Fyffes plc Annual Report 2005

Transcription

1 Fyffes plc Annual Report 2005

2 Group profile and strategic vision Fyffes is one of the largest fresh produce distributors in Europe and among the five largest globally. The Group operates from over 75 locations in more than ten countries, mainly in Europe. The company is listed on the Irish and London Stock Exchanges. The Group markets the widest selection of the finest fresh produce under some of the best known brand names in the industry including Fyffes, Turbana, Coplaca, Cape and Outspan. Fyffes and its joint venture operations employ more than 4,800 people. Total turnover in 2005 was billion. Shareholders equity at 31 December 2005 amounted to in excess of 500 million, including net cash balances of 171 million. Management s continuing focus is to maximise the return on investment for the company s shareholders. Our goal is to achieve this by: Consistently meeting and exceeding the requirements of our customers Sourcing the finest quality produce from the best suppliers Employing the most innovative and environmentally sound practices Maintaining state-of-the-art facilities and logistical services Pursuing every possible efficiency and synergy in the supply chain Recruiting and developing the highest calibre personnel Expanding our operations through strategic acquisitions and alliances Our commitment to these principles will ensure that the Group is uniquely placed to serve the requirements of our customers with the most complete basket of the finest quality fresh produce all year round, together with the necessary support services. It is our long-term strategic vision to develop Fyffes into the most successful operator in the global fresh produce industry. This report has been printed on environmentally friendly paper

3 Contents Page Shareholder Information 2 Financial Highlights and Five Year Summary 3 Chairman s Statement 4 Directors and Secretary 6 Corporate Social Responsibility 8 Group Structure 10 Financial and Management Strengths 12 Review of Operations for Financial Review for Financial Statements 27 Notice of Annual General Meeting 121 Index to Annual Report 123 Fyffes plc Annual Report 2005 Page 1

4 Shareholder Information Share price (euro cent) High Low 31 December Market capitalisation The market capitalisation of Fyffes plc at 31 December 2005 was 804 million. The ordinary share price at close of business on 3 March 2006 was 2.15, giving a market capitalisation at that date of 752 million. Investor relations Investors requiring further information on the Group are invited to contact: Registrar Administrative queries about holdings of Fyffes plc shares can be directed to the company s registrar: Seamus Keenan Computershare Services (Ireland) Limited Group Investor Relations Manager Heron House Fyffes plc Corrig Road 29 North Anne Street Sandyford Industrial Estate Dublin 7, Ireland. Dublin 18, Ireland. Telephone: Telephone: Fax: Fax: skeenan@fyffes.com web.queries@computershare.ie Website contains a wide range of detailed information on the Group s activities and products, together with all the key financial data on the company. It is updated on a continuing basis for all company announcements and other relevant developments, including share price movements. Annual General Meeting The Annual General Meeting of the company will take place at the Burlington Hotel, Ballsbridge, Dublin 4, Ireland on Tuesday 30 May 2006 at a.m.. Notice of the meeting is set out on pages 121 to 122 and a personalised proxy form was included in the mailing to shareholders of this annual report. Amalgamation of accounts Shareholders receiving multiple copies of company mailings as a result of a number of accounts being maintained in their name should write to the company s registrar, at the above address, to request that their accounts be amalgamated. Payment of dividends Shareholders may elect to have future dividends paid directly into a nominated bank account by completing the mandate form which accompanies each dividend payment or by writing to the company s registrar at the above address. Dividends are ordinarily paid in euro; however, for the convenience of shareholders with addresses in the United Kingdom, such dividends are paid in Sterling unless requested otherwise. Fyffes plc Annual Report 2005 Page 2

5 Financial Highlights * Increase Group revenue 1,742m 1,512m 15.2% Revenue (incl share of joint ventures/associates) 2,174m 1,954m 11.3% Adjusted profit before tax ** 121.8m 91.1m 33.6% Profit before tax 105.8m 82.7m 27.9% Adjusted fully diluted earnings per share *** cent cent 25.3% Full year dividend per share cent 6.73 cent 87.4% Shareholders equity 500.7m 420.3m 19.1% * Figures for 2004 have been restated to reflect a change in accounting policy for property valuation ** Before exceptional items, share of tax of joint ventures/associates and intangibles amortisation *** Before exceptional items and intangibles amortisation Five Year Summary Group revenue 1,741,936 1,512,268 1,605,801 1,495,612 1,602,755 Revenue (incl share of joint ventures/associates) 2,174,006 1,953,815 1,924,624 1,836,547 1,995,283 Adjusted profit before taxation* 121,757 91,133 71,627 68,122 63,554 Profit on ordinary activities before taxation 105,819 82,729 71,798 63,074 57,653 Profit on ordinary activities after taxation 95,142 72,823 62,624 50,404 43,610 Adjusted earnings per share (cent)** Dividend per share (cent) Shareholders equity 500, , , , ,086 Figures for 2003, 2002 and 2001 are as originally stated in accordance with Irish GAAP, while the figures for 2004 and 2005 are stated in accordance with IFRS and reflect the impact of the change in accounting policy in respect of the valuation of properties including investment property * Before exceptional items, share of tax charge of joint ventures/associates and intangibles amortisation ** Before exceptional items and intangibles amortisation References to International Financial Reporting Standards (IFRS) in this annual report refers to IFRS as adopted by the EU. Exceptional items refer to the items set out in note 6 of the financial statements which are presented separately in the income statement. Fyffes plc Annual Report 2005 Page 3

6 Chairman s Statement Carl McCann, Chairman Fyffes was very pleased to deliver another record performance in 2005, with adjusted profit before tax amounting to million, 33.6% ahead of 2004, and adjusted earnings per share of cent, up 25.3%. The Group s operations in Continental Europe, in particular, benefited from very favourable market conditions throughout the year. Reflecting this strong performance, a special second interim dividend amounting to 20 million (equivalent to 5.72 cent per share) was paid on 3 March Combined with the first interim dividend of 1.69 cent per share and the proposed final dividend of 5.20 cent per share, the total dividend in respect of 2005 will amount to cent per share, representing a 5.5% yield based on the average share price for the year. Excluding the special dividend, the yield was 3%. There have been a number of significant changes in the composition of the Board recently. Neil McCann retired as a director in December 2005, after more than fifty years in the company. Throughout this time, he was the driving force behind the development of the Group into one of the largest fresh produce companies globally and he can be very proud of his achievements in this regard. He has been an extraordinary leader, an inspiration to everybody in the business and hugely respected in the industry. It is fitting that he has stepped down in a year when the Group achieved record results. Denis Bergin also retired as a director in December The Board has greatly valued his advice both as a non-executive director and, previously, as the Group s legal advisor for many years. We are very pleased to welcome Coen Bos, Managing Director of the Group s Tropical Produce division, and Rory Byrne, Managing Director of its General Produce division, who were appointed as directors with effect from 1 January Their extensive experience and knowledge of the fresh produce industry will be a great asset to the Board. Fyffes plc Annual Report 2005 Page 4

7 Fyffes was very disappointed with the EU s decision in late 2005 to revise its system of regulating banana imports, as further explained in the Review of Operations on page 14. Taking into account the impact of the previously announced 55 million increase in costs, arising mainly from this change, trading in the first two months of 2006 has been broadly in line with the Group s expectations. In December 2005, Fyffes announced its intention to de-merge certain of its property activities and to establish a new, separately quoted property company which will have initial net assets of approximately 200 million. It is proposed that Fyffes shareholders will directly own 60% of this new company and will receive shares corresponding to a book value of 120 million, equivalent to 34 cent for each Fyffes share held. Fyffes will own the remaining 40% with a book value of 80 million, equivalent to 23 cent per share. Initially debt free and managed by a highly experienced property team, this new company will be well placed to further develop its portfolio and to pursue new opportunities on a significantly greater scale than would be possible within the current Group structure. Detailed documentation will be posted to shareholders in advance of an EGM to be held in late April 2006, seeking approval for this de-merger. Fyffes remains ambitious to apply the Group s substantial resources and management expertise to continue to develop its business organically and through further successful acquisitions and alliances. The Board is keenly focused on enhancing shareholder value, as demonstrated by its property de-merger initiative. Assuming the de-merger is approved at the EGM, shareholders will have received direct distributions from Fyffes totalling 164 million in the last twelve months; 120 million arising from the de-merger, 24 million in normal dividends paid during 2005 and the 20 million special dividend paid on 3 March Fyffes success is the result of having the best people in the business and we are very grateful for their dedication and skill. The level of effort and commitment that is involved, by so many people, in building up this great organisation and in achieving its current scale cannot be underestimated. These qualities will continue to be vitally important to the Group as it faces the challenges and opportunities presented by the industry. Carl McCann Chairman 3 March 2006 Fyffes plc Annual Report 2005 Page 5

8 Directors and Secretary C.P. McCann (52) Chairman, BBS, MA, FCA Carl McCann was elected Chairman in He joined the Group from KPMG in He is Chairman of the nomination committee. He is an Irish Government nominee to InterTradeIreland, the Trade and Development Body established by the North- South Ministerial Council of Ireland. J.F. Gernon (52) Group Finance Director, FCCA Frank Gernon joined the Group in He has held various senior accounting and financial positions in the Group, including Company Secretary and Chief Financial Officer. He was appointed Group Finance Director in He is Chairman of the risk committee. J.D. McCourt (59) Non-Executive, MA, MBA Declan McCourt was appointed to the Board in 2003 and is a member of the compensation and nomination committees. He is chief executive of automobile distributor, the OHM Group. He qualified as a barrister. He is a member of the Court of Bank of Ireland, a director of Dublin Docklands Development Authority, Chairman of the Mater Hospital Foundation and a director of a number of other companies. W.M. Walsh (44) Non-Executive, MSc Willie Walsh was appointed to the Board in He is Chief Executive of British Airways plc. He was previously Chief Executive of Aer Lingus Group plc, having joined that company in 1979 and subsequently holding a number of senior management positions including Chief Operations Officer. D.V. McCann (47) Chief Executive, BCL David McCann joined the Group in 1986, having previously practised as a partner in a leading Dublin law firm. He became Group Managing Director in 1989 with responsibility for the Group s operations. He was appointed Chief Executive in He is a member of the nomination committee. R.B. Hynes (48) Non-Executive, BCL, AITI Rose Hynes was appointed to the Board in She is Chairman of the audit committee and a member of the risk and nomination committees. She was a non-executive director of Aer Lingus Group plc from 1997 to 2002 and previously held a number of senior executive positions with GPA Group plc and Debis AirFinance. She is a director of Shannon Airport Authority plc and Bank of Ireland Mortgage Bank plc. Fyffes plc Annual Report 2005 Page 6

9 R.P. Byrne (45) Executive, B Comm, FCA Rory Byrne joined the Group in 1988 from KPMG. He has held a number of senior positions within Fyffes including Finance Director of the Group s UK business and Managing Director of its Spanish operations. He was appointed to his current position of Managing Director of the Group s General Produce division in He was co-opted to the Board on 1 January C. Bos (51) Executive Coen Bos was a merchant navy ship s master and active at sea until He subsequently joined Velleman & Tas BV in Holland and was its Banana Marketing Director when it was acquired by Fyffes in He was appointed to his current position of Managing Director of the Group s Tropical Produce division in He was co-opted to the Board on 1 January G.B. Scanlan (72) Non-Executive, FIB Gerry Scanlan was appointed to the Board in He is a member of the audit, risk and nomination committees, Chairman of the compensation committee and the nominated senior independent non-executive director. He is a former Group Chief Executive of Allied Irish Banks plc and a former Chairman of the Irish Stock Exchange. J.P. Tolan (42) Corporate Development Director, B Comm, FCA Jimmy Tolan joined Fyffes in 1990 from KPMG. He has managed the Group s acquisitions team since He was appointed to the Board as Corporate Development Director in Dr. P. F. dev. Clüver (64) Non-Executive, MBChB, ChM, MD, PhD Dr. Paul Clüver was appointed to the Board in He is Chairman of Capespan Group Holdings Limited in South Africa. He is also Chairman of Unifruco, Vinfruco and Kromco in South Africa. He is a trustee of the Worldwide Fund for Nature SA. P.T. Halpenny (53) Company Secretary, BBS, FCA Philip Halpenny joined the Group in 1991 from PricewaterhouseCoopers as Special Projects Manager. He became Managing Director Corporate Affairs in 1996 and was appointed Company Secretary in Fyffes plc Annual Report 2005 Page 7

10 Corporate Social Responsibility Fyffes is aware of the social and environmental issues associated with the products that it sources and sells, particularly as a large proportion of its fresh produce supplies originate in developing countries. The Group addresses this aspect of its operations in a number of ways: Fyffes plc Annual Report 2005 Page 8

11 EUREP GAP Accreditation Fyffes is a founder member of the European Retailers Codes of Best Practice The Group has established Codes of Best Practice with which it requires its direct banana and pineapple suppliers to comply. These are designed to reduce the impact of agricultural production on the environment and to ensure safe working conditions and fair treatment for workers in compliance with internationally accepted labour standards. Compliance with the Codes is generally monitored on a six-monthly basis and our internal review procedures are subject to regular independent evaluation. Environmental Protocol (EUREP), established by major food retailers and their suppliers across Europe to address consumer concerns about food safety, environmental protection and worker welfare and to promote safe and sustainable agriculture. EUREP has adopted an extensive range of guidelines on these matters, resulting in the EUREP Good Agricultural Practice (EUREP GAP). This standard establishes the minimum requirements to be met by growers of fruit and vegetables that supply European retailers. Fyffes first achieved EUREP GAP accreditation in 2003, in respect of the majority of the banana and Ethical Trading Initiative Fyffes is a member of the UK government-sponsored pineapple farms from which it takes direct supplies, and this is renewed annually. Ethical Trading Initiative (ETI). The ETI is an alliance of companies, non-governmental organisations and labour representative bodies. Its purpose is to promote and improve the conditions of workers worldwide who produce products for sale in the UK market. All of the Group s tropical management team and many of our banana and pineapple suppliers have received formal training in this regard. Through these and other social responsibility measures, Fyffes aims to provide the finest quality produce, grown under the safest working conditions, following the fairest labour practices and with the minimum environmental impact. The Group is pro-active in these matters and actively participates in industry forums on social, ethical, health and safety and environmental issues. In addition, Fyffes is satisfied that it has appropriate risk management procedures in place to ensure it complies with the highest standards in relation to food safety regulations. Fyffes plc Annual Report 2005 Page 9

12 Group Structure The Group broadly divides its operations into Tropical Produce activities and General Produce activities. Fyffes plc Annual Report 2005 Page 10

13 Tropical Produce Division This division comprises the Group s procurement, farming and shipping activities in respect of bananas, pineapples and melons. Bananas and pineapples have similar, all year round, production and harvesting characteristics. The Group sources its tropical produce in broadly the same geographic regions, mainly in Central America. This enables Fyffes to achieve efficiencies and synergies in managing these activities, particularly in procurement, shipping and other logistics and quality control. Coen Bos is Managing Director of this division. The Deputy Managing Director and Finance Director is Tom Murphy. The Group procures its bananas from a wide variety of sources, including Central and Latin American suppliers, principally in Colombia, Costa Rica and Ecuador and from EU and African, Caribbean and Pacific (ACP) producers including the Canary Islands, Belize and the Windward Islands. The Group typically operates through long term supply contracts with the best local producers. Fyffes is involved in growing pineapples on a number of large farming projects in Central America, on a joint venture basis with local producers. Production from these farms continues to increase and they are expected to be at full production within the next twelve months. General Produce Division In its General Produce division Fyffes normally acts as marketer and distributor for the major international producer organisations in particular for the key apple, pear, citrus and grape categories. This enables Fyffes to provide its customers with the finest brands in the industry, from both the Northern and Southern Hemisphere on a year round basis, including Cape and Outspan. Rory Byrne is Managing Director of this division. The Finance Director is Frank Davis. Distribution Network One of Fyffes key strengths is its first-class distribution network that ensures we can deliver produce to our customers in the optimum condition. The Group operates from more than 75 separate locations, comprising banana ripening centres, central distribution warehouses and traditional wholesale markets. These state-of-the-art facilities are strategically located near large centres of population and road networks to maximise the opportunities for market penetration. The Group has recently acquired 60% of Nolem, a melon producer in Brazil which sells nine million boxes per annum, mainly in Europe. Fyffes plc Annual Report 2005 Page 11

14 Financial and Management Strengths Management has developed comprehensive and exacting financial, operating and reporting controls that are applied consistently across the Group in order to manage the business efficiently and to protect the interests of all stakeholders. Fyffes plc Annual Report 2005 Page 12

15 Balance Sheet Fyffes has one of the strongest balance sheets in the international fresh produce sector. Shareholders equity at 31 December 2005 amounted to over 500 million, including net cash balances of 171 million and reflecting the impact of the revaluation of the Group s properties during the year. This leaves Fyffes ideally placed to continue to pursue the consolidation opportunities in the sector and is tangible evidence of the quality of the management of the business over many years. Cash Generation and Investment One of the very attractive features of our business is that profits turn into cash very quickly. Net cash inflows from operations amounted to 101 million in Tax and dividend payments in the year amounted to 38 million, in aggregate. In addition, the Group invested significantly in property in 2005, accounting for approximately 35 million of the 43 million capital Management and Control Over many years the Group has built up a management team with a range of skills, expertise and experience that, we believe, surpasses any in the sector. Today Fyffes is served by a dedicated and talented team of approximately 4,800 employees, including 2,300 in its joint venture operations. Management has developed comprehensive and exacting financial, operating and reporting controls that are applied consistently across the Group in order to manage the business efficiently and to protect the interests of all stakeholders. The Board of Fyffes is committed to the highest standards of corporate governance, including compliance with the Combined Code on Corporate Governance as set out on pages 31 to 35. expenditure in the year. Management also remains focused on finding attractive acquisition opportunities in which to invest the Group s cash resources. Fyffes plc Annual Report 2005 Page 13

16 Review of Operations for 2005 David McCann, Chief Executive Revenue Group revenue for the year ended 31 December 2005 amounted to 1,742 million, up 15.2% on the previous year. Total revenue, including the Group s share of its joint ventures and associates, was 2,174 million compared to 1,954 million in 2004, an increase of 11.3%. The Group s Tropical Produce division, comprising its procurement, farming and shipping activities for bananas, pineapples and melons, accounted for 474 million of total revenue in 2005, compared to 385 million in Total revenue in the Group s General Produce division amounted to 1,552 million in 2005, compared to 1,429 million last year. The additional revenue arising from the first full year contribution from Everfresh in Sweden, acquired in May 2004, amounted to 104 million. Operating profit Operating profit before exceptional items and amortisation of intangible assets and excluding the Group s share of the tax charge in its joint ventures and associates, amounted to million in 2005 compared to 85 million last year, an increase of 36.2%. This result reflects, in particular, the strong performance of the Group s Tropical Produce division in Continental Europe. The table below summarises the divisional analysis of turnover and operating profit. Revenue* Operating profit** Tropical Produce division General Produce division 1, , Other activities Total 2, , m 2004 m 2005 m 2004 m * Including the Group s share of its joint ventures and associates ** Before exceptional items, intangibles amortisation and Group s share of tax in its joint ventures/associates Total operating profit amounted to 99.9 million, compared to 76.6 million in 2004, and is stated, in accordance with IFRS, after the Group s share of the taxation charge in its joint ventures and associates of 3.8 million ( 3.5 million in 2004), net exceptional items amounting to 8.7 million ( 3.2 million in 2004) and amortisation of intangible assets of 3.4 million ( 1.7 million in 2004). Fyffes plc Annual Report 2005 Page 14

17 Fyffes Tropical Produce division The Group s Tropical Produce division achieved a strong result in 2005, with operating profits (before exceptional items, share of joint ventures tax charges and intangibles amortisation) amounting to 77.5 million compared to 51.3 million in This increase arose mainly in Continental Europe, where market conditions were particularly favourable, due mainly to positive supply factors. Volumes were generally lower during the year, largely due to reduced EU production. Fruit, shipping and fuel costs were higher than in the previous year, although this was partly offset by a more positive exchange rate environment. For 2006, Fyffes will continue to pursue the price increases necessary to address the effects of the previously announced increase in import duty along with the impact of higher fruit, shipping, fuel and currency costs. Fyffes has continued to increase its super-sweet pineapple volumes, which rose to in excess of 6.3 million boxes in 2005 from 4.6 million in The Group s share of operating losses in its pineapple production joint ventures, which are expected to reach full production levels within the next twelve months, amounted to 1.3 million compared to 2.1 million in Market conditions for pineapples in both Europe and the USA were generally less favourable throughout the year. Overall, as in 2004, the Group achieved a modest profit on its total pineapple activities. Fyffes Tropical Produce division has been developing its melon activities and recently announced the acquisition of 60% of Nolem, a large Brazil based melon producer. Fyffes General Produce division Operating profits in the Group s General Produce division (before exceptional items, share of joint ventures tax charges and intangibles amortisation) amounted to 36.6m in 2005 compared to 31.6 million in the previous year. The impact of the additional four months profits from Everfresh in 2005 was 2.9 million and the division also benefited from a number of small acquisitions, mainly in the UK. Market conditions for key categories were generally satisfactory, although volumes were slightly down on the previous year. There were good performances in a number of key markets, particularly in the context of more difficult trading conditions in the second half of the year, notably for southern hemisphere citrus and apple and pear categories, as result of high stock levels of European produce. Fyffes plc Annual Report 2005 Page 15

18 Property de-merger Fyffes is intending to establish a new, separately quoted property company, Blackrock International Land plc, ( Blackrock ) into which it will de-merge certain of its property assets. Blackrock will have initial net assets of approximately 200 million, including net cash of 20 million. Fyffes shareholders will directly own 60% of Blackrock, corresponding to 120 million of net asset value, equivalent to 34 cent per share. Fyffes will own the remaining 40%, representing 80 million of net asset value, equivalent to 23 cent per share. Taking into account the revaluation of the relevant properties, the de-merger and the subscription for equity in Blackrock will reduce Fyffes total net assets by approximately 120 million ( 40 million before the impact of the revaluations), including net cash of 20 million. Following the de-merger, Fyffes will retain properties with a market value of 65 million. In addition, the Group s share of property assets owned by its joint ventures and associates, excluding its 40% share of Blackrock, will amount to 33.8 million. Detailed documentation in relation to the de-merger proposal will be posted to shareholders in advance of an EGM to be held in late April Blackrock, a debt free company managed by a highly experienced property team, will have the capacity to further develop its portfolio and to pursue new opportunities on a significantly greater scale than currently. Changes in trading environment The EU s decision, late in 2005, to revise its system of regulating banana imports from 1 January 2006 has resulted in a changed trading environment for the industry. It is still too early to accurately assess the full effect that these changes will have on the market. As previously announced, the increase in the import tariff is expected to increase duty costs for Fyffes by approximately 40 million per annum, based on prior year volumes. The Group also highlighted in December 2005 that the impact of higher fruit, shipping and fuel costs and less favourable exchange rates was expected to be in the order of 15 million in Taking these factors into account, trading in the first two months of the year has been broadly in line with the Group s expectations. The excellent performance of the Group in 2005 was achieved with the help of the most able and committed people in the industry and I would like to thank them for their continuing efforts to make Fyffes the most successful operator in the global fresh produce industry. David McCann Chief Executive 3 March 2006 Fyffes plc Annual Report 2005 Page 16

19 Financial Review for 2005 Frank Gernon, Finance Director Summary of results 2005 m 2004 m Change % Revenue incl share of joint ventures/associates 2, , Share of joint ventures/associates (432.1) (441.5) Group Revenue 1, , Operating profit* Net interest income Adjusted profit before tax Exceptional items (8.7) (3.2) Amortisation charge (3.4) (1.7) Tax charge of joint ventures and associates (3.8) (3.5) Profit before tax Tax charge (excl share of joint ventures/associates) (10.7) (9.9) Minority interest charge (12.1) (8.5) Profit attributable to equity shareholders Adjusted fully diluted EPS cent * Before exceptional items, intangibles amortisation and the Group s share of tax in its joint ventures/associates Revenue and operating profit An analysis of the factors influencing the changes in revenue and operating profit is provided in the Review of Operations for 2005 on pages 14 to 16. Net interest income Net interest income amounted to 6 million in 2005 compared to 6.1 million in the previous year. The slight decrease largely reflects lower average interest rates due to the reduction in Sterling rates during the year. Fyffes plc Annual Report 2005 Page 17

20 Amortisation of intangible assets The Group s intangible assets mainly represent the value of customer relationships arising on acquisitions. These are amortised over their estimated useful economic lives, ranging from one to ten years. The amortisation charge in the year on these assets amounted to 3.4 million in 2005 compared to 1.7 million last year. This increase largely reflects the additional four months amortisation in 2005 on the intangible assets arising from the Everfresh acquisition in May Exceptional items Exceptional items gave rise to a net charge of 8.7 million in 2005, made up as follows: m Fair value gains on investment properties 10.0 Share of fair value gains on investment properties in joint ventures 1.0 Impairment of property (2.4) Merchant Navy Officers Pension Fund charge (5.0) Costs of legal action against DCC plc and others (4.8) Provision for defendants costs in DCC litigation (7.5) Total (8.7) Fair value gains on investment property As explained below, the Group changed its accounting policy for investment property during the year from the depreciated historic cost method to the fair value basis. As a result, fair value gains amounting to 11 million have been recognised in the income statement for the year, including the Group s 1 million share of such gains in its joint ventures. Revaluation of non-investment property The Group similarly changed its accounting policy in respect of its non-investment properties and revalued these to market value at 31 December As further explained below, the resulting revaluation gains have been recognised through the statement of recognised income and expense for the year. However, an impairment charge of 2.4 million has been recognised in the income statement for the year relating to a number of properties where the historic carrying value exceeded market value. Merchant Navy Officers Pension Fund As a result of a ruling by the High Court in the UK in 2005, a claim has been made against Fyffes in respect of a deficit in the Merchant Navy Officers Pension Fund (MNOPF), a UK based multi-employer defined benefit pension scheme operated on behalf of ships officers employed by approximately 2,000 companies. The Trustee of the MNOPF was authorised by the Court to recover any deficit in the scheme from both current and former employers of these ships officers. The claim against Fyffes relates to ships officers employed by two subsidiaries prior to their acquisition by the Group and, consequently, third parties are being pursued for the recovery of a proportion of these costs. The Trustee has notified Fyffes that its share of the deficit as at 31 March 2005 can be settled by ten equal instalments, payable between September 2005 and March 2014, amounting to 6.4 million in aggregate. The Trustee also indicated that further cash calls may be necessary in subsequent years, depending on the results of future actuarial valuations of the scheme and on his ability to recover the amounts due from all relevant current and former employers. The Group has provided for the net present value of the payments claimed, amounting to 5 million, which has been included as an exceptional charge in the income statement in Fyffes plc Annual Report 2005 Page 18