Cranswick has now released their final results for the year ended 2018.
Revenues increased when compared to last year with a £180.7M growth in UK revenue, a £16.9M increase in European revenue and a £3.1M growth in ROW revenue. Depreciation was up £8M, cost of inventories increased by £138M, other cost of sales increased by £45.5M and there was a £6.3M detrimental movement in the value of the biological assets which meant that the gross profit was £21.6M higher. Selling and distribution costs increased by £4.8M, but R&D costs declined by £1.6M before an £8.6M increase in other admin expenses saw operating profit £10.3M higher. Interest costs were down £238K but tax charges were up £2.9M and there was no contribution from the discontinued operation which meant that the profit for the year was £70M, a growth of £2.8M year on year.
When compared to the end point of last year, total assets increased by £40.4M driven by a £17M growth in assets under construction, a £16.5M increase in cash, an £11.8M growth in plant & equipment, and an £8.1M increase in trade receivables, partially offset by a £7.2M decline in land & buildings, a £2.9M decrease in inventories, a £2.3M fall in customer relationships and a £1.8M fall in biological assets. Total liabilities declined during the year as a £6.8M increase in trade payables, a £2.9M growth in current tax liabilities and a £2.7M increase in tax and social security payables was more than offset by a £15M reduction in the revolving credit facility, a £7M decline in accruals and a £5.4M decrease in deferred consideration. The end result was a net tangible asset level of £323.7M, a decline of £60.8M year on year.
Before movements in working capital cash profits increased by £25.1M to £133M. There was a cash outflow from working capital but this was less than last year and after tax payments increased by £788K the net cash from operations was £111.7M, a growth of £39.3M year on year. The group spent £58.7M on capex and £5.3M on acquisitions to give a free cash flow of £48.4M. Of this, £15M was used to pay back loans and £18.2M on dividends which left a cash flow of £16.5M and a cash level of £20.6M year on year.
Stronger pricing in the first half reflected partial recovery of higher input costs compared to those in the same period of last year. Input costs eased in the second half which was reflected in a downward trend in selling prices.
Like for like revenues in fresh pork increased by 10%. Performance was comfortably ahead of the overall market which saw a modest decline. During the year the group launched new added value summer ranges and developed new processing techniques which have delivered improved texture and succulence. The Ballymena butchery hall extension was completed resulting in capacity being increased from 8,000 to 12,000 pigs per week. A new Deboflex shoulder deboning line was commissioned at the Hull facility during the year and this is performing well. Further investment is being made in the Hull facility to lift pig chill capacity and to upgrade the rapid chill system to improve yields. The lairage is also being expended and improved with both projects due for completion in Q2 2019.
Total export revenue grew by 30% with a modest decline in sales to Far Eastern markets of 6% offset by a doubling in sales to other export markets, most notably the US and Europe. Growth in these two markets reflected stronger volumes and higher prices in Europe resulting from favourable exchange rates. Far Eastern volumes improved quarter by quarter and returned to growth in the second half of the year. Excluding acquisitions, like for like export sales were up 21%. The Ballymena facility is now approve to export directly to China and the first shipments were made in Q4. The group are growing their e-commerce business in China and exports to Japan are growing strongly with a focus on supplying premium outdoor bread pork to the food service sector.
The group are investing £4M in their Wayland farming operation to increase breeding and finishing capacity of premium pigs in response to customer demand. Productivity improvements in the outdoor herd lifted output by more than 10% compared to last year. The UK pig price rose steadily in the early part of the year but fell back through the second half.
Total convenience revenue increased by 12% with like for like revenues up 10%. This positive performance reflected the full contribution of new business wins in the previous year and growth was comfortably ahead of the market which was flat. Cooked meat sales were strong reflecting the benefit of the new business wins referred to above. New product launches in the fast growing ready to cook and slow cook ranges also helped underpin the strong growth in this category. A further £11M of capex was made across the three cooked meats facilities during the year. The group are growing sales through business to business and manufacturing sales too, particularly with ready meals, pizzas and sandwich manufacturers.
Sales of continental products were 4% higher with higher prices resulting in forex movements offsetting lower volumes following the loss of pizza toppings business with one retail customer. New business winds with other retailers, including new platter range launches and pre-pack corned beef, boosted sales. After a challenging first half the category returned to volume growth in H2. The business continues to explore opportunities in the food service sector with sales through this channel growing strongly underpinned by new business with one of the group’s leading quick service restaurant customers. The Woodall’s range of British charcuterie products continued to perform well, with a new listing now secured with a key retail customer.
The new £28M facility based in Bury is now being commissioned. The site will consolidate production from the two existing facilities, lift capacity by around 70%, add new capability and drive efficiency improvements on existing product ranges. Transfer of all production from the current facilities is expected to be completed by the end of Q1 2019.
Total revenue in gourmet products increased by 22% with like for like revenue up 20%. All categories delivered strong double-digit volume growth reflecting strong underlying market group of the premium tier of each category and market share gains due to business wins and new product launches.
Strong sausage sales growth reflected the contribution from the new Butcher’s Choice business launched with one of their largest retail customers mid-way through the previous year together with new business wins launched in summer 2017. The peak Christmas trading period was very busy for the Hull and Norfolk facilities with two additional production lines installed at the Hull fresh port facility to accommodate the seasonal spike in demand.
Good bacon sales growth reflected the significant business win in Q4 last year for gammon and wet cure bacon with one of the site’s principal retail customers. Consumers continue to switch from standard tier products into the premium ranges, encouraged by new product launches, multi-buy mechanics and low pricing.
Pastry sales grew well, reflecting the contribution from new business with a good to go customer launched at the start of the year. The business also has developed a range of frozen products for one of the group’s retail customers. These new business wins augmented continued growth with the site’s anchor retail customer. New product listings over the Christmas period also contributed to a strong full year performance from the pastry business.
Poultry sales increased by 22% with like for like revenue up 17%. The Crown business continued to make progress. The management team has been strengthened and investment has been made at the Weybread primary processing facility in Norfolk to drive efficiencies and lift throughput. More birds are being portioned due to new contracts secured and closer ties continue to be developed with the Hull cooked poultry facility. Shortly after the year-end Crown secured a contract to supply fresh whole birds to one of the group’s strategic retail customers. Although the volume of business is initially modest, it represents an important milestone in the business’ evolution and complements the chicken which Crown supplies to their cooked poultry business to service the same customer.
Plans for the new primary chicken processing facility in Suffolk are being developed. Planning approval for the site was confirmed shortly after the year-end and work at the site is due to start shortly. The facility is scheduled for completion in late 2019 and will double the existing capacity with further room for expansion.
Sales of premium cooked poultry grew strongly in the year, reflecting underlying market growth and the launch of contracts with two of the group’s principal retail customers. Further lines have been added since these contracts were launched and there is a strong new product development pipeline to drive further growth both with retail customers and in the business’ core food service and quick service restaurant categories.
The capex of £59M was the highest ever. The expenditure on the new site for Continental Products was the main item and it is now complete and being commissioned as planned. The major investment going forward is in the poultry business. This will comprise a new processing facility, for which planning consent has recently been received, and expansion of the associated activities.
Going forward, trading in the current year will be weighted more towards the second half and has started in line with management expectations.
At the current share price the shares are trading on a PE ratio of 20.8 which falls to 19 on the next year’s consensus forecast. At the year-end the group had a net cash position of £20.6M compared to a net debt position of £11M at the end of last year. After the full year dividend was increased by nearly 22% the shares are yielding 1.9% which increases to 2% on next year’s forecast.
On the 24th May the group announced that director James Brisby sold 25,472 shares at a value of £831K for personal financial planning.
On the 8th June it was announced that director Adam Crouch sold 13,500 shares at a value of £461K. Apparently also for “personal financial planning”.
On the 30th July the group released a trading update covering Q1 2019 which was in line with management expectations. Revenue was 3.2% ahead of the same period last year with positive contributions from each of the group’s product categories. Total export revenues were also modestly ahead. The UK pig price increased slightly during the period in line with the normal seasonal cycle, albeit the average price was lower than during the same period last year with the fall reflected in lower selling prices.
During the period the group commissioned its new continental products factory in Bury which provides substantial additional capacity to support future growth. Work has recently started on the new poultry primary processing facility in Suffolk.
Notwithstanding the substantial ongoing capex programme across the group, net funds stood at £8M at the end of the quarter. The outlook for the current year remains unchanged.
On the 21st August the group announced that director Martin Davey sold 15,000 shares at a value of £501K.
On the 19th September it was announced that COO Chris Aldersley sold 6,360 shares at a value of £211K.
Overall then this has been another strong year for the group. Profits have increased, net assets grew and the operating cash flow improved with loads of free cash being generated. All divisions saw an increase in revenues, although the continental products division only saw modest growth due to the loss of a pizza toppings contract. This is a great company, it never seems to over stretch itself and generates plenty of cash to plough back into growing the business. As usual quality comes at a premium with a forward PE of 19 and yield of 2%. Another issue is the recent selling by directors who all seem to be selling shares recently. This is never a good sign but I am continuing to hold for now I think.