Shepherd Neame hit by rising costs

Kent based brewer and operator Shepherd Neame has reported a 7.2% increase in turnover for the six months to 27 December 2008 but profits were hit by rising costs and declining consumer confidence.

Turnover came in at £52.4m but pre-exceptional operating profit dropped 17% to £5.1m on last year. The like-for-like contribution from its 320-strong tenanted estate dropped 4.1%, which it said "compares favourably with many other operators". It said it had increased its promotional activity and increased investment in repairs and decorations by £160,000 on last year to help tenants.

Like-for-like sales at its 47 managed houses were down 0.2% for the six months but did record an increase of 1.8% for the 13 weeks to 28 February thanks to a strong Christmas and New Year. Its London pubs outperformed the market with like-for-like sales growth of 2.9%.

Beer volumes were up 6.7% but margins were hit by a massive 27% increase in the cost of raw materials on last year and by the accelerated shift from off to on-trade consumption.

"Despite a difficult economic background, we have delivered a strong sales performance," said chief executive Jonathan Neame. "We anticipate the second half performance will follow the pattern of the first half. We will continue to experience high costs for the rest of the year but expect them to start to reduce as we enter our next financial year."

Chairman Miles Templeman added: "These are challenging times and it is impossible to judge how deep and how long the recession will be. In previous downturns, however, beer and pubs have proved more resilient than other sectors and have picked up earlier as consumer confidence returns."

Analyst Mark Brumby of Blue Oar Securities said Shepherd Neame was well placed to ride out the economic storm. "Sheps owns the vast majority of its properties freehold and, having been doing what it's currently doing for some 300 years and having seen off Napoleon, the Kaiser and Hitler, is in a better position to survive the currently inconvenient environment than are the majority of its peers."