Shepherd Neame Braces for Energy Price Shock as Iran War Drives Up Costs
Shepherd Neame has become the latest pub company to voice alarm over the looming threat of escalating energy expenses, following the outbreak of war in Iran which has sent oil prices skyrocketing. The Kent-based brewer, pub, and hotel group, listed on the Aquis stock exchange, disclosed that its energy contracts are heavily hedged into the next financial year, with approximately 50 percent of agreements secured. However, this hedging strategy means the firm could face a sharp increase in cost pressures if energy prices fail to stabilise before 2027.
Industry Leaders Express Concern Over Inflationary Pressures
Jonathan Neame, chief executive of Shepherd Neame, highlighted the challenges in an interview with City AM. "Like many operators, we've been investing in new plant and equipment to reduce energy consumption... but there's no doubt that it is a concern," he stated. Neame emphasised that affordable and consistent energy, along with manageable labour costs, are crucial for business success, noting the significant impact seen during the Ukraine war on the sector. "So we sincerely hope that the situation in the Middle East stabilises quickly," he added.
This warning echoes sentiments from Wetherspoon boss Tim Martin, who recently suggested potential hikes in pint prices at his pubs due to rising energy costs. Martin told The Telegraph that increasing energy expenses not only directly affect gas and electricity bills but also impoverish customers and inflate supplier costs. Interestingly, analysts at Peel Hunt note that Wetherspoon's energy prices are fixed until 2029, providing a longer buffer than some competitors.
Financial Performance and Market Adaptations
Amid these concerns, Shepherd Neame announced a 3.4 percent increase in its dividend to 4.5p, following a reported 2.7 percent rise in profit to £4.4 million for the six months ending December. Britain's oldest brewer, with roots dating back to 1698, saw turnover remain unchanged compared to the previous year. This stability was achieved as improved demand across its hundreds of pubs offset a reduction in revenue from its brewing division.
The company also revealed that its new stout line, Iron Wharf, has experienced strong sales, helping to fuel demand for its own beer across its establishments. Neame acknowledged the challenging environment in the beer supply market, stating, "There's no hiding from the fact that anyone from the beer supply market is finding life quite challenging at the moment."
Potential Silver Lining from Middle East Instability
Despite the energy cost worries, Neame pointed to a potential upside from the ongoing Middle East conflict. He suggested that instability could lead to a rise in summer staycations in the UK, as Britons avoid the higher costs of international travel. "We should be a major beneficiary of that if that were to be the case," he remarked, indicating that domestic tourism might boost pub and hotel revenues.
In summary, Shepherd Neame is navigating a complex landscape marked by energy price volatility driven by geopolitical tensions, while simultaneously leveraging product innovations and potential shifts in consumer behavior to maintain resilience in the competitive brewing and hospitality industry.
