Counsel for Fyffes, Mr Paul Gallagher, yesterday continued his opening of the legal action brought by it against former director Mr Jim Flavin, DCC plc, and two related companies over alleged "insider trading". Mr Gallagher opened detailed information relating to Fyffes's trading performance in 1999 and early 2000, writes Mary Carolan
He said 1999 had been a difficult year for Fyffes due to several factors, including falling banana prices in the very important UK market, adverse currency movements and an oversupply of fruit.
The group had cautiously budgeted for pre-tax profits of €84.1 million for the 2000 financial year. During 1999, a number of exceptionals had accounted for €19 million of €83.9 million in pre-tax profits. Difficult trading conditions in the second half of 1999 were also forecast to continue into the first quarter of 2000.
These matters were outlined to the board on October 29th, 1999, at a meeting of the audit committee of which Mr Flavin was a member and at another board meeting on December 9th, that same year.
At the October meeting, the board was given the full-year results for Fyffes and a budget for the financial year to the end of October 2000, indicating that 1999 second-half poor trading results were continuing largely due to the underperformance of the important banana division.
Mr Gallagher said banana prices and currency movements were key factors which affected Fyffes profits. The budget contained a sensitivity analysis of both those factors. All this information was available to Mr Flavin.
He said that on December 14th, 1999, the Fyffes board had announced to the market that the group predicted 2000 would be a year of growth for the group. This statement was issued after the board expressed its view that an earlier proposed statement by company secretary Mr Philip Halpenny - which referred to "excellent growth" - was too optimistic. A sub-committee of Mr David McCann and Mr Carl McCann was formed to write a statement for the market.
Following the December 14th statement, the Fyffes share price rose from €1.65 to €1.80 and on the following day it rose to €2.
Mr Gallagher said his side would deny that Mr Flavin had sought and was given assurances that Fyffes would meet expectations in the financial year 2000.
He said December 14th share prices indicated that the market was interested in trading performance and in meeting analysts expectations.
He said there was "a world of difference" between the detailed information known to a company board regarding its trading performance and the kind of information mined by the market from someone doing detailed research.
By the end of January 2000, Mr Flavin was in possession of sensitive information relating to Fyffes's performance to the end of October 1999, its performance for November and December 1999, a firm forecast for January 2000 and a 12-month budget to the end of October 2000. This information was not in the public domain.
Mr Gallagher said that his side would deal with the origin and development of Lotus Green which was incorporated in 1995 and became resident for tax purposes in the Netherlands. He would argue that a mechanism was put in place, involving "A" and "B" directors, under which DCC maintained "very significant control" over Lotus Green.
Mr Gallagher said a scheme was put in place to ensure that, when the Fyffes shares were sold they would be subject to Dutch capital gains tax, which permitted share sales to be tax free in certain conditions, unlike Irish tax.
The case resumes on Tuesday. Mr Gallagher's opening is not expected to conclude until Wednesday when Mr David McCann, the chief executive of Fyffes, will be called as witness.
