Investing to deliver, grow and delight. Adnams plc Annual Report and Accountss 2017
Our purpose
Financial highlights
Adnams is famous as a brewer of beer in the coastal town of Southwold in Suffolk and whilst brewing remains at the heart of what we do, we also make a range of award-winning spirits, from the same locally-sourced grains as we make our beers, in our Copper House Distillery.
Turnover £000
Beyond that we own and manage a number of hotels, pubs and inns including The Swan Hotel and The Crown Hotel in Southwold. At Adnams, we want to make sure that our impact on society is positive. Our company values are rooted in making great products without costing the earth.
12 Chairman’s Report 14 Strategic Report 20 Environmental Reporting 22 Finance Commentary
£74,765 +6.4%
2017
74,765
2016
70,265
2015
65,698
2014
66,032
2013
60,500
Operating profit £000
£2,159 -45.2%
2017
2,159
2016
3,937
2015
4,093
2014
3,815
2013
3,325
Dividend £
£2.28 +0.9%
(per £1 share)
2017
2.28
2016
2.26
2015
2.16
2014
2.05
2013
1.96
Governance 24 Our Board 26 Report on Remuneration Financial statements 27 Report of the Directors 29 Profit and loss account
Net bank debt £000
£17,347 +88.4%
2017
17,347
2016
9,208
2015
8,918
2014
8,048
2013
10,758
29 Statement of comprehensive income 30 Balance sheet 31 Statement of changes in equity 32 Statement of cash fl ows 33 Notes to the financial statements 49 Corporate governance 50 Directors’ responsibilities in respect of the accounts
Net pension liability £000
£8,223 -17.0% (pre-tax)
2017
8,223 9,909
2016 2015
3,225
2014 2013
11,468 5,755
51 Independent auditor’s report Go to Finance Commentary 22 2014, 2015, 2016 and 2017 financial highlights have been prepared using the new accounting standard FRS102. 2013 was prepared using the accounting standards in force at that time. Operating profit is reported before highlighted items.
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2017 was a year of huge investment. We saw some inevitable disruption, but we delivered substantial change. We continue to focus on what matters most. To deliver a service and product which allows us to stand out from the crowd. To grow the business when and where appropriate, answering increasing market demand. And above all to delight our new and loyal customers in everything we do. Over the following pages we focus on the big stories of the last year, which will stand us in good stead for years ahead. Jonathan Adnams OBE, Chairman
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Adnams plc Annual Report 2017
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Adnams plc Annual Report 2017
The market for low and no alcohol beers in the UK grew by 10% in 2017. Our latest investment in the brewery sees the installation of new equipment to make low alcohol beer. So, 100% Ghost Ship taste will be available in May, alcohol free. It’s a win win!
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Introducing our alcohol free version of Ghost Ship. It’s a win win!
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Adnams plc Annual Report 2017
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Adnams plc Annual Report 2017
Newly refurbished and reinvented Often described as the ‘grande dame’ of Southwold, The Swan underwent a major refurbishment in 2017 repositioning this beautiful building as the gateway to ‘all things Adnams’. Working with award-winning architectural and interior design studio, Project Orange, the design celebrates the juxtaposition of Adnams’ heritage with the modernity of our brand today. The transformation of The Swan was a once-in-a-lifetime opportunity, both to restore the original building as well as adding new architectural elements such as a bar extension and the John Adair Adnams Centre, creating beautiful contemporary spaces for the hotel.
T H E S WA N I S
SUMPTUOUS & FA B U L O U S Rachael A
AN AMAZING S TAY W I T H INCREDIBLE S TA F F Smith 677
Meet Ross... Guests can enjoy world-class food (and of course drink!) in the Tap Room and Still Room restaurants. With rising star, Ross Bott as Head Chef (formerly of One Canada Square), he and his team work closely with suppliers and can often be seen out on a boat with the local fi shermen, in a field with some pigs or learning the fi ne art of butchering and fi lleting.
SEASIDE CHIC 237 pippylongstocking
U T T E R LY L OV E LY ABGFR
STUNNING Nanna L
A B R E AT H OF FRESH AIR queeny91
Excellent Outstanding Fabulous That’s how we describe our rooms. Whether you choose excellent, outstanding or fabulous, you can rest assured, in your bespoke four-poster bed, that your Tall Boy drinks cabinet will be super stocked with Adnams creations – including a complimentary 200ml bottle of Copper House Gin to take home with you.
Adnams plc Annual Report 2017
The film The importance of reaching a wider audience, who perhaps don’t already know about The Swan, is critical to its success. We had a lot of fun working with Ember Films to create two short fi lms that we shared on all our social media channels. If you haven’t already seen them, log onto our YouTube channel via adnams.co.uk
The experience Nestled in the corner of The Swan’s courtyard, the John Adair Adnams centre is home to a cornucopia of Adnams artefacts and memorabilia. It’s also the new home for the thousands of Adnams fans starting their brewery and distillery tours each year.
T k m a to y ak nc pe Fa S
’S E N in? O U S wn g . o ler ur ut IS N H O g yo o u r b in y
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Adnams plc Annual Report 2017
Making it easy to shop – wherever you are Personally I taste in-store, then opt for home delivery. Saves my back.
+15%
ONLINE SALES GROWTH
Online In-store
ADNAMS ON TAP
Alongside the Norwich Westlegate store opening we launched our first ‘business to consumer’ (B2C) multichannel app. Making it easier for customers to find an Adnams pub, store or event whilst we engage them with notifications, quizzes and a fun wine and beer chill timer. So far, it has had 2,731 downloads, new elements for 2018 include Food & Drink matching and developing the Pub locator to become a Favourite Pint locator!
App
Home delivery
Our online sales grew by 15% driven by strong sales in the second half due to increased visibility on Google. The Adnams range goes from strength to strength with Adnams branded wine, beer and spirits taking 9 of the top 10 bestsellers across the year.
Through our electronic charity box Pennies, our generous customers (in store and online) donated a staggering £47.4k, simply by rounding up to the nearest pound.
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Adnams plc Annual Report 2017
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Thank you!
CREATING YOUR OWN GIN IN-STORE IS LIKE WILLY WONKA FOR GROWN UPS! As the high street continues to change and adapt, shoppers are looking for experiences that they can’t get online. What better than a little bit of alchemy at one of our Make Your Own Gin sessions? Both Bury St Edmunds and Norwich Westlegate feature Gin Labs, which are proving very popular with customers.
Every single penny really does count – thank you!
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Adnams plc Annual Report 2017
We are now using 100% renewable electricity throughout our business
100% This has reduced our annual carbon emissions by over
1,000 tonnes of CO2
Financial statements
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Now that’s a bright idea!
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Strategic report
Adnams plc Annual Report 2017
Did you know that your Adnams beers and spirits are all now made using renewable electricity? We first moved the brewery over to 100% renewablysourced electricity in October 2016 and a year later, we switched the entire Adnams business to renewable sources of electricity. In October 2017, the brewery electricity tariff was switched to use 100% natural renewables – so that’s just using wind, solar and hydro. This has reduced our annual carbon emissions by over 1,000 tonnes of CO2, helping reduce our impact on climate change. View our Environmental report on page 20
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Adnams plc Annual Report 2017
BUT DON’T TAKE OUR WORD FOR IT...
Really tantalises your taste buds. Buy once and you’ll be converted.
Lovely gin! Follow the advice on how to serve and you won’t regret it.
HarryStape
Mark C
I used to be a Bombay girl... But also love Hendricks. This beats both!
Very nice gin, bought as a present at Xmas, it didn’t last until New Year!
Pinkbelly
Nice
*Nielsen data November 2017
Governance
The world’s best gin scoops gold (again). It is testament to the whole distillery team to be able to celebrate another great year of awards and accolades. Adnams Copper House Gin’s popularity continues, with it now featuring inside the top 25 gins in the country*. In June, we launched ready-to-drink Copper House Gin in 250ml cans – perfect for festivals, parties, picnics and for enjoying on the beach. We were delighted with the 5/5 score received in a review by Helen McGinn (aka Knackered Mother’s Wine Club) who described our new G&T cans as ‘a gamechanger’ of the Gin-in-a-tin category and concluded her review with ‘Jumping junipers – it’s fantastic!’.
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Adnams plc Annual Report 2017
Chairman’s Report
A confident long-term investment strategy sees us well prepared for the future. Jonathan Adnams OBE Chairman
The markets in which Adnams competes have changed radically in recent years and it is essential that we invest appropriately to grow our business. We invested £9.3 million in 2017, an exceptional amount by Adnams’ historic standards. This spend, which was focussed in our brewery and in transforming The Swan Hotel, was flagged in recent reports and discussed at our 2017 AGM. I am pleased to be able to tell shareholders that these plans have been delivered and we are delighted with the results. Two other projects are in train, the installation of dealcoholisation equipment in the brewery and new core computer systems for the company. The former will be complete by the time you read this report and the latter will finish later this year. Such substantial change within a single year has had an inevitable impact on our results. Though turnover rose 6.4% to £74.8 million, operating profits of £2.2 million, before highlighted items, were substantially lower than the £3.9 million earned in 2016. We are highlighting £721,000 of extra costs most of which were the unexpected price of needing to remove asbestos from the Swan building. Overview There are still many who view Adnams as being a representative of a traditional group classed as ‘regional brewers’. The category is seen as comprising family-owned businesses, with several generations of history, they own pubs which they supply with beer brewed by themselves, this beer is probably also sold to a wider group of pubs within their region. The truth is that few still fit this image. Many have been sold over the years, particularly in the wave of consolidations that took place ten to 15 years ago. The majority of those
that remain have tended to focus on pub ownership and have become pub owners who brew, whilst Adnams has become a brewer that owns pubs. Beyond this, Adnams has become a distiller and is evolving to be a high quality branded drinks producer. Beer A variety of trends can be discerned in the UK beer market. One long-term trend is for reduced consumption. Since 2004 this has been true for alcohol as a whole, though reduction in beer drinking goes back to the late 1970s. Another key trend is the switch from drinking in pubs to drinking at home. The crossover point was recently reached at which more than half of beer produced is drunk at home. In 2017 the off-trade grew by 3.6% whilst the on-trade declined by 2.4%. Adnams has reacted well to this trend with strong growth in its take home business in recent years. A trend that was very strong between the 1970s and the early 2000s was the growth of lager as a proportion of UK beer consumption. This has since flattened-out and one of the most interesting aspects of the current market is the merging of beer styles. The days when beer was sharply delineated between lager, ale and stout are fading and beers are being produced that cross these divides. Adnams was one of the most innovative companies in this movement, producing the chilled and filtered kegged ale Spindrift in 2006. We well remember the challenge of trying to explain to consumers that it was neither a cask ale, nor a lager. Today there are many such beers and Adnams is producing a growing selection, including products such as Mosaic Pale Ale, Dry Hopped Lager, Blackshore Stout and Ease Up IPA.
From the 1970s whilst lager grew, cask ale shrank, and for many years Adnams was one of the mainstays of cask ale production and much lauded by the Campaign for Real Ale. Cask ale has had a rocky ride in recent years with a few false dawns, and 2017 saw a strongly negative trend with sales falling 5.1%, more than twice the rate of decline of total on-trade volumes. Whilst Adnams remains very supportive of cask ale and more of our beer is produced in cask than in any other form, we have needed to produce what the consumer is demanding and increasingly this has been beer in kegs, bottles and cans. This fact is at the heart of the recent £7 million three year investment project that has just concluded in the brewery. We have needed to move beyond the equipment of a traditional cask ale brewery and add capacity to chill, filter, condition and keg our beers. Investing in adaptability and flexibility to secure growth opportunities has been a cornerstone of our investment strategy. A further trend that has affected beer and other drinks is the increasing focus on healthy living, which is producing a growing interest in low alcohol, or alcohol free drinks. Pubs and drinks suppliers have generally not catered well for this market. Alcohol free beers are far from recent, however many would agree that the historic quality of these products has not been high. This market, though still fairly small, is growing and changing. We are already using a process of restricted fermentation to produce Sole Star, a 0.9% alcohol beer, however we see an opportunity to make an alcohol free version of Ghost Ship that carries the full flavour of our most popular beer and we are investing in the equipment to enable this to happen. Our investments have been partly about capacity, flexibility and focus, though also about quality. We are building a premium brand in a crowded market. No brand can last for long without delivering matching underlying quality and we have installed the highest grade equipment to deliver the highest grade drinks. Spirits Adnams’ move into spirits production, over seven years ago, was a natural extension of what we do. We make high quality alcohol and that forms the base of high quality spirits and we have won the awards to prove the value of true ‘grain to glass’ production. In contrast, the vast majority of today’s gin distillers buy their alcohol from third parties. We were able to build this business through our established links with on-trade and off-trade retailers, and, very importantly, using our estate of shops. This allowed us to quickly achieve a core volume of production. According to industry data published during 2017 by Neilson, Copper House Gin has grown to be within the top 25 UK gins. This is a market with continuing growth opportunities and beyond gin we have been maturing whisky. We are developing our strategy to gain a good foothold in what we foresee as being a strong market for English whisky.
Adnams plc Annual Report 2017
Our hotels, pubs and shops are a key part of building our brand. In The Swan Hotel we have an opportunity to show visitors the very best of Adnams and given that the hotel and brewery are immediately adjacent, it gives us the ideal opportunity to cement the link between the two. We have built our new visitor centre in the Cygnet Room building, one side of which faces the hotel, whilst the other abuts the brewery, and the new tours tasting room has been built into the corner of the hotel courtyard. Leased and Tenanted Pubs Our strategy with pubs has been to own those that add value to Adnams whilst Adnams adds value to them. The need to have a consistent brand, and a consistently high brand presence, is important. We have seen a lot of change in our pub estate in recent years and have sold many of the smaller outlets. We have some excellent properties in our portfolio and whilst further change will happen, we feel that we are close to achieving the shape of estate that meets our aims. Managed Pubs and Hotels One important change in our approach to pubs has been the growth in our managed estate, which now numbers seven properties. Whilst we appreciate the excellent job that many of our tenants and lessees do in promoting the Adnams brand, managing properties gives us full freedom to present, promote and enhance our brand in a way that suits the property concerned. Retail On the retail side, our shops have grown our reputation, have raised our visibility, and have given Adnams products a valuable outlet. In parallel we have been developing our online order businesses. A shift of retail businesses towards online sales is of course a well-established trend, though one that is starting to increase its momentum. Bricks and mortar retail is moving towards providing customer experience and this is exactly what we have done at our new shop in Norwich where we have created a ‘gin experience room’. We plan a gradual evolution of the Adnams retail estate towards this type of model. Marketing and Sponsorship Our marketing focus for a number of years has been on sponsorships, both local East Anglian and, with the Boat Races and Tour of Britain, further afield. These have been very important for us and have helped greatly in raising our name and profile. Nonetheless, we are keen to ensure that we raise our online presence too, and take advantage of digital marketing
CUSTOMER EXPERIENCE
Bricks and mortar retail is moving towards providing customer experience and this is exactly what we have done at our new shop in Norwich where we have created a ‘gin experience room’. We plan a gradual evolution of the Adnams retail estate towards this type of model.
FLEXIBILITY & QUALITY
Our investments have been partly about capacity, flexibility and focus, though also about quality. We are building a premium brand in a crowded market.
Outlook 2017 was a challenging and busy year for Adnams, though one that it was imperative to face to orientate ourselves for the future. Our beer business has for a few years been adapting to the growing market for bottles, cans and kegs. We have invested to allow for our continued growth in these areas. A further move is happening in terms of an increased interest in low alcohol and alcohol-free beers, here too we are investing. The holiday hotel market has been challenged by cheaper competition and by a fast-expanding business in rental properties. Nonetheless, premium hotels offering unique experiences are much prized and we have invested to make The Swan such a destination. These changes and investments position us well for the future, however they have inevitably had an impact on our day-to-day operations. They have also made clear the need to have up-to-date systems to help us cope with a changing environment. Our investment in a new central system is focussed on this end. Our turnover is growing strongly, Ghost Ship continues its rise, Copper House Gin is cementing its position as a premium product, The Swan is looking at its very best and we believe that we are well positioned to take advantage of the investments that we have made. I would like to thank you for your support.
Jonathan Adnams OBE Chairman
Strategic report
According to industry data published during 2017 by Neilson, Copper House Gin has grown to be within the top 25 UK gins.
Dividend We are recommending an unchanged final dividend of £1.50 per ‘B’ share and it is proposed that this will be paid on 1 June 2018, about a month later than has previously been the norm. This allows for a proper gap between the date of approval and the date of payment.
Governance
TOP 25
opportunities, and we envisage a migration of our marketing focus more towards these areas in future periods.
Financial statements
The Swan Hotel Our largest investment in 2017 was in transforming The Swan. We have received many wonderful reviews of the new hotel both for the excellent food of our new chef, Ross Bott, and for the beautifully refurbished rooms. We appreciate that the extent of the transformation surprised some of our established regulars and change is never universally popular, however we believe that we have created a hotel to be proud of and one that will continue to grow its reputation as an East Anglian destination.
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Our operating profit, before highlighted items, in 2017 was £2.2 million. This was well down on our 2016 result of £3.9 million. In a year of exceptional investment, there was inevitable disruption in our business. Most notably we lost over £1 million of income from The Swan Hotel being closed for the majority of the year. On top of this we incurred extra costs in the brewery from changes and disruptions as the three year investment project concluded and the new equipment was brought on stream. Computer system changes during the year, and which will continue into 2018, have also driven extra cost ahead of our being able to fully migrate to the new system. Our depreciation charge in 2017 was £358,000 higher than in 2016 as we started to depreciate our new investments. This will be higher again in 2018, though we will also be starting to benefit from the investments that we have made.
The Beer Business We continued to achieve strong volume growth in our beer business with volumes 9.1% higher than in 2016. The combination of increasing supplier numbers and flat, or in the case of cask ale, declining volumes, produces inevitable pressure on margins. This, together with rising costs, exchange rate impacts and the sale of the Lagunitas distribution rights in mid-2016 has meant that the beer business results are similar to 2016. Our portfolio of beers continues to prove attractive to consumers and Ghost Ship in particular remains in strong growth. Last year it passed Adnams Bitter as our best selling beer and it has moved further ahead this year. We have also seen good growth in other beers notably Mosaic Pale Ale, Ease Up IPA and Dry Hopped Lager. Cask Bitter and Broadside have declined over the year, though this partly reflects the overall decline of the cask ale market. We had a number of successful seasonal beers during the year including Old Ale, Regatta, Tally Ho, Freewheel and Fat Sprat. Along with changing consumer tastes for different styles of beer we are also seeing changing preferences for different packaging. Canned beer, which in the past was often seen as inferior to bottled beer, has grown its place as the packaging of choice for craft beers, and it brings environmental benefits relative to bottles. We have launched an increasing number of beers in this format. We have also seen a very substantial increase in demand for 5 litre cans (mini-kegs and mini-casks). This has been a popular product with supermarkets who are able to offer consumers the closest home-consumption equivalent of a beer dispensed at a pub. The Direct Business Our direct delivery business involves Adnams delivering a full range of drinks, including our own products, to free trade pubs and other outlets in the wider East Anglian area and in and around London. This business has relatively high levels of fixed overhead in terms of warehousing and delivery vehicles, however it allows a personalised service controlled by Adnams and it helps build strong relationships with customers. This has been further enhanced over the last couple of years with our ability to offer customers a smartphone ordering application.
The Adnams beer range has proved very attractive to customers and we saw 5% growth in volumes in this channel, with keg volumes particularly buoyant. The general pressure on margins within the beer market has been felt in this division most notably on mainstream lagers and other non-Adnams beers where a range of suppliers are seeking to sell the same product. Margins are generally better in keg products than in cask and so our increasing sales of Adnams beers in keg has been helpful. We have seen pressure on wine margins notably following the depreciation of Sterling after the June 2016 referendum and this is an area of focus for our newly-recruited Commercial Director who has particular expertise in wines. The National Business Our National sales business involves selling to the large national pub companies, to wholesalers and to other brewers. The pub companies have generally been shrinking their estates in recent years and there has been a relative growth in pubs managed by the companies themselves, rather than leased or tenanted to independent operators. The managed pub companies can switch large volumes of beer between suppliers at short notice so this business can be quite volatile. The Adnams beer volumes through this channel were very slightly behind 2016, though again we saw strong growth in kegged beer volumes. The Take Home Business This business covers sales to shops and supermarkets and has been the strongest growing of our sales channels, though it also tends to have the tightest margins. 2017 was no exception and year-on-year volumes grew by 23% with particularly strong growth in canned beers and mini-casks. Adnams’ share of the UK beer market is about 0.4%, with the on-trade being about 0.5% and the off-trade 0.3%. Ten years ago we had about 0.4% of the on-trade and 0.1% of the off-trade, so we have seen good growth on both sides, particularly with the off-trade, and we believe that we have further headroom for growth. Supermarket shelves are crowded with a multiplicity of beer brands, however Adnams has managed to stand out amongst premium bottled ales.
FROM SOUTHWOLD TO SÃO PAULO
At a little over 3% of our output, export remains a small part of our business, though it is beginning to show its potential.
& We love getting together with other brewers. In 2017 we made 6 collaboration brews. Sharing ideas from around the world, making great beer and having a giggle with new friends – what’s not to love?
Imported Beers Until mid-2016 Adnams held the UK distribution rights for the highly-regarded US craft beer, Lagunitas. These rights were sold to Heineken last year. This sale inevitably slowed the growth in our portfolio of imported beers, however we are now distributing Harpoon beers from the USA and we have a long and successful relationship with Bitburger of Germany to sell their pilsner and other beers in the UK. We also sell the Greek beer, Mythos and the Norwegian beer, Aegir. Aegir is a good example of a craft brewery selling its products in canned form. Bitburger volumes this year were very slightly ahead of 2016 and they mirrored the beer market with declines in sales through pubs and growth in shops and supermarkets. Marketing For a number of years our main marketing investment has been in sponsorship of events. We entered into two larger sponsorships in 2016, the University Boat Races and Tour of Britain and Women’s Tour. These remained the focus in 2017, together with our longer standing sponsorship of Newmarket Racecourse. In addition, we have a large number of mainly local sponsorships. In 2018 we have started to sharpen our focus on digital activity, on customer communication and on widening our consumer base.
Canned beer, which in the past was often seen as inferior to bottled beer, has grown its place as the packaging of choice for craft beers, and it brings environmental benefits relative to bottles.
Strategic report
We continued to achieve strong volume growth in our beer business with volumes 9.1% higher than in 2016.
Exports Export volumes grew by 6% in 2017. At a little over 3% of our output, export remains a small part of our business, though it is beginning to show its potential. A little over half of our exported beer is sold in Europe, and we have developed a good business in Australia, selling about 18% of our exports in that market. Latin America and Asia have also grown well.
Governance
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Adnams plc Annual Report 2017
Strategic Report continued
A RYE SMILE
Spirits We have seen substantial growth in this part of our business. Spirits volumes grew by 68% in 2017 with the Take Home business more than doubling. The continuing increase in popularity of our spirits can also be seen from their strong growth in sales through our own shops, this was 43% in 2017 and online sales rose by over 50%. Our export volumes for spirits increased by 31%. The key product for our spirits business is Adnams Copper House Gin, winner of the 2013 International Wine & Spirits Competition’s Gin Guild trophy for the world’s best gin. This substantially outsells our other products and has further headroom for growth. An important product launch during the year was a gin and tonic can including Copper House Gin and our own bespoke tonic water. This tonic water has now also been launched as a separate product. Due to its lengthy maturation in cask, whisky is a slower product to develop than gin and the long delay between production and sale ties up substantial working capital. This has meant that whisky has not seen anything like the boom in small producers that has occurred in the gin market. Adnams has nonetheless been producing whisky since its distillery opened and we see a good growth opportunity for English whiskies.
GIN-DULGENCE
With the number of gin enthusiasts growing by the day, we launched our Gin Club to offer new Adnams gins each season. Members receive three 100ml bottles of exclusive micro-batch gins every three months, giving John, our head distiller, the opportunity to have a lot of fun creating wonderful flavours from a fascinating combination of botanicals.
JOHN’S GOT JUST THE TONIC!
This exciting new spirit allows our distillery team to draw upon 140+ years of brewing experience at Adnams. It is made from 75% rye from Jonathan Adnams’ farm and 25% barley. Rye is a complex grain that creates a thick, syrup-like ‘mash’ due to its protein structure and ability to retain water. The team described having to ‘pull and push’ it through the pipes, but the end result was well worth it! Rye creates a whisky with great depth and character with a drier and spicier finish. Delicious!
As soon as we released our G&T cans, our customers were asking if they could buy the tonic. It made sense for us to develop a tonic that tastes great on its own. The recipe was developed to enhance the wonderful botanical aromas and flavours in our gins.
A COMBINATION OF
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BOTANICALS AND A REFRESHING NEW LOOK
With the updated designs for Copper House Dry Gin and East Coast Vodka receiving such a positive response from customers, 2017 was the turn for Longshore Vodka and First Rate Gin. Created by CookChick Design, the vibrant new designs reflect the spirits’ coastal provenance, featuring seaside icons including seagulls and sailing boats.
Adnams plc Annual Report 2017
The Swan The Swan has been very much at the forefront of Adnams in 2017. We have owned The Swan for many years and it is on the same land as our brewery and distillery in the centre of Southwold. In recent times we have made periodic investments to refurbish the hotel, however no substantial changes were made. The financial results from The Swan were generally a little disappointing and over the longer term occupancy was trending downwards. Hotels such as the Swan have been facing increasing competition from good cheap ‘out of the box’ hotels and from holiday rental properties. The opportunity that we saw for The Swan was to make it a genuinely premium offer, to provide a top class restaurant, and to use the link with Adnams and the brewery to the mutual benefit of the hotel and the wider Company. Those who have visited the hotel since it reopened in October 2017, and who knew it in its pre-2017 incarnation, will have seen a radical difference in appearance and offering. We have had many reviews of the hotel and many comments from customers and the majority have been very positive. In our view change was inevitable and necessary and we believe that The Swan is on the right path. It will take time to attract the wider customer base that it needs, however we are working hard at the required marketing and there is a substantial growth opportunity.
Strategic report Governance
Our property business encompasses seven properties that we manage ourselves: The Swan, Crown and Harbour Inn Southwold, the White Horse Blakeney, the Ship Levington, the Plough Wangford, the Bell Walberswick; and around 40 pubs that are run by independent tenants or lessees. In the last few years we have grown the number of managed properties and we added the Bell and Harbour at the start of 2017. Being able to run a property either by tenancy or by management allows flexibility, and pubs can change their mode of management as circumstances suit. We are also able to temporarily manage pubs between tenancies.
Financial statements
Pubs and Hotel Properties
The redevelopment of The Swan had a major impact on the 2017 results. Most notably the closure of the property for nine and a half months meant that revenue that we would normally have received was not received though many of the costs of the property and staff still needed to be paid. This cost over £1 million. Secondly, we had unforeseen additional costs in removing asbestos. These also delayed the opening of the property for four months, essentially the summer trading period, and added substantially to the lost revenue. The asbestos removal costs amounted to about £0.6 million and they, together with the cost of writing off undepreciated assets that were removed as part of the redevelopment, are separately highlighted in the profit and loss account in an amount of £721,000. Thirdly, there was the capital cost of the redevelopment itself. This will only affect profits as it is depreciated and so there was a fairly small profit impact in 2017, though the cash cost, including the cost of the Visitor Centre was about £4.5 million. The total 2017 cash impact was in the region of £6.5 million and was the largest reason for the substantial increase in debt levels during 2017. The Managed Inns The new managed inns, the Bell Walberswick and the Harbour Inn Southwold, traded well in the year and performed better for us as managed inns than they had previously done as tenancies. Elsewhere we saw positives and negatives. The Plough Wangford had a good year, trading much more strongly than it has for many years and the Ship Levington improved its result compared to 2016. Less good performance was seen at the Crown where accommodation did well, though food and drink less so, and also the White Horse which had a challenging year with staff changes and considerable difficulty with recruitment, especially for chefs. December trading was relatively poor in the managed inns, which was a pattern that we also saw in other parts of the business. This may have been partly weather-related, our weather tracker showed that December was considerably wetter and also colder than the previous two years with some snow at the start of the month. Wider political and economic uncertainties may also have played a part. As we have grown our managed estate we need to upgrade our systems to cope with the challenges of employing many more people, and we will be implementing new systems for this in 2018.
17
WISH YOU WERE HERE
No matter which one of our managed inns you choose, you’ll find a warm welcome, characterful rooms and a great atmosphere. No two are the same, but all share a common passion for fresh local ingredients and of course, wonderful Adnams beverages!
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Adnams plc Annual Report 2017
Strategic Report continued
The tenanted and leased estate This estate has gradually reduced in size over recent years. In 2017 performance was affected by the transfer of the Bell and the Harbour Inn, two large and important pubs, to the managed inns group. We also sold two pubs: the King’s Head Southwold and the Horse and Groom Wrentham. The King’s Head ceased trading over two years earlier and we had been working with a number of community and local groups to try to ensure that it is sympathetically developed to the benefit of Southwold. A sale proved very hard to arrange, though we are hopeful now that the property will have a successful future. Like-for-like trading was down by 2.7% in the tenanted estate, though the transfer of the strongly performing Bell and Harbour Inn to management affected this result. As with the managed inns, December trading was noticeably weaker, being down by 8.5%. The impact of minimum wage increases, rates rises and skills shortages, notably for chefs, has made trading harder for many pubs. The Bricklayer’s Arms, Colchester was sold soon after the year end, sale of the King’s Head (Low House) at Laxfield is due to take place shortly after the signing of these accounts and the lessee at the Lord Nelson in Ipswich is looking into purchasing the property. The rate at which we have sold pubs has slowed in recent years and we do not envisage that this is going to pick up. We have no current plans to buy pubs. Within our largely freehold estate we have four pubs that we lease, one of these is the Bridge House in London. That lease expires during 2018 and we will not be renewing our occupancy.
Shops The shops performed well during 2017, though trading was a little disappointing towards the end of the year. The impact of Sterling’s mid-2016 depreciation continued to be felt in 2017 with the average rate of the Euro being 7% lower than the year before. We estimate that this had an impact of about £200,000, though we mitigated some of this effect by making changes to our range and by altering prices. The shops remain a very important part of the Adnams proposition and we were pleased to open a new shop in Norwich this autumn which joins Bury St Edmunds in offering a make your own gin experience as well as sampling of ingredients. We also launched a new click and collect app for the customers and we envisage this presaging a move towards shops becoming more about experience and less about immediate purchase and take away. Our marketing too will be starting to change to reflect this trend. Aside from the opening in Norwich, we opened a pre-Christmas pop-up shop in the centre of Cambridge. These pop-ups have worked well for us and we have tried a number of locations in Norwich, Ipswich and Chelmsford in the last few years. We have for a while felt that we would benefit from greater presence in Cambridge. In the event central Cambridge was less successful than some of the other locations have been, possibly because of the relatively poor transport access and possibly because of the tourist focus. Online In 2017 we increased the investment and level of support given to our online business and we were pleased to see sales grow by 15%. We are committed to increasing our focus on online sales. For the retail business it gives us reach beyond the localities of our shops and the success of our supermarket sales has meant that key products, notably Ghost Ship, are available across the country and so we need to support new customers with a wide offering. A lot of the challenge in this area is in terms of reliable logistics. Many couriers are wary of carrying fragile liquids alongside their other packages and collating and packing a web order is a very different proposition than doing this for an order from a pub, hence we are looking to more specialist warehousing and delivery.
Our website is also a route to sales of hotel rooms and brewery and distillery tours and we will be looking to move to an improved web platform later this year to help to take advantage of the growth opportunities that online sales offer. Wine We have seen good growth in an area of the business that sits partly online. Our Wine Club has been gaining in popularity over recent years. It is accessible online as well as through traditional mail order. In last year’s accounts we reported the retirement of Rob Chase who was well known to many Adnams wine customers. This year we report the retirement of Alastair Marshall who, along with Rob, was the face of Adnams wines for many years. We wish both of them the very best in their retirement and are pleased to report that Adnams has, in its new Commercial Director, James Davis, recruited a Master of Wine so we are confident that this side of the business is in the best of hands. Social Media Adnams has for a number of years been working on developing its digital following. We have grown our Twitter following by 11% to 47,000 over the year and Facebook friends have increased by 26%. On the marketing front we launched an online Ghost Ship game in the autumn with opportunities to win beer for a year. We also seek to recruit online fans at the many events that we sponsor.
Adnams plc Annual Report 2017
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12 NEW WINES
EVERY 3 MONTHS
DELIVERED TO YOU
Financial statements
The Institute of Masters of Wine is a professional body with an incredible international reputation. Masters of Wine (MWs), hold the most respected title in the world of wine and with just 366 Masters of Wine in the world today, we are delighted to welcome one of them to join our team!
VIP DISCOUNT* Our Twitter following has increased by 11%
THE ADNAMS WINE CLUB As the nature of shopping on the high street changes, so does the way we shop online. The growing trend of online shopping clubs is set to continue. What could be more simple than trusting your favourite retailer to choose a selection of goods for you and post them directly to your door?
The Adnams Wine Club has been running for a number of years and every three months customers receive a case of 12 bottles of wines, often from exciting new wine regions or small vineyards. Each case comes with full tasting notes and food-matching suggestions – you too can read up and impress your friends with your boundless wine knowledge!
Governance
1 IN 366!
Strategic report
WELCOME TO JAMES DAVIS – HE’S
Adnams branded wines are carefully chosen to reflect the character of their maker and the unique characteristics imparted from the grape-growing region as well as the grape varieties used. James and Dan track down interesting wines and then hand the project over to our in-house design team who bring the bottles to life with beautiful designs. A winning combination!
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Adnams plc Annual Report 2017
Strategic Report continued
3.1 For a brewery of our size, we lead the way in efficient water consumption.
Environmental Reporting During 2017 we continued investing to improve the sustainability of our operations, noting the economic benefits of doing so and the improved brand value attaching to those seeking to address environmental issues. We continue to use our established four pillar (carbon, water, waste and bio-diversity) framework to ensure we think holistically about our environmental impacts across the life cycle of our products. In 2017 we have begun enhancing this by using the United Nation’s Sustainable Development Goals to help refine our strategy.
Carbon and Energy Our carbon emissions have remained well below 3,000 tonnes this year. We reported last year that we had switched the brewery onto 100% renewable-sourced electricity, and this year we extended this to all our business. We also upgraded the brewery supply to ensure that the renewable electricity sources used were just from solar, wind and hydro. This switch helped reduce our carbon emissions from electricity consumption by 87% to just 9 tonnes. The company overall emitted more carbon and used more energy this year as we continue to grow. On a per-revenue basis, our carbon emissions have risen slightly to 36.9kg per £k, an increase of 1% on 2016. This increase was expected as we saw a step change in operations and production from our distillery, a more energy intense process than brewing. Our brewery saw an 8% improvement in its carbon efficiency. Our other divisions all used less carbon per barrel of beer or £k revenue, highlighting our focus on optimising efficiencies. Water Our water use ratio increased to 3.1 pints of water to make a pint of beer. This is on par with our 10-year average though higher than 2016. This increase was expected and results from the new processes that we are undertaking using the additional investments that we have made in the brewery. For a brewery of our size, we lead the way in efficient water consumption.
We continue to use our established four pillar (carbon, water, waste and bio-diversity) framework.
Holistic Imperative
Biodiversity
Waste
Water
Carbon
Internal processes and initiatives
+ Suppliers, Customers & Competitors
Our distillery continues to make efficiencies, reducing consumption every year. In 2017 our distillery had a ratio of 47.9 litres of water per litre of finished spirit (down 0.1% against 2016). We can compare our whisky production with other UK distillers, who make up the majority of the industry average data, and we are confident we are more efficient than the industry average. We understand the higher water use intensity of distilling versus brewing and have identified a project for completion in 2018 which should see reductions in distillery water use by up to 50%.
Waste and Biodiversity The public awareness of the environmental impact from plastic and single-use packaging grew significantly in 2017. We have been taking action to reduce these packaging types across the business for many years. In 2017, we removed all plastic straws from our managed inns and café and replaced them with a compostable bio-plastic alternative. We also continued to support the Suffolk Wildlife Trust by donating our carrier bag charge to them. This has helped reduce the number of bags we sell in our shops by 79%. To date the money has been invested in a local nature reserve, Hen Reedbeds, to improve accessibility, replace their old bird hide and introduce cows to the land to help with natural grazing. Our actions over 2017 have also included joining a scheme to reduce single use plastic water bottles by offering free water refills at our shops, reducing the impact to marine wildlife from plastic multipack can holders by making them fully recyclable and quicker to biodegrade, and changing our paper coffee cups to compostable ones, whilst the industry resolves the issue around recyclability. We remain at zero waste to landfill and continue to support initiatives to preserve the biodiversity in our local area. This includes providing a home to over 250,000 honey bees at our Reydon Distribution Centre and hosting three beach cleans which saw 169 volunteers collect 95 sacks of rubbish from Southwold beach. Environmental Expenditure We do not separate our environmental expenditure from other costs as we discourage it being seen as a separate cost when it is so integral to the long-term sustainability of our business.
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Adnams plc Annual Report 2017
43.021
40
38.327
36.539
36.927
2015
2016
2017
30 20 10 0
2014
Production kgCO2e per barrel produced 2017 2016 2015
+13.0%
10.7 9.5* 10.9
2014
14.2
Retail kgCO2e per £k revenue
THE LAST STRAW! (PLASTIC)
As more of us become aware of the need to reduce single-use plastics, we replaced the un-recyclable, oil-based plastic straws with a new, plant-based compostable straw within our Adnams Hotel & Inn estate. Our use of straws is minimal, however, we felt it important to show our support on this important issue. Even with these compostable straws we’re encouraging our staff to only give out a straw when necessary.
- 0.4%
Distribution kgCO2e per barrel delivered
6.4
2016
6.4*
2015
6.8
2014
6.8
Managed Inns kgCO2e per £k revenue
2.1
2017
2016
2.1*
2016
2014
3.1
Total Emissions Tonnes of CO2e
2015
Fuels used for combustion and owned transport (Tonnes)
2015 2014
86.6
2,761 2,518 2,841
+10.1% 2,752
2017 2016
2014
2,567*
2014
Scope 1 Emissions
82.2* 73.2
+7.5%
2017 2016
- 19.3% 66.4
2015
2.3
- 0.6%
2017
2017 2015
Governance
We reported last year that the anaerobic digester at Reydon had been taken over by Southwold Energy Ltd, a company unrelated to Adnams. The site carries valuable rights to renewable heat incentives and whilst production is temporarily in abeyance whilst planned production changes are agreed, we are hopeful that we will see renewed and possibly extended operations in the near future.
Strategic report
50
2,500* 2,312 2,169
Scope 2 Emissions
Purchased electricity (Tonnes)
2017 2016 2015
- 86.8%
9 68* 206
2014
* Restated Note: Using location-based emission factors, normalised emissions were 48.722kg of CO2e per £k revenue, total emissions were 3,642 tonnes of CO2e, fuels used for combustion and owned transport amounted to 2,752 tonnes and purchased electricity amounted to 891 tonnes.
672
Financial statements
Energy production
Normalised Emissions kgCO2e per £k revenue
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Adnams plc Annual Report 2017
Strategic Report continued
Finance Commentary Audit Report Shareholders will notice no major changes in the way in which the 2017 accounts are presented, though they will observe that the report from the auditors (page 51) is very substantially longer this year. This is a new requirement that affects companies such as Adnams with quoted shares. The aim is to give a fuller description of the work carried out as part of the audit and key judgements that have been made in agreeing the figures reported in the accounts. Business Costs We noted last year that we had changed the presentation of our costs so that they are no longer allocated across businesses in what we felt was often a slightly arbitrary fashion. We noted that one of the advantages of not allocating was that overheads were more visible and could be better managed. We are conscious that margins have been further squeezed in 2017. Much of this has been around the disruption from an unprecedented year of investment, nonetheless we are keen to re-establish better profit margins and we are focussing hard on the management of our costs. We are midway through implementing a new central computer system (an ‘Enterprise Resource Planning’ or ERP system). This is designed to help us to improve our processes and make us more efficient, though shorterterm it adds to costs as we have to keep our old systems running whilst building the new. Borrowings Shareholders will note a substantial increase in debt over the course of 2017, from £9.2 million to £17.3 million, an £8.1 million increase. In the section on The Swan above we mention that around £6.5 million of this can be attributed to the renovation of the Hotel. There has been further investment in the brewery and the ERP system that has also contributed. We are keen that borrowings start to be reduced again after a period of heavy investment and this is very much our focus. Alongside the cost control project mentioned above we are keeping a tight rein on capital expenditure in 2018, though two projects of importance need to be completed this year: the ERP project and the investment in dealcoholisation equipment.
In terms of the ratio of year end debt to EBITDA this has been increased both by the higher levels of debt and by the depression of current year profit. At 31 December 2017, and excluding highlighted items, it was 3.2 times. The ratio of earnings (excluding highlighted items) to interest expense was 7.0 times. We noted in last year’s accounts that we had agreed an extra £5 million of debt capacity to allow for The Swan project. This brought our capacity to £20 million given an existing £5 million fixed rate loan and £10 million overdraft. In the event, the asbestos-related delay to the project meant that debt was higher than expected and we have since agreed a temporary debt capacity of £22 million, with a £2 million additional overdraft. The size and structure of these facilities is currently under discussion with Barclays, and we are comfortable that such debt capacity as is needed for our future plans will be forthcoming. Tax The effective tax rate (the tax charge in the accounts as a proportion of the pre-tax accounting profit) was 33% compared to 17% in 2016. The main reason for the increased rate was the impact of adjusting the deferred tax charge from 19% to 17% reflecting the reducing UK Corporation Tax rate. The large pension liability gives rise to a substantial deferred tax asset which is valued at a lower amount when tax rates fall. Also contributing was the effect of additional disallowable capital spend at The Swan. We take a prudent approach to our tax affairs and whilst we do not shun tax reliefs, we avoid anything that might be considered to constitute tax avoidance. It is notable how much companies like Adnams contribute to the UK Exchequer. In 2017, in terms of duty, VAT, corporation tax and national insurance we paid £30 million, which is 40% of our turnover.
Pensions The deficit on our closed defined benefit pension scheme reduced in the year from £9.9 million to £8.2 million. An increase in the value of scheme assets from £33.7 million to £36.4 million was the main driver of this reduction. Liabilities also increased, though by a lesser amount. The discount rate used to assess liabilities continued to fall and was cut from 2.6% to 2.4% over the year. Inflation assumptions were unchanged. The latest triennial valuation took place as at 1 April 2016. The result was a deficit of £1.8 million which was £2.6 million lower than three years earlier. The Company and the Scheme Trustees agreed that the existing employer contributions should nonetheless remain unchanged at £480,000 per annum. Treasury Policies We keep our treasury policies under review in the light of economic circumstances. In recent times we have taken the view that we will accept the year-by-year impact of currency and interest rate fluctuations on the basis that over the long-term we will gain in some years and lose in others, however we will be no worse off and will not need to invest resource in managing our treasury position. We are helped in this view by the fact that though changes in interest and foreign exchange rates affect our results, they are not important enough to imperil our operations. We have however agreed a fixed rate on £5 million of our debt. We have chosen not to insure debts owed to us as we find the strictures imposed by the insurers to be too constraining. We manage credit risk with appropriate limits applied to each customer, based on payment history and credit references. Limits are regularly reviewed and debt appropriately chased. Further details of financial risk are shown in note 28 to the accounts.
Adnams plc Annual Report 2017
23
Financial highlights 2015
2016
2017
Variance1
3,325 9.3%
3,815 13.0%
4,093 10.5%
3,937 10.7%
2,159 (45.2%) 4.7% (56.3%)
42.7% 10,758 11.2 1.96
37.9% 8,048 12.3 2.05
29.7% 8,918 15.3 2.16
33.5% 9,208 17.4 2.26
60.6% 80.7% 17,347 88.4% 7.0 (59.6%) 2.28 0.9%
Strategic report
2014
1 % variance between 2016 and 2017. 2 Before highlighted items, where applicable. 3 The return on capital is based on the pre-highlight operating profit line and capital employed, including debt. 4 Excluding highlighted items and interest on pension deficit. 5 Including proposed final dividend for 2017. 2014, 2015, 2016 and 2017 financial highlights have been prepared using the new accounting standard FRS102. 2013 was prepared using the accounting standards in force at that time.
Impairment Charges None were made in either 2017 or 2016.
GREAT GET TOGETHER
We were proud to brew a new beer which launched in June last year. The Great Get Together Pale Ale was an unprecedented collective UK brewing industry effort to raise funds for the Jo Cox Foundation and support the Great Get Together. All profits from the Great Get Together Pale Ale supported the Foundation’s work to bring together communities across the UK in the spirit of Jo’s words: “we have far more in common than that which divides us.”
Dividend Policy We are recommending an unchanged final dividend in 2017 of £1.50 per ‘B’ share (37.5p per ‘A’ share). Given the increase in the interim dividend of 2p per ‘B’ share (0.5p per ‘A’ share) this will mean that the full year dividend will be £2.28 per ‘B’ share (57p per ‘A’ share), which is a small increase on 2016. Whilst we retain discretion to vary our payments in accordance with the circumstances of the time, our recent policy has been to pay an interim dividend equal to 35% of the previous full year dividend. If the directors decide that this should again be the case in 2018, the interim dividend will increase by 2p to 80p per ‘B’ share (20p per ‘A’ share). Business Risks and Uncertainties We seek to use this report, and that from our Chairman, to discuss the business in such a way that we properly explain the principal risks and uncertainties that we face and we have also sought to classify the main categories of risks and uncertainties, beyond the environmental and financial risks discussed above, as follows. Firstly the state of the economy, notably the level of consumer confidence and changes in alcohol consumption patterns are key to us. We try to ensure that we are sensitive to changes so that we can rapidly adapt.
FREEWHEEL
Adnams has a strong association with the cycling community. We have lots of keen cyclists within Adnams and the sport is popular with many of our customers too. Adnams supports a variety of cycling events throughout the year and we are proud to be the o cial sponsors of both the Tour of Britain and The Women’s Tour. Freewheel Summer ale celebrates all that’s great about being outside in the fresh air on two wheels. Cheers!
Secondly the regulation of our industry affects the ways in which we compete. The alcohol industry is, unsurprisingly, highly regulated. We seek to ensure that we adopt a consistently responsible attitude towards alcohol consumption, that we are well informed on regulatory developments and engage with the development of these regulations.
Thirdly we face operational risks in ensuring the continuing functioning of our brewery and distillery, computer systems and other key processes. We deal with these by attracting and retaining staff with the right abilities and by establishing wider risk management processes. Fourthly our brand and reputation are key to all our business activities and we seek to be constantly vigilant in ensuring that we stand by our values and live up to the name that we have built. We feel that this classification remains as valid in 2017 as it was in 2016. The Future 2018 for Adnams will be a year where we concentrate on seeking returns on the investments that we have made, where we will be concentrating on improving our systems and where we will have a strong focus on costs and debt reduction. We are living through changeable times both political and economic, however Adnams is a strong business with a sound strategy and good growth prospects and will retain its longterm focus. I would like to thank the many stakeholders in our business and most particularly our hard working staff. On behalf of the board, Andy Wood OBE Chief Executive
Governance
Gearing (book value) Net debt (£000) Interest cover4 Ord dividend (per £1 share)5
2013
Financial statements
Operating profit (£000) ROCE (percentage)3
2
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Adnams plc Annual Report 2017
Our Board
1 2
4 3
6
5
8
7
Adnams plc Annual Report 2017
In November 2015 Jonathan celebrated completing 40 years at Adnams. Outside of work Jonathan is a keen sailor, and spent many years as part of the RNLI Lifeboat crew in Southwold. Favourite drink: Either a pint of Adnams Bitter, or an Adnams Single Malt Whisky 2. Andy Wood OBE Chief Executive Andy joined Adnams in the mid 1990s with responsibility for developing its customer service and supply chain operations. He joined the Board in 2000 as Sales and Marketing Director becoming Managing Director in 2006 and Chief Executive in 2010. Andy is Non-Executive Chairman of SGWM a wealth management company operating throughout East Anglia and is a Non-Executive Director of Extremis Technology who manufacture humanitarian shelters. He is also Professor of Corporate Leadership and Associate Dean of Enterprise (Faculty of Social Science) at the University of East Anglia. He has co-authored a book on Lean and Green Business Systems. The book was awarded the Shingo prize for Operational Excellence in 2013. Favourite drink: A pint of Ghost Ship 3. Karen Hester Chief Operating Officer Karen joined Adnams in 1988 as a part-time cleaner with a background in Army logistics and transport, her expertise in operational management was soon spotted. Having progressed in logistics, procurement and transport, Karen became Operations Director in 2007. In 2008 Karen won the title of East of England Business Woman of the Year and in 2013 won the CBI First Women Business of the Year title in recognition of Adnams’ success in supporting women employees to reach their full potential. Karen is also a Magistrate and joined the Adnams Board in 2015. In October 2015, Karen was awarded an honorary doctorate by University Campus Suffolk (UCS). Favourite drink: A nice cold glass of Adnams Riesling
Stephen is a fellow of the Institute of Chartered Accountants in England and Wales, an associate of the Chartered Institute of Taxation and a fellow of the Association of Corporate Treasurers. Stephen is also a member of the Policy and Technical Committee of the Association of Corporate Treasurers, a member of Corporation at Suffolk New College and is a trustee of the National Eczema Society. Favourite drink: A pint of Ease Up IPA 5. Nicky Dulieu Non-Executive Director & Chair of the Remuneration Committee Nicky joined the Adnams Board in April 2014. Nicky is a highly experienced businesswoman who has held a number of positions in leading UK retailers, including Chief Executive at Hobbs. She currently chairs the Board of local business, Notcutts Ltd and is NonExecutive Director at Huntsworth plc and Commercial Board member at the Royal Horticultural Society. Before that, Nicky had a successful career within Marks & Spencer, where she led a number of strategic financial initiatives across a broad range of disciplines including Retail Operations, Property, where she led two ground-breaking transactions, refinancing over £700 million of property assets and Human Resources. Her last role at M&S was Finance Director of the Food Division. Favourite drink: Copper House Gin & Tonic with ice & lime
Guy has been a long-term supporter of Adnams. His family has been involved with Adnams since its very early days and is a major shareholder. Guy has been an Adnams Charity trustee since 2004, he has had a successful international career in finance and has wide ranging interests in Suffolk.
Strategic report
An alumnus of Cambridge University, Stephen has previously worked for Price Waterhouse, NM Rothschild, Burberrys and The Economist Group.
6. Guy Heald Non-Executive Director Guy joined the Adnams Board in April 2015.
Favourite drink: A pint of Dry Hopped Lager 7. Bridget McIntyre Non-Executive Director & Chair of the Audit Committee Bridget joined the Adnams board in May 2013. Bridget started her business career training to be an accountant. After qualification in 1987, she worked in a variety of industries from Collins the publishers to Volvo cars. She moved to work at Aviva and held a number of senior positions across the business. Most recently she was UK chief executive of RSA Insurance. She is currently a director at Jarrold & Sons, and Saga. She is a governor of the Health Foundation and founder of her own social enterprise business, Dream on, a Suffolkbased company focussed on improving the lives of women. Favourite drink: Adnams G&T in a can 8. Steven Sharp Senior Non-Executive Director & Chair of the Nominations Committee Steven joined the Adnams Board in June 2007. Steven started his retail marketing career with the Bejam Group in 1978. He progressed to the Argyll Group and became Marketing Director of Asda in 1987. He joined the Board of Debenhams on the same day as Stuart Rose in 1989, and became Group Marketing Director of the Burton Group. Steven continued his relationship with Stuart as Marketing Director of Booker, Arcadia and Marks & Spencer. He now runs his own company Imagineer London. Favourite drink: A nice pint of Blackshore Stout
Governance
Jonathan has been instrumental in driving Adnams forward in terms of innovation and sustainability. The introduction of the modern and energy-efficient brewing equipment and the world-class distillery that is Adnams today, are all thanks to Jonathan. Jonathan was awarded an OBE in 2008 for his commitment to Corporate Social Responsibility.
4. Stephen Pugh Finance Director Stephen joined Adnams in 2003 as Finance Director. Alongside this role Stephen is responsible for Adnams IT Systems, and served as the Company Secretary until May 2016.
Financial statements
1. Jonathan Adnams OBE Chairman Jonathan joined Adnams on 25 November 1975, starting out in brewery engineering and working in every aspect of the company since. He joined the Board in 1988 running pubs and property and assumed the role of Managing Director in 1997. In August 2006 Jonathan took over the role of Chairman, in which he remains today.
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Adnams plc Annual Report 2017
Report on Remuneration The Current Environment It is our anticipation that Adnams, along with employers in other sectors, will find themselves increasingly recruiting from a shrinking labour market. Adnams does not rely heavily on migrant or transient labour, however we nonetheless anticipate upward pressure on wages. The national shortage of skilled chefs represents a prime example of the recruitment challenges facing employers. The recent expansion in the number of pubs and hotels managed by Adnams has substantially increased our employee numbers and many of these employees are at or near the National Compulsory Minimum Wage. Three years of increases of around 4% in this wage have helped the position of this group, and it is vital that employees receive a meaningful wage. That increase has however tended to mean some squeezing of differentials with supervisors and others paid ahead of this minimum. To deliver strong company performance during challenging times means we must attract and retain the best talent available to us and whilst pay will not be the only factor, it is vital we pay competitive salaries. Policy Remuneration policy at Adnams has tended to be relatively straightforward and we have not had to go down the route of publishing a detailed remuneration report explaining a large variety of complex senior staff incentive arrangements. The Remuneration Committee, comprising the four Adnams non-executive directors, agrees pay policy and incentives. Nicky Dulieu has recently succeeded Steve Sharp as Chair of the Remuneration Committee. Incentives Incentives schemes are designed to change behaviour, and they will often be successful in doing so, however, they may not always change behaviour in quite the direction intended. This makes it very important that schemes are well designed and well understood by recipients. Adnams has historically run a small number of schemes and these have generally covered all, or most, staff. This is helpful in creating a view that “we’re all in this together”. The downside is that staff covering diverse areas including pubs, hotels, shops, a brewery, field sales and offices, work in very different environments and may have different motivations. In 2018 Adnams will be changing the structure of its incentive arrangements. In the last few years there have been two main elements. Firstly, profit related pay (PRP), the amount of which is determined by any excess of operating profit over budgeted levels and payment is pro rata to salaries. Secondly, a share incentive plan (SIP) which is an HMRC-approved scheme that allocates free shares to all staff who have been employed throughout the relevant financial year. The value of shares is determined according to the operating profit performance against budget and allocations are pro rata to salary. The largest value of shares that can be allocated to any individual under the scheme is £3,600 per annum. Total payments under these schemes have typically been in the region of 5% of salary over the last few years, though nothing is payable in relation to 2017.
From 2018 onwards, schemes are becoming more specific to individual areas of the business and will be cash and not share based, though the SIP arrangement will be kept in place to allow employees to purchase up to £1,800 of shares annually on a tax advantaged basis, should they so wish. In addition, a senior staff scheme is being introduced which aims to incentivise achievement of improved earnings per share, ignoring property sales, over a three year period. Gender Pay Companies, such as Adnams, which employ over 250 staff, are now required to submit information on gender pay on a government website, and Adnams has made its first submission. The encouraging message from this submission was that our pay gap is approximately half that of the national average with male employees at Adnams earning 10% more on average than females. Whilst measurement of the gender pay gap is very important, it should be borne in mind that in a relatively small business such as Adnams the reported results can be distorted by a few individuals. Our focus is on ensuring the value added by all roles is reflected accurately in the level of remuneration and we are working hard to eliminate any gender bias. Our aim is to ensure that financial rewards are transparent, consistent and fair across all areas, and that all employees have the opportunity for role and salary progression. Pay variation Aside from concerns as to the fairness of pay between genders an equally fraught debate exists as to the fairness of pay received by those at the top of the scale. The 2017 ratios of the hourly rate for our Chief Executive, for our lowest, median and average paid employees is as follows: Chief Executive to lowest paid
23.0 times
Chief Executive to median paid
15.6 times
Chief Executive to average paid
11.3 times
FTSE 100 Chief Executives to average pay (2016)
129.1 times
27
Adnams plc Annual Report 2017
Report of the Directors
Dividends to ordinary shareholders
2017 £000
Final 150% (paid 2 May 2017)
(708)
Interim 78% (paid 2 October 2017)
(368)
Strategic report
The Chairman’s Report and the Strategic Report on pages 12 to 23 include information about the company’s business and financial performance during the year and indications of likely future developments and should be read in conjunction with this report.
Proposed final dividend of £708,000 (150%) to be paid 1 June 2018.
Governance
Financial risks The financial risk management objectives, policies and exposures of the company are set out in the Strategic Report and in note 28 to the accounts.
Financial statements
Properties In the opinion of the directors the market value of the properties considerably exceeds the amount included in the balance sheet. The directors are unable to quantify this excess in the absence of a professional valuation, the costs of which are not considered justifiable in view of the company’s intention to retain ownership of its principal existing properties for use in its activities for the foreseeable future. Directors The directors who held office during the year and their interests in the share capital of the company, at the beginning and end of the financial year, and whilst a director, are shown below. The statement of Directors’ responsibilities is shown on page 50. M G H Heald, K Hester and A C Wood retire by rotation and being eligible offer themselves for re-election. ‘A’ Ordinary 25p
Directors’ interests
‘B’ Ordinary £1
2017
2016
2017
2016
189,303
186,182
3,263
3,263
161
161
–
–
172,512
164,860
39,707
45,737
2,015
1,819
–
–
105
105
–
–
5,833
2,238
–
–
304
304
–
–
1,745
4,626
–
–
10,670**
10,670**
3,800**
3,800**
Ordinary shares J P A Adnams N J Dulieu* M G H Heald* K Hester B F McIntyre* S C Pugh S M Sharp* A C Wood
* Denotes non-executive director. ** Shares held as Trustee.
The company has a Share Incentive Plan (SIP) in which the executive directors are eligible to participate. Directors’ interests in shares attributed under the terms of this scheme are included above.
28
Adnams plc Annual Report 2017
Report of the Directors continued Employee matters Involvement Adnams is committed to involving employees in the performance and development of the company by encouraging them to discuss with management matters of interest and subjects affecting day to day operations. The company runs incentive schemes to improve performance and to allow employees to benefit from the company’s success. Health, welfare and development of employees For many years Adnams has operated schemes for the welfare and benefit of employees. As well as pension and life assurance, we provide cover for illness and we make available to employees qualified specialists to cover medical welfare, pension advice and any counselling needs. Health and safety policies are given a high profile in all areas with wide representation throughout the company on the Health and Safety Committee. It is our policy to train and develop the knowledge and skills of employees at every level and to provide long-term secure and fulfilling employment. We are proud achievers of the Investors in People Gold award. Disabled persons It is the company’s policy to give full consideration to suitable applications for employment by disabled persons. Opportunities also exist for employees who become disabled to continue their employment or to be trained for other positions. Independence Adnams continues to value and work to preserve its status as an independent company. Charitable donations Adnams is committed to giving not less than 1% of its annual profits to charitable causes.
Supplier payment It is the company’s policy to make every effort to agree terms of payment with suppliers in advance, to ensure that suppliers are made aware of the terms and to abide by them. At 31 December 2017, the company had an average of 26 days (2016: 29 days) purchases outstanding in trade creditors. Directors’ qualifying third party indemnity provisions The company has granted an indemnity to its directors against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the directors’ report. Statement as to disclosure of information to the auditor The directors confirm that: − so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and − the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Auditor Grant Thornton UK LLP offer themselves for reappointment as auditor in accordance with section 489 of the Companies Act 2006. By Order of the Board
E S Cantwell Secretary 14 March 2018
Donations to the Adnams Charity during the year amounted to £22,000 (2016: £40,000).
Notice of meeting Notice is hereby given that the One Hundred and Twenty-Eighth Annual General Meeting will be held at The Britten Studio, Snape Maltings on 23 April 2018 at 11 o’clock for the following purposes: Ordinary Resolutions 1 To consider the Accounts and Directors’ report
A member entitled to attend and vote at the above meeting is entitled to appoint a proxy to exercise all or any of his/her rights to attend, speak and vote. By Order of the Board
2 To declare a final dividend
E S Cantwell Secretary
3 To re-appoint M G H Heald, who retires by rotation
14 March 2018
4 To re-appoint K Hester, who retires by rotation
Registered Office Sole Bay Brewery, Southwold, Suffolk, IP18 6JW Company registered number 31114
5 To re-appoint A C Wood, who retires by rotation 6 To re-appoint Grant Thornton UK LLP as Auditor 7 To authorise the directors to fix the remuneration of the Auditor
Adnams plc Annual Report 2017
29
Profit and loss account 2016 £000
Turnover
5
74,765
70,265
Operating expenses
6
(72,606)
(66,328)
2,159
3,937
(721)
–
1,438
3,937
671
1,430
2,109
5,367
1
–
Operating profit before highlighted items Highlighted items – operating expenses
6
Operating profit Profit on disposal of assets
7
Profit on ordinary activities before interest and taxation Interest receivable Interest payable
10
(310)
(227)
Other finance charge on pension scheme
27
(251)
(120)
1,549
5,020
(513)
(867)
1,036
4,153
2017 £000
2016 £000
1,036
4,153
Profit on ordinary activities before taxation Tax on profit on ordinary activities
11
Profit for the financial year
Statement of comprehensive income For the year ended 31 December 2017
Notes
Profit for the financial year Actuarial gain/(loss) on pension scheme
27
1,457
(7,044)
Movement on deferred tax relating to actuarial (gain)/loss
20
(248)
1,338
2,245
(1,553)
2017
2016
‘A’ Shares of 25p each
54.9p
220.0p
‘B’ Shares of £1 each
219.6p
880.2p
Total comprehensive income/(loss) for the financial year
Notes
Earnings per share basic and diluted
The notes form an integral part of the financial statements.
13
Governance
2017 £000
Financial statements
Notes
Strategic report
For the year ended 31 December 2017
30
Adnams plc Annual Report 2017
Balance sheet As at 31 December 2017
Notes
2017 £000
2016 £000
Tangible assets
14
46,535
40,755
Investments
15
–
50
46,535
40,805
Fixed assets
Current assets Stocks
16
8,065
7,230
Debtors
17
10,085
8,987
23
18
18,173
16,235
(17,185)
(14,429)
988
1,806
47,523
42,611
Cash at bank and in hand
Creditors: amounts falling due within one year
18
Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year
19
(10,221)
(5,229)
Provision for liabilities
20
(437)
–
(10,658)
(5,229)
36,865
37,382
(8,223)
(9,909)
28,642
27,473
Net assets excluding pension liability Pension liability
27
Net assets including pension liability Capital and reserves Called up share capital
21
472
472
Share premium
22
144
144
Profit and loss account
22
28,026
26,857
28,642
27,473
Equity shareholders’ funds The notes form an integral part of the financial statements.
The financial statements were approved by the board of directors on 14 March 2018, authorised for issue and signed on its behalf by:
S C Pugh Director Company registration number 31114
Adnams plc Annual Report 2017
31
Statement of changes in equity Share premium account £000
Profit and loss account £000
Total £000
472
144
29,448
30,064
–
–
4,153
4,153
–
–
(7,044)
(7,044)
Movement on deferred tax relating to pension scheme
–
–
1,338
1,338
Total comprehensive income
–
–
(1,553)
(1,553)
–
–
(1,038)
(1,038)
472
144
26,857
27,473
–
–
1,036
1,036
Notes
At 1 January 2016 Profit for the year Other comprehensive income Actuarial loss on pension scheme
Dividends paid
27
12
At 31 December 2016 Profit for the year
Governance
Called-up share capital £000
Strategic report
For the year ended 31 December 2017
Actuarial gain on pension scheme
27
–
–
1,457
1,457
Movement on deferred tax relating to pension scheme
20
–
–
(248)
(248)
–
–
2,245
2,245
–
–
(1,076)
(1,076)
472
144
28,026
28,642
Total comprehensive income Dividends paid At 31 December 2017 The notes form an integral part of the financial statements.
12
Financial statements
Other comprehensive income
32
Adnams plc Annual Report 2017
Statement of cash flows For the year ended 31 December 2017
Notes
2017 £000
2016 £000
1,036
4,153
Cash flows from operating activities Profit for the financial year Adjustments for: 3,376
2,862
Profit on sale of fixed asset disposals
(683)
(1,454)
Interest, and other finance charges on pension scheme
560
347
Tax on profit on ordinary activities
513
867
Depreciation of tangible assets and write off of investments
Difference between pension charge and cash contributions
27
Increase in stocks
(480)
(480)
(835)
(853)
(1,231)
(1,074)
Increase in creditors
23
787
Cash from operations
2,279
5,155
(593)
(726)
1,686
4,429
(9,345)
(5,187)
902
1,781
Increase in debtors
Taxation paid Net cash generated from operating activities Cash flows from investing activities Payments to acquire tangible fixed assets
14
Receipts from sales of tangible fixed assets Payments to acquire investments/deposits Net cash used in investing activities
(8)
(44)
(8,451)
(3,450)
–
(8,250)
5,000
5,000
Cash flows from financing activities Repayment of bank loans Receipt from new bank loan
(298)
(231)
(1,076)
(1,038)
Net cash used in financing activities
3,626
(4,519)
Net decrease in cash and cash equivalents
(3,139)
(3,540)
Cash and cash equivalents at 1 January
(4,208)
(668)
Cash and cash equivalents at 31 December
(7,347)
(4,208)
23
18
(7,370)
(4,226)
Interest paid Dividends paid
12
Cash and cash equivalents consist of: Cash at bank and in hand Bank overdraft (included in bank overdraft and loans within creditors: amounts falling due within one year) Cash and cash equivalents
(7,347)
(4,208)
Bank loan
(10,000)
(5,000)
Net debt
(17,347)
(9,208)
Decrease in cash
(3,139)
(3,540)
Cash flow from (increase)/decrease in loans
(5,000)
3,250
Movement in net debt
(8,139)
(290)
Reconciliation of net cash flow to movement in net debt
Net debt at 1 January Net debt at 31 December The notes form an integral part of the financial statements.
(9,208)
(8,918)
(17,347)
(9,208)
Adnams plc Annual Report 2017
33
Notes to the financial statements For the year ended 31 December 2017
Going concern The company has considerable property assets and is soundly based. Banking facilities at the year end amounted to £20 million, comprising a £10 million overdraft, a £5 million fixed rate loan and a £5 million revolving credit facility. A further £2 million overdraft was agreed following the year end, making total facilities £22 million. Discussions are in progress with Barclays Bank, with whom all the above facilities are held, to review the best facilities structure for the future. The directors have reasonable confidence that all required facilities will be agreed and that further facilities will be available to the business when the current facilities mature. The directors, who commission and review appropriate business and financial forecasts, also have reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts. 3 Significant judgements and estimates One notable area of judgement is the assessment of possible impairment of the fixed assets, especially properties, employed by Adnams. We use a threshold rate of return for these assets when assessing whether an impairment charge could be required. In recent years we have used a pre-tax rate of 7.5%. Whilst interest rates vary year-by-year there is a case for constantly adjusting this rate, but we feel that there is merit in using a consistent rate and we have chosen this course and feel that 7.5% remains a sensible threshold. The cost of our closed defined benefit pension plan is determined using actuarial valuations. These valuations involve making assumptions, notably about discount rates and mortality rates. Due to the complexity of the valuation, the underlying assumptions and the long-term nature of the plan, such estimates are subject to significant uncertainty. Our overall view is that whilst judgements and estimates need to be made in assessing provisions and asset values, had we made other assumptions within the range of likely outcomes, this would not have produced a materially different result. 4 Principal accounting policies Tangible assets Tangible fixed assets are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is provided on all tangible fixed assets other than freehold land, at rates calculated to write off the cost, less estimated residual value, of each asset evenly over its estimated useful life, as follows: Freehold buildings
2% to 4% p.a.
Leasehold property – long lease
2% p.a.
– short lease
period of lease
Plant and equipment
4% to 10% p.a.
Fixtures and fittings
15% p.a.
Motor vehicles
15% p.a.
Computer equipment
25% p.a.
Fixed assets in the course of construction are not depreciated until they are brought into use. Impairment reviews Asset values are reviewed for impairment should it appear that their value might not be recoverable. In assessing the potential impairment of assets or income generating units (those assets affected by the same economic factors) the book value of properties is compared to the higher of the realisable value and the value in use. The value in use is determined by discounting the cash flows from the assets at a pre-tax rate of 7.5%. Any shortfall is recognised as an impairment loss. In recent years our policy has been to view each of our properties as being sufficiently distinctive to represent a separate income generating unit.
Governance
2 Basis of preparation These financial statements have been prepared in accordance with applicable United Kingdom accounting standards, including Financial Reporting Standard 102 – ‘The Financial Reporting Standard applicable in the United Kingdom and Republic of Ireland’ (FRS102), and with the Companies Act 2006. The financial statements have been prepared on the historical cost basis. There are no fair value adjustments other than in recognition of the net defined benefit pension deficit.
Financial statements
The principal activities of the company are brewing and distilling; wholesaling and retailing beer, wines, spirits and minerals; pub and hotel ownership and management.
Strategic report
1 Company information Adnams plc is a Public Limited Company incorporated in England. The registered office is Sole Bay Brewery, Southwold, Suffolk, IP18 6JW.
34
Adnams plc Annual Report 2017
Notes to the financial statements continued 4 Principal accounting policies (continued) Investments The £50,000 investment made in 2016 is in the Pint Shop Ltd, a customer of Adnams plc which runs outlets in Cambridge and Oxford. In 2017 the decision was taken to transfer this asset to debtors and write it off over a four year period, on the basis that it is a trading asset. Stocks Stocks have been valued on a consistent basis at the lower of cost or net realisable value on a first-in, first-out basis. Cost of beer and spirits stocks includes relevant production costs and associated overheads. Net realisable value is based on estimated selling price less any further costs expected. Debtors Short term debtors are measured at transaction price, less any impairment. Creditors Short term creditors are measured at transaction price. Bank loans Bank loans are measured at amortised cost. Leases Total rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Lease incentives are recognised as a reduction to the expense over the lease term on a straight line basis. Financial instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity when paid. Taxation Current tax is charged on the basis of the amount of tax payable in respect of the taxable profit for the current or past reporting periods using the tax rates and laws that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax. Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits, and are recognised within debtors. The deferred tax assets and liabilities all relate to the same legal entity and being due to or from the same tax authority are offset on the balance sheet. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred tax is provided on capital gains which have been rolled over into the acquisition of new fixed assets. Turnover Turnover is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on despatch or delivery of the goods; or on provision of services. In the Brewing and Brands business turnover is recognised on confirmation of delivery of beer or other physical goods. In the Retail businesses stores and web and mail order turnover is recognised on despatch of goods, or physical shop transaction. In the Property business managed properties recognise income following provision of accommodation services or provision of food or drinks. Rental income received from the tied estate properties is recognised in the period to which it relates. Turnover is measured at the fair value of the consideration receivable.
35
Strategic report
4 Principal accounting policies (continued) Employee benefits Pension costs – defined benefit scheme For the Adnams defined benefit scheme assets are measured at fair value. Scheme liabilities are measured on an actuarial basis using the projected unit credit method and are discounted at appropriate high quality corporate bond rates. The net surplus or deficit is presented separately from other net assets on the balance sheet. A net surplus is recognised only to the extent that it is recoverable by the company through reduced contributions or through refunds from the plan. As the scheme is closed to all accrual there are no current service costs. Costs from settlements and curtailments are charged against operating surplus. Past service costs are recognised in the current reporting period. Interest is calculated on the net defined benefit liability. Remeasurements are reported in other comprehensive income. Additional information is included in note 27. Pension costs – defined contribution schemes In respect of the defined contribution pension schemes, the amounts charged to the profit and loss account are the contributions payable in the year. Foreign currency translation Transactions expressed in foreign currencies are translated into Sterling and recorded at rates of exchange ruling at the date of transaction. Monetary assets and liabilities are translated at rates ruling at the balance sheet date. All differences are taken to the profit and loss account.
Financial statements
Dividends Dividends payable on ordinary shares are shown as a movement in reserves when paid. Dividends payable on preference shares are shown as an interest cost in accordance with the payment date attaching to those shares. 5 Turnover Represents sales invoiced (excluding VAT and net of discounts), rents, commissions and royalties. Turnover outside the United Kingdom during the year was £725,000 (2016: £695,000). 6 Operating expenses
Raw materials, consumables and duty
2017 £000
2016 £000
47,865
43,904
(271)
(566)
11,873
10,769
–
243
3,220
2,862
Profit on disposal of plant and vehicles
(12)
(24)
Auditor’s remuneration – Audit of the company’s annual accounts
37
33
– Audit-related assurance services
2
2
– Tax compliance services
6
6
– Tax advisory
2
–
Operating lease rentals
684
599
Foreign exchange gain
(166)
(20)
9,366
8,520
72,606
66,328
Change in stock of finished goods and work in progress Staff costs (note 9) SIP scheme for employees (note 29) Depreciation (note 14)
Other operating costs
Governance
Adnams plc Annual Report 2017
The £721,000 of highlighted items comprise £577,000 of costs of removing asbestos during the renovation of The Swan and a further £144,000 of costs arising from writing-off assets at The Swan which were removed as part of the redevelopment. 7 Profit on disposal of assets Profit on disposal of assets in 2016 includes the profit made on selling the UK distribution rights for Lagunitas beers, less associated costs, and in both 2016 and 2017 it includes profit from the sale of properties.
36
Adnams plc Annual Report 2017
Notes to the financial statements continued 8 Segmental analysis Brewing & Brands 2017 £000
Pubs & Hotels 2017 £000
Retail 2017 £000
48,832
13,491
12,439
–
3
74,765
7,030
3,025
1,587
(4,541)
(4,942)
2,159
–
(721)
–
–
–
(721)
7,030
2,304
1,587
(4,541)
(4,942)
1,438
Profit on disposal of assets
–
671
–
–
–
671
Interest receivable
–
–
–
–
1
1
Interest payable
–
–
–
–
(310)
(310)
Other finance charge on pension scheme
–
–
–
–
(251)
(251)
7,030
2,975
1,587
(4,541)
(5,502)
1,549
478
677
225
1,586
254
3,220
Brewing & Brands 2016 £000
Pubs & Hotels 2016 £000
Retail 2016 £000
Central Central Operations Management 2016 2016 £000 £000
Total 2016 £000
44,722
13,587
11,945
–
11
70,265
Operating profit/(loss)
7,023
4,466
1,453
(4,261)
(4,744)
3,937
Profit on disposal of assets
1,252
178
–
–
–
1,430
Interest payable
–
–
–
–
(227)
(227)
Other finance charge on pension scheme
–
–
–
–
(120)
(120)
8,275
4,644
1,453
(4,261)
(5,091)
5,020
493
583
231
1,364
191
2,862
Total sales Operating profit/(loss) before highlighted items Highlighted items – operating expenses Operating profit/(loss)
Profit/(loss) on ordinary activities before taxation Depreciation
Total sales
Profit/(loss) on ordinary activities before taxation Depreciation
Central Central Operations Management 2017 2017 £000 £000
Total 2017 £000
The company’s business segments are Adnams Brewing & Brands, which comprises brewing and distribution of beer, spirits and other products, Adnams Pubs & Hotel Properties, which comprises tenanted pubs and managed inns and Adnams Retail, which comprises our shops together with the mail order and web businesses. Each of these operating segments is monitored and managed separately in accordance with the products and services provided and strategic decisions are made on the basis of segment operating results. Transfer prices between operating segments are on an arms length basis. The measurement policies the company uses for segment reporting under IFRS8 are the same as those used in its financial statements. In 2016 the Company restated its segmental analysis to accord with a change in its internal management reporting. In previous years Adnams has sought to allocate costs to different parts of its business to assess relative performance, but as a highly integrated business, this process was inevitably subjective. Adnams has moved to showing business results without any shared costs. These accounts show the shared costs in two categories: Central Operations costs which relate to business operations, notably warehousing and delivery, and Central Management costs which include services such as finance, human resources and information technology and marketing. In 2017 the 2016 segmental analysis has been restated to reflect the changes made to where costs are charged during the year.
Adnams plc Annual Report 2017
37
10,554
9,563
Social security costs
917
810
Other pension costs
402
396
11,873
10,769
2017 Number
2016 Number
24
25
103
98
33
26
Shops
112
103
Managed properties
222
153
Corporate services
64
58
558
463
203
167
2017 £000
2016 £000
Fees
124
121
Basic salaries
729
717
11
10
113
112
–
26
977
986
2017 £000
2016 £000
Wages and salaries
The average monthly number of persons employed by the company, including executive directors, was as follows: Trading Customer services Production
Total number of part-time workers included above:
Directors’ remuneration:
Benefits Car and pension allowances Performance related pay
Salaries and fees £000
Benefits £000
Car and pension allowances £000
200
2
33
235
239
N J Dulieu
30
–
–
30
30
M G H Heald
30
–
–
30
30
135
3
13
151
150
34
–
–
34
31
S C Pugh
150
3
29
182
185
S M Sharp
30
–
–
30
30
A C Wood
244
3
38
285
291
853
11
113
977
986
J P A Adnams
K Hester B F McIntyre
Governance
2016 £000
Financial statements
2017 £000
Staff costs during the year were as follows:
Strategic report
9 Directors and employees
38
Adnams plc Annual Report 2017
Notes to the financial statements continued 9 Directors and employees (continued) As a result of regulations governing pension contributions, the company’s contributions for J P A Adnams stopped in 2012 and those for A C Wood and S C Pugh in 2014 and an equivalent amount has been paid as a pension allowance which has been included within car and pension allowances above. J P A Adnams and A C Wood are members of the company’s defined benefit pension scheme which closed to future accrual on 30 June 2005. The following disclosures are made in respect of that scheme: 2017 £000
2016 £000
J P A Adnams
93
91
A C Wood
27
27
Accumulated total accrued pension:
Accumulated total accrued pension normally represents scheme service to retirement, but for 31 December 2016 and 2017 this figure reflects the scheme closure in June 2005. The transfer value of the highest paid director’s accrued benefits in the defined benefit pension scheme amounted to £589,447 (2016: £564,208). Contributions were paid to the Adnams defined contribution pension scheme in respect of K Hester, £13,000 (2016: £13,000) and M G H Heald, £1,194 (2016: £298). The company has an approved Share Incentive Plan in which the Executive Directors participated. Allocated shares, which are included in Directors’ Interests in the Report of the Directors, were as follows: 2017 ‘A’ shares
2016 ‘A’ shares
J P A Adnams
120
126
K Hester
120
126
S C Pugh
120
126
A C Wood
120
126
2017 £000
2016 £000
308
225
Preference share dividends paid: 3.85% cumulative £10 shares
1
1
Preference share dividends paid: 4.9% non-cumulative £5 shares
1
1
310
227
There were no share option arrangements in place. 10 Interest payable and similar charges
Bank loans and overdraft
Adnams plc Annual Report 2017
39
2017 £000
2016 £000
UK corporation tax @ 19.25% (2016: 20.00%)
54
915
Tax over provided in prior years
(79)
(48)
Total current tax
(25)
867
Origination and reversal of timing differences
302
139
Pension cost relief in excess of pension cost charge including effect of rate changes
237
67
(1)
(206)
Total deferred tax
538
–
Tax on profit on ordinary activities
513
867
1,549
5,020
Profit on ordinary activities multiplied by average rate of corporation tax in the UK of 19.25% (2016: 20.00%)
298
1,004
Disallowed expenses
218
174
Non-taxable income
(83)
(29)
Adjustment relating to prior years and rate change
80
(282)
513
867
The charge based on the profit for the year comprises:
Strategic report
11 Tax on profit on ordinary activities
The tax assessed for the year is higher (2016: lower) than the average rate of corporation tax in the UK of 19.25% (2016: 20.00%). The differences are reconciled below: Profit on ordinary activities before tax
Tax on profit on ordinary activities
The aggregate current and deferred tax charge relating to items that are recognised as items of other comprehensive income is £248,000 (2016: credit of £1,338,000). During 2017 the UK corporation tax rate was decreased to 19% from 1 April 2017. Following the Budget 2016 announcements, there will be a further planned reduction in the main rate of corporation tax to 17% from 1 April 2020. We have used 17% in our deferred tax calculations. 12 Dividends 2017 £000
2016 £000
Interim paid 2 October 2017 78% (2016: 3 October 76%)
368
359
Final paid 2 May 2017 150% (2016: 3 May 144%)
708
679
1,076
1,038
Equity dividends on ordinary shares
The directors propose a final dividend of £1.50 per £1 nominal share (totalling £708,000) for the year ended 31 December 2017. The dividend will be submitted for approval at the Annual General Meeting, to be held on 23 April 2018. This dividend has not been accounted for within the current year financial statements as it has yet to be approved or paid.
Financial statements
Adjustment in respect of prior years
Governance
Deferred taxation (note 20)
40
Adnams plc Annual Report 2017
Notes to the financial statements continued 13 Earnings per share 2017
2016
‘A’ Ordinary shares
54.9p
220.0p
‘B’ Ordinary shares
219.6p
880.2p
Including property disposals:
Basic and diluted earnings per share for ‘A’ Ordinary shares are calculated by dividing the earnings available for ‘A’ Ordinary shareholders of £408,000 (2016: £1,637,000) by the number of issued 25p ‘A’ Ordinary shares (note 21): 744,000 (2016: 744,000). Basic and diluted earnings per share for ‘B’ Ordinary shares are calculated by dividing the earnings available for ‘B’ Ordinary shareholders of £628,000 (2016: £2,516,000) by the number of issued £1 ‘B’ Ordinary shares (note 21): 285,842 (2016: 285,842). Excluding property disposals: ‘A’ Ordinary shares
22.2p
158.1p
‘B’ Ordinary shares
88.8p
632.2p
Freehold and leasehold land and buildings £000
Plant, equipment, fixtures & fittings and motor vehicles £000
Total £000
32,548
42,681
75,229
Additions
1,847
7,498
9,345
Disposals
(336)
(8,991)
(9,327)
34,059
41,188
75,247
8,386
26,088
34,474
628
2,592
3,220
(97)
(8,885)
(8,982)
8,917
19,795
28,712
Net book value at 31 December 2017
25,142
21,393
46,535
Net book value at 31 December 2016
24,162
16,593
40,755
2017 £000
2016 £000
2,252
2,263
14 Tangible fixed assets
Cost At 1 January 2017
At 31 December 2017 Depreciation At 1 January 2017 Provided in the year Disposals At 31 December 2017
At 31 December 2017 £501,000 (2016: £4,250,000) of assets were in the course of construction. £8,620,000 of the disposals above relates to writing off fully depreciated residual balances. The cost of land and buildings comprises: Freehold land
30,493
28,936
Long leasehold
621
656
Short leasehold
693
693
34,059
32,548
Freehold buildings
The company carried out an annual impairment review of its pub and shop assets, as explained in the accounting policy disclosed on page 33. No impairment losses were recognised during the year (2016: £nil).
41
Adnams plc Annual Report 2017
–
50
2017 £000
2016 £000
50
–
–
50
Provision in year
(12)
–
Transfer to debtors
(38)
–
–
50
Unlisted investments at cost and net book value
Investments At 1 January Additions
At 31 December
The £50,000 investment made during 2016 relates to 707 shares of £0.0001 in The Pint Shop Ltd, registered at 10 Peas Hill, Cambridge, CB2 3PN. The investment was made for trading reasons and has been restated as a trade debtor in 2017 and is being written off over four years. 16 Stocks 2017 £000
2016 £000
Raw materials
1,491
927
Work in progress
1,469
1,270
Finished goods and goods for resale
5,105
5,033
8,065
7,230
A charge for slow moving and obsolete stock of £4,000 (2016: £51,000) was recognised in profit and loss during the year. The difference between purchase price or production cost of stocks and their replacement cost is not material. 17 Debtors 2017 £000
2016 £000
Trade debtors
8,657
7,493
Prepayments
1,234
1,146
194
–
–
348
10,085
8,987
Corporation tax asset Deferred tax asset
Amounts due after more than one year comprised £58,000 (2016: £77,000) included in trade debtors. A provision for specific trade debts which are not considered recoverable of £14,000 (2016: £22,000) was recognised in profit and loss during the year. Reconciliation of the deferred tax asset is shown in note 20.
Governance
2016 £000
Financial statements
2017 £000
Strategic report
15 Investments
42
Adnams plc Annual Report 2017
Notes to the financial statements continued 18 Creditors: amounts falling due within one year 2017 £000
2016 £000
Bank overdraft and loans
7,370
4,226
Trade creditors
5,101
5,705
Taxation and social security
1,628
1,405
–
424
3,086
2,669
17,185
14,429
2017 £000
2016 £000
175
183
10,000
5,000
3.85% cumulative preference shares of £10 each (3,100 shares)
31
31
4.9% non-cumulative preference shares of £5 each (3,100 shares)
15
15
10,221
5,229
2017 £000
2016 £000
730
577
94
8
Chargeable gains
1,011
950
Deferred tax excluding that relating to pension liability
1,835
1,535
Deferred tax on pension scheme deficit (note 27)
(1,398)
(1,883)
437
(348)
Corporation tax Accruals
The bank overdraft and loans are secured by a debenture to Barclays Bank plc over the assets of the company. See note 28 for further details of the bank overdraft and loans. 19 Creditors: amounts falling due after more than one year
Tenants’ deposits Bank loans (repayable in less than 5 years)
The bank loan is secured by a debenture to Barclays Bank plc over the assets of the company. See note 21 for full details of the preference shares. See note 28 for further details of the bank loans. 20 Deferred taxation
Accelerated capital allowances Other timing differences
Total deferred tax liability/(asset) Movement in the provision At 1 January 2017 Deferred tax charge to the profit and loss account (current year movement at 17%) Adjustment in respect of prior years At 31 December 2017
1,535 301 (1) 1,835
Deferred tax asset relating to pension deficit At 1 January 2017 Change in brought forward provision arising from change in future tax rates Deferred tax charged in the profit and loss account (current year movement at 17%) Deferred tax charged in the statement of comprehensive income At 31 December 2017
(1,883) 198 39 248 (1,398)
Adnams plc Annual Report 2017
43
The amount of the net reversal of deferred tax expected to occur next year is £62,000 (2016: £33,000), relating to the reversal of existing timing differences on fixed assets offset by tax deductions from payments to utilise provisions. In addition it includes cash contribution to the pension fund offset by anticipated finance charges relating to the scheme. 21 Called up share capital Authorised
Allotted, called up and fully paid
2017 £000
2016 £000
2017 £000
2016 £000
‘A’ of 25p each (744,000 shares)
186
186
186
186
‘B’ of £1 each (285,842 shares)
288
288
286
286
474
474
472
472
Strategic report
20 Deferred taxation (continued) The deferred tax asset in 2016 of £348,000 is included within debtors (note 17).
22 Reserves Called-up share capital – represents the nominal value of shares that have been issued. Share premium account – includes any premiums received on issue of share capital. Profit and loss account – includes all current and prior period retained profits and losses. 23 Capital commitments
Contracted for
2017 £000
2016 £000
1,058
5,125
The amount for 2017 principally reflects capital commitments for the de-alcoholisation plant within the brewery, investment in a new Enterprise Resource Planning system, new lorries and whisky casks (prior year commitment principally relates to plant and building work in respect of the brewery development, the Swan Hotel Southwold refurbishment and whisky casks). 24 Operating lease commitments 2017 £000
2016 £000
721
620
In 2-5 years
2,539
2,022
In over 5 years
3,251
3,446
6,511
6,088
Future minimum lease payments: Within one year
25 Contingent liabilities At the year end Barclays Bank held a bond guarantee on behalf of Adnams plc with HMRC for £30,000 (2016: £30,000).
Financial statements
Profits distributed by the company are applied first to the 3.85% cumulative preference shares, then to the 4.9% non-cumulative preference shares before distribution on the ordinary shares. The preference shares carry no votes at meetings, the ordinary shares have a single vote for each ‘A’ or ‘B’ share. On a winding up of the company, the surplus assets will be applied first to repay capital on the 3.85% cumulative preference shares, then capital plus any dividend arrears on the 4.9% non-cumulative preference shares; the remaining surplus is applied to the ‘A’ and ‘B’ ordinary shares in proportion to the amounts paid up. Preference shares are classed as financial liabilities and held within creditors falling due after more than one year, see note 19.
Governance
Ordinary shares
44
Adnams plc Annual Report 2017
Notes to the financial statements continued 26 Transactions with related parties
Dividends paid to directors
2017 £000
2016 £000
329
318
The key management of Adnams plc are considered to be the executive directors, the compensation for whom was £998,000 for the year (2016: £992,000) including employers national insurance and pension contributions. The directors are granted a discount of 25% on purchases from the company, in line with the discount given to all other employees. Mr A C Wood, Chief Executive of Adnams plc, was a director of Adnams Bio Energy Ltd, a subsidiary of the Bio Group Ltd. Adnams Bio Energy Ltd rented part of the Adnams site at Reydon to run a bio-digester. Adnams plc was a customer of Adnams Bio Energy Ltd, part of its brewery waste was processed by the Adnams Bio Energy Ltd digester. During 2016 Adnams Bio Energy Ltd went into administration and Mr A C Wood resigned his directorship. No amounts were paid to Adnams Bio Energy Ltd during either 2016 or 2017. Adnams Bio Energy Ltd had a balance owing to Adnams plc of £203,000 when the company went into administration. This amount was not recognised in the 2016 or 2017 accounts. Adnams plc’s investment in Adnams Bio Energy was held at nil value. During 2017 the company paid £620 (2016: £nil) for services to S G Wealth management Limited of which Mr A C Wood is a director. Mr M G H Heald is a director of or connected with five companies that are customers of Adnams plc. The names of these companies, together with the sales made and the debtor balances outstanding at 31 December 2016 and 2017, are listed below. Transactions in each case were on arms length terms and outstanding balances were not overdue. 1. TA Hotel Collection Ltd: sales of £471,000 (2016: £341,000) and balance of £27,000 (2016: £37,000). Adnams also made purchases from TA Hotel Collection Ltd at a cost of £243 in 2016 (2017: £nil). 2. The Soho Theatre Bar Ltd: sales of £203,000 (2016: £189,000) and a balance of £13,000 (2016: £12,000). Adnams signed a three year sponsorship agreement with The Soho Theatre with effect from 1 September 2014 at a rate of £30,000. This was renewed for a further three years in 2017 at a rate of £35,000. 3. Zakari Wines Ltd: sales of £285 (2016: £1,000) and a balance of £nil (2016: £nil). 4. Sagittarius Royaume-Uni Ltd: sales of £184 (2016: £31,000) and a balance of £184 (2016: £10,000). Adnams also bought wines from Sagittarius Royaume-Uni Ltd in 2016 at a cost of £35,000 (2017: £nil). 5. Fishers Gin Ltd: sales of £72,000 (2016: £35,000) and a balance of £47,000 (2016: £21,000). Aside from being a director, Mr Heald is also the majority shareholder in the above companies, with the exception of Fishers Gin Ltd and The Soho Theatre Bar Ltd. During the year the company made sales of £18,000 (2016: £1,457), £4,000 (2016: £nil) of which was outstanding at the year end, to Jarrold & Sons Ltd of which Ms B F McIntyre is also a director. During 2016 the company paid £2,000 (2017: £nil) for services to Notcutts Ltd of which Miss N J Dulieu is a director. During the year the company made sales of £2,000 (2016: £1,267) and paid for purchases of £nil (2016: £300) with Collen & Clare Ltd of which Mr S M Sharp is a director and shareholder. The Employee Benefit Trust (EBT) held 8,827 Adnams plc ‘A’ shares at 31 December 2017 (2016: 6,054 ‘A’ shares). During 2017 the EBT received dividends of £3,000 on its Adnams shares (2016: £3,000). There is no overall controlling party of Adnams plc. 27 Pension scheme Defined benefit pension scheme The assets of the defined benefit pension scheme are held separately from those of the company, being invested with a fund manager. The contributions are determined by a qualified actuary on the basis of triennial valuations using the defined accrued benefit method. The most recent triennial valuation was at 1 April 2016. The assumptions that have the most significant effect on the results of the valuation are those relating to the rate of return on investments. It was assumed in 2016 that the investment returns both pre and post retirement would be 4.5% per annum. The most recent actuarial valuation showed that the market value of the scheme’s assets was £30,299,000 and that the actuarial value of these assets was sufficient to cover 95% of the benefits that had accrued to members.
45
27 Pension scheme (continued) Defined benefit pension scheme (continued) Some obligations to pay pensions due from the Scheme have been met by the purchase of annuities. The value of these annuities, which match exactly the pension obligation, are included in the accounts of the pension scheme. The value at 31 March 2017 was £2,510,000 (2016: £2,930,000). No annuity value has been included in the asset and liability valuations shown in the note below. The contributions of the company and employees have been at least equal to the rates recommended by the actuary. Valuation of the scheme has been updated to 31 December 2017 by a qualified actuary. Financial assumptions
2017
2016
Pensionable salary growth
N/A
N/A
Benefits accrued prior to 1 October 1999
4.1% pa
4.1% pa
Benefits accrued from 1 October 1999 to 5 April 2005
3.4% pa
3.4% pa
Benefits accrued from 6 April 2005
2.5% pa
2.5% pa
Discount rate for liabilities
2.4% pa
2.6% pa
Inflation assumption
3.4% pa
3.4% pa
Pension revaluation in deferment
2.6% pa
2.6% pa
2017
2016
Males
22.7
22.8
Females
24.9
25.2
Males
24.1
24.1
Females
26.3
26.6
2017
2016
UK equities
18.7%
19.2%
Overseas equities
31.7%
31.4%
Corporate bonds
12.3%
16.0%
Government bonds
23.7%
22.6%
Property
9.9%
8.0%
Cash
3.7%
2.8%
100.0%
100.0%
Strategic report
Adnams plc Annual Report 2017
Assumed life expectancy in years, on retirement at 65 Retiring today:
Retiring in 20 years:
Assets as a percentage of total plan assets
Total assets
Financial statements
Demographic assumptions
Governance
Pension escalation in payment :
46
Adnams plc Annual Report 2017
Notes to the financial statements continued 27 Pension scheme (continued) Defined benefit pension scheme (continued) Value at 31 December 2017 £000
Value at 31 December 2016 £000
Total market value of assets
36,431
33,684
Present value of scheme liabilities
(44,654)
(43,593)
(8,223)
(9,909)
1,398
1,883
(6,825)
(8,026)
3,097
3,807
The assets and liabilities in the scheme
Deficit in the scheme Related deferred tax asset Net pension liability
Actual return on plan assets
Changes in the present value of the defined benefit obligation are as follows Opening defined benefit obligation Interest cost
2017 £000
43,593 1,123
Actuarial losses
732
Benefits paid
(794)
Closing defined benefit obligation
Changes in the fair value of plan assets are as follows Opening fair value of plan assets Interest income Actuarial gains
44,654
2017 £000
33,684 872 2,189
Contributions by employer
480
Benefits paid
(794)
Closing fair value of plan assets
36,431
The company expects to contribute £480,000 to the Adnams Pension Fund in the next accounting year. Contributions of £40,000 per month are paid. Analysis of other finance charge recognised in the profit and loss Interest income Interest cost Net interest cost
2017 £000
2016 £000
872
1,202
(1,123)
(1,322)
(251)
(120)
47
Adnams plc Annual Report 2017
2,189
2,578
Experience losses arising on the scheme liabilities
253
779
Changes in assumptions underlying the present value of the scheme liabilities
(985)
(10,401)
1,457
(7,044)
Return on plan assets (excluding amounts included in net interest cost)
Actuarial gain/(loss) recognised in other comprehensive income
Defined contribution pension schemes The company also operates defined contribution pension schemes. The assets of these schemes are held separately from those of the company in independently administered funds. During the year the company contributed £402,000 (2016: £396,000) to the schemes (note 9). There were no amounts outstanding at the year end (2016: £nil). 28 Financial instruments The company’s principal financial instruments comprise a bank loan, cash and bank overdraft. The purpose of the financial instruments is to raise finance for the company’s operations. The company has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations, which are valued at transaction price less any related provision.
Financial assets measured at amortised cost Financial liabilities measured at amortised cost
2017 £000
2016 £000
8,657
7,493
25,777
17,829
Financial assets includes trade debtors. Included in financial liabilities are bank loan and overdraft, trade creditors, accruals, tenants deposits and preference shares. Borrowing facilities At the year end borrowing facilities comprised a fixed rate 5 year loan of £5 million, a revolving credit facility of £5 million and an overdraft of £10 million. £2.6 million of these facilities were undrawn at 31 December 2017 (2016: £5.8 million). Since the year end a further £2 million overdraft facility has been provided making total facilities £22 million. Finance is also provided through preference shares, details of which are included in note 21. Interest rate profile At 31 December 2017 a bank loan of £5,000,000 (2016: £5,000,000) bears interest at 2.574% (2016: 2.574%) and a further bank loan of £5,000,000 (2016: £nil) bears interest at 1.766%. At 31 December 2017 bank overdrafts of £7,370,000 (2016: £4,226,000) bear interest at 1.10% (2016: 1.10%) above Barclays Bank base rate which was 0.50% (2016: 0.25%). Credit risk The company may offer credit terms to trade customers, whilst it has chosen not to insure its debts it seeks to manage credit risk by setting appropriate customer limits based on payment history and credit references. It reviews limits regularly and actively chases outstanding debts. Currency risk The main currency risks of the company relate to the import of wines, the largest value of which is denominated in Euros. Annual purchases of Euros amount to about €4.3 million. Fair values of financial assets and liabilities There is no difference between book value and fair value in respect of the cash, bank loan and bank overdraft.
Governance
2016 £000
Financial statements
2017 £000
Analysis of the amount recognised in other comprehensive income
Strategic report
27 Pension scheme (continued) Defined benefit pension scheme (continued)
48
Adnams plc Annual Report 2017
Notes to the financial statements continued 29 Share Incentive Plan and Employee Benefit Trust For many years the company has encouraged employee participation through incentive schemes under which shares are allocated to employees. In 2016 and 2017 the company used a tax-approved Share Incentive Plan (SIP) for this purpose. The company does not issue shares for such schemes and so has to arrange the purchase of shares. It does this through an Employee Benefit Trust. The Employee Benefit Trust buys shares as required during the year and passes them annually to the Share Incentive Plan, at a valuation approved by the tax authorities. The shares held by the Share Incentive Plan are not consolidated in the company’s accounts as they are already allocated to employees. Shares held by the Employee Benefit Trust are a mixture of those already earned by employees, which are awaiting transfer to the Share Incentive Plan, and those not yet allocated. 2017 performance did not reach the requisite level for a share transfer to the Share Incentive Plan to occur. The unallocated shares are small in number and accordingly the company does not consolidate the Employee Benefit Trust on grounds of materiality. 8,827 shares, all of which were Adnams plc ‘A’ shares, were held by the Employee Benefit Trust at 31 December 2017 (2016: 6,054 shares). The Adnams Share Incentive Plan is open to all employees with 18 months service at the award date. A free award of shares based upon profitability of the company is made proportionate to employees’ salary and capped at a maximum of £3,600 per person. The awarded shares are held in trust for five years with dividends accruing to employees during this period. Leavers before this time do not necessarily lose their right to these shares. In the opinion of the directors the 2016 share awards vested unconditionally at the balance sheet date and the total value of free shares awarded under the SIP scheme for 2016 is disclosed in note 6 to the accounts. The company plans to restructure the scheme in 2018.
Adnams plc Annual Report 2017
49
Corporate governance
The workings of the Board and its committees The Board comprises four Executive Directors and four Non-Executive Directors. The Board is responsible to shareholders for the proper management of the company. It meets monthly, setting and monitoring strategy, reviewing trading performance, ensuring adequate funding, examining acquisition possibilities, formulating policy on key issues and reporting to shareholders. The board has three subcommittees covering Audit, Remuneration and Nominations.
Strategic report
Standards The company is committed to high standards of corporate governance incorporating best practice.
Membership of all three committees comprises the four Non-Executive Directors: NJ Dulieu, MGH Heald, BF McIntyre and SM Sharp (Senior Independent Director). In addition, JPA Adnams, Chairman, is a member of the Nominations Committee. Internal financial control The Board acknowledges its responsibility for maintaining a system of internal control which can provide reasonable, albeit not absolute, assurance against mis-statement or loss. To meet this responsibility, the Board relies upon: − an organisation structure with clearly defined lines of authority and responsibility, limits for authorisation of transactions and segregation of duties − the production and review of regular monthly management information to agreed timescales − the identification of key performance indicators with explanations of variances − a formalised process for reviewing all company activities during the year − detailed annual operating budgets for all businesses − formal authorisation procedures for all investment and capital expenditure. The Audit Committee considers the system of internal financial control operated effectively during the year.
Financial statements
The Remuneration Committee is chaired by NJ Dulieu and the Nominations committee is chaired by S M Sharp.
Governance
The Audit Committee, chaired by BF McIntyre, meets not less than twice annually. The Committee provides a forum for the company’s external auditors. The Finance Director attends meetings at the invitation of the Committee. The Committee is responsible for reviewing a wide range of financial matters including the annual figures and reports and monitoring the controls which are in force in the company to ensure the integrity of the financial information reported to shareholders.
50
Adnams plc Annual Report 2017
Directors’ responsibilities in respect of the accounts The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws, including Financial reporting Standard 102 ‘The Financial reporting Standard applicable in the UK and Republic of Ireland’). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company for that period. In preparing these financial statements, the directors are required to: − select suitable accounting policies and then apply them consistently − make judgments and accounting estimates that are reasonable and prudent − state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements − prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confirm that: − so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and − the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By Order of the Board
E S Cantwell Secretary 14 March 2018
Adnams plc Annual Report 2017
51
Independent auditor’s report
Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISA (UK) require us to report to you where: − the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
In our opinion, the financial statements: − give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its profit for the year then ended;
− the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
− have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and − have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Overview of our audit approach − Overall materiality: £143,000, which represents approximately 5% of the company’s adjusted profit before interest and taxation; and − Key audit matters were identified as revenue recognition and impairment of tangible fixed assets − Our audit approach was a risk based substantive audit. There were no changes in the scope of the audit from the prior year. Key audit matters The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement. Revenue recognition
High Existence and valuation of inventory
Management override of controls Debtor recoverability
Potential financial statement impact
Creditor completeness
Impairment of tangible fixed assets
Debtor existence
Low Low
Extent of management judgement applied
High
Governance
Our opinion on the financial statements is unmodified We have audited the financial statements of Adnams Plc (the ‘company’) for the year ended 31 December 2017, which comprise the Profit and loss account, the statement of comprehensive income, the Balance sheet, the Statement of changes in equity, the Statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).
Financial statements
Who we are reporting to This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Opinion
Strategic report
to the members of Adnams Plc
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Independent auditor’s report continued Key audit matters (continued) Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had
Key Audit Matters
the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
How the matter was addressed in the audit
Impairment of tangible fixed assets At the year end the company had £22.4m of property in respect of its managed inns and tied estate, and £1.4m of property in respect of retail outlets. FRS 102 requires management to test assets for impairment where potential triggers for impairment are identified. The assessment of impairment of the company’s tangible fixed assets includes significant estimates for key assumptions, such as forecast trading performance of each managed inn, tied estate property or retail outlet, and the discount rate applied. We therefore identified impairment of tangible fixed assets as a significant risk, which was one of the most significant assessed risks of material misstatement.
Our audit work included, but was not restricted to: − Assessing the appropriateness of the accounting policy and methodology applied in the impairment testing against the requirements of the financial reporting framework; − Testing of the calculations prepared by management by: − Checking the arithmetic accuracy of the calculations; − Testing the accuracy of historical data used where relevant; − Testing the accuracy of management’s forecasts where these have been used in the calculations; and − Assessing the reasonableness of the discount rates applied by reference to the company’s weighted average cost of capital. The company’s accounting policy on impairment of tangible fixed assets is shown in note 4 to the financial statements and related disclosures are included in note 14. Key observations Based on our audit work, we found the methodology applied by management for impairment testing to be in accordance with the accounting framework, and the assumptions inherent within them to be balanced. We consider that the company’s disclosures in notes 4 and 14 to be appropriate. We found no errors in the calculations.
Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating the results of that work. We determined materiality for the audit of the financial statements as a whole to be £143,000, which represents approximately 5% of the company’s adjusted profit before interest and taxation (adjusted for operating costs that are not expected to recur) (“adjusted EBIT”). This benchmark is considered the most appropriate because this metric is a key performance indicator measured by the Board of Directors and is used to report to investors on the financial performance of the company. Materiality for the current year is lower than the level that we determined for the year ended 31 December 2016 to reflect the reduced profitability of the company in the current year. We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 70% of financial statement materiality.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality 30%
Tolerance for potential uncorrected mistatements Performance materiality
70%
We also determine a lower level of specific materiality for certain areas such as directors’ remuneration and related party transactions. We determined the threshold at which we will communicate misstatements to the audit committee to be £7,150. In addition we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.
The company operates from one location with all accounting functions performed centrally. All audit work has been undertaken by the audit team. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion, based on the work undertaken in the course of the audit: − the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and − the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements. Matter on which we are required to report under the Companies Act 2006 In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the report of the directors.
− adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or − the financial statements are not in agreement with the accounting records and returns; or − certain disclosures of directors’ remuneration specified by law are not made; or − we have not received all the information and explanations we require for our audit. Responsibilities of directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 50, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. David Newstead Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Cambridge 14 March 2018
Governance
We have undertaken a full scope audit of the company based on the materiality assessed above. The audit work completed focused on the risk areas identified.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
Financial statements
An overview of the scope of our audit Our audit approach was based on a thorough understanding of the company’s business and is risk based. We have taken into account the size and risk profile of the company, any changes in the business and other factors when determining the level of work to be performed.
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Strategic report
Adnams plc Annual Report 2017
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Adnams plc Annual Report 2017
Contact information Adnams plc Sole Bay Brewery Southwold Suffolk IP18 6JW T: 01502 727200 W: adnams.co.uk Hotels and Managed Inns The Swan Market Place Southwold Suffolk IP18 6EG T: 01502 722186 The Crown High Street Southwold Suffolk IP18 6DP T: 01502 722275
The Plough Inn London Road Wangford Suffolk NR34 8AZ T: 01502 578239 Adnams Stores Southwold 4 Drayman Square Southwold Suffolk IP18 6GB T: 01502 725612 The Wine Shop and Adnams Tour Booking Office Pinkney’s Lane Southwold Suffolk IP18 6EW T: 01502 722138
Norwich NR1 11-13 Westlegate Norwich Norfolk NR1 3LT T: 01603 666759 Holt 8 White Lion Street Holt Norfolk NR25 6BA T: 01263 715558 Holkham The Old School House Park Road Holkham Wells-next-the-Sea Norfolk NR23 1AB T: 01328 711714 Harleston The Cardinal’s Hat 23 The Thoroughfare Harleston Norfolk IP20 9AS T: 01379 854788
The Ship Church Lane Levington Ipswich IP10 0LQ T: 01473 659573
Woodbridge Quay Point Station Road Woodbridge Suffolk IP12 4AU T: 01394 386594
The White Horse 4 High Street Blakeney Norfolk NR25 7AL T: 01263 740574
Aldeburgh 179b High Street Aldeburgh Suffolk IP15 5AN T: 01728 454520
The Harbour Inn Black Shore Southwold Suffolk IP18 6TA T: 01502 722381
Hadleigh 73/75 High Street Hadleigh Suffolk IP7 5DY T: 01473 827796
Saffron Walden Old Auction Rooms 1 Market Street Saffron Walden Essex CB10 1HZ T: 01799 527281
The Bell Inn Ferry Road Walberswick Suffolk IP18 6TN T: 01502 723109
Norwich 109 Unthank Road Norwich Norfolk NR2 2PE T: 01603 613243
Bury St Edmunds 43A Cornhill Bury St Edmunds Suffolk IP33 1DX T: 01284 705746
Stamford Bath Row Warehouse St Mary’s Passage Stamford Lincolnshire PE9 2HG T: 01780 753127
Company registrars Link Asset Services 34 Beckenham Road Beckenham BR3 4TU T: 0871 664 0300
Designed and produced by Friend. www.friendstudio.com Print: Pureprint Group This report has been printed on Edixion Challenger Offset which is FSC® certified and made from 100% Elemental Chlorine Free (ECF) pulp. The mill and the printer are both certified to ISO 14001 environmental management system and registered to EMAS the eco management Audit Scheme. The report was printed using vegetable-based inks by a CarbonNeutral® printer.
Mr John Adnams 1924 – 2017 Many of our shareholders and friends of the Company will be aware of the sad news that Mr John Adnams died on 22nd July 2017. John was 92 years old and devoted much of his life to Adnams. John Adair Adnams, was the Grandson of Adnams’ founder Ernest Adnams. He joined the Adnams Board in 1956 and became Managing Director in 1963. John remained Managing Director until 1973, when he became Chairman. In 1995, John retired as Chairman to become the President of Adnams plc and a Non-Executive Director culminating as Life President. John was held in great esteem both within Adnams and across the wider industry. He oversaw a huge growth in Adnams beer production and the modernisation of a brewery that had been unchanged since 1896. John reintroduced dray horses to Adnams in the late sixties and was also instrumental in setting up Broadside Farm, a forward-thinking business that used waste products from the brewery to feed pigs on the Adnams Farm. John was a highly effective and confident Chairman who held true to a sense of identity for Adnams plc in fast-changing times. After almost 50 years’ service to the Adnams Board, John retired from Adnams as a Non-Executive Director in April 2005.
Adnams plc Sole Bay Brewery, Southwold, Suffolk IP18 6JW adnams.co.uk @adnams
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