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Produce Investments digs into Jersey Royals market

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Produce Investments gained a grip on one of the world's most famous potato varieties by buying Jersey Royal Company, which has suffered two years of losses.

Produce Investments agreed to pay £15m for Jersey-based Jersey Royal Company, one of the biggest growers of the Jersey Royal potato prized, besides for its taste, as an early-season variety, a factor which often allows producers a price premium.

"I am delighted we have been able to purchase such a well-known business," said Barrie Clapham, the chairman of Produce Investments, which is paying for the acquisition in part through a "significantly oversubscribed" £6.0m share issue.

The acquisition "takes the company into a very significant sector of the potato market," Mr Clapham said, adding that "we are both excited and confident about the future earnings potential".

'Poor control'

In fact, Jersey Royal Company, while significantly profitable in the past - reporting an operating profit of £4.98m in 2010, including the contribution from its Kent Potato Company packing subsidiary – was hit two years ago by persistent rains which provided dismal conditions for potato growers in much of northern Europe.

The group fell to an operating loss of £2.28m in 2012, and remained narrowly in the red last year too, thanks to deterioration at its Jersey operation.

Besides the poor weather "we believe operational issues also had a part to play, Shore Capital said, proposing that "poor control" of stocks may also have had a role.

"We believe it was a combination of poor seed control which, when combined with challenging weather back in 2012 and 2013, led to a poor yield performance in Jersey," said the broker, which arranged the share issue.

Jersey Royal producers typically hold back about one-third of their crop every year for seed.

'Recovery opportunity'

However, with Jersey Royal Company offering "a recovery opportunity" for Produce Investments, Shore Capital was supportive of the deal, saying it made "strategic and financial sense".

Jersey Royal is being purchased for roughly its book value, or for 4.5 times forecast earnings before interest, tax, depreciation and amortisation (ebitda) for 2015, a multiple which the broker termed "not overly aggressive".

Shares in Produce Investments, which also agreed to buy the Peacock Farm potato washing and packing site in Jersey within three years for £6.35m, stood 2.0% higher at 264.75p in afternoon deals in London.

The new shares were placed at 220p.

Prices tumble

The deal comes at a time when UK potato prices have retreated considerably from highs reached after the poor 2012 harvest.

Free-buy crop, that not sold into contract, are selling at £137.88 a tonne a week ago - down 65% year on year – according to the Potato Council.

An improved harvest last year of 5.5m tonnes, up 23% year on year, has helped rebuild British potato stocks to 1.0m tonnes as of the end of March, up 25% year on year, the council said last week.


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