Fyffes looks for expansion after 15% profit rise

Fruit importer and distributor Fyffes will continue to seek focused acquisitions and alliances this year following a 15 per cent rise in pre-tax profits to £62.1 million (#78.9 million) for the year to October 31st 1998. Good demand, stronger prices for fresh produce, cost control and an increase in net interest earnings boosted profits. The group is forecasting strong turnover growth this year following its strategic alliance with the South African fruit company, Capespan. The acquisition involving a maximum total investment of £41 million (#52 million) will be earnings enhancing as soon as it is completed. Regulatory approvals in the EU and South Africa are expected to take about two months.

Preliminary results announced yesterday showed a 2.8 per cent increase in turnover to £1,501 million (#1,906 million) for the 12 months to end October 1998. Vice-chairman and finance director Mr Carl McCann explained that total sales growth last year was reduced by a number of small disposals and the termination of some wholesale market operations. But founder director Mr Neil McCann stressed that last year's sales were better quality than previously.

At £60.7 million (#77.1 million) operating profits were 12 per cent stronger reflecting better market conditions during the year, the flow of benefits from previous acquisitions and a focus on achieving cost savings. Operating margins increased to 4.04 per cent from 3.71 per cent. Pre-tax margins improved to 4.14 per cent from 3.7 per cent reflecting a 26 per cent rise to £4.5 million (#5.7 million) in net interest income. The rise in net interest income came from higher net cash balances throughout the period - and higher sterling interest rates.

A lower effective tax rate - at 22.9 per cent from 23.6 per cent - meant a 20 per cent rise in earnings per share (fully diluted) to 12.17p (15.45 cents). Shareholders are to get a 25 per cent increase in their final dividend to 2.1361p per share (2.7123 cents). Shareholders will not be offered a scrip dividends option because of the change in tax legislation.

The group generated a strong cash flow from operations, up to £58.9 million (#74.8 million) from £50.4 million (#64 million). Capital expenditure during the year was £28.3 million (#35.9 million) to upgrade facilities and to add to the transport fleet while £89.1 million (#113.1 million) was spent on or committed to acquisitions, including the Capespan deal.

At October 31st 1998 Fyffes had net cash balances of £91.9 million (#116.6 million), up from £89 million (#113 million) and putting the group is a strong position to make further acquisitions in its target European market. Mr Neil McCann said the "first rate performance" reflected "continued good demand for healthy fresh produce and consistent close management of our cost structures".

This year Fyffes will spend about £2 million (#2.5 million) to ensure its systems are EMU and Year 2000 compatible.

On the EU amendments to the banana regime which came into effect on January 1st and which are expected to be examined soon by the World Trade Organisation, Fyffes expects the continuation of a system of support for EU and ACP producers. It expects the system will continue to include tariff preferences and quota restrictions on imports of bananas from other sources. Fyffes said it was "well positioned to deal with further developments in this matter and does not anticipate any adverse implications for itself or its suppliers".

(# signifies the euro)