Private Investor: Medium-sized Scots firms have the bottle the English lack

Well. As I have frequently written here, I have been sore disappointed by the share price performance some of the big blue chip (or formerly big blue chip) companies that I had thought would provide a solid and secure base for my port-folio;
Marks & Spencer and
Shell have been the villains for a long time.

Well. As I have frequently written here, I have been sore disappointed by the share price performance some of the big blue chip (or formerly big blue chip) companies that I had thought would provide a solid and secure base for my port-folio; Marks & Spencer and Shell have been the villains for a long time.

So it is just as well that I have always included a brace of well-managed medium-sized Scottish companies that rarely make it into the management textbooks or as models for business school case studies. Their executives are much less well-rewarded than their peers in the FTSE 100, but they seem to do a much better job of running successful firms.

I refer here to Belhaven, the Glasgow brewer, and AG Barr, the soft drinks firm, maker of Irn-Bru and Tizer, based in Dunbar. They are two old Scottish concerns that may still be around in a hundred years, more than we can necessarily expect of Shell and Marks and Sparks.

My faith in Belhaven and Barr has been well rewarded over the years with growing dividends and a roughly doubled share price in each case. Barr reported excellent results last week. There was a 13 per cent rise in annual pre-tax profits to £13.8m, with dividends 10 per cent higher at 25.5p. Barr has always represented a bit of an anomaly, in that Scotland is the only soft drinks market in the world where Coca-Cola has to play second fiddle (they have 24 per cent to Barr's 25 per cent). In the long run the position of national champions in individual markets tends to decline under the impact of economic and cultural globalisation. The fall in once-dominant market shares enjoyed by Guinness in Ireland and Fiat in Italy spring to mind.

So it may prove with Scotland and Irn-Bru. The good news is that the firm's management seem well aware of the trend, and are pushing hard into England, where they are still quite small. Barr has a new TV advertising campaign after "taking its foot off the promotional pedal" in 2003, in the words of one of its executives. Tizer may prove a harder brand to revive, but the licence to make Orangina, for as long as it lasts, should prove a reliable profit centre.

The other potential problem for Barr, in common with other soft drinks makers, is the public's taste for pop. Health concerns are taking the fizz out of the sugary drinks market. People want water and healthier drinks and while Barr owns a mineral water brand, Findlays, that accounts for only 1 per cent of sales. I think Barr is flexible and well enough managed with its strong family interest to be able to cope with these social changes, but I'm not sure the next five years will see my shares double in value again.

However, I should temper my enthusiasm for Scottish commerce by mentioning the big news from Standard Life, Edinburgh-based of course, last week. I have a very small investment with them, but that still makes me a member and therefore eligible for a windfall from the demutualisation which is now announced. Indeed it is perfectly possible that the value of the windfall will exceed the value of my investment in the Standard Life fund.

Do I sound like a carpetbagger? Well, reflecting on Standard Life, perhaps the carpetbaggers were right first time. As has been well noted in recent months, had Standard Life gone for demutualisation when the carpetbaggers first pressed for it a few years ago quite a lot might be different today. The firm would certainly have been able to raise vastly more capital than it could now with all the implications that has for the fortunes of its members.

Of course, as ever, the members of Standard Life, that is the policyholders, chose to follow the recommendations of the board and leave things as they were. Or rather the usual vast apathy that helps the boards of mutuals to get their own way in internal elections prevailed. As it happens I don't think I voted for demutualisation at that time because I believed the board's reassurances. I think we all know better now.

s.o'grady@independent.co.uk