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
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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