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Farsons Group increases its turnover and profits 6/29/2004

The Company is actively monitoring post-EU accession reality

At the 57th Annual General Meeting of Simonds Farsons Cisk plc, while addressing the shareholders, Company Chairman Mr Bryan A. Gera referred to the improvement that the Farsons Group registered in its performance during the year ending 31st January 2004.  The Company reported an increase of almost 5%  in turnover from Lm23.6 million to Lm24.7 million.   The Group made a profit before taxation and minority interest of Lm1.003 million.

Group Chief Executive Mr Louis A. Farrugia also gave a presentation on the Group performance and an indication of how the Group was performing in a fully liberalised market. Referring to the performance of the Company since May 1st 2004, Mr Farrugia said:

“The full liberalisation of the market has impacted on our business. Management is closely monitoring the situation and is taking the necessary steps and will continue taking steps to protect and buffer the Group from adverse impact on our business, while seizing the opportunities which the new reality offers.”

Shareholders Funds reach Lm14.7 million

Mr Gera referred to the change in tax provision resulting from the company’s eligibility to benefits under the Business Promotion Regulations 2001 as from the year of assessment 2004.  This will mean that the Deferred Tax provision previously required is no longer needed. He said: “The face of the Group Balance Sheet has thus changed significantly and earnings per share improved threefold. In fact, Shareholders Funds have now reached a record Lm14.7 million despite the fact that Lm3 million Preference Shares were redeemed in October 2002. At the same time, our Group Borrowings decreased from Lm13.6 million to Lm12.6 million.”

The Group’s Diversification Strategy

The Chairman pointed out that the diversification strategy which Farsons Group has embarked upon is proving to be the best way to counter for the impact of the liberalisation process as Malta joined the European Union on 1st May 2004.

“As we look at the Group’s performance we can report that our ‘locally produced’ business has stood up to the dismantling of import levies whilst our ‘import’ business has grown,” explained Mr Gera.

He referred to the important agreement reached with Anheuser-Busch last March allowing Farsons to bottle Budweiser in Malta.  Anheuser-Busch are well know for their exacting high quality standards and when their experienced brewers audited Farsons Brewery for a further Lm1 million investment upgrade in plant and machinery, their approval for the agreement was at the highest level.

Through this development, we have secured a longer-term distribution agreement for Budweiser in Malta. We are indeed pleased in having such a prestigious brewing group as our long-term partner,” said Mr Gera.

Difficult market scenario

Referring to the trading scenario during the last eighteen months, Mr Louis Farrugia, referred to the fact that a number of factors including the uncertainty over the country's political future faced in the first quarter of 2003, followed a period when the market faced up to the real implications of Malta's entry into the EU, a mere 1% increase in Gross Domestic Product, a less than buoyant tourist trade performance, and an increase in VAT on supply of products and services from 15% to 18% have all contributed to a difficult local market for consumer products whilst competition continued to intensify in all sectors.

Medium and Long Term Vision

“As part of our medium to long-term vision, Farsons Management is also working on a substantive investment plan for the upgrading of our production facilities and in particular the building of a new brewhouse and a new soft drinks factory. These plans, once approved by the Board of Directors, will be announced in the next 18 months,” said Mr Farrugia.

In his presentation, he 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.

These pro-active steps have led the Group to register overall satisfactory trading results including improved performance of its subsidiary companies which benefit from removal of levies. As part of the Group’s diversifiaction strategy, Farsons acquired Guido Vella Cash & Carry", a wines, spirits and beverages wholesale and retail business.

“As the market is fully liberalised, the consumers' distinction between locally produced and imported products decreases and every product, wherever its origin, has to demonstrate its ability to compete for quality and value for money. This principle is well understood within the Group and therefore Farsons brands, both Company-owned and imported ones, are constantly supported by marketing campaigns to maintain consumer awareness at the highest levels.  A number of products have also had packaging upgrades to ensure that their image remains high. Our brands represent a very valuable asset and make the Farsons Group what it is today,” said Mr Farrugia.

Product Performance

Referring to product performance, the Group Chief Executive reported that San Michel table water maintained its position in the market and competes favourably with imported brands, while the resilience of Farsons own beers was tested against the competition of imported beers. Despite that the levy imposed on imported beers has been decreasing gradually since July 2003, during the latter part of the financial year, the volumes of Farsons beer sold increased when compared to the same period of the previous year. Notwithstanding that some of the imported brands will be very competitive, Farsons is confident that the preference of both Maltese consumers and tourists for Cisk Lager, Cisk Export, Hopleaf Pale Ale and Blue Label Ale will prevail.

Moreover, the introduction on the market of locally brewed Skol Beer, under licence from Carlsberg International has given additional strength to the Group in the beer sector. This brand, which is well known in the United Kingdom and other markets, managed to secure a substantial share of the value-for-money segment in a relatively short period of time. Farsons therefore has the advantage of offering the consumer a wide range of beers of both local brands and international brands in the freshest possible condition.

The Group's expertise in handling imported beer has been recognised by all our principals and this expertise is paying good dividends at a time when the market is undergoing such a major change. It is becoming evident, more than ever before, that handling imported beer could be fraught with problems which can only be avoided by those who, like Farsons, have not only the expertise but also the facilities to store, distribute and service beer outlets in a professional manner.

With reference to the Group’s Subsidiary Companies, Mr Farrugia reported that it is evident that the improved performance of Farsons’ subsidiary companies is becoming more significant every year. They have been the principal reason why the Group's results are positive during the last financial year.

Following re-structuring of Food Chain Holdings’ fast food business over the last two years, this business has performed excellently throughout the year and for the first time has registered a profit. “We shall further strengthen this business and focus on giving all our clients the best value and quality whilst at the same time ensure that our operations are cost efficient in every respect. The operation of TGI Friday's by Food Chain Holdings has also shown an improvement in profitability,” he said.

Both Wands Group and Anthony Caruana & Sons Limited have had a very good year and both companies continued with their positive profitability trend. The diversification of these companies' product portfolio over the years, and a greater focus on margins and operating costs are helping towards improved results.

Another subsidiary company which registered a very satisfactory performance during the year under review, was Eco-Pure Premium Water Co Limited. This Company continued to strengthen its customer base and register volume growth.

Trident Developments Limited continued to increase the focus needed to optimise the utilisation and value of the various properties of the Group which it was entrusted to manage. The appointment of a Board of Directors to overview this work is helping to bring the attention needed to turn this business into a more profitable unit.

Vita Sana srl in Italy is gradually establishing itself and making in-roads in the 19 litre bottled water market in Treviso. This subsidiary company is replicating the operation of Eco-Pure Premium Water Company which operates in Malta, and is fast acquiring a good reputation for efficient service, good quality mineral water and value for money.

Training and Quality

The Group has embarked on training programmes for all levels of employees, aimed at bringing about changes in work practices and helping employees to acquire new skills. Regular audits by SGS Yardsley, the certifying company, to maintain ISO 9001 certification, are showing encouraging results and are confirming that the quality management system model has been well adopted throughout the Company and is being extended to subsidiary companies within the Group.

Mr Farrugia said that another important initiative, which is proving to be a highly motivating factor, is the Employees Suggestion Scheme. This scheme is not only producing cost saving suggestions by the employees themselves but is giving a sense of pride and belonging to all staff members. Recognition for participation and award winning suggestions is given during special ceremonies held at the Brewery.

“Exposure of competition from foreign imports has been on the increase. We have and will continue to develop strategies to meet stiffer competition”, he concluded.

The Annual General Meeting approved a dividend of 2c05 per Ordinary Share of 12c5 out of tax exempt profits.