Reported revenues were 3% up at £393.9M for the first six months of this year ending September 30. Underlying revenues were up 6%, according to the Hull-based firm.
Damian McNeela, analyst with Panmure Gordon, said the results reflected “the lag in being able to recover higher pork costs from retailers”.
But he predicted that Cranswick was likely to see improved operating margins during the second half of the year benefiting from strong consumer demand, a stable pork price and recent price increases from retailers. “We reiterate our Buy recommendation and increase our target price from 750p to 820p,” concluded McNeela.
Cranswick’s chairman, Martin Davey, said: “… the company faced significant increases in input costs during the first three months of the period. This had a material impact on margins and, despite some recovery during the second quarter, was a key factor in a reduction in interim pre-tax profits to £18.5M from £23.8M a year ago.
Cautious optimism
“Trading from July to the end of the period was as anticipated and included the benefit of increased sales, both in the UK and overseas markets. The board views the remainder of the year with a degree of cautious optimism and this is reflected in the increase in the interim dividend.”
Pig meat products have gained an increased share of the UK retail protein market with the versatility and low relative price of pork compared with other proteins finding favour with consumer, he added.
Speaking last week, Mark Bottomly, Cranwick’s finance director, told FoodManufacture.co.uk that the firm had seen strong growth across most categories. That included the firm’s new premium sausage rolls, which were launched last year. They are being marketed as both own-label products and under the Yorkshire Baker brand and are now listed with two retailers.
“Sales are still relatively small, but we have high expectations for them,” said Bottomly.
Other notable features during the first half have been increases in sausage, ham and bacon volumes compared with a year ago. This follows a capital expenditure programme which has seen capacity rise by 50% at both the Lazenby’s sausage factory and the group’s air dried bacon facility at Sherburn-in-Elmet, near Leeds.
Exports have also aided the firm’s modest first half sales growth.
Significant growth
“Exports are still a very small percentage of overall sales, but they are becoming more important to us,” added Bottomly. “We’ve seen significant growth in the past year, mainly for fresh pork, where demand is from Far Eastern markets for ‘fifth quarter’ parts that aren’t eaten by UK consumers.”
Initial inroads were also made into the US market following the Hull fresh pork facility receiving United States Department of Agriculture accreditation in April 2011.
“It’s one of only two facilities in the UK to have this certification, which enables us to export to the US,” he said. “The US is a massive producer of pork, but sometimes demand for ribs outstrips supply.”
Cranwick’s pork products are sold mainly under retailers' own-labels including Sainsbury’s Taste The Difference, Tesco’s Finest and brands such as Jamie Oliver, The Black Farmer, Weightwatchers, Reggae Reggae and Red Lion Foods.
The firm produces fresh pork, sausages, bacon, pastries, cooked meat and sandwiches from 10 UK sites and has a head-count of 4,200.