UK: S&N targets UK costs savings of GBP20m

Scottish & Newcastle has outlined four initiatives to strengthen its future business across the UK market and targeted cost savings of GBP20m (US$41.3m).

In its third quarter trading statement today (20 November), the company said that following a review of its supply chain, it has decided to enter into a production and packaging agreement with Coors UK.

"The long-term arrangement will lead to up to 3m hectolitres of on-trade volume being produced under contract by Coors. We are now moving into a consultation process with employees but envisage significant cost savings and reduced capital commitment linked to this arrangement," S&N said.

Secondly, the company announced it has entered into a ten-year joint venture with Q-Group to increase its cider capacity by 25%. The JV will involve the construction of a new cider mill in Herefordshire, creating a cider capacity of 1m hectolitres.

The company said: "This transaction reinforces our commitment to Herefordshire, secures capacity to exploit S&N's fast-growing cider brands and avoids the capital expenditure required to extend our own Hereford site."

S&N also disclosed that it is in talks with its employees over the closure of its bottling plant at Berkshire brewery, which it described as "under-utilised".  It has been planned that the remaining volumes will be moved to its Tadcaster bottling facility. These changes will be supported by Chesire-based Quinn Group taking on the development packaging and warehousing for the international export of Newcastle Brown Ale, the company said.

"Cost savings linked to these changes are estimated at GBP20m with reduced medium-term capital commitment of GBP80m, with the substantial proportion of benefits starting from 2009", S&N added.

The company's final initiative involves a joint venture with Heritage Drinks in an effort to "support its heritage ale brands and second tier cider brands" and ensure that the brands receive "the appropriate level of focus, brand management and marketing support" within the portfolio.