Operating and Financial Review

Transcription

1 Operating and Financial Review Summary Income Statement Total revenue 1, ,017.8 Group revenue Adjusted EBITA* - Tropical Produce activities - parent and subsidiaries share of joint ventures Total adjusted EBITA Net interest expense including share of joint ventures (1.6) (1.3) Adjusted profit before tax** - Tropical Produce Activities Share of Balmoral s result - - Amortisation charge (1.3) (2.2) Share of joint ventures tax charge (1.1) (0.9) Profit before tax per income statement Tax charge (excl share of joint ventures) (2.5) (2.2) Non-controlling interest charge (0.5) (0.1) Profit attributable to equity shareholders Adjusted fully diluted EPS cent*** * Adjusted EBITA is operating profit before intangibles amortisation, interest and tax, including the equivalent share of joint ventures operating profits (and excluding the Group s 40% share of the result of Balmoral International Land Holdings plc ( Balmoral ) in earlier years). ** Adjusted profit before tax excludes amortisation charges and the Group s share of its joint ventures tax charge (and in previous years the Group s share of Balmoral s result). *** Adjusted EPS excludes amortisation charges (and the Group s share of Balmoral s result in earlier years.) Prior year adjustment As explained more fully in note 25 of the financial statements, certain revisions to the accounting standard on pensions became effective for the first time in. These revisions have been applied retrospectively, resulting in the restatement of the Group s figures, although there was no impact on the previously reported net pension deficit. The pension charge in the Income Statement for increased by 1m, with an equivalent reduction in the actuarial loss recognised in the Statement of Comprehensive Income. The related deferred tax credit in the Income Statement in increased by 0.2m, with a corresponding reduction in the deferred tax credit recognised in through the Statement of Comprehensive Income. 12 Fyffes plc Annual Report

2 Revenue Total revenue, including the Group s share of its joint ventures, increased by 64 million (+6.3%) in, to 1.1 billion. Group revenue, excluding Fyffes share of its joint ventures, amounted to 836 million in the year, an increase of 6.6%. The increase in turnover in the year has been driven by further organic growth in the Group s banana and melon categories, combined with price inflation in the banana and pineapple categories, reflecting higher input costs. Operating profit Fyffes reports separately the results of its tropical produce operations and its 40% share of the results of Balmoral, which it demerged in The Group s key performance measure for its tropical produce business is Adjusted EBITA (which is defined above). Fyffes tropical produce business produces, sources and distributes three product categories bananas, pineapples and melons. due to the ongoing work to integrate the farm acquired during the first half of the year which adjoins the Group s existing pineapple operations in Costa Rica. In addition, as in the banana category, exchange rates had a negative impact on performance in the year. However, market conditions were generally more positive throughout the year due to improved stability in supply volumes. The Group s own farms accounted for 56% of Fyffes total pineapple volumes in the year. Fyffes US melon business delivered a satisfactory result in. Favourable weather in the production regions during the key import season, in the first half of the year, resulted in improved yields and lower production costs. This also contributed to a significant increase in import volumes, consolidating the Group s position in this category in the US. Average selling prices were down on the very strong prices achieved in the previous year, mainly due to the increase in total import volumes. Building on the very strong increase in operating profits achieved in, Fyffes increased its Adjusted EBITA by a further 2.1 million (+6.9%) in to 32.7 million. As explained above, the prior year result has been restated on a comparable basis to, to reflect the impact of the change in the accounting standard on pensions. Adjusted EBIT amounted to 31.3 million, up 10.6% year on year, reflecting a further reduction in amortisation charges in the year. The key drivers of performance in the Group s tropical produce operations are average selling prices, exchange rates and the costs of fruit, shipping and fuel, all of which can result in variability in year on year profitability. Fyffes achieved a broadly satisfactory performance in the banana category in, with profits slightly down on the very strong result in the previous year. The industry experienced further significant inflation in the cost of fruit during, continuing a multi-year pattern. There was also an unfavourable movement in exchange rates year on year, due to the strength of the US Dollar particularly relative to Sterling. The impact of these adverse factors was partly offset by lower logistics costs, as a result of the reduction in fuel costs and further shipping efficiencies. In addition, Fyffes achieved further successful organic growth in the banana category in, with new and existing customers. Market conditions were broadly positive during, with slightly higher average selling prices driven by the increase in fruit costs and adverse exchange rates. Balmoral, in which the Group has a 40% shareholding, reported its final results for in August. These showed a further reduction in its net assets, with the Group s share amounting to 0.4 million. Fyffes wrote down its investment in Balmoral to 50,000 in As a result, Fyffes does not recognise any further share of Balmoral s losses while the Group s share of its net assets exceeds this 50,000 carrying value. Balmoral has not yet reported its results for. The total operating profit for the Group, which is the Adjusted EBITA less amortisation charges and the Group s share of joint ventures interest and tax, amounted to 30 million for the year, 9.9% up on the restated result in the previous year. Financial expense Net financial expense in the Group s subsidiary companies in amounted to 1.3 million, compared to 1.2 million in the previous year. Excluding non-cash interest costs of 0.8 million (: 0.7 million) relating to the discounting of deferred acquisition consideration and other provisions, cash interest expense amounted to 0.5 million, unchanged on the previous year. The Group s share of the net financial expense of its joint ventures was 0.3 million in, compared to 0.1 million in the previous year. The Group delivered an improved result in the pineapple category in. Production costs were higher year on year Fyffes plc Annual Report 13

3 Profit before tax Adjusted profit before tax for amounted to 31.1 million, 6.3% up on the restated result for the previous year, similar to the increase in EBITA. Adjusted profit before tax excludes the amortisation of intangible assets and the Group s share of the tax charge of its joint ventures, which is reflected in profit before tax under IFRS rules, and, in previous years, the Group s share of Balmoral s result. Profit before tax, excluding these adjustments, amounted to 28.7 million compared to 26.1 million (restated) in, an increase of 9.8%, reflecting a reduction in amortisation charges. Taxation Tax charge per income statement Group share of tax charge of joint ventures netted in profit before tax Total tax charge Adjustments Deferred tax on amortisation of intangibles (including share of joint ventures) Tax charge on underlying activities The analysis of the tax charge for the year set out above shows the calculation of the underlying tax charge in of 4 million compared to 3.7m (restated) in the previous year, equivalent to a rate of 12.9% (: 12.6%), when applied to the Group s adjusted profit before tax. The underlying tax charge excludes deferred tax credits related to the amortisation of intangible assets and includes the Group s share of tax of its joint ventures. This underlying rate is used for the purposes of calculating adjusted earnings per share. The Income Statement shows a tax charge of 2.5 million before these adjustments, compared to 2.2 million (restated) in the previous year. Non-controlling interests The non-controlling interests share of profit after tax for the year amounted to 0.5 million in, compared to 0.1 million in the previous year. Earnings per share The calculation of adjusted diluted earnings per share, (which excludes amortisation of intangible assets is set out below. The Group s adjusted diluted earnings per share in amounted to 8.82 cent, up 3.2% on the 8.55 cent restated result in the previous year. This increase reflects the 6.3% increase in adjusted profit before tax less the impact of the higher tax and non-controlling interests charges and a higher number of shares due to the diluting effect of share options as a result of the increase in the Group s share price. The diluted earnings per share after amortisation charges amounted to 8.51 cent in, up 6.4% on the restated result for the previous year. Calculation of Adjusted EPS Adjusted profit before tax Underlying tax charge (4.0) (3.7) Non-controlling interests (0.5) (0.1) Earnings for calculation of adjusted EPS Weighted average no. of shares (diluted) (M) Adjusted EPS cent Fyffes plc Annual Report

4 Summary Balance Sheet Intangible assets Property, plant and equipment Investment in joint ventures Investment in Balmoral International Land Holdings plc Working capital/hedging instruments Taxation (10.1) (12.6) Provisions (5.6) (16.8) Pension deficit - net of deferred tax (22.8) (23.0) Net funds Net assets Shareholders equity Non-controlling interests Net assets Dividend and share buyback The Board is proposing to pay a final dividend for of 1.49 cent per share, up 4.9% on the previous year. Subject to shareholder approval at the forthcoming Annual General Meeting ( AGM ), this dividend, which will be subject to Irish withholding tax rules, will be paid on 16 May 2014 to shareholders on the register on 11 April In accordance with company law and IFRS, this dividend has not been provided for in the balance sheet at 31 December. Total dividends in respect of will amount to 2.17 cent, 4.8% up on the previous year and equivalent to a payout ratio of c. 25% based on adjusted earnings per share. Fyffes will seek to renew its authority from shareholders to repurchase shares at its 2014 AGM. Subject to this authority and taking into account the Group s financial position and other investment opportunities, the Company may from time to time repurchase further Fyffes plc shares in the market. Fyffes plc Annual Report 15

5 Shareholders equity Shareholders equity at 31 December amounted to million compared to million at the start of the year. The following table summarises the changes during the year: Movement in shareholders equity At beginning of year Profit after tax and non-controlling interests Dividends paid (6.2) (5.9) Pension scheme actuarial loss net of deferred tax (0.1) (7.2) Share of actuarial losses in joint ventures net of deferred tax (0.3) (0.3) Translation of non-euro denominated net assets (5.5) (2.8) Movement in hedging reserves net of deferred tax (1.8) (8.7) Share based payments and share options exercised At end of year Retained profits of 25.6 million in the year were partly offset by balance sheet translation losses of 5.5 million on non-euro denominated net assets in overseas subsidiaries and joint ventures, losses of 1.8 million on the marking to market of currency hedging instruments and dividend payments of 6.2 million. Investment in Balmoral International Land Holdings plc ( Balmoral ) In accordance with International Financial Reporting Standards, Fyffes 40% investment in Balmoral continues to be accounted for under equity accounting rules. Fyffes wrote down the carrying value of its investment to 50,000 in 2011 and there has been no change in this position since then. Balmoral continues to be actively managed and, given its extensive and well diversified portfolio of properties in Ireland, the UK and Continental Europe, remains in a position to benefit from any improvement in property market conditions. Provisions Total provisions in the balance sheet at 31 December amounted to 5.6 million, compared to 16.8 million at the previous year end, as analysed in the following table. The reduction in deferred consideration liabilities in mainly reflects payments of 9.6 million during the year, including the purchase the final 20% of the Sol melon business, less a 0.9 million upward revision of the estimated amount payable under the related purchase agreement to reflect its improved performance. The reduction in the MNOPF legal provision in reflects accelerated payments of 4.8 million to reduce the interest costs of the deferred payment arrangements, less a 1.6 million increase in the liability in the year as a result of the latest triennial valuation of the scheme. Deferred consideration on acquisitions MNOPF legal obligation Total provisions Fyffes plc Annual Report

6 Defined benefit pension schemes The deficit in the Group s defined benefit pension schemes, before deferred tax, reduced from 29.6 million at the beginning of the year to 28.2 million at the end of the year. Asset values in the various schemes increased by 6.6 million in, while liabilities increased by 5.2 million with the positive impact of lower bond rates and lower inflation offset by higher assumed longevity. Movement in defined benefit pension obligations Deficit at beginning of year (29.6) (21.7) Pension expense recognised in income statement (3.2) (2.8) Actuarial gain/(loss) recognised in statement of comprehensive income 0.9 (8.5) Employer contributions to schemes Exchange movement 0.5 (0.3) Deficit at end of year (28.2) (29.6) Related deferred tax asset Net deficit after deferred tax (22.8) (23.0) Fyffes plc Annual Report 17

7 Summary Cash Flow Statement Inflows Adjusted EBITA Depreciation Impairment of property, plant & equipment and goodwill Share of joint ventures EBITA (2.9) (2.0) Dividend payments by joint venture Total inflows Investment and other expenditure Capital expenditure, incl leased assets (net of disposal proceeds) (19.4) (8.8) Deferred acquisition consideration (9.6) (1.0) Tax paid (4.8) (2.5) Dividends paid to shareholders (6.2) (5.9) Pension and MNOPF payments (in excess of income statement charges) (3.2) (2.0) Investment in joint ventures (0.9) - Working capital (1.0) (12.1) Other (0.3) 0.5 Total investment and other expenditure (45.4) (31.8) Net (outflows)/inflows (8.1) 9.5 Translation of non-euro denominated funds (0.1) 0.3 Net funds/(debt) at beginning of year 8.6 (1.2) Net funds at end of year Movement in net funds Fyffes net funds amounted to 0.4 million at 31 December, compared to 8.6 million at the beginning of the year. The Group generated strong cash flows from its operations in, with operating cash flows in the year, before depreciation and amortisation charges and excluding the contribution from joint ventures, amounting to 37.3 million. Total investment in property, plant and equipment in the year amounted to 19.8 million, including the purchase of a pineapple farm in Costa Rica adjoining the Group s existing farm. Dividend and tax payments amounted to 6.2 million and 4.8 million respectively in. As noted above, the Group paid 9.6 million in deferred consideration during the year and made accelerated payments of 4.8 million in respect of its MNOPF liabilities. 18 Fyffes plc Annual Report

8 EU Competition investigation In 2008, the European Commission published its Decision following the conclusion of its investigation into the supply of bananas in the Northern European region of the EEA. No adverse findings were made against Fyffes and no fine imposed on it. Fyffes was very pleased with this outcome as regards its activities. At the same time, the European Commission found the Group s German joint venture, Internationale Fruchtimport Gesellschaft Weichert GmbH & Co KG ( Weichert ) and Fresh Del Monte Produce Inc ( Del Monte ) jointly and severally liable for a fine of 14.7 million for breaches of Article 81 of the Treaty of Rome and Article 53 of the European Economic Area (EEA) Agreement relating to the supply of bananas to the Northern European region of the EEA, in the period 1 January 2000 to 31 December Fyffes acquired its 80% interest in Weichert from Del Monte on 1 January The Commission found that Weichert was controlled by Del Monte throughout the period covered by the Decision. Proceedings in relation to this matter are continuing. Weichert continues to assert that it did not breach EU Competition regulations. Based on legal advice, Weichert provided for a net exceptional charge of 3.7 million in its 2008 accounts in this regard. While Fyffes has no liability in this matter, the Group s Income Statement in 2008 reflected Fyffes 80% share of the net exceptional charge recognised in Weichert s accounts, amounting to 2.9 million, on a prudent basis. Business and Financial Risks and Financial Instruments Key operational risks The principal risks and uncertainties the Group faces on an ongoing basis relate to the factors outlined above and include, in particular, the challenge of passing on inflationary increases in supply chain costs to the Group s customers, particularly the retail sector. The Group s performance is also influenced by normal supply and demand factors, including the impact of weather in both the producing countries and in the main markets in which Fyffes trades and by trends in consumption of fresh produce. Fyffes operates in a highly competitive industry and consequently the actions of competitors can also influence the performance of the Group. Fyffes has always pursued a strategy of growth by acquisition and future growth will remain dependant on the Group s ability to continue to successfully complete such transactions, in addition to organic growth. Fyffes is also dependent on the continuing commitment of its senior management. Risks of operating internationally The Group s operations are in part dependent upon activities and investments in jurisdictions outside of the EU. Although Fyffes aims to co-operate with and invest only in countries that are politically stable, these operations and investments are subject to risks that are inherent in operating in certain foreign countries, including: political changes and economic crises which may lead to significant changes in the business environment; and economic downturns, political instability, war or civil disturbances which may disrupt individual markets. In addition, the Group operates some of its businesses through joint ventures in which its rights to control business decisions is limited. Key business drivers The key drivers of short term performance in Fyffes tropical produce operations are: selling prices; cost of fruit; shipping and fuel costs; exchange rates; and EU banana import duty. These variables, together with operating costs and efficiencies and volume changes, are the key factors impacting the Group s annual results, including its EBITA, which as noted earlier, is the key performance measure for Fyffes tropical produce operations. Given the significance of these factors, the Group s short term performance can be difficult to predict and potentially volatile. Transportation risks An extended interruption in Fyffes ability to ship or distribute its products could have an adverse effect on the Group s performance. While Fyffes believes it is adequately insured and would attempt to transport its products by alternative means if there was an interruption due to strike, natural disasters or otherwise, the Group cannot be sure that it would be able to do so or be successful in doing so in a timely and cost-effective manner. Shipping and fuel are among the principal costs of the Group. When these costs increase, the Group may not be able to pass on the full impact of these higher costs to customers or there may be a time lag in doing so. Fyffes plc Annual Report 19

9 Production and quality risks Adverse weather and other unfavourable conditions for tropical produce production can adversely affect crop size and quality. In extreme circumstances, entire harvests may be lost in specific geographic areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings which, from time to time, may have an adverse effect on the Group s business. Similarly, serious quality issues and in particular deliberate or accidental contamination could have a significant impact on revenue. the Group s Treasury Committee on an ongoing basis and managed as deemed appropriate by utilising a combination of spot and forward foreign currency contracts and, from time to time, foreign currency options. The Group s balance sheet is also exposed to currency fluctuations relating to its net investment in its overseas non-euro denominated operations. Depending on the scale of the transaction, Fyffes may finance its overseas investments through foreign currency borrowings to hedge this exposure. Post acquisition, these overseas businesses generally fund their operations locally. Earnings sensitivity to market conditions Fyffes earnings are significantly dependent on the selling prices obtained for tropical produce, which competes directly in any given market with other imported fresh produce and with local production when in season. Pricing is largely determined by market supply of and demand for tropical produce and competing fresh produce. Market demand is a function of population size, per capita consumption, the availability and quality of tropical produce, the availability, quality and price of locally produced or imported competing products and climatic and other general conditions in the marketplace. The global and individual country markets can from time to time be over-supplied. Excess supplies of tropical produce or competing fresh produce could lead to reduced selling prices for tropical produce and could have an adverse effect on Fyffes performance. Key financial risks The Group s multinational operations expose it to different financial risks that include foreign exchange rate risks, credit risks, liquidity risks and interest rate risks. Fyffes has a risk management programme in place which seeks to limit the impact of these risks on the financial performance of the Group. The Board has determined the policies for managing these risks. It is the policy of the Board to manage these risks in a non-speculative manner. Foreign exchange risk Fyffes primary input costs are fruit, shipping and fuel. These costs are routinely denominated in US Dollars while most sales, other than in the Group s US melon business, are made in euro and Sterling. Although Fyffes may engage in foreign currency hedging transactions from time to time, there can be no assurance that those hedging transactions will be sufficient to protect against adverse exchange rate fluctuations; meaning that profits may be affected by fluctuations in exchange rates. A strengthening of the US Dollar against the euro and Sterling could have an adverse effect on the Group s performance. These currency risks are monitored by Credit and liquidity risk The Group has detailed procedures for monitoring and managing the credit risk related to its trade receivables. Cash and short term bank deposits are invested with institutions of the highest credit rating or state guaranteed institutions, with limits on amounts held with individual banks at any one time. It is also the policy of the Group to have adequate undrawn facilities available at all times to cover unanticipated financing requirements. The maximum exposure to credit risk is represented by the carrying amount of the financial assets in the balance sheet. Interest rate risk The Group s balance sheet contains both interest bearing assets and interest bearing liabilities. In general, the approach employed by the Group to manage its interest rate exposure is to maintain the majority of its cash, short term bank deposits and interest bearing borrowings on floating rates. Rates are generally fixed for relatively short periods in order to match funding requirements while being able to benefit from opportunities due to movements in longer term rates. Financial instruments Fyffes finances its operations through a combination of retained profits, its own net cash resources and bank debt. The financial instruments that arise from this activity comprise bank deposits, bank loans and potentially, from time to time, certain financial assets such as government securities, commercial paper and other trade investments. Other financial instruments such as trade receivables and trade payables arise directly from operations. In addition, as noted above, the Group enters into hedging instruments with a view to managing currency risk and, to a lesser extent, the interest rate risk arising from its operations. The disclosures required under IFRS 7 and IAS 39 in relation to these financial instruments and the above risks are set out in Note 28 to the financial statements on pages 100 to Fyffes plc Annual Report