Shepherd Neame returns to profit, but cautions over inflation hit to margins

The pub and brewing group reported pre-tax profits of £5.4 million for the six months to December 25 against losses of £7.2 million a year ago.

(Shepherd Neame Brewery) (PA Media)

Pub and brewing group Shepherd Neame has cheered a return to profit, but cautioned over a hit from rising costs and consumer belt-tightening.

The firm, which runs 302 pubs primarily in the South East, said while its trading has bounced back to levels seen before the pandemic struck, its profit margins have yet to fully recover amid inflation pressures.

The group said its profitability will continue to be impacted by soaring energy costs and wage bills, with the Ukraine crisis and UK tax hikes compounding the problem.

It said that VAT reverting back to 20% from April, as well as national minimum wage increases and the rise in national insurance contributions, “coincides with a significant increase in our costs, driven principally by energy prices”.

It warned: “All these factors will put pressure on price and margin.”

Chief executive Jonathan Neame told the PA news agency that the company “has no immediate plans to increase prices” despite the sharp inflation.

“We are all looking at pretty scary raw material inflation as a result of the crisis in Ukraine, although it will take time to recognise the overall impact,” he added.

“Prices are extremely volatile but we are well positioned with our contracts at the moment.

“The market price for wheat and barley has gone through the roof but most of the knock-on impact won’t be for several months and there are still plenty of variables in the picture.”

The group added that consumers are likely to be hit by inflation rocketing to 30-year highs and that “disposable income will be squeezed”.

But it said it had overcome a raft of challenges in its first half to see a marked bounce back, with pre-tax profits of £5.4 million in the six months to December 25 against losses of £7.2 million a year ago.

This came despite Omicron disruption over the key festive season, supply chain woes, rising costs and staff shortages throughout the first half.

It said overall revenues rose to pre-pandemic levels in the half-year, up 54.5% to £78.7 million, with retail pubs trading at 89% of 2020 levels on a like-for-like basis.

Retail pubs have since recovered to pre-pandemic trading, with sales at 110% of 2020 levels in the 13 weeks to March 26.

Like-for-like income in tenanted pubs was 97% of 2020 levels in the nine weeks to February 26.

Beer sales by volume were 0.6% below pre-pandemic levels, it added.

Mr Neame said: “We are now back to pre-pandemic trading levels, have strong cash flow and have returned to profitability.

“Our business is in good shape and has traded well following the lifting of all restrictions.

“However, the current economic uncertainties are putting inflationary pressure on the sector which will impact margins.”