Simonds Farsons Cisk plc reported results which show it is back on track in spite of the difficult market in beverages.

Its financial results for the financial year ended January 31, 2003, show profit after tax of Lm1.04 million (2002: Lm0.6 million) which were more in line with the figure of Lm0.9 million for 2001. The 2000 financial statements showed profit after tax of Lm0.7 million and those for 1999, Lm0.3 million.

From the figures quoted it is clear that the group has kept steadily to its growth path and met challenges decisively.

Recently stockbrokers were invited to a very informative presentation during which they were updated on recent developments and which illustrated the organic evolution of the company's business strategy from being primarily a price-controlled brewer to a diverse group in an increasingly liberalised market.

As Bryan Gera, the company's chairman, put it in the annual report, "Farsons is no longer just a brewery or soft drinks bottler but a diverse group in the beer and beverage, food retailing, leisure and property management business. We now have four distinct businesses and considerable assets which need managing to the best possible return. This is our challenge and in an open market where trade barriers are being dismantled, we will face threats as well as opportunities. We intend to take up this challenge and grow our business for a better return to you all."

Last year was marked with very significant achievements, besides the jump in profits:

¤ consolidation of 7UP production at the Group's main facilities at Mriehel;

¤ start of operations by Trident Developments Limited which owns a substantial part of the Group's property and which this year sold property in Tower Road, Sliema, at a substantial profit;

¤ purchase by Trident Developments of Island Hotels Group's 50 per cent shareholding in Sliema Fort Company Limited, which has the lease of Il-Fortizza Complex in Sliema;

¤ acquisition of the 30 per cent shareholding in Eco Pure Premium Water held by American Liquid Packaging Systems, the previous partners, so that now Eco Pure is a full-owned subsidiary of Farsons;

¤ upgrading, refurbishment, and management of the Galleria shopping and leisure complex after the Group acquired majority control in January 2002;

¤ ISO 9001 certification which assists in managing and controlling product and service quality;

¤ Cisk Export won the Gold Medal for the Best European Pilsner from the Association of Brewers, based in Colorado, USA; classification by PepsiCo of Farsons in the "Premier Division" of bottlers, including 7UP bottling.

¤ further rationalisation of distribution and the opening of new depots in Gudja and Luqa.

Increasingly open markets, including EU membership, a far cry from protected-and-price-controlled environment 20 years ago, has been tackled in a methodical manner over a number of years. The dismantling of import tariffs on beer started this year. Beer turnover kept up well in spite of a slight fall in tourism.

The group also protected itself via the importation and distribution of major international brands, namely, Guinness, Budweiser, Beck's, and John Smith's.

Malta's policy on bottling has also been decided and our regime of returnable glass bottles will come to an end in 2007 to be replaced in 2008 by the EU's less environmentally-friendly liberalised packaging. This will give SFC more operational efficiency and free space in the group's main premises at Mriehel. To compete in more open markets, Farsons managed not only to diversify and diversify its brands, combining its own with international ones, but also to create new management units - such a property management - and do all this while strictly controlling costs. In fact, 77 per cent of the Lm0.7 million increase in profit before tax over the 2002 came from lower administration, selling and distribution costs.

According to Louis A. Farrugia, the group's chief executive, "there is sufficient evidence of how the Farsons Group has already faced the prospect of EU membership for Malta's economy. The exposure to competition from foreign imports has been with us for some time, and we have and will continue to develop strategies to meet stiffer competition. What is important is our ability to keep costs down to be competitive with producers in other markets who have better economies of scale due to the size of their market."

The food chain business went under the scalpel in 2001/2002 and emerged firmer, with strong cash flow and improved operating costs, profitability and customer ratings. The group expects to report "a reasonable profit" next year.

Cash from operations for the group as a whole also showed a marked improvement, increasing from Lm2 million in 2002 to Lm3.7 million in the 2003 financial year.

Farsons shares are trading at around 76 cents with a price-earnings ratio of 21. With 25.7 million ordinary shares in issue, the group's market capitalisation would be Lm19.5 million.

Market capitalisation at Lm19.5 million is 10 times the group's earnings before interest and tax (EBIT) which is not onerous by international standards for companies with a strong market share in their market and with profitability similar to SFC's.

Recently, for example, Heineken, in order to expand its central European presence, bought an Austrian brewer, BBAG, for €1.9 billion in cash and debt take-on, at 24 times EBIT albeit analysts thought the price to be too high and Heineken shares fell two per cent on the news. Heineken retorted that the price was "at the high-end" but "not unusual". Investors should not draw strict parallels as to valuation from such transactions but this case was quoted to assist investors put SFC's valuation in perspective.

Simonds Farsons Cisk is, and will increasingly become, open to international markets, and is still heavily dependent on manufacturing carried out in our geographically isolated area with a restricted market, though one which should improve economically.

On the other hand, considering the uniqueness of Farsons' shares in the market, the relatively small public float of the shares, management's track record, the property assets and brand values backing the group, and improving profitability, I think that the shares are good value.

Investors should analyse the group and seek advice from professional advisers taking in consideration their individual circumstances keeping in mind that the value of securities may fall as well as rise.

Mr Azzopardi is corporate stockbroker of Simonds Farsons Cisk plc.