Allied Domecq's fizz looks flat

Chloride; Minorplanet
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The Independent Online

Allied Domecq got a round of applause last year when it walked away from the auction for Seagram's drinks business, declaring it would not overpay just to bulk out its selection of wine and spirits brands. How the mood changes. Yesterday's full-year figures were greeted only with a slow hand clap.

At first sight, that may seem perverse. Underlying profits grew by 12 per cent in the year to 31 August, to £453m, on turnover up 11 per cent to £2.9bn. But the quality of the earnings growth was poor, and there were some disappointments buried in the detail.

Allied's spirits business, which includes Stolichnaya vodka and Teacher's whisky, saw sales decline by 1 per cent, in a period where rivals were growing strongly. By a cruel twist, Diageo – which won the Seagram business, but is still battling to get it through the regulators – put out a bullish trading statement yesterday that put Allied in the shade.

Allied Domecq has overpaid for acquisitions in its haste to catch up. Like others in the sector, it is attempting to assemble a wines business in the hope that it can establish new brands and drive growth that way. Although it was positive to see the setting up of a wines division separate from spirits – where building brand awareness is a very different trick – the group is yet to prove it can make wine work.

Meanwhile, the spirits unit is likely to have seen its best days for a while, as the consumer gets drowsy. The company is also yet to sort out problems with rising costs and slumping demand in Latin America.

True, the shares are not expensive. They trade on less than 11 times forecasts of this year's earnings, after coming back 11p to 351.5p. But there is better value elsewhere.


Now the wheels have fallen off the technology bandwagon, Chloride finds itself going nowhere in a hurry. The company makes components to protect electrical equipment from power failure, and has suffered as its telecoms and semiconductor industry customers slash capital expenditure.

Interim figures yesterday were therefore dreadful. The group slumped to a pre-tax loss of £4.5m for the six months to 30 September, compared with a £28.4m profit in the same period a year before. It took a £5m hit as it made 13 per cent of its workforce redundant and transferred some manufacturing from Spain to Thailand.

With the events of 11 September unsettling the outlook further and rising tensions in the Middle East disrupting sales to petrochemical industry customers, the outlook is as gloomy as ever.

Yet the company has strong market shares for many of its products and not all its customers are suffering the structural problems of the telcos. Analysts took comfort that first-half turnover had dipped only a little to £73.6m. With the restructuring charge already booked, and £3m in annual costs stripped out, it looks as if the company will return to profitability, albeit modestly, in the second half.

While the company says there is little likelihood of a return to growth for another six months, the shares are likely to start performing again before then. If not, the group could be attractive to a bidder. Hold.


Minorplanet Systems is the market leader in a nascent new sector: telematics. Its products help a company track and increase the efficiency of their fleet of vehicles. Its impressive salesforce generated revenue growth of 146 per cent in the year to August, and profits up eightfold to £5.3m. That was helped by the acquisition of a big stake in @Track, a US group through which Minorplanet will introduce its products. Cashflow is not strong though, because Minorplanet is pouring money into international expansion.

The stock was up 16.5p to 177.5p. It is not one for grandma's savings, but the rewards could be large if the US business goes according to plan.