Fyffes plc Annual Report 2005

Transcription

1 Fyffes plc Annual Report 2005

2 Group profile and strategic vision Fyffes is one of the largest fresh produce distributors in Europe and among the five largest globally. The Group operates from over 75 locations in more than ten countries, mainly in Europe. The company is listed on the Irish and London Stock Exchanges. The Group markets the widest selection of the finest fresh produce under some of the best known brand names in the industry including Fyffes, Turbana, Coplaca, Cape and Outspan. Fyffes and its joint venture operations employ more than 4,800 people. Total turnover in 2005 was billion. Shareholders equity at 31 December 2005 amounted to in excess of 500 million, including net cash balances of 171 million. Management s continuing focus is to maximise the return on investment for the company s shareholders. Our goal is to achieve this by: Consistently meeting and exceeding the requirements of our customers Sourcing the finest quality produce from the best suppliers Employing the most innovative and environmentally sound practices Maintaining state-of-the-art facilities and logistical services Pursuing every possible efficiency and synergy in the supply chain Recruiting and developing the highest calibre personnel Expanding our operations through strategic acquisitions and alliances Our commitment to these principles will ensure that the Group is uniquely placed to serve the requirements of our customers with the most complete basket of the finest quality fresh produce all year round, together with the necessary support services. It is our long-term strategic vision to develop Fyffes into the most successful operator in the global fresh produce industry. This report has been printed on environmentally friendly paper

3 Contents Page Shareholder Information 2 Financial Highlights and Five Year Summary 3 Chairman s Statement 4 Directors and Secretary 6 Corporate Social Responsibility 8 Group Structure 10 Financial and Management Strengths 12 Review of Operations for Financial Review for Financial Statements 27 Notice of Annual General Meeting 121 Index to Annual Report 123 Fyffes plc Annual Report 2005 Page 1

4 Shareholder Information Share price (euro cent) High Low 31 December Market capitalisation The market capitalisation of Fyffes plc at 31 December 2005 was 804 million. The ordinary share price at close of business on 3 March 2006 was 2.15, giving a market capitalisation at that date of 752 million. Investor relations Investors requiring further information on the Group are invited to contact: Registrar Administrative queries about holdings of Fyffes plc shares can be directed to the company s registrar: Seamus Keenan Computershare Services (Ireland) Limited Group Investor Relations Manager Heron House Fyffes plc Corrig Road 29 North Anne Street Sandyford Industrial Estate Dublin 7, Ireland. Dublin 18, Ireland. Telephone: Telephone: Fax: Fax: [email protected] [email protected] Website contains a wide range of detailed information on the Group s activities and products, together with all the key financial data on the company. It is updated on a continuing basis for all company announcements and other relevant developments, including share price movements. Annual General Meeting The Annual General Meeting of the company will take place at the Burlington Hotel, Ballsbridge, Dublin 4, Ireland on Tuesday 30 May 2006 at a.m.. Notice of the meeting is set out on pages 121 to 122 and a personalised proxy form was included in the mailing to shareholders of this annual report. Amalgamation of accounts Shareholders receiving multiple copies of company mailings as a result of a number of accounts being maintained in their name should write to the company s registrar, at the above address, to request that their accounts be amalgamated. Payment of dividends Shareholders may elect to have future dividends paid directly into a nominated bank account by completing the mandate form which accompanies each dividend payment or by writing to the company s registrar at the above address. Dividends are ordinarily paid in euro; however, for the convenience of shareholders with addresses in the United Kingdom, such dividends are paid in Sterling unless requested otherwise. Fyffes plc Annual Report 2005 Page 2

5 Financial Highlights * Increase Group revenue 1,742m 1,512m 15.2% Revenue (incl share of joint ventures/associates) 2,174m 1,954m 11.3% Adjusted profit before tax ** 121.8m 91.1m 33.6% Profit before tax 105.8m 82.7m 27.9% Adjusted fully diluted earnings per share *** cent cent 25.3% Full year dividend per share cent 6.73 cent 87.4% Shareholders equity 500.7m 420.3m 19.1% * Figures for 2004 have been restated to reflect a change in accounting policy for property valuation ** Before exceptional items, share of tax of joint ventures/associates and intangibles amortisation *** Before exceptional items and intangibles amortisation Five Year Summary Group revenue 1,741,936 1,512,268 1,605,801 1,495,612 1,602,755 Revenue (incl share of joint ventures/associates) 2,174,006 1,953,815 1,924,624 1,836,547 1,995,283 Adjusted profit before taxation* 121,757 91,133 71,627 68,122 63,554 Profit on ordinary activities before taxation 105,819 82,729 71,798 63,074 57,653 Profit on ordinary activities after taxation 95,142 72,823 62,624 50,404 43,610 Adjusted earnings per share (cent)** Dividend per share (cent) Shareholders equity 500, , , , ,086 Figures for 2003, 2002 and 2001 are as originally stated in accordance with Irish GAAP, while the figures for 2004 and 2005 are stated in accordance with IFRS and reflect the impact of the change in accounting policy in respect of the valuation of properties including investment property * Before exceptional items, share of tax charge of joint ventures/associates and intangibles amortisation ** Before exceptional items and intangibles amortisation References to International Financial Reporting Standards (IFRS) in this annual report refers to IFRS as adopted by the EU. Exceptional items refer to the items set out in note 6 of the financial statements which are presented separately in the income statement. Fyffes plc Annual Report 2005 Page 3

6 Chairman s Statement Carl McCann, Chairman Fyffes was very pleased to deliver another record performance in 2005, with adjusted profit before tax amounting to million, 33.6% ahead of 2004, and adjusted earnings per share of cent, up 25.3%. The Group s operations in Continental Europe, in particular, benefited from very favourable market conditions throughout the year. Reflecting this strong performance, a special second interim dividend amounting to 20 million (equivalent to 5.72 cent per share) was paid on 3 March Combined with the first interim dividend of 1.69 cent per share and the proposed final dividend of 5.20 cent per share, the total dividend in respect of 2005 will amount to cent per share, representing a 5.5% yield based on the average share price for the year. Excluding the special dividend, the yield was 3%. There have been a number of significant changes in the composition of the Board recently. Neil McCann retired as a director in December 2005, after more than fifty years in the company. Throughout this time, he was the driving force behind the development of the Group into one of the largest fresh produce companies globally and he can be very proud of his achievements in this regard. He has been an extraordinary leader, an inspiration to everybody in the business and hugely respected in the industry. It is fitting that he has stepped down in a year when the Group achieved record results. Denis Bergin also retired as a director in December The Board has greatly valued his advice both as a non-executive director and, previously, as the Group s legal advisor for many years. We are very pleased to welcome Coen Bos, Managing Director of the Group s Tropical Produce division, and Rory Byrne, Managing Director of its General Produce division, who were appointed as directors with effect from 1 January Their extensive experience and knowledge of the fresh produce industry will be a great asset to the Board. Fyffes plc Annual Report 2005 Page 4

7 Fyffes was very disappointed with the EU s decision in late 2005 to revise its system of regulating banana imports, as further explained in the Review of Operations on page 14. Taking into account the impact of the previously announced 55 million increase in costs, arising mainly from this change, trading in the first two months of 2006 has been broadly in line with the Group s expectations. In December 2005, Fyffes announced its intention to de-merge certain of its property activities and to establish a new, separately quoted property company which will have initial net assets of approximately 200 million. It is proposed that Fyffes shareholders will directly own 60% of this new company and will receive shares corresponding to a book value of 120 million, equivalent to 34 cent for each Fyffes share held. Fyffes will own the remaining 40% with a book value of 80 million, equivalent to 23 cent per share. Initially debt free and managed by a highly experienced property team, this new company will be well placed to further develop its portfolio and to pursue new opportunities on a significantly greater scale than would be possible within the current Group structure. Detailed documentation will be posted to shareholders in advance of an EGM to be held in late April 2006, seeking approval for this de-merger. Fyffes remains ambitious to apply the Group s substantial resources and management expertise to continue to develop its business organically and through further successful acquisitions and alliances. The Board is keenly focused on enhancing shareholder value, as demonstrated by its property de-merger initiative. Assuming the de-merger is approved at the EGM, shareholders will have received direct distributions from Fyffes totalling 164 million in the last twelve months; 120 million arising from the de-merger, 24 million in normal dividends paid during 2005 and the 20 million special dividend paid on 3 March Fyffes success is the result of having the best people in the business and we are very grateful for their dedication and skill. The level of effort and commitment that is involved, by so many people, in building up this great organisation and in achieving its current scale cannot be underestimated. These qualities will continue to be vitally important to the Group as it faces the challenges and opportunities presented by the industry. Carl McCann Chairman 3 March 2006 Fyffes plc Annual Report 2005 Page 5

8 Directors and Secretary C.P. McCann (52) Chairman, BBS, MA, FCA Carl McCann was elected Chairman in He joined the Group from KPMG in He is Chairman of the nomination committee. He is an Irish Government nominee to InterTradeIreland, the Trade and Development Body established by the North- South Ministerial Council of Ireland. J.F. Gernon (52) Group Finance Director, FCCA Frank Gernon joined the Group in He has held various senior accounting and financial positions in the Group, including Company Secretary and Chief Financial Officer. He was appointed Group Finance Director in He is Chairman of the risk committee. J.D. McCourt (59) Non-Executive, MA, MBA Declan McCourt was appointed to the Board in 2003 and is a member of the compensation and nomination committees. He is chief executive of automobile distributor, the OHM Group. He qualified as a barrister. He is a member of the Court of Bank of Ireland, a director of Dublin Docklands Development Authority, Chairman of the Mater Hospital Foundation and a director of a number of other companies. W.M. Walsh (44) Non-Executive, MSc Willie Walsh was appointed to the Board in He is Chief Executive of British Airways plc. He was previously Chief Executive of Aer Lingus Group plc, having joined that company in 1979 and subsequently holding a number of senior management positions including Chief Operations Officer. D.V. McCann (47) Chief Executive, BCL David McCann joined the Group in 1986, having previously practised as a partner in a leading Dublin law firm. He became Group Managing Director in 1989 with responsibility for the Group s operations. He was appointed Chief Executive in He is a member of the nomination committee. R.B. Hynes (48) Non-Executive, BCL, AITI Rose Hynes was appointed to the Board in She is Chairman of the audit committee and a member of the risk and nomination committees. She was a non-executive director of Aer Lingus Group plc from 1997 to 2002 and previously held a number of senior executive positions with GPA Group plc and Debis AirFinance. She is a director of Shannon Airport Authority plc and Bank of Ireland Mortgage Bank plc. Fyffes plc Annual Report 2005 Page 6

9 R.P. Byrne (45) Executive, B Comm, FCA Rory Byrne joined the Group in 1988 from KPMG. He has held a number of senior positions within Fyffes including Finance Director of the Group s UK business and Managing Director of its Spanish operations. He was appointed to his current position of Managing Director of the Group s General Produce division in He was co-opted to the Board on 1 January C. Bos (51) Executive Coen Bos was a merchant navy ship s master and active at sea until He subsequently joined Velleman & Tas BV in Holland and was its Banana Marketing Director when it was acquired by Fyffes in He was appointed to his current position of Managing Director of the Group s Tropical Produce division in He was co-opted to the Board on 1 January G.B. Scanlan (72) Non-Executive, FIB Gerry Scanlan was appointed to the Board in He is a member of the audit, risk and nomination committees, Chairman of the compensation committee and the nominated senior independent non-executive director. He is a former Group Chief Executive of Allied Irish Banks plc and a former Chairman of the Irish Stock Exchange. J.P. Tolan (42) Corporate Development Director, B Comm, FCA Jimmy Tolan joined Fyffes in 1990 from KPMG. He has managed the Group s acquisitions team since He was appointed to the Board as Corporate Development Director in Dr. P. F. dev. Clüver (64) Non-Executive, MBChB, ChM, MD, PhD Dr. Paul Clüver was appointed to the Board in He is Chairman of Capespan Group Holdings Limited in South Africa. He is also Chairman of Unifruco, Vinfruco and Kromco in South Africa. He is a trustee of the Worldwide Fund for Nature SA. P.T. Halpenny (53) Company Secretary, BBS, FCA Philip Halpenny joined the Group in 1991 from PricewaterhouseCoopers as Special Projects Manager. He became Managing Director Corporate Affairs in 1996 and was appointed Company Secretary in Fyffes plc Annual Report 2005 Page 7

10 Corporate Social Responsibility Fyffes is aware of the social and environmental issues associated with the products that it sources and sells, particularly as a large proportion of its fresh produce supplies originate in developing countries. The Group addresses this aspect of its operations in a number of ways: Fyffes plc Annual Report 2005 Page 8

11 EUREP GAP Accreditation Fyffes is a founder member of the European Retailers Codes of Best Practice The Group has established Codes of Best Practice with which it requires its direct banana and pineapple suppliers to comply. These are designed to reduce the impact of agricultural production on the environment and to ensure safe working conditions and fair treatment for workers in compliance with internationally accepted labour standards. Compliance with the Codes is generally monitored on a six-monthly basis and our internal review procedures are subject to regular independent evaluation. Environmental Protocol (EUREP), established by major food retailers and their suppliers across Europe to address consumer concerns about food safety, environmental protection and worker welfare and to promote safe and sustainable agriculture. EUREP has adopted an extensive range of guidelines on these matters, resulting in the EUREP Good Agricultural Practice (EUREP GAP). This standard establishes the minimum requirements to be met by growers of fruit and vegetables that supply European retailers. Fyffes first achieved EUREP GAP accreditation in 2003, in respect of the majority of the banana and Ethical Trading Initiative Fyffes is a member of the UK government-sponsored pineapple farms from which it takes direct supplies, and this is renewed annually. Ethical Trading Initiative (ETI). The ETI is an alliance of companies, non-governmental organisations and labour representative bodies. Its purpose is to promote and improve the conditions of workers worldwide who produce products for sale in the UK market. All of the Group s tropical management team and many of our banana and pineapple suppliers have received formal training in this regard. Through these and other social responsibility measures, Fyffes aims to provide the finest quality produce, grown under the safest working conditions, following the fairest labour practices and with the minimum environmental impact. The Group is pro-active in these matters and actively participates in industry forums on social, ethical, health and safety and environmental issues. In addition, Fyffes is satisfied that it has appropriate risk management procedures in place to ensure it complies with the highest standards in relation to food safety regulations. Fyffes plc Annual Report 2005 Page 9

12 Group Structure The Group broadly divides its operations into Tropical Produce activities and General Produce activities. Fyffes plc Annual Report 2005 Page 10

13 Tropical Produce Division This division comprises the Group s procurement, farming and shipping activities in respect of bananas, pineapples and melons. Bananas and pineapples have similar, all year round, production and harvesting characteristics. The Group sources its tropical produce in broadly the same geographic regions, mainly in Central America. This enables Fyffes to achieve efficiencies and synergies in managing these activities, particularly in procurement, shipping and other logistics and quality control. Coen Bos is Managing Director of this division. The Deputy Managing Director and Finance Director is Tom Murphy. The Group procures its bananas from a wide variety of sources, including Central and Latin American suppliers, principally in Colombia, Costa Rica and Ecuador and from EU and African, Caribbean and Pacific (ACP) producers including the Canary Islands, Belize and the Windward Islands. The Group typically operates through long term supply contracts with the best local producers. Fyffes is involved in growing pineapples on a number of large farming projects in Central America, on a joint venture basis with local producers. Production from these farms continues to increase and they are expected to be at full production within the next twelve months. General Produce Division In its General Produce division Fyffes normally acts as marketer and distributor for the major international producer organisations in particular for the key apple, pear, citrus and grape categories. This enables Fyffes to provide its customers with the finest brands in the industry, from both the Northern and Southern Hemisphere on a year round basis, including Cape and Outspan. Rory Byrne is Managing Director of this division. The Finance Director is Frank Davis. Distribution Network One of Fyffes key strengths is its first-class distribution network that ensures we can deliver produce to our customers in the optimum condition. The Group operates from more than 75 separate locations, comprising banana ripening centres, central distribution warehouses and traditional wholesale markets. These state-of-the-art facilities are strategically located near large centres of population and road networks to maximise the opportunities for market penetration. The Group has recently acquired 60% of Nolem, a melon producer in Brazil which sells nine million boxes per annum, mainly in Europe. Fyffes plc Annual Report 2005 Page 11

14 Financial and Management Strengths Management has developed comprehensive and exacting financial, operating and reporting controls that are applied consistently across the Group in order to manage the business efficiently and to protect the interests of all stakeholders. Fyffes plc Annual Report 2005 Page 12

15 Balance Sheet Fyffes has one of the strongest balance sheets in the international fresh produce sector. Shareholders equity at 31 December 2005 amounted to over 500 million, including net cash balances of 171 million and reflecting the impact of the revaluation of the Group s properties during the year. This leaves Fyffes ideally placed to continue to pursue the consolidation opportunities in the sector and is tangible evidence of the quality of the management of the business over many years. Cash Generation and Investment One of the very attractive features of our business is that profits turn into cash very quickly. Net cash inflows from operations amounted to 101 million in Tax and dividend payments in the year amounted to 38 million, in aggregate. In addition, the Group invested significantly in property in 2005, accounting for approximately 35 million of the 43 million capital Management and Control Over many years the Group has built up a management team with a range of skills, expertise and experience that, we believe, surpasses any in the sector. Today Fyffes is served by a dedicated and talented team of approximately 4,800 employees, including 2,300 in its joint venture operations. Management has developed comprehensive and exacting financial, operating and reporting controls that are applied consistently across the Group in order to manage the business efficiently and to protect the interests of all stakeholders. The Board of Fyffes is committed to the highest standards of corporate governance, including compliance with the Combined Code on Corporate Governance as set out on pages 31 to 35. expenditure in the year. Management also remains focused on finding attractive acquisition opportunities in which to invest the Group s cash resources. Fyffes plc Annual Report 2005 Page 13

16 Review of Operations for 2005 David McCann, Chief Executive Revenue Group revenue for the year ended 31 December 2005 amounted to 1,742 million, up 15.2% on the previous year. Total revenue, including the Group s share of its joint ventures and associates, was 2,174 million compared to 1,954 million in 2004, an increase of 11.3%. The Group s Tropical Produce division, comprising its procurement, farming and shipping activities for bananas, pineapples and melons, accounted for 474 million of total revenue in 2005, compared to 385 million in Total revenue in the Group s General Produce division amounted to 1,552 million in 2005, compared to 1,429 million last year. The additional revenue arising from the first full year contribution from Everfresh in Sweden, acquired in May 2004, amounted to 104 million. Operating profit Operating profit before exceptional items and amortisation of intangible assets and excluding the Group s share of the tax charge in its joint ventures and associates, amounted to million in 2005 compared to 85 million last year, an increase of 36.2%. This result reflects, in particular, the strong performance of the Group s Tropical Produce division in Continental Europe. The table below summarises the divisional analysis of turnover and operating profit. Revenue* Operating profit** Tropical Produce division General Produce division 1, , Other activities Total 2, , m 2004 m 2005 m 2004 m * Including the Group s share of its joint ventures and associates ** Before exceptional items, intangibles amortisation and Group s share of tax in its joint ventures/associates Total operating profit amounted to 99.9 million, compared to 76.6 million in 2004, and is stated, in accordance with IFRS, after the Group s share of the taxation charge in its joint ventures and associates of 3.8 million ( 3.5 million in 2004), net exceptional items amounting to 8.7 million ( 3.2 million in 2004) and amortisation of intangible assets of 3.4 million ( 1.7 million in 2004). Fyffes plc Annual Report 2005 Page 14

17 Fyffes Tropical Produce division The Group s Tropical Produce division achieved a strong result in 2005, with operating profits (before exceptional items, share of joint ventures tax charges and intangibles amortisation) amounting to 77.5 million compared to 51.3 million in This increase arose mainly in Continental Europe, where market conditions were particularly favourable, due mainly to positive supply factors. Volumes were generally lower during the year, largely due to reduced EU production. Fruit, shipping and fuel costs were higher than in the previous year, although this was partly offset by a more positive exchange rate environment. For 2006, Fyffes will continue to pursue the price increases necessary to address the effects of the previously announced increase in import duty along with the impact of higher fruit, shipping, fuel and currency costs. Fyffes has continued to increase its super-sweet pineapple volumes, which rose to in excess of 6.3 million boxes in 2005 from 4.6 million in The Group s share of operating losses in its pineapple production joint ventures, which are expected to reach full production levels within the next twelve months, amounted to 1.3 million compared to 2.1 million in Market conditions for pineapples in both Europe and the USA were generally less favourable throughout the year. Overall, as in 2004, the Group achieved a modest profit on its total pineapple activities. Fyffes Tropical Produce division has been developing its melon activities and recently announced the acquisition of 60% of Nolem, a large Brazil based melon producer. Fyffes General Produce division Operating profits in the Group s General Produce division (before exceptional items, share of joint ventures tax charges and intangibles amortisation) amounted to 36.6m in 2005 compared to 31.6 million in the previous year. The impact of the additional four months profits from Everfresh in 2005 was 2.9 million and the division also benefited from a number of small acquisitions, mainly in the UK. Market conditions for key categories were generally satisfactory, although volumes were slightly down on the previous year. There were good performances in a number of key markets, particularly in the context of more difficult trading conditions in the second half of the year, notably for southern hemisphere citrus and apple and pear categories, as result of high stock levels of European produce. Fyffes plc Annual Report 2005 Page 15

18 Property de-merger Fyffes is intending to establish a new, separately quoted property company, Blackrock International Land plc, ( Blackrock ) into which it will de-merge certain of its property assets. Blackrock will have initial net assets of approximately 200 million, including net cash of 20 million. Fyffes shareholders will directly own 60% of Blackrock, corresponding to 120 million of net asset value, equivalent to 34 cent per share. Fyffes will own the remaining 40%, representing 80 million of net asset value, equivalent to 23 cent per share. Taking into account the revaluation of the relevant properties, the de-merger and the subscription for equity in Blackrock will reduce Fyffes total net assets by approximately 120 million ( 40 million before the impact of the revaluations), including net cash of 20 million. Following the de-merger, Fyffes will retain properties with a market value of 65 million. In addition, the Group s share of property assets owned by its joint ventures and associates, excluding its 40% share of Blackrock, will amount to 33.8 million. Detailed documentation in relation to the de-merger proposal will be posted to shareholders in advance of an EGM to be held in late April Blackrock, a debt free company managed by a highly experienced property team, will have the capacity to further develop its portfolio and to pursue new opportunities on a significantly greater scale than currently. Changes in trading environment The EU s decision, late in 2005, to revise its system of regulating banana imports from 1 January 2006 has resulted in a changed trading environment for the industry. It is still too early to accurately assess the full effect that these changes will have on the market. As previously announced, the increase in the import tariff is expected to increase duty costs for Fyffes by approximately 40 million per annum, based on prior year volumes. The Group also highlighted in December 2005 that the impact of higher fruit, shipping and fuel costs and less favourable exchange rates was expected to be in the order of 15 million in Taking these factors into account, trading in the first two months of the year has been broadly in line with the Group s expectations. The excellent performance of the Group in 2005 was achieved with the help of the most able and committed people in the industry and I would like to thank them for their continuing efforts to make Fyffes the most successful operator in the global fresh produce industry. David McCann Chief Executive 3 March 2006 Fyffes plc Annual Report 2005 Page 16

19 Financial Review for 2005 Frank Gernon, Finance Director Summary of results 2005 m 2004 m Change % Revenue incl share of joint ventures/associates 2, , Share of joint ventures/associates (432.1) (441.5) Group Revenue 1, , Operating profit* Net interest income Adjusted profit before tax Exceptional items (8.7) (3.2) Amortisation charge (3.4) (1.7) Tax charge of joint ventures and associates (3.8) (3.5) Profit before tax Tax charge (excl share of joint ventures/associates) (10.7) (9.9) Minority interest charge (12.1) (8.5) Profit attributable to equity shareholders Adjusted fully diluted EPS cent * Before exceptional items, intangibles amortisation and the Group s share of tax in its joint ventures/associates Revenue and operating profit An analysis of the factors influencing the changes in revenue and operating profit is provided in the Review of Operations for 2005 on pages 14 to 16. Net interest income Net interest income amounted to 6 million in 2005 compared to 6.1 million in the previous year. The slight decrease largely reflects lower average interest rates due to the reduction in Sterling rates during the year. Fyffes plc Annual Report 2005 Page 17

20 Amortisation of intangible assets The Group s intangible assets mainly represent the value of customer relationships arising on acquisitions. These are amortised over their estimated useful economic lives, ranging from one to ten years. The amortisation charge in the year on these assets amounted to 3.4 million in 2005 compared to 1.7 million last year. This increase largely reflects the additional four months amortisation in 2005 on the intangible assets arising from the Everfresh acquisition in May Exceptional items Exceptional items gave rise to a net charge of 8.7 million in 2005, made up as follows: m Fair value gains on investment properties 10.0 Share of fair value gains on investment properties in joint ventures 1.0 Impairment of property (2.4) Merchant Navy Officers Pension Fund charge (5.0) Costs of legal action against DCC plc and others (4.8) Provision for defendants costs in DCC litigation (7.5) Total (8.7) Fair value gains on investment property As explained below, the Group changed its accounting policy for investment property during the year from the depreciated historic cost method to the fair value basis. As a result, fair value gains amounting to 11 million have been recognised in the income statement for the year, including the Group s 1 million share of such gains in its joint ventures. Revaluation of non-investment property The Group similarly changed its accounting policy in respect of its non-investment properties and revalued these to market value at 31 December As further explained below, the resulting revaluation gains have been recognised through the statement of recognised income and expense for the year. However, an impairment charge of 2.4 million has been recognised in the income statement for the year relating to a number of properties where the historic carrying value exceeded market value. Merchant Navy Officers Pension Fund As a result of a ruling by the High Court in the UK in 2005, a claim has been made against Fyffes in respect of a deficit in the Merchant Navy Officers Pension Fund (MNOPF), a UK based multi-employer defined benefit pension scheme operated on behalf of ships officers employed by approximately 2,000 companies. The Trustee of the MNOPF was authorised by the Court to recover any deficit in the scheme from both current and former employers of these ships officers. The claim against Fyffes relates to ships officers employed by two subsidiaries prior to their acquisition by the Group and, consequently, third parties are being pursued for the recovery of a proportion of these costs. The Trustee has notified Fyffes that its share of the deficit as at 31 March 2005 can be settled by ten equal instalments, payable between September 2005 and March 2014, amounting to 6.4 million in aggregate. The Trustee also indicated that further cash calls may be necessary in subsequent years, depending on the results of future actuarial valuations of the scheme and on his ability to recover the amounts due from all relevant current and former employers. The Group has provided for the net present value of the payments claimed, amounting to 5 million, which has been included as an exceptional charge in the income statement in Fyffes plc Annual Report 2005 Page 18

21 DCC litigation In January 2002, Fyffes plc initiated legal proceedings against DCC plc and others claiming that the sale of 31.1 million Fyffes shares, in February 2000, constituted an unlawful dealing within the meaning of the Companies Act Fyffes own costs in this action, which amounted to 4.8 million in 2005 and 10.1 million in aggregate, have been expensed as incurred. In December 2005, the High Court in Dublin determined that the defendants dealt in the Fyffes shares, as alleged, but were not in possession of price sensitive information at the time and that, consequently, the dealings were not unlawful within the meaning of the Act. At a subsequent hearing, the High Court decided that the defendants should be responsible for certain elements of their own costs and awarded the balance of the defendants costs against Fyffes. The Group has not yet received details of the costs which the defendants intend to claim under this order. In these circumstances, and having regard to its own costs and the Court s ruling on the issue, Fyffes has provided 7.5 million in respect of the defendants costs. This amount has been charged as an exceptional item in the income statement. The Board is currently considering its options on whether to appeal the High Court decision in the case. The net tax charge on exceptional items in the year was 3.3 million. Profit before tax Adjusted profit before tax - excluding the net charge of 8.7 million in respect of exceptional items, the Group s 3.8 million share of the tax charge of its joint ventures and associates (which is reported in the profit before tax line under IFRS) and amortisation of intangible assets of 3.4 million - amounted to million in 2005 compared to 91.1 million last year, an increase of 33.6%. Statutory profit before tax for the year amounted to million compared to 82.7 million in 2004, an increase of 27.9%. Tax charge Including the Group s share of the tax charge of its joint ventures and associates of 3.8 million (2004: 3.5 million), which is netted in operating profit under IFRS, the overall tax charge for 2005 amounts to 14.5 million, compared to 13.4 million last year. The tax charge reflects the impact of certain once-off tax credits arising during the year, amounting to 9.2 million. Excluding the impact of these credits and tax on exceptional items, the underlying tax rate for 2005 is 16.8% compared to 13.2% in The increase in the Group s underlying tax rate reflects the change in the geographic mix of profits in the year. The tax charge in the calculation of adjusted earnings per share represents the underlying rate for the period, excluding the impact of the once-off tax credits and the tax charge on exceptional items. Minority interest share of profits The minority interest share of the Group s profit after tax for the year amounted to 12.1 million compared to 8.5 million last year. This increase reflects the strong performance during the year of the Group s non-wholly owned subsidiaries, particularly in Continental Europe. Earnings per share Adjusted fully diluted earnings per share, excluding exceptional items, non-recurring tax credits and amortisation of intangible assets, amounted to cent in 2005 compared to cent in the previous year, an increase of 25.3%. Basic earnings per share for the year, before such adjustments, amounted to cent, compared to cent in 2004, an increase of 28.2%. Fully diluted earnings per share, before such adjustments, amounted to cent, compared to cent in 2004, an increase of 28%. Fyffes plc Annual Report 2005 Page 19

22 Summary of net assets Intangible assets (Customer relationships, goodwill and brand) Property, plant and equipment Investment properties Investment in joint ventures/associates (including intangibles) Other investments Working capital Taxation (58.8) (58.5) Provisions (mainly deferred consideration) (49.5) (31.3) Pension liabilities (net of deferred tax) (22.2) (19.0) Net cash Net assets m 2004 m Shareholders equity Minority interests Net assets Dividend In the context of the excellent performance of the Group in 2005, Fyffes has, since the year end, paid a previously announced 20 million special second interim dividend (equivalent to 5.72 cent per share), subject to Irish withholding tax rules. The Board is proposing to pay a final dividend for the year of 5.20 cent per share. The final dividend, which will also be subject to Irish withholding tax rules, will be paid on 1 June 2006 to shareholders on the register on 12 May The total dividend in respect of 2005 will amount to cent per share, an increase of 87.4% on The total dividend distributable to shareholders for 2005 will be 44.1 million compared to 23.4 million last year. In accordance with Company Law and IFRS, the special second interim dividend and proposed final dividend for 2005 have not been reflected in the Group s balance sheet at 31 December Fyffes plc Annual Report 2005 Page 20

23 Property, including change in accounting policy At 31 December 2005, the Group undertook a revaluation of all its properties. Market values have been estimated as the amount at which a property should exchange between a willing buyer and a willing seller in an arms-length transaction. In excess of 90% in value of all of the Group s properties have been valued by external professionally-qualified valuers, with the balance valued on a consistent basis by management. This change in accounting policy has given rise to a restatement of the Group s published provisional IFRS financial information in respect of previous years. Market values at 1 January 2004 and 31 December 2004 have been estimated by management by reference to relevant property value indices. Full details of the impact on the Group s balance sheet as at 1 January 2004 and on its financial information for 2004 and 2005 are set out in notes 10 and 11 of the financial statements. In aggregate, net revaluation gains of million have been recognised over the period, along with deferred tax liabilities of 20.2 million and minority interests of 4.5 million. Following these revaluations, the total market value of the Group s properties is million, including its 51.9 million share of properties owned by its joint ventures. The proposed de-merger of certain of these property assets is dealt with in the Review of Operations for 2005 on page 16. During the year, Fyffes invested 12.9 million in new properties for use in its produce business. These included the acquisition of new premises for the relocation of the Group s existing operations in Edinburgh and Belfast to facilitate the redevelopment of its existing valuable, centrally located premises in both cities. In addition, new premises were acquired at Swords, near Dublin, as operations in the existing premises there were at full capacity. The Group also acquired additional investment properties in Dublin and Edinburgh during the year, at a cost of 23.1 million. Employee benefits The Group operates a number of externally funded defined benefit and defined contribution pension schemes on behalf of its employees. In accordance with IFRS, shareholders equity is stated after the Group s net liabilities in respect of its defined benefit pension schemes. Under the measurement criteria in IAS 19 Employee Benefits, these defined benefit pension schemes had an aggregate deficit (net of related deferred tax assets amounting to 7.9 million) of 22.2 million at 31 December 2005, slightly higher than the 19 million at the end of previous year, although improved from 30.8 million at 30 June The increase in the net deficit during the year, despite a 35.7 million increase in the value of scheme assets, reflects the impact on scheme liabilities of the decrease in long term bond yields. Full details of the assumptions used in valuing pension scheme assets and liabilities are set out in note 26 of the financial statements. This note also includes details of employee numbers and remuneration and the expense arising in relation to the Group s share option scheme. Fyffes plc Annual Report 2005 Page 21

24 Shareholders equity Shareholders equity at 31 December 2005 amounted to million compared to million in This increase includes the gains in the year of 20.8 million arising from the revaluation of the Group s investment and non-investment properties, including the share of such gains in its joint ventures, net of tax and minority interests. Shareholders equity at 31 December 2004, as originally stated before the change in accounting policy, amounted to million. Full details of the movements in shareholders equity are set out in note 18 of the financial statements and the statement of recognised income and expense. The movements are summarised in the following table: Movement in shareholders equity At beginning of year Profits after tax and minority interests Dividends paid (24.0) (20.3) Revaluation of property net of deferred tax (including share of joint ventures) Pension scheme actuarial losses net of deferred tax (2.2) (9.1) Share of actuarial losses in joint ventures (incl MNOPF) (3.0) - Translation of non-euro denominated net assets 7.1 (1.2) Shares issued Other 1.6 (0.5) At end of year m 2004 m Provisions Total provisions in the balance sheet at 31 December 2005 amount to 49.5 million. This is analysed as follows: m Deferred consideration on acquisitions 34.2 Estimate of defendants costs in DCC litigation 7.5 MNOPF legal obligation 4.4 Onerous contracts 3.4 Total provisions 49.5 EU competition investigation The European Commission is currently undertaking an investigation into whether there have been infringements of Article 81 of the Treaty of Rome and Article 53 of the European Economic Area (EEA) agreement by businesses involved in the supply of bananas and pineapples within the EEA. In June 2005, the Commission carried out inspections at a number of companies operating in these markets, including Fyffes. At this time, it is not possible for the Group to determine the final outcome of these investigations, including whether the European Commission may seek to impose any fines and, if so, the level of any such fines. Fyffes has recently received a request for information from the Commission and intends to continue to co-operate with it in relation to this matter. Return on capital employed Return on capital employed amounted to 38.7% in 2005 compared to 35.7% last year. This is calculated by reference to operating profit (before exceptional items and intangibles amortisation and including the Group s share of operating profit of its joint ventures and associates before tax) and average capital employed excluding cash. Fyffes plc Annual Report 2005 Page 22

25 Summary of movement in net funds Net funds, comprising cash plus short term bank deposits less debt, amounted to million at 31 December 2005 compared to million at the previous year end. As analysed in the following table, cash generated by the Group s operations during the year amounted to million. Significant outflows in the year included dividend and tax payments of 38.3 million and capital expenditure of 42.6 million, of which 36 million related to property assets, including investment properties. Inflows Adjusted profit before tax Cash impact of exceptional items (4.8) (6.6) Depreciation Share of joint ventures/associates profit before tax (18.9) (15.5) Working capital/other (11.2) 13.4 Net cash inflow from operations Dividends received from joint venture/associates Proceeds on disposal of property, plant and equipment Proceeds on disposal of subsidiaries, joint ventures and associates Other Total inflows m 2004 m Outflows Tax paid (14.3) (14.7) Dividends paid to shareholders (24.0) (20.3) Capital expenditure (42.6) (37.2) Acquisitions (net of cash/loans acquired) (0.7) (45.1) Deferred acquisition consideration (2.7) (1.4) Investment in joint ventures/associates, net of capital repaid (5.5) (1.9) Dividends paid to minority shareholders (7.6) (5.1) Total outflows (97.4) (125.7) Net inflows/(outflows) 12.2 (13.5) Translation of non-euro denominated funds 6.6 (1.0) Net funds at beginning of year Net funds at end of year Fyffes plc Annual Report 2005 Page 23

26 Business and financial risks and financial instruments Key business risks The principal risks and uncertainties the Group faces on an ongoing basis include, in particular, the impact of changes in the system of regulating banana imports into the EU and the challenge of passing on inflationary increases in supply chain costs to the Group s customers. In addition, as a significant portion of the operating costs in Fyffes Tropical Produce division are denominated in US Dollars, the Group s results are affected by exchange rate fluctuations. The possible impact of these factors in 2006 has been addressed in the Review of Operations on page 16. The Group s performance is also influenced by normal supply and demand factors, including the impact of weather in both the producing countries and in the main markets in which Fyffes trades and by trends in consumption of fresh produce. The actions of competitors can also influence the performance of the Group. Fyffes has always pursued a strategy of growth by acquisition and continuing growth will remain dependant on the Group s ability to continue to successfully complete such transactions in the future. Key financial risks The Group s multinational operations expose it to different financial risks that include foreign exchange rate risks, credit risks, liquidity risks and interest rate risks. Fyffes has a risk management programme in place which seeks to limit the impact of these risks on the financial performance of the Group. The Board has determined the policies for managing these risks in a non-speculative manner. Foreign exchange risk While many of the Group s operations are carried out in euro-zone economies, it also has significant operations in the UK, Sweden, Denmark, the Czech and Slovak Republics, the US and Central America. As a result, the Group balance sheet is exposed to currency fluctuations in particular, Sterling movements. The Group generally finances initial overseas investments through foreign currency borrowings which hedge the foreign currency investment. Thereafter, these businesses generally fund their operations locally. The Group also has large transactional currency risks as a significant portion of its costs, particularly produce purchases and shipping costs are denominated in US Dollars. These currency risks are monitored by the Group s Treasury Committee on an ongoing basis and managed, as deemed appropriate, by utilising a combination of spot and forward foreign currency contracts and foreign currency options. Credit and liquidity risk The Group has detailed procedures for monitoring and managing the credit risk related to its trade receivables. Cash and short term bank deposits are invested with institutions of the highest credit rating with limits on amounts held with individual banks or institutions at any one time. It is also the policy of the Group to have adequate committed undrawn facilities available at all times to cover unanticipated financing requirements. The maximum exposure to credit risk is represented by the carrying amount of the financial assets in the balance sheet. Interest rate risk The Group s balance sheet contains both interest bearing assets and interest bearing liabilities. In general, the approach employed by the Group to manage its interest rate exposure is to maintain the majority of its cash, short term bank deposits and interest bearing borrowings at floating rates. Rates are generally fixed for relatively short periods in order to match funding requirements while being able to benefit from opportunities due to movements in longer term rates. Fyffes plc Annual Report 2005 Page 24

27 Financial instruments Fyffes finances its operations through a combination of retained profits and its own net cash resources. The financial instruments that arise from this activity comprise bank deposits, bank loans and, from time to time, certain financial assets such as government securities, commercial paper and other trade investments. Other financial instruments such as trade debtors and trade creditors arise directly from operations. In addition, as noted above, the Group enters into derivative instruments with a view to managing currency risk and, to a lesser extent, the interest rate risk arising from its operations. The numerical disclosures required under IAS 32: Financial Instruments: Presentation and Disclosure and IAS 39: Financial Instruments: Recognition and Measurement in relation to these financial instruments and the above risks are set out in Note 29 to the financial statements on pages 97 to 99. Accounting policies and standards IFRS transition Fyffes remains committed to the adoption of best practice in the preparation of its financial statements. In common with all other listed companies in Europe, the Group has prepared its 2005 consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU for the first time. Fyffes published a transition report on 8 September 2005 which set out in detail the differences between the requirements of IFRS and Irish GAAP as it impacted the Group. This report also set out the Group s IFRS accounting policies and included the restatement of the Group s prior year financial information in accordance with these revised policies. A summary of that report is set out in the financial statements, commencing on page 110. Subsequent to the publication of its IFRS transition report, the Group changed its accounting policy in relation to the valuation of its investment and non-investment properties. The impact of this change was explained earlier. In restating the Group s 2004 financial information, Fyffes availed of the following relevant mandatory and optional exemptions in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards, and a number of other standards: Business combinations before 1 January 2004 have not been restated. Consequently, goodwill at the transition date is carried forward at its net book value and, along with goodwill on subsequent acquisitions, is subject to annual impairment testing. Goodwill was assessed for impairment at the transition date and no impairment charges arose from this exercise. Goodwill on acquisitions prior to 1998, which was set-off against revenue reserves under Irish GAAP is deemed to be permanently written off under IFRS and not subject to impairment testing or write-off on disposal. Cumulative currency translation differences have been reset at zero at the transition date (1 January 2004). The currency translation reserve mainly comprises the retranslation of the net assets of the Group s non-euro denominated subsidiaries and joint ventures net of exchange differences on related borrowings. Going forward, cumulative currency translation differences will be included in the profit or loss on disposal of any subsidiary, joint venture or associate. IFRS 2 Share-based Payment has been applied in respect of share options granted after 7 November The Group has applied IAS 32 Financial Instruments: Presentation and Disclosure and IAS 39 Financial Instruments: Recognition and Measurement prospectively from 1 January Consequently, financial instruments are recognised in accordance with Irish GAAP in the 2004 financial information and in accordance with IAS 32 and IAS 39 in Fyffes plc Annual Report 2005 Page 25

28 Fyffes has also made the following key accounting policy selections on transition to IFRS: Cumulative actuarial gains or losses on the Group s defined benefit pension schemes have been recognised in full in the transition balance sheet. Fyffes is not applying the corridor approach to recognising actuarial gains or losses. Fyffes has elected to continue to account for its joint ventures under equity accounting rules rather than applying proportionate consolidation rules. The main areas where significant adjustments arose for Fyffes as a result of the transition to IFRS were as follows: Defined benefit pension scheme assets and liabilities are now reflected in the balance sheet. Full details of this are set out in note 26 of the financial statements. The determination of whether an entity should be treated as a subsidiary under IFRS is based on power to control the entity compared to the actual exercise of dominant influence under Irish GAAP. Following a detailed review of each of the Group s non-wholly owned businesses in this context, a number of entities have been reclassified as joint ventures under IFRS. Having elected to continue to apply equity accounting in respect of its joint ventures, under IFRS the Group s share of profit after tax for these entities is presented as part of profit before tax in the income statement. Fyffes excludes its share of the tax charge of its joint ventures and associates from its adjusted profit before tax as seen in the summary of results table on page 17. Goodwill is not amortised under IFRS but rather subject to annual impairment reviews. New types of intangible assets, in particular the value of customer relationships, have been recognised on acquisition under IFRS. These assets are amortised over their estimated useful economic lives. Full details of these issues are set out in note 12 of the financial statements. Proposed dividends are no longer recognised under IFRS. The fair value of share options granted to employees is now recognised as an expense under IFRS. This has given rise to a modest charge for Fyffes as set out in note 26 of the financial statements. A number of additional deferred tax assets and liabilities have been recognised under IFRS rules. Full details of all deferred tax assets and liabilities are set out in note 24 of the financial statements. There are enhanced segmental disclosures under IFRS as set out in note 1 of the financial statements. Frank Gernon Finance Director 3 March 2006 Fyffes plc Annual Report 2005 Page 26

29 Financial Statements Page Directors and Other Information 28 Directors' Report 29 Corporate Governance Report 31 Audit Committee Report 36 Compensation Committee Report 39 Statement of Directors' Responsibilities 44 Independent Auditor's Report 45 Group Income Statement 47 Group Statement of Recognised Income and Expense 48 Group Balance Sheet 49 Group Cash Flow Statement 50 Significant Accounting Policies 52 Notes to Group Financial Statements 59 Company Statement of Recognised Income and Expense 103 Company Balance Sheet 103 Company Cash Flow Statement 104 Notes to Company Financial Statements 105 Transition to International Financial Reporting Standards 110 Significant Subsidiaries, Joint Ventures and Associates 118 Fyffes plc Annual Report 2005 Page 27

30 Directors and Other Information Fyffes plc Carl P. McCann Chairman David V. McCann Chief Executive Neil V. McCann (retired 13 December 2005) Coen Bos (co-opted 1 January 2006) Rory P. Byrne (co-opted 1 January 2006) John F. Gernon Jimmy P. Tolan Denis J. Bergin (retired 31 December 2005) Dr. Paul F. dev. Clüver Rose B. Hynes J. Declan McCourt Gerald B. Scanlan William M. Walsh Fyffes Group Ireland Limited Eugene J. Caulfield Chairman Frank J. Davis Donal W. Earls Stephen J. McAdam Desmond G. McCoy Francis G. McKernan Charles D. Shaughnessy Thomas G. Shields Laurence P. Swan Fyffes Group Limited A. John Ellis CBE Chairman Coen Bos Rory P. Byrne Eugene J. Caulfield Timothy D. Chambers Frank J. Davis Andrew H. Denham-Smith David J. Flynn Michael J. Key Seamus M. Mulvenna Thomas G. Murphy John P. Murray Secretary and registered office Philip T. Halpenny 29 North Anne Street Dublin 7 Auditor KPMG Chartered Accountants 1 Stokes Place St. Stephen's Green Dublin 2 Solicitors Arthur Cox Arthur Cox Building Earlsfort Terrace Dublin 2 Niles Barton & Wilmer 111 S. Calvert Street Suite 1400 Baltimore Maryland USA Bankers Allied Irish Banks plc Bankcentre Ballsbridge Dublin 4 Stockbrokers Davy 49 Dawson Street Dublin 2 S.J. Berwin & Co. 222 Grays Inn Road London WC1X 8HB Barclays Bank plc Pall Mall London SW1Y 5AX Registrars Computershare Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Fyffes plc Annual Report 2005 Page 28

31 Directors' Report The directors present their report to the shareholders, together with the audited financial statements, for the year ended 31 December Principal activities and business review Fyffes plc is a publicly quoted company incorporated in Ireland. Fyffes is a major distributor of fresh fruit and produce mainly in Ireland, the UK and Continental Europe. A detailed business review is included in the Review of Operations on pages 14 to 16 and in the Financial Review on pages 17 to 26. The Financial Review includes details of the key business and financial risks the Group faces. Profit Details of the profit for the year ended 31 December 2005 are set out in the income statement on page 47. Dividends An interim dividend of 1.69 cent (2004: 1.53 cent) per 6 cent ordinary share was paid on 7 October A special second interim dividend of 5.72 cent per ordinary share was declared on 12 December 2005 and paid on 3 March The directors have proposed, subject to shareholder approval at the AGM, the payment of a final ordinary dividend of 5.20 cent (2004: 5.20 cent) per ordinary share. The total dividend for the year will then be cent per share (2004: 6.73 cent). Future developments A review of future developments of the business is included on pages 14 to 26. Directors and secretary N.V. McCann, the former Chairman of the Group, retired from the Board on 13 December 2005 and D.J. Bergin retired on 31 December On 1 January 2006, C. Bos and R.P. Byrne were co-opted to the Board and offer themselves for election at the AGM. In accordance with the Articles of Association of the company, D.V. McCann, J.F. Gernon and J.P. Tolan retire from the Board and, being eligible, offer themselves for re-election at the AGM. G.B Scanlan, who has served more than nine years as a non-executive director also retires from the Board and offers himself for re-election in accordance with the requirements of the 2003 FRC Combined Code. None of these directors, other than C. Bos, has a service contract with any Group company. Details of the terms of the service contract of C. Bos are set out in the compensation committee report on page 40. Directors' and company secretary's interests Details of the directors' and company secretary's share interests and interests in share options of the company and Group companies are set out in the compensation committee report on pages 39 to 43. Substantial holdings The directors have been notified of the following significant interests in the issued ordinary share capital of the company at 31 December 2005: Number of Ordinary Shares Percentage Balkan Investment company and related parties 38,238, % Tarncott company, which is a related party of Balkan Investment company, owns 5.6% of the issued share capital of the company. Bank of Ireland Nominees Limited, Marathon Asset Management Limited and Cantor Fitzgerald Europe have notified the directors that they hold between 5% and 10% of the issued share capital of the company. Bank of Ireland Nominees Limited and Marathon Asset Management Limited state that these shares are not beneficially owned by them. The Board has not been notified of any other holdings of 3% or more of the issued ordinary share capital of the company. Directors' interests in contracts None of the directors had a beneficial interest in any material contract to which the company or any subsidiaries was a party during the year. Treasury shares At 31 December 2005, the number of treasury shares held amounted to 9,021,610 ordinary 6 cent shares at a cost of 16,582,000 (2004: 9,021,610 ordinary 6 cent shares at a cost of 16,582,000). These shares were delisted in These shares represent 2.5% (2004: 2.5%) of the ordinary shares in issue at 31 December Fyffes plc Annual Report 2005 Page 29

32 Directors' Report (continued) Accounting records The directors believe that they have complied with the requirements of section 202 of the Companies Act, 1990, with regard to books of account by employing accounting personnel with appropriate expertise and by providing adequate resources to the financial function. The books of account of the company are maintained at The Ramparts, Dundalk, Co. Louth, Ireland. Political donations During the year, the Group and company did not make any donations disclosable in accordance with The Electoral Act, Auditor In accordance with Section 160 (2) of the Companies Act, 1963, the auditor, KPMG, Chartered Accountants, have expressed their willingness to continue in office. Subsidiaries, joint ventures and associates Information on the Group's significant subsidiaries, joint ventures and associates is included on pages 118 to 120. Special business at Annual General Meeting Your attention is drawn to the Notice of the Annual General Meeting (AGM) of the company on pages 121 to 122. In addition to the usual business to be transacted at the AGM (as set out in resolutions 1 to 4 of the Notice of the meeting), there are a number of items of special business which are described further below. With the increase in the responsibilities of directors, shareholders are being asked under the first item of special business, to increase the limit on the aggregate amount of the annual remuneration of the directors to 500,000. Under the second item of special business, shareholders are being asked to give the Board authority to allot and issue up to an aggregate amount of 6,995,469 in nominal value of new shares (116,591,148 shares), being equal to one third of the nominal value of the existing issued ordinary share capital of the company. While the directors do not have any current intention to exercise this power, this authority is being sought, as it is common practice for public companies. In addition, the shareholders are being asked under the third item of special business to renew, until the next AGM, the authority to disapply the strict statutory preemption provisions in the event of a rights issue (subject to the limits in the authority referred to earlier) or in any other issue up to an aggregate amount of 1,049,320 in nominal value of ordinary shares (17,488,672 shares), representing 5% of the nominal value of the company s issued ordinary share capital for the time being. This authority will expire at the earlier of the close of business on the date of the AGM of the company in 2007 or 29 November Shareholders are also being asked under the fourth item of special business to extend the authority granted at the last AGM to give the company, or any of its subsidiaries, the authority to purchase up to 10% of its own shares (34,977,344 shares). If granted, this authority will expire at the earlier of the AGM in 2007 or 29 November Such purchases would be made only at price levels at which it is considered to be in the best interests of the shareholders generally, after taking into account the company's overall financial position. Furthermore, the authority being sought from shareholders provides that the minimum price which may be paid for such shares will not be less than the nominal value of the shares and the maximum price will be 105% of the average market price of such shares over the preceding five business days. From time to time, the directors may consider exercising this power to purchase the company's own shares so as to avoid any dilution from issuing new shares. A Form of Proxy in respect of all the resolutions to be voted on has been posted to shareholders with this annual report. On behalf of the Board C.P. McCann J.F. Gernon Chairman Finance Director 3 March 2006 Fyffes plc Annual Report 2005 Page 30

33 Corporate Governance Report Application of the Combined Code principles Fyffes plc is firmly committed to business integrity, high ethical values and professionalism in all its activities and operations. As an essential part of this commitment, the Board endorses the highest standards in corporate governance. This report describes how Fyffes plc applies the principles and provisions of the Revised Combined Code on Corporate Governance of the Irish and London Stock Exchanges ( the 2003 FRC Combined Code ). Compliance with the provisions of the 2003 FRC Combined Code The directors confirm that, throughout the year ended 31 December 2005, Fyffes plc complied with the provisions of the 2003 FRC Combined Code with the exception that the company did not have a nomination committee until this was established by the Board on 7 January The Board of Directors Fyffes plc is has a strong and effective Board of Directors (see biographical details set out on pages 6 and 7). During 2005, prior to the retirement of N.V. McCann on 13 December 2005, the Board consisted of eleven directors - the Chairman, four other executive directors and six non-executive directors. The Board has determined all of the non-executive directors to be independent as set out below. D.J. Bergin retired as a non-executive director on 31 December C. Bos and R.P. Byrne were co-opted to the Board as executive directors on 1 January As a result, the Board currently comprises eleven directors - the Chairman, five other executive directors and five nonexecutive directors. All of the directors have fiduciary responsibilities to the shareholders. In addition, the executive directors are responsible for the operation of the business while the non-executive directors bring independent objective judgement to bear on Board decisions by constructively challenging management and helping to develop the Group's strategic objectives. Each of the executive directors has extensive knowledge of the fresh produce industry, in addition to wide-ranging business skills and commercial acumen. All of the directors bring an objective judgement to bear on issues of strategy, performance, resources (including key appointments) and standards of conduct. Board members are selected because of their pertinent experience and appropriate training is available to them whenever necessary. On appointment, new directors receive a full, formal and tailored induction into the Group's activities and into the operation and procedures of the Board. Effective governance is achieved by the separation of the roles of the executive Chairman and the Chief Executive, as this division of responsibilities at the head of the Group ensures a balance of power and authority. The Chairman has overall responsibility for ensuring that the Group achieves a satisfactory return on investment for shareholders; he oversees the orderly operation of the Board and ensures appropriate interaction between it, executive management and the company's shareholders. The Chief Executive is responsible for developing and delivering the Group's strategy and is accountable for its overall performance and day to day management. Independence of non-executive directors The Board has evaluated the independence of each of its non-executive directors. Following this assessment, the Board has determined that, throughout the reporting period, all of its non-executive directors, who are appointed for specified terms of office, were independent. In arriving at its conclusion, the Board considered many factors including, inter alia, whether any of the non-executive directors: has been an employee of the Group within the last five years; has, or had within the last three years, a material business relationship with the Group; receives remuneration from the Group other than a director's fee; has close family ties with any of the Group's advisers, directors or senior employees; holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; or represents a significant shareholder. Fyffes plc Annual Report 2005 Page 31

34 Corporate Governance Report (continued) In particular, the Board reviewed the positions of three of its members in the context of the guidance in the 2003 FRC Combined Code and determined that, despite their length of tenure on the Board in the case of D.J. Bergin and G.B. Scanlan, and his business relationship with the company in the case of Dr. P.F. dev. Clüver, all three are independent. Like each of the other non-executive directors, they discharge their duties in a proper and consistently independent manner and constructively and appropriately challenge the executive directors and the Board. All of the non-executive directors bring an unfettered perspective to their advisory and monitoring roles. The terms and conditions relating to the appointment of the non-executive directors are available from the company secretary. Senior non-executive director G.B. Scanlan continued to act in the capacity of the senior independent non-executive director throughout the year. In accordance with the guidance in the 2003 FRC Combined Code, the senior independent non-executive director, in addition to attending the AGM, is available to meet shareholders on request, in particular to deal with queries on governance matters. Operation of the Board The Board meets regularly throughout the year. There are six routinely scheduled Board meetings held annually, in addition to which meetings are called as and when warranted by issues arising. The attendance of directors at Board and relevant committee meetings during the year was as follows: Full Audit Risk Compensation Nomination Board Committee Committee Committee Committee Number of meetings held in C.P. McCann - Chairman D.V. McCann - Chief Executive N.V. McCann - Executive J.F. Gernon - Finance Director 7 * J.P. Tolan - Corporate Development Director D.J. Bergin - Non-executive Dr P.F. dev. Clüver - Non-executive 6 ** R.B. Hynes - Non-executive J.D. McCourt - Non-executive G.B. Scanlan - Non-executive W.M. Walsh - Non-executive * In attendance only ** Appointed to the audit committee on 24 June potentially attendant for 4 meetings In addition to the meetings above, there were three other meetings of sub-committees specially appointed by the Board during 2005 to deal with specified matters. The Board and its committees are supplied with relevant, timely and accurate information for review prior to each meeting to enable them to discharge their duties. The Board has identified and formally adopted a schedule of key matters that are reserved for its decision, including the annual fiscal and capital budget, interim and preliminary results announcements, interim and final dividends, the appointment or removal of directors and company secretary, circulars to shareholders, Group treasury policies and capital expenditures and acquisitions in excess of 20 million. Certain other matters are delegated to Board committees, the details of which are set out below. There is an agreed Board procedure enabling directors to take independent professional advice, in the furtherance of their duties, at the company's expense. Each Board member has access to the impartial advice and services of the company secretary, who is responsible to the Board for ensuring that appropriate procedures are followed. The company maintained directors' and officers' liability insurance throughout Fyffes plc Annual Report 2005 Page 32

35 Corporate Governance Report (continued) The Memorandum and Articles of Association of the company require that one third of the Board must, by rotation, seek re-election at the Annual General Meeting (AGM) each year, together with all new directors appointed since the previous AGM. In addition, in accordance with the guidance in the 2003 FRC Combined Code, non-executive directors serving for more than nine years must seek re-election annually. There is open communication between senior executive management and Board members. Evaluation of performance of the Board, its committees and individual directors During December 2005 and January 2006, the Board undertook its annual evaluation of its own performance, and that of its committees and of each individual director throughout the year. In assessing the performance of the Board, the directors considered such matters as the appropriateness of its composition, its effectiveness in developing Group strategy, its contribution to managing the Group's business and operational risks, its response to developing issues and its communications with the Group's stakeholders. In assessing the performance of the committees of the Board, the directors considered the appropriateness of their composition and terms of reference, their effectiveness in fulfilling their roles and their interaction with the Board. The assessment of the performance of individual directors included consideration of their contribution to the effective functioning of the Board, the appropriateness of their knowledge, skill and experience levels and their commitment to their roles. The Chairman summarised the results of these evaluation processes and reported them to the Board for its consideration in March 2006, the results of which were satisfactory. In addition, the non-executive directors met privately to evaluate the effectiveness of the Chairman. Board committees The composition and terms of reference of the committees of the Board are as follows: Audit committee Full details of the composition, terms of reference and activities of the audit committee in 2005 are set out in the audit committee report on pages 36 to 38. Nomination committee The Board established a nomination committee on 7 January The terms of reference of the committee are to evaluate the balance of skills, knowledge and experience of the Board, to consider the need for any new or additional appointments, where necessary to prepare a list of potential candidates and to forward the names of potential candidates to the Board for its consideration and, if appropriate, approval. The members of the nomination committee are R.B. Hynes, C.P. McCann (Chairman), D.V. McCann, J.D. McCourt, and G.B. Scanlan. During the year, the nomination committee met on two occasions and, having considered the composition of the Board, proposed C. Bos and R.P. Byrne as executive directors. These nominations were considered and approved by the Board in December 2005, with their appointments becoming effective on 1 January Compensation committee Details of the composition and terms of reference of the compensation committee, which has responsibility for the remuneration of the executive directors and senior management, are set out in the compensation committee report on pages 39 to 43. Risk committee The risk committee assesses the key risks facing the Group and assists the Board in fulfilling its responsibility as to the manner in which risk is recognised, assessed and managed on an on-going basis. The members of the committee during the year were D.J. Bergin, J.F. Gernon (Chairman), R.B. Hynes, G.B. Scanlan and P.T. Halpenny, the company secretary. A senior Group executive is responsible for executing the risk management process under the direction of the committee. Procedures in relation to share dealing In accordance with the terms of the Model Codes of the UK Listing Authority and the Irish Stock Exchange, Fyffes has a policy on regulating dealing in securities by its directors, persons discharging managerial responsibilities (PDMRs) and other designated senior management. Directors and PDMRs require the authorisation of the Chairman before dealing in Fyffes' shares. Directors and PDMRs are prohibited from dealing during certain specified periods each year and at all other times when the company is in possession of inside information. All share dealings by other designated senior management require the authorisation of the company secretary. Fyffes plc Annual Report 2005 Page 33

36 Corporate Governance Report (continued) Internal controls and the management of risk The Board is ultimately responsible for the overall system of internal controls applied in the company and its subsidiaries and for reviewing the effectiveness of these controls. The system is designed to manage risks that may impede the achievement of the Group's business objectives rather than to eliminate these risks. The internal controls system therefore provides reasonable assurance (but not absolute assurance) against material misstatement or loss. Fyffes operates a vigorous internal audit function under the direction of the audit committee. Both the internal audit and risk management functions facilitate each other and, together with divisional management, they provide the Board with distinct sources of reasonable assurance as to the effectiveness of the system of internal controls that underlies the Group's control environment. Risk management within Fyffes is co-ordinated by the risk committee which directs the implementation of the process consistently throughout the Group and reviews the relevant findings. The committee periodically advises the Board of its conclusions, enabling corrective initiatives to be undertaken where appropriate. Key risks that might impair the business from achieving its objectives are identified and assessed by conducting detailed reviews with executive managers at divisional level. Divisional management is thereafter charged with the cost efficient mitigation of the risks within their areas of responsibility. Risk evaluation and recommendations for strategic change are reviewed by the risk committee which, in turn, appraises the Board of its findings. In considering the report of the risk committee, the Board also conducts its own risk identification and assessment so that it itself is sufficiently aware of the principal threats to which the Group may be exposed. The Board, through its risk committee, has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed effectively. The Board has embedded these structures and procedures throughout the Group and considers them to be a robust and efficient mechanism for creating a culture of risk awareness at every level of management. The directors regard the process of risk management as a positive medium for change, adding value in the interests of shareholders by utilising sound and considered judgement, while simultaneously making the organisation alert to best management practices. Communications with shareholders and Annual General Meeting (AGM) Communications with shareholders is given a high priority by Fyffes. There is regular dialogue and meetings with institutional shareholders, including general presentations after the release of the annual and interim results. Feedback from contact with shareholders is given to the Board at regular intervals. The Group publishes its preliminary and interim results presentations on the company's website ( Stock exchange announcements in respect of trading updates and corporate activity are similarly published on the website. There is a business presentation provided at the Group's AGM followed by a question and answer forum which offers shareholders the opportunity to question the Board. The AGM is valued by the Board as an occasion where individual shareholders' views and suggestions can be noted and considered by the directors. Details of proxy voting are announced in respect of each resolution considered at the AGM. The company has arranged for the Notice of the 2006 AGM and related papers to be sent to shareholders at least 20 working days before the meeting. The relevant papers were sent out more than 20 days before the 2005 AGM. Accountability and audit The contents of the operating and financial reviews, the directors' report and financial statements (in addition to official company press releases, Stock Exchange announcements and interim results issued during the period) have been reviewed in order to ensure a balanced presentation, so that the Group's position and prospects are properly appreciated by shareholders. A summary of directors' responsibilities in respect of the financial statements is given on page 44. The system of internal controls and risk management established to safeguard shareholders' investment and the company's assets is set out above. The audit committee, whose composition and functions are described on pages 36 to 38, has considered, in conjunction with the external auditor, the accounting policies adopted in the financial statements and has evaluated the internal controls that have been established within the Group. Fyffes plc Annual Report 2005 Page 34

37 Corporate Governance Report (continued) Environmental management, corporate responsibility and ethical trading initiatives The European Commission has previously published recommendations governing the recognition, measurement and disclosure of environmental issues in the annual reports of companies. Although the provisions of the recommendations are not binding on Fyffes in the conduct of its business across the world, the Group recognises its social responsibility and endorses the growing trend towards environmental accountability. The Group actively promotes best business practices and standards that seek to enhance the health, education and conditions of workers and their families and to universally encourage the use of sustainable farming methods by its suppliers. Further details of the Group's activities in this regard are set out on pages 8 and 9. Going concern After making enquiries, the directors have a reasonable expectation that the company, and the Group as a whole, has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Directors' remuneration The disclosures regarding directors' remuneration have been drawn up in accordance with the Listing Rules of the Irish Stock Exchange and are set out on pages 39 to 43. Fyffes plc Annual Report 2005 Page 35

38 Audit Committee Report Membership and responsibilities The members of the audit committee during 2005 (all of whom are independent non-executive directors) were D.J. Bergin, R.B. Hynes (Chairman), G.B. Scanlan and, from his appointment to the committee in June 2005, Dr P.F. dev. Clüver. D.J. Bergin retired from the committee with effect from 31 December The Board believes that R.B. Hynes satisfies the recommendation in the 2003 FRC Combined Code that at least one member of the audit committee should have recent relevant financial experience. It is also satisfied that D.J. Bergin, Dr P.F. dev. Clüver and G.B. Scanlan, inter alia, through their membership of the committee are sufficiently knowledgeable in relevant financial matters to enable them to fulfil their responsibilities on the committee. These responsibilities, which were reviewed and updated in line with best practice during the year, are set out in the terms of reference of the audit committee. These are summarised below: 1. to approve the terms of engagement of the external auditor and their remuneration and to recommend to the Board, when appropriate, any change in the external auditor; 2. to agree, in advance, with the external auditor the nature and scope of their audit as set out in their audit plan; 3. to review the Group's interim and full year financial statements and to report to the Board on the outcome of this review. As part of this process, the committee considers: the appropriateness of the Group's accounting policies, including any changes in these policies; any significant judgemental matters; any significant audit adjustments; the continuing appropriateness of the going concern assumption; the contents of the operating and financial reviews as set out in the annual report; compliance with relevant financial reporting standards; and compliance with legal and Stock Exchange requirements. 4. to review any issues raised by the external auditor during the conduct of the audit. As part of this review, the committee considers any report from the external auditor on their findings in relation to the Group's financial systems and controls, together with any management responses. In addition, the committee reviews any representation letter required by the external auditor as part of the audit, prior to its endorsement by the Board. As appropriate, the committee also meets the external auditor independently of management at least annually; 5. to annually assess and monitor the independence, objectivity and effectiveness of the external auditor. As part of this process, the committee reviews the implementation of its policy in relation to the provision of non-audit services by the external auditor, taking into account relevant ethical guidance. In addition, the committee has agreed with the Board a policy on the employment by the Group of former employees of the external auditor, which it monitors on an ongoing basis; 6. to meet regularly with the Group's head of internal audit (including, as appropriate, independently of management) in order to review the internal audit programme and to consider his findings on completed audits. The committee also reviews the adequacy of the resources of the internal audit team and the co-ordination between the internal and external auditor. The committee is responsible, in consultation with the Chairman of the Board, for the appointment or removal of the head of internal audit; 7. to review the company's statement, in the annual report, on internal control systems and its risk management framework, prior to its endorsement by the Board; 8. to address any other topics as requested by the Board, including to consider the findings of any internal investigations and the response of management; 9. to review the Group's arrangements for employees to raise concerns, in confidence, about possible impropriety in financial reporting or other matters and to ensure there is provision for a proportionate investigation and follow-up of such matters; and 10.to review, at least annually, the committee's own performance and terms of reference and to recommend any changes it considers necessary to the Board for approval. Fyffes plc Annual Report 2005 Page 36

39 Audit Committee Report (continued) Committee meetings in 2005 The audit committee schedules four routine meetings annually. There is a formal agenda for all meetings, which follows the financial reporting cycle of the company. Meetings are attended as appropriate by the Group Finance Director, the Group Financial Controller, the Head of Internal Audit and representatives of the external auditor. The audit committee met five times during 2005 (see attendance table on page 32). The additional meeting was necessitated by the considerable work required during the year in connection with the Group's transition to reporting under International Financial Reporting Standards (IFRS). The main items on the agenda of each of the audit committee meetings held during 2005 were as follows: February meeting Review of the draft statutory financial statements for the year ended 31 December 2004 (including the directors' report, the Chairman's statement, the operating and financial reviews and the corporate governance report for the year), together with the draft preliminary results announcement to the Stock Exchange. Review with the external auditor the outcome of their audit of these financial statements, including any significant audit issues. This to include a private meeting with the external auditor without management present. Approval of any letter of representation required by the external auditor in connection with their audit. If appropriate, recommendation of the draft statutory financial statements to the Board. Consideration of any observations or recommendations raised by the external auditor in their management letter, including management responses. Review of the committee's own effectiveness. Quarterly review with the head of internal audit. June meeting Quarterly review with the head of internal audit. Private meeting with the head of internal audit without management. Review of progress on the transition to IFRS, including consideration of revised accounting policies and significant changes to financial information previously published under Irish GAAP. August meeting Review of the draft interim financial statements for the first half of the year, together with the draft interim results announcement to the Stock Exchange. Consideration with the external auditor of their review of the interim financial statements. Review of the IFRS transition document to be published with interim financial statements. If appropriate, recommendation of the draft interim financial statements to the Board. Quarterly review with the head of internal audit. September meeting Review of the internal audit plan for the year. Review and update terms of reference of internal audit function. Review of the effectiveness of the internal audit function. Consideration of the ongoing appropriateness of the committee's own terms of reference, the Group's policies in relation to the provision of non-audit services by the external auditor, the employment of former employees of the external auditor and any other relevant matters. October meeting Review with the external auditor of the nature and scope of their forthcoming audit as set out in their audit plan and approval of their engagement letter. Consideration and, if appropriate, recommendation of the proposed audit fees for the year. Consideration of the independence and objectivity of the external auditor, including assessment of the impact, in this regard, of any non-audit services provided. Quarterly internal audit review. Fyffes plc Annual Report 2005 Page 37

40 Audit Committee Report (continued) IFRS transition The committee's role in relation to the Group's transition to IFRS included consideration of the appropriateness of Fyffes' revised IFRS compliant accounting policies and the restatement of the 2004 Group financial information in accordance with these policies. The committee reviewed the Group's IFRS transition report which was published on 8 September Independence of external auditor As part of its annual review of the independence of the external auditor, the audit committee seeks confirmation from the external auditor that they are, in their professional judgement, independent of Fyffes. The committee also monitors the nature, extent and scope of the non-audit services provided by the external auditor. In this regard, the engagement of the external auditor to provide any non-audit services, where the expected costs exceed a pre-approved limit, requires the approval of the audit committee. Four key principles underpin the provision of non-audit services by the external auditor, namely that the auditor shall not: audit its own firm's work; make management decisions for the Group; have a mutuality of financial interest with the Group; or be put in the role of advocate for the Group. The amounts paid to the external auditor during the year, for audit and non-audit services, is disclosed on page 63. The committee also reviewed the Group's practices in respect of the hiring of former employees of the external auditor in order to assess whether such appointments might affect, or appear to affect, the external auditor's independence. It will be advised in advance of any such appointments which might be proposed. Performance evaluation During December 2005 and January 2006, the committee, as part of the overall evaluation of the Board and its directors, undertook a selfevaluation of its effectiveness. The outcome of this review was reported to, and considered by, the Board in March Fyffes plc Annual Report 2005 Page 38

41 Compensation Committee Report Throughout the year ended 31 December 2005, the company has complied with the provisions relating to directors' remuneration contained in the Listing Rules of the Irish Stock Exchange. Composition and terms of reference of compensation committee Throughout 2005, the compensation committee was comprised solely of non-executive directors, namely G.B. Scanlan (Chairman) D.J. Bergin and J.D. McCourt, with no financial interest other than as shareholders in the matters to be decided, no potential conflicts of interest arising from cross-directorships and no day to day involvement in the running of the business. D.J. Bergin retired from the committee on 31 December The terms of reference of the compensation committee are: to establish the company's policy on executive directors' remuneration; to establish the terms of service agreements, remuneration packages and employment conditions of executive directors; to approve the grant of share options to executive directors and employees and to determine whether the conditions as set out in 1997 share option scheme have been met; where appropriate to recommend to shareholders the establishment of long term incentive schemes, to set appropriate performance targets for such schemes, to define the basis of participation in such schemes and to determine the grants of awards under such schemes; if necessary, to establish the amounts and constituents of termination payments to be made to executive directors; and to report to shareholders on directors' remuneration in accordance with the requirements of the Irish Stock Exchange. The Chairman of Fyffes plc is consulted about the remuneration of other executive directors and the compensation committee is authorised to obtain professional advice, if deemed appropriate. The remuneration of the non-executive directors is approved by the Board. Remuneration policy The Group's policy on executive directors' remuneration recognises that employment and remuneration conditions for senior executives must properly reward and motivate them to perform in the best interests of the shareholders. The recurring elements of the remuneration package for executive directors are basic salary and benefits, annual incentive bonus, short term incentive plan, pensions and participation in the company's share option scheme and profit sharing scheme. It is policy to grant options to senior executives to encourage identification with shareholders' interests. Employees are encouraged to hold shares for a further period after the exercise of their options, subject to the need to finance any cost of acquisition and associated tax liability. Executive directors' basic salary and benefits Basic salaries of executive directors are reviewed annually with regard to personal performance, Group performance and competitive market practice. Performance related bonus The Group pays performance related annual bonuses to executive directors. The level earned in any one year depends on an assessment of individual performance and the overall performance of the Group. Pensions Regular pension contributions for the benefit of executive directors are calculated on basic salary only and provide for two-thirds of salary for full service (40 years) at retirement. During 2005, additional pension contributions were made on behalf of executive directors into an approved retirement fund for their benefit. Short term incentive plan As in 2004, the Group established a Short Term Incentive Plan ('STIP') for executive directors and senior management for the financial year ended 31 December 2005, in addition to the performance related bonus arrangements. Under the terms of this STIP, a benefit may accrue subject to the achievement of a one year performance target based on the increase in total shareholder return (as measured by the annual capital appreciation plus dividend yield), benchmarked against a peer group of public companies and vests within 30 days of the compensation committee determining that the performance target had been achieved. Total benefits amounting to 1,446,000 (2004: 692,000) have been accrued under the terms of this STIP, of which 750,000 (2004: 361,000) accrued to the executive directors as analysed on page 41. A similar scheme (with a no less stringent performance target) has been established for the financial year ending 31 December Fyffes plc Annual Report 2005 Page 39

42 Compensation Committee Report (continued) Employee share option scheme It is the Group's policy to grant share options as an incentive to enhance performance and to encourage employee share ownership in the company. The current employee share option scheme was approved by shareholders in April 1997 to replace the previous share option scheme, which had expired after ten years of operation. The percentage of share capital which can be issued under the employee share option scheme and individual limits comply with institutional guidelines. The amount of ordinary share capital over which options may be granted in any ten year period is limited to 5% of the aggregate of the issued ordinary share capital. At 31 December 2005, options had been granted but not yet exercised over 11,382,750 (2004: 13,200,250) ordinary shares or 3.2% of the issued ordinary share capital (2004: 3.7%) at prices ranging from 0.85 to Employee profit sharing scheme The company has an employee profit sharing scheme which appropriated shares at market value for directors and other employees of the Group during the year. In December 2005, 17,110 ordinary 6 cent shares were purchased by the executive directors and 6,104 ordinary 6 cent shares were purchased by the company secretary under this scheme in respect of Non-executive directors do not participate in this scheme. Such shares held by the directors at the year end are included in the directors' share interests disclosed on page 42. Service contracts No service contracts exist between the company or any of the Group's subsidiaries and any executive or non-executive directors except in the case of C. Bos. C. Bos's service contract provides that he shall be entitled to a compensation payment equal to twice his income if his employment is terminated by the Group except in one of the following circumstances: (i) a summary dismissal for an urgent reason immediately communicated to C. Bos within the meaning of Dutch law; (ii) after an illness lasting 2 years (or longer); or (iii) termination of the employment agreement by law on reaching 65 years or such earlier retirement date as provided in his pension scheme. Also no compensation payment arises where his employment is terminated as a consequence of a dissolution based on important reasons within the meaning of section 7:685 of the Dutch Civil Code at the request of the company provided that the dissolution is based on a change in circumstances within the meaning of section 7:685 of the Dutch Civil Code. In calculating the compensation payment, C. Bos's contract provides that his income shall be understood to include his annual salary, the vacation allowance payable under his contract and the average bonus paid to him over the three calendar years preceding the termination of the employment. Directors' interests in contracts There were no contracts at any stage during the year between the company or any of the Group's subsidiaries and any director of the company. Directors' remuneration Aggregate directors' remuneration for the year was as follows: Executive directors Non-executive directors Total '000 '000 '000 '000 '000 '000 Basic salaries 1,547 1, ,547 1,494 Fees Performance bonuses Short term incentive benefit Other benefits Consultancy Pension contributions 1, , ,122 3, ,453 3,332 Consultancy fees to past directors Total remuneration 5,220 3, ,551 3,608 Number of directors (average) In accordance with IFRS 2, Share-based Payment a further expense of 62,000 (2004: 49,00) has been recognised in the income statement in respect of share options granted to executive directors in March In accordance with IAS 19, Employee Benefits the pension expense recognised in the income statement for executive directors amounted to 1,727,000 (2004: 135,000) compared with cash contributions of 1,806,000 (2004: 215,000). Actuarial losses recognised in the statement of recognised income and expense, in respect of pension benefits of executive directors, amounted to 282,000 (2004: 777,000). Fyffes plc Annual Report 2005 Page 40

43 Compensation Committee Report (continued) Directors' remuneration This is analysed by individual director, in accordance with the rules of the Irish Stock Exchange as follows: 2005 Other Salary Short Term Benefits & Pension Total or Fees Bonus Incentive Benefit Consultancy Contributions 2005 Executives '000 '000 '000 '000 '000 '000 C.P. McCann ,505 D.V. McCann ,505 N.V. McCann J.F. Gernon J.P. Tolan , ,806 5,122 Non-executives D.J. Bergin Dr. P.F. dev. Clüver R.B. Hynes J.D. McCourt G.B. Scanlan W.M. Walsh Consultancy fees to past directors Total remuneration 1, ,806 5, Other Salary Short Term Benefits & Pension Total or Fees Bonus Incentive Benefit Consultancy Contributions 2004 Executives '000 '000 '000 '000 '000 '000 C.P. McCann D.V. McCann N.V. McCann J.F. Gernon J.P. Tolan , ,050 Non-executives D.J. Bergin Dr. P.F. dev. Clüver R.B. Hynes J.D. McCourt G.B. Scanlan W.M. Walsh Consultancy fees to past directors Total remuneration 1, ,608 Other benefits & consultancy for executive directors, except in the case of N.V. McCann, relate entirely to motor expenses. In 2005, N.V. McCann, as director, received 20,000 in respect of motor expenses and 192,000 in respect of consultancy services (2004: motor expenses 21,000, consultancy 200,000). Fyffes plc Annual Report 2005 Page 41

44 Compensation Committee Report (continued) Pension entitlements of executive directors The pension benefits attributable to the executive directors during the year and the total accrued pensions at the end of the year were as follows: Increase in accrued Transfer Total accrued Total accrued pension during value of pension at pension at year increase 31 December December 2004 (a) (b) (c) '000 '000 '000 '000 C.P. McCann D.V. McCann J.F. Gernon J.P. Tolan Total (a) (b) (c) The increase in accrued pension during the year excluding inflation. The transfer value of the increase in accrued pension has been calculated based on actuarial advice. These transfer values do not represent sums paid or due, but are the amounts that the pension scheme would transfer to another pension scheme in relation to the benefits accrued in the year, in the event of a member of the scheme leaving service. This represents the pension which would be paid annually, on normal retirement date, based on service to the end of this accounting period. Directors' and company secretary's share interests The interests of the directors in the issued share capital of the company are shown below. At 31 December 2005 At 31 December 2004 Beneficial number Beneficial number Fyffes plc Fyffes plc Ordinary shares Ordinary shares of 6 cent of 6 cent C.P. McCann 1,525,863 1,519,759 D.V. McCann 600, ,546 J.F. Gernon 351, ,711 J.P. Tolan 68,105 68,105 D.J. Bergin 30,949 30,949 Dr. P.F. dev. Clüver - - R.B. Hynes 50,000 50,000 J.D. McCourt 50,000 50,000 G.B. Scanlan 10,000 10,000 W.M. Walsh - - At 31 December 2005, the company secretary, P.T. Halpenny, held 187,282 Fyffes plc ordinary 6 cent shares (2004: 181,178). There have been no movements in the share holdings of the directors or company secretary between the year end and 3 March Fyffes plc Annual Report 2005 Page 42

45 Compensation Committee Report (continued) Directors' and company secretary's interests in share options Information on directors' and company secretary's share options to subscribe for ordinary shares of the company is set out below. Options held at Options held at Date from 31 December 31 December Exercise which Expiry 2004 Granted Exercised Lapsed 2005 price exercisable date C.P. McCann 950, , /09/ /09/ , , /01/ /01/ , , /03/ /03/ , , /03/ /03/2014 D.V. McCann 950, , /09/ /09/ , , /01/ /01/ , , /03/ /03/ , , /03/ /03/2014 J.F. Gernon 350, , /09/ /09/ , , /01/ /01/ , , /03/ /03/ , , /03/ /03/2014 J.P. Tolan 300, , /09/ /09/ , , /01/ /01/ , , /03/ /03/ , , /03/ /03/2014 P.T. Halpenny* 250, , /09/ /09/ , , /01/ /01/ , , /03/ /03/ , , /03/ /03/2014 * company secretary The market price of the shares at 30 December 2005 was 2.30 and the range during the year was 1.88 to Options granted on and subsequent to 22 September 1997 are only exercisable when the earnings per share figure, in respect of the third or any subsequent accounting period after the end of the basis year (i.e. accounting period preceding the date of the grant), is greater than the earnings per share figure for the basis year by a percentage which is not less than (on a year on year basis) the annual percentage increase in the consumer price index plus 2% compounded during that period. The directors and company secretary have not been granted, nor have they exercised, any options since the year end. Fyffes plc Annual Report 2005 Page 43

46 Statement of Directors' Responsibilities The directors are responsible for preparing the Annual Report and the Group and company financial statements, in accordance with applicable law and regulations. Company law requires the directors to prepare Group and company financial statements for each financial year. Under that law, the directors are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the company financial statements in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Acts, 1963 to The financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Group and company; the Companies Acts, 1963 to 2005 provide in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. In preparing each of the Group and company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and company will continue in business. The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Acts, 1963 to They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and the requirements of the Listing Rules issued by the Irish Stock Exchange, the directors are also responsible for preparing a Directors' Report and reports relating to directors' remuneration and corporate governance that comply with that law and those Rules. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board C.P. McCann J.F. Gernon Chairman Finance Director 3 March 2006 Fyffes plc Annual Report 2005 Page 44

47 Independent Auditor s Report to the Members of Fyffes plc We have audited the Group and company financial statements (the financial statements) of Fyffes plc for the year ended 31 December 2005 which comprise the Group Income Statement, the Group and company Statements of Recognised Income and Expense, the Group and company Balance Sheets, the Group and company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with section 193 of the Companies Act, Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU are set out in the Statement of Directors' Responsibilities on page 44. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view in accordance with IFRSs as adopted by the EU and, in the case of the company as applied in accordance with the provisions of the Companies Acts, 1963 to 2005, and have been properly prepared in accordance with the Companies Acts, 1963 to 2005 and Article 4 of the IAS Regulation. We also report to you whether, in our opinion: proper books of account have been kept by the company; at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and the information given in the Directors' Report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit, and whether the company balance sheet is in agreement with the books of account. We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding directors' remuneration and directors' transactions is not disclosed and, where practicable, include such information in our report. We review whether the Corporate Governance Report, including the Audit Committee Report and Compensation Committee Report, reflects the company's compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group's corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors' Report, the Chairman's Statement, the Review of Operations and the Financial Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. Fyffes plc Annual Report 2005 Page 45

48 Independent Auditor s Report to the Members of Fyffes plc (continued) Opinion In our opinion: the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group's affairs as at 31 December 2005 and of its profit for the year then ended; the company financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Acts, 1963 to 2005, of the state of the company's affairs as at 31 December 2005; and the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2005 and Article 4 of the IAS Regulation. We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the company. The company Balance Sheet is in agreement with the books of account. In our opinion, the information given in the Directors' Report on pages 29 to 30 is consistent with the financial statements. The net assets of the company, as stated in the company Balance Sheet on page 103 are more than half of the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 December 2005 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the company. Chartered Accountants Registered Auditor 3 March 2006 Fyffes plc Annual Report 2005 Page 46

49 Group Income Statement for the year ended 31 December 2005 Pre- Preexceptional Exceptional Total exceptional Exceptional Total Notes '000 '000 '000 '000 '000 '000 Revenue including Group share of joint ventures and associates 1 2,174,006-2,174,006 1,953,815-1,953,815 Group revenue 1 1,741,936-1,741,936 1,512,268-1,512,268 Cost of sales (1,446,428) - (1,446,428) (1,266,812) - (1,266,812) Gross profit 295, , , ,456 Other operating income 2 3,796 9,958 13,754 3,702 4,074 7,776 Distribution expenses (145,793) (2,396) (148,189) (134,357) - (134,357) Administrative expenses (58,707) - (58,707) (46,534) - (46,534) Other operating expenses 3 (1,269) (17,290) (18,559) (464) (7,758) (8,222) Share of profit of joint ventures (after tax) 13 15, ,996 12, ,463 Share of profit of associates (after tax) Operating profit 108,590 (8,732) 99,858 79,853 (3,234) 76,619 Financial income 4 16,271 14,443 Financial expense 4 (10,310) (8,333) Profit before tax 105,819 82,729 Income tax expense 7 (10,677) (9,906) Profit for the financial year 95,142 72,823 Attributable as follows: Equity shareholders of the company 83,014 64,328 Minority interest 19 12,128 8,495 Profit for the financial year 95,142 72,823 Basic earnings per share cent cent Diluted earnings per share cent cent All activities were in respect of continuing operations C.P. McCann Chairman J.F. Gernon Finance Director Fyffes plc Annual Report 2005 Page 47

50 Group Statement of Recognised Income and Expense for the year ended 31 December 2005 Notes Items of income and expense recognised directly in equity: '000 '000 Foreign currency translation effects - foreign currency net investments 8,588 (1,045) - foreign currency borrowings (1,496) (120) Revaluation gains on property, plant and equipment 10 18,077 11,640 Deferred tax on revaluation gains 24 (3,398) (2,506) Share of joint ventures revaluation gains on property, plant and equipment 1,966 1,261 Share of joint ventures deferred tax on revaluation gains gains on property, plant and equipment (263) (609) Fair value adjustment on equity investments 14 (1,400) - Effective portion of cash flow hedges 5,800 - Deferred tax relating to cash flow hedges (725) - Actuarial loss recognised on defined benefit pension schemes 26 (2,671) (11,171) Deferred tax on actuarial loss on defined benefit schemes ,036 Share of MNOPF deficit recognised in Geest joint venture 13 (3,025) - Share of MNOPF deferred tax impact in Geest joint venture Share of joint ventures actuarial movements recognised on other defined benefit pension schemes (1,262) (66) Share of joint ventures deferred tax on actuarial movements on other defined benefit schemes Net income\(expense) recognised directly in equity 21,976 (560) Profit for the financial year 95,142 72,823 Total recognised income and expense 117,118 72,263 Attributable as follows: Equity shareholders ,983 63,041 Minority interest 19 13,135 9,222 Total recognised income and expense 117,118 72,263 Impact of first time adoption of financial instrument standards, IAS 32 and 39 Cash flow hedges 18 (1,699) - Deferred tax relating to cash flow hedges (1,487) - Fyffes plc Annual Report 2005 Page 48

51 Group Balance Sheet as at 31 December 2005 Notes Assets '000 '000 Non-current Property, plant and equipment , ,189 Investment property 11 94,965 59,291 Goodwill and intangible assets 12 82,594 81,775 Other receivables 16 1,116 1,289 Investments in joint ventures and associates 13 98,444 82,746 Equity investments 14 16,543 17,979 Deferred tax assets 24 12,507 11,090 Total non-current assets 494, ,359 Current Inventories 15 39,699 32,933 Trade and other receivables , ,736 Derivative financial instruments 29 4,403 - Short term bank deposits , ,191 Cash and cash equivalents , ,541 Total current assets 697, ,401 Total assets 1,191,719 1,031,760 Equity Called-up share capital 18 21,516 21,426 Share premium 18 97,911 96,457 Other reserves , ,908 Retained earnings , ,526 Total equity attributable to equity shareholders of company 500, ,317 Minority interest 19 51,262 45,903 Total equity 551, ,220 Liabilities Non-current Interest bearing loans and borrowings , ,241 Deferred government grants 2,248 2,548 Other payables Provisions 22 33,575 28,507 Deferred tax liabilities 24 28,955 24,702 Employee benefits 26 30,104 26,108 Corporation tax payable 26,165 30,011 Total non-current liabilities 264, ,704 Current Interest bearing loans and borrowings , ,410 Trade and other payables , ,779 Provisions 22 15,886 2,816 Derivative financial instruments Corporation tax payable 8,260 7,831 Total current liabilities 375, ,836 Total liabilities 639, ,540 Total equity and liabilities 1,191,719 1,031,760 C.P. McCann Chairman J.F. Gernon Finance Director Fyffes plc Annual Report 2005 Page 49

52 Group Cash Flow Statement for the year ended 31 December Notes '000 '000 Cash flows from operating activities Profit for financial year 95,142 72,823 Adjustments for: Income tax expense 10,677 9,906 Depreciation on property, plant and equipment 10 14,014 13,199 Impairment of property, plant and equipment 10 2,396 - Fair value movement on investment property 11 (9,958) (3,492) Amortisation of intangible assets 3,360 1,713 Amortisation of grants (305) (436) Equity settled compensation Contributions to defined benefit pension schemes 26 (3,690) (3,338) Defined benefit pension scheme expense 26 4,357 3,763 Net gain on disposal of property, plant and equipment (222) (301) Interest income 4 (15,898) (14,338) Interest expense 4 10,310 8,333 Dividend income from equity investments (286) (105) Share of profit of joint ventures 13 (15,996) (12,463) Share of profit of associates 13 (55) (37) Movement in trade and other receivables (8,995) (4,198) Movement in trade and other payables 15,902 12,466 Movement in inventories (6,584) 3,565 Loss on disposal of joint venture 6-1,135 Gain on disposal of subsidiary 6 - (582) Corporation tax paid (14,258) (14,737) Interest received 14,814 14,336 Interest paid (8,451) (6,594) Net cash inflow from operating activities 86,598 80,875 Net cash flows from investing activities Acquisition of subsidiaries, net of cash acquired 25 (668) (33,837) Disposal\termination of subsidiaries, net of cash disposed Disposal of joint ventures - 6,227 Acquisition, investment and loans to joint ventures 13 (9,784) (4,928) Dividends received from joint ventures 13 5,269 5,345 Capital repaid by joint ventures 13 4,277 3,037 Dividends received from associates Payments of deferred consideration 22 (2,701) (1,355) Acquisition of property, plant and equipment (19,487) (9,885) Acquisition of investment property 11 (23,093) (27,354) Proceeds from disposal of property, plant and equipment 1,326 2,818 Proceeds from disposal of investment property Dividend income from equity investments Other (30) (36) Net cash (outflow) from investing activities (43,982) (59,190) Fyffes plc Annual Report 2005 Page 50

53 Group Cash Flow Statement for the year ended 31 December 2005 (continued) Notes '000 '000 Cash flows from financing activities Proceeds from the issue of share capital 18 1,544 2,073 Proceeds from borrowings 74,351 77,634 Repayment of borrowings (26,001) (24,965) Increase in short term bank deposits 17 (41,219) (92,772) Capital element of lease payments 17 (1,213) (1,207) Dividends to company equity shareholders 18 (24,003) (20,286) Repayment of investment in subsidiary to minority 19 (146) (332) Dividends to minority interest 19 (7,630) (5,093) Net cash (outflow) from financing activities (24,317) (64,948) Net increase\(decrease) in cash and cash equivalents 18,299 (43,263) Cash and cash equivalents, including bank overdrafts at 1 January 204, ,134 Effect of foreign exchange movement on cash and cash equivalents 3,877 1,834 Cash and cash equivalents, including bank overdrafts at 31 December , ,705 Group Reconciliation of Net Funds for the year ended 31 December '000 '000 Net increase\(decrease) in cash and cash equivalents 18,299 (43,263) Proceeds from new borrowings (74,351) (77,634) Repayment of borrowings 26,001 24,965 Increase in short term bank deposits 41,219 92,772 Capital element of lease payments 1,213 1,207 Other movements on finance leases (165) (304) Interest bearing loans and borrowings arising on acquisitions 25 - (11,287) Foreign exchange movement 6,563 (967) Movement in net funds 18,779 (14,511) Net funds at 1 January 152, ,592 Net funds at 31 December 170, ,081 Fyffes plc Annual Report 2005 Page 51

54 Significant Accounting Policies Fyffes plc (the 'company') is a company tax resident and incorporated in Ireland. The Group's financial statements for the year ended 31 December 2005 consolidate the individual financial statements of the company and its subsidiaries (together referred to as the Group ) and show the Group's interest in joint ventures and associates using the equity method of accounting. The individual and Group financial statements of the company were authorised for issue by the directors on 3 March The accounting policies applied in the preparation of the financial statements for the year ended 31 December 2005 are set out below. These have been applied consistently with the exception of those accounting policies pertaining to IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement which, in accordance with the transitional provisions of IFRS 1 First-time Adoption of International Financial Reporting Standards, were not applied in the restatement of the 2004 comparatives presented in these financial statements. Accounting policies affected by IAS 32 and IAS 39 are highlighted and details of the policies applied in the 2004 statutory numbers are also set out below. Statement of compliance As required by European Union (EU) law from 1 January 2005, the Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and their interpretations issued by the International Accounting Standards Board (IASB) as adopted by the EU. The individual financial statements of the company ('company financial statements') have been prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the Companies Acts, 1963 to 2005 which permits a company, that publishes its company and Group financial statements together, to take advantage of the exemption in Section 148(8) of the Companies Act 1963, from presenting to its members its company income statement and related notes that form part of the approved company financial statements. These are the company's and Group's first financial statements prepared in accordance with IFRS as adopted by the EU and IFRS 1, Firsttime Adoption of International Financial Reporting Standards has been applied. The IFRSs adopted by the EU as applied by the company and Group in the preparation of these financial statements are those that were effective at 31 December 2005 together with the early adoption of the Amendment to IAS 19 Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures. The following provides a brief outline of the likely impact on future financial statements of relevant IFRSs adopted by the EU which are not yet effective and have not been early adopted in these financial statements: Amendment to IAS 1 Capital disclosures: This amendment will require additional disclosures regarding the capital structure of the company and Group. Amendments to IAS 39 Cash Flow Hedge Accounting of Forecast Intragroup Transactions: This amendment is not expected to impact on the Group significantly. Amendments to IAS 39 The Fair Value Option: This amendment is not expected to impact on the Group significantly. Amendments to IAS 39 and IFRS 4 Financial Guarantee Contracts: As explained in note 27, where the company has issued a guarantee over the performance of a company in the Group or its joint ventures or associates, this is considered to be in the nature of an insurance contract and consequently the impact of this amendment is likely to be minimal. IFRS 7 Financial Instruments: Disclosures: This standard updates and extends the existing disclosure requirements of IAS 32 and will require significant additional disclosures relating to risk management policies and processes. First time adoption of IFRSs The Group and company are required to determine their IFRS accounting policies and apply them retrospectively to establish their opening balance sheets under IFRS at their date of transition. In addition to the transitional impact of the recognition and measurement of IFRS as disclosed in the restatement of 2004 financial information under IFRS, published in September 2005, the Group and company have subsequently decided that the adoption of a policy of fair value in measuring investment property and revaluation in the case of property in use in the business would provide more meaningful shareholder information and the impact of this is reflected in notes 10 and 11. IFRS 1 First-time Adoption of International Financial Reporting Standards allows a number of exemptions on adoption of IFRS for the first time. The date of transition to IFRSs for the Group and company is 1 January Where estimates had been made under Irish GAAP, consistent estimates (after adjustments to reflect any difference in accounting policies) have been made on transition to IFRS. Judgements affecting the balance sheets of the company and Group have not been revisited with the benefit of hindsight. Fyffes plc Annual Report 2005 Page 52

55 Significant Accounting Policies (continued) The Group has applied the following exemptions as permitted by IFRS 1: Business combinations The Group has elected not to apply the provisions of IFRS 3 Business Combinations retrospectively to business combinations before 1 January Accordingly, no adjustments have been made for historical business combinations and accumulated amortisation on goodwill arising before 1 January 2004 has not been reversed. The net carrying value of goodwill under Irish GAAP has been designated as the deemed cost of goodwill under IFRS. Cumulative translation differences Cumulative translation differences of foreign operations are deemed to be zero at the date of transition. Financial instruments The Group has availed of the exemption not to restate comparative amounts for 2004 for the impacts of IAS 32 and IAS 39. These are treated as changes in accounting policies and shown as opening adjustments on 1 January 2005 and in the statement of recognised income and expenses. Share based payment The provisions of IFRS 2 in respect of share-based payment plans have not been applied to options and awards granted on or before 7 November 2002 which had not vested by 1 January An explanation of how transition from Irish GAAP to IFRS has affected the Group's financial position is set out on pages 110 to 117 and forms part of the notes to these financial statements. Basis of preparation The Group and individual financial statements of the company are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: property, investment property, derivative financial instruments, certain financial assets, pension obligations, share based payments and biological assets held in joint ventures. The accounting policies have been applied consistently by Group entities. The financial statements are presented in euro, rounded to the nearest thousand. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 30. Accounting for subsidiaries, joint ventures and associates Group financial statements Subsidiaries Subsidiaries are those entities over which the Group has the power to control the operating and financial policies so as to obtain economic benefit from their activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The amounts included in these financial statements in respect of the subsidiaries are taken from their latest financial statements prepared up to their respective year ends, together with management accounts for the intervening periods to the year end, where necessary, although all significant subsidiaries have coterminous financial year ends. Where necessary, the accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions are eliminated in preparing the Group financial statements, except to the extent they provide evidence of impairment. Fyffes plc Annual Report 2005 Page 53

56 Significant Accounting Policies (continued) Joint ventures and associates Joint ventures are those entities over which the Group exercises control jointly, under a contractual agreement, with one or more parties. Investments in joint ventures are accounted for under the equity method of accounting. Associates are those entities in which the Group has significant influence over, but not control of the financial and operating policies. Investments in associates are accounted for by the equity method of accounting. Under the equity method of accounting, the Group's share of the post-acquisition profits or losses of its joint ventures and associates are recognised in the Group income statement. The income statement reflects in profit before tax, the Group's share of profit after tax of its joint ventures and associates in accordance with IAS 31, Interests in Joint Ventures, and IAS 28, Investments in Associates. The Group's interest in their net assets is included as investments in joint ventures and associates in the Group balance sheet at an amount representing the Group's share of the fair value of the identifiable net assets at acquisition plus the Group's share of post acquisition retained income and expenses. The Group's investment in joint ventures and associates includes goodwill on acquisition. The amounts included in these financial statements in respect of the post acquisition income and expenses of joint ventures and associates are taken from their latest financial statements prepared up to their respective year ends together with management accounts for the intervening periods to the period end, where necessary, although all significant joint ventures and associates have coterminous financial year ends. Where necessary, the accounting policies of joint ventures and associates have been changed to ensure consistency with the policies adopted by the Group. Unrealised gains and income and expenses arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that they are not evidence of impairment. Company financial statements Investments in subsidiaries, jointly controlled entities and associates are carried at cost less impairment, if any. Dividend income is recognised when the right to receive payment is established. Property, plant and equipment Property is recognised at fair value with the increase in the value of the property reflected in revaluation gains in the statement of recognised income and expense. The fair value is based on market value, being the estimated amount for which a property could be exchanged for in an arms length transaction. Plant and equipment is stated at cost less accumulated depreciation and impairment losses. Expenditure incurred to replace a component of property, plant and equipment that is accounted for separately is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure including repairs and maintenance costs is recognised in the income statement as an expense as incurred. Depreciation is calculated to write off the carrying amount of property, plant and equipment, other than freehold land, on a straight line basis, by reference to the following estimated useful lives:- Freehold properties: years Leasehold improvements: Over the lesser of 40 years or the unexpired portion of the lease Plant and equipment: 5-20 years Motor vehicles: 5 years The residual value of assets, if not insignificant, and the useful life of assets are reassessed annually. Gains and losses on disposals of property, plant and equipment are recognised on the ultimate completion of sale. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount and are included in operating profit. Fyffes plc Annual Report 2005 Page 54

57 Significant Accounting Policies (continued) Investment property Investment property, principally comprising office buildings and warehouses, is property (including separate, self contained parts of such buildings) which is held for rental income or capital appreciation and is not occupied by the Group. Investment property is stated at fair value. The fair value is based on market value, being the estimated amount for which a property could be exchanged for in an arms length transaction. Any gain or loss arising from a change in fair value is recognised in the income statement. When property is transferred to investment property following a change in its use, any differences arising at the date of transfer between the carrying amount of the property immediately prior to transfer and its fair value is recognised directly in equity if it is a gain. Upon disposal of the property the gain is transferred to retained earnings. Any loss arising in this manner is recognised immediately in the income statement. Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease. Government grants Grants that compensate the Group for the cost of an asset are recognised in the income statement as income on a systematic basis over the useful life of the asset. Leases Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property, plant or equipment or the present value of the minimum lease payments. The corresponding rental obligations, net of finance expenses, are included in interest bearing loans and borrowings. The interest element of the finance cost is expensed in the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease rentals are expensed in the income statement on a straight line basis over the lease term. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. Foreign currency Transactions in foreign currencies are translated into the functional currency of the entity at the foreign exchange rate ruling at the date of the transaction. Non-monetary assets carried at historic cost are not subsequently retranslated. Non-monetary assets carried at fair value are subsequently remeasured at the exchange rate at the date of valuation. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into functional currencies at the foreign exchange rate ruling at that date. Foreign exchange movements arising on translation are recognised in the income statement. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to euro at the foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to euro at the average exchange rate for the financial period. Foreign exchange movements arising on translation of the net investment in a foreign operation, including those arising on long term intra Group loans, deemed to be quasi equity in nature, are recognised directly in equity, in the translation reserve. The portion of exchange gains or losses on foreign currency borrowings used to provide a hedge against a net investment in a foreign operation that are determined to be an effective hedge is recognised directly in equity. The ineffective portion is recognised immediately in income statement. Any movements that have arisen since 1 January 2004, the date of transition to IFRS, are recognised in the currency translation reserve and are recycled through the income statement on disposal of the related business. Translation differences that arose before the date of transition to IFRS in respect of all non-euro denominated operations are not presented separately. Fyffes plc Annual Report 2005 Page 55

58 Significant Accounting Policies (continued) Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, joint ventures and associates. In respect of business acquisitions that have occurred since 1 January 2004, goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, i.e. original cost less accumulated amortisation since acquisition up to 31 December 2003, which represents the amount recorded under Irish GAAP. The classification and accounting treatment of business combinations that occurred prior to 1 January 2004 has not been reconsidered in preparing the Group's opening IFRS balance sheet at 1 January Goodwill is allocated to cash generating units and is now no longer amortised but is tested annually for impairment at a consistent time each year. Goodwill is now stated at cost or deemed cost less any accumulated impairment losses. In respect of joint ventures and associates, the carrying amount of goodwill is included in the carrying amount of the investment. Goodwill which arose on acquisitions prior to 1 November 1998 was eliminated against reserves on acquisition as a matter of accounting policy. In preparing the Group's IFRS balance sheet at 1 January 2004 this goodwill is considered to have been permanently offset against retained earnings and, on any subsequent disposal, will not form part of the gain or loss on the disposal of the business. Intangible assets Trademarks are carried at historic cost. The directors are of the opinion that the Fyffes trademark has an indefinite useful life and therefore it is not amortised, but subject to annual impairment testing. Other identifiable intangible assets, that are acquired by the Group, are stated at cost less accumulated amortisation and impairment losses, when separable or arising from contractual or other legal rights and reliably measurable. Amortisation is expensed in the income statement on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite, from the date they are available for use. Intangible assets reflecting the value of customer relationships, which arise on acquisitions, are amortised over their useful lives ranging from one to ten years. Under the terms of EU legislation, certain Group companies are granted rights to import bananas in the normal course of trading. In accordance with paragraph 23 of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance, these rights have been accounted for as grants, at nominal value. Impairment reviews and testing The carrying amounts of the Group's assets, other than biological assets (which are stated at fair value), inventories (which are carried at the lower of cost and net realisable value), certain financial assets (which are carried at fair value) and deferred tax assets, (which are recognised based on recoverability), are assessed for impairment when an event or transaction indicates that an impairment may have occurred, except for goodwill and intangibles with indefinite lives, which are assessed annually for impairment. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount as appropriate. The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Goodwill and intangible assets with indefinite lives were tested for impairment at 1 January 2004, the date of transition to IFRS, even through no indication of impairment existed. Goodwill and intangible assets with an indefinite useful life are tested for impairment at each balance sheet date. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Fyffes plc Annual Report 2005 Page 56

59 Significant Accounting Policies (continued) Revenue Revenue comprises the fair value of the sale of goods, excluding value added tax, delivered to or collected by third party customers during the accounting period and after eliminating sales within the Group. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred to the buyer. Share based payment The fair value of options granted under the Group's equity settled share option scheme is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial lattice model, taking into account the terms and conditions upon which the options were granted. Vesting conditions are non-market and consequently the amount recognised as an expense is adjusted to reflect the actual number of share options that vest. Employee benefits Group financial statements Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as services from employees are received. The Group's net obligation in respect of defined benefit pension schemes is calculated, separately for each plan, by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on high quality credit rated bonds that have maturity dates approximating the terms of the Group's obligations. The calculation is performed by the Group's actuaries using the projected unit credit method. All actuarial gains and losses as at 1 January 2004, the date of transition to IFRS, were recognised in full against retained earnings. Actuarial gains and losses for subsequent periods are recognised in the statement of recognised income and expense. Current and past service costs, interest on scheme liabilities and expected return on assets are recognised in the income statement and included in operating profit. Company financial statements The company is not the sponsoring employer for any of the Group's defined benefit pension schemes. The employees of the company are members of different defined benefit pension schemes operating within the Group. There is no stated policy within the Group in relation to the obligations of Group companies to contribute to scheme deficits. Group companies make contributions to the schemes as advised by the sponsoring employers. Consequently, the company accounts for its contributions to defined benefit pension schemes on a defined contribution basis. Agriculture Certain of the Group's joint ventures, involved in the production of fresh produce, recognise biological assets, which includes agricultural produce due for harvest on plantations. Biological assets are stated at fair value less estimated point-of-sale costs, with any resultant gain or loss recognised in the income statement. Point-of-sale costs include all costs that would be necessary to sell the assets, excluding costs necessary to get the assets to market. Taxation Taxation on the profit or loss for the year comprises current and deferred tax. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates and laws that have been enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. If the temporary difference arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect accounting nor taxable profit or loss, it is not recognised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future or where no taxation is expected to arise on any ultimate remittance. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Fyffes plc Annual Report 2005 Page 57

60 Significant Accounting Policies (continued) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Cash and cash equivalents Cash and cash equivalents, comprise cash balances and call deposits, including bank deposits of less than three months maturity. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Financial instruments - from 1 January 2005 Short term bank deposits Short term bank deposits of greater than three months maturity which do not meet the definition of cash and cash equivalents are classified as financial assets available for sale within current assets and stated at fair value in the balance sheet. Equity investments Equity investments held by the Group and company are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss being recognised directly in equity (in the fair value reserve), except for impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses. When a devaluation of these assets is significant or prolonged, it is removed from the fair value reserve and shown as an impairment loss in the income statement. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in the income statement. Where these investments are interest bearing, interest calculated using the effective interest method is recognised in the income statement. Derivative financial instruments Foreign currency derivatives are entered into only when they match an existing foreign currency asset or liability or where they are used to hedge a forecasted transaction. The Group does not enter into speculative transactions. Derivative financial instruments are measured at fair value at each reporting date and the movement in fair value is recognised in the income statement unless they are designated as cash flow hedges under IAS 39. Where such instruments are classified as cash flow hedges, and subject to the satisfaction of certain criteria, relating to the documentation of the risk, objectives and strategy for the hedging transaction and the ongoing measurement of its effectiveness, they are accounted for under hedge accounting rules. In such cases, any gain or loss arising on the effective portion of the derivative instrument is recognised in the hedging reserve, a separate component of equity. Gains or losses on any ineffective portion of the derivative are recognised in the income statement. When the hedged transaction matures, the related gains or losses in the hedging reserve are transferred to the income statement. Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Financial instruments - up to 31 December 2004 The Group is a party to derivative financial instruments (derivatives), primarily to manage its exposure to fluctuations in foreign currency exchange rates and interest rates. Gains and losses on derivative contracts used to hedge foreign exchange exposures arising on future planned transactions are recognised in the income statement when the hedged transactions occur. Interest rate swap agreements and similar contracts are used to manage interest rate exposures. Amounts payable or receivable in respect of these derivatives are recognised as adjustments to interest expense over the period of the contracts. Financial income and expense is recognised on an accruals basis. Fyffes plc Annual Report 2005 Page 58

61 Notes to Group Financial Statements for the year ended 31 December Segment reporting Segment information is presented in respect of the Group's business and geographical segments. The primary format for segmental reporting is business segments. The secondary format for reporting segmental information is geographical. Inter-segment pricing is determined on an arms length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Geographical segments The Group operates in three principal geographical regions being the Eurozone, the UK and Sweden. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of the Group subsidiary. Segment assets are based on the geographical location of the assets. Eurozone UK Sweden Other Total '000 '000 '000 '000 '000 Revenue including Group share of joint ventures and associates 1,194, , , ,040 2,174,006 Group revenue 1,023, , , ,764 1,741,936 Segment assets 359, , ,441 46, ,632 Capital expenditure 16,373 24, ,674 43, '000 '000 '000 '000 '000 Revenue including Group share of joint ventures and associates 1,166, , , ,166 1,953,815 Group revenue 961, , , ,045 1,512,268 Segment assets 312,603 93,415 98,427 50, ,192 Capital expenditure 27,080 8, ,007 37,759 Business segments Fyffes primary activity is the importation and distribution of fresh produce. The Group's operations are divided into: Tropical Produce. This division is responsible for the procurement and distribution of tropical fresh produce, primarily bananas and pineapples, including related shipping activities. General Produce. This segment includes the procurement and distribution of fresh produce, other than tropical produce. Other activities. This segment includes the other business activities of the Group, mainly consumer goods distribution and property activities. The Group's Tropical Produce Division is responsible for the procurement, farming, shipping, importation, ripening, marketing and distribution of bananas, pineapples and melons. This division typically operates long term supply contracts with growers, with purchase prices normally fixed on an annual basis. By contrast, in the Group's General Produce Division, buying and selling prices are typically settled in a shorter time frame. In addition, in some cases, this division operates on the basis of a fee or commission for the services it provides. This distinction in the risks inherent in their respective activities contributes to the different operating margins achieved by these divisions, as evident from the analysis below. Fyffes plc Annual Report 2005 Page 59

62 Notes to Group Financial Statements for the year ended 31 December Segment reporting (continued) General Tropical Other Produce Produce Activities Total '000 '000 '000 '000 Revenue including Group share of joint ventures and associates 1,552, , ,662 2,174,006 Total revenue from external customers 1,218, , ,662 1,832,122 Inter-segment revenue - (90,186) - (90,186) Group revenue 1,218, , ,662 1,741,936 Operating profit - Group 27,452 64,388 1,695 93,535 Share of profit of joint ventures and associates 3,465 11,590-15,055 30,917 75,978 1, ,590 Exceptional items ,954 10,954 Segment result 30,917 75,978 12, ,544 Unallocated exceptional items (19,686) Operating profit 99,858 Segment assets 404,265 89, , ,632 Investment in joint ventures and associates 42,256 53,780 2,408 98, , , , ,076 Unallocated assets 462,643 Total assets 1,191,719 Unallocated assets comprise short term bank deposits, cash and cash equivalents and deferred tax assets. Segment liabilities 179,708 48,993 30, ,519 Unallocated liabilities 380,260 Total liabilities 639,779 Unallocated liabilities comprise interest bearing loans and borrowings, employee benefit liabilities, corporation tax payable, deferred tax liabilities and certain provisions. Depreciation 11,042 2, ,014 Capital expenditure 16,280 3,247 23,840 43,367 Amortisation expense 3, ,360 Fyffes plc Annual Report 2005 Page 60

63 Notes to Group Financial Statements for the year ended 31 December Segment reporting (continued) General Tropical Other Produce Produce Activities Total '000 '000 '000 '000 Revenue including Group share of joint ventures and associates 1,429, , ,742 1,953,815 Total revenue from external customers 1,056, , ,742 1,586,886 Inter-segment revenue - (74,618) - (74,618) Group revenue 1,056, , ,742 1,512,268 Operating profit - Group 22,257 43,071 2,475 67,803 Share of profit of joint ventures and associates 5,109 6,941-12,050 27,366 50,012 2,475 79,853 Exceptional items 582 (1,135) 3,942 3,389 Segment result 27,948 48,877 6,417 83,242 Unallocated exceptional items (6,623) Operating profit 76,619 Segment assets 383,718 70, , ,192 Investment in joint ventures and associates 38,488 42,734 1,524 82, , , , ,938 Unallocated assets 393,822 Total assets 1,031,760 Unallocated assets comprise short term bank deposits, cash and cash equivalents and deferred tax assets. Segment liabilities 181,153 34,415 30, ,237 Unallocated liabilities 319,303 Total liabilities 565,540 Unallocated liabilities comprise interest bearing loans and borrowings, employee benefit liabilities, corporation tax payable and deferred tax liabilities. Depreciation 10,215 2, ,199 Capital expenditure 5,631 1,607 30,521 37,759 Amortisation expense 1, ,713 Fyffes plc Annual Report 2005 Page 61

64 Notes to Group Financial Statements for the year ended 31 December Other operating income '000 '000 Rental income from investment property 3,422 2,236 Amortisation of government grants Revenue grants Gain on disposal of property, plant and equipment Foreign exchange gain ,796 3,702 Exceptional items in other operating income (note 6) Fair value movements on investment property 9,958 3,492 Gain on disposal\termination of activities of subsidiaries ,754 7,776 3 Other operating expenses '000 '000 Maintenance costs of investment property (1,072) (464) Foreign exchange loss (197) - (1,269) (464) Exceptional items in other operating expenses (note 6) Merchant Navy Officers Pension Fund legal liability (4,994) - Cost of legal action against DCC plc and others (4,796) (4,130) Provision for defendants' costs in DCC litigation (7,500) - Cost of terminated Bocchi acquisition - (2,493) Net loss on disposal of joint ventures - (1,135) (18,559) (8,222) Fyffes plc Annual Report 2005 Page 62

65 Notes to Group Financial Statements for the year ended 31 December Financial income and expense '000 '000 Interest income 15,898 14,338 Dividend income from financial assets Gain on disposal of investments 87 - Financial income 16,271 14,443 Interest expense on interest bearing borrowings (8,986) (7,358) Interest expense on finance leases (161) (100) Other interest expense (1,163) (875) Financial expense (10,310) (8,333) Net financial income 5,961 6,110 5 Statutory and other information '000 '000 Depreciation of property, plant and equipment - owned assets 12,738 12,032 - under finance lease 1,276 1,167 Amortisation of intangible assets - subsidiaries 3,110 1,713 - joint ventures Auditor's remuneration Auditor's remuneration for non-audit services 1,862 2,217 Operating lease rentals - Plant and equipment 1, Other 2,111 3,503 Details of directors' remuneration, pension entitlements and interests in share options are set out in the compensation committee report on pages 39 to 43. Fyffes plc Annual Report 2005 Page 63

66 Notes to Group Financial Statements for the year ended 31 December Exceptional items '000 '000 Fair value movements on investment properties 9,958 3,492 Share of joint ventures fair value movement on investment properties Impairment of property, plant and equipment (2,396) - Merchant Navy Officers Pension Fund (4,994) - Cost of legal action against DCC plc and others (4,796) (4,130) Provision for defendants costs in DCC litigation (7,500) - Costs of terminated Bocchi acquisition - (2,493) Loss on disposal of joint ventures - (1,135) Gain on disposal\termination of activities of subsidiaries Total exceptional items (8,732) (3,234) Fair value gains on investment property As explained in note 11, the Group has changed its accounting policy in relation to investment properties from that announced in its IFRS transition report in September 2005, from the depreciated historic cost model to the fair value model. Fair value gains arising during the year amounting to 9,958,000, together with the Group's share of similar gains in its joint ventures amounting to 996,000, have been recognised in the income statement. As a result of the adoption of this accounting policy, the Group's 2004 results have been restated to include similar fair value gains in respect of last year amounting to 3,492,000 and 450,000 respectively. In addition, a profit of 12,744,000 originally recognised in 2004, on disposal of a joint venture which held an investment property, has been credited to retained earnings on transition as a result of this change in accounting policy. Revaluation of property, plant and equipment As explained in note 10, the Group revalued its property, plant and equipment at 31 December In addition to the substantial revaluation gains included in the statement of recognised income and expense, this process identified certain properties where the depreciated historic cost exceeded market value, giving rise to an impairment charge in the year amounting to 2,396,000. Profit of 1,888,000 originally recognised on disposal of certain properties in 2004 has been restated to nil as a result of the adoption of this accounting policy. Merchant Navy Officers Pension Fund As explained in note 22, the Merchant Navy Officers Pension Fund (MNOPF) is a UK based multi-employer scheme operated on behalf of ships' officers. In August 2005, the MNOPF Trustee issued a notice to two Fyffes subsidiaries in relation to the deficit in that scheme for 10 payments, payable between September 2005 and March 2014, amounting to 6,400,000 in aggregate. The net present value of these payments, amounting to 4,994,000, has been charged in the income statement in Litigation costs As explained in note 22, as a result of the outcome of the Group's legal action against DCC plc and others in December 2005, and a subsequent decision on the award of costs, a provision of 7,500,000 has been recognised in respect of the defendants costs in this action. This estimate, together with Fyffes' own costs for the year, amounting to 4,796,000, has been charged in the income statement. Other - prior year In 2004, the Group sold its 50% interest in a joint venture engaged in the production of tropical produce, incurring a loss of 1,135,000. The termination of the activities of certain subsidiaries, together with the recovery of deferred consideration due from the disposal of a subsidiary in previous years, gave rise to a net gain of 582,000 last year. During 2004, the Group incurred external costs and advisory fees amounting to 2,493,000 in connection with the planned acquisition of Bocchi which did not complete. Tax charges arising on exceptional items amounted to 3,266,000 in the year, (2004: net charge of 1,322,000), relating mainly to deferred tax charges on revaluation of investment properties, including the Group's share of its joint ventures. Fyffes plc Annual Report 2005 Page 64

67 Notes to Group Financial Statements for the year ended 31 December Income tax expense '000 '000 Income tax expense recognised in income statement Ireland Corporation tax on profit for the year 7,543 5,189 Adjustment in respect of prior year (5,833) 352 1,710 5,541 Overseas Current year tax on profit for the year 11,800 10,401 Adjustment in respect of prior year (1,135) (4,091) 10,665 6,310 Total current tax 12,375 11,851 Deferred tax expense Origination and reversal of temporary differences (note 24) (1,698) (1,945) 10,677 9,906 Deferred tax recognised directly in equity Employee benefit schemes 498 2,036 Revaluation of property (3,398) (2,506) Derivative financial instruments (513) - (3,413) (470) Reconciliation of effective tax rate % '000 % '000 Profit before tax 105,819 82,729 Taxation based on Irish Corporate rate , ,341 Expenses not deductible for tax purposes , ,375 Tax on income from joint ventures and associates (1.90) (2,006) (1.89) (1,563) Differences in tax rates , ,030 Adjustments to prior years (6.58) (6,968) (4.52) (3,739) Goodwill not deductible for tax purposes - - (0.65) (538) Investment income not taxable Previously unrecognised deferred tax asset (1.58) (1,676) - - Unrecognised deferred tax asset arising in year Other items , ,906 Fyffes plc Annual Report 2005 Page 65

68 Notes to Group Financial Statements for the year ended 31 December Dividends to equity shareholders Interim dividends to equity shareholders in Fyffes plc are recognised when the interim dividend is paid by the company. The final dividend in respect of a financial year is recognised when the dividend has been approved by the company's shareholders. During the financial year, the following dividends were recognised '000 '000 Final dividend for 2004 paid on 25 May ,100 14,982 Interim dividend for 2005 paid on 7 October ,903 5,304 Total dividends paid to equity shareholders 24,003 20, cent cent Final dividend for 2004 paid on 25 May Interim dividend for 2005 paid on 7 October Total dividends paid to equity shareholders A special second interim dividend of 20,000,000 equivalent to 5.72 per cent ordinary share, was declared on 12 December 2005 and paid on 3 March The directors have proposed a final dividend in respect of the 2005 financial year of 5.20 cent per ordinary share (2004: 5.20 cent). These dividends have not been provided for in the company or the Group balance sheet and will be recognised when paid. The final dividend is subject to approval by the company's shareholders at the Annual General Meeting. 9 Earnings per share Basic earnings per share The calculation of basic earnings per share is based on the profit for the financial year attributable to ordinary shareholders of 83,014,000 (2004: 64,328,000) and the weighted average number of ordinary shares outstanding during the year of 348,971,000 (2004: 346,716,000), calculated as follows: '000 '000 Profit for the financial year attributable to equity shareholders 83,014 64,328 '000 '000 Issued ordinary shares at 1 January 357, ,028 Effect of own shares held (9,022) (9,022) Effect of shares issued Weighted average number of ordinary shares for the year 348, ,716 Basic earnings per share cent cent Fyffes plc Annual Report 2005 Page 66

69 Notes to Group Financial Statements for the year ended 31 December Earnings per share (continued) Diluted earnings per share The calculation of diluted earnings per share is was based on profit attributable to ordinary shareholders of 83,014,000 (2004: 64,328,000) and the weighted average number of ordinary shares and options with dilutive effect outstanding during the year of 353,512,000 (2004: 350,498,000), calculated as follows: '000 '000 Profit for the financial year attributable to equity shareholders 83,014 64,328 '000 '000 Weighted average number of ordinary shares for the year 348, ,716 Effect of share options with a dilutive effect 4,541 3,782 Weighted average number of ordinary shares (diluted) for the year 353, ,498 Diluted earnings per share cent cent Adjusted fully diluted earnings per share Earnings Per share Earnings Per share '000 cent '000 cent Per basic earnings per share 83, , Adjustments: Fair value movement on investment properties (9,958) (2.85) (3,492) (1.01) Share of joint ventures fair value movement on investment properties (996) (0.29) (450) (0.13) Impairment on property, plant and equipment 2, Merchant Navy Officers Pension Fund 4, Costs of legal action against DCC plc and others 4, , Provision for defendants costs in DCC litigation 7, Loss on disposal of joint ventures - - 1, Gain on disposal of subsidiaries - - (582) (0.17) Amortisation of intangible assets 3, , Costs of terminated Bocchi acquisition - - 2, Tax effect of exceptional items 3, , Once-off tax credits (9,172) (2.63) - - Impact on earnings of dilutive share options - (0.33) - (0.21) Adjusted fully diluted earnings per share 89, , Adjusted fully diluted earnings per share is calculated to adjust for exceptional items, intangible amortisation, once-off tax credits and the impact of share options with a dilutive effect. Fyffes plc Annual Report 2005 Page 67

70 Notes to Group Financial Statements for the year ended 31 December Property, plant and equipment Land and Plant and Motor Buildings Equipment Vehicles Total '000 '000 '000 '000 Cost or valuation Balance at 1 January ,307 66,073 6, ,592 Additions 1,133 6,881 2,391 10,405 Arising from business combinations 8,083 7, ,551 Disposals (1,906) (3,160) (1,117) (6,183) Foreign exchange movement ,191 Reclassification 938 (938) - - Revaluation 9, ,110 Balance at 31 December ,250 76,437 7, ,666 Additions 12,876 4,596 2,802 20,274 Arising from business combinations Disposals (517) (1,917) (2,571) (5,005) Transfers to investment property (2,583) - - (2,583) Foreign exchange movement ,761 Reclassification 1,624 (2,291) Revaluation 15, ,289 Balance at 31 December ,704 77,550 9, ,569 Depreciation and impairment losses Balance at 1 January ,627 1,413 36,040 Depreciation charge for the year 2,530 8,335 2,334 13,199 Disposals - (2,731) (927) (3,658) Foreign exchange movement Revaluation (2,530) - - (2,530) Balance at 31 December ,448 3,029 43,477 Depreciation charge for the year 2,788 8,807 2,419 14,014 Impairment charge for the year 2, ,396 Disposals - (1,594) (1,889) (3,483) Transfers to investment property (125) - - (125) Foreign exchange movement Reclassification 125 (228) Revaluation (2,788) - - (2,788) Balance at 31 December ,396 48,026 3,942 54,364 Carrying amount At 31 December ,250 35,989 4, ,189 At 31 December ,308 29,524 5, ,205 Land and buildings are stated at their revalued amounts and plant and equipment and motor vehicles are stated at depreciated historic cost. Fyffes plc Annual Report 2005 Page 68

71 Notes to Group Financial Statements for the year ended 31 December Property, plant and equipment (continued) At 31 December 2005, the Group undertook a revaluation of its properties. The impact of this in respect of investment properties is set out in note 11 below. Market values for non-investment properties represent the amount for which a property should exchange between a willing buyer and a willing seller in an arms length transaction which is consistent with market value as defined, inter alia, by the Royal Institution of Chartered Surveyors. In excess of 90% of the value of all of the Group's properties have been valued by external professionally qualified valuers, with the balance valued by management on a consistent basis. This change in accounting policy has given rise to a restatement of the Group's published provisional IFRS financial information in respect of previous years. Market values at 31 December 2004 and 1 January 2004 have been estimated by management by reference to relevant property value indices. The carrying value of the Group's properties at 1 January 2004 has increased by 51,067,000. Related deferred tax liabilities amounting to 5,330,000 were recognised at that date. Minority interest shares of these gains amounted to 2,880,000, net of tax. In addition, the Group's share of the revaluation gains on properties owned by its joint ventures amounted to 2,809,000, net of deferred tax, at that date. In aggregate, as a result of this change in accounting policy, shareholders' equity on 1 January 2004 increased by 45,666,000. The Group's 2004 financial information has been restated to reflect revaluation gains amounting to 11,640,000 and related deferred tax and minority interests of 2,506,000 and 577,000 respectively. The Group's share of the equivalent gains in its joint ventures amounted to 1,261,000 in 2004, before deferred tax of 609,000. These amounts have been reflected in the statement of recognised income and expense for the year. In addition, profit on disposal of certain property previously recognised in 2004 amounting to 1,888,000 has been restated to nil as a result of the recognition of the related revaluation gain at 1 January Revaluation gains arising in 2005 amounted to 18,077,000 before tax and minority interests of 3,398,000 and 915,000 respectively. The Group's share of gains in its joint ventures in the year amounted to 1,996,000, before deferred tax of 263,000. The cost of assets under construction included in land and buildings amounts to 443,000 (2004: which was revalued amounted to 76,808,000 (2004: 67,433,000). nil). The historic cost of property Leased property, plant and equipment The Group leases items of property, plant and equipment under a number of finance lease agreements. At 31 December 2005, the carrying amount of leased assets included in property, plant and equipment was 2,486,000 (2004: 3,712,000). Plant and Motor Equipment Vehicles Total '000 '000 '000 At 31 December , ,712 At 31 December , ,486 Fyffes plc Annual Report 2005 Page 69

72 Notes to Group Financial Statements for the year ended 31 December Investment property '000 '000 Balance at 1 January 59,291 28,437 Acquisitions of new investment property 23,093 27,354 Arising from business combinations Transfer from property, plant and equipment 2,458 - Disposals (582) - Fair value adjustments 9,958 3,492 Foreign exchange movement 747 (452) Balance at 31 December 94,965 59,291 Investment property, comprising land and buildings located mainly in Ireland and the UK, is held for rental income or capital appreciation and is not occupied by the Group. During 2005, the Group concluded that it should change its accounting policy in respect of investment property from depreciated historic cost to the fair value method of accounting, on the basis that this would reflect more relevant information in relation to these properties. The fair value of the Group's investment property is the amount the property should exchange between a willing buyer and a willing seller in an arms length transaction which is consistent with market value as defined, inter alia, by the Royal Insitute of Chartered Surveyors. The fair value of these properties, mainly in Ireland and the UK, at 31 December 2005 has been determined by professionally qualified independent valuers. The fair values of the properties at 1 January 2004 and 31 December 2004 have been determined internally by management, on a similar basis. This change in accounting policy has also been applied to investment properties held in the Group's joint ventures. The fair value of these properties has been determined internally by management, on a similar basis. As a result of this change in accounting policy, the carrying value of the Group's investment property at 1 January 2004 has been increased by 10,330,000. Deferred tax liabilities amounting to 2,050,000, arising from these fair value adjustments, have also been recognised. The carrying value of the Group's investment in joint ventures increased by 14,304,000, at the same date with a corresponding deferred tax liability arising amounting to 313,000. Consequently, retained earnings at 1 January 2004 have increased by 22,164,000 and minority interests have increased by 107,000. The Group's 2004 results have been adjusted as a result of this change in accounting policy. Depreciation charged on investment properties in the Group's subsidiaries amounting to 337,000 has been reversed. Similarly, the Group's share of depreciation in its joint venture operations amounting to 118,000 has also been reversed. Fair value gains arising during the year amounting to 3,492,000 have been recognised in the income statement, included in exceptional items. Deferred tax on these fair value gains, amounting to 653,000, is included in the tax charge for the year. The Group's share of fair value gains arising during the year in its joint venture operations, amounting to 450,000, has also been recognised in the income statement, included in exceptional items. The Group's share of deferred tax liabilities in respect of fair value gains on investment properties in its joint ventures, amounted to 120,000 in In addition, a profit of 12,744,000 originally recognised in 2004, under the previous accounting policy, arising from the disposal of a joint venture whose principal asset was an investment property, now forms part of the adjustment to retained earnings on transition. There were also related minor adjustments to minority interests and currency reserves. Fair value gains arising in 2005 on investment properties held in the Group's subsidiaries, amounting to 9,958,000, have been reflected in the income statement as exceptional items. The Group's share of the fair value gains on the investment properties held by its joint ventures, amounting to 996,000 have similarly been reflected in the income statement as exceptional items. Deferred tax liabilities have been recognised in respect of these fair value gains, amounting to 2,881,000 and 227,000 respectively. Fyffes plc Annual Report 2005 Page 70

73 Notes to Group Financial Statements for the year ended 31 December Goodwill and intangible assets Customer Relationships Trademark Goodwill Total '000 '000 '000 '000 Cost Balance at 1 January ,319 21,261 23,580 Arising from business combinations 25,694-33,222 58,916 Foreign exchange movement 167 (6) Balance at 31 December ,861 2,313 55,314 83,488 Arising from business combinations Revisions to deferred consideration estimates - - 5,006 5,006 Reclassifications (115) - Foreign exchange movement (765) 41 (1,090) (1,814) Balance at 31 December ,933 2,354 59,129 87,416 Accumulated amortisation and impairment Balance at 1 January Amortisation for the year 1, ,713 Foreign exchange movement Balance at 31 December , ,713 Amortisation for the year 3, ,110 Foreign exchange movement (1) - - (1) Balance at 31 December , ,822 Carrying amount At 31 December ,148 2,313 55,314 81,775 At 31 December ,111 2,354 59,129 82,594 The carrying value of the trademark represents the cost of acquiring the worldwide rights to the Fyffes trademark. The trademark is tested for impairment at each balance sheet date. The Fyffes trademark is widely used in the business with ongoing success and therefore, in the opinion of the directors, does not have a finite useful life. Customer relationships are amortised over their estimated useful lives, ranging from one to ten years. Goodwill and intangible assets arise in connection with acquisitions, including revisions of estimates of deferred consideration payable in respect of acquisitions in previous years, as set out in note 25. Fyffes plc Annual Report 2005 Page 71

74 Notes to Group Financial Statements for the year ended 31 December Goodwill and intangible assets (continued) Impairment testing on intangible assets '000 '000 General Produce - Eurozone 4,106 4,207 - UK 1,160 1,135 - Sweden 37,207 33,334 - Czech Republic 13,632 13,622 General Produce 56,105 52,298 Tropical Produce Other activities 2,725 2,725 Goodwill 59,129 55,314 Goodwill arising on investments in joint ventures 38,998 38,855 Fyffes Trademark 2,354 2,313 The recoverable amounts of cash generating units are based on value in use calculations. Those calculations use cash flow projections based on expected future operating results and other cash flows. The cash flow projections are based on current operating results of the individual cash generating units and a conservative assumption regarding future organic growth. For the purposes of the calculation of value in use, the cash flows are projected over a twenty year period, unless a shorter period is appropriate to the circumstances of a particular cash generating unit. The cash flows are discounted using appropriate risk adjusted discount rates averaging 7.2% (2004: 6.7%), reflecting the risk associated with the individual future cash flows and the risk free rate. Any significant adverse change in the expected future operating results and cash flows may result in the value in use being less that the carrying value of a business unit and would require that the carrying value of the business unit be impaired and stated at the greater of the value in use or the recoverable amount of the business unit. Included in investment in joint ventures and associates is goodwill with a carrying amount 38,998,000 (2004: 38,855,000). This goodwill is subject to annual impairment testing on a similar basis to the goodwill arising in the Group's subsidiaries. Group earnings are significantly dependent on the selling prices obtained for products sold. These, in turn, are largely determined by market supply and demand. Fresh produce supplies in individual markets are affected by the geography of production, growing conditions (including climate), seasonality and perishability. Market demand is a function of population size, per capita consumption, the availability and quality of individual products and competing products and climatic and other general conditions in the marketplace. Excess supplies of fresh produce leading to reduced selling prices (particularly for products purchased under contract) could have a material adverse effect on the Group's business, results of operations and financial condition. Fyffes plc Annual Report 2005 Page 72

75 Notes to Group Financial Statements for the year ended 31 December Investments in joint ventures and associates The Group's interests in its joint ventures and associates, all of which are unlisted, are set out below. Joint Ventures Associates Total '000 '000 '000 Balance at 1 January , ,251 Increased investment in year 2,708-2,708 Loans advanced in year 2,220-2,220 Capital repaid in year (3,037) - (3,037) Disposals of businesses (8,680) - (8,680) Share of profit after tax 12, ,500 Share of total recognised gains and losses after tax Dividends received (5,345) (91) (5,436) Joint venture acquired with subsidiary Foreign exchange movement (566) - (566) Balance at 31 December , ,746 Increased investment in year 2,848-2,848 Loans advanced in year 1,719-1,719 Capital repaid in year (4,277) - (4,277) Acquisition of business (note 25) 5,217 5,217 Share of profit after tax 15, ,051 Share of total recognised gains and losses after tax (1,297) - (1,297) Amortisation of intangible assets (250) - (250) Dividends received (5,269) (41) (5,310) Foreign exchange movement Balance at 31 December , ,444 The investment in joint ventures and associates comprises equity investments of 93,506,000 (2004: 79,856,000) and loans advanced by Group companies of 4,938,000 (2004: 2,890,000). These loan amounts are included in the investment in joint ventures and associates when repayment of such loans is neither planned nor expected and it forms part of the Group's investment in the joint venture or associate. Investments in joint ventures and associates include the Group's share of fair value gains arising from the revaluation of property, plant and equipment (see note 10). In addition, the share of profits for the year includes the fair value gains on revaluing investment properties held in joint ventures and associates (see note 11). The Group's 50% owned Geest Bananas joint venture (Geest) currently employs a number of ships' officers who are members of the MNOPF (see notes 6 and 22). Geest has measured its obligations under the MNOPF scheme on a consistent basis with its other defined benefit pension scheme liabilities. Fyffes' share of Geest's MNOPF pension deficit amounts to 2,117,000, net of deferred tax at 30%. This has been reflected in the Group's statement of recognised income and expense for the year and the carrying value of its investment in joint ventures and associates in the balance sheet at 31 December Fyffes plc Annual Report 2005 Page 73

76 Notes to Group Financial Statements for the year ended 31 December Investments in joint ventures and associates (continued) The following additional disclosures are set out in respect of the Group's share of joint ventures and associates: Joint Ventures Associates Total '000 '000 '000 Non-current assets 56, ,200 Employee benefit assets 1,095-1,095 Cash and cash equivalents 26, ,862 Other current assets 78,836 1,988 80,824 Non-current liabilities (9,149) (36) (9,185) Employee benefit liabilities (5,651) - (5,651) Current liabilities (61,222) (1,501) (62,723) Interest bearing loans and borrowings (46,145) (276) (46,421) Share of net assets 40, ,001 Loans to joint ventures 2,890-2,890 Goodwill 38,855-38,855 Balance at 31 December , ,746 Non-current assets 89, ,282 Employee benefit assets Cash and cash equivalents 28, ,496 Other current assets 56,776 2,111 58,887 Non-current liabilities (24,814) (43) (24,857) Employee benefit liabilities (6,212) - (6,212) Current liabilities (56,872) (1,597) (58,469) Interest bearing loans and borrowings (40,213) (278) (40,491) Share of net assets 46, ,041 Loans to joint ventures 4,938-4,938 Goodwill 38,998-38,998 Intangible assets (including deferred tax) 7,467-7,467 Balance at 31 December , ,444 Joint Ventures Associates Total '000 '000 '000 Group share of revenue 423,834 8, , '000 '000 '000 Group share of revenue 433,647 7, ,547 The Group's share of finance lease obligations included in the financial statements of its joint venture company, Windward Isles Banana company Holdings (Jersey) Limited is set out below '000 '000 Finance lease obligations: - due within one year 3,092 2,525 - due after one year 17,936 18,273 Further details on these obligations are set out in note 27. Fyffes plc Annual Report 2005 Page 74

77 Notes to Group Financial Statements for the year ended 31 December Equity investments '000 '000 Balance at 1 January 17,979 17,703 Fair value movement (1,400) - Additions Disposal - (169) Arising on acquisition of subsidiary Reclassifications (52) - Foreign exchange movement (20) (10) Balance at 31 December 16,543 17,979 Equity investments include the Group's 11% investment in Capespan Group Holdings Limited, a company registered in South Africa. This investment is stated at fair value and during the year there was a decrease in its fair value amounting to 1,400,000. The fair value is determined based on expected future cash flows arising from this investment using a discount rate of 7.0%. The main activity of Capespan Group Holdings Limited is the procurement and distribution of fresh produce. 15 Inventories '000 '000 Goods for resale 37,152 31,047 Consumable stores 2,547 1,886 39,699 32, Trade and other receivables '000 '000 Non-current Other receivables 1,116 1,289 Current Trade receivables 166, ,712 Trade receivables due from joint ventures 2,075 2,542 Other receivables 21,336 16,048 Prepayments and accrued income 9,355 8,637 Non-trade receivables due from joint ventures 3,841 1, , ,736 A total expense of 1,003,000 was recognised in the income statement arising from impairment of trade receivables. Fyffes plc Annual Report 2005 Page 75

78 Notes to Group Financial Statements for the year ended 31 December Cash and cash equivalents, short term bank deposits and borrowings January Acquisition\ Non-Cash Translation 31 December 2005 Cash Flow Disposal Movement Adjustment 2005 '000 '000 '000 '000 '000 '000 Short term bank deposits 172,191 41, , ,107 Bank balances 35,011 6, ,735 Call deposits 175,530 10, , ,294 Cash and cash equivalents 210,541 17, , ,029 Bank overdrafts (5,836) (5,148) Cash and cash equivalents per cash flow statement 204,705 18, , ,881 Non-Current bank borrowings (112,084) 1,861 - (30,609) (493) (141,325) Current bank borrowings (109,172) (50,211) - 30,609 (1,640) (130,414) Finance leases (3,559) 1,213 - (165) 122 (2,389) (224,815) (47,137) - (165) (2,011) (274,128) Net funds 152,081 12,381 - (165) 6, , January Acquisition\ Non-Cash Translation 31 December 2004 Cash Flow Disposal Movement Adjustment 2004 '000 '000 '000 '000 '000 '000 Short term bank deposits 83,217 92, (3,798) 172,191 Bank balances 28,868 4, ,011 Call deposits 236,628 (62,667) - - 1, ,530 Cash and cash equivalents 265,496 (57,801) 947-1, ,541 Bank overdrafts (19,362) 17,424 (3,833) - (65) (5,836) Cash and cash equivalents per cash flow statement 246,134 (40,377) (2,886) - 1, ,705 Non-Current bank borrowings (139,159) (28,564) (7,047) 61, (112,084) Current bank borrowings (23,002) (24,105) (394) (61,805) 134 (109,172) Finance leases (598) 1,207 (3,846) (304) (18) (3,559) (162,759) (51,462) (11,287) (304) 997 (224,815) Net funds 166, (14,173) (304) (967) 152,081 Fyffes plc Annual Report 2005 Page 76

79 Notes to Group Financial Statements for the year ended 31 December Capital and reserves Capital Capital Share Currency Share Share Conversion Redemption Options Translation Capital Premium Reserve Reserve Reserve Reserve '000 '000 '000 '000 '000 '000 Balance at 1 January ,302 94,508 1,034 70, Change in accounting policy Balance at 1 January ,302 94,508 1,034 70, Total recognised gains and losses (1,439) Disposal of revalued property Share options exercised 124 1, Equity settled transactions Dividends to shareholders Balance at 31 December ,426 96,457 1,034 70, (1,439) Impact of IAS 32 and Balance at 1 January ,426 96,457 1,034 70, (1,439) Total recognised gains and losses ,879 Share options exercised 90 1, Equity settled transactions Dividends to shareholders Balance at 31 December ,516 97,911 1,034 70, ,440 The change in accounting policy with respect to property valuation is explained further in notes 10 and 11. Revaluation Fair value Hedging Own shares Retained Reserve Reserve Reserve Reserve Earnings Total '000 '000 '000 '000 '000 ' (16,582) 136, ,402 45, ,164 67,830 45, (16,582) 158, ,232 9, ,272 63,041 (1,888) , , (20,286) (20,286) 52, (16,582) 195, , (1,487) - - (1,487) 52,986 - (1,487) (16,582) 195, ,830 15,467 (1,400) 5,075-77, , , (24,003) (24,003) 68,453 (1,400) 3,588 (16,582) 249, ,678 Fyffes plc Annual Report 2005 Page 77

80 Notes to Group Financial Statements for the year ended 31 December Capital and reserves (continued) Share capital and share premium Ordinary Ordinary Shares Shares '000 '000 Allotted, called up and fully paid In issue at 1 January 357, ,028 Share options on ordinary 6 cent shares exercised 1,492 2,078 In issue at 31 December 358, ,106 At 31 December 2005 and 2004, the authorised share capital of the company comprised 750,000,000 ordinary shares with a par value of 6 cent each. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the company. All shares rank equally with regard to the company's residual assets. In respect of the company's shares that are held by the Group, all rights (including voting and dividend rights) are suspended until those shares are reissued. These shares have been delisted and are not included in the calculation of earnings per share. All ordinary shares are fully paid up. Other reserves '000 '000 Capital conversion reserve 1,034 1,034 Capital redemption reserve 70,652 70,652 Share options reserve Currency translation reserve 5,440 (1,439) Revaluation reserve 68,453 52,986 Fair value reserve (1,400) - Hedging reserve 3,588 - Own shares reserve (16,582) (16,582) 131, ,908 Attributable profit of company The profit attributable to Group shareholders dealt with in the financial statements of the holding company for the year ended 31 December 2005 was 71,465,000 (2004: 41,312,000). As permitted by Section 148(8) of the Companies Act, 1963, the income statement of the company has not been presented in these financial statements. Capital conversion reserve This reserve arose on the renominalisation of the company's share capital following the introduction of the euro. Capital redemption reserve This reserve arose on the conversion of preference shares into ordinary share capital of the company in prior years. Share options reserve This reserve comprises amounts expensed in the income statement in connection with share option grants less any exercises of such share options. Currency translation reserve The translation reserve comprises all foreign exchange movements from 1 January 2004, arising from the translation of the net assets of the Group's non-euro denominated subsidiaries, joint ventures and associates including the translation of the profits of such operations from the average exchange rate for the year to the exchange rate at the balance sheet date, as well as from the translation of liabilities that hedge those net assets. Fyffes plc Annual Report 2005 Page 78

81 Notes to Group Financial Statements for the year ended 31 December Capital and reserves (continued) Revaluation reserve The revaluation reserve relates to revaluation surpluses arising on revaluation of property, other than investment property. Fair value reserve The fair value reserve includes the cumulative net change in the fair value of equity investments, until such investments are derecognised. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Own shares reserve The reserve for the company's own shares comprises the cost of the company's shares held by the company and the Group. At 31 December 2005 and 2004, the Group held 9,021,610 of the company's shares. 19 Minority interest '000 '000 Balance at 1 January 45,903 41,923 Share of profit after tax for year 12,128 8,495 Share of revaluation gains on property, plant and equipment Share of foreign exchange movement Share of other movements in recognised income and expense (121) (124) Share of total recognised income and expense 13,135 9,222 Arising on acquisition Dividends paid (7,630) (5,093) Investment repaid to minority (146) (332) Balance at 31 December 51,262 45,903 Fyffes plc Annual Report 2005 Page 79

82 Notes to Group Financial Statements for the year ended 31 December Interest bearing loans and borrowings '000 '000 Non-current Bank borrowings 141, ,084 Finance lease liabilities 1,407 2, , ,241 Current Overdrafts 5,148 5,836 Bank borrowings 130, ,172 Finance lease liabilities 982 1, , ,410 Interest bearing loans and borrowings are repayable as follows: Bank borrowings and overdrafts Within one year 135, ,008 After one but within two years 54,725 48,331 After two but within five years 84,980 55,920 After five years 1,620 7,833 Finance lease liabilities Within one year 982 1,402 After one but within five years 1,407 2, , ,651 Total future minimum lease payments on finance leases amount to 2,531,000. Total interest bearing loans and borrowings include borrowings of 3,548,000 (2004: 16,073,000) secured on land and buildings of certain non-wholly owned subsidiaries. All other bank borrowings are guaranteed by Fyffes plc. 21 Trade and other payables '000 '000 Non-current Other creditors Current Trade payables 145, ,021 Trade payables due to joint ventures 2,694 4,286 Accruals and deferred income 39,289 42,300 Other payables 18,768 22,928 Irish income tax and social welfare 632 1,538 Irish value added tax 1,959 1,196 Other tax 4,013 2,429 Non-trade payables due to joint ventures 1, , ,779 Non-current payables are due entirely within five years. Fyffes plc Annual Report 2005 Page 80

83 Notes to Group Financial Statements for the year ended 31 December Provisions Deferred Onerous Consideration Litigation MNOPF Contracts Total '000 '000 '000 '000 '000 Balance at 1 January , ,323 Provisions created in ,500 4,994 3,400 15,894 Discounting Payments (2,701) - (640) - (3,341) Revisions to previous estimates 5, ,006 Arising on acquisitions Foreign exchange movement (628) (628) Balance at 31 December ,207 7,500 4,354 3,400 49,461 Analysed as follows: Non-current 33,575 Current 15,886 Balance at 31 December ,461 Deferred consideration Total deferred consideration amounting to 34,207,000 (2004: 31,323,000) represents the best estimate of the net present value of the amounts expected to be payable in respect of prior year acquisitions which are subject to earn-out arrangements. The movement during the year in this liability includes the impact of revisions to estimates arising from changes in the profit expectations of acquired businesses together with payments, currency movements and the discounting charge. Deferred acquisition consideration is due entirely within five years. Total payments of deferred consideration during the year amounted to 2,701,000. Litigation In January 2002, Fyffes plc initiated a legal action against DCC plc and others claiming that the sale of 31.1 million Fyffes shares, in February 2000, constituted an unlawful dealing within the meaning of the Companies Act, Fyffes' own costs in this action which amounted to 4,796,000 in 2005 and 10,100,000 in aggregate have been expensed as incurred each year. In December 2005, the High Court in Dublin determined that the defendants dealt in the Fyffes shares, as alleged, but were not in possession of price sensitive information at that time and that, consequently, the dealings were not unlawful within the meaning of the Act. At a subsequent hearing, the High Court decided that the defendants should be responsible for elements of their own costs and awarded the balance of the defendants' costs against Fyffes. The Group has not yet received from the defendants details of the costs which they intend to claim under this order. In these circumstances, and having regard to its own costs and the court's ruling on the issue, Fyffes has provided 7,500,000 in respect of the defendants costs. This amount has been charged in the income statement, as an exceptional item. The Board is considering whether to appeal the High Court decision in this case. Merchant Navy Officers Pension Fund As a result of a ruling by the High Court in the UK in 2005, a claim has been made against Fyffes in respect of a deficit in the Merchant Navy Officers Pension Fund (MNOPF), a UK based multi-employer defined benefit pension scheme operated on behalf of ships officers employed by approximately 2,000 companies. The Trustee of the MNOPF was authorised by the Court to recover any deficit in the scheme from both current and former employers of these ships officers. The claim against Fyffes relates to ships officers employed by two subsidiaries prior to their acquisition by the Group and, consequently, third parties are being pursued for the recovery of a proportion of these costs. The Trustee has notified Fyffes that its share of the deficit as at 31 March 2005 can be settled by ten equal instalments, payable between September 2005 and March 2014, amounting to 6,400,000 in aggregate. The Trustee also indicated that further cash calls may be necessary in subsequent years, depending on the results of future actuarial valuations of the scheme and on his ability to recover the amounts due from all relevant current and former employers. The Group has provided for the net present value of the payments claimed, amounting to 4,994,000, which has been included as an exceptional charge in the income statement in Fyffes plc Annual Report 2005 Page 81

84 Notes to Group Financial Statements for the year ended 31 December Provisions (continued) Onerous contracts This represents the estimated future costs of fulfilment of certain contractual arrangements which have become onerous as a result of changes in the EU banana importation regulations from 1 January These costs are subject to uncertainty and are dependent on factors such as volumes and market pricing in the European banana market following the change in regulations as announced to date and potential further changes. 23 Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as set out below. These amounts represent the minimum future lease payments, in aggregate, that the Group is required to make under existing lease agreements '000 '000 Payable in: Less than one year 2,984 2,111 Between one and five years 4,936 3,110 More than five years 2, ,953 5,980 The Group leases certain property, plant and equipment under operating leases. The leases typically run for an initial lease period with the potential to renew the leases after the initial period. During the year, 3,820,000 (2004: 4,241,000) was recognised as an expense in the income statement in respect of operating leases. Leases as lessor The Group leases out some of its investment property under operating leases. Non-cancellable operating lease rentals are receivable as set out below. These amounts represent the minimum future lease payments, in aggregate, that the Group will receive under existing lease agreements '000 '000 Receivable in: Less than one year 1,219 1,052 Between one and five years 3,510 2,347 4,729 3,399 During the year 3,422,000 (2004: 2,236,000) was recognised as rental income in the income statement and 1,072,000 (2004: 464,000) was recognised as an expense for the operating costs of investment property. Fyffes plc Annual Report 2005 Page 82

85 Notes to Group Financial Statements for the year ended 31 December Deferred tax assets and liabilities Recognised deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net Assets Liabilities Net '000 '000 '000 '000 '000 '000 Property, plant and equipment 270 (13,293) (13,023) 3,163 (15,782) (12,619) Investment property - (7,093) (7,093) - (4,228) (4,228) Intangible assets 389 (7,895) (7,506) 2,332 (6,790) (4,458) Employee benefits 7,897-7,897 7,077-7,077 Derivative financial instruments - (504) (504) Trade and other payables 2,926 (285) 2,641 1,413 (8) 1,405 Other items - (620) (620) 546 (1,356) (810) Tax value of losses carried forward 1,760-1, Tax assets/(liabilities) 13,242 (29,690) (16,448) 14,552 (28,164) (13,612) Offset (735) (3,462) 3,462 - Net deferred tax assets/(liabilities) 12,507 (28,955) (16,448) 11,090 (24,702) (13,612) Deferred tax assets have not been recognised in respect of the following: Tax losses 12,871 15,357 No deferred tax asset is recognised in relation to certain tax losses incurred by the Group on the grounds that there is insufficient evidence that the assets will be recoverable. In the event that sufficient profits are generated in the relevant jurisdictions in the future these assets may be recovered. The estimated unrecognised deferred tax asset at 31 December 2005 is 6,354,000 (2004: 8,753,000). Similarly, no deferred tax asset is recognised in relation to certain capital losses incurred by the Group on the grounds that there is insufficient evidence that the assets will be recoverable. The estimated unrecognised deferred tax asset at 31 December 2005 is 6,517,000 (2004: 6,604,000). No deferred tax is recognised on the unremitted earnings of overseas subsidiaries, branches, associates and joint ventures as the Group does not anticipate additional tax on any ultimate remittance. Fyffes plc Annual Report 2005 Page 83

86 Notes to Group Financial Statements for the year ended 31 December Deferred tax assets and liabilities (continued) Movement in temporary differences during the year Foreign Balance Arising Arising Arising on exchange Balance 1 January in income in equity acquisitions Reclassification movement 31 December '000 '000 '000 '000 '000 '000 '000 Property, plant and equipment (12,619) 3,044 (3,398) - (50) (13,023) Investment property (4,228) (2,865) (7,093) Intangible assets (4,458) (1,748) - - (1,300) - (7,506) Employee benefits 7, ,897 Derivative financial instruments - 9 (513) (504) Trade and other payables 1,405 1, ,641 Other items (810) (4) (620) Tax value of losses carried forward 21 1, ,760 (13,612) 1,698 (3,413) - (1,300) 179 (16,448) '000 '000 '000 '000 '000 '000 '000 Property, plant and equipment (8,601) 36 (2,506) (1,525) - (23) (12,619) Investment property (3,612) (612) (4) (4,228) Intangible assets (642) 1,476 - (5,292) - - (4,458) Employee benefits 4, , ,077 Trade and other payables ,405 Other items (965) (810) Tax value of losses carried forward (8,245) 1,945 (470) (6,817) - (25) (13,612) During 2005, tax provisions amounting to 1,300,000 included in deferred tax liabilities were redesignated as non-current corporation tax liabilities. Fyffes plc Annual Report 2005 Page 84

87 Notes to Group Financial Statements for the year ended 31 December Acquisitions, disposals and terminations (a) Subsidiaries During the year, the Group acquired a number of small businesses, mainly in the UK and Ireland. Including estimated deferred consideration payable of 239,000, the total consideration for these transactions was 907,000. Goodwill arising amounted to 14,000 and the value attributed to the customer relationships acquired, included in intangible assets, amounted to 722,000. The Group has reviewed its estimate of the deferred consideration payable in respect of prior year acquisitions. Arising from this, there has been a net increase in deferred consideration liabilities and a related increase in goodwill of 5,006,000. The Group did not dispose of any subsidiaries in 2005 or in During 2004, Fyffes acquired the Everfresh Group in Sweden. The Group paid 29,400,000 for an initial 60% of Everfresh and entered a binding agreement to complete the acquisition of the remaining 40% in May 2007, the terms of which give Fyffes a beneficial entitlement to all of the earnings of Everfresh from the date of acquisition. Accordingly, the Group is accounting for 100% of the Everfresh activities from the date of acquisition and has accrued an estimate of the deferred consideration which may become payable in The consideration for the remaining shares is based on a multiple of average profits in the three years ending 31 December 2006, less the initial payment, subject to a maximum additional payment of 49,600,000. After adjusting for deferred tax, including subsequent fair value adjustments, goodwill amounting to 32,961,000 and intangible assets of 25,694,000 in respect of customer relationships in Everfresh arose on this acquisition. In accordance with IFRS 3, comparative figures for 2004 have been restated following the completion of subsequent fair value adjustments. Following the acquisition of the Everfresh Group, a number of its activities were terminated and costs amounting to 271,000 were incurred in The Group acquired a number of other smaller businesses in 2004, mainly in the UK, giving rise to goodwill of 543,000. During 2004, the Group also reviewed its estimate of deferred consideration payable in respect of acquisitions in previous years. Combined with a number of minor adjustments to the assets and liabilities acquired, the net impact of these revisions was to reduce goodwill by 282,000. Towards the end of 2004, the Group recovered 853,000 in final settlement of amounts owed in respect of a subsidiary disposed of in All fair value adjustments have been made effective at the date of acquisition, and any consequent amendments to depreciation and amortisation have been recognised in the current year. (b) Joint ventures In September 2005, Fyffes invested 5,217,000, inclusive of fees, to acquire a 50% interest in Turbana Corporation, the US based marketing operation of Uniban SA, a Colombian banana exporter. Intangible assets arising on acquisition amounted to 5,004,000, net of deferred tax of 2,694,000. This represents the value of the Group's share of the customer relationships acquired and is being amortised over its estimated useful life. During 2004, the Group, together with its partner, sold a joint venture which owned a significant development property in the North East of Ireland. Profit amounting to 12,744,000 was originally recognised in 2004 on this disposal. However, as explained in note 11, as a result of the change in accounting policy relating to investment property, this profit has been reflected in retained earnings on transition to IFRS. Also in 2004, the Group sold its 50% interest in a joint venture engaged in the production of tropical produce in Central America, incurring a loss on disposal amounting to 1,135,000. Fyffes plc Annual Report 2005 Page 85

88 Notes to Group Financial Statements for the year ended 31 December Acquisitions, disposals and terminations (continued) Adjustments Acquirees Fair value Provisional to prior year carrying amount adjustments fair value acquisitions Total '000 '000 '000 '000 '000 Property, plant and equipment (note 10) Intangible assets - customer relationships (note 12) Inventories Net identifiable assets and liabilities Goodwill (note 12) 14 5,006 5, ,006 5,913 Consideration: Cash Fees Deferred consideration 239 5,006 5, ,006 5, '000 '000 '000 '000 '000 Property, plant and equipment (note 10) 15,551-15,551-15,551 Investment property (note 11) Intangible assets - customer relationships (note 12) - 25,694 25,694-25,694 Investment in joint ventures (note 13) Investments (note 14) Inventories 3,525-3,525-3,525 Cash and cash equivalents, including overdrafts (note 17) (2,886) - (2,886) - (2,886) Trade and other receivables 35,497 (608) 34,889-34,889 Trade and other payables (38,712) - (38,712) - (38,712) Interest bearing borrowings (note 17) (11,287) - (11,287) - (11,287) Corporation tax (1,514) - (1,514) 42 (1,472) Deferred tax (1,525) (5,250) (6,775) (42) (6,817) Minority interest (note 19) (136) - (136) (47) (183) Net identifiable assets and liabilities (797) 20,201 19,404 (47) 19,357 Goodwill (note 12) 33,504 (282) 33,222 52,908 (329) 52,579 Consideration: Cash 30, ,340 Fees Deferred consideration 22,279 (651) 21,628 52,908 (329) 52,579 Fyffes plc Annual Report 2005 Page 86

89 Notes to Group Financial Statements for the year ended 31 December Acquisitions, disposals and terminations (continued) Cash flows relating to acquisitions of subsidiaries '000 '000 Cash consideration (654) (30,340) Fees in connection with acquisitions (14) (611) Negative cash and cash equivalents acquired, including overdrafts - (2,886) Cash outflow per cash flow statement (668) (33,837) Interest bearing loans and finance leases acquired, excluding overdrafts - (11,287) (Decrease) in net funds arising from acquisitions (668) (45,124) 26 Employee benefits Remuneration The aggregate employee costs for the Group are as follows: '000 '000 Wages and salaries 88,657 76,341 Social security contributions 13,159 11,315 Pension costs - defined contribution schemes 3,079 1,110 Pension costs - defined benefit schemes 4,357 3,763 Actuarial losses - defined benefit schemes 2,671 11,171 Share based payment (share option expense) , ,957 The average weekly number of employees, including executive directors, during the year was as follows: Production Sales and distribution 1,813 1,295 Administration ,508 2,492 A further 2,300 (2004: 1,800) personnel are employed in the Group's joint ventures and associates. Fyffes plc Annual Report 2005 Page 87

90 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) Pension schemes The Group operates a number of externally funded defined benefit and defined contribution pension schemes. The schemes are set up under trusts and the assets of the schemes are therefore held separately from those of the Group. The pension benefits on retirement are determined based on years of service and the final three years salary. The pension cost expensed in the income statement for the year in respect of the Group's defined benefit schemes was 4,357,000 (2004: 3,763,000) and 3,079,000 (2004: 1,110,000) in respect of the Group's defined contribution schemes. The accompanying disclosures relate to all of the Group's defined benefit retirement schemes in Ireland, the UK and Continental Europe. The previous full actuarial valuations of these schemes, for the purposes of these disclosures, were updated to 31 December Full actuarial valuations were carried out in the main Irish scheme at 31 December 2004 and on the UK pension scheme at 31 October All calculations were carried out by independent actuaries using the projected unit method. The actuarial reports are not available for public inspection. However, the results of the valuations are advised to members of the schemes. The scheme assets do not include any shareholdings in the company. The principal assumptions used by the actuaries were: Ireland UK Europe Rate of increase in salaries 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Rate of increase in pensions 2.0% 2.0% 2.7% 2.7% 2.0% 2.0% Inflation rate 2.0% 2.0% 2.7% 2.7% 2.0% 2.0% Discount rate 4.25% 4.9% 4.75% 5.3% 4.25% 4.9% The expected long term rates of return on assets at 31 December were: Ireland UK Europe Equities 7.75% 8.25% 7.55% 8.0% n/a n/a Bonds 4.0% 5.0% 4.55% 4.75% n/a n/a Property 6.0% 7.0% 6.55% 5.5% n/a n/a Other 2.0% 3.0% 4.8% 4.0% 4.0% 4.0% The Group used certain mortality rate assumptions when calculating scheme obligations. The current assumptions for all major schemes retain a prudent allowance for future improvements in longevity and reflects experience. All major schemes use the PMA92 (2020) mortality table for current employees and PMA92 (2000) for retired members. Fyffes plc Annual Report 2005 Page 88

91 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) Analysis of net liability Ireland UK '000 '000 '000 '000 Equities 54,374 41,565 80,483 62,645 Bonds 8,094 9,032 32,019 24,758 Property 6,159 4,425 6,404 5,339 Other 1,624 2, ,527 Fair value of scheme assets 70,251 57, ,779 97,269 Present value of scheme obligations (76,874) (61,137) (141,610) (118,999) Employee benefits (liability) (6,623) (3,971) (21,831) (21,730) Deferred tax assets ,549 6,456 Net (liability) in schemes (5,795) (3,492) (15,282) (15,274) Europe Total '000 '000 '000 '000 Equities , ,210 Bonds ,113 33,790 Property ,563 9,764 Other 7,790 7,720 10,287 14,391 Fair value of scheme assets 7,790 7, , ,155 Present value of scheme obligations (9,440) (8,127) (227,924) (188,263) Employee benefits (liability) (1,650) (407) (30,104) (26,108) Deferred tax assets ,897 7,077 Net (liability) in schemes (1,130) (265) (22,207) (19,031) Fyffes plc Annual Report 2005 Page 89

92 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) Movements in the fair value of scheme assets Ireland UK Europe Total '000 '000 '000 '000 Fair value of assets at 1 January ,975 91,475 7, ,815 Expected return on scheme assets 3,666 6, ,429 Employer contributions 2,013 1, ,338 Employee contributions Transfers 571 (571) - - Benefit payments (1,247) (3,948) (17) (5,212) Experience adjustments on scheme assets 1,015 2,424 (157) 3,282 Foreign exchange movements - (328) - (328) Fair value of assets at 31 December ,166 97,269 7, ,155 Expected return on scheme assets 3,940 5, ,247 Employer contributions 2,316 1, ,690 Employee contributions Benefit payments (1,907) (5,117) (350) (7,374) Experience adjustments on scheme assets 8,518 16, ,276 Foreign exchange movements - 2,877-2,877 Fair value of assets at 31 December , ,779 7, ,820 Movements in the present value of scheme obligations Ireland UK Europe Total '000 '000 '000 '000 Value of scheme obligations at 1 January 2004 (48,195) (109,415) (6,848) (164,458) Current service cost (2,097) (2,496) (217) (4,810) Past service cost (137) - - (137) Interest on scheme obligations (2,709) (6,159) (377) (9,245) Employee contributions (173) (658) - (831) Transfers (571) Benefit payments 1,247 3, ,212 Experience adjustments on scheme liabilities (1,680) 8, ,558 Effect of changes in actuarial assumptions (6,822) (13,434) (755) (21,011) Foreign exchange movements Value of scheme obligations at 31 December 2004 (61,137) (118,999) (8,127) (188,263) Current service cost (2,582) (1,900) (247) (4,729) Interest on scheme obligations (3,044) (6,433) (398) (9,875) Employee contributions (218) (731) - (949) Benefit payments 1,907 5, ,374 Experience adjustments on scheme liabilities (819) (438) 46 (1,211) Effect of changes in actuarial assumptions (10,981) (14,691) (1,064) (26,736) Foreign exchange movements - (3,535) - (3,535) Value of scheme obligations at 31 December 2005 (76,874) (141,610) (9,440) (227,924) Fyffes plc Annual Report 2005 Page 90

93 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) Movements in the net liability recognised in the balance sheet Ireland UK Europe Total '000 '000 '000 '000 Net asset\(liability) in schemes at 1 January ,780 (17,940) 517 (14,643) Employer contributions 2,013 1, ,338 (Expense) recognised in income statement (1,277) (2,187) (299) (3,763) (Expense) recognised in statement of total recognised income and expense (7,487) (2,825) (859) (11,171) Foreign exchange movements Net (liability) in schemes at 31 December 2004 (3,971) (21,730) (407) (26,108) Employer contributions 2,316 1, ,690 (Expense) recognised in income statement (1,686) (2,339) (332) (4,357) (Expense) recognised in statement of total recognised income and expense (3,282) 1,602 (991) (2,671) Foreign exchange movements - (658) - (658) Net (liability) in schemes at 31 December 2005 (6,623) (21,831) (1,650) (30,104) Defined benefit pension expense recognised in statement of recognised income and expenses Ireland UK '000 '000 '000 '000 Experience adjustments on scheme assets 8,518 1,015 16,731 2,424 Experience adjustments on scheme liabilities (819) (1,680) (438) 8,185 Effect of changes in actuarial assumptions (10,981) (6,822) (14,691) (13,434) (3,282) (7,487) 1,602 (2,825) Europe Total '000 '000 '000 '000 Experience adjustments on scheme assets 27 (157) 25,276 3,282 Experience adjustments on scheme liabilities (1,211) 6,558 Effect of changes in actuarial assumptions (1,064) (755) (26,736) (21,011) (991) (859) (2,671) (11,171) The cumulative loss, before deferred tax, recognised in the statement of recognised income and expense is 13,842,000 (2004: 11,171,000). Fyffes plc Annual Report 2005 Page 91

94 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) Defined benefit pension expense recognised in the income statement Ireland UK '000 '000 '000 '000 Current service costs (2,582) (2,097) (1,900) (2,496) Past service costs - (137) - - Interest on scheme obligations (3,044) (2,709) (6,433) (6,159) Expected return on scheme assets 3,940 3,666 5,994 6,468 (1,686) (1,277) (2,339) (2,187) Actual return on scheme assets 12,458 4,686 22,725 8,907 Europe Total '000 '000 '000 '000 Current service costs (247) (217) (4,729) (4,810) Past service costs (137) Interest on scheme obligations (398) (377) (9,875) (9,245) Expected return on scheme assets ,247 10,429 (332) (299) (4,357) (3,763) Actual return on scheme assets ,523 13,731 The defined benefit pension expense is recognised in the following line items in the income statement: '000 '000 Distribution expenses Administrative expenses (2,039) (1,528) (2,318) (2,235) (4,357) (3,763) Share based payment The Group has established a share option scheme, which entitles employees to purchase shares in Fyffes plc. Share options were last granted in accordance with this scheme in March 2004 and a total of 2,230,000 share options were granted at that time. In accordance with the terms of the scheme, the options are exercisable at the market price at the date of grant. Additionally, share options were granted before 7 November The recognition and measurement principles of IFRS 2 Share-based Payment, have not been applied to these grants in accordance with the transitional provisions in IFRS 1 and IFRS 2. Share options granted on and subsequent to 22 September 1997 only vest when the earnings per share figure, in respect of the third or any subsequent accounting period after the end of the basis year (i.e. accounting period preceding the date of the grant), is greater than the earnings per share figure for the basis year by a percentage which is not less than (on a year on year basis) the annual percentage increase in the consumer price index plus 2% compounded during that period. The contractual life of the options is 10 years. Fyffes plc Annual Report 2005 Page 92

95 Notes to Group Financial Statements for the year ended 31 December Employee benefits (continued) The number and weighted average exercise prices of share options outstanding are as follows: Weighted Weighted Number of Number of Exercise Price Exercise Price Options Options '000 '000 Options outstanding at 1 January ,200 13,369 Lapsed during the year (325) (321) Exercised during the year (1,492) (2,078) Granted during the year ,230 Options outstanding at 31 December ,383 13,200 The average share price for the financial year was 2.30 (2004: 1.75) and the year end price was 2.30 (2004: 1.93) Weighted Weighted Number of Number of Exercise Price Exercise Price Options Options '000 '000 Options exercisable at 31 December ,696 7,864 The options outstanding at 31 December 2005 have exercise prices in the range of 0.85 to 2.70 (2004: 0.85 to 2.70) and a weighted average contractual life of 4.14 years (2004: 5.01 years). The fair value of services received in return for share options granted are measured by reference to the fair value of the share options granted. The estimate of the fair value of the services received is measured based on a binomial lattice model. The contractual life of the options, which is 10 years, is used as an input in this model. Expectations of early exercise are incorporated into the binominal lattice model and are reflected in the assumptions. The calculated fair value of share options granted in March 2004 and the related assumptions used in the binominal model are as follows: Fair value at measurement date 0.47 Share price at date of grant 1.56 Exercise price 1.56 Expected volatility 32% Option life (years) 9.44 Expected dividend yield 3.00% Risk-free interest rate 4.00% The expected volatility and option life are expressed as weighted averages for modelling in the binominal lattice model. The expected volatility is based on the historic volatility of the share price. Share options are granted under a service condition and a non-market related performance condition, which is the achievement of growth in earnings per share as set out earlier. The total expense for share options recognised in the income statement is as follows: '000 '000 Administrative expenses Fyffes plc Annual Report 2005 Page 93

96 Notes to Group Financial Statements for the year ended 31 December Capital commitments and contingencies (a) Capital commitments The directors have authorised capital expenditure of 22,000,000 (2004: 10,000,000) at the balance sheet date. Capital expenditure contracted for at 31 December 2005 amounted to 6,340,000 (2004: 279,000). (b) Subsidiaries In order to avail of the exemption under Section 17 of the Companies (Amendment) Act, 1986 the company has guaranteed the liabilities of certain of its subsidiaries registered in Ireland. As a result, the following subsidiaries have been exempted from the provisions of Section 7 of the Companies (Amendment) Act, 1986: Allegro Limited Bolanpass Limited Banana Importers of Ireland Limited Bernard Dempsey & Co. Limited Brinton Investments Limited Ebbtide Limited Elders & Fyffes Investments Everfresh Limited Fiacla Limited FII (Market) Limited Fyffes Bananas North America Limited Fyffes Fruit Procurement Limited Fyffes Group Procurement Limited Fyffes Group Ireland Limited Fyffes Banana Processing Limited Fyffes Personnel Services Limited Fyffes Secretarial Services Limited Fyffes Investment Holdings Gillespie Distribution Limited Givejoy Limited Green Ace Producer Group Limited Helston Securities Limited Humbolt Limited Huntroyde Limited Jack Dolan Limited J. Lightfoot & Son Limited Kinsealy Farms Limited Lanpak Fruit Limited McCann Nurseries Limited Motcombe Limited Melvich Limited Millerton Limited Munster Fruit & Produce Limited Negev Limited Optiplex Limited Quantum Personal Care Limited Ramparts Property Limited Ramparts Property Developments Limited Southern Fruit Suppliers (Waterford) Limited Swords Business Park Limited Swords Property Developments Limited Swords Property Investments Limited Tropical Fruit company (Cork) Limited Tropical Fruit company (Ireland) Limited Uniplumo (Ireland) Limited Waddell Limited The company has guaranteed the borrowings of subsidiaries in the amount of 182,417,000 (2004: 139,404,000). Fyffes plc Annual Report 2005 Page 94

97 Notes to Group Financial Statements for the year ended 31 December Capital commitments and contingencies (continued) (c) Guarantees Where the company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group or joint ventures or associates, the company considers these to be insurance arrangements and accounts for them as such. The company treats the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under the guarantee. (i) Fyffes plc, together with the governments of the Windward Islands, had guaranteed the bank borrowings of Windward Island Banana Development and Export company (Wibdeco) which were used to fund Wibdeco's equity investment in the joint venture companies set up by Fyffes plc and Wibdeco to acquire the banana business of Geest plc in January At 31 December 2005, these borrowings have been fully repaid. The amount outstanding as 31 December 2004 was 3,531,000. Fyffes plc and Wibdeco have jointly and severally indemnified Geest plc against any one of their joint venture companies failing to meet their obligations under the bareboat charter agreements relating to the two Island Class ships which were taken over under the acquisition. The total amount due under the bareboat charter agreements at 31 December 2005 was US$49,609,000 ( 42,056,000) (2004: US$56,526,000 ( 41,585,000)), 50% of which has been accounted for as part of the Group's equity investment in their joint ventures in the financial statements. Under the terms of the agreement between Geest plc and the financiers of these ships, they can be handed back to the financiers in 2009, at which point the obligation of the joint venture companies under the bareboat charter agreements will cease, as will Fyffes' and Wibdeco's obligations under their indemnity to Geest plc. The two Island Class ships are currently bareboat chartered to a third party for the remainder of the finance lease term. (ii) Fyffes plc has issued counter indemnities in the amount of 225,000 (2004: 501,000) as security for bank guarantees issued in respect of deferred consideration which may become payable in connection with previous acquisitions. (iii) Fyffes plc, together with its partner, Lagan Developments (Holdings) Limited, have each issued guarantees amounting to 2,100,000 (2004: 2,100,000) in respect of bank borrowings by a joint venture company which is involved in developing a property in Navan, Ireland. (d) Contingencies (i) From time to time, the Group is involved in other claims and legal actions, which arise in the normal course of business. Based on information currently available to the company, and legal advice, the directors believe such litigation will not, individually or in aggregate, have a material adverse effect on the financial statements and that the Group is adequately positioned to deal with the outcome of any such litigation. (ii) The European Commission is currently undertaking an investigation into whether there have been infringements of Article 81 of the Treaty of Rome and Article 53 of the European Economic Area (EEA) agreement by businesses involved in the supply of bananas and pineapples within the EEA. In June 2005, the Commission carried out inspections of a number of companies operating in these markets, including Fyffes. At this time, it is not possible for the Group to determine the final outcome of these investigations including whether the European Commission may seek to impose any fines and, if so, the level of any such fines. Fyffes has recently received a request for information from the Commission and intends to continue to co-operate with it in relation to this matter. Fyffes plc Annual Report 2005 Page 95

98 Significant Notes to Group Subsidiaries, Financial Joint Statements Ventures for and the year Associates ended 31 December Related parties Identity of related parties Under IAS 24, Related Party Disclosures, the Group has a related party relationship with its joint ventures and associates. Transactions with the Group s joint ventures and associates are set out below. IAS 24 also requires the disclosure of compensation paid to the Group s key management personnel. This comprises its executive and non-executive directors, together with persons discharging managerial responsibility ('PDMRs') as defined in section 12(8) of the Irish MAD Regulations, being the managing and finance directors of the Group s two main operating divisions and the company secretary. Remuneration of key management personnel '000 '000 Short term benefits (salary, bonus, incentives) 6,602 5,686 Post employment benefits (pension contribution) 2, Share based payment (Share option expense) Total 9,270 6,174 In accordance with IAS 19, Employee Benefits, the pension expense recognised in the Group s income statement for these key management personnel amounted to 2,653,000 (2004: 298,000) compared to the cash contributions above of 2,566,000 (2004: 407,000). The actuarial losses recognised in the statement of recognised income and expense in respect of the pension benefits of these key management personnel for 2005 amounted to 1,296,000 (2004: 1,476,000). Details of the remuneration of the company s individual Directors, together with the number of Fyffes plc shares owned by them and their outstanding share options are set out in the compensation committee report on pages 39 to 43. Related party transactions with joint ventures and associates The Group trades in the normal course of its business, in some situations under long term supply contracts, with its joint ventures and associates. A summary of transactions with these related parties is as follows: Revenue Revenue Purchases Purchases '000 '000 '000 '000 Joint ventures 94, ,411 44,793 59,548 Associates 1,301 1,557 2,076 1,491 96, ,968 46,869 61,039 The amounts due from and to joint ventures and associates at the year end are disclosed, in aggregate, in notes 16 and 21 respectively. The Group's significant joint ventures and associates are set out on page 120. Related party transactions with shareholders in Group companies Coplaca is a co-operative of banana growers in the Canary Islands and owns 50% of the share capital of EurobananCanarias SA, the other 50% being owned by the Group. During the year, EurobananCanarias SA purchased goods and services from Coplaca in the normal course of its business which are not material in relation to the revenues and purchases of the Group. At 31 December 2005, the net amount due to Coplaca from EurobananCanarias SA was 8,824,000 (2004: 7,726,000). Fyffes plc Annual Report 2005 Page 96

99 Notes to Group Financial Statements for the year ended 31 December Derivatives and other financial instruments As explained earlier, in accordance with the first time adoption exemptions in IFRS 1, First-time Adoption of International Financial Reporting Standards, the Group did not apply IAS 32, Financial Instruments: Presentation and Disclosure nor IAS 39, Financial Instruments: Recognition and Measurement to the 2004 comparatives. These standards have been applied from 1 January The impact of adoption of these standards on 1 January 2005 is reflected in the statement of recognised income and expense. The first part of this note sets out the disclosures, in accordance with IAS 32 and 39, for the financial year ended 31 December The later part of this note sets out the disclosures required, in accordance with Irish GAAP, for the financial year ended 31 December (a) Disclosures in accordance with IAS 32 and IAS 39 for 2005 Risk exposures The Group's multinational operations expose it to different financial risks that include foreign exchange rate risks, credit risks, liquidity risks and interest rate risks. Fyffes has a risk management programme in place which seeks to limit the impact of these risks on the financial performance of the Group. The Board has determined the policies for managing these risks. It is the policy of the Board to manage these risks is a non-speculative manner. Foreign exchange risk While many of the Group's operations are carried out in euro-zone economies, it also has significant operations in the UK, Sweden, Denmark, the Czech and Slovak Republics, the US and Central America. As a result, the Group balance sheet is exposed the currency fluctuations including, in particular, Sterling movements. The Group generally finances initial overseas investments through foreign currency borrowings which hedge the foreign currency investment. Thereafter, these businesses generally fund their operations locally. The Group also has large transactional currency risks as a significant portion of its costs, particularly produce purchases and shipping are denominated in US Dollars. These currency risks are monitored by the Group's Treasury Committee on an ongoing basis and managed as deemed appropriate by utilising a combination of spot and forward foreign currency contracts and foreign currency options. Credit and liquidity risk The Group has detailed procedures for monitoring and managing the credit risk related to its trade receivables. Cash and short term bank deposits are invested with institutions of the highest credit rating, with limits on amounts held with individual banks or institutions at any one time. It is also the policy of the Group to have adequate committed undrawn facilities available at all times to cover unanticipated financing requirements. The maximum exposure to credit risk is represented by the carrying amount of the financial assets in the balance sheet. Interest rate risk The Group's balance sheet contains both interest bearing assets and interest bearing liabilities. In general, the approach employed by the Group to manage its interest rate exposure is to maintain the majority of its cash, short term bank deposits and interest bearing borrowings at floating rates. Rates are generally fixed for relatively short periods in order to match funding requirements while being able to benefit from opportunities due to movements in longer term rates. Accounting for derivatives and hedging activities All derivatives are initially recorded at fair value on the date the contract is entered into and subsequently, at reporting dates, remeasured to fair value. The gain or loss arising on remeasurement is recognised in the income statement except where the instrument is a designated hedging instrument. The fair value of derivatives on 1 January 2005 was adjusted against the opening balance on the hedging reserve. The accounting treatment of derivatives designated as hedges depends on their designation. The fair value of derivatives at 31 December 2005 is set out in the following table: Assets Liabilities '000 '000 Currency options 3, Forward currency contracts 1, , Fyffes plc Annual Report 2005 Page 97

100 Notes to Group Financial Statements for the year ended 31 December Derivatives and other financial instruments (continued) The Group has designated hedges of highly probable forecasted future income or expenses (cash flow hedges) and hedges of net investment in a foreign entity. In order to qualify for hedge accounting, the Group is required to document the relationship between the item being hedged and the hedging instrument and demonstrate, at inception, that the hedge relationship will be highly effective on an ongoing basis. The hedge relationship must be tested for effectiveness at subsequent reporting dates. Gains and losses on cash flow hedges that are determined to be highly effective are recognised in equity to the extent that they are actually effective. When the forecasted transaction occurs the gains or losses deferred in equity are released to the income statement. Ineffective portions of the gain or loss on each hedging instrument are recognised in the income statement. The cash flows with respect to such cash flow hedges are expected to occur in 2006 and relate to hedges of produce purchase requirements. The fair value of derivatives designated as cash flow hedges at 31 December 2005 date is set out in the following table: Assets Liabilities '000 '000 Currency options 3, Forward currency contracts 1,246-4, The Group uses foreign currency borrowings to hedge the net investment in foreign entities. The gains or losses on the effective portions of such borrowings are recognised in equity. Ineffective portions of the gains or losses on such borrowings are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity. The fair values of the foreign currency hedging loans at 31 December 2005 are as follows: '000 Sterling 24,155 US Dollars 16,446 Czech Crowns 9,299 Danish Krona 8,714 Swedish Krona 27,961 86,575 Effective interest rates and contractual repricing analysis In respect of income-earning financial assets and interest bearing financial liabilities, the following table sets out the effective interest rates at 31 December All of these financial instruments reprice within one year. Carrying Effective Amount Interest rate '000 % Short term bank deposits 218, Cash and cash equivalents 232, Interest bearing borrowings (271,739) 3.73 Bank overdrafts (5,148) 4.99 Finance lease liabilities (2,389) 3.48 Current payables (727) ,133 Fyffes plc Annual Report 2005 Page 98

101 Notes to Group Financial Statements for the year ended 31 December Derivatives and other financial instruments (continued) Fair values of financial assets and liabilities In respect of the financial assets and liabilities below, the following table sets out the carrying amount in the Group balance sheet and their respective fair values at 31 December 2005: Carrying Fair amount value '000 '000 Equity investments 16,543 16,543 Trade and other receivables 204, ,223 Currency options - Assets 3,157 3,157 - Liabilities (302) (302) Forward currency contracts - Assets 1,246 1,246 - Liabilities (69) (69) Short term bank deposits 218, ,107 Cash and cash equivalents 232, ,029 Interest bearing borrowings (276,887) (276,887) Finance lease liabilities (2,389) (2,389) Trade and other payables (214,939) (214,939) 180, ,719 Unrecognised gain\(loss) - Estimation of fair values Set out below are the major methods and assumptions used in estimating the fair values of the financial assets and liabilities disclosed above. Equity investments When market values are available, fair value is determined by reference to the bid market price for such investments without any deduction for transactions costs. When market values are not available, the fair values have been determined based on expected future cash flows at current interest rates and exchange rates. Short term bank deposits and cash and cash equivalents For short term bank deposits and cash and cash equivalents with a remaining maturity of less than one year the nominal amount is deemed to reflect fair value. Trade and other receivables/payables For receivables and payables with a remaining life of less than one year or demand balances, the nominal amount is deemed to reflect fair value. All other receivables and payables are discounted to determine the fair value. Derivatives (currency options and forward currency contracts) Currency options are marked to market using quotes from financial institutions. Forward currency contracts are either marked to market using market prices or by discounting the contractual forward price and deducting the current spot rate. Interest bearing loans and borrowings For interest bearing loans and borrowings with a contractual repricing date of less than one year the nominal amount is deemed to reflect fair value. For loans with a repricing date of greater than one year the fair value is calculated based on the expected future principal and interest cash flows. Finance lease liabilities Fair value is based on the present value of future cash flows discounted at market rates. Fyffes plc Annual Report 2005 Page 99

102 Notes to Group Financial Statements for the year ended 31 December Derivatives and other financial instruments (continued) (b) Disclosures in accordance with Irish GAAP Interest rate risk profile Financial Financial Assets Liabilities Net '000 '000 '000 Denominated in euro Interest rate fixed - (4,330) (4,330) Interest rate floating 102,672 (92,477) 10,195 Interest free 18,603 (2,650) 15, ,275 (99,457) 21,818 Denominated in Sterling Interest rate fixed Interest rate floating 271,770 (64,064) 207,706 Interest free 387 (141) ,157 (64,205) 207,952 Denominated in US Dollars Interest rate fixed Interest rate floating 782 (14,356) (13,574) Interest free (14,356) (13,385) Denominated in other currencies Interest rate fixed - (197) (197) Interest rate floating 6,792 (55,116) (48,324) Interest free 805 (28,507) (27,702) 7,597 (83,820) (76,223) Total 402,000 (261,838) 140,162 In accordance with the definitions set out in FRS 13 Derivatives and other financial instruments: disclosures, financial liabilities comprise bank loans and overdrafts, finance lease liabilities and sundry creditors falling due after more than one year, including deferred acquisition consideration and government grants. Financial assets comprise cash at bank and bank deposits together with trade investments and sundry debtors due after more than one year. Sundry debtors and creditors falling due within one year are not included. Fyffes plc Annual Report 2005 Page 100

103 Notes to Group Financial Statements for the year ended 31 December Derivative and other financial instruments (continued) The Group's floating rate financial assets and liabilities primarily bear interest rates based on EURIBOR rates fixed for periods ranging from one to twelve months and LIBOR rates ranging from one to twelve months. The weighted average interest rates of fixed rate instruments are as follows: 2004 Liabilities Euro denominated 3.64% Denominated in other currencies 3.40% The weighted average period for which these rates are fixed is as follows: Euro denominated Denominated in other currencies 2004 Liabilities 2.0 years 0.4 years The non interest bearing financial assets and liabilities primarily comprise trade investments and certain sundry debtors and creditors, due after more than one year, including, in particular, deferred acquisition consideration. The maturity profile of the Group's financial liabilities, (consisting primarily of bank loans and overdrafts) is as follows: 2004 '000 Within one year (or on demand) 116,410 Between one and two years 54,747 Between two and five years 81,865 After five years 8,816 Total 261,838 At 31 December 2004, the Group had available undrawn committed banking facilities amounting to 60.1 million, of which 56.6 million expire within one year, 2.9 million expire between one and two years and 0.6 million expire between two and five years. Currency analysis The balance sheets of various subsidiary companies include monetary assets and liabilities denominated in currencies other than the operating currencies of those subsidiaries. After taking into account any currency hedges in place, these balance sheet currency exposures at 31 December 2004 were as follows: Currency of denomination of asset/liability EUR GBP USD Other Total '000 '000 '000 '000 '000 Monetary assets 1,345 13,469 23, ,403 Monetary liabilities (8,815) (10,387) (18,765) (5,806) (43,773) Net (7,470) 3,082 5,038 (5,020) (4,370) Fyffes plc Annual Report 2005 Page 101

104 Notes to Group Financial Statements for the year ended 31 December Derivative and other financial instruments (continued) Hedging activities The Group enters a variety of derivative instruments on a non-speculative basis in order to manage its currency and interest rate risks. These instruments are predominately forward purchases and sales of foreign currency. Certain of these derivative instruments are accounted for under hedge accounting whereby changes in the fair value of these instruments are not recognised in the financial statements until the hedged item is recognised. Unrecognised gains and losses on the instruments were as follows: Total net Gains Losses gains/(losses) '000 '000 '000 Unrecognised gains/(losses) on hedges at beginning of period 34 (35) (1) Less (gains)/losses arising in previous periods which were recognised in current year (34) 35 1 Gains/(losses) arising in the current period which were not recognised in the current period 32 (1,702) (1,670) Unrecognised gains/(losses) on hedges at end of year 32 (1,702) (1,670) Of which: Gains/(losses) expected to be recognised in (1,702) (1,670) 30 Accounting estimates and judgements The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Management discussed with the audit committee the development, selection and disclosure of the Group's critical accounting policies and estimates and the application of these policies and estimates. Particular areas which are subject to accounting estimates and judgements in these financial statements are areas such as impairment testing, post employment benefits, share options, fair values of properties and in relation to judgemental provisions and accruals. Specific details on the valuation basis of properties are included in notes 10 and 11. Impairment testing assets, particularly goodwill, involves estimating the future cash flows for a cash generating unit and an appropriate discount rate to determine a recoverable value. The estimation of employee benefit costs requires the use of actuaries and the determination of appropriate assumptions such as discount rates and expected future rates of return as set out in note 26. In respect of the share options outstanding, the fair value has been estimated using a binominal lattice model in accordance the judgemental assumptions set out in note 26. Fyffes plc Annual Report 2005 Page 102

105 Company Statement of Recognised Income and Expense for the year ended 31 December 2005 Notes '000 '000 Fair value adjustment on equity investments 33 (1,400) - Net loss recognised directly in equity (1,400) - Profit for the financial year 71,465 41,312 Total recognised income and expense - attributable to equity shareholders 70,065 41,312 Company Balance Sheet as at 31 December 2005 Notes Assets '000 '000 Non-current Property, plant and equipment Investment property 32 23,737 - Equity investments , ,307 Total non-current assets 377, ,140 Current Trade and other receivables , ,096 Cash and cash equivalents 35 23,700 9,059 Total current assets 277, ,155 Total assets 654, ,295 Equity Called-up share capital 36 21,516 21,426 Share premium 36 97,911 96,457 Other reserves 36 62,571 63,647 Retained earnings , ,945 Total equity 337, ,475 Liabilities Non-current Interest bearing loans and borrowings 37 45,081 31,383 Current Interest bearing loans and borrowings 37 44,435 38,330 Trade and other payables , ,104 Provisions 39 7,500 - Corporation tax payable 5 3 Total current liabilities 272, ,437 Total liabilities 317, ,820 Total equity and liabilities 654, ,295 C.P. McCann Chairman J.F. Gernon Finance Director Fyffes plc Annual Report 2005 Page 103

106 Company Cash Flow Statement for the year ended 31 December '000 '000 Cash flows from operating activities Profit for financial year 71,465 41,312 Adjustments for: Income tax expense (3,868) (7) Depreciation on property, plant and equipment Fair value movement on investment property (7,326) - Equity settled compensation Net gain on disposal of property, plant and equipment (1) - Interest income (1,332) (505) Interest expense 2,669 2,275 Dividend income from equity investments (97,293) (59,576) Movement in trade and other receivables (102,022) (35,315) Movement in trade and other payables 57,955 36,261 Gain on disposal of subsidiary Corporation tax paid 3,859 (3) Interest received 1, Interest paid (2,872) (1,715) Net cash (outflow) from operating activities (76,865) (15,975) Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired (14) (15,701) Investment in joint ventures (2,642) (4,216) Loans repaid by joint ventures - 40 Acquisition of property, plant and equipment (300) (159) Proceeds from disposal of property, plant and equipment 4 - Dividend income from equity investments 97,293 59,576 Net cash inflow from investing activities 94,341 39,540 Cash flows from financing activities Proceeds from the issue of share capital 1,544 2,073 Proceeds from new borrowings 22,733 15,904 Repayment of borrowings (1,743) (21,149) Dividends to equity shareholders (24,003) (20,286) Net cash (outflow) from financing activities (1,469) (23,458) Net increase in cash and cash equivalents 16, Cash and cash equivalents, including bank overdrafts at 1 January 7,693 7,586 Cash and cash equivalents, including bank overdrafts at 31 December 23,700 7,693 Fyffes plc Annual Report 2005 Page 104

107 Notes to Company Financial Statements for the year ended 31 December Property, plant and equipment Plant and Plant and Equipment Equipment '000 '000 Cost Balance at 1 January 2,240 2,029 Additions Disposals (422) - Balance at 31 December 2,197 2,240 Depreciation and impairment losses Balance at 1 January 1,407 1,150 Depreciation charge for the year Disposals (419) - Balance at 31 December 1,236 1,407 Carrying amount Balance at 1 January Balance at 31 December Investment property '000 '000 Balance at 1 January - - Additions acquired from other group companies 16,411 - Fair value adjustments 7,326 - Balance at 31 December 23,737 - Further details on the basis of valuation are set out in note 11. Fyffes plc Annual Report 2005 Page 105

108 Notes to Company Financial Statements for the year ended 31 December Equity investments Investment in Investment in joint ventures Other subsidiaries and associates investments Total '000 '000 '000 '000 Balance at 1 January ,424 33,967 17, ,775 Additions 15,701 4,176-19,877 Disposals (279) - - (279) Foreign exchange movement - (66) - (66) Balance at 31 December ,846 38,077 17, ,307 Additions 14 2,644-2,658 Fair value adjustments - - (1,400) (1,400) Foreign exchange movement Balance at 31 December ,860 40,853 15, ,697 The significant subsidiaries, joint ventures and associates are set out on pages 118 to Trade and other receivables '000 '000 Current Amounts due from subsidiaries 247, ,266 Amounts due from joint ventures Other receivables 5, , , Cash and cash equivalents '000 '000 Bank balances Call deposits 23,509 9,000 Cash and cash equivalents 23,700 9,059 Bank overdrafts - (1,366) Cash and cash equivalents in the cash flow statement 23,700 7,693 Fyffes plc Annual Report 2005 Page 106

109 Notes to Company Financial Statements for the year ended 31 December Capital and reserves Capital Capital Share Share Share Conversion Redemption Options Fair value Own shares Retained Capital Premium Reserve Reserve Reserve Reserve Reserve Earnings Total '000 '000 '000 '000 '000 '000 '000 '000 '000 Balance at 1 January ,302 94,508 1,034 70, (8,296) 86, ,119 Total recognised gains and losses ,312 41,312 Share options exercised 124 1, ,073 Equity settled transactions Dividends to shareholders (20,286) (20,286) Balance at 31 December ,426 96,457 1,034 70, (8,296) 107, ,475 Total recognised gains and losses (1,400) - 71,465 70,065 Share options exercised 90 1, ,544 Equity settled transactions Dividends to shareholders (24,003) (24,003) Balance at 31 December ,516 97,911 1,034 70, (1,400) (8,296) 155, ,405 Detailed disclosures relating to the share capital of the company are set out in note 18. Fyffes plc Annual Report 2005 Page 107

110 Notes to Company Financial Statements for the year ended 31 December Capital and reserves (continued) Other reserves '000 '000 Capital conversion reserve 1,034 1,034 Capital redemption reserve 70,652 70,652 Share options reserve Fair value reserve (1,400) - Own shares reserve (8,296) (8,296) 62,751 63,647 A description of each class of reserve is included in note Interest bearing loans and borrowings '000 '000 Non-current Bank borrowings 45,081 31,383 Current Overdrafts - 1,366 Bank borrowings 44,435 36,964 44,435 38,330 Interest bearing loans and borrowings are repayable as follows: Within one year 44,435 38,330 After one but within two years - 31,383 After two but within five years 45,081-89,516 69, Trade and other payables '000 '000 Current Amounts payable to subsidiaries 208, ,578 Accruals and deferred income 12,246 10,281 Other payables , , Provisions '000 '000 Current Provision for defendants costs in DCC litigation (note 22) 7,500 - Fyffes plc Annual Report 2005 Page 108

111 Notes to Company Financial Statements for the year ended 31 December Related party transactions The company has a related party relationship with its subsidiaries, joint ventures, associates and with the directors of the company. Details of the remuneration of the company s individual Directors, together with the number of Fyffes plc shares owned by them and their outstanding share options are set out in the compensation committee report on pages 39 to 43. Transactions with subsidiaries, joint ventures an associates '000 '000 Dividends received from subsidiaries 97,007 59,471 Net income from subsidiaries 3,060 4,111 Management fees received from joint ventures Employee benefits The aggregate employee costs for the company are as follows: '000 '000 Wages and salaries 9,867 8,011 Social security contribution Pension costs - defined contribution schemes 1,839 - Pension costs - defined benefit schemes Share based payment (Share option expense) ,707 9,607 The average number of employees of the company in 2005 was 54 (2004: 51). Fyffes plc Annual Report 2005 Page 109

112 Transition to International Financial Reporting Standards As stated in the accounting policies, these are the Group s and company s first financial statements prepared in accordance with IFRS, as adopted by the EU. The explanation of transition to IFRS forms part of the notes to the financial statements. The accounting policies, set out on pages 52 to 58 have been applied in preparing the financial statements for the year ended 31 December 2005, the comparative information presented in these financial statements for the year ended 31 December 2004 and in the preparation of an opening IFRS balance sheet at 1 January 2004 (the Group s and company's date of transition). In preparing its opening IFRS balance sheet, Fyffes has adjusted the amounts reported previously in its financial statements prepared in accordance with Irish GAAP. An explanation of how the transition from Irish GAAP to IFRS has affected the Group s and company s financial positions, financial performances and cash flows is set out in the following tables and the notes that accompany the tables. In September 2005, Fyffes published financial information regarding the transition to IFRS. Since this time the Group has elected to change its accounting policy for property, requiring a restatement of the previously published financial information. Impact on Group financial statements In restating the Group s financial statements, Fyffes, in common with most other listed companies, has availed of the following relevant mandatory and optional exemptions in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards: Business combinations before 1 January 2004 have not been restated. Consequently, goodwill at the transition date is carried forward at its net book value and, along with goodwill on subsequent acquisitions, is subject to annual impairment testing. Goodwill was assessed for impairment at the transition date and no impairment charges arose from this exercise. Goodwill on acquisitions prior to 1998, which was set-off against revenue reserves under Irish GAAP is deemed to be permanently written off under IFRS and not subject to impairment testing or write-off on disposal. Cumulative currency translation differences have been reset at zero at the transition date. The currency translation reserve mainly comprises the retranslation of the net assets of non-euro denominated subsidiaries, joint ventures and associates net of exchange differences on related borrowings. Going forward, cumulative currency translation differences will be included in the profit or loss on disposal of any subsidiary, joint venture or associate. IFRS 2 Share-based Payment is being applied in respect of share options granted after 7 November IAS 32 Financial Instruments: Presentation and Disclosure and IAS 39 Financial Instruments: Recognition and Measurement are being applied prospectively from 1 January Consequently, financial instruments are recognised in accordance with Irish GAAP in the 2004 comparatives. Fyffes plc Annual Report 2005 Page 110

113 Transition to International Financial Reporting Standards (continued) Reconciliation of 2004 profit 2004 '000 Profit before tax as originally reported under Irish GAAP 96,289 Adjustments to conform to IFRS Subsidiaries reclassified as joint ventures (5,063) Reversal of goodwill amortisation 6,511 Amortisation of intangibles recognised on restated business combinations (1,233) Share option expense (257) Pension costs (108) Tax charge of joint ventures\associates included in profit before tax: - Original joint ventures\associates under Irish GAAP (1,358) - Increased tax charge in joint ventures and associates (1,217) Profit as reported on transition to IFRS in September ,564 Impact of change in accounting policy Reversal of gain on disposal of property joint venture credited to equity on transition (12,744) Reversal of gain on disposal of property credited to equity on transition (1,888) Reversal of depreciation on investment property - Group 337 Reversal of depreciation on investment property - Share of joint ventures 118 Fair value gains in investment properties - Group 3,492 Fair value gains in investment properties - Share of joint ventures (net of tax) 330 Impact of finalisation of provisional fair values on acquisitions Amortisation of intangibles recognised on restated business combinations (480) Profit before tax in accordance with IFRS 82,729 In accordance with IFRS 3 Business Combinations, following the completion of fair value adjustments on 2004 acquisitions the comparatives have been restated. Fyffes plc Annual Report 2005 Page 111

114 Transition to International Financial Reporting Standards (continued) Reconciliation of profit for 2004 Irish Transition GAAP to IFRS IFRS '000 '000 '000 Group revenue 1,832,877 (320,609) 1,512,268 Cost of sales (1,520,806) 253,994 (1,266,812) Gross profit 312,071 (66,615) 245,456 Other operating income 18,845 (11,069) 7,776 Distribution expenses (165,001) 30,644 (134,357) Administration expenses (75,471) 28,937 (46,534) Other operating expenses (7,758) (464) (8,222) Share of profit of joint ventures 7,887 4,576 12,463 Share of profit of associates 188 (151) 37 Operating profit 90,761 (14,142) 76,619 Financial income 15,257 (814) 14,443 Financial expense (9,729) 1,396 (8,333) Profit before tax 96,289 (13,560) 82,729 Income tax expense (14,333) 4,427 (9,906) Profit for the financial year 81,956 (9,133) 72,823 Attributable as follows: Equity shareholders 70,318 (5,990) 64,328 Minority interest 11,638 (3,143) 8,495 Profit for the financial year 81,956 (9,133) 72,823 Basic earnings per share cent cent Diluted earnings per share cent cent Fyffes plc Annual Report 2005 Page 112

115 Transition to International Financial Reporting Standards (continued) Reconciliation of equity 31 December 1 January '000 '000 Total equity in accordance with Irish GAAP 408, ,447 Subsidiaries reclassified as joint ventures (12,907) (10,347) Reversal of goodwill amortisation 6,511 - Amortisation of intangibles recognised on restated business combinations (1,233) - Employee benefit liabilities (26,108) (14,643) Share of joint ventures employee benefit liabilities (2,760) (3,043) Reversal of proposed dividends 18,100 14,982 Deferred tax - arising on above adjustments 7,004 4,369 Deferred tax - other (193) (427) Equity as reported on transition to IFRS in September , ,338 Impact of change in accounting policy Revaluation gains on property, plant and equipment 62,707 51,067 Revaluation gains on investment property 13,822 10,330 Reversal of depreciation on investment property Reversal of gain on disposal of property joint venture (12,744) - Reversal of gain on disposal of property, plant and equipment (1,888) - Share of joint ventures revaluation gains on property, plant and equipment 3,461 2,809 Share of joint ventures revaluation gains on investment property 14,321 13,991 Share of joint ventures reversal of depreciation on investment property Foreign exchange impact of revaluations (104) - Deferred tax - arising on above adjustments (10,538) (7,380) Total equity in accordance with IFRS 466, ,155 Fyffes plc Annual Report 2005 Page 113

116 Transition to International Financial Reporting Standards (continued) 1 January December 2004 Irish Transition Irish Transition GAAP to IFRS IFRS GAAP to IFRS IFRS Assets '000 '000 '000 '000 '000 '000 Non-current Property, plant and equipment 130,068 16, , ,204 19, ,189 Investment property - 28,437 28,437 20,000 39,291 59,291 Intangible assets 47,284 (23,704) 23,580 95,826 (14,051) 81,775 Other receivables 2,433 (898) 1,535 2,579 (1,290) 1,289 Investments in joint ventures and associates 25,575 56,676 82,251 35,700 47,046 82,746 Employee benefits - 3,782 3, Other investments 17,742 (39) 17,703 18,018 (39) 17,979 Deferred tax assets 731 6,561 7, ,533 11,090 Total non-current assets 223,833 87, , , , ,359 Current Inventories 36,739 (3,846) 32,893 36,968 (4,035) 32,933 Trade and other receivables 188,236 (34,897) 153, ,799 (39,063) 192,736 Short term bank deposits - 83,217 83, , ,191 Cash and cash equivalents 359,594 (94,098) 265, ,964 (189,423) 210,541 Total current assets 584,569 (49,624) 534, ,731 (60,330) 608,401 Total assets 808,402 37, , ,615 41,145 1,031,760 Equity Called-up share capital 21,302-21,302 21,426-21,426 Share premium 94,508-94,508 96,457-96,457 Other reserves (173,217) 273, ,770 (174,679) 281, ,908 Retained earnings 363,296 (204,644) 158, ,210 (214,684) 195,526 Total equity attributable to equity shareholders of company 305,889 69, , ,414 66, ,317 Minority interest 49,558 (7,635) 41,923 54,900 (8,997) 45,903 Total equity 355,447 61, , ,314 57, ,220 Liabilities Non-current Interest bearing loans and borrowings 141,811 (2,477) 139, ,973 (3,732) 114,241 Deferred government grants 2,980-2,980 2,548-2,548 Other payables 9,721 (8,165) 1,556 29,127 (28,540) 587 Provisions - 8,133 8,133-28,507 28,507 Deferred tax liabilities 15, ,535 12,685 12,017 24,702 Employee benefits - 18,425 18,425-26,108 26,108 Corporation tax payable - 34,266 34,266-30,011 30,011 Total non-current liabilities 169,710 50, , ,333 64, ,704 Current Interest bearing loans and borrowings 45,410 (2,623) 42, ,430 (2,020) 116,410 Trade and other payables 206,890 (50,466) 156, ,028 (57,249) 211,779 Provisions - 1,670 1,670-2,816 2,816 Corporation tax payable 30,945 (23,133) 7,812 32,510 (24,679) 7,831 Total current liabilities 283,245 (74,552) 208, ,968 (81,132) 338,836 Total liabilities 452,955 (24,033) 428, ,301 (16,761) 565,540 Total equity and liabilities 808,402 37, , ,615 41,145 1,031,760 Fyffes plc Annual Report 2005 Page 114

117 Transition to International Financial Reporting Standards (continued) The key impacts on the Group arising from transition to IFRS can be summarised as follows: Pension and other post retirement benefits Under IAS 19 Employee Benefits, defined benefit pension scheme surpluses or deficits must be recognised in the balance sheet. The operating and financial costs of these schemes, calculated in accordance with IAS 19 principles, are accounted for in the income statement. Under Irish GAAP, the SSAP 24 cost of pensions, which broadly speaking was the same as the annual funding contribution, was charged to the profit and loss account. Fyffes early adopted the Amendment to IAS 19 Employee Benefits - Actuarial Gains and Losses, Group Plans and Disclosures, which permits the immediate recognition of such gains or losses in the statement of recognised income and expense. Consolidation of subsidiaries The determination of whether an entity should be treated as a subsidiary under IAS 27 Consolidated and Separate Financial Statements is based on the parent company s power to control the entity. Irish GAAP had broader criteria which included the actual exercise of dominant influence over the operating and financial policies of the entity or where an entity was managed on a unified basis with other Group companies. Following a detailed review of each of the Group s non-wholly owned businesses, in the context of this alternative definition, a number of entities have been reclassified as joint ventures under IFRS. This change has no impact on earnings per share. The Group s share of profit after tax of its joint ventures and associates is presented as a single figure in arriving at profit before tax in accordance with the presentation requirements of IAS 28 Investments in Associates, and IAS 31 Interests in Joint Ventures. In the balance sheet, the reduction in shareholders' equity is offset by a reduction in minority interest, resulting in no net impact on net assets. Accounting for joint ventures and associates Under Irish GAAP, the Group s share of profit from its joint ventures and associates was analysed in the profit and loss account, under equity accounting rules, between operating profit, interest income/expense and taxation. Under IFRS, the Group must account for its associates under equity accounting rules but has the option of accounting for its joint ventures under either proportionate consolidation rules or equity accounting rules. Fyffes has elected to continue to apply equity accounting in relation to its joint ventures. However, under IAS 28 and IAS 31, the Group s share of the profit after tax of entities accounted for under equity accounting rules must be presented as a single item in the Group s profit before tax line, with no separate analysis of interest or tax charges. This required presentation does not impact profit attributable to equity shareholders or earnings per share. Revaluation of investment property and non-investment property Fyffes presented financial information setting out the impact of its transition to IFRS in September 2005 in which it provisionally elected to retain the historic cost model for accounting for properties. As further explained in notes 10 and 11 of these financial statements, in finalising its accounting policies in compliance with IFRS, Fyffes has elected to adopt the fair value model for both investment property and non-investment property and consequently revalued all its properties at 31 December The impact of the adoption of this basis has been reflected in the opening IFRS balance sheet at 1 January 2004 and the restated comparative information for the year ended 31 December Goodwill and intangible assets Under IFRS 3 Business Combinations, goodwill amortisation is prohibited. The goodwill amortisation charged in the 2004 financial statements, originally prepared under Irish GAAP, has been reversed in the revised IFRS financial statements. Under IFRS, capitalised goodwill is subject to annual impairment testing, as explained more fully in the Group s IFRS accounting policy. These tests did not give rise to any impairment charges on transition or in Also under IFRS 3, it is now necessary to determine the fair value of intangible assets acquired as part of any business combination, after 1 January 2004, where these are identifiable and can be measured reliably. Such intangible assets include, where appropriate, customer contracts, lists or relationships, technology, patents etc. Intangible assets so identified must be amortised to the income statement over their estimated useful economic lives. Fyffes has applied this measurement basis to acquisitions from 1 January Expensing share options Under IFRS 2 Share-based Payment, the fair value of share options granted to employees, after 7 November 2002, must be recognised as an expense in the income statement, on a straight line basis over the vesting period of the options. The impact of IFRS 2 in the income statement has been determined using the binomial lattice model in accordance with the IFRS accounting policy and with the advice of an external specialist. There is no impact on shareholders equity as there is a matching reserve in equity. Fyffes plc Annual Report 2005 Page 115

118 Significant Transition to Subsidiaries, International Joint Financial Ventures Reporting and Associates Standards (continued) Dividend recognition Under IAS 10 Events after the Balance Sheet, proposed dividends are not recognised in the balance sheet. Under IAS 10 interim dividends to equity shareholders are recognised when they are declared and paid, while final dividends are recognised when approved by the company s shareholders at its AGM. Consequently, the proposed dividends provided at 1 January 2004 and 31 December 2004 have been reversed. Taxation Other than reclassification adjustments, particularly in relation to the presentation of the tax charges of joint ventures and associates under IAS 28 and IAS 31, the Group s underlying tax rate is not significantly affected by IFRS. The main difference in IAS 12 Income Taxes compared to Irish GAAP relates to the basis of accounting for deferred tax. Under IAS 12, deferred tax is based on the concept of temporary differences, which are calculated by comparing the book value of each balance sheet item to its tax base. This is a broader concept than in Irish GAAP where, under FRS 19 Deferred Tax, deferred tax arose on timing differences between the recognition of items in the income statement and in the tax computation. The main adjustments arising in relation to tax were as follows: Recognition of deferred tax assets/liabilities in relation to the Group s defined benefit pension schemes. Recognition of deferred tax assets and liabilities on temporary differences in relation to fair value adjustments arising from acquisitions and other similar items, which would not have arisen under FRS 19. Deferred tax was not recognised on timing differences arising on gains on the sale or revaluation of assets, under FRS 19, if it was more likely than not that such gains would be rolled over. Deferred tax must be provided on all rolled over gains under IAS 12. The Group s share of the tax charge of its joint ventures and associates is netted against the Group s share of profit of these entities rather than included in the total tax charge, under IFRS equity accounting rules. Similarly, the corporation and deferred tax liabilities of entities which were subsidiaries under Irish GAAP but are joint ventures under IFRS, now form part of the Group s share of the net assets of these entities. There are other classification adjustments between deferred tax and corporation tax which have no net impact on the Group s net assets. In addition, under IAS 12, deferred tax assets and liabilities are shown separately where it is not possible or not intended to settle on a net basis. There are no deferred tax implications in relation to the payment of dividends to the Group by its joint ventures and associates and consequently no deferred tax arises. No provision for deferred tax is required in respect of the unremitted earnings of the Group s subsidiaries where it controls the timing of such distributions and has no present intention to repatriate funds. Short term bank deposits Bank deposits with maturities of greater than three months are not regarded as cash or cash equivalents under IFRS. These balances are reclassified as short term bank deposits. Treasury shares Under Irish GAAP the treasury shares held by Group companies were recognised as a deduction from retained earnings. IFRS requires that such shares are included within the own shares reserve. Explanation of material adjustments to the cash flow statement for 2004 There were no material adjustments to the statement of cash flows on adoption of IFRS, other than that cash balances decreased as a result of the reclassification of certain subsidiaries as joint ventures on transition to IFRS. The net cash balances within the entities reclassified as joint ventures now forms part of the Group s share of net assets in those joint ventures. Fyffes plc Annual Report 2005 Page 116

119 Transition to International Financial Reporting Standards (continued) Impact on company financial statements In restating the company s financial statements, Fyffes, has availed of the following relevant exemptions in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards: IFRS 2 Share-based Payment is being applied in respect of share options granted after 7 November The company is applying IAS 32 Financial Instruments: Presentation and Disclosure and IAS 39 Financial Instruments: Recognition and Measurement prospectively from 1 January Consequently, financial instruments are recognised in accordance with Irish GAAP in the 2004 comparative information. Set out below are reconciliations of the total equity amounts previously reported under GAAP to the IFRS amounts as 1 January 2004 (date of transition) and 31 December Reconciliation of equity 31 December 1 January Total equity in accordance with Irish GAAP 271, ,136 Reversal of proposed dividends 18,100 14,982 Total equity in accordance with IFRS 289, ,118 Dividend recognition Under IAS 10 Events after the Balance Sheet, proposed dividends are not recognised in the balance sheet but recognised when paid. Consequently, the proposed dividends provided in total equity at 1 January 2004 and 31 December 2004 have been reversed. Expensing share options Under IFRS 2 Share-based Payment, the fair value of share options granted to employees, after 7 November 2002, must be recognised as an expense in the income statement, on a straight line basis over the vesting period of the options. The impact of IFRS 2 in the income statement, has been determined using the binomial lattice model in accordance with the IFRS accounting policy and with the advice of an external specialist. There is no impact on total equity as there is a matching reserve in equity. Treasury shares Under Irish GAAP, the treasury shares held by the company were recognised as a deduction from retained earnings. IFRS requires that such shares are included within the own shares reserve. Explanation of material adjustments to the cash flow statement for 2004 There was no impact on the cash flows of the company arising from transition to IFRS. Fyffes plc Annual Report 2005 Page 117

120 Significant Subsidiaries, Joint Ventures and Associates The list of significant subsidiaries, joint ventures and associates forms part of the notes to the financial statements. The principal areas of operation are the countries of incorporation. Subsidiaries Principal activity Group share % Incorporated in Ireland Banana Importers of Ireland Limited (1)* Fresh produce distributor 95 Fyffes Group Ireland Limited (1)* Fresh produce distributor 100 Fyffes International Holdings Limited (1)* Investment holding company 100 Fyffes International (1) Fresh produce procurement 100 Fyffes Fruit Procurement Limited (1) Fresh produce procurement 76 Uniplumo (Ireland) Limited (1)* Cultivation and distribution of houseplants 100 Allegro Limited (2)* Consumer goods distributor 90 The registered offices of the above are: (1) 29 North Anne Street, Dublin 7. (2) 1 Beresford Street, Dublin 7. Incorporated in the United Kingdom Frank E Benner Limited (3) Fresh produce distributor 100 Daniel P Hale and Co Limited (3) Fresh produce distributor 100 FII Holdings Limited (4)* Investment holding company 100 Fyffes Group Limited (4) Fresh produce distributor 100 Fyffes Scotland Limited (4) Fresh produce distributor 100 James Lindsay & Son plc (5) Fresh produce distributor 100 The registered offices of the above are: (3) Balmoral Market, Balmoral Road, Belfast BT12. (4) Houndmills Industrial Estate, Houndmills Road, Basingstoke, Hampshire RG21 6XL. (5) Fruit Market, Chesser Avenue, Edinburgh EH14 1TT. Incorporated in the Netherlands Fyffes B.V. (formerly Velleman & Tas International) Fresh produce distributor 100 Fyffes Holdings B.V. Investment holding company 100 The registered office of each of the above is Marconistraat 19, 3029 AE Rotterdam. Incorporated in Spain EurobananCanarias S.A. (6) Fresh produce distributor 50 Arc Eurobanan S.L. (7)** Fresh produce distributor 85 Frutas IRU S.A. (8) *** Fresh produce distributor 50 The registered offices of the above are: (6) Avenida Francisco La Roche, Santa Cruz de Tenerife. (7) Mercamadrid, Nave D, Puestos 47 y 49, Madrid. (8) Puestos , Mercabilbao, Basauri, Vizcaya. ** Owned by EurobananCanarias S.A. *** Owned by Arc Eurobanan S.L. Fyffes plc Annual Report 2005 Page 118

121 Significant Subsidiaries, Joint Ventures and Associates (continued) Subsidiaries Principal activity Group share % Incorporated in Germany Fyffes GmbH* Investment holding company 100 J.A. Kahl & Co. Investment holding company 100 The registered office of each of the above is Bauernbrauweg 1, Munich. Incorporated in Italy Peviani SpA Fresh produce distributor 50 The registered office is Via Maspero, 20, , Milan. Incorporated in the Czech Republic Hortim International s.r.o. Fresh produce distributor 70 The registered office is Breclao, ZIP , Haskova 18, ICO Incorporated in the United States of America Fyffes Inc. Fresh produce distributor 100 Cobalt LLC Fresh produce distributor 100 The registered office of each of the above is West Sample Road, Suite 405, Coral Springs, Florida, USA. Incorporated in Sweden Everfresh Group AB Fresh produce distributor 100 (i) The registered office is Långebergavägen 190, Helsingborg, Sweden. Incorporated in Jersey Fyffes Windward Holdings Limited * Investment holding company 100 Fyffes Investment Limited * Investment holding company 100 Kinlet Investments Limited Investment holding company 100 Fyffes Treasury Services Limited * Investment holding company 100 Fyffes International Fruit Traders Limited Investment holding company 100 Fyffes Caribbean Limited Investment holding company 100 The registered office of all of the above is Elizabeth Lane, St. Helier. Fyffes plc Annual Report 2005 Page 119

122 Significant Subsidiaries, Joint Ventures and Associates (continued) Joint ventures Principal activity Group share % Incorporated in Ireland Hugh McNulty (Wholesale) Limited Fresh produce distributor 50 The registered office is 39/40 Upper Mount Street, Dublin 2 Incorporated in Denmark Brdr Lembcke A.S. Fresh produce distributor 50 The registered office is Gronttorvet, 220, Copenhagen. Incorporated in the United Kingdom Windward Isles Banana company (UK) Limited (9) Investment holding company 50 Capespan International Holdings Limited (10) Fresh produce distributor 50 The registered offices of the above are: (9) 3700 Parkway, Solent Centre, Whiteley, Fareham, Hampshire, PO15 7AL (10) Moorebridge Court, Moorebridge Road, Maidenhead, Berkshire, SL6 8LT. Incorporated in Germany Internationalé Fruchtimport Gesellschaft Weichert & Co. KG. Fresh produce distributor 80 (ii) The registered office is Banksstrabe 28, Hamburg. Incorporated in the Netherlands Anaco & Greeve International B.V. Fresh produce distributor 50 The registered office is Postbus 31, 2685 ZG Poeldijk. Incorporated in Guatemala Pineapple Trading Corporation Fresh produce producer 50 The registered office is Avenida Las Americas, 22-83, Zona 14, Guatemala City. Incorporated in Jersey Windward Isles Banana company Holdings (Jersey) Limited Investment holding company 50 The registered office is Elizabeth Lane, St. Helier. Incorporated in the United States of America Turbana Corporation Fresh produce distributor 50 The registered office is 550 Biltmore Way, Suite 730, Coral Gables, FL A full list of subsidiaries, joint ventures and associates is included with the company's Annual Return filed with the Companies Registration Office. * Subsidiaries owned directly by Fyffes plc. (i) (ii) Fyffes has acquired an initial 60% of Everfresh Group AB and has entered a binding agreement to acquire the remaining 40% in May While the Group has a participating interest of 80% in this partnership, it shares control with other partners. Fyffes plc Annual Report 2005 Page 120

123 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Annual General Meeting ("AGM") of Fyffes plc will be held at the Burlington Hotel, Ballsbridge, Dublin 4 on Tuesday 30 May 2006 at a.m. for the following purposes: 1. To receive and consider Statements of Account for the year ended 31 December 2005 and the reports of the directors and auditors thereon. 2. To confirm the interim dividends and declare a final dividend of 5.20 cent per share on the ordinary shares for the year ended 31 December By separate resolutions to re-elect as directors the following who retire in accordance with the Articles of Association and/or the Combined Code on Corporate Governance and, being eligible, offer themselves for re-election: (A) D.V. McCann (B) J.F. Gernon (C) J.P. Tolan (D) G.B. Scanlan (E) R.P. Byrne (F) C. Bos 4. To authorise the directors to determine the remuneration of the auditors for the year ending 31 December As special business to consider and, if thought fit, pass the following resolutions: AS ORDINARY RESOLUTIONS: 5. "That the limit on the aggregate amount of the annual remuneration of the directors be and is hereby increased to 500,000." 6 "That the directors are hereby unconditionally authorised to exercise all the powers of the company to allot relevant securities (within the meaning of Section 20 of the Companies (Amendment) Act, 1983) up to an aggregate nominal amount of 6,995,469 (116,591,148 shares) provided that this authority shall expire at the earlier of the close of business on the date of the next AGM after the passing of this resolution or the day which is 18 calendar months after the date of passing of this resolution, provided however that the company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if the authority hereby conferred had not expired." 7. AS SPECIAL RESOLUTIONS: (A) "That pursuant to Article 6(d) of the Articles of Association and Section 24 of the Companies (Amendment) Act, 1983 the directors are hereby empowered to allot equity securities (as defined by Section 23 of that Act) for cash pursuant to the authority to allot relevant securities conferred on the directors by resolution 6 above in the notice of this meeting as if sub-section (1) of the said Section 23 did not apply to any such allotment provided that this power shall be limited to the matters provided for in Article 6(d)(i) and (ii) of the Articles of Association and provided further that the aggregate nominal value of any shares which may be allotted pursuant to Article 6(d)(ii) may not exceed 1,049,320 (17,488,672 shares) representing 5% of the nominal value of the issued share capital." (B) "That the company and/or any subsidiary (as defined by Section 155 of the Companies Act, 1963) of the company is hereby generally authorised to make market purchases (as defined by Section 212 of the Companies Act, 1990) of shares of any class in the company ("shares") on such terms and conditions and in such manner as the directors may determine from time to time but subject to the provisions of the Companies Act, 1990 and to the following restrictions and provisions:- (a) the maximum number of ordinary shares (as defined in the Articles of Association of the company) authorised to be acquired pursuant to this resolution shall not exceed 34,977,344 (representing 10% of the issued share capital); (b) the minimum price which may be paid for any share shall be an amount equal to the nominal value thereof; Fyffes plc Annual Report 2005 Page 121

124 Notice of Annual General Meeting (continued) (c) the maximum price which may be paid for any share (a "relevant share") shall be an amount equal to 105% of the average of the five amounts resulting from determining whichever of the following (i), (ii) or (iii) specified below in relation to the shares of the same class as the relevant share shall be appropriate for each of the five business days immediately preceding the day on which the relevant share is purchased, as determined from the information published in the Irish Stock Exchange Daily Official List reporting the business done on each of those five business days: (i) if there shall be more than one dealing reported for the day, the average of the prices at which such dealings took place; or (ii) if there shall be only one dealing reported for the day, the price at which such dealing took place; or (iii) if there shall not be any dealing reported for the day, the average of the high and low market guide prices for that day; and if there shall be only a high (but not a low) or a low (but not a high) market guide price reported, or if there shall not be any market guide price reported, for any particular day then that day shall not count as one of the said five business days for the purposes of determining the maximum price. If the means of providing the foregoing information as to dealings and prices by reference to which the maximum price is to be determined is altered or is replaced by some other means, then a maximum price shall be determined on the basis of the equivalent information published by the relevant authority in relation to dealings on the Irish Stock Exchange or its equivalent; (d) the authority hereby granted shall expire at the close of business on the date of the next AGM of the company or the day which is 18 calendar months after the date of passing of this resolution, whichever is the earlier, unless previously varied, revoked or renewed by special resolution in accordance with the provisions of Section 215 of the Companies Act, The company or any such subsidiary may, before such expiry, enter into a contract for the purchase of shares which would or might be executed wholly or partly after such expiry and may complete any such contract as if the authority conferred hereby had not expired." P.T. Halpenny Secretary 29 North Anne Street, Dublin 7 7 April 2006 Notes: 1. Any member entitled to attend and vote at the meeting is entitled to appoint a proxy (who need not be a member of the company) to attend, speak and vote in his/her place. Completion of a form of proxy will not affect the right of a member to attend, speak and vote at the meeting in person. 2. To be valid, forms of proxy duly signed together with the power of attorney or such other authority (if any) under which they are signed (or a certified copy of such power or authority) must be lodged with the company's registrar, Computershare Services (Ireland) Limited, P.O. Box 954, Sandyford, Dublin 18 by not later than10.30 a.m. on Sunday, 28 May The company, pursuant to Regulation 14 of the Companies Act, 1990 (Uncertified Securities) Regulations, 1996, specifies that only those shareholders registered in the register of members of the company as at 6.00pm on Sunday, 28 May 2006 (or in the case of an adjournment as at 48 hours before the time of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of shares registered in their names at the time. Changes to entries in the register after that time will be disregarded in determining the right of any person to attend and/or vote at the meeting. 4. As of 3 April 2006 (being the latest practicable date prior to the publication of this circular), the outstanding share options issued by the company would result in the issue of 11,185,750 new ordinary shares if such share options were to be exercised. Further the issue of all of these shares would represent approximately 3.0% of the enlarged equity or 3.3%, if the company were to exercise in full the proposed authority being sought in resolution 7(B) above to purchase its own shares. 5. Biographical details for the directors standing for re-election at the AGM are set out on pages 6 and 7. Each of these directors has been subject to the evaluation process recommended by the 2003 FRC Combined Code as detailed on page 31. On this basis the Chairman and Board are pleased to recommend the re-election of these directors. Fyffes plc Annual Report 2005 Page 122

125 Index to Annual Report A Page Accounting policies, significant 52 Acquisitions, disposals and terminations 85 Annual general meeting, notice of 121 Audit committee report 36 Auditor's report 45 Auditor's remuneration 63 B Balance sheet, Group 49 Balance sheet, company 103 Board of directors 6 C Cash flow statement, Group 50 Cash flow statement, company 104 Cash and cash equivalents 76 Chairman s statement 4 Capital commitments and contingencies 94 Compensation committee report 39 Corporate governance report 31 Corporate social responsibility 8 D Deferred consideration 81 Deferred tax 83 Depreciation 63 Derivative and other financial instruments 97 Directors and company secretary s share interests 42 Directors and company secretary s interests in share options 43 Directors and other information 28 Directors remuneration 40 Directors report 29 Dividends to equity shareholders 66 E Earnings per share 66 Employee benefits 87 Exceptional items 64 Equity investments 75 F Funds, analysis of net 76 Financial income, net 63 Financial highlights 3 Five year summary 3 G Page Goodwill 71 I Income statement, Group 47 Income tax expense 65 Intangible assets 71 Interest bearing loans and borrowings 80 Inventories 75 Investment property 70 J Joint ventures, significant 120 L Lease liabilities 80 M Minority interest 79 O Other operating income 62 Other operating expenses 62 P Pension schemes 88 Property, plant and equipment 68 Provisions 81 R Related parties 96 S Segment reporting 59 Share based payment 92 Share capital, called up 78 Share premium 78 Shareholder information 2 Statement of directors responsibilities 44 Statement of recognised income and expense, Group 48 Statement of recognised income and expense, company 103 Subsidiaries, significant 118 T Transition to International Financial Reporting Standards 110 References to financial statements, unless otherwise indicated refer to the Group financial statements. Fyffes plc Annual Report 2005 Page 123