Internal fax predicted shortfall of €11.9m

An internal Fyffes document produced in March 2000 stated that it became clear on March 6th that the company would not match the first-half performance of the previous year.

The company has taken an action against DCC plc and Mr Jim Flavin, alleging that Mr Flavin was in possession of price-sensitive information when DCC sold Fyffes shares for €106 million on three dates in February 2000. The company issued a profit warning to the market on March 20th, 2000.

Yesterday, the court was told of a fax sent from Fyffes' offices in Dundalk to its offices in Dublin on March 23rd, 2000. The document, entitled "Report on Statements on 2000 Trading", was written by Fyffes' finance director, Mr Frank Gernon.

The report stated that at a board meeting on December 9th, 1999, he, Mr Gernon, had spoken from hand-written notes which predicted a shortfall of €11.9 million as against the previous year by the end of January (when Fyffes fiscal first quarter ended).

Mr David McCann, chief executive of Fyffes, said he had no recall of being given that figure at the board meeting and said there was no record of it in the minutes of the meeting, which did not refer to January in any way.

He said the company would have issued a profit warning on December 14th, if the outcome for the first quarter (to the end of January 2000) was expected to be as poor as set out in Mr Gernon's note. He denied that he was "rewriting history" for the purpose of the court hearing.

Mr McCann said that in December 1999 he was expecting banana prices to improve in January 2000. The note recorded that the accounts for November were sent to all directors on January 6th, 2000. They showed a shortfall of €4.1 million on the November 1998 figure. The document is one of two which Fyffes alleges constitute the price-sensitive information which was in Mr Flavin's possession.

The December 1999 accounts were issued in the week ending January 28th, 2000, according to the note. This is the second of the two allegedly price-sensitive documents. December resulted in a loss of €4 million compared to a profit of €4.4 million in December 1998.

The report also stated that "January 2000 current forecast is for a profit of €1.2 million compared to a budget of €5 million and €6.3 million last year."

A director, Mr John Ellis, was given permission by the company's then chairman, Mr Neil McCann, to deal in Fyffes shares on January 26th, 2000, according to the faxed note.

"During February, we believed that we would still come out with a reasonable figure to the end of April as evidenced by the comment in the board report circulated to directors for the February 28th meeting, showing a required profit of €15 million in March and €14 million in April," the note stated.

Mr Flavin resigned as a Fyffes director on February 9th, 2000, according to the note.

Mr McCann told Mr Kevin Feeney SC, for the defendants, that by February the company was relying on the outcome of two court cases it was taking at the time, to meet the previous year's half-year figure.

He agreed that if the court cases had "worked out", the company might not have issued a profit warning in March 2000.

However, he did not agree that the outcome of the cases was the cause of the profit warning. The cause was the outcome of trading in the first quarter. The outcome of the court cases affected the timing of the warning, he said.

Mr Gernon noted that during the week commencing March 6th, one of the cases was terminated at a cost of £2.5 million (€3.64 million) to Fyffes in legal costs. The result of the second case was not expected until after Easter.

A trading uplift in February had not continued into March. The reasons for the poor trading in March included "abnormal rains in South Africa and Mozambique". Mr McCann agreed that Mr Flavin could not have been aware in advance about the rains.

"At this point, it became clear that we would be considerably short of last year's profit figure excluding WorldofFruit costs and therefore a decision was made to make the profit statement at the a.g.m.," the note stated.

Mr Feeney said that, if the statement by Mr Gernon was correct, the information Mr Flavin had in early 2000 could not be price sensitive. Mr McCann said: "The information Mr Flavin had was clearly price sensitive."