Shepherd Neame Ltd - Final Results London Stock Exchange
RNS Number : 2190R
Shepherd Neame Limited
20 September 2017
 

 

SHEPHERD NEAME LTD

FULL YEAR RESULTS

Consistent strategy and investment

driving outperformance

 

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 profit1 up +7.2% at £15.3m (2016: £14.2m)

-      Underlying profit before tax2 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 EBITDAR3was 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.

Current trading:

-      We have made steady progress in the new financial year albeit with colder and unsettled weather compared to 2016.

 

-      In the ten weeks to 2 September, like-for-like managed sales were up +1.5% (2016: +8.2%) and total beer volume excluding contract was up +4.4% (2016: +1.2%). In the 9 weeks to 26 August like-for-like tenanted EBITDAR up +0.6% (2016: +2.2%)

 

Jonathan Neame, Chief Executive, commented:

"This has been a good year for the company with strong underlying performance and some great acquisitions that add real value to the company.  

We are pleased with the strategic and operational progress made in all areas of our business.

We are mindful of the political and economic backdrop, but our strategic focus on investing for the long term, innovating and consistently delivering great pub environments and outstanding service for our customers will stand us in good stead. We remain confident that the actions that have been taken and our relentless pursuit of excellence will continue to deliver good long-term returns for our shareholders."

                                                                                                                                    20 September, 2017

 

Shepherd Neame Limited

 

Jonathan Neame, Chief Executive

Mark Rider, Finance and IT Director

 

Instinctif Partners                                                                         

Matthew Smallwood  

 

Tel: 01795 532206

 

 

Tel: 02074572020

1 Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items

 

2 Profit before any profit or loss on the disposal of properties, investment property fair value movements and exceptional items

 

 

3 Earnings before interest, tax, depreciation, amortisation and rent payable

4 Revenue Per Available Room

 

 

NOTES FOR EDITORS

 

Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,500 people.

 

The Company retails its own beers, on draught and in bottles, under a range of highly successful brand names, including:

 

-     Spitfire: One of the leading premium bottled ales in the UK with national distribution on draught (4.2% abv) and in bottle (4.5% abv). Spitfire Gold, a golden ale (4.1% abv), was launched to mark the 75th anniversary of the Battle of Britain and Spitfire Lager, the Lager of Britain (4.0% abv) in 2016.

 

-     Whitstable Bay: This range, sold under the Faversham Steam Brewery brand, includes a Pale Ale on draught (3.9% abv) and in bottle (4% abv), an Organic Ale (4.5% abv), Blonde Lager (4.5% abv), Black Oyster Stout (4.2%) and Red IPA (4.5% abv).

 

-     Cinque, Five Grain Premium Lager: introduced July 2017 (5% abv)

 

-     Orchard View: the Company's first cider brand made in collaboration with Aspalls introduced in June 2017 (4.5% abv)

 

-     Bishops Finger: Connoisseur premium ale (5.4% abv).  

 

-     Master Brew: The 'Original Kentish Ale' is a well-hopped cask ale (3.7% abv).

 

The Company also brews lagers under license, including:

 

-     Asahi Super Dry: Japan's number one beer (5% abv), which is produced under an exclusive UK license for brewing, sales and marketing until February 2018.

 

-     Samuel Adams Boston Lager: Leading US craft lager (4.8% abv) brewed under an exclusive license from the Boston Beer Company. The Company also imports Rebel IPA, a strong hopped US craft beer (6.5% abv) and Angry Orchard, America's No. 1 Hard Cider (5%).

 

Shepherd Neame sold 259,000 brewers' barrels of beer (74.5 million pints) including 219,000 brewers' barrels of own brewed beer (63.0 million pints) in the last year. The majority of these sales were made in the UK although the Company also exports to more than 35 countries. 

 

At the year end, the Company operated 327 pubs, of which 253 were tenanted or leased, 8 were held as investment properties under commercial free of tie leases, and 66 managed. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs.   

 

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

 

I am delighted to report a strong set of results for the 52 weeks ended 24 June 2017, a year of significant investment in new pubs.

The performance has been good in all operating divisions in the Company and excellent progress has been made against our strategic objectives. 

I have been particularly impressed by the pace of change in the business in recent years as the team modernise the pubs and brands portfolio and innovate to address the continuous challenge to enhance the customer experience. 

Our growth primarily comes from reinvesting year after year in our core business and from driving ever greater efficiency and excellence in execution. This year has been notable for a strong underlying performance, some excellent work to enhance our own brand portfolio, important steps to modernise the brewing operation and a period of significant investment with the acquisition of 14 new pubs.

The core strengths of Shepherd Neame lie in a strong sense of family, a distinct individual character, and a passion for quality, for high standards and for making continuous improvements within a consistent strategic framework. These characteristics deliver a strong and sustainable business for the long-term benefit of shareholders. Equally important is our ability to take advantage of good opportunities when they arise and to be responsive to changes in the market. 

 

Financial results

Turnover for the period increased by +11.7% to £156.2m (2016: £139.9m) driven by the acquisitions and strong managed house like-for-like growth of +8.1%. Underlying operating profit grew by +7.2% to £15.3m (2016: £14.2m). Underlying profit before tax1 grew by +8.0% to £11.2m (2016: £10.3m) and underlying basic earnings per share are up +8.0% to 59.1p (2016: 54.7p). Statutory profit before tax is down -18.0% to £11.8m (2016: £14.4m), predominantly because we achieved an unusually high profit on disposal of property in the prior year. Basic earnings per ordinary share are down to 69.1p (2016: 84.0p).

 

1 Profit before any profit or loss on the disposal of properties, investment property fair value movements and exceptional items.

 

Dividend

The Board is proposing a final dividend of 22.73p (2016: 22.05p) making the total dividend for the year 28.35p (2016: 27.50p), an increase of +3.1%. This represents underlying dividend cover of 2.1 times (2016: 2.0 times). We will continue to target our dividend cover at or above this level in the future. The final dividend will be paid on 13 October 2017 to shareholders on the register at the close of business on 29 September 2017.

This level of dividend cover is consistent with the policy stated at the time of our share capital reorganisation in 2014. Since then the total annual dividend paid to shareholders has increased from £3.2m to £4.2m.

 

Capital and investment

Capital expenditure was £38.0m. Within this sum, £24.8m was invested in the acquisition of Ultimate Entertainment Services Ltd ("UES"), eight pubs from Ei Group plc and five pubs in the acquisition of Village Green Restaurants Ltd ("VGR") in November 2016. We realised proceeds from property sales of £5.9m (2016: £11.9m). 

Net debt has consequently increased from £60.1m at June 2016 to £78.1m at June 2017. 

 

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.

 

Government and regulation

The Company makes a substantial contribution to the local and national economy. In 2017 we have paid £28.7m in excise duty alone. It is disappointing, therefore, after three years of successive excise cuts, that the Chancellor chose to increase duty on beer by 3p per pint in the last budget. 

This coincides with substantial increases in business rates and in the national living wage and with the introduction of the apprenticeship levy. These inflationary pressures come at a time of rising inflation in food and imported products, and provide cost challenges to all businesses in the sector at a time of great political uncertainty. 

In July 2016 the Small Business Enterprise and Employment Bill which introduced the Statutory Code of Practice and Market Rent Option (MRO) became law. This affects only those large companies which have more than 500 pubs. We believe that effective operation of the voluntary code will make extension of the statutory code unlikely.

 

Advisors

Since the year end the Company appointed Peel Hunt LLP as its corporate broker in place of Panmure Gordon & Co with effect from 1 August 2017.

 

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

  

 

CHIEF EXECUTIVE'S REVIEW

 

This has been an exciting year of development for the Company, with good progress in all areas of the business, a strong underlying performance and some great acquisitions that add real value to the Company.

We have successfully pursued our strategy to drive long-term value for our shareholders based around four key objectives:

•    To drive footfall to our pubs

•    To develop our offer to enhance the customer experience

•    To create demand and build awareness for our brands

•    To attract, retain and develop the best people

It is this consistent strategy that has enabled the Company to outperform the national market year after year and to excel on a local basis. We have modernised and improved our business such that the profile and quality of our pubs and brands have been greatly enhanced and the offer and experience for our customer transformed. Furthermore, as our heartland of Kent enjoys the benefit of infrastructural development and the regeneration of the coastal areas, our strong local knowledge enables us to exploit the opportunities that arise.

Whilst the weather conditions have been favourable during this year with a long hot summer in 2016 and plenty of sunshine in the spring of 2017, market conditions have become progressively harder, as consumer spending is being squeezed by inflation. 

Nonetheless, we have achieved impressive like-for-like sales growth in our managed estate of +8.1% against the Coffer Peach Tracker Index1 of +1.4% and own beer volume growth excluding contract of +3.9% against the market of -0.2% (Source: BBPA).

In pursuit of our objectives, this year has been characterised by some significant achievements:

•    Acquisition of 14 pubs

•    The launch of a new brand identity

•    Some exciting new product developments

•    Completion of the initial phase of our modernisation plan for the brewery and its buildings

We have successfully delivered these projects whilst maintaining strong underlying growth across the business. We have also developed our future brewing and brands strategy, namely to build our own brands, drive necessary cost reduction and streamline management roles where appropriate, as we exit the Asahi contract in the coming year.

We have an outstanding team of people, renowned for their passion and commitment, their expertise and in-depth knowledge of the business, their friendliness and approachability. These characteristics distinguish Shepherd Neame and give it its unique personality. It is this personality that is the differentiator to build customer loyalty, where quality and value for money are taken for granted.

All operators in the sector face significant cost inflation through increasing business rates, the national living wage and the apprenticeship levy. The fall in the value of sterling following the EU referendum has compounded these challenges and is driving up prices in food and other imported products such as wine. We will continue to focus on enhancing the customer experience, raising standards across our business, and driving efficiencies as appropriate to mitigate this cost and to take advantage of the opportunities that are presented. 

 

1 Tracker for sales trends for pub, bar and restaurant groups.

 

Tenanted and Managed Pub Operations

Overview

At the year-end we operated 327 pubs and hotels (2016: 328) of which 285 are freehold (2016: 285). Of our total pubs, 66 (2016: 54) were managed and 253 (2016: 267) were tenanted or leased and eight (2016: seven) operated under commercial free of tie leases. 

Our investment focus is to improve the quality of our core business and to seek high-quality, single-site acquisition opportunities within our heartland if they improve the overall business or reach new markets. We will pursue suitable opportunities outside our historic trading area, and are alive to opportunities to acquire small groups of pubs that meet our requirements, as evidenced by recent pub purchases. We are seeking to acquire sites with unique character in landmark or high-footfall locations, preferably with the potential for further development. 

During the last five years, we have acquired 22 pubs and disposed of 49. As a consequence of this, and investments in the core estate, the profile and quality of our pub estate have been transformed and, since 2012, the average EBITDAR per managed pub has increased by +30.5% and per tenanted pub by +25.4%.

This has been a year of record investments with total cash invested in new pub acquisitions of £24.8m (2016: £3.3m), in three separate transactions during the year.

First, at the start of the financial year, we announced an acquisition of eight freehold pubs in Kent, Surrey and Sussex from Ei Group plc. All these pubs continue to be operated by their existing licensees, except the Crown and Anchor, Shoreham by Sea which has transferred to the managed estate, and Earls, Maidstone which will transfer in the coming year.

Simultaneously, we acquired UES and transferred the five pubs operated under tenancy by UES to the managed estate. We invested £12.9m in these two transactions in the year. 

Third, at the end of November 2016, we acquired VGR for £11.9m. VGR operated five very successful freehold pub restaurants in and around Maidstone and Ashford in the Company's Kent heartland. All the pub restaurants are operated under the managed pub division. 

Since the year end, we have opened a new outlet in Chatham Maritime called Pier Five.

We have realised £5.9m of proceeds (2016: £11.9m) from the disposal of 15 pubs (2016: 13) and two unlicensed properties (2016: seven). We continue to manage our property actively, aiming to dispose of those pubs which no longer fit our long-term strategy and to invest to maximise the potential of those that do.

 

Driving Footfall to our Pubs

We aim to drive footfall by designing and developing unique pubs and hotels with a 'wow' factor. We believe continuous investment in our facilities will attract and retain customers. In particular we continue to develop our accommodation business and exploit the growth in the local visitor economy. 

In addition to the new pub acquisitions we have invested £8.3m (2016: £7.3m) of capital expenditure in improving the look and feel of our pubs and £2.4m (2016: £2.2m) in repairs and decorations.

In the managed estate, major developments during this year have included £1.0m investment at the Minnis Bay Bar and Brasserie, £0.9m at the Ostrich, Colnbrook where 11 bedrooms have been added and the Manor Farm Barn, Southfleet. All these investments have transformed the outlets and the results have been encouraging.

In the tenanted estate we carried out major developments at a number of sites including the East Kent, Whitstable, the Plough, Farnham, the Old House at Home, Dormansland and the Sportsman, Seasalter.

Following the launch of our new brand identity, we have invested an additional £0.4m in the development of a new pub signage scheme and website with enhanced functionality and improved user experience. In conjunction with this we have improved all the photography on our pub microsites to bring out the character and individuality of each outlet. We intend to roll out the new signage scheme over the coming years. By the end of the summer, 45 schemes were completed. 

 

Developing our offer to enhance the customer experience

We aim to enhance the customer experience in our pubs by delivering great fresh food, providing accommodation of character and offering an interesting range of products. 

Our food continues to provide good growth in the business, in spite of intense competition in casual dining. Food sales now represent 33% (2016: 30%) of our managed turnover, with drinks representing 56% (2016: 58%) and accommodation 10% (2016: 11%).

We continue to build the food skills in our business and drive the quality of our offer. The acquisitions of both UES and VGR have brought fresh ideas and we have also enjoyed great success with new food offers at the Minnis Bay Bar and Brasserie and the Ship and Trades, Chatham Maritime. 

During the year we have refurbished 37 rooms (2016: 35) and added 11 rooms at the Ostrich (2016: 4 rooms at the Ship & Trades) and now offer a total of 294 (2016: 283), all presented to a high standard.

Occupancy grew again from its record high last year to 79% (2016: 78%) whilst RevPAR continued to grow to £66 (2016: £63). 

As the consumer becomes more willing to experiment across the drinks range we are always looking to innovate or introduce new concepts. We are constantly looking to introduce more premium products to strengthen our range and enhance the experience for our customers. 

Our beer offer has been greatly developed in the last two years. We are particularly excited about our emerging beer portfolio as we exploit the potential from our heritage brands and recent innovations. We have further expanded our range of premium local products, in particular gin, juices and English sparkling wine, and developed our range of mixers and fresh fruit cocktails. During the year our like-for-like drinks sales were +8.0% (2016: +3.1%).

 

Attracting, retaining and developing the best people

We aim to attract, retain and develop the best people by understanding the potential in everyone, inspiring them to achieve their goals and by building the loyalty and engagement of our licensees and employees through the professionalism of the support we provide.

I am particularly pleased with the progress we have made in recent years with our tenanted licensees. We again scored highly against a range of measures in an independent survey of pubs and companies, and, for the second year running, were finalists in the Publican Awards Best Tenanted and Leased Pub Company (201+ sites) and Best Managed Pub Company (51+ sites).

We have made great strides to develop our training and are rated by the BII as one of the top licensed trade training providers. All staff in the managed estate have personal development programmes; 500 offline courses and 1,700 online courses have been delivered against these in the year. 

Our Love Beer programme to educate and inform all staff on beer and brewing has proved very successful and has driven an increased awareness and passion for beer across our business.

We continue to enhance the skills at head office in support of our licensees. In the last year we have expanded our food development and field training teams and reduced the number of pubs per district manager in the managed and tenanted estates to bring even more focus to their work.

The Shepherd Neame Pub Awards continue to recognise excellence and achievement. This year Tony and Shirley Pearson of The Belle Vue Tavern, Pegwell Bay won the Pub of the Year. It is particularly pleasing that we now have three pubs listed in the Top 50 Gastropubs in the country. It is also encouraging that we seem able to attract and support innovative licensees with diverse offers. 

 

Tenanted and Managed Pub Performance

We have pursued a consistent strategy to invest in our pubs over a sustained period and this has resulted in a strong trading performance year after year.

Total divisional turnover in the managed estate grew by +26.2% (2016: +9.8%) including the impact of new acquisitions. Divisional underlying operating profit grew by +18.0% to £9.0m (2016 restated: £7.6m). Same outlet like-for-like sales grew by +8.1% (2016: +4.4%) with drinks +8.0% (2016: +3.1%), food +7.7% (2016: +4.2%) and accommodation +10.1% (2016: +11.7%). Average EBITDAR per managed pub grew by +1.8% (2016: +1.0%).

Margins were impacted in the managed estate by the cost pressures affecting all operators in the sector. The total inflation from business rates, national living wage and the apprenticeship levy was £0.2m in the year. Looking forward, these pressures will continue and this area of the business will require like-for-like growth of around +3-4% to cover these additional costs.

Total divisional turnover in the tenanted and leased estate grew by +2.8% to £34.4m (2016: £33.5m) on 14 fewer outlets. Divisional underlying operating profit was £13.0m (2016 restated: £12.7m). Like-for-like EBITDAR per tenanted pub grew by +1.6% (2016: +2.7%). Average EBITDAR per tenanted pub grew by +5.6% (2016: +6.4%).

 

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.

 

Investment Property

The Company owns £6.8m of investment property, revalued at June 2017. The principal land holding is the residual land at Queen Court, Ospringe. In 2016, 10 acres of this holding were disposed of with planning permission for residential development. During 2017, the Company promoted two further sites in the local plan that we consider suitable for housing. These are complex and expensive sites to develop and both have been rejected at this stage, but we will revisit in due course should circumstances change. The rest of the land holdings will be held as agricultural farm land for the long term. The Company reviews all of its property holdings on a regular basis.

 

Current Trading

Since the start of the new financial year we have made steady progress, albeit with colder and unsettled weather compared to 2016. In the 10 weeks to 2 September 2017, same outlet like-for-like managed sales were up +1.5% (2016: +8.2%) and total own beer volume excluding contract was up +4.4% (2016: +1.2%). In the 9 weeks to 26 August like-for-like EBITDAR in the tenanted estate was up +0.6% (2016: +2.2%). 

 

Summary

This has been a good year for the Company. The underlying performance has been strong; there has been a high level of pub acquisition and brand activity; the quality of our operations continues to improve. 

The profile of our pub assets and brands is stronger than ever. Our investments in recent years have helped to build a high-quality and sustainable platform for the future. But the focus in the coming year is to continue the rate of investment in our core business, to consolidate the recent acquisitions and effect a smooth transition in the brewing and brands business.

We have good reason to be pleased with the strategic and financial performance this year.  Our investments in recent years have helped to build a high-quality and sustainable platform for the future. But the next twelve months present new challenges given the unprecedented cost headwinds that the sector is facing and signs that consumer income is being squeezed. 

Jonathan Neame 

Chief Executive

 

 

 

CONSOLIDATED PROFIT AND LOSS           ACCOUNT 52 weeks ended 24 June 2017

 

 

 

 

 

52 weeks to 24 June 2017

52 weeks to 25 June 2016

 

 

Underlying  results

Items excluded from

underlying results

Total

statutory

Underlying results

Items excluded from underlying results

Total

statutory

 

note

£'000

£'000

£'000

£'000

£'000

£'000

Turnover

1,2

156,198

-

156,198 

139,890

139,890

Operating charges

3

(140,939)

(469)

(141,408)

(125,655)

(495) 

(126,150)

Operating Profit

1

15,259

(469)

14,790

14,235

(495) 

13,740

Net finance costs

 

(4,094)

-

(4,094)

(3,898)

(3,898)

Profit on disposal of property

3

-

588

588

-

4,235 

4,235

Investment property fair value movements

3

-

496

496

-

282

282

Profit on ordinary activities before taxation

 

11,165

615

11,780

10,337

4,022 

14,359

Taxation

4

(2,429)

861

(1,568)

(2,254)

314 

(1,940)

Profit after taxation

 

8,736

1,476

10,212

8,083

4,336

12,419

Earnings per 50p ordinary share

6

 

 

 

 

 

 

Basic

 

 

 

69.1p

 

 

84.0p

Underlying basic

 

 

 

59.1p

 

 

54.7p

Diluted

 

 

 

68.5p

 

 

83.4p

All results are derived from continuing activities.

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

52 weeks ended 24 June 2017

 

 

 

 

 

52 weeks ended 24 June 2017

52 weeks ended 25 June 2016

 

 

 

note

£'000

£'000

Profit after taxation

 

 

 

10,212

12,419

Gains/(losses) arising on cash flow hedges during the period 

 

 

 

2,460

(5,887)

Tax relating to components of other comprehensive income 

 

 

4

(321)

1,521

Other comprehensive gains/(losses)

 

 

 

2,139

(4,366)

Total comprehensive income

 

 

 

12,351

8,053

CONSOLIDATED AND PARENT COMPANY BALANCE SHEET As at 24 June 2017

 

 

 

 

Group

Group

Company

Company

 

 

24 June 2017

25 June 2016

24 June 2017

25 June 2016

 

 

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

 

Goodwill

 

735

-

735

-

Tangible fixed assets

 

305,670

279,872

305,670

279,872

Investments and loans

 

194

333

11,777

333

 

 

306,599

280,205

318,182

280,205

Current assets

 

 

 

 

 

Stocks

 

7,063

6,580

7,063

6,580

Debtors

 

19,986

18,114

19,986

18,114

Deferred tax asset due after one year

 

3,787

4,409

3,787

4,409

Cash

 

184

90

158

90

 

 

31,020

29,193

30,994

29,193

Creditors: amounts falling due within one year

 

 

 

 

 

Bank loans and overdrafts

 

-

(727)

-

(727)

Creditors

 

(31,145)

(26,703)

(42,985)

(26,703)

 

 

(31,145)

(27,430)

(42,985)

(27,430)

Net current (liabilities)/assets

 

(125)

1,763

(11,991)

1,763

Total assets less current liabilities

 

306,474

281,968

306,191

281,968

Creditors: amounts falling due after more than one year

 

 

 

 

 

Bank loans

 

(78,267)

(59,439)

(78,267)

(59,439)

Derivative financial instruments

 

(21,887)

(23,670)

(21,887)

(23,670)

Deferred lease liability

 

(2,027)

(1,831)

(2,027)

(1,831)

Provisions for liabilities

 

(13,182)

(13,151)

(13,182)

(13,151)

Net assets

 

191,111

183,877

190,828

183,877

 

Capital and reserves

 

 

 

 

 

Called-up share capital

 

7,429

7,429

7,429

7,429

Share premium account

 

1,099

1,099

1,099

1,099

Revaluation reserve

 

73,579

73,253

73,579

73,253

Reserve for own shares held

 

(2,277)

(915)

(2,277)

(915)

Hedging reserve

 

(17,446)

(19,288)

(17,446)

(19,288)

Profit and loss account

 

128,727

122,299

128,444

122,299

Equity shareholders' funds

 

191,111

183,877

190,828

183,877

These accounts for Shepherd Neame Limited (Registered in England number 138256) were approved by the Board of Directors on 14 September 2017 and were signed on its behalf by:

Miles Templeman Jonathan Neame Directors

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 52 weeks ended 24 June 2017

 

 

 

Share capital

Share premium

Revaluation reserve

Own shares held

Hedging reserve

Profit and loss account

Total

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 27 June 2015

7,429

1,099

72,430

(827)

(14,226)

113,921

179,826

Profit for the financial year

-

-

-

-

-

12,419

12,419

Losses arising on cash flow hedges during the year

-

-

-

-

(5,887)

-

(5,887)

Tax relating to components of other comprehensive income

-

-

696

-

825

-

1,521

Total comprehensive income

-

-

696

-

12,419

8,053

Ordinary dividends paid

-

-

-

-

-

(3,977)

(3,977)

Transfer of realised revaluation

-

-

127

-

-

(127)

-

Accrued share-based payments

-

-

-

-

-

528

528

Purchase of own shares

-

-

-

(584)

-

-

(584)

Distribution of own shares

-

-

-

359

-

(328)

31

Unconditionally vested share awards

-

-

-

137

-

(137)

-

Balance at 25 June 2016

7,429

1,099

73,253

(915)

(19,288)

122,299

183,877

Profit for the financial year

-

-

-

-

-

10,212

10,212

Gains arising on cash flow hedges during the year

-

-

-

-

2,460

-

2,460

Tax relating to components of other comprehensive income

-

-

297

-

(618)

-

(321)

Total comprehensive income

-

-

297

-

10,212

12,351

Ordinary dividends paid

-

-

-

-

-

(4,102)

(4,102)

Transfer of realised revaluation

-

-

29

-

-

(29)

-

Accrued share-based payments

-

-

-

-

-

619

619

Purchase of own shares

-

-

-

(1,647)

-

-

(1,647)

Distribution of own shares

-

-

-

178

-

(165)

13

Unconditionally vested share awards

-

-

-

107

-

(107)

-

Balance at 24 June 2017

7,429

1,099

73,579

(2,277)

(17,446)

128,727

191,111

There are no differences in the Parent Company Statement of Changes in Equity and the Consolidated Statement of Changes in Equity above other than the Parent Company Profit for the financial year of £9,944,000 and goodwill amortisation of £15,000 charged to the profit and loss reserve.

CONSOLIDATED CASH FLOW STATEMENT 52 weeks ended 24 June 2017

 

 

 

 

52 weeks ended

 

52 weeks ended

24 June 2017

 

25 June 2016

 

£'000

£'000

£'000

£'000

Net cash flows from operating activities (7a)

 

22,080

 

20,293

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds of sale of tangible fixed assets

5,876

 

11,893

 

Purchase of tangible fixed assets

(25,668)

 

(15,391)

 

Additional loans to customers

(48)

 

(21)

 

Customer loan redemptions

130

 

245

 

Acquisition of subsidiaries

(12,378)

 

-

 

Cash acquired on acquisition

827

 

-

 

Net cash flows from investing activities

 

(31,261)

 

(3,274)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Dividends paid

(4,102)

 

(3,977)

 

Interest paid

(3,994)

 

(3,904)

 

Repayment of long-term loan

-

 

(16,000)

 

New long-term loan

19,000

 

-

 

Issue costs of new long-term loan facility

(292)

 

(313)

 

Purchase of own shares

(622)

 

(287)

 

Share option proceeds

12

 

32

 

Net cash flows from financing activities

 

 10,002

 

(24,449)

Net increase/(decrease) in cash and cash equivalents

 

821

 

(7,430)

Cash and cash equivalents at beginning of the period

 

(637)

 

6,793

Cash and cash equivalents at end of the period

 

184

 

(637)

NOTES TO THE ACCOUNTS 24 June 2017

1 Segmental reporting

In adopting FRS 102, the operating segment disclosure requirements of IFRS 8 are required as the Group has publicly traded equity instruments. The accounting policy for identifying segments is based on internal management reporting information that is regularly reviewed by the chief operating decision-maker.

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, wine and spirits;

•             Managed Pubs and Hotels and;

•             Tenanted and Leased Pubs which comprises pubs operated by third parties under tenancy or lease agreements. Transfer prices between operating segments are set on an arm's length basis.

The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in the financial statements.

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

 

52 weeks ended 24 June 2017

£'000

£'000

£'000

£'000

£'000

 

Turnover

59,760

60,671

34,434

1,333

156,198

 

Underlying operating profit

1,566

9,005

12,973

(8,285)

15,259

 

Exceptional items

-

(421)

(48)

-

(469)

 

Divisional operating profit

1,566

8,584

12,925

(8,285)

14,790

 

 

 

 

 

 

 

 

Net finance costs

 

 

 

 

(4,094)

 

Profit on disposal of property

 

 

 

 

588

 

Investment property fair value movements

 

 

 

 

496

 

Profit on ordinary activities before taxation

 

 

 

 

11,780

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

Capital expenditure - tangible fixed assets and goodwill

1,399

21,529

15,506

1,120

39,554

 

Depreciation and amortisation

2,113

2,569

2,174

990

7,846

 

Underlying divisional EBITDA

3,857

11,604

15,166

(7,275)

23,352

 

Number of pubs

-

66

253

8

327

 

 

 

 

 

 

 

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

52 weeks ended 25 June 2016

£'000

£'000

£'000

£'000

£'000

Turnover

57,267

48,062

33,509

1,052

139,890

Underlying operating profit

1,588

7,631

12,675

(7,659)

14,235

Exceptional items

-

-

(307)

(188)

(495)

Divisional operating profit

1,588

7,631

12,368

(7,847)

13,740

 

 

 

 

 

 

Net finance costs

 

 

 

 

(3,898)

Profit on disposal of property

 

 

 

 

4,235

Investment property fair value movements

 

 

 

 

282

Profit on ordinary activities before taxation

 

 

 

 

14,359

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets and goodwill

2,374

6,055

6,774

436

15,639

Depreciation and amortisation

2,172

2,016

2,028

899

7,115

Underlying divisional EBITDA

3,989

9,727

14,719

(6,757)

21,678

Number of pubs

-

54

267

7

328

 

The segmental disclosure reflects how management now monitor the performance of each division, which has resulted in a re-statement of the 2016 disclosure.

Geographical information

An analysis of the Group's turnover by geographical market is set out below:

 

 

 

52 weeks ended

 

 

 

52 weeks ended

 

24 June 2017

25 June 2016

 

£'000

£'000

Turnover

 

 

UK

153,529

137,424

Rest of the World

2,669

2,466

 

156,198

139,890

 

2   Turnover

An analysis of the Group's turnover is as follows:

 

 

 

52 weeks ended

 

 

 

52 weeks ended

 

24 June 2017

25 June 2016

£'000

£'000

Sale of goods and services

147,223

131,253

Rental income

8,975

8,637

 

156,198

139,890

 

 

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

 

•             Exceptional items - these are items which are either material or infrequent in nature and do not relate to the underlying performance.

 

 

52 weeks ended

52 weeks ended

24 June 2017

25 June 2016

£'000

£'000

Underlying EBITDA

23,352

21,678

Depreciation and amortisation

(7,846)

(7,115)

Free trade loan discounts

(63)

(113)

Loss on sale of assets (excluding property)

(184)

(215)

Underlying operating profit

15,259

14,235

Net finance costs

(4,094)

(3,898)

Underlying profit before taxation

11,165

10,337

 

 

 

Profit on disposal of properties

588

4,235

Investment property fair value movements

496

282

Exceptional items

(469)

(495)

Profit on ordinary activities before taxation

11,780

14,359

 

Exceptional items of £469,000 comprised an impairment charge of £199,000 and £270,000 in relation to a fine together with legal fees in respect of the Royal Wells Hotel, Tunbridge Wells. Exceptional items of £495,000 for the 52 weeks ended 25 June 2016 comprised an impairment charge of £307,000, legal and professional fees of £71,000 for the Consumer Credit Authorisation application, required by the Financial Conduct Authority; and £117,000 for the professional fees related to the transition for reporting under FRS 102. 

4   Taxation

 

a   Tax on profit on ordinary activities

 

52 weeks ended

52 weeks

 

24 June 2017£'000

25 June 2016

Tax charged to profit and loss

£'000

£'000

Current tax

 

 

UK Corporation tax at 19.75% (2016: 20.0%)

2,731

2,573

Prior year (over)/under provision

(17)

25

Total current tax

2,714

2,598

Deferred tax

 

 

Origination and reversal of timing differences

(831)

40

Effect of reduction in the rate of corporation tax

(315)

(698)

Adjustments in respect of prior years

-

-

Total deferred tax

(1,146)

(658)

Total tax charged to profit and loss

1,568

1,940

 

 

 

Tax charged to other comprehensive income

 

 

Deferred tax

 

 

Gains/(losses) arising on cash flow hedges in the period

467

(1,177)

Effect of reduction in the rate of corporation tax

(146)

(344)

Total tax charged/(credited) to other comprehensive income

321

(1,521)

 

b   Reconciliation of the total tax charge

 

 

 

52 weeks ended

52 weeks ended

 

24 June 2017

25 June 2016

 

£'000

£'000

Group profit on ordinary activities before taxation

11,780

14,359

 

 

 

Tax on Group profit at average UK corporation tax rate of 19.75% (2016: 20.0%)

2,327

2,872

Expenses not deductible for tax purposes

140

7

Profit on sale of property less chargeable gains

(567)

(266)

Effect of reduction in the rate of corporation tax

(315)

(698)

Prior year (over)/under provision

(17)

25

Total tax charged to profit and loss

1,568

1,940

 

c   Factors that may affect future tax charges

During the period the Finance Act 2016 received Royal Assent. The main impact was the reduction of the UK Corporation tax rate from 18% to 17% (effective from 1 April 2020). To the extent that this rate change will affect the amount of future tax cash tax payments to be made by the Group, this will reduce the size of both the Group's deferred tax liability and tax asset. The impact in the 52 weeks to 24 June 2017 was an exceptional credit to profit and loss of £315,000 and a credit to other comprehensive income of £146,000.

During the 53 weeks beginning 25 June 2017, the net reduction of deferred tax liabilities expected to be credited to the profit and loss account is estimated at £800,000 due to the reversal of accelerated capital allowances and reduction in the deferred tax liability on the revaluation of freehold pubs. This estimate is based upon a number of assumptions, including the level of capital expenditure qualifying for capital allowances, properties that are to be sold and increases in the Retail Price Index, which are uncertain and could result in a significantly different actual movement.

There is no expiry date on timing differences.

 

 

5   Dividends

 

 

 

52 weeks ended

52 weeks ended

 

24 June 2017

25 June 2016

 

£'000

£'000

Declared and paid during the year

 

 

Final dividend for 2016: 22.05p (2015: 21.40p) per ordinary share

3,268

3,168

Interim dividend for 2017: 5.62p (2016: 5.45p) per ordinary share

834

809

Dividends paid

4,102

3,977

The Directors propose a final dividend of 22.73p (2016: 22.05p) per 50p ordinary share totalling £3,348,000 (2016: £3,268,000) for the year ended 24 June 2017. The dividend is subject to approval by the shareholders at the Annual General Meeting, to be held on 13 October 2017 and has not been included as a liability in these financial statements, as it has not yet been approved or paid.

Shares held by the Company (and not allocated to employees under the Share Incentive Plan) are treated as cancelled when calculating dividends and earnings per share.

 

 

6  Earnings per share

 

 

 

52 weeks ended

52 weeks ended

 

24 June 2017

25 June 2016

 

£'000

£'000

Profit attributable to equity shareholders

10,212

12,419

 

 

 

Items excluded from underlying results

(1,476)

(4,336)

Underlying earnings attributable to equity shareholders

8,736

8,083

 

 

 

 

 

 

 

Number

Number

Weighted average number of shares in issue

14,780

14,779

Dilutive outstanding options

121

113

Diluted weighted average share capital

14,901

14,892

Basic

69.1p

84.0p

Underlying basic

59.1p

54.7p

Diluted

68.5p

83.4p

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.

 

 

7   Notes to the cash flow statement

 

 

a   Reconciliation of operating profit to cash generated by operations

 

52 weeks to 24 June 2017

52 weeks to 25 June 2016

 

Underlying results

Excluded from

underlying results

Total

Underlying results

Excluded from

underlying results

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Operating profit

15,259

(469)

14,790

14,235

(495) 

13,740

Adjustment for:

 

 

 

 

 

 

Depreciation and amortisation

7,846

-

7,846

7,115

-

7,115

Impairment provision

-

199

199

-

307

307

Charge for share-based payments credited to reserves

619

-

619

528

-

528

(Increase)/decrease in stocks

(349)

-

(349)

421

-

421

Increase in debtors and prepayments

(1,826)

-

(1,826)

(1,978)

-

(1,978)

Increase in creditors and accruals

2,977

239

(3,216)

2,131

-

2,131)

Free trade loan discounts

63

-

63

113

-

113

Loss of sale assets (excluding property)

184

-

184

215

-

215

Interest received

6

-

6

14

-

14

Income paid

(2,668)

-

(2,668)

(2,313)

-

(2,313)

Net cash inflow/(outflow) from operating activities

22,111

(31)

22,080

20,481

(188)

20,293

 

 

 

 

 

 

 

b   Analysis of net debt

 

 

 

 

 

 

 

2016

Cash flow

Repayment of long-term loan

Issue costs of new loan

Amortisation of issue costs

2017

Group

£'000

£'000

£'000

£'000

£'000

£'000

Cash

90

94

-

-

-

184

Bank overdraft

(727)

727

-

-

-

-

Cash and cash equivalents

(637)

821

-

-

-

184

Debt due within one year

-

-

-

-

-

-

 

(637)

821

-

-

-

184

Debt due after more than one year

(59,439)

-

(19,000)

292

(120)

(78,267)

Total

(60,076)

821

(19,000)

292

(120)

(78,083)

 

 

 

8  Accounts

The financial information set out above does not constitute the Company's statutory accounts for the 52 weeks ended 24 June 2017 or 52 weeks ended 25 June 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) of the Companies Act 2006.

 

The preliminary announcement is prepared on the same basis as set out in the previous year's annual accounts.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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