Asset disposals help Fyffes' half-year profits surge 34%

Fruit distribution group Fyffes' exposure to the buoyant European market and once-off profits on the sale of assets has allowed the group to notch up a 34 per cent increase in pre-tax profits to €39.6 million (£31.2 million).

Shareholders are being rewarded for the good performance with a 20 per cent increase in the half-year dividend to 1.0451 cents per share.

Even stripping out the €7 million (£5.5 million) profit on the sales of its stake in United Beverages and two properties, Fyffes was still able to boost its core pretax profits from €29.6 million (£23.3 million) to €32.6 million (£25.7 million), a performance that contrasts sharply with the recent gloomy statements from Fyffes' main American rivals, Dole, Chiquita and Del Monte.

All three American groups warned of lower-than-expected second-quarter earnings, hit by excess banana supplies in the United States, weak demand in Eastern Europe and Russia, and the US/ European Union trade row over banana import regulations.

Fyffes, where bananas account for one third of annual sales, sounded a cautious note on the outcome of the EU's deliberations, but said it expected a regime would continue to exist that provides viable market access for EU firms.

While Fyffes chairman Mr Neil McCann also cautioned that its second half has begun "with market conditions somewhat below expectations...trading patterns are expected to improve and to deliver satisfactory results over the full financial year".

Turnover for the period was up slightly to €931.5 million (£733.6 million), but margins improved significantly with operating profits up 8.3 per cent to €32.4 million (£25.5 million). Of the total operating profits, €25.9 million (£20.4 million) came from the core business, with €6.5 million (£5.1 million) coming from joint ventures, mainly the Geest joint venture.

Mr Joe Gill, analyst at ABNAMRO, said Fyffes is well placed to weather the banana storm. "The WTO issue is going to be resolved somewhere in the middle, which would suit Fyffes because they source from both dollar and ACP areas," he said.

The company is still looking at least 11-12 per cent underlying earnings growth over the full year and, given their valuation, the shares are still reasonable, Mr Gill said. He added that Fyffes' exceptional gains of almost €7 million on the sale of its 19 per cent stake in United Beverages Holdings Ltd and two property disposals would boost cash resources and support the buy-back pledge. Fyffes bought back more than 42 million shares in the first half, at an average cost of €2.29 each, bringing to 7.13 million the number of shares bought back since last September. This has cost Fyffes a total of €13 million (£10.2 million) or an average of €1.82 each. "It is intended to continue this share buy-back programme when such action is deemed appropriate," said Mr McCann.

Given that Fyffes has bought back shares at higher prices than the level in the market, further buy-backs are seen as likely in the short term.

Mr McCann said Fyffes' cash position remained strong and that it would continue to look for major development opportunities to significantly expand its business. It gave no further details on any potential candidates, but analysts believe that opportunities for acquisitions will become available once the dispute over the EU banana regime is finally settled.