Shepherd Neame has found itself on the brink of entering a legal dispute with its water company which could cost up to £750,000 in fees.

The Faversham-based brewer says it could enter arbitration with Southern Water in a disagreement over the end of its long-term agreement with the utility firm.

Shepherd Neame now wants to rely on a new water treatment plant, unveiled last year, which will minimise its consumption by recycling more.

It comes as the pub operator announces a strong trading performance in the spring months, helped by the good weather.

Its tenanted pubs saw earnings before interest, taxes, depreciation, amortization and restructuring rise 4.1% in the 39 weeks to March 29, compared with the same period last year.

This rose by 6% per tenanted pub, with like for like sales in managed houses up 8.8%.

However, beer volume fell 0.3% after it stopped brewing bottled Kingfisher lager in October.

The board is confident the brewer will perform in line with market expectations on the full year to June 28.

The company has also announced a simplification of its share structure and realigning of its shareholders’ rights in a bid to create more liquidity in the business.

A two-tier structure of A and B shares will be aligned into a single class of share traded on the ISDX Growth Market with a nominal value of 50p each.

It is hoped the simpler structure will be more attractive to investors and also create better tax advantages for shareholders.

The old B shares – which had a nominal value of 2p – were not eligible for ISA benefits.

Chairman Miles Templeman said: “Shepherd Neame is a highly successful family business with a proud heritage, a clear strategy and a bright future.

“We believe this proposal is in the interests of all shareholders...” - chairman Miles Templeman

“Over the last few years, the board has taken some important steps to enhance its business with the acquisition of some excellent pubs and hotels, modernisation of the brewery and strengthening of our brand portfolio, as well as a business and board reorganisation to give clear focus to this strategic development and drive higher performance out of existing assets.

“The board believes it is well placed to deliver on its objectives and drive future value for shareholders.

“Following extensive consultation with our shareholders we have concluded that now is an appropriate time to simplify our governance and share capital structure and to re-align the voting and economic rights of A and B shareholders.

“We will continue as a private limited family company with our shares traded on the ISDX Growth Market as a low cost dealing facility and with considerable tax advantages.

“We believe this proposal is in the interests of all shareholders.”