Companies: CWK   

The business

In the year to March, Cranswick increased its pre-tax profits by 26 per cent to £11.7 million on sales up from £157.3 million to £192.6 million. The company was able to chalk up its 13th consecutive year of annual profits growth despite having to spend £300,000 on precautions against foot-and-mouth in the second half.

Animal feed volume gained 41 per cent, because of the acquisition of new capacity. On a continuing basis, growth was a respectable 7 per cent, less than half the 15 per cent organic growth achieved in food processing.

Last year's profits growth was slightly slower than the previous year's, partly because of the foot-and-mouth spending. But it was a creditable showing under the circumstances and has not dented an increasing appetite among City institutions for Cranswick shares.

Food producers are frequently regarded as defensive investments when economic and corporate growth is faltering. Bulls argue Cranswick combines this quality with some encouraging growth prospects of its own.

Cranswick was started in the early 1970s by a group of farmers to make pig feeds. Soon afterwards, the company moved into the marketing of pigs.

In 1988, the directors decided it was time to widen the company's range of activities to reduce its exposure to agricultural commodity price fluctuations. This led to the acquisition of a pork butchery business and then to moves into fresh pork processing and retail packing, the production of 'gourmet sausages' and high quality hams.

Cranswick started its pet side nine years ago, since when it has expanded by acquisition into fish and aquatic products and the manufacture of small animal food.

Fish are part of the pet business. 'Pond products' include ultraviolet clarifiers, filtration systems, food and pumps, as well as prize-winning sterilising equipment.

This line of development has led to Cranswick's Tropical Marine division becoming Europe's leading wholesaler and producer of tank-reared fish. It has been a pioneer in the breeding and rearing of coral reef animals.

Tropical Marine has succeeded in transporting tropical fish to its hatchery in Chorleywood and has opened a second in Manchester. It has by now become a leader in this market, where sales are growing by more than 10 per cent a year.

This was in marked contrast to small animal and bird food sales, which fell, because of raw material shortages and consolidation among customers. Cranswick hopes to improve this by targeting independent retailers.

In the year to May, pork products accounted for nearly two-thirds of Cranswick's sales. But the strongest growth was shown by the animal feed side, whose sales gained 50 per cent.

Animal feed capacity had been enlarged with the purchase in the previous year of an animal feed mill and linked business at Wellingore in Lincolnshire for £1.25 million. Last year's growth was achieved in the face of a 16.5 per cent fall in the UK's total pig herd, as a result of the foot-and-mouth cull.

Management, culture & risks

Cranswick's ability to make progress in adverse conditions has renewed the City's faith in its management. Chairman Jim Bloom and chief executive Martin Davey head a team with proven experience and ability, capable of acting opportunistically when occasion demands as well as running continuing businesses in a consistent fashion.

As one enthusiastic analyst puts it, 'they are one of the best buyers of raw materials around. And, because of their structure, they not only get some of the best deals around, but can manage costs along the chain better than most of their rivals and thus get a better return on their capital than others in the business'.

Investors were impressed by the company's ability to take the foot-and-mouth disruptions on the chin. 'They have triumphed against all odds', gushes Charterhouse Securities.

Acquisitions have always been part of the approach and continue to be, with one significant deal every other year on average. A recent example was the purchase, for £15.5 million in shares and cash, of cooked meats business Pethick, later renamed Cranswick Country Foods.

Trading and forecasts

According to Bloom, the current year started well for Cranswick and 'the platform is there for continued growth'. Aiming to tap new customers and to restore growth in areas hit by foot-and-mouth, the company is no longer 'playing off the back foot', as one analyst puts it.

Davey has cautioned investors against assuming that all the costs associated with foot-and-mouth are in the past. He suggests there may still be some adverse impact this year.

But the hit should be much lighter than in last year. Meanwhile, buying out minority interests in recent acquisitions and integration of the sausage operations should further enhance the group's profitability.

'Further in-fill acquisitions' are expected, adds Bloom. With very low gearing and a robust share price, the company should be in a position to grasp similar opportunities when they arise.

Analysts have been upgrading their forecasts for the company. Estimates for the current year see pre-tax profits of £12.6 million to £12.7 million on sales ranging from £201.5 million to £203.5 million, rising to £13.8 million or more pre-tax for 2002-03 on sales of some £218.6 million.

RESULTS AND FORECASTS