REG - Cranswick PLC - Half-year Report <Origin Href="QuoteRef">CWK.L</Origin> - Part 2
29/11/2016 07:07
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501,046 1,016,314
Crown Chicken 39,613 - -
Underlying revenue 541,167 501,046 1,016,314
Adjusted profit before tax
Half year Year to 31 March
2016£'000 2015£'000 2016£'000
Profit before tax 40,436 29,218 62,070
Net IAS 41 valuation movement on biological assets (3,569) 637 951
Amortisation of customer relationship intangible assets 992 698 1,396
Adjusted profit before tax 37,859 30,553 64,417
A reconciliation of adjusted earnings per share is provided in note 7.
The following accounting standards and interpretations became effective, and
were adopted by the Group, for the current reporting period:
International Accounting Standards (IAS / IFRSs) Effective date
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016
The application of these standards has not had a material effect on the net
assets, results and disclosures of the Group.
The Group has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
3. Segmental analysis
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 using adjusted profit before taxation
measured on a basis consistent with the disclosure in the Group accounts.
The Group reported on just one reportable segment during the period and the
preceding financial year. The revenues of the Group are not significantly
impacted by seasonality.
Additions to property, plant and equipment during the period totalled £24.5
million (2015: £12.2 million). Future capital expenditure under contract at
30 September 2016 was £10.4 million (2015: £4.3 million).
4. Group operating profit
Group operating costs comprise: Half year Year to 31 March
2016£'000 2015£'000 2016£'000
Cost of sales excluding net IAS 41 valuation movement on biological assets 503,061 434,374 879,696
Net IAS 41 valuation movement on biological assets* (3,569) 637 951
Cost of sales 499,492 435,011 880,647
Gross profit 81,288 66,035 135,667
Selling and distribution costs 22,830 19,806 39,511
Administrative expenses excluding amortisation of customer relationship intangible assets 16,706 15,969 32,051
Amortisation of customer relationship intangible assets 992 698 1,396
Administrative expenses 17,698 16,667 33,447
Total operating costs 540,020 471,484 953,605
* 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 of adjusted operating profit.
5. Taxation
The tax charge for the period (including discontinued operations) was £9.2
million (2015: £5.8 million) and represents an effective rate of 20.4 per cent
(2015: 22.5 per cent). The charge for the period was higher than the standard
rate of corporation tax due to the impact of disallowable expenses and the
deferred tax charge in relation to the net IAS 41 valuation credit on
biological assets offset by the benefit of the profit on disposal of the
Sandwich Factory which is not expected to be chargeable to tax.
A reduction to the standard rate of corporation tax in the UK from 20 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.
6. Discontinued operations
On 23 July 2016, the Group disposed of its shareholding in The Sandwich
Factory Holdings Limited ('The Sandwich Factory'). The disposal allows the
Group to focus on its portfolio of high growth, premium product categories.
The results of discontinued operations, which have been separately disclosed
as a single line item at the foot of the Group income statement, were as
follows:
Result of discontinued operations Period ended 23 July 2016£'000 Half year to 30 September 2015£'000 Year to 31 March 2016£'000
Revenue 18,761 28,102 53,290
Expenses (18,425) (27,200) (52,157)
Impairment of goodwill - (4,635) (4,635)
Operating profit 336 (3,733) (3,502)
Finance income 35 43 103
Profit before tax 371 (3,690) (3,399)
Income tax expense on ordinary activities of the discontinued operation (74) (194) (254)
Profit on disposal of business 4,539 - -
Profit after tax 4,836 (3,884) (3,653)
Earnings per share from discontinued operations
Basic earnings per share 9.7 (7.8) (7.4)
Diluted earnings per share 9.6 (7.8) (7.3)
Statement of cash flows
The statement of cash flows includes the following amounts relating to discontinued operations:
Operating activities (1,208) 1,393 559
Investing activities (386) (426) (722)
Financing activities 35 43 103
Net cash from discontinued operations (1,559) 1,010 (60)
A profit on disposal of £4.5 million arose on the sale of The Sandwich
Factory, being the difference between net proceeds of £16.0 million, which
includes £1.0 million of contingent consideration, and the carrying value of
net assets plus attributable goodwill of £11.5 million.
7. Earnings per share
Basic earnings per share are based on profit for the period attributable to
Shareholders and on the weighted average number of shares in issue during the
period of 50,024,322 (31 March 2016: 49,600,431, 30 September 2015:
49,464,032). The calculation of diluted earnings per share is based on
50,287,229 shares (31 March 2016: 49,791,856, 30 September 2015: 49,666,112).
Adjusted earnings per share
The Directors consider it appropriate to present an adjusted measure of
earnings per share on the face of the income statement which excludes certain
non-cash items to provide a more meaningful measure of the underlying
performance of the business. These items include the amortisation of customer
relationship intangible assets, profit on disposal of business, impairment of
goodwill, and gains and losses from the IAS 41 valuation movement on
biological assets due to the volatility of pig prices.
Adjusted earnings per share are calculated using the weighted average number
of shares for both basic and diluted amounts as detailed above.
Adjusted profit for the period and adjusted profit for the period from
continuing operations are derived as follows:
Half year Year to 31 March
2016£'000 2015£'000 2016£'000
Profit for the period 36,118 19,776 45,395
Net IAS 41 valuation movement on biological assets (3,569) 637 951
Tax on net IAS 41 valuation movement on biological assets 607 (127) (171)
Amortisation of customer relationship intangible assets 992 698 1,396
Tax on amortisation of customer relationship intangible assets (169) (140) (251)
Impairment of goodwill - 4,635 4,635
Profit on disposal of business (4,539) - -
Adjusted profit for the period 29,440 25,479 51,955
Profit from discontinued operations (297) (751) (982)
Adjusted profit for the period from continuing operations 29,143 24,728 50,973
8. Dividends - half year ended 30 September
Half year Year to 31 March
2016£'000 2015£'000 2016£'000
Interim dividend for year ended 31 March 2016 of 11.6p per share - - 5,766
Final dividend for year ended 31 March 2016 of 25.9p (2015: 23.4p)per share 12,987 11,604 11,604
12,987 11,604 17,370
The interim dividend for the year ending 31 March 2017 of 13.1 pence per share
was approved by the Board on 29 November 2016 for payment to Shareholders on
27 January 2017 and therefore has not been included as a liability as at 30
September 2016.
9. Acquisitions
On 8 April 2016, the Group acquired 100 per cent of the issued share capital
of CCL Holdings Limited and its wholly owned subsidiary Crown Chicken Limited
('Crown') for net cash consideration of £39.3 million. The principal
activities of Crown Chicken Limited are the breeding, rearing and processing
of fresh chicken, as well as the milling of grain for the production of animal
feed. The acquisition provides the Group with a fully integrated supply chain
for its growing poultry business.
Fair values of the net assets at the date of acquisition were as follows:
Provisional fair value
£'000
Net assets acquired:
Customer relationships 2,938
Property, plant and equipment 17,501
Biological assets 4,805
Inventories 1,865
Trade and other receivables 9,900
Bank and cash balances 3,946
Trade and other payables (7,900)
Corporation tax liability (584)
Deferred tax liability (1,767)
Finance lease obligations (370)
30,334
Goodwill arising on acquisition 12,940
Total consideration 43,274
Satisfied by:
Cash 43,274
Net cash outflow arising on acquisition:
Cash consideration paid 43,274
Cash and cash equivalents acquired (3,946)
39,328
The fair values on acquisition are provisional due to the timing of the
transaction and will be finalised within twelve months of the acquisition
date.
All of the trade receivables acquired are expected to be collected in full.
Included in the £12,940,000 of goodwill recognised above 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 and the strategic benefits of vertical
integration including security of supply.
Transaction costs in relation to the acquisition of £0.4 million have been
expensed within administrative expenses.
From the date of acquisition to 30 September 2016, the external revenues of
Crown were £39.6 million and the business contributed a net profit after tax
of £2.7 million to the Group. There is no material difference between the
revenue and profit contributed to the Group had the acquisition taken place at
the beginning of the financial period and those presented.
10. Financial instruments
The Group's activities expose it to a number of financial risks which include
foreign currency risk, interest rate risk, credit risk and liquidity risk.
The Board considers the Group's financial instruments risk management strategy
to be the same as described within the Directors' Report on page 74 of the
Report & Accounts for the year ended 31 March 2016.
Fair value of financial instruments
All derivative financial instruments are shown in the balance sheet at fair
value as follows:
Half year Year to
2016 2015 31 March 2016
Bookvalue£'000 Fairvalue£'000 Bookvalue£'000 Fairvalue£'000 Bookvalue£'000 Fairvalue£'000
Forward currency contracts (531) (531) (169) (169) 61 61
The book value of trade and other receivables, trade and other payables, cash
balances, overdrafts, amounts outstanding under the revolving credit facility
and finance leases and hire purchase contracts equates to fair value for the
Group.
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. There were no such transfers in
the 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 valuations models and are based on mid-market levels as at
close of business on the Group's reporting date.
The Group's 3.3 per cent retained shareholding in the aquatics business
Tropical Marine Centre (2012) Limited would have been classified as Level 3;
however as the investment is an unquoted entity and cannot be reliably
measured the Directors consider that its value is immaterial and no fair value
has been applied.
11. Analysis of Group net funds/(debt)
At31 March 2016 Cash flow Non-cashmovements At 30 September2016
£'000 £'000 £'000 £'000
Cash and cash equivalents 17,817 (9,459) - 8,358
Revolving credit - (11,000) - (11,000)
Finance leases and hire purchase contracts - 145 (370) (225)
Net funds/(debt) 17,817 (20,314) (370) (2,867)
Net funds/debt is defined as cash and cash equivalents and loans receivable
less interest bearing liabilities net of unamortised issue costs.
12. Related party transactions
During the period the Group entered into transactions, in the ordinary course
of business, with its subsidiaries which are related parties. Balances and
transactions with subsidiaries are eliminated on consolidation.
13. Events after the balance sheet date
Acquisitions
On 16 November 2016, the Group acquired 100 per cent of the issued share
capital of Dunbia Ballymena for an initial cash consideration of £16.9 million
with further contingent consideration of up to £1.25 million. The principal
activity of Dunbia Ballymena is primary pork processing. The acquisition
enhances Cranswick's pig processing capability and establishes a significant
presence in Northern Ireland. The fair values on acquisition are still being
assessed due to the recentness of the transaction and will be finalised within
twelve months of the acquisition date. Transaction costs of £0.3 million will
be expensed within administrative expenses.
Bank facility
On 17 November 2016, the Group refinanced its banking facility, taking out a
new agreement with Lloyds Bank plc, National Westminster Bank plc, HSBC Bank
plc and Santander UK plc, with Lloyds Bank plc acting as agents.
The new facility which runs to November 2021 with the potential to extend for
a further 2 years, comprises a revolving credit facility of £160 million,
including a committed overdraft facility of £20 million.
INDEPENDENT REVIEW REPORT TO CRANSWICK PLC
Introduction
We have been engaged by the Company to review the condensed set of
consolidated financial statements in the half-yearly financial report for the
six months ended 30 September 2016 which comprises the Group income statement,
Group statement of comprehensive income, Group balance sheet, Group statement
of cash flows, Group statement of changes in equity and the related notes. We
have read the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the conclusions
we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of consolidated financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting", as
adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 September 2016 is not
prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Hull
29 November 2016
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