This article by John Snowden was published in February 2011 in The IRS Report

Famous Fyffes - is it ripe for takeover?

The brand Fyffes stands alongside the likes of Birds Eye, Bovril and Colman's mustard for its longevity. In 1929, Fyffes became the first fruit brand in the world and was launched into a marketplace devoid of competition. Constant reevaluation coupled with innovative promotion has kept the brand in the public eye and the management must take a lot of credit for hogging the headlines for the last 82 years.

Fyffes origins start earlier in the 1870s when a London food wholesaler Thomas Fyffe formed a partnership with a fruit dealer called Hudson who had connections in the Canary Islands. In 1878 the first cargo of bananas was shipped to England and was immediately successful. The business then purchased land in the Canaries to cultivate banana plantations.

The shipping line Elder Dempster, which traded in the Canaries, noticed the success of Fyffe & Hudson and followed suit. In 1898 the business was expanded into Britain's second oldest colony, Jamaica. Three years later in May 1901, a merger took place and Elders & Fyffes Ltd was established in London.

The British government paid a £40,000 a year subsidy to Elders to protect the island's economy in exchange for a regular steamer service to ship large quantities of bananas for the eager British market. Interest in this venture had spread to America and in 1902, the United Fruit Company of America acquired a 45% stake. This was the seal of success and over the following years the company went from strength to strength using specially constructed ships to ensure the fruit arrived in good condition after being tossed around on the Atlantic ocean.

In 1960, the scene moved to Bembridge airport where Britten-Norman began trials of their new Cushioncraft, an air-cushion vehicle built for Elders & Fyffes for the carriage of bananas from plantations in the Southern Cameroons. In 1969, the company name changed to Fyffes Group Ltd to reflect the increasing number of subsidiary companies. Following a successful takeover from the Irish FII group in 1986, the combined company was known as FII Fyffes plc but simply became Fyffes in 1990. The head office remains in Dublin.

The banana has been around for thousands of years and remains one of the most popular fruits in the world. Its origins are thought to be in South East Asia and India is by far the world's largest producer. In 2002 India grew 16.5m tonnes followed by Brazil which produced 6.5m tonnes.

Great care has to be taken when transporting bananas over long distances. Bananas are always picked when they are green, even in the tropics, as they are a fruit which ripens off rather than on the plant. The plant itself is the largest plant on earth without a woody stem and comes from the same family as lilies, orchids and palms.

The banana is an all-the-year-round plant with fruit harvested every day of the year. Even the aromatic leaves are used to wrap other products, a much greener method than using plastic bags. The leaves also produce a unique flavour to nasi lemak, a Malay word meaning "rice in cream" and the Indian banana leaf rice.

The banana is one of the most popular fruits in Europe not only for its flavour but as a healthy food item full of energy, as its promoters put it: giving carbohydrates, minerals and vitamins and only 95 calories with minimal fat, all contained in a biodegradable natural wrapper.

As trade increased, growing practices became more sophisticated to keep pace with demand. Special refrigerated ships were employed to keep the bananas fresh and green before arriving on land where they were sent to ripening centres and made ready for sale at grocery stores and supermarkets.

I have dwelt on Fyffes as the banana with the famous blue label as the brand is mostly associated with the banana. But the company not just a one-fruit business. The brand name is also applied to Fyffes Gold Pineapples and Fyffes melons and to the Turbana brand which is used primarily in the United States.

The melon may have originated in Africa but the fruit has been well known in China for some 3000 years. Hybridisation has resulted in sweeter fruits that were introduced into Italy in medieval times and later brought to France in the 15th Century. Christopher Columbus took melons to the New World and they are grown today in warm climates across the world.

The Fyffes brand Gold pineapples was introduced into the market in 2003. This prickly to pick plant has a long cultivation period of approximately 18 months from seed, which is three to four months longer than the banana. A grower needs experience to judge when the time is exactly right for picking as size and colour changes are not necessarily reliable indicators od ripeness.

In 2004 the US Turbana Corporation started marketing Fyffes pineapples and in the following year Fyffees acquired a 50% stake in the corporation. This is typical of Fyffes, which over time has built a global infrastructure in what remains a relatively fragmented industry.

The group is involved in the production, procurement, shipping, ripening, distribution and marketing of bananas, melons and pineapples. Products go to the States under the Fyffes and Turbana brands and the group is near the top of the tree as one of the largest tropical fruit importers and distributors into Europe.

This time last year the board was mildly bullish for 2010 as it pursued higher product selling prices to offset increases in input costs. The exceptional cold weather at the time was having an adverse impact on trading during the first few weeks of the year. Perhaps there are similar fears for the year ending 31st December 2010.

The interim figures to end-June announced at the end of last August confirmed that trading conditions were difficult for much of the first half but had normalised for the summer months.

Figures for the first hald of the fiscal year to December 2010 showed revenues including joint ventures slightly ahead at 402.6m (400.0m) euros while adjusted figures before tax and interest were well down at 13.1m euros (18.1m euros). Earnings per share dropped to 3.38 cents (4.46 cents) but the interim dividend was held at 0.55 cents. Cash in the bank at 30th June was little changed at 36.3m euros. On a more positive note the company maintained its 14-18m euro target EBITA for the full year.

The figures for the year to end-December 2010 are due to be announced on 7th March. Broker sentiment on the company is broadly neutral but three directors did add to their shareholdings in December paying around 10% less than the recent share price.

It may pay to monitor the shares and wait for a trading statement as the UK has had one of its coldest winters and Europe had earlier than usual snowfalls in November and December.

Fyffes has been taken over in the past and with more 36m euro in the bank last year, a world class brand name and the infrastructure in place from planting to delivery onto the doorstep, there may well be some stake building on any weakness in the share price. There are many large food groups that might consider it a good fit with their brand portfolios.

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