Shepherd Neame [AQSE:SHEP], was feeling optimistic the last time we visited the Aquis-listed, Kent-based brewery. Strong pre-Christmas trading saw like-for-like retail sales up 7.4% year-on-year with, said the company, “many record-breaking days in individual pubs, with particularly strong trading in the final few days up to Christmas day itself.” Things were looking good going into 2025.
Britain’s oldest brewer published its half-year results to end-December last week, and investors will raise a glass to the company’s performance with strong profit growth building on momentum seen in the previous year.
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However, despite a good year, clouds are forming on the horizon following the Autumn Statement from the new government in November, which saw the brewer’s potential outgoings increase substantially with the proposed rise in national living wage and national insurance.
As reported, Shepherd Neame does not only brew and distribute beer, it sells it over the counter, managing around 300 pubs and hotels across the South-East of England, and the spike in staff costs caused by the rises in NI and living wages, will hit the brewer hard, just when it had recovered from its hangover from long-Covid, which affected the hospitality sector across the board.
New and unwelcome cost increases
Jonathan Neame, CEO, a scion of the Neame family said: “As a result of the Budget, we now face new, and unwelcome, cost increases in national living wage and national insurance, and will adapt accordingly. We plan to mitigate the majority of these costs over the next 18-months through a mix of price increases and cost efficiencies.”
Looking back, not forwards, reported revenue was £85m, £4m less than the first half of the year, which management said was a result of a decrease in the sales of bottled beers, despite pub sales increasing during the period. Although revenue fell, Shepherd Neame saw its statutory profit swell from £1.1m in 1H24 to £4.3m in 2H24, with underlying profit before tax up 9.9% to £4.2m period-to-period.
The company is committed to invest through the storm, converting positive cashflow of £13m, up 8.6%, to investment into the business, increasing capital expenditure from £7.4m in 1H24 to £8.8m in the last reporting period. A significant £3.9m of that was deployed on securing freeholds.
EPS responded well, increasing to 20.1p in 2H24, up from the previous six-months’ EPS of 18.3p. Subsequently the company dialled-up dividends sightly to 4.35p/share, up from 4.2p/share in 1H24. The company also used its spare cash to buy back £500,000 of its own shares, which it hopes will enhance EPS and net assets per share. The buyback programme began 23rd January
London-centric growth
London, or at least that bit of it within the M25 motorway ring, led the way, with retail like-for-like sales up 9%. Outside the M25, like-for-like sales rose 2.3%, an improvement on LFL sales outside the M25 in 1H24 of +1.8%.
The brewing sector has across the board recovered from the effect of the Covid lockdowns. AIM-listed, Wandsworth-based brewer, Young’s LON:YNGA saw its revenue increase 6.2% to £178.9m over the half-year to end-October when compared to the previous six-months and profit grew 5.1% to £27.2m. North of the River Thames, in Chiswick, Fuller’s LON:FSTA saw a similar half-year rise in revenues in the six months to end-September, up 4.3% to £178.5m with a 8% rise in PBT to £12.7m.
Although operating on different scales, these brewers also complained about the impact that wage inflation would have on their operations, saying that higher staffing costs would inevitably be passed on to consumers through rising prices for a pint.
Shepherd Neame is planning on introducing new brands in the next few months and – given disappointing bottle sales – plans to refresh brands in order to increase the range of products sold to trade.
Neame said: “…[We] have taken decisive action: the cost and price mitigations, pub transfers to tenancy, share buyback, and modest reduction of core capex, should in combination enable us to continue to perform well.”
He added: “We remain hopeful that the economy will return to a growth trajectory, with net disposable income growing and interest rates falling. We also remain optimistic about the potential economic benefits that should arise in the medium-term from infrastructure and housing development planned in our heartland [of South-East England].”
Shares opened the week at 482p, down 31% over one-year, with shares ranging between 485p and 700p over a 52-week period. Shepherd Neame has a market cap of £71.6m.
Shepherd Neame’s latest results highlight a strong recovery from the challenges of the past few years, with rising pub sales and solid profit growth. However, the brewing industry as a whole faces fresh headwinds from wage inflation and economic uncertainty, forcing companies to balance cost pressures with growth strategies. Share price has also disappointed, no doubt an effect of the buyback programme.
While Shepherd Neame remains committed to investment and innovation, its ability to navigate these challenges while maintaining margins will be key to its long-term success. Investors will be watching closely to see if the brewer’s cost-cutting measures and brand refresh efforts can drive sustainable growth in the months ahead.
