Springbank rumour distillery to be mothballed?

[sievm]

I've just received a message from one of the guys involved in the Springbank Forum to say that the company will not comment on rumours until a statement is released some time tomorrow,

Cheers,

Malcolm.

[Deactivated Member]

So it's true, then.

[WhiskyViking]

Still nothing directly from Springbank - but this is from the local paper:

WORKERS at Campbelt[url]own's fa[/url]mous Springbank Distillery will find out what the future holds for them today (Friday) after being told that the business is looking for voluntary redundancies in its production department.

The Courier has been told by workers at Springbank that a minimum of seven employees at the distillery are to be paid off. The option of voluntary redundancy has been made by letter to staff and those willing to accept were invited to apply by Monday of this week.

The Courier understands that Springbank is looking to stop production for two years; a situation that has happened before in the distillery's history.

http://www.campbeltowncourier.co.uk/news/fullstory.php/aid/4642/Distillery_jobs_in_the_balance.html

[WhiskyViking]

The Swedish importer of Springbank has published Springbank's press release:

PRESSRELEASE

As a consequence of the continuing instability of basic raw material prices, which have doubled within the last year, the management of J & A Mitchell and Company Ltd. have decided to cut back the production of new spirit at their Springbank and Glengyle Distilleries until prices settle. The state of the materials market will be kept under continuous review.

The opportunity will be taken to carry out necessary maintenance work and create the increased warehousing accommodation required for future development. In the short term there will however, regrettably, be a few staff redundancies. There will be no impact on the availability of bottled Springbank whisky or the Kilkerran whisky from its Glengyle Distillery as the Company has ample stocks of young maturing whisky which will enable it to continue supplying its home and export markets as normal.

Chairman
J & A Mitchell and Company Ltd.

Found here.

[sievm]

The same appears on the Springbank Forum site.

Seems a little optimistic that they think the raw material prices will stabilise at a lower level than they are today in 2-3 years.

Continuing increases in barley and energy prices are, IMO, going to be the norm rather than the exception. World food and energy demand only looks likely to continue to push them up.

It will be interesting to see what happens if they continue to stay at current levels but I hope that this doesn't lead to a longer term issue with the future of Springbank. The implications are that it might.

[azazel]

It doesn't say anything about stabilising at a lower level, merely stabilising one way or another.

I'd imagine that if they can calculate roughly how much it's going to cost to make whisky with some confidence, they'll be able to adjust their prices and spending accordingly.

At the moment they don't know whether the price of oil, barley etc is going to keep going up and up or even if it might crash.

[Deactivated Member]

I hope that this doesn't lead to a longer term issue with the future of Springbank. The implications are that it might.

Indeed. Shutting down all production for at least two years is not a move made by a successful company. That's a move borne of desperation.

I'd imagine that if they can calculate roughly how much it's going to cost to make whisky with some confidence, they'll be able to adjust their prices and spending accordingly.

I doubt that it's to do with the price of oil and barley. It's most likely about cashflow. The company must be stretched by the production costs of both Springbank and Glengyle, whilst the stock they hold is relatively young and will only be able to be sold at quite modest prices. It would be different if they had a stock of 25yo to knock out at superpremium prices, but they don't. Perhaps they had budgeted on a very tight cash flow anyway and the marginal increase in production costs means that it has gone beyond the level that could be supported by sale of their 10yo. But shutting down production gives them breathing space now, but will cause a problem 10 years down the line (if they get that far) where they have no stock to sell but production costs to meet.

[azazel]

I hope that this doesn't lead to a longer term issue with the future of Springbank. The implications are that it might.

Indeed. Shutting down all production for at least two years is not a move made by a successful company. That's a move borne of desperation.

Where does it say that they're "shutting down all production for at least two years"?

I'd imagine that if they can calculate roughly how much it's going to cost to make whisky with some confidence, they'll be able to adjust their prices and spending accordingly.

I doubt that it's to do with the price of oil and barley. It's most likely about cashflow. The company must be stretched by the production costs of both Springbank and Glengyle, whilst the stock they hold is relatively young and will only be able to be sold at quite modest prices. It would be different if they had a stock of 25yo to knock out at superpremium prices, but they don't. Perhaps they had budgeted on a very tight cash flow anyway and the marginal increase in production costs means that it has gone beyond the level that could be supported by sale of their 10yo. But shutting down production gives them breathing space now, but will cause a problem 10 years down the line (if they get that far) where they have no stock to sell but production costs to meet.

Without knowing the details of the company's finances it's nothing more than wild speculation to suggest it's a cashflow problem. I'd suggest that the guy who owns Springbank has been around long enough to know how best to run his business, which, don't forget, is run unlike any other whisky company in the world. When I was at the distillery earlier this year they said that production costs had almost DOUBLED in the space of a year. That a bit more than a marginal increase in anyone's book.

[vengey]

We can only guess and we will probably not guess at the real reason.

My guess:

Costs have increased and because of their unique setup, (doing it all themselves) they are more susceptible to market prices in terms of their costs. To continue as they are, they'd need to increase the price of their existing range and they don't feel they can do that without it severely hitting sales. If they had to put a bottle up £10, maybe people would settle for something else.

It could very well be that their unique setup is the thing that's causing them trouble. Since they have previously sold off their old stock, there isn't much they can do about it.

[Willie JJ]

Without knowing the details of the company's finances it's nothing more than wild speculation to suggest it's a cashflow problem. ... When I was at the distillery earlier this year they said that production costs had almost DOUBLED in the space of a year. That a bit more than a marginal increase in anyone's book.

Azazel, it's true that Nick can't know for sure that they have a cashflow problem, but the large unexpected increases in input costs on top of the extra expenses involved in opening and Glengyle are exactly what would lead to a cash flow problem.

In addition to that point, reducing or stopping production is just about the only way such a problem could be resolved without resorting to borrowing. In the current credit crunch borrowing may not be an option, or perhaps substantial borrowing has already been incurred to set up Glengyle.

I think Nick's analysis is sound given the information that we have.

Cheers

[Di Blasi]

Weird

[I_SPEY]

Weird

Weird???

[weetoon1]

Guys I live in Campbeltown, and have just spoken to one of Springbanks Directors.
He informs me that costs have indeed risen over the past year.
Light oil was 40p a ltr now 80.16p
Barley was £125 a ton now £250
They are to start building new warehouses on Glebe St, they have already
started refurbishing old buildings on that street.
He states that they will start producing next year, albeit with a smaller staff
The total staff redundancies were Seven, the duty rise has nothing to do with cut back in distilling. As usual local rag prints gossip!
The company felt it unfair to talk to anyone,until staff knew of decisions.
bottling hall, etc working as normal.
He states that his and the companies priority after making one of the worlds finest Malt Whiskies, was keeping the company a private family business and out of the hands of the big corps! As they have managed for over 180 years!
Good enough for us locals!

[Ryguy]

Thanks for the info weetoon1, and Welcome to the Forums!!

[Willie JJ]

Good info and welcome weetoon1.

[weetoon1]

Sorry Guys!
to clear up the Prices thing.
WAITING ON PRICES TO SETTLE... they cant plan ahead as prices change daily
up as well as down.
They are hoping they settle as it is crazy to distill . When costs keep changing.
I am told that the price of the oil went from 40p to 65p overnight the following day it went down, then up to the 80p mentioned in the first post.
Suppliers are in the same position, they dont want to enter into long term dealls as they themselves dont know where the prices are going.
If the prices settle at £1.50 a ltr of oil...fine! at least they know what to budjet for!
Seems fair logic!
Other distilleries must be finding the same,with term agreements on prices coming to an end. where this will end God alone knows

[Willie JJ]

The trouble is that there is no guarantee that prices will settle anytime in the forseeable future. They may be evntually forced to restart production at a time when prices are still unstable, but generally a lot higher. It's quite a gamble.

I hope they are right.

[Deactivated Member]

I hope that this doesn't lead to a longer term issue with the future of Springbank. The implications are that it might.

Indeed. Shutting down all production for at least two years is not a move made by a successful company. That's a move borne of desperation.

Where does it say that they're "shutting down all production for at least two years"?

I'd imagine that if they can calculate roughly how much it's going to cost to make whisky with some confidence, they'll be able to adjust their prices and spending accordingly.

I doubt that it's to do with the price of oil and barley. It's most likely about cashflow. The company must be stretched by the production costs of both Springbank and Glengyle, whilst the stock they hold is relatively young and will only be able to be sold at quite modest prices. It would be different if they had a stock of 25yo to knock out at superpremium prices, but they don't. Perhaps they had budgeted on a very tight cash flow anyway and the marginal increase in production costs means that it has gone beyond the level that could be supported by sale of their 10yo. But shutting down production gives them breathing space now, but will cause a problem 10 years down the line (if they get that far) where they have no stock to sell but production costs to meet.

Without knowing the details of the company's finances it's nothing more than wild speculation to suggest it's a cashflow problem. I'd suggest that the guy who owns Springbank has been around long enough to know how best to run his business, which, don't forget, is run unlike any other whisky company in the world. When I was at the distillery earlier this year they said that production costs had almost DOUBLED in the space of a year. That a bit more than a marginal increase in anyone's book.

Gosh - that was a bit aggressive!

The two years was reported above in the Courier article. Marginal cost increase means the difference between new costs and old costs. It doesn't mean it is insignificant - and obviously if it is resulting in the closure of the distillery then it is significant.

And as for knowing about the Springbank financial position - of course it is speculation. But companies with good cashflow don't shut down production.

[weetoon1]

Remind me what distillery do you Guys run?
They never said they were closing down for 2 years or more!
The only mention of 2 years was in the Courier... Who have no quotes
as Springbank did not talk to them. In fact they were asked not to print anything until the staff were informed.
As far as I know the duty thing was never mentioned apart from in the Courier. The courier also recently printed a doctored picture of a cat...claiming there was a puma loose in Argyll... So much for facts.

I read in the Kintyre forum they expect to distill January 2009
thats 6 months not 2 years.
I for the sake of my hometown that they manage as they have in the past to ride this storm (in a teacup ) and remain open as Scotlands oldest privately owned Distillery.

[Deactivated Member]

A puma! No wonder Campbeltown is being boarded up and evacuated.




Just a little hysterical rumor-mongering....

[Deactivated Member]

Crikey! I never expected that! Springbank will find it hard to come back if they shut even for 6 months given the changing climate. They might have been better toughing it old!
Poor old Campbeltown - just can't seem to hang on to any industry at all! Mind you it's so far out of the way and with the only line of communication being a shocking road, it's hardly surprising! But even still, I would have thought Springbank would have been able to keep it going!
Stock up now before FI gets his hands on it!!

[Deactivated Member]

Geez, Kenny, I can't tell if you're being silly-hysterical, like me, or really panicking. Take a deep breath! Springbank isn't going anywhere. There's apparently plenty in the warehouses--they're talking about building more, for crying out loud--and I'll bet that, in ten years' time, this little blip will be entirely forgotten, moreso than the production gaps of some years at such as Ardbeg and Bruichladdich. And even if the absolute worst happened (which I don't believe for a second), don't forget that we're still drinking Rosebank, Port Ellen, and Brora.

[Willie JJ]

Agreed Bruce.

Whether its a cash flow problem or a planned move, they should be able to restart again. I think we're just questioning whether, if it is planned, it's the smartest move. but no one can predict the future, we can only really judge that after the event.

No need to panic that's for sure.

[Spirit of Islay]

Don't Panic !











Sorry couldn't resist.....

[Deactivated Member]

Call me cynical, but given the great hype surrounding whisky and its wonderful future these days, is it not a bit strange that a distillery is stopping production at all?
I laughed loud when I saw this thread start but now it has been confirmed, (if not through usual media channels but on their chat forum) I feel that there is more to this than just challenging outlays which of course apply to all distilleries. Is this the start of another whisky collapse? No - I dont think so either.

Hardly hysteria TH - just reading tea-leaves. Let's see what happens in 6 months. If it starts distilling again, I'll send you what's left of my Springbank 100. If it doesn't, you own me a Popcorn Pultney

[Deactivated Member]

Don't Panic !













Sorry couldn't resist.....

[Spirit of Islay]

We're all Doomed !!!!


Did you ever hear the story of the auld empty warehouse ?

[orangedogofglory]

what are standard profit margins for distilleries? can't be too bad, at least 10% net?

I ask because it would seem that rising single malt prices would help offset rising cost prices. The market seems to be relatively inelastic and almost correlated as demand has been growing (assumed). Since these guys shouldn't be operating on commodity margins (think timber product companies), they should be able to comfortably weather the storm while operating. And, being a "private family" company, the shareholder's really shouldn't care if short term margins drop from 10 to 8%.

this line of reasoning could be wrong - I've never worked in a distillery-based business - but its what I'm sticking to and why I think Crieftan may be right about there being something else we don't know. and, because they are a family company, there is no real need to be particularly transparent on their end.

I don't think the sky is falling out, but from a business standpoint things don't really seem to add up - other than Tattieheid's earlier comment (which I hope I'm not misquoting) which was that they have an oversupply and need to liquidate inventory.

[Willie JJ]

Since these guys shouldn't be operating on commodity margins (think timber product companies), they should be able to comfortably weather the storm while operating.

Which is why I agree with Nick that it is likely to be a cash rather than a profitability issue. If they can restore their working capital then all should be well.

Really, no need for panic.

[weetoon1]

5 Islay distilleries stop Distilling!!!
Lack of water reported!!
No whisky made for 2 week!
I hope its not a cashflow problem..just a waterflow problem
Having not seen their books.... We couldn't possibly comment!
What with global warming and all
Its all a ruse! buy more Malt whisky before it runs out, or there is a massive price hike!
Calm down Guys all will be fine, If it rains!

[Deactivated Member]

Two weeks - not a planned 6 months or 2 years. The Islay boys stopped producing because they had no choice - and I bet they weren't happy about it.
The Springbank situation seems to be an entirely different matter.

[Onefortheditch]

I for one will be going out and buying Springbank. This distillery sounds like its in danger here and I feel its my duty to do what I can to save it by increasing demand.

(And I also like Springbank (along with aboot 100 other distilleries), so any excuse will do!!)

Should we start a "save Springbank" campaign?

[r900p]

Latest whiskycast 151 news is out today, Springabnk is in it, just about to start listening.

http://www.whiskycast.com/

Cheers,

Rob

[Spirit of Islay]

Two weeks - not a planned 6 months or 2 years. The Islay boys stopped producing because they had no choice - and I bet they weren't happy about it.
The Springbank situation seems to be an entirely different matter.

The Springbank situation is getting like their whisky imho , a little hyped up......

Don't forget everyone's entitled to an opinion here......

[Willie JJ]

Gordon I know your opinion of Sprinbank :



Cheers