LONDON (Alliance News) - Produce Investments PLC Thursday reported a drop in profit in its recently-ended financial year as it was hit by challenging market conditions, an oversupply of crop and contamination issues at its processing business, and warned that a foreseeable decline in volume next year may lead to the closure of its packing facility in Kent.
The fresh potato and daffodil producer said its pretax profit in the year ended June 27 fell to GBP7.3 million from GBP8.6 million, as revenue decreased to GBP178.4 million from GBP191.8 million.
It said that it was hit by challenging market conditions and retailer price wars which put significant pricing pressure on the entire supply chain, resulting in value and volume declines, although it noted that the rate of decline has slowed considerably in recent months.
This coincided with an exceptional growing season in 2014 which led to high yields of potatoes generating a large oversupply of crop and resultant deflationary pressures.
In addition, Produce was forced to recall a number of potato salad and ready meal products after it was discovered that its processing business Swancote Foods experienced a contamination issue relating to tracing of metal being found in some of its products.
The metal contamination resulted from the failure of an augur in one of its blanchers, which was not subsequently picked up by detection systems and processes further down the supply chain.
Produce said it expects the financial impact from this to be in the range of GBP300,000 to GBP1.5 million, which will be reported in the financial results for its next full year.
"We have subsequently changed a number of processes and are working closely with our affected customers to restore full supply and regain confidence," the company said.
Produce added that since the year end it has won a three-year agreement at a fixed margin with a core retail customer. It said that this has come with a reduction in overall volume starting from July 2016, but that it believes it is a positive step forward.
It said that as a result of the reduction in volume, it is currently reviewing its requirements across its packing facilities, aligning capacity to forecast sales and therefore ensuring that the business remains efficient and cost competitive. This may lead to the closure of its Kent-based packing facility, Produce said.
Still, the company increased its full-year dividend to 7.165 pence from 6.825p.
"While the market is expected to remain challenging, there are signs of a more balanced supply and demand environment and consequent improved pricing. In addition, with the closure of our Tern Hill facility and a number of investments made at our remaining packing sites, we have significantly improved our operational efficiencies," Chief Executive Angus Armstrong said in a statement.
"We are confident that our recent acquisitions, coupled with the rationalisation of our fresh packing sites, places us in a much stronger position to deal with the external pressures facing our industry. The board, and the management team, remain confident that Produce Investments is well placed to grow organically and to take advantage of any acquisition opportunities that might arise in the future," he added.
Shares in Produce were trading up 0.8% at 163.75 pence Thursday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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