 | E-Malt.com News article: UK: Scottish & Newcastle releases financial results speaking about strong performance
Scottish & Newcastle announced on August 9 its half year financial results.
Highlights
• Organic growth in beer volumes of 5.5%
• EPS +9.9% on a comparable basis
• UK - Strong performance, market share growth drives operating profit growth of 11%
• BBH - 14% volume growth and 32% operating profit growth
• International - Difficult market conditions in Western Europe contribute to a 10% fall in
operating profit
• Interim dividend for six months to 30 June 2005 – 7.04p
S&N adopted International Financial Reporting Standards (IFRS) on 1 January 2005. A full reconciliation between UK GAAP and IFRS for the year to 31 December 2004 was published on 26 April 2005. The comparatives for the last year in this release are under IFRS.
Commenting on the results, Chairman, Sir Brian Stewart said:-‘This is a good performance, with underlying profit up 4.0%, with earnings per share up 9.9% on a comparable basis and free cash flow of GBP96m. S&N has a strong balance of interests and market positions in the UK, Western Europe and key rapidly growing markets, in particular Russia and India. This breadth of activity has stood the business well during these six months when we have been able to rise to areas of challenge.’
Commenting on the results, Chief Executive, Tony Froggatt said:-
‘This has been a very satisfactory six month’s performance, for a number of reasons. I am
particularly pleased with the response of our brands across the Group to the increased focus and
funding designed to drive value growth in some difficult market environments.
S&N has made good progress over the last six months as measured against our key performance
indicators. Organic growth in beer volumes of 5.5% matches the best of our international brewing
peers and we saw strong share gains in the key markets of Russia and the UK. Importantly this
has not been at the expense of gross margin, which increased at the Group level.
We further increased our A&P by 9%, well ahead of net sales. This was mainly driven by an
increase in the UK of more than 15%. In International, and in BBH our A&P spend is currently at
the desired level. There was also continued focus on efficiency throughout the Group. Overall, net
margin increased slightly against comparable results for the first half of the 2004 from 10.9% to
11.0%.
Our UK business has performed particularly well, gaining share within a soft UK market.
Our four key brands, Foster’s, Kronenbourg 1664, John Smith’s and Strongbow continued to
grow strongly with total volumes up 5.5% against a market decline of -3.9%. This strong
performance illustrates that focused investment behind our key brands is paying off. The strength
of these key brands also supports our confidence in the decision to reduce our brand portfolio by
passing control of Miller Genuine Draft and Beck’s back to the brand owners.
Our £60m cost savings plan in the UK is well on track, with £49m of initiatives now announced.
In the first half of 2005, £14m has been realised and we estimate another £17m will come through
in the remainder of the year.
Our International business is facing challenging markets across Western Europe, which resulted
in a decline of operating profit year-on-year. Importantly though, our premium brands are
outperforming their markets and are making a positive contribution to Group margins.
France is currently the market suffering most from reduced consumer confidence and weak
economic conditions. Going forward we believe that one of the positive factors in this market will
be changes to the current legislation in France in January 2006, which will allow retailers to
compete on pricing and enable category brand leaders to regain their role as traffic builders. In the beer category Kronenbourg Red & White, as brand leader with a share of around 25% of the retail beer market, should be a major beneficiary of the new legislation.
At BBH, beer volumes grew 14% and operating profits grew by 32.4% despite the additional £3m
investment of S&N behind Foster’s and Kronenbourg 1664. At the same time margins were up
110bp. Going forward the cost savings and revenue synergies that we are implementing should
help drive value in Russia, which will be to the benefit of all shareholders within BBH and its
Russian subsidiaries.
Our recent investments in China and India are showing strong progress with volume growth of
high single to double digits in both markets.’
Group financial summary
Comparisons with the results for the six months to 30 June 2004 are firstly affected by the
acquisition of a 37.5% stake in United Breweries in India this year, secondly by the acquisition of
Chongqing in China and by the change of Mythos from Joint Venture to subsidiary last year. On a
comparable basis, excluding the positive impact of acquisitions and the impact of movements in
foreign exchange rates, revenue grew by 3.4% to £1,878m and operating profit by 4.0% to
£206m. Profit before tax for the six months to 30 June 2005 was £163m, an increase of 8.7% on acomparable basis. Earnings per share were 13.3p, an increase of 9.9% on a comparable basis. On an unadjusted basis profit before tax for the six months to 30 June 2004 was £153m and earnings per share were 12.3p.
During the six months free cash flow before dividends was an inflow of £96m. The final dividend
for 2004 cost £123m and £103m was spent on acquisitions, to give a net cash outflow of
£130m.This was offset by benefits from exchange rates (mainly from the weakening of the Euro)
of £126m. As a result there was no material change in net debt levels. At 30 June 2005 net debt
was £2.1bn and gearing was 73%.
For the six months to 30 June 2005 EBITDA interest cover was 7.2x compared with 7.6x in the
six months to 30 June 2004 (excluding net interest on the pension liability). Operating profit
interest cover was 5.0x compared to 5.3x.
Current trading and outlook
The good performance in the first half of 2005 reinforces our expectation that we will meet our
financial and commercial objectives for the full year.
In the UK, partly driven by the anticipated cost savings as well as positive top-line growth, S&N
expect the operating profit growth seen in the first half of the year to continue for the remainder of
2005. We expect market volumes in the second half of the year to be broadly flat, while we
continue to expect to outperform the market.
The overall situation in Western Europe will remain challenging, but comparatives with 2004 are
more favourable for the second half of the year due to the poor weather in summer 2004. Trading
in July has shown some improvement. The business remains confident that across the
International division, premium brands will continue to grow contribution and that it will return to
operating profit growth in the second half of 2005.
In Eastern Europe there is continued optimism about the prospects for BBH’s markets and brands.
However given BBH’s strong performance in the second half of 2004, a slowdown in volume
growth is expected in the second half of 2005. Partly due to a seasonal bias in volumes in the
second half, the operating profit margin is typically higher than in the first half. For the full year
we are expecting margins to remain broadly at 2004 levels.
Dividend
The Board has declared an interim dividend payment of 7.04p for the six months to 30 June 2005, an increase of 2.5%. The interim dividend will be payable on 17 October to shareholders on the register at 16 September 2005.
10 August, 2005
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