Group with reduced liquidity risk and
medium-term funding to meet its objectives. The unutilised element of the
facility at 31 March 2019 was £134.4 million (2018: £159.0 million).
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 2018
and 31 March 2019.
The Group’s capital structure is as follows:
Net funds (Note 27)
Cranswick plc Shareholders’ equity
Capital employed
2019
£’m
(6.3)
534.9
528.6
2018
£’m
(20.6)
479.9
459.3
•
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 30 working days’ notice;
the Company is party to an agreement with WM Morrison Supermarkets
plc (‘WM Morrison’) for the supply of poultry products from its facility at
Eye, Suffolk which upon a change of control of the Company is terminable
by WM Morrison upon the provision of notice;
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
occur because of a takeover bid other than as stated in the Remuneration
Committee Report, on page 75, relating to Martin Davey; and
there are certain provisions in the Company’s Save As You Earn share
option plan and the Long Term Incentive Plan that may cause options and
awards granted to vest on a takeover. The proportion of the awards that
are capable of exercise will depend on the time in the scheme and as far
as the LTIP is concerned the extent to which the performance targets
(as adjusted or amended) have been satisfied.
•
•
POLITICAL DONATIONS
The Group has made no political donations during the year ended
31 March 2019.
84
Cranswick plc Annual Report & Accounts 2019
RESEARCH AND DEVELOPMENT
The Group remains at the forefront of new product development offering
consumers a wide range of products. Through innovative use of existing and
emerging technologies, there will continue to be successful development
of new products and processes for the Group.
OTHER STATUTORY DISCLOSURES
The Corporate Governance Report on pages 50 to 55, the Statement of
Directors’ Responsibilities on page 86 of the Annual Report and Note 23
(Financial Instruments and Liquidity Risk) to the financial statements are
incorporated into the Directors’ Report by reference.
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 facility are described above. 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 are referred to below.
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.
Other information can be found in the following sections of the
Strategic Report:
Future developments in the business of the Group Pages 2 to 45
Viability Statement
Greenhouse Gas Emissions
Employment Policies
Directors in the office during the year and
up to the date of signing the financial statement.
Page 43
Pages 36 and 37
Pages 30 and 31
Page 48 and 49
The only information required to be disclosed pursuant to Listing Rule 9.8.4R
are the details of the Company’s Long Term Incentive Plan which can be
found in the Remuneration Committee Report on pages 65 to 81.
NON-FINANCIAL INFORMATION STATEMENT
The table below is intended to help stakeholders understand the Group’s development, performance, and impact of its activities, information relating
to the environment, employee, social, respect for human rights, anti-corruption and anti-bribery matters in accordance with the Non-Financial Reporting
requirements contained in sections 414CA and 414CB of the Companies Act 2006.
Reporting requirement
Environmental matters
Employees
Human Rights
Social Matters
Anti-corruption and anti-bribery
Description of principal risks and impact of business activity
Description of the business model
Non-financial key performance indicators
Policies
Group Environmental Policy
Group Energy Policy
Group Corporate Responsibility Policy
Group Equal Opportunities, Harassment and Dignity at Work
Health & Safety Policy
Anti-slavery and Human Trafficking Policy
Group Equal Opportunities, Harassment and Dignity at Work
Group Ethical Trading Policy
Group Corporate Responsibility Policy
Anti-Bribery Policy
Group Ethical Trading Policy
The Directors’ Report was approved by a duly authorised committee of the Board on 21 May 2019 and signed on its behalf by:
Pages
34 to 37
30 and 31
30 and 31
25 and 32
57 to 62
44 and 45
6 and 7
22 and 23
Steven Glover
Company Secretary
21 May 2019
Company number: 1074383
Cranswick plc Annual Report & Accounts 2019
85
Corporate Governance The Directors consider that the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group and Company’s
performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Leadership
report confirm that, to the best of their knowledge:
•
the Company financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and loss of the Company;
the Group financial statements, which have been prepared in accordance
with IFRSs as adopted by the European Union, give a true and fair view of
the assets, liabilities, financial position and profit of the Group; and
the Directors’ Report includes a fair review of the development and
performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that
it faces.
•
•
In the case of each Director in office at the date the Directors’ Report
is approved:
• so far as the Director is aware, there is no relevant audit information
•
of which the Group and Company’s auditors are unaware; and
they have taken all the steps that they ought to have taken as a Director
in order to make themselves aware of any relevant audit information
and to establish that the Group and Company’s auditors are aware
of that information.
On behalf of the Board
Martin Davey
Chairman
21 May 2019
Mark Bottomley
Finance Director
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group financial
statements in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Company financial statements
in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union. Under Company Law the Directors must
not approve the financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and Company and of
the profit or loss of the Group and Company for that period. In preparing the
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have
been followed for the Group financial statements and IFRSs as adopted
by the European Union have been followed for the Company financial
statements, subject to any material departures disclosed and explained
in the financial statements;
• make judgements and accounting estimates that are reasonable and
prudent; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Company’s
transactions and disclose with reasonable accuracy at any time the financial
position of the Group and Company and enable them to ensure that the
financial statements and the Directors’ Remuneration Report comply with
the Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group
and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
86
Cranswick plc Annual Report & Accounts 2019
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF CRANSWICK PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion, Cranswick plc’s Group financial statements and Company financial statements (the ‘financial statements’):
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2019 and of the Group’s profit and the Group’s and the
Company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards
the Company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
• 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.
We have audited the financial statements, included within the Annual Report & Accounts (the ‘Annual Report’), which comprise: the Group and Company
balance sheets as at 31 March 2019; the Group income statement and Group statement of comprehensive income, the Group and Company statements
of cash flows, and the Group and Company statements of changes in equity; for the year then ended and the notes to the financial statements, which include
a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are
further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which
includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
or the Company.
Other than those disclosed in the Audit Committee report on page 62, we have provided no non-audit services to the group or the company in the period
from 1 April 2018 to 31 March 2019.
OUR AUDIT APPROACH
Overview
• Overall Group materiality: £4.5 million (2018: £4.6 million), based on 5 per cent of Adjusted profit before tax.
• Overall Company materiality: £2.4 million (2018: £3.4 million), based on 1 per cent of Total assets and subsequently capped due
to group materiality allocation.
• The Group is organised into 18 reporting units, all within the UK. The Group financial statements are a consolidation of these
reporting units.
• Of the 18 reporting units, we identified 15 which, in our view, required an audit of their complete financial information, either due
to their size or risk characteristics.
• This covered £1,432.7m (99 per cent) of the group’s external revenues and £90.7m (98 per cent) of the group’s Adjusted profit
before tax.
• Complex customer arrangements – Group.
•
• Carrying value of investments – Company.
IAS 41 – Biological assets – Group.
Materiality
Audit scope
Areas of
focus
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of
health and safety regulations, under the Health and Safety at work etc Act 1974, and we considered the extent to which non-compliance might have a material
effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements
such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the principal risks were related to posting manual journal entries to manipulate financial performance,
management bias through judgements and assumptions in significant accounting estimates and significant one-off or unusual transactions. The group
engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks
in their work. Audit procedures performed by the group engagement team and/or component auditors included:
• Discussions with management and those charged with governance including consideration of known or suspected instances of non-compliance with laws
and regulation and fraud;
• Evaluation and testing of the operating effectiveness of management’s entity level controls designed to prevent and detect irregularities;
• Testing over period end adjustments;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to complex customer
accruals and biological assets (see related key audit matters below); and
Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations.
•
Cranswick plc Annual Report & Accounts 2019
87
Financial Statements INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF CRANSWICK PLC
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due
to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These
matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by
our audit.
Key audit matter
How our audit addressed the key audit matter
Complex customer arrangements – Group
As is industry practice, the group has numerous types of complex
commercial arrangements with retailers and other customers that
have a range of terms (for example promotions, rebates and discounts).
These also include advertising and marketing contributions.
At 31 March 2019 commercial accruals in relation to these arrangements
total £7.9 million (2018: £8.9 million).
Due to the varying terms of these agreements and given that activity
may span a year end, a degree of judgment is exercised in determining
the valuation of the liability and the timing of when this liability should
be recognised.
We consider there to be a specific risk associated with the completeness,
accuracy and valuation of the commercial accruals that have been
recognised at the year end as these are material and can be complex
and judgemental.
IAS 41 – Biological assets – Group
Due to the nature of the group’s operations, biological assets consisting
of pigs and chickens are recognised. On initial recognition and at the
balance sheet date, these biological assets have been measured at their
fair value less costs to sell, in line with IAS 41. The net IAS 41 valuation
movement recognised in the year is a cost of £2.8 million (£2.2 million).
The valuation of these biological assets requires significant levels of
judgement and industry-specific expertise in applying appropriate
assumptions. Changes in a number of the key assumptions (including
mortality rates, growth rates, and the fair value at various stages of
development) can have a material impact on the valuation.
Our audit procedures included understanding and evaluating the controls
and systems related to the commercial accruals process, and obtaining
audit evidence through substantive audit procedures.
The substantive audit procedures performed for each individual
component varied depending upon the nature and level of commercial
accruals and type of agreement but included the following tests, on a
sample basis:
•
Inquiries of management and the account managers to understand
how the calculations are performed;
• Testing of the calculations performed in arriving at the accrual, by
agreeing the calculations to agreements in place with the customers,
and the relevant sales volume data;
• Agreement of the amounts raised and settled with customers, for claims
which have arisen within the current or next financial year, to date;
• Look back at the accuracy of the prior year (and older) provisions, to
determine customer patterns and assess management’s ability to make
accurate estimates of the required provisions; and
• Reviewed historical payments made on aged balances and reviewed
underlying agreements to assess the appropriateness of the aged
accruals in place across the group.
We found, based on the results of our testing, that the accruals recorded
and disclosures made in the financial statements were consistent with the
supporting evidence obtained.
We gained an understanding of, and evaluated the key processes used
to calculate the fair value of the biological assets.
We performed a recalculation of both the pig and chicken valuation models
to assess the accuracy of the calculation and audited the underlying data
inputs to the model.
We evaluated management’s key assessment of the assumptions used in
relation to the valuation of the biological assets as follows:
• We have compared the mortality assumptions within the models to the
operational data obtained from the farms;
• We have reviewed the growth rate of the chickens to third party source
data and have assessed the reasonableness of the straight line growth
assumption used for pigs; and
• We have agreed the fair value price of the assets at the various stages
of their life cycle to supporting third party data.
We have performed a sensitivity analysis over all of the above assumptions
and confirmed significant movements would be required to result in a
material misstatement.
We found, based on the results of our testing, that the calculation
and disclosures made in the financial statements in relation to the
IAS 41 valuation of biological assets were consistent with the supporting
evidence obtained.
88
Cranswick plc Annual Report & Accounts 2019
Key audit matter
How our audit addressed the key audit matter
Carrying value of investments – £166.1 million – Company
We focused on this area as the investments held by the parent company
in its subsidiaries are significant balances within the parent company
financial statements.
The key judgement is the underlying cash generation and profitability
of the wider group which can be affected by market conditions and
unexpected events.
We assessed the recoverability of the investments by reviewing the
underlying financial performance and profitability of the entities in which
the parent company has invested.
We reviewed management’s impairment review on the investments in
subsidiaries held by firstly considering whether management’s assessment
of impairment triggers was appropriate, and we subsequently followed this
up by reviewing management’s forecasts and budgets prepared to
consider whether an impairment was required on an entity by entity basis.
We identified no issues with the carrying value of investments in our testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into
account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
The Group is organised into 18 reporting units all within the UK. The group’s financial statements are a consolidation of these reporting units and the
centralised functions. The reporting units vary in size and we identified 15 components that required an audit of their complete financial information due to
their individual size or risk characteristics. The components where we performed an audit of their complete financial information accounted for 98 per cent
of the Group’s Adjusted profit before tax and 99 per cent of the group’s revenue. All of these components were audited by the group engagement team.
The work was performed by a component audit team on 4 of the 15 components. All other work was completed by the group audit team.
Of the remaining 3 components that together represent 2 per cent of the group’s Adjusted profit before tax and 1 per cent of the group’s revenue,
we performed analytical procedures to respond to any potential risks of material misstatement to the group financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative
considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement
line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£4.5 million (2018: £4.6 million).
Group financial statements
Company financial statements
£2.4 million (2018: £3.4 million).
How we determined it
5% of Adjusted profit before tax.
Rationale for benchmark applied
Adjusted profit before tax excludes the impact of fair
value adjustments (IAS 41 fair value movements) and
non-cash transactions not directly linked to operating
performance (amortisation of customer relationship
intangible assets). Based on the benchmarks used in
the Annual Report, Adjusted profit before tax is the
primary measure used by the Shareholders in assessing
the performance of the group, and is a generally
accepted auditing benchmark.
1% of Total assets and subsequently capped due to
group materiality allocation.
We believe that total assets is the primary measure
used by the Shareholders in assessing the performance
of a holding company, and is a generally accepted
auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated
across components was between £0.1 million and £4.2 million. Certain components were audited to a local statutory audit materiality that was also less than
our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2 million (group audit)
(2018: £0.2 million) and £0.2 million (Company audit) (2018: £0.2 million) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
Cranswick plc Annual Report & Accounts 2019
89
Financial Statements
INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF CRANSWICK PLC
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to adopt
the going concern basis of accounting in preparing the financial statements
and the directors’ identification of any material uncertainties to the Group’s
and the Company’s ability to continue as a going concern over a period of at
least twelve months from the date of approval of the financial statements.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s and Company’s ability to
continue as a going concern. For example, the terms on which the United
Kingdom may withdraw from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the group’s trade,
customers, suppliers and the wider economy.
We are required to report if the directors’ statement relating to Going
Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK) and the Listing.
Rules of the Financial Conduct Authority (FCA) requires us also to report certain opinions and matters as described below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended
31 March 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic Report and Directors’ Report. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 50 to 56)
about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules
7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (‘DTR’) is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any
material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 50 to 56)
with respect to the company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their
committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared by the company. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on pages 42 to 45 of the Annual Report that they have carried out a robust assessment of the principal risks facing the group,
including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 43 of the Annual Report as to how they have assessed the prospects of the group, over what period they have done so
and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
90
Cranswick plc Annual Report & Accounts 2019
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing
the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of
making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant
provisions of the UK Corporate Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding
of the group and company and their environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 86, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and
provides the information necessary for the members to assess the group’s and company’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the group and company obtained in the course of performing our audit.
• The section of the Annual Report on page 57 describing the work of the Audit Committee does not appropriately address matters communicated by us
to the Audit Committee.
• The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant provision of the
Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06)
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 86, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited
by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
•
the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records
and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the directors on 24 July 2017 to audit the financial statements for the year
ended 31 March 2018 and subsequent financial periods. The period of total uninterrupted engagement is 2 years, covering the years ended 31 March 2018
to 31 March 2019.
Ian Morrison (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
21 May 2019
Cranswick plc Annual Report & Accounts 2019
91
Financial Statements GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2019
Revenue
Adjusted Group operating profit
Net IAS 41 valuation movement on biological assets
Amortisation of customer relationship intangible assets
Group operating profit
Share of loss of joint venture
Finance costs
Profit before tax
Taxation
Profit for the year
Earnings per share
Basic
Diluted
An analysis of costs within Group operating profit is presented in Note 4.
Notes
3
16
11
4
14
6
7
10
10
2019
£’m
1,437.1
2018
£’m
1,464.5
92.3
(2.8)
(2.7)
86.8
(0.1)
(0.2)
86.5
(16.9)
69.6
92.8
(2.2)
(2.2)
88.4
–
(0.4)
88.0
(18.0)
70.0
135.5p
134.9p
137.8p
137.1p
92
Cranswick plc Annual Report & Accounts 2019
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2019
Profit for the year
Other comprehensive income/(expense)
Other comprehensive income/(expense) to be reclassified to profit or loss in subsequent periods:
Cash flow hedges
Gains arising in the year
Reclassification adjustments for gains included in the income statement
Income tax effect
Net other comprehensive expense to be reclassified to profit or loss in subsequent periods
Items not to be reclassified to profit or loss in subsequent periods:
Actuarial gains/(losses) on defined benefit pension scheme.
Income tax effect
Net other comprehensive income/(expense) not to be reclassified to profit or loss in subsequent periods
Other comprehensive income/(expense), net of tax
Total comprehensive income, net of tax
Notes
2019
£’m
69.6
2018
£’m
70.0
21
21
7
26
7
–
(0.5)
0.1
(0.4)
0.3
0.4
0.7
0.3
69.9
0.1
(0.3)
–
(0.2)
(0.2)
0.1
(0.1)
(0.3)
69.7
Company profit for the year of £24.6 million (2018: £21.9 million) was equal to total comprehensive income for the year attributable to owners of the parent in
both years.
Cranswick plc Annual Report & Accounts 2019
93
Financial Statements GROUP BALANCE SHEET
AT 31 MARCH 2019
Non-current assets
Intangible assets
Property, plant and equipment
Biological assets
Total non-current assets
Current assets
Biological assets
Inventories
Trade and other receivables
Financial assets
Cash and short-term deposits
Total current assets
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Provisions
Income tax payable
Total current liabilities
Non-current liabilities
Other payables
Financial liabilities
Deferred tax liabilities
Provisions
Share of joint venture
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 reserve
Retained earnings
Equity attributable to owners of the parent
On behalf of the Board
Martin Davey
Chairman
21 May 2019
Mark Bottomley
Finance Director
94
Cranswick plc Annual Report & Accounts 2019
Notes
11
12
16
16
17
18
19
27
20
21
22
20
21
7
22
14
26
24
2019
£’m
153.5
291.2
0.7
445.4
20.6
67.4
161.7
2.3
20.5
272.5
717.9
(150.2)
(0.6)
(0.2)
(7.7)
(158.7)
(0.7)
(14.2)
(0.8)
(2.0)
(0.1)
(6.5)
(24.3)
(183.0)
534.9
5.2
89.1
25.8
(0.4)
415.2
534.9
2018
£’m
156.2
237.3
0.8
394.3
17.0
59.2
160.1
0.1
20.6
257.0
651.3
(147.8)
(0.9)
(0.2)
(10.2)
(159.1)
(0.9)
–
(1.0)
(2.3)
–
(8.1)
(12.3)
(171.4)
479.9
5.1
81.5
21.0
–
372.3
479.9
COMPANY BALANCE SHEET
AT 31 MARCH 2019
Non-current assets
Property, plant and equipment
Investments in subsidiary undertakings
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and short-term deposits
Total current assets
Total assets
Current liabilities
Trade and other payables
Financial liabilities
Provisions
Income tax payable
Total current liabilities
Non-current liabilities
Financial liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
General reserve
Merger reserve
Share-based payments
Retained earnings
The Company’s profit for the year was £24.6 million (2018: £21.9 million).
On behalf of the Board
Martin Davey
Chairman
21 May 2019
Mark Bottomley
Finance Director
Notes
12
13
7
18
27
20
21
22
21
22
24
2019
£’m
0.8
166.1
0.9
167.8
77.9
–
77.9
245.7
(68.1)
(5.4)
(0.1)
(1.0)
(74.6)
(14.2)
(0.6)
(14.8)
(89.4)
156.3
5.2
89.1
4.0
1.8
25.8
30.4
2018
£’m
0.5
164.5
1.0
166.0
38.3
5.1
43.4
209.4
(61.0)
–
(0.1)
(1.1)
(62.2)
–
(0.6)
(0.6)
(62.8)
146.6
5.1
81.5
4.0
1.8
21.0
33.2
156.3
146.6
Cranswick plc Annual Report & Accounts 2019
95
Financial Statements
GROUP STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2019
Operating activities
Profit for the year
Adjustments to reconcile Group profit for the year to net cash inflows from operating activities:
Share of loss of joint venture
Income tax expense
Net finance costs
(Gain)/loss on sale of property, plant and equipment
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payments
Difference between pension contributions paid and amounts recognised in the income statement
Release of government grants
Net IAS 41 valuation movement on biological assets
Increase in biological assets
(Increase)/decrease in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Loan to joint venture
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Receipt of government grants
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Proceeds from issue of share capital
Issue costs of long-term borrowings
Proceeds from/(repayment of) borrowings
Dividends paid
Repayment of capital element of finance leases and hire purchase contracts
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
7
12
11
16
15
14
27
27
27
2019
£’m
69.6
0.1
16.9
0.2
(0.2)
28.9
2.7
4.8
(1.3)
(0.2)
2.8
(6.3)
(8.2)
(1.1)
(2.2)
106.5
(18.8)
87.7
(0.8)
(2.2)
(79.2)
0.8
0.4
(81.0)
(0.4)
1.8
(0.1)
14.0
(22.1)
–
(6.8)
(0.1)
20.6
20.5
2018
£’m
70.0
–
18.0
0.4
0.8
35.7
2.2
4.3
(1.7)
(0.2)
2.2
(0.4)
3.0
(9.0)
2.4
127.7
(15.6)
112.1
(5.3)
–
(58.7)
0.7
–
(63.3)
(0.4)
1.6
(0.2)
(15.0)
(18.2)
(0.1)
(32.3)
16.5
4.1
20.6
96
Cranswick plc Annual Report & Accounts 2019
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2019
Operating activities
Profit for the year
Adjustments to reconcile Company profit for the year to net cash inflows from operating activities:
Dividends received
Income tax expense
Net finance cost
Depreciation of property, plant and equipment
Share-based payments
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Cash (used in)/generated from operations
Tax paid
Net cash (used in)/from operating activities
Cash flows from investing activities
Dividends received
Purchase of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities
Interest paid
Proceeds from issue of share capital
Issue costs of long-term borrowings
Proceeds from/(repayment of) borrowings
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
12
27
27
27
2019
£’m
24.6
2018
£’m
21.9
(22.1)
(18.2)
1.8
5.8
–
1.5
(37.6)
7.1
(18.9)
(1.3)
(20.2)
22.1
(0.2)
21.9
(5.8)
1.8
(0.1)
14.0
(22.1)
(12.2)
(10.5)
5.1
(5.4)
1.6
4.7
0.1
1.3
1.3
9.7
22.4
(1.0)
21.4
18.2
–
18.2
(4.7)
1.6
(0.2)
(15.0)
(18.2)
(36.5)
3.1
2.0
5.1
Cranswick plc Annual Report & Accounts 2019
97
Financial Statements GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019
Share
capital
Note (a)
£’m
5.0
Share
premium
Note (b)
£’m
Share-based
payments
Note (e)
£’m
74.8
16.7
–
–
–
–
–
0.1
–
–
–
5.1
–
–
–
–
–
0.1
–
–
–
5.2
–
–
–
–
5.2
1.5
–
–
–
81.5
–
–
–
–
5.9
1.7
–
–
–
–
–
–
4.3
–
–
–
–
–
21.0
–
–
–
4.8
–
–
–
–
–
Hedging
reserve
Note (f)
£’m
0.2
–
(0.2)
(0.2)
–
–
–
–
–
–
–
–
(0.4)
(0.4)
–
–
–
–
–
–
Retained
earnings
£’m
324.7
Total
equity
£’m
421.4
70.0
(0.1)
69.9
–
–
–
(23.4)
(0.3)
1.4
372.3
69.6
0.7
70.3
–
–
–
(28.0)
(0.7)
1.3
415.2
70.0
(0.3)
69.7
4.3
5.2
1.6
(23.4)
(0.3)
1.4
479.9
69.6
0.3
69.9
4.8
5.9
1.8
(28.0)
(0.7)
1.3
534.9
89.1
25.8
(0.4)
At 31 March 2017
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments
Scrip dividend
Share options exercised (proceeds)
Dividends
Deferred tax related to changes in equity
Current tax related to changes in equity
At 31 March 2018
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments
Scrip dividend
Share options exercised (proceeds)
Dividends
Deferred tax related to changes in equity
Current tax related to changes in equity
At 31 March 2019
98
Cranswick plc Annual Report & Accounts 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2019
At 31 March 2017
Profit for the year, being total comprehensive income
Share-based payments
Scrip dividend
Share options exercised (proceeds)
Dividends
Deferred tax related to changes in equity
Current tax related to changes in equity
At 31 March 2018
Profit for the year, being total comprehensive income
Share-based payments
Scrip dividend
Share options exercised (proceeds)
Dividends
Deferred tax related to changes in equity
Current tax related to changes in equity
At 31 March 2019
Notes:
a) Share capital
Share
capital
Note (a)
£’m
Share
premium
Note (b)
£’m
General
reserve
Note (c)
£’m
Merger
reserve
Note (d)
£’m
Share-
based
payments
Note (e)
£’m
Retained
earnings
£’m
5.0
74.8
4.0
1.8
16.7
34.5
Total
equity
£’m
136.8
–
–
–
0.1
–
–
–
–
–
5.2
1.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.3
–
–
–
–
–
5.1
81.5
4.0
1.8
21.0
–
–
–
0.1
–
–
–
–
–
5.9
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.8
–
–
–
–
–
21.9
21.9
–
–
–
(23.4)
(0.1)
0.3
33.2
4.3
5.2
1.6
(23.4)
(0.1)
0.3
146.6
24.6
24.6
–
–
–
4.8
5.9
1.8
(28.0)
(28.0)
(0.2)
0.8
(0.2)
0.8
5.2
89.1
4.0
1.8
25.8
30.4
156.3
The balance classified as share capital represents the nominal value of ordinary 10 pence 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 10 pence 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 £4.0 million which was credited to a separate reserve
named the general reserve.
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 25).
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.
Cranswick plc Annual Report & Accounts 2019
99
Financial Statements
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 2019 were authorised for issue by the Board
of Directors on 21 May 2019 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, United Kingdom (Company number: 1074383, registered office: Crane Court, Hesslewood Country Office
Park, Ferriby Road, Hessle, East Yorkshire, HU13 0PA). 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 on a going concern basis, under the historical cost
convention, in accordance with 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 below.
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 acquisition method
of accounting.
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2019. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over
the investee.
Specifically, the Group controls an investee if and only if the Group has:
• power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or right, to variable returns from its involvement with the investee; and
•
the ability to use its power over the investee to affect its returns.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements
of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from
the date the Group gains control until the date the Group ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting
policies. All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated
in full on consolidation.
Judgements and key sources of estimation uncertainty
The preparation of the Group 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.
In the process of applying the Group’s accounting policies, management has made the following estimations, which will most likely have a significant effect on
the amounts recognised in the financial statements in the next twelve months:
Significant estimates and assumptions:
Share-based payments
Note 25 – measurement of share-based payments.
The fair value of share-based payments is estimated using inputs including expected share price volatility, the
expected life of the options and the number of awards that will ultimately vest.
Pensions
Acquisitions
Note 26 – pension scheme actuarial assumptions.
The valuation of the defined benefit pension scheme is determined using assumptions including mortality, discount
rates and inflation.
Note 15 – fair value adjustments on acquisition include the valuation of intangible assets with inputs based on discount
rate, sales growth and customer churn assumptions.
Biological assets
Note 16 – valuation includes assumptions in relation to mortality and growth rate.
Commercial accruals
Note 20 – trade and other payables.
(Advertising and marketing
contributions)
The level of commercial accruals is viewed by management as an area sensitive to a level of estimation in determining
the timing and quantum of liabilities to be recognised.
100
Cranswick plc Annual Report & Accounts 2019
Significant judgements:
Share-based payments
Alternative measures
Note 25 – measurement of share-based payments.
The selection of valuation models requires the use of management’s judgement. The fair value of share-based
payments is estimated as at the date of grant using a Black-Scholes option pricing model or a stochastic option
pricing model.
Note 31 – alternative performance measures.
Management apply judgement to identify the significant non-cash items to exclude when calculating adjusted
performance measures. The Board believe alternative measures are useful as they exclude volatile, one-off and
non-cash items.
Other estimates and judgements have been applied by management in producing the Annual Report and Accounts including, but not limited to, depreciation
and amortisation rates, and provision for impairment of trade receivables. However, these are not considered to have a significant risk of material adjustment.
New standards and interpretations applied
The following accounting standards and interpretations became effective for the current reporting period:
International Accounting Standards (IAS/IFRSs)
IFRS 15
Revenue from Contracts with Customers
IFRS 9
Financial Instruments
Effective date
1 January 2018
1 January 2018
The application of these standards has not had a material effect on the net assets, results and disclosures of the Group;
•
‘IFRS 15: Revenue from Contracts with Customers’ supersedes IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations, and was
effective for annual periods beginning on or after 1 January 2018. The standard deals with revenue recognition and establishes principles for reporting
useful information about the nature, amount, timing and uncertainty of revenues and cash flows arising from the Group’s contracts with its customers.
The standard provides clarification about when control of goods is passed to customers and contains more guidance about the measurement of revenue
contracts which include discounts, rebates and other payments to customers. During the prior year, the Group completed a review of the requirements of
IFRS 15 against previous accounting policies. The areas considered by the Group included payments to customers and the timing of revenue recognition
based on control of goods. Adoption of IFRS 15 for the year ended 31 March 2019 has not resulted in a material impact to the financial statements of the
Group. The Group has adopted IFRS 15 using the cumulative effect method. Accordingly, the information presented for 2018 has not been restated and is
therefore presented as previously reported under IAS 18, IAS 11 and related interpretations. Following the adoption of IFRS 15, the Group has also reviewed
its accounting practice in respect of commercial accruals and has introduced a maximum holding period for aged balances, under normal circumstances,
of three years.
‘IFRS 9: Financial Instruments’ was effective for annual periods beginning on or after 1 January 2018. The standard includes requirements for classification
and measurement, impairment and hedge accounting. The Group has evaluated the impact of IFRS 9 and concluded that the impact on the recognition
and measurement of income and costs in the Income Statement or of assets and liabilities in the Balance Sheet is not material. The Group has assessed
the classification and measurement of certain financial assets on the Balance Sheet and concluded that there is no significant change as a result of this.
Further, the nature of the Group’s current hedging activities and the quantum of its bad debt risk means that the impact of IFRS 9 is immaterial in respect
of these items. The Group has calculated its impairment provision on financial assets measured at amortised costs (such as trade and other receivables)
under the expected credit loss model in accordance with IFRS 9. The difference in provision between that determined by this model compared to that
calculated by the incurred loss model required by IAS 39 is not material and therefore, there is no change to the opening balances within equity.
•
New and revised standards and interpretations not applied
In these Financial Statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:
International Accounting Standards (IAS/IFRSs)
IFRS 16
Leases
IFRIC 23
Uncertainty over Income Tax Treatments
IFRS 9
IAS 28
Prepayment Features with Negative Compensation (amendment)
Long-term Interests in Associates and Joint Ventures (amendment)
Annual Improvements to IFRSs 2015-17 cycle
IFRS 19
Plan Amendment, Curtailment or Settlement (amendment)
IFRS 3
Business Combinations (amendment)
IAS 1
Definition of Material (amendment)
IFRS 17
Insurance Contracts
Effective date
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2020
1 January 2021
Cranswick plc Annual Report & Accounts 2019
101
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
2. ACCOUNTING POLICIES CONTINUED
None of these are expected to have a significant effect on the Financial Statements of the Group, with the exception of IFRS 16 which is considered below.
‘IFRS 16: Leases’ will be effective for annual periods beginning on or after 1 January 2019. The standard changes the principles for the recognition,
•
measurement, presentation and disclosure of leases. It eliminates the classification of leases as either operating leases or finance leases and introduces
a single lessee accounting model where the lessee is required to recognise lease liabilities and ‘right of use’ assets on the Balance Sheet, with exemptions
for low value and short-term leases. The Group has evaluated the impact of IFRS 16 on its current lease arrangements, which mainly consist of agricultural
properties, and concluded that there will not be a material effect on the net assets of the Group or the Company. The Group intends to adopt the modified
retrospective approach. The estimated impact on the Group’s financial statements for the year ended 31 March 2020 is as follows;
Decrease in operating lease cost
Effect on EBITDA
Increase in depreciation
Effect on operating profit
Increase in interest charge
Effect on PBT
Increase in assets at transition date
Increase in liabilities at transition date
Overall effect on net assets
£m
7.8
7.8
(7.0)
0.8
(1.0)
(0.2)
40.0
(40.0)
-
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 interpretation 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 as the performance obligation to deliver goods to customers is satisfied and is recorded based on the amount of consideration
expected to be received in exchange for satisfying the performance obligation. Revenue on the sale of goods is recognised when control of the goods has
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.
Sales related discounts and similar allowances comprise (commercial accruals):
• Volume rebates and similar allowances – which are sales incentives to customers to encourage them to purchase increased volumes and are related to
total volumes purchased and sales growth.
• Advertising and marketing contributions – which are directly related to promotions run by customers.
For commercial accruals that must be earned, management make estimates related to customer performance, sales volume and agreed terms, to determine
total amounts earned and to be recorded in deductions from revenue. (See significant estimates above, and Note 20).
The revenue accounting policy for the year ended 31 March 2018 was consistent with the requirements of IAS 18. Revenue was recognised when the
significant risks and rewards of ownership of the goods had been passed to the buyer on despatch, rather than the satisfaction of the performance obligation
to deliver the goods.
Alternative performance measures
The Board monitors performance principally through the adjusted performance measures. Adjusted profit and earnings per share measures exclude certain
non-cash items including the net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, profit on sale of a business and
goodwill impairment charges. Free cash flow is defined as net cash from operating activities less interest paid and like-for-like revenue excludes the impact of
the 53rd week in the prior year.
The Board believes that such alternative measures are useful as they exclude volatile (net IAS 41 valuation movement on biological assets), one-off (impairment
of goodwill and profit on sale of a business) and non-cash (amortisation of intangible assets) items which are normally disregarded by investors, analysts and
brokers in gaining a clearer understanding of the underlying performance of the Group when making investment and other decisions. Equally, like-for-like
revenue provides these same stakeholders with a clearer understanding of the organic sales growth of the business. (Reconciliations of alternative performance
measures can be found in Note 31).
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
102
Cranswick plc Annual Report & Accounts 2019
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
ii)
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
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.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed and included in administrative expenses.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration which is deemed to be an asset or liability will be recognised in profit or loss.
Intangible assets
Goodwill is the excess of the fair value of the consideration paid for a business over the fair value of the identifiable assets, liabilities and contingent liabilities
acquired. Goodwill is capitalised and subject to an impairment review, both annually and when there are indications that the carrying value may not
be recoverable.
Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount
is less than the carrying amount, an impairment loss is recognised. When an entity is disposed of, any goodwill associated with it is included in the carrying
amount of the operation when determining the gain or loss on disposal except that goodwill arising on acquisitions prior to 31 March 2004 which was previously
deducted from equity is not recycled through the income statement.
Intangible assets acquired as part of an acquisition of a business are capitalised at fair value separately from goodwill only if the fair value can be measured
reliably on initial recognition and the future economic benefits are expected to flow to the Group. Customer relationships are amortised evenly over their
expected useful lives of five years, with amortisation charged through administration expenses in the income statement.
Property, plant and equipment
Property, plant and equipment are included at cost less accumulated depreciation and any provision for impairment.
Freehold land is not depreciated. Depreciation is charged on property, plant and equipment on the depreciable amount, being cost less the estimated residual
value (based on prices prevailing at the balance sheet date) on a straight line basis over their estimated useful economic lives, or the estimated useful economic
lives of their individual parts.
Useful economic lives are principally as follows:
Freehold buildings
Short leasehold improvements
Plant and equipment
Motor vehicles
30-50 years
Remainder 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.
Cranswick plc Annual Report & Accounts 2019
103
Financial Statements
NOTES TO THE ACCOUNTS CONTINUED
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,
where applicable, based on a normal level of activity.
Biological assets
The Group’s biological assets consist of pigs in the form of breeding sows (classified as non-current assets) and their progeny for processing within the Group
and externally (classified as current assets) and chickens in the form of breeder stocks (classified as non-current assets) and their progeny for processing within
the Group and externally (classified as current assets). On initial recognition and at the balance sheet date biological assets have been measured at their fair
value less costs to sell, in line with IAS 41. Gains and losses in relation to the fair value of biological assets are recognised in the income statement, within ‘cost of
sales’, in the period in which they arise.
Cash and cash equivalents
Cash and cash equivalents are defined as cash at bank and in hand including short-term deposits with original maturity within three 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 IFRS 9 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 IFRS 9, any gains or losses arising from changes in fair value are taken directly to net profit or
loss for the period.
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.
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Cranswick plc Annual Report & Accounts 2019
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 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 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.
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 Black-Scholes or stochastic option pricing models. 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 principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts.
For the purposes of managing the business, the Group is organised into one reportable segment, being Food: manufacture and supply of food products to UK
grocery retailers, the food service sector and other UK and global food producers.
Cranswick plc Annual Report & Accounts 2019
105
Financial Statements
NOTES TO THE ACCOUNTS CONTINUED
3. BUSINESS AND GEOGRAPHICAL SEGMENTS CONTINUED
The reportable segment ‘Food’ represents the aggregation of four operating segments which are aligned to the product categories of the Group; Fresh Pork,
Convenience, Gourmet Products and Poultry, all of which manufacture and supply food products through the channels described above. These operating
segments have been aggregated into one reportable segment as they share similar economic characteristics. The economic indicators which have been
assessed in concluding that these operating segments should be aggregated include the similarity of long-term average margins; expected future financial
performance; and operating and competitive risks. In addition, the operating segments are similar with regard to the nature of the products and production
process, the type and class of customer, the method of distribution and the regulatory environment.
Geographical segments
The following table sets out revenues by destination, regardless of where the goods were produced:
UK
Continental Europe
Rest of world
2019
£’m
1,395.8
22.6
18.7
2018
£’m
1,419.3
30.2
15.0
1,437.1
1,464.5
In addition to the non-UK sales disclosed above the Group also made sales to export markets through UK-based meat trading agents totalling £56.3 million
(2018: £51.0 million). Including these sales, total sales to export markets were £97.6 million for the year (2018: £96.2 million).
Customer concentration
The Group has two customers (2018: two) which individually account for more than 10 per cent of the Group’s total revenue. These customers account
for 23 per cent and 21 per cent respectively. In the prior year these same two customers accounted for 23 per cent and 21 per cent respectively.
The Group’s non-current assets were all located within the UK during both 2019 and 2018.
4. GROUP OPERATING PROFIT
Group operating costs comprise:
Cost of sales excluding net IAS 41 valuation movement on biological assets
Net IAS 41 valuation movement on biological assets*
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses excluding amortisation of customer relationship intangible assets
Amortisation of customer relationship intangible assets
Administrative expenses
Total operating costs
Total
2019
£’m
1,250.6
2.8
1,253.4
183.7
55.4
38.8
2.7
41.5
2018
£’m
1,277.7
2.2
1,279.9
184.6
55.7
38.3
2.2
40.5
1,350.3
1,376.1
* This represents the difference between operating profit prepared under IAS 41 and operating profit prepared under historical cost accounting, which forms part of the reconciliation to
adjusted operating profit.
106
Cranswick plc Annual Report & Accounts 2019
Group operating profit is stated after charging/(crediting):
Depreciation of property, plant and equipment
Amortisation of customer relationship intangible assets
Release of government grants
Operating lease payments – minimum lease payments
Net foreign currency differences
Cost of inventories recognised as an expense
Increase in provision for inventories
Research and development expenditure
Auditors’ remuneration
Fees payable to the Company’s auditors in respect of the audit
Audit of these financial statements
Local statutory audits of subsidiaries
Total audit remuneration
Other services
Total non-audit related remuneration
Further details of audit and non-audit fees can be found on page 62.
Total
2019
£’m
28.9
2.7
(0.2)
7.0
(0.2)
821.2
2.0
0.7
0.1
0.2
0.3
–
–
Fees paid to auditors 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.
5. EMPLOYEES
Staff costs:
Wages and salaries
Social security costs
Other pension costs
Group
Company
2019
£’m
183.3
18.7
4.9
206.9
2018
£’m
177.6
17.4
2.9
197.9
2019
£’m
6.2
1.4
0.1
7.7
Included within wages and salaries is a total expense for share-based payments of £4.8 million (2018: £4.3 million) all of which arises from transactions
accounted for as equity-settled share-based payment transactions.
The average monthly number of employees during the year was:
2018
£’m
35.7
2.2
(0.2)
7.7
(0.1)
844.7
2.7
1.0
0.1
0.2
0.3
–
–
2018
£’m
8.1
1.6
0.1
9.8
Production
Selling and distribution
Administration
Group
Company
2019
Number
6,281
362
345
6,988
2018
Number
5,686
330
322
6,338
2019
Number
2018
Number
–
–
47
47
–
–
40
40
Cranswick plc Annual Report & Accounts 2019
107
Financial Statements
NOTES TO THE ACCOUNTS CONTINUED
5. EMPLOYEES CONTINUED
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 Remuneration Committee Report on pages 65 to 81. 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
2019
£’m
3.1
–
3.1
5.0
2
2018
£’m
5.0
–
5.0
3.8
2
Details of Directors’ remuneration can be found in the Remuneration Committee Report on page 76. The total Directors’ remuneration of £3.1 million (2018:
£5.0 million) comprises salary and fees £2.0 million (2018: £1.9 million), benefits £0.1 million (2018: £0.1 million), bonus £0.6 million (2018: £2.6 million) and
pension £0.4 million (2018: £0.4 million). The difference between pension contributions noted above and pension contributions on page 76 is cash paid in lieu
of pension.
6. FINANCE COSTS
Finance costs
Bank interest paid and similar charges
Interest capitalised
Total interest expense for financial liabilities not at fair value through profit or loss
Net finance cost on defined benefit pension deficit (Note 26)
Movement in discount on provisions and financial liabilities
Total finance costs
The interest relates to financial assets and liabilities carried at amortised cost.
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 profit 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
Tax on profit on ordinary activities
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Cranswick plc Annual Report & Accounts 2019
Total
2019
£’m
0.3
(0.2)
0.1
0.1
–
0.2
2019
£’m
18.1
(0.1)
18.0
(1.0)
0.1
(0.2)
(1.1)
16.9
2018
£’m
0.2
–
0.2
0.1
0.1
0.4
2018
£’m
20.0
0.4
20.4
(2.4)
0.3
(0.3)
(2.4)
18.0
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 (gains)/losses on defined benefit pension scheme
Corporation tax credit on actuarial (gains)/losses on defined benefit pension scheme
Recognised in Group statement of changes in equity
Deferred tax charge on share-based payments
Corporation tax credit on share options exercised
Total tax credit recognised directly in equity
Company
Recognised in Company statement of changes in equity
Deferred tax charge on share-based payments
Corporation tax credit on share options exercised
Total tax credit recognised directly in equity
b) Factors affecting tax charge for the year
The tax assessed for the year is higher (2018: higher) 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 19 per cent (2018: 19 per cent)
Effect of:
Disallowed expenses
Deferred tax rate change
Non-taxable income
Adjustments in respect of prior years
Total tax charge for the year
c) Deferred tax
The deferred tax included in the Group balance sheet is as follows:
Group
Deferred tax liability in the balance sheet
Accelerated capital allowances
Business combinations
Biological assets
Rollover and holdover relief
Other temporary differences
Share-based payments
Deferred tax on defined benefit pension scheme
Customer relationships intangibles
Deferred tax liability
2019
£’m
2018
£’m
(0.1)
0.3
(0.7)
(0.5)
0.7
(1.3)
(0.6)
(1.1)
2019
£’m
0.2
(0.8)
(0.6)
2019
£’m
86.5
16.4
0.7
0.1
–
(0.3)
16.9
–
0.2
(0.3)
(0.1)
0.3
(1.4)
(1.1)
(1.2)
2018
£’m
0.1
(0.3)
(0.2)
2018
£’m
88.0
16.7
1.2
0.3
(0.3)
0.1
18.0
2019
£’m
2018
£’m
1.9
3.0
(0.9)
0.1
(0.4)
(2.1)
(1.1)
0.3
0.8
1.7
3.3
(0.4)
0.1
(0.3)
(2.8)
(1.4)
0.8
1.0
Cranswick plc Annual Report & Accounts 2019
109
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
7. TAXATION CONTINUED
The deferred tax included in the income statement is as follows:
Deferred tax in the income statement
Accelerated capital allowances
Business combinations
Biological assets
Other temporary differences
Share-based payments
Customer relationships intangibles
Deferred tax credit
The deferred tax included in the Company balance sheet is as follows:
Company
Deferred tax asset in the balance sheet
Other temporary differences
Share-based payments
Deferred tax asset
2019
£’m
2018
£’m
0.3
(0.4)
(0.5)
–
–
(0.5)
(1.1)
2019
£’m
(0.2)
(0.7)
(0.9)
(1.2)
–
(0.4)
(0.1)
(0.4)
(0.4)
(2.5)
2018
£’m
–
(1.0)
(1.0)
2018
£’m
15.7
7.7
23.4
d) Change in corporation tax rate
A reduction in the main rate of corporation tax in the UK from 19 per cent to 17 per cent from 1 April 2020 was enacted before the balance sheet date.
Deferred tax is therefore provided at 17 per cent.
8. PROFIT ATTRIBUTABLE TO MEMBERS
Of the profit attributable to members, the sum of £24.6 million (2018: £21.9 million) has been dealt with in the accounts of Cranswick plc.
9. EQUITY DIVIDENDS
Declared and paid during the year:
Final dividend for 2018 – 38.6p per share (2017: 31.0p)
Interim dividend for 2019 – 15.9p per share (2018: 15.1p)
Dividends paid
2019
£’m
19.8
8.2
28.0
Proposed for approval of Shareholders at the Annual General Meeting on 29 July 2019:
Final dividend for 2019 – 40.0p per share (2018: 38.6p)
20.7
19.7
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 £69.6 million (2018: £70.0 million)
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
2019
Thousands
2018
Thousands
51,385
222
51,607
50,787
238
51,025
Adjusted earnings per share
Adjusted earnings per share are calculated using the weighted average number of shares for both basic and diluted amounts as detailed above (see Note 31).
110
Cranswick plc Annual Report & Accounts 2019
11. INTANGIBLE ASSETS
Group
Cost
Goodwill
£’m
Customer
relationships
£’m
Total
£’m
At 31 March 2017, 31 March 2018 and 31 March 2019
151.3
11.6
162.9
Amortisation
At 31 March 2017
Amortisation
At 31 March 2018
Amortisation
At 31 March 2019
Net book value
At 31 March 2017
At 31 March 2018
At 31 March 2019
–
–
–
–
–
151.3
151.3
151.3
4.5
2.2
6.7
2.7
9.4
7.1
4.9
2.2
4.5
2.2
6.7
2.7
9.4
158.4
156.2
153.5
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
Livestock
Cooked Meats
Continental Fine Foods
Premium Cooked Poultry
Fresh Chicken
Other
2019
£’m
21.8
1.7
90.2
11.0
9.2
13.7
3.7
151.3
2018
£’m
21.8
1.7
90.2
11.0
9.2
13.7
3.7
151.3
Assumptions used
The recoverable amount for each cash-generating unit has been determined based on value-in-use calculations using annual budgets for each business
for the following year, approved by the Board of Directors, and cash flow projections for the next two years calculated for the Viability Statement, extended
for a further two years. Forecast replacement capital expenditure is included from budgets and thereafter capital expenditure is assumed to represent
100 per cent of depreciation, except where specific expansion plans are in place.
Subsequent cash flows are forecast to grow in line with the long-term rate of inflation of 2 per cent.
A pre-tax discount rate of 9.4 per cent has been used (2018: 7.2 per cent) being management’s estimate of the weighted average cost of capital adjusted
for risks specific to the CGUs. An adjustment has also been made in arriving at the pre-tax discount rate to reflect the fact that the weighted average cost
of capital is a post-tax rate.
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 budgets and 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
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 cash-generating units. Assumptions and projections are updated on an annual basis.
Cranswick plc Annual Report & Accounts 2019
111
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
12. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
At 31 March 2017
Additions
Transfers between categories
Disposals
At 31 March 2018
Additions
Transfers between categories
Disposals
At 31 March 2019
Depreciation
At 31 March 2017
Charge for the year
Relating to disposals
At 31 March 2018
Charge for the year
Relating to disposals
At 31 March 2019
Net book amounts
At 31 March 2017
At 31 March 2018
At 31 March 2019
Freehold land
and buildings
£’m
Leasehold
improve-
ments
£’m
Plant,
equipment
and vehicles
£’m
Assets in the
course of
construction
£’m
124.8
1.9
0.1
(1.2)
125.6
6.8
17.9
–
150.3
18.6
8.1
(0.1)
26.6
3.2
–
29.8
106.2
99.0
120.5
1.0
–
–
–
1.0
–
–
(1.0)
–
1.0
–
–
1.0
–
(1.0)
–
–
–
–
251.6
31.8
8.4
(4.0)
287.8
39.4
8.6
(28.2)
307.6
148.4
27.6
(3.2)
172.8
25.7
(27.5)
171.0
103.2
115.0
136.6
6.3
25.5
(8.5)
–
23.3
37.3
(26.5)
–
34.1
–
–
–
–
–
–
–
6.3
23.3
34.1
Total
£’m
383.7
59.2
–
(5.2)
437.7
83.5
–
(29.2)
492.0
168.0
35.7
(3.3)
200.4
28.9
(28.5)
200.8
215.7
237.3
291.2
Included in freehold land and buildings is land with a cost of £14.6 million (2018: £9.2 million), which is not depreciated, relating to the Group, and £0.5 million
(2018: £0.5 million) relating to the Company.
Cost includes £1.3 million (2018: £1.1 million) in respect of capitalised interest. Interest of £0.2 million was capitalised during the year (2018: £nil). The rate
used to determine the amount of borrowing costs eligible for capitalisation was 1.75 per cent, which was the effective rate of the borrowing used to finance
the construction.
The Directors believe that the fair value of the property, plant and equipment is not materially different to the net book amounts presented above.
112
Cranswick plc Annual Report & Accounts 2019
Company
Cost
At 31 March 2017 and 31 March 2018
Additions
As at 31 March 2019
Depreciation
At 31 March 2017
Charge for the year
At 31 March 2018
Charge for the year
At 31 March 2019
Net book amounts
At 31 March 2017
At 31 March 2018
At 31 March 2019
13. INVESTMENTS
Company
Shares at cost:
At 31 March 2017
Capital contribution relating to share options
At 31 March 2018
Capital contribution relating to share options
Entities dissolved
At 31 March 2019
Freehold land
and buildings
£’m
Plant,
equipment
and vehicles
£’m
Total
£’m
0.5
–
0.5
–
–
–
–
–
0.5
0.5
0.5
0.5
0.3
0.8
0.4
0.1
0.5
–
0.5
0.1
–
0.3
1.0
0.3
1.3
0.4
0.1
0.5
–
0.5
0.6
0.5
0.8
Subsidiary
undertakings
£’m
161.5
3.0
164.5
3.3
(1.7)
166.1
The subsidiary undertakings as at 31 March 2019 were:
• Cranswick Country Foods plc
• Cranswick Gourmet Pastry Company Limited (100 per cent owned by Cranswick Country Foods plc) (2018: 90 per cent owned by Cranswick Country
Foods plc)
• Wayland Farms Limited (100 per cent owned by Cranswick Country Foods plc)
• Wold Farms Limited (100 per cent owned by Cranswick Country Foods plc)
• Cranswick Convenience Foods Limited
• Kingston Foods Limited (100 per cent owned by Cranswick Convenience Foods Limited)
• Warwick One Limited (registered in Scotland, registered office 21 Jenny Moores Road, St. Boswells, Melrose, Roxburghshire, TD6 0AN)
• Benson Park Limited (100 per cent owned by Cranswick Country Foods plc)
• Cranswick Bio Limited (100 per cent owned by Cranswick Country Foods plc)
• Mulberry House Foods Limited (100 per cent owned by Cranswick Country Foods plc)
• Weeton Foods Limited (100 per cent owned by Cranswick Country Foods plc)
• Potterdale Foods Limited (100 per cent owned by Cranswick Country Foods plc)
• CCL Holdings Limited (100 per cent owned by Cranswick Country Foods plc)
• Crown Chicken Limited (100 per cent owned by CCL Holdings Limited)
• Cranswick Country Foods Ballymena (registered in Northern Ireland, registered office 146 Fenaghy Road, Cullybackey, County Antrim, Northern Ireland,
BT42 1EA, 100 per cent owned by The Harts Corner Natural Sausage Company Limited)
• Cranswick Country Foods (Norfolk) Pension Trustees Limited (100 per cent owned by Cranswick Country Foods (Norfolk) Limited)
• Roma (No.1) plc
• Brookfield Foods Limited
• Continental Fine Foods Limited
• North Wales Foods Limited
• Cranswick Country Foods (Norfolk) Limited (100 per cent owned by Cranswick Country Foods plc)
• Cranswick Gourmet Bacon Company Limited (100 per cent owned by Cranswick Country Foods plc)
• Cranswick Gourmet Sausage Company Limited (100 per cent owned by Cranswick Country Foods plc)
Cranswick plc Annual Report & Accounts 2019
113
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
13. INVESTMENTS CONTINUED
• Cranswick Mill Limited
• Cranswick Trustees Limited
• Cranswick Tuck Marketing Limited
• Delico Limited
• Friars 587 Limited (100 per cent owned by Cranswick Country Foods plc)
• The Harts Corner Natural Sausage Company Limited (100 per cent owned by Cranswick Country Foods plc)
• White Rose Farms Limited (Formerly known as Cranswick Buckle Farming Limited) (50 per cent owned by Cranswick Country Foods plc)
Except where otherwise stated, each of the companies is registered in England and Wales, with registered office Crane Court, Hesslewood Country Office Park,
Ferriby Road, Hessle, East Yorkshire, HU13 0PA and Cranswick plc holds directly 100 per cent of the shares and voting rights of each subsidiary undertaking.
14. INVESTMENT IN JOINT VENTURE
The Group has a 50 per cent interest in White Rose Farms, a joint venture involved in the production of pigs. During the year a loan of £2.2m was made to the
entity to fund working capital.
The Group’s interest in White Rose Farms is accounted for using the equity method in the consolidated financial statements. Summarised financial
information of the joint venture, based on its IFRS financial statements, and reconciliation with the carrying amount of the investment in the consolidated
financial statements are set out below:
Group
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Group’s share in equity – 50%
Group’s carrying amount of the investment
Revenue
Cost of sales
Admin expenses
Loss before tax
Group’s share of the loss for the year – 50%
£’m
1.5
3.3
(0.5)
(4.5)
(0.2)
(0.1)
(0.1)
£’m
2.2
(2.3)
(0.1)
(0.2)
(0.1)
The joint venture had no other contingent liabilities or capital commitments as at 31 March 2019. White Rose Farms cannot distribute its profits without
consent from the two venture partners.
15. ACQUISITIONS
2017 – Cranswick Country Foods Ballymena
On 16 November 2016, the Group acquired 100 per cent of the issued share capital of Dunbia Ballymena (renamed Cranswick Country Foods Ballymena)
for a total consideration of £18.1 million including £3.4 million settlement of intercompany creditors due to the previous owner and a deferred consideration
of £1.3 million.
Intercompany loans were repaid on completion giving a total consideration for the acquisition of £18.1 million.
Included in the £9.5 million of goodwill recognised are certain intangible assets that cannot be individually separated from the acquiree and reliably measured
due to their nature. These items include the expected value of synergies and an assembled workforce.
Contingent consideration
The agreement included contingent consideration payable in cash to the previous owners of Cranswick Country Foods Ballymena based on obtaining a licence
to export to China. The amount paid during the prior year was £1.3 million.
114
Cranswick plc Annual Report & Accounts 2019
2015 – Benson Park
Contingent consideration
On 22 October 2014, the Group acquired 100 per cent of the issued share capital of Benson Park Limited for a total consideration of £23.8 million.
The agreement included contingent consideration payable in cash to the previous owners of Benson Park Limited based on the performance of the business
over a 2.5 year period. The amount payable was to be between £nil and £4.0 million dependant on the average profit before interest and tax of the business
during the 2.5 year period versus an agreed target level.
During the prior year the full £4.0 million contingent consideration was paid.
2015 – Yorkshire Baker
On 2 April 2014, the Group acquired the goodwill associated with the Yorkshire Baker business in exchange for certain property, plant and equipment and
10 per cent of the issued share capital of Cranswick Gourmet Pastry Company Limited. Goodwill of £0.4 million was recognised on acquisition representing
certain intangible assets that cannot be individually separated from the acquiree and reliably measured due to their nature. These items include the expected
value of synergies and the assembled workforce.
There was a put and call option in place over the 10 per cent shareholding, exercisable at fixed points over a three year period to 31 October 2018, based on
the results of Cranswick Gourmet Pastry Company Limited for the preceding financial year.
Total contingent consideration of £0.8 million has been paid in the year in relation to the option.
16. BIOLOGICAL ASSETS
The Group’s biological assets consist of pigs in the form of breeding sows (classified as non-current assets) and their progeny for processing within the Group
and externally (classified as current assets) and chickens in the form of breeder stocks (classified as non-current assets) and their progeny for processing within
the Group and externally (classified as current assets).
Reconciliation of carrying amounts of livestock:
Group
At 31 March 2017
Increases due to purchases
Decrease attributable to harvest
Decreases attributable to sales
Changes in fair value less estimated costs to sell
At 31 March 2018
Increases due to purchases
Decrease attributable to harvest
Decreases attributable to sales
Changes in fair value less estimated costs to sell
At 31 March 2019
Group
Non-current biological assets:
Pigs
Chickens
Current biological assets:
Pigs
Chickens
Pigs
£’m
14.4
15.8
(63.6)
(0.8)
47.4
13.2
19.7
(68.5)
(0.5)
52.7
16.6
Chickens
£’m
5.2
1.0
(44.2)
(4.4)
47.0
4.6
1.6
(45.7)
(9.5)
53.7
4.7
2019
£’m
0.6
0.1
0.7
16.0
4.6
20.6
Total
£’m
19.6
16.8
(107.8)
(5.2)
94.4
17.8
21.3
(114.2)
(10.0)
106.4
21.3
2018
£’m
0.5
0.3
0.8
12.7
4.3
17.0
Cranswick plc Annual Report & Accounts 2019
115
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
16. BIOLOGICAL ASSETS CONTINUED
Group
Net IAS 41 valuation movement on biological assets*
Changes in fair value of biological assets
Biological assets transferred to cost of sales
2019
£’m
106.4
(109.2)
(2.8)
2018
£’m
94.4
(96.6)
(2.2)
* This represents the difference between operating profit prepared under IAS 41 and operating profit prepared under historical cost accounting, which forms part of the reconciliation to
adjusted operating profit.
The Group’s valuation model for biological assets utilises quoted (unadjusted) prices in an active market for the valuation of finished pigs, sucklers, weaners
and broilers (Level 1 in the fair value hierarchy as detailed in Note 23). The valuation of sows, boars and breeder chickens is based on recent transactions for
similar assets (Level 2 in the fair value hierarchy).
The main assumption used in relation to the valuation is mortality which has been based on historical data for each category of pig and chicken.
Additional information:
Group
Quantities at year end:
Breeding sows (Bearer biological assets)
Boars
Pigs (Consumable biological assets)
Breeder chickens (Bearer biological assets)
Broiler chickens (Consumable biological assets)
Number of pigs produced in the year
Number of chickens produced in the year
17. INVENTORIES
Group
Raw materials and work in progress
Finished goods and goods for resale
18. TRADE AND OTHER RECEIVABLES
Financial assets:
Trade receivables
Amounts owed by Group undertakings
Other receivables
Non-financial assets:
Prepayments and accrued income
116
Cranswick plc Annual Report & Accounts 2019
2019
Number
2018
Number
12,763
255
248,781
267,389
12,826
235
190,921
268,334
3,255,208
2,957,415
496,006
448,740
26,116,813
29,204,400
2019
£’m
47.3
20.1
67.4
Group
Company
2019
£’m
147.3
–
8.7
156.0
5.7
161.7
2018
£’m
146.8
–
5.5
152.3
7.8
160.1
2019
£’m
–
76.7
0.7
77.4
0.5
77.9
2018
£’m
39.9
19.3
59.2
2018
£’m
–
37.4
0.5
37.9
0.4
38.3
The above financial assets are carried at amortised cost. As at 31 March, the analysis of trade receivables that were past due but not impaired was as follows:
Group
2019
2018
Trade
receivables
Of which:
Not due
£’m
147.3
146.8
£’m
131.2
129.4
Past due date in the following periods:
Less than
30 days
£’m
Between
30 and 60 days
£’m
More than
60 days
£’m
13.3
14.3
1.6
1.6
1.2
1.5
Trade receivables are non-interest-bearing and are generally on 30 to 60 day terms and are shown net of any provision for impairment. As at 31 March 2019,
trade receivables at nominal value of £0.7 million (2018: £2.2 million) were impaired and fully provided for. The provision is calculated by reviewing the lifetime
expected credit losses using both historic and forward looking data. Balances are written off when the probability of recovery is assessed as being remote.
The provision held at 31 March 2019 and 1 April 2018 (on adoption of the IFRS) uses expected future loss rates of 0.0% – 0.7% generating a future credit loss
provision of <£0.1m (1 April 2018 <£0.1m).
Movements in the provision for impairment of receivables were as follows:
Group
Bad debt provision
At 31 March 2017
Provided in year
Utilised
At 31 March 2018
Provided in year
Utilised
Released
At 31 March 2019
There are no bad debt provisions against other receivables.
19. FINANCIAL ASSETS
Group
Current
Forward currency contracts
Loan to joint venture
20. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to Group undertakings
Tax and social security
Other creditors
Commercial accruals*
Other accruals
Deferred income – Government grants
Non-current
Deferred income – Government grants
* See breakdown on page 118
£’m
1.0
1.7
(0.5)
2.2
0.2
(1.2)
(0.5)
0.7
2018
£’m
0.1
–
0.1
2018
£’m
0.2
49.8
2.6
6.8
–
1.6
–
61.0
2019
£’m
0.1
2.2
2.3
Group
Company
2019
£’m
107.6
–
4.8
6.0
7.9
23.3
0.6
150.2
2018
£’m
98.1
–
5.4
9.9
8.9
25.3
0.2
147.8
2019
£’m
0.6
61.8
1.8
2.5
–
1.4
–
68.1
0.7
0.9
–
–
Cranswick plc Annual Report & Accounts 2019
117
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
20. TRADE AND OTHER PAYABLES CONTINUED
Government grants received relate to Regional Growth Fund, Rural Development Programme for England and Business Investment Scheme payments.
The amounts received have been used to fund fixed asset investment with the objective of creating and safeguarding jobs at the Group’s facilities.
For the Company, amounts owed to Group undertakings reflect the net of the financial liabilities disclosed in Note 23 of £276.6 million (2018: £261.1 million)
and non-interest bearing amounts owed by the same entities to the Company.
For the Group, commercial accruals consist of:
At 31 March 2017
Paid
Charged to income statement
At 31 March 2018
Paid
Charged to income statement
At 31 March 2019
21. FINANCIAL LIABILITIES
Current
Forward currency contracts
Contingent consideration (Note 15)
Bank overdraft
Non-current
Amounts outstanding under revolving credit facility
Unamortised issue costs
Movement on hedged items:
Gains arising in the year
Reclassification adjustment for gains included in the income statement
Volume
rebates and
similar
allowances
£’m
Advertising
and marketing
contributions
£’m
7.1
(10.9)
10.6
6.8
(9.8)
8.9
5.9
3.1
(4.8)
3.8
2.1
(3.6)
3.5
2.0
Total
£’m
10.2
(15.7)
14.4
8.9
(13.4)
12.4
7.9
Group
2019
£’m
Company
2018
£’m
2019
£’m
2018
£’m
0.6
–
–
0.6
15.0
(0.8)
14.2
0.1
0.8
–
0.9
1.0
(1.0)
–
–
–
5.4
5.4
15.0
(0.8)
14.2
Group
2019
£’m
–
(0.5)
(0.5)
–
–
–
–
1.0
(1.0)
–
2018
£’m
0.1
(0.3)
(0.2)
All financial liabilities are carried at amortised cost, except for forward currency contracts and contingent consideration, which are carried at fair value.
Forward currency contracts are 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 23.
Movements on hedged foreign currency contracts are subsequently reclassified through cost of sales.
118
Cranswick plc Annual Report & Accounts 2019
Banking facility
During the year, the Group extended the period of its banking facility by one year. The facility, which now runs to November 2023, currently comprises
a revolving credit facility of £160 million (reducing to £120 million in November 2022), including a committed overdraft facility of £20 million. £5.4 million
(2018: £nil) of the overdraft facility was utilised at 31 March 2019. Interest is payable at a margin over base rate. £15.0 million (2018: £1.0 million) of the revolving
credit facility was utilised as at 31 March 2019. Interest is payable at a margin over LIBOR.
The arrangement fees of £1.4 million (2018: £1.3 million) are being amortised over the period of the facility.
The maturity profile of bank loans is as follows:
In one year or less
Between one year and two years
Between two years and five years
Unamortised issue costs
Group
Company
2019
£’m
–
–
15.0
15.0
(0.8)
14.2
2018
£’m
–
–
1.0
1.0
(1.0)
–
2019
£’m
–
–
15.0
15.0
(0.8)
14.2
2018
£’m
–
–
1.0
1.0
(1.0)
–
The bank facility for both years was unsecured and subject to interest cover and debt leverage covenants.
Unamortised issue costs relate to the revolving credit facility which expires in November 2023. £15.0 million (2018: £1.0 million) was drawn down under the
facility at the year end.
22. PROVISIONS
At 31 March 2018
Utilised in the year
Movement on discount
At 31 March 2019
Analysed as:
Current liabilities
Non-current liabilities
Group
Company
Lease
provisions
£’m
Lease
provisions
£’m
2.5
(0.3)
–
2.2
Group
Company
2019
£’m
0.2
2.0
2.2
2018
£’m
0.2
2.3
2.5
2019
£’m
0.1
0.6
0.7
0.7
–
–
0.7
2018
£’m
0.1
0.6
0.7
Lease provisions are held against dilapidation obligations on leased properties and onerous leases. These provisions are expected to be utilised over the next
ten years.
Cranswick plc Annual Report & Accounts 2019
119
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
23. FINANCIAL INSTRUMENTS
An explanation of the Company and Group’s financial instruments risk management strategy is set out on page 84 in the Directors’ Report.
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 2019 and their weighted average
interest rates is set out below.
Weighted
average
effective
interest rate
%
Total
£’m
At floating
interest rates
£’m
1 year or less
£’m
1-2 years
£’m
2-3 years
£’m
Fixed interest
1.3%
(15.0)
(15.0)
0.0%
20.5
5.5
20.5
5.5
–
–
–
–
–
–
–
–
–
Fixed interest
Total
£’m
At floating
interest rates
£’m
1 year or less
£’m
1-2 years
£’m
2-3 years
£’m
(1.0)
(1.0)
20.6
19.6
20.6
19.6
–
–
–
–
–
–
–
–
–
Total
£’m
At floating
interest rates
£’m
1 year or less
£’m
1-2 years
£’m
2-3 years
£’m
Fixed interest
(276.6)
(15.0)
(5.4)
(297.0)
(276.6)
(15.0)
(5.4)
(297.0)
0.0%
–
–
(297.0)
(297.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Weighted
average
effective
interest rate
%
1.0%
0.0%
Weighted
average
effective
interest rate
%
1.9%
1.3%
1.9%
The maturity profile of bank loans is set out in Note 21.
The interest rate profile of the interest-earning financial assets and interest-bearing liabilities of the Company as at 31 March 2019 and their weighted average
interest rates is set out below:
As at 31 March 2019
Group
Financial liabilities:
Revolving credit facility
Financial assets:
Cash at bank
As at 31 March 2018
Group
Financial liabilities:
Revolving credit facility
Financial assets:
Cash at bank
As at 31 March 2019
Company
Financial liabilities:
Amounts owed to Group undertakings
Revolving credit facility
Overdraft
Financial assets:
Cash at bank
120
Cranswick plc Annual Report & Accounts 2019
As at 31 March 2018
Company
Financial liabilities:
Amounts owed to Group undertakings
Revolving credit facility
Financial assets:
Cash at bank
Weighted
average
effective
interest rate
%
1.6%
1.0%
0.0%
Total
£’m
At floating
interest rates
£’m
1 year or less
£’m
1-2 years
£’m
2-3 years
£’m
Fixed interest
(261.1)
(1.0)
(262.1)
5.1
(257.0)
(261.1)
(1.0)
(262.1)
5.1
(257.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Currency profile
The Group’s financial assets at 31 March 2019 include Sterling denominated cash balances of £4.8 million (2018: £20.4 million), Euro £15.7 million
(2018: £0.5 million), and US Dollar £nil (2018: (£0.3 million)) 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.
Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.
The Group’s forward currency contracts are measured using Level 2 of the fair value hierarchy. The valuations are provided by the Group’s bankers from their
proprietary valuation models and are based on mid-market levels as at close of business on the Group’s year end reporting date.
Contingent consideration is measured using Level 3 of the fair value hierarchy and relates to future amounts payable on acquisitions. Amounts payable are
based on agreements within purchase contracts, management’s expectations of the future profitability of the acquired entity and the timings of payments.
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
Forward currency contracts (Note 19 and Note 21)
Contingent consideration (Note 15 and Note 21)
2019
2018
Book value
£’m
Fair value
£’m
Book value
£’m
Fair value
£’m
0.5
–
0.5
–
–
–
(0.8)
(0.8)
The book value of trade and other receivables, trade and other payables, cash balances, loans receivable, overdrafts, amounts outstanding under revolving
credit facility and finance leases and hire purchase contracts equates to fair value for the Group and Company.
Cranswick plc Annual Report & Accounts 2019
121
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
23. FINANCIAL INSTRUMENTS CONTINUED
Hedges
Financial instruments designated as cash flow hedges are held at fair value in the balance sheet. The Group hedges the following 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
IFRS 9, 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
Maturities
Exchange
rates
Fair value
£’m
28.1m 1 April 2019–16 December 2019
€1.10–€1.17
(0.5)
ii) Forward contracts to hedge expected future sales
The Group hedges a proportion of its near-term expected sales denominated in overseas currencies. Where these hedges meet the hedge criteria of IFRS 9,
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
US Dollars
Euros
Amount
Maturities
Exchange
rates
Fair value
£’m
17.8m
1 April 2019–3 December 2019
£0.75–£0.79
9.4m 10 April 2019–20 December 2019
£0.85–£0.90
0.1
–
These contracts were effective cash flow hedges under the criteria set out in IFRS 9 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.
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.
2019
Sterling
2018
Sterling
Increase/
decrease in
basis points
Effect on
profit before
tax
£’m
+100
–100
+100
–100
(0.1)
0.1
(0.2)
0.2
Liquidity risk
The tables below summarise the maturity profile of the Group’s financial liabilities at 31 March 2019 and 2018 based on contractual undiscounted payments:
At 31 March 2019
Group
Revolving credit facility
Trade and other payables
Derivative financial instruments
122
Cranswick plc Annual Report & Accounts 2019
Less than
1 year
£’m
1 to 2 years
£’m
2 to 5 years
£’m
–
149.6
0.6
150.2
–
–
–
–
15.0
–
–
15.0
Total
£’m
15.0
149.6
0.6
165.2
At 31 March 2018
Group
Revolving credit facility
Contingent consideration (Note 21)
Trade and other payables
Derivative financial instruments
At 31 March 2019
Company
Revolving credit facility
Trade and other payables
At 31 March 2018
Company
Revolving credit facility
Trade and other payables
Less than
1 year
£’m
1 to 2 years
£’m
2 to 5 years
£’m
–
0.8
147.6
0.1
148.5
Less than
1 year
£’m
–
68.1
68.1
Less than
1 year
£’m
–
61.0
61.0
–
–
–
–
–
1.0
–
–
–
1.0
1 to 2 years
£’m
2 to 5 years
£’m
–
–
–
15.0
–
15.0
1 to 2 years
£’m
2 to 5 years
£’m
–
–
–
1.0
–
1.0
2019
£’m
5.1
0.1
–
5.2
Total
£’m
1.0
0.8
147.6
0.1
149.5
Total
£’m
15.0
68.1
83.1
Total
£’m
1.0
61.0
62.0
2018
£’m
5.0
0.1
–
5.1
The impact of liquidity risk on the Group is discussed in detail in the Directors’ Report on page 84.
24. CALLED-UP SHARE CAPITAL
Allotted, called-up and fully paid – Ordinary shares of 10 pence each:
Group and Company
At 1 April
On exercise of share options
Scrip dividends
At 31 March
2019
Number
2018
Number
51,078,201
50,465,544
417,117
184,607
432,405
180,252
51,679,925
51,078,201
On 9 September 2018, 163,250 ordinary shares were issued at 3,276.8 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash
payment for the 2018 final dividend.
On 25 January 2019, 21,357 ordinary shares were issued at 2,787.2 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash
payment for the 2019 interim dividend.
During the course of the year, 417,117 ordinary shares were issued to employees exercising SAYE and LTIP options at prices between nil and 3,350.0 pence.
Cranswick plc Annual Report & Accounts 2019
123
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
24. CALLED-UP SHARE CAPITAL CONTINUED
On 1 September 2017, 134,742 ordinary shares were issued at 2,787.4 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash
payment for the 2017 final dividend.
On 26 January 2018, 45,510 ordinary shares were issued at 3,100.2 pence as a result of Shareholders exercising the scrip dividend option in lieu of the cash
payment for the 2018 interim dividend.
During the course of the prior year, 432,405 ordinary shares were issued to employees exercising SAYE and LTIP options at prices between nil and
1,788.0 pence.
Ordinary share capital of £42,768 is reserved for allotment under the Savings Related Share Options 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
LTIP
Number Exercise price
Exercise period
2,424
2,421
66,292
51,474
150,865
174,153
259,572
578,800
579p
916p
1,187p
1,456p
1,788p
2,565p
2,239p
Nil
March 2015–October 2019
March 2017–October 2019
March 2018–October 2020
March 2019–October 2021
March 2020–October 2022
March 2021–October 2023
March 2022–October 2024
August 2019–August 2028
25. SHARE-BASED PAYMENTS
The Group operates two share option schemes, a Revenue approved scheme (SAYE) and a Long Term Incentive Plan (LTIP), both of which are equity-settled.
The total expense charged to the income statement during the year in relation to share-based payments was £4.8 million (2018: £4.3 million).
Long Term Incentive Plan (LTIP)
During the course of the year 211,800 options at nil cost were granted to Directors and Senior Executives, the share price at that time was 3,308.0 pence.
Details of the performance criteria relating to the LTIP scheme can be found in the Remuneration Committee report on page 72. The maximum term of LTIP
options is ten 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
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
2019
Number
685,144
211,800
(27,996)
(290,148)
578,800
5,450
2019
Number
368,825
111,000
(3,767)
(154,700)
321,358
–
2019
WAEP (£)
–
–
–
–
–
–
2019
WAEP (£)
–
–
–
–
–
–
2018
Number
790,656
176,260
–
(281,772)
685,144
8,000
2018
Number
421,113
94,175
–
(146,463)
368,825
–
2018
WAEP (£)
–
–
–
–
–
–
2018
WAEP (£)
–
–
–
–
–
–
i) The weighted average fair value of options granted during the year was £31.51 (2018: £27.96). The share options granted during the year were at £nil per share. The share price at the date of
grant was £33.08 (2018: £29.60).
ii) The weighted average share price at the date of exercise for the options exercised was £32.32 (2018: £27.84).
iii) For the share options outstanding as at 31 March 2019, the weighted average remaining contractual life is 8.22 years (2018: 8.05 years).
The exercise price for all options outstanding at the end of the year was £nil.
124
Cranswick plc Annual Report & Accounts 2019
All Employee Share Option Scheme (SAYE)
All employees are entitled to a grant of options once they have been in service for one year 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 three, five or seven 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 (i)
Lapsed during the year
Exercised during the year (ii)
Outstanding as at 31 March (iii)
Exercisable at 31 March
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
2019
Number
645,815
266,289
(77,934)
(126,969)
707,201
2019
WAEP (£)
18.67
22.39
23.08
13.34
20.55
2018
Number
606,012
229,595
(39,159)
(150,633)
645,815
33,319
13.57
26,989
2019
Number
2019
WAEP (£)
22,078
7,301
(4,666)
(5,493)
19,220
16.18
22.39
25.35
13.78
19.15
2018
Number
26,735
4,717
(263)
(9,111)
22,078
1,615
9.48
2,196
2018
WAEP (£)
13.97
25.65
16.73
10.90
18.67
11.30
2018
WAEP (£)
12.09
25.65
6.15
10.00
16.18
11.87
i) The share options granted during the year were at £22.39 (2018: £25.65), representing a 20 per cent discount on the price at the relevant date. The share price at the date of grant was £27.96
(2018: £33.37).
ii) The weighted average share price at the date of exercise for the options exercised was £26.95 (2018: £28.08).
iii) For the share options outstanding as at 31 March 2019, the weighted average remaining contractual life is 2.65 years (2018: 2.72 years).
The weighted average fair value of options granted during the year was £4.69 (2018: £9.94). The range of exercise prices for options outstanding at the end of
the year was £5.79-£25.65 (2018: £5.79-£25.65).
In the prior year the fair value of the SAYE and LTIP equity-settled options granted was 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 same methodology was used to estimate the fair value
of the SAYE options granted in the current year. The current year LTIP equity settled options have been calculated using a Stochastic option pricing model.
The following table lists the inputs to the model used for the years ended 31 March 2019 and 31 March 2018:
Group and Company
Dividend yield
Expected share price volatility
Risk-free interest rate
Expected life of option
Exercise prices
2019
LTIP
1.62%
2019
SAYE
2.16%
18.07%-21.45% 21.84%-23.24%
2018
LTIP
1.68%
31.0%
2018
SAYE
1.68%
31.0%
0.84%-1.11%
0.83%-0.97%
0.49% 0.49%-0.73%
3 years
3.25, 5.25 years
3 years
3, 5 years
£nil
£22.39
£nil
£25.65
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.
Cranswick plc Annual Report & Accounts 2019
125
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
26. 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 31 December 2015. 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.
a) Change in benefit obligation
Benefit obligation at the beginning of the year
Interest cost
Remeasurement (gains)/losses:
Actuarial losses/(gains) arising from changes in financial assumptions
Movement on additional liability recognised due to minimum funding requirement
Past service cost
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
Interest income
Return 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
Past service cost
Total pension cost recognised in the income statement
2019
£’m
37.5
0.8
1.3
0.2
0.4
(0.5)
39.7
2019
£’m
29.4
0.7
1.8
1.8
(0.5)
33.2
2019
£’m
(39.7)
33.2
(6.5)
2019
£’m
0.8
(0.7)
0.4
0.5
2018
£’m
36.1
0.8
(0.9)
1.9
–
(0.4)
37.5
2018
£’m
26.6
0.7
0.7
1.8
(0.4)
29.4
2018
£’m
(37.5)
29.4
(8.1)
2018
£’m
0.8
(0.7)
–
0.1
Actual return on assets
Actual return on plan assets
Amounts recognised in the Group statement of comprehensive income
Actuarial gains/(losses) immediately recognised
Cumulative amount of actuarial losses recognised
2.5
1.4
0.3
(12.6)
(0.2)
(12.9)
126
Cranswick plc Annual Report & Accounts 2019
The weighted average actuarial assumptions used in the valuation of the scheme were as follows:
e) Principal actuarial assumptions
Discount rate
Rate of price inflation
Revaluation of deferred pensions:
Benefits accrued prior to 1 January 1998
Benefits accrued after 1 January 1998
Rate of compensation increase:
Benefits accrued prior to 1 January 1997
Benefits accrued after 1 January 1997
2019
2.40%
3.20%
5.00%
3.20%
3.00%
3.20%
2018
2.50%
3.10%
5.00%
3.10%
3.00%
3.10%
Future expected lifetime of pensioner at age 65:
2019
2018
Current pensioners
Male
Female
Future pensioners
Male
Female
22.7
24.8
24.9
27.1
22.6
24.7
24.8
27.0
The mortality rates used have been taken from Base tables S2PA (CMI 2015 improvements 1.5 per cent long-term rate of improvement) (2018: S2PA (CMI 2015
improvements 1.5 per cent long-term rate of improvement)).
At 31 March 2019, the average duration of the scheme liabilities was 23 years (2018: 24 years). For deferred pensions the average duration was 26 years (2018: 27 years)
and for pensions in payment the average duration was 12 years (2018: 13 years).
The Group’s deficit as measured under IFRIC 14 is £6.5 million (2018: £8.1 million) as a result of the Group’s commitment to future contributions to the scheme.
This compares to an underlying IAS 19 deficit of £1.1 million (2018: £2.9 million).
A 0.1 per cent increase/decrease in the discount rate would give rise to a £11,000 decrease/£12,000 increase (2018: £19,000 decrease/£18,000 increase) in the
deficit at 31 March 2019.
A 0.1 per cent increase/decrease in the inflation assumption would give rise to a £nil increase/£nil decrease (2018: £nil increase/£nil decrease) in the deficit at
31 March 2019.
A one year increase/decrease in the life expectancy assumption would give rise to a £nil increase/£nil decrease (2018: £nil increase/£nil decrease) in the deficit
at 31 March 2019.
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
Return seeking:
Diversified growth funds
Debt instruments:
Corporate bonds
Other:
Cash
Derivatives
LDI strategies
Total
2019
Fair value of
plan assets
£’m
2018
Fair value of
plan assets
£’m
7.4
5.3
0.3
–
20.2
33.2
8.7
5.1
1.0
2.7
11.9
29.4
Cranswick plc Annual Report & Accounts 2019
127
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
26. PENSION SCHEMES CONTINUED
All of the plan assets have a quoted price in an active market except for cash.
The underlying liabilities of the scheme have increased by £0.4m during the year due to an adjustment to equalise Guaranteed Minimum Pensions (GMP)
between males and females. The £0.4m charge has been recognised in the income statement. The adjustment has no effect on the reported pension liability
as the liability reported under IFRIC 14 is significantly higher than the underlying IAS 19 deficit.
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.
The Group expects to contribute approximately £1.8 million to the scheme during the year ending 31 March 2019 in respect of regular contributions, and
intends to contribute the same amount annually through to September 2022.
The risks to which the plan exposes the entity have been minimised by investing the assets of the scheme across a broad range of return seeking funds and
debt instruments.
Defined contribution pension schemes
The Group also operates 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 £0.6 million (2018: £0.3 million). Contributions during the year totalled £4.9 million (2018: £2.9 million).
27. ADDITIONAL CASH FLOW INFORMATION
Analysis of changes in net (debt)/funds:
Group
Cash and cash equivalents
Revolving credit
Net funds
At
31 March
2018
£’m
20.6
–
20.6
Cash
flow
£’m
(0.1)
(13.9)
(14.0)
Other
non-cash
changes
£’m
At
31 March
2019
£’m
–
(0.3)
(0.3)
20.5
(14.2)
6.3
Net (debt)/funds is defined as cash and cash equivalents and loans receivable less interest-bearing liabilities net of unamortised issue costs.
At
31 March
2017
£’m
4.1
(15.0)
(0.1)
(11.0)
At
31 March
2018
£’m
5.1
–
5.1
–
5.1
At
31 March
2017
£’m
2.0
(15.0)
(13.0)
Cash
flow
£’m
16.5
15.2
0.1
31.8
Cash
flow
£’m
(5.1)
(5.4)
(10.5)
(13.9)
(24.4)
Cash
flow
£’m
3.1
15.2
18.3
Other
non-cash
changes
£’m
–
(0.2)
–
(0.2)
At
31 March
2018
£’m
20.6
–
–
20.6
Other
non-cash
changes
£’m
At
31 March
2019
£’m
–
–
–
(0.3)
(0.3)
–
(5.4)
(5.4)
(14.2)
(19.6)
Other
non-cash
changes
£’m
At
31 March
2018
£’m
–
(0.2)
(0.2)
5.1
–
5.1
Group
Cash and cash equivalents
Revolving credit
Finance lease and hire purchase contracts
Net (debt)/funds
Analysis of changes in net (debt)/funds:
Company
Cash and cash equivalents
Overdraft
Revolving credit
Net funds/(debt)
Company
Cash and cash equivalents
Revolving credit
Net (debt)/funds
128
Cranswick plc Annual Report & Accounts 2019
28. CONTINGENT LIABILITIES
The Company, together with its subsidiary undertakings, has entered into a cross guarantee with Lloyds Banking Group plc, The Royal Bank of Scotland plc,
HSBC UK plc and Santander UK plc in respect of the Group’s facility with those banks. Drawn down amounts totalled £15.0 million as at 31 March 2019
(2018: £1.0 million).
During the year the Group entered into a Letter of Credit agreement with HSBC UK plc in favour of Marel Stork Poultry Processing B.V. (‘Marel’) for supply
of equipment in relation to the new poultry processing facility in Eye, Suffolk. The €20.2 million facility expires on 5 April 2020, with a balance outstanding to
Marel under the letter of credit at 31 March 2019 of €12.3 million.
For the Company, the amounts drawn down by other Group companies which were guaranteed by the Company at the year end totalled £nil (2018: £nil).
29. COMMITMENTS
(a) The Directors have contracted for future capital expenditure for property, plant and equipment totalling £47.5 million (2018: £12.1 million).
(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
Company
Not later than one year
After one year but not more than five years
After five years
2019
£’m
7.8
22.1
15.9
45.8
2019
£’m
0.1
0.4
0.4
0.9
2018
£’m
6.1
13.7
7.0
26.8
2018
£’m
–
–
–
–
30. RELATED PARTY TRANSACTIONS
During the year the Group and Company entered into transactions, in the ordinary course of business, with related parties, including transactions between the
Company and its subsidiary undertakings. In the Group accounts, transactions between the Company and its subsidiaries are eliminated on consolidation but
these transactions are reported for the Company below:
Company
Related party – Subsidiaries
2019
2018
Services
rendered to
related party
£’m
Interest paid
to related
party
£’m
Dividends
received from
related party
£’m
22.4
25.7
4.7
3.9
22.1
18.2
Amounts owed by or to subsidiary undertakings are disclosed in Notes 18 and 20. Any such amounts are unsecured and repayable on demand.
Remuneration of key management personnel:
Group
Short-term employee benefits
Post-employment benefits
Share-based payments
2019
£’m
4.5
–
1.9
6.4
2018
£’m
6.2
–
1.8
8.0
Cranswick plc Annual Report & Accounts 2019
129
Financial Statements NOTES TO THE ACCOUNTS CONTINUED
31. ALTERNATIVE PERFORMANCE MEASURES
The Board monitors performance principally through adjusted and like-for-like performance measures. Adjusted profit and earnings per share measures
exclude certain non-cash items including the net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, profit on sale
of a business and goodwill impairment charges. Free cash flow is defined as net cash from operating activities less net interest paid and like-for-like revenue
excludes the impact of the 53rd week in the prior year.
The Board believes that such alternative measures are useful as they exclude volatile (net IAS 41 valuation movement on biological assets), one-off
(impairment of goodwill and profit on sale of a business) and non-cash (amortisation of intangible assets) items which are normally disregarded by investors,
analysts and brokers in gaining a clearer understanding of the underlying performance of the Group when making investment and other decisions. Equally,
like-for-like revenue provides these same stakeholders with a clearer understanding of the organic sales growth of the business.
Like-for-like revenue
Revenue
Impact of 53rd week
Like-for-like revenue
Adjusted Group operating profit
Group operating profit
Net IAS 41 valuation movement
Amortisation of customer relationship intangible assets
Adjusted Group operating profit
Adjusted profit before tax
Profit before tax
Net IAS 41 valuation movement
Amortisation of customer relationship intangible assets
Adjusted profit before tax
Adjusted earnings per share
On profit for the year
Amortisation of customer relationship intangible assets
Tax on amortisation of customer relationship intangible assets
Net IAS 41 valuation movement
Tax on net IAS 41 valuation movement
On adjusted profit for the year
Free cash flow
Net cash from operating activities
Net interest paid
Free cash flow
130
Cranswick plc Annual Report & Accounts 2019
2019
£’m
1,437.1
–
1,437.1
2018
£’m
1,464.5
(24.5)
1,440.0
2019
£’m
86.8
2.8
2.7
92.3
2019
£’m
86.5
2.8
2.7
92.0
2018
£’m
88.4
2.2
2.2
92.8
2018
£’m
88.0
2.2
2.2
92.4
Change
-1.9%
-0.2%
Change
-1.8%
-0.5%
Change
-1.7%
-0.4%
2019
£’m
69.6
2.7
(0.5)
2.8
(0.5)
74.1
2019
Basic
pence
135.5
2019
Diluted
pence
134.9
5.4
(1.0)
5.4
(1.0)
5.4
(1.0)
5.4
(1.0)
2018
£’m
70.0
2.2
(0.4)
2.2
(0.4)
2018
Basic
pence
137.8
4.3
(0.7)
4.3
(0.7)
2018
Diluted
pence
137.1
4.3
(0.7)
4.3
(0.7)
144.3
143.7
73.6
145.0
144.3
2019
£’m
87.7
(0.4)
87.3
2018
£’m
112.1
(0.4)
111.7
Change
-21.8%
-21.8%
FIVE YEAR STATEMENT
Turnover^
Profit before tax^
Adjusted profit before tax*^
Earnings per share^
Adjusted earnings per share*^
Dividends per share
Capital expenditure
Net funds/(debt)
Net assets
2019
£’m
1,437.1
86.5
92.0
135.5p
144.3p
55.9p
83.5
6.3
534.9
2018
£’m
2017
£’m
2016
£’m
2015
£’m
1,464.5
1,245.1
1,016.3
1,003.3
88.0
92.4
137.8p
145.0p
53.7p
59.2
20.6
479.9
77.5
75.5
124.2p
120.9p
44.1p
48.6
(11.0)
421.4
62.1
64.4
98.9p
102.8p
37.5p
34.1
17.8
368.0
52.8
57.8
84.1p
92.1p
34.0p
23.3
(17.3)
332.4
* Adjusted profit before tax and earnings per share exclude the effects of net IAS 41 valuation movement and acquisition related amortisation in 2019, 2018 and 2017; the effects of net IAS 41
valuation movement, acquisition related amortisation and impairment of goodwill in 2016 and net IAS 41 valuation movement and acquisition related amortisation in 2015. These are the
measures used by the Board to assess the Group’s underlying performance.
^ 2017 and 2016 reflect continuing operations only.
Dividends per share relate to dividends declared in respect of that year.
Net funds/(debt) is defined as per Note 27 to the accounts.
FINANCIAL CALENDAR
Preliminary announcement of full year results
Publication of Annual Report
Annual General Meeting
Payment of final dividend
Announcement of interim results
Payment of interim dividend
May
June
July
September
November
January
Cranswick plc Annual Report & Accounts 2019
131
Shareholder Information SHAREHOLDER ANALYSIS
AT 8 MAY 2019
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 2018
Share price at 31 March 2019
High in the year
Low in the year
Number of
holdings
Number of
shares
1,277
696
1,973
1,187
424
109
132
44
77
4,348,595
47,345,806
51,694,401
413,760
952,390
769,302
3,373,967
3,339,619
42,845,363
1,973
51,694,401
2,844p
2,722p
3,460p
2,472p
SHARE PRICE MOVEMENT
Cranswick’s share price movement over the six year period to May 2019 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 Cranswick’s share price at 7 May 2013 (1,076p), is shown below:
3,300
2,800
2,300
1,800
1,300
800
2013
2014
2015
2016
2017
2018
2019
Cranswick
FTSE All Share
FTSE 350 Food Producers
132
Cranswick plc Annual Report & Accounts 2019
ADVISERS
Secretary
Steven Glover LLB
Company number
1074383
Registered office
Stockbrokers
Registrars
Auditors
Tax advisers
Solicitors
Bankers
Crane Court
Hesslewood Country Office Park
Ferriby Road
Hessle
East Yorkshire
HU13 0PA
Investec Investment Banking – London
Shore Capital Stockbrokers – Liverpool
Link Asset Services
The Registry
34 Beckenham Road
Kent BR3 4TU
Tel: 0871 664 0300 (calls cost 10 pence 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: shareholderenquiries@linkgroup.co.uk
www.linkassetservices.com
PricewaterhouseCoopers LLP – Leeds
KPMG – Leeds
Rollits LLP – Hull
Lloyds Banking Group plc
The Royal Bank of Scotland plc
HSBC Bank plc
Santander UK plc
Merchant bankers
N M Rothschild & Sons – Leeds
Cranswick plc Annual Report & Accounts 2019
133
Shareholder Information NOTES
134
Cranswick plc Annual Report & Accounts 2019
Cranswick plc Annual Report & Accounts 2019
135
NOTES
136
Cranswick plc Annual Report & Accounts 2019
https://emperor.works/
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Cranswick plc
Crane Court, Hesslewood Country Office Park,
Ferriby Road, Hessle, East Yorkshire, HU13 0PA
01482 275 000
www.cranswick.plc.uk