1 for the 52 weeks ended 25 June 2011 Shepherd Neame Ltd Preliminary Results
2 Miles Templeman Chairman
Overview • A successful year with … record turnover … record beer volume … net cash inflow … debt repaid ahead of schedule … significant pub revaluation surplus • Strong operational performance across the business driven by good results from recent investments • 2 prestigious coastal hotels purchased since year end 3
Long term strategy … • To strengthen a high quality integrated beer and pub business • By developing … … brewing and logistics operational excellence … the marketing of distinctive ale and speciality lager brands … a freehold estate of traditional pubs and hotels … with a strong consumer offer targetted at the local market • To enhance an asset backed, cash generative business model to deliver sustainable earnings growth … 4
… driving growth in net assets and dividends for shareholders 35p Dividend per share Net Assets per share £14 Net Assets per share adjusted for 2011 pub valuation 30p £12 Net assets per share Dividend per share 25p £10 20p £8 15p £6 10p £4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 5
… and growth in pub asset values over the longer term • Revaluation of Pub Estate 2011 – £68m surplus over 1997 book value (2004 : £25m surplus) • Process and Methodology – Licensed property only : 360 pubs – Directors’ valuation – Professional external valuer – Auditor review – Surplus not booked to balance sheet • £1.9m non cash impairment charge on 13 pubs 6
7 Financial Review Ken Littlefair
Good results in 2011 +5.2% +3.3% +9.7% +17.0% +3.0% Turnover Operating Profit before *Adjusted Dividend Profit before tax and Earnings per share exceptionals exceptionals per share 2011 £121.3m £12.3m £8.0m 46.2p 23.80p 2010 £115.4m £11.9m £7.3m 39.5p 23.10p *Earnings per share before exceptional items 8
Operating profit before exceptionals is up +3.3% 2011 £m 2010 £m Turnover 121.3 115.4 - Beer volume up in National and Local Free Trade - Strong managed food and accommodation sales Operating costs (109.0) (103.5) - Raw material unit costs up - Increased investment in property repairs Operating profit pre exceptionals 12.3 11.9 Operating profit margin 10.1% 10.3% 9
Profit and Loss 2011 £m 2010 £m Operating Profit pre Exceptionals 12.3 11.9 Net finance charge (4.3) (4.6) Profit before tax and exceptionals 8.0 7.3 Impairment charge (non cash) (1.9) (0.5) Profit on sale of property 0.4 1.9 Profit before tax 6.5 8.7 Taxation (2.1) (2.4) Profit after tax 4.4 6.3 Interest cover 2.9x 2.6x Headline tax rate 32.2% 27.1% Tax rate before exceptionals 26.2% 30.8% Underlying tax rate 31.6% 31.7% Basic Earnings per share 34.4p 49.9p Adjusted basic earnings per share 46.2p 39.5p 10
£1.8m net cash inflow 2011 £m 2010 £m EBITDA before share based payment 19.1 18.7 Working capital movements (0.6) 1.6 Net cash inflow from operations 18.5 20.3 Interest tax and dividends (9.2) (8.8) Cash inflow before investment 9.3 11.5 Disposals 2.5 5.9 Internally generated free cash 11.8 17.4 New pub additions (3.4) - Brewery and IT modernisation - (1.6) Maintenance capex (pubs/brewery/ free trade loans) (6.6) (6.4) Net cash flow before financing 1.8 9.4 11
Cash generation sufficient to maintain capital base, acquire new pubs and pay down debt 30 25 20 £m Internally generated free cash 15 10 New Pub Additions 5 Brewery and IT Modernisation Maintenance Capex 0 (pubs/brewery/free trade loans) 2006 2007 2008 2009 2010 2011 2012F Internally Generated Free Cash = Free cashflow and proceeds from asset disposals £7.6m spent since year end on two hotel acquisitions 12
£20.1m headroom on committed facilities at year end Long term facilities at year end £80m £60m term loan to 2026 £10m outstanding of term loan to 2014 £10m revolving credit facility to 2014 Committed overdraft facility £ 5m Total facility at year end £85m Net debt at year end £64.9m £60m term debt fixed on swap at weighted average rate 5.94% £5m of 2014 term loan repaid ahead of schedule - £3.75m August 2010 - £1.25m May 2011 13
Balance sheet ratios strong 2011 £m 2010 £m Fixed assets 185.8 186.4 Other assets and provisions (1.4) (1.8) Net assets 184.4 184.6 Debt net of cash (64.9) (66.6) Shareholders’ funds 119.5 118.0 Off balance sheet property valuation 68.0 187.5 Net assets per share £9.33 £9.20 Gearing 54% 56% Debt : EBITDA 3.4 to 1 3.6 to 1 Adjusted net assets per share £14.63 - Adjusted gearing 35% - 14
15 Chief Executive’s Review Jonathan Neame
What makes Shepherd Neame different? • Diverse beer portfolio aligned to growth sectors of the market • Modernised, efficient brewery • Excellent systems, quality and service levels • High quality, food-led pub estate • Intimate local market knowledge • Opportunities arising from local economy regeneration 16
We have continued to outperform the national beer market … Total beer volume UK Market * Shepherd Neame 2007/08 -2.8% -2.7% 2008/09 -7.0% +6.3% 2009/10 -1.4% +4.8% 2010/11 -7.1% +4.0% 2011/12 (12 weeks) +6.9% * Source : BBPA 17
… as we align our beer portfolio to growth areas in the market Standard Lager Premium Lager World Lager Speciality Standard Ales Premium Ales Speciality 18
… and so achieve good brand volume growth in key brands 2011 2010 • Total beer volume +4.0% +4.8% • Own beer volume +2.6% +3.8% Total 239,000 barrels 233,000 barrels • Key brand performance - Spitfire +2.3% -0.9% - Bishops Finger +3.9% +18.9% - Asahi +16.8% +5.0% 19
Our sales are backed by increased investment in marketing and brand support • New website and digital marketing platform launched October 2010 • New brand, digital marketing and communications team established • Strong partnerships in sport, art, entertainment and community events 20
… supported by consistently high beer quality • Since 2008 we have won - 20 awards for beer quality - 11 awards for packaging quality • 2011 Brewing Industry International Awards Asahi Overall Champion Lager 26
… and supply chain and customer service excellence • Our recent supply chain, systems and plant modernisation has resulted in – high bottling line efficiency – improved beer freshness – higher stock turns – improved order fill – improved capacity utilisation – higher customer satisfaction 27
We have contained raw material costs in an inflationary environment in 2011, but these are anticipated to increase in 2012 150 140 Index of raw material costs 130 120 110 100 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 28
We continue to make selective high quality acquisitions in Kent, London and South East … Tenanted/ Managed Total Additions Disposals Leased 2007/08 328 47 375 5 7 2008/09 331 49 380 15 10 2009/10 320 45 365 0 15 2010/11 315 44 359 2 8 2011/12 310 46 356 2 5 Freehold 316 • 2 tenanted acquisitions : Parrot, Canterbury Cock Inn, Boughton Monchelsea 29
… and to improve the profile of our pub estate Type # Profile Strategy Strong Food Offer Great Pub/Great Food 81 50:50 mix Locally sourced food (inc. 5 hotels) Premium Casual Dining Premium liquor brands Regular Pub/ 102 Wet 75:25 Develop food offer Traditional Food ___ Traditional pub food Invest in facilities 183 Strong Drink Offer Town/City/London 53 Wet led 80:20 Develop food offer Mainstream Bar On or near High Street Premium liquor brands Community Wet Led 123 Wet led Invest or divest ___ Little food Events led activity 176 Total 359 30
31 Great Pub, Great Food : 81 Pubs
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34 Regular Pub, Traditional Food : 102 Pubs
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37 Town/City/London Mainstream Bar : 53 Pubs
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40 Community Wet Led : 123 Pubs
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We have increased our pub investment year on year In 2011 we carried out • Capital developments 81 • Ex decs/major repairs 67 43
… and developed the food offer in our managed pubs 2008 2009 2010 2011 • Food spend per head £8.55 £8.71 £8.55 £9.12 • Over 1 million meals served per annum • Menu engineering, recipe control, menu design • Food procurement and catering equipment benefits shared with tenants 44
… and grown accommodation sales across the pub estate Number of bedrooms Tenanted Managed Total 2008 186 207 393 2009 199 194 393 2010 204 180 384 2011 204 180 384* Managed REVPAR 2008 £35.36 2009 £33.35 2010 £34.53 2011 £37.73 * Ensuite 342 45
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