Shepherd Neame Results

Shepherd Neame, Britain’s Oldest Brewer and owner and operator of a 327 high quality pub estate, today announces results for the 52 weeks ended 24 June 2017.

Financial performance:

  • Turnover increased by +11.7% to £156.2m (2016: £139.9m)
  • Underlying operating profit up +7.2% at £15.3m (2016: £14.2m)
  • Underlying profit before tax up +8.0% to £11.2m (2016: £10.3m)
  • Statutory profit before tax was £11.8m (2016: £14.4m) primarily due to high, one off profits on property disposals in 2016
  • Underlying basic earnings per ordinary share up +8.0% to 59.1.p (2016: 54.7p) and basic earnings per share 69.1p (2016: 84.0p)
  • Proposed final dividend per share of 22.73p (2016: 22.05p) making total dividends for the year up +3.1% to 28.35p (2016: 27.50p)

Operational highlights:

  • Investment, modernisation and premiumisation have driven sales outperformance in underlying business with managed pubs like-for-like sales growth of +8.1%, and own beer volume growth of +3.9%, both substantially ahead of the market. Like-for-like tenanted EBITDAR was up +1.6%.
  • 14 pubs acquired at a cost of £24.8m in the year including five from Village Green Restaurants and eight from EI Group plc continuing the strategy of enhancing the quality of our estate. Proceeds of £5.9m have been raised from disposal of 15 pubs. Over 5 years, 22 pubs have been acquired and 49 sold, transforming our estate and driving average EBITDAR per managed pub up by +30.5% and per tenanted pub up by +25.4%.
  • Continued investment of £10.7m across estate to ensure every pub has high standards and a unique character with an attractive offer for customers. Accommodation remains a key theme and an incremental revenue stream – occupancy is growing and now stands at 79% (2016:78%) and RevPAR4 at £66 (2016: £63).
  • New brand identity launched with new website and pub signage with 45 sites completed to date.
  • First phase of the modernisation programme of the brewery completed. New, premium British brands launched and costs streamlined to mitigate the impact of the Asahi contract termination in February 2018. Strategy to move to smaller and higher quality Brewing and Brands business focused on own beers.

Board of Directors

Following the review of our strategy for brewing and brands as set out in the Chief Executive’s Report, and as part of the transition from brewing Asahi Super Dry, the role of Brewing and Brands Director is no longer required. Graeme Craig is consequently stepping down from his role as a Director in September 2017 and will be leaving the business. Graeme has made a considerable contribution to the business since joining in 2006. He has greatly developed and enhanced the brand portfolio, and consolidated the sales, marketing and production activities into a single brewing and brands division. I would like to thank him for what he has done and wish him well for the future.

We are streamlining our management roles in this area. We have recently appointed Andy Pinnock as Head of Sales and Giles Hilton as Head of Customer Relations. We are currently recruiting a Head of Marketing, Brands and Communications and a Head of Production, as Richard Frost retires in 2018. These senior positions will report to the Chief Executive.

Summary

This has been an excellent year for the Company.

The Board is focussed on investing for the long-term benefit of shareholders in line with our aims to be a Great British Brewer and to run the best pubs. The investment in our brands and pubs continues to transform the profile and quality of assets in the Company. The managed estate has now become our largest business division by turnover and has been our principal engine for growth.

Our tenanted business is high quality and robust after many years of investing to drive up standards. It generates substantial and sustainable free cash flow and continues to attract exceptional operators.

In the brewing and brands business we have an extended period of transition ahead of us as the arrangements with Asahi come to an end. However, the underlying trends in this division are encouraging and our emerging, innovative and broad brand portfolio gives good reason for optimism.

These three business divisions generate strong cash flow and all contribute to the growing reputation the Company has for offering a great experience to our customers. The new brand identity has strengthened our profile further.

Whilst the performance has been good, the short-term horizon is clouded by the inflationary pressures on the business, and the medium-term horizon by the uncertainty over the UK’s exit from the European Union. Shepherd Neame is, as has been demonstrated over the years, a resilient and flexible business capable of rapidly adjusting to and succeeding in an ever changing world. We remain confident to continue to invest for the long-term benefit of shareholders.

Miles Templeman Chairman

Brewing and Brands

The brewing and brands division has enjoyed a successful year, some exciting brand launches and the redevelopment of our brewhouse.

The strength of the Shepherd Neame offer is a wide portfolio of high-quality products that suits many different customer needs in an increasingly fragmented market. We have continued to outperform and have achieved impressive volume growth of +3.9% against a market of modest decline of -0.2% (Source: BBPA). The Whitstable Bay Collection has again performed well with growth of +20.5% (2016: +19.5%) and now represents 10% of our own beer excluding contract.

The Spitfire range has returned to growth of +2.2% (2016: -3.7%) and represents 22% of own beer excluding contract. We have invested £0.7m in restoring the fabric and infrastructure of our historic site and completing the installation of the new mash tuns. In the coming year we are planning to install a new labeller on our bottling line together with associated line improvements.

As previously announced our licence to brew and sell Asahi Super Dry will terminate at the end of February 2018. The brand represented 23% of our total brewed volume at the year end. In anticipation of the end of this contract, we have carried out a strategic review of our beer business and operation on this site so as to mitigate much of its impact. Whilst we have investigated other licence partnerships, we no longer feel that this type of world lager fits our portfolio. Furthermore, we see considerable opportunity from our emerging portfolio as the consumer seeks premium British products.

We anticipate that brewing volumes will reduce in the short-term. We believe it is the best strategy in the long term to allocate more of our limited capacity to build our own brands and focus on those parts of the market where we have a competitive advantage or a strong position. We have determined to modernise our plant, to drive cost efficiency, higher productivity and quality enhancements. We expect turnover in this division to fall in line with volume in the near term. We are taking appropriate action to streamline our management structure, reduce our overheads and operating costs accordingly. As a result of these changes a one-off exceptional cost is expected in 2018. Going forward we are targeting ongoing divisional underlying EBITDA of around £3.5m.

The consequence of these actions, following a period of transition, will be a smaller, higher quality brewing and brands business, producing great beers on an upgraded infrastructure, and creating strong brands that positions the business well for future opportunities.

Creating demand and building awareness for our brands

We aim to create demand and build awareness for our brands by developing a range of distinctive beers, by instilling a passion for quality, and by having a great engagement with our customers.

The brewhouse investment and renovation works have driven greater efficiency and ever higher standards of quality in our beers.

The marketing team have had a busy year as they have developed a very compelling and exciting new portfolio including the introduction of Cinque, Five Grain Premium Lager, and Orchard View, a cider made in collaboration with Aspall.

The new brand identity has been well received by consumers and we received an award for it at the prestigious Mobius Awards. Our products receive many plaudits and we won three gold medals at the British Bottlers Institute Awards, and one gold at the International Brewing Awards.

The Whitstable Bay Collection continues to enjoy great success with increasing distribution and brand awareness. Whitstable Bay Red IPA was added to the range this year. Spitfire Gold and Spitfire Lager, The Lager of Britain, were new extensions to the Spitfire brand last year and have performed above expectations.

We have continued to support a variety of local and customer events such as the Battle of Medway 350th Anniversary commemoration through sponsorship and marketing activity.

To raise awareness of our new brands we opened a pop-up shop at Bluewater for the first time with considerable success. The store was named Store of the Week by Retail Week.

Brewing and Brands Performance

Divisional turnover for the year was +4.4% at £59.8m (2016: £57.3m). Own beer volume excluding contract was 216,000 barrels (2016: 208,000 barrels) and grew by +3.9% (2016: +0.3%). Divisional underlying operating profit was £1.6m (2016 restated: £1.6m), after having absorbed incremental costs of water recovery of £0.3m which we are working to mitigate now that the operation is maturing.

 

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