Hertfordshire brewer and pub operator McMullen’s has reported a 24% rise in profits before tax and exceptional items to £7.3m in the year to 1 October 2011, but said the sector’s tax and regulatory burden is forcing it to reconsider its investment plans.
Turnover increased 3.5% to £60.8m and operating profits were up 23% to £6.9m.
The performance was driven by growth in its managed estate, particularly new acquisitions, where total sales were up 5.8% and like-for-likes up 2.5%, along with lower pub repair costs due to the phasing of its repair programme.
In the 250-strong tenanted estate, like-for-like draught beer and cider sales were down 3% across the 12 months, although managing director Peter Furness-Smith told M&C Report that sales have been “slightly better this year”.
He said the success of a pub is not so much determined by whether it’s managed or tenanted. “When you have well-invested, good sites in good locations they are trading reasonably well. In less-good locations they’re struggling a bit.”
Furness-Smith said McMullens’ Pub Operators Agreement, which allows tenants to keep their takings in exchange for a percentage of their pub's wet turnover, has now been introduced into four sites, three of which are managed.
“It’s still too early to really call but they seem to be doing well.”
McMullen’s re-opened two pubs after refurbishments in the period, the Nag’s Head in Bishop’s Stortford and the Heron on the Lake in Fleet, and both are trading “well ahead of expectations”. Its two central London sites “continued to perform very well”.
Since the period end, McMullen’s has opened another of its high street bar concept Baroosh, in Bishop’s Stortford, with another planned to open before Christmas, in Marlow, which would be the seventh. Furness-Smith said: “It would be lovely to do it faster but finding good sites has proved difficult.”
While like-for-likes in its managed estate increased by 3.7% at the end of March, the increased has now slowed to 1.2% after a “very challenging” last 10 weeks, “largely due to the disappointing weather”, said Furness-Smith.
Overall draught volumes were level with the previous year and own-brew ale volumes were up 1.6%.
On the prospect of new acquisitions, Furness-Smith said: “We are sitting on a reasonable amount of cash and are always looking for good sites.
“Unfortunately everybody else is looking for the same sites. We are patient and we’ll continue to be patient.”
He said the outlook for trading is “less certain as Government policy continues to load tax and bureaucracy costs onto the pub sector which is forcing us to reconsider our investment plans”.
“Even before the latest inflation busting increase in duty and a new tax on gaming machines, around a third of our sales goes straight to the Exchequer in the form of tax (VAT, beer duty, corporation tax, business rates, employer’s national insurance etc), which increased by more than £2m over the previous year.
“This means that we hand over to the Exchequer over three times as much in tax as we make in profit. Even more incredibly we pay the Government over 20 times more than what we pay out in dividends to the investors who risk their capital investing in our pubs and the local economy. This is clearly not conducive to stimulating investment and growth let alone creating employment opportunities.”
McMullen’s investments in the year include increasing the number of full-time staff by 27 to 997, and investing more than £500,000 in training and development of its teams.
“This investment in people is essential as we strive to give all our customers a consistently good experience as well as filling most management vacancies internally.
“The progress made in creating new jobs will not be maintained without Government adopting a supportive attitude towards pubs with action on reducing general bureaucracy and taxation. A substantial reduction in VAT for pubs is needed to help reverse the trend of cheap supermarket alcohol being consumed in unsupervised environments by encouraging more socialising in pubs. This in turn would lead to the creation of many more jobs and is estimated would quickly generate more revenue for the Treasury."
Net interest and similar income in the year increased by 54% to £454,000.
