Shortfall of €13.7m at Fyffes was indicated

A US expert has agreed before the High Court that information available in early 2000 to DCC chief executive Mr Jim Flavin on the trading performance of Fyffes did not explicitly state that Fyffes would not meet its half-year targets for 2000.

However, Prof Kenneth Lehn said the information showed a shortfall of some €13.7 million in Fyffes' performance in the first quarter of the fiscal year 2000 (beginning November 1999). Given this, it was his view that a reasonable investor would have inferred it would be very difficult to make the half-year predictions. There was also no evidence that such a shortfall could be made up and, in the event, Fyffes' overall shortfall for the first half of fiscal year 2000 was €17 million, he said.

He rejected suggestions by Mr Michael Cush SC, for DCC, that the stock market and analysts were generally aware of trading difficulties for Fyffes from November 1999 and, consequently, that information available to Mr Flavin about such difficulties was not price sensitive. He maintained the information was price sensitive and was not known to the market.

He agreed Fyffes was a volatile business and that individual months and quarters could return performances which were different from the same periods for the prior year. However, he added, there was no shortfall for any previous first quarter of the magnitude seen in the first quarter of fiscal year 2000.

In proceedings against DCC, Mr Flavin and two DCC subsidiaries, Fyffes claims the information available to Mr Flavin was price sensitive and that the defendants breached insider dealing provisions of the Companies Act 1990 in relation to the €106 million sale of the DCC stake in Fyffes over three days in February 2000.

The defendants deny the claims and plead the share sales were properly organised by one of the defendant subsidiaries, Lotus Green Ltd. They also deny the information in question - November 1999 management accounts for Fyffes and a December 1999 trading report (which contained a forecast for January 2000) - was price sensitive.

On the 35th day of the case yesterday, Prof Lehn, who is professor of finance at the University of Pittsburg and who was called as an expert witness for Fyffes, disagreed with Mr Cush's suggestions that the stock market and analysts were aware of Fyffes' trading difficulties in early 2000.

He agreed it was generally known that banana prices were weak at the time and that the euro was low against the US dollar. However, he said, such information was "very different" from the information Mr Flavin had.

Mr Cush read a number of analysts' reports and said these showed analysts were not surprised by the warning. Prof Lehn said analysts would have to say they were not surprised "because they are not expected to be surprised". He said the fall in the stock price that day and the following day showed the warning came as a surprise to the market.

He agreed there was additional information in the profit warning that was not available in the documents distributed to Mr Flavin in January 2000.

Mr Cush also suggested Prof Lehn had used an inappropriate model to reach his conclusion that the Fyffes share price fall on March 20th, 2000 was due to the issuing of a profit warning by Fyffes. Counsel said the model was based on the traditional explanation of a link between a company's earnings and its share price. This was inappropriate because Fyffes was valued in early 2000 as a dotcom stock.

Prof Lehn disagreed. While there was no question that Fyffes' then fledgling ecommerce venture, worldoffruit.com, was being viewed by the market from early 2000 as a positive growth vehicle, he believed its value was based on Fyffes core business value.

If there was information that Fyffes core business was performing behind expectations, this would reduce the value both of the core business and worldoffruit, he said. If anything, that made the information available to Mr Flavin "even more price sensitive".

Another expert witness called by Fyffes, Mr John Brindle, a retired investment fund manager with Standard Life Assurance and founder member of the Irish Association of Investment Fund Managers, said he had reviewed events up to the share deals of February 2000 from an institutional investor's standpoint.

He concluded Mr Flavin was in possession of price-sensitive information, which clearly put Mr Flavin in a privileged position vis-a-vis the market.

He also estimated that, were the information made public, the Fyffes share price would have been about €2.75 and not the €3.20 price at which the stock stood at the time of the first share deal on February 3rd, 2000.

He said the Fyffes share price had doubled over the period from December 1999 to February 2000 and the worldoffruit venture was the dominant factor affecting that price rise. That did not mean the share price would have been immune from the normal influences of the perception of trading and profitability.

Mr Brindle said he also considered it was not unreasonable for Fyffes not to have issued a profit warning prior to March 20th, 2000.

The hearing continues today before Ms Justice Laffoy.