Shepherd Neame profits rise to £11.8m

Ahead of the reveal of Shepherd Neame’s results for the period on 26 September, chief executive Jonathan Neame spoke to The Morning Advertiser​​ about how the Kent brewer has progressed throughout his near-30-year career.

The company revealed an increase in underlying profit before tax of 5.4% to 11.8m and rising turnover from £156.2m to £156.6 – an increase of 0.2%.

Shepherd Neame, Britain’s oldest brewer founded in 1698, currently operates 321 pubs across Kent and the south-east – 68 managed, 242 tenanted and 11 commercial free-of-tie leases. 

The brewers managed pubs’ turnover grew by 7.7% to £65.3m over the 53 weeks to 30 June – with like-for-like sales increasing by 1.3% – while its tenanted pubs’ average like-for-like earnings before interest, tax, depreciation, amortisation and restructuring/rent payable (EBITDAR) increased by 5.8%.

Further stand-out operational figures include higher profits in brewing and brands. While turnover reduced by 8.9% from £59.8m to £54.4m due to the end of the Asahi contract, divisional underlying operating profit grew by 46.9% to £2.3m.

Moreover, Shepherd Neame has enjoyed a strong start to the new financial period, boosted by the July and August heatwave, with like-for-like managed sales for the 11 weeks to 15 September up 5.1%, and own brand beer and cider volume rising by 6.4%.

Additionally, the 53 weeks to 30 June saw a total investment of £10.2m by Shepherd Neame to improve the look and feel of its managed and tenanted pubs – versus £8.3m in 2017, and £400,000 more spent in repairs and decorations than in 2017.

As reported by The Morning Advertiser​, Shepherd Neame's recent acquisitions include three central London sites​ as well as the Wheatsheaf​ in Farnham, Surrey with the company also entering a contract to build a new pub hotel in the centre of the Ebbsfleet Garden City development in Kent.

The activity during the past year means that in the past five years, Shepherd Neame has acquired 22 pubs in total, while selling 51. 

Further good progress​

Shepherd Neame chief executive Jonathan 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 that 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.”

Balanced business

Speaking to The Morning Advertiser​ following the announcement, Jonathan Neame commented: "I think the standout thing for me was that it was a strong performance across all divisions in more challenging market conditions, and it re-emphasises that the critical factor of the nature of our business is it's balance. 

"If you take a ten year horizon, we've sold about 110 pubs and acquired about 44. Equally during that time we've massively stepped up our investment. Over a five year period our inward investment into our existing estate has increased from £7.7m five years ago - that's capital and revenue, so repairs, decorations etc - to £13m this year. 

"The cumulative impact of buying bigger and better pubs, selling smaller pubs that no longer fit, and virtually doubling the rate of investment over a five year period, is that the overall look, feel and profile of our estate is transformed.

"Crucially, the other theme that comes out, I hope loud and clear, in our annual report is that we've still got investment opportunities within our existing estate. We've got a very big managed house development coming up this year, we've got eight to ten significant tenanted developments of £250,000 plus and longer term there's quite a bit of urban and infrastructural regeneration due to take place in Kent - we've particularly referenced Ebbsfleet in north Kent where the high speed link is - we've just secured a site there to build a 17-bedroom hotel. 

"A key part of our thinking is get the base of our pub business up, get the base quality up, move the centre of gravity up, make sure each pub is not only viable but crucially got growth opportunities if we extend the facilities, upgrade the facilities etc."

Discussing the focus Shepherd Neame is placing on its product range, Neame commented: "The way that we've grown our beer business over the last twenty or thirty years has been partnering up with a number of international brewers who develop licensed brands. 

"Part of the thinking there was that it strengthens your portfolio to have international brands. British brewers were very much seen as ale brewers and didn't have a great deal of credibility on lager, so it was useful to partner up with someone. That's changed. Now I think the British consumer is very sensitive and responsive to new products, full-flavoured British products. 

"We see a lot more opportunity in doing our own thing more rather than partnering with international partners. The Asahi contract has terminated, we're exiting one or two other smaller contracts and we're going to focus much more on driving out our own brands. I see opportunities for more expansion of our portfolio and for more innovation in the same pane."