E-Malt.com News article: UK: S&N staff fears the £30m cost-cutting

Scottish & Newcastle (S&N) staff are nervously awaiting news of up to £30 million of more cost-cutting at Britain's biggest brewer, as S&N is also expected to announce a move into Vietnam along with its annual results tomorrow, The Scotsman published February 19.

S&N chief Tony Froggatt, who has announced £60m of back- office and brewery cuts in the past couple of years, has always said the hunt for efficiency is never-ending.

It is believed the brewer, which closed Fountain brewery in Edinburgh and its Tyne brewery in Newcastle as part of the earlier cuts, is still facing cost pressures and flat trading in two of its biggest markets, the UK and France.

However, one close follower of S&N said: "Talk of swinging the axe on British jobs is over the top.

"They have back offices from Finland to France and Portugal, so there may be opportunities there in a group this size."

On the positive side, however, profits are expected to have risen to between £443m and £463m, compared with £397m in the previous year, on turnover of about £4.1 billion, up from £3.9bn a year earlier.

It is understood Froggatt will also announce the group is set to enter the Vietnamese market after forming a joint venture with Vietnam National Tobacco Corporation.

City sources say the pair are negotiating to obtain a licence to build a brewery in Long An province, in the south of Vietnam.

It is believed Froggatt hopes the venture would be up and running within 18 months.

One insider said: "The idea is that it will be a greenfield site. People may say why have S&N not put out a Stock Exchange announcement on the subject, but it is not appropriate because it is not material in terms of the size of the group."

Such a deal would continue S&N's strategy of looking for long-term growth in Asia.

It already has a stake in Chongquing, China's third-biggest brewer in a potential market that is the size of Western Europe, as well as an Indian joint venture with the biggest brewer in India, United Breweries.

One analyst said: "Baltic Beverages Holdings [S&N's east European joint venture with Carlsberg that is market leader in Russia] has been S&N's star performer in the past couple of years, with great growth rates.

"That is likely to continue to be the case for a while. S&N's Asian ambitions are more long-term.

"Its presence in India and China is such that it is not going to make gangbuster profits for some time yet.

"But it is a ticket to the dance. Those markets are gigantic in terms of beer-drinking potential given they both have populations over one billion."

Deutsche Bank, S&N's house broker, said in a note this week: "The results should demonstrate another year of solid progress with earnings per share up 13 per cent on our estimates, but also the contrast in trading between the west European operations, where growth is relatively lacklustre, and the buoyant BBH business.

"This two-way pulls looks likely to continue in 2007 as Europe faces a variety of challenges [tough comparatives, smoking bans] while BBH [and India] continue to grow strongly."

The City believes Froggatt has to find new cost-cutting efficiencies because the original £60m cost reduction programme has been absorbed by higher utility bills and raw material costs.


21 February, 2007