Bewley’s posts loss after taking €12m Brexit goodwill write-down

Irish coffee group Bewley’s expects to return to profit this year after posting a loss of €18.6 million in 2017, related in large part to a goodwill write-down relating to the potential impact of hard Brexit on the business.

The loss last year compared with a deficit of €2.8 million in 2016 and was the result of exceptional charges of just under €20 million.

Some €11.9 million of this cost related to a write-off of goodwill connected with the potential impact of a hard Brexit on its UK operation, which accounts for 41 per cent of the Irish group’s overall business.

This was part of a wide-ranging series of measures taken by Bewley’s last year to plan for Brexit.

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Bewley's chief executive John Cahill described Brexit as a "significant matter" for the business. The company set up a task force of 15 senior managers to examine "mitigating actions" that might be needed to deal with scenarios that could flow from the UK's exit from the European Union next March.

This has included increasing its warehousing facilities, expanding its roasting capacity in the UK and liaising with suppliers to ensure that the flow of raw materials and goods is not disrupted by a hard Brexit, which could result in tariffs of 7.5 per cent being applied to its roasted coffee products under World Trade Organisation rules.

“The entire supply chain is getting ready,” Mr Cahill said. “We are looking at increased inventory within the system and looking at an acceleration of production. We’ve also put appropriate staff through customs training and have received authorisations as an authorised economic operator, which effectively gives you priority for customs clearance ... as you’re a trusted trader that customs can rely on.”

Sterling weakness

Bewley’s turnover declined 8 per cent to €150.6 million last year. About half of that reduction was currency related, reflecting the weakness of sterling and the dollar against the euro. Equipment sales were also lower and some leases expired at its Rebecca’s chain of coffee shops in Boston.

Mr Cahill said there was strong underlying growth in coffee sales in the UK and Ireland of 5-6 per cent.

In spite of the drop in income, Bewley’s increased its operating profit by 33 per cent to €2.3 million, due to reductions in costs.

On its performance this year, Mr Cahill expects turnover to be flat but is predicting a return to the black. “We see the group at an overall level moving into profitability in 2018 and improving further in 2019, assuming there isn’t a hard Brexit,” he said, adding that the group had “strong” cash balances of €9 million.

Bewley’s latest accounts also capture some of the €12 million investment in reopening its flagship cafe on Grafton Street in Dublin. The cafe reopened on November 1st, 2017, and Mr Cahill said some 700,000 customers have passed through the doors since, with revenues running at an annual rate of €5 million-€6 million.

"The weekends are very, very strong for us," said artist and Bewley's owner Patrick Campbell. "Sometimes during the week we could do with a bit more business but the weekends are strong. The balance is coming in a way that we weren't expecting but overall it is very good."