Plummeting profits reported by big two
Two major UK brewers have filed accounts at Companies House that indicate how difficult the UK beer business has become.
Both Carlsberg UK and Coors have filed accounts in recent weeks that show plummeting profits in the year to 31 December 2005.
Carling brewer Coors - acquired by its American parent for £1.3bn in 2002 - saw pre-tax profit drop by half to £67.2m from £134m the year before. Turnover decreased by 13% to £1.417bn after volumes dropped by 3.1%.
A statement by Coors included in its accounts filing said: "The company's profits for the period declined significantly, largely as a result of the decline in the UK beer market, especially in the on-trade and margin pressures due to competitive discounting and retailer customer consolidation.
"Volume decline was driven by the Grolsch brand, flavoured alcoholic drinks and ales. The decline was partially offset by growth in the Carling brand. The company's overall volume decline for the period was slightly worse than the overall market decline.
"A change in our trading arrangement with one major factored brand customer has required us to move from gross reporting of sales and cost to a net presentation for that customer, which caused a period-over-period reduction in both sales and costs of £133.5m, with no net impact on net profit.
"Our focus is on cost reduction strategies and continued investment in our core lager brands - Carling, Grolsch and Coors Fine Light."
Carlsberg made a loss before tax of £3.8m in the year to the end of 2005, including a £9.7m exceptional charge, compared to a profit before tax of £27.1m the year before. Turnover in 2005 was £864m compared to £886m in 2004.
The company stated in its accounts filing that the result was "disappointing". It added: "This reflects difficult trading conditions in the on-trade, a declining overall market (-2%), exceptional levels of expenditure on contract packaging (ahead of investment in new capacity) and the need to make additional payments into the defined benefit pension scheme.
"The business continued to perform well in the take-home sector where market share grew from 13.1% to 13.5%."
A source said: "Business for brewers in the independent free trade, a profitable route to market, is down while
business is up in the off-trade, which is a much less profitable route."
Analyst's comment
With each of us drinking around half a pint a day, Britain is the world's fifth largest beer-drinking country. Yet, the accounts filed at Companies House by the UK's largest brewers shows it also ranks amongst the world's least profitable beer markets.
After stripping out one-off costs, such as restructuring charges and brewery closure costs, operating profit before depreciation and amortisation (or EBITDA) margins in Carlsberg, Coors, and Inbev collectively fell, on aggregate, to just 4.2% in the year ending 31 December 2005 from 6.0% a year earlier. Together, these three account for around 55% of the UK beer market .
Carlsberg, where EBITDA halved on sales down 2.5%, and Coors, where EBITDA fell by over a third on sales down 13%, recorded the biggest profit falls.
Meanwhile, Scottish & Newcastle's EBITDA margins before exceptional items were 7.7% in the year ending December 2005, compared to 9.2% in the eight-month period covered in its 2004 accounts. Its margins in 2005 would have been nearer its competitors' average but for its £60m cost-saving programme.
S&N and Inbev's tax returns
Scottish & Newcastle UK (S&NUK) and Inbev UK filed their accounts for the year ending 31 December 2005 earlier this year. S&NUK saw turnover up to £1.71bn from £1.68bn the year before. It made an operating profit of £70.3m compared to a loss of £19.2m the year before on an eight-month period. However, interest payments of £134.9m produced a loss before tax of £51.1m compared to £52.1m the year before. Inbev UK made a loss before tax of £42m compared to a loss of £47m the year before. Turnover was £1.385bn compared to £1.381bn in the year to 25 December 2004.
