The Investment Column: Gibbs Mew to shut down brewery

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The Independent Online
Gibbs Mew, the Wiltshire brewer and pubs group, best known for its Bishop's Tipple ale, has decided to close down its brewery. The only real question is why it did not do it sooner. The brewery was clearly uneconomic to run and Gibbs Mew will save pounds 300,000 a year by shutting it down. It has also avoided splashing out pounds 500,000 on an essential refit into the bargain.

Local brewing rival Ushers will now brew Gibbs Mew's beers, a deal which will help allay fears that Ushers is too dependent on a beer contract with Scottish & Newcastle.

But Gibbs Mew has plenty of other problems to solve. Pre-tax profits halved to pounds 2.5m for the year to March. The results, described by chairman Tom Hedderson as "disastrous", reveal a catalogue of management mistakes.

Profits at its tenanted pub estate plummeted: Centric, the Northern tenanted pub chain it bought two years ago, has so far proved to be a costly mistake. Gibbs has finally decided to close the Centric head office, but at a cost of pounds 475,000. Mr Hedderson also admits that Gibbs was too slow to buy new pubs after disposing of more than 40 of its worst performing outlets.

Cost over-runs in areas from distribution to marketing wiped pounds 550,000 off the bottom line and, to top it all, Gibbs has had to withdraw Bridger's Gold Ale, its new nitrokeg beer, which has flopped since it was launched.

Gibbs' profits should bounce back this year. It has been on a pub-buying spree in recent months and it is investing heavily in sprucing up its remaining tenanted estate. The extra money it has spent promoting its free trade business is already beginning to pay off. But Gibbs' recent history leaves a real question mark hanging over the capability of its management team.

House broker Panmure Gordon forecasts full-year profits of pounds 4.5m, ignoring the pounds 600,000 it will cost to close down the brewery, putting the shares, down 3p at 260p, on a prospective multiple of 10. Bid rumours are still doing the rounds. Even so, investors should steer clear.