Adnams, the Suffolk brewer and pub operator, has reported a 29% rise in operating profit to £862,000 in the six months to 30 June, although results were held back by the “less good trading” within the tenanted pub estate.
Turnover for the company, which said it has taken a number of tenanted pubs into management on a short term basis, rose 15% to £30m and own beer volumes grew 18%.
Pre-tax profits were substantially lower, down 35% to £861,000, because the company sold its Southwold Arms pub in the same period last year for £789,000 - it sold just one pub in H1 2014, although the group said it has a “number of pubs on the market”.
“Our success in continuing to innovate and develop our brand, along with improvements in the weather and the economic outlook, has helped profit to increase,” said the company.
Adnams said the “less good trading within our pub estate has held back our results in this half year”.
“We noted last year that after a good performance from our tenanted pub estate in both 2011 and 2012, trading has been much more challenging, especially for the smaller rural pubs. We have taken into management a few of our pubs on a short-term basis whilst seeking new tenants and we are looking for buyers for seven outlets at the current time. When these are sold our estate will number around 50 pubs.”
At the start of the year Adnams sold one pub, the Queen’s Head, Brandeston, and “we expect more to follow in the second half, with one already having been sold since 30 June”.
On the growth of its beer business, Adnams said: “In the last few years we have been developing our beer brand and have focussed on growing our business with managed pub companies and we have also had success working in partnership with other brewers producing collaborative brews.
“The largest driver of the volume increase in the last six months came from this strategy. We are delighted with this achievement, but such beer volume is volatile and can vary by large amounts between different periods.”
Adnams said its directly delivered business has also had a good first half, with volume growth in own beer of over 10%.
“After five years of holding our prices to directly delivered customers we implemented a 3% price increase this year. The long period of holding our prices has helped to make this a palatable matter for our customers at a time when prices have been under pressure from the fast growing numbers of small brewers and the longer-term trend towards reduced consumption.”
Adnams said its sales to supermarkets and other take home outlets have recently been in strong growth, though this slowed a little in the first half of 2014 to about 5%.
On the hotels business, Adnams said: “For some time trade at the Swan and Crown has been challenging, but they saw an improvement in the first half of this year. One development has been that we have sought to encourage customers to book through our own website by promising the best rates through that route. We have also seen greater continuity in staffing and attractive offers; together with the better weather and improved economic outlook these matters all played a part.
“During the last six months we restructured elements of our pay arrangements and this has included moving lower paid staff towards receipt of the Living Wage. Hotels staff comprised the largest proportion of the beneficiaries from this change.”
Its spirits business, “whilst still very small in terms of total company sales”, continued to “perform well” with volumes rising by 40%.
The “positive trend” in its shops continued, with like-for-like improvements in turnover and earnings.
“They have been proving their worth in enhancing the image of Adnams and being important conduits for the sale of our products. We keep our estate under continuous review and in the first half of this year we made two changes. We opened a new shop in Aldeburgh and closed the shop in Bloomsbury.
“We will also be closing the Waterside shop later this year. The new shop in Aldeburgh, whilst very small, has traded well since it opened. Sales in our shops rose by 12% compared to last year, with like-for-like sales up by 10%.
“Our online shop continues to grow quickly, increasing by 22% in the last six months.”
Adnams said its bank debt at 30 June was £11.2m, up from £10.8m at the year end. “A small negative cash flow in the first half year is in line with expectation.”
The company said it was retaining its policy for the interim dividend, which is to pay 35% of the total dividend paid in the previous year. “As we flagged in our 2013 accounts this means that we will be increasing the dividend on our ‘B’ shares by 1p and on our ‘A’ shares by 0.25p to 69p per share and 17.25p per share respectively, a 1.5% increase.”
Chairman Jonathan Adnams said: “It is pleasing to report an improved picture in 2014, aside from our pubs, our businesses generated better results. Nonetheless, some caution is necessary. The first half of 2013 was not strong, but the second half showed good growth so comparators will be much tougher. Fundamental trends within the beer and pubs industries will not alter quickly and the better weather and improved economic outlook will not always be the case.
“We have been a business unafraid to make major investments and our brewery in particular has been transformed over the last ten years. The benefits from this have allowed us to manage volume increases and have given us the flexibility to brew a wide variety of beer styles. We believe that the long-term intergenerational perspective afforded by our structure, having its roots as a family business, has been very helpful in facilitating these investments.
“As noted in our 2013 accounts, we plan further investments to build additional production capacity and flexibility and we will comment again on this in our 2014 full year accounts. Our heritage as a family business, with some shares being quoted, has served us well and will continue to do so.”