Highland Distilleries profits fall

In its first full-year figures since acquiring Macallan-Glenlivet in an acrimonious bid this summer, Highland Distilleries disappointed the market with a 14 per cent fall in profits for the 12 months to August. Highland's shares fell 9p to 330p as the market focused on a 4 per cent decline in the UK scotch market which accounts for the majority of the company's sales.

Reorganisation costs of pounds 3m, combined with lower interest receivable, depressed results that were suffering from a stagnant market for whisky. Even though The Famous Grouse, Highland's biggest-selling brand, outperformed the market as a whole, it still sold 3 per cent fewer bottles than a year ago.

Highland's shares have underperformed the market by more than 20 per cent since the beginning of 1994 as the problems afflicting all spirits companies have been used as a pretext to derate the shares. After the above-inflation price rises of the 1980s, the whole sector has suffered a hangover of stagnant demand, flat prices and high marketing requirements.

The chief executive, Brian Ivory, also hit out yesterday at rising duty levels in Europe which the scotch industry sees as unfair to spirits companies. In France a duty increase of 17 per cent is proposed compared to unchanged duty on beer and no tax on wine. France is Highland's largest export market, accounting for about 10 per cent of its export sales.

Ahead of the rises, Highland reported volume growth of 13 per cent in continental Europe and 8 per cent in America but Mr Ivory admitted that these markets were relatively small. Combined sales of pounds 36.2m in those regions compared with pounds 106.5m in the dominant UK market.

After the redundancy costs at Macallan, and including only pounds 3.6m of interest received compared with the pounds 6.4m achieved in the previous year, profits before tax fell from pounds 42.9m to pounds 37.1m. Before the one-off items associated with the Macallan deal, profits were flat at pounds 36.5m, struck from a 2 per cent increase in turnover to pounds 184.5m.

Highland's takeover of Macallan was pushed through in August after Suntory of Japan added its 25 per cent holding to Highland's 26 per cent stake to make a combined bid for the remaining minority. Highland said yesterday it had found potential cost savings of pounds 1.5m in shared sales and marketing with its own Matthew Gloag subsidiary.

Investment Column, page 22