A metal contamination incident that led to a spate of potato products being recalled earlier this year could cost supplier Produce Investments as much as £1.5 million.
Announcing its full-year results today (8 October), the company said it was still analysing the financial impact of the incident, which occurred at its Telford-based subsidiary Swancote Foods in May, but current estimates put it between £300,000 and £1.5 million.
“Due to this lack of certainty, [we] have not accounted for this cost in the current year,” it added. “This figure will be finalised when discussions are complete and recognised as an exceptional cost in next year’s financial statements.”
The recall was caused by “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,” Produce Investments CEO Angus Armstrong said. As a result, a number of potato salad and potato-based ready meals were recalled from Swancote’s retail customers, including Sainsbury’s and Tesco.
“At the time of writing we have installed a temporary solution whilst we await the delivery and final installation of a new blancher,” Armstrong added. “We have subsequently changed a number of processes and are working closely with our affected customers to restore full supply and regain confidence.”
Financial results
Produce Investments today reported revenues of £178.4m for the year to 27 June 2015, down from £191.8m the previous year. Operating profit fell from £11.1m to £8.04 due to “challenging market conditions”.
“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,” said chairman Barrie Clapham.
“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. 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.”
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