ADNAMS PLC
RESULTS
The impact of the Covid-19 pandemic was just starting to become apparent as we finalised our 2019 full year Report & Accounts and we have since provided two updates on trading in 2020. The hospitality sector was one of the hardest hit as socialising became heavily restricted and pubs were required to close their doors. As a pub owner and pub operator ourselves, and with a drinks business heavily orientated towards the on-trade, our business was focussed on our online sales, to our supermarket partners and other shops. These sales represented only about one fifth of our normal trade.
The Government support schemes, particularly the Coronavirus Job Retention Scheme (furlough), discretionary grants, business rates relief and cut in VAT, have been enormously important to us. The Treasury should be commended for their urgent and timely response. However, there remain substantial hurdles ahead before UK pubs can return to anything like their previous trading on a sustainable basis.
I would like to thank my Board colleagues and senior management who volunteered to take up to a 50% pay cut from lockdown and through the depth of the crisis. As we noted in our AGM announcement, this backdrop means that these half year accounts show a loss. EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation, a commonly used proxy for cash generation before capital expenditure) for the period was -£1.6m compared to £1.0m in 2019. Our 2020 operating loss was £3.5m against a loss of £0.8m in 2019, a year that was itself subject to disruption following a change to our core computer systems at the end of March 2019.
2020 first half turnover was £21.0m, which compares to £34.7m in 2019. In light of the onset of Covid-19 no final dividend was paid for 2019 and no interim dividend is proposed for 2020. The company benefits from a hugely supportive and loyal shareholder base. The Directors will keep the dividend policy under continuous review and return to paying dividends as soon as is appropriate. We were delighted in April 2020 to be awarded the Queen’s Award for Enterprise in Sustainable Development. This is the third time that Adnams has won this award, a true testament to our continuing leadership in the field of sustainability.
THE DRINKS BUSINESS
The Adnams drinks business has seen good growth in recent years in its sales to supermarkets and shops (our “Take Home” business). The dominant element of our drinks sales remains sales to pubs and other on-trade outlets and the closure of these outlets from 23rd March until beyond the first half of the year had a serious impact on this business. As at the end of February our beer volumes were running just under 3% behind the prior year, but March sales were 25% behind and April 34%. Our on-trade business became restricted to small deliveries to pubs running a takeaway operation. We saw very strong growth in our Take Home sales where April volumes were ahead of 2019 by 57%. In the first half of the year, volumes in Take Home were ahead by 25%, whereas overall beer volumes were down by 25%. These numbers compare to industry volumes which show the total beer market down by 15%, cask ale sales down by 62%, and sales of premium bottled ales up by 19%.
Our export business performed strongly in the first two months of the year but not surprisingly faced tough trading conditions, yet it is seeing demand grow in our established markets. A similar picture is apparent in our spirits business where total volumes sold for the first half of the year were down by 17%, however Take Home volumes rose by 25%. In terms of products sold, Ghost Ship remains our most popular beer, and Ghost Ship 0.5% continues to show strong growth. Likewise with spirits, Copper House Gin is our bestseller. We continue to see strong customer and trade reviews for our products in the press and online which helps build awareness and drive sales. Our investment in new brewing equipment, allowing us to produce beer ready for bottling and canning, has proved its worth at a time when the beer market has moved to selling the vast majority of its products in these formats. The implementation of JD Edwards in 2019 enabled us to respond positively to the significant growth in online orders during lockdown.
ADNAMS PROPERTIES
UK pubs were already experiencing potentially serious cost pressures before Covid-19 arrived, rates bills and increases in the National Living Wage substantially ahead of inflation being particularly notable. Enforced closure followed by restricted reopening requirements and customer caution in visiting hospitality venues will inevitably have far reaching effects on the pub landscape. At this point it is very difficult to know the extent of these changes; and the way in which government support evolves will undoubtedly also affect the position. The Adnams property estate, managed, leased and tenanted, was all closed from 23rd March until beyond the end of the half year, though some of the leased and tenanted pubs have offered a takeaway business.
Most staff employed in the Adnams managed properties were placed on furlough following closure in March. In 2019 the Adnams managed estate gained the Cross Keys at Aldeburgh by transfer from our leased and tenanted estate whilst the Ship at Levington moved in the reverse direction. There were no changes to either estate in the first half of 2020. The Cardinal’s Hat in Harleston was sold at the end of 2019, though the proceeds were received in 2020.
The half year result for our managed properties shows a loss, with full trading only possible up to March 23rd with costs of maintaining a closed estate continuing after that. The decision was taken that it was not appropriate or right to charge rents to our leased and tenanted estate whilst these properties were closed, so earnings here were reduced too.
FINANCE
Covid-19 struck at a point when Adnams was looking to harness the benefits of its relatively recent capital investments. Our bank debt at 30th June 2020 was £14m compared to 30th June 2019 debt of £21.0m. The improvement is driven by strong cost and working capital management as well as utilising opportunities in deferring various taxes and duties. Focused control of cash and spending has ensured that Adnams banking facilities, which are all provided through Barclays Bank, have remained at £22m, £10m of which is in the form of term loans whose maturity has been extended to over a year as at 30th June 2020.
The pension scheme valuation has been updated for movements in the six months since the year end valuation. No revaluation is undertaken at the half year. The half year deficit is £6.2m which compares to £8.0m at 30th June 2019 and £6.2m at 31st December 2019. However, the triennial valuation, on which company contributions are based, showed a small surplus as at 31st March 2019 and the contributions have been adjusted accordingly with our trading levels.
THE FUTURE
Our diversified strategy has enabled the business to pivot and adapt to the changing environment quickly. Through controlling costs, maximising opportunities, and delivering operational excellence at pace has ensured that we have continued to grow the parts of the business that could operate.
Our focus on resilience, recovery and doing the right thing has continued to grow our social capital with our incredible team, customers and others – as we approach the Adnams’ 150th anniversary in 2022 we can look forward to building back better.