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Regulatory News


Final Results

Fri, 12th Oct 2018 07:00


RNS Number : 8244D
Produce Investments PLC
12 October 2018

12 October 2018

PRODUCE INVESTMENTS PLC

("Produce," "Company" or the "Group")

FINAL RESULTS

Produce Investments plc, (AIM:PIL) ("Produce," "Company" or the "Group"), a leading operator in the fresh potato and daffodil sectors, is pleased to announce its final results for the 52 weeks ended 30 June 2018.

Key Operational Highlights:

- Operating Profit in line with boards expectations

- Solid performance in the Core Fresh business in an oversupplied market

- Poor spring weather adversely impacting the seasonal business of Rowe Farming and Jersey

- Significant investment in the development of new app-based field technology improving planning and forecasting

- Board changes: Billy Keane, formerly Finance Director and Group Managing Director of Robert Wiseman Dairies, and currently Chairman of Dairy UK and a Director of Grahams The Family Dairy, appointed to the board as a Non-Executive Director, and Chair of Audit Committee

- Confirmation of impending offer from Promethean Investments LLP to buy Produce Investments PLC

Key Financial Points:

- Operating profit for the year in line with the boards expectations 6.1m (2017: 7.8m restated)

- EBITDA at 12m

- Exceptional Costs of 14.7m and prior period adjustments of 1.4m

- Reduction in net debt to 25.75m at year end (2017: 28.0m)

- Decision on a final dividend delayed until the outcome of the impending purchase by Promethean Investments is known

Angus Armstrong, Chief Executive, commented:

"In a difficult year impacted by the adverse spring weather we have seen business gains and improved operational efficiencies in our core fresh segment helping sustain our performance in a tough retail environment and I am pleased to say that we have delivered operating profit in line with the board's revised expectations.

Rowe Farming and Jersey both suffered due to the long periods of cold and unseasonal spring weather and our Swancote facility continued to struggle in a fragmented and competitive market sector.

We have invested heavily in our Restrain business and consolidated our development and manufacturing to one location, and the Linwood crops business is now well established and performing well.

As a Group we remain cash generative, reflected in our net debt reduction to 25.8m, driven by better cash management and the increasing diversity of the business.

"Looking forward, we will be increasing our presence in the daffodil market, continuing our growth with Restrain through a healthy demand for its tomato ripening and potato storage solutions and we will continue to expanding the Linwood Crops business.

Whilst we were disappointed to announce a three year wind down of one key customer contract, we are confident that we are well positioned to pick up new opportunities in the market, and we will continue to review the cost base of the company.

We are also working through the fair and reasonable offer from Promethean Investments LLP and regardless of the outcome I remain confident that management and staff will continue to grow and develop the business."

- End -

For further information contact:

Produce Investments plc

Jonathan Lamont

01733 372515

Shore Capital & Corporate Limited (Nomad)

Stephane Auton / Patrick Castle

020 7408 4090

Powerscourt

Nick Dibden / Jana Tsiligiannis

produce@powerscourt-group.com

020 7250 146

CHAIRMAN'S STATEMENT

Continued strong cash generation demonstrates the fundamental resilience of our business model, in a year when we have faced and overcome the considerable challenges of both oversupply in our core UK potato business, and shortages resulting from extreme weather impacts on our seasonal operations.

Results

As we advised in our trading update of 22 May 2018, the year's results were affected by the unexpected impact of extremely adverse spring weather on our seasonal businesses in Jersey and Cornwall. This added to the pressures imposed by the exceptionally large 2017 UK potato crop on margins and seed volumes in our core UK fresh potato operations. The Group's reduced operating profit before exceptional items of 6.1m (2017: 7.8m restated) was in line with our rebased expectations. We are also pleased to report that strong cash inflows in the final quarter enabled us to reduce our net debt to 25.8m at the year-end, compared with 28.0m in 2017.

Exceptional items and prior period adjustments

As indicated in May, in the light of this performance, we have recorded a number of exceptional items totalling 14.7m (2017: 1.5m restated), resulting in a loss before tax of (9.5m) (2017: 5.5m profit restated). These exceptional items, which are detailed in note 6 of the financial statements, comprise asset impairment provisions for Swancote Foods (4.6m) and Rowe Farming (6.8m), downward adjustment to the valuation of daffodil bulb biological assets (2.2m), and other write-offs of (1.1m). We have also recorded prior period adjustments of (1.1m) in respect of accounting issues identified relating to the year ending 1 July 2017 (as detailed in note 30).

Dividend

The Board have decided to delay any future dividend decisions until the outcome of the intended offer announced by Promethean Investments (discussed below). An interim dividend in respect of 2.49 pence per share was announced on 22 March 2018 and was paid on 12 July 2018 (2017: 2.44 pence), an increase of 2%.

The Board

As announced in last year's annual report, Neil Davidson (Chairman), Sean Christie (Non-Executive Director) and Sir David Naish (Senior Independent Non-Executive Director) retired from the Board at our AGM in November 2017 and I resumed the role of Chairman. We were delighted to be able to strengthen the Board in June 2018 with the appointment of Billy Keane as an additional Non-Executive Director. Billy brings to us more than 30 years' experience of the UK food industry, having served as Finance Director and later Group Managing Director of Robert Wiseman Dairies prior to its acquisition by Muller Group in 2012; he is also the former Chairman of Dairy UK and a Director of Grahams The Family Dairy. We are already feeling the benefit of his immense knowledge and understanding of our sector.

Strategy

We continue to pursue a long term strategy focused on organic growth, inward investment that will deliver a more robust business model for the future, and the acquisition of complementary businesses that will deliver increased diversity in both product mix and income.

Corporate governance

We have worked during the year to make the QCA Corporate Governance Code a key part of our corporate culture, in order to ensure that the Group is managed in the best interests of all its stakeholders.

People

In meeting the significant challenges of the last year, our employees have once again demonstrated their commitment to the business and their determination to always deliver the best possible products and service to our customers.

On behalf of the Board, I thank all of them for everything they have done to help us achieve the best possible results in a most demanding physical and trading environment.

Outlook

We remain confident in our strategy, the long term prospects for the business based upon it, and our ability to continue generating cash to pay down debt. The hot, dry summer of 2018 has had a significant impact on growing conditions for potatoes in the UK and across much of northern Europe, and we therefore anticipate that the year ahead will be characterised by crop shortfalls in certain sectors, creating a highly inflationary marketplace.

The diversity of the Group mitigates the inflationary risk to the core UK potato business through other operations and seasonal businesses that have not been impacted by this summer's growing conditions. We will continue to seek opportunities to widen both our product range and customer base so as to create an even more diverse business model for the future.

On the 11th September Promethean Investments LLP announced its intention to make an offer to buy the entire issued share capital of Produce Investments plc (PI) and take PI private. An independent committee of the PI Board, which has been advised by Shore Capital (Rule 3 advisors), considers the terms of the offer to be fair and reasonable. Whatever the outcome of this bid I remain very confident that management and staff will continue to develop and grow the business for the benefit of all stakeholders, and I feel very privileged to have been associated with PI since 2006, and irrespective of recently announced movements in our retail customer base, I have every confidence in the future prospects for the business.

Barrie Clapham

Chairman

CHIEF EXECUTIVE'S REPORT

New business gains and improved operational efficiencies have been key to sustaining the performance of our UK retail potato business in a deflationary environment, in a year which has also demonstrated the value of our established strategy of investment and diversification.

Fresh

Our core Greenvale potato business, accounting for circa 79% of Group revenues during the year (2017: circa 78%), has performed in line with expectations even though it faced the challenges created by an exceptionally large 2017 UK potato crop of 6.04m tonnes (2016: 5.22m tonnes). With supply increasing by 15.2%, and exceeding demand by some 0.5m tonnes, the inevitable result was a deflationary market in which potato prices fell to their lowest level for several years.

Business gains secured last year delivered increased sales volume to an established major retail customer, and we also benefited from a first full year of business with another major retailer. Although higher volumes were partially offset by lower prices, the more collaborative relationship model we have developed with our retailer partners meant that our core retail potato business grew year-on-year and performed in line with our expectations.

Elsewhere, intense competition in an oversupplied market put pressure on sales values to the foodservice and general trading sectors, resulting in a reduction in trading margins.

After a very slow start to the year, as oversupply reduced growers' appetite for investment in the following year's crop, sales of seed potatoes recovered well in the second half, though total sales for the year were still some 15% below those of the previous season.

Greenvale's own potato growing enterprise was similarly impacted by the market conditions, with the non-contracted element of the crop realising sales values significantly below our budget. However, the company continues to fund its successful varietal breeding programme, and has a number of exciting and flavoursome new potato varieties nearing launch into the market.

We have also made a significant investment in the development of new, app-based field technology that will greatly improve the company's forecasting abilities and therefore its planning capability for the future.

In our packing facilities we have continued to fund a programme of investment in further automation that will reduce the labour requirements of the business in the future; this is a particularly important initiative in the light of continuing uncertainty over labour availability post-Brexit.

Our new Linwood Crops joint venture, established in 2016, has continued to develop well and had an excellent year, delivering a performance ahead of expectations.

As noted in our trading statement of 22 May 2018, our Rowe Farming business was significantly impacted by the poor winter and spring weather in Cornwall. This limited our ability to harvest flowers in March, and as a result some volumes were lost in the field. However, we achieved 100% availability with all our key customers in the UK retail sector, with the shortfall being felt in our traditional export and trading markets, where volumes were considerably lower than in the prior year. More encouragingly, the daffodil bulb market is starting to show signs of recovery, and bulb sales in 2018 are showing significant increases in both volume and value.

Rowe Farming's Cornish potato business was similarly impacted by adverse weather, with extremes of wet and cold in January, February and March, leading to a delay in planting until April and May, when the crop was then affected by drought. As a result the overall yield of Cornish potatoes this year will be significantly lower than in 2017. Following the annual impairment review, the Board took the decision to write down the asset base by (6.8m), and to take a further charge with a valuation adjustment of daffodil bulb biological assets of (2.2m).

The Jersey Royals potato business faced the same climatic challenges as our operation in Cornwall, with the island experiencing the most extreme weather conditions for some 40 years. Rainfall in the four months to March 2018 was 46% higher than the long term average, leading to severe delays in planting, and unseasonably cold weather in February and March then delayed the development of the crop. Overall, purely as a result of these lower yields, sales were c. 19% lower than in the prior year, although the business continued to achieve a profit.

Processing

Our Swancote Foods potato processing business had another challenging year financially. Our team is running the business well but the facility requires additional volumes to optimise its performance, and we are working hard with both new and existing customers to deliver these. Following the annual impairment review the Board took the decision to take write downs totalling (4.6m).

Other

The Restrain storage and ripening technology business had a good year, completing a significant programme of investment and consolidation as we brought in-house all the equipment development and manufacturing capabilities we require to exploit the potential of its next generation technology.

Finances

The business remains strongly cash generative, reflected in the reduction in net debt to 25.8m (2017: 28.0m) at the year-end. The impact of lower potato values during the year was largely offset by increased volumes with key retail customers as a result of new business gains, and we have also benefited from the diversity of businesses within the Group.

Prospects

The recent announcement of the loss of one of our major customer contracts for the supply of packaged fresh potatoes is clearly a disappointment although the exit will be phased over the next three years. With this phased reduction there are opportunities to formalise the supply of raw material to this customer on an ongoing basis, and the relationship between the customer and other parts of the Produce Investments Group is not impacted. The movement of retail own label business is not uncommon in this sector and management will now focus on mitigating any impact from the contract loss by targeting new business opportunities and also reviewing the cost base of the company, making savings where appropriate.

The latest AHDB forecasts are indicating a total planted area of potatoes in the UK in 2018 c. 3% smaller than last year at 119,000 hectares. Following delayed spring planting, a summer of extreme temperatures and drought has adversely affected crop volumes in the UK and across much of northern Europe. As a result, the current year will feature a marketplace in which demand exceeds supply with inevitable inflation in raw material costs.

In this environment we benefit from the diversity of seasonal businesses within the Group. We will be increasing our presence in the daffodil market this year, and focus more on this side of our Rowe Farming business in Cornwall with a view to reducing our potato enterprise in that area. Significant new business wins have already been secured as well as supply agreements with third party growers. We also remain very confident that the Jersey Royal business will deliver a stronger performance than last season with the sales plan looking strong. Likewise the Restrain business which is experiencing healthy demand for its tomato ripening and potato storage solutions with the successful transition to in-house equipment manufacturing now completed. The Linwood crops business has started the year where it finished last with strong sales and margins.

Angus Armstrong

Chief Executive Officer

CONSOLIDATED INCOME STATEMENT

For the 12 months ended 30 June 2018

Before exceptional items
'000

Exceptional items (note 6)

'000

Total
2018

'000

Before exceptional items
'000

Exceptional items (note 6)

'000

Total
2017


'000

As restated

CONTINUING OPERATIONS

Revenue

188,174

-

188,174

200,130

-

200,130

Cost of sales

(113,657)

(3,426)

(117,083)

(129,100)

(497)

(129,597)

Gross profit

74,517

(3,426)

71,091

71,030

(497)

70,533

Administrative and other operating expenses

(68,466)

(11,257)

(79,723)

(63,239)

(1,007)

(64,246)

Operating (loss) / profit

6,051

(14,683)

(8,632)

7,791

(1,504)

6,287

Finance costs

(878)

(867)

Finance income

28

17

Share of (loss) / profit of associate & investments

(6)

62

(Loss) / profit before tax

(9,488)

5,499

Income tax credit / (expense)

186

(270)

(Loss) / profit for the period

(9,302)

5,229

Attributable to:

Equity holders of the parent

(9,741)

5,180

Non-controlling interests

439

49

(9,302)

5,229

Earnings per share attributable to owners of the parent during the year:

Basic earnings per share (pence)

(35.73)

19.22

Diluted earnings per share (pence)

(35.73)

18.35

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 12 months ended 30 June 2018

2018

'000

2017

'000

As restated

(Loss) / profit for the period

(9,302)

5,229

Other comprehensive income:

Actuarial gain / (loss) in respect of pension scheme

3,627

(2,011)

Deferred tax movement on actuarial gain / (loss)

(617)

180

Current income tax (charge) / credit on actuarial gain / (loss)

(53)

64

Deferred tax movement on share based payments

(145)

357

Other comprehensive income for the period

2,812

(1,410)

Total comprehensive income for the period

(6,490)

3,819

Attributable to:

Equity holders of the parent

(6,929)

3,770

Non-controlling interests

439

49

(6,490)

3,819

CONSOLIDATED STATEMENT OF FINANCIAL POSITION Company Reg No: 05624995

At 30 June 2018

2018

'000

2017

'000

As restated

2016

'000

As restated

ASSETS

Non-current assets:

Property, plant and equipment

37,522

39,902

34,084

Intangible assets

5,937

15,589

16,136

Investment in associates

213

190

172

Other investments

93

122

529

43,765

55,803

50,921

Current assets:

Inventories

10,005

9,025

8,528

Biological assets

18,973

21,006

19,792

Trade and other receivables

32,706

33,947

30,413

Prepayments

2,930

2,355

1,640

Cash and short-term deposits

6,409

7,749

742

71,023

74,082

61,115

Assets held for sale

-

1,250

1,250

Total assets

114,788

131,135

113,286

EQUITY AND LIABILITIES

Equity:

Issued capital

274

271

268

Share premium

22,098

21,842

21,670

Other capital reserves

10,228

10,228

10,228

Retained earnings

11,546

20,126

18,202

Equity attributable to equity holders of the parent

44,146

52,467

50,368

Non-controlling interests

1,139

719

530

Total equity

45,285

53,186

50,898

Non-current liabilities:

Interest-bearing loans and borrowings

14,000

16,875

-

Other non-current financial liabilities

312

544

849

Deferred revenue

35

47

70

Pensions and other post-employment benefit obligations

5,014

8,954

7,268

Deferred tax liability (net)

2,117

1,977

2,838

21,478

28,397

11,025

Current liabilities:

Trade and other payables

29,602

29,900

31,075

Interest-bearing loans and borrowings

18,166

18,912

18,871

Deferred revenue

36

53

88

Income tax payable

221

687

1,329

48,025

49,552

51,363

Total liabilities

69,503

77,949

62,388

Total equity and liabilities

114,788

131,135

113,286

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 12 months ended 30 June 2018

Issued Capital

Share premium

Other capital reserves

Retained earnings

Total

Non-controlling interest

Total Equity

(Note 19)

(Note 19)

(Note 20)

'000

'000

'000

'000

'000

'000

'000

As at 25 June 2016 as originally presented

268

21,670

10,228

18,559

50,725

530

51,255

Restatement in respect of prior period

-

-

-

(357)

(357)

-

(357)

As at 25 June 2016 as restated

268

21,670

10,228

18,202

50,368

530

50,898

Profit for the period (restated)

-

5,180

5,180

49

5,229

Actuarial loss in respect of pension scheme

-

-

-

(2,011)

(2,011)

-

(2,011)

Deferred tax on actuarial loss

-

-

-

180

180

-

180

Current income tax credit on actuarial loss

-

-

-

64

64

-

64

Deferred tax movement on share based payments

-

-

-

357

357

-

357

Total comprehensive income

-

-

-

3,770

3,770

49

3,819

New shares issued during period

3

172

-

-

175

-

175

Minority interest acquisition

-

-

-

(155)

(155)

155

-

Share-based payment transactions

-

-

-

280

280

-

280

Equity dividends paid

-

-

-

(1,971)

(1,971)

(15)

(1,986)

As at 1 July 2017

271

21,842

10,228

20,126

52,467

719

53,186

Profit for the period

-

-

-

(9,741)

(9,741)

439

(9,302)

Actuarial loss in respect of pension scheme

-

-

-

3,627

3,627

-

3,627

Deferred tax movement on actuarial loss

-

-

-

(617)

(617)

-

(617)

Current income tax credit on actuarial loss

-

-

-

(53)

(53)

-

(53)

Deferred tax movement on share based payments

-

-

-

(145)

(145)

-

(145)

Total comprehensive income

-

-

-

(6,929)

(6,929)

439

(6,490)

New shares issued during period

3

256

-

-

259

-

259

Share-based payment transactions

-

-

-

(280)

(280)

-

(280)

Equity dividends paid

-

-

-

(1,371)

(1,371)

(19)

(1,390)

As at 30 June 2018

274

22,098

10,228

11,546

44,146

1,139

45,285

CONSOLIDATED CASH FLOW STATEMENT

For the 12 months ended 30 June 2018

2018

'000

2017

'000

As restated

OPERATING ACTIVITIES

Loss / profit before tax from continuing operations

(9,488)

5,499

Adjustments to reconcile profit before tax for the year to net cash inflow from operating activities:

Depreciation and amortisation of assets

5,951

5,628

Exceptional impairment of goodwill and intangible assets

9,080

-

Exceptional impairment of property, plant and equipment

2,344

-

Exceptional adjustment on biological assets

2,213

-

Other exceptional adjustments

1,046

1,044

Share-based payment transaction (credit) / expense

(280)

280

(Gain) on disposal of property, plant and equipment

(190)

(389)

Finance costs

639

640

Finance income

(28)

(17)

Share of net profit of associates and investments

6

(62)

Difference between pension contributions paid and amounts recognised in the income statement

(313)

(325)

Working capital adjustments:

Decrease / (increase) in trade and other receivables and prepayments

284

(4,746)

(Increase) in inventories and biological assets

(1,800)

(1,711)

(Decrease) in trade and other payables

(235)

(1208)

(Decrease) in deferred revenue

(29)

(58)

Income tax paid

(994)

(1,168)

Net cash flows from operating activities

8,206

3,407

INVESTING ACTIVITIES

Proceeds from sale of property, plant and equipment

1,440

430

Purchase of property, plant and equipment

(5,351)

(10,953)

Purchase of intangible assets

-

(41)

Cashflows arising from purchase of subsidiary

-

(301)

Net cash flows used in investing activities

(3,911)

(10,865)

FINANCING ACTIVITIES

Bank loans repaid during period

Invoice finance movement during the period

(2,375)

(1,246)

(750)

9,916

New bank loans during period

-

7,750

Hire Purchase financing

(244)

-

Interest paid

(639)

(640)

Dividends paid

(1,390)

(1,986)

Proceeds from share issues

259

175

Net cash flows (used in) / generated from financing activities

(5,635)

14,465

Net (decrease) / increase in cash and cash equivalents

(1,340)

7,007

Cash and cash equivalents at beginning of period

7,749

742

Cash and cash equivalents at end of period

6,409

7,749

Basis of preparation

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as they apply to the financial statements of the Group for the period ended 30 June 2018 and applied in accordance with the Companies Act 2006. The accounting policies which follow set out those policies which apply in preparing the financial statements for the period.

These consolidated financial statements have been prepared on a historical cost basis, except for those assets and liabilities which have been measured at fair value in line with applicable accounting standards. The consolidated financial statements are presented in British pounds sterling () and all values are rounded to the nearest thousand (000) except when otherwise indicated.

Earnings per share

2018

2017

As restated

(Loss) / profit attributable to equity shareholders ('000)

(9,741)

5,180

Weighted average number of ordinary shares in issue

27,265,638

26,946,218

Weighted average number of options with dilutive effect

592,348

1,281,042

Total number of shares - fully diluted

27,857,986

28,227,260

Basic earnings per share - pence

(35.73)

19.22

Diluted earnings per share - pence

(35.73)

18.35

Adjusted earnings per share

Operating (loss) / profit ('000)

(8,632)

6,287

Exceptional Items

14,683

1,504

Finance costs and income ('000)

(850)

(850)

(Expense) / income from associate

(6)

62

Adjusted profit before tax ('000)

5,195

7,003

Tax on adjusted profit at effective rate ('000)

102

(343)

Adjusted profit after tax ('000)

5,297

6,660

Adjusted profit attributable to ordinary shareholders ('000)

4,858

6,611

Adjusted basic earnings per share - pence

17.82

24.53

Adjusted diluted earnings per share - pence

17.44

23.42

Report distribution

Copies of the annual report and financial statements will be sent to shareholders shortly and will be available for a period of one month to the public at the offices of Produce Investments plc, Floods Ferry, Floods Ferry Road, Doddington, March, Cambridge, PE15 OUW, and at the Company's website, www.produceinvestments.co.uk


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR FFDEDFFASELS





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