Cranswick, the maker of Lazenby's Best of British sausages, revealed yesterday it has had to set aside £2.5m to compensate pig farmers that were underpaid for their stock.
The error in payments to its suppliers was discovered during the audit for the company's year-end figures, and involved a senior Cranswick executive who has now been sacked without compensation.
Cranswick shares fell 15 per cent to close at 365p on news of the charge and the cautious outlook management issued on trading conditions.
Martin Davey, the chief executive, apologised for the underpayment, which may have gone unnoticed for many years.
"The pig farmers involved have already been repaid their full amounts for 2002-03. The review is now going back to previous years, but not all our suppliers have been underpaid and the charge will not exceed what we have set out today," a spokesman for the company said. The charge includes £900,000 in interest payments.
Despite a 27 per cent rise in pre-tax profits in 2002, rising raw material costs and lower sell-on prices are making conditions difficult for Cranswick, which makes sausages, ham, pork and animal feed.
The news overshadowed the announcement of Cranswick's £15m acquisition of the food supplier The Sandwich Factory.
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