Cranswick to invest £10m in pastry factory

The upmarket sausage maker has started building the site in Malton, North Yorkshire, which will employ about 150 staff when it opens by early April next year.

The Hull-based group revealed the investment as it reported like-for-like (LFL) sales growth of five per cent in the six months to September 30.

However, that was a slowdown on the 7.4 per cent underlying growth seen in its first quarter, and its shares fell 46.50p to 745.00p. The company warned the rising price of pig meat – now at a three-year high – is squeezing the supply chain. Cranswick said it is talking to supermarkets in a bid to pass on higher costs.

“One of the things that’s absolutely essential is that all parts of the supply chain must remain responsible,” said new chief executive Adam Couch, who took over from Bernard Hoggarth in August. “Everybody has a part to play, from producer to processor to retailer.

“It’s not something that would be eye-watering for the end customer – you’re talking 5-6p on a pack of pork products.

“In order for us to guarantee a sustainable industry, everybody in the industry has to act responsibly.”

The talks are likely to take four to eight weeks to complete, and analysts at Numis Securities said they have “not been welcomed by the retailers concerned”.

Soaring feed costs – caused by drought in the United States, floods in Ukraine and a poor soya crop in South America – have forced up costs for pig farmers. Industry body the British Pig Executive has called it a “crisis”.

Cranswick was formed by farmers in the early 1970s to produce pig feed. Feed comprises around 70 per cent of pig farmers’ costs, said Mr Couch.

Tough new rules on pig farming in the European Union, which will ban sow stalls, are also shrinking pig herds, said Cranswick, squeezing supply.

“We’ve seen pig prices rise and we think they will probably continue to rise in the short term,” said Mr Couch. But he said pig farmers are “used to going through difficult times”.

The ban on narrow stalls for sows comes into force in January 2013, and will bring European pig farmers into line with UK standards.

“We do not see that volume of cheap, imported material continuing,” he said.

Numis analyst Charles Pick said pig prices have risen by 4p in the past three weeks to about 155p per kilo – a 2.6 per cent increase.

He said rising feed prices coupled with a shrinking European pig herd – forecast to fall by five to 10 per cent – means “supply of pig meat will thus tighten”.

Numis cut its forecast for underlying revenue growth to four per cent for the year from seven per cent and reduced its margin forecast to 5.8 per cent from 6.1 per cent.

“A number of cautions apply for the second half,” said Mr Pick.

However, Cranswick said it continues to invest in its operations, including buying the freehold to about 2.5 acres at an industrial estate in Malton. Work has already started on building a “state-of-the-art premium pastry facility”, which will supply a “broad range of premium savoury pastry products”.

Mr Couch said the site will be a tie-up with The Yorkshire Baker, a pasty and pie-maker based at the industrial estate, headed by Gill Ridgard.

“We’ve tended to tie ourselves with food heroes,” he said.

“Gill is very much a food hero and we’ve put the infrastructure behind her.

“We’re looking to develop further into hot pies and various other pastry-based products. We’re very keen to keep the skills and knowledge base of the people working at The Yorkshire Baker.”

He said the company has had success with ‘value-added’ products, such as breaded pork. “That’s a great alternative to the mid-week meal.”

Cranswick also recently completed a £25m investment in its abattoir in Preston, East Yorkshire, and is also extending its Sutton Fields cooked meat factory in Hull.

In total, Cranswick has invested about £100m over the past five years, said Mr Couch.

Cranswick also recently won regulatory approval for its Preston and Norfolk sites to sell pork to China.

It plans to export pigs’ ‘fifth quarter’ – such as offal, trotters and ears. Despite the investment, net debt is below the £38m at the end of July, it said.

“We’ve got some short-term issues to deal with (but) we’ve got a very good supply base and well-invested facilities,” said Mr Couch. “We remain confident for the future.”

Nicola Mallard, analyst at Investec Securities, said rising pig prices are “weighing on (Cranswick’s) stock price, leaving it trading at a discount to its usual rating”.

She said: “As this is an evolving situation, it is hard to be precise on the outcome, but we do expect Cranswick to recover higher costs as it has in the past. This is a question of timing.

“This is likely to prove a challenging few months, but we believe Cranswick remains well-placed to continue its progress once through this period.”

Farmers’ level playing field

NEW animal welfare rules could shrink the size of UK and European pig herds substantially, analysts believe.

From January the European Union is imposing a ban on sow stalls, which have been illegal in Britain since 1999.

Sow stalls are narrow metal enclosures, used in intensive pig farming, where a sow is held during her pregnancy.

Numis Securities analyst Charles Pick said UK and EU pig herds are expected to fall by five to 10 per cent.

The Department for Environment, Food, Rural Affairs (DEFRA) says the changes will mean a “level playing field for UK farmers”. Eighteen EU states should be fully compliant by January.