Weather rains on Scottish & Newcastle's performance

By Neil Merrett

- Last updated on GMT

Related tags Cent Newcastle brown ale Scottish & newcastle

Eastern Europe continues to boost the fortunes of brewer Scottish
& Newcastle, driving comparable sales growth of 7.8 per cent to
£2.1bn (€3bn) for the first half of the year as the company moved
to offset increased input and production costs.

Despite a strong opening five months of the year, the company said that heavy rains in the UK and industrial action in France had adversely affected its sales in Western European during June and July Nonetheless, operating profit for the period ending 30 June reached £248m (€364m), an 11.7 per cent increase over the same period during last year on comparable terms.

Though encouraged by these results, group chairman Sir Brian Stewart said the company still faced more challenges ahead with continued adverse weather last month, as well as the newly-imposed UK smoking ban in pubs and bars.

The company therefore said it remained on track with a planned £50m (€73m) investment to restructure its operations, with the first £10m in cuts expected to come during the second half of the fiscal year to help offset increased cost pressures.

These pressures are set to be further compounded over the full year by the smoking ban in the UK, where the beer market is expected to undergo a one per cent to two per cent decline as a result.

In the UK, revenues were up for the half year by 0.4 per cent on comparable terms to £855m (€1.2bn).

Operating profit during the same was down by 13.6 per cent to £76m (€111m) though, as operating margins fell by 1.4 percentage points.

The company said the decline was a result of an unfavourable summer period, with poor weather and comparative factors such as the effects of last year's football World Cup on sales.

However, Scottish and Newcastle was encouraged by the performance of its branded cider catergory, which posted increased revenues of 24.7 per cent following continued investment in innovation.

Profitability was also down through Scottish and Newcastle's continental Western European and US operations, declining by 2.1 per cent on comparable terms to £92m. Revenues declined by 0.7 per cent to £747m (€1bn) for the period with margins falling by 0.2 percentage points.

The company again blamed poor weather conditions for the difficulties within its European operations.

Strikes at its Obernai brewery in France were also said to be a significant contributor to the performance, creating product availability issues for the company during one of its busiest periods.

Like the company's UK operations, the division was under pressure from increasing material and ingredients costs, though the company generated some benefits from the sale of the Champignuelles brewery in France for £6m (€8.8m) last year.

France still offered some hope for the company though, with its core brands enjoying increased market share in the country.

The international launch of its Strongbow Gold and Bulmers Original cider brands were also highlights for the segment, as well as double-digit sales growth in the US for its Newcastle Brown Ale brand.

In Asia, the group's operations made significant gains during the period as comparable sales rose by 22.4 per cent to £60m (€88m).

Profit increased by 75 per cent to £7m (€10m), while margins improved by 3.5 percentage points to 11.7 per cent.

The group's dominance of emerging markets like India, through operations like its United Breweries division, were key contributors for growth, the company added.

United Breweries holds a 45 per cent market share in India.

Scottish and Newcastle's growth for the period was led by its Baltic Beverages Holding (BBH) joint venture with rival Carling.

The division, which operates in many of the leading Eastern European markets, including Russia and Ukraine, posted a 47.4 per cent comparable increase in revenues to £445m (€653m).

Operating profit increased by 63.3 per cent to £98m (€144m).

Margins also rose by 2.1 percentage points to 22 per cent.

The rise was attributed to share gains through all the division's markets, with sales volumes in the segment up by 30.2 per cent over the same period last year.

Russia led growth for BBH, with the market up by 22.7 per cent on the back of favourable weather conditions and the consolidation of local brand Baltika.

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