Analysts Darren Shirley and Clive Black said: “After a challenging H1 [first half] 2011/12, we believe Cranswick has delivered a robust recovery in margin H1 on H1, albeit at a lower level than the H2 2011/12 performance, which benefited from very strong returns on fifth quarter sales.”
The firm reported results for the half year to the end of September in line with management's expectations. Underlying turnover in the six months was 5% ahead of the same period last year, driven the low relative price of pork to other proteins and the meat’s versatility.
Total sales for the period were 6% higher after taking into account the contribution from Kingston Foods, which was acquired at the end of June 2012. A statement from Cranswick pointed out: “Kingston Foods has, as was anticipated, made a very encouraging contribution to the group since acquisition and has further extended Cranswick's customer portfolio and strengthened the Group's cooked meat production capability.”
‘Availability not just price’
Nicola Mallard, analyst with Investec Securities, noted: “Pig prices are now rising at a pace and the group has initiated discussions with customers to recover the inflation it expects to incur in 2H. Supply constraints lie behind these increases which could help to focus the retailers’ minds around availability, and not just price.”
Mallard added that the uncertainty was “weighing on the stock price”, leaving it trading at a discount to its usual rating.
“The company will report interim results on November 26, by which stage it should have some greater clarity on the pricing situation. This is likely to prove a challenging few months, but we believe Cranswick remained well-placed to continue its progress once through this period,” concluded Mallard.
Meanwhile, in the first half Cranswick acquired land in Yorkshire and had started building a state-of-the-art premium pastry facility. “Once completed, this will enable Cranswick to significantly upscale current operations,” said the firm.
The factory is expected to be fully commissioned by spring 2013.
Operational efficiencies
Cranswick has also completed a major capital investment programme at its primary processing facility at Preston, in Hull. Investment in rapid chilling and reorganising butchery operations has led to further operational efficiencies, said the firm.
Work has begun too on extending the Sutton Fields cooked meat facility in Hull. “The extension will provide increased capacity to meet anticipated sales growth and will also improve production flows through the factory which in turn will drive efficiency benefits,” it added.
The company said: “UK pig prices, which are at a three-year high, and those throughout the rest of the EU have been rising in recent weeks and further increases are anticipated. This is an issue affecting the whole supply chain and the scale of the inflation and the need to ensure continuity of supply will necessitate discussions on price increases with the group's customers; these are underway.”
Rising pig prices reflected soaring animal feed prices and the cost to European producers of implementing new EU welfare regulations.