Allied bosses warned to stop rot in profits

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The Independent Online
Allied Domecq's new chairman Sir Christopher Hogg has given the spirits to pubs group's senior management a stark ultimatum: improve profits at what has been one of the FT-SE 100's worst performers or face the consequences.

Tony Hales, chief executive, underlined the pressure being placed on them by Sir Christopher, saying: "We have no illusions that a return to earnings growth is the priority, and that this management team will be judged on that basis. We are determined that our strategy should deliver sustainable profits recovery."

He was speaking as Allied confirmed the profits warning it made at February's annual meeting, its second gloomy trading statement in little over half a year. Profits in the six months to February tumbled 24 per cent to pounds 317m (pounds 416m), thanks mainly to a slump in profits at the group's spirits and wine operation.

Despite plenty of warning, the shares slipped another 5p to 497p as the City digested a dividend of 9.44p for the six month period and the broad hint that the payout would remain largely unchanged at about 23.6p for the full year to August.

Attention was firmly focused on Sir Christopher's strategy for the future. Great faith has been placed by investors in his ability to reverse the underperformance of Allied's shares in recent years with expectations aroused that he would replicate the successful demerger of Courtaulds from its textiles arm.

Investors have questioned for some time the logic of combining a global spirits marketing operation with a retailing division that takes in UK pubs and American food outlets such as Baskin Robbins and Dunkin Donuts and advocates of a demerger have put a value of up to 670p a share on the break up.

Sir Christopher refused to be drawn, saying only that demerger was always an option that a "responsible management" would consider. He also played down the danger to senior management jobs, saying: "I am very much in support of what management is doing to make Allied work better."

The company also declined to comment on recent speculation that it might be close to disposing of its 50 per cent stake in the Carlsberg-Tetley brewing venture to Bass. Having lost its top spot to Scottish & Newcastle, following their purchase of Courage, Bass is understood to be keen to forge a deal.

During the six-month trading period, spirits and wine continued to suffer from the flat world-wide market for spirits. Volumes of Allied's brands slipped 3 per cent and the division's margin fell from 21 per cent to 18 per cent.

Investment column, page 18