Pub Companies - Business and Enterprise Committee Contents


Further supplementary evidence from Simon Clarke

  You will be delighted to hear this is my last submission (unless you require more information). My aim now is to prove that the statements made by the Pubco's are unreliable as evidence in some cases factual inaccuracies or attempts to mislead the Committee.

  Hopefully by showing a few points that are easy to disprove the Committee will attach a greater degree of scepticism to any other statements made by the Pubco's.

  If the Committee are in any doubt about how Brulines beer monitoring equipment works then I would encourage them to visit me at The Eagle where I can give a simple 10 minute demonstration to fully explain the system. Do not take the word of the Pubco's or Brulines apparently extensive information. I need not remind the Committee that the CEO of Brulines Mr Derrick Collin was convicted in August 1986 at Ipswich Crown Court on charges of conspiracy and blackmail.

TISC CONCLUSIONS

  Q212 Miss Kirkbride: Mr Tuppen, do you roughly agree with those advantages for yours rather than repeat what has just been said?

  Mr Tuppen: Yes, I am glad to say that we have an even greater variety at Enterprise Inns of beer supplied to our pubs, |||||||||.. There is just one point, I think, for clarification that I would like to draw your attention to, and I am sure you have read it, but the 2004 TISC inquiry did conclude that "the tie usually balances the costs and benefits available to tenants" and that "the existence of the tie provides demonstrable benefits to both tenants and customers alike".

    Ted Tuppen said (twice) that the previous TISC did conclude that ".. the tie usually balances the costs and benefits available to tenants and that the existence of the tie provides demonstrable benefits to both tenant and customers alike|" I think he is referring to the para. below, if so, it is incomplete and therefore, I believe, a deliberate attempt at misleading the Committee.

    188. It should be remembered that this Inquiry stemmed from complaints about inequalities in the contractual relationship between pubcos and their tenants. On the basis of the evidence presented to us we feel that the immediately quantifiable cost of the tie is usually balanced by the benefits available to tenants. However, this does not mean that for every tenant the costs equal the benefits, leading to some tenants getting into financial difficulties. In such cases pubcos could do more to redress the imbalance. Indeed, it became clear as the Inquiry progressed, that some pubcos demonstrated greater sensitivity to tenants problems than others.

    From page 54 of House of Commons Trade and Industry Committee, "Pub companies" Second Report of Session 2004-05 http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtrdind/128/128i.pdf

  Mr Tuppen (cont) Now, the TISC in 2004 did not conclude that the tied tenant should be financially no worse off than the free-of-tie tenant. That was never a conclusion.

    It was never a recommendation BUT it was an endorsement of EU competition law.

    8  The benefit of the tie to tenants

    133.  Pubcos do not deny that their tied tenants pay higher wholesale beer prices than other public house operators. The offset, or "countervailing benefit", to the tenant is in the form of a lower than commercial, or free of tie, dry rent (rent) and special commercial or financial advantages (SCORFA).170 Under EU competition law, contracts containing an exclusive purchasing obligation, such as the beer tie, have only ever been permitted if they provide such `countervailing benefits'. The theory is that the net cost of the beer tie to the tenants makes them no worse off than if they were free of tie.171

    Directly cut and paste from page 41 of House of Commons Trade and Industry Committee, "Pub companies" Second Report of Session 2004-05 http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtrdind/128/128i.pdf

BRULINES

  Q260 Mr Bailey: Brulines—there are complaints that they are designed to measure beer and potential fraud, but actually they fail to distinguish between water going through the process and the result is that there have been false accusations made against tenants. Could I have comments from those who use Brulines?

  Mr Kendall: Yes, I can comment on that. You can actually measure the water that goes through, so that is not factually correct.

Q261 Chairman: Could we have a technical note on that rather than spend time on it now?

  Mr Kendall: Yes.

  Mr Thorley: The simple answer, as hopefully most of us will be aware, is that beer is a different density from water, so it actually measures the difference in the density of the products, so, therefore, as you are well aware, when you are cleaning a line, that is already factored into the volume that goes through the flow meter. I am happy to provide a more technical analysis of that.

    Not true. I attach photos (Not printed here) of a Brulines Flowmeter. If any member of the Committee would like a full demonstration of the device I would be pleased to arrange a visit to my pub (The Eagle Ale House—its only in Battersea). If unable to attend then hopefully the photos speak for themselves, I have placed a pound coin adjacent for scale. Quite simply as fluid goes through the device a little "water-wheel" spins round sending a message to Brulines HQ by mobile phone, a certain amount of revolutions equate to a half pint measure—simple as that! There is no "sniffing" the liquid, or "holding it up to the light" apparatus determining density.

INSURANCE

  Q254 Mr Bailey: First of all

  Mr Tuppen: We can answer that.

  Mr Townsend: On new lettings

  Mr Kendall: From our perspective

  Mr Townsend: The final point||||||on this idea of business failure, and Mr Hoyle was about to raise it earlier I think, it has been suggested to this inquiry that we have no fear of a business failure or a closed pub because of some insurance policy that covers us for two years' loss of rent. That is a complete fabrication and really we need to put the sword to that idea. There is no insurance policy that can cover Enterprise Inns for the loss of rent or the loss of income in a pub that has been closed down through a business failure or abandoned; that is a total fabrication. It is an absolute cost to us and we will do everything we can to prevent that business failure.

  I attach two extracts from separate leases (one being my own) which clearly indicate that there is an insurance policy covering loss of rent, in the case of the "Eagle Ale House" for three years loss of rent (Clause 6.1) and two years for the "Manor Arms" (Clapham Manor Street, London SW4 6ED)

Extracts of Eagle Ale House and Manor Arms Insurance Clause from lease

    INSURANCE

    6 6.1  The Landlord covenants with the tenant at all times during the Term to keep the Premises (except the glass thereof) insured (unless the insurance is prejudiced by reason of any act omission or default on the part of the Tenant) against loss or damage by fire and such other risks as the Landlord shall from time to time think fit and shall insure loss of three year's open market rent of the Premises and export's fees.

ESTATE VALUATION

  Q265 MR CLAPHAM: JUST TURNING TO THE POINT YOU MADE A LITTLE EARLIER WHEN YOU REFERRED TO A RE-EVALUATION OF YOUR ESTATE, DID IT INDICATE THAT YOU HAVE PREVIOUSLY BEEN OVER-VALUED?

  MR TUPPEN: WHEN THIS VALUATION WAS DONE, IT WAS DONE ON A PUB-BY-PUB BASIS BECAUSE YOU DO NOT LOOK AT THE WHOLE THING AND VALUE IT ON A SPREADSHEET,

    HUMBERTS UNDERTOOK THIS YEARS VALUATION OF THE ENTERPRISE ESTATE. THEY WROTE TO TENANTS INDICATING THEY WOULD BE VALUING THE ENTIRE ESTATE BUT WOULD ONLY ACTUALLY INSPECT A "REPRESENTATIVE SAMPLE". THE VALUATION WAS THEREFORE DONE PRIMARILY ON A SPREADSHEET BASIS. HUMBERTS DID NOT INSPECT THE EAGLE ALE HOUSE, THIS IS NOT A VALUATION ON A PUB BY PUB BASIS. ALSO IT IS WORTH NOTING THAT HUMBERTS WERE IN ADMINISTRATION LAST THE YEAR AND FOLLOWING VALUING THE ENTERPRISE AND PUNCH (I THINK) PORTFOLIOS THEY ARE TO SURVIVE ANOTHER DAY.

    IS IT JUST COINCIDENCE THAT ENTERPRISE AND PUNCH GET A PORTFOLIO VALUATION (WHICH HAS BEEN CONSIDERED BY MANY AS HIGHLY QUESTIONABLE) AND HUMBERTS GET FEES TO COVER THEIR FINANCIAL DIFFICULTIES. I WONDER IF THE FUNDS NECESSARY TO SAVE AN AILING FIRM OF SURVEYORS/VALUERS ARE EXACTLY THE SAME AS THE FEES PAID BY THE PUBCO'S FOR THEIR PORTFOLIO VALUATION.

    MORE DETAILS ON HUMBERTS IN ADMINISTRATION:

    HTTP://BUSINESS.TIMESONLINE.CO.UK/TOL/BUSINESS/INDUSTRY_SECTORS/CONSTRUCTION_AND_PROPERTY/ARTICLE4117268.ECE

LIKE A BANKER MIGHT, THIS IS NOT TRUE. THE VALUATION SHOULD BE ON THE BASIS OF THE OPEN MARKET VALUE, IGNORING ANY PURCHASER WITH A SPECIAL INTEREST SUCH AS A WHOLESALER, ASSUMING THAT THE PUBS WERE NOT PART OF A FIRE SALE BUT REFLECT A REALISABLE VALUE THAT WOULD LOOK TO THE PROFIT OF THE BUSINESS TO BE ABLE TO BOTH FUND REALISTIC DEBT LEVELS AND A LIVEABLE INCOME FOR THE OWNER OPERATOR, AND THAT IS THE BASIS ON WHICH A BANKER MAY CONSIDER. THE VALUATIONS ARE IN FACT CARRIED OUT ON THAT VERY BASIS BUT THE PROFITABILITY OF THE PUB IS ENHANCED BY THE ADDITIONAL PROFIT THAT CAN BE ACHIEVED BY THE SPECIAL PURCHASER NAMELY A WHOLESALE PROFIT STREAM PLUS ANY OTHER PROFIT STREAM THAT MAY BE DEVELOPED SUCH AS LISTING FEES, AWP ROYALTIES, TOP SLICING OF AWP INCOME ETC. IN OTHER WORDS THE PROPERTIES ARE NOT VALUES ON THE REALISABLE VALUE ON AN INDIVIDUAL BASIS EVEN IF THEY CONSIDER EVERY SINGLE PUB. THE PROFIT BASE THAT SHOULD BE USED FOR INDIVIDUAL VALUATION IS INFLATED. INSTEAD OF VALUING THOSE OTHER INCOME STREAMS AS SEPARATE, INTANGIBLE, ASSETS THEY HAVE BEEN MERGED WITH A VIEW TO INCREASING THE APPARENT TANGIBLE ASSET WORTH.

    AS A SURVEYOR AND VALUER I AM CONCERNED AT THE APPROACH OF "INFLATING" THE PROFIT BASIS AND CONSIDER INCOME STREAMS SHOULD BE VALUED SEPARATELY RATHER THAN "MERGED WITH A VIEW TO INCREASING THE APPARENT TANGIBLE ASSET WORTH" WHICH COULD GIVE A MISLEADING INDICATION OF VALUE.

    THE ENTERPRISE INNS ACCOUNTS TELL US THE ESTATE IS WORTH £5.9 BILLION AND EACH OF THE 7,763 PUBS ARE WORTH AN AVERAGE OF £755,000. 7763 MULTIPLIED BY 755,000 IS £5.86 BILLION, ALMOST £39 MILLION SHY OF THE QUOTED £5.9 BILLION.

    THE AVERAGE RENT OF EACH PUB IS £33,235 PER ANNUM.

BEER TIE REMOVED

  Q291 Mr Wright: What would be the effect if the beer tie were removed?

  Mr Thorley: I have already said that, sadly, there would be some international brewers no longer UK-based, and remember that 80% of our beer sales in the UK are still controlled by four major operators all of whom are foreign organisations,

    Evidence has already been submitted proving that the largest shareholders in the Punch and Enterprise Inns are European banks and US Pensions Funds. Like it or not both Pubco's are effectively foreign organisations. Over the previous 10-15 years the huge profits derived at the expense of British pubs has gone overseas in the form of dividend payouts. Punch and Enterprise Inns shares have lost 93% and 87% of their value over the past 12 months respectively. Sadly had the profits been channelled back into the pubs, in the form of more reasonable rents and passing on the beer and product discounts, many pubs would still be open and all would be in a better state of repair and condition as the tenants would have reserve capital to invest in the building. There has been no inward investment into pubs for years.

  and they would simply redirect their efforts into off-trade promotions, their marketing efforts, and you would see a significant reduction in the amount of inward investment into pubs by the pub companies because we would have no incentive and we would have no connection with the trade of the pub anymore. As I said earlier, the benefit of the wet rent, as some people have called it, is that it gives us an immediate indicator of the performance of the pub and we get an immediate change in our income streams, not something that can be changed on a monthly, quarterly or annual basis in the same way as the rents; it is very much more flexible.

  Mr Tuppen: We are often accused of just being property companies. The reality is that we have a total interest in the performance of the pub, so we invest in its success and we want it to be successful so that it can sell more beer and we can all make more profit. Were the tie to be removed, we would indeed become just straightforward property companies and, for a start, one would not see anything like the £9 million of support that we gave to our licensees in the past year.

    That would be the £9 million to the 1,453 pubs that Enterprise Inns acknowledged needed assistance. It sounds like a lot but amounts to an average of approximately £17 per day (yes you read it right SEVENTEEN POUNDS). Hardly a rescue package!

  , and Giles gave similar amounts. We have an interest in the success of the pub that is exactly aligned with those of our licensees and, whilst that has been under attack recently by people who would like to see the agreements to which they signed up changed, the reality is that we see this as something that is for the long-term benefit of pubs in this country. The reality also is that, if the tie were removed, there would be even more pub closures and there would be a significant reduction in choice for the consumer.

    I remain confused. Mr. Thorley and Mr. Tuppen have outlined the advantages/benefits that we, the tenants, would lose if the tie were removed in Q212 (look carefully in their witness sessions they amount to very little)

    1.  Punch tenants have a choice of over 280 beers, Enterprise 1312. There are thousands of cask ales alone add to that lagers and stouts and with no tie the tenants and customers would have a far greater choice

    2.  Area managers, as previously outlined, are of little benefit to tenants and are generally seen as nothing more than glorified rent collectors

    3.  the lack of Arbitration and Independent Expert cases reflects the huge costs and risks to the tenant not a fairness in rents

    4.  training (which incidentally tenants still have to pay for)

    5.  a free rateable value appeal service (which we rather cynically consider is just an excuse to view tenants accounts so we never use)

    6.  We, at the Eagle Ale House, have been offered no other products or services by Enterprise Inns that we can not acquire, considerably cheaper, on the open market. If the tie were removed and the price were so favourable then tenants would maintain a the supply arrangement with the Pubco.

    If the tie were removed I do not doubt the Pubco's would be in serious financial trouble. However, tenants would continue to undertake training they consider necessary at their own expense, would have to pay for rating advice if they considered it necessary (a five yearly nominal expenditure), would continue to buy on tied products from existing suppliers not related to the Pubco's and be able to offer a greater selection of beers at a lower price to the customer whilst still maintaining the same profit margin or better.

What the Committee need to ask themselves is:

Do you wish to save the British Pub or the Pubco?

Save the Pubco and sooner or later you will lose both!

5 January 2009





 
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