Leaders of the pack
S&N's Tony Froggatt claims to owe the company's success to 'impressive brand momentum' and a new management structure. Hamish Champ reports.
A good trading performance in Russia and the UK, together with an ongoing cost-cutting programme, helped boost Scottish & Newcastle's (S&N) fortunes last year.
Announcing last week that pre-tax profits were up 9.5 per cent at £392m for the 12 months to December 31, 2005, on turnover up 4.1 per cent to £3.9bn, the brewer said its figures had been driven by "innovation and brands focus".
S&N-owned beer and cider brands grew volumes by 6.1 per cent and net sales by seven per cent.
Chief executive Tony Froggatt said a combination of "impressive brand momentum", a new management structure and increased operational efficiencies were helping drive the business forward.
Within a UK market that declined by 2.1 per cent, Mr Froggatt noted the group's own brand net sales had increased by 6.2 per cent. Sales in the UK were buoyed by sales increases in Foster's and Strongbow of 10.3 per cent and 17.4 per cent respectively.
S&N had rolled out more than 50,000 super chilled fonts in the UK during the past 18 months and reduced the cost of the fonts by half.
Meanwhile, the group's £60m UK cost-saving programme was on-track, he said, with an incremental £32m already realised in 2005. The group said it would continue to seek ways to reduce its cost base.
The incoming smoking ban would prove to be a challenge, but S&N UK chairman and managing director John Dunsmore said he believed the long-term trend would see a changing demographic of pub-goers, with a decreasing footfall amongst hitherto regular pub-goers - the "pint and a fag" brigade - and an increase in the numbers of those more affluent customers who previously shyed away from pubs. "The success of pub culture in this country has historically been its adaptability and this is no less the case with the advent of the smoking ban," he said.
Mr Dunsmore said that in Ireland, overall sales of S&N's Beamish brand had grown by 20 per cent since the implementation of the smoking ban. Of this figure, half would be accounted for by the on-trade, he said, although price increases by rivals will have played their part in this area.
Mr Froggatt, meanwhile, noted the key to the group's ongoing success was delivering value growth in established markets and volume. "In 2005 we were able to show just how much value we can add to mature markets if we concentrate on the essential aspect of a consumer-led business - creating brands that people love to drink."
In the UK, strong brands should continue to drive top-line growth in 2006 ahead of the market, Mr Froggatt said, while tight cost controls will help the bottom line.
The World Cup would boost volume growth "slightly", he noted, although cost pressures, particularly from rising energy and commodity costs, would be a dampening factor.
Internationally, while its French operation was suffering and trading in Finland was "disappointing", the group's Eastern European venture with Carlsberg, BBH, had seen continued growth. Volumes grew 12.3 per cent, while operating profits rose 23.7 per cent last year.
The group believes it can persuade those minority shareholders who had previously criticised the move to integrate its Russian brewery operations that the merger would be beneficial.
The Publican says:
There are signs that Tony Froggatt's efforts to re-establish S&N as a force to be reckoned with are paying off. It appears the brewer again has the confidence to play to its strengths as the UK market leader, rather than have its dominant position afford the detractors a larger target to aim the brickbats at. Although revolving a third of the group's executives throughout the organisation might become a double-edged sword, the management re-alignment appears to be paying dividends. Meanwhile, becoming an international player is no easy thing and distractions are plentiful. Here S&N seems to be treading carefully, and while some markets are disappointing, its foothold in Russia, thanks to its Baltika Beverage joint venture with Carlsberg, seems a bit of a banker.
