Scottish & Newcastle tumbles after warning of sales slump at Courage

Scottish & Newcastle yesterday revealed that fresh problems at Scottish Courage would wipe out operating profits at the UK brewing division this year.

The warning knocked nearly £250m off the group's stock market valuation on fears that it put the dividend under threat. The shares fell 7 per cent to a near three-year low of 382.5p

S&N, which warned on extra reorganisation costs as recently as December, said it would take a hit of £15m to cover further glitches in its supply chain as it struggles to restructure its beer distribution network in the UK.

The group, which brews Kronenbourg, Foster's and Baltika beers, also said Scottish Courage was feeling the pinch from the current shake-up among pubs on Britain's high streets, putting the division's profits under "additional pressure". However, its 1,500-strong pub and restaurant retail division is performing well.

Analysts slashed up to £28m off pre-tax profit forecasts for the current financial year. Stuart Price, at WestLB Panmure, is forecasting £520m, instead of £543m.

The group listed the need to open a new distribution centre at Thatcham, Berkshire earlier than intended while still operating its existing depot network as chief among its problems. This resulted in a "significant increase in double running costs", it said.

The shake-up at Scottish Courage, which contributes one-third of the group's profit, is part of a plan embarked on at the beginning of 2001 to streamline its beer distribution network from 40 depots to three regional centres. The move, which includes 1,300 job cuts, will cost £116m and is intended to save £50m a year in running costs.

A group spokeswoman said the setback meant the restructuring would take five and a half years instead of four years to complete. The new distribution centres are operated by Hays, the logistics-to-recruitment group, but staffed by S&N employees.

S&N's rapid expansion programme, which has seen it swallow France's Kronenbourg in 2000 and Finland's Hartwell last year, has left it labouring under £3.15bn of debts. Despite protestations from the company in December that it could maintain its progressive dividend policy, analysts were divided about the safety of the payment, which yields a historic 8 per cent. Anthony Geard, at Investec Securities, said: "Enough cash is being generated that they don't need to cut the dividend. This isn't a highly volatile business."

The group is expected to announce a new chief executive to replace the chairman, Sir Brian Stewart, by the end of April, along with details of a plan to sell the freeholds to one-third of its pub estate.