A strong recovery in fruit prices in the second half of the year was the main reason behind an unexpected jump in profits for fruit distribution group Fyffes. Analysts had been expecting Fyffes to report a profits standstill, but the group instead has reported a 11.5 per cent increase in profits to £54 million with earnings per share up 20 per cent to 10.51p.
The surprise jump in profits was greeted warmly by the market and although Fyffes shares rose just 1p to 119p, dealers said that the rise in the share price would have been more substantial were it not for the 2 per cent fall by the Irish market. At its closing level, Fyffes shares are up over 13 per cent on the end of 1997.
Turnover was up just over 2 per cent to £1.46 billion, but the 1997 figures include no contribution from the loss-making American operations, which contributed sales of £31.8 million and losses of £1 million in 1996, and were closed down last year. Operating profits were up almost 8 per cent to £54.2 million and would have been substantially higher were it not for the inclusion of an exceptional £3.3 million charge against restructuring and redundancy costs.
Earnings per share were 20 per cent higher at 10.51p and were well ahead of forecasts. The improvement in earnings were due to the improved operating performance and the reduction in the minority interests from £9.2 million to £6 million after the acquisition of the outstanding 50 per cent stakes in Villeman & Tas in Holland and Sunpak Mayfield in Ireland.
Fyffes shareholders are also getting an unexpected surprise, with a 30 per cent increase in the final dividend to 1.7089p, bringing the combined dividend for the year to 2.2805p. Analysts had been expecting a total dividend of just 2p. Fyffes' deputy chairman Mr Carl McCann said that the increase in the dividend was aimed at compensating shareholders of the Budget changes on dividend tax credits and also the positive impact of the Budget changes on ACT on the group.
Fyffes' cash pile at the end of October, 1997, its financial year, jumped 26 per cent to £89 million, despite the £26 million spent on acquisitions and £14.5 million capital expenditure. Debt at Geest - half-owned by Fyffes - fell from £93.6 million to £78.9 million, although Fyffes's share of this debt is not consolidated into its own accounts.
Fyffes' shareholders funds rose from £156.9 million to £177.3 million, but would have been closer to £240 million had Fyffes not decided to write £45 million off in good will associated with Fyffes and also the Velleman & Tas goodwill against its reserves. Analysts said that about £2 million of this change in good will is reflected in the increase in pre-tax profits, as Geest had previously written off goodwill against profits over 20 years.
There had been some speculation that the Fyffes' results might have been accompanied by a share buyback, but this is now unlikely. Mr McCann said: "A buyback is not so compelling now, it might be EPSpositive, but acquisitions will add a lot more to earnings. If we buy a business at six or seven times operating profits, it would be hard to come close to that by buying back shares."
