Shepherd Neame : Interim Report '22

Our chefs have introduced a delicious new selection of vegan dishes across our estate

HIGHLIGHTS

REVENUE

£85.3m

H1 2022: £78.7m

STATUTORY PROFIT BEFORE TAX¹

£5.5m

H1 2022: £5.4m

UNDERLYING PROFIT BEFORE TAX

£3.5m

H1 2022: £3.0m

BASIC EARNINGS PER SHARE

28.9p

H1 2022: 28.9p

UNDERLYING BASIC EARNINGS PER SHARE2

18.7p

H1 2022: 15.9p

NET ASSETS PER SHARE3

£12.12

H1 2022: £11.76

DIVIDEND PER SHARE

CONTENTS

Highlights 01

Interim Statement 02

Group Income Statement 08

Group Statement of

Comprehensive Income 08

Group Statement

of Financial Position 09

Group Statement of Changes

in Equity 10

Group Statement of Cash Flows 11

Notes to the Financial Statements 12

Financial Calendar and

Company Advisors 27

4.00p

H1 2022: 3.50p

• 1. Profit before any profit or loss on the disposal of properties, investment property fair value movements and operating charges which are either material or infrequent in nature and do not relate to the underlying performance (see note 2).

• 2. Underlying profit less attributable taxation divided by the weighted average number of ordinary shares in issue during the period (see note 7).

  The number of shares in issue excludes those held by the Company and not allocated to employees under the Share Incentive Plan which are treated as cancelled.

• 3. Net assets at the reporting date divided by the number of shares in issue being 14,857,500 50p shares.

All comparatives are for the 26 weeks to 25 December 2021.

An explanation of the Group's use of Alternative Performance Measures (APMs), including definitions, can be found on pages 114-115 of the Annual Report 2022.

INTERIM STATEMENT

THE COMPANY HAS MADE FURTHER GOOD PROGRESS IN THIS PERIOD, IN SPITE OF SIGNIFICANT ECONOMIC HEADWINDS.

02 SHEPHERD NEAME

OVERVIEW

The Company has made further good progress in this period, in spite of significant economic headwinds.

Our revenue is now at record level for the first half of the year. Net debt, excluding lease liabilities, is level year on year, even after investment in four new pubs, and the interim dividend is increased, albeit not yet returned to pre-pandemic levels.

This is our first half-year period since 2019 without any COVID-19 related restrictions. Consumer spending overall has remained strong. A long hot summer and a mild autumn helped our coastal sites and there has been a progressive return to offices within the City of London. Christmas trading was generally good, although we did not see quite as many large parties as we would have expected pre-pandemic, and the train strikes had a significant impact on what would have been the busiest week.

Profit levels are not yet back to pre-pandemic levels. Overall, our tenanted pubs have been strong, retail sales most encouraging, but with margins impacted by high costs, and brewing and brands remains challenging.

The inflationary surge in the wider economy has impacted our cost base in many areas, with huge increases in food, energy, glass, brewing raw materials, packaging waste and logistics. The root cause of these increases is the higher cost of energy and energy-intensive products. Inflation in the sector has generally been significantly higher than the headline rate of inflation.

In the brewery, we are fully fixed on gas and electricity prices through to September 2024; while in the retail pubs we are fully fixed through to March 2023, and fixed on two-thirds of our anticipated requirement through to September 2024.

The supply chain itself has become slightly more resilient and we have been able to source raw materials at all times. We have contracts in place in the brewery and retail pubs that protect us from further inflation from direct utility purchases, during the forthcoming year.

This period compares with the prior year during which we benefited from lower rates of VAT, set at 12.5% until March 2022. We value that benefit at £1.7m in the first half of last year. We also received business and furlough grants of £421k during that period. All Government support has now ceased except for the Energy Bills Relief Scheme and ongoing support for business rates, for some of our tenanted pubs.

We are optimistic that we are past peak inflation, and so we expect to see many, but not all, of our raw material and input costs start to stabilise in the second half. We will, however, see a further step-up in wage costs, as the National Minimum Wage increases by 9.7% in April. We pay ahead of the National Minimum Wage, but this increase will have a consequential impact across all employee grades.

Price increases have been necessary, and the impact of these will come through in the second half. We are mindful that our customers face similar cost pressures in their own businesses and consumers can only afford so much at a time when mortgages and energy costs are rising.

During the pandemic, we restrained investment and projects, but these have now resumed. We are re-commencing many projects that are essential for the future development of the Company.

We have invested £0.5m year to date in these projects and will carry out further projects in the second half. We have built up our People Team to support learning and development to develop our own talent, improve retention levels and focus on customer service. We have refocused our food team to support the introduction of a menu refresh across the business in the second half; we have re-designed our pub websites; we have strengthened our property and health and safety teams and restored our IT team to full complement.

FINANCIAL RESULTS

Revenue was £85.3m (H1 2022: £78.7m; H1 2020¹: £79.0m), an increase of +8.4% on the prior year.

Underlying operating profit was £6.3m (H1 2022: £5.9m; H1 2020¹: £8.5m), an

increase of +5.6%.

Statutory profit before tax was £5.5m (H1 2022: £5.4m; H1 2020¹: £5.3m), an

increase of +1.8%.

Underlying profit before tax was £3.5m (H1 2022: £3.0m; H1 2020¹: £6.0m), an

increase of +15.5%.

Basic earnings per share was 28.9p

(H1 2022: 28.9p; H1 2020¹: 27.9p).

Underlying basic earnings per share

was 18.7p (H1 2022: 15.9p; H1 2020¹: 32.4p).

Net assets per share were £12.12

(H1 2022: £11.76; H1 2020¹: £14.06).

DIVIDEND

This time last year the Board restored the dividend for the first time post-pandemic. We feel sufficiently confident to increase it again in spite of the economic headwinds.

The Board is declaring an interim dividend of 4.00p per share (H1 2022: 3.50p; H1 2020¹: nil), an increase of +14.3%.

The dividend will be paid on

17 April 2023 to those shareholders on the register as at 31 March 2023.

CAPITAL EXPENDITURE, NET DEBT AND CASH FLOW

Cashflow has remained robust. During the period, we have achieved underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of £11.4m (H1 2022: £11.3m; H1 2020¹: £14.4m), an increase of +0.5%.

Statutory net debt fell to £138.9m from £139.8m in the prior year. Net debt, excluding lease liabilities, was level at £82.8m (H1 2022: £82.4m; H1 2020¹: £85.4m).

The robust cash and net debt position have supported an increase in capital expenditure, as we restore more normalised levels of investment. In the first half, we invested £10.7m (H1 2022: £2.7m; H1 2020¹: £8.1m). The larger part of this investment was the acquisition of four retail pubs in July 2022, as previously announced, for £6.7m.

CONSUMER SPENDING OVERALL HAS REMAINED STRONG.

THE INFLATIONARY SURGE IN THE WIDER ECONOMY HAS IMPACTED OUR COST BASE IN MANY AREAS.

1.

H1 2020 is the first half of the financial period of the 52 weeks to the 27 June 2020. The first half equated to the 26 weeks ended 28 December 2019.