Analysis: The court was told that the market would have reacted negatively if it had known what Jim Flavin knew in February 2000, writes Colm Keena, Public Affairs Correspondent.

Mr Terence O'Rourke, a partner in KPMG, the firm's head of audit, and current president of the Institute of Chartered Accountants in Ireland, yesterday appeared as an expert witness for Fyffes.

What Mr O'Rourke said supported the case Fyffes is making against Mr Jim Flavin and DCC. A report he drafted covered a number of accounting matters, on which he is an acknowledged expert, and the issue of price sensitivity, on which he said he was not an expert.

KPMG carries out audit and other work for Fyffes and, in 2002 and 2003, received fees of approximately €2.3 million and €1.4 million respectively.

He told Mr Kevin Feeney SC, for DCC, that this income had to be seen in the context of the firm's annual turnover of "more than €150 million".

Mr Feeney said there was a contradiction between Fyffes saying information Mr Flavin had in January 2000 concerning negative trading by Fyffes was price sensitive and the fact that it had not issued a profit warning at that time.

He said the trading information which Mr Flavin had in his possession in February 2000, when DCC sold Fyffes shares worth €106 million, would, on its own, have been hard for the market to interpret, particularly given that the company had stated in December that it considered 2000 would be a year of further growth.

The rules state that the market must be informed if a company changes its expectations. So the market would have difficulty understanding how the negative trading information could be consistent with its comments on Fyffes expectations for 2000, which had remained unchanged.

Mr O'Rourke said it was his view that the trading information available to Mr Flavin in February 2000 would have caused "panic" if it had made its way into the public domain. He said the markets "hate confusion" and usually react to it by reducing a share price. He believed the release of the trading information to the market would have led to a material fall in the Fyffes share price.

At the time in question, Fyffes fiscal year began on November 1st. It made a profit of €78.8 million in the year to end October 1999 and was budgeting for a profit of €84.1 million in the 2000 fiscal year.

The information available to Mr Flavin showed that the expected first-quarter loss for 2000 was to be €2.6 million, compared to a budgeted profit of €4.7 million and a prior year profit of €11.2 million.

"As a result of the performance in the first quarter, it would be necessary for the remaining three quarters of 2000 to contribute €86.7 million of profit... in order for Fyffes to meet the budget for 2000, equivalent to 103 per cent of the profit budgeted for the four quarters," Mr O'Rourke said in his report.

The market, working solely on the basis of the trading information that is alleged to have been price sensitive, would not have known what the budgeted profit for 2000 was, but it would have known that the company had predicted it would make more than the previous year's €78.8 million and that, with one quarter gone, it was down €2.6 million.

Mr O'Rourke in his report had a look at what market analysts were saying around the time of the DCC sale and the March profit warning. In early 2000, Fyffes worldoffruit.com project was generating a lot of enthusiasm in the market.

On January 24th, 2000, Goodbody issued a report entitled The world (of fruit) at their feet. The court has already heard that Goodbody had been engaged by Fyffes to raise finance for the internet venture and was also involved in placing DCC's Fyffes shares at a time when the share price was being positively influenced by interest in the project. Fyffes got to read the Goodbody report before it was published.

In the two days after the profit warning from Fyffes on March 20th, the company's share price fell by approximately 25 per cent. On March 21st, Goodbody issued a report stating it would not be revising its forecast for Fyffes for 2000, and that "the share price reaction is overdone and that the developments in its e-commerce business are being overlooked".

Mr O'Rourke's analysis of 10 previous profit warnings by Irish plcs found that the average share price reduction on the day of the warning was 16 per cent. A year later the price was, on average, down 30 per cent.