Final Results

8 October 2015

PRODUCE INVESTMENTS PLC

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

FINAL RESULTS

A robust performance achieved against a backdrop of challenging market conditions

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 year ended 27 June 2015.

Key Operational Highlights:

- Continued focus on operational efficiencies:

o closure of the Tern Hill packing facility

o investment in new technology at Floods Ferry and Duns

o improvement in man hours per tonne of over 9% year to date

- Successful completion of integration of Jersey Royal Company on time and with a solid first harvest

- Stronger Group performance in second half driven by Restrain and Rowe Farming

- Since the year end we have secured a three year agreement at a fixed margin with a core retail customer

Key Financial Points:

- Operating profit for the year decreased to £8.04m (2014: £11.1m) driven primarily by challenging market conditions

- Increase in full year dividend to 7.165p (2014: 6.825p) reflecting the Board's confidence in the outlook

- Reduction in net debt to £20.7m at year end (2014: £24.5m)

- Financial impact of Swancote contamination expected to be in the range of £0.3m to £1.5m in FY 2016

Angus Armstrong, Chief Executive, commented:

"The Group has delivered a robust performance this year against a backdrop of highly challenging market conditions with pressure felt throughout the entire supply chain. 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. This remains a key focus for us as we continue to align capacity with demand.

"The metal contamination issue at Swancote Foods, resulting in a product recall, was extremely disappointing. A number of process improvements have been initiated with everything being done to restore customer confidence and Management remains confident in Swancote's prospects.

"Since the year end we have been awarded a three year agreement at a fixed margin with a core retail customer. While this has come with a reduction in overall volumes starting from July 2016 which is clearly disappointing, we are extremely pleased to have achieved this arrangement, a first for our business, a signal of market confidence in Produce Investments and a positive step forward. Consequently, as a result of this reduction in volume, the company 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 well lead to the closure of the company's Kent based packing facility, subject to the outcome of the current consultation process.

"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."

A presentation for analysts will be held at 09.00am this morning at Powerscourt's offices, 1 Tudor Street, EC4Y 0AH.

- End -

For further information contact:

Notes to Editors

The Group is a vertically integrated potato and daffodil company supplying blue chip customers including Tesco, Sainsbury, Asda, Waitrose and Marks & Spencer.

Website: www.produceinvestments.co.uk  

CHAIRMAN'S STATEMENT

Against a backdrop of highly challenging market conditions, the Group has delivered a robust performance in the year to 27 June 2015. The much-documented retailer price wars triggered significant pricing pressure throughout the entire supply chain, resulting in value and volume decline over the past 18 months, although the rate of decline has slowed considerably in recent months. This coincided with an exceptional growing season in 2014 resulting in high yields for potatoes generating a large over-supply of crop and resultant deflationary pressures. As we reported on 26th March, the combination of these factors has had a significant impact on results, with the first half of the financial year particularly affected, resulting in a fall in operating profit versus last year. I am pleased to report that results have improved in the second half year resulting in an operating profit for the year of £8.04m (2014: £11.13m).

Produce has already taken steps to mitigate the impact of these market fluctuations. The closure and subsequent sale for £2.0m of the Tern Hill packing facility and the consequent rationalisation of the remaining packaging operations has resulted in major improvements to the overall efficiency of the Group. 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 any variations in crop on the Group's financial performance.

Dividend

While the market is expected to remain challenging, the Directors are confident about the Group's prospects for the coming year and are pleased to announce an increase in the final dividend to 4.775 pence per share (2014: 4.55 pence), when combined with the interim dividend of 2.39 pence per share (2014: 2.275 pence) results in a total dividend for the year of 7.165 pence per share (2014: 6.825 pence per share). The final dividend will be paid on 3 November 2015 to ordinary shareholders on the register at close of business on 16 October 2015.

Board Changes

I would like to take this opportunity to welcome Neil Davidson to the Board of Directors. Neil brings with him a wealth of experience having worked in the agri-food sector for over 30 years. He has held a number of senior positions including Chief Executive of Arla Foods and was recently appointed a non executive director of WM Morrison Supermarkets plc. He was awarded a CBE in 2006, for his services to the dairy industry.

Outlook

Looking to the year ahead, although recognising we are only circa 60% of the way through harvesting, our best estimates for the current year's crop would indicate average yields and a reasonable quality. We expect the supply of crop to be more aligned to demand with pricing therefore reflecting this more balanced market. We also expect the retail environment to remain fiercely competitive as the market continues to evolve with continued competition from the Discounters, and ever changing consumer shopping habits. However the recent acquisitions and site rationalisation, coupled with our strong business model, puts Produce in a more robust position to handle these pressures. Consequently the Board remains confident that Produce is well positioned to grow organically and to take advantage of any acquisition opportunities.

Given the performance of the Group against a backdrop of very challenging conditions, I would especially like to express my sincere thanks to all employees of the Group who have helped to contribute to these excellent results for the year.

Barrie Clapham

Chairman

CHIEF EXECUTIVE'S REPORT

The 2014 crop was high yielding, with total UK production of 5.74m tonnes compared to 5.58m tonnes in 2013 and 4.49m tonnes in 2012. In addition, the volatility and decline in fresh produce volumes through the major retailers has continued to impact overall volumes, albeit that this trend is now showing signs of slowing and indeed we are now seeing some growth. As a consequence of the high yielding crop and lower volume of sales, supply was therefore much greater than demand. This resulted in much lower free buy prices for potatoes for most of the season which has led to price pressure across most of our customer base. This has resulted in total turnover for the Group of £178.4m, compared to £191.8m for the previous year.

2014 was an exceptionally good growing season producing a large crop of potatoes, which, when combined with a roll forward of 2013 production and falling demand resulted in one of the weakest potato markets witnessed for many years. The pressure this placed on the whole supply chain was significant and returns to growers in most cases fell way short of sustainable levels. However, with a fresh, perishable product such as potatoes it is vital to ensure that the crop does find a market and is moved before quality deteriorates to such an extent that renders the crop worthless. To enable this to happen, tough decisions were made on raw material pricing which put pressure on the grower base for much of the season. The good news however, is that the crop has been moved and the sector now looks to have a more balanced supply and demand status and therefore improved pricing. Without quality growers our business would not function and I would like to record my gratitude to the grower base for their ongoing support of the business throughout such a difficult season. Likewise the staff who manage the grower relationships and have to conduct these difficult negotiations, they have performed admirably in some very challenging situations.

In May 2014 the Group acquired The Jersey Royal Company Limited which grows, markets and supplies early season Jersey Royal potatoes into a number of UK retailers. Integration plans are almost complete and a number of initiatives have been implemented with a view to making the business more efficient and reducing cost. The 2015 growing season produced a high quality crop and we had a very good start to the season. However, the cooler than average start to the summer impacted demand and therefore volume as consumers continued to buy maincrop potatoes at the expense of Jersey Royals. However, we remain very confident about the future prospects of the business and the strategic rationale of the deal remains sound as it strengthens the Group's product offering and also gives the Group greater control and influence over the early season potato market.

On 13 May we announced that Swancote Foods, our processing business experienced a contamination issue relating to traces of metal being found in some of our product. Working in collaboration with our affected customers this resulted in a recall of a number of potato salad and ready meal products. The metal contamination resulted from the failure of an augur in one of our blanchers, which was not subsequently picked up by detection systems and processes further down the supply chain. We continue to work with our insurers and our affected customers and the potential financial impact is still being analysed. We believe the financial impact will be in the range of £300,000 to £1.5million, but, due to this lack of certainty, have not accounted for this cost in the current year. This figure will be finalised when discussions are complete and recognised as an exceptional cost in next year's financial statements. At the time of writing we have installed a temporary solution whilst we await the delivery and final installation of a new blancher. We have subsequently changed a number of processes and are working closely with our affected customers to restore full supply and regain confidence.

I am pleased to report that Restrain Company Limited, our ethylene storage and ripening business, continues to go from strength to strength. Turnover and profitability continue to grow through the increased number of systems that are on lease both in the UK and abroad. The system continues to provide the only residue free solution for sprout suppression in stored onions and potatoes. In addition we continue to seek opportunities for the storage and ripening of new products and expansion into new markets across the World and we are very excited about the potential for growth.

It is also pleasing to highlight that we have had another very successful year growing, picking and supplying daffodils from our Rowe Farming business, based in Cornwall. It is worth stressing that all of these daffodils are picked by hand, sometimes during some fairly challenging climatic conditions from January through to April. In addition to the flower business, Rowe Farming also grow and supply early season potatoes to a number of packers across the UK and I am happy to report that this season's crop has hit its marketing window, is of a better quality and has achieved much improved prices compared to the prior year.

With the closure of our Tern Hill facility in August 2014 and a number of investments made at our remaining packing sites we have improved operational efficiencies, with an improvement in man hours per tonne of over 9% from January 2015 compared with the same period last year. This will remain a key focus as we continue to align capacities with demand against some fairly volatile market conditions.

Our branded fresh potato, GreenVale, continues to build momentum. The brand brings together a unique packaging concept and great tasting variety, which attracts new customers to the category. While the brand is under threat of delisting in one core customer (irrespective of its outstanding performance) we remain committed about building the brand credentials and proposition in the coming years and expect to gain new retail distribution points in the coming months.

Operations remain cash generative and at the year end, total net debt stood at £20.7m compared to £24.5m last year as we continue to pay down debt. We have continued to invest in our sites to improve efficiencies and facilitate the closure of Tern Hill, with total capital expenditure in the year of £5.8m compared to £6.5m last year. This re-alignment of our total operational capacities and the resultant improvement in operating efficiencies should ensure the Group remains competitive for the future.

As the Chairman noted, the growing conditions experienced so far with the low summer temperatures would point to an average yielding crop of reasonable quality. In addition, estimates for the planted area of potatoes indicate a reduction of circa 8% compared to last year. Whilst it is still early, and therefore difficult to predict, we would expect prices for non-contracted free buy potatoes to remain strong as the season progresses. During the course of the last financial year we have been working closely with one of our core retail customers to create a supply chain model that is closer aligned to the prevailing market conditions in any given season. As a result of these discussions we are now expecting a reduction of market share, as of July 2016, from circa 40% to a minimum of 25% of the customer's core retail volume. Whilst this reduction in volume is clearly a disappointment, we are pleased that we have been awarded a three year agreement at a fixed margin and this is a major step forward for the business, reducing the impact of crop value fluctuations on company performance. Further the Group has retained 100% of this customer's organic supply and has increased its supply of the Jersey Royal potatoes for the 2016 season onwards to 100%.

With this reduction in volume I can confirm that the company is currently reviewing its packing facilities, aligning capacity to forecast sales and therefore ensuring that the business remains efficient and cost competitive. This review is also taking into consideration proximity of grower base and procurement requirements and may well lead to the closure of the company's Kent based packing facility, subject to the outcome of consultation. The consultation period is expected to be completed in late November. The changing retail environment will no doubt continue to create an even more competitive marketplace with the pace of change not expected to abate.

We firmly believe that, following the recent acquisitions coupled with the rationalisation of our fresh packing sites, that we are in a much stronger position to deal with these external pressures. The Board and the management team remain confident that Produce Investments is well positioned to grow organically and to take advantage of any acquisition opportunities that might arise in the future.

Angus Armstrong

Chief Executive Officer

CONSOLIDATED INCOME STATEMENT

For the 52 weeks ended 27 June 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 52 weeks ended 27 June 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 27 June 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 27 June 2015

CONSOLIDATED CASH FLOW STATEMENT

For the 52 weeks ended 27 June 2015

Notes

1. Statement of compliance

The Group's financial statement 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 27 June 2015 and applied in accordance with the Companies Act 2006. The financial information set out above does not constitute the Company's statutory report and accounts for the years ended 27 June 2015 or the year ended 28 June 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The annual report and accounts for the year ended 27 June 2015 will be posted to shareholders on 8 October 2015. The results for the year ended 27 June 2015 were approved by the Board of Directors on 7 October 2015 and are audited.

The information contained in this final announcement has been approved by the Board of Directors.

2. Basis of preparation

The financial statements have been prepared on a historical cost basis, except for derivative financial instruments and biological assets, which have both been measured at fair value in line with applicable accounting standards.

3. Earnings per share

4. 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.