Sheps: Most difficult year in memory

Increasing costs, the smoking ban and the credit crunch have combined to make it as "difficult a year as anyone in the industry can remember", according to Shepherd Neame boss Jonathan Neame.

The Kent brewer and pub operator reported a 13% drop in profit before tax on last year and a 9.3% drop in operating profit for the 52 weeks to 28 June. Ebitda was down 5.9% to £18.1m but turnover did grow 1.7% to £101.7m.

Revenues from its 375-strong tenanted estate fell by 1.7% with like-for-like contribution down 2.2% but rental income increased by 7.4%. Neame said that its tenanted model offered a more resilient alternative to the leased model but feared that the cost of finance in the credit crunch may lead to a downturn in applicants.

"Licensee recruitment has been encouraging with the number of applications in line with last year," he said.

"We have noticed applicants coming to take pubs specifically because smoking has been banned and this gives us considerable optimism for the future.

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

Like for like sales across its 47-strong managed division were down 1.7% on last year. Its London pubs performed strongly with like-for-like growth of 5.1%. Food sales grew by 4.3% but like-for-likes were down 0.6%. Food now accounts for 28.3% of sales in the managed estate. Accommodation sales grew by 4.7%.

"The smoking ban has adversely affected beer volumes in some pubs and benefited others," said Neame. "The main areas of downturn were in lager, spirits and machine income. Cask ale and wine have performed satisfactorily. The overall impact of the smoking ban has been confused by many other economic factors."

Brewery​

Raw material costs have increased by a staggering 45% since 2005/06 with further rises expected in 2009. "The brewery has experienced spiralling costs — as have other operators — in energy and core raw materials, such as malt and glass," said Neame. "In order to mitigate these cost increases we are reviewing all energy intensive plant and have installed state-of-the-art technology in the brewhouse."

Overall, barrelage was down 2.7% to 248,000 on last year with off-trade sales increasing by 14.6%. Top brands performer was Asahi Super Dry lager with growth of 11.2%. Spitfire draught was down 4.9% but bottle sales grew 15.7%.

Neame added: "This has 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."