Despite announcing a €20 million special dividend, Fyffes saw its shares tumble by more than six per cent yesterday amid growing concern about the uncertain outlook facing the company.

Although the fruit importer announced a once-off dividend of 5.72 cent per share and said it expected to report strong growth this year, the shares fell 15 cent, or 6.6 per cent, to €2.11 as it warned it faced "significant challenges".

In addition to the €40 million increase in duty costs it faces due to reform of the EU banana regime, higher shipping and fuel costs will cost the group a further €15 million next year. "These will need to be recovered from customers and suppliers," Fyffes said.

It also said it would take time to assess the impact on the market of the elimination of quotas on banana volumes imported from Latin America.

"2006 and beyond is unchartered territory for the firm and its peers in the EU market," Liam Igoe, analyst at Goodbody Stockbrokers, noted. "We expect the banana business to see greater volatility in prices and margins and, on average over a cycle, lower average margins."

Mr Igoe is reducing his 2006 forecasts for Fyffes by around one-third to reflect the uncertainty and likely margin squeeze from the new EU banana regime.

According to Merrion Stockbrokers, Fyffes faces a challenging task in recovering the extra costs it faces from its customers and suppliers in what is likely to be a far more competitive environment.

If it fails to recover these costs, earnings per share could decline next year by more than 40 per cent, or 13-14 cent, putting "significant pressure" on the share price, despite the company's strong balance sheet and property assets, Merrion says.

In contrast, 2005 should prove a bumper year for the group, although it is now of mainly historical interest to investors.

"Market conditions, particularly for Fyffes' tropical produce operations in continental Europe, have remained strong during the second half of the year," it said.

As a result, Fyffes is expecting a percentage increase in adjusted earnings per share in the mid-to-low 20s, ahead of its expectations and market forecasts. The strong performance this year prompted the announcement of the special dividend, to be paid on March 3rd.