S&N warns of slowdown in the UK

Scottish & Newcastle, the owner of Kronenbourg and Foster’s, on Tuesday warned that first half profits would be lower than last year due to falling UK beer sales, wet weather and higher commodity costs.

Total UK beer sales have fallen 5 per cent this year, S&N said, adding that the decline has been “accentuated” by rainy weather.

The brewer stressed its sales had not fallen as much as the overall market, and that its brands had been gaining market share.

Total UK beer sales are expected to be “broadly level” in the second half of the year, S&N said, adding it expects its full-year UK operating profits to meet expectations.

The UK is S&N’s biggest regional contributor to profits making up 40 per cent of the total annual figure.

Year-on-year sales comparisons were skewed by last year’s World Cup, which led to an increase in total sales in the first half of the year as people drank more beer.

However, in Russia there was a different picture. In Russia, where it owns the Baltika brand in a joint venture with Danish brewer Carlsberg, S&N’s beer sales have been growing most quickly. S&N said the Russian market grew 20 per cent in the first five months of the year and that Baltika had been increasing its share of the overall market.

S&N also warned on Tuesday of continued high commodity costs. Brewers have been battling higher barley prices, as well as higher aluminium and diesel prices, which affect packaging and transportation costs.

The weak UK beer market and commodity price increases have hurt S&N’s profit margins, which last year dropped to 11.1 per cent from 11.6 per a year earlier. It has been cutting costs to try and improve profits.

S&N’s shares, which have risen 13 per cent this year as investors have speculated that the company may be acquired by Carlsberg, or another brewer, rose ½p to 633p.

The charitable foundation that controls the Danish brewer changed its charter earlier this year to allow it to own a minority stake in the group. The move gives Carlsberg flexibility to make acquisitions.

S&N will report interim results on August 7.