UK: S&N continued to gain share in a difficult UK market

Scottish & Newcastle's results for the third quarter of the year have been robust, showing a continuation of recent trends, the company posted on November 7th. BBH and its Asian businesses delivered strong growth. S&N continued to gain share in a difficult UK market, while in the Western European markets it has seen a mixed performance due to an overall weak consumer environment.

S&N has benefited from the continued focus on brand building and innovation. The rollout of SuperChilled technology throughout a number of European markets and innovations in cider, ‘beer with food' and zero alcohol beers underline the company's success in this area.

Despite variable consumer markets in Western Europe and increasing input prices we are confident that we will meet market expectations for 2006. We expect the current trends in trading conditions and cost pressures to continue into 2007, while the UK business will be adversely affected by the introduction of the smoking ban in England and Wales . As announced at the half year results, we expect that further group wide cost saving programmes – to be specified in February – will help to mitigate these pressures.

Our focus on cash remains high and looking forward we expect the business to continue to deliver sustained cash generation.

UK
The UK beer market has been weaker than expected in the third quarter, with a decline of 6.7%1. This has been driven in part by a stock overhang following the World Cup but is also indicative of a more depressed consumer environment. Within this more challenging trading environment S&N continued to gain share from its competitors, while also benefiting from its strong number one position in the buoyant cider market.
1 BBPA data

S&N total branded beer and cider volumes are up by 0.6% for the third quarter. The top four brands (Foster's, Kronenbourg 1664, John Smith's, Strongbow) performed ahead of this with volume growth of 2.0% in the period, with Strongbow performing particularly well. Net sales growth of branded beer and cider is ahead of our volume growth.

Going into to the next year we expect the introduction of the smoking ban in England and Wales will have an adverse effect on the market. At the same time we see a material impact from the ongoing cost pressures, which will be mitigated by cost reduction initiatives. Within this environment we believe we will continue to outperform the market with our strong portfolio of brands benefiting from our focus on innovation in beer and cider.

International
S&N has seen good progress in the majority of its international markets, although Western European markets have been challenging and are not immune to cost pressures.

In France the trading environment has improved in the off-trade, helped by the introduction of the Loi Dutreil, but underlying economic conditions and consumer confidence are still weak and we expect this to be unchanged in the near future. Nonetheless, the steps taken by Brasseries Kronenbourg (BK) to improve the performance are showing some signs of success. BK branded beer volumes were up 5.7% in the third quarter helped by good summer weather and buying ahead of BK's October price increase. BK's top three brands (Kronenbourg Red & White, Kronenbourg 1664 and Grimbergen) continue to gain share (volumes third quarter +7.5%) and overall pricing in the third quarter was up over 1% year-on-year.

Overall results however have been adversely impacted by the recent restructuring of the wholesale business, which has caused some disruption that has mainly affected the sale of non-beer products.

Following a number of recent senior appointments at BK, we are pleased to announce the appointment of Yves Couette as managing director of S&N France, joining us from Unilever later this month.

In Belgium S&N's branded beer gained share in the on-trade driven by the roll-out of Maes SuperChilled, but declined ahead of the market in the off-trade due to a firm pricing policy. Grimbergen continued to show strong volume and sales growth.

In Portugal branded beer volumes grew 7.1% and branded water volumes were flat in the third quarter. Sagres' strong growth continued to drive the beer category. Pricing in the period was positive for both beer and water.

In Finland S&N's own branded volumes were down 8.7% for the third quarter. This was caused by continued decline of beer volumes, as we adopted a very firm pricing policy, recovering some of the price declines of last year. Own branded volumes in all other sectors – water, cider and soft drinks - were up 8.2%, with strong pricing.

In the US Newcastle Brown Ale volumes have continued to grow at double digits for the year-to-date.

Both our Asian joint ventures are publicly listed companies and have recently announced good results including the period July to September. United Breweries in India showed volume growth of 32.4% for the three months to September, while our Chinese joint venture with the Chongqing government has shown volume growth of 23.2% in the same period.

BBH
The results for the third quarter of 2006 will be announced tomorrow.
In a trading update published on 26 September BBH highlighted strong Russian volume growth of 16% in the months of July and August versus a market growth of 14%. Results for the six months to June showed beer volume growth of 6%, net sales up 14.3% (US dollars) and EBITDA up 23.6% (US dollars). We are very confident that BBH will continue to perform strongly.

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