Cranswick Regulatory News (CWK)

CRANSWICK plc: INTERIM RESULTS

A strong performance in a challenging environment

24 November 2020

Cranswick plc ("Cranswick" or "the Company" or "the Group"), a leading UK food producer, today announces its unaudited results for the 26 weeks ended 26 September 2020.

COVID-19 update:

· Colleague safety and wellbeing remains our priority

· Proactive, comprehensive and well embedded COVID-19 action plan centred on keeping our colleagues safe, feeding the nation and supporting our local communities:

o Enhanced safety measures swiftly introduced in March continue to be monitored and reviewed

o Working closely with our customers, the Government and regulatory bodies to ensure the continued supply of essential food products

o £500 bonus paid at the end of June to each of our site-based colleagues to recognise their essential key worker status and valued contribution throughout the pandemic

o Ongoing support to front line NHS staff, the elderly and vulnerable and charities in our local communities

· Robust financial position and strong trading has enabled us to continue operating well within banking covenants and without recourse to any Government assistance

Commercial and strategic progress:

· Strong revenue growth and earnings momentum

· Exceptionally robust demand across all categories reflecting the current shift towards greater in-home consumption

· Strong contribution from the new Eye poultry facility during the period. Additional investment underway at the site to add further capacity and enhanced capability

· £20m investment in new Hull cooked bacon facility now well advanced and progressing to plan

· Total capital expenditure of £35m spread across the Group's asset base during the period

· Brexit preparations well advanced across all areas of the business

· Continued positive progress towards meeting our 'Second Nature' sustainability targets

Financial highlights*:

· Statutory profit before tax 13.3% higher at £53.7m (2019: £47.4m)

· Statutory earnings per share up 11.9% to 81.9p (2019: 73.2p)

· Interim dividend increased by 12.0% to 18.7p (2019: 16.7p)

· Return on capital employed‡ 66bps higher at 16.6% (2019: 15.9%)

· Net debt (excluding IFRS 16 lease liabilities) of £54.6m (2019: £67.2m and March 2020: £81.0m)

· Robust balance sheet with £200m of bank facilities providing over £145m of headroom

Adam Couch, Cranswick's Chief Executive Officer commented:

"I am incredibly proud of our colleagues who have performed so brilliantly in responding to the extraordinary and unparalleled challenges we currently face. I would again like to thank them for their professionalism, commitment, dedication and passion.

"We have made a strong start to the year. Although we remain cautious about the longer-term economic impact of COVID-19 and the continued uncertainty surrounding the ongoing Brexit negotiations, we are well positioned to address these challenges.

"Our outlook for the current year is unchanged and we have a solid platform from which to continue Cranswick's successful long-term development."

Presentation

A conference call for analysts and institutional investors will take place at 10.00am today. Slides to accompany the call will be sent to registered participants ahead of the call. Slides will also be available on the company website. For the dial-in details please contact Powerscourt on the details below.

Enquiries:

Note to Editors:

Cranswick is a leading and innovative supplier of premium, fresh and added value food products. The business employs over 12,500 people and operates from sixteen well invested, highly efficient production facilities in the UK.

Cranswick was formed in the early 1970s by farmers in East Yorkshire to produce animal feed and has since evolved into a business which produces a range of high quality, predominantly fresh food, including fresh pork, poultry, convenience and gourmet products. Through the Group's four primary processing and twelve added value processing facilities the business develops innovative, great tasting food products to the highest standards of food safety and traceability. The Group supplies the major grocery multiples as well as the growing premium and discounter retail channels. Cranswick also has a strong presence in the 'food-to-go' sector and a rapidly growing export business. For more information go to: www.cranswick.plc.uk

Cranswick is committed to ensuring that its business activities are sustainable from farm-to-fork. Our ambitious sustainability strategy 'Second Nature' has been developed to deliver our vision to become the world's most sustainable meat business. Find out more at: www.thisissecondnature.co.uk

Summary

The first half of the year has been notable for the determination and commitment of all our colleagues at Cranswick to continue to produce and supply food in the extremely difficult COVID-19 environment. Working practices were adapted to provide high levels of protection and safety at all sites. Virus challenges within local communities necessitated the short-term closure of the Ballymena plant and more recently reduced capacity at Watton. At times of adversity, spirit and character come to the fore and we have seen this in abundance from all at Cranswick during 2020.

The first half of the year has been very positive seeing strong growth in Group revenue and the ongoing successful development of the poultry activities. The well-publicised surge in supermarket sales, triggered earlier in the year with the lockdown restrictions, led to an uplift in output which came alongside continued strong growth in export revenue.

Results

Total revenue in the six months was £931.6m, 21.0% higher than the £770.0m in the corresponding period last year. Katsouris Brothers was acquired at the end of July 2019 and its results were included for just two months in the comparative period. Adjusting for this, and other acquisitions made in the prior year, the increase in sales on a like-for-like basis was 17.3%.

Adjusted profit before tax for the period at £60.7m was 30.8% higher than the £46.4m in the corresponding period last year. Adjusted earnings per share on the same basis was up 29.6% at 92.8 pence compared to 71.6 pence in the equivalent period last year.

Cash flow and financial position

Net debt, excluding IFRS 16 lease liabilities, at the end of the period fell to £54.6m (2019: £67.2m) reflecting the strong operational performance of the Group. The Group's unsecured bank facilities provide comfortable headroom and further details are provided in the Finance Review.

Dividend

The interim dividend is being increased by 12.0% to 18.7 pence per share from 16.7 pence per share previously. The dividend will be paid on 29 January 2021 to Shareholders on the register at the close of business on 18 December 2020. Shareholders will again have the option to receive the dividend by way of a scrip issue.

Colleagues

We have referred earlier to the spirit and character of all our colleagues at Cranswick and their contribution to the continued development of the business during this year. In acknowledgement of this a special "thank you" bonus was paid to all site-based colleagues during the period. We thank all at Cranswick for their remarkable efforts.

Outlook

The Board is encouraged by the continued strategic and commercial progress of the business. Our outlook for the current year is unchanged and we have a solid platform from which to continue Cranswick's successful long-term development.

Operating review

Revenue and adjusted operating profit

* See Note 12

COVID-19 update

As new safer ways of working have evolved and as we have learnt more about the pandemic, we continue to make substantial investment in both physical protection measures at our sites and support services to ensure the physical and mental wellbeing of our colleagues. New systems and processes have been introduced to reduce physical contact between staff and additional cleaning and hygiene measures, above and beyond the stringent procedures already in place, continue across all sites. The total cost of implementing these measures together with the bonus paid to site-based colleagues during the period was £8.2m.

Despite this investment and continued focus on employee wellbeing, outbreaks continue to arise nationwide, including in the communities in which we operate. These localised outbreaks disrupted operations, for short periods, at a small number of our sites. We closed our Ballymena, Northern Ireland, primary processing facility for 14 days to protect our colleagues following an outbreak in the local community which affected a small number of our site team. We have also voluntarily, temporarily suspended the site's China export licence. More recently, after the period end, production at our Watton primary processing site was briefly disrupted following confirmation of a number of positive cases. This time however we were able to continue operating, albeit on a reduced basis. Again, we have voluntarily, temporarily suspended the site's China export licence. Given the diversity of sites across the Group, we have been able to manage this disruption to minimise the impact on our customers and to protect the welfare of our colleagues and our livestock. We are hopeful of recommencing exports to China from our Ballymena site shortly and from our Watton site in the near future.

Further details of the enhanced policies, procedures and other mitigation strategies which have been implemented to safeguard our colleagues and the business against the threat posed by COVID-19 are set out in note 13.

Brexit update

We continue to prepare for the end of the UK's period of transition from the EU on 31 December 2020. Our Brexit Taskforce, which comprises a number of key internal stakeholders, supported by a national third-party technical specialist, met regularly over the course of the last six months to review and address potential Brexit risks and issues.

The continued uncertainty over the nature of the UK's departure from the EU and whether a Free Trade Agreement (FTA) will or will not be achieved drives the risk of volatility within the Group's supply chains and uncertainty within the Group's customer base. However, the Group continues to maintain close relationships with both its customers and suppliers to proactively manage the risks in these areas and to develop mitigating action plans to reduce the impact of additional Brexit tariffs and costs.

We continue to review Brexit guidance published by the UK Government including the UK Global Tariff introduction and changes to customs processes such as the Northern Ireland Protocol which may affect the Group's Northern Ireland business and existing relationships with both Northern Ireland customers and suppliers. In readying the business for the proposed changes, we have recruited a specialist customs team, rolled out training, secured broker capacity and have implemented new systems and processes across the business. We have now moved to testing these systems with our customers and suppliers to ensure that disruption to our supply chains is minimised.

Furthermore, given the likely changes to the immigration rules, we continue to support colleagues in obtaining UK settled status, recruit more permanent team members and proactively communicate Brexit issues to all our employees. As political negotiations between the EU and UK Governments develop, we will continue to assess the outcomes and respond accordingly to the associated impacts from 1 January 2021.

Capital expenditure

We continue to invest at pace in our capital base to add capacity, capability and improve efficiency. In total, the Group spent £35m across its farming operations and production facilities during the period. Work is progressing well on a new £20m cooked bacon facility in Hull which will be completed in Q4. This facility will initially service a market leading Quick Service Restaurant (QSR) customer and capitalise on the benefits of the full vertical integration we continue to offer to our customers.

The balance of spend in the period was broadly spread across our asset base to add capacity, expand and enhance our agricultural supply chain, extend automation, upgrade colleague amenities and to invest in other projects aligned to our 'Second Nature' sustainability programme. In excess of £5m has been invested in sustainability initiatives during the period, including new Combined Heat and Power (CHP) systems and effluent plants as well as green power initiatives such as solar panels and efficiency driven refrigeration upgrades across several sites.

We also invested £4m in our agricultural supply chain with spend across both pork and poultry farming operations to increase herd sizes, drive efficiency and ensure animal welfare, thus further cementing our 'Tier One' status in the global 'Business Benchmark on Farm Animal Welfare' for the fourth consecutive year.

Shortly after the period end, we acquired a cold store facility in Goole, East Yorkshire for £3.1m. The facility provides us with much needed additional cold storage capacity and greater supply chain flexibility as we build Christmas inventory and prepare for the UK leaving the EU on 1 January 2021.

Sustainability

The Company's 'Second Nature' sustainability strategy reflects our ambition to be the world's most sustainable meat business and is focused on key areas including food waste, plastic usage, energy efficiency, water usage and reducing our carbon footprint.

As part of our journey to achieve Net Zero greenhouse gas emissions by 2040 we committed to set Science Based Targets and work in this area has progressed to plan in the first half of the financial year.

We have surpassed our Champions 12.3 target set in January 2018, achieving a 61% reduction in edible food waste by removing over 4,216 tonnes of food waste against our 2017 baseline position. Food waste now represents just 0.4% of the total food we produce. During the pandemic we have also donated enough food to create 207,000 meals for vulnerable people through our partnership with food charity FareShare and have continued to support several local community initiatives.

In addition, we continue to make good progress towards reducing our plastic usage and we have now removed 1,217 tonnes of plastic since 2017.

Category review

Fresh Pork

Fresh Pork includes the Group's three primary processing facilities and associated farming operations and represented 31% of Group revenue.

Like-for-like Fresh Pork revenue increased by 6.9% reflecting strong retail and export demand partially offset by lower wholesale volumes, as more product was diverted into the Group's internal supply chain, and the impact, towards the end of the period, of COVID-19 driven operational challenges at the Ballymena facility as referred to above.

With online participation increasing significantly during the period we worked closely with our customers to redevelop products to better fit this channel. Product innovation continued to centre on the scratch cooking and health and wellbeing trends. During the period we agreed a new long-term supply agreement across Fresh Pork, Bacon and Sausage with one of our principle retail customers.

Despite the disruption caused by COVID-19 we invested a further £7.3m across the three pork primary processing facilities and our farming infrastructure to increase automation, improve and expand farming capacity and enhance our sustainability credentials.

Far East export sales were 24.8% ahead of the same period last year with total exports accounting for 10.0% of Group revenue. Total export volumes were ahead of the prior period despite the voluntary, temporary suspension of the Ballymena export licence and despite opportunities to further increase sales of prime cuts and whole carcasses being limited due to the strong UK customer demand. The widespread outbreak of African Swine Fever (ASF) in China continues to drive export demand, strengthened by the detection of ASF in Germany's wild boar population earlier this year which resulted in the suspension of German pig meat exports into China. We remain acutely aware of the impact an outbreak of ASF would have on the UK pig industry and its ability to continue exporting. The UK industry remains on high alert with intensive biosecurity protocols in place.

The UK standard pig price (SPP) fell from 163.4p/kg at year end to 159.6p/kg by the end of September primarily reflecting weaker wholesale demand as a result of the COVID-19 restrictions on food service outlets. The price at the end of September was, though, still 4% higher than at the same time a year earlier. Across the last 12 months, UK pig prices have remained stable compared to those in Europe where the price fell by 20% to 129.5p/kg. Restrictions around COVID-19 lockdowns and the ASF related loss of Germany's export licence to China have weighed heavily on EU pricing. Chinese fifth-quarter pricing remained robust during the period and increased strongly in Q2 as China continues to struggle with domestic ASF related supply issues and following widespread flooding in the south of the country during the summer. According to the latest Rabobank outlook, China is moving to re-establish local supplies, however it is estimated that it may take until 2024/25 to restock to levels approaching those in place prior to the ASF outbreak.

Convenience

Convenience, which comprises Cooked Meats and Continental Products, represented 39% of Group revenue. Like-for-like Convenience revenue (excluding the benefit of the Katsouris acquisition) increased by 21.5% reflecting strong consumer demand with more meals eaten within the home.

The Cooked Meats category performed exceptionally well in the period with strong retail revenue growth delivered through changing consumer habits as a result of the pandemic as less food was consumed out of the home. The strong category performance also reflected a full contribution during the period from contract wins secured in FY20 with two of the Group's key retail customers. In addition to growth in core cooked meats volumes, a new range of slow cook products was launched during the period with a premium retailer which performed well ahead of plan as customers looked to replicate the restaurant eating experience at home.

Strong revenue growth in Continental Products was driven by increased consumer demand but also new and extended ranges reflecting extensive new product development with the site's retail customers. The Bury facility which was commissioned in the spring of 2018 continues to perform strongly and investment in the site continues to improve efficiencies and extend product range capability. Katsouris Brothers, which was acquired in July 2019 continues to perform well. Revenue growth was strongly ahead reflecting a full six-month contribution, compared to two months from the date of acquisition in the prior year. This performance was particularly pleasing given the reduction in food service trade. Retail sales were resilient, with the impact of lost sales due to deli counter closures during lockdown replaced by pre-packaged 'grab and go' products. Sales of continental cheeses also performed well with growth across multiple retailers.

Gourmet Products

Gourmet Products, which comprise Sausage, Bacon and Pastry, represented 15% of Group revenue. Gourmet Products revenue increased by 15.1% in the period with strong growth across all product categories.

Strong Sausage revenue growth was driven by buoyant retail demand across all tiers. A strong barbeque season, particularly in the early summer during lockdown, provided a further boost to revenue. Cooked breakfast occasions also doubled during the lockdown period with consumers having more time to enjoy meal occasions at home.

Growth in Bacon reflected increased demand from all retail customers. Food service revenue, which represents only a small proportion of total Bacon revenue was strongly impacted by COVID-19, but sales of Bacon into third party processors for Quick Service Restaurants (QSR) has increased in the period. From early FY22, a proportion of these sales will transfer to our new Hull cooked bacon facility to be supplied directly to an industry leading QSR customer.

Pastry revenue was again strong during the period, building on the momentum generated in FY20. Strong revenue growth with the Malton site's anchor customer reflected consumer demand as well as the legacy of a strong product innovation pipeline in the prior year. High retail demand was supported by growth in food service sales reflecting, in part, new contract wins with two national coffee shop chains. Whilst food service sales were clearly impacted by national restrictions during the period, the breadth of food service customers now being serviced augurs well for the future.

Poultry

Poultry, which includes Fresh and Cooked Poultry represented 15% of Group Revenue. Poultry revenue increased by 34.9% during the period reflecting a full contribution from the new Eye facility during the period, partially offset by lower food service sales in Cooked Poultry.

Following the successful commissioning and production ramp-up of the new Eye primary processing facility in Q4 last financial year, birds processed averaged the targeted 1.1m per week during the period. The business continues to perform ahead of expectations and the successful partnership with the site's anchor retail customer has resulted in plans being developed to increase processing capacity to 1.4m birds per week by the end of the financial year. This capacity increase will be delivered primarily through restructuring shift patterns and will require modest capital investment during H2 to upgrade the site's effluent plant. Capital expenditure at the site during the period included investment in a combined heat and power plant. We also invested £3.1m in the milling, hatching and rearing operations during the period and will continue to do so during H2 to secure the internal supply chain for the additional 0.3m birds per week required by Eye in FY22.

Sales of Cooked Poultry were well below the same period last year primarily reflecting the proportion of business centred on food service and food-to-go channels. After a challenging Q1, business performance steadily improved during Q2. New business secured with a national grocery retailer also helped to offset some of the food service related revenue decline. A strong innovation pipeline and ongoing promotional activity should generate further positive momentum in the second half of the year.

Finance review

Revenue

Reported revenue increased by 21.0% to £931.6m. Like-for-like revenue of £903.3m, after adjusting for acquisitions in the prior period, increased by 17.3%, with corresponding volumes 7.5% higher. All four product categories delivered strong revenue growth reflecting the annualisation of new contract wins in FY20, the new Eye poultry facility operating at full capacity throughout the period and further export revenue growth. The business also responded positively to COVID-19 related increased consumer demand throughout the period. Retail demand was exceptionally strong, particularly during the early stages of the first national lockdown, comfortably offsetting lower food service volumes across the Group's product ranges.

Total export revenue increased by 28.8% during the period driven by continued strong demand from Far Eastern markets and growth in trade with EU customers.

Adjusted Group operating profit

Adjusted Group operating profit increased by 30.8% to £62.0m (2019: £47.4m). Adjusted Group operating margin at 6.7% of sales was 50bps ahead of the prior year reflecting volume driven operational efficiencies and a step change improvement from poultry following the successful commissioning and ramp-up of the new Eye poultry facility.

Finance costs

Net financing costs at £1.3m were £0.4m higher than the first half of the prior year, with an increase in IFRS 16 lease interest and higher average borrowings offsetting a reduction in the base rate.

The Group's banking facility is unsecured, runs to November 2023 and comprises a revolving credit facility of £160m (falling to £120m from November 2022), including a committed overdraft of £20m. It also includes the option to access a further £40m on the same terms at any point during the term of the agreement. During the prior year the Group arranged an additional £40m of short-term, unsecured funding, split evenly across two of its incumbent banking partners and this has recently been extended until December 2021. This increases the Group's overall facilities to £200m, providing the business with over £145m of headroom at 26 September 2020.

Adjusted profit before tax

Adjusted profit before tax was 30.8% higher at £60.7m (2019: £46.4m).

Taxation

The tax charge as a percentage of profit before tax was 20.1% (2019: 20.1%). The standard rate of corporation tax was 19.0% (2019: 19.0%). The charge for the period was higher than the standard rate of corporation tax due to the impact of disallowed expenses, largely relating to non-qualifying depreciation, as in the same period last year.

Adjusted earnings per share

Adjusted earnings per share for the six months to 26 September 2020 rose by 29.6% to 92.8 pence compared to the 71.6 pence reported in the corresponding period in the prior year. The average number of shares in issue was 52,361,000 (2019: 51,810,000).

Statutory profit measures

Statutory profit before tax increased by 13.3% to £53.7m (2019: £47.4m), statutory Group operating profit was 13.6% higher at £55.0m (2019: £48.4m) and statutory earnings per share were up 11.9% at 81.9 pence (2019: 73.2 pence). Full reconciliations of these results to the adjusted measures can be found in Note 12.

Cash flow and net debt

Cash generated from operations in the period was £101.6m (2019: £56.8m), reflecting higher adjusted Group operating profit and a working capital inflow of £3.7m (2019: £11.9m outflow). Net debt excluding IFRS 16 lease liabilities decreased by £26.4m in the six-month period to £54.6m from £81.0m at 28 March 2020 reflecting the strong operational performance of the business. Full year capital expenditure guidance is increased to £90m. The Group's balance sheet continues to be conservatively managed.

Pensions

The Group operates defined contribution pension schemes whereby contributions are made to schemes administered by major insurance companies. Contributions to these schemes are determined as a percentage of employees' earnings. The Group also operates a defined benefit pension scheme which has been closed to further benefit accrual since 2004. The surplus on this scheme at 26 September 2020 was £4.0m compared to £7.2m at 28 March 2020. Cash contributions to the scheme during the period, as part of the programme to reduce the deficit, were £0.9m. The present value of funded obligations was £39.3m, and the fair value of plan assets was £43.3m. The reduction in the surplus during the period reflects the update to actuarial assumptions in relation to inflation and the liability discount rate.

The valuation of the defined benefit pension liability is dependent upon market conditions and actuarial methods and assumptions (including mortality assumptions). Such changes in actuarial assumptions and the performance of the funds may result in changes to amounts charged or released through the income statement and the Group may be required to pay increased pension contributions in the future. The Board regularly reviews its pension strategy with reference to the value of assets and liabilities under the pension scheme as well as the potential impact of changes in actuarial assumptions.

COVID-19

Towards the end of the previous financial year, the Group incurred costs relating to inventory write-downs and an increase in the provision for bad debts relating, respectively, to products destined for and receivables due from certain customers. These provisions have been reassessed at the period end with the provision for bad debts remaining at a similar level and the inventory provision reducing to the extent that inventory has been sold or the provision utilised.

Principal risks and uncertainties

The Board considers the principal risks and uncertainties of the Group as at 26 September 2020 to be the same as those described on pages 52 to 54 of the Report & Accounts for the 52 weeks ended 28 March 2020, dated 23 June 2020, a copy of which is available on the Group's website. In addition, due to the evolving global COVID-19 pandemic, the Group has seen fluidity within this risk area over recent months, as set out in more detail in note 13.

Forward looking information

This interim report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them at the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information.

Group income statement (unaudited)

for the 26 weeks ended 26 September 2020

Group statement of comprehensive income (unaudited)

for the 26 weeks ended 26 September 2020

Group balance sheet (unaudited)

Group statement of cash flows (unaudited)

for the 26 weeks ended 26 September 2020

Group statement of changes in equity (unaudited)

for the 26 weeks ended 26 September 2020

Responsibility statement

The Directors confirm that to the best of their knowledge the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and includes a fair review of the information required by DTR 4.2.7R (an indication of important events during the first six months and a description of the principal risks and uncertainties for the remaining six months of the year) and by DTR 4.2.8R (a disclosure of related party transactions and changes therein) of the Disclosure and Transparency Rules. The Board of Directors that served during the six months ended 26 September 2020, and their respective responsibilities, can be found on pages 58 and 59 of the 2020 Annual Report & Accounts.

On behalf of the Board

Martin Davey Mark Bottomley

Chairman Chief Financial Officer

24 November 2020

Notes to the interim accounts

1. Basis of preparation

The Group is presenting its condensed consolidated interim financial statements for the 26 weeks to 26 September 2020 with comparative information for the 26 weeks to 28 September 2019 and the 52 weeks to 28 March 2020.

This interim report was approved by the Directors on 24 November 2020 and has been prepared in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the European Union. The information does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The statutory accounts for the 52 weeks ended 28 March 2020 prepared under IFRS as adopted by the European Union have been filed with the Registrar of Companies. The report of the auditors on the statutory accounts was not qualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The interim report is unaudited but has been subject to an independent review by PricewaterhouseCoopers LLP pursuant to the Auditing Practices Board guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity".

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Operating review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Finance review. The Group has considerable financial resources together with strong trading relationships with its key customers and suppliers. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Board's going concern assessment has utilised the Group's latest forecasts and has taken into account the Group's current position, future prospects and the potential impact of both the principal risks of the Group (including the potential impact of an outbreak of ASF in the UK) and a prolonged outbreak of COVID-19. Sensitivity analysis was carried out on the Group's forecasts to quantify the financial impact of these risks on the strategic plan and on the Group's viability against specific measures including liquidity, credit rating and bank covenants.

Given the strong liquidity of the Group and the £200 million of committed bank facilities in place, the diversity of operations, and the limited exposure to food service customers, the results of the sensitivity analysis highlighted that the Group would, be able to withstand the impact of the most severe, but plausible, combination of the risks modelled by making adjustments to its strategic plan and discretionary expenditure, with strong headroom against available facilities and full covenant compliance in all modelled scenarios.

Based on the results of this analysis, and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements.

2. Accounting policies

The accounting policies applied by the Group in this interim report are the same as those applied by the Group in the financial statements for the 52 weeks ended 28 March 2020 except for:

Taxation

Taxes for the interim periods are accrued using the tax rate that is expected to be applicable to total earnings for the full year based on enacted tax rates at the interim date.

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 principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts.

For the purposes of managing the business, the Group is organised into one reportable segment, being Food: manufacture and supply of food products to UK grocery retailers, the food service sector and other UK and global food producers.

The reportable segment 'Food' represents the aggregation of four operating segments which are aligned to the product categories of the Group; Fresh Pork, Convenience, Gourmet Products and Poultry, all of which manufacture and supply food products through the channels described above. These operating segments have been aggregated into one reportable segment as they share similar economic characteristics. The economic indicators which have been assessed in concluding that these operating segments should be aggregated include the similarity of long-term average margins; expected future financial performance; and operating and competitive risks. In addition, the operating segments are similar with regard to the nature of the products and production process, the type and class of customer, the method of distribution and the regulatory environment.

The revenue of the Group is not significantly impacted by seasonality.

4. Group operating profit

* 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 was £10.8m (2019: £9.5m) and represents an effective rate of 20.1% (2019: 20.1%). The charge for the period was higher than the standard rate of corporation tax due to the impact of disallowed expenses, largely relating to non-qualifying depreciation, as in the same period last year.

The prevailing UK corporation tax rate of 19.0% was substantively enacted as part of the Finance Act 2019. This rate was due to reduce to 17.0% from April 2020, however, in the budget on 12 March 2020 it was announced that the main rate of UK corporation tax will be held at 19.0%. Deferred tax is therefore provided at 19.0% (2019: 17.0%).

6. 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 52,361,000 (28 March 2020: 51,966,000, 28 September 2019: 51,810,000). The calculation of diluted earnings per share is based on 52,585,000 shares (28 March 2020: 52,128,000, 28 September 2019: 51,959,000).

7. Dividends - half year ended 30 September

The interim dividend for the year ending 27 March 2021 of 18.7 pence per share was approved by the Board on 24 November 2020 for payment to Shareholders on 29 January 2021 and therefore has not been included as a liability as at 26 September 2020.

8. 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 95 of the Report & Accounts for the 52 weeks ended 28 March 2020.

Fair value of financial instruments

All financial instruments are shown in the balance sheet at fair value as follows:

The book value of trade and other receivables, trade and other payables, cash balances, overdrafts and amounts outstanding under the revolving credit facility equates to fair value for the Group.

Reconciliation of deferred consideration:

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.

Deferred consideration was measured using Level 3 of the fair value hierarchy and related to future amounts payable on acquisitions. Amounts payable were based on agreements within purchase contracts, management's expectations of the future profitability of the acquired entity and the timings of the payments.

9. Analysis of Group net debt

Net debt is defined as cash and cash equivalents and loans receivable less interest-bearing liabilities (including IFRS 16 lease liabilities) net of unamortised issue costs.

10. 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.

11. Property, plant and equipment

Additions to owned property, plant and equipment during the period totalled £35.5m (2019: £58.9m). Future capital expenditure under contract at 26 September 2020 was £15.8m (2019: £26.3m).

Additions to right-of-use assets in the period totalled £6.0m. At 26 September 2020, the Group had signed leases covering £0.4m of right-of-use assets which commence after the balance sheet date.

12. Alternative performance measures

The Board monitors performance principally through adjusted and like-for-like performance measures. Adjusted profit and earnings per share measures exclude certain non-cash items including the net IAS 41 valuation movement on biological assets and amortisation of acquired intangible assets and, where relevant, profit on sale of a business and goodwill impairment charges. Free cash flow is defined as net cash from operating activities less net interest paid and like-for-like revenue is defined as total revenue less revenue from entities acquired during the year.

The Board believes that such alternative measures are useful as they exclude volatile (net IAS 41 valuation movement on biological assets), one-off (impairment of goodwill and profit on sale of a business) and non-cash (amortisation of intangible assets) items which are normally disregarded by investors, analysts and brokers in gaining a clearer understanding of the underlying performance of the Group when making investment and other decisions. Equally, like-for-like revenue provides these same stakeholders with a clearer understanding of the organic sales growth of the business.

A reconciliation to relevant GAAP measures is given below:

Free cash flow

Adjusted earnings per share

13. Principal risks and uncertainties

The Group has a structured and mature approach to risk management which facilitates the identification, evaluation and mitigation of key risks facing the business. The principal risks and uncertainties facing the Group are set out in detail on pages 52 to 54 of the Report & Accounts for the 52 weeks ended 28 March 2020, dated 23 June 2020 a copy of which is available on the Group's website.

These risks include: consumer demand, reliance on key customers & exports, pig meat availability & price, Health & Safety, Brexit disruption, IT systems & cyber security, food scares & product contamination, disease & infection within livestock, climate change, disruption to Group operations, recruitment & retention of key personnel, labour availability & cost, competitor activity, growth & change and interest rate, currency, liquidity & credit risk.

Whilst the Board considers the principal risks and uncertainties as at 26 September 2020 to be the same as those described in the Report & Accounts for the 52 weeks ended 28 March 2020, due to the evolving global COVID-19 pandemic, the Group has seen fluidity within this risk area over recent months.

COVID-19

In late January 2020 the COVID-19 pandemic arrived in the UK and presented a number of unprecedented challenges to the Group which were managed though the establishment of a coronavirus crisis team. Specifically, the Government's decision to place the UK into lockdown on the 23 March 2020 saw an immediate change to consumer purchasing behaviours resulting in a substantial increase in retail demand which the Group successfully responded to. This experience leaves the Group well placed to continue to respond to new government restrictions across the UK including the most recent lockdown in England which commenced on 5 November 2020.

As the COVID-19 pandemic has evolved, the Group has implemented a range of additional measures to ensure the safety and wellbeing of all employees to include; staggered shift patterns and breaks, new communal areas, provision of additional personal protective equipment (PPE), restrictions when operating machinery and importantly ensuring that there is constant communication to employees during this challenging time.

Further to this, while the Group has always operated to rigorous Health & Safety, hygiene and food safety procedures, in order to further manage the ongoing risks associated with the COVID-19 pandemic the Group has now embedded a number of additional mitigation strategies to enable sites to remain operational whilst ensuring the safety of all employees. The additional risks and mitigations include:

Independent review report of Cranswick plc

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Cranswick plc's consolidated interim financial statements (the "interim financial statements") in the interim results of Cranswick plc for the 26 week period ended 26 September 2020 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· the Group balance sheet as at 26 September 2020;

· the Group income statement and Group statement of comprehensive income for the period then ended;

· the Group statement of cash flows for the period then ended;

· the Group statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the interim results of Cranswick plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

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, 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.

We have read the other information contained in the interim results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Leeds

24 November 2020

a. The maintenance and integrity of the Cranswick plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

b. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.