Shepherd Neame Ltd - Interim Results London Stock Exchange
RNS Number : 6919F
Shepherd Neame Limited
11 March 2020
 

 

INTERIM RESULTS

A strong performance in the tenanted estate

Turnover growth in all divisions

Shepherd Neame, Britain's Oldest Brewer and owner and operator of 320 high quality pubs in Kent and the South East, today announces results for the 26 weeks ended 28 December 2019.

Financial performance:

·      Turnover in the period increased to £79.0m (2018: £76.5m), an increase of +3.3%

·      Underlying operating profit1 was up +1.1% at £8.0m (2018: £7.9m) and underlying profit before tax2 was up +4.8% to £6.2m (2018: £5.9m) benefitting from lower interest charges

·      Underlying basic earnings per share3 are up +4.7% to 33.1p (2018: 31.6p)

·    Statutory profit before tax was £5.4m (2018: loss of £4.1m)

·      The Board is declaring an interim dividend of 6.00p (2018: 5.87p), an increase of +2.2% 

Operational Highlights:

·      Managed pubs (69) achieved a solid performance

-     Total managed sales grew by +4.3% to £37.0m (2018: £35.5m)    

-     Like-for-like sales were up by +0.9% against strong comparatives in the prior year (2018: +4.1%)

-     Average income4 per managed pub grew by +1.4% (2018: +8.5%)

 

·      Tenanted pubs (239) continued to trade strongly despite fewer pubs

-     Average income per tenanted pub grew by +5.0% (2018: +4.0%)

-     Divisional underlying operating profit was up +1.7% to £6.7m (2018: £6.6m). Like-for-like tenanted pub income grew by +2.9% (2018: +2.2%)

-     Winner of the Publican Award for Best Tenanted/Leased Company (up to 500 sites)

 

·      Own brand volume returned to growth

-     Own brand beer and cider volume grew ahead of the market at +3.3% (2018: -1.0%) during the period (versus market growth of +2.6%5)

-     Divisional turnover grew by +3.5%, underlying operating profit was £0.4m (2018: £0.5m)

-     We have made a promising start to the new partnership for distributing Singha beer

 

 

[1]Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and operating charges which are either material or infrequent in nature and do not relate to the underlying performance.

2 Underlying operating profit less underlying net finance costs.

3Underlying profit less attributable taxation divided by the weighted average number of ordinary shares in issue during the period. The number of shares in issue excludes those held by the company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled.

4Calculated by dividing pub profit before depreciation, amortisation, rent and property costs and other cost allocations by the average number of divisional pubs trading in a financial period.

5 The British Beer and Pub Association. 



 

Current Trading:

·      For the 35 weeks to 29 February 2020:

-     Managed pub like-for-like sales up +0.6%

-     Like-for-like tenanted pub income up +2.6%

-     Own brand beer and cider volumes up +4.4%

Jonathan Neame, Chief Executive, commented:

"Shepherd Neame continues to benefit from a well-balanced business. These results demonstrate the strength of our tenanted pubs in a period where managed margin was held back by the challenging cost environment. We are pleased to see that own brand beer and cider volume is outperforming the market. As a result of this strategy we again have delivered a solid performance in the first half.

 

For the rest of the year, we remain concerned about the potential impact of the Covid-19 virus. We have seen no discernible change in customer behaviour to date. Looking forward it is impossible at this stage to gauge the likely impact, but should there be significant restrictions on travel and the movement of people in the coming months, that would have an inevitable bearing on our business and our supply chain.

 

Over the longer term, the quality and profile of the Company's brands and pubs will stand us in good stead and form an excellent platform from which to grow. We are confident we are building an even stronger business for the future."

 

March 2020

Shepherd Neame

 Tel: 01795 532206

Jonathan Neame, Chief Executive


Mark Rider, Finance and IT Director




Instinctif Partners

Tel: 020 7457 2020

Matthew Smallwood


Seb Holland


NOTES FOR EDITORS

Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,900 people.

At the year end, the Company operated 320 pubs, of which 239 were tenanted or leased, 69 managed and 12 were held as investment properties under commercial free of tie leases. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs.

The Company brews, markets and distributes its own beers to national and export customers under a range of highly successful brand names including traditional classics such as Spitfire and Bishops Finger as well as newer brands, such as Whitstable Bay, Bear Island and Orchard View Cider.

The Company also has partnerships with Boon Rawd Brewery Company for Singha beer, Thailand's original premium beer and with Boston Beer Company for Samuel Adams Boston Lager and Angry Orchard Hard Cider.

Shepherd Neame's shares are traded on the NEX Exchange Growth Market. See http://www.nexexchange.com/ for further information and the current share price. 

For further information on the Company, see www.shepherdneame.co.uk.

 



CHAIRMAN'S STATEMENT

 

Interim Results

 

I am pleased to report another solid period in the 26 weeks ended 28 December 2019 with a strong performance in the tenanted estate and turnover growth in all divisions.

 

After an encouraging start to the financial year consumer spend was subdued through the autumn as a consequence of persistent wet weather and political uncertainty in the run up to the General Election. However, we enjoyed a buoyant festive period from mid-December and have made a good start to the second half of the year even though we are lapping a strong February.

 

In the last financial year, we identified two key objectives that will be of long term benefit to the Company:

•           acquire new sites in North Kent where there will be substantial economic development in the future, and

•           expand our beer partnerships to sit alongside our modernised range.

 

We have made progress against both these objectives. We have received planning permission and have purchased a site in Ebbsfleet and anticipate commencing the build phase in May 2020. The site will be named the Chalk Yard and will have 17 bedrooms and a pub and restaurant. It will be our largest single pub project to date. We anticipate opening in mid-2021.

 

Also in North Kent, we acquired The Crown, Rochester and intend to redevelop it in due course. This is in addition to the acquisition of the Horse and Groom, Wilmington in the prior year. In January 2020, we closed the Wharf at Crossways in Dartford for a major redevelopment of the pub.

 

The cumulative impact of these four investments in close proximity will transform the profile of the Shepherd Neame pub estate in this rapidly developing area.

 

On the beer side we commenced our distribution partnership for Singha Beer, Thailand's original premium beer, in September 2019. We are pleased with the initial response of customers to the brand and are positive about the opportunities this opens up for us in future years. Singha provides a useful complement to our Spitfire, Whitstable Bay and Bear Island ranges to make an exciting portfolio for our customers.

 

Financial Performance

 

Turnover in the period increased to £79.0m (2018: £76.5m), an increase of +3.3%, driven by higher sales in our managed pubs and brewing and brands businesses.

 

Underlying operating profit was up +1.1% to £8.0m (2018: £7.9m) and underlying profit before tax was up +4.8% to £6.2m (2018: £5.9m) benefitting from lower interest charges. Underlying basic earnings per share was up +4.7% to 33.1p (2018: 31.6p).

 

Statutory profit before tax was £5.4m (2018: loss of £4.1m). The prior year loss was incurred as a result of refinancing and the associated swap contract cancellation charge. The new debt structure provides certainty of funds, at a lower cost of debt and an improved maturity profile.

 

Operating charges - items excluded from underlying results

 

Since the half year, we have identified a transaction in one of our ledgers that gave us cause for concern. We investigated this thoroughly and extensively in consultation with external advisers and our auditors. We have uncovered a series of erroneous charges made against certain accounts, as a result of unlawful action by one employee, who was acting independently over a number of years.

 

This employee has now left the business and we are taking action to attempt to recover our loss. We are in the process of reimbursing fully all those accounts affected.  A net charge of £0.5m has been recognised within items excluded from underlying results (see note 3).  

 

The sums involved, although significant cumulatively, were not significant in any single year, and are not in aggregate material in the context of the Company's overall finances.   We are confident that the matter is isolated and resolved. We have commissioned a full review of our internal controls in the area concerned and have implemented changes.

 

We have also recognised an impairment charge of £0.2m in respect of one property.

 



 

Capital and Investment

 

We continue to invest in the business for the long term. Capital expenditure was £8.1m (2018: £7.1m), including £1.4m (2018: £2.1m) on new site acquisitions and £6.7m (2018: £5.0m) invested in the pub estate and brewery.

 

We continue to manage our pub and investment property assets actively and have realised a total of £1.2m (2018:  £1.5m) from disposals.

 

Tenanted and Managed Pub Operations

 

Overview

 

Our long term investment strategy is to grow through selective single site acquisitions in landmark or high footfall locations. Our recent acquisitions have been in urban areas with a large local catchment and high disposable income.

 

The Crown, Rochester meets these criteria and was acquired in September 2019. It is being run as a managed pub in a prominent location at the end of the High Street overlooking the River Medway. We see further potential for the site as this part of the town is regenerating and will benefit from substantial house building.

 

Meanwhile we continue to dispose of those smaller outlets which no longer fit our strategy, albeit the rate of disposal activity has slowed as the quality of our business has improved.

 

In the period, we acquired one managed pub (2018: two), disposed of two pubs (2018: nil), one investment property (2018: one) and two pieces of land, one with planning permission for residential development.

 

At the half year we operated 320 pubs (2018: 322) of which 239 are tenanted or leased (2018: 244), 69 are managed (2018: 68) and 12 (2018: 10) are operated under commercial free of tie leases.

 

 

Driving Footfall to our Pubs

 

We have invested £4.7m (2018: £3.3m) in capital expenditure to improve the look and feel of our pubs and a further £1.5m (2018: £1.5m) in repairs and decorations.

 

Our largest investment in the period was the transformation of the Woolpack, Banstead acquired in 2009. It has been operated under lease for most of the time since then. We transferred it to the managed estate in 2019 and have now invested £1.4m. This is an exceptional site in the centre of this affluent town south of London and is now a flagship operation for us in that area. Initial trade since it re-opened in December has been excellent.

 

In the last ten years we have acquired a number of other sites currently operated under lease and that may benefit from a change of operating model to managed. We will review the circumstances on an individual basis as and when they become available over the coming years.

 

Also, in the managed estate, we have redeveloped the Compton Cross, Soho. This was acquired in the previous financial year and re-opened under its original name of the Coach and Horses. This gives us another high profile site in central London.

 

In the second half we will continue with the programme to upgrade our bedroom stock in our inns and hotels. We plan to refurbish nine rooms at The Marine in Whitstable and eight rooms at the Royal Albion in Broadstairs.

 

In the tenanted estate, we have invested in major works at the Red Lion, Charing Heath and the Lord Nelson, Dover. At the former, we have converted a disused barn to create four letting rooms and upgraded the pub; with the latter we have transformed this well located pub now that the long awaited town centre redevelopment is complete.

 

The new signage scheme continues to gain momentum. We have now completed half the estate. The quality and extent of each scheme improves the whole time and has a real and positive impact on customer first impressions.

 

Developing our offer to enhance the customer experience

 

We drive footfall by presenting our pubs inside and outside in an appealing and stylish way. Once we have attracted customers we need to ensure that our offer is suited to today's customer needs and build loyalty to our pubs and brands.

In the last two years we have built our Rewards Club to engender loyalty with our customer base, and now regularly communicate offers on food and accommodation.

 

We have recruited more team members in the last six months to strengthen our digital and pub marketing capability. One of the initiatives that has been launched successfully is a series of walks around our rural pubs.

 

Overall pub performance continues to be driven by the shift to premium drinks sales as we continue to enhance our offer and expand the range. Managed like-for-like drink sales were up +1.8% (2018: +5.8%).

 

The eating out market remains very competitive and our food offer evolves to meet customers rapidly changing tastes. This now incorporates a much broader range of lower calorie, vegan and vegetarian dishes. We have also created a bespoke gluten-free burger for our managed estate.

 

We are always looking for ways to team with local producers. Under our Love Food campaign to champion local ingredients, we have worked with Faversham-based Karimix to create a bespoke Kentish tomato chutney. We encourage staff involvement to promote many of the great dishes we serve in our pubs via #shepsfood.

 

The introduction of the Ten Kites system for allergen control and communication has been welcomed by staff and customers alike. This provides interactive menus across our managed house websites and allows customers to use dietary and allergen filters to tailor their choice.

 

It is particularly pleasing to note that our efforts to drive our food business have been recognised as we were a finalist at the Publican Awards for Best Food Offer (Managed > 50 sites). Managed like-for-like food sales were down -0.7% (2018: +2.2%).

 

Accommodation remains in demand in spite of the consumer caution in the autumn but our rate of growth has slowed. Like-for-like accommodation sales were up +0.9% (2018: +0.7%). Occupancy improved to 81.6% (2018: 80.5%) and RevPAR6 was up +1.4% at £74 (2018: £73).

 

Managed Pub performance

 

Total divisional turnover in the managed estate grew by +4.3% to £37.0m (2018: £35.5m). Divisional underlying operating profit declined marginally by -0.2% to £5.4m (2018: £5.4m). Ongoing cost inflation means that margins are under continued pressure with same outlet like-for-like sales up by +0.9% against strong comparative figures from the prior year (2018: +4.1%). Average income per managed pub grew by +1.4% (2018: +8.5%).

 

Tenanted Pub Performance

 

Total divisional turnover in the tenanted estate grew by +1.3% (2018: +0.7%) to £18.4m (2018: £18.1m) despite a fewer number of pubs. Divisional underlying operating profit was up +1.7% to £6.7m (2018: £6.6m). We continue to invest in repair and decorations at a high rate although the rate of increase is levelling out as the quality of overall maintenance and presentation of our pubs is at a high level. Like-for-like tenanted pub income grew by +2.9% (2018: +2.2%). Average income per tenanted pub grew by +5.0% (2018: +4.0%).

 

The sector continues to suffer from high cost inflation from rates and national minimum wage increases. It is therefore welcome to hear recent Government announcements of extending rate relief for smaller pubs.

 

In independent surveys of our licensees we score highly across all areas including in the communication and understanding our Business Development Managers have of our Pubs and the extensive personal support they provide to our licensees.

 

As a consequence of the huge strides we have made in the quality of our tenanted pubs in recent years, we were delighted to win the Publican Award for Best Tenanted/Leased Company (up to 500 sites).

 

Creating demand and building awareness for our brands

 

In the last year, we took a number of measures to refresh and modernise our core brand portfolio. These measures are beginning to bear fruit, as our own brand beer and cider volume grew by +3.3% (2018:-1.0%) ahead of the market.

 

We have had a promising start to the new partnership with Boon Rawd Brewery Company to distribute Singha Beer. The partnership commenced at the end of the summer with a phased transition from the previous supplier. The brand is strong in its Thai restaurant base but is also backed by high level sponsorship activity. This gives us a credible and exclusive world lager to enhance our portfolio.

 

To support these portfolio developments we have strengthened our heartland on-trade sales team. We are also in the process of introducing a comprehensive online ordering platform, which will be operational in the next few months.

 

In the brewery, we continue to invest in quality enhancements and have committed to the installation of a new yeast propagation plant at a total cost of £0.5m. This will be operational by year end.

 

As the market for packaged products changes, particularly in the light of environmental concerns, so do the needs of our customers. As such we are reviewing our small packaging capability.

 

6 Revenue per Available Room

 

 

 

Brewing and brands performance

 

Total divisional turnover grew by +3.5%, with divisional underlying operating profit of £0.4m (2018: £0.5m).

 

We saw growth in our own brands portfolio and overall turnover growth was enhanced by the new partnership with Singha beer. However, total own brewed volumes fell by -7.9% with the final impact of exiting the Lidl own brand contract in the prior year.

 

Investment Property

 

As at 28 December 2019, the Company owns investment property valued at £8.3m (June 2019: £8.8m).

 

Our appeal against the refusal of planning consent for 50 houses on land outside Faversham was dismissed. Nevertheless we believe that this land has long term development prospects and will continue to promote the site through the local planning process.

 

Dividend

 

The Board is declaring an interim dividend of 6.00p (2018: 5.87p), an increase of 2.2%. The dividend will be paid on 2 April 2020 to those shareholders on the register at 20 March 2020.

 

Outlook and Current Trading

 

This has been a satisfactory trading period considering the challenging conditions of the autumn. The tenanted performance has been strong. Recent developments in the brewing and brands business now appear to be bearing fruit and we are optimistic about the potential of some of our recent initiatives.

 

The managed pubs division has performed well but it has been harder to generate like-for-like sales growth in this period. We are excited about the new developments at the Wharf and Woolpack and by the long term potential of the Chalk Yard.

 

Since the half year (and for the 35 weeks to 29 February 2020), like-for-like tenanted pub income has remained strong at +2.6% (2018: +2.6%), own brand beer and cider volumes are up +4.4% (2018: +0.4%) and same outlet like-for-like managed pub sales are up +0.6% (2018: +3.7%).

 

For the rest of the year, we remain concerned about the potential impact of the Covid-19 virus. We have seen no discernable change in customer behaviour to date. Looking forward it is impossible at this stage to gauge the likely impact, but should there be significant restrictions on travel and the movement of people in the coming months, that would have an inevitable bearing on our business and our supply chain.

 

Over the longer term, the quality and profile of the Company's brands and pubs will stand us in good stead and form an excellent platform from which to grow. We are confident we are building an even stronger business for the future.

 

Miles Templeman

Chairman

 



 

CONSOLIDATED PROFIT AND LOSS           ACCOUNT 26 weeks ended 28 December 2019

 


 

Unaudited

26 weeks ended 28 December 2019

 

Unaudited

26 weeks ended 29 December 2018

 

Audited

52 weeks ended

29 June 2019



Underlying

results

Items excluded from underlying results

Total

statutory

Underlying

results

Items  excluded from underlying results

Total

statutory

Total

Statutory


note

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Turnover

4

79,035

-

79,035

76,500

-

76,500

145,801

Operating charges


(71,020)

(648)

(71,668)

(68,571)

-

(68,571)

(130,711)

Operating profit

4

8,015

(648)

7,367

7,929

-

7,929

15,090

Finance costs

3,5

(1,843)

-

(1,843)

(2,040)

(9,820)

(11,860)

(13,721)

Fair value movements on financial     

   instruments charged to profit and loss

 

3,5

-

(112)

(112)

-

(991)

(991)

(952)

Net finance costs

3,5

(1,843)

(112)

(1,955)

(2,040)

(10,811)

(12,851)

(14,673)

Profit on disposal of property

3

-

280

280

-

663

663

2,848

Investment property fair value movements

3

-

(297)

(297)

-

139

139

206

Profit/(loss) before taxation


6,172

(777)

5,395

5,889

(10,009)

(4,120)

3,471

Taxation

6

(1,297)

104

(1,193)

(1,237)

1,961

724

(882)

Profit/(loss) after taxation


4,875

(673)

4,202

4,652

(8,048)

(3,396)

2,589

Earnings/(loss) per 50p ordinary share

7








Basic




28.5p



(23.1)p

17.6p

Diluted




28.3p



(22.9)p

17.5p

Underlying basic




33.1p



31.6p

60.9p










 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

26 weeks ended 28 December 2019

           




Unaudited

26 weeks ended

  28 December 2019

Unaudited

26 weeks ended

29 December 2018

Audited

52 weeks ended

29 June 2019





£'000

£'000

£'000

Profit/(loss) after taxation




           4,202

(3,396)

2,589

Gains arising on cash flow hedges during the period 




426

567

248

Transfers to the profit and loss account on cash flow hedges




-

10,866

10,660

Tax relating to components of other comprehensive income 




(83)

(2,008)

(1,931)

Other comprehensive gains




343

9,425

8,977

Total comprehensive income




4,545

6,029

11,566

 



 

CONSOLIDATED BALANCE SHEET As at 28 December 2019

 




Unaudited

26 weeks ended

Unaudited

26 weeks ended

Audited

52 weeks ended




28 December 2019

29 December 2018

29 June 2019




£'000

£'000

£'000

Fixed assets






Intangible fixed assets



775

564

760

Tangible fixed assets



317,019

310,367

314,728

Investments and loans



6

18

10




317,800

310,949

315,498

Current assets






Stocks



8,004

6,416

7,111

Debtors



15,999

16,329

12,945

Deferred tax asset



975

983

1,058

Cash at bank and in hand



3,270

2,894

116




28,248

26,622

21,230

Creditors: amounts falling due within one year






Bank loans and overdrafts



-

-

(933)

Creditors



(26,474)

(23,267)

(23,096)




(26,474)

(23,267)

(24,029)

Net current assets/(liabilities)



1,774

3,355

(2,799)

Total assets less current liabilities



319,574

314,304

312,699

Creditors: amounts falling due after more than one year






Bank loans



(87,211)

(89,088)

(81,160)

Derivative financial instruments



(6,739)

(6,769)

(6,822)

Deferred lease liability



(2,620)

(2,423)

(2,547)

Provisions for liabilities



(13,956)

(12,821)

(14,073)

Net assets



209,048

203,203

208,097

 

Capital and reserves






Called-up share capital



7,429

7,429

7,429

Share premium account



1,099

1,099

1,099

Revaluation reserve



71,394

73,532

71,858

Own shares



(1,367)

(1,806)

(1,551)

Hedging reserve



(4,647)

(4,542)

(4,990)

Profit and loss account



135,140

127,491

134,252

Equity shareholders' funds



209,048

203,203

208,097

 



 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY   26 weeks ended 28 December 2019

 


 

Called-up

share capital

 

Share premium account

 

Revaluation reserve

 

Own shares

 

Hedging reserve

 

Profit and loss account

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 29 June 2019

7,429

1,099

71,858

(1,551)

(4,990)

134,252

208,097

Profit for the period

-

-

-

-

-

4,202

4,202

Gains arising on cash flow hedges during the period

-

-

-

-

426

-

426

Tax relating to components of other comprehensive income

-

-

-

-

(83)

-

(83)

Total comprehensive income

-

-

-

-

343

4,202

4,545

Ordinary dividends paid

-

-

-

-

-

(3,573)

(3,573)

Revaluation reserve realised on disposal of properties

-

-

(464)

-

-

464

-

Accrued share-based payments

-

-

-

-

-

256

256

Purchase of own shares

-

-

-

(290)

-

-

(290)

Distribution of own shares

-

-

-

314

-

(301)

13

Unconditionally vested share awards

-

-

-

160

-

(160)

-

Balance at 28 December 2019

7,429

1,099

71,394

(1,367)

(4,647)

135,140

209,048










 

Called-up share capital

 

Share premium account

 

Revaluation reserve

 

Own shares

 

Hedging reserve

 

Profit and loss account

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 30 June 2018

7,429

1,099

73,532

(1,588)

(13,967)

134,547

201,052

Loss for the period

-

-

-

-

-

(3,396)

(3,396)

Gains arising on cash flow hedges during the period

-

-

-

-

567

-

567

Transfers to the profit and loss account on termination of interest rate swaps

-

-

-

-

9,875

-

9,875

Transfers to the profit and loss account on hedge ineffectiveness of remaining interest rate swaps

-

-

-

-

991

-

991

Tax relating to components of other comprehensive income

-

-

-

-

(2,008)

-

(2,008)

Total comprehensive income

-

-

-

-

9,425

(3,396)

6,029

Ordinary dividends paid

-

-

-

-

-

(3,475)

(3,475)

Accrued share-based payments

-

-

-

-

-

185

185

Purchase of own shares

-

-

-

(595)

-

-

(595)

Distribution of own shares

-

-

-

210

-

(203)

7

Unconditionally vested share awards

-

-

-

167

-

(167)

-

Balance at 29 December 2018

7,429

1,099

73,532

(1,806)

(4,542)

127,491

203,203

 



 

CONSOLIDATED CASH FLOW STATEMENT 26 weeks ended 28 December 2019

 


Unaudited


Unaudited


Audited


26 weeks ended


26 weeks ended


52 weeks ended

28 December 2019


29 December 2018


29 June 2019


£'000

£'000

£'000

£'000

£'000

£'000

Net cash flows from operating activities (note 9)


10,347


9,316


22,497

Cash flows from investing activities







Proceeds of sale of tangible fixed assets

1,230


1,508


7,825


Purchase of tangible fixed assets

(7,985)


(7,074)


(13,710)


Purchase of intangible fixed assets

(92)


-


-


Customer loan redemptions

1


58


61


Acquisition of subsidiaries

(151)


-


(5,594)


Cash acquired on acquisition

-


-


347


Net cash flows from investing activities


(6,997)


(5,508)


(11,071)

Cash flows from financing activities







Dividends paid

(3,573)


(3,475)


(4,341)


Interest paid

(1,413)


(1,436)


(3,526)


Settlement of derivative financial instruments

-


(9,386)


(9,610)


Repayment of long-term loans

-


(54,500)


(54,500)


New long-term loans

  6,000


  67,500


59,500


Issue costs of new long-term loans

-


(654)


(815)


Purchase of own shares

(290)


(595)


(595)


Share option proceeds

13


7


19


Net cash flows from financing activities


737


 (2,539)


(13,868)

Net increase/(decrease) in cash and cash equivalents


4,087


1,269


(2,442)

Cash and cash equivalents at beginning of the period


(817)


1,625


1,625

Cash and cash equivalents at end of the period


3,270


2,894


(817)

 



 

NOTES TO THE ACCOUNTS 28 December 2019

1 Interim Statement

The financial information contained in this interim statement, which is unaudited, does not constitute statutory accounts as defined in s434 of the Companies Act 2006. Statutory accounts for the 52 weeks ended 29 June 2019, upon which the auditors issued an unqualified opinion, have been filed with the Registrar of Companies. The financial information comprises the results of Shepherd Neame Limited (the Company) and its subsidiaries (the Group).

2 Accounting Policies

The consolidated interim accounts have been prepared under FRS 104 Interim Financial Reporting and on the basis of the accounting policies set out in the statutory accounts for the 52 weeks ended 29 June 2019, except for the adoption of FRS 102.18 regarding intangible assets other than goodwill, as of 30 June 2019. The amendments to FRS 102 following the Triennial Review (December 2017) have been adopted in the period but no material changes have arisen as a result of this.

 

FRS 102.18 Intangible assets other than goodwill

The Group adopted FRS 102.18 on 30 June 2019 prospectively. Accordingly, the information presented for comparative periods has not been restated and is       presented, as previously reported.

 

FRS 102.18 covers accounting for all intangible assets other than goodwill and intangible assets held by an entity for sale in the ordinary course of business.

 

Intangible assets with finite useful lives are carried at cost less accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line basis over the estimated useful life of between three and five years. Provision is made for any impairment.

 

3 Non-GAAP reporting measures

Certain items recognised in reported profit or loss before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the underlying performance of the Group. The Directors believe that the "underlying operating profit", "underlying profit before tax", "underlying basic earnings per share", "underlying earnings before interest, tax, depreciation, and amortisation" presented, provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. Underlying profit is not defined by FRS 102 and therefore may not be directly comparable with the "adjusted" profit measures of other companies. The adjusted items are:

•            Profit or loss on disposal of properties;

•            Investment property fair value movements;

•            Operating and finance charges which are either material or infrequent in nature and do not relate to the underlying performance; and

•            Fair value movements on financial instruments charged to profit and loss.

 


Unaudited

26 weeks ended

28 Dec 2019

Unaudited

26 weeks ended

29 Dec 2018

   Audited

  52 weeks ended

29 June 2019  


£'000

£'000

£'000

Underlying EBITDA

12,198

12,106

23,673

Depreciation and amortisation

(4,167)

(4,124)

(8,298)

Free trade loan discounts

(3)

(19)

(25)

Loss on sale of assets (excluding property)

(13)

(34)

(92)

Underlying operating profit

8,015

7,929

15,258

Net underlying finance costs

(1,843)

(2,040)

(3,901)

Underlying profit before taxation

6,172

5,889

11,357





Profit on disposal of properties

280

663

2,848

Investment property fair value movements

(297)

139

206

Operating charges - items excluded from underlying results

(648)

-

(168)

Settlement of interest rate swaps associated with refinancing

-

(9,386)

(9,386)

Write-off of unamortised finance costs following refinancing

-

(434)

(434)

Ongoing fair value movements on financial instruments charged to profit and loss

(112)

(991)

(952)

Profit/(loss) on ordinary activities before taxation

5,395

(4,120)

3,471

 

Operating charges - items excluded from underlying results comprise:

a)        An impairment charge of £156,000 in respect of one property transferred from tenanted pubs to investment property in the period. The charge of £168,000 for the 52 weeks ended 29 June 2019 comprised a net impairment loss in respect of five licensed properties to write them down to their recoverable amount and the reversal of impairment of two licensed properties.

 

b)        A one-off net charge of £492,000 relating to the correction of erroneous charges made against certain accounts as a result of unlawful action by one employee, acting independently.

 

These entries were made in the period July 2008 to September 2019 and the majority of the charges related to previous accounting periods. Since the sums involved, although significant cumulatively, were not significant in any single year, and are not in aggregate material in the context of the Company's overall finances, the directors feel that it is appropriate to recognise the charge within items excluded from underlying results, in the current period.

 

The gross value of the erroneous charges amounted to £861,000. However, this exposure has been reduced by £369,000 in respect of the net write-off of associated debt not recovered by the Company in the prior accounting periods.

 

The net balance represents repayments due, and we are in the process of reimbursing fully all those accounts affected, together with interest. We are taking action to attempt to recover our loss.

 

Additional charges in respect of fees relating to this matter will be recognised in the accounts for the full year to give a total charge in the region of £950,000, subject to recoveries.

 

Finance costs - items excluded from underlying results

During the 26 weeks ended 29 December 2018, £37,500,000 of term loan was repaid and the Group entered into new financing arrangements.   The Group also terminated interest rate swap contracts totalling £35,000,000 for net cash consideration of £9,386,000 in connection with the repayment of the loan.  As a result, other finance costs excluded from underlying results included £9,386,000 in respect of settled interest rate swap liabilities and £434,000 of unamortised finance costs relating to the previous facility which have been written off. Finance costs excluded from underlying results included £991,000 in respect of the ineffective portion of the movement in fair value interest rate swaps.

 

The non-underlying finance charges for the 52 weeks ended 29 June 2019 comprised £9,386,000 and £434,000 noted above and £952,000 in respect of the ineffective portion of the movement in fair value interest rate swaps.

 

4 Segmental reporting

The Group has three operating segments, which are largely organised and managed separately according to the nature of the products and services provided and the profile of the customers:

•            Brewing and Brands which comprises the brewing, marketing and sales of beer and other products;

•            Managed Pubs; and

•            Tenanted Pubs which comprises pubs operated by third parties under tenancy or tied lease agreements.

Transfer prices between operating segments are set on an arm's length basis.

 

 

Brewing and Brands

 

Managed Pubs

 

Tenanted Pubs

Unallocated

Total

 

26 weeks ended 28 December 2019

£'000

£'000

£'000

£'000

£'000

 

Turnover

23,027

36,962

18,355

691

79,035

 

Underlying operating profit

366

5,353

6,690

(4,394)

8,015

 

Items excluded from underlying results

-

(156)

(492)

(648)

 

Divisional operating profit

366

5,353

6,534

(4,886)

7,367

 







 

Net underlying finance costs





(1,843)

 

Fair value movements on ineffective element of cash flow hedges





(112)

 

Profit on disposal of property





280

 

Investment property fair value movements





(297)

 

Profit on ordinary activities before taxation





5,395

 







Other segment information






Capital expenditure - tangible  and intangible fixed assets

832

4,103

2,401

552

7,888

Depreciation and amortisation

842

1,724

1,324

277

4,167

Underlying divisional EBITDA

1,215

7,089

8,001

(4,107)

12,198

Number of pubs

-

69

239

12

320

 



 

4 Segmental reporting continued

 






 


Brewing and Brands

 

Managed Pubs

 

Tenanted Pubs

Unallocated

Total

 

26 weeks ended 29 December 2018

£'000

£'000

£'000

£'000

£'000

 

Turnover

22,239

35,454

18,114

693

76,500

 

Underlying operating profit

462

5,362

6,576

(4,471)

7,929

 

Items excluded from underlying results

-

-

-

-

 

Divisional operating profit

462

5,362

6,576

(4,471)

7,929

 







 

Net underlying finance costs





(2,040)

 

Finance costs excluded from underlying results





(9,820)

 

Fair value movements on ineffective element of cash flow hedges





(991)

 

Profit on disposal of property





663

 

Investment property fair value movements





139

 

Loss on ordinary activities before taxation





(4,120)

 







 

Other segment information

 

 

 

 

 

 

Capital expenditure - tangible and intangible fixed assets

404

3,977

1,986

772

7,139

Depreciation and amortisation

1,006

1,628

1,215

275

4,124

Underlying divisional EBITDA

1,516

6,988

7,797

(4,195)

12,106

Number of pubs

-

68

244

10

322

 

 

 

 

Brewing and Brands

 

Managed Pubs

 

Tenanted Pubs

Unallocated

Total

 

52 weeks ended 29 June 2019

£'000

£'000

£'000

£'000

£'000

 

Turnover

40,742

68,777

35,033

1,249

145,801

 

Underlying operating profit

923

9,215

12,950

(7,830)

15,258

 

Items excluded from underlying results

-

140

(308)

-

(168)

 

Divisional operating profit

923

9,355

12,642

(7,830)

15,090

 

Net underlying finance costs





(3,901)

 

Finance costs excluded from underlying results





(9,820)

 

Fair value movements on ineffective element of cash flow hedges





(952)

 

Profit on disposal of property





2,848

 

Investment property fair value movements





206

 

Profit on ordinary activities before taxation





3,471

 







 

Other segment information






 

Capital expenditure - tangible and intangible fixed assets

1,105

13,647

4,216

1,203

20,171

 

Depreciation and amortisation

1,979

3,282

2,479

558

8,298

 

Underlying divisional EBITDA

2,968

12,517

15,460

(7,272)

23,673

 

Number of pubs

-

70

239

13

322

 

 

 

5   Net finance costs

 

26 weeks ended 28 Dec 2019

26 weeks ended

52 weeks ended


Underlying

results

Excluded from underlying results

 

Total statutory

29 Dec 2018

Total statutory

29 June 2019

Total statutory


£'000

£'000

£'000

£'000

£'000

 

Interest payable: Bank loans and overdrafts

1,829

-

1,829

2,058

3,938

 

Investment income: Income from fixed asset investments

-

-

-

(15)

(18)

 

Other finance income: Unwinding of discounts on provisions

14

-

14

(3)

(19)

 

Settlement of interest rate swaps associated with refinancing

-

-

-

9,386

9,386

 

Write-off of unamortised finance costs following refinancing

-

-

-

434

434

 

Ongoing fair value movements on financial instruments charged to profit and loss

-

112

112

991

952

 

Net finance costs

1,843

112

1,955

12,851

14,673

 

 

 

 



 

6   Taxation

26 weeks ended 28 December 2019

26 weeks ended 29 December 2018

52 weeks ended


Underlying

results

Excluded from underlying results

Total statutory

Underlying

results

Excluded from underlying results

Total statutory

29 June 2019

Total statutory


£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

Corporation tax

1,420

(110)

1,310

1,355

(2,030)

(675)

497

 

Deferred tax

(123)

(117)

(118)

69

(49)

385

 

Total tax charged/(credited) to profit and loss account

1,297

(104)

1,193

1,237

(1,961)

(724)

882

 

 

Taxation has been provided at 21% (2018: 21%) based on the estimated effective tax rate for the 52 weeks to 27 June 2020. The average statutory rate of corporation tax for the 52 weeks to 27 June 2020 is expected to be 19% (52 weeks to 29 June 2019: 19%).

 

In the 26 weeks ended 29 December 2018, taxation on items excluded from underlying results included a corporation tax credit of £2,054,000 in respect of the charge to the profit and loss account on the cancellation of interest rate swaps.

 

7  Earnings per share





26 weeks ended

26 weeks ended

52 weeks ended


28 Dec 2019

29 Dec 2018

29 June 2019


£'000

£'000

£'000

Profit/(loss) attributable to equity shareholders

4,202

(3,396)

2,589

Items excluded from underlying results

673

8,048

6,367

Underlying earnings attributable to equity shareholders

4,875

4,652

8,956










Number

Number

Number

Weighted average number of shares in issue

14,725

14,723

14,717

Dilutive outstanding options

122

126

114

Diluted weighted average share capital

14,847

14,849

14,831

Earnings/(loss) per 50p ordinary share




Basic

28.5p

(23.1)p

17.6p

Diluted

28.3p

(22.9)p

17.5p

Underlying basic

33.1p

31.6p

60.9p

 

The earnings per share calculation is based on earnings from continuing operations and on the weighted average ordinary share capital which excludes shares held by trusts in respect of employee incentive plans and options.

 

8   Dividends



 


26 weeks ended

26 weeks ended

52 weeks ended

 


28 Dec 2019

29 Dec 2018

29 June 2019

 


£'000

£'000

£'000

 

Final dividend for 2019: 24.21p (2018: 23.45p) per ordinary share

3,573

3,475

3,475

 

Interim dividend for 2019: 5.87p per ordinary share

-

-

866

 

Dividends paid

3,573

3,475

4,341

 



 

9       Notes to the cash flow statement

 



 

(a)    Reconciliation of operating profit to cash generated by operations



 



26 weeks ended 28 Dec 2019




 


Underlying

results

Excluded from underlying results

Total

26 weeks ended

29 Dec 2018

Total

52 weeks ended

29 June 2019

Total


£'000

£'000

£'000

£'000

£'000

Operating profit

8,015

(648)

7,367

7,929

15,090

Adjustment for:






Depreciation and amortisation

4,167

-

4,167

4,124

8,298

Impairment of tangible fixed assets

-

156

156

-

652

Reversal of impairment on tangible fixed assets

-

-

-

-

(484)

Share-based payments expense

256

-

256

185

396

(Increase)/decrease in stocks

(893)

-

(893)

425

(254)

(Increase)/decrease in debtors and prepayments

(3,096)

-

(3,096)

(1,716)

1,168

Increase/(decrease) in creditors and accruals

2,067

492

2,559

(443)

(938)

Free trade loan discounts

3

-

3

19

25

Loss on sale of assets (excluding property)

13

-

13

34

92

Interest received

-

-

-

15

18

Income tax paid

(185)

-

(185)

(1,256)

(1,566)

Net cash inflow from operating activities

10,347

-

10,347

9,316

22,497

 

 

(b)    Reconciliation of movement in cash to movement in net debt


26 weeks ended

28 Dec 2019

26 weeks ended

29 Dec 2018

 

52 weeks ended

29 June 2019


£'000

£'000

£'000

Opening cash and overdraft

(817)

1,625

1,625

Closing cash and overdraft

3,270

2,894

(817)

Movement in cash in the period

4,087

1,269

(2,442)

Cash from increase in bank loans

(6,000)

(67,500)

(59,500)

Cash used to repay bank loans

-

54,500

54,500

Movement in loan issue costs

(51)

334

262

Movement in net debt resulting from cash flows

(1,964)

(11,397)

(7,180)

Net debt at beginning of the period

(81,977)

(74,797)

(74,797)

Net debt at end of the period

(83,941)

(86,194)

(81,977)

 

(c) Analysis of net debt

 

 


       June 2019

Cash flow

New

long-term loans

Amortisation of

issue costs

December 2019



£'000

£'000

£'000

£'000

£'000

Cash


116

3,154

-

-

3,270

Bank overdraft


(933)

933

-

-

-

Cash and cash equivalents


(817)

4,087

-

-

3,270

Debt due after more than one year


(81,160)

-

(6,000)

(51)

(87,211)

Total


(81,977)

4,087

(6,000)

(51)

(83,941)

 

 

10 Capital expenditure and commitments

In the 26 weeks ended 28 December 2019, there were additions to tangible and intangible fixed assets on an accruals basis of £7,888,000 (2018: £7,139,000). In the financial period, there were disposals of tangible fixed assets with a net book value of £963,000 (2018: £880,000). As at 28 December 2019, capital commitments contracted, but not provided for by the Group, amounted to £1,077,000 (2018: £544,000).

 



 

11 Related party transactions

Jonathan Neame, Chief Executive of Shepherd Neame Limited, is Chairman of Visit Kent Limited. During the 26 weeks ended 28 December 2019, fees and sponsorship activity paid to Visit Kent Limited amounted to £6,000 including VAT (2018: nil). There was a balance owed to Shepherd Neame Limited by Visit Kent Limited at 28 December 2019 of £2,000 (2018: nil).

 

George Barnes is an executive director of Shepherd Neame Limited. Mr A J A Barnes, a close member of George Barnes' family, was up until 31 December 2019 a partner of Clarke Barnes Solicitors LLP, which provided legal services in respect of Group properties during the period at a cost of £13,000 including VAT and disbursements to third parties (2018: £11,000). No balance was owed to the partnership by Shepherd Neame Limited as at 28 December 2019 (2018: nil).

 

Nigel Bunting, an executive director of Shepherd Neame Limited, is also a director of Davy and Company Limited. During the period, the Group did not purchase any goods (2018: nil) and made sales to the value of £97,000 (2018: £146,000) to Davy and Company Limited and its associated companies. At 28 December 2019, the balance owed by Shepherd Neame Limited to the Davy Group of companies was nil (2018: nil) and the balance owed to the Group by the Davy Group of companies, including VAT, was £21,000 (2018: £31,000).

 

All the transactions referred to above were made in the ordinary course of business and outstanding balances were not overdue. There is no overall controlling party of Shepherd Neame Limited.

 


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