UK: Scottish & Newcastle – AGM trading update

Scottish & Newcastle announced on April 27 that At the Annual General Meeting the Chairman, Sir Brian Stewart, made the following statement:

After a strong set of results for 2005, Scottish & Newcastle has seen three important developments in the first four months of the year, each driving further the momentum of the business.

In March, our Russian business Baltika – which is majority owned by our joint venture BBH – announced the approval by its minority shareholders of the merger with Pikra, Vena and Yarpivo. The savings from the merger will allow BBH to continue to drive both top and bottom line growth.

Secondly, in early April we announced the acquisition of the Foster’s trademark in Europe, Russia and other CIS countries, which will allow us to step up the development of this highly successful brand.

Lastly, this week we announced the formation of a distribution joint venture in the UK, which will allow us to focus better on our customers and consumers while assuring high quality and cost efficient service.

In addition to these initiatives, we continue to see good progress in the reorganisation of our French business.

Like all businesses, S&N is not immune to the very real cost pressures associated with energy and commodity price inflation. Our efforts to mitigate these pressures will continue to be a priority.

UK

In the first quarter of the year the UK market has been somewhat soft, though our brands continue to outperform.

Overall the UK beer market is down by nearly 2% in the period, adversely affected by the late timing of Easter. Our total branded beer and cider volumes are level while net sales are up over 2%, despite the late holiday making year on year first quarter comparisons tougher.

The top four brands (Foster’s, Kronenbourg, John Smith’s and Strongbow) performed ahead of this with volumes up over 3% in the first quarter.

Earlier this week we announced the joint venture with Kuehne + Nagel for UK primary and secondary distribution. We believe it provides a strong platform to build a dynamic distribution business with a world-class logistics partner, whilst continuing to guarantee the present service to S&N’s existing customers.

International

As in the UK, the late Easter has had a slight negative impact on year on year first quarter comparisons.

The French market is still proving to be a difficult environment with volumes down by between 3 and 4 %, but improving more recently. This market decline is driven mainly by the on-trade.

Within this market our branded beer volumes were down between 6 and 7%, with improvements coming through in the later weeks. It is important to highlight that we are seeing the first positive impact from the reorganisation of our on-trade sales resulting in the stabilisation of our share in this channel.

We are also pleased to report that good results have been achieved in discussions with off-trade customers following the introduction of the Loi Dutreil earlier this year. We have now signed the majority of contracts with the French Hyper and Supermarkets on terms in line with our expectations.

In Portugal our beer volumes grew by 7%. This was driven by a continued strong performance of Sagres, which was up over 8% in the period, including the launch of Sagres Chopp.

In Finland, we have seen beer volume growth in the high single digits, ahead of the market. The first quarter saw beer prices decline versus the comparable quarter last year. We are still reporting against comparables unaffected by the steep pricing decline that commenced in the second quarter of 2005. However, according to AC Nielsen, pricing in the Finnish beer market has increased by around 4% in the first quarter of this year versus the last quarter of 2005.

In the US consumer demand for Newcastle Brown Ale has continued to grow at double digits in the first quarter, continuing our strong performance trend in this market.

Asia

Our Asian beer markets continue to show strong growth and have exciting potential, based on rising consumer incomes and current low per capita consumption. Both our joint ventures are publicly listed companies and will report first quarter results later this year.

India

Our business volumes grew by 17% in 2005, while the Indian market grew by 12% during the same period. Total volume now accounts for around half the market, with the Kingfisher brand accounting for almost one of every three beers consumed in the country. We have seen a continuation of this volume trend into the first quarter of 2006.

China

Chongqing Beer Company Limited, our Chinese joint venture with Chongqing Beer Group announced its full year results on 30 March 2006. Volumes grew by 18% in the 12 months to December 2005 consolidating our position of strength in our regional territories.

Baltic Beverages Holding (BBH)

The results for the first quarter of 2006 will be announced on May 10. The full year results for 2005 were published on February 14, and reported beer volume growth of 12% and over 2% points market share gain in Russia. Volume share in Russia, our biggest market, is now above 36%. Operating profits grew by 24%, despite the additional £5m marketing investment by S&N behind Foster’s and Kronenbourg 1664.

Although the market has been impacted by the extreme cold weather in Russia in the first quarter, this should not materially impact on the full year as Q1 represents a disproportionately low share of total volume.

Following the approval from Baltika minority shareholders we are making solid progress on the integration of our four Russian businesses.

Cash flow

As we reported at the time of the annual results, cash flow generation continues to be strong as a result of improving operational efficiencies. In addition the acquisition of the Foster’s trademark will have a positive impact on operational cash flow. Looking forward, we are confident the business will continue to deliver sustained cash generation.

Outlook

We remain confident that trading for the full year will meet expectations for the group as a whole. We see positive momentum building throughout the business in all of our main markets.

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