Final Results

29 September 2016

PRODUCE INVESTMENTS PLC

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

FINAL RESULTS

Another robust performance with operating profit increasing by over 14%

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 52 weeks ended 25 June 2016.

Key Operational Highlights:

- Improvement in operating profit of over 14%

- Continued focus on operational efficiencies:

o closure of the Kent packing facility

o improvement in man hours per tonne of over 8% for the full year

- Conclusion of uninsured element of product recall claims relating to Swancote Foods

- Board changes: Barrie Clapham, Non-Executive Chairman to step-down at AGM with Neil Davidson, currently Non-Executive Director, to be appointed as replacement, subject to shareholder approval; and Brian Macdonald, Finance Director will step down at the end of December 2016 to be succeeded by Jonathan Lamont, the current Group Financial Controller, subject to the satisfactory completion of the necessary regulatory requirements

Key Financial Points:

- Operating profit for the year increased to £9.21m (2015: £8.04m) driven primarily by more stable retail market conditions

- Increase in full year dividend to 7.32p (2015: 7.165p) reflecting the Board's confidence in the outlook

- Reduction in net debt to £18.1m at year end (2015: £20.7m)

- Exceptional charges amounting to £4.63m, relating to the impairment and closure of Kent packing site, and exceptional charges regarding the product recall at Swancote Foods

Angus Armstrong, Chief Executive, commented:

"I am pleased to report that Produce Investments has delivered a robust performance this year with a significant increase in overall operating profit of over 14%. Although market conditions remained challenging, during the year we saw a notable improvement with greater retail stability in both volume and value. By working with one of our core retail customers we have been able to create a supply chain model more closely aligned to prevailing market conditions and which mitigates against the impact of any market fluctuations.

"We have continued to focus on and improve our operational efficiencies with the closure of the Kent packing facility to remove surplus capacity and improve our man hours per tonne.

"The impact of the product recall at Swancote Foods has been successfully concluded and the uninsured element has now been settled. Following the recall we installed a new blancher, improved our processes and worked hard to restore customer confidence. I am pleased to say that Swancote Foods is now well positioned to meet future demand. 

"The Board expects market conditions to remain challenging in the near term. However, with our continued focus on operational efficiencies and improving the supply chain with retailers, we are well placed to deal with these pressures. We remain confident that Produce Investments is in a strong position to grow and take advantage of any acquisition opportunities which may arise.

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

I am pleased to report that following a challenging 2015, the actions taken by the Board to address the market conditions has resulted in a significant improvement in the operational performance of the Group with operating profit for the Group increasing by over 14% to £9.2m (2015: £8.0m). This increase is stated before exceptional items relating to the closure of Kent and costs associated with the product recall at Swancote Foods.

As we highlighted last year, we are working closely with our core retail customers to create a supply chain model that is much 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. This has helped to deliver a more robust financial performance in the 52 weeks to 25 June 2016.

We continue to strive to increase operational efficiencies and, where possible, align production capacity to forecasted sales. During the year we conducted a review of capacity across our packing facilities, and along with consideration of the proximity and geographical spread of our grower base, we took the decision to close our pack house in Kent. Following a period of consultation which concluded on 10 November 2015 this decision was ratified and we ceased production in early December, with the volume being transferred to our two sites at Floods Ferry and Duns.

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 4.88 pence per share (2015: 4.775 pence), when combined with the interim dividend of 2.44 pence per share (2015: 2.39 pence) results in a total dividend for the year of 7.32 pence per share (2015: 7.165 pence per share). The final dividend, conditional on shareholder approval, will be paid on 1 November 2016 to ordinary shareholders on the register at close of business on 7 October 2016.

Board changes

I have been Chairman for more than ten years now and during that period the business has changed a great deal, with a number of successful acquisitions, site rationalisations, listing on the AIM market in November 2010 and the creation of a much stronger management team. I feel the business model is more resilient, more diverse and well placed to handle any pressures that it might encounter. Consequently, I believe it is an appropriate time for me to step down as Chairman, and I will do so following the Annual General Meeting on 28 October 2016. I am pleased to announce that Neil Davidson, who was appointed to the Board on 29 June 2015, will take over as Chairman, subject to shareholder approval at the Annual General Meeting. Neil has held a number of senior positions inside the industry, including Chief Executive of Arla Foods and was recently appointed as a non-executive Director of WM Morrison Supermarkets plc and I am confident his experience will be beneficial to the Group. The Group has also today announced that Brian Macdonald, Finance Director intends to leave the Board at the end of December 2016. Brian will be succeeded by Jonathan Lamont who joined the business as Group Financial Controller at the start of July. I would like to thank Brian for his significant contribution to the business and I wish Jonathan all the best in his new role.

Outlook

Looking at the year ahead, while recognising we are only 50% of the way through harvesting, our best estimates for the current year's crop would indicate average yields and average quality. We expect the supply of crop to be roughly aligned to demand with pricing reflecting a balanced market. Whilst we expect the retail environment to remain extremely competitive, the new supply chain model we have implemented with a core customer, which is more aligned to prevailing market conditions reduces the impact of any variations in crop on the Group's financial performance. We do not envisage any major impact of Brexit on the business in the short term, although we continue to monitor the situation closely as a significant proportion of our workforce originates from outside of the UK.

The recent acquisitions and improved diversity, along with the new supply chain model ensure Produce is better placed to deal with any external pressures. The Board remains confident that Produce is in a strong position to grow organically and to take advantage of any acquisition opportunities.

Given the growth in operating profit against 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 2015 season resulted in an average yielding crop, with total production of 5.43m tonnes compared to 5.74m tonnes in 2014 and 5.58m in 2013. Sales of fresh potatoes stabilised during the year, both in value and volume terms. In the 52 weeks to end of June 2016 value declined by 1% against a decline of 14.5% in the prior year, and volume increased by 0.9% up from 0.3% in 2015. During the year crop prices have been relatively stable, however we did experience an increase in the price of free-buy crop towards the end of the year as demand outstripped supply. This resulted in a higher price for the crop at the end of the financial year, which has continued into the start of the new financial year.

During May 2015, we announced that our processing business, Swancote Foods 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 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.

Throughout this period we continued to work with both our insurers and our affected customers to bring this matter to a satisfactory conclusion. I am pleased to report that matters have been concluded and the net cost to the business for the un-insured elements of the claim have been finalised, resulting in an exceptional charge of £571,000. This is at the lower end of expectations that we indicated last year of between £300,000 and £1.5 million. We have installed a new blancher and changed a number of processes to ensure we are best placed to meet future requirements. We believe Swancote Foods is well positioned to take advantage of new business development opportunities and gain additional volume.

During the last financial year we announced that we were working closely with one of our core retail customers to create a supply chain model that is closer aligned to prevailing market conditions in any given season. As a consequence of this review, we agreed a reduction in the core volume that we supply to this customer, which came into effect in early July 2016. Whilst this reduction in volume was clearly a disappointment, we are pleased that we have been awarded a three year contract which is a major step forward for the business, reducing the impact of crop value fluctuations on company performance.

We announced a review of the alignment of production capacities to forecast sales last October, with the anticipated closure of our Kent based packing facility. Following a period of consultation, which was concluded on 10 November 2015, a decision was taken to close the site and packing in Kent ceased in early December 2015, with all volume transferred to our two sites in Cambridgeshire and Scotland. The team managing the process did an excellent job in difficult circumstances and I am pleased to report that the vast majority of people who were made redundant through the process have managed to secure alternative employment in the area.

Following the closure of the site we have transferred both growing and packing equipment to our other growing and packing operations. However, it is still necessary to impair the property and equipment which requires a one-off non cash impairment charge of £2.62m. In addition to this, redundancy costs and other exceptional charges have been incurred totalling £0.97m, which have also been included in exceptional charges for the financial year to 25 June 2016. We are actively working with local agents to consider all possible options for the site, which range from outright disposal, partial development or rental opportunity.

During the year we have invested heavily in upgrading both our IT infrastructure and applications. At the end of July 2015 we completed the transition of our in-house servers to a cloud based external provider. This minimises the risk to the Group from a serious hardware failure, whilst at the same time improving both disaster recovery and contingency procedures. At the same time we took the decision to upgrade our core business applications solution.. As is normal in these instances, it was necessary and appropriate for the business to review its operating procedures and practices before implementing a new system. This project commenced last year and went live at one of our sites in June 2016. Although there were some early teething problems, as expected when undertaking a change project of this nature and scale, the operating practices have now settled down. Whilst there is still more to do as we roll-out the new processes and operating procedures to our remaining sites, I am pleased with where we are and confident that a number of business benefits will be delivered.

It is pleasing to highlight that we have again had another very successful year growing, picking and supplying daffodils from our Rowe Farming business, based in Cornwall. All daffodils are picked by hand, often in very challenging climatic conditions, from January through to April, with this year being no exception. In addition to the flower business, Rowe also grow and supply early season potatoes to a number of customers across the UK and I am pleased to report that although the season was one to two weeks late due to the adverse Spring weather, this season's crop largely hit its marketing window.

In May 2014 the Group acquired The Jersey Royal Company Limited, which grows and markets early season Jersey Royal potatoes into a number of UK retailers. The 2016 growing season, similar to Cornwall, was running a week to ten days behind but nevertheless we still managed to produce a high quality crop with low waste levels. Demand from most of our customers was up on last year. Overall the result was a significant improvement on the previous year and we remain very confident about the future prospects for the business. The strategic rationale of the acquisition 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.

Over the last two years we have closed packing facilities at Tern Hill and Kent, removing a significant amount of surplus capacity. Improving our operational efficiencies will always remain a key focus as we continue to seek to align capacities against future demand. In the year to June 2016 aided by the closure of Kent and reallocating volumes to our remaining sites in Cambridgeshire and Scotland, man hours per tonne, a key measure used for operational efficiency improved by nearly 9%.

Operations remain cash generative and at the year end, total net debt stood at £18.1m compared to £20.7m last year as we continue to pay down debt. We have continued to invest in our sites, improving efficiencies which helped facilitate the closure of both our Kent site in 2015 and in 2014, Tern Hill. Total capital expenditure in the year amounted to £3.7m compared to £5.8m last year. This re-alignment of our operational capacities and resultant improvement in operating efficiencies should ensure the Group remains strongly competitive for the future.

As the Chairman noted, the growing conditions experienced so far, with a wet and late spring followed by reasonable summer temperatures, would point to an average quality crop and yield. Estimates for the planted area of potatoes would indicate an increase of 4.3% compared to last year. Whilst it is still early in the season and therefore difficult to make predictions, we would expect prices for non-contracted free-buy potatoes to be in line with those that have been contracted.

We strongly believe that following the acquisitions of Rowe Farming and the Jersey Royal Company, coupled with the rationalisation of our fresh packing sites, we are in a much stronger position to deal with external pressures that we might encounter. The Board and the senior management team remain confident that the Group is well placed 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 25 June 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 52 weeks ended 25 June 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 25 June 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 weeks ended 25 June 2016

CONSOLIDATED CASH FLOW STATEMENT

For the 52 weeks ended 25 June 2016 

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 28 June 2014 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 28 June 2014 or the year ended 29 June 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the registrar of companies, and those for 2014 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 28 June 2014 will be posted to shareholders on 29 September 2014. The results for the year ended 28 June 2014 were approved by the Board of Directors on 26 September 2014 and are audited.

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

Basis of preparation

The Group's consolidated financial statements 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 25 June 2016 and applied in accordance with the Companies Act 2006. The accounting policies which follow set out those policies which apply in preparing the financial statements for the period.

These consolidated 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.

Earnings per share

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.