Adnams, the Suffolk based brewer and pub operator, has reported a 7% increase in turnover to £31.2m in the six months to the end of June 2016, aided by a 7% rise in beer volumes and a 60% climb in its spirit volumes.

Pre-tax profit in the period grew from £1.36m to £2.04m, however operating profit declined from £962k to £624k.

The company said that the main reasons for the lower first half result in terms of operating profit were the expansion of its shop and managed house retail operations, where earnings tend to be stronger in the second half of the year, the increased investment that it has made in marketing and the decline in the Sterling exchange rate.

It said that income from asset sales was much higher this year at £1.4m, comfortably ahead of last year’s £407k.

The company said that itsmanaged business, comprising the Swan and Crown in Southwold, the White Horse at Blakeney, the Ship at Levington and more recently the Plough at Wangford, produced results ahead of 2015.

It said: “We were slightly behind our expectations given the lost income in 2015 resulting from temporary closure for refurbishments at the Swan and the White Horse. Relatively poor weather conditions during key trading periods did not help and some extra costs were incurred as we have sought to put the right teams in place at each property.

“In our 2015 accounts and at the AGM we talked about our ambitions for the Swan. This hotel occupies a key position in Southwold and is perhaps the most public face of Adnams. We believe that it can be much stronger, more integrated with Adnams and more relevant to today’s customer with a substantial redevelopment and refocussing. We are planning to spend around £4m on this development and subject to necessary consents this should take place in the first half of 2017.”

It said that the leased and tenanted part of its business has seen the impact of having fewer pubs as the group has sold a number of smaller outlets in recent years, but underlying trading has been good with like-for-like results ahead of last year and an overall result only a little behind that of a year ago.

The pub sold in the first half of this year was The Cherry Tree at Harleston. Two other pubs are on the market: The King’s Head, Southwold and the Lord Nelson, Ipswich.

Last year’s income arose from selling three pubs whilst in this half year there was one pub sold, but most of the income came from the sale of its UK distribution rights for Lagunitas beer. These rights were sold to Heineken following Heineken’s acquisition of a major stake in the Lagunitas business.

Adnams Ghost Ship continues to be the beer that leads its sales growth, but a number of its smaller products have seen good success too.

It said:: “We have seen a marked shift in our production towards bottled, canned and kegged beers and although cask beer is still the vital mainstay of what we produce, its proportion of the whole has fallen. This trend supports the major £7 million investment that we are making in our brewery, which should be complete a year from now. This will give us additional capacity together with the flexibility to make the wider range of beer styles that are now being demanded.

“Industry data suggests that the beer market grew by 0.4% in the first half of 2016 and against that benchmark we performed very well. We saw good growth in our directly delivered business in both East Anglia and London and notably strong growth in our sales to supermarkets and other take home outlets. In the National trade we performed well with most customers, though two important managed pub company customers saw declines. We have commented before that these customers can switch substantial volumes between suppliers at short notice which creates inevitable volatility. Our export business had a relatively slow start to the year, but we are hopeful of a stronger second half performance as we continue to build our overseas distribution network.”

The major extension to the company’s distillery opened early in the year giving it towards three times more capacity.

The company said: “We continue to see very strong growth in our spirits sales led by Copper House Gin which has been selling strongly across all channels. The additional capacity is allowing us to lay down more whisky, a process that slackened in the second half of last year as we had to devote capacity to the immediate demand for gin.”

The group said its shops continued to trade well, though the first half result in 2016 has been reduced by the weakness of Sterling, which raises the price of imported wine. Having opened a shop in Bury St Edmunds last autumn it recently opened a smaller outlet in Felixstowe.

It said: “All our shops make their profits in the second half of the year and so more openings tend to reduce first half profits. This too has had an impact in 2016. Our shops have been a great success in helping to display our brand to a wider audience and in boosting the growth in our beers and spirits and we plan to gradually extend our presence over the next few years. Our online shop continues to grow and help us to reach a customer base beyond those near to our physical stores. Our Wine Club has seen encouraging new membership.”

The group’s bank debt at 30 June was £10.8m (30th June 2015: £9.4m), an increase from its year end debt levels of £8.9m. The main reason for the increase was the investment programme that we have pursued in the brewery and distillery.

The company’s previous three-year facility agreement with Barclays expired in February and it announced it had replaced it with a £15m facility that Barclays provided after a competitive tender. £5mof this facility has been taken as a five-year loan at a fixed rate.

The company said: “The vote for the UK to leave the European Union has of course created additional economic uncertainty. It has had the immediate impact of making Sterling weaker and further raising the costs of imported wines. More important will be the overall impact on the economy. Further initial impacts included lower interest rates, which helps Adnams as a borrower, where rates have not been fixed, though lower rates will also increase the value of our pension liabilities. Despite this turbulence we will maintain our eye on the longer term, we need to invest to maintain and grow the company and our plans to do this remain unchanged.”

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