Farsons 2008 interim results
Collection of eco tax highly inefficient - Farsons
The eco contribution has proven to be a highly inefficient tax in terms of collection, Farsons Chief Commercial Officer, Norman Aquilina, told The Times Business shortly after the company announced decreased operating profits for the first six months of the year. Farsons highlighted unfair competition in the soft drink markets as one of the reasons for the lower profits.
"Regrettably, we have had to repeatedly complain to the authorities about the amount of soft drink imports sold on the market which have not been subjected to the payment of eco contribution and also VAT. Farsons has paid millions of euro by way of eco contribution alone, since its introduction back in 2004.
"Nonetheless, this eco contribution has clearly proven to be a highly inefficient tax in terms of collection.
"It should have also been more equitably applied, apart from being paid by all concerned, and, of course, being made to good use given the ecological objective behind this taxation," Mr Aquilina said.
He added: "The stark reality is that enforcement on this issue leaves much to be desired, and one must add that even when the authorities do make that occasional inroad, there is the additional hurdle of the excessively lengthy legal process to bring any offenders to book. This is really unacceptable and we will continue to insist that the situation is brought under control."
Farsons' turnover rose by 4.6 per cent in the six months to the end of July but its pre-tax profit dropped to €1,520,000 compared to €3,312,000 last year.
The group said its turnover grew to €35,306,000. The gross profit margin decreased from 23.4 per cent to 21.5 per cent and the operating profit amounted to €2,010,000 compared to €2,905,000 in 2007.
The company has in fact decided to embark on a cost-cutting programme including a head count reduction of 60 persons within the next 12 months.
Mr Aquilina said that in order to have a better understanding of the company's interim results for the six months up to July 31, one must first place matters within the broader perspective.
"In late 2007 we started operating within a fully liberalised soft drinks market, which, as expected, has led to a very different market landscape, both from a business as well as from a consumer point of view. The timing was further complicated as a result of the acute agro inflationary pressure and rising fuel costs which gave rise to substantial price increases for the purchase of a number of packaging and raw materials," he said.
In anticipation of this market liberalisation, Mr Aquilina said Farsons succeeded in the timely commissioning of the planned new packaging plant.
"Initially, we experienced a low production output which is to be expected when commissioning a new sophisticated plant.
"These matters are however being addressed and production efficiencies are now approaching target levels. In parallel, as from this year, we moved away from a decentralised multi-depot set-up, and commenced operations within a newly built centralised logistics centre managed via a new warehouse management system."
Mr Aquilina explained that as expected, there has been a clear preference for one-way soft drinks packaging.
"This has been mainly demand driven by both consumers and retailers alike. In contrast with the general perception, one-way packaging cost structures are more expensive per litre compared to two-way returnable packaging. Therefore, while we managed to increase sales in terms of volume, this has resulted in lower contribution levels per litre sold. This has been further compounded by the simultaneous downward price pressures brought about by the opening up of the import market for soft drinks," he said.
However, Mr Aquilina said it is important to acknowledge that the Group's six-month turnover improved by 4.6 per cent right across all business segments, with beer sales in particular registering growth in value and volumes. The franchise food retailing and food importation businesses also performed particularly well.
Regarding the company's decision to reduce its employee level by 60 people, he said: "As part of a comprehensive plan to restore profitability levels, we are reviewing our cost structures to render them better aligned with today's market realities. It is within this broader context that we have opted to reduce our head count by 60 over the next 12 months."
Mr Aquilina said the reduction will take place through natural and early retirement, "which essentially means that employees, whether blue or white collar or management, upon reaching retirement will in some instances not be replaced, while in some other instances will be offered early retirement just before reaching retirement age."
"Regrettably, we have had to repeatedly complain to the authorities about the amount of soft drink imports sold on the market which have not been subjected to the payment of eco contribution and also VAT. Farsons has paid millions of euro by way of eco contribution alone, since its introduction back in 2004.
"Nonetheless, this eco contribution has clearly proven to be a highly inefficient tax in terms of collection.
"It should have also been more equitably applied, apart from being paid by all concerned, and, of course, being made to good use given the ecological objective behind this taxation," Mr Aquilina said.
He added: "The stark reality is that enforcement on this issue leaves much to be desired, and one must add that even when the authorities do make that occasional inroad, there is the additional hurdle of the excessively lengthy legal process to bring any offenders to book. This is really unacceptable and we will continue to insist that the situation is brought under control."
Farsons' turnover rose by 4.6 per cent in the six months to the end of July but its pre-tax profit dropped to €1,520,000 compared to €3,312,000 last year.
The group said its turnover grew to €35,306,000. The gross profit margin decreased from 23.4 per cent to 21.5 per cent and the operating profit amounted to €2,010,000 compared to €2,905,000 in 2007.
The company has in fact decided to embark on a cost-cutting programme including a head count reduction of 60 persons within the next 12 months.
Mr Aquilina said that in order to have a better understanding of the company's interim results for the six months up to July 31, one must first place matters within the broader perspective.
"In late 2007 we started operating within a fully liberalised soft drinks market, which, as expected, has led to a very different market landscape, both from a business as well as from a consumer point of view. The timing was further complicated as a result of the acute agro inflationary pressure and rising fuel costs which gave rise to substantial price increases for the purchase of a number of packaging and raw materials," he said.
In anticipation of this market liberalisation, Mr Aquilina said Farsons succeeded in the timely commissioning of the planned new packaging plant.
"Initially, we experienced a low production output which is to be expected when commissioning a new sophisticated plant.
"These matters are however being addressed and production efficiencies are now approaching target levels. In parallel, as from this year, we moved away from a decentralised multi-depot set-up, and commenced operations within a newly built centralised logistics centre managed via a new warehouse management system."
Mr Aquilina explained that as expected, there has been a clear preference for one-way soft drinks packaging.
"This has been mainly demand driven by both consumers and retailers alike. In contrast with the general perception, one-way packaging cost structures are more expensive per litre compared to two-way returnable packaging. Therefore, while we managed to increase sales in terms of volume, this has resulted in lower contribution levels per litre sold. This has been further compounded by the simultaneous downward price pressures brought about by the opening up of the import market for soft drinks," he said.
However, Mr Aquilina said it is important to acknowledge that the Group's six-month turnover improved by 4.6 per cent right across all business segments, with beer sales in particular registering growth in value and volumes. The franchise food retailing and food importation businesses also performed particularly well.
Regarding the company's decision to reduce its employee level by 60 people, he said: "As part of a comprehensive plan to restore profitability levels, we are reviewing our cost structures to render them better aligned with today's market realities. It is within this broader context that we have opted to reduce our head count by 60 over the next 12 months."
Mr Aquilina said the reduction will take place through natural and early retirement, "which essentially means that employees, whether blue or white collar or management, upon reaching retirement will in some instances not be replaced, while in some other instances will be offered early retirement just before reaching retirement age."