Loss of brew contracts offset by managed growth at Shepherd Neame

By Stuart Stone

- Last updated on GMT

Outlook positive: Shepherd Neame sees its managed pubs as the principal area of investment and growth
Outlook positive: Shepherd Neame sees its managed pubs as the principal area of investment and growth
Shepherd Neame's latest interim results have revealed that while its managed pub division accounts for almost half of group revenue, the cancellation of contracts with Lidl and Asahi have seen its brewed beer volume shrink by almost a third.

In its interim results for the 26 weeks ended 29 December 2018, Britain's oldest brewer Shepherd Neame, the owner and operator of 322 pubs in Kent and the south-east, revealed that like-for-like sales in its managed pubs have increased by 4.1%. 

According to latest figures, Shepherd Neame’s managed division – comprising 68 pubs and a finalist in the 2019 Publican Awards​ Best Managed Pub Company (51+ sites) category – saw a 7.7% growth in turnover to £35.5m, while average EBITDAR (earnings before interest, taxation, depreciation, amortisation and restructuring/rent) per managed pub grew by 8.5%.

During the same period, turnover for Shepherd Neame’s tenanted division – made up of 244 sites – grew by 0.7% to £18.1m, with a 2.2% increase in like-for-like sales also recorded alongside a 4% increase in average EBITDAR per tenanted pub.

Brewing operation in transition

However, the cancellation of contracts with Lidl and Asahi contributed to Shepherd Neame’s total brewed beer volume shrinking by 36,000 barrels, or 30.8%, during the 26 weeks ended 29 December 2018.

Addressing the decline of its brewing operation, Shepherd Neame’s interim statement read: “We believe we are taking the right steps to strengthen the business for the long term. Given the high level of operational gearing in this division, movement in volume can improve profits quickly.”

According to Shepherd Neame’s latest results, the termination of contracts such its deal with Asahi and the private label contracts such as the Hatherwood range in Lidl – accounted for a decrease of 32,000 barrels or £9.2m in turnover between them. 

Moreover, the brewer’s underlying own beer and cider volume reduced by 1% in keeping with the more challenging market for cask and premium bottled ales, against a beer market growth of 3.7% driven by strong demand for world lager. 

Due to lower beer volumes, Shepherd Neame’s brewing and brands turnover declined by 31.4% to £22.2m.  

Pre-Brexit confidence

While latest figures revealed that underlying profit before tax increased by 1.4% to £5.9m, a one-off charge of £10.8m associated with the refinancing of the business and the cancellation of swap contracts, led to a statutory loss before tax of £4.1m over the 26-week period to 29 December 2018.

Discussing the results, Jonathan Neame, Shepherd Neame’s chief executive, commented: “The business derives its long-term strength and resilience from its three operating divisions. 

“The managed pub performance has been strong, offset by lower brewing and brands volumes. The tenanted pubs have continued their robust underlying performance. 

“Our managed pubs are the principal area of investment and of growth. The quality of this part of the business continues to rise with recent acquisitions and developments. The tenanted division is a well-balanced and high-quality business that continues to attract great operators for us to partner. Brewing and brands is still in a period of transition and we are pursuing a number of good opportunities for future growth. 

“Since the half year, trade has continued to be good, with same outlet like-for-like managed pub sales up 3.7% for the 35 weeks to 2 March 2019, like-for-like tenanted pub EBITDA up 2.6% and own brand beer and cider volumes up 0.4%.

“The new financing package gives us the platform to capitalise on the significant infrastructure and population growth that is planned in our Kent heartland over the next decade.

“In spite of the risks associated with imminent departure from the EU, we remain confident that our long-term strategy positions the company well for the future.”

As reported by The Morning Advertiser​, in October 2018 Shepherd Neame introduced a new financing structure​ with £107.5m of committed long-term facilities.

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