Shepherd Neame profits slide

Kent brewer Shepherd Neame has blamed a slump in operating profits on rising input costs and warned it sees little hope of an improvement in market conditions for some time.

Reporting its results for the year to June 28, 2008, the brewer said margins had been squeezed by significant increases in input costs, "such as malt, glass, utilities and food", although the group's performance "has nonetheless been resilient and compares well against a record result in 2007".

Overall turnover rose 1.7 per cent to £101.7m, while pre-exceptional operating profits fell 9.3 per cent to £12.6m.

Pre-tax profits fell nearly 10 per cent to £9.1m. Earnings per share fell by more than a quarter to 49.3p. The group said it would pay a final dividend of 17.9p, up 4.1 per cent, making a full year dividend of 22.5p, up 4.7 per cent.

Shepherd Neame's 320-odd tenanted pubs saw turnover down 1.7 per cent in the year, with like-for-like contributions down 2.2 per cent. Rental income, however, rose 7.4 per cent during the period.

The group warned that while the number of applications to run its pubs was being boosted by the smoking ban and was in line with last year, current economic circumstances were making it tough for prospective tenants to join the business.

"We believe that our tenanted model offers a very fair deal for our licensees and is more resilient to downturn than lease alternatives," the group said.

"However, in the short term we are cautious that the general economic situation may make it harder for applicants to raise sufficient funds to take on pubs."

Its managed estate, comprising nearly 50 sites, saw like-for-like sales down 1.7 per cent, versus a 4.3 per cent rise in the previous year.

The brewer said food sales continued to grow, up 4.3 per cent, although like-for-like food sales dipped slightly, down 0.6 per cent.

Beer sales volumes fell 2.7 per cent over the year, although the brewer pointed to what it called an "outstanding" performance of Asahi Dry, the Japanese lager it produces under licence, up 11.2 per cent.

Reflecting the growth of its off-trade business, the group said its take home team had grown revenue by nearly 15 per cent.

On current trading, Shepherd Neame said that "after a difficult winter we experienced a recovery in May and June, with like-for-like sales up 2.3 per cent.

"This continued in the first nine weeks of the new financial year with like-for-like sales growth of 1.2 per cent, which is very encouraging in the light of another wet summer."

Although positive about the group's longer term prospects, chief executive Jonathan Neame said this had been "as difficult a year as anyone in the industry can remember.

"We have had to contend with significant cost inflation at a time of weakening demand. These conditions are likely to persist into 2009.

"We remain naturally cautious about the coming year as the precise impact of cost pressures and consumer spending remains uncertain."