Volvere Regulatory News (VLE)

Volvere plc

("Volvere" or the "Group")

Interim Results for the six months ended 30 June 2022

Volvere plc (AIM: VLE), the growth and turnaround investment company, announces its unaudited Interim Results for the six months ended 30 June 2022.

Highlights

· Acceptable result from Shire Foods, the Group's savoury products manufacturer

· Poor performance from Indulgence Patisserie, the Group's frozen desserts manufacturer

· Liquidity and financial position remain strong

Forward-looking statements:

This report may contain certain statements about the future outlook for Volvere plc. Although the Directors believe their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").

Note

1 Based on the net assets attributable to owners of the parent company and the respective period end shares in issue (excluding treasury shares), which were 2,516,422 at 30 June 2022, 2,571,922 at 30 June 2021, and 2,568,422 at 31 December 2021.

For further information:

Chairman's Statement

I set out below the results for the six months to 30 June 2022. 

The Group's performance in the period was below our expectations. Whilst Shire Foods performed well in the circumstances, Indulgence Patisserie's performance was worse than we had hoped for due to the impact of increased raw material prices. The effect on net assets per share has, however, been substantially mitigated by a £1.1 million increase in the value of the Indulgence properties and modest gains on our treasury investments. The Group has taken steps to curtail the losses in Indulgence through refocused and reduced activities.

Net assets per share(1) fell slightly to £13.33 in the period (30 June 2021: £13.50, 31 December 2021: £13.49).

The Group's financial position remains strong, with significant cash reserves.

David Buchler

Chairman

29 September 2022

Note 1: Net assets attributable to owners of the parent company divided by total number of ordinary shares outstanding at the reporting date (less those held in treasury) - see note 8.

Chief Executive's Statement

The first half trading performance of 2022 was disappointing. The tragic war in Ukraine and the related rise and volatility in raw material, energy, and labour costs has made it very difficult to price products for customers with reasonable certainty of acceptable profit. 

Shire Foods and Indulgence Patisserie have both been affected by cost inflation, but Shire entered the period from a much stronger position, with its energy costs fixed for the longer term, and as an established market player. Indulgence on the other hand faced the same environment without energy price certainty and with the added challenges of a turnaround.

Indulgence's losses have been partly offset by the more than doubling in the value of its properties. We also enjoyed some gains on a more actively managed treasury portfolio in H1 2022. Following some share repurchases in the period, the fall in net assets per share was contained to less than 2%.

Overall Group revenue rose to £17.87 million for the period (30 June 2021: £15.72 million, 31 December 2021: £35.58 million). The Group's loss before tax was £1.12 million (30 June 2021: loss £0.29 million, year to 31 December 2021: profit £0.07 million).

The performance of each of the Group's food manufacturing businesses is set out below and discussed further in the Financial Review.

Shire Foods

Revenues increased year-on-year by 13.9%, to reach £15.78 million (30 June 2021: £13.85 million, 31 December 2021: £30.61 million). Although revenues grew, profit before tax and intra-Group management and interest charges(2) remained largely static at £0.58 million (30 June 2021: £0.60 million, 31 December 2021: profit £2.14 million).

Whilst it is positive that we have been able to operate profitably in the period, the benefit of revenue growth has been eroded by the increasing cost of materials, labour and other overheads. Actions to pass on cost increases to customers have, however, intensified through 2022 and we are seeing a greater acceptance of periodic price rises with our customers. This is expected to stabilise or increase margins in the second half, which is also typically our stronger sales period.

Indulgence Patisserie

Revenues increased to £2.09 million from £1.87 million in the comparable period (31 December 2021: £4.97 million). The loss before tax and intra-Group management and interest charges(2) was a disappointing £1.51 million (30 June 2020: loss £0.36 million, 31 December 2020: loss £1.01 million).

Significant raw material price increases took effect in the period and we were unable to mitigate the effects of these fully by increasing selling prices. We also decided to exit entirely the manufacturing of retail products. Retail manufacture was part of our original turnaround strategy but that strategy is not viable with the current volatility in prices. This has led to one-off costs of approximately £0.28 million associated with the write down of raw materials used solely for retail customers and which is included in the loss before tax for the period. 

Following the period end, headcount has been reduced and, in order to generate cash, manufacturing has been suspended indefinitely as finished stock levels of £0.60 million are sufficient to satisfy foodservice and existing retail customers for several months. We continue to assess the ongoing viability of the Indulgence business in the light of the future sales opportunities, product margins and overhead costs associated with it.

On a more positive note, the company's properties (which are freehold) were independently valued during the period at £2.03 million, an increase of £1.11 million compared to the carrying value of £0.92 million.

Further information relating to Shire and Indulgence is set out in the financial review below and in note 3.

Acquisitions and future strategy

There is a significant degree of instability across the UK economy and consequently we are seeing an increase in potential investment opportunities. Not surprisingly we have reviewed a number of businesses where the continuing uncertainty in relation to energy costs is a particular challenge. Our preference is for investments in companies where we can make a substantive change to effect a turnaround, but high energy costs are not something we can influence. We believe some good opportunities will emerge, but timing is critical and the current macroeconomic and geopolitical situation make that issue very challenging.

Jonathan Lander

Chief Executive

29 September 2022

Note 2: Profit before intra-Group management and interest charges is considered to be a relevant and useful interpretation of the trading results of the business such that its performance can be understood on a basis which is independent of its ownership by the Group.

Financial Review

This financial review covers the Group's performance during the period ended 30 June 2022. It should be read in conjunction with the Chairman's and Chief Executive's Statements.

Overview

Group revenues for the period reached £17.87 million, an increase of £2.15 million compared to the prior comparable period (30 June 2021: £15.72 million, 31 December 2021: £35.58 million). The increase was principally in Shire Foods (£1.93 million), with the balance in Indulgence Patisserie (£0.22 million).

The Group's loss before tax for the period was £1.12 million, an increase of £0.83 million compared to the prior comparable period. This reflects increased losses in Indulgence, partially offset by gains arising from treasury management activities. Group net assets fell to £36.05 million from £37.05 million at 31 December 2021 (30 June 2021: £36.89 million).

Further comment on the statement of financial position is set out below and detailed information about the Group's segments and is set out in note 3 to these interim results, which should be read in conjunction with this financial review.

Food manufacturing

The results of Shire Foods and Indulgence Patisserie, which represent the food manufacturing segment, are shown in the tables below.

Shire Foods

A summary of Shire's recent financial performance is set out in Table A below.

The additional contribution from the growth in revenues was eroded by a fall in the materials margin, which reduced by approximately 4.2% compared to the first half of 2021 and by 4.7% compared to the whole of 2021. This was due to the rapid increase in raw materials' costs which were not, in the timescales available, able to be passed on to customers. Following the period end a number of selling prices have been reset with customers and it is hoped that this will ensure a recovery in margins over time. It is, however, difficult to predict given the continuing inflationary pressures across the economy as a whole.

The margin percentage reduction, along with broadly higher costs for labour and overheads, meant the profit before tax was similar to the previous period, in spite of the increased revenues.

Investment increased in new plant and equipment, with additions in the period of £0.39 million (30 June 2021: £0.18 million, 31 December 2021: £0.27 million). All of these were funded from the Company's own resources and there were no Group loans outstanding at 30 June 2022 (30 June 2021: nil, 31 December 2021: nil).

Indulgence Patisserie

A summary of Indulgence's recent financial performance is set out in Table B below.

The increased losses at Indulgence have been driven to a large extent by continuing raw material price increases - particularly in dairy costs - since the start of 2022. The nature of Indulgence's products (many having a large dairy element) is such that the effect on margins has been significant. Whilst we were able to increase prices with some retail customers, we had to terminate supply with others in view of the mounting costs of ingredients. The risk of continuing to supply product would have been too great in the current inflationary environment. Foodservice margins started to show improvement as price rises took effect later in the period.

As noted in the Chief Executive's Statement, the decision has been taken to cease manufacturing for retail customers, resulting in approximately £0.28 million of one-off costs being recognised in the period. Indulgence has suspended manufacturing altogether since early August and reduced its headcount, as finished goods inventory levels for the foodservice sector had been bolstered in preparation for retail Christmas period launches but, with that retail capacity no longer needed, a period of de-stocking of finished goods is now underway.

The Group continued to make loans during the period in view of the losses. The loans outstanding at the period end (including the original acquisition price and incidental costs of £1.31 million) amounted to £6.83 million (30 June 2021: £4.71 million, 31 December 2021: £5.56 million).

The three wholly-owned properties occupied by the business (of which two are physically linked) were independently valued in July 2022, resulting in an upwards revaluation of £1.11 million (before a deferred tax liability of £0.28 million). This has been credited to reserves. The properties are owned by an entity separate from the trading entity (and their cost is included in the acquisition price of £1.31m), although they are presented as one business above.

Investing and management services

This segment represents our central functions covering Group management, treasury, finance and IT services. The loss before tax and intra-Group management and interest charges(2) for the period was £0.19 million (30 June 2021: loss £0.53 million, 31 December 2021: loss £1.07 million). This is stated after investment income and realised gains from disposal of available-for-sale investments totalling £0.40 million (30 June 2021 and 31 December 2021: nil).

Investment revenues and other gains and losses

During the period the Group invested £4.55 million in available-for-sale investments, the income from which amounted to £86,000. Some of these investments were subsequently sold in the period, realising gains on disposal of £310,000. There was no comparable income or gains in prior periods. The remaining available-for-sale investments are explained further below.

Finance income and expense

The Group's net finance expense was £0.07 million in the period, reflecting low interest rates on cash deposits offset by debt servicing costs (30 June 2021: £0.06 million, 31 December 2021: £0.14 million). In line with previous years, individual Group trading companies utilised leverage wherever appropriate and possible, and without recourse to the remainder of the Group. In the period in question, only Shire Foods borrowed externally, with Indulgence funded from Group resources.

Statement of financial position

Cash and available-for-sale investments

Cash at the period end was £18.80 million (30 June 2021: £23.13 million, 31 December 2021: £21.87 million). In overview, cash outflows reflect the trading losses, repayment of debt and share buy-backs and the purchase of fixed assets and available-for-sale investments. Full details of cash movements are shown in the consolidated statement of cash flows.

At the end of the period there was an investment in available-for-sale investments with a period end value of £1.59 million. The carrying value of this is below the original cost and the unrealised loss of £0.09 million has been debited to reserves.

Earnings per share and share capital

Total basic and diluted loss per ordinary share were (47.9) pence (30 June 2021: loss (15.2) pence; year ended 31 December 2021: loss (11.6) pence).

Purchase of own shares

The Company acquired 52,000 ordinary shares for a total consideration including costs of £622,000 during the period (30 June 2021: nil, 31 December 2021: 3,500 shares for £44,000).

Hedging

It is not the Group's policy to enter into derivative instruments to hedge interest rate or foreign exchange risk.

Key performance indicators (KPIs)

The Group uses key performance indicators suitable for the nature and size of the Group's businesses. The key financial performance indicators are revenue and profit before tax. The performance of the Group and the individual trading businesses against these KPIs is outlined above, in the Chief Executive's statement and disclosed in note 3.

Internally, management uses a variety of non-financial KPIs in respect of the food manufacturing segment, including order intake, manufacturing output and sales, all of which are monitored weekly and reported monthly.

Principal risk factors

The Company and Group face a number of specific business risks that could affect the Company's or Group's success. The Company and Group invests in distressed businesses and securities, which by their nature often carry a higher degree of risk than those that are not distressed. The Group's businesses are principally engaged in the provision of goods and services that are dependent on the continued employment of the Group's employees and availability of suitable, profitable workload. In the food manufacturing segment, there is a dependency on a small number of customers and a reduction in the volume or range of products supplied to those customers or the loss of any one of them could impact the Group materially. Rising inflation, including increases in raw materials and overhead costs, may not be able to be passed on to customers through increased prices and this could result in reduced profitability. Any pandemic or other such similar event which could affect the consumers, suppliers, customers or staff may limit or inhibit the Group's operations.

These risks are managed by the Board in conjunction with the management of the Group's businesses.

Nick Lander

Chief Financial & Operating Officer

29 September 2022

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of changes in equity

Consolidated statement of financial position

Consolidated statement of cash flows

Notes forming part of the unaudited interim results for the period ended 30 June 2022

1 Financial information and basis of accounting

These interim financial statements have been prepared using accounting policies consistent with IFRSs as adopted by the European Union.

These interim financial statements should be read in accordance with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2021. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements. AIM-listed companies are not required to comply with IAS 34 Interim Financial Reporting and accordingly the Group has taken advantage of this exemption.

The comparative figures for the year ended 31 December 2021 have been prepared under IFRS. They do not constitute statutory accounts as defined by the Companies Act 2006. The accounts for the 12 months ended 31 December 2021 received an unmodified auditor's report and have been filed with the Registrar of Companies.

Copies of this statement will be available to members of the public at the Company's registered office: Shire House, Tachbrook Road, Leamington Spa CV31 3SF and on its website www.volvere.co.uk.

2 Significant accounting policies

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2021.

3 Operating segments

An analysis of key financial data by business segment (excluding intra-Group interest and management charges and balances) is provided below. The Group's food manufacturing segment, which is an aggregation of the separate segments of savoury pastry and cake and desserts manufacturing, is engaged in the production and sale of food products to third party customers, and the investing and management services segment incurs central costs, provides management services and financing to other Group segments and undertakes treasury management on behalf of the Group.

Analysis by business segment: