A FIRST TIME contribution from Geest and a strong performance from the non banana fresh produce business has more than compensated for a difficult year for Fyffes's banana operations. As a result the group has lifted its pre tax profits by 15 per cent to £48.5 million in the year to the end of October.
At the earnings level, pre goodwill earnings per share were up by 16.1 per cent to 8.75p, although earnings growth is just 2.3 per cent higher after goodwill is taken into account.
Managing director, Mr David McCann, said it had been a difficult but exciting year", especially difficult for bananas which accounted for 30 per cent of the total sales of £1.43 billion. He said, however, that the other fresh produce business performed very well in 1996 while Geest also did well. "We were confident about Geest a year ago, but now we think it was a great deal," he said.
When acquisitions are excluded, Fyffes's operating profits fell from £36.2 million to £34.8 million. The rise in overall operating profits derived from 1996 acquisitions which kicked in £3.9 million and the 50 per cent owned Geest which produced £6.5 million operating profits. Overall, margins increased from 3.2 per cent to 3.3 per cent of operating profits.
"That £6.5 million is the return on a £20 million cash investment in Geest - 30 per cent in year one. Excluding interest on the £20 million, and the return is £5.5 million," said finance director, Mr Carl McCann.
The goodwill charge of £1.9 million came as something of a surprise but the finance director said that the group had decided to book the £20 million of Geest goodwill and write it off over 20 years. Mr McCann added, however, that in assessing the 1995-96 results, the pre goodwill profits and earnings are the more appropriate figures.
In Ireland and the UK, sales were up 18 per cent to £731.7 million with operating profits up 15 per cent to £28.1 million while in continental Europe, sales rose 23 per cent to £665.9 million with operating profits jumping 36 per cent to £20 million. The American operations, now closed down, lost £1 million in the year to last October.
With the £147 joint venture acquisition of Geest involving just a £20 million cash payment by Fyffes, the group's balance sheet remains in exceptionally good shape. "An embarrassment of riches," as one Dublin analyst described it. Net cash at the end of the financial year totalled £70.7 million.
Finance director, Mr Carl McCann, said that this net cash figure "slightly flatters" the balance sheet, as average cash during the year wads £30 million to £35 million.
The balance sheet benefited by £13 million from the sale of the Guatemalan banana fans. Acquisitions during the year totalled £29.8 million while the group also had capital expenditure of £22.2 million. For the first time, Fyffes's shareholders funds have moved £200 million.
But while Fyffes management clearly felt that last year was good year, not all analysts are convinced and some have doubts over the management's clear optimism for 1996-97. One analyst, who asked not to be named, pointed to the fall in sales, once acquisitions were excluded, and added that the underlying earnings per share growth was static. This analyst also expressed some doubts over the group's confidence in a recovery in banana prices this year.
But another analyst took another tack and felt that the prospects for the current year are good, with a full year contribution from Geest, the positive implications of the recent shipping deal with Dole, the absence of US losses and a belief that banana prices will firm.
An upgrade of 1997 profits and earnings forecast is warranted, this analyst added.
Fyffes shares reacted positively to the results, and dealt up 2p in Dublin to 117p. In London, the shares were 5p firmer on 115p although turnover in London was very small.
