Cranswick expected to invest £25M in operations
In an analyst note released to coincide with the meat processor’s interim management statement, Darren Shirley, Shore Capital analyst said: “Investment in Cranswick’s manufacturing infrastructure continues apace, with the expansion of the Delico cooked meats facility close to completion and good progress being made in the £5M ongoing investment on a rapid chill system at the Norfolk processing plant.
“Both investments are expected to deliver both increased throughput and enhanced yields. We continue to forecast capital expenditure in the year of £25M, so maintaining a disciplined but sustained investment programme across all activities.”
Net debt increased for the company, from £17M at year end, on March 31 2014, to £33M, driven by its capital expenditure programme, according to Investec analyst Nicola Mallard.
However, Shirley pointed out that the debt was lower than the same period last year and he and Mallard predicted that Cranswick would have little to pay off by the end of its financial year.
‘Acquisition opportunities’
As a result, Mallard said in her note: “This leaves Cranswick well placed should acquisition opportunities arise.”
The firm reported that it had clawed back some operating profit margin in the three months to June 30 as input costs stabilised. It claimed the margin for the period had been similar to that of the whole of the previous financial year.
“Whilst the average deadweight average pig price in Q1 [the firm’s first financial quarter] was slightly higher year-on-year, Cranswick benefited from materially lower price volatility,” said Shirley.
Revenue for the business grew by 5% in the interim period over the same period last year, reflecting growth across most product categories, the company reported. Shirley believed volume and value sales had increased for the company in equal measure, outperforming the sluggish grocery market as a whole.
‘Key risks’
Overall, it had been “a solid start to the year” for Cranswick, said Mallard, although she cautioned: “Key risks include contract losses or margin pressure.”
Drilling down into the numbers, Shirley said there had been “notably strong delivery” in cooked meats and continental foods, offsetting weak trading in fresh pork relative to strong sales in last year’s interim period.
“Export sales grew strongly, outperforming the group despite the strengthening of sterling, whilst the fast ramp up of volumes and sales in the pastry facility has also continued,” said Shirley.
Cranswick revealed plans for the pastry facility in March 2013 as part of a venture with premium product manufacturer Yorkshire Baker to make branded, as well as Marks & Spencer own-label items.
