ANNOUNCEMENT OF INTERIM RESULTS

Transcription

1 2 March 2016 SHEPHERD NEAME LIMITED ANNOUNCEMENT OF INTERIM RESULTS Shepherd Neame, the Kent-based brewer and pub operator, today announces results for the 26 weeks ended 26 December Highlights include: First set of results under new accounting standard FRS102 Turnover increased by 0.3% to 73.7m ( : 73.5m) with total own beer volumes excluding contract up 0.1% Underlying operating profit 2 up 2.9% to 7.2m ( : 7.0m) Sustained and strong trading in the pub business - Managed pub like-for-like sales up 6.5% (2014: +6.8%), with liquor up 5.2%, food up 7.4% and accommodation up 11.2% - Tenanted like-for-like EBITDAR 3 grew by 2.7% (2014: +3.4%) and average EBITDAR per pub up 7.2% (2014: +4.0%) Statutory profit before tax up to 8.7m ( : 4.9m) with the increase driven by one-off disposal of land Underlying basic earnings per share 4 up 8.5% to 26.7p ( : 24.6p) Interim dividend increased to 5.45p (2014: 5.30p) per share 1 Restated for 2 Profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items 3 Pub earnings before interest, tax, depreciation, amortisation and rent payable 4 Underlying profit less attributable taxation divided by the weighted average number of ordinary shares in issue during the period. The number of shares in issue excludes those held by the Company and not allocated to the employees under the Share Incentive Plan, which are treated as cancelled. Jonathan Neame, Chief Executive, commented: I am pleased to report that our half year results have been characterised by a sustained and strong trading in our pub business, positive operating cash flows and significant proceeds from property disposals. Our consistent investment in our brand and pub assets to align them to today s consumer demand has resulted in the sustained quality and performance of the business in a highly competitive marketplace. We remain cautious about the outlook for consumer spending, however I am confident we have the right strategy to succeed and the skills to deliver it. 1

2 FOR FURTHER INFORMATION PLEASE CONTACT: Shepherd Neame Limited Jonathan Neame, Chief Executive Mark Rider, Finance and IT Director Tel: Tel: Kreab Marc Cohen / Christina Clark Tel: REGIONAL & TRADE MEDIA CONTACT: John Humphreys Tel: Note: The Directors of Shepherd Neame Limited accept responsibility for this announcement. 2

3 NOTES FOR EDITORS Shepherd Neame is Britain s oldest brewer. Established in 1698 and based in Faversham, Kent it employs around 1,300 people. The Company retails its own beers, on draught and in bottles, under a range of highly successful brand names, including: Spitfire: One of the leading premium bottled ales in the UK with national distribution on draught (4.2% abv) and in bottle (4.5% abv). Spitfire Gold, a golden ale (4.1% abv), has been launched to mark the 75 th anniversary of the Battle of Britain. Whitstable Bay: This range, sold under the Faversham Steam Brewery brand, includes a Pale Ale on draught (3.9%) and in bottle (4%), an Organic Ale (4.5%), Blonde Lager (4.5%) and Black Oyster Stout (4.2%). Bishops Finger: Connoisseur premium ale (5.4% abv). Master Brew: The Original Kentish Ale is a well-hopped cask ale (3.7% abv). The Company also brews lagers under license, including: Asahi Super Dry: Japan's number one beer (5% abv), which is produced under an exclusive UK license for brewing, sales and marketing. Samuel Adams Boston Lager: Number one US craft lager (4.8% abv) brewed under an exclusive license from the Boston Beer Company. The Company also imports Rebel IPA, a strong hopped US craft beer (6.5% abv) and Angry Orchard, America s No. 1 Hard Cider (5%). In the 26 weeks ended 26 December 2015 Shepherd Neame sold 131,000 brewers' barrels of beer (37.7 million pints) including 112,000 brewers' barrels of own brewed beer (32.3 million pints). The majority of these sales were made in the UK although the Company also exports to more than 35 countries. At the half year end, the Company operated 335 pubs, of which 275 were tenanted or leased, 6 were held as investment properties under commercial free of tie leases, and 54 managed. The pub estate ranges from inns and hotels to destination dining, great traditional and local community pubs. Shepherd Neame's shares are traded on the ISDX Growth Market. See for further information and the current share price. For further information on the Company, see 3

4 CHAIRMAN S STATEMENT Interim Results I am pleased to report another strong performance for the Company for the 26 weeks ended 26 December During this period the consumer economy has remained relatively robust with high employment levels and increasing real earnings, but the weather has been less favourable than in 2014 with persistent heavy rain in the late summer and throughout the autumn. The Rugby World Cup provided a modest benefit in October and Christmas trade was particularly strong. The Company s performance has been characterised by sustained and strong trading in our pub business, positive operating cash flows and significant proceeds from property disposals. Our beer business has performed less well than last year in challenging market conditions and margins have continued to be squeezed as a result of volume reduction from the exit from contract brewing and higher water treatment costs. Accounting Standards This is our first report under the accounting standard, and results in us having to re-state some prior year comparatives prepared under previous UK GAAP accounting rules. There are four principal areas of change: the valuation of our assets; reporting by business segment; and different accounting treatment for both lease commitments and for interest rate swaps. The specific impacts of these changes are set out in the transition document in the Appendix to this document. As part of this process, the company has carried out a revaluation of some of its assets as at 28 June 2014 and incorporated this into our balance sheet. This has increased net assets and reduced balance sheet gearing. This revaluation was of the Company s licensed freehold assets only and excludes licensed leasehold assets and the brewery site. Unlicensed assets that are held for rental income are valued separately as investment property. Financial Performance Turnover for the period increased by 0.3% to 73.7m (2014: 73.5m). Underlying operating profit grew by +2.9% to 7.2m (2014: 7.0m). Underlying profit before tax 1 grew by 7.2% to 5.1m (2014: 4.7m) and statutory profit before tax is up to 8.7m (2014: 4.9m), with the increase being driven principally by the one-off disposal of land at Brogdale Road. Basic earnings per ordinary share are up to 52.2p (2014: 26.2p) and underlying basic earnings per share are up 8.5% to 26.7p (2014: 24.6p). Cash flow and Investment Underlying EBITDA 2 was 10.8m, up 2.4% (2014: 10.5m). Total cash invested in capital expenditure was 6.3m (2014: 5.2m). During the period we acquired two new outlets to be operated as managed pubs: the Minnis Bay Bar and Restaurant and the Anchor, Hampstead Lock, Yalding. In January 2016, we have acquired a further outlet to be operated under tenancy, the Coastguard at St. Margaret s Bay. All three of these outlets enjoy exceptional beach or waterfront locations and emphasise our strategy to acquire sites with unique character in landmark or high footfall locations. 1 Profit before any profit or loss on the disposal of properties, investment property fair value movements and exceptional items. 2 Underlying profit before tax pre net finance costs, depreciation, amortisation, profit or loss on sale of fixed assets excluding property and free trade loan discounts. 4

5 During the period we have realised proceeds from property sales of 8.8m (2014: 0.7m). The principal disposal was 10 acres of land, remaining from the company s farming business, on Brogdale Road in Faversham, which was sold with planning permission for residential dwellings for 7.4m. The Company continues to own 44 acres of land and buildings on the edge of Faversham as a long term investment. In addition we disposed of five (2014: two) tenanted pubs and other assets for 1.4m. These disposals have realised a property profit over the revalued net book value of 3.6m (2014: 0.1m). As a result of these cash proceeds and cash flow from operations, net debt at the half year stands at 61.4m (2014: 72.1m). Refinancing In line with our strong cash flow and lower debt levels, we have refinanced during the period to create a more flexible debt structure going forward and reduced costs. The five year term loan and revolving credit facility due to expire in May 2017 have been replaced with a 20m revolving credit facility through to September 2020, with the uncommitted option to extend by a further 10m during that time should the need arise. The existing 60m term loan remains unchanged and matures in Excluding the overdraft, the Company now has total medium and long term committed credit facilities of 80m. Dividend The Board is proposing an interim dividend of 5.45p (2014: 5.30p), an increase of 2.8%. The dividend will be paid on 24 March 2016 to those shareholders on the register as at 11 March Board of Directors After more than 10 years of outstanding service to the Board, Oliver Barnes and James Leigh-Pemberton will both step down as non-executive directors during the next six months and we are delighted to welcome two new nonexecutives to the Board who both enjoy distinguished careers in their chosen fields. Hilary Riva, OBE, 58, will join the Board in April Hilary has enjoyed a successful career in fashion retailing with various senior roles in the Arcadia group followed by her jointly leading the buyout of Principles, Hawkshead, Warehouse and Racing Green as Managing Director of Rubicon Retail. Following the sale of Rubicon, Hilary was CEO of the British Fashion Council from 2005 to She is a non-executive director at Shaftesbury plc, the FTSE 250 property company, and at ASOS plc, the largest online fashion retailer, amongst other roles. Richard Oldfield, DL, 60, will join the Board in June Richard is executive chairman of Oldfield Partners LLP, an investment management firm managing listed equities funds. He is also a director of Witan Investment Trust plc and a trustee of the Royal Marsden Cancer Charity and the Clore Duffield Foundation. I would like to take this opportunity to thank James and Oliver for their very significant individual contributions to the business. They have helped to steer the Company through some challenging times for the industry over the past 10 years and played a big part in helping the Company achieve the strong position we are in today. Operational Review At the half year we operated 335 pubs (2014: 347) of which 275 (2014: 297) are tied tenanted or leased, six (2014: nil) are held as investment properties under commercial free of tie leases, and 54 (2014: 50) are managed. In the period we have acquired two pubs (2014: two) to be managed, disposed of five (2014: two) tenanted pubs and transferred six pubs (2014: nil) from tied tenancy to free of tie lease. We have not made any transfers from tenancy to managed (2014: one) or from managed to tenancy (2014: one) in the period. Our strategic objectives remain to drive footfall to our pubs, to attract, retain and develop the best licensees and to provide a distinctive range of complementary products. We are in the process of developing a new brand identity for the Company to give a more modern and stylish presentation of the Company logo in the estate, online and in other media which will be launched later in the year. 5

6 I am delighted that our efforts in our pub business have been recognised as the company is listed as a finalist in the Publican Awards Best Tenanted and Leased Pub Company (201+ sites) and also as a finalist in Best Food Offer (51+) sites. Tenanted and Leased Pubs Revenue in the tenanted estate grew by +0.3%, but operating profit fell by -1.1% through a lower number of pubs and increased property investment. Like for like tenanted EBITDAR grew by +2.7% (2014: +3.4%) and average EBITDAR per pub has grown by +7.2% (2014: +4.0%) as the quality and profile of our estate continues to improve. In recent years we have consistently increased the level of investment and quality of training and support within our tied estate, and this period has been no exception, with notable refurbishments to reposition the offer at the Poyntz Arms, East Molesey and the Four Fathoms, Herne Bay as well as many smaller developments. We have several large developments planned for the second half. As we improve our pub estate and quality of services and support, demand for our pubs from licensees remains strong. Managed Pubs and Hotels Managed pubs have again enjoyed an exceptional period with strong like for like growth which has been sustained over several years. Revenue grew by +13.8% and operating profit by +23.0%. Like for like sales grew by +6.5% (2014: +6.8%) with liquor +5.2% (2014: +4.9%), food +7.4% (2014: +7.8%) and accommodation +11.2% (2014: +14.5%). This is the result of substantial investment in our best and largest outlets to modernise and premiumise the offer, improve the quality of drinks offer, invest in food service and quality of rooms and focus on providing a great experience for our customers. In the second half we plan major redevelopments at the Ship & Trades, Chatham Maritime and the Royal Albion Hotel, Broadstairs. We have every reason to believe that the strong profit performance in the managed houses will continue although the additional cost impact from the National Living Wage and Apprenticeship Levy is estimated at 0.1m in the 2016 financial year and rising to around 1.1m between now and Brewing and Brands The Brewing and Brands business has again had a challenging period with revenue down -8.9% and operating profit down -54.9%. This is driven by a decline in overall own beer volume which was down 11.3%, and higher water treatment costs than in Own beer excluding contract was up marginally at +0.1%. The UK beer market has seen significant changes in recent years as the growing demand for local products with wider taste and flavour profiles has led to a rapid expansion in the number of micro and craft brewers entering the market, even though overall beer consumption is flat. Shepherd Neame has responded well to this challenge and built an enviable portfolio of great beers such as Spitfire, Bishops Finger, the Whitstable Bay range and our Classic Collection. I am particularly pleased that our Whitstable Bay design and brand development has won a 2016 Brand Effectiveness Award. During this period we have also added Spitfire Gold which has performed well since launch. Shepherd Neame has been brewing and selling Asahi Super Dry under licence in the UK for more than 10 years with an existing contract in place to We note the proposed purchase of the Peroni, Grolsch and Meantime Brewing businesses by Asahi Group Holdings which remain subject to regulatory approvals and are in discussions with them over the future of our ongoing partnership. 6

7 Summary This has been another period of strong performance. Our consistent investment in our brand and pub assets to align them to today s consumer demand has resulted in the sustained quality and performance of our business in a highly competitive marketplace. The continued benefit of strong trading combined with exceptional property proceeds and debt refinancing have created a strong financial base from which the Company can seek opportunities for further expansion in the future. We remain cautious about the outlook for consumer spending as heightened security concerns and risks in the economy may dampen confidence. However, I am confident we have the right strategy to succeed and the skills to deliver it. Miles Templeman Chairman 7

8 PROFIT AND LOSS ACCOUNT 26 weeks ended 26 December 2015 Unaudited 26 weeks ended 26 December 2015 Underlying results Items excluded from underlying results (note 3) Total statutory Unaudited 26 weeks ended 27 December 2014 (as restated) Underlying results Items excluded from underlying results (note 3) Total statutory Unaudited 52 weeks ended 27 June 2015 (as restated) Total statutory Turnover (note 4) 73,709-73,709 73,524-73, ,237 Operating charges (66,551) (80) (66,631) (66,565) - (66,565) (124,542) Operating profit 7,158 (80) 7,078 6,959-6,959 13,695 Net finance costs (2,086) - (2,086) (2,226) - (2,226) (4,424) Profit on disposal of property - 3,595 3, Investment property fair value movements ,086 Profit on ordinary activities before taxation 5,072 3,608 8,680 4, ,890 13,711 Taxation (note 5) (1,126) 160 (966) (1,109) 83 (1,026) (2,734) Profit after taxation 3,946 3,768 7,714 3, ,864 10,977 Earnings per 50p ordinary share (note 6) Basic 52.2p 26.2p 74.3p Underlying basic 26.7p 24.6p 48.7p Diluted 51.8p 26.0p 73.8p STATEMENT OF COMPREHENSIVE INCOME 26 weeks ended 26 December Unaudited 26 weeks ended 26 December 2015 Unaudited 26 weeks ended 27 December 2014 (as restated) Unaudited 52 weeks ended 27 June 2015 (as restated) Profit after taxation 7,714 3,864 10,977 Losses arising on cash flow hedges during the period (1,500) (5,249) (2,263) Tax relating to components of other comprehensive income 748 1, Other comprehensive losses for the period (752) (4,199) (1,810) Total comprehensive income/(loss) for the period 6,962 (335) 9,167

9 BALANCE SHEET As at 26 December 2015 Unaudited Unaudited Unaudited 26 December December 2014 (as restated) 27 June 2015 (as restated) '000 '000 '000 Fixed assets Tangible fixed assets 276, , ,247 Investments and loans , , ,960 Current assets Stock 6,336 6,234 7,001 Debtors 19,163 21,443 16,103 Deferred tax asset due after one year 3,626 4,541 3,965 Cash 90 5,359 6,793 29,215 37,577 33,862 Creditors: amounts falling due within one year Bank loans and overdrafts (91) (1,994) (1,987) Creditors (27,082) (25,991) (24,156) (27,173) (27,985) (26,143) Net current assets 2,042 9,592 7,719 Total assets less current liabilities 279, , ,679 Creditors: amounts falling due after more than one year Bank loans (61,403) (75,510) (73,592) Derivative financial instruments (19,283) (20,768) (17,783) Deferred lease liability (1,736) (1,543) (1,640) Provision for liabilities (13,217) (14,120) (14,838) Net assets 183, , ,826 Capital and reserves Called up share capital 7,429 7,429 7,429 Share premium account 1,099 1,099 1,099 Revaluation reserve 73,001 73,005 72,430 Reserve for own shares held (676) (606) (827) Hedging reserve (15,683) (16,615) (14,226) Profit and loss account 118, , ,921 Equity shareholders funds 183, , ,826 These financial statements have not been audited (see note 1). 9

10 STATEMENT OF CHANGES IN EQUITY For the 26 weeks ended 26 December 2015 Share capital Share premium Revaluation reserve Own shares held Hedging reserve Profit and loss account Balance at 28 June 2014 as previously stated 7,429 1,099 13,125 (908) - 108, ,751 Changes on transition to FRS 102 (see note 11) ,167 - (12,416) (1,985) 45,766 Balance at 28 June 2014 as restated 7,429 1,099 73,292 (908) (12,416) 106, ,517 Profit for the period ,864 3,864 Losses arising on cash flow hedges during the period (5,249) - (5,249) Tax relating to components of other comprehensive income ,050-1,050 Total comprehensive income (4,199) 3,864 (335) Ordinary dividends paid (3,074) (3,074) Transfer of realised revaluation - - (287) Accrued share based payments Purchase of own shares (215) - - (215) Distribution of own shares (342) 34 Unconditionally vested share awards (141) - Balance at 27 December ,429 1,099 73,005 (606) (16,615) 106, ,134 Total Share capital Share premium Revaluation reserve Own shares held Hedging reserve Profit and loss account Balance at 27 June 2015 as previously stated 7,429 1,099 12,170 (827) - 112, ,150 Changes on transition to FRS 102 (see note 11) ,260 - (14,226) (1,642) 47,676 Balance at 27 June 2015 as restated 7,429 1,099 72,430 (827) (14,226) 113, ,826 Profit for the period ,714 7,714 Losses arising on cash flow hedges during the period (1,500) - (1,500) Tax relating to components of other comprehensive income Total comprehensive income (1,457) 7,714 6,962 Ordinary dividends paid (3,178) (3,178) Transfer of realised revaluation - - (134) Accrued share based payments Purchase of own shares (288) - - (288) Distribution of own shares (277) 24 Unconditionally vested share awards (138) - Balance at 26 December ,429 1,099 73,001 (676) (15,683) 118, ,610 Total 10

11 CASH FLOW STATEMENT 26 weeks ended 26 December 2015 Unaudited Unaudited Unaudited 26 weeks ended 26 weeks ended 52 weeks ended 26 December December 2014 (as restated) 27 June 2015 (as restated) '000 '000 '000 '000 '000 '000 Net cash flows from operating activities (note 8) 10,430 9,194 21,375 Cash flows from investing activities Proceeds of sale of tangible fixed assets 8, ,155 Purchase of tangible fixed assets (6,327) (5,157) (13,165) Additional loans to customers (33) (16) (52) Customer loan redemptions Net cash flows from investing activities 2,605 (4,317) (9,889) Cash flows from financing activities Dividends paid (3,178) (3,074) (3,861) Interest paid (2,074) (2,243) (4,391) Repayment of long term loan (16,000) - (2,000) New long term loan 2, Issue costs of new long term loan (313) - - Purchase of own shares (288) (215) (465) Share option proceeds Net cash flows from financing activities (19,829) (5,499) (10,674) Net (decrease)/increase in cash and cash equivalents (6,794) (622) 812 Cash and cash equivalents at beginning of the period 6,793 5,981 5,981 Cash and cash equivalents at end of the period (1) 5,359 6,793 11

12 NOTES TO THE ACCOUNTS 26 weeks ended 26 December Interim Statement The financial information contained in this interim statement, which is unaudited, has been prepared under the new accounting standard. The financial information does not constitute statutory accounts as defined in s434 of the Companies Act Statutory accounts for the 52 weeks ended 27 June 2015 prepared under previous UK GAAP, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. The adjustments made to comply with on the date of transition (28 June 2014) have not been audited therefore the financial information is shown as unaudited. 2. Accounting policies The interim accounts have been prepared on the basis of the accounting policies set out in the transition document which can be found in the Appendix to this document. 3. Non-GAAP performance measures Certain items recognised in reported profit or loss before tax can vary significantly from year to year and therefore create volatility in reported earnings which does not reflect the underlying performance of the Company. The Directors believe that underlying operating profit, underlying profit before tax, underlying basic earnings per share, underlying earnings before interest, tax, depreciation, and amortisation presented provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. Underlying profit is not defined by and therefore may not be directly comparable with the adjusted profit measures of other companies. The adjusted items are: - profit or loss on disposal of properties - investment property fair value movements - exceptional items these are items which are either material or infrequent in nature and do not relate to the underlying performance The adjustments made to reported profit before tax to arrive at underlying profit before tax are: 26 weeks ended 26 Dec 15 unaudited 26 weeks ended 27 Dec 14 unaudited (as restated) 52 weeks ended 27 Jun 15 unaudited (as restated) Underlying profit before taxation 5,072 4,733 9,334 Profit on disposal of properties 3, Investment property fair value movements ,086 Exceptional items (80) - (63) Total adjustments 3, ,377 Profit on ordinary activities before taxation 8,680 4,890 13,711 Exceptional items Exceptional items of 80,000 for the 26 week period ended 26 December 2015 include legal and professional fees of 38,000 for the Consumer Credit Authorisation application, required by the Financial Conduct Authority; and 42,000 for professional fees related to the transition for reporting under. The charge of 63,000 for the 52 weeks ended 27 June 2015 relates to impairment of tangible fixed assets. 12

13 4. Segmental reporting The Company has three operating segments which are largely organised and managed separately according to the nature of the products and services provided and the profile of customers: Brewing and Brands which comprises the brewing, marketing and sales of beer, wines and spirits; Managed Pubs and Hotels which comprises managed pubs and managed hotels and; Tenanted and Leased Pubs which comprises pubs operated by third parties under tenancy or lease agreements. Transfer prices between segments are set on an arm s length basis. Managed Pubs and Hotels Tenanted and Leased Brewing and Brands Pubs Unallocated Total 26 weeks ended 26 December 2015 Turnover 30,448 25,142 17, ,709 Underlying operating profit 524 4,271 6,493 (4,130) 7,158 Exceptional items (80) (80) Segment operating profit 524 4,271 6,493 (4,210) 7,078 Net finance costs (2,086) Profit on disposal of property 3,595 Investment property fair value movements 93 Profit on ordinary activities before taxation 8,680 Other segment information Capital expenditure tangible fixed assets 948 2,970 2, ,198 Depreciation 1,113 1,035 1, ,506 Underlying EBITDA 1,741 5,312 7,495 (3,776) 10,772 Number of pubs Managed Pubs and Hotels Tenanted and Leased Brewing and Brands Pubs Unallocated Total 26 weeks ended 27 December 2014 Turnover 33,408 22,092 17, ,524 Segment operating profit 1,161 3,471 6,567 (4,240) 6,959 Net finance costs (2,226) Profit on disposal of property 76 Investment property fair value movements 81 Profit on ordinary activities before taxation 4,890 Other segment information Capital expenditure tangible fixed assets 1,018 2,557 1, ,886 Depreciation 1, ,414 Underlying EBITDA 2,487 4,385 7,526 (3,880) 10,518 Number of pubs

14 4. Segmental reporting continued Managed Pubs and Hotels Tenanted and Leased Brewing and Brands Pubs Unallocated Total 52 weeks ended 27 June 2015 Turnover 59,718 43,759 33,424 1, ,237 Underlying operating profit 1,823 6,665 12,751 (7,481) 13,758 Items excluded from underlying results - - (63) - (63) Segment operating profit 1,823 6,665 12,688 (7,481) 13,695 Net finance costs (4,424) Profit on disposal of property 354 Investment property fair value movements 4,086 Profit on ordinary activities before 13,711 taxation Other segment information Capital expenditure tangible fixed assets 1,827 6,382 4, ,014 Depreciation 2,306 1,825 1, ,811 Underlying EBITDA 4,357 8,464 14,709 (6,757) 20,773 Number of pubs Taxation 26 weeks ended 26 Dec weeks ended 27 Dec 14 (as restated) 52 weeks ended 27 Jun 15 (as restated) Corporation tax 1,501 1,189 2,251 Deferred tax (535) (163) ,026 2,734 Taxation has been provided at 22% (2014: 23%) based on the estimated effective tax rate for the 52 weeks to 25 June The average statutory rate of corporation tax for the 52 weeks to 25 June 2016 is 20% (52 weeks to 27 June 2015: 20.75%). Taxation on items excluded from underlying results for the 26 weeks ended 26 December 2015 includes a deferred tax credit of 683,000 (2014: nil). This arises from restatement of deferred tax assets and liabilities in respect of accelerated capital allowances and rolled over gains based on the future tax rates of 19% from April 2017 and 18% from April These rates have been substantively enacted at the balance sheet date and are expected to apply when the timing differences reverse. Similarly, taxation relating to components of other comprehensive income for the 26 weeks ended 26 December 2015 includes a deferred tax credit of 447,000 (2014: nil) due to restating the deferred tax balances in respect of the revalued freehold licensed properties and derivative financial instruments. 6. Earnings per share The earnings per share are calculated on profit after taxation of 7,714,000 (2014 restated: 3,864,000) and on 14,770,000 shares (2014: 14,733,000) being the weighted average number of ordinary shares in issue during the period, adjusted for shares held in respect of employee incentive plans and options. The diluted earnings per share are calculated on the average number of shares in issue during the period adjusted by 113,000 shares (2014: 127,000). The underlying earnings per share are calculated on profit after tax of 3,946,000 (2014: 3,624,000). 14

15 7. Dividends 26 weeks ended 26 Dec weeks ended 27 Dec weeks ended 27 Jun 15 50p ordinary shares: Final dividend for 2015: 21.40p (2014: 20.75p) 3,178 3,074 3,074 Interim dividend for 2015: 5.30p Dividends paid 3,178 3,074 3, Notes to the cash flow statement (a) Reconciliation of operating profit to cash generated by operations 26 weeks ended 26 Dec weeks ended 27 Dec 14 (as restated) 52 weeks ended 27 Jun 15 (as restated) Operating profit 7,078 6,959 13,695 Adjustment for: Depreciation and amortisation 3,506 3,414 6,811 Impairment provision Charge for share-based payments credited to reserves Decrease/(increase) in stocks (584) (Increase)/decrease in debtors and prepayments (3,034) (3,235) 2,083 Increase in creditors and accruals 2,944 2, Free trade loan discounts Loss on sale of assets (excluding property) Interest received Income tax paid (1,109) (1,135) (2,297) Cash generated by operations 10,430 9,194 21,375 (b) Analysis of net debt June 2015 (as restated) Cash flow Repayment of long term loan New long term loan Issue costs of new loan Amortisation of issue costs December 2015 Cash 6,793 (6,703) Bank overdraft - (91) (91) Cash and cash equivalents 6,793 (6,794) (1) Debt due within one year (1,987) - 2, (13) - 4,806 (6,794) 2, (13) (1) Debt due after more than one year (73,592) - 14,000 (2,000) 313 (124) (61,403) Total (68,786) (6,794) 16,000 (2,000) 313 (137) (61,404) 15

16 9. Capital Expenditure and Commitments In the 26 weeks ended 26 December 2015, there were additions to tangible fixed assets on an accruals basis of 6,198,000 (2014: 4,886,000). In the financial period, there were disposals of tangible fixed assets with a net book value of 5,305,000 (2014: 740,000). As at 26 December 2015, capital commitments contracted, but not provided for by the Company, amounted to 975,000 (2014: 2,236,000). 10. Related party transactions During the 26 weeks ended 26 December 2015 the Company purchased goods to the value of 17,000 (2014: 5,000) including VAT and made sales of 71,000 (2014: 56,000) to St Austell Brewery Company Limited, a company of which Mr J B Neame is a non-executive Director. At 26 December 2015, Shepherd Neame Limited was owed 14,000 (2014: 7,000), including VAT, by St Austell Brewery Company Limited. Shepherd Neame Limited did not owe any balance to St Austell Brewery Company Limited as at 26 December Ms C Neame, a close member of Mr J B Neame s family, is a director of Charlotte Neame Interior Design Limited which provided goods and design services in respect of the refurbishment of certain Company properties during the period at a cost of 11,000 including VAT (2014: nil). There was a balance of 11,000 owed to this company as at 26 December Mr A J A Barnes, a close member of Mr G H A Barnes family, is a partner of Clarke Barnes Solicitors LLP, which provided legal services in respect of Company properties during the period at a cost of 20,000 including VAT and disbursements to third parties (2014: 30,000). At 26 December 2015, Shepherd Neame Limited owed 2,000 to the partnership. Mr N J Bunting, executive director of Shepherd Neame Limited, is also a director of Davy and Company Limited. During the period, the Company made sales to the value of 102,000 (2014: 153,000) to Davy and Company Limited and its associated companies. At 26 December 2015, the balance owed to the Company by the Davy Group of companies, including VAT, was 25,000 (2014: 28,000). 11. New accounting standard As a consequence of adopting, a number of accounting policies have changed to comply with that standard. A description of the nature of change of each accounting policy can be found in the Appendix to this document. Revaluation of properties at transition The Company has revalued licensed freehold properties to fair value on transition to. The properties were revalued individually by the Company s own professionally qualified staff. A sample were verified by Porters, a firm of independent external qualified valuers. The revaluation was in accordance with the provisions of the RICS Valuation Professional Standards January 2014 ( the Red Book ). 16

17 11. New accounting standard continued 26 weeks ended 27 Dec weeks ended 27 Jun 15 Previous GAAP Profit after taxation 3,927 7,257 Adjustments on transition to : Depreciation on revalued licensed property (40) (80) Impairment and profit on disposal of revalued properties (139) 465 Revaluation of investment property 81 4,086 Operating leases (104) (224) Customer loans Bank loans 2 3 Short-term compensated absences 2 (28) (158) 4,283 Taxation on adjustments 95 (563) (63) 3,720 Profit after taxation 3,864 10, Jun Dec Jun 15 Previous GAAP Equity shareholders funds 128, , ,150 Adjustments to equity on transition to : Revaluation of licensed property 68,391 68,207 68,744 Revaluation of investment property 1,916 2,002 6,035 Operating leases (1,401) (1,505) (1,625) Customer loans (225) (185) (164) Bank loans Short-term compensated absences (209) (207) (237) Interest rate swaps (15,520) (20,768) (17,783) Deferred tax (7,207) (6,063) (7,318) 45,766 41,504 47,676 Equity shareholders funds 174, , ,826 17

18 APPENDIX - TRANSITION TO FINANCIAL REPORTING STANDARD 102 Contents 1.0 INTRODUCTION 2.0 FINANCIAL IMPACT SUMMARY 2.1 Reconciliation of profit for the 52 weeks ended 27 June Reconciliation of equity as at 28 June 2014 and 27 June BASIS OF PREPARATION 3.1 Presentation of financial information 3.2 First time adoption 4.0 KEY FINANCIAL IMPACTS 4.1 Licensed properties 4.2 Investment properties 4.3 Operating leases 4.4 Financial Instruments 4.5 Short-term compensated absences 4.6 Interest rate swaps 4.7 Deferred and current tax 5.0 ACCOUNTING POLICIES 6.0 FINANCIAL STATEMENTS 6.1 Profit and loss account for the 52 weeks ended 27 June Statement of Comprehensive Income for the 52 weeks ended 27 June Balance Sheet as at 27 June Statement of changes in equity for the 52 weeks ended 27 June Balance sheet restatement as at 28 June 2014 (Opening balance sheet) 18

19 1.0 INTRODUCTION Shepherd Neame Ltd has historically presented its financial statements under UK Generally Accepted Accounting Practice (UK GAAP). For the year ended 25 June 2016, the Company will be required to prepare its financial statements in accordance with the new accounting standard Financial Reporting Standard 102 (, The Financial Reporting Standard applicable in the UK and Republic of Ireland). Accordingly, the interim results for the 26 weeks ending 26 December 2015 will be prepared and reported under. This document explains how the Company s reported UK GAAP financial results for the year ended 27 June 2015 and its financial position at that date (which was presented on 23 September 2015) would have been reported under. It includes: The reconciliation of profit between UK GAAP and for the 52 weeks ended 27 June 2015 The reconciliation of equity between UK GAAP and as at 28 June 2014 and 27 June 2015 The accounting policies applied in the preparation of this financial information The profit and loss account for the 52 weeks ended 27 June 2015 The statement of comprehensive income for the 52 weeks ended 27 June 2015 The balance sheet as at 27 June 2015 The statement of changes in equity for the 52 weeks ended 27 June 2015 The balance sheet at 28 June 2014, the date of transition to (the opening balance sheet). The financial information presented in this document is unaudited. 2.0 FINANCIAL IMPACT SUMMARY There are no cash impacts from the adoption of. The following summarises the impact of on the profit and loss account and equity: 2.1 Reconciliation of profit for the 52 weeks ended 27 June Tax After tax Before tax Previous UK GAAP Profit on ordinary activities 9,428 (2,171) 7,257 Adjustments to profit on ordinary activities on transition to FRS102: Depreciation on revalued licensed properties (80) Difference on impairment and difference in profit on disposal of revalued properties Recognition of deferred tax on rolled over gains - (42) (42) Revaluation of investment property 4,086 (796) 3,290 Operating leases (224) 45 (179) Customer loans 61 (12) 49 Bank loans 3 (1) 2 Short-term compensated absences (28) 5 (23) 4,283 (563) 3,720 Profit on ordinary activities 13,711 (2,734) 10,977 19

20 2.2 Reconciliation of equity as at 28 June 2014 and 27 June Previous UK GAAP Equity shareholders funds 132, ,751 Adjustments to equity on transition to : Revaluation of licensed property 68,744 68,391 Revaluation of investment property 6,035 1,916 Operating leases (1,625) (1,401) Customer loans (164) (225) Bank loans Short-term compensated absences (237) (209) Interest rate swaps (17,783) (15,520) Deferred tax (7,318) (7,207) 47,676 45,766 Equity shareholders funds 179, , BASIS OF PREPARATION The financial information presented in this document has been prepared under the new accounting standard, FRS 102. The transition to has resulted in a number of changes in accounting policies to those used previously. The nature of these changes and their impact on opening equity and profit for the comparative period are explained below. The accounts for the year ended 28 June 2014 were audited but the adjustments made to comply with have not been audited and therefore the statements that follow show the results as being unaudited. 3.1 Presentation of financial information The format of the primary statements contained in this document has been presented in accordance with, which is different to old UK GAAP. The Profit and Loss Account now shows interest receivable and payable as Net finance costs. Certain items recognised in profit or loss can vary significantly from year to year and create volatility in reported earnings, which does not reflect the underlying performance. Underlying operating profit and underlying profit before tax have therefore been identified by the Directors to provide a clear and consistent presentation of the underlying performance of ongoing business for shareholders. The definition of these measures is as follows: Underlying operating profit profit before net finance costs, any profit or loss on the disposal of properties, investment property fair value movements and exceptional items. Underlying profit before tax profit before any loss on the disposal of properties, investment property fair value movements and exceptional items. The Statement of Comprehensive Income replaces the Statement of Recognised Gains and Losses. The Statement of Changes in Equity is presented as a primary statement and comparatives are required, compared to the reconciliation of movements in shareholders funds in the notes under previous UK GAAP. 3.2 First time adoption The date of transition to for the Company, to enable comparatives to be calculated, is 28 June The adoption of for the first time allows companies to take certain exemptions in the year of transition. The Company has elected to take a key transition option, allowing the revaluation of licensed properties to market value at the date of transition and treating this one-off valuation as the deemed cost. 20

21 4.0 KEY FINANCIAL IMPACTS The impact on the Company of is reflected in the attached schedules. 4.1 Licensed properties Under previous UK GAAP, freehold licensed properties were revalued at an open market value on an existing use basis as at 28 June 1997, and adjusted for subsequent disposals in accordance with FRS 15. Under, the one-off option to revalue freehold licensed properties at the date of transition was taken, and these were revalued at an open market value as at 28 June Leasehold properties were not revalued. Deferred tax is provided on all revaluations under whereas previously provision was only made when a binding agreement existed at the balance sheet date to dispose of the assets concerned. Revaluation gains in excess of original cost are taken to Other Comprehensive Income and recognised in the Revaluation reserve. The Company s opening balance sheet at 28 June 2014 shows 4,552,000 reclassified from property, plant and equipment to investment property and a revaluation increase of 68,391,000. The pre-tax impact for the year ended 27 June 2015 due to the difference in depreciation on these properties is an increase in operating costs of 80,000, and the difference in profit on disposal of properties is an increase in property profits of 153,000. The pretax impact for the year ended 27 June 2015 due to the difference in impairment charged following revaluation of the properties, is a decrease in operating costs of 312, Investment properties Under previous UK GAAP, investment property was classified as property held for its investment potential. As the value for the Company was not material relative to total property held, the unlicensed property was not classified separately as investment property. All property was valued at cost less depreciation. Under, property (being land or buildings) held in order to earn rentals or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business, is classified as investment property. As a result, certain unlicensed property held by the Company has been reclassified as investment property and must accordingly be valued at fair value and revalued at each reporting date, with the changes in fair value recognised in the Profit and Loss Account. The Company s opening balance sheet at 28 June 2014 shows 4,552,000 reclassified from property, plant and equipment to investment property, and a fair value increase of 1,916,000. At 27 June 2015 the fair value of the investment property was 10,071,000 and the pre-tax impact for the year ended 27 June 2015 due to the difference in fair value, is an increase in profit of 4,086,000. This is recognised in the Profit and Loss Account but excluded from the Company s definition of underlying operating profit. 4.3 Operating leases Under previous UK GAAP, rentals receivable and payable under operating leases were included in turnover on an accruals basis. Under, rentals receivable or payable are charged to the profit and loss account on a straight-line basis over the period of the lease. As a result the Company s opening balance sheet at 28 June 2014 includes accrued income of 45,000 for those properties where the Company is the lessor and an accrual of 1,446,000 for increased lease expenses for those properties where the Company is the lessee. The pre-tax impact for the year ended 27 June 2015 is a net increase in operating costs of 224,

22 4.4 Financial Instruments i) Discounting of financial assets Under previous UK GAAP, basic debt instruments such as loans made to customers were accounted for at the transaction price. Under, these arrangements constitute a financing transaction and as such are measured at amortised cost using the effective interest rate method.* The Company s opening balance sheet at 28 June 2014 shows a provision of 225,000 to reflect the discounting of the loans to free trade customers ( 154,000) and loans to tenanted customers ( 71,000). The pre-tax impact for the year ended 27 June 2015 is a decrease in finance costs of 61,000 due to a net unwinding of the discounted provision. ii) Discounting of financial liabilities Under previous UK GAAP, amortisation of bank loan issue costs was spread evenly over the period to repayment. Under, the amortisation is calculated using the effective interest rate method. The Company s opening balance sheet at 28 June 2014 shows a net asset of 21,000 to reflect the difference in amortisation of the bank loan costs. The pre-tax impact for the year ended 27 June 2015 is a decrease in finance costs of 3, Short-term compensated absences Under previous UK GAAP, the Company did not make provision for accrued holiday pay earned but not taken before the year end. requires the cost of short-term compensated absences to be recognised when employees render the service that increases their entitlement. The Company s opening balance sheet at 28 June 2014 shows an accrual of 209,000 to reflect this. The accrual at 27 June 2015 had increased to 237,000 and the pre-tax impact for the year ended 27 June 2015 is an increase in operating costs of 28, Interest rate swaps Under previous UK GAAP, there was no requirement to recognise derivative financial instruments on the balance sheet. Instead the effects of the derivative financial instruments were recognised in profit or loss on settlement. The fair value was disclosed in the notes to the financial accounts, and calculated with reference to the expected future cash flows at prevailing interest rates. Under, derivative financial instruments are classified as other financial instruments and are recognised as a financial asset or liability, at fair value, when an entity becomes party to the contractual provisions of the instrument. The fair values for interest rate swaps are a volatile value often referred to as mark to market value. This value is determined by marking the fixed rate within the swap against the market for forward interest rates. If forward interest rates are below the fixed swap rate then the swap will have a negative fair value for the Company. If forward interest rates are above the swap rate then there will be a positive fair value for the Company. The Company s opening balance sheet at 28 June 2014 shows a financial liability of 15,520,000, representing interest rate swaps which are fully provided at fair value. At 27 June 2015, the fair value of the interest rate swaps was 17,783,000 and the resulting difference in liability of 2,263,000 has been recognised as other comprehensive income as the hedge is fully effective. *The effective interest method is a method of calculating the actual interest rate in a period based on the amount of a financial instrument s book value at the start of the accounting period. The effective interest rate discounts the expected future cash inflows and outflows over the life of the financial instrument. The interest expense/income in a period equals the carrying amount of the financial instrument at the beginning of the period multiplied by the effective interest rate for the period. 22

23 4.7 Deferred and current tax accounting adjustments have been tax affected where appropriate. Under, deferred tax is accounted for on the basis of taxable timing differences that have originated but not reversed at the balance sheet date. requires a deferred tax liability to be recognised on the balance sheet on the revaluation of tangible fixed assets and on taxable gains that have been rolled over into new assets. Under previous UK GAAP this potential liability was disclosed in the notes to the accounts and only recognised on the balance sheet if there was a binding obligation to sell such assets at the balance sheet date. The balance sheet includes an additional net deferred tax liability of 7,207,000 arising from the transitional differences. At 27 June 2015, the net liability has increased to 7,318,000. There is not expected to be a material change to the Company s underlying tax rate as a result of the implementation of. 5.0 ACCOUNTING POLICIES The following are the significant accounting policies applied in the preparation of the financial information presented in this document. a Tangible fixed assets and depreciation Tangible fixed assets are stated at cost or valuation, net of depreciation and any provision for impairment, except in the case of licensed freehold properties, which were revalued to fair value on transition to. Assets under construction are not depreciated until they are brought into use. All other tangible assets are depreciated at varying rates calculated to write off their carrying value, less estimated residual value, evenly over their expected useful lives, as follows: Freehold brewery buildings 25 years Other freehold and long leasehold buildings 50 years Short leaseholds over the lease term Other plant, equipment, fixtures and vehicles 3 to 20 years Computer hardware and software 3 to 10 years Residual value represents the estimated amount which would currently be obtained from disposal of an asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. b Investment properties Investment properties are carried at fair value and measured at each reporting date with any change recognised in the profit and loss account. c Fixed asset investments Fixed asset investments are measured at cost less impairment. The carrying values of the fixed asset investments are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. d Financial instruments Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. (i) Financial assets and liabilities All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing 23