Scottish & Newcastle revealed this morning that operating profits at its Scottish Courage brewing arm would be hit for millions of pounds by continuing problems sorting out its supply chain.
At the same time it said in a trading statement that S&N Retail "continues to perform well", but Scottish Courage profits were also under pressure because of market weaknesses, particularly in the High Street.
Analysts had been predicting group pre-tax profits of about £520m to £535m for year to April 2003, with operating profits of about £204m from the UK beer operations. They will now downgrade their numbers by at least £15m, while expectations for 2003-04 will be cut back because of a likely flat year from the UK beer side.
S&N first revealed in December that disruption and delays in making cost savings during the reorganisation of its supply chain were greater than expected.
This morning it said that while it had accelerated the opening of the third and largest of its regional distribution centres in Thatcham, Berkshire "to maintain satisfactory customer service", the old depot network remains operational, meaning a "significant" increase in "double running" costs.
At the same time the current level of productivity of the new regional distribution centres is "substantially below expectations", meaning it would take longer than expected to get supply chain productivity up to satisfactory levels.
S&N said implementing the changes at Scottish Courage had proved "more testing" than originally thought. "The scale of the challenge has been huge. Moving stock while maintaining customer service has been difficult and there have been teething problems. The problems are mainly logistical ones and not management related."
S&N said that while it was taking "strong" managerial action to sort the problems out it expected to incur additional costs for the rest of 2003, which covered a hit of £15m in the second half of the current financial year, ending 27 April.
The group said as a result of the additional costs in sorting out the supply chain, "no significant growth in operating profit is expected in the UK beer division in the calendar year 2003."
It said Scottish Courage expects the transition to the new network to be largely complete from 2004,, when it would be able to optimise the effectiveness of the new supply chain "as well as benefit from other cost saving initiatives."
At the same time it said in a trading statement that S&N Retail "continues to perform well", but Scottish Courage profits were also under pressure because of market weaknesses, particularly in the High Street.
Analysts had been predicting group pre-tax profits of about £520m to £535m for year to April 2003, with operating profits of about £204m from the UK beer operations. They will now downgrade their numbers by at least £15m, while expectations for 2003-04 will be cut back because of a likely flat year from the UK beer side.
S&N first revealed in December that disruption and delays in making cost savings during the reorganisation of its supply chain were greater than expected.
This morning it said that while it had accelerated the opening of the third and largest of its regional distribution centres in Thatcham, Berkshire "to maintain satisfactory customer service", the old depot network remains operational, meaning a "significant" increase in "double running" costs.
At the same time the current level of productivity of the new regional distribution centres is "substantially below expectations", meaning it would take longer than expected to get supply chain productivity up to satisfactory levels.
S&N said implementing the changes at Scottish Courage had proved "more testing" than originally thought. "The scale of the challenge has been huge. Moving stock while maintaining customer service has been difficult and there have been teething problems. The problems are mainly logistical ones and not management related."
S&N said that while it was taking "strong" managerial action to sort the problems out it expected to incur additional costs for the rest of 2003, which covered a hit of £15m in the second half of the current financial year, ending 27 April.
The group said as a result of the additional costs in sorting out the supply chain, "no significant growth in operating profit is expected in the UK beer division in the calendar year 2003."
It said Scottish Courage expects the transition to the new network to be largely complete from 2004,, when it would be able to optimise the effectiveness of the new supply chain "as well as benefit from other cost saving initiatives."
