LONDON (Alliance News) - Shares in Produce Investments PLC dropped on Thursday morning after the company said it expects pretax profit for the year to be "substantially below market expectations", hit by weak conditions in the potato market.
Produce, a fresh potato and daffodil producer, warned in its full-year results report in September that prices were set to come under pressure amid forecasts for supply to outstrip demand.
Following the Christmas trading period, the start of the daffodil harvest in Cornwall and the start of early potato planting in Cornwall and Jersey, the company said it now has more visibility for the rest of its financial year to June 27 and expects pretax profit to come in substantially lower than market expectations.
Produce said its pretax profit will be driven lower by a combination of the exceptional 2014 growing season, which produced a large potato crop across northern Europe, and by lower consumption volumes in the fresh potato sector.
The company said the value and volume of sales in the fresh potato sector has been hit in the past 12 months. The 'Big Four' UK supermarkets - Tesco PLC, J Sainsbury PLC, Wm Morrison Supermarkets PLC and Asda - have been forced to invest significantly in lower retail price points in order to compete with discounters such as Aldi and Lidl, meaning pricing pressure has been placed on the whole supply chain.
Given the abundance of cheaper crop, all market channels in the potato sector have come under pricing pressure, while demand for secondary crop and factory out-grade material has been low. Owing to these issues, the company said early indications are that area plantings will be cut back.
Produce said volume performance has improved in the early weeks of 2015, but said deflationary pressure remains in place on the value of fresh potato sales. The group intends to work with its retail customers in order to create a supply chain model more attuned to the prevailing market conditions with a view to reducing the impact of crop variations on its financial performance.
The group said its daffodil business is looking stronger, with the harvest underway in Cornwall and early indications suggesting sales will rise year-on-year.
Produce shares were down 19% on Thursday morning to 135.77 pence, one of the worst performers in the London Main Market.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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