Adnams: Looking on the bright side

As has been the case for many operators, the last few months have been rather tough for Adnams, the Suffolk brewer and pub operator.

Yet despite the lousy weather at the start of the year, weather which, on and off, carried on until well into the spring, plus a VAT increase which piled more pressure onto consumers and the 'yawn' that was the recent General Election, Jonathan Adnams, the group's chairman, is remarkably chipper.

"We're fairly positive about life," he says, as the Southwold-based company announced results covering what he describes "as probably the toughest six months anyone in the industry has ever seen".

The East Anglian climate at the start of this year added to the financial chill which continues to affect the business community.

"The winter's adverse weather ran on into April and the sort of snow we had earlier in the year really hits a rural-based business like ours. People simply can't get out, and consequently our pubs suffer," he says.

It's not just the elements that make life difficult, Adnams says. Lob in the VAT hike at the beginning of 2010 and what he describes as a "pre-General Election malaise", and you've a combination of factors to make any operator feel queasy.

But a bit of sunshine, literally, does wonders. "Things got better in May and especially in June," he says.

Sales for the six months to the end of June dipped one per cent to £23.1m, with operating profits down 10 per cent at £826,000, a result Adnams thinks isn't half bad, given the trading circumstances the brewer has just gone through.

Although short on detail, Adnams' tenanted and leased pubs found trading "especially tough", thanks largely to the aforementioned weather.

Adnams applauds what he describes as a "very strong and supportive base of licensees". The tough times have seen the brewer freeze its prices for two years, and those pubs that still needed financial or other support were getting it -although he declines to detail the level of support being offered.

Progressive brewing

The group's hotels have also had a rough time of it in the early part of the year. "Again, the snow didn't help. We're a leisure business and when people can't get out and about we suffer," he says. But the recent warmer weather has seen a return to relative normality, he adds.

On the brewing side of things, Adnams said the group's new bottled beers, notably Spindrift, was doing particularly well, although overall own brewed volumes were down by nearly seven per cent.

Beer delivered by Adnams directly to pubs had risen six per cent, but those to leased and tenanted customers which are part of large pub companies had declined.

"We've seen a change in our customer segmentation," says Adnams. "The likes of Punch and Enterprise Inns have had a pretty torrid time in the last 18 months and despite being good customers of ours we've had to look for new areas of business."

Meanwhile Adnams takes a swipe at progressive beer duty, which he says creates an uneven playing field for brewers like his own: "It's excessive, it keeps going up every year with duty increases and we can't see how it's justifiable. It needs a re-think."

Yet while beer is the core part of Adnams' brands offer, its chairman is excited at the prospect of the first bottles of its own-distilled spirits produced within a micro-distillery housed in an old copper house to hit the nation's shelves by the end of November.

One area of Adnams' operational activity that you would expect its chairman to be quite defensive is its Cellar & Kitchen (C&K) stores, which sell a range of top-end wines and high quality kitchenware.

By his own admission the overall performance of the nine C&K stores has not gone according to plan, to the extent that he admits their overall trading has not justified their costs.

But there have been extenuating factors behind this, Adnams says. "We rolled the stores out just as the recession was kicking in. The stores are making good progress, and customers love them, but it is taking its time."

Poor reception

The initial performance of C&K did not go down at all well with one of Adnams' institutional investors. Guinness Peat, which owns five per cent of the brewer's shares and 2.5 per cent of its voting stock, questioned the strategy on several occasions in what developed into a then-war of words between the City firm and the brewer.

But Adnams is adamant. "You have to remember this was a start-up business. It's gone from nothing to the point where it will be making a profit in the near future," he says.

Adnams concedes that the location of some of the stores might not be spot on. "But we will review the situation as and when leases come up for renewal," he says, adding that the arrival of former Asda senior retail manager Martin Wilkinson to head up the business had been "hugely positive".

Looking ahead, in the short term Adnams says he is "moderately optimistic". The weather would be the most important factor, he believes, while the imminent increase in VAT to 22.5 per cent would be a burden.

"We will look at our costs and our price points and take things from there," he says, on being asked whether the group can absorb some or all of any tax or price rises in future. Forward malt prices, for example, are approaching the highest they have been for a number of years, he says.

But macro economic pressures are beyond the group's influence. Adnams is determined that he and his team stick to what they are good at.

"We're steering this business for the long term. We can't affect the wider economy, but we are doing what we can to grow this company.

"We've got great products across the board, we're moving in the right direction on being a low carbon operation, with things like our new bio-digester soon helping to produce fuel for a our hotels and company vehicles.

"All of this is underpinned by our core values. Which all in all makes us a sound, solid, modern company."

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Half year results to June 30, 2010 - highlights

Turnover: £23.1m (down 1.1 per cent)

Operating profit: £826,000 (down 10.4 per cent)

Pre-tax profit: £641,000 (down 27.3 per cent)

Earnings per 'A' shares (excl. pub disposal proceeds): 20.2p (down 31.1 per cent)

Earnings per 'B' shares (excl. pub disposal proceeds): 80.7p (down 31.1 per cent)