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DJ Adnams PLC Half-year Report


RNS Number : 6260H

Adnams PLC

14 August 2019

Adnams PLC

Interim Accounts 30(th) June 2019

Chairman's Statement


The last few years have seen substantial change and considerable investment in the Adnams business as we have positioned ourselves in crowded and rapidly changing markets. The last, and vital, plank of this investment has been renewal of our core systems, the previous system having been in place for towards thirty years. Against this backdrop turnover was slightly lower than in 2018 and the half year operating loss rose from GBP557,000 to GBP783,000 as we needed to increase costs to deal with the business change.

Our new system went live at the end of March and has unarguably been a major distraction during the past half year. However, the process of change is easing, and we are starting to be able to remove the additional costs required to facilitate and embed our new processes. For its size, Adnams is a complex business selling a large variety of products in many different ways through many different channels. This makes our system needs relatively onerous and the process of change particularly challenging.

GBP44,000 of property profits were realised in 2018, there were no property sales in 2019. Higher debt levels raised our interest costs to GBP257,000 from GBP228,000 in 2018 with the notional interest on our pension deficit rising from GBP99,000 to GBP112,000.

The board has agreed an unchanged interim dividend of 78p per "B" share and 19.5p per "A" share.

The Drinks Business

Adnams beer volumes were ahead of the market for the first six months of 2019, showing an increase of 2% against a market fall of 1%. The relative importance to Adnams of cask ale, a sector down by 5%, made this is notably good performance. We have been particularly pleased by the success of our low alcohol product, Ghost Ship 0.5%, which we launched a little over a year ago. Ghost Ship 0.5% meets the fast-growing demand for low alcohol drinks. We are reducing the beer's alcohol by using reverse osmosis, a filtration method that does not damage the beer's flavour in the way that traditional alcohol evaporation techniques can do. Making a low alcohol version of our most successful product, Ghost Ship 4.5%, means that we can gain immediate recognition, however it also requires us to prove that the quality of the 0.5% product justifies the name of the 4.5% beer. We believe that we have done this, and strong sales growth led to our doubling the capacity of our low alcohol equipment at the start of this year.

Aside from the success of Ghost Ship 0.5% we have also seen a near doubling of export volumes as a consistent focus on key markets bears fruit. Another promising development has been the launch of Adnams Wild Wave cider in March this year and customer feedback has been very good.

Gin volumes were down in the first half of 2019. We noted in our 2018 accounts that the UK has seen a huge boom in small distilleries in the last few years and the market has fragmented as new flavours of drink have been launched. Demand has continued to grow, but it has been spread over an ever greater range of products and producers and supermarkets are stocking fewer traditional gins as they cater for the ever-growing range of new flavours. We have launched special edition gin flavours in 2019 with Orange and Sea Buckthorn in March and Lemon and Tamarind in June.

Recent trends in the drinks market have been towards premiumisation, healthy lifestyles, authenticity and experience. Adnams' strategy plays strongly to these trends. We have some of the best manufacturing equipment in the business, a uniquely premium method for producing low alcohol ales, we are one of a handful of true grain to glass distillers and we possess leading sustainability credentials. We have a raft of awards and reviews to evidence these claims including recently winning the Energy Efficiency award at the highly regarded Footprint Awards 2019 and in February we collected the edie Sustainability Leaders Award for Water Management.

Adnams Properties

The growth of the Adnams managed estate continued during 2019 with an important outlet in Aldeburgh, the Cross Keys, moving from tenancy to management in April. The estate now numbers nine properties.

The Swan Hotel, which was completely refurbished during 2017, has continued to build its business with turnover 11% up on 2018 leading to an improved bottom line and net cash generated 14% higher than the prior year. We carefully monitor customer feedback and we are pleased to note how well regarded the Swan has become. We have also seen better performance at most other managed properties, though the very unfortunate fire suffered at the Ship at Levington has impacted results, coming on top of a period of closure for refurbishment. With a growing group of properties, central costs have increased. Pubs, both managed and tenanted, have seen cost pressures most notably from the National Living Wage, which increased by another 4.9% in April. Nonetheless good pubs and hotels continue to perform well and through managing our own properties we are able to project the Adnams brand to our customers in the most powerful way.

Our award winning brewery and distillery tours business, based out of the Visitor Centre adjacent to the Swan Hotel, continues to do very well and brewery tour numbers are 3% ahead of 2018 and distillery tours are 16% ahead.

Our leased and tenanted estate has reduced in size in recent years and now comprises thirty-eight properties. There were no sales during the last six months, however the comparative period included profits from the King's Head, Laxfield, the Lord Nelson, Ipswich and the Bridge House, London. The first two were sold in 2018 and the lease on the latter expired just after the half year end last year. Nonetheless, despite the smaller estate results were close to those achieved in 2018.

Adnams Shops and Online

Our shops performed well in the first half of 2019, with results ahead of 2018 with an unchanged estate. Our shops have an important role in helping to display our brand to a wider audience, in acting as a launch platform for our new products, and in providing a valuable sales channel through which we can directly sell product that we make or brand ourselves.

In April we launched a new website, linked to our new central system, and whilst the change caused some disruption, and our online sales were behind 2018 in the first half of this year, we are pleased with the design and responsiveness of the new website and are now converting many more visits to sales.

Brand Marketing

We continue to invest in brand development and evolve the communication channels that we use. We have been very successful in launching products ahead of market trends and producing high quality drinks. The challenge has been to stay ahead when followed by other producers in very crowded markets. We are increasing our use of data to understand our opportunities and blending this with our feel for the market and our compelling stories. We have also been investing more in public relations to ensure that our voice can be heard.


The disruption from our new systems had some inevitable impacts on our bank debt which at 30(th) June was GBP21.0m (30(th) June 2018: GBP18.6m). An important aspect of this was an increase in stock levels as we sought to minimise the chance of being out of stock as our systems changed. An element of the stock increase was planned higher stocking of Bitburger and some key wines to guard against possible Brexit disruption. The system change also led to debtor levels being temporarily higher.

Adnams banking facilities stand at GBP22m, GBP10m of which is in the form of term loans, though GBP5m of these are repayable within a year and so are required to be shown on the balance sheet as short-term. Adnams has been well supported by its bank during this period of disruption and the covenants, whose levels were set in in a different environment, were waived in relation to March and June 2019.

In line with the policy adopted in 2018, and that adopted by many others, we have used the previous year end valuation for our pension scheme rather than seeking a mid-year value. These valuations are highly volatile, and we suspect that a separate mid-year valuation adds little to shareholder knowledge. A revised value will be produced at the 2019 year end and we expect the triennial pension scheme valuation result to be available for our full year report. The deficit at 31(st) December 2018 was GBP8.0 million and this is the basis of the deficit of GBP7.8m reported at 30(th) June 2019 (30(th) June 2018: GBP8.1m).

The Future

Last year we observed that the future appeared particularly uncertain given the unknown shape of the impending exit from the European Union. This year the comment seems equally apt. Adnams is focussing on being flexible and agile to cope with the changes that will come. We have experienced a disrupted half year largely due to a major systems change.

Looking ahead, we have properties and products that are truly premium and award winning, a talented, loyal and determined workforce and a strong reputation for innovation and sustainability. The investments that we have made across our business leave us in good shape for the long term.

Profit and loss account

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DJ Adnams PLC Half-year Report -2-

For the six months ended 30 June 2019

                                                       Unaudited  Unaudited 
                                                        6 months   6 months     12 months 
                                                              to         to            to 
                                                         30 June    30 June   31 December 
                                                            2019       2018          2018 
                                                Notes     GBP000     GBP000        GBP000 
----------------------------------------------  -----  ---------  ---------  ------------ 
Turnover                                                  34,704     35,535        78,918 
Operating expenses                                      (35,487)   (36,092)      (77,312) 
----------------------------------------------  -----  ---------  ---------  ------------ 
Operating (loss)/profit before highlighted 
 items                                                     (783)      (557)         1,606 
Highlighted items - operating expenses              2          0          0       (1,766) 
----------------------------------------------  -----  ---------  ---------  ------------ 
Operating loss                                             (783)      (557)         (160) 
Profit/(loss) on disposal of assets                            0         44          (21) 
----------------------------------------------  -----  ---------  ---------  ------------ 
Loss on ordinary activities before interest 
 and taxation                                              (783)      (513)         (181) 
Interest                                                   (257)      (228)         (504) 
Other finance charge on pension scheme                     (112)       (99)         (192) 
----------------------------------------------  -----  ---------  ---------  ------------ 
Loss on ordinary activities before taxation              (1,152)      (840)         (877) 
Tax on loss on ordinary activities                  3        213        148            92 
----------------------------------------------  -----  ---------  ---------  ------------ 
Loss for the financial year                                (939)      (692)         (785) 
----------------------------------------------  -----  ---------  ---------  ------------ 
Loss per share                                      5 
'A' Shares of 25p each, Inc. asset disposals 
 (pence)                                                 (49.8)p    (36.7)p       (41.6)p 
'B' Shares of GBP1 each, Inc. asset disposals 
 (pence)                                                (199.0)p   (146.7)p      (166.4)p 
'A' Shares of 25p each, Exc. asset disposals 
 (pence)                                                 (49.8)p    (38.6)p       (42.5)p 
'B' Shares of GBP1 each, Exc. asset disposals 
 (pence)                                                (199.0)p   (154.6)p      (169.9)p 
----------------------------------------------  -----  ---------  ---------  ------------ 

Balance sheet

As at 30 June 2019

                                                     Unaudited  Unaudited 
                                                       30 June    30 June  31 December 
                                                          2019       2018         2018 
                                                        GBP000     GBP000       GBP000 
---------------------------------------------------  ---------  ---------  ----------- 
Fixed assets 
Tangible assets                                         45,129     46,257       45,181 
Current assets 
Stocks                                                  10,039      8,574        9,496 
Debtors                                                 10,475      9,378       10,654 
Cash at bank and in hand                                    23         23           22 
---------------------------------------------------  ---------  ---------  ----------- 
                                                        20,537     17,975       20,172 
---------------------------------------------------  ---------  ---------  ----------- 
Creditors: amounts falling due within one year        (25,993)   (18,229)     (18,883) 
---------------------------------------------------  ---------  ---------  ----------- 
Net current (liabilities)/assets                       (5,456)      (254)        1,289 
---------------------------------------------------  ---------  ---------  ----------- 
Total assets less current liabilities                   39,673     46,003       46,470 
---------------------------------------------------  ---------  ---------  ----------- 
Creditors: amounts falling due after more than one 
 year                                                  (5,196)   (10,223)     (10,199) 
---------------------------------------------------  ---------  ---------  ----------- 
Provision for liabilities                                (742)      (462)        (720) 
---------------------------------------------------  ---------  ---------  ----------- 
                                                       (5,938)   (10,685)     (10,919) 
---------------------------------------------------  ---------  ---------  ----------- 
Net assets excluding pension liability                  33,735     35,318       35,551 
Pension liability                                      (7,795)    (8,082)      (7,964) 
---------------------------------------------------  ---------  ---------  ----------- 
Net assets including pension liability                  25,940     27,236       27,587 
---------------------------------------------------  ---------  ---------  ----------- 
Capital and reserves 
Called up share capital                                    472        472          472 
Share premium                                              144        144          144 
Profit and loss account                                 25,324     26,620       26,971 
---------------------------------------------------  ---------  ---------  ----------- 
Equity shareholders' funds                              25,940     27,236       27,587 
---------------------------------------------------  ---------  ---------  ----------- 


1 Basis of preparation

The interim accounts, which have not been audited, have been prepared under the recognition and measurement principles of FRS 102. The 2018 full year accounts were audited. The accounting policies are unchanged from 2018.

2 Highlighted Items

Non-recurring costs of GBP1,766,000 have been highlighted in the profit and loss account for 2018 to help shareholders to understand the continuing trading result. These highlighted items represented the cost of property impairment of GBP766,000 and the estimated cost of adjustments to guaranteed minimum pensions of GBP1,000,000.

3 Taxation

The taxation charge is based on the estimated tax rate for the year. Profit on sale of assets includes property profits which are assumed to be reinvested and the tax rolled-over.

4 Dividend

The interim dividend on ordinary shares will be unchanged from 2018 at GBP368,000 (78%) and will be paid on 3 October 2019 to those on the register at the close of business on 6 September 2019.

5 Earnings per share

Earnings per share is calculated by dividing the earnings available to ordinary shareholders by the issued ordinary share capital of GBP471,842. The earnings per share calculation is the same for basic and diluted earnings.

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