Adnams is today providing an update on trading since its last announcement, made at the Company’s AGM on 28 April 2008.
At the time of its AGM, the Board stated that the operating environment had become more challenging and uncertain, with the beer trade in particular being hit hard by declining consumer confidence, rising input costs, the effects of the smoking ban and the impact of the penal increase in duty rates. Since the end of April trading conditions, particularly in the UK on-trade, have deteriorated significantly. Reports indicate that four pubs are closing every day.
Brewing and Brands
Total ale volumes in the UK market are down 8.3% in the five
months to May, with on-trade ale volumes down 10.4% in the period. Adnams outperformed the market with total
volumes down 6%. The Company sells 93% of its beer volume outside of its own
pub estate, so it has been heavily exposed to the extremely weak trading
environment in the national on-trade.
Adnams, like all brewers, has also been affected by higher raw material
prices and significantly increased distribution costs.
As reported at the AGM, East Green, the UK’s first carbon
neutral beer, was launched in over 500 Tesco stores in April. The initial performance of this new beer is
very pleasing and Adnams has introduced it into the on-trade and will further
expand its off-trade distribution.
Leisure Retail
The performance of Adnams’ pub estate and hotels has been
resilient in spite of the tough operating environment. The Company opened five
new Cellar & Kitchen stores during 2007, three of them in November. One further store, in Richmond, Surrey, has
been opened in 2008. These new stores
have been establishing themselves well in the current financial year but are
not yet profitable, in line with the experience from new store openings in
previous years. It should be noted that
the balance of profits within the stores is weighted towards the second half of
the year. The Board is currently reviewing the timing of the new stores roll
out but remains confident that the concept is strong.
Investment
Adnams also announced at the AGM that a larger sales force had been taken on at the start of the year, mainly in Brewing and Brands, and that this would result in higher costs in the first half. This expansion was to support part of the strategic plan to double operating profits over the next five years.
As noted above, Adnams has also invested in new store openings and the resources to build this part of its business. This, too, has increased the company’s cost base ahead of the profits that such investment is designed to generate.
In light
of current market conditions, the Board is reviewing its investment plans and
will adjust them as appropriate.
It remains committed to investing in the business to support long-term
growth.
Outlook
As a consequence of the tough trading conditions in the Brewing and Brands business,
and the increased cost base noted above it is anticipated that operating
profits for the half year to end June 2008 will be substantially lower than
those a year ago. In the absence of a significant improvement in trading
conditions it is anticipated that operating profits for the full year to end
December 2008 will also be below prior year levels.
The Board believes that Adnams is well positioned to withstand the present downturn and
our confidence in the future remains strong, though current trading conditions
are undoubtedly the most difficult in recent years – and may well get worse
before the market recovers. The strength of our brand, our innovations, our
investments and our unique environmental positioning give us a sound base to
achieve sustainable growth in the long term.
Adnams will announce it results for the half year to end
June 2008 in August.
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