Christmas beer sales may disappoint, warns S&N

Investment: The fall in consumer confidence is worrying the UK's biggest brewer
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The Independent Online
SCOTTISH & NEWCASTLE, the UK's largest brewer, yesterday warned that fading consumer confidence could depress beer sales in the crucial Christmas period.

Sir Alistair Grant, chairman, said that although trading in the company's pubs and beers had picked up from the summer slump, "there is still concern about consumer confidence".

Brian Stewart, the chief executive, said that the uncertainty over customer spending made him "very cautious" over sales during the festive season, which account for around 15 per cent of S&N's yearly turnover.

However, he said he was confident that pub-goers would react to the economic slowdown by "trading up" to some of S&N's premium brands, which include Fosters, Kronenbourg and Miller Pilsner. Mr Stewart's comments came as S&N, which brews nearly one in three pints in Britain and owns more than 2,000 pubs, reported a 4.5 per cent drop in interim pre-tax profits to pounds 214.5m on turnover marginally down to pounds 1.66bn. The dividend was raised 7.6 per cent to 8.53p.

The earnings slide was broadly in line with market expectations and was driven by a collapse in beer sales which offset a strong showing from S&N's pub operations.

Lager and ale sales had been hit hard by the poor summer weather and by the end of an exclusive supply agreement. S&N said that most of the 9.9 per cent fall in the profits of its beer division to pounds 104.3m was caused by the renegotiation of a lucrative contract to provide beer to the Grand Pub Company, the pub giant owned by Nomura.

The Grand Pub effect overshadowed strong growth in S&N's premium brands, led by Miller's 22 per cent advance and Fosters' 10 per cent increase. City analysts remained cautious on the future outlook for S&N's shares, which yesterday strengthened 15.5p to 719.5p.

Nigel Popham, of Teather & Greenwood, said S&N was well equipped to weather a consumer slowdown. However, he warned that beer and pubs were mature businesses that were unlikely to yield sharp growth in the long term. "If you compare it with Bass, Bass has a growth avenue in international hotels. I'm not quite sure where S&N would go for growth."

Mr Popham, who yesterday downgraded its profits forecast for this year from pounds 430m to pounds 420m, said that he has a "hold/sell" recommendation on the stock. "The rating of these shares - on a prospective price/earnings ration of around 13.5 - looks to be in line with Bass. This is not dear but the jury is still out on S&N."

Ben Maitland, brewing analyst at broker Sutherlands, said that growth could come from the acquisition of a European brewer. S&N has been rumoured to have considered a pounds 2bn bid for Kronenbourg, owned by the French food group Danone. Derek Wilkinson, S&N financial director, declined to comment on the rumour.