More on Aga Foodservice
Aga Foodservice
Aga’s 2004 turnover was up 11.5% to £435m and operating profit (before exceptionals and goodwill) was up 12.8% to £30m (+11% organic).
Aga caters to two markets:consumers and other businesses. Aga’s consumer businesses (55.5% of operating profit) sells cooking and refrigeration equipment to consumers. Aga’s foodservice business (44.5% of operating profit) sells commercial catering, bakery and refrigeration equipment to other businesses such as hotel and supermarkets. The bulk of the operating profit (88%) is generated in Europe (including the UK) with the balance generated from sales to the US.
The full year profit growth was driven by a strong performance of the consumer business (Aga-Rayburn, Rangemaster etc) which was partially offset by lower profits from sales to the US in the foodservice business.
The consumer businesses’ sales were up as Aga increased the number of displays siginificantly (which increased volumes), and introduced newer products. Bulk of the profit is generated in Europe, where sales increased by 14% with sales to the US up 30%. Margins improved in both regions.
Sales to the commercial food industry were good in Europe (up 6.2%) but poor in the US (down 2.4% with no CER numbers given). The US business suffered from poor sales and increased raw material prices, which Aga failed to pass on to the customers. Aga comments of a good up turn in capital expenditure in Europe of “some major accounts” which explains the improvement in margins. Aga’s European margins fell in 2003 due to the said customers reducing capital expenditure, and margins fell though sales increased. This suggests that Aga sells some high margin products to a few industries, hence the fluctuations in margins. The margin improvement is still short of 2002 which may indicate further improvement as sales to those customers increase. Aga’s “Infinity Fryer” appears to be well received, which is still being tested.
Aga’s shares trades at a prospective PE of 12.4× (at 318p) and has 2.8% yield both at the lower end of the range for the sector. Aga plans to continue buying back shares and to continue to acquire smaller companies. Free cash flow per share of 14.5p is below 2004’s EPS of 24.7 but is an improvement from 2003 due to lower capital expenditure.
Aga is highly operationally geared and most of its revenues are cyclical (55% from what are in effect luxury goods although the company does not label them as such). Newer products should increase future profits. The short term profit growth may be held back by increases in raw material prices and energy costs.
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