Shepherd Neame Ltd - Final Results
RNS Number : 9242B
Shepherd Neame Limited
26 September 2018
 

 

FULL YEAR RESULTS

Strong performance in line with expectations

Good trade over the summer

Shepherd Neame, Britain's Oldest Brewer and owner and operator of 321 high quality pubs in Kent and the South East (68 managed, 242 tenanted and 11 commercial free of tie leases), today announces results for the 53 weeks ended 30 June 2018. 

Financial performance:

·      Turnover increased by +0.2% to £156.6m (2017: £156.2m)

 

·      Underlying EBITDA¹ increased by +5.5% to £24.6m (2017: £23.4m)

 

·      Underlying operating profit² up +5.3% to £16.1m (2017: £15.3m)

 

·      Underlying profit before tax³ up +5.4% to £11.8m (2017: £11.2m)

 

·      Statutory profit before tax up +2.9% to £12.1m (2017: £11.8m)

 

·      Underlying basic earnings per share4 up +6.6% to 63.0p (2017: 59.1p) and basic earnings per ordinary share down at 68.1p (2017: 69.1p) due to a higher tax charge

 

·      The Board is proposing a final dividend of 23.45p (2017: 22.73p) making the total dividend for the year up +3.0% to 29.20p (2017: 28.35p). This represents underlying dividend cover of 2.2 times (2017: 2.1 times)

¹ Underlying profit before tax pre net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding property and free trade loan discounts

² 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

³ Profit before 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

4 Underlying 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 employees under the Share Incentive Plan, which are treated as cancelled

 

Operational highlights:

·      Another year of building a strong, high quality pub estate through:

 

-     Three transformational investments in the managed estate, with a total investment of £10.2m (2017: £8.3m) in capital expenditure to improve the look and feel of our tenanted and managed pubs and £2.8m (2017: £2.4m) in repairs and decorations

-       Acquisition of two pubs in central London, the Samuel Pepys and the Savoy Tap

-     Since the year end we have acquired the Wheatsheaf, Farnham, a third pub in central London, the Cheshire Cheese, and entered a contract to build a new pub hotel in the centre of the Ebbsfleet Garden City development

-       Over the last five years 22 pubs have been acquired and 51 sold, transforming our pub profile.

 

·      Managed pubs (68 pubs) turnover grew by +7.7% to £65.3m (2017: £60.7m) with like-for-like ("LFL") sales growth of +1.3%, which is ahead of the market5 and set against a tough comparative of +8.1% in the previous year. Managed pubs underlying operating profit was impacted by cost pressures and was down slightly at £8.7m (2017: £9.0m).

5 The Coffer Peach Business Tracker recorded like-for-like sales growth for pubs and restaurants at +0.7% for the 12 months to June 2018 

·      Tenanted pubs (242 pubs) had another strong year with LFL EBITDAR1 up +2.1% (2016: +1.6%) and average EBITDAR per pub up +5.8% (2017: +5.6%).

 

·      Higher profits in Brewing and Brands during period of transition to focus strategy on our own beer and cider brands. Whilst turnover reduced by -8.9% to £54.4m (2017: £59.8m) due to the end of the Asahi contract, divisional underlying operating profit grew by +46.9% to £2.3m (2017: £1.6m).

1 Like-for-like earnings before interest, tax, depreciation, amortisation and rent payable

 

Current trading:

·      Strong start to the new financial year benefiting from the sustained period of warm weather in July and August

 

·      For the 11 weeks to 15 September 2018, LFL managed sales were up +5.1% (2017: +1.4%). In the 9 weeks to 1 September 2018 LFL tenanted EBITDAR was up +6.2% (2017: +0.6%) and own brand beer and cider volume was up +6.4% (2017: -6.5%)

Jonathan Neame, Chief Executive of Shepherd Neame commented:

"Shepherd Neame is a strong business with an enviable track record of delivering consistent growth and this year is no exception. We have made further good progress against our strategic objectives and some great individual investments in our pubs. We have also successfully re-positioned our beer business away from contracts to focus on our own beer and cider brands.

 

A key strength of the company is the balance between the different financial and market characteristics of each division which gives resilience even in more challenging market conditions.

 

We have made some great acquisitions, during the year and since the year end, which further strengthens our managed estate and positions us well for the anticipated economic growth in our heartland over the next 15 years.

 

We have started the new year well as we have benefited from the warm summer weather, in particular in our coastal sites The coming year has more political and economic uncertainty than most of us can remember. But, whatever the short-term impact, we believe that we are well positioned to take advantage of opportunities that arise in our local region and in the wider industry. "

25 September 2018

Shepherd Neame

 Tel: 01795 532206

Jonathan Neame, Chief Executive

 

Miles Templeman, Chairman

 

 

 

 

Instinctif Partners

Tel: 020 7457 2020

Matthew Smallwood

 

Andy Low  

 

 

NOTES FOR EDITORS

Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,600 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 on draught (4.1% abv) and in bottle (4.3% abv), was launched to mark the 75th anniversary of the Battle of Britain and Spitfire Lager, the Lager of Britain (4.0% abv), was launched in 2016.

 

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

 

-       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).

 

-       Five Grain Premium Lager: introduced 2017 (5% abv).

 

-       Bear Island East Coast Pale Ale: introduced 2017 on draught (4.8% abv) and in can (5.5% abv).

 

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

The Company also brews lagers under licence, including:

-       Samuel Adams Boston Lager: Leading US craft lager (4.8% abv) brewed under an exclusive licence from the Boston Beer Company. The Company also imports Angry Orchard, America's No. 1 Hard Cider (5%).

Shepherd Neame sold 235,000 brewers' barrels of beer (67.7 million pints) including 196,000 brewers' barrels of own beer (56.4 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 321 pubs, of which 242 were tenanted or leased, 11 were held as investment properties under commercial free of tie leases, and 68 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 another successful period for the 53 weeks to June 30 2018 (2018 Financial Year).

Shepherd Neame is a strong business with an enviable track record of delivering consistent growth and this year has been no exception. We have made further good progress against our strategic objectives, and some great individual investments in our pubs. During the year we have restructured our brewing and brands business to focus on developing our own brand portfolio following the expiry of the Asahi contract. We have incurred one-off transitional costs of £1.8m.

A key strength of the company is the balance between the different financial and market characteristics of each division of the business which gives resilience in the face of more challenging market conditions.

The business has continued to absorb significant cost inflation from business rates and the National Living Wage and although revenue and margins have been under pressure in our managed pubs, our high quality tenanted pubs have performed well and the brewing and brands division has delivered a very satisfactory performance.

Our aim is to build an estate of well invested pubs and to create a portfolio of great beer brands. We operate wonderful pubs in unique locations and we invest to build their character and individuality, to develop their offer and enhance the overall customer experience. At our brewery we brew a wide portfolio of classic British ales and modern keg beers and lagers. We strive to develop our product quality, innovate with new tastes and flavours and invest to raise awareness of our brands. In all parts of the business a constant focus is to modernise our working practices and internal processes to drive productivity.

We have delivered sustained dividend and profit performance over a long period. Our strong cash flow and the recycling of non-core assets enable us to strengthen the balance sheet through selective pub acquisitions in our core trading areas of Kent, London and the South East.

We look to deliver future growth by continuing our successful strategy. A key factor in our thinking is the anticipated economic growth within our Kent heartland over the next 15 years. There is major house building planned in all major conurbations, with substantial development in and around Ashford and Ebbsfleet. Further transport and infrastructure projects are programmed including schemes such as the Lower Thames Crossing and further upgrades to the HS1 rail link. The population of Kent is forecast to grow by more than 20% by 2031. We aim to build the business to take advantage of these trends by ensuring we own and operate the best pubs in the key locations and develop them to their full potential for food, drinks and accommodation.

Financial Results

These results are for the 53 weeks ended 30 June 2018. All commentary is for the statutory periods unless indicated.

Total turnover for the 53 week period grew by +0.2% to £156.6m (2017: £156.2m). The 53rd week contributed broadly £3.0m of turnover. Turnover in our managed pubs was the key driver for growth, offset by an anticipated decline in brewing and brands as we sold less beer than in the prior year following the expiry of the Asahi contract in January 2018.

Underlying operating profit grew by +5.3% to £16.1m (2017: £15.3m). The 53rd week contributed broadly £0.5m of underlying operating profit. Statutory operating profit fell by -7.5% as a result of one-off charges in respect of restructuring costs and an impairment charge. Underlying profit before tax¹ grew by +5.4% to £11.8m (2017: £11.2m). Statutory profit before tax grew by +2.9% to £12.1m (2017: £11.8m).

Cash flow was strong and underlying EBITDA² grew by +5.5% to £24.6m (2017: £23.4m). Margins in the business as a whole increased, as the mix of business changed, with underlying operating profit margin at 10.3% (2017: 9.8%) and EBITDA margin at 15.7% (2017: 15.0%). Underlying basic earnings per share are up +6.6% to 63.0p (2017: 59.1p) and basic earnings per share are down slightly at 68.1p (2017: 69.1p) due to a higher tax charge in 2018.

¹ Profit before 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 profit before tax pre net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding property and free trade loan discounts.

 

Dividend

The Board is proposing a final dividend of 23.45p (2017: 22.73p) making the total dividend for the year 29.20p (2017: 28.35p), an increase of +3.0%. This represents underlying dividend cover of 2.2 times (2017: 2.1 times). In line with our policy we will continue to target underlying dividend cover at or above 2 times. The final dividend will be paid on 19 October 2018 to shareholders on the register at the close of business on 5 October 2018.

Capital and investment

Capital expenditure was £14.7m (2017: £38.0m). This is below the prior year when we acquired 14 new pubs, with two new pubs purchased in 2018.

We continue to actively manage our property assets and have realised £6.0m (2017: £5.9m) from property disposals in the period.

As a result of good cash management and lower capital expenditure, net debt has reduced to £74.8m at June 2018 from £78.1m in June 2017 and the leverage ratio of net debt to EBITDA has reduced to 3.0 times (2017: 3.3 times). We have no outstanding final salary pension liabilities.

Political and economic environment

The 2016 referendum decision to leave the EU has created uncertainty for business. It is still far from clear what future trading relationship we will have with the EU. However, it is clear that attracting and retaining the right talent will be a critical success factor for all businesses going forward. We are reviewing our current practices to ensure we are the employer of choice in our region. Thankfully, we are building on a good base as a long established and well respected business with a strong reputation as a good employer.

Summary

The Board is focussed on investing for the long term benefit of shareholders with the vision of being a Great British Brewer and running the best pubs in our region. Recent years have seen great strides in developing the business and the quality of our brand and pub portfolio has improved materially.

The three operating divisions - brewing and brands, managed pubs and tenanted pubs - have different characteristics. The tenanted pubs division is the largest division by contribution, with many excellent pubs in the estate driving relatively low variability of earnings. The managed pub division, which includes some superb coastal sites, is more exposed to seasonal factors and has incurred a significant level of cost inflation, but makes an excellent contribution to overall results. The performance this year in the brewing and brands business has been very satisfactory given the transition underway and demonstrates that the division was able to retain its highly desirable cash-generating characteristics despite lower turnover.

The combination of divisions results in a business as a whole which remains strongly cash generative and whose balance between activities helps to ensure sustainability for the long term.

The coming year has more political and economic uncertainty than most of us can remember. But, whatever the short term impact, we believe that we are well positioned to take advantage of opportunities that arise in our local region and in the wider industry.

Miles Templeman

Chairman

CHIEF EXECUTIVE'S REVIEW

I am pleased to announce a strong set of results for the period, with further good progress in all areas of the business, despite more challenging market conditions.

After a period of record investment in the prior year, the 2018 financial year was going to be a period of consolidation of the recent acquisitions. Further, we had to deal with the challenge of repositioning the brewing and brands business to focus on our own beers after the expiry of the Asahi contract.

A key trend in the hospitality sector in the 2018 financial year has been the slowdown in food sales offset by a stronger performance for drinks-led businesses. Shepherd Neame runs pubs, not restaurants. Eating out in pubs provides a different experience from that in a casual dining restaurant. The resilience of our pubs comes from the differentiation in our offer, the quality of our service, the provenance of our menus and the character, heritage and authenticity of our outlets, thereby giving a unique pub experience.

A further significant factor in the 2018 financial year has been the less favourable weather trends compared to the prior year, with a particularly cold spring in 2018, when trade was materially below normal trading levels. A number of our key coastal sites were affected by this. But as soon as the weather improved these same sites performed strongly.

The fact that the company has continued to deliver a good profit outturn for the period in these conditions is testimony to the premium quality of our business and the balance of the revenue streams.

We have achieved this performance by pursuing a consistent strategy over a long period based around four key objectives:

• to drive footfall to our pubs;

• to develop the offer to enhance the customer experience;

• to create demand and build awareness for our brands; and

• to attract, retain and develop the best people.

Throughout the last few years we have invested in our head office team to ensure we have the right skills to exploit the opportunities in the market. We have a talented team who are passionate about the business and committed to driving future success. During this period we have strengthened the senior team with the appointment of Joanna Richardson as Head of Marketing, Brands and Communications and Michael Unsworth as Head of Production.

Tenanted and Managed Pub Operations

Overview

At the year end we operated 321 pubs and hotels (2017: 327) of which 276, 86% of our outlets, are freehold (2017: 285). Of our total pubs, 68 (2017: 66) were managed at the year end and 242 (2017: 253) were tenanted or leased and 11 (2017: 8) were operated under commercial free of tie leases. Approximately two thirds of our total pubs are in Kent, 35 in Greater London and the rest in Essex, Sussex, Surrey, Berkshire, Hampshire and Middlesex. We are looking to acquire pubs throughout this core territory with gradual geographical expansion as appropriate.

We seek sites with unique character in landmark or high footfall locations and then invest in them to create a premium and differentiated customer experience. We aim to own and operate the standout pubs in each community we serve. In general, we look to grow through selective single site acquisitions but small pub groups are attractive to us if the right opportunity arises.

During the last five years, we have acquired 22 pubs and disposed of 51. These acquisitions and disposals have transformed the profile of our pub estate, with average EBITDAR per managed pub increasing by +21.0% in five years and average EBITDAR per tenanted pub growing by +34.5%.

In the 2018 financial year, we have opened a new outlet in Chatham Maritime, Pier Five Bar and Kitchen. This is a new waterside destination in a modern bar environment in this fast-developing area of the Medway Towns. The bar offers a premium range of craft beers, craft spirits and cocktails alongside great food and artisan coffee. This has a different trading style from our traditional offer and we are encouraged by its performance since opening.

We also acquired two new pubs in London, the Samuel Pepys, our first riverside pub on the Thames opposite the Tate Modern, and the Savoy Tap, in Savoy Place, off the Strand. Both have undergone subsequent refurbishments and the Savoy Tap re- opened in mid- August 2018. These pubs help to strengthen our profile in central London and provide an excellent shop window for our beers.

Since the year end we have acquired the Wheatsheaf in Farnham. This is a premium pub with a strong reputation for food and drinks, centrally located in this affluent town. We are also planning to build a new pub hotel in Castle Hill in the centre of the vast Ebbsfleet Garden City development zone, where approximately 15,000 houses are planned to be built in the next ten years. The site is halfway between the Ebbsfleet International Station and Bluewater Shopping Centre, in a landmark location. We have other potential new build sites in the pipeline in and around the major new developments in our heartland.

All of the above will be operated as managed pubs.

As we strengthen the quality and profile of our pub estate, we continue to dispose of those outlets that no longer fit our strategy. We have realised £6.0m of proceeds (2017: £5.9m) from the sale of eight pubs (2017: 15 pubs) and one (2017: two) unlicensed property.

Driving Footfall to our Pubs

We aim to drive footfall to our pubs by designing and developing unique pubs and hotels with a 'wow' factor. We believe that continuous investment in our internal facilities and improvement to the kerb appeal of our pubs will make our outlets stand out from the local competition and so attract new customers and retain existing ones. Great pub design plays a hugely important part in creating a premium and differentiated experience. We have excellent skills in-house and use external consultants as appropriate.

This year we have invested £10.2m (2017: £8.3m) in capital expenditure to improve the look and feel of our tenanted and managed pubs and £2.8m (2017: £2.4m) in repairs and decorations.

In the managed estate, we carried out three transformational investments and are delighted by the results. We invested £0.9m at the Market House (formerly Earls), Maidstone, a further £1.0m at the Spitfire, Kings Hill, West Malling, and a further £1.2m at the Boathouse (formerly the Anchor), Yalding. All three opened in the final quarter of the year and made limited contribution to the overall results, but the performance and customer reaction have been excellent. In each, we have created superb outside space, in particular at the Boathouse, and offer a premium drinks range and a distinctive food offer.

In the tenanted estate, we carried out major developments at the Dover Castle, Teynham, the Early Bird, Maidstone, the Britannia, Dungeness and the Rose and Crown, Elham. We co-invested with our licensees at various sites such as the Bull, Newick.

Following the launch of the new brand identity in the prior year, we have completed new signage schemes in more than a quarter of the total pub estate.

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.

We operate a well invested, balanced portfolio of pubs. In our managed business drinks sales represents 56% of the sales mix (2017: 56%), with food sales 34% (2017: 33%) and accommodation 9% (2017: 10%). Within our tenanted estate our pubs are also well positioned across drinks, food and accommodation income streams. There are 294 letting rooms in the managed estate and 220 in the tenanted estate.

We have upgraded several of our bars and introduced new brands of our own and a wider range of premium and keg beers. In several outlets, we have introduced craft beers and ciders and premium international beers to sit alongside our core range. Our own beers have performed well in this context and this wider choice has been well received by our customers. Now that our commitments to licensed partners are reduced, we can be more flexible with new products and innovation going forward.

Our wine offer is responsive to market trends and we work with independent family producers around the world. We have continued to derive benefit from the interest in premium and local spirits and have increased our range significantly in recent times.

Like-for-like drinks sales in the managed estate grew by +2.3%, following a strong period in the prior year (2017: +8.0%). Trends in the eating out market are becoming more challenging and competition is increasing. Our managed like-for-like food sales declined marginally during the year by -1.3% against strong comparables in the prior year (2017: +7.7%).

The consumer wants well-presented and interesting food with great service in attractive surroundings. To ensure that our offer remains competitive and differentiated, we have launched a number of initiatives in the 2018 financial year in our managed pubs:

-       improved presentation of top dishes such as burgers, steaks and Sunday lunch;

-       expanded range of healthy, lighter, vegan and low calorie options;

-       introduced more sharing dishes; and

-       using technology to improve speed of service and pre-booking

Our food development team and head chefs work closely with local suppliers such as family butcher, Joseph and Henry, part of J C Rook & Sons Limited, and R J Kingsland & Son Limited sourcing fresh and local produce for our menus. We work with all our suppliers to develop menus and to roll out training and demonstrations to the chef teams. We share best practice and best prices with our tenants.

Our managed like-for-like accommodation sales grew by +2.9% against significant growth in the prior year (2017: +10.1%). During the period we refurbished 16 bedrooms (2017: 37) as part of our ongoing programme to maintain high standards in our managed pubs. Despite a more challenging consumer environment, we maintained occupancy at the high level of the prior year of 79% (2017: 79%), whilst RevPAR grew marginally to £67 (2017: £66).

Managed Pub Performance

Our continuous investment within a consistent strategic framework has again enabled us to perform ahead of the market. The Coffer Peach Business Tracker¹ recorded growth in the market of +0.7% for the 12 months to June 2018.

Total divisional turnover in the managed estate grew by +7.7% to £65.3m (2017: £60.7m). Divisional underlying operating profit was £8.7m (2017: £9.0m). Underlying operating margins in this division were down by -1.5%, -0.5% of which related to the timing of major developments in the year, -0.9% incremental costs of the National Living Wage, apprenticeship levy and higher business rates, -0.3% food inflation and +0.2% mitigating savings.

Same outlet like-for-like sales grew by +1.3% (2017: +8.1%). Average EBITDAR per managed pub was down -1.8% (2017: +1.8%).

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

Tenanted Pub Performance

Total divisional turnover in tenanted pubs grew by +2.7% to £35.4m (2017: £34.4m) and divisional underlying operating profit grew by +1.9% to £13.2m (2017: £13.0m). Same outlet like-for-like EBITDAR in tenanted pubs grew by +2.1% (2017: +1.6%) and average EBITDAR per pub grew by +5.8% (2017: +5.6%). We have continued to increase investment in property repairs and capital expenditure meaning underlying operating margin was down -0.3%.

Brewing and Brands

Overview

The 2018 financial year has seen a significant change in our brewing and brands business as we focus our energies into developing our own portfolio. We intend to allocate more of our limited capacity to build own brands and focus on those areas of the market where we have a competitive advantage or a strong position.  Simultaneously we have taken action to streamline our sales management structure, to reduce operating costs in the brewery in line with the reduced volume expectations, and to modernise our plant. Specifically we have invested £0.9m in installing a new high speed labeller and upgraded our filler to enhance productivity on the bottling line.

These changes have resulted in considerable upheaval in the business and we have incurred one-off transitional costs of £1.8m.

We completed the final six months period of the Asahi licence in January 2018. We enjoyed overall volume growth in the first half and then, as anticipated, volume reduced in the second half. Asahi represented 28,000 barrels, or 14% of the 2018 brewed volume (2017: 51,000 barrels or 23% of total brewed volume). Our volume will fall again in 2019 as we exit contracts to brew certain third party private label beer in line with our strategy. However we have renewed our partnership with leading US craft brewer Boston Beer Company to give us broader access to their wide and highly successful craft beer portfolio.

We have received good reactions from our customers for the changes made to our portfolio and have expanded distribution for our own brands.

We have enjoyed considerable success with Spitfire Lager, the Lager of Britain, and made an encouraging start with Five Grain Premium Lager and have introduced it in 330ml can.

The Whitstable Bay Collection continues to deliver growth in volume and distribution. Spitfire and Bishops Finger continue to hold their place in the top 10 premium bottled ales.

Orchard View Cider has had an excellent year, particularly with the fine weather over the summer of 2018, and Bear Island East Coast Pale Ale, with its hop-forward character, has got off to a superb start, in exploiting the trends for fuller flavour beers.

As a result of the change in the Brewing and Brands strategy we will focus on our core own brands excluding contract, licence and third party private label. In this year of transition these volumes declined marginally by -0.9%. The UK beer market in the same period grew by +0.4%.

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 great engagement with our customers.

In the 2018 financial year we took some important steps to align and consolidate our customer databases to improve communication and enhance customer engagement. We also raised awareness for Whitstable Bay with advertising on the London Underground as part of a Visit Kent campaign and ran a successful promotion to win a beach hut. It was pleasing to note that Whitstable Bay won an award for Best Merchandise at the Beer and Cider Awards 2017.

We intend to increase investment in our brands and pubs marketing and develop our consumer engagement. We also intend to invest in our Visitor Centre to make it a great destination for beer lovers and an outstanding experience when they visit Britain's Oldest Brewer.

Brewing and Brands Performance

Divisional turnover declined by -8.9% to £54.4m (2017: £59.8m) in line with total own beer sales volume down -10.6% to 196,000 barrels (2017: 219,000 barrels).

However, divisional underlying operating profit grew by a healthy +46.9% to £2.3m (2017: £1.6m) and divisional underlying EBITDA grew to £4.4m (2017: £3.9m) ahead of the previous guidance of £3.5m, at a margin of 8.2% as a result of production efficiency on a simpler portfolio.

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 loyalty and engagement of our licensees and employees through the professionalism of the support we provide.

We have continued to develop the training and development of our pub staff. We now employ 1,403 managed pub staff (2017: 1,372). Given the historically high level of staff turnover in the hospitality sector, it is important to retain great staff and enhance their skills.

We have personal development plans to support the training and qualifications of employees and we run frequent chef and supplier forums and menu training sessions in our pubs. Most sites have customer service and coffee champions to help develop the front of house team and our head chef mentor programme is working well. We are investing more on air conditioned kitchens to ensure a quality working environment. We have reviewed the pay, incentives and conditions of our managed pub staff and have introduced a new bonus and incentive structure, aligned to deliver a great service to our customers, for managers and chefs in the 2019 financial year.

We continue to provide excellent support for our tenanted licensees through menu and drinks list development as well as comprehensive training. We work closely with our licensees to identify the key areas where we can support their business to help them succeed. We are developing an enhanced regulatory compliance package for our licensees in the coming year.

Our approach to our licensees is one of flexibility, within the framework of a traditional tenancy agreement. We work with them to create a common business plan and then provide the investment and support to help both parties achieve their goals. We adapt the tenure and rent structure to reflect the plan and have modernised our tenancy agreement to reflect this approach.

During the last year, we have launched a programme for all employees called the 'Sheps Way', that sets out how we recruit, train and develop our people and articulates the Company's behaviours and values.

It was wonderful to see the Crown and Cushion, Minley crowned the Shepherd Neame Pub of the Year in 2018. Throughout the business, we take great pleasure in recognising and rewarding the outstanding achievements, at the annual Shepherd Neame Staff Oscars and Annual Licensees Awards.

Investment Property

The Company owns £7.9m of investment property, as revalued June 2018 (2017: £6.8m). We actively manage our non-core property portfolio and have achieved considerable success in the last year in selling several smaller sites for housing development. Our principal asset remains the former farmland at Queen Court, Ospringe. During the year, the company made a planning application for 50 houses on a seven acre site. The planning application was refused but we are in the process of appealing this decision.

Current Trading

The sustained warm weather in July and August has enabled the company to start the new year strongly. Our coastal sites have enjoyed a particularly good summer. The FIFA World Cup, as expected, was good for drinks sales.  In the 11 weeks to 15 September 2018, same outlet like-for-like managed sales were up +5.1% (2017: +1.4%). In the 9 weeks to 1 September 2018 like-for-like EBITDAR in the tenanted estate was up +6.2% (2017: +0.6%). In the same period, total own beer volume fell by -27.4% (2017: +3.6%) in line with expectations, but Shepherd Neame own brand beer and cider volumes was up +6.4% (2017: -6.5%).

Summary

The principal objectives this year were to consolidate the prior year acquisitions, deliver three large and complex managed investments and undertake the change in direction in the brewing and brands business.

I am delighted with the way the team has responded to these challenges and the outcome in all three operating divisions has been very satisfactory. The profit performance of the brewing and brands division is particularly pleasing, although we are still in a transition phase.

Whilst we planned for these objectives, and anticipated the cost pressures arising in the sector, we did not expect the tougher trading conditions that prevailed for most of the financial year. As such, it is most encouraging that we were able to deliver a good overall performance.

We have a clear strategy to grow the business and are excited about how we are positioning ourselves to take advantage of the long term economic prospects in our heartland. We are confident that we have great sites in the right locations. As we continually improve our offer, we need to invest in brand and pub marketing and in consumer engagement, to make our pubs the centre of their community life, our beers the go-to brands and the company the employer of choice.

Despite the considerable political and economic uncertainty that will exist throughout 2019, our prospects for sustaining the steady long-term growth we have delivered over many years remain good.

Jonathan Neame

Chief Executive

CONSOLIDATED PROFIT AND LOSS           ACCOUNT 53 weeks ended 30 June 2018

 

 

 

53 weeks to 30 June 2018

52 weeks to 24 June 2017

 

 

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

156,567

-

156,567 

156,198

156,198

Operating charges

3

(140,503)

(2,381)

(142,884)

(140,939)

(469) 

(141,408)

Operating Profit

1

16,064

(2,381)

13,683

15,259

(469) 

14,790

Net finance costs

 

(4,295)

-

(4,295)

(4,094)

(4,094)

Profit on disposal of property

3

-

1,908

1,908

-

588 

588

Investment property fair value movements

3

-

823

823

-

496

496

Profit on ordinary activities before taxation

 

11,769

350

12,119

11,165

615 

11,780

Taxation

4

(2,502)

398

(2,104)

(2,429)

861 

(1,568)

Profit after taxation

 

9,267

748

10,015

8,736

1,476

10,212

Earnings per 50p ordinary share

6

 

 

 

 

 

 

Basic

 

 

 

68.1p

 

 

69.1p

Diluted

 

 

 

67.4p

 

 

68.5p

Underlying basic

 

 

 

63.0p

 

 

59.1p

All results are derived from continuing activities.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 53 weeks ended 30 June 2018

 

 

 

 

53 weeks ended      30 June 2018

52 weeks ended     24 June 2017

 

 

 

note

£'000

£'000

Profit after taxation

 

 

 

10,015

10,212

Gains arising on cash flow hedges during the period 

 

 

 

4,271

2,460

Tax relating to components of other comprehensive income 

 

 

4

(792)

(321)

Other comprehensive gains

 

 

 

3,479

2,139

Total comprehensive income

 

 

 

13,494

12,351

 

CONSOLIDATED AND PARENT COMPANY BALANCE SHEET As at 30 June 2018

 

 

 

Group

Group

Company

Company

 

 

30 June 2018

24 June 2017

30 June 2018

24 June 2017

 

 

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

 

Goodwill

 

620

735

620

735

Tangible fixed assets

 

308,037

305,670

308,037

305,670

Investments and loans

 

76

194

239

11,777

 

 

308,733

306,599

308,896

318,182

Current assets

 

 

 

 

 

Stocks

 

6,841

7,063

6,841

7,063

Debtors

 

14,036

19,986

14,036

19,986

Deferred tax asset

 

2,992

3,787

2,992

3,787

Cash at bank and in hand

 

1,625

184

1,625

158

 

 

25,494

31,020

25,494

30,994

Creditors: amounts falling due within one year

 

 

 

 

 

Creditors

 

(24,614)

(31,145)

(24,806)

(42,985)

 

 

(24,614)

(31,145)

(24,806)

(42,985)

Net current assets/(liabilities)

 

880

(125)

688

(11,991)

Total assets less current liabilities

 

309,613

306,474

309,584

306,191

Creditors: amounts falling due after more than one year

 

 

 

 

 

Bank loans

 

(76,422)

(78,267)

(76,422)

(78,267)

Derivative financial instruments

 

(16,955)

(21,887)

(16,955)

(21,887)

Deferred lease liability

 

(2,314)

(2,027)

(2,314)

(2,027)

Provisions for liabilities

 

(12,870)

(13,182)

(12,870)

(13,182)

Net assets

 

201,052

191,111

201,023

190,828

 

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

 

73,532

73,579

73,532

73,579

Own shares

 

(1,588)

(2,277)

(1,588)

(2,277)

Hedging reserve

 

(13,967)

(17,446)

(13,967)

(17,446)

Profit and loss account

 

134,547

128,727

134,518

128,444

Equity shareholders' funds

 

201,052

191,111

201,023

190,828

The profit attributable to the shareholders of the Company for the 53 weeks ended 30 June 2018 was £10,270,000 (2017: £9,944,000 for the 52 weeks ended 24 June 2017).

These accounts for Shepherd Neame Limited (Registered in England number 138256) were approved by the Board of Directors on 25 September 2018 and were signed on its behalf by:

Miles Templeman Jonathan Neame Directors

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 53 weeks ended 30 June 2018

 

 

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 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

-

1,842

10,212

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

Profit for the financial year

-

-

-

-

-

10,015

10,015

Gains arising on cash flow hedges during the year

-

-

-

-

4,271

-

4,271

Tax relating to components of other comprehensive income

-

-

-

-

(792)

-

(792)

Total comprehensive income

-

-

-

-

3,479

10,015

Ordinary dividends paid

-

-

-

-

-

(4,197)

(4,197)

Transfer of realised revaluation

-

-

(47)

-

-

47

-

Accrued share-based payments

-

-

-

-

-

649

649

Purchase of own shares

-

-

-

(25)

-

-

(25)

Distribution of own shares

-

-

-

556

-

(536)

20

Unconditionally vested share awards

-

-

-

158

-

(158)

-

Balance at 30 June 2018

7,429

1,099

73,532

(1,588)

(13,967)

134,547

201,052

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 £10,270,000 (2017: Parent Company profit of £9,944,000 and goodwill amortisation of £15,000 charged to the profit and loss reserve).

CONSOLIDATED CASH FLOW STATEMENT 53 weeks ended 30 June 2018

 

 

53 weeks ended

 

52 weeks ended

30 June 2018

 

24 June 2017

 

£'000

£'000

£'000

£'000

Net cash flows from operating activities (note 7)

 

22,599

 

22,080

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds of sale of tangible fixed assets

6,008

 

5,876

 

Purchase of tangible fixed assets

(14,748)

 

(25,668)

 

Loans to customers

-

 

(48)

 

Customer loan redemptions

75

 

130

 

Acquisition of subsidiaries

-

 

(12,378)

 

Cash acquired on acquisition

-

 

827

 

Net cash flows from investing activities

 

(8,665)

 

(31,261)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Dividends paid

(4,197)

 

(4,102)

 

Interest paid

(4,970)

 

(3,994)

 

Repayment of borrowings

(2,000)

 

-

 

New bank loans raised

-

 

19,000

 

Issue costs of new long-term loan facility

-

 

(292)

 

Purchase of own shares

(1,346)

 

(622)

 

Share option proceeds

20

 

12

 

Net cash flows from financing activities

 

 (12,493)

 

10,002

Net increase in cash and cash equivalents

 

1,441

 

821

Cash and cash equivalents at beginning of the period

 

184

 

(637)

Cash and cash equivalents at end of the period

 

1,625

 

184

 

 

NOTES TO THE ACCOUNTS 30 June 2018

1   Segmental reporting  

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 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

 

53 weeks ended 30 June 2018

£'000

£'000

£'000

£'000

£'000

 

Turnover

54,424

65,332

35,374

1,437

156,567

 

Underlying operating profit

2,301

8,694

13,215

(8,146)

16,064

 

Items excluded from underlying results

(1,700)

(535)

(136)

(10)

(2,381)

 

Divisional operating profit

601

8,159

13,079

(8,156)

13,683

 

 

 

 

 

 

 

 

Net finance costs

 

 

 

 

(4,295)

 

Profit on disposal of property

 

 

 

 

1,908

 

Investment property fair value movements

 

 

 

 

823

 

Profit on ordinary activities before taxation

 

 

 

 

12,119

 

 

 

 

 

 

 

 

Other segment information

 

 

 

 

 

 

Capital expenditure - tangible fixed assets

1,830

7,625

4,594

938

14,987

 

Depreciation and amortisation

1,995

2,955

2,351

993

8,294

 

Underlying divisional EBITDA

4,449

11,690

15,606

(7,106)

24,639

 

Number of pubs

-

68

242

11

321

 

 

 

 

 

 

 

 

 

Brewing and Brands

Managed Pubs

Tenanted 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

Items excluded from underlying results

-

(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

                     

 

 

Geographical information

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

 

 

 

53 weeks ended

 

 

 

52 weeks ended

 

30 June 2018

24 June 2017

 

£'000

£'000

Turnover

 

 

UK

154,031

153,529

Rest of the World

2,536

2,669

 

156,567

156,198

 

2  Turnover

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

 

 

 

53 weeks ended

 

 

 

52 weeks ended

 

 

30 June 2018

24 June 2017

 

 

£'000

£'000

 

Sale of goods and services

147,503

147,223

 

Rental income

9,064

8,975

 

 

156,567

156,198

       

 

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.Theadjusteditemsare:

•             Profit or loss on disposal of properties

 

•             Investment property fair value movements

 

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

 

 

53 weeks ended

52 weeks ended

30 June 2018

24 June 2017

£'000

£'000

Underlying EBITDA

24,639

23,352

Depreciation and amortisation

(8,294)

(7,846)

Free trade loan discounts

(62)

(63)

Loss on sale of assets (excluding property)

(219)

(184)

Underlying operating profit

16,064

15,259

Net finance costs

(4,295)

(4,094)

Underlying profit before taxation

11,769

11,165

 

 

 

Profit on disposal of properties

1,908

588

Investment property fair value movements

823

496

Operating charges - items excluded from underlying results

(2,381)

(469)

Profit on ordinary activities before taxation

12,119

11,780

 

Operating charges - items excluded from underlying results of £2,381,000 comprised £1,759,000 in respect of restructuring costs following a review of strategy for the brewing and brands business associated with the termination of the Asahi contract, and an impairment charge of £622,000.

The charge of £469,000 for the 52 weeks ended 24 June 2017 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.

4  Taxation

 

a   Tax on profit on ordinary activities

 

53 weeks ended

52 weeks ended

 

30 June 2018

24 June 2017

Tax charged to profit and loss

£'000

£'000

Current tax

 

 

UK corporation tax at 19.0% (2017: 19.75%)

2,394

2,731

Prior year under/(over) provision

25

(17)

Total current tax

2,419

2,714

Deferred tax

 

 

Origination and reversal of timing differences

(305)

(831)

Effect of reduction in the rate of corporation tax

-

(315)

Adjustments in respect of prior years

(10)

-

Total deferred tax

(315)

(1,146)

Total tax charged to profit and loss

2,104

1,568

 

 

 

Tax charged to other comprehensive income

 

 

Deferred tax

 

 

Gains arising on cash flow hedges in the period

792

467

Effect of reduction in the rate of corporation tax

-

(146)

Total tax charged to other comprehensive income

792

321

 

b   Reconciliation of the total tax charge

 

 

 

53 weeks ended

52 weeks ended

 

30 June 2018

24 June 2017

 

£'000

£'000

Group profit on ordinary activities before taxation

12,119

11,780

 

 

 

Tax on Group profit at average UK corporation tax rate of 19.0% (2017: 19.75%)

2,303

2,327

Expenses not deductible for tax purposes

96

140

Profit on sale of property less chargeable gains

(310)

(567)

Effect of reduction in the rate of corporation tax

-

(315)

Prior year under/(over) provision

15

(17)

Total tax charged to profit and loss

2,104

1,568

 

c   Factors that may affect future tax charges

The Finance Act 2015 included provisions to reduce the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) and then to 18% with effect from 1 April 2020.

During the 52 weeks ended 24 June 2017 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). 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 52 weeks beginning 1 July 2018, the net reduction of deferred tax liabilities expected to be credited to the profit and loss account is estimated at £200,000 due to the reversal of accelerated capital allowances and increase in the deferred tax liability on the revaluation of investment properties. 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 fair value movements in respect of investment properties, which are uncertain and could result in a significantly different actual movement.

There is no expiry date on timing differences.

 

5  Dividends

 

 

 

53 weeks ended

52 weeks ended

 

 

30 June 2018

24 June 2017

 

 

£'000

£'000

 

Declared and paid during the year

 

 

 

Final dividend for 2017: 22.73p (2016: 22.05p) per ordinary share

3,348

3,268

 

Interim dividend for 2018: 5.75p (2017: 5.62p) per ordinary share

849

834

 

Dividends paid

4,197

4,102

       

The Directors propose a final dividend of 23.45p (2017: 22.73p) per 50p ordinary share totalling £3,466,000 (2017: £3,348,000) for the 53 weeks ended 30 June 2018. The dividend is subject to approval by the shareholders at the Annual General Meeting, to be held on 19October2018andhasnotbeenincludedasaliability inthesefinancial statements,asithasnotyetbeenapprovedorpaid.

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

 

 

 

53 weeks ended

52 weeks ended

 

30 June 2018

24 June 2017

 

£'000

£'000

Profit attributable to equity shareholders

10,015

10,212

 

 

 

Items excluded from underlying results

(748)

(1,476)

Underlying earnings attributable to equity shareholders

9,267

8,736

 

 

 

 

 

 

 

Number

Number

Weighted average number of shares in issue

14,707

14,780

Dilutive outstanding options

142

121

Diluted weighted average share capital

14,849

14,901

Basic

68.1p

69.1p

Diluted

67.4p

68.5p

Underlying basic

63.0p

59.1p

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

 

53 weeks ended 30 June 2018

52 weeks ended 24 June 2017

 

Underlying results

Excluded from

underlying results

Total

Underlying results

Excluded from

underlying results

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

Operating profit

16,064

(2,381)

13,683

15,259

(469)

14,790

Adjustment for:

 

 

 

 

 

 

Depreciation and amortisation

8,294

-

8,294

7,846

-

7,846

Impairment loss on tangible fixed assets

-

622

622

-

199

199

Share-based payments expense

569

80

649

619

-

619

Decrease/(increase) in stocks

222

-

222

(349)

-

(349)

Decrease/(increase) in debtors and prepayments

5,948

-

5,948

(1,826)

-

(1,826)

(Decrease)/increase in creditors and accruals

(4,488)

(120)

(4,608)

2,977

239

3,216

Free trade loan discounts

62

-

62

63

-

63

Loss on sale of assets (excluding property)

219

324

543

184

-

184

Interest received

15

-

15

6

-

6

Income tax paid

(2,831)

-

(2,831)

(2,668)

-

(2,668)

Net cash inflow/(outflow) from operating activities

24,074

(1,475)

22,599

22,111

(31)

22,080

 

 

 

 

 

 

 

b   Analysis of net debt

 

 

 

 

 

 

 

 

2017

Cash flow

Repayment of          long-term loan

Amortisation of       issue costs

2018

 

 

£'000

£'000

£'000

£'000

£'000

Cash and cash equivalents

 

184

1,441

-

-

1,625

Debt due after more than one year

 

(78,267)

-

2,000

(155)

(76,422)

Total

 

(78,083)

1,441

2,000

(155)

(74,797)

 

 

8  Accounts

The financial information set out above does not constitute the Company's statutory accounts for the 53 weeks ended 30 June 2018 or 52 weeks ended 24 June 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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 account

 

 


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