Shepherd Neame Ltd – Interim Results

Financial performance:

·      Underlying profit before tax¹ rose by +1.4% to £5.9m (2017: £5.8m). We have incurred a one-off exceptional charge of £10.8m associated with the refinancing of the business and the cancellation of the previous swap contracts.  As a consequence, statutory loss before tax is £4.1m (2017: profit £5.5m).

·      Underlying basic earnings per share² are up +1.3% to 31.6p (2017: 31.2p)

·      Net assets per share increased by +1.1% since June 2018 to £13.68

·      Interim dividend per share is up +2.1% to 5.87p (2017: 5.75p)

Operational highlights:

·      Managed and tenanted pubs have continued to deliver a strong performance:

–     Managed pubs account for nearly half of Group revenue. Managed divisional turnover grew by +7.7% to £35.5m (2017: £32.9m). Managed pubs like-for-like (LFL) sales grew by +4.1% (2017: +2.1%). Average EBITDAR³ per managed pub grew by +8.5% (2017: -3.5%). Despite ongoing cost inflation, underlying managed pub margin increased by 80 basis points to 15.1% (2017: 14.3%)

–     Tenanted divisional turnover grew by +0.7% to £18.1m (2017: £18.0m). LFL EBITDAR grew by +2.2% (2017: +2.1%) and average EBITDAR per tenanted pub grew by +4.0% (2017: +5.7%)

·      Brewing and brands remains in transition following the termination of the Asahi contract and certain private label contracts including the Hatherwood range in Lidl:

–     Own brand beer and cider volume reduced by -1.0%

–     Total volume of brewed beer is down -30.8% or 36,000 barrels in the period of which 32,000 barrels related to the Asahi and Lidl contracts. Due to these lower volumes turnover declined -31.4% to £22.2m 

New financing structure:

·      In October 2018 the Company put in place a new financing structure with £107.5m of committed long-term facilities

·      The new financing structure provides certainty of funds, at a lower cost of debt and with an improved maturity profile, which allows the Company to continue to invest for the long term

[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 less attributable taxation divided by the weighted average number of shares in issue during the period. The number of shares in issue during the period excludes those held by the company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled.

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

Jonathan Neame, 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.”             

CHAIRMAN'S STATEMENT

I am pleased to report a solid performance for the Company for the 26 weeks ended 29 December 2018, which was achieved against a challenging consumer backdrop and continuing political and economic uncertainty.

We have completed two key objectives in the period to strengthen Shepherd Neame for the long term:

·      the Company has put in place a new financing structure that provides certainty of funds, at a lower cost of debt and with an improved maturity profile, which allows us to continue to invest for the long term.

·      we have secured an outstanding site for a new build pub hotel in North Kent where major economic development is anticipated, to support future growth in our managed pubs division.

Following a number of years of strategic focus, our managed pubs division now represents nearly half of the group revenue, is our principal engine of growth and our main area for investment. We are pleased to report that this division performed strongly in the first half, with particularly buoyant summer and festive periods.

Tenanted pubs have also continued their path of consistent performance and good like-for-like EBITDAR¹ growth driven by continuous investment.

Our brewing and brands business is, as previously reported, in transition and has faced a tough market for cask and premium bottled ales (PBA) especially in the latter part of 2018. Consequently, the financial performance is below prior year levels.

Brewing and brands remains core to the business and our strategy is to be a leading independent brewer with a great heritage supplying our wide network of national customers and outlets in London and the South East.

A key strength of the business is the balance between the different financial and market characteristics of each division and we see all three as integral to the future growth of the company.

Dividend

The Board is declaring an interim dividend of 5.87p (2017: 5.75p), an increase of +2.1%. The dividend will be paid on 28 March 2019 to those shareholders on the register at 15 March 2019.

Outlook and Current Trading

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 EBITDAR up 2.6%, and own brand beer and cider volumes up +0.4%.

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.

CONSOLIDATED PROFIT AND LOSS           ACCOUNT 26 weeks ended 29 December 2018