Shepherd Neame – increase in NLW and national insurance will add £2.6m to costs annually from April, reports ‘strong’ first half in ‘challenging’ market: South east brewer and retailer Shepherd Neame has said the impact of the increase in national living wage and national insurance from April will add £2.6m to its costs annually as it reported a “strong” first half performance in a “challenging” market. For the 37 weeks to 15 March 2025, retail like-for-like sales were up 3.2% on last year. Like-for-like tenanted pub income for the 35 weeks to 1 March 2025 was up 0.5% on last year. For the 37 weeks to 15 March 2025, total beer volume was down 11.0% versus 2024. Own beer volume was down 12.8% versus 2024. The company stated: “The company has traded well in the first half and delivered strong profit growth. Like other operators in the sector, we face many cost headwinds that will impact us in the second half, following the recent Budget, notably the increase in national living wage and national insurance from April. We estimate that the annualised impact of these two items is £2.6m, with the incremental costs commencing in April and impacting the final quarter of the 2025 financial year. We plan to mitigate the majority of these costs over the next 18 months through price increases and cost efficiencies. We have ten sites under review for transfer from retail to tenancy over the next 12 months to improve returns. We are reviewing our annual core capex spend. Our new logistics arrangement with GXO is delivering a significant improvement in service levels and customer satisfaction. We had previously indicated that we would incur £1.2m of additional costs in 2025 as a result of the change in logistics arrangements with GXO. We now estimate that these costs will be £0.3m higher in 2025 at £1.5m. Over the next few months we will introduce new brands, including Iron Wharf Stout, the refresh of our Whitstable Bay range and a full brand roll out for First Drop Session IPA after a successful launch. This follows the success of the Spitfire Lager brand re-launch last year. Beyond that we have further brand refreshes under development. We are confident that this will give our trade partners an even better range to offer their customers. One of the strengths of the Shepherd Neame business model is the flexibility our three-legged strategy, as an integrated brewer with a well invested portfolio of retail and tenanted pubs and hotels, gives us to adapt to changed circumstances. The increase in labour costs has undermined business and consumer confidence in the short term. The board has taken decisive action: the cost and price mitigations, pub transfers to tenancy, share buyback, and modest reduction of core capex, should in combination enable us to continue to perform well. We remain hopeful that the economy will return to a growth trajectory, with net disposable income growing and interest rates falling. We also remain optimistic about the potential economic benefits that should arise in the medium term from infrastructure and housing development planned in our heartland. We have a great asset base, strength in depth in our team and remain committed to our long-term goals, namely to be the leading brewer and run the best pubs in our heartland.” It comes as revenue for the 26 weeks ending 28 December 2024 fell to £85.0m from £89.0m the year before, “reflecting an increase in pub sales and a decrease in sales from premium bottled ales”. Statutory profit before tax grew to £4.3m from £1.1m. Total retail sales were up 2% to £42.3m from £41.4m the year before. Retail like-for-like sales were up 4.4% on last year. Retail like-for-like sales inside the M25 were up 9% and outside the M25 by 2.3%. For the 26 weeks, like-for-like drink sales were up 5.5%, like-for-like food sales were up 2.4% and like-for-like accommodation up 3.9%. Like-for-like tenanted pub income was up 0.3% on last year. Divisional revenue in tenanted pubs was up 2.7% to £18.4m from £17.7m and operating profit was flat at £6.6m. Chief executive Jonathan Neame said: “We have delivered a strong first half in a challenging market. The additional costs imposed on our sector are most unwelcome but the business model is flexible and we can adapt to the new circumstances. We have an excellent pub estate and our beer business is evolving to meet current consumer tastes and trends.” The company operates 290 pubs, of which 221 are tenanted or leased, 67 managed and two are held as investment properties under commercial free of tie leases.