Increased export sales, improved cost management and better work practices were largely responsible for Farsons’ latest improved financial results, group chief executive Norman Aquilina tells The Times Business in an interview.
Group turnover for the financial year ending January 31, 2011 increased by 3.4 per cent to €67 million yet pre-tax profit increased by 30 per cent from €3.1 million to over €4 million.
“While we witnessed some growth in our sales revenue, there was a marked improvement in cost efficiency and overhead containment which resulted in a stronger and disproportionate improvement in our bottom line results in relation to turnover. I think it is important to highlight that this improvement did not come about as a result of some extraordinary activity. It came about as a result of an increase in our operating profit which now totals €6.3 million.
“If I had to single out a number of points which significantly contributed towards the results I would highlight three areas: Increased sales, particularly export sales; improved cost management; and improved productivity throughout our operations while also improving work practices.
“All this has been spearheaded by a stronger and largely newly-restructured management team. We have also continued to focus on maintaining profitable growth and divesting from non-profitable operations within the group,” he says.
Explaining the improved work practices Mr Aquilina says the company’s collective agreements, finalised this year with both the GWU and UHM, focus more on performance pay and a number of measures which make the organisation more efficient such as staggered breaks, banking of hours, more flexibility, training of employees and having more multi-skilled workers.
“There was a good level of understanding on the part of the unions and both sides understood that it was a win-win situation both from the company and employee point of view. And generally speaking, apart from right-sizing our structures, ensuring that they are fully effective and cost efficient, we have put in place a stronger objectives-based and results-driven management culture across our group,” he says.
Mr Aquilina says the total liberalisation of the beverages market increased the importance of export growth, especially when one considers the size limitations of the Maltese market and today exports form an integral part of the company’s growth strategy.
“Over the last couple of years we have seen growth in a number of export markets and today we export to 15 countries in the European Union, North Africa, North America and Australasia. Cisk is growing in the Italian market and we have seen encouraging signs of Cisk in China. We have also made some inroads in various markets with Kinnie, the latest being London.
“The Mediterranean region probably offers the most potential for us, with Italy currently being our largest market for beer exports. We also believe that Libya – a market in which we had been regularly exporting both Kinnie and a zero alcohol Cisk variant prior to the conflict – will offer more opportunities once this conflict ends,” he explains.
The company’s two exported brands, Kinnie and Cisk, are exported from the plant in Mriehel, except for Kinnie in Australia which is still produced there under franchise. Kinnie’s performance in Australia, he says, has been “modest but encouraging”.
He says the export business is “very challenging” because despite the brands’ recognition and strength locally, one has to start from scratch when exporting.
“This obviously involves a lot of time and effort. We have had some encouraging results and our strategy is to focus on regions and niche markets instead of markets in their entirety. This has given us a flexible edge when competing with the multinational big brands.
“Additionally, locally-based organic growth within a liberalised and highly competitive market has brought along with it the need for a more determined drive on innovation – whether in the form of product, package or outright business innovation. This, along with our export drive, forms the basis of our growth strategy.”
Among a number of measures on cost management, the company managed to reduce its energy consumption by 12.5 per cent and its water usage by 10 per cent. Mr Aquilina points out that the increased energy tariffs made it necessary for companies with hefty utility bills to review their energy infrastructure and resultant consumption “also taking environmental considerations into account”.
“We have invested in new equipment which makes us more energy efficient. We have also put in place a very meticulous planning process to ensure that energy demand is managed well. Furthermore, our recycling of water is one of the main measures we took which resulted in a reduction of our water costs,” he says.
Mr Aquilina says the problem of companies importing beverages from Sicily without paying taxes still exists but acknowledges the authorities have made some progress in curbing this abuse.
“Being a liberalised market means there will always be an element of this problem. We are talking about people avoiding not only eco tax but also VAT and excise tax. However we have to recognise that the authorities have taken some measures and there have been some improvements.
“Today companies which comply with packaging waste recovery requirements can obtain exemptions over paying eco-tax. Instead of paying this tax they pay towards the recovery of packaging waste via an authorised scheme. At Farsons we are committed to recovering at least 70 per cent of packaging waste that we place on the market.
“Furthermore, a recent legal notice allows for refunds of previously paid eco-tax by complying companies, however, this has yet to be implemented which is causing growing frustration among the business community,” he says . He points out that the construction of the new €14 million brewhouse is at an advanced stage. The plant is being manufactured in Germany and is planned to arrive locally in October when its installation will start. It should be completed by late June next year.
“The new brewhouse will replace the existing one, which is about 60 years old, even though it is still in a good operating condition. However technology has advanced considerably and the new plant will result in further energy reduction.
“It will automate a good deal of the processes involved in the brewing of beer, most notably the handling of malt. This investment highlights our ongoing commitment to improve quality standards and to make use of the latest technological developments.”
Mr Aquilina emphasises that Farsons is a group of companies and that although its core business remains that of a brewery and beverage producer, it also imports wines and spirits, foodstuffs and has a fast food franchise business.
Rather than diversify its product and service range, he says, the group intends to extend and continue to advance its business interests in the fast moving consumer goods category. A significant example, he points out, is the company’s representation of Red Bull since 2010.
“These are all important components within the group, and I must emphasise the competitive environment we work in. The contribution of the subsidiary companies to the group has increased, especially since the acquisition of Quintano Foods in 2004. Each business sector compliments each other because we are essentially servicing the same client base,” he says.
He describes the company’s fast food business as “very demanding” and says last year the results were somewhat penalised by the increases in the cost of food and energy at a time when it was difficult to pass on these increases to clients.
“We absorbed these increases and it did impact on our results. However we are now gaining ground and have strengthened our senior management team in this sector,” he adds.
Mr Aquilina says 2010 was a good year for tourism and 2011 looks encouraging “which is good especially since we have two Maltese brands which we are very proud of, Cisk and Kinnie, which are equally popular with both locals and tourists”.
Looking ahead, Mr Aquilina says: “We are strategically repositioning and systematically restructuring ourselves to better exploit the arising growth opportunities, while also better addressing the challenges of today and tomorrow. We need to make sure that we remain well positioned to satisfy market demands within all the businesses we operate in, giving that competitive value-added on all the products and services we offer, while securing the right return on our group investments”.