Well placed

Fuller, Smith & Turner chairman Michael Turner's recent warning that 2008 was likely to be the toughest year the pub sector could remember sent a chill down the spine of the trade.

An "economy in disarray", ongoing consumer worries, rising fuel and energy costs and a government seemingly indifferent to the industry's plight were making life tougher for a lot of operators, he said. In a week when shares in pubcos were sent tumbling by fears over the UK economy, his comments added to the sense of impending doom.

However, speaking as the London brewer announced turnover for the year to March 29, 2008, up a not-indecent two per cent and underlying pre-tax profits up four per cent, Turner was keen to stress Fuller's was well-placed to ride out the coming storm.

Better prospects

His confidence is admirable, but how well can Fuller's come through the challenges? Despite its estate of upper-market pubs in London and the South East, Turner acknowledges the group is "not immune" to the issues currently bedevilling the sector and threats to the business remain on the horizon.

"We wouldn't wish these conditions on anyone," he said, bluntly. But he argued that within the industry Fuller's had "better prospects than anybody. Our focus is on quality and the premium market with a well-maintained pub estate, plus our beer brands growth strategy will work in our favour".

In Fuller's heartland, the still relatively affluent South East, consumers continue to flock to spend in the group's pubs despite rising mortgages and utility bills. The $64,000 question is at what point do these people curb their enthusiasm for spending?

In the 2007/08 financial year, Fuller's managed pub and hotels division - combined following the sale of two hotels last year - saw invested like-for-like sales up 3.2 per cent, with food sales and accommodation cited as key drivers for future growth. Uninvested, the figure was three per cent. Fuller's said it had nearly 500 rooms across its managed estate, while 'boutique' rooms were being added to a growing number of its tenanted pubs.

Its tenanted arm saw turnover up five per cent, with like-for-like sales effectively flat but profits up four per cent. Extra resources were being channelled to tenants, said Fuller's Inns boss Simon Emeny, though not in the form of rent concessions, which had "barely moved" year-on-year. Instead, support included things such as food and accountancy training, he said.

Fuller's Beer Company saw its turnover grow three per cent to £60.3m, although sales through its own pubs fell two per cent to £20.7m. Beer Company boss John Roberts said this was the result of a declining lager market. Volume sales to the off-trade were up seven per cent at 36,300 barrels, while volumes to its own estate remained flat at 37,900 barrels. Fuller's cask ale sales were similarly flat, reported Roberts, versus a four per cent decline in the market overall.

On the issue of costs, Emeny said the premium scope of its offer meant it had been able to raise beer prices by between 15p and 20p a pint since Alistair Darling's Budgetary kick in the teeth, as well as pass on food inflation rises of between five and 10 per cent. The brewer also expects gas and electricity costs to double in the coming year to £1.6m. However, Fuller's is not able to isolate itself from such pressures completely. He conceded that the brewer was reviewing its menus daily in order to keep a lid on costs and was scaling back core ingredients with the biggest price hikes - beef, for example.

Food-related sales

Emeny added that food represented 27 per cent of revenue across its managed estate, while some 65 per cent of total sales were food-related. But, like London pub rivals Young & Co, Emeny did not want Fuller's to turn into a restaurant business.

"A 70/30 wet/food mix is the most preferable," he said.

Capital expenditure across the Fuller's estate will rise by £1m to £16m in the coming financial year, noted recently-appointed finance director James Douglas, during which time the group hoped to capitalise on underinvestment by its peers.

Of current trading, Fuller's first nine weeks' invested like-for-likes were up 2.4 per cent. While the economic outlook was "uncertain", Turner concluded that "we have a long-term strategy to deliver growth and we're well-place to continue to meet the challenges ahead".

Industry watchers will be forming their own opinions on such a forecast in the months to come.

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Results at a glance

Turnover £181.1m Up 2%

Underlying pre-tax profits £23m Up 4%

Adjusted earnings per share 29.15p Up 6%

Basic earnings per share 34.33p Down 34%

Final dividend per share 6.9p Up 6%