Acquisitions push S&N to 9% increase

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Scottish & Newcastle Breweries, fresh from the pounds 440m acquisition of Courage, unsettled investors yesterday with half-year pre-interest and pre-exceptional profits at the lower end of a wide range of analysts' expectations at pounds 158.2m. Shares dropped 12p to 619p.

The result for the period to 29 October, which was a 9 per cent improvement on the comparable period, largely reflected the benefits of two acquisitions - the Chef & Brewer pub chain and Courage, which turned S&N from being into the fourth-largest brewer into the market leader ahead of Bass.

Drinks analysts, however, said there were several encouraging aspects behind the results and viewed the share price fall as a knee-jerk reaction to an unexpected pounds 80m reorganisation charge for a pounds 70m asset write-down relating to Courage.

Only 11 weeks' figures from Courage, equating to an operating profit of pounds 9m, were included in the results. This was better and expected, and analysts said demonstrated that S&N was continuing to gain market share in beer despite the natural problems of integrating the business.

Brian Stewart, chief executive of S&N, said Courage's volume beer sales rose 7 per cent compared with 1 per cent for the existing brewing business. The Courage performance led to an overall 4 per cent improvement in beer volumes compared with 3 per cent for the rest of the market.

"The South benefited from the weather, giving a 1 to 2 per cent lift in the market. The beer market was also growing before the summer, giving an underlying trend of growth," Mr Stewart said.

John Smith's bitter, part of the Courage brand stable, is now the country's best-selling ale, having recently overtaken Tetley bitter, which is owned by Carlsberg Tetley.

Mr Stewart said, however, that while progress had been made over the summer and autumn there were strong signs that there would again be a big fight for market share among the big brewers at Christmas. He said there would again be a generous offering of discounts. "I'm afraid the multi-buys are there in the pipeline."

While analysts were encouraged by the brewing and pub results, they were concerned by the unexpectedly flat performance by the leisure division - namely the Center Parcs and Pontins holiday businesses.

Operating profits from leisure operations rose 3.9 per cent to pounds 50.9m. "Center Parcs turnover rose by 10 per cent but profits rose 4 to 5 per cent, held back by the costs of new Parcs coming on-stream and by the hot weather ... which affected spending," Mr Stewart added.

Results from Pontins were "broadly flat". The number of sites has been reduced from 23 to 19, and analysts believe that S&N will sell the business sooner rather than later. Mr Stewart declined to dismiss the notion that the business might be sold.

The interim dividend has been increased by 7.5 per cent to 6.55p.

Investment Column, page 22