Corbans buy forces Montana earnings blip

By Phil Boeyen, ShareChat Business News Editor

Monday 6th August 2001

The purchase of Corbans Wines from DB Breweries (NZSE: DBG) has proved to be a short-term drain on Montana's (NZSE: MON) earnings, although the winemaker believes the benefits of the acquisition are just around the corner.

Montana's results for the year ended June show net profit has dropped to $25.83 million from $48 million last year, but last year's results included $24.2 million from the trading profits and profits on sale of discontinued operations.

These were principally the businesses of Truck Investments and Go International, the proceeds of which helped to buy Corbans.

A better comparison is to look at adjusted figures from continuing operations, which show the company's operating surplus has fallen by more than 13% to $25.8 million from $29.3 million last year.

"The decreased earnings can be attributed to the disruption incurred through the takeover of Corbans Wines and the incurring of additional costs, the benefit of which were not reflected in the results for the period," Montana says.

The latest results show Corbans has also proved a drain on Montana's margins, with operating Ebit margin dropping from 27.3% last year to 23%.

Montana says this reflects the relatively lower margins achieved by Corbans' products and the Corbans product mix.

"The company has now largely completed rationalisation of the Corbans' brand portfolio and trade terms.

"Management are confident that the operating Ebit margin will return to historical levels, and further improve as the merger benefits flow through in full throughout the coming months, and as Corbans' stock to be discontinued is sold."

Montana is predicting its results for the three months to the end of September will also show the benefits from the synergies of the Corbans merger. The winemaker is due to report again on a 15-month result ended September 30, due to a change in balance date.

In the domestic market Montana says sales of its brands have been satisfactory, while overseas its products have continued to perform ahead of last year in all markets except sparkling wine, where the millennium-inspired uptake could not be repeated.

In the UK, Lindauer sales have been adversely affected by industry overstocking of all brands in the sparkling wine and champagne sector.

"Millennium sales of sparkling wines were lower than projected and consequently the trade has been de-stocking, resulting in lower sales and margins. There is now evidence that sales of Lindauer are recovering."

The company says Corbans has also failed to live up to expectations in the UK, with only sauvignon blancs selling in any quantities, but at uneconomic prices across too great a range of labels.

"As a consequence, sales of Corbans brands were less than budgeted for in the period over which we exercised management control. Corbans brands will be removed from sale in most European markets from the company's next financial year. In future all wines will then be sold under Montana's historic brands," the company says.

Despite the setbacks during the year, Montana - which has probably had more headlines than most due to the ownership stoush between Lion Nathan (NZSE: LNN) and Allied Domecq - is holding out a rosy future.

"Whilst the period under review has been particularly challenging for management, your directors consider that short term difficulties are inconsequential in terms of the exciting medium and longer term prospects of the company.

"Your directors anticipate a strong financial performance for the three months to 30 September 2001 and expect that the fifteen month period for which the company will next be reporting will show an increased result for continuing operations compared to prior years."

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