Welsh brewer and retailer SA Brain & Co has reported a slight rise in profit after tax despite challenging market conditions, writes Paul Charity. For the year to 30 September 2007, Brains reported a 3.3% decline in turnover to £117.1m down from £121.093 in the previous year. Profit before tax was just over £8.7m, a decrease on the £10m reported the previous year. However profit after tax at £7.3m was £64,000 higher. Gross profit at £23m represents 19.6% of turnover, 0.6% lower than the 20.2% in 2006. Net operating expenses at £14m, representing 12% of turnover, are £1.9m lower, reflecting actions taken to simplify operations and improve efficiencies within the business. Operating profit now represents 7.6% of turnover and is 0.5% higher than the 7.1% achieved in 2006. The profit on sale of fixed assets at £2.36m was £1.17m below last year, which meant the profit before tax was reduced by £1.24m. Brains’ chief executive, Scott Waddington, said: “Given the backdrop of a continuously competitive market environment, failing consumer confidence, the introduction of the smoking ban and the atrocious summer weather we are satisfied with the results. “The investment that we have continued to make in our brand, pubs and people has ensured that we have continued to outperform the market in most areas of the business.” Despite the challenging trading conditions, Brains’ managed house estate achieved overall sales growth of 3%, with like-for-like sales up by 1.1%. However since the smoking ban started this latter measure is showing a decline of 1.5%. Trading patterns post smoking ban have proven difficult to assess, particularly because the weather has played such a factor since its introduction. However the company has clearly seen the ban inject further growth into food sales, which grew by over 8% in the year. At the beginning of the year food sales accounted for 26% of turnover, rising to 29% since the ban. The tenanted and leased division provided an increased contribution of over 16% which has been driven in the main by the continued transfer of smaller managed houses into this estate. The business has continued improving the quality of its estate, both through transfers and investment. Last year the company achieved nine pub acquisitions and remains focused on achieving at least the same number again this year. Across the managed and tenanted and leased estate 13 major developments were undertaken, as well as smaller spend activity in preparation for the smoking ban. Contribution from the free trade business was 5% down on the previous year. However own ale brands performed ahead of the declining market in volume terms and therefore Brains’ market position continues to improve. Good progress was made during the year with national sales customers where volumes of Brains’ own ales grew by 1%, with Brains Smooth up 12.1% in that channel. With major opportunities for volume growth from the grocery channel, the company recruited an account manager to manage the take home sales business. Progress is already encouraging and major retailers are increasingly recognizing the value of Brains’ brands. The company’s marketing activity continues to benefit from the sponsorship of the Welsh Rugby Union. Sponsorship of the Football Association of Wales continues to support the most recent addition to the brand portfolio, the continental-style beer 45, which continues to grow distribution and volume. Waddington added: “We do remain cautious about consumer confidence, regulatory cost pressures and the short term impact of the smoking ban. “However, given the strengths of the business – the quality of the pub estate, our people, the increasing stature of the brand and a strong balance sheet, along with our commitment to a long-term strategy – I remain confident that the group will deliver long term value growth for shareholders. “Despite the pressures that the current market conditions present, we remain committed to our long term strategy. Having recently celebrated 125 years, we are looking forward to another 125 years in business.”