E-Malt.com News article: 2231

Britain's biggest brewer, Scottish & Newcastle Plc, posted flat 2003 profits on February 23 and took a cautious line on the year ahead, saying it expected consumer confidence to remain weak, Reuters said. The brewer of Baltika, Kronenbourg and Foster's beers said it was kicking off a three-year drive to integrate its disparate beer empire. Cost cutting will free up extra cash, which it will use to promote key brands in an increasingly competitive market.

S&N is struggling to get a major streamlining of its UK beer division back on the rails after a number of costly delays, and investors are keen to see how quickly the company can reduce costs while using the benefits to drive overall sales. Chief Executive Tony Froggatt, who only took over last summer at the number one brewer in Britain, France and Russia, was cautious on the outlook for 2004, largely because hot summer weather had boosted last year's sales. "For the UK we are cautiously optimistic, but across Europe we are taking a more cautious approach as we are not assuming such a hot summer again as we saw in 2003," Froggatt said.

The brewer has expanded rapidly in the last four years, buying Kronenbourg and Finland's Hartwall and then selling its UK pubs to give it scope to fund more brewing expansion. S&N, which also brews John Smith's and Newcastle Brown in the UK, posted 2003 pre-tax profit of 471 million pounds ($888 million), towards the top of forecasts of 446 to 482 million, and up from 467 million in 2002. "The headline profits looked good after what was a good Christmas, while the group will have to make sure its UK beer division performs well and it makes cash savings to push margins back to what they were three years ago," said analyst David Liston at private client fund manager Gerrard.

Lehman Brothers analyst David Hayes agreed, saying the key issues for the company will be how efficiently it executes its cost cutting plans in the UK and how well it can use the extra marketing expenditure to boost its overall sales in Britain. S&N aims to make 45 million pounds of annual savings, cutting its UK cost base by a quarter, but has pushed the target date to 2006. It will feed up to 30 million pounds of savings back into driving revenues up through higher marketing spending.

As part of this cost cutting drive, the firm said last week it was closing its 150-year old Edinburgh brewery with the loss of 170 jobs, ending brewing in Scotland, and would rely on its four English breweries in the UK. John Dunsmore, head of its UK brewing division Scottish Courage, said it was possible to hit the 45 million pound target without the need to close another brewery, after speculation it may close its Newcastle brewery in northeastern England.

S&N shares slipped 1.9 percent to 421-1/4 pence, valuing the business at about four billion pounds. The worst performing stock in the FTSE-100 index in 2003, S&N has had a strong run since the start of the year, in part on speculation it might attract a bid from the world's two top brewers, Anheuser-Busch or SABMiller, denying Froggatt the three years he needs.

But Finance Director Ian McHoul dampened expectations S&N will make a flurry of acquisitions despite last year's 2.5 billion-pound pub sale, which cut debt to 2.0 billion pounds. "We're not in any great rush to use this greater flexibility. We are looking to concentrate on the business," he said.

The company, which is changing to a calendar financial year from one ending in April, announced a final dividend for the eight months to December 31, 2003, of 13.41 pence a share. It is making the change to bring it into line with Russia's biggest brewer, Baltic Beverages Holding (BBH), which S&N jointly owns with Denmark's Carlsberg Breweries.


25 February, 2004