Sparks - Shepherd Neame

Shepherd Neame’s FY26 results show the pub estate is doing most of the heavy lifting, offsetting continued weakness in Brewing and Brands, where revenue has fallen for three consecutive years and profit for two years. Group revenue fell 1.1% to £162.6m, but underlying EBITDA edged up 0.8% to £25.6m and underlying PBT rose 1.8% to £7.8m. Underlying EPS increased 4.1% to 38.0p, while the proposed full-year dividend was lifted 3.0% to 22.15p. Cash generation was solid: net cash from operating activities rose to £26.5m from £21.9m, while net debt excluding leases declined to £82.0m from £83.7m despite £14.6m of capital expenditure.

The key operational positive was the pubs business, particularly London and the tenanted estate. Retail like-for-like sales grew 3.8%, with a very strong 10.1% increase inside the M25 versus just 0.9% outside it. The performance looks good with outperformance versus the CGA benchmark tracker. Drinks were the main growth driver, with retail like-for-like drinks sales up 5.8%, while food rose 1.5% and accommodation was softer. Despite operating fewer retail sites, Retail underlying operating profit increased 4.4% to £10.4m. Tenanted pubs also performed well, with like-for-like income up 2.7%, revenue up 5.0% to £37.4m and underlying operating profit up 4.1% to £13.1m. By contrast, Brewing and Brands remained the clear problem area: revenue fell 4.6% to £42.8m, underlying operating profit dropped from £1.0m to just £0.1m, total beer volumes declined 5.4% and own beer volumes fell 9.6%. Management attributes this to weaker national on- and off-trade volumes alongside materially higher logistics costs, and has launched a strategic review of the division.

The current trading update is encouraging and suggests that momentum improved after year-end. For the 13 weeks to 26 September, retail pub like-for-like sales were up 6.7%, total beer volumes rose 1.8% and own beer volumes increased 0.3%, while management also highlighted stronger accommodation sales. The strategy remains centred on investing more heavily in the strongest pubs, especially in London and in inns and hotels, while disposing of lower-potential sites and resolving the structural issues in Brewing and Brands. Recent major developments such as the White Horse and Bower and the Hoop and Grapes are said to have performed above expectations, supporting the case for continued estate investment. The main caveats are continued concern around inflation, interest rates and logistics costs, but the combination of improving pub trading, stronger cash generation and a stabilisation in beer volumes gives the new financial year a firm starting point.