Shepherd Neame reported stronger underlying earnings despite lower annual revenue, as growth across its pub estate offset falling brewing volumes and further pressure from logistics costs.
Revenue for the 52 weeks to 27 June fell by 1.1% to £162.6m. Underlying EBITDA increased by 0.8% to £25.6m, while underlying profit before tax rose 1.8% to £7.8m.
Statutory profit before tax moved in the opposite direction, falling 43% from £6.3m to £3.6m after impairment charges were taken against 15 properties.
The contrast reflects the difference between underlying trading and the accounting impact of asset valuations. Shepherd Neame’s pub operation continued to perform strongly, particularly in London and across its tenanted estate, while Brewing and Brands remained under pressure.
Retail like-for-like sales increased by 3.8% over the year and tenanted pub income rose by 2.7%. London retail pubs produced particularly strong trading, benefiting from the capital’s mix of office workers, tourism and leisure demand.
Brewing and Brands experienced lower volumes and higher logistics costs. The company has begun a strategic review of that operation as it considers how to manage a market in which traditional beer volumes, distribution economics and consumer preferences are changing.
The pressures extend across the brewing sector. UK producers have faced higher energy, packaging, labour and transport costs while consumption patterns shift between pubs, supermarkets and different drink categories.
Distribution presents a particular challenge for regional brewers. Beer is relatively heavy and costly to transport, making logistics efficiency significant to margins. A business operating pubs alongside brewing assets must also determine how much production capacity to maintain internally against the economics of third-party brands and external distribution.
Shepherd Neame’s vertically integrated model provides advantages because it owns outlets through which its products can be sold. It also exposes the company to two different operating environments: hospitality economics across the pub estate and manufacturing and logistics economics within brewing.
The latest results show those businesses moving in different directions. Consumer demand across the pubs remained resilient enough to support underlying earnings, while brewing volumes and supply-chain costs weakened performance on the production side.
The group reduced net debt excluding lease liabilities during the year and invested £14.6m in capital expenditure. Its proposed full-year dividend increased by 3% to 22.15p per share.
Balance-sheet resilience remains important across hospitality because properties require continued investment while operating costs rise. Pub businesses are simultaneously managing wage pressure, business rates, utility costs and changes in household disposable income.
Shepherd Neame owns and operates pubs across Kent, London and the South East, giving it exposure to several different trading environments. Destination and coastal venues can be sensitive to weather, while London locations are more dependent on tourism, commuting and office attendance.
The strength of the capital’s pubs has provided a useful counterweight to weaker brewing performance. Hybrid working has altered some weekday trading patterns permanently, but central London continues to draw substantial leisure and visitor demand.
The strategic review will determine how Shepherd Neame responds to the economics of the Brewing and Brands business. If weaker volumes prove structural rather than temporary, product mix, capacity and distribution will all form part of the longer-term response.
The group enters its new financial year with resilient pub trading and modest underlying earnings growth. Improving returns from brewing and logistics now represents the more substantial operational challenge within an otherwise stronger retail estate.
You must be logged in to post a comment.