THE founder of Innis & Gunn has signalled hope that the heavy cost burden which has hammered brewers in recent months will begin to ease after enduring what he declared was “without doubt the toughest year we have faced”.

Edinburgh-based Innis & Gunn reported a 7.7% rise in turnover to £22.7 million in the year to the end of December 2022 - a year which began with Covid disruption and saw a worsening cost-of-living crisis, as spiralling energy prices drove inflation to a 40-year high.

New accounts show energy costs weighed heavily on the business during the year, and pre-tax losses widened to £2.37m from £1.2m, as administrative expenses rose to £7.08m from £5.74m with the resumption of hospitality operations following Covid.

Despite the volatile backdrop, founder and master brewer Dougal Sharp said the company’s flagship craft lager had increased volumes and market share in 2022, with sales boosted by the opening of a fourth taproom, on Glasgow’s West Nile Street.

He highlighted the benefit from the brand’s partnerships with high-profile events, including The Royal Edinburgh Military Tattoo and the Royal Highland Show in Ingliston.

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Speaking in the wake of the Bank of England holding interest rates at 5.25%, and shortly after official figures showed that annual UK consumer prices index inflation had slowed to 6.7% in August, Mr Sharp expressed hope that costs were beginning to ease.

“It has been a long hard road these last three or four years, hasn’t it?” he told The Herald, when asked for his view on the outlook for costs.

“Obviously, we have seen interest rates put on hold, and energy is down versus the peak. Energy is a big input cost for our business and all of our suppliers, so you would expect over the coming 24 months that we will see some of the more brutal excesses of price inflation to the business community starting to ease off.

“So, I am optimistic, of course. Our lager continues to grow in Scotland, and we are very focused on delivering that continued growth in the on and off-trades.

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“Trading conditions are tough for everybody, but we are focusing on where we think we can have the biggest impacts on the business and the brand and that is on driving lager in Scotland. It’s a simple strategy.”

Innis & Gunn's latest accounts show gross profit increased by 5.2% to £7.76m. That came as Innis & Gunn lager retained its position as Scotland’s top craft beer brand in the off-trade, while the brand is now the fastest-growing top-five premium lager in the on-trade.

And the firm underlined the impact of new and limited-edition beers, such as the Islay Whisky Cask in partnership with Laphroaig, which it said have helped to draw new consumers to the brand.

Mr Sharp said: “This has been without doubt the toughest year of trading we’ve faced. However, we have taken a robust approach to the business with a firm steer on, and forensic review of, our product lines to ensure that they not only enhance the brand but importantly provide a strong margin return to protect the company’s bottom line. This will be a continued focus for 2023."

On trading in the current year, Mr Sharp said the firm was “certainly forecasting revenue growth”.

But he added: “The only caveat to that is like everyone else we have just no idea what is around the corner. It has been a lumpy year. We had an absolutely record-breaking June this year, but August by everyone’s standards was quieter than expected. There are macro trends at play that we have not seen for a long time.

“I am not going to gaze into a crystal ball and make any predictions, but at the moment our revenue lines are up, and we continue to remain focused on our priorities.”

Mr Sharp said there are no immediate plans to add to the firm's portfolio of taprooms. “I think it is fair to say that the hospitality sector is a challenging place at the moment,” he noted. “We are not planning to open any new sites [and] we do not have any sites in the pipeline right now. I think it is worth waiting just to see how the environment settles down before we push ahead with any new sites.

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“The flip side of that, of course, is that our events business which we started to focus on predominantly last year delivered very strong growth in a similar setting to hospitality.”

Innis & Gunn built on its links to the Tattoo and Royal Highland Show with a deal to supply beer to the Castle concert series in Edinburgh this year.

Mr Sharp added: “That side of our business is growing quite strongly. It does seem to me that where consumers might be cutting back on day-day going out, when they go out to an event like a concert or a big show, they do tend to spend as normal. That is a key area of focus.”

Innis & Gunn said it has continued to invest in its flagship lager and put "renewed focus" on its Inveralmond Brewery in Perth, which it acquired in 2016 and makes cask ales such as Ossian and Lia Fail. The brewery is currently operating at full capacity.

Mr Sharp said: "We are generally very happy with the site, it is producing some great beers. We are looking at the potential of putting a canning line in there in the coming months, and continuing to invest in the site."

On the export side, Innis Gunn reported a 14% rise in turnover and Mr Sharp said the company had recently shifted the brewing of its canned products to Ontario. The move took it closer to its key Canadian market, its second biggest outside the UK, shortened its supply chain and brought environmental benefits by reducing the amount of containers it ships to the country.

“Generally speaking, our international business is tracking well,” Mr Sharp said.