Adnams, the family-controlled Suffolk brewery, has come under further attack from influential shareholder Guinness Peat Group (GPG) for its heavy investment in brewery expansion and a new distribution centre and for its expansion into wine retailing.
In a letter to Adnams shareholders recently, GPG reiterated its concern over Adnams’ poor performance, its refusal to reform its share structure, and the lack of consultation with shareholders ahead of radical commitments.
The letter also said there had been insufficient disclosure on past initiatives, such as the brewery expansion, to enable shareholders to assess results. “Examples of past failings include the very costly expansion of the brewery and associated distribution warehouse, and the roll-out of Cellar & Kitchen stores, for which next to no meaningful statistics have been divulged,” it said.
The current spat goes back to April when GPG - which owns 5.4% of Adnams’ freely-traded B shares, but only 2.5% of the voting rights - set out its concerns in a letter to shareholders. Apart from wanting Adnams to convert all of its shares into B shares, GPG suggested that its 2008 results were so poor as to suggest that the brewer’s substantial investments in expansion since 2000 had actually weakened rather than strengthened its traditional brewing and pub business in East Anglia.
“The failure of these projects to lift profits before depreciation raises serious questions about their worth. The harsh reality is that present levels of profitability are indicative of this entire investment having been wasted.” The letter also argued that the reason for the decline in profits was the increase in volume from Adnams’ expansion outside East Anglia. The gross margin on these new sales had proved to be less than the added costs of operating a larger brewery and the standalone distribution centre, GPG said.
In response, Adnams chairman, Jonathan Adnams said the board believed its strategy was soundly based. “Adnams has succeeded in building a successful brand which is well respected beyond East Anglia’s borders.” He went on: “The beer market has become increasingly competitive. We have seen large brewer pub-owners and a huge expansion in microbrewers. A ‘traditional’ strategy would have been inappropriate for Adnams. The investments that we have made have been for the long term.”
Iain Loe, research and information manager at Campaign for Real Ale commented: “GPG has been quite vocal about how Adnams should be run. But we feel the company is best fitted for the long term. Adnams only sells about 8% of its beer through its own pubs - it used to be 20%. It has extended production into the free trade. And it has now got one of the most energy efficient breweries.”
Kevin Smith, director of Citigate Dewe Rogerson, GPG’s public relations agency, added: “It is not a criticism of modernisation or the move into wine retailing as such. Rather it’s a criticism of the size of the investment and the return on its investment.”