Fat Revenues, Thinner Margins
Since I went for a bacon-related title in my last full post on Cranswick - almost a year ago - I thought I'd stick with the same sort of theme today. The joys of being a blogger! Since it's been almost a year, though, you may have guessed the drive behind this post; yes, it's that time again, with Cranswick today reporting their figures for the full year. A reasonable headline would be to say they were loosely positive. Forecasts were down anyway, and Cranswick's half year performance was particularly strained by big cost increases. There's been a reversal in that trend, though Cranswick still end up reporting operating profits marginally down against a revenue increase of 8%. Put those two together - op. profits down against revenue increases - and you arrive at the title of my post, and my biggest concern about the business.
More on that later, though. Firstly the positives, the most obvious of which being that they managed yet another year of net profit growth, continuing their rather good record. Two significant exceptional items muddy the underlying picture. Firstly, an impairment of goodwill detracting from profits; though notably a non cash item; and secondly, the disposal of a small sector of the group for a significant gain on stated book value. These represent -£5m and +£8m respectively, netting off with slightly reduced finance costs to result in a final improvement in profit. Aside from the profit impact, the disposal of the Deeside operation puts some ground under the book value of the company - they have, after all, managed to sell a loss making business with a book value of £6.2m (including some related financial contracts) for £14.5m in cash.
The relentless profit and cash generation has meant Cranswick have continued to pay down debt, which now sits at £21.7m, of basically no concern given the group's size. Indeed, it probably raises more questions of efficiency - would it make sense for the group to take on more debt to expand or buy back shares? Perhaps. Either way, it's the nice end of the spectrum to be on, instead of the end where investors need to ask whether the group could limp by if something bad were to happen. At least some of the cash is also being used up on expanding the group's asset base - necessary given the constant rise in revenues - but it's a sign of health that Cranswick have the cash available to simultaneously invest to maintain growth, pay out healthy dividends to shareholders, and pay down their debt. (more…)