Adnams, the Suffolk brewer, distiller and retailer, has published its Report & Accounts for the 12 months to 31 December 2016, showing sales of £70.3m and a £3.9m operating profit.

2016 was a record brewing year for Adnams with volumes passing the 100,000 barrels mark for the first time in its history. Commenting on the performance Jonathan Adnams OBE, Chairman said “Adnams saw strong growth in the volumes that it brewed and distilled in 2016. Brewery sales volumes rose by 9% and distillery volumes by 66%. A record level for both parts of the business. Whilst the depreciation of Sterling depressed profits, underlying trading was good with our shops trading well. We continue to innovate and invest in the long-term future of our company.”

The Adnams Report & Accounts highlights include:

• Sales of £70.3m (2015: £65.7m) +7.0% · Operating profit £3.9m (2015: £4.1m) -3.8%
• Final Dividend £1.50 (2015: £1.44) +4.2%
• Adnams beer volumes up 9%
• Adnams spirits volumes up 66%

Chairman’s Report Overview

Adnams saw strong growth in 2016 with our own beer sales passing 100,000 barrels for the first time in our history, a 9% increase over 2015 and sales of our own spirits grew by 66%. Overall turnover was also a record high at £70.3 million and operating profits were £3,937,000. Our operating result was 3.8% behind the previous year with the largest impact coming from the fall in Sterling in the second half of the year. We have substantial Euro and US Dollar costs relating to wine and hop purchases. Our profit before tax at £5,020,000 was 23% ahead of 2015 driven mainly by the profit that we made on the sale of the UK distribution rights for Lagunitas beer. The sale took place at the half year, and second half operating profits were reduced because we no longer had these rights. We have confidence in the underlying performance of the business and the growth that we have been seeing. On this basis, we are recommending a 4.2% increase in our final dividend. This represents an increase of 6p per ‘B’ share.

European Union

2016 was a momentous year for the UK with the vote to leave the European Union and there were many predictions of economic downturn. So far at least, these have not been borne out. The economy has been reasonably robust, though the overall beer market has continued its long downward trend and pubs continue to close. Alcohol duty The substantial duty increases that we saw in the years prior to 2013 were followed by modest cuts and then a freeze. This change was helpful in providing confidence for investment. The 3.9% increase in the March 2017 budget was a disappointing relapse, and we hope that it does not signal a return to a period of damaging duty hikes.

The Beer Market

We have witnessed some substantial changes in our business over a short period as beer consumers have changed where they buy and what they buy. The long-term shift towards beer being bought from supermarkets and other shops, with less being sold in pubs, has continued and the taste for high quality products from small producers has also grown. We have been closely watching these trends and adapting our business accordingly.

Investment

Whilst we are, and remain committed to being, a major cask ale producer, it was the sale of beer in kegs, bottles and cans that drove our increased production in the last year. These changes emphasise the importance of the new investments in our brewery. This project will be complete by the middle of 2017. We will have spent about £7 million on extensions and improvements that will give us beer conditioning and filtration capacity, enhanced cooling and an automated kegging line.

Spirits

Our spirits business had a particularly good 2016 with very strong growth across all channels including supermarkets, pubs and our own shops. Our key product, Adnams Copper House Gin, continues to grow its reputation as one of the best drinks of its type. The tripling of capacity that we put in place at the start of 2016 came just in time to allow us to fulfil the demand that we have seen. The fact that we can produce high quality alcohol, that we then distil, means that we can deliver a true ‘grain to glass’ drink, which sets us apart in a market that largely comprises distillers who buy alcohol from bulk producers.

Our Estate

We have gradually reduced our leased and tenanted pub estate in recent years as we have sold smaller and less viable properties as customer habits have changed and many of our more rural outlets have struggled. Our sale programme has slowed as the average quality of our estate has improved, though we sold one further pub during the year. The performance of the balance of our estate was good with like-forlike income up by 2.6%. During 2016 trading in our managed houses was ahead of the prior year, with a particularly good result from the White Horse at Blakeney.

The Swan

The Swan Hotel closed at the start of 2017 for a major refurbishment. We see this as a ‘once in a generation’ opportunity to transform our historic hotel and create a gateway to the Adnams brand in the heart of Southwold. The refurbished Swan will celebrate the character and heritage of the building and at the same time will showcase the modernity of our brand and our products. It will be shut for over six months. The Cygnets building behind the hotel, will be transformed into a Hub for our Brewery and Distillery Tours and will welcome approximately 16,000 visitors each year. The closure will have a material impact on our 2017 results as we will miss income from this property during the refurbishment work.

Retail

The Retail business continued to perform well in 2016, though its results were affected by the mid-year depreciation of Sterling, as imported wine forms a major part of its sales. We opened a new shop in Felixstowe during the year and towards the end of the year we converted what had been a café in the Bury St Edmund’s shop into a “make your own gin” experience centre, modelled on the existing facility in Southwold. Once again we opened a pre-Christmas pop-up shop, in 2015 this was in Ipswich and in 2016 it was in Chelmsford. The Adnams shops provide a very strong gift offer and trade well in pop-ups ahead of Christmas. The Adnams shops have come into their own in recent years. They have been a powerful boost to our brand, they have spread our name more widely, they have reached different demographics and they have given us an appeal that resonates equally with both genders.

Marketing and sponsorship

In 2016 Adnams boosted its investment in marketing, in particular we undertook some major new sponsorships. One of these was the Oxford and Cambridge boat races, another was the Tour of Britain cycling. These investments helped us to drive our sales and reach the record beer volumes that we achieved.

Outlook

I observed earlier that the economic climate in 2016 was better than many expected. There are, at the start of 2017, similar concerned voices and a worry that inflation induced by currency depreciation will outrun wage growth, leading to a squeeze in living standards and reduced consumer spending. It remains to be seen what happens when the UK leaves the EU, however our focus will continue to be on the longer term and we are investing accordingly, notably in the brewery and the Swan Hotel. I would like to thank our shareholders for their support.

Jonathan Adnams OBE Chairman