TIDMADB
RNS Number : 1826U
Adnams PLC
28 March 2019
Chairman's Report
2018 was a year of considerable change for Adnams. After the
very substantial investments in 2017, we had our first full year of
trading at the transformed Swan Hotel and the first year of
operation of our expanded brewery. We invested in our cutting-edge
dealcoholisation plant, we planned and are developing our systems
for the future, and we built new marketing capabilities. Our focus
has been on quality, on creating first rate drinks and first rate
customer experiences and on making Adnams the best and most
efficient organisation that it can be.
At GBP78.9 million our turnover was 5.6% ahead of 2017 and our
beer volumes grew by 2.2%. Operating profit before highlighted
items, at GBP1.6 million, was behind the GBP2.2 million that we
made in 2017. Our EBITDA (Earnings before Interest Tax,
Depreciation and Amortisation, a commonly used proxy for cash
generation before capital expenditure) remained robust at GBP5.2
million, slightly down from GBP5.4 million in 2017, before charging
the non-cash highlighted items. This year, we have GBP1.8 million
of highlighted items relating to guaranteed minimum pension
commitments and property impairment costs. After charging these
items there was an operating loss of GBP160,000. This compares to
an operating profit of GBP1.4m in 2017.
The changes that we made in the year led to a number of one-off
costs, notably the cost of outsourcing the filling of casks for a
few months whilst we installed our dealcoholisation plant, and a
new cask robot. However, as we anticipated at the time of our AGM,
we moved from a first half position where operating profit was
behind 2017 to being ahead of the prior year in the second half.
Significant exceptional highlighted items have been charged at the
full year.
The strategy of Adnams is to be a high quality branded drinks
producer and provider of top quality customer experience in our
property estate. The success of our low alcohol Ghost Ship, further
highly respected awards for our spirits, and plaudits for the
reopened Swan stand as evidence that our strategy is being
delivered.
Beer
The beer market continues to evolve rapidly. For the first time
for many years, volumes of beer sold in the UK on-trade increased,
if only by a modest 0.1%. The relative growth of the off trade
continued, with that segment of the market growing by 4.7%.
Therefore, total market volumes increased by 2.6%. Within these
totals there were some major variations with a strong increase in
premium lager sales in both the on-trade and off-trade. In
contrast, cask ale sales suffered a very poor year with volumes
down by 9%. Cask ale remains the biggest category of beer for
Adnams and it is disappointing to see this level of decline. Our
new brewery investments were made to ensure that we have the
flexibility and adaptability to produce all styles of beer.
One very positive trend for Adnams is the growing interest in
'low and no' alcohol beers, and Ghost Ship 0.5% is making a strong
name for itself in this field. Adnams has invested in
industry-leading technology to make its beer with results that are
correspondingly good. Success has been such that we have already
made a further investment to double our production capacity.
Regular readers of these accounts will know that we have
frequently referred to the distortions caused by Small Breweries
Relief (SBR), the UK's system for granting lower duty rates to
smaller brewers. Concerns about the impacts of SBR, which have
recently included it being cited by Fuller Smith & Turner as
one of the reasons for selling their brewing business, have finally
led the government to launch a review. Shareholders should
understand that this is a very important matter for the health of
mid-size breweries. If Adnams paid the same duty rates as its
smaller competitors we would save around GBP7 million per
annum.
Spirits
In 2013, Adnams celebrated winning the Gin Guild Cup for the
best gin at the International Wine and Spirits Competition. In
2014, we had corresponding success winning the top vodka award,
being the first UK producer to achieve this accolade. In 2018, we
repeated our 2014 success with Adnams Longshore Vodka winning the
best vodka award and on top of this Adnams was named the Vodka
Producer of the Year. There can be no doubt as to the high quality
of the spirits produced by Adnams. We have invested in top quality
production and external awards have followed. In the gin market we
are distinguished by being one of a small number of producers who
distil from grain. The vast majority of gin producers distil their
drinks using alcohol bought from bulk suppliers, we make our own
alcohol and we believe that the quality shows.
Adnams was an early entrant into the craft spirits market in the
UK, having opened our distillery over eight years ago. This helped
us to grow sales rapidly and Copper House Gin in particular gained
a strong reputation. That reputation continues to grow; however,
the market has become substantially more challenging as the number
of distillers has mushroomed, as has the range of gin flavours. We
too have launched flavoured varieties of our Copper House Gin and
saw good success in 2018 with our Adnams Pink Gin and later in the
year with our Quince Gin. Our spirits volumes continued to grow in
2018; however, our 2.4% growth was much lower than we had been
seeing in recent periods as the market has become very crowded.
Properties
The Adnams properties aim to provide top quality customer
experience. Foremost amongst them is the Swan Hotel, Southwold,
which represents the epitome of the Adnams experience. We aim to
provide customers with memorable visits and a deeper understanding
of the Adnams brand, integrating Adnams' premium drinks with
experience of a great location. Service levels are crucial in pubs
and hotels and we have sophisticated systems for capturing customer
feedback.
Over the last few years, Adnams has developed a much stronger
capability to run its own managed pubs and hotels and this has
allowed us the ability to move properties between tenancy,
leasehold or management as circumstances suggest. In 2018, we moved
the Five Bells in Wrentham under our own management and since the
year end we have done likewise with the Cross Keys in Aldeburgh.
The growing managed estate also allows us to ensure that skills are
shared and staff can cover more properties.
The managed estate allows us to communicate the Adnams brand
under our own direction, though some pubs, particularly smaller
ones, are better managed by others and many of our tenants and
lessees are excellent advocates of Adnams.
Retail
The Adnams shops have an important role in raising the
visibility and reputation of our brand and in providing a valuable
channel of distribution for our products, particularly given the
continuing market trend for customers to prefer beer and spirits
packaged for consumption at home. Our shops work hand-in-hand with
our online and mail order businesses to grow and widen our customer
base. Our shops estate remained largely unchanged during the
year.
Brand
The Adnams brand represents our promise to customers. We
continue to invest strongly in brand development and evolve the
communication channels we use. Digital content is becoming ever
more important. However, different from many brands, Adnams has a
real authenticity and human dimension to it and we will be blending
our instinctive feel for our markets, our customers and their needs
with increased use of data to ensure we develop and deliver
products that meet their needs in compelling and motivating ways
now and in future.
Systems
For the last eighteen months Adnams has been engaged in a major
and very important change to its core systems governing the
operation of its manufacturing and wholesale businesses. We had
hoped to complete this project in the second half of last year;
however, the scale of this implementation and the extent of the
changes to our business processes have meant that the system will
be going live just after the signing of these accounts. There will
be some inevitable early disruption from such a fundamental change;
however, adopting best practice systems is vital for the future
growth and resilience of our business.
Dividend
We are recommending an unchanged final dividend of GBP1.50 per
'B' share and it is proposed that this be paid on Tuesday 4 June in
line with the June payment date adopted last year.
Outlook
Those writing forward-looking statements at this time no doubt
share an uneasiness as to how the future will look. At the time of
writing we are due to circulate this report on the day before the
UK is due to leave the EU. There is much talk of the leave date
being delayed, though less clarity as to the deal that will
accompany leaving, assuming that it happens. For businesses, this
uncertainty makes planning very difficult; however, Adnams has the
advantage that it is primarily a UK-based business and whilst we
have plans to secure necessary imports and to continue the growth
of our export business, our main concerns relate to consumer
confidence and availability of suitably skilled staff including
those in our wider supply chain and customer base. There is little
that we can do about these matters, other than to try to ensure
that we remain nimble and able to respond quickly to our markets as
they change. This we will seek to do.
Our business is well-invested including state of the art
systems. We have ensured that quality is at the heart of what we do
and that we can communicate that message to our customers. We are
well placed for the future, uncertain as it may be, and we will
continue to keep our focus on our long-term success. I would like
to thank you for your support.
Jonathan Adnams OBE
Chairman
Adnams plc profit and loss account
For the year ended 31 December
2018 2017
GBP000 GBP000
--------- ---------
Turnover 78,918 74,765
--------- ---------
Operating expenses (77,312) (72,606)
--------- ---------
Operating profit before highlighted items 1,606 2,159
--------- ---------
Highlighted items - operating expenses (1,766) (721)
--------- ---------
Operating (loss)/profit (160) 1,438
--------- ---------
(Loss)/profit on disposal of assets (21) 671
--------- ---------
(Loss)/profit on ordinary activities before
interest and taxation (181) 2,109
--------- ---------
Interest receivable 1 1
--------- ---------
Interest payable (505) (310)
--------- ---------
Other finance charge on pension scheme (192) (251)
--------- ---------
(Loss)/profit on ordinary activities before
taxation (877) 1,549
--------- ---------
Tax on profit on ordinary activities 92 (513)
--------- ---------
(Loss)/profit for the financial year (785) 1,036
--------- ---------
(Loss)/earnings per share basic and diluted
--------- ---------
'A' Shares of 25p each (41.6)p 54.9p
--------- ---------
'B' Shares of GBP1 each (166.4)p 219.6p
--------- ---------
Balance sheet
As at 31 December
2018 2017
GBP000 GBP000
--------- ---------
Tangible fixed assets 45,181 46,535
--------- ---------
Current assets
--------- ---------
Stocks 9,496 8,065
--------- ---------
Debtors 10,654 10,085
--------- ---------
Cash at bank and in hand 22 23
--------- ---------
20,172 18,173
--------- ---------
Creditors: amounts falling due within
one year (18,883) (17,185)
--------- ---------
Net current assets 1,289 988
--------- ---------
Total assets less current liabilities 46,470 47,523
--------- ---------
Creditors: amounts falling due after
more than one year (10,199) (10,221)
--------- ---------
Provision for liabilities (720) (437)
--------- ---------
(10,919) (10,658)
--------- ---------
Net assets excluding pension liability 35,551 36,865
--------- ---------
Pension liability (7,964) (8,223)
--------- ---------
Net assets including pension liability 27,587 28,642
--------- ---------
Capital and reserves
--------- ---------
Called up share capital 472 472
--------- ---------
Share premium 144 144
--------- ---------
Profit and loss account 26,971 28,026
--------- ---------
Equity shareholders' funds 27,587 28,642
--------- ---------
The Directors have recommended a final dividend for the
financial year ending 31 December 2018 of 150% per share on the 'A'
and 'B' Ordinary Shares, unchanged on the previous year. This
amounts to GBP1.50 per 'B' share and 37.5p per 'A' share. The
dividend will be paid on 4 June 2019 to the shareholders on the
register on 3 May 2019. In line with UK accounting standards, the
2018 final dividend has not been accounted for within the above
financial statements.
The information contained in the above profit and loss account
and balance sheet has been extracted from the audited accounts of
Adnams PLC for the year ended 31 December 2018. The statement
preceding the profit and loss account is unaudited.
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END
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