Enterprise Inns reviews investment plans following binning of ‘beer tax’

SOLIHULL-based pubco Enterprise Inns is reviewing its capital investment plans following a change in legislation.

The firm says a recent amendment to the Small Business, Enterprise and Employment Bill which inserted a “market rent only” option could potentially have a significant impact upon aspects of its business as well as the wider pub marketplace.

The amendment – passed in November – means tenants would no longer have to buy beer from their parent pub company and could seek a contract where they would only pay rent on the property.

It effectively ends the existing beer ‘tie’.

It has been welcomed by many pub campaigners who see the tie as a beer tax and argue that the legislative change will liberalise the market and help publicans to earn a decent living.

But the pubs industry has warned hundreds of pubs may close as a result.

About a third of UK pubs are run on a tenanted model and roughly half of profits from tenanted pubs come from beer sales, with the other half deriving from rents on properties.

In a trading statement this morning to coincide with its annual general meeting today, Enterprise Inns said: “We are working with the industry and Government to ensure that the planned legislation does not lead to unintended consequences, whilst delivering a workable solution for our publicans, ETI and the industry as a whole.”

Chief executive officer Simon Townsend said:  “We continue to believe the tie offers the best operating model for the vast majority of our pubs with our interests closely aligned to those of our publicans.

“Whilst the planned legislation may require us to evolve our business model over the longer term, until the detail of the legislation is clear and enacted, we remain focused on providing exceptional local support to our publicans to aid their profitability which, in turn, will enhance our performance.”  

The pubco said that as a direct response to the planned legislation it is reviewing its capital investment plans for the current year.

“Our previous guidance of capital investment of £70m for the full year remains unchanged. However, given that the planned regulatory changes may increase the uncertainty of returns from investments made into longer-term agreements, we are diverting an increased proportion of capital investment into similarly attractive opportunities from shorter-term agreements,” it said.
 
“At this time, our guidance for disposal proceeds of £60m for the full year also remains unchanged although the scale of future asset disposals will be subject to further review.”

Meanwhile, the update for the 18 weeks to January 31 revealed the pubco’s trading performance has been in line with expectations, resulting in like-for-like net income growth for its leased and tenanted estate of 0.3%.
 
“We are encouraged that positive like-for-like net income has been delivered despite the more challenging comparatives of last year. Trading over the Christmas period was positive although we have seen a little softening in the volume of beer ordered during January,” it said.  
 
“Our operating model is tailored to create the right environment for publicans to build successful and sustainable businesses and we remain focused on providing operational initiatives to aid publican profitability.

“In the first 18 weeks of the new financial year we are pleased to have seen a further reduction in the level of business failures as we have delivered operational support and commercial benefits to our publicans.”