Fuller's: Better the devil you know

Government interference in the pub industry following publication of the Business & Enterprise Select Committee (BEC) report should be avoided at all costs, according to Michael Turner, chairman of Fuller Smith & Turner.

Speaking at the group's annual results presentation in London last week, Turner said the last time there was major government intervention - the Beer Orders - it proved disastrous for the industry and effectively led to the situation that exists today.

"The Beer Orders destroyed the UK brewing industry as we knew it and triggered wide-scale pub sales. That legislation was not helpful and led to much of what we have today," Turner said. "We don't need two and a half years of a government review. That will only lead to companies not investing, with tenants and ultimately consumers losing out.

"No-one wants to see a Beer Orders II. The industry has got to look at this situation really hard and come up with solutions."

The commitee's report on the sector, in which it called for an overhaul of the beer tie, has raised the prospect of another government-backed inquiry into the industry.

Not perfect but flexible

Noting that the remit of the BEC inquiry had not included looking at the tie, Turner said that while it was "not perfect" it was at least flexible and it reacted to a variety of trading environments.

"There are lots of different agreements across the 33,000 tenanted pubs in the UK and you can't legislate for them, because they are not the same," he said.

It should be left to the industry to make changes based on market forces, Turner argued.

Turner, who is also chairman of the British Beer & Pub Association, would not comment on whether the industry had met with Business Secretary Lord Mandelson.

He acknowledged that "some changes" to the tie might be necessary, but would not elaborate. "People call for

a franchise model to be more widespread across the industry but that is often more restrictive. The tie is quite a free model by comparison," he said.

Turner was speaking as Fuller's announced turnover for the year to March 28, 2009, up three per cent at £210m, with part of the rise accounted for by the rise in beer duty.

Adjusted pre-tax profits fell one per cent to £22.8m, while the group recorded net pre-tax exceptional costs of £8.4m, largely relating to asset impairment charges.

The group's pubs and hotels had seen like-for-like sales for the first nine weeks of the new financial year up by 1.8 per cent.

Commenting on the increase in Guinness Peat Group's stake in the brewer from 1.7 per cent to 5.7 per cent, Turner said he had no concerns that the activist investor might seek to alter the group's share structure, as it had done with the likes of Suffolk brewer Adnams.

"They are investing in us because they like us as an investment. We are building a business for the future, not for the short term," he added.

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How Fuller's is faring

Simon Emeny, managing director of Fuller's Inns, the brewer's retail operation, acknowledged that the reality of the current market meant that "not every tenant is flourishing", but where individuals needed support it was provided.

Top-line revenues for the division rose three per cent to £150m, while underlying profits fell five per cent to £32m.

The group's 203 tenanted pubs saw revenues and profits flat, but like-for-like profits down two per cent. Emeny pointed out that "all pubs are suffering" in the current environment.

"It's wrong to say everyone is making more money," he said, though Fuller's tenants were "doing well versus the rest of the industry".

Tenant churn was "marginally up" on the previous year, he added.

The business, both tenanted and its 157 managed pubs, was "not immune to the downturn" and had seen costs starting to rise again as forward supply contracts for gas and electricity began to expire. Fuller's, which has been a net seller of pubs for at least three years, said it expected its recent acquisitions, including the seven pubs it bought from Punch Taverns, to be earnings-enhancing, although finance chief James Douglas declined to say by how much.

The group would not be spending "materially large amounts on the pubs", said Emeny, after the group had paid what chairman Michael Turner said was "significantly more than it had anticipated" for the seven sites, most of which were in London. Douglas was similarly reticent to discuss the impact of rising costs on the business in the current financial year.

John Roberts, managing director of Fuller's Beer Company, said the business had seen turnover grow five per cent to £91.8m, while own beer volumes remained "level".

Summing up, Michael Turner said the group's prospects were good, although everyone at the company was "paddling like hell to make any progress at all". While there were likely to be forthcoming rises in taxes, interest rates and energy costs, the group was "well-placed for the future", he added.