E-Malt.com News article: UK: S&N says performance is on track for the nine months to September

Scottish&Newcastle announced on November 4 that their results for the first nine months of the year have been robust. The BBH business continues to show strong growth and despite soft Western European markets, third quarter volumes have improved throughout all regions.

This performance has been driven by continued focus on brand building and innovation. The strong growth of SuperChilled in the UK, Sagres in Portugal and Grimbergen in France and Belgium underline S&N’s success in this area.

Despite the weak consumer confidence and cost pressure from increasing oil prices S&N are confident that S&N will meet market expectations for 2005. The improving position in Western Europe as well as the good performance from BBH, should assure continued progress beyond 2005.

UK
Although S&N have seen an improving trend in the third quarter due to easier comparatives, the underlying market is still soft due to ongoing weak consumer confidence. In the 3 months to end September, the UK beer and cider market has grown by 1.8%, with off trade growth tempered by decline in the on trade. Within this environment S&N continued the strong volume performance of the first half of the year.

The total branded beer and cider volumes are up by 5.6% for the third quarter helped by the weaker comparatives. The top four brands (Foster’s, Kronenbourg 1664, John Smith’s, Strongbow) performed well with volume growth for the third quarter ahead of growth in the first half. These brands are the key contributors to the improving share. Net sales of branded beer and cider are slightly ahead of the volumes.

Operationally the business continues to perform well with tight cost control and solid cash flow. Cost savings are on track to achieve £60m by 2007 as envisaged. A&P spend will increase by between 0.5% to 1.0% of net sales for the full year as announced at the interim results.


Despite the good performance in the year-to-date S&N are conscious of the weak demand trends in the on trade and retail pricing pressure in the off trade and the potential effects in the run-up to Christmas.

International

Outside the UK Western European markets continue to be weak. Nevertheless we have seen better volumes in the third quarter in all major regions.

The French market showed an improvement in the third quarter as anticipated. This is in part a result of the weaker comparatives due to the bad weather in summer 2004. S&N do not see a change to the underlying consumer behaviour and economy in France and believe that the market will remain difficult in 2005 and beyond, but we are taking steps to improve the company’s performance within this environment. Brasseries Kronenbourg’s (BK) branded beer volumes were up 2.2% in the third quarter. BK’s premium brands (Kronenbourg 1664, Foster’s and Grimbergen) continue to gain share (volumes third quarter +5.4%), driven by a very strong performance of Grimbergen. Pricing in the third quarter was somewhat softer year-on-year.

In Belgium S&N’s branded beer volume growth improved on the first half with stable volumes in the third quarter and continued positive pricing. Grimbergen has continued to show strong volume and sales growth.

In Portugal branded beer volumes grew 10.6% and non-beer volumes 19.2% in the third quarter. This performance is driven by strong growth of Sagres and Luso. Pricing has been overall stable in a difficult economic environment.

The Finnish pricing environment has stabilised and branded beer volumes have improved slightly on the first six months growing at 3.4%, but the overall market environment will remain difficult.

In the US consumer demand for Newcastle Brown Ale has continued to grow at double digits in the third quarter.

Asia

Both the Asian joint ventures are publicly listed companies and have recently announced good results including the period June to September.

United Breweries in India showed volume growth of 24.6% for the three months to September, while the Chinese joint venture with the Chongqing government has shown volume growth of 21.2% in the same period.

BBH

The results for the third quarter of 2005 will be announced on 8 November 2005. Results for the six months showed beer volume growth of 14.3%, net sales up 24.0% (US dollars) and EBITDA up 31.7% (US dollars).

Cash Flow

As S&N reported at the time of the interim results, cash flow continues to be strong as a consequence of improving operational efficiencies and continued top-line growth. Looking forward S&N is confident the business will continue to deliver sustained cash generation.


04 November, 2005