Successful UK hospitality businesses will not be able to go on investing in jobs and job creation if they continue to be taxed so heavily by the government.
That's the warning from Simon Emeny, group managing director of London-based pub company and brewer Fuller's, which today reported an increase in revenues of 8% for the half year to 29 September.
Fuller's said that it had paid total taxes and other government levies of £114m over the 12 months to September 2012, representing 36% of total group revenues including VAT for the same period.
Emeny told Caterer and Hotelkeeper: "It is simply eye-watering, and it is shocking when you do compare it to the likes of Amazon, eBay and Starbucks. What is happening is that more and more successive governments are placing the burden of taxation on successful UK businesses and people like Fuller’s will not be able to continue investing in jobs and job creation at the level that we are if we continue to compete on this unfair playing field. The duty on beer has risen by 45% over the last four years."
The company is a founder member of Jacques Borel's VAT Club, a group of over 30 restaurant and pub firms that are campaigning for a reduction in VAT to 5% for the hospitality sector - on food, drink and accommodation sales.
"I hope the VAT Club campaign gets something through or beer duty escalator [which increases duty on beer at 2% above the rate of inflation every year] is scrapped. Pubs are the home of responsible drinking and beer is the most dilute form of alcohol and it just seems obscene to be taxing companies like Fuller’s to kingdom come and letting other people off," Emeny said.
Despite the frustrations with taxation, Emeny hailed an otherwise successful six months in a challenging trading environment, which saw above-average rainfall, but also offered one-off events like the Olympics. "It has been a very unique period, the like of which I suspect we will never see again. It has been a very solid half year of results. The early part of the half year was dominated by the incessant rain that we saw and then followed by the Jubilee weekend which of course involved more poor weather. Then the Olympics, so to come through this with profits up 4% and EBITDA 8% and EPS up 8% we have been really pleased with," Emeny said.
Fuller's now has 630 hotel rooms in its managed pub estate, which saw like-for-like growth of 10.2%. The company does not publish revpar or average room rate figures because of the varied room stock the business has, with some rooms in the centre of London and others in more rural hotels in areas such as the New Forest. But Emeny signalled that accommodation was set to play a bigger part in Fuller's overall business mix: "Accommodation is going to become an increasingly big part of our business. For the last five years we have been pioneering these boutique pub bedrooms, and gradually we have been investing in the business to bring all of our rooms up to the standard," he said. Fuller's acquired around 70 rooms in the last year.
Fuller's tenanted estate saw its operating profit in its tenanted inns division increase 19% over period, thanks to the recent acquisition of 17 more tenanted pubs. Like-for-like profits were up 1%. The company has acquired a further two pubs for its tenanted estate since the period end: the Windmill in Waterloo and the Grand Central in Brighton. Despite the fact that most pub companies have seen more growth in their managed estates in recent years, with some moving away from the tenanted and leased model, Emeny said that tenanted pubs, of which Fuller's has 212 (compared with 173 managed sites), would remain an important part of the business.
"It is a different strategy – we have got three very successful business units at Fuller’s with a managed pubs and hotels division, a tenanted pubs division, and a beer company. That gives us a very solid strategic base to work from and what we want to do is invest in all three parts of the business. Our tenanted pubs are very high quality and they carry the Fuller’s name, and we think investing in the tenanted business by upgrading the pubs that we have got and also buying new pubs is a key part of our strategic plan. It is different to some companies but we see tenanted pubs having a long-term role within our business," he said.
"Three or four years ago, all anyone wanted used to do was invest in tenanted pubs and not invest in managed pubs or the brewery. We tend to stick to our strategy which is to invest in all three business divisions and it provides us with a very solid and consistent asset base to work from."
The next 12 months
Emeny said the company was excited about the Christmas period, having received some "good levels" of Christmas bookings, particularly in the new pubs that it had opened. "I think as these new pubs which we have spoken about at length, as they start reaching maturity, that is going to be a very exciting period for us. Setting up pubs from scratch like the Parcel Yard (in London's King's Cross) takes a lot of time but we are expecting the long term returns to come through on those sites. I think the economy will continue to be difficult but we think we have a very good asset base to work from, a very good team, and it will be very competitive," he said.
By Neil Gerrard
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