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Farsons Group increases turnover in a turbulent year 01/07/2005

At the 58th Annual General Meeting of Simonds Farsons Cisk plc, shareholders approved the Board’s recommendation for a total net dividend of 2c4 per Ordinary Share of 12c5 out of tax exempt profits. This amounts to Lm604,000 which is equal to last year’s dividend.

While addressing the shareholders, Company Chairman Mr Bryan A. Gera referred to the 8% increase in Farsons Group’s turnover during the past financial year reaching Lm26.8 million (which ended on 31 January 2005). This increase has not been reflected by an increase in profitability.

Group Profit

The Group Profit before taxation and minority interests for the year reached Lm826,000. The Group’s Chairman said: “One cannot compare the profit after taxation with last year’s figure, which included a significant write back of Lm1,441,000 in the deferred tax provisions made last year as a result of the parent company’s eligibility to tax benefits under the Business Promotion Act.”

New accounting policy for property revaluation

On the valuation of property, Mr Gera reported that the Board had approved a change in the accounting policy. Investment properties that were previously valued at cost, according to the new policy are now being valued at open market value. This increased shareholders’ reserves by Lm1.1 million after providing for deferred tax on this revaluation.

Four distinct businesses

Mr Gera informed shareholders that the restructuring exercise of developing the Group into four distinct and compatible businesses is now complete. These are: Production and Sale of Beers and Beverages; Importation of Food, Beverages, Wines and Spirits; Food Franchising; and Property Management. “Each of these companies has its own management structure with clearly defined responsibilities ensuring that each brand and product line is carefully nurtured to optimise its potential in the Maltese market,” he said.

Farsons Group in an open market

Referring to this new scenario, faced by a large number of new beers at a wide range of prices and, for the first time, the parallel trading of the major international brands of imported beers, Group Chief Executive Mr Louis A. Farrugia said:

“Envisaging this new reality, Farsons adopted a strategy of competing at all levels. Our performance has been credible. Local production decreased marginally whilst profit margins were also put under pressure. But additional local value-added has been won through the agreement with Anheuser-Busch to package Budweiser in Malta. We can state that Farsons actually increased its production of packaged beer during the year under review. This was part of the strategy of the Group to optimise its resources and minimise the impact of a fully liberalized beer market on the Company’s operations.”

Product Performance

In his presentation, Mr Farrugia explained how during the year under review Farsons continued to further strengthen its brands, structures and operations, and also work on plans to develop and innovate new brands and products, introduce new operations systems and adjust existing selling structures to meet the new dynamics of the marketplace.

Cisk continued to be the largest beverage brand in Farsons portfolio and now becoming an example of how a Maltese brand, which is consistently of high quality and properly supported, can withstand the onslaught of larger imported international brands.

Mr Farrugia reported that Farsons’ beer pricing policy, backed by intensive and new marketing campaigns, has paid dividends.

As from May 2004 onwards, the number of new bottled water brands on the market increased substantially and, very rapidly, led to a price war putting serious pressure on the company’s margins. A secondary brand, Aquadot, was developed and Elan Still and Sparkling Water were also re-packaged to maintain volumes. San Michel is still the leading water brand on the Maltese market. In addition San Michel Fruitwaves – a range of lightly flavoured waters – was successfully launched.

Kinnie, the company’s flagship soft drink, remains a most important asset of the Group and has the potential to be exported to Europe. Management’s attention is now focused on the full liberalisation of the soft drink sector in January 2008 when soft drinks could be sold in one-way packages.

Operations

The Group Chief Executive reported that operations management has been reorganised and strengthened ahead of the major investment plan announced last March. This plan includes three significant projects: a new Soft Drinks Packaging Plant, a new Logistics Centre and a new Brewhouse. The plan spans over a period of six years and work on the new soft drinks facility has already commenced.

Importation of Wines, Food, Spirits and Beverages

This segment of Farsons business now comprises 29% of the Group’s turnover. Faced by the new realities, both Wands Limited and Anthony Caruana & Sons Limited have performed well.

A major innovation was the launching of the Group’s own brands of wines produced and bottled in Chile, Argentina, France and Spain. Both ‘Villa Tritone’ and ‘Compass Point’ brands are owned by Trident Wines Limited – a fully owned subsidiary within the Group. Sales of both brands, in a fully liberalised wine market have been very satisfactory.

Mr Farrugia stated that Farsons are satisfied with the performance of the newly acquired business which now trades under a wholly owned subsidiary called Quintano Foods Limited.

Eco-Pure Premium Water Company Limited, another subsidiary that sells 19 litre water bottles for dispense, has once again turned in a very satisfactory result.

Food Franchising

Through aggressive marketing, product innovation and operational initiatives, during the year under review, Food Chain (Holdings) Limited has maintained its necessary focus on sales building of its three franchisees: Burger King, KFC and Pizza Hut.

Property Management

Given the investment plan already announced, a substantial amount of property owned and utilised by the Group will be released in the years ahead. The Board of Trident Developments Limited, the Group’s wholly owned property owning subsidiary, is preparing a plan on how best to maximize the benefit to all shareholders and this plan will become known as and when decisions unfold.

Mr Farrugia concluded:

“We are satisfied that in open and competitive markets we have risen up to the test. It was always our belief that the Group’s diversification programme, coupled with investment in all our resources, is the only way forward. We are steadfast in that, by persevering in this course and retaining our focus on the values and principles that have always guided this Group, Farsons shall move ahead and meet the challenges of a changing world.”