Fruit group Fyffes reported an expected but significant decline in pretax profit last year, resulting from the lifting of restrictions on European banana imports, writes Claire Shoesmith.
The company also said it planned to double the size of the business over the next five years.
Fyffes, which at the start of the year spun off its general produce division, recorded profit before tax, exceptional items and shares of joint ventures of €22.3 million, down nearly 75 per cent on the previous year. Combined with the general produce business, now known as Total Produce, pretax profit halved to €58.4 million. Total Produce on its own recorded a 3 per cent increase in profit, to €36.1 million. It will release its own results statement next week.
Revenue increased by 5.7 per cent, to €508 million, for Fyffes alone, and by 16 per cent, to €1.6 billion, for Total Produce.
Fyffes attributed the increase in revenue to the impact of the acquisition of Brazilian melon producer Nolem in January 2006 and the full-year contribution from Turbana in the US.
In addition, Fyffes, which in its current form focuses on tropical fruit, increased its banana volumes by 6 per cent and its pineapple volumes by 25 per cent during 2006. The melon business did not fare quite so well as a result of currency issues involving the Brazilian real.
The overall results were broadly in line with analysts' expectations, though the figures for Fyffes on its own were slightly below some forecasts. As a result, the shares dropped 4.4 per cent, or five cent, to close at €1.10, though volume was light.Total Produce closed unchanged at 88 cent after dropping as much as 3.4 per cent earlier in the day.
Chairman David McCann said it had been an eventful year for Fyffes, which was now a very different company to what it had been this time last year. During the year, Fyffes also spun off its property interests into a separate company called Blackrock International Land, which in February reported profits of €13.9 million between May and December.
Mr McCann said Fyffes planned to double the size of its business over the next five years through organic growth and acquisitions. He said the company would seek to expand its geographical reach, which is currently focused on Europe. One-quarter of the growth would be organic, he said.
Fyffes is forecasting earnings before interest and tax (Ebit) for 2007 of about €20 million, in line with some analysts' forecasts, though below that of NCB analyst Paul Meade. This figure compares with €19 million in 2006.
Changes to the banana regime in the EU, which is under pressure from the World Trade Organisation, which lifted restrictions on imports, accounted for an exceptional cost of almost €41 million last year. Higher fuel costs also had an impact on profitability, Mr McCann said.
The company suffered as a result of significant cost inflation, with shipping and fuel both costing more, while exchange rates were less favourable.
Mr McCann said the average banana selling prices so far this year had been lower than in the same period last year, particularly in continental Europe. However, he expected prices to come more into line with those seen last year.
Fyffes will pay a final dividend of 1.70 cent, just one-third of the 2005 payout of 5.20 cent.
