Fyffes to spin off general produce business

Fyffes is to spin off a new listed business for the second time in a year, leaving the original firm with a tropical produce operation dominated by bananas, writes Una McCaffrey

The move, which was not expected by the market, is aimed at raising the value of both Fyffes and the new, as yet unnamed, company, which will concentrate on general produce.

The announcement came as Fyffes reported a halving in profits for the first six months of the year, the result driven mostly by higher costs associated with changes in the EU banana regime.

Fyffes argues that the existing valuation of the group as a whole is overly influenced by banana activities, which have been particularly difficult of late.

The company judges that its potential minimum sum-of-the-parts share price valuation is close to €2, between 40 and 60 cent above its trading level for the past few months.

It says the "story" in general produce would be rated much more highly if considered on a standalone basis.

The decision to split Fyffes into two parts follows the group's move to demerge its property assets into a separate listed company - Blackrock International Land - earlier this year.

The general produce division to be demerged is the larger of Fyffes' two businesses, with sales of about €2 billion compared to about €500 million within tropical produce.

The tropical produce business that Fyffes retains will, however, be highly capitalised, with €200 million in cash and other liquid assets including a 40 per cent stake in Blackrock.

Carl McCann, currently chairman of Fyffes plc, said this would leave it "very much able to play strongly in the arena of the big deal". He described the general produce division as a "stable, steady business".

He said the general produce firm, which will be listed on Dublin's IEX market, could probably spend up to €30 million on acquisitions each year and thus maintain a double-digit growth rate.

The underlying general produce operations are growing by about 4 per cent per year.

Mr McCann said the decision to demerge the general produce division had been prompted, in part, by the success of the Blackrock initiative, which he estimated had added 35 cent per share to shareholder value.

"So we started to have a look at what else we could do," he said.

Unlike the Blackrock situation, Fyffes will not retain a holding in the new company. Instead, Fyffes' shareholders will get one share in the new entity for each share they own in the existing group.

Mr McCann will hand over the chairmanship of Fyffes to his brother David after the demerger and will become chairman of the new company. The two businesses are already run separately within Fyffes.

The restructuring was generally welcomed yesterday, although some in the market noted that the relatively small size of the new-look Fyffes could make it more of an acquisition target.

Shares in Fyffes rose by five cent to €1.64. This suggested the market was well-prepared for the first-half performance, which had been flagged in trading update in June. Revenues at the group were up by 6 per cent at €1.177 billion, while pretax profits fell by 52 per cent to €39.6 million.

The fall reflected an additional €20.5 million in duties resulting from changes to the EU banana regime, none of which Fyffes managed to recover. The firm was also hit by surging energy costs.

These higher costs saw profits in the tropical division fall from €52.6 million to €16.9 million. In general produce, profits increased from €21.1 million to €22 million, helped by both price increases and organic growth.

Fyffes' interim dividend was unchanged at 1.69 cent.