Business interview: Les Montgomery, Highland Spring
Highland Spring’s chief executive was over the moon earlier this year when the company’s flagship product was confirmed as the UK’s top-selling water brand, knocking long-time holder Evian off that perch. It was, Montgomery said, a “British success story”, signalling the end of 30 years’ domination by imported multinational brands.
Sizzling temperatures in June, July and August have left the privately-owned firm on course for double-digit sales growth this year, putting Highland Spring within touching distance of the £100 million turnover target set by Montgomery five years ago.
Montgomery sees scope for the company to further increase its share of the UK bottled water market, but is eyeing other opportunities as well. He describes the next phase of development at Highland Spring as a period of “optimisation and diversification”, with 50 per cent of profit growth during the next five years coming from “things we don’t do today”.
“In the future, we won’t necessarily sell everything that we produce, and we won’t necessarily produce everything that we sell,” Montgomery says. “We have got a few other things we would want to be in beyond beverages.”
His somewhat enigmatic explanation suggests the possibility of joint ventures and strategic partnerships, a point he concedes without giving too much more away. A few preliminary discussions have taken place with the owners of brands that share Highland Spring’s ethos of “honesty, purity and integrity”, and deals could be announced as soon as next year.
Later today, Highland Spring will file financial results for 2012 with Companies House that show an 8.3 per cent rise in turnover to £86.5m. Operating profits, however, took a 23 per cent hit, falling to £4.3m.
About half of that decline is linked to a historical VAT provision from several years earlier. The other half is down to the vagaries of mother nature.
Back in the early spring of 2012, the Perthshire-based firm decided to gear up the four bottling lines at its headquarters in Blackford and the four lines turning out Hydr8 in Lennoxtown for 24/7 production. Forecasters were predicting a hot summer, and Highland Spring was preparing to capitalise.
But – unlike this year’s record warm weather – the soaring temperatures failed to materialise in 2012.
The additional bottling shifts proved surplus to requirements, so the 40-plus people hired to run them turned into an additional cost. Highland Spring also took a hit on off-site storage for excess stock, plus increased distribution costs.
Maintaining market share and growth through the soggy summer required a heavy amount of promotional activity, which saw profit margins deteriorate by some 1.7 per cent.
Despite the financial impact, Montgomery decided to keep the lines geared up for full capacity. He then went one step further this spring, spending £1.7m on a new system that increased capacity at the Blackford warehouse by a quarter to 16,000 pallets – the equivalent of about two weeks’ worth of sales.
Those decisions are now paying off. When the heat pushed sales up by a whopping 36 per cent in July, Highland Spring was able to keep pace.
“Demand was exceptional in the first two weeks of July,” Montgomery says. “We managed to supply to a good level, whereas some of our competitors struggled to keep stock on the shelves in the second part of the month.”
The firm is now projecting full-year sales of £97m for 2013 and, while this would be a tad short of Montgomery’s £100m target, he seems reasonably happy with the result. Since Highland Spring has been “less vigorous” this year in its promotional activity, profits are expected to rise in line with turnover.
Born, raised and still living in Falkirk with his wife and two daughters, Montgomery is a Highland Spring man through and through.
He left school at the age of 16 to take up a trainee position with Macfarlane Gray back when it was still a tiny accountancy firm with a sole office in Stirling. He continued his training while working and although, he enjoyed the discipline of accounting, by 1985 he had decided he didn’t want to be an auditor.
“So I quit, and a mate who worked at Highland Spring said ‘You should come and work here – it’s a great company’, so I applied and got a job,” he recalls.
With just four of Highland Spring’s roughly 60 staff working in the finance department, Montgomery was given a mix of work during his initial period as an assistant accountant. His career progressed along with the company’s growth, leading to his appointment as finance director in 1993, followed by the chief executive’s post in 2008.
The following year, Montgomery went on to spearhead the acquisitions of Speyside Glenlivet and the water division of Greencore Group, laying the foundations for a business that now employs 478 people across five sites.
As opposed to the warehousing investment earlier this year – an “operational matter” where Montgomery has full latitude – acquisitions are discussed with the company’s owner, the Dubai-based Al Tajir family, who set up Highland Spring in 1979.
“They are informed and interested, and not overly-involved, but supportive,” Montgomery says. “They are also very proud of the brand, and very proud to have the number-one brand in the UK.”
Although provenance is a key aspect of the Highland Spring identity, Montgomery describes the business as a “British company”. About 97 per cent of it sales are UK-based and, within that, 85 per cent by volume goes south of the Border.
With the majority of his customers in England, Montgomery has taken an active interest in the debate around Scotland’s independence referendum. However, there is a sense of frustration at the lack of detail that has emerged so far from either side.
“I am more excited about the Ryder Cup next year than I am about the referendum, and that is wrong,” he says, looking slightly bemused by his own statement. “One is going to have a short-term impact, and one is going to change things forever.
“But there are more facts out there about the Ryder Cup,” he adds, rattling off the now-familiar statistics on visitor numbers and economic impact of the event which Highland Spring is co-sponsoring. Such details, he says, are lacking in the independence debate.
“Until somebody tells me how it is going to operate, I can’t say what it would mean for us as a business.”
30 SECOND CV
Born: Falkirk, August 1963.
Education: Woodlands High School, Falkirk.
First job: Paper round from the age of 12 to 16.
Ambition while at school: A lawyer in second year, an accountant by fourth year.
Car you drive: Porsche Cayenne.
Kindle or book? Kindle – I wouldn’t have said that two years ago, but I love getting the sample of the first chapter of something new.
Can’t live without: My family.
Favourite place: New York.
What makes you angry? People covering things up and not taking responsibility.
Best thing about your job: Having the choice of how you do things, and when you do them.