FYFFES plc ANNUAL REPORT Europe s leading importer of the world s happiest fruit.

Transcription

1 FYFFES plc ANNUAL REPORT Europe s leading importer of the world s happiest fruit.

2 FYFFES plc ANNUAL REPORT Europe s leading importer of the world s happiest fruit.

3 Contents 02 About Fyffes 04 Our Brand 06 Group Operations 08 Five Year Summary 09 Shareholder Information 10 Chairman s Statement 11 Directors and Secretary 12 Operating and Financial Review 21 Sustainability and Responsibility 23 Financial Statements

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7 Fyffes - Europe s leading importer of the world s happiest fruit Annual Report Our Brand Fyffes has been importing bananas for more than 125 years, with the first shipment into the UK in The famous Fyffes Blue Label made its first appearance in 1929, making Fyffes the world s oldest fruit brand. The Group s endurance over 125 years is due to the quality of the fruit to which the Fyffes label is attached and the service levels behind it. While it is of course most closely associated with the banana, it is also applied to our other produce including Fyffes Gold Pineapples. Only the freshest produce selected from the most reliable producers is allowed carry the famous Fyffes blue label. 05

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9 Fyffes - Europe s leading importer of the world s happiest fruit Annual Report Group Operations Fyffes plc is primarily involved in the production, procurement, shipping, ripening, distribution and marketing of bananas, pineapples and melons. Fyffes distributes c.44 million cases of bananas in Europe annually. In addition, the Group s Turbana joint venture markets c.11 million cases of bananas in North America. Fyffes distributes c.9 million cases of pineapples each year. In the winter melon category, Fyffes markets c.16 million cases in North America. Production & Procurement Fyffes bananas are procured from Central and South America under long term supply contracts with our growers. Our long term relationships with growers and the advice and structures that Fyffes provides, ensures that our fruit is always Fyffe Times Better. Shipping Fyffes transports its produce on state of the art ships under controlled conditions to ensure that all Fyffes fruit arrives at its destination in premium condition, consistently every week of the year. Ripening Fyffes owns and leases seven state of the art banana ripening centres in the UK, Germany and Ireland and a large melon distribution centre in Florida. Bananas are carefully unloaded into ripening rooms where the fruit can be ripened under controlled conditions to meet the highest customer specifications. Distribution Our fleet of temperature controlled vehicles carefully transport Fyffes premium produce to the world s leading retailers as well as a vast network of wholesale, convenience and foodservice customers. Marketing The famous Fyffes Blue Label is the world s oldest fruit brand. The Group s endurance over 125 years is due to the quality of the fruit to which the Fyffes label is attached and the service levels behind it. 07

10 Five Year Summary Continuing Operations Restated 2011 Restated 2010 Restated 2009 Restated Total revenue (incl share of joint ventures) 1,082,246 1,017, , , ,772 Group revenue 835, , , , ,103 Adjusted profit before taxation* 31,103 29,251 21,477 20,618 20,950 Profit/(loss) before taxation 28,679 26,126 11,733 8,119 (11,510) Profit/(loss) after taxation 26,144 23,908 10,645 6,764 (10,172) Adjusted earnings per share (cent)** Dividend per share (cent) Shareholders equity 147, , , , ,687 Notes * Before intangibles amortisation and the Group s share of the tax charge of its joint ventures and, where relevant, the Group s share of Balmoral s result and exceptional items. ** Before intangibles amortisation and, where relevant, the Group s share of Balmoral s result and exceptional items. As further explained in Note 25 to the financial statements, the profit and earnings per share figures for and earlier years have been restated to account for the impact of the revision in the accounting standard on pensions. All figures are presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. 08 Fyffes plc Annual Report

11 Shareholder Information Share price (euro cent) High Low Year End Market capitalisation The market capitalisation of Fyffes plc at 31 December was 250 million. The ordinary share price at close of business on 7 March 2014 was 0.89, giving a market capitalisation at that date of 265 million. 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. Investor relations Investors requiring further information on the Group are invited to contact: Seamus Keenan Company Secretary Fyffes plc 29 North Anne Street Dublin 7 Ireland Telephone: Fax: skeenan@fyffes.com Registrar Administrative queries about holdings of Fyffes plc shares can be directed to the Company s registrar: Annual General Meeting The Annual General Meeting of the Company will take place at the Clyde Court Hotel (formerly Berkeley Court Hotel), Lansdowne Road, Dublin 4, Ireland on Wednesday, 14 May 2014 at 11.00am. Notice of the meeting is set out at the end of this Annual Report on pages 118 to 120. 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. Electronic communications Shareholders who wish to opt to receive their shareholder communications electronically can do so by going to and following the three steps outlined to sign up for Electronic Shareholder Communications. Computershare Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Ireland Telephone: Fax: web.queries@computershare.ie Fyffes plc Annual Report 09

12 Chairman s Statement Building on its very strong performance in the previous year, Fyffes has reported a further increase in revenue and earnings in. Earnings before interest, tax and amortisation (EBITA) in the Group s Tropical Produce operations amounted to 32.7 million, up 6.9% on, and Adjusted earnings per share (EPS) of 8.82 cent were 3.2% higher. This is the fifth consecutive year of earnings growth, with Adjusted EPS up a cumulative 123% over that period, representing a compound annual growth rate of 17.4% since The Group s performance in its Tropical Produce division in was driven mainly by further organic growth, particularly in the banana and melon categories and was achieved despite further fruit cost inflation and adverse exchange rate movements. Partly offsetting these factors, the Group continued to reduce its logistics costs through further shipping efficiencies, combined with the benefit of lower fuel costs. There were no significant developments in relation to the Group s investment in Balmoral during. The investment remains written down to a nominal value in Fyffes books. Balmoral continues to be actively managed and, with its well diversified portfolio of properties across Europe, remains positioned to benefit from any improvement in property market conditions. The Board continues to focus on increasing shareholder value. The share price increased by over 55% during, well ahead of the increase in the main stock exchange indices. As in recent years, the Board is seeking to renew the authority from shareholders to purchase up to 10% of the outstanding Fyffes plc shares at the 2014 AGM. The Board is proposing to pay a final dividend for, subject to shareholder approval, of 1.49 cent per share, an increase of 4.9%. The total dividend for would then amount to 2.17 cent per share, 4.8% up on last year. This represents a 25% pay-out ratio. Today is an historic day for Fyffes with the announcement of the proposed transaction with Chiquita Brands International Inc., pursuant to which Chiquita and Fyffes will combine to form ChiquitaFyffes plc. This merger of equals will create the largest banana company globally, with significant positions in the packaged salads, melon and pineapple categories. In addition to a copy of today s announcement, shareholders will be sent further documentation and a proxy voting card in due course, ahead of an Extraordinary General Meeting later in the year, to consider approval of the proposed transaction. I believe this combination of two great companies will create important benefits and opportunities for all stakeholders in both businesses. The Group continued to invest in the business during including the purchase of an additional pineapple farm in Costa Rica, adjoining our existing farm there. The integration of these two farms is largely complete and the Group now produces in excess of 50% of all the pineapples it markets. Fyffes also completed the purchase of the final 20% of the Sol melon business in the US and now owns it outright. Fyffes success over many years has been driven by the talent and skill of our people across the Group. I wish to thank them for their continuing commitment to the business and for delivering the highest standards of service to our customers, which is fundamental to the performance of the Company. David McCann Chairman 10 March Fyffes plc Annual Report

13 Directors and Secretary D V McCann (55) Chairman David McCann joined the Group in 1986, having previously practised as a partner in a leading Dublin law firm. He became Managing Director in 1989 with responsibility for the Group s operations. He was appointed Chief Executive in 1995 and became Chairman in He is a member of the nomination committee. C Bos (58) Chief Operating Officer 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 Managing Director of the Group s Tropical Produce division in He was appointed to the Board on 1 January 2006 and to the position of Chief Operating Officer on 30 December T G Murphy (53) Finance Director, B Comm, FCA Tom Murphy joined the Group in He has held a number of senior accounting positions in Fyffes and was appointed to the position of deputy Managing Director and Finance Director of the Group s Tropical Produce division in He was appointed to the Board as Finance Director on 2 January R B Johnston (49) Non Executive, BA, MA, MBA, ICD.D Robert Johnston was appointed to the Board in. He is Chief Strategy Officer with The InterTech Group, Inc. in South Carolina, USA which manages a diverse group of businesses, including a number of strategic investments in various public companies. He is a director and former director of several businesses, including a number of listed companies in the US and Canada. J D McCourt (67) Non Executive, BL, MA, MBA Declan McCourt was appointed to the Board in 2003 and is a member of the audit, compensation and nomination committees. He is Chief Executive of automobile distributor, the OHM Group. He is a director of Balmoral International Land Holdings plc, Chairman of the Mater Hospital Foundation and UCD Law Development Council and a director of a number of other companies. He is a former director of the Bank of Ireland and Dublin Docklands Development Authority. J M O Dwyer (67) Non Executive, LLB James O Dwyer was appointed to the Board in 2007 and is a member of the audit and compensation committees. He is a former Chairman of Arthur Cox, the leading Dublin based law firm. He is also admitted to practice at the New York State Bar. He is Chairman of Rohan Group and a director of Stafford Holdings Limited. He is a former director of Goldman Sachs Bank (Europe) plc and Jefferson Smurfit Group plc. J R O Hara (63) Non Executive Jim O Hara was appointed to the Board in. He is a former Vice President of Intel Corporation and General Manager of Intel Ireland. He is a director of Allied Irish Banks plc, EBS and Enterprise Ireland and Chairman of a number of start-up companies. S P Keenan (48) Company Secretary, B Comm, FCA Seamus Keenan joined Fyffes in 1995 from KPMG. He has held a number of senior financial positions in the Group including Group Financial Controller and Investor Relations Manager. He was appointed Company Secretary in Fyffes plc Annual Report 11

14 Operating and Financial Review Summary Income Statement M M Restated Total revenue 1, ,017.8 Group revenue Adjusted EBITA* - Tropical Produce activities - parent and subsidiaries share of joint ventures Total adjusted EBITA Net interest expense including share of joint ventures (1.6) (1.3) Adjusted profit before tax** - Tropical Produce Activities Share of Balmoral s result - - Amortisation charge (1.3) (2.2) Share of joint ventures tax charge (1.1) (0.9) Profit before tax per income statement Tax charge (excl share of joint ventures) (2.5) (2.2) Non-controlling interest charge (0.5) (0.1) Profit attributable to equity shareholders Adjusted fully diluted EPS cent*** * Adjusted EBITA is operating profit before intangibles amortisation, interest and tax, including the equivalent share of joint ventures operating profits (and excluding the Group s 40% share of the result of Balmoral International Land Holdings plc ( Balmoral ) in earlier years). ** Adjusted profit before tax excludes amortisation charges and the Group s share of its joint ventures tax charge (and in previous years the Group s share of Balmoral s result). *** Adjusted EPS excludes amortisation charges (and the Group s share of Balmoral s result in earlier years.) Prior year adjustment As explained more fully in note 25 of the financial statements, certain revisions to the accounting standard on pensions became effective for the first time in. These revisions have been applied retrospectively, resulting in the restatement of the Group s figures, although there was no impact on the previously reported net pension deficit. The pension charge in the Income Statement for increased by 1m, with an equivalent reduction in the actuarial loss recognised in the Statement of Comprehensive Income. The related deferred tax credit in the Income Statement in increased by 0.2m, with a corresponding reduction in the deferred tax credit recognised in through the Statement of Comprehensive Income. 12 Fyffes plc Annual Report

15 Operating and Financial Review (continued) Revenue Total revenue, including the Group s share of its joint ventures, increased by 64 million (+6.3%) in, to 1.1 billion. Group revenue, excluding Fyffes share of its joint ventures, amounted to 836 million in the year, an increase of 6.6%. The increase in turnover in the year has been driven by further organic growth in the Group s banana and melon categories, combined with price inflation in the banana and pineapple categories, reflecting higher input costs. Operating profit Fyffes reports separately the results of its tropical produce operations and its 40% share of the results of Balmoral, which it demerged in The Group s key performance measure for its tropical produce business is Adjusted EBITA (which is defined above). Fyffes tropical produce business produces, sources and distributes three product categories bananas, pineapples and melons. due to the ongoing work to integrate the farm acquired during the first half of the year which adjoins the Group s existing pineapple operations in Costa Rica. In addition, as in the banana category, exchange rates had a negative impact on performance in the year. However, market conditions were generally more positive throughout the year due to improved stability in supply volumes. The Group s own farms accounted for 56% of Fyffes total pineapple volumes in the year. Fyffes US melon business delivered a satisfactory result in. Favourable weather in the production regions during the key import season, in the first half of the year, resulted in improved yields and lower production costs. This also contributed to a significant increase in import volumes, consolidating the Group s position in this category in the US. Average selling prices were down on the very strong prices achieved in the previous year, mainly due to the increase in total import volumes. Building on the very strong increase in operating profits achieved in, Fyffes increased its Adjusted EBITA by a further 2.1 million (+6.9%) in to 32.7 million. As explained above, the prior year result has been restated on a comparable basis to, to reflect the impact of the change in the accounting standard on pensions. Adjusted EBIT amounted to 31.3 million, up 10.6% year on year, reflecting a further reduction in amortisation charges in the year. The key drivers of performance in the Group s tropical produce operations are average selling prices, exchange rates and the costs of fruit, shipping and fuel, all of which can result in variability in year on year profitability. Fyffes achieved a broadly satisfactory performance in the banana category in, with profits slightly down on the very strong result in the previous year. The industry experienced further significant inflation in the cost of fruit during, continuing a multi-year pattern. There was also an unfavourable movement in exchange rates year on year, due to the strength of the US Dollar particularly relative to Sterling. The impact of these adverse factors was partly offset by lower logistics costs, as a result of the reduction in fuel costs and further shipping efficiencies. In addition, Fyffes achieved further successful organic growth in the banana category in, with new and existing customers. Market conditions were broadly positive during, with slightly higher average selling prices driven by the increase in fruit costs and adverse exchange rates. Balmoral, in which the Group has a 40% shareholding, reported its final results for in August. These showed a further reduction in its net assets, with the Group s share amounting to 0.4 million. Fyffes wrote down its investment in Balmoral to 50,000 in As a result, Fyffes does not recognise any further share of Balmoral s losses while the Group s share of its net assets exceeds this 50,000 carrying value. Balmoral has not yet reported its results for. The total operating profit for the Group, which is the Adjusted EBITA less amortisation charges and the Group s share of joint ventures interest and tax, amounted to 30 million for the year, 9.9% up on the restated result in the previous year. Financial expense Net financial expense in the Group s subsidiary companies in amounted to 1.3 million, compared to 1.2 million in the previous year. Excluding non-cash interest costs of 0.8 million (: 0.7 million) relating to the discounting of deferred acquisition consideration and other provisions, cash interest expense amounted to 0.5 million, unchanged on the previous year. The Group s share of the net financial expense of its joint ventures was 0.3 million in, compared to 0.1 million in the previous year. The Group delivered an improved result in the pineapple category in. Production costs were higher year on year Fyffes plc Annual Report 13

16 Operating and Financial Review (continued) Profit before tax Adjusted profit before tax for amounted to 31.1 million, 6.3% up on the restated result for the previous year, similar to the increase in EBITA. Adjusted profit before tax excludes the amortisation of intangible assets and the Group s share of the tax charge of its joint ventures, which is reflected in profit before tax under IFRS rules, and, in previous years, the Group s share of Balmoral s result. Profit before tax, excluding these adjustments, amounted to 28.7 million compared to 26.1 million (restated) in, an increase of 9.8%, reflecting a reduction in amortisation charges. Taxation M M Restated Tax charge per income statement Group share of tax charge of joint ventures netted in profit before tax Total tax charge Adjustments Deferred tax on amortisation of intangibles (including share of joint ventures) Tax charge on underlying activities The analysis of the tax charge for the year set out above shows the calculation of the underlying tax charge in of 4 million compared to 3.7m (restated) in the previous year, equivalent to a rate of 12.9% (: 12.6%), when applied to the Group s adjusted profit before tax. The underlying tax charge excludes deferred tax credits related to the amortisation of intangible assets and includes the Group s share of tax of its joint ventures. This underlying rate is used for the purposes of calculating adjusted earnings per share. The Income Statement shows a tax charge of 2.5 million before these adjustments, compared to 2.2 million (restated) in the previous year. Non-controlling interests The non-controlling interests share of profit after tax for the year amounted to 0.5 million in, compared to 0.1 million in the previous year. Earnings per share The calculation of adjusted diluted earnings per share, (which excludes amortisation of intangible assets is set out below. The Group s adjusted diluted earnings per share in amounted to 8.82 cent, up 3.2% on the 8.55 cent restated result in the previous year. This increase reflects the 6.3% increase in adjusted profit before tax less the impact of the higher tax and non-controlling interests charges and a higher number of shares due to the diluting effect of share options as a result of the increase in the Group s share price. The diluted earnings per share after amortisation charges amounted to 8.51 cent in, up 6.4% on the restated result for the previous year. Calculation of Adjusted EPS M M Restated Adjusted profit before tax Underlying tax charge (4.0) (3.7) Non-controlling interests (0.5) (0.1) Earnings for calculation of adjusted EPS Weighted average no. of shares (diluted) (M) Adjusted EPS cent Fyffes plc Annual Report

17 Operating and Financial Review (continued) Summary Balance Sheet M M Intangible assets Property, plant and equipment Investment in joint ventures Investment in Balmoral International Land Holdings plc Working capital/hedging instruments Taxation (10.1) (12.6) Provisions (5.6) (16.8) Pension deficit - net of deferred tax (22.8) (23.0) Net funds Net assets Shareholders equity Non-controlling interests Net assets Dividend and share buyback The Board is proposing to pay a final dividend for of 1.49 cent per share, up 4.9% on the previous year. Subject to shareholder approval at the forthcoming Annual General Meeting ( AGM ), this dividend, which will be subject to Irish withholding tax rules, will be paid on 16 May 2014 to shareholders on the register on 11 April In accordance with company law and IFRS, this dividend has not been provided for in the balance sheet at 31 December. Total dividends in respect of will amount to 2.17 cent, 4.8% up on the previous year and equivalent to a payout ratio of c. 25% based on adjusted earnings per share. Fyffes will seek to renew its authority from shareholders to repurchase shares at its 2014 AGM. Subject to this authority and taking into account the Group s financial position and other investment opportunities, the Company may from time to time repurchase further Fyffes plc shares in the market. Fyffes plc Annual Report 15

18 Operating and Financial Review (continued) Shareholders equity Shareholders equity at 31 December amounted to million compared to million at the start of the year. The following table summarises the changes during the year: Movement in shareholders equity M M Restated At beginning of year Profit after tax and non-controlling interests Dividends paid (6.2) (5.9) Pension scheme actuarial loss net of deferred tax (0.1) (7.2) Share of actuarial losses in joint ventures net of deferred tax (0.3) (0.3) Translation of non-euro denominated net assets (5.5) (2.8) Movement in hedging reserves net of deferred tax (1.8) (8.7) Share based payments and share options exercised At end of year Retained profits of 25.6 million in the year were partly offset by balance sheet translation losses of 5.5 million on non-euro denominated net assets in overseas subsidiaries and joint ventures, losses of 1.8 million on the marking to market of currency hedging instruments and dividend payments of 6.2 million. Investment in Balmoral International Land Holdings plc ( Balmoral ) In accordance with International Financial Reporting Standards, Fyffes 40% investment in Balmoral continues to be accounted for under equity accounting rules. Fyffes wrote down the carrying value of its investment to 50,000 in 2011 and there has been no change in this position since then. Balmoral continues to be actively managed and, given its extensive and well diversified portfolio of properties in Ireland, the UK and Continental Europe, remains in a position to benefit from any improvement in property market conditions. Provisions Total provisions in the balance sheet at 31 December amounted to 5.6 million, compared to 16.8 million at the previous year end, as analysed in the following table. The reduction in deferred consideration liabilities in mainly reflects payments of 9.6 million during the year, including the purchase the final 20% of the Sol melon business, less a 0.9 million upward revision of the estimated amount payable under the related purchase agreement to reflect its improved performance. The reduction in the MNOPF legal provision in reflects accelerated payments of 4.8 million to reduce the interest costs of the deferred payment arrangements, less a 1.6 million increase in the liability in the year as a result of the latest triennial valuation of the scheme. M M Deferred consideration on acquisitions MNOPF legal obligation Total provisions Fyffes plc Annual Report

19 Operating and Financial Review (continued) Defined benefit pension schemes The deficit in the Group s defined benefit pension schemes, before deferred tax, reduced from 29.6 million at the beginning of the year to 28.2 million at the end of the year. Asset values in the various schemes increased by 6.6 million in, while liabilities increased by 5.2 million with the positive impact of lower bond rates and lower inflation offset by higher assumed longevity. Movement in defined benefit pension obligations M M Restated Deficit at beginning of year (29.6) (21.7) Pension expense recognised in income statement (3.2) (2.8) Actuarial gain/(loss) recognised in statement of comprehensive income 0.9 (8.5) Employer contributions to schemes Exchange movement 0.5 (0.3) Deficit at end of year (28.2) (29.6) Related deferred tax asset Net deficit after deferred tax (22.8) (23.0) Fyffes plc Annual Report 17

20 Operating and Financial Review (continued) Summary Cash Flow Statement M M Restated Inflows Adjusted EBITA Depreciation Impairment of property, plant & equipment and goodwill Share of joint ventures EBITA (2.9) (2.0) Dividend payments by joint venture Total inflows Investment and other expenditure Capital expenditure, incl leased assets (net of disposal proceeds) (19.4) (8.8) Deferred acquisition consideration (9.6) (1.0) Tax paid (4.8) (2.5) Dividends paid to shareholders (6.2) (5.9) Pension and MNOPF payments (in excess of income statement charges) (3.2) (2.0) Investment in joint ventures (0.9) - Working capital (1.0) (12.1) Other (0.3) 0.5 Total investment and other expenditure (45.4) (31.8) Net (outflows)/inflows (8.1) 9.5 Translation of non-euro denominated funds (0.1) 0.3 Net funds/(debt) at beginning of year 8.6 (1.2) Net funds at end of year Movement in net funds Fyffes net funds amounted to 0.4 million at 31 December, compared to 8.6 million at the beginning of the year. The Group generated strong cash flows from its operations in, with operating cash flows in the year, before depreciation and amortisation charges and excluding the contribution from joint ventures, amounting to 37.3 million. Total investment in property, plant and equipment in the year amounted to 19.8 million, including the purchase of a pineapple farm in Costa Rica adjoining the Group s existing farm. Dividend and tax payments amounted to 6.2 million and 4.8 million respectively in. As noted above, the Group paid 9.6 million in deferred consideration during the year and made accelerated payments of 4.8 million in respect of its MNOPF liabilities. 18 Fyffes plc Annual Report

21 Operating and Financial Review (continued) EU Competition investigation In 2008, the European Commission published its Decision following the conclusion of its investigation into the supply of bananas in the Northern European region of the EEA. No adverse findings were made against Fyffes and no fine imposed on it. Fyffes was very pleased with this outcome as regards its activities. At the same time, the European Commission found the Group s German joint venture, Internationale Fruchtimport Gesellschaft Weichert GmbH & Co KG ( Weichert ) and Fresh Del Monte Produce Inc ( Del Monte ) jointly and severally liable for a fine of 14.7 million for breaches of Article 81 of the Treaty of Rome and Article 53 of the European Economic Area (EEA) Agreement relating to the supply of bananas to the Northern European region of the EEA, in the period 1 January 2000 to 31 December Fyffes acquired its 80% interest in Weichert from Del Monte on 1 January The Commission found that Weichert was controlled by Del Monte throughout the period covered by the Decision. Proceedings in relation to this matter are continuing. Weichert continues to assert that it did not breach EU Competition regulations. Based on legal advice, Weichert provided for a net exceptional charge of 3.7 million in its 2008 accounts in this regard. While Fyffes has no liability in this matter, the Group s Income Statement in 2008 reflected Fyffes 80% share of the net exceptional charge recognised in Weichert s accounts, amounting to 2.9 million, on a prudent basis. Business and Financial Risks and Financial Instruments Key operational risks The principal risks and uncertainties the Group faces on an ongoing basis relate to the factors outlined above and include, in particular, the challenge of passing on inflationary increases in supply chain costs to the Group s customers, particularly the retail sector. 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. Fyffes operates in a highly competitive industry and consequently the actions of competitors can also influence the performance of the Group. Fyffes has always pursued a strategy of growth by acquisition and future growth will remain dependant on the Group s ability to continue to successfully complete such transactions, in addition to organic growth. Fyffes is also dependent on the continuing commitment of its senior management. Risks of operating internationally The Group s operations are in part dependent upon activities and investments in jurisdictions outside of the EU. Although Fyffes aims to co-operate with and invest only in countries that are politically stable, these operations and investments are subject to risks that are inherent in operating in certain foreign countries, including: political changes and economic crises which may lead to significant changes in the business environment; and economic downturns, political instability, war or civil disturbances which may disrupt individual markets. In addition, the Group operates some of its businesses through joint ventures in which its rights to control business decisions is limited. Key business drivers The key drivers of short term performance in Fyffes tropical produce operations are: selling prices; cost of fruit; shipping and fuel costs; exchange rates; and EU banana import duty. These variables, together with operating costs and efficiencies and volume changes, are the key factors impacting the Group s annual results, including its EBITA, which as noted earlier, is the key performance measure for Fyffes tropical produce operations. Given the significance of these factors, the Group s short term performance can be difficult to predict and potentially volatile. Transportation risks An extended interruption in Fyffes ability to ship or distribute its products could have an adverse effect on the Group s performance. While Fyffes believes it is adequately insured and would attempt to transport its products by alternative means if there was an interruption due to strike, natural disasters or otherwise, the Group cannot be sure that it would be able to do so or be successful in doing so in a timely and cost-effective manner. Shipping and fuel are among the principal costs of the Group. When these costs increase, the Group may not be able to pass on the full impact of these higher costs to customers or there may be a time lag in doing so. Fyffes plc Annual Report 19

22 Operating and Financial Review (continued) Production and quality risks Adverse weather and other unfavourable conditions for tropical produce production can adversely affect crop size and quality. In extreme circumstances, entire harvests may be lost in specific geographic areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings which, from time to time, may have an adverse effect on the Group s business. Similarly, serious quality issues and in particular deliberate or accidental contamination could have a significant impact on revenue. 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, from time to time, foreign currency options. The Group s balance sheet is also exposed to currency fluctuations relating to its net investment in its overseas non-euro denominated operations. Depending on the scale of the transaction, Fyffes may finance its overseas investments through foreign currency borrowings to hedge this exposure. Post acquisition, these overseas businesses generally fund their operations locally. Earnings sensitivity to market conditions Fyffes earnings are significantly dependent on the selling prices obtained for tropical produce, which competes directly in any given market with other imported fresh produce and with local production when in season. Pricing is largely determined by market supply of and demand for tropical produce and competing fresh produce. Market demand is a function of population size, per capita consumption, the availability and quality of tropical produce, the availability, quality and price of locally produced or imported competing products and climatic and other general conditions in the marketplace. The global and individual country markets can from time to time be over-supplied. Excess supplies of tropical produce or competing fresh produce could lead to reduced selling prices for tropical produce and could have an adverse effect on Fyffes performance. 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. It is the policy of the Board to manage these risks in a non-speculative manner. Foreign exchange risk Fyffes primary input costs are fruit, shipping and fuel. These costs are routinely denominated in US Dollars while most sales, other than in the Group s US melon business, are made in euro and Sterling. Although Fyffes may engage in foreign currency hedging transactions from time to time, there can be no assurance that those hedging transactions will be sufficient to protect against adverse exchange rate fluctuations; meaning that profits may be affected by fluctuations in exchange rates. A strengthening of the US Dollar against the euro and Sterling could have an adverse effect on the Group s performance. These currency risks are monitored by 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 or state guaranteed institutions, with limits on amounts held with individual banks at any one time. It is also the policy of the Group to have adequate 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 on 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. Financial instruments Fyffes finances its operations through a combination of retained profits, its own net cash resources and bank debt. The financial instruments that arise from this activity comprise bank deposits, bank loans and potentially, from time to time, certain financial assets such as government securities, commercial paper and other trade investments. Other financial instruments such as trade receivables and trade payables arise directly from operations. In addition, as noted above, the Group enters into hedging instruments with a view to managing currency risk and, to a lesser extent, the interest rate risk arising from its operations. The disclosures required under IFRS 7 and IAS 39 in relation to these financial instruments and the above risks are set out in Note 28 to the financial statements on pages 100 to Fyffes plc Annual Report

23 Sustainability and Responsibility Fyffes has a responsible attitude towards the environment, its growers, its customers and the consumer, and is proud of its corporate social responsibility and sustainability profiles. 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. Whether conventional, organic or Fairtrade, all Fyffes fruit is produced to the highest quality and ethical standards, and listed below are some of the tools that it uses to help achieve this. Food safety Social Global GAP accreditation Fyffes is a founder member of Global GAP, 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. Fyffes Global GAP certification has been continually renewed for 12 years. Environment Through its support of programmes such as Global GAP, the Ethical Trading Initiative and the Carbon Trust Standard, Fyffes seeks to minimise the impact of its activities upon the environment, particularly in our source countries. As one of the largest importers of organic products into Europe, Fyffes supports sustainable agricultural practices in producing countries. Carbon Trust Standard In 2010, Fyffes became the first UK banana importer and distributor to be awarded the Carbon Trust Standard. Fyffes continuing efforts and achievement in measuring, managing and reducing its carbon emissions were rewarded with the renewal of its Carbon Trust Standard in Fyffes has also achieved Carbon Trust Waste Standard certification for its UK operations. Ethical Trading Initiative Fyffes is a member of the UK government sponsored Ethical Trading Initiative (ETI), an alliance of companies, nongovernmental organisations and labour representative bodies working in partnership to improve the lives of workers across the globe who make or grow consumer goods. The ETI Base Code is incorporated into the Fyffes Codes of Best Practice with which all Fyffes direct banana and pineapple suppliers must comply. On the basis of its Annual Report to ETI, Fyffes was awarded Achiever status in recognition of its work in the social / ethical field. Fairtrade Fyffes is the largest supplier of Fairtrade bananas in Europe. Products that carry the FAIRTRADE Mark are independently certified against internationally agreed standards defined by the Fairtrade Labelling Organisations International (FLO). These standards cover a range of social and environmental criteria including trading standards to ensure that the producer organisation receive an agreed, stable price, plus additional premiums to invest in improving the quality of life in their communities. World Banana Forum Fyffes is a member of the World Banana Forum (WBF), established under the auspices of the UN Food and Agriculture Organisation as a permanent space of assembly for participants representing the global banana supply chain to promote open dialogue on challenges facing the global banana industry. The mission of the WBF is to inspire collaboration between stakeholders that produces pragmatic outcomes for the betterment of the banana industry and to achieve an industry wide consensus on best practices regarding workplace issues, gender equality, environmental impact, sustainable production and economic issues. Fyffes is an active member of the Steering Group and the Working Group on Sustainable Banana Production and Environmental Impact. Fyffes plc Annual Report 21

24 Sustainability and Responsibility (continued) Community Longstanding trading relationships with growers have encouraged partnerships in community development programmes and sponsorships. Fyffes prefers to work with people in the countries from which its fruit is sourced in order to maximise the benefit, evaluating the success of our participation in terms of observable results rather than potential media coverage. Fyffes also works with UNICEF Ireland, supporting its 100%: Let s Vaccinate Every Child campaign. This is a polio vaccination programme which has the goal of immunising c.1 million children, aged 5 years and under. Polio is a devastating and potentially fatal infectious disease which predominantly effects young children. UNICEF aims to eradicate polio by 2018 and Fyffes is proud to support them in this mission. Through all of the above, and other social responsibility measures, Fyffes aims to provide the finest quality produce, produced under the safest working conditions, following fair 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. 22 Fyffes plc Annual Report

25 Financial Statements Page Directors and Other Information 24 Directors Report 25 Corporate Governance Report 28 Audit Committee Report 34 Compensation Committee Report 37 Statement of Directors Responsibilities 43 Independent Auditor s Report 44 Group Income Statement 45 Group Statement of Comprehensive Income 46 Group Statement of Movement in Equity 47 Group Balance Sheet 48 Group Cash Flow Statement 49 Significant Accounting Policies 51 Notes to Group Financial Statements 62 Company Balance Sheet 109 Company Statement of Movement in Equity 110 Company Cash Flow Statement 111 Notes to Company Financial Statements 112 Significant Subsidiaries, Joint Ventures and Associates 116 Notice of Annual General Meeting 118

26 Directors and Other Information Fyffes plc David McCann, Executive Chairman Coen Bos (Dutch) Declan McCourt Tom Murphy James O Dwyer Jim O Hara (co-opted 6 March ) Robert Johnston (USA) (co-opted 23 July ) Solicitors Arthur Cox Arthur Cox Building Earlsfort Terrace Dublin 2 S J Berwin LLP 10 Queen Street Place London EC4R 1BE Secretary and Registered Office Seamus Keenan 29 North Anne Street Dublin 7 Holland & Knight LLP 701 Brickell Avenue Suite 3300 Miami, FL USA Auditor KPMG Chartered Accountants 1 Stokes Place St Stephen s Green Dublin 2 Registrars Computershare Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Principal Bankers Rabobank Ireland plc Charlemont Place Dublin 2 Allied Irish Banks plc Bankcentre Ballsbridge Dublin 4 Barclays Bank plc Pall Mall London SW1Y 5AX Stockbrokers and Nominated Advisor Davy 49 Dawson Street Dublin 2 24 Fyffes plc Annual Report

27 Directors Report The directors present their report to the shareholders, together with the audited financial statements, for the financial year ended 31 December. Principal activities and business review Fyffes plc is a publicly quoted company incorporated in Ireland. Fyffes is one of the largest marketers and distributors of tropical produce globally and the biggest in Europe. The Group also has an investment in Balmoral International Land Holdings plc, an international property company. A detailed business review is included in the Operating and Financial Review on pages 12 to 20. The Operating and Financial Review also includes details of the key business and financial risks faced by the Group and an analysis of the key performance indicators, including adjusted earnings before interest, tax and amortisation (Adjusted EBITA) and key short-term variables such as selling prices, costs and exchange rates. Profit Details of the profit for the year are set out in the income statement on page 45. Dividends An interim dividend in respect of of 0.68 cent (: 0.65 cent) per share was paid on 16 October. The directors have proposed, subject to shareholder approval at the Annual General Meeting ( AGM ), the payment of a final dividend for of 1.49 cent (: 1.42 cent) per share. Future developments A review of future developments of the business is included within the Chairman s Statement on page 10 and the Operating and Financial Review on pages 12 to 20. Directors and secretary In accordance with the Articles of Association of the Company and the Group s corporate governance practice, J M O Dwyer, J D McCourt and D V McCann retire from the Board and, being eligible, offer themselves for re-election. Details of the terms of the service contract of C Bos are set out in the compensation committee report on pages 37 to 42. No other director has a service contract with any Group company. 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 37 to 42. Substantial holdings The directors have been notified of the following significant interests in the issued ordinary share capital of the Company: Number of Ordinary Shares Percentage The Article 6 Marital Trust created under the First Amended and Restated Jerry Zucker Revocable Trust 39,034, % Balkan Investment Company and related companies 37,238, % Fidelity International 31,200, % Farringdon Capital Management 14,283, % Sparinvest SA 14,252, % Arnsberg Investment Company, which is a related party of Balkan Investment Company, owns 7.4% of the issued share capital of the Company which is included in the total for Balkan Investment Company above. The Board has not been notified of any other holdings of 3% or more of the issued ordinary share capital of the Company. Fyffes plc Annual Report 25

28 Directors Report (continued) 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 other than the employment contract of C Bos as explained on page 38. Treasury shares At 31 December, the total number of treasury shares held amounted to 28,075,000 (: 28,075,000) ordinary 0.06 shares at a cost of 17,369,000 (: 17,369,000). These shares represent 8.6% of the ordinary shares in issue at 31 December (: 8.6%). The rights to dividends on these shares have been waived and they are excluded from the calculation of adjusted earnings per share 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 29 North Anne Street, Dublin 7, Ireland. Political donations During the year, the Group and Company did not make any donations disclosable in accordance with The Electoral Acts, Auditor In accordance with Section 160(2) of the Companies Act, 1963, the auditor, KPMG, Chartered Accountants, has expressed willingness to continue in office. A resolution will be proposed at the AGM for the re-appointment of KPMG, Chartered Accountants, as auditor of the Company. Going concern The Group has considerable financial resources available to it, including undrawn committed bank facilities. As a consequence, the directors believe that Fyffes is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. Subsidiaries, joint ventures and associates Information on the Group s significant subsidiaries, joint ventures and associates is included on pages 116 and 117. Annual General Meeting ( AGM ) Your attention is drawn to the Notice of the AGM of AIM and ESM listed Fyffes plc which will be held at The Clyde Court Hotel, Ballsbridge, Dublin 4, on 14 May 2014 at 11.00am which is set out on pages 118 to 120 of this document. In addition to the usual business to be transacted at the AGM (as set out in resolutions 1 to 4 in the notice of the meeting) there are four items of special business proposed for the meeting. The four items of special business (i.e. Resolutions 5, 6, 7 and 8) all relate to the share capital of the Company and concern matters which are now routine for most public companies. Under the first item of special business (Resolution 5), shareholders are being asked to renew the authority of the directors to allot new shares. This authority will be limited to the allotment of up to an aggregate amount of 6,449,549 in nominal value of ordinary shares (being 33% of the nominal value of the Company s issued share capital as at 24 March 2014). If adopted, this authority will expire on the earlier of the close of business on 14 August 2015 or the date of the AGM of the Company in Fyffes plc Annual Report