Cranswick plc (CWK) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our 2025 results presentation. You've got the usual crew here today, myself, Chris, Jim, Mark as well as Tim, and a number of other of our senior leadership team here as well. Now if we can turn to the points in hand on Page 4. As you know, we always like to include this slide as we're incredibly proud of our long-term track record. Despite all the challenges that we faced, we've continued to drive the business forward at pace, and I'm delighted to be confirming today our 35th year of unbroken dividend growth. And I want on the following page to briefly reflect on some of the many commercial and strategic highlights throughout the course of the year. Revenue increased by almost 7%, underpinned by volume growth of almost 8%, driven by strong growth in premium, added value, further strong growth in poultry and what was a record trading period over the Christmas period. Adjusted operating margin increased to 7.6%, reflecting a strong contribution from the growing agricultural operations, excellent capacity utilization, investment in automation and tight cost control. You'll recall Jim covered in the Capital Markets Day that we've expanded long-term supply arrangements with many customers at the retail level. Investment across our agricultural operations has continued at pace with our own pig production increasing by 14%, taking self-sufficiency now to over 55%. Across our poultry farms, we've secured the necessary space to enable the move to lower stocking densities However, this requirement, which is for a further 20% space required for the same number of birds, does place additional pressure on what is an extremely strong growth industry. This has been start of investment over recent years, but we're prepared to continue investing in this sector at pace to grow our own business and support the wider industry at a time of rising demand. We spent a record GBP 138 million in capital expenditure across the estate, making significant progress on delivering earning-enhancing projects that will add capacity, expand capability and drive further efficiencies. In addition to the record capital expenditure, we completed several complementary acquisitions, including the GBP 24 million purchase of JSR Genetics. Through the integration of a leading pig genetic producer, we can improve the eating quality and the volume that we produce from our own supply, and this will further support the premiumization and deepen those customer relationships. And finally, I'm pleased to announce the Blakemans acquisition on -- last Friday. We've known the business well over the last 15, 20 years or so. Phil and Sue are well known to myself or the Blakemans family, and we've had a close working relationship with these guys. Blakemans is a well-invested manufacturer of raw and cooked sausage. The business specializes in producing to the food service sector and therefore, is highly complementary to our existing added value gourmet business. We look forward to welcoming the entire Blateman crew on board to Cranswick and working to develop further. And just on to Slide 6, just to give a quick brief on these before Mark jumps into them, but this just demonstrates some of the key financial metrics. We continue to deliver on the ambitious growth plans with discipline. I've already highlighted the strong volume-led growth and improved operating margins. Adjusted earnings per share was 15.6 ahead of the corresponding period last year. Our cash generation has been strong. Our leverage remains low, and we've maintained return on capital employed at over 18.5% as we continue to effectively deploy capital at pace. And finally, we're increasing the dividend by just over 12% to 101p per share. And on that point, I'll now hand over to Mark, who will go into more detail on the financials.

Thanks, Adam. Good morning, everyone. As Adam said, I'm going to spend the next few minutes running through the FY '25 highlights. And throughout the presentation, as always, unless I state otherwise, I'll be referring to adjusted numbers, which exclude the impact of IAS 41, biological assets, amortization of acquired intangibles and impairment of intangible assets. It's also worth pointing out that last year was a 53-week accounting period. So year-on-year movements and references to 2024 comparatives will be represented on a 52-week equivalent basis again, unless I state otherwise. And as always, you'll find full reconciliations between adjusted measures and the statutory measures in the appendices at the back of the pack. So another look at the financial highlights on Page 8 of the deck. We've made incredibly strong progress over the last year, delivering another set of record results. Over the period, revenue is up 6.8%, adjusted PBT is 14.3% higher and EPS and DPS are 15.6% and 12.2% ahead, respectively. Our cash conversion continues to be extremely strong, with free cash flow of just under GBP 214 million. And net debt, excluding leases, increased by just GBP 39.6 million over the period despite, a record GBP 138 million spent on CapEx and GBP 25 million spent on M&A. Now just looking at those financials in a little bit more detail on Slide 9. You can see that the slide shows financial measures on a reported basis against 2024, but also on a comparable versus 52-week basis as well, and I will just focus on those 52-week comparatives as we go ahead. Revenue at GBP 2,723.3 million increased by 6.8%, with like-for-like revenues ahead by 6.4%, reflecting strong volume growth of 7.7%. Adjusted operating profit increased by 14% to GBP 206.9 million, with operating margin strengthening to 7.6%, some 48 basis points higher than FY '24. Adjusted profit before tax, GBP 197.9 million was 14.3% ahead, and adjusted EPS at 273.4p increased by 15.6%, slightly ahead of the increase in PBT, reflecting both a slightly lower adjusted tax rate and a modest reduction in the number of shares in issue compared to FY '24. We're proposing to increase the final dividend by 8.7p or 12.9% to 76p per share from 67.3p per share last year. And combined with the interim dividend of 25p per share, this gives a total dividend of 101p per share compared to 90p per share last year, an increase of 12.2%. As Adam has already mentioned, this extends the period of consecutive years of dividend growth to 35. And return on capital employed at 18.5% increased by 7 basis points compared to last year, and our strong return on capital demonstrates our ability to deploy capital at pace to generate strong returns and to deliver sustained compound growth. Now looking at revenue in a little bit more detail on Slide 10. On a comparable 52-week basis, as I've already mentioned, revenue was up 6.8%, with volume growth of 7.7%. Our category performance was strong across the board with the exception of Convenience, where growth was lower due to stepping away from some lower-margin Cooked meats business at the start of last year. You may remember that we flagged this at last year's presentation. And it's also worth noting from a revenue perspective, the milestone achieved by our Fresh Pork business. When you take into account the sales made internally to our added value businesses, total Fresh Pork sales from our 3 primary processing facilities surpassed GBP 1 billion for the first time. Our Fresh Pork export revenue was 10.2% ahead with a strong second half following the reinstatement of the Norfolk China export license. Poultry revenue was 20.3% ahead with the onboarding of new premium retail added value business driving an improved sales mix and increased volumes. And our Pet revenue grew by just under 48%, reflecting the ongoing successful rollout of the Pets at Home business. Now looking at margin in more detail on Slide 11. Through consistent targeted investment, we've continued to deliver margin progression across all key metrics with margins now improving for 6 consecutive half year periods. Gross margin increased by 100 basis points to 15.4% EBITDA margin increased by 50 basis points to 10.8% and operating margin was similarly 48 basis points higher at 7.6%. That 50 basis point gap between the gross margin and EBITDA movement is explained by the benefit of GBP 5.7 million of insurance receipts received last year, which were accounted for as other operating income. So stripping this number out brings the improvement in EBITDA and operating margin more into line with that uplift in gross margin. And margin improvement reflects, as Adam mentioned at the outset, that strong contribution from our growing agricultural operations, excellent capacity utilization, continued investment in automation and a relentless focus on cost control. Now moving on to the balance sheet and cash flow on Slide 12. You can see our net debt bridge there, with net debt increasing by GBP 73 million to GBP 172.4 million, including GBP 132.7 million of lease liabilities. Strong EBITDA-related inflows of GBP 293.2 million were offset by an investment in working capital, including biological assets of GBP 44.3 million. Some of this is that step-up in biological assets of nearly GBP 9 million. There was also a slight adjustment on receivables where we adopted early an amendment to IFRS 9 relating to cash in transit via electronic transfer, which comes into force next year, but we brought that in a year early. Tax paid in the period was GBP 41.5 million, which is just GBP 0.1 million higher than last year. And as I mentioned, again, record investment in CapEx and acquisitions of GBP 160.6 million was significant, and I'll provide more detail in a moment or 2. Dividends paid in the year totaled GBP 49.5 million. That was GBP 5.6 million up on last year, reflecting the increase in the FY '24 final and FY '25 interim dividends. And we also made EBT -- our purchase of shares for our EBT, our Employee Benefit Trust of GBP 25.3 million in the period and lease payments totaled GBP 22.2 million. The value of lease liabilities within net debt increased by GBP 33.4 million, primarily reflecting the increase in chicken rearing space needed following the industry-wide move to lower stocking densities. As you can see, despite all this, we've maintained an investment-grade balance sheet and with very modest levels of bank debt and gearing, our leverage still remains comfortably below 1x. Now turning to Page 13 and looking at our cash flow performance over the longer term. And you can see over the last 8 years and indeed, going back much further, our cash performance has been consistently strong. We've generated over GBP 1.2 billion of free cash flow over this period. And of this, we've reinvested over GBP 700 million in CapEx and GBP 198 million in M&A. And in so doing, we continue to strengthen our business and grow our competitive advantage. We've also returned over GBP 250 million to shareholders through our progressive cash dividend policy. And as a reminder, you can see on the right-hand side, we have a GBP 250 million revolving credit facility, which extends through to November '26. And we've got access to a further GBP 50 million on the same terms, with the facility providing generous headroom to continue our growth strategy. Now looking at investments and that record investment in more detail. We invested GBP 138 million across our asset base this year with significant progress made on the pipeline of earnings-enhancing major capital projects. Some of the key ongoing and completed projects are covered on the slide. And the 4 big ones that we've called out consistently, we spent GBP 63 million across those. We continue our GBP 62 million multiphase expansion project at our whole primary port processing facility, which is progressing as planned. And I should add that we've now also committed a further GBP 35 million at that site to lift capacity in due course from 35 million -- sorry, from 35,000 to 50,000 pigs per week, and that project is due to be completed by the end of March 2027. The GBP 25 million of our fit-out of our houmous and dips facility in Worsley, Manchester is ongoing with the initial Phase 1 part of that now successfully commissioned. The GBP 29 million expansion of the 2 added value poultry sites in Hull is now substantially complete with the new business onboarded, and the GBP 22 million project to increase incubator and processing capacity at the Kenninghall and Eye sites, respectively, is underway. And again, as I mentioned, despite this record investment, ROCE has been maintained at 18.5% and deploying capital at pace over the long term and delivering consistently strong returns on that invested capital is one of the hallmarks of Cranswick's long-term success. I won't go into too much detail on this slide, but it's one you should all be familiar with by now. It sets out our value creation model alongside our recently updated medium-term targets, and we continue to deliver successfully against this model. And I'm pleased to report good progress against all the targets that we updated at our recent Capital Markets Day back in March. We have a sustained capital allocation framework, which you can see on Slide 16. We will continue to invest in the business to support our growth strategy with medium-term CapEx guidance of circa 50% of EBITDA to add capacity, build capability, add automation. Having invested GBP 138 million in FY '25, we still have a very strong forward pipeline. We'll maintain an investment-grade balance sheet with targeted leverage of less than 2x EBITDA. We'll maintain a progressive dividend policy with cover of at least 2.5x EPS to DPS. This was maintained in FY '25 with that 12.2% growth in dividend per share and cover of over 2.7x adjusted earnings. And we'll continue to explore complementary targeted bolt-on M&A with returns ahead of our group WACC. We successfully delivered the GBP 24 million acquisition of JSR Genetics during the period, and as announced today, completed the GBP 32 million acquisition of Blakemans last Friday. Turning to Page 17. We presented this slide for the first time at the Capital Markets Day back in March, setting out how our attractive business model and strategy is well aligned to delivering strong compound growth, and our FY '25 results demonstrate just that. Over the last 5 years, we've delivered double-digit compound revenue growth and improved operating margin by 62 basis points. We've consistently generated strong cash flows, which allow us to invest at pace across our asset base and in targeted M&A with 2 acquisitions completed in the last 5 months. And we've delivered a return on capital employed in the high teens, well ahead of our weighted average cost of capital. Our business model has proved to be incredibly resilient despite the challenges faced and enabled us to increase our dividend for the 35th consecutive year. And our business model and strategy are built on solid foundations with an unparalleled quality asset base, depth of management and balance sheet robustness. These attributes set us apart from our competitors and form a platform which will support the continued ambition and growth of the business over the next financial year and the long term. Now turning finally to Slide 18 and looking at our forward guidance for FY '26. Including the 10-month contribution from Blakemans, we expect revenue growth in FY '26 of circa 7%; adjusted operating margin of circa 7.5%, in line with our medium-term target; finance costs of approximately GBP 12 million and an effective tax rate of 26.3%. And as highlighted at our recent Capital Markets Day, we now expect our investment in CapEx to accelerate going forward to around 50% of EBITDA. So before I hand over to Jim and just to summarize, we've grown revenue by 6.8% with volumes ahead 7.7%, adjusted profit before tax increasing by 14.3% and adjusted earnings per share up 15.6%. Our cash generation is strong. We've invested at record levels. And we are increasing our full year dividend by 12.2%, our 35th consecutive year of dividend growth. Our robust and sustainable business model deployed capital at pace to drive strong and compound returns. And on that note, I'll hand over to Jim.

Good morning, ladies and gentlemen. So in the usual format, I'll cover off the key commercial developments of the year, starting with a bit of market context, and then on to our performance in the '24 to '25 period, and then finishing with the outlook for this current financial year. So over the page on to Page 20. So the fresh and chilled market growth continues. The biggest percentage growth driver would be within M&S, up 11.2%. And as you can see from the scale here, they're actually making significant progress to be almost as big as Morrisons. When you context that with Morrisons used to being a retailer that we contextualize as one of the big 4, I think it's a real standout to the performance M&S have delivered over recent years. Tesco obviously increasing sales in the largest absolute terms at plus 6.8%, with Sainsbury's up 7.3%. So these are trends we've been seeing in recent periods and very much more of the same with Sainsbury's and Tesco leading the large range retailers and M&S putting a stellar performance in from a premium point of view. Looking at the discounters, Lidl are very much leading the charge there and actually delivering the second largest growth in market share after M&S, they're up 9.7%. On the chart below, volumes across the main proteins are growing despite some fairly significant inflationary pressure on all these sectors. And I think when you look at actually the underlying performance of beef, which was already the most expensive protein even with that fairly significant inflation in the sector, consumers are still continuing to demand protein, very much in the form of meat, and meat is very much back on trend from a health perspective and customers really recognizing particularly the protein element of the benefits of eating meat. And as you can also see, there is, even from a small base, no growth whatsoever other than price in the meat-free space. So moving over the page on to 21. I'm just looking at our own commercial progress within the year. We've seen resilient demand across actually all our categories despite that backdrop I mentioned of inflationary pressures. and the pressures on the consumer spending ability as well. Volumes holding up extremely well, meat consumption continuing to grow as that key source of protein as part of a healthy diet. The growth has been spread very equally in all categories, but even faster actually in the premium tiers. Obviously, M&S' performance is one way of pulling that out, but you'll see as well very much in our premium space. We're really seeing a drive for premium going forward, very much as consumers are consuming more calories in the home rather than out of home. The inflation I mentioned has been well managed in the main through our open book strategic models, including the annual resets to reflect labor, national insurance costs, utilities and overheads. So very much helping to deliver that stable and improving margin position across the group. We're working very much with our large strategic customers to build longer-term plans to deliver supply chain resilience and alignment, really helping deliver their strategic objectives around value, quality and sustainability. Service levels over the periods have been excellent again, building on our reputation and particularly over that festive period, which is so important as mattering for the demand profile, but also so important to fitting up consumers and customers alike in their own market share delivery. We're continuing to grow organically our own market share within existing categories through securing increased share of the categories we are working with retailers on as well as securing new contracts and new retail business across the various product areas around the group. We're also well aligned to those retailers that are winning that I mentioned on the first slide, and we have an incredibly strong innovation pipeline focusing on health, premium and convenience, including some quite transformational product ranges launched during the year. Just to pull a few out, we launched a full range of Heritage Gold Pork in M&S. This was using a specific breed that we had selected for eating quality through higher intramuscular fat. We actually, in a similar format, relaunched Tesco's Finest pork with a similar treatment with the Duroc pig, again, selected for eating quality. And Sainsbury's Taste the Difference' super premium sausages have been relaunched going very much back to the roots of the original Simply Sausages recipes using fresh ingredients and natural casings and also a very iconic range from the Yorkshire Baker business working in conjunction with Tom Kerridge for some premium gastro meals for Marks & Spencer. We're also bringing on additional capacity throughout the group, supporting this growth underpinning our confidence that we will continue to grow there. So moving over on the page -- on to Page 22 and just looking at the kind of shape of that volume-led growth. So fresh pork sales were up 4% on the year. Retail sales actually driving most of that growth, particularly by the performance of Sainsbury's and Tesco that I've mentioned, and the overall volume there up 9.4%, reflecting that reduction in the cost of rearing pigs and the pig price year-on-year. Sales in convenience grew at top line, which is pretty pleasing despite the loss of that discounted volume that Mark mentioned earlier and actually an impact of a temporary import ban at Continental and German products in Q4, which has since been recovered, and we are now shipping as normal. We're incredibly well set for growth in this business. And actually, that lost volume has now been replaced at cooked meats with a new customer onboarding. And actually, that's aligned to a long-term deal as well, so much better quality and more sustainable business that we have replaced that for the year ahead. We've had a superb performance in Gourmet, aligned to that premium growth I mentioned at plus 8.8% as premium ranges outperform. Our sausage and bacon business has done particularly well in the year with record volumes over that key festive period, actually packing 78 million pigs in blankets this year. But for the first time, some of those have been automated and going forward, we'll be 100% automated on our pig in blankets production. We grew with additional volume in McDonald's to support their breakfast with cooked bacon as well as an expansion in our range of retail ready-to-eat cocktail sausages, leaving volumes up 12% overall. And Yorkshire Baker performed extremely well with some of those iconic products I mentioned in M&S, most notably the Tom Kerridge meals that sold so well that we were literally securing every single beef cheek we could get that was approvable for an M&S supply chain. Our poultry business grew by 20% with an increased number of birds processed at up to GBP 1.6 million at peak, and a new value-added customer in breaded and cooked, being onboarded with the U.K.'s largest retailer. Cranswick Pet Products sales were up by 47.8%. And if you compare that to the volume change, that really highlights the quality and better quality sales and a better mix there with more premium supporting that Pets at Home volume as well as new volume awarded in phases 2 and 3 of the Pets at Home business as well as the development of a new range called Nutribalance. Relooking at this from a channel perspective, retail sales leading the charge up at 7% and very much even though that's our biggest channel, taking an ever-increasing share of group revenues. Manufacturing sales were down. That mainly reflects the diversion of that meat into our further processing business rather than selling to third parties in the wholesale market. Foodservice over the period has been quite a challenging market at kind of macro level with the pressure on ingredients, labor and utilities, all clashing with a constrained consumer. Consumers, as I mentioned earlier, are consuming more calories in the so. And the QSR sector is finding there's a bit of a price ceiling that the consumer is willing to pay. However, it's our view that this market will recover and will become interesting again as cost of living crisis and the likes of it works its way through the system. We're very much in the same format as the retail space. We are aligned to the best performers in particularly McDonald's but also Greggs. Export sales rose by 8%, particularly driven by the reinstatement of the China license in Q4 with increased volume of China being shipped from the beginning of January, increasing the number of loads per week from about around 170 containers per month to around 240 containers. So over the page on to 23, just looking at the outlook. The outlook for next year looks extremely positive with growth opportunities, again, in all categories based upon our strategy of building long-term customer partnerships, leading innovation and iconic and differentiated product ranges. In our core pork-related categories, we've secured and grown our business with Sainsbury's on a 10-year deal. We've embedded our business further with M&S, again, on a long-term agreement, and Yorkshire Baker has been awarded what they call a fortress factory status, which is for those really important businesses that add differentiation and value to M&S, and that will be supported on an open book model underpinning the margins there. And we're actually growing our business even with the discount of the likes of Lidl on long-term arrangements linked all the way back to the production and the cost of producing pigs. Obviously, that export license at Watton being reinstated, sees us fit with the full year effect of that. And moving on to chicken in Continental. So at the beginning of this financial year, we began onboarding a new ready-to-eat chicken contract for a premium retailer, and this will step change volumes again at both the value-added chicken facilities in breaded and cooked. This has been very much innovation led with the removal of all processed ingredients, which have been replaced with all natural marinades. We've expanded again the Ramona's range for summer this year with several selection packs and exclusive ranges for our 2 largest customers. And also in the Conti category, we've been awarded sole supplier of all of Morrisons Continental meats, bringing on the 2 power categories in that area, the Spanish and the Italian ranges. The Pet business is placed to grow again with the full year effects of that business that was onboarded in the last financial year as well as some really strong catch growth plans. aligned as well as some new and exciting innovation planned within this category during next year. We've now agreed our first new own label contracts for houmous and dips, one of which is already launched and the other will be onboarded at the end of September when the new Worsley site capacity is completely on stream. And finally, as announced yesterday, we've acquired a new foodservice, sausage and bacon cooked in operation, which complements our gourmet kitchen business, bringing on new capability in frying as well as extending our convection oven capacity as well, which is much needed. Greggs is the anchor customers there and a clear market leader in that QSR breakfast space is certainly the one to be backing from that point of view. So on that note, I will hand back over to Adam to take us through the strategic review. Thank you.

Yes. Thanks, Jim. I'll briefly go through the strategy. We presented it, as you will recall, not even a couple of months ago at the Capital Markets Day before quickly moving on to Q&A. So on Page 25 here, the growth strategy continues to build on the key strengths of the business, and this has remained consistent over many years, as you'll be aware. We'll continue to grow the cash-generative nature of the core range through the focus on affordable and healthy proteins, the added value products that resonate with consumers. We'll continue to invest in the supply chain and across the asset base to drive this efficiency. We'll deliver further expansion through the focus on white space, the opportunities and unlocking adjacent categories. We're going to extend the operational leadership and increase capacity through the significant pipeline of return on capital employed, enhancing investment projects. With increased capacity, we're determined to capture further market share. We continue to diversify and strengthen the business through a focus on the innovation, the complementary acquisitions across our supply chain and across the categories and markets in which we operate. And we'll deliver and drive the expanded categories through diversifying our product ranges. Over the last 10 years, we've now delivered compound annual growth rate in excess of 10%. Adjusted profit before tax, earnings per share and dividend per share growth are all comfortably in excess of this 10%. With the continued focus we've outlined, I'm confident the strategy of consolidate, expand and diversify will continue to deliver the strong and sustainable compound growth for the long term. And just finally on summary and outlook over the last 12 months. We've now delivered strong revenue growth, strengthened the operating margin and completed several returns-enhancing acquisitions. We have a substantial capital investment pipeline with major projects underway across our fresh product range, our poultry as long as our Mediterranean foods. This totals over GBP 138 million. We continue to deploy capital at pace, as Mark alluded to before, across the business with the strong associated returns this offers. And we made a positive start to the new financial year with the momentum for the final quarter of '25 continuing through the first 6 weeks of this new financial year, reflecting continuing robust demand for our pork and poultry product ranges. And we today announced the acquisition of the Blakemans business, and so our growth strategy remains firmly on track. Thank you very much for everybody.