Kent brewer and operator Shepherd Neame has reported a 24.6% drop in operating profit as it faced "one of the most challenging and difficult years" in the company's history.
Profit before tax dropped 20.6% to £6.9m for the 52 weeks to 27 June while operating profit before exceptionals fell by almost a quarter to £9.5m, despite a 7.6% rise in turnover to £109.5m.
Sheps said operating profit had been hit by a substantial increase in raw materials, a 10% sales decline at its bottom-end tenanted pubs, outsourcing of bottling after it exceeded capacity and high overhead costs as it restructured its business.
It has identified 35 pubs for disposal, following the purchase of 13 pubs from Punch Taverns for £14.8m.
Tenanted pubs
Revenue from its 331 tenanted pubs was up 0.4% but earnings before interest, tax, depreciation and amortisation (EBITDA) per pub fell 3.3%, which drops to 2% when the 35 pubs marked for disposal are discarded.
Rental and wholesale income fell marginally on last year but AWP machine income took a further hit — down 12.9%. Bad debt grew by 0.3% as "banks withdrew or restricted their facilities to many licensees during the worst period of the credit crisis".
It spent an extra £0.5m in support of its tenants, mainly on promotional activity and external redecoration.
"In the coming year we will further enhance the support we provide to our tenants with the introduction of online advisory and marketing services, development of a new website to improve pub and accommodation marketing and further traffic building promotional activity," said chief executive Jonathan Neame.
Sheps is to freeze the price of its own brewed beers to its tenants until 2011 and will match any investment made on its pubs pound for pound up to £25,000 under a new scheme.
Managed houses
Managed pubs performed strongly with total revenue up 2.1% across its 49 sites. Like-for-like sales were up 1.6%, drink sales up 2.8% and food up 0.4%. But accommodation decreased on a like-for-like basis by 4.1%.
The last 13 weeks were the strongest with total like-for-like sales up 2.8%. "The London market has again proved remarkably resilient and our like-for-like sales for the year were up 2.7%," said Neame.
Beer
The company's own-brewed beer volumes grew by 6.3% to 264,000 barrels with Asahi Dry the star performer with a 38% increase. Sales of its flagship ale Spitfire remained flat.
"This has been a year of strong sales and significant achievement, but we have incurred high short term costs which have resulted in lower profit," said chairman Miles Templeman.
"However, we expect operating margin to improve in 2009/10. Our strategy is to build a strong integrated beer and pub business.
"Although the general short term economic outlook is uncertain we have made an encouraging start to the new year with strong beer volumes and like for like sales growth. We remain confident in the quality of our pub estate, the strength of our brands, our overall market position and our future prospects."