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)
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).
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.