The Good Shepherd. Neame, that is

17-Oct-2010 - Last updated on 13-Dec-2011 at 10:28 GMT

While others have floundered in recent times, the Faversham-based group has chalked up record turnover for its most recent financial year, achieved...

While others have floundered in recent times, the Faversham-based group has chalked up record turnover for its most recent financial year, achieved what it says were record beer volumes, and seen an investment programme in its existing estate and logistics reap rewards.

Recent trading has been encouraging too, with beer volumes up a smidgen - which is better than being down a lot - and like-for-like retail sales up 3.5 per cent.

Small wonder chief executive Jonathan Neame is in a good mood. "This time last year we were going through a modernisation programme with work being done on our bottling line, investment in a new warehouse and distribution facility and a new IT platform. These are now beginning to pay dividends," he says.

The key to the group's prosperity, Neame believes, has been the success of its beer business. Total volumes rose nearly five per cent, and the new bottling line meant that beer normally packaged by third parties could be brought back in-house.

"Beer has performed extremely well," says Neame. "We're a lot more efficient now than we were before."

Growth in the beer operation was driven largely by a 10 per cent rise in off-trade sales and a six per cent growth in local freetrade sales. Spitfire, the brewer's iconic cask ale, saw a "modest" decline of 0.9 per cent while volumes of Asahi Super Dry, the Japanese lager it brews under licence, grew five per cent, helped by a push to get greater draught distribution throughout UK pubs and bars.

Quality, not quantity

On the pub side, Neame said the focus was now on "quality not quantity". The group's 320 tenanted and leased pubs saw total revenues up 1.8 per cent, with like-for-like earnings before interest, tax, depreciation and amortisation (EBITDA) per pub down 3.8 per cent. Within what it called its core estate, this figure read as down 2.8 per cent.

The 10 leased pubs it acquired from Punch Taverns last year had performed above expectations in their first year, Neame said.

As with a number of operators with a mixed retail offer, Sheps' managed pubs performed better than the tenanted estate, with total revenues up nearly three per cent. Neame said the group was particularly pleased with food sales across its managed estate, up nearly four per cent.

Managed or tenanted, pubs remain a core element of the group's business mix, says Neame.

He adds: "We're focusing on driving the quality of our retail offer. This has to be addressed towards both consumers and licensees. Pubs are changing. Beer volumes in community pubs have fallen since the smoking ban and thanks to things like the duty rise this trend will continue."

But pubs are in a good place, despite the much-publicised problems facing the sector, he argues. "Whether tenanted or managed, pubs are better places for eating out," he says. "Cask ale and wine are doing well, and the medium-term future for pubs looks very bright. Post-recession, pubs have a very substantial role to play in the leisure sector."

Strongly placed

Sheps is "strongly placed", Neame argues, thanks to its exposure in the South East, and a large number of food operations, with the group now looking to invest in accommodation in many of its sites. But after spending more than £26m in 2009 and £8m in its last financial year, Sheps is looking to settle down on the spending front, says Neame.

"We're looking at annual capital investment of £7m, which is the lowest it's been for a while. Investment last year was particularly high, thanks to the 15 pubs we acquired and the final installment of the bottling line," he explains. "But we're still very alive to pub acquisitions. We just have to be more selective. We don't have a specific figure to spend or number of pubs to buy. But we do have substantial headroom with our bank."

Neame is encouraged on a number of fronts beyond the purely financial. "Applications from people wanting to run our pubs are up by a third, and vacancies are down," he confirms. "It seems the demand for our sort of pub is increasing."

And with a new government in power, the Sheps boss is encouraged that attitudes towards pubs and beer might be changing for the better. Says Neame: "We've been hit with 13 years of beer duty increases and we'd like to get some of that back.

"I realise there are no short-term panaceas but the coalition at least appears to be more favourable towards pubs than the last government. It's just got to prove it."
Sheps - the numbers