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Shepherd Neame Ltd (SHEP)

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Wednesday 01 March, 2017

Shepherd Neame Ltd

Interim Results

RNS Number : 1287Y
Shepherd Neame Limited
01 March 2017
 

 

1 March 2017

SHEPHERD NEAME LIMITED

ANNOUNCEMENT OF INTERIM RESULTS

 

Shepherd Neame, the Kent-based brewer and pub operator, today announces results for the 26 weeks ended 24 December 2016.

 

Highlights include:

 

·     Period of significant acquisition activity with investment in 13 new freehold pubs

·     Turnover for the period increased by 7.4% to £79.2m (2015: £73.7m)

·     Underlying operating profit1 grew by 6.5% to £7.6m (2015: £7.2m)

·     Strong trading performance in all areas of the business

-  Managed estate like-for-like sales up 5.3% (2015: +6.5%), food up 3.3% and accommodation up 9.6%

-  Tenanted like-for-like EBITDAR2 grew by 1.7% (2015: +2.7%) and average EBITDAR per pub was up 4.9% (2015: +7.2%)

-  Total own beer volumes excluding contract up 2.2%

·     Statutory profit before tax is £6.7m (2015: £8.7m), as profit on disposal of properties returned to more normal levels after the one-off sale of land in 2015

·     Underlying basic earnings per share3 up 12.4% to 30.0p (2015: 26.7p)

·     Interim dividend increased to 5.62p (2015: 5.45p) per share

·     Net assets per share4 increased to £12.69 (2015: £12.36)
 

 

Jonathan Neame, Chief Executive, commented:

 

"I am delighted to report a strong performance and a period of significant acquisition activity. Our pub business has been driven by good like-for-like sales growth. It is also encouraging to note solid growth in own brand beer volume. We retain a cautious outlook as we are likely to be entering a period of increased cost inflation. However, I am confident that we have the right strategy and skills to deliver value for our shareholders for the long term."

 

 

1 Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items.

2 Pub earnings before interest, tax, depreciation, amortisation and rent payable

3 Underlying profit less attributable taxation divided by the weighted average number of shares in issue during the period. The number of shares in issue excludes those held by the Company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled.

4 Net assets at the balance sheet date divided by the number of shares in issue being 14,857,500 50p shares.
 


FOR FURTHER INFORMATION PLEASE CONTACT:

 

Shepherd Neame Limited

Jonathan Neame, Chief Executive

Mark Rider, Finance and IT Director

 

Tel:  01795 532206

Tel:  01795 532206

Kreab

Christina Clark / Alexandre Akchatel

 

Tel:  020 7074 1800

REGIONAL & TRADE MEDIA CONTACT:

John Humphreys

 

Tel:  01795 542051

Note:  The Directors of Shepherd Neame Limited accept responsibility for this announcement.

 


NOTES FOR EDITORS

 

Shepherd Neame is Britain's oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,500 people.

 

The Company retails its own beers, on draught and in bottles, under a range of highly successful brand names, including:

 

-      Spitfire: One of the leading premium bottled ales in the UK with national distribution on draught (4.2% abv) and in bottle (4.5% abv). Spitfire Gold, a golden ale (4.1% abv), was launched to mark the 75th anniversary of the Battle of Britain and Spitfire Lager, the Lager of Britain (4.0% abv), was launched in 2016.

 

-      Whitstable Bay: This range, sold under the Faversham Steam Brewery brand, includes a Pale Ale on draught (3.9% abv) and in bottle (4% abv), an Organic Ale (4.5% abv), Blonde Lager (4.5% abv), Black Oyster Stout (4.2%) and Red IPA (4.5% abv).

 

-      Bishops Finger: Connoisseur premium ale (5.4% abv).  

 

-      Master Brew: The 'Original Kentish Ale' is a well-hopped cask and bottled ale (3.7% abv).

 

The Company also brews and distributes under license, including:

 

-      Samuel Adams Boston Lager: Leading US craft lager (4.8% abv) brewed under an exclusive license from the Boston Beer Company.

 

-      Angry Orchard, America's No. 1 Hard Cider (5%).

 

In the 26 weeks ended 24 December 2016 Shepherd Neame sold 136,000 brewers' barrels of beer (39.1 million pints) including 115,000 brewers' barrels of own brewed beer (33.1 million pints) in the last year. The majority of these sales were made in the UK although the Company also exports to more than 35 countries. 

 

At the half year end, the Company operated 335 pubs, of which 261 were tenanted or leased, 67 are managed and seven were held as investment properties under commercial free of tie leases. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs.   

 

Shepherd Neame's shares are traded on the NEX Exchange. See http://www.nexexchange.com/ for further information and the current share price. 

 

For further information on the Company, see www.shepherdneame.co.uk.

 


CHAIRMAN'S STATEMENT   

 

Interim Results

 

I am delighted to report a strong performance for the Company for the 26 weeks ended 24 December 2016. This has been a period of significant acquisition activity as we make our business stronger for the long term.

 

Our pub business has been driven by good like-for-like sales growth and boosted by acquisitions. We enjoyed particularly good sales in July, August and September, with an excellent performance from our coastal pubs. Trade has remained positive through the autumn and into Christmas against tough comparatives in the prior year. It is also encouraging to note solid growth in own brand beer volume.

 

Financial Performance

 

Turnover for the period increased by +7.4% to £79.2m (2015: £73.7m). Underlying operating profit grew by +6.5% to £7.6m (2015: £7.2m). Underlying profit before tax1 grew +11.6% to £5.7m (2015: £5.1m), as a result of the increase in operating profit and lower finance costs. Underlying EBITDA2 was up +7.4% at £11.6m (2015: £10.8m). Underlying basic earnings per share are up +12.4% to 30.0p (2015: 26.7p).

 

Statutory profit before tax is £6.7m (2015: £8.7m). This is down on the previous year as profit on disposal of properties returned to more normal levels after the one-off sale of 10 acres of land at Queen Court, outside Faversham, in the prior year.

 

Capital and Investment

 

This has been a period of record investment with total cash invested in capital expenditure of £31.6m

(2015: £6.3m). The majority of the capital, £25.1m, has been invested in three separate transactions during the period.

 

First, at the start of our financial year, we announced an acquisition of eight freehold pubs in Kent, Surrey and Sussex from Enterprise Inns plc. All these pubs continue to be operated by their existing licensees, except the Crown and Anchor, Shoreham by Sea which has transferred to the managed estate.

 

Simultaneously, we acquired Ultimate Entertainment Services (UES) Ltd and transferred the five pubs operated under tenancy by UES Ltd to management. We invested £13.4m in these two transactions.

 

Third, at the end of November 2016, we acquired Village Green Restaurants Ltd for £11.9m. Village Green Restaurants Ltd operates five freehold pub restaurants in and around Maidstone and Ashford in the Company's Kent heartland. All the pub restaurants are operated under the managed pub division. In the current financial year we expect this acquisition to have a neutral impact on earnings as we integrate the business.

 

In our existing business we have invested a further £6.5m (2015: £4.0m) in pub and brewery developments, and have realised £2.4m (2015: £8.8m) from disposals.

 

As a consequence of this acquisition and investment activity net debt has increased from £60.1m at June 2016 to £84.1m at December 2016. The leverage ratio of net debt to underlying EBITDA on a pro forma basis, taking into account a full year of trade for the core business and the acquisitions, is 3.5 times.

 

To support the acquisitions, the Company's revolving credit facility which expires in September 2020 has been increased by £25m to £45m. The existing £60m term loan that matures in 2026 remains unchanged. Excluding the overdraft facility, the Company now has total medium and long term committed credit facilities of £105m.

 


1 Profit before any profit or loss on the disposal of properties, investment property fair value movements and exceptional items.

2 Underlying profit before tax pre net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding profit and free trade loan discounts.


Dividend

 

The Board is proposing an interim dividend of 5.62p (2016: 5.45p), an increase of +3.1%. The dividend will be paid on 23 March 2017 to those shareholders on the register as at 10 March 2017.

 

Tenanted and Managed Pub Operations

Overview and Trading Performance

 

Our pub strategy is built around three strategic pillars:

 

• To drive footfall to our pubs

• To develop our offer to enhance the customer experience

• To attract, retain and develop the best people

 

At the half year end we operated 335 pubs (2015: 335) of which 261 (2015: 275) are tied tenanted or leased, 67 (2015: 54) are managed and seven (2015: six) are held as investment properties under commercial free of tie leases.

 

In the period we have acquired thirteen pubs (2015: two) of which five are to be managed, transferred eight from tenancy to managed (2015: nil), including the UES Ltd acquisition, and disposed of six (2015: five) tenanted pubs. We regularly review which outlets no longer fit our portfolio, and anticipate further disposals in the second half.

 

As previously announced we estimate the incremental annual cost impact from the National Living Wage and Apprenticeship Levy to be £1.1m by 2020, of which we have incurred £0.2m in the first half. Following the recent business rates review, which takes effect in April 2017, we estimate we will incur an additional £0.7m of cost increase by 2020, albeit with transitional relief.

 

Total divisional turnover in the managed estate grew by +17.7% to £29.6m (2015: £25.1m) and divisional underlying operating profit grew by +6.2% to £4.5m (2015: £4.3m). Operating margin in this area has been impacted by one-off integration costs in the new businesses acquired and transferred, together with the national living wage increases. Same outlet like-for-like sales grew by +5.3% (2015: +6.5%).

 

Total divisional turnover in the tenanted estate grew by +2.4% to £17.8m (2015: £17.3m) on 14 fewer outlets. Like-for-like EBITDAR3 per tenanted pub grew by +1.7% (2015: +2.7%). Average EBITDAR per tenanted pub grew by +4.9% (2015: +7.2%).

 

Driving footfall to our pubs

 

We have invested £4.2m (2015: £2.3m) in improving the look and feel of our pubs and £1.2m (2015: £1.2m) in repairs and decorations.

 

In the managed estate, major developments completed in this half included the Ostrich, Colnbrook - one of the oldest inns in Britain dating from 1106, situated close to Heathrow - to create 11 stylish bedrooms and upgrade the bar and restaurant facilities. We have also upgraded the Manor Farm Barn, Southfleet, situated close to Ebbsfleet International Station.

 

The Minnis Bay Bar and Restaurant is currently undergoing a transformational investment to expand the dining facilities and will re-open in March. We have also secured a second waterfront site in the ever popular Chatham Maritime, which we anticipate will commence trading in summer 2017.

 

In the tenanted estate we have carried out developments at the East Kent, Whitstable; the Plough, Farnham; the Gate Inn, Marshside and various smaller schemes.

 

During the period we have developed a new mobile-friendly company website with improved pub search and recruitment facilities and have commenced the roll out of the new corporate brand signage scheme.

 

3 Pub earnings before interest, tax, depreciation, amortisation and rent payable.

 

Developing our offer to enhance the customer experience

 

Food sales continue to be strong as we improve our offer, service levels and overall experience for the customer. The acquisitions of Village Green Restaurants Ltd and UES Ltd give a significant boost to overall food sales but also bring new skills and food presentation ideas that we can apply elsewhere in the business. Like-for-like food sales grew by +3.3% (2015: +7.4%).

 

The additional rooms at the Ostrich, Colnbrook brings the total to 294 (2015: 279) across the managed estate. In the second half we plan further upgrade of rooms at the Botany Bay Hotel and the Bell Hotel, Sandwich as part of our ongoing programme to maintain our stylish rooms to a high standard. Like-for-like accommodation sales grew by +9.6% (2015: +11.2%) with occupancy at 82.5% (2015: 80.5%) and RevPAR4 up +7.7% at £70 (2015: £65).

 

Attracting, retaining and developing the best people

 

As a consequence of the expansion of our pub business, we are in the process of recruiting to support the operations, food development and property teams. Licensee recruitment in the tenanted estate has remained good with high retention rates and low numbers of vacancies.

 

I am particularly pleased that the Company is a finalist in both the Best Tenanted/Leased Pub Company (201+ sites) and the Best Managed Pub Company (51+ sites) of the Publican Awards.

 

 

Brewing and Brands Operations

Overview and Trading Performance

 

The UK Beer market continues to be challenging with high levels of competition from national, micro and craft brewers. Nonetheless it is pleasing to note a good performance from beer brands with our own beer, excluding contract, growing at +2.2% (2015: +0.1%) against a market down -2.2% for the same period.5

 

Divisional turnover for the 26 weeks was +2.5% to £31.2m (2015: £30.4m) and divisional underlying operating profit was £0.8m (2015: £0.5m).

 

Creating demand and building awareness for our brands

 

Following the launch of a new brand identity in September 2016, we have earmarked an incremental £0.5m spend in the current financial year in our brand identity roll out, including pub signage, of which £0.2m was invested in the first half.

 

Recent product initiatives such as Spitfire Gold and Spitfire Lager, the Lager of Britain, have performed very well since launch. We have also introduced Whitstable Bay Red IPA in bottle and keg.

 

During the period we have installed two new mash tuns and upgraded the historic brewhouse buildings. This project will deliver greater consistency, improved efficiency and enhanced product quality in a better working environment.

 

As previously announced, our licence to brew and sell Asahi Super Dry was due to expire at the end of 2017. Following the acquisition of the Peroni, Grolsch and Meantime Brewing businesses by Asahi Group Holdings it has been agreed between the parties that this licence will terminate at the end of February 2018. We remain in discussion with Asahi UK over the exact timing and detail of the brand transition.

 

Since our withdrawal from large scale contract brewing in 2013, we have successfully shifted our resources to accelerate brand development and have achieved considerable success with the Whitstable Bay range and Spitfire Gold in particular. We have further exciting new products in development and have recently secured significant new distribution for our beers in the grocery channel to commence in the second half of the 2017 financial year. 

 

In anticipation of the Asahi contract terminating, we have been carrying out a strategic review. At this stage, we have various operational opportunities that we are pursuing, which will allow us to strengthen our own brand position in channels and markets where we have a competitive advantage. Our initial view is that we do not anticipate any change to market expectations for the Company and will update further at the year end.

 

4 Revenue Per Available Room

5 Source: British Beer and Pub Association

 

Summary

 

The Board is focussed on investing for the long-term benefit of shareholders and stakeholders in line with our aims to be a great British brewer and run the best pubs. This has been a successful period with exciting developments for the business as we continue to invest to enhance the customer experience.

 

Our performance has been strong but we retain a cautious outlook, mindful that political and economic uncertainty may impact consumer confidence and that we are likely to be entering a period of increased cost inflation, not least from the national living wage and business rates. However, I am confident that we have the right strategy and skills to continue to deliver value for the shareholders for the long term.

 

 

Miles Templeman

Chairman

 

 

PROFIT AND LOSS ACCOUNT

26 weeks ended 24 December 2016

 

 

 

Unaudited

26 weeks ended 24 December

2016

Unaudited

26 weeks ended 26 December

2015

 

Unaudited

52 weeks ended 25 June 2016

 

 

Underlying results

£'000

Items excluded from underlying results

£'000

Total statutory

£'000

Underlying results

£'000

Items excluded from underlying results

£'000

Total statutory

£'000

Total statutory

£'000

Turnover (note 4)

79,158

-

79,158

73,709

-

73,709

139,890

Operating charges

(71,534)

-

(71,534)

(66,551)

(80)

(66,631)

(126,150)

Operating profit

7,624

-

7,624

7,158

(80)

7,078

13,740

Net finance costs

(1,965)

-

(1,965)

(2,086)

-

(2,086)

(3,898)

Profit on disposal of property

-

733

733

-

3,595

3,595

4,235

Investment property fair value movements

-

273

273

-

93

93

282

Profit on ordinary activities before taxation

5,659

1,006

6,665

5,072

3,608

8,680

14,359

Taxation (note 5)

(1,231)

495

(736)

(1,126)

160

(966)

(1,940)

Profit after taxation

4,428

1,501

3,946

3,768

7,714

12,419

 

 

 

 

 

 

 

 

 

Earnings per 50p ordinary share

(note 6)

 

 

 

 

 

 

 

Basic

 

 

40.1p

 

 

52.2p

84.0p

Underlying basic

 

 

30.0p

 

 

26.7p

54.7p

Diluted

 

 

 

 

51.8p

83.4p

 

 

STATEMENT OF COMPREHENSIVE INCOME

26 weeks ended 24 December 2016

 

 

 

Unaudited

26 weeks ended 24 December

2016

£'000

Unaudited

26 weeks ended

26 December

2015

£'000

Unaudited

52 weeks ended

25 June

2016

£'000

Profit after taxation

5,929

7,714

12,419

Gains/(losses) arising on cash flow hedges during the period

1,837

(1,500)

(5,887)

Tax relating to components of other comprehensive income

(142)

748

1,521

Other comprehensive losses for the period

1,695

(752)

(4,366)

Total comprehensive income for the period

7,624

6,962

8,053


Balance Sheet 

As at 24 December 2016

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Unaudited

 

24 December 2016

 

26 December 2015

 

25 June

2016

 

 

£'000

£'000

£'000

Fixed assets

Intangible fixed assets

 

753

 

-

 

-

Tangible fixed assets

306,852

276,729

279,872

Investments and loans

272

478

333

 

307,877

277,207

280,205

Current assets

 

 

 

Stock

6,257

6,336

6,580

Debtors

19,734

19,163

18,114

Deferred tax asset due after one year

3,930

3,626

4,409

Cash

2,128

90

90

 

32,049

29,215

29,193

Creditors: amounts falling due within one year

 

 

 

Bank loans and overdrafts

-

(91)

(727)

Creditors

(27,798)

(27,082)

(26,703)

 

(27,798)

(27,173)

(27,430)

Net current assets

4,251

2,042

1,763

Total assets less current liabilities

312,128

279,249

281,968

Creditors: amounts falling due after more than one year

 

 

 

Bank loans

(86,217)

(61,403)

(59,439)

Derivative financial instruments

(21,833)

(19,283)

(23,670)

Deferred lease liability

(1,927)

(1,736)

(1,831)

Provision for liabilities

(13,664)

(13,217)

(13,151)

Net assets

188,487

183,610

183,877

 

 

 

 

Capital and reserves

 

 

 

Called up share capital

7,429

7,429

7,429

Share premium account

1,099

1,099

1,099

Revaluation reserve

73,709

73,001

73,253

Reserve for own shares held

(804)

(676)

(915)

Hedging reserve

(17,930)

(15,683)

(19,288)

Profit and loss account

124,984

118,440

122,299

Equity shareholders' funds

188,487

183,610

183,877

 

These financial statements have not been audited (see note 1).

 

 

STATEMENT OF CHANGES IN EQUITY

For the 26 weeks ended 24 December 2016

 

 

 

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Own shares held

£'000

Hedging reserve

£'000

Profit and loss account

£'000

Total

£'000

Balance at 27 June 2015

7,429

1,099

72,430

(827)

(14,226)

113,921

179,826

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

7,714

7,714

Losses arising on cash flow hedges during the period

-

-

-

-

(1,500)

-

(1,500)

Tax relating to components of other comprehensive income

-

-

705

-

43

-

748

Total comprehensive income

-

-

705

-

(1,457)

7,714

(6,962)

Ordinary dividends paid

-

-

-

-

-

(3,178)

(3,178)

Transfer of realised revaluation

-

-

(134)

-

-

134

-

Accrued share based payments

-

-

-

-

-

264

264

Purchase of own shares

-

-

-

(288)

-

-

(288)

Distribution of own shares

-

-

-

301

-

(277)

24

Unconditionally vested share awards

-

-

-

138

-

(138)

-

Balance at 26 December 2015

7,429

1,099

73,001

(676)

(15,683)

118,440

183,610

 

 

 

 

 

 

 

 

 

 

 

Share capital

£'000

Share premium

£'000

Revaluation reserve

£'000

Own shares held

£'000

Hedging reserve

£'000

Profit and loss account

£'000

Total

£'000

Balance at 25 June 2016

7,429

1,099

73,253

(915)

(19,288)

122,299

183,877

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

5,929

5,929

Gains arising on cash flow hedges during the period

-

-

-

-

1,837

-

1,837

Tax relating to components of other comprehensive income

-

-

337

-

(479)

-

(142)

Total comprehensive income

-

-

337

-

1,358

5,929

7,624

Ordinary dividends paid

-

-

-

-

-

(3,274)

(3,274)

Transfer of realised revaluation

-

-

119

-

-

(119)

-

Accrued share based payments

-

-

-

-

-

301

301

Purchase of own shares

-

-

-

(44)

-

-

(44)

Distribution of own shares

-

-

-

47

-

(44)

3

Unconditionally vested share awards

-

-

-

108

-

(108)

-

Balance at 24 December 2016

7,429

1,099

73,709

(804)

(17,930)

124,984

188,487

                             

 

 

CASH FLOW STATEMENT

26 weeks ended 24 December 2016

 

 

 

Unaudited

 

 

Unaudited

 

 

Unaudited

 

26 weeks ended

26 weeks ended

52 weeks ended

 

24 December 2016

26 December 2015

 

25 June 2016

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Net cash flows from operating activities (note 9)

 

9,942

 

10,430

 

20,293

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds of sale of tangible fixed assets

2,358

 

8,847

 

11,893

 

Purchase of tangible fixed assets

(19,252)

 

(6,327)

 

(15,391)

 

Additional loans to customers

(49)

 

(33)

 

(21)

 

Customer loan redemptions

68

 

118

 

245

 

Acquisitions of subsidiaries (note 8)

(12,302)

 

-

 

-

 

Cash acquired on acquisition (note 8)

831

 

-

 

-

 

Net cash flows from investing activities

 

(28,346)

 

2,605

 

(3,274)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid

(3,274)

 

(3,178)

 

(3,977)

 

Interest paid

(1,954)

 

(2,074)

 

(3,904)

 

Repayment of long-term loan

-

 

(16,000)

 

(16,000)

 

New long-term loan

27,000

 

2,000

 

-

 

Issue costs of new long-term loan

(265)

 

(313)

 

(313)

 

Purchase of own shares

(341)

 

(288)

 

(287)

 

Share option proceeds

3

 

24

 

32

 

Net cash flows from financing activities

 

21,169

 

(19,829)

 

(24,449)

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

2,765

 

(6,794)

 

(7,430)

Cash and cash equivalents at beginning of the period

 

(637)

 

6,793

 

6,793

Cash and cash equivalents at end of the period

 

2,128

 

(1)

 

(637)

 

 

NOTES TO THE ACCOUNTS

26 weeks ended 24 December 2016

 

1.   Interim Statement

The financial information contained in this interim statement, which is unaudited, does not constitute statutory accounts as defined in s434 of the Companies Act 2006. Statutory accounts for the 52 weeks ended 25 June 2016, upon which the auditors issued an unqualified opinion, have been filed with the Registrar of Companies. The financial information comprises the results of Shepherd Neame Limited (the Company) and its subsidiaries (the Group).

 

 

2.   Accounting policies

The consolidated interim accounts have been prepared under FRS 104 and on the basis of the accounting policies set out in the statutory accounts for the 52 weeks ended 25 June 2016. Following the acquisitions of Village Green Restaurants Limited and Ultimate Entertainment Services Limited in the period additional accounting policies are also applicable as set out below.

 

Basis of consolidation

The Group financial statements consolidate the financial statements of the Company and Village Green Restaurants Limited. The remaining subsidiaries were dormant throughout the period. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed.

 

Business combinations are accounted for under the purchase method. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 

Intangible assets - goodwill

Goodwill arising on acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight-line basis over its useful economic life, which is 5 to 10 years. Provision is made for any impairment.

 

 

3.   Non-GAAP performance measures

Certain items recognised in reported profit or loss before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the underlying performance of the Group. The Directors believe that "underlying operating profit", "underlying profit before tax", "underlying basic earnings per share", "underlying earnings before interest, tax, depreciation, and amortisation" presented provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. Underlying profit is not defined by FRS 102 and therefore may not be directly comparable with the "adjusted" profit measures of other companies. The adjusted items are:

-     profit or loss on disposal of properties

-     investment property fair value movements

-     exceptional items - these are items which are either material or infrequent in nature and do not relate to the underlying performance

 

 

 

 

 

26 weeks ended

24 Dec 16

unaudited

26 weeks

ended

26 Dec 15

unaudited

52 weeks ended

25 Jun 16

unaudited

 

 

 

 

£'000

£'000

£'000

Underlying EBITDA

 

 

11,566

10,772

21,678

Depreciation and amortisation

 

 

(3,861)

(3,506)

(7,115)

Free trade loan discounts

 

 

(41)

(55)

(113)

Loss on sale of assets (excluding property)

 

 

(40)

(53)

(215)

Underlying operating profit

 

 

7,624

7,158

14,235

Net finance costs

 

 

(1,965)

(2,086)

(3,898)

Underlying profit before taxation

 

 

5,659

5,072

10,337

 

 

 

 

 

 

Profit on disposal of properties

 

 

733

3,595

4,235

Investment property fair value movements

 

 

273

93

282

Exceptional items

 

 

-

(80)

(495)

Profit on ordinary activities before taxation

 

 

6,665

8,680

14,359

 

There were no operating exceptional items for the 26 week period ended 24 December 2016.

 

Exceptional items of £80,000 for the 26 week period ended 26 December 2015 included legal and professional fees of £38,000 for the Consumer Credit Authorisation application, required by the Financial Conduct Authority, and £42,000 for professional fees related to the transition for reporting under FRS 102. The charge of £495,000 for the 52 weeks ended 25 June 2016 related to a tangible fixed asset impairment charge of £307,000, legal and professional fees of £71,000 for the Consumer Credit Authorisation application and £117,000 for professional fees related to the transition for reporting under FRS 102.

 

 

4.   Segmental reporting

The Group has three operating segments, which are largely organised and managed separately according to the nature of the products and services provided and the profile of the customers:

·     Brewing and Brands which comprises the brewing, marketing and sales of beer, wines and spirits;

·     Managed Pubs and Hotels which comprises managed pubs and managed hotels and;

·     Tenanted and Leased Pubs which comprises pubs operated by third parties under tenancy or lease agreements.

 

Transfer prices between operating segments are set on an arm's length basis.

 

 

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

26 weeks ended 24 December 2016

£'000

£'000

£'000

£'000

£'000

Turnover

31,206

29,601

17,755

596

79,158

Underlying and divisional operating profit

772

4,536

6,641

(4,325)

7,624

 

 

 

 

 

 

Net finance costs

 

 

 

 

(1,965)

Profit on disposal of property

 

 

 

 

733

Investment property fair value movements

 

 

 

 

273

Profit on ordinary activities before taxation

 

 

 

 

6,665

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

823

17,750

12,870

750

32,193

Depreciation and amortisation

1,055

1,276

1,066

464

3,861

Underlying divisional EBITDA

1,900

5,731

7,796

(3,861)

11,566

Number of pubs at end of period

-

67

261

7

335

 

 

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

26 weeks ended 26 December 2015

£'000

£'000

£'000

£'000

£'000

Turnover

30,448

25,142

17,334

785

73,709

Underlying operating profit

524

4,271

6,493

(4,130)

7,158

Exceptional items

-

-

-

(80)

(80)

Divisional operating profit

524

4,271

6,493

(4,210)

7,078

 

 

 

 

 

 

Net finance costs

 

 

 

 

(2,086)

Profit on disposal of property

 

 

 

 

3,595

Investment property fair value movements

 

 

 

 

93

Profit on ordinary activities before taxation

 

 

 

 

8,680

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

948

2,970

2,070

210

6,198

Depreciation and amortisation

1,113

1,035

1,004

354

3,506

Underlying divisional EBITDA

1,741

5,312

7,495

(3,776)

10,772

Number of pubs at end of period

-

54

275

6

335

 

 

4.   Segmental reporting continued

 

 

Brewing and Brands

Managed Pubs and Hotels

Tenanted and Leased Pubs

Unallocated

Total

52 weeks ended 25 June 2016

£'000

£'000

£'000

£'000

£'000

Turnover

57,267

48,062

33,509

1,052

139,890

 

 

 

 

 

 

Underlying operating profit

1,479

7,581

12,598

(7,423)

14,235

Exceptional items

-

-

(307)

(188)

(495)

Segment operating profit

1,479

7,581

12,291

(7,611)

13,740

 

 

 

 

 

 

Net finance costs

 

 

 

 

(3,898)

Profit on disposal of property

 

 

 

 

4,235

Investment property fair value movements

 

 

 

 

282

Profit on ordinary activities before taxation

 

 

 

 

14,359

 

 

 

 

 

 

Other segment information

 

 

 

 

 

Capital expenditure - tangible fixed assets

2,374

6,055

6,774

436

15,639

Depreciation and amortisation

2,172

2,016

2,028

899

7,115

Underlying divisional EBITDA

3,880

9,677

14,642

(6,521)

21,678

Number of pubs at end of period

-

54

267

7

328

 

 

5.   Taxation

 

 

 

 

26 weeks ended

24 Dec 16

26 weeks

ended

26 Dec 15

(as restated)

52 weeks ended

25 Jun 16

(as restated)

 

 

 

£'000

£'000

£'000

Corporation tax

 

 

1,344

1,501

2,598

Deferred tax

 

 

(608)

(535)

(658)

 

 

 

736

966

1,940

 

Taxation has been provided at 21.75% (2015: 22.20%) based on the estimated effective tax rate for the 52 weeks to 24 June 2017.The average statutory rate of corporation tax for the 52 weeks to 24 June 2017 is 19.75% (52 weeks to 25 June 2016: 20.00%).

 

Taxation on items excluded from underlying results for the 26 weeks ended 24 December 2016 includes a deferred tax credit of £335,000 (2015: £683,000). This arises from restatement of deferred tax assets and liabilities in respect of accelerated capital allowances and rolled over gains based on the future tax rate of 17.00% from April 2020 (previously 18.00%), which has been substantively enacted in the period and is expected to apply when the timing differences reverse.

 

Similarly, tax relating to components of other comprehensive income for the 26 weeks ended 24 December 2016 includes a deferred tax credit of £221,000 (2015: £447,000) due to restating the deferred tax balances in respect of the revalued freehold licensed properties and derivative financial instruments.

 

 

6.   Earnings per share

 

 

 

 

26 weeks ended

24 Dec 16

26 weeks

ended

26 Dec 15

(as restated)

52 weeks ended

25 Jun 16

(as restated)

 

 

 

£'000

£'000

£'000

Profit attributable to equity shareholders

 

 

5,929

7,714

12,419

 

Items excluded from underlying results

 

 

 

(1,501)

 

(3,768)

 

(4,336)

Underlying earnings attributable to equity shareholders

 

 

4,428

3,946

8,083

 

 

 

 

Number

 

Number

 

Number

 Weighted average number of shares in issue

Dilutive outstanding options

 

 

14,774

116

14,770

113

14,779

113

Diluted weighted average share capital

 

 

14,890

14,883

14,892

 

Earnings per 50p ordinary share

 

 

 

 

 

 

Basic

 

 

40.1p

52.2p

84.0p

Underlying basic

Diluted basic

 

 

30.0p

39.8p

26.7p

51.8p

54.7p

83.4p

 

The earnings per share calculation is based on earnings from continuing operations and on the weighted average ordinary share capital which excludes shares held by trusts in respect of employee incentive plans and options.

 

 

7.   Dividends

 

 

 

 

26 weeks ended

24 Dec 16

26 weeks

ended

26 Dec 15

52 weeks ended

25 Jun 16

 

 

 

£'000

£'000

£'000

50p ordinary shares:

 

 

 

 

 

Final dividend for 2016: 22.05p (2014: 21.40p)

 

 

3,274

3,178

3,168

Interim dividend for 2016: 5.45p

 

 

-

-

809

Dividends paid

 

 

3,274

3,178

3,977

 

 

8.   Acquisitions

a)   Ultimate Entertainment Services Limited

On 4 July 2016, the Company acquired 100% of the issued share capital of Ultimate Entertainment Services Limited, a company which operated pub restaurants in and around Faversham and Canterbury, Kent, for cash consideration of £0.6m.

 

The fair value of assets acquired at that date was £0.2m, which was less than the fair value of the consideration by £0.4m, which has been treated as goodwill. This goodwill will be amortised over its useful economic life of five years.

 

The acquisition has been accounted for under the purchase method. The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the Group:

 

 

 

 

 

Book value

Revaluation

Provisional fair value to the Group

 

 

 

£'000

£'000

£'000

Fixed assets

 

 

 

 

 

Tangible fixed assets

 

 

142

22

164

Current assets

 

 

 

 

 

Stocks

 

 

64

-

64

Cash

 

 

14

-

14

Total assets

 

 

220

22

242

Creditors: amounts falling due within one year

Provisions for liabilities - deferred tax

 

 

(64)

-

-

(4)

(64)

(4)

Total liabilities

 

 

(64)

(4)

(68)

Net assets

 

 

156

18

174

Goodwill arising on acquisition

 

 

 

 

378

 

 

 

 

 

552

Satisfied by:

 

 

 

 

 

Cash

Contingent consideration

 

 

 

 

452

100

 

 

 

 

 

552

 

The business of Ultimate Entertainment Services Limited was hived up to Shepherd Neame Limited at the date of acquisition, and results since this date have been recognised in this company.

 

b)   Village Green Restaurants Limited

On 29 November 2016, the Company acquired 100% of the issued share capital of Village Green Restaurants Limited, a company which owns and operates freehold pub restaurants in and around Maidstone and Ashford, Kent, for cash consideration of £11.9m.

 

The fair value of assets acquired at that date was £11.5m, which was less than the fair value of the consideration by £0.4m, which has been treated as goodwill. This goodwill will be amortised over its useful economic life of 10 years.

 

The acquisition has been accounted for under the purchase method. The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the Group:

 

 

 

 

 

Book value

Revaluation

Accounting policy alignment

Provisional fair value to the Group

 

 

 

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

 

 

Tangible fixed assets

 

 

3,962

9,338

-

13,300

Current assets

 

 

 

 

 

 

Stocks

Debtors

 

 

70

43

-

-

-

-

70

43

Cash

 

 

817

-

-

817

Total assets

 

 

4,892

9,338

-

14,230

Creditors: amounts falling due within one year

Provisions for liabilities - deferred tax

 

 

(1,223)

(129)

-

(1,412)

(30)

-

(1,253)

(1,541)

Total liabilities

 

 

(1,352)

(1,412)

(30)

(2,794)

Net assets

 

 

3,540

7,926

(30)

11,436

Goodwill arising on acquisition

 

 

 

 

 

414

 

 

 

 

 

 

11,850

 

Satisfied by:

 

 

 

 

 

 

Cash

 

 

 

 

 

11,850

 

 

 

 

 

 

11,850

 

In the 26 weeks ended 24 December 2016, turnover of £614,000 and profit of £79,000 was included in the consolidated profit and loss account in respect of Village Green Restaurants Limited since the acquisition date.

 

 

 

9.   Notes to the cash flow statement

 

(a)        Reconciliation of operating profit to net cash flows from operating activities

 

 

 

 

 

26 weeks ended

24 Dec 16

26 weeks

ended

26 Dec 15

52 weeks ended

25 Jun 16

 

 

 

£'000

£'000

£'000

Operating profit

 

 

7,624

7,078

13,740

Adjustment for:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortisation

 

 

3,861

3,506

7,115

Impairment provision

 

 

-

-

307

Charge for share-based payments credited to reserves

 

 

301

264

528

Decrease/(increase) in stocks

 

 

393

665

421

(Increase)/decrease in debtors and prepayments

 

 

(1,616)

(3,034)

(1,978)

Increase in creditors and accruals

 

 

666

2,944

2,131

Free trade loan discounts

 

 

41

55

113

Loss on sale of assets (excluding property)

 

 

40

53

215

Interest received

 

 

4

8

14

Income tax paid

 

 

(1,372)

(1,109)

(2,313)

Net cash flows from operating activities

 

 

9,942

10,430

20,293

 

 

(b)       Analysis of net debt

 

 

 

June 2016

£'000

Cash flow

£'000

New long term loan

£'000

Issue costs of new loan

£'000

Amortisation of issue costs

£'000

December 2016

£'000

Cash

90

2,038

-

-

-

2,128

Bank overdraft

(727)

727

-

-

-

-

Cash and cash equivalents

(637)

2,765

-

-

-

2,128

Debt due after more than one year

(59,439)

-

(27,000)

265

(43)

(86,217)

Total

(60,076)

2,765

(27,000)

265

(43)

(84,089)

 

 

10 Capital expenditure and commitments

In the 26 weeks ended 24 December 2016, there were additions to tangible fixed assets on an accruals basis of £32,193,000 (2015: £6,198,000). In the financial period, there were disposals of tangible fixed assets with a net book value of £1,665,000 (2015: £5,305,000). As at 24 December 2016, capital commitments contracted, but not provided for by the Group, amounted to £1,094,000 (2015: £975,000).

 

 

11 Related party transactions

During the 26 weeks ended 24 December 2016, the Group purchased goods to the value of £8,000 (2015: £17,000) including VAT and made sales of £74,000 (2015: £71,000) to St Austell Brewery Company Limited, a company of which Jonathan Neame is a non-executive Director. At 24 December 2016, the Group was owed £11,000 (2015: £14,000), including VAT, by St Austell Brewery Company Limited. At 24 December 2016, the balance owed by the Group to St Austell Brewery Company Limited was nil (2015: nil).

 

During the 26 weeks ended 24 December 2016, the Group paid fees and sponsorship of £2,000 (2015: nil) including VAT, to Visit Kent Limited, a company of which Jonathan Neame is Chairman. There was a balance of nil owed to Visit Kent Limited as at 24 December 2016 (2015: nil).

 

Ms C Neame, a close member of Jonathan Neame's family, is a director of Charlotte Neame Interior Design Limited which provided goods and design services in respect of the refurbishment of certain Group properties during the period at a cost of nil (2015: £11,000). There was a balance of nil owed to this company as at 24 December 2016 (2015: £11,000).

 

Mr A J A Barnes, a close member of George Barnes' family, is a partner of Clarke Barnes Solicitors LLP, which provided legal services in respect of Group properties during the period at a cost of £11,000 including VAT (2015: £20,000). There was a balance of nil owed to the partnership as at 24 December 2016 (2015: £2,000).

 

Nigel Bunting, executive Director of Shepherd Neame Limited, is also a director of Davy and Company Limited. During the period, the Group purchased goods to the value of £3,000 (2015: nil) and made sales to the value of £121,000 (2015: £102,000) to Davy and Company Limited and its associated companies. At 24 December 2016, the balance owed by Shepherd Neame Limited to the Davy Group of companies was nil (2015: nil) and the balance owed to the Group by the Davy Group of companies, including VAT, was £23,000 (2015: £25,000).

 

All the transactions referred to above were made in the ordinary course of business and outstanding balances were not overdue


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