03 February 2003 20:32
Lex: Scottish & Newcastle
Scottish & Newcastle investors could once seek solace in a dependable British pint. Faced with the dual
uncertainties of an empty chief executive's seat and slowing growth in the important Russian market, its solid
position as the UK's leading brewer provided reassurance. No longer. Monday's trading update showed changes to
the group's distribution system have probably cost money instead of saving it. Confidence in reaching the planned
GBP50m of savings, let alone their timing, is badly shaken. Add to that worse-than-expected beer sales through high
street pubs and investors have little good news to look forward to.
That leaves S&N heavily reliant on its dividend. Sir Brian Stewart, chairman, has staked his reputation on
maintaining the payout, now yielding almost 8 per cent. That should continue to lend support to the shares. But it
seriously curtails S&N's room for manoeuvre. Prospective chief executives might be scared off by the prospect
of being locked into an unsustainable payout - recently met only through increased borrowing. It also makes it tricky to
release more than the promised GBP600m-GBP700m of capital from UK pubs. This in turn will impede further expansion of
its international brewing interests.
That is not entirely a bad thing. With huge financial firepower available to consolidators such as Heineken and
Interbrew, brewers have struggled not to overpay for prize assets. But it is hardly a refreshing story with which to
tempt investors.
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