Fyffes plc Annual Report and Accounts 2004

Transcription

1 Fyffes plc Annual Report and Accounts 2004

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 approximately 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 almost 4,300 people. Total turnover in 2004 was over 2.1 billion. Shareholders funds exceed 350 million, including net cash balances of over 160 million. Management s continuing focus is to maximise the return on investment for the Group 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 production 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 in the industry Expanding our business through strategic acquisitions and alliances Our commitment to these principles ensures that the Group is uniquely placed to serve the requirements of our customers with a 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.

3 Contents Page Shareholder Information 2 Chairman s Statement 3 Financial Highlights and Five Year Summary 4 Growth Record 5 Directors and Secretary 6 Corporate Social Responsibility 9 Procurement and Distribution 11 Financial and Management Strengths 13 Review of Operations for Financial Review for Statutory Financial Statements 25 Notice of Annual General Meeting 86 Index to Annual Report 89 Fyffes plc Annual Report 2004 Page 1

4 Shareholder Information Share price (euro cent) High Low 31 December Market Capitalisation The market capitalisation of Fyffes plc at 31 December 2004 was 672 million. The share price at close of business on 2 March 2005 was 2.25, giving a market capitalisation at that date of 783 million. Web Site contains a wide range of detailed information on the company s activities and products, together with all the key financial data on the Group. It is updated on a continuing basis for all company announcements and other relevant developments, including share price movements. 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 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: skeenan@fyffes.com web.queries@computershare.ie Annual General Meeting The Annual General Meeting of the company will take place at the Burlington Hotel, Ballsbridge, Dublin 4, Ireland on Tuesday 24 May 2005 at a.m.. Notice of the meeting is set out on pages 86 to 88 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, requesting a mandate form. 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 otherwise requested. Fyffes plc Annual Report 2004 Page 2

5 Chairman s Statement The Group was pleased to report record results for 2004, with profit before tax, excluding goodwill amortisation, exceeding 100 million for the first time, helped by profits of 15 million from property activities. Strong performances in Continental Europe, together with first time contributions from acquisitions, have generated increases of more than 30% in adjusted profit before tax and adjusted earnings per share. Carl McCann, Chairman In May 2004, the Group acquired Everfresh, which has its headquarters in Helsingborg in Sweden. We are pleased with this acquisition which significantly increases the Group s activities in Scandinavia. This market, including our existing operations in the region, now accounts for approximately 20% of the Group s total turnover, on a full year basis. Successful acquisitions have always been a key driver of the development of Fyffes, contributing significantly to the 8.3% annual compound growth in adjusted earnings per share over the past ten years. In addition to the Everfresh deal, management invested considerable time and effort pursuing other acquisition opportunities in We believe that investing the Group s substantial resources in acquiring further attractive businesses is the best way to enhance shareholder value and we remain committed to this goal. During 2004, the Group s total capital outlay amounted to 84.9 million comprising acquisition expenditure of 45.2 million, including 14.2 million of debt acquired, and capital expenditure of 39.7 million, of which 30 million related to property assets. The Board is proposing an increase of 20.1% in the final dividend for 2004 to 5.20 cent per share. This will make the total dividend for the year 6.73 cent, an increase of 17.7%, representing a yield of 3.8% based on the average share price for last year. On your behalf, the Group has made a donation of 0.5 million to a number of charities working in South East Asia in the aftermath of the devastating tragedy there at the end of 2004 as a result of the tsunami. The trial of the Group s legal action against DCC plc and others is ongoing and is expected to continue for a number of months. The regulatory framework governing banana imports into the EU is scheduled to be changed by the end of Further details on recent developments in relation to this matter are set out in the Review of Operations on page 16. A determination of the final outcome is unlikely to take place until close to the end of the year. It is Fyffes view that a continuation of the current system of import regulations is in the best interests of all the stakeholders in the industry. Trading has been satisfactory in the first two months of 2005, particularly in Continental Europe. The Group continues to pursue the price increases necessary to compensate for the significant increases that have occurred in shipping, transport and fuel costs. Fyffes is fortunate to have the best people in the industry and we thank them for their continuing commitment to the success of the business. Carl McCann Chairman 2 March 2005 Fyffes plc Annual Report 2004 Page 3

6 Financial Highlights Increase Turnover incl. share of joint ventures/associates 2,146m 1,925m 11.5% Profit before tax* 102.8m 75.7m 35.9% Profit before tax** 94.7m 71.6m 32.2% Adjusted fully diluted earnings per share** cent cent 32.2% Full year dividend per share 6.73 cent 5.72 cent 17.7% Shareholders funds 353.4m 305.9m 15.5% * Excludes goodwill amortisation ** Excludes exceptional items and goodwill amortisation Five Year Summary * Turnover incl. share of joint ventures/associates 2,145,735 1,924,624 1,836,547 1,995,283 2,251,732 Adjusted profit before taxation** 94,727 71,627 68,122 63,554 31,319 Profit on ordinary activities before taxation 96,289 71,798 63,074 57,653 7,563 Profit/(loss) ordinary activities after taxation 81,956 62,624 50,404 43,610 (1,315) Adjusted fully diluted earnings per share (cent)** Dividend per share (cent) Shareholders' funds 353, , , , ,478 * fourteen month period to 31 December 2000 ** excludes exceptional items, e-commerce costs and goodwill amortisation Fyffes plc Annual Report 2004 Page 4

7 Compound Growth Rates 3 Years 5 Years 10 Years Turnover incl. share of joint ventures/associates 2.5% 2.6% 6.5% Adjusted profit before taxation* 14.2% 3.0% 7.5% Adjusted fully diluted earnings per share* 16.3% 3.4% 8.3% Dividend per share 12.5% 9.4% 13.3% * excludes exceptional items, e-commerce costs and goodwill amortisation Growth Record * excludes exceptional items, e-commerce costs and goodwill amortisation Total shareholder return An investment of 1,000 in 1981, when the company was first listed in Dublin, would be worth 44,000 today. Fyffes plc Annual Report 2004 Page 5

8 Directors and Secretary C.P. McCann Chairman, BBS, MA, FCA Carl McCann was elected Chairman in He joined the Group from KPMG in He was Finance Director from 1983 to 1998 and had been Vice Chairman since He is a member 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 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 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 Non-Executive, MSc Willie Walsh was appointed to the Board on 1 January He was recently appointed Chief Executive designate of British Airways plc. He was previously Chief Executive of Aer Lingus Group plc, the Irish national airline, having joined that company in 1979, subsequently holding a number of senior management positions including Chief Operations Officer. D.V. McCann 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 Non-Executive, BCL, AITI Rose Hynes was appointed to the Board in 2003 and is a member of the audit and nomination committees. She became Chairman of the audit committee on 1 January She was a nonexecutive 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 2004 Page 6

9 N.V. McCann Executive Neil McCann retired as Chairman in He joined the business in the 1950 s and led it to stock market flotation in He oversaw the development of the Group to its current position as one of the largest fresh produce companies in Europe and among the leading operators in the global fresh produce industry. D.J. Bergin Non-Executive, BA, LLB Denis Bergin was appointed to the Board in He is a member of the audit, compensation and risk committees. He was Chairman of the audit committee until 31 December He is a former partner in the leading Irish law firm, Arthur Cox. He is a director of several other companies. G.B. Scanlan Non-Executive, FIB Gerry Scanlan was appointed to the Board in He is a member of the audit, nomination and risk committees, Chairman of the compensation committee and the nominated senior independent nonexecutive 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 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 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 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 2004 Page 7

10 Fyffes reputation is second to none Fyffes plc Annual Report 2003 Page 8

11 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: 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. Ethical Trading Initiative Fyffes has been a member of the UK government-sponsored Ethical Trading Initiative (ETI) for four years now. 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 retail sector. All of the Group s tropical management team and many of our banana and pineapple suppliers have received formal training in this regard. EUREP GAP Accreditation Fyffes is a founder member of the European Retailers 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 pineapple farms from which it takes direct supplies, and this is renewed annually. 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 that it complies with the highest standards in relation to food safety regulations. Fyffes plc Annual Report 2004 Page 9

12 Fyffes believes that there is no substitute for expertise drawn from local knowledge Fyffes plc Annual Report 2002 Page 10

13 Procurement and Distribution Bananas Fyffes procures its bananas from a wide variety of sources, including Central and Latin American suppliers, principally in Colombia, Costa Rica and Ecuador, and 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. Pineapples The development of the Group s supersweet pineapple business is progressing satisfactorily. Fyffes is involved in growing these pineapples on a number of large farms in Central America on a joint venture basis with local producers. Production on these farms is increasing and we expect them to be at full production levels by the end of General Produce In most cases, for other produce, the Group acts as marketer and distributor for the major international producer organisations. This enables Fyffes to provide its customers with the finest brands in the industry, from both the Northern and Southern Hemispheres on a year round basis, including Cape, Outspan, Carmel, Enza, Jaffa, Maroc and Zespri. Distribution Network One of Fyffes key strengths is its first-class distribution network that ensures it can deliver produce to customers on a timely basis and in the optimum condition. The Group operates from approximately 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. Fyffes plc Annual Report 2004 Page 11

14 The Group has a management team with a range of skills that surpasses any in the sector Fyffes plc Annual Report 2002 Page 12

15 Financial and Management Strengths Balance Sheet Fyffes has one of the strongest balance sheets in the international fresh produce sector. Shareholders funds at 31 December 2004 amounted to million, including net cash balances of million. This leaves the Group ideally placed to continue to pursue consolidation opportunities in the sector and is tangible evidence of the quality of the management of the business over many years. Cash Generation One of the very attractive features of our business is that profits turn into cash very quickly. During the past three years, the Group has generated free cash flow, after payment of dividends and tax, of almost 190 million. Dividend payments to Group shareholders and minority interests amounted to 66 million during that period. Of the remaining cash flow over that three year period, 61 million has been invested in capital expenditure and 112 million has been spent on acquisitions and investments in joint ventures, including net debt acquired. Management remains focused on finding attractive acquisition opportunities in which to invest the Group s cash resources. Management and Control Over many years, the Group has built up a management team with a range of skills, expertise and experience that surpasses any in the sector. Today, Fyffes is served by a dedicated and talented workforce of almost 4,300 employees, including 1,300 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 the revised 2003 Combined Code on Corporate Governance, a report on which is set out on pages 29 to 32. Fyffes plc Annual Report 2004 Page 13

16 Review of Operations for 2004 David McCann, Chief Executive Fyffes tropical produce division This division comprises the Group s procurement, farming and shipping activities in respect of bananas and pineapples. These products have similar, all year round, production and harvesting characteristics. They are grown in broadly the same geographic regions, with Fyffes sourcing mainly in Central and South America and the Caribbean. Consequently, the shipping logistics are similar and these activities can be combined efficiently. The Group s tropical produce operations delivered a strong result in 2004, accounting for 14.6 million of the 21.5 million increase in total operating profit before exceptional items and goodwill amortisation. This increase was achieved mainly in Continental Europe. Tropical produce operations accounted for 48.3% of total profit before tax, including property profits but excluding other exceptional items and goodwill amortisation, of 110 million in Banana activities The Group s banana businesses performed well in 2004 with profits significantly ahead of the previous year, particularly in Continental Europe. The benefit of improved average exchange rates, due to the strength of European currencies against the US Dollar, exceeded the impact of higher operating costs, particularly in relation to shipping and fuel. Market conditions in local currencies were less favourable in the first six months of the year but improved in the second half. Volumes were modestly ahead, year on year. The Group s Geest joint venture achieved a satisfactory result in 2004, helped by a 1.6 million gain arising from changes in the financing arrangements relating to its Island Class ships. There had been some concern at the beginning of the year in relation to EU enlargement on 1 May Ultimately, the increase in the import quota to accommodate the ten accession states did not have any significant impact on the overall trading environment. Pineapple activities Fyffes continues to develop its super-sweet pineapple business under the "Fyffes Gold" label. The Group s share of the net operating losses in its pineapple production joint ventures, which continue through their development phase, amounted to 2.1 million in 2004, compared to 2 million in the previous year. Pineapple importing activities earned profits amounting to 2 million, on sales of 4.6 million boxes, resulting in a close to breakeven overall result in the year. The Group s pineapple joint venture farms are planned to reach their full production levels towards the end of Fyffes general produce division The Group s general produce division delivered a satisfactory result for the year with a 7 million increase in operating profits. Volumes, before the impact of acquisitions, were modestly ahead of the previous year and market conditions were generally stable. There were good performances in a number of key markets and products. Apple and pear volumes were higher and the markets for citrus and stonefruit were strong. The division also benefited from the Everfresh acquisition and a number of small transactions, mainly in the UK. The Group s Capespan joint venture achieved an improved result as it benefited from the restructuring programme undertaken in recent years and a broadening of its product range. Fyffes plc Annual Report 2004 Page 14

17 Everfresh in Sweden, in the eight months since its acquisition in May 2004, accounted for approximately 60% of the increase in operating profits, before exceptional items and goodwill amortisation, in this division. The Group paid 29.4 million, including costs, for 60% of Everfresh with a binding agreement to acquire the remaining 40% in 2007, the terms of which give Fyffes a beneficial entitlement to all of the earnings of Everfresh from the date of the initial acquisition. Consequently, 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 be payable in This transaction significantly increases Fyffes activities in Scandinavia and, combined with our existing operations in that region, it now accounts for approximately 20% of the Group s full year turnover. Total operating profits Total operating profit before exceptional items and goodwill amortisation for the year ended 31 December 2004 was 89.2 million compared to 67.7 million in 2003, an increase of 31.8%. Operating margins increased to 4.2%, from 3.5% in the previous year. The Group s Continental European operations accounted for the majority of this improvement. The following table analyses the geographic mix of our turnover and operating profits in 2004 and This shows that the Group has been earning an increasing portion of its profits in Continental Europe, growing to 76% in 2004, consistent with the focus of the Group s acquisition activities in recent years. Ireland/UK Europe Total m m m Turnover , , , ,924.6 Operating profit* * Operating profit is stated before goodwill amortisation and exceptional items Property activities During the year, Fyffes realised profits before tax of 14.6 million on two significant property transactions, 12.7 million from the disposal of the Group s 50% interest in a joint venture which owned development lands in Dundalk and 1.9 million from the disposal of a property in Kenmare, both in Ireland. Fyffes has earned pretax profits in excess of 30 million and realised cash of approximately 50 million in aggregate over the past four years from its property activities. The Group anticipates that it will continue to generate similar levels of profits and cash from these activities over the medium term. The Group made further property investments in 2004 involving expenditure of close to 30 million. These included the acquisition of additional land and premises in Dublin and Dundalk, Ireland, and in Edinburgh, Scotland. In addition, the Group has committed 3.6 million to a joint venture with Lagan Developments Limited to acquire a property for retail development in Navan, Ireland, comprising a cash investment of 1.5 million and a guarantee for 2.1 million in relation to bank borrowings in the joint venture. Fyffes plc Annual Report 2004 Page 15

18 Review of Operations for 2004 continued EU banana import regulations The regulatory framework governing banana imports into the EU is scheduled to be changed by the end of It is planned for the current system of tariff preferences and quota restrictions on imports to be replaced by a regime based solely on tariff preferences. In line with the timetable laid down for the process, the EU Commission recently notified the World Trade Organisation (WTO) of its intention to increase the duty on third country banana imports to 230 per tonne from 1 January At the same time, it reiterated its intention to maintain its protection for EU and African, Caribbean and Pacific (ACP) banana producers. The proposed new tariff has been widely criticised by the majority of stakeholders in the global banana industry. Latin-American producers have rejected it as being unacceptably high, while EU and ACP producers say that it is insufficient to maintain their place in the EU market. Under arrangements negotiated previously, the Latin-American banana producing countries can call for the EU s tariff proposal to be subjected to an arbitration process. While this procedure is likely to be invoked, the main Latin-American supplier countries have also stated their willingness to engage in fresh negotiations with the Commission on the future regulation of the EU banana market, with a view to agreeing a sustainable long term solution. It is likely that such negotiations and the arbitration process will proceed in parallel throughout most of A determination of the final outcome is unlikely to take place until close to the end of the year. It is Fyffes view that a continuation of the current system of import regulations is in the best interests of all the stakeholders in the industry. Finally, the excellent performance of the Group in 2004 is, in no small way, due to the skill and dedication of our staff. On your behalf, I would like to thank them for their constant hard work and commitment. David McCann Chief Executive 2 March 2005 Fyffes plc Annual Report 2004 Page 16

19 Financial Review for 2004 Frank Gernon, Group Finance Director Summary profit and loss account Change m m % Turnover 2, , Total operating profit Net interest income Adjusted profit before tax Profits from property disposals Total profits including property activities Other exceptional items (7.1) (3.6) Profit before goodwill amortisation Goodwill amortisation (6.5) (3.8) Profit before tax Tax charge (14.3) (9.2) Minority interest charge (11.6) (11.3) Profit attributable to ordinary shareholders Dividends payable (23.4) (19.8) Retained profit for year Adjusted fully diluted EPS cent Turnover and operating profit An analysis of the factors influencing the changes in turnover and operating profit is provided in the Review of Operations for 2004 on pages 14 to 16. Net interest income Net interest income, including the Group s share of the net interest expense in its joint ventures, amounted to 5.5 million in 2004, an increase from 4 million in the previous year. This improvement resulted from higher Sterling interest rates and higher average net cash balances during the year. Goodwill amortisation The goodwill amortisation charge increased to 6.5 million in 2004 from 3.8 million in the previous year, largely as a result of an amortisation charge of 2.4 million on the goodwill which arose on the acquisition of Everfresh during the year. Fyffes plc Annual Report 2004 Page 17

20 Financial Review for 2004 continued Exceptional items Exceptional items gave rise to a net profit in 2004 of 8.1 million made up as follows: m m Profit on disposal of various tangible fixed assets 2.5 Profit on disposal of property joint venture 12.7 Total profits from tangible fixed asset disposals 15.2 Net loss on other business disposals (0.5) Group development costs (2.5) Cost of litigation against DCC plc and others (4.1) Total other exceptional items (7.1) Net exceptional profit 8.1 Total net profits from tangible fixed asset disposals, mainly property transactions, during the year amounted to 15.2 million. This comprises 12.7 million from the disposal of the Group s 50% interest in a joint venture undertaking which owned a significant development property in Dundalk in the North East of Ireland, 1.9 million from the disposal of a property in Kenmare in the South West of Ireland and 0.6 million from a number of smaller disposals. Towards the end of the year, the Group sold its 50% interest in a tropical farming joint venture in Central America, incurring a loss on disposal of 1.1 million. Termination of a number of small subsidiaries operations, together with the receipt of deferred consideration in respect of a subsidiary sold in a prior year, gave rise a net exceptional profit in the year of 0.6 million. During the year, the Group incurred external costs, including advisory and professional fees, relating mainly to one large acquisition which was terminated at an advanced stage, amounting to 2.5 million. These costs are included in net operating expenses and highlighted as exceptional in the profit and loss account. Costs amounting to 4.1 million in relation to the Group s ongoing legal action against DCC plc and others are similarly included in net operating expenses and highlighted as exceptional in the profit and loss account. The net tax charge on exceptional items in the year was 0.5 million. Profit before tax Total profit before tax, including property profits of 15.2 million but excluding other exceptional items and goodwill amortisation, amounted to 110 million in 2004, compared to 79.3 million in 2003, an increase of 38.7%. Profit before tax, excluding goodwill amortisation of 6.5 million, amounted to million for the year compared to 75.7 million in 2003, an increase of 35.9%. Excluding exceptional items of 8.1 million and goodwill amortisation, the underlying adjusted profit before tax amounted to 94.7 million, compared to 71.6 million in the previous year, an increase of 32.2%. Statutory profit before tax, after net exceptional items and goodwill amortisation, amounted to 96.3 million in 2004 compared to 71.8 million in 2003, an increase of 34.1%. Fyffes plc Annual Report 2004 Page 18

21 Tax charge The Group s tax rate for the year, excluding the impact of exceptional items, increased to 15.6% in 2004, compared to 12.8% in This reflects the increase in profits arising in Continental Europe, where corporation tax rates are higher, and the impact of acquisitions in the year. The charge for the year, excluding the impact of exceptional items, was 13.8 million compared to 8.7 million in the previous year. Including the tax impact of exceptional items, the total charge for 2004 was 14.3 million, equivalent to a rate of 14.9%. Minority interest charge The total charge for minority interests in the year amounted to 11.6 million compared to 11.3 million in The charge in the prior year included 0.5 million in relation to an exceptional profit on disposal of fixed assets in one of the Group s non-wholly owned subsidiaries. Dividend The Board is proposing to pay a final dividend for the year ended 31 December 2004 of 5.20 cent per share, an increase of 20.1% on the previous year. The total dividend per share for the year will then amount to 6.73 cent, an increase of 17.7% on The total dividend distributed to shareholders for 2004 will be 23.4 million compared to 19.8 million in The final dividend, which will be subject to Irish withholding tax rules, will be paid on 25 May 2005 to shareholders on the register on 15 April The total dividend for the year represents a return of 3.8%, based on the average share price for 2003 of 1.75 and 3.0% based on the share price at close of business on 2 March The dividend cover was 3.0 times in 2004, up from 2.6 times in Earnings per share Basic earnings per share for the year amounted to cent compared to cent in the previous year, an increase of 36.7%. Adjusted fully diluted earnings per share, excluding the impact of exceptional items and goodwill amortisation, amounted to cent in 2004 compared to cent in the previous year, an increase of 32.2%. Summary balance sheet m m m Intangible assets (mainly goodwill) Tangible assets Financial assets (including goodwill) Working capital Deferred acquisition consideration (31.3) (9.8) (13.5) Taxation (32.5) (30.9) (29.0) Proposed dividend (18.1) (15.0) (13.6) Provisions for liabilities and charges (12.1) (14.5) (18.2) Net cash Net assets Shareholders funds Minority interests Capital employed Fyffes plc Annual Report 2004 Page 19

22 Financial Review for 2004 continued Shareholders funds Shareholders funds at 31 December 2004 amounted to million compared to million at 31 December 2003, up 15.5%, largely reflecting the increase in retained profits for the year. The movement in shareholders funds is analysed in the following table m m m At beginning of year Profits after tax and minority interests Dividends (23.4) (19.8) (18.0) Translation of non-euro denominated net assets (1.5) (19.6) (17.1) Shares issued Adjustments to historic goodwill At end of year The acquisition of Everfresh during the year gave rise to an increase in goodwill amounting to 53.4 million. In addition to the 29.4 million paid in 2004, Fyffes has accrued deferred consideration which may become payable for the remaining 40% in The estimate of deferred consideration payable is based on a multiple of average profits over the three years ending 31 December The fair value of the net liabilities acquired, excluding goodwill in its own balance sheet of 6 million, amounted to 1.1 million. Net debt in Everfresh at the date of acquisition amounted to 14.2 million. Return on capital employed Return on capital employed, calculated by comparing total operating profit, excluding exceptional items and goodwill amortisation, to average capital employed, was 19.1% in 2004, up from 16% in the previous year. Capital employed excludes net cash balances but includes historic goodwill which is set-off against reserves (amounting to approximately 217 million in 2004 and 2003). Excluding this goodwill from capital employed increases the return on average capital to almost 36% for the year. Retirement benefits The Group operates a number of externally funded defined benefit and defined contribution pension schemes. While these continue to be accounted for under Statement of Standard Accounting Practice 24, Accounting for Pension Costs, the disclosure requirements of Financial Reporting Standard 17 Retirement Benefits (FRS 17) in relation to the defined benefit schemes are set out in note 31 to the financial statements on pages 74 to 78. Under the measurement criteria in FRS 17, these schemes had an aggregate deficit (net of deferred tax) of 18.7 million at 31 December 2004, compared to a deficit of 9.5 million last year. Notwithstanding an increase in the year in the value of the schemes assets of 12.4 million, the deficit is higher as a result of the decrease in long term bond rates at the end of Fyffes plc Annual Report 2004 Page 20

23 Summary cash flow statement The following table summarises the movement in the Group s net cash balances over the last three years m m m Total operating profit before exceptional items Depreciation/amortisation EBITDA excluding exceptional items Exceptional items in operating profit (6.6) (3.7) - Deduct share of joint ventures operating profit (8.1) (4.7) (10.9) Dividends from joint ventures/associates Net interest income Working capital movements 12.2 (26.4) 4.3 Tax (paid) (15.9) (10.2) (8.8) Dividends paid (including minorities) (25.7) (21.6) (18.8) Capital expenditure (39.7) (9.3) (11.6) Proceeds from disposal of tangible assets Free cash flow Purchase/net investment in subsidiaries and joint ventures (46.7) (11.5) (49.2) Deferred consideration payments (1.4) (1.5) (1.5) Disposal of subsidiaries, joint ventures and investments Translation adjustment (1.0) (14.3) (13.4) Other (3.6) Movement in net cash (8.8) Opening net cash Closing net cash During the last three years, free cash flow generated by the Group, before capital expenditure and acquisitions and investments in joint ventures, amounted to 188 million, averaging more than 62 million per annum. The Group spent 112 million investing in new subsidiaries and joint ventures in the past three years, including debt acquired. Capital expenditure amounted to 61 million in the same period. Net cash balances at 31 December 2004 amounted to million compared to million at the previous year end. EBITDA generated by the Group s operations during the year, excluding exceptional items amounted to million in 2004, including an improvement in working capital balances of 12.2 million. From the cash generated in the year, the Group made dividend and tax payments amounting to 41.6 million (including 5.4 million dividends to minority shareholders). In addition, capital outlay amounted to 84.9 million, comprising acquisition spend, including net debt in the acquired subsidiaries of 45.2 million, mainly in relation to Everfresh, and capital expenditure, mainly on property assets, of 39.7 million. Disposals of properties, subsidiaries and joint ventures realised net cash amounting to 10.8 million during the year. Fyffes plc Annual Report 2004 Page 21

24 Financial Review for 2004 continued Treasury activity and financial instruments The Group 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, the Group enters into derivative instruments with a view to managing the currency risk and, to a lesser extent, the interest rate risk arising from its operations. The principal risks that arise from these financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Board has determined the policies for managing these risks as set out below and these remained unchanged throughout the year. It is Group policy to manage these risks in a non-speculative manner. While many of the Group s operations are carried out in euro-zone economies, it also has significant activities in the UK, Sweden, Denmark and the Czech and Slovak Republics. As a result, the Group s balance sheet is exposed to currency fluctuations, including in particular GBP/EUR movements. While the net investment in overseas operations is initially hedged by foreign currency borrowings, going forward these businesses generally fund their operations locally. The Group also has large transactional currency exposures since a significant portion of its costs, particularly produce purchases and shipping, are denominated in US Dollars. This transactional exposure is managed on a daily basis. Currency requirements are generally purchased on a relatively short term basis in the spot or forward markets. From time to time, the Group can take a longer term view on currency movements and enters derivative instruments such as options, cylinders, caps and floors to manage its exposure. In general, the approach employed by Fyffes to managing its exposure to interest rate fluctuations is to maintain the majority of its deposit and loan portfolios on floating rates. Rates are usually 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. Derivative instruments, such as forward rate agreements and interest rate swaps, are used from time to time to further manage the exposure to interest rate fluctuations. In relation to liquidity, the Group s policy is to maintain the majority of its net cash balances on relatively short term maturities to match its funding requirements and to reflect the prudent approach of the Board to cash balances. Net cash is 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 un-drawn facilities available at all times to cover unanticipated financing requirements. The numerical disclosures required under Financial Reporting Standard 13, Derivatives and Other Financial Instruments: Disclosures, in relation to the above risks are set out in Note 33 to the financial statements on pages 80 to 82. Fyffes plc Annual Report 2004 Page 22

25 Accounting policies and standards The Group remains committed to the adoption of best practice in the preparation of its financial statements. There were no changes in accounting policies during 2004 and no new accounting standards became applicable. However, the Group acquired a number of properties during the year that were not in use in the business at 31 December 2004 and which have consequently been classified as investment properties. These properties are carried at cost in the balance sheet which, given the proximity of their acquisition to the year end, the Group believes is a reasonable estimate of their open market value. Transition to International Financial Reporting Standards (IFRS) In 2005 the Group, like all other listed companies in the EU, will be required to prepare its consolidated financial statements under International Financial Reporting Standards (IFRS). The existing Irish and UK standard setter, the Accounting Standards Board (ASB), is in the process of a convergence project, the aim of which is to move existing Irish/UK standards towards IFRS in advance of the transition. In addition, the IFRS standard setter has updated many of its standards in advance of the changeover and this process is continuing. The Group is satisfied that it is well prepared for the transition to reporting under IFRS and its accounting policies in this regard will be approved by the Board in the first half of Interim results for the first half of 2005 will be presented in accordance with IFRS, which will include the restatement of the 2004 half year and full year primary financial statements as comparatives. The following are the most significant areas of difference under IFRS compared to existing Irish/UK GAAP, as applicable to the Group s circumstances: Goodwill on acquisitions The Group s current policy under FRS 10 Goodwill and Intangible Assets, is to capitalise goodwill on acquisition and to amortise it over its estimated useful life, using in most cases the rebuttable assumption of twenty years allowed in the Standard. Under IFRS 3 Business Combinations, goodwill amortisation will not be charged in the Group s income statement. Rather, annual reviews will be performed to assess goodwill impairment. Post-employment benefits schemes The Group currently accounts for its defined benefit pension schemes in accordance with SSAP 24, Accounting for Pension Costs. In addition, in note 31 on page 74 of the financial statements, the Group sets out the impact of FRS 17, Retirement Benefits, if it was required to be applied. The basis of calculating the value of defined benefit scheme assets and liabilities in FRS 17 are substantially consistent with the requirements of IAS 19, Employee Benefits. Consequently, the details in note 31 give a good indication of the changes required under IFRS in respect of both the charge in the income statement and the impact on the balance sheet. Fyffes plc Annual Report 2004 Page 23

26 Financial Review for 2004 continued Share-based payments Under IFRS 2, Share-based Payments, the Group will be required to measure the cost of all share options granted to its employees since 7 November 2002, using an appropriate option pricing model. This will result in an additional non-cash expense being recognised in the Group s income statement. Proposed dividends Under IAS 10, Events after the Balance Sheet Date, dividends are recognised in the period in which they are declared. Accordingly, the company will not recognise the accrual for its proposed final dividend for the year in its IFRS balance sheet, but rather will include it as a movement in its statement of changes in equity in the following year. Deferred taxation Under IAS 12, Income Taxes, certain temporary timing differences, such as in respect of rollover relief, that are not recognised under FRS 19, Deferred Tax, may be recognised in the Group s IFRS balance sheet. Financial Instruments IAS 39, Financial Instruments: Recognition and Measurement, has given rise to considerable public debate and the EU has now approved its delayed implementation date of 1 January The Group has reviewed the implications of this new standard for its financial statements and is satisfied that it is not likely to have a significant impact. Under IAS 39, all derivative instruments will be measured at fair value. The Group is satisfied that, where applicable, its foreign currency borrowings and derivative contracts will qualify as hedges under IAS 39. Going forward, the Group will be required to measure the effectiveness of such hedging instruments. Treatment of subsidiaries and joint ventures The Group is reviewing the treatment of its non-wholly owned subsidiary companies in the context of the definition of subsidiaries in IAS 27, Consolidated and Separate Financial Statements. Any changes which might be required at the conclusion of this review will not impact the Group s earnings per share. The Group is also considering whether it will account for its joint ventures in accordance with the proportionate basis of consolidation as allowed under IFRS or whether it will continue to apply the equity basis of accounting which is also permitted. Finally, IFRS compliance will result in additional disclosures and other changes in the presentation of certain items. Litigation The trial of the Group s legal action against DCC plc and others in relation to the sale of 31.2 million Fyffes shares in February 2000 commenced in the High Court in Dublin on 2 December These proceedings are ongoing and are expected to continue for a number of months. Frank Gernon Group Finance Director 2 March 2005 Fyffes plc Annual Report 2004 Page 24

27 Contents Page Directors and other information 26 Directors report 27 Corporate governance report 29 Audit committee report 33 Compensation committee report 35 Statement of directors responsibilities 40 Independent auditors report 41 Statement of accounting policies 42 Group profit and loss account 45 Other statements 46 Group balance sheet 47 Company balance sheet 48 Group cash flow statement 49 Notes forming part of the financial statements 50 Principal subsidiaries, joint ventures and associates 83 Notice of annual general meeting 86 Index to annual report 89 Fyffes plc Annual Report 2004 Page 25