Brewer's profits up despite tough market

SOUTHWOLD brewer Adnams yesterday served up a near-12% increase in profits despite a year of tough trading conditions, particularly in the cask ale market.

SOUTHWOLD brewer Adnams yesterday served up a near-12% increase in profits despite a year of tough trading conditions, particularly in the cask ale market.

Adnams, which having successfully launched its state-of-the-art “green” distribution centre just outside the town is about to complete a refit of its historic brewery in the heart of Southwold, reported an operating profit of £4.101million for the year to December 31, up 11.8% from £3.668million in 2005.

The increase was achieved despite turnover remaining almost flat at £46.075million - up 1.3% on 2005's £45.488million - with the operating margin improving by 0.8%.

Adnams said that its beers, including established favourite Broadside, “blonde beer” Explorer, which went national during the year, and Spindrift, launched during 2006 to target the non-cask ale market, had performed well.

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Against the backdrop a 1.5% decline in the overall beer market and a 7% fall in the cask ale sector, Adnams' volumes were only slight down on 2005 overall and the final quarter of 2006 showed growth of close to 2%.

Turnover from the company's Cellar and Kitchen stores grew by 21% and its contribution to profit by 2.4%, after charging a number of start-up costs, and the hotels business increased its contribution by 18% despite only slight increase in turnover.

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At the bottom line, Adnams' pre-tax profit came in at £3.795million, down from £4.881million the previous year, although the 2005 figure included a one-off exceptional gain of £2.477million as a result of accounting standards requiring the company to report a write-back following the closure of its defined benefit pension scheme to future accrual.

The board is recommending a total dividend for the year of £1.75 per share, up 5.4% from £1.66 per share in 2005.

In his first annual report as company chairman, Jonathan Adnams said that particularly tough trading conditions during the first six months had coincided with a period of change in the business following a strategic review whereas the second half had brought a stronger trading performance and the first benefits the restructuring and cost reductions earlier in the year.

“As we move into 2007, this review process is drawing to its conclusion with the structure of Adnams falling into two definable businesses,” said Mr Adnams.

These were a “premium beer and brands” business, involving Adnams' own-brewed beers and Bitberger lager, to which the company holds UK distribution rights, and a retail business, encompassing the company's Cellar & Kitchen store concept, its hotels (The Swan and The Crown in Southwold), its pubs (which number just under 80) and its mail order and internet wine sales.

“This new structure for Adnams will give us the best opportunity to position ourselves for growth in our core markets,” added Mr Adnams. “We will be segmenting results in next year's report and accounts to show the performance of these two businesses.”

Adnams currently operates three Cellar and Kitchen stores, at Southwold, Holkham, on the north Norfolk coast, and Woodbridge. A fourth store, at Stamford, Lincolnshire, is due to open shortly and other locations are under consideration, including Norwich.

In addition, the original Southwold store is to move to larger premises, including a café-bar area, within the former town centre distribution site, the rest of which is to be developed by Hopkins Homes.

The proceeds of around £4million from this, and the sale of some smaller tenanted pubs which no longer fit the company's business profile, are to be used by Adnams to reduce its borrowings, which totalled £16million at the end of 2006.

Mr Adnams acknowledged that the ban on smoking in public buildings, including pubs, which comes into effect in England in July, would have an adverse impact on sales for 2007 but this had been factored into the company's business plan and it was continuing to invest its pub buildings to mitigate the effect.

Besides opening its new environmentally-friendly distribution centre outside Southwold last year, Adnams also introduced new lightweight glass bottles for its beers, resulting in a substantial decrease in fuel consumption by its distribution fleet.

The new brewery equipment currently being installed, to complement new fermentation vessels introduced over the past five years, will also give Adnams the most energy efficient brewing operation in Europe.

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