Montana profit drops 46pc

By DITA DE BONI liquor writer

As tipped, Montana Group has returned a much reduced profit for the year ended June 30, but the depressed sums have not affected an independent valuation of the company.

The wine-maker recorded an after-tax profit of $25.8 million, down substantially on last year's $48 million, although the previous result included a contribution of $24.2 million from discontinued business including Truck Investments and Go International.

Divestment and other costs involved with absorbing Corbans (bought from DB Group last September for $154 million), interest, holding a capital notes issue to part finance the purchase of Corbans, and other incidentals led to a drop in earnings from $29.3 million to $25.8 million.

Overall, sales fell 31 per cent in the period, resulting from these divestments, some de-stocking of the Corbans range and a "difficult" domestic market.

The integration of Corbans has also effectively reduced the group's pre-tax earnings margin from 27.3 per cent to 23 per cent, because the Corbans products and product mix attract lower margins in the market.

Nevertheless, the independent report issued yesterday increased its valuation of Montana, compared with a similar report this year. From a valuation range of $4.24 to $4.72 in May, the company is now valued by PricewaterhouseCoopers at between $4.28 and $4.72.

The revised report notes that the benefits of synergy between Montana and Corbans have not yet been fully realised, and that there are new initiatives, including land purchases, that may improve results.

A boost in sales and export volumes in the current year supports that theory. The group's revenue from continuing businesses for the year, including nine months' worth from Corbans, increased 35.6 per cent to $308.4 million. Export volumes rose by 255,000 litres.

Several brokers, however, said current valuations of the company are inflated by the stockmarket manoeuvrings for control.

Referring to that stoush, Montana chairman Peter Masfen said that although the period under review had been particularly challenging for management, the directors considered that short-term difficulties were "inconsequential in terms of the exciting medium and long-term prospects".

On the basis of the latest valuation of Montana, the independent directors have endorsed Allied Domecq's $4.80 a share offer, noting that it represents a "full and fair offer".

The directors also warned shareholders to wait as long as possible before accepting, to take advantage of any competing offer from Lion Nathan.

Lion has until August 17 to sell its 19 per cent defaulter securities, but is appealing all decisions of the standing committee on Friday in the High Court.