Dear shareholders,
This was a transitional year for Chiquita Brands International Inc. Net sales were up company wide; however, we encountered several challenges during 2006. These challenges, we feel, will make us stronger as company.
We had the following financial results for 2006:
We recorded a net loss of $96 million in 2006 while our net income was $131 million in 2005.
Sales have been up for us this year since our acquisition of the Fresh Express brand. The brand was acquired in 2005, but this is the first fiscal year that Fresh Express has been under the Chiquita brand. Fresh Express has made a substantial contribution to Chiquita’s overall revenues. We saw an increase of $1 billion because of Fresh Express.
Expenses are up for many reasons. Issues surrounding the European Union Tariffs, contaminated spinach, a fine from U.S. Department of Justice, and an increase in industry costs contributed to a dramatic increase in operating costs for Chiquita.
Chiquita has been confronted with increasing tariff costs for imports from Latin America through the European Union (EU) in 2006. The tariff was raised from 75 euros per metric ton in 2005 to 176 euros. This $75 million increase in costs, combined with lower local pricing of bananas in Europe, resulted in an unforeseen loss for Chiquita.
Chiquita is concerned for the safety of our customers. In the United States, there were safety concerns about E. coli in packaged spinach products. Chiquita voluntarily pulled and tested all of our products because of these concerns in the industry. We wanted to ensure that our products were safe for our customers. Lower sales resulted, and Chiquita ended up paying $9 million in direct costs that we had not been expecting to pay. In the end, our products remained uncontaminated by E. coli.
Chiquita volunteered information to the U.S. Department of Justice that resulted in a fine of $25 million. We closed our banana-producing subsidiary in Colombia after senior management admitted to paying left and right-wing paramilitary groups to protect the safety of employees. At Chiquita, we believe in remaining open and honest with the U.S. government and our shareholders. Chiquita has put $25 million into a reserve to pay the fine from the U.S. Department of Justice over the next five years. It was a error and a mistake we will never make again.
Higher industry costs resulted from an increase in fuel pricing and overall packaging costs. The increase in fuel costs has been substantial in the past couple of years and if it continues, it could cut into our overall operating income. We have invested in hedge contracts with fuel companies that will lock in current fuel prices for up to three years, which will minimize the effects that rising fuel costs will have on Chiquita’s ocean shipping costs.
Paper and plastic products are essential to the packaging of our products. We want to guarantee that we will be able to provide fresh products to our consumers. The price of these products has begun to increase, but we feel that this is a necessary cost since we want to maintain the quality of our products.
We are optimistic that 2007 will be a financially fruitful year for Chiquita. We are continually striving to provide fresh, fast and healthy Chiquita brand products to our customers. Our goal is to continue to learn, grow and expand Chiquita to be a more profitable brand.
We recognize that our customers buy Chiquita products because they distinguish themselves from competitors. We are excited to introduce to you our new products that are beginning to take off and stand out in the marketplace.
Fresh Express is introducing 12 new salad blends, including a “Sweet Butter” blend and a “5 Lettuce Mix” salad blend. These new items have beaten out new products that were introduced by competitors this year.
Chiquita Minis are mini bananas that are packaged and guaranteed fresh for seven days.
Chiquita Apple Bites are pre-packaged, pre-sliced apples that are kept from turning brown. Subway has picked up Apple Bites and made them available at more than 14,500 restaurants.
Chiquita Just Fruit in a Bottle is a brand of 100 percent, fresh-fruit smoothes that are waiting to break into the North American market.
These were just a few of the products we have introduced in 2006. We look forward to seeing these products excel. As we move into 2007, we are excited to preserve our reputation as an innovator by continuing to test and introduce great new products. Chiquita’s dedication to innovation is what separates us from the rest.
We are thankful that you are investing in our family of products. Our shareholders are important to us. Chiquita wants you to know that we will continue to improve our products and operations to ensure that your investment is forever protected and continues to grow.
Fernando Aguirre
Chairman and CEO
April 12, 2007