Adnams plc Interim Accounts 2024

Encouraging 6.4% growth in sales justifies the need for further sales initiatives, but reducing overall borrowings is critical for our long-term success.

Statement from the Chair

The business has continued to make progress on a number of fronts during the first half of 2024.

As expected, the funding review continues to be progressed, which, given its long-term nature, has implications not just for shareholders but also for our colleagues, customers and  communities, where Adnams plays an important role as both a local employer and a significant contributor to the region's tourism economy.

While proposals to provide additional funding were made, the associated cost of capital meant these were not sufficiently attractive to merit further consideration. In the short-term, the company will focus on divesting non-core assets as part of a strategy to rebalance debt levels while preserving those assets critical to our future success, alongside continuing to focus on sales growth across all channels.

Our relationship with our banking partner, Barclays, continues to be a key part of our financial plan during this period of transition. Their understanding of our business and flexible approach to our financing have been instrumental in managing our working capital and navigating current challenges.

In the wider economy, we are beginning to see better news with the headline Consumer Price Index (CPI) some three times lower than it was in H1 2023. The current inflation rate sits at 2.2%, and we have recently seen an interest rate cut for the first time since 2020. This augurs well for consumer confidence in the second half of the year, although only time will tell if this translates into a growing propensity to spend.

In terms of the beer market and Adnams' trading performance, we had success in the off-trade ale market delivering growth of 2.7% in a market which declined by 6.8% in the first half of the year (source: BBPA), with Ghost Ship 0.5 driving the majority of these gains. The on-trade continues to struggle, with the market down by 3.9% on average (source: BBPA) and our own sales falling by 6.9%. Within this category, the continuing trend of declining order volumes has put pressure on free trade sales (direct sales to an establishment), which has only partially been mitigated by growing customer numbers. Sales to national accounts (wholesalers and pub groups) saw even greater pressures. The business is currently implementing plans to refocus activities to stem this downward trend and seek out opportunities to get back to growth. On a more positive note, while our own cask sales fell by 2.3% versus the prior year, this compares with a market decline of 8% (source: BBPA).

Across the business, Ghost Ship 0.5 maintains its position as a star performer and justifies our investment and faith in this sector of the market. Volumes in the period were up 12.5%, and revenues were up 13.3%, as the trend for no and low alcohol beverages being an attractive alternative in the on-trade is well established and set to continue. Today, one in three visits to pubs and bars are alcohol-free, and two in three visits involve a non-alcoholic drink of some kind.

Our managed and tied properties delivered stable results, with growth marginally up on the previous year. Our two hotels achieved occupancy levels significantly above those experienced in pre-covid times and Customer Net Promotor Scores remain ahead of our local competitors.

Against this backdrop, total sales saw a positive uplift of 6% against the prior year, albeit behind expectations, at £32m. All sales channels improved on 2023, except our free-trade business suffering a fall in sales (2%), with off-trade experiencing significant growth. Contract brewing and distilling revenues had a record first half of the year, as external parties saw us as a trusted partner. Given this success, we will look to maintain and grow this particular avenue of income going forward.

The cost of goods sold was up £2.9m, driven not only by growing volume but also the cost of raw materials, energy, and other price rises as they continue to flow through the manufacturing business. As to be expected, we completed a successful round of price increases with our customers. Payroll costs were well controlled, and other overheads reduced by almost £1.9m as actions taken in the second half of 2023 continued to impact positively on the cost base. These are recurrent savings and so will continue in the second half of the year and into 2025.

The impact of higher revenues and effective cost control has helped us reduce operating losses by 29% to £1.8m compared to the first half of 2023. The business is set to maintain its focus on cash and ensuring working capital in the form of stock, debtors, and creditors is well managed, further supporting the need to improve the strength of our balance sheet. Given we are still sustaining losses, the board will not be recommending an interim dividend.

True to our objective of consistently offering the best products and services, we received numerous awards at the start of the year, including our third Gold for Adnams Rye Malt Whisky at the World Whiskies Awards and for Longshore from the IWSC. Harpers ranked us a Top 50 Indie wine merchant again, and all our Tours received Tripadvisor's Traveller's Choice Awards.

At Adnams, innovation to meet changing consumer needs has always been at the heart of our business. We have seen strong growth in our off-trade sales so far this year and therefore are choosing to launch our new product, Double Ghost IPA into this channel in October, expanding across to other customers later in the year.

An extension of our highly successful Ghost Ship range, Double Ghost IPA offers a bold new flavour profile that appeals to both traditional beer enthusiasts and those seeking something different, whilst tapping into growing demand for premium craft beers. This new product leverages our brewing expertise while incorporating innovative techniques to create a drink that stands out in the crowded market, with a higher ABV and a richer, more complex taste.

We have undertaken a significant rebranding of our core beers in collaboration with local artist Vanessa Sorborne. Her unique artistic style has breathed new life into our packaging, bringing a fresh and vibrant look that resonates with our brand's heritage and our commitment to the local community. The rebranding has landed well with both trade buyers and consumers, with early feedback indicating increased interest and stronger shelf presence across retail and hospitality. This strategic move not only revitalizes our core range but also strengthens our connection with our customers, reinforcing Adnams as a brand that values creativity and local talent.

You will be aware that Jonathan Adnams has decided to step down as Chair due to health reasons, with the Board appointing me as Interim Chair.

I would like to take this opportunity to thank Jonathan on behalf of the business and wider community for the contribution he's made to Adnams over his 50-year career, including the past 18 as Chair. His personal commitment to innovation - in our products and our brewing and distilling capabilities - has been instrumental in building the foundations we continue to benefit from. Not only that, but as a leader he has embodied the principles and values of Adnams to such an extent that they flow through every aspect of our business today.

Looking ahead, with consumer confidence and general economic conditions appearing more positive, our asset disposal programme is now underway, and the funds realised will be used to reduce our debt. This, together with our best-ever product line-up, will allow us to explore multiple growth opportunities to utilise our brewing capacity, drive top-line sales and build back to profitability.

On behalf of the Board

Simon Townsend

Interim Chair

Profit and loss account

For the six months ended 30 June 2024

*See note 5 below

Balance sheet

As at 30 June 2024

Notes

1 Basis of preparation

The interim accounts, which have not been audited, have been prepared under the recognition and measurement principles of FRS 102 using the accounting policies consistent with those disclosed in the 2023 annual report. These are the policies expected to be applied in the preparation of the audited financial statements for the year ended 31 December 2024. The financial information for the year ended 31 December 2023 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 December 2023 have been filed with the Registrar of Companies. The Independent Auditor's Report on the Annual Report and Financial Statements for the year ended 31 December 2023 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. Despite the major uncertainties at this time across the economy as a whole, and the challenges of this industry, in the reported first half of the year Adnams has continued to operate within its banking covenants on its debt facility. The business manages cash carefully and has concluded, based on its cash management ability and current projections, that it is appropriate for Adnams to adopt the going concern basis for these accounts.

2 Other operating income

The inclusion of the other operating income line within the profit and loss account is to reflect correct accounting treatment of furlough claims and grant income in all periods.

3 Taxation

The taxation charge is based on the estimated tax rate for the year.

4 Earnings per share

Earnings per share is calculated by dividing the earnings available to ordinary shareholders by the issued ordinary share capital of £471,842. The earnings per share calculation is the same for basic and diluted earnings.

5 Loss per share

Loss per shares after asset disposals is not reported above as there were no asset disposals in the period.