by business editor Trevor Sturgess

Kent brewer Shepherd Neame is selling up to 35 under-performing pubs after reporting a profits dip in “one of the most challenging years in the firm’s history.”

The 300-year-old family-owned firm said most of its quality pubs were doing well but sales decline in the bottom 10 per cent had affected overall performance. It would therefore be disposing of up to 35 pubs in the next two to three years.

Shepherd Neame, based in Faversham, bought 15 quality, high turnover pubs during the year, installed a new bottling line and completed its new computerised system.

It blamed a 20 per cent fall in pre-tax profits to £6,9m (2008: £8.7m) on higher overheads, one-off spending and the rising cost of raw materials. Turnover grew by 7.6 per cent to £109.5m (2008: £101.7m).

Shepherd Neame chairman Miles Templeman said it had been one of the most challenging and difficult years in the company’s history.

In his statement, Mr Templeman said: “The UK economy has suffered greatly and this has had an impact on our performance.

"However, we are already seeing the benefits of the investment and management action taken over the last year to reduce our cost base, improve our efficiency and enhance the quality of our pub estate. The recession has also presented an excellent opportunity to acquire some very high quality pubs at attractive prices.”

Nationally, pubs had faced enormous pressures from the smoking ban, “punitive” duty rates, cost inflation and recession. National beer consumption was falling and for the first time, draught beer sales accounted for less than half of total UK beer sales. The national rate of pub closures was now running at more than 50 a week.

But Sheps boosted beer volume to 6.3 per cent, with like-for-like managed sales up 1.6 per cent and tenanted sales revenue up 0.4 per cent.

Mr Templeman added: “This has been a year of strong sales and significant achievement, but we have incurred high short term costs which have resulted in lower profit. However, we expect operating margin to improve in 2009/10.

“Although the general short term economic outlook is uncertain we have made an encouraging start to the new year with strong beer volumes and like for like sales growth. We remain confident in the quality of our pub estate, the strength of our brands, our overall market position and our future prospects.”

Sheps announced a final dividend per £1 share of 17.9p, making a total dividend for the year of 22.45p, the same as last year.