New flavoured gins and alcohol-free beers: Five things we learned from the Adnams half-year results

Chairman Jonathan Adnams with a bottle of the distiller's prize-winning Longshore Vodka. Picture: Ar

Chairman Jonathan Adnams with a bottle of the distiller's prize-winning Longshore Vodka. Picture: Archant. - Credit: Eastern Daily Press © 2014

Southwold brewer and distiller Adnams has released its results for the six months to the end of June 2018. Business editor Mark Shields looks at the key points to emerge from the numbers.

1. The focus is on the long term

Adnams is coming off a period of significant investment, and entering a phase in which it expects to begin seeing significant returns.

Turnover edged up in the first half of the year, to £35.535m in the first six months of 2018 from £33.165m in the same period a year earlier, but pre-tax losses reached £840,000, up from £284,000 last year.

Chairman Jonathan Adnams described the first half of 2018 as 'a period of transition', with the focus on being developing new capacity at the brewery and building the offer at the company's recently refurbished flagship hotel, The Swan.

The £7m investment in new fermentation capacity, beer conditioning, filtration and automated kegging was completed last year, but some of the process changes it has required have added costs in 2018.

But Adnams says it is now beginning to see savings from being able to do more of the packaged beer production in Southwold and expects 'growing benefits from this investment'.

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2. Beers are outperforming – including alcohol-free options

Beer sales rose 4.8% in the first half of the year, with positive numbers across kegged, bottled and canned beers – encouraging results against an overall market increase of just 1.3%.

The cask ales market fell 8.4% in the period, which affected Adnams' volumes, though it continued to see 'good growth' in Ghost Ship, the brewery's best-selling beer since 2016, and Mosaic Pale Ale.

England's run in the World Cup had little effect on Adnams, but the CO2 crisis, which saw some breweries run out of the gas amid a European shortage, could still have some distance left to run.

'The carbon dioxide shortages have presented problems to the business and we have faced a number of production difficulties. We suspect it will be several months before its impacts have fully worked through,' said Mr Adnams.

The launch of Adnams' alcohol-free Ghost Ship this summer has been well received, and was made possible after new equipment was installed in March, said Mr Adnams. 'The alcohol-free beer market is growing fast and we hold high hopes for the success of this drink,' he added.

READ MORE: How East Anglia's breweries are responding to drinkers' growing thirst for low-alcohol options

3. New gins are on their way

Adnams Copper House Gin was named the world's best in 2013, and has continued to grow in popularity, with sales up 22.7%, in part thanks to the new pre-mixed G&T cans.

But the increasing competition in the gin market means that distillers cannot afford to stand still, so Adnams is planning to extend its range of flavoured gins – with an Adnams Copper House Pink Gin soon to be released and a quince-flavoured gin following later in the year.

The quince gin was trialled through Adnams' Gin Club 'which brings the voice of the customer into our new product development process', said Mr Adnams.

The base spirit for the gins – Adnams Longshore Vodka – also won a top award at the International Wines and Spirits Competition in 2018.

4. The second half of the year will be crucial

Like many hospitality businesses, Adnams' earnings are loaded into the second half of the year when it sees increased returns from its managed pubs and hotels over summer and Christmas.

In 2017, a £177,000 operating profit in the first half led to a full-year operating profit of £2.159m. The 2018 first-half loss is bigger, at £577,000, which the company has partly put down to 'substantial costs' of bedding in new equipment, particularly in the brewery.

Cold weather in the spring and a hot May and June added up to lower sales in Adnams' managed pubs than in the first half of 2017, especially given that many of its premises are in areas reliant on visitors.

'Weather is an important influence, however increasing staff costs, rates bills, food costs and the apprenticeship levy, which started in April 2017, are also part of the picture,' said Mr Adnams.

5. The Swan must take flight

The refurbishment of the Swan Hotel was a centrepiece of Adnams' activity last year, and was reopened in October 2017.

Since then, the company has been focused on building its reputation as a high-end option for accommodation and dining.

'We have received some first-rate reviews and feedback and the hotel is building well towards its aims, with occupancy rates and evening meals leading the way,' said Mr Adnams.

The first half of the year was broadly break-even, with the profit expected in the second half of the year.