Brands lend hand to Scottish & Newcastle plans

By Neil Merrett

- Last updated on GMT

Related tags Western europe Newcastle brown ale Scottish & newcastle

Scottish & Newcastle is on track to meet its expectations for
continued full year profit throughout both its established and
emerging markets, the company said yesterday.

The group announced that it was confident it can maintain a strong performance throughout its branded beer segment over the next six months, despite some difficulties involving sales in Western Europe during the first five months of 2007.

Beverage companies are coming under greater pressure to drive greater cost effectiveness in more stagnant markets, while also meeting the challenges of tapping into emerging markets to remain competitive.

The group therefore said that it aimed continue to invest in marketing its more populer brands, while also cutting costs to drive profitability.

This focus was particularly aimed at its UK operations, where overall demand for its beer products underwent a market decline of five per cent over the five month period.

The company blamed part of the decline on bad weather during the period and higher commodity costs.

The decline failed to impact the group's major brands including John Smith's, Foster's, Kronenbourg and San Miguel, which managed to grow their share of the category.

Sales of the company's cider products defied the impact of bad weather and continued to increase during the period.

The growth encouraged the group to increase marketing spending within the segment, ahead of the busy summer period.

In order to further drive profitability during the second half of the year, Scottish and Newcastle said it will cut £10m (€14.8m) from its cost base.

The savings would be implemented to help stave off concerns over the effects that the new UK smoking ban may have on pub sales.

Scottish & Newcastle was more optimistic regarding its international performance, with brands such as Newcastle Brown Ale in the US and Sagres in Portugal showing particularly strong growth over the period.

The group's focus on Asia is also paying dividends for the company, with the Kingfisher brand remaining strong in India.

The company also increased its volumes in China by 29 per cent.

The company said that sales in France had setback its overall performance in Western Europe.

Though its core branded beer ranges like Red and White, Kronenbourg 1664 and Grimbergen continued to sell strongly in the country, it said problems within its wholesale operations were "extremely challenging" .

A recently-resolved dispute regarding the company's Obernai production plant is also expected to impact performance in the country, Scottish and Newcastle conceded.

Despite difficulties within some of its major Western European markets, the group was more optimistic over its operations east of the bloc.

Through its Baltic Beverages Holding (BBH) joint venture with Carlsberg, the group's dominance of emerging markets like Russia continued to provide growth.

With the help of an unseasonably mild winter, the group's brands in the country underwent more than a 20 per cent increase in market growth.

The Baltika brand in particular continued to lead the way with a 37.6 per cent share of the market during the year.

The company said it would be releasing its interim results for the period on 7 August.

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