Small is Beautiful

“Aga Rangemaster, the manufacturer of cast-iron cookers, among a lot of other things, has reported 2011 profits down by two-thirds or doubled – it depends how you look at it.”

Aga Rangemaster reported pre-tax profits of £7.5 million on sales of £250.9m for 2011, down from £19.9m and £259.1m last year.  However, the company has also said that the 2010 profit figures were inflated by a one-off adjustment to its pension scheme, so on an underlying basis 2010 profits were £3.6m. So, it seems to me that the company has doubled its underline pre-tax profitability, while sales declined by 3 per cent. Certainly a better story than the headline figures suggests, but why is it making so little money?

The company says it intends to increase overseas sales, blaming the UK’s sluggish economy for a slow down in sales of its prestigious Aga cooker range. It sold 11,000 Agas in 2011, 650 fewer than the previous year and some way down on the 19,600 it sold in 2007. The company says it not only intends to reduce costs but also to return sales to previous levels. Overseas sales have been growing over the last five years and now stand at 37 per cent of the total: the company is aiming for 50 per cent.

From the purely anecdotal evidence of how Aga prices have risen in the last decade or so, and by taking a look at its price list, I would hope that the company makes a stonking great margin on its flagship product. Whether the decline in numbers sold is just down to the economy, or has something to do with its already high penetration of what is after all a smallish market for these iconic cookers, which it has dominated now for many years, is a little harder to judge.

If I am right though, about the profitability of the Aga brand, then the many other businesses and brands that it owns can’t be doing too well. Even this year it is only managing 3 per cent pre-tax profit and last year it was half that. Aga Rangemaster brands include: Aga, Rangemaster, Divertimenti, Falcon, Fired Earth, Grange, Heartland, Le Cornue, Leisure Sinks, Marvel, Mercury, Rayburn, Stanley, Waterford, Redfyre and Cookcraft. That’s a lot of brands. Clearly the company thinks that a broader range of brands will compensate for the decline in range sales. But just adding more brands doesn’t seem to have worked too well, apart from making the company bigger. And why would it? None have the brand strength of Aga.

Will expanding overseas sales help? Well, it doesn’t seem to have helped so far, unless this year’s extra 1.5 per cent of net profits comes from there.

It looks to me as if Aga Rangemaster has been chasing growth for some time now but profitable growth has eluded them. Its latest venture, into the Cookcraft range of “quality cookware at affordable prices”, seems to take it even further from its core. I think that the company is now too diversified; spread too thinly. A spot of refocusing would make it a more profitable and more valuable business, if a little smaller.

Mark

 

 

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