Margins in food manufacturing are 8 per cent while in retailing they are an understated 12 per cent and in Hiram Walker, before including Domecq's lowly 5 per cent return on sales, they are 22 per cent. A shift to spirits and retailing will enhance the quality of Allied's earnings.
Escape from the Carlsberg-Tetley brewing joint venture - margins around 8 per cent - would also boost Allied's investment image. In its torrid first 18 months of existence volumes fell 6 per cent, half due to the market and half to the OFT. An underlying profits fall of 14 per cent would have been far worse were it not for pounds 15m of cost reductions since January 1993.
Hiram Walker, helped by provision-financed cost cutting at Harveys, appears to have handled the US destocking situation in spirits with rather more finesse than Grand Metropolitan's IDV and an incremental cost of pounds 12m has been fully absorbed into the 1993/4 results. A pounds 75m resturcturing will surely boost Domecq's profitability and enhance future earnings.
Retailing remains a pounds 1.7bn black box with no breakdown available of last year's pounds 209m profit. Some disclosure here would help Allied's image. Meanwhile a yield approaching 5 per cent is a discount rating to the sector which must eventually narrow.Reuse content