LONDON (Alliance News) - Produce Investments PLC Thursday reported a massive drop in profit in the first half of its financial year on a decline in revenue that it blamed on a combination of challenging market conditions and supply outstripping demand
But the fresh potato and daffodil producer raised its interim dividend, saying that it is confident it will meet market expectations for the full year.
Produce reported pretax profit for the 26 weeks ended December 27 of GBP1.9 million, down from GBP5.4 in the same period a year before. Revenue fell 9.9% to GBP80.8 million from GBP89.6 million.
It said significant pricing pressure triggered by retailer price wars resulted in value and volume decline in fresh potato sales over the past 12 months, which coincided with an exceptional 2014 growing season for potatoes across northern Europe.
The 'Big Four' UK supermarkets - Tesco PLC, J Sainsbury PLC, Wm Morrison Supermarkets PLC and Asda - have been forced cut prices in order to compete with discounters such as Aldi and Lidl, meaning pricing pressure has been pushed up the whole supply chain.
Lower consumption in the fresh potato sector meant that supply outstripped demand, leading to a deflationary market and a fall in Produce's revenue and operating profit in the half year.
"Produce has taken steps to mitigate the impact of these market fluctuations. The closure and subsequent sale, post the period end, of the Tern Hill packaging facility and the rationalisation of the packing operations, has resulted in major improvements to the group's operational efficiency," Chief Executive Angus Armstrong said in a statement.
"Furthermore, Produce's management team is working closely with its core retail customers to create a supply chain model that is more aligned to prevailing market conditions in any given season, thereby reducing the impact of crop variations on the group's financial performance," he added.
The company said that while it expects the retail market to remain challenging, the planting of early season potatoes in Cornwall is well ahead of last year and the daffodil season has been "very encouraging" with sales ahead of last year. The planted area for this season's main potato crop has been reduced which will align supply more closely with demand, it said.
However it raised its interim dividend to 2.39 pence from 2.275p, saying that the board is confident the company will meet market expectations for the full year.
Shares in Produce Investments were trading up 1.2% at 129.00 pence Thursday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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