Profit blow for Grand Met

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GRAND Metropolitan, the Burger King to Smirnoff Vodka group, upset the stock market yesterday with a warning that spirits trade de- stocking in North America would cost it pounds 40m in lost profits this year.

Grand Met's shares fell by 26p to 457p on the news, which accompanied an 8.9 per cent increase in half- year pre-tax profits to pounds 442m before exceptional items, compared with forecasts ranging as high at pounds 495m. This was in spite of a 6.2 per cent dividend rise to 5.15p.

John McGrath, head of Grand Met's drinks division, said trade stocks were reducing throughout the US supply chain as a trend towards consolidation in the wholesale network led to reduced stock requirements by trade customers.

He said that destocking had reduced spirits volumes at IDV, Grand Met's drinks operation, by 2 per cent. It had affected both the North American business and exports of its leading brands, J&B Rare whisky and Baileys Irish Cream.

The one-off cost to profits of pounds 40m would be spread between the two halves of this year.

Drinks operating profits in the half-year to 31 March fell only from pounds 258m to pounds 254m since Grand Met took credit for a goodwill payment of around pounds 17m following the early termination in January of its contract with Seagram to distribute Absolut vodka.

Analysts lowered their forecasts of Grand Met's pre-tax profits for the year to September to reflect the de-stocking losses. Les Pugh of Salomon Brothers cut his estimate from pounds 1.005bn to pounds 965m.

Grand Met's food operations in North America performed strongly, with operating profits rising 19 per cent to pounds 150m and Burger King, benefiting from 5 per cent comparable store sales growth, lifting operating profits by pounds 10m to pounds 73m.

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