Shepherd Neame makes good progress since pubs reopened

Brewer and pub operator Shepherd Neame said in a trading update on Friday that, since the resumption of trading on 12 April it had performed “well”, generating cash and profits ahead of its expectations.
The company, which is traded on the AQSE Growth Market, said initial outdoor trade from 12 April to 16 May was “encouraging”, but demand had taken a “step-up” from 17 May when indoor trade was allowed.

It said it was still benefiting from pent-up demand for “the pub experience”, noting that its rural and coastal pubs and hotels in particular were benefiting from their locations and outdoor space, while beer volume in all channels was strong.

Overall, retail sales had been impacted by the extended closure of 15 central London pubs, with “almost” all of them now reopened, although the firm said it expected trade levels there to remain below prior levels for some time.

For the 11 weeks from 12 April to year-end on 26 June, managed pubs that were open and trading achieved 84% of their 2019 revenue, and total retail sales including the closed pubs in London were at 60% of 2019 levels.

For the initial period of outdoor trading between 12 April and 16 May, open pubs achieved 62% of 2019 levels and from 17 May, when indoor trading resumed, to the year-end, those sites that were open achieved 97% of 2019 levels.

Since full restrictions were lifted on 19 July, Shepherd Neame said it had seen a “modest increase” in sales.

For the 11 weeks from 12 April to 26 June, the company’s tenanted pubs achieved 77% of their 2019 volume, and for the four weeks in June, they achieved 91% of 2019 beer volumes.

After charging no rent for all the weeks of lockdown, the firm;s tenanted pubs returned to 90% of normal rent from 21 June, and from 2 August would return to normal rent.

Total beer volume was described as “resilient” throughout the pandemic, with the company obtaining new on=trade customers and new listings in the grocery trade and export.

As the on-trade re-opened, sales were “buoyant”, with total volume in all channels in May and June up 8.4% over 2019, and total own beer volumes excluding contract down 3.6% for the same period.

Although the restart had been “encouraging”, the company said it would inevitably report a loss for the financial year ended 26 June, after lengthy periods of closure, though it would be smaller than originally forecast.

Net debt remained under control, with cost control maintained along with “good” cash flow since the restart, which the board described as a “significant achievement” given the circumstances.

At year-end, net debt totalled £89.8 million, narrowing from £92.4m in December.

Shepherd Neame said its banks had relaxed normal covenants through to September 2022, replacing them with a minimum liquidity covenant.

The board said the company had “sufficient and growing” liquidity to restore its financial health over the next 12 to 18 months.

While costs were still being tightly-controlled and the business was being run “very prudently”, the directors said it was “increasingly confident” of a full recovery and a return to the prior growth path and dividend payouts for shareholders.

“It has been great to be open again, and our team members and licensees are delighted to be able to welcome our customers back,” said chief executive officer Jonathan Neame.

“Although we continue to trade below full capacity, we have benefitted from strong pent-up demand.”

Neame said the business was “back on the path to recovery”, and had been cash generative and profitable since reopening.

“Although we naturally have to be cautious in case further restrictions are imposed during the winter months, we are now looking forward and planning beyond the pandemic with some optimism, driven by the rapid return to near normal trading levels in the past few weeks.”

At 0953 BST, shares in Shepherd Neame were up 0.69% at 996.8p.

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