Shepherd Neame hits out at 'highly damaging' beer duty rises

04-Oct-2011 - Last updated on 11-Mar-2017 at 23:26 GMT

Neame: three key challenges facing the company

Shepherd Neame has hit out at the “misguided” and “highly damaging” increases in beer duty that are reducing the potential for investment in the pub and beer industry.

The Kent-based brewer and pub operator revealed that its duty bill has risen from £19.5m in 2007 to a massive £28.5m last year, accounting for 23.5% of its total turnover.

“This difficult economic environment is not helped by the Government continuing to put up excise duty by 2% above inflation every year,” said chief executive Jonathan Neame.

“This is a highly damaging tax that reduces the potential for investment and growth and is a misguided policy.”

The warning came as Shepherd Neame reported a 9.7% jump in pre-tax profits for the year to 25 June 2011. Neame hailed it as “another good year” of the company but warned of three key challenges ahead.

“Raw material inflation has returned in the second half of the financial year and we face substantial increases in cereal and glass prices in the coming year,” he said.

“The national market for cask beer is under intense competitive pressure as many large customers are trading down and as the number of micro brewers continues to grow as a result of the advantages they enjoy from Progressive Beer Duty.

“Small wet-led tenanted pubs in low income areas are experiencing a decline in sales. This is now a small part of our business and our strategy is to invest to improve the offer or to sell the pub.”

Strong trading

Sheps revealed pre-tax profit for the year was up from £7.3m to £8m on last year with turnover up 5.2% to £121.3m. Operating profit before exceptionals was up 3.3% to £12.3m and a revaluation of the pub estate showed a £68m surplus above book value.

The 44-strong managed division led the way with like-for-like sales up 7.4%, incoporating an 11.1% rise in food sales. One million meals were served over the year with average spend per head up 6.7% to £9.12. Drink sales also saw a like-for-like rise of 5.6% on last year.

Accommodation provided a further area of growth with revenue up 9.7% and a revenue per available room (revpar) up 9.3% to £37.73.

Tenanted pubs

At its 315-strong tenanted and leased division, Shepherd Neame reported an “improving” trend, with like-for-like earnings before interest, tax, depreciation, amoritisation and rent (EBITDAR) down 3%, compared to a 3.8% decline last year.

Average EBITDAR per tenanted pub was up 0.8%, compared to a 8.5% rise in the managed estate.
Tenanted trade revenue fell 1.5% as the company disposed of eight pubs. It bought two pubs — the Cock in Boughton Monchelsea and the Parrot in Canterbury.

Meanwhile, total beer volumes were up 4%, with own beer volumes up 2.6% to 239,000 brewers’ barrels. Shepherd Neame said the heavy snow and ice in December, and the comparatives with the 2010 World Cup, hit sales, mitigated by the warm weather and the Royal Wedding in April.

The main driver of volume growth was Asahi Super Dry, up 16.8%. Volumes of Spitfire were up 2.3% and Bishops Finger by 3.9%. Wine volumes increased 1.8%.

Overall CAPEX in the year was £9.8m — up from £8m last year. Year-end debt was reduced from £66.6m to £64.9m.

The company also announced today that finance and IT director Ken Littlefair is to retire in March 2012.

In the 17 weeks to 17 September, like-for-like managed sales were up 6.5%, with beer volumes up 6.9%, with the acquisition of two hotels for £7.6m, adding 66 letting rooms. There are also “improving trends” in the tenanted estate, although there’s “margin pressure” in the beer business.