BREWER'S COUP
Robert Bruce on how Brakspear's is destroying
its ancient and much-loved brewery for short-term financial gain
HENLEY-ON-THAMES in Oxfordshire is one of the great classic picture-postcard towns of England. Regattas take place on the river. The church tower dominates the view from the bridge. It seems an idyllic place. So how come its heart is being destroyed by yet another daft lunge for fast bucks under the guise of shareholder value?
As you drive down the long, steep and tree-lined hill into the town, you pass two clues at the bottom of the hill. On your right are, first, a lovely pub and restaurant, and then the town's cricket ground. Both look exactly as you would hope such institutions would. But this year they have been the cause of one of those wonderful rural spats which are amusing from a distance hut tragic in reality.
Both the pub and the cricket ground are owned by Brakspear's, the much-loved Henley brewers who have made their famous beers in the brewery in the heart of the town since 1779. Brakspear's announced that it wanted a large chunk of the cricket ground back because it needed to expand the pub carpark. Sundry skirmishes have been going on ever since, including one side-issue involving the adjoining allotments. The intricacies of all this do not matter. The point is that the brewery clearly regards itself as a property company rather than as a brewer.
Anyone with an eye on the financial markets would have noticed this somewhat earlier. On 11 January 2000, Brakspear's achieved a listing on Ofex, the junior stock market. There seemed no real reason at the time why a small family brewery should need such a listing, other than that it gives a value for shareholders to discuss should any deals be canvassed. The shares opened at 250p and are now double that in value. It was a clear sign that the core business of brewing beer was doomed.
The short-term value in the company was its property. Its historic brewery occupies a large site slap-hang in the middle of the town. There had been efforts to sell off parts of it for office development. But demand for office space in Henley is easily satisfied in other parts of the town and planning permission had been turned down. Where the real demand lay was for residential development.
Brakspear's was sitting on a pot of gold, but one which could only be realised if it managed two things. The first was to stop brewing, and the second would be to have the local council over a barrel, as it were, on granting planning permission.
So it announced that early this year it was in the middle of a strategic review. If you look at the accounts for the year to 31 December 2001, you find that the company had £9.5 million of 'freehold investment properties', £3.4 million of 'freehold brewery premises' and £21.4 million of 'freehold licensed premises'. And as a business it was bowling along happily. Turnover was up from £17.9 million to £19.7 million. Pre-tax profit was up from £3.9 million to £4.4 million. But the property interests were burning a hole in their pockets. On 1 February the company sold one of its freehold licensed premises. It went for £1.29 million, 'which represents', said the brewery, 'a surplus over carrying value of £1.17 million'.
On 23 July this year the results of the strategic review were announced. 'The sales of Brakspear's beer to our pub estate are in long-term gentle decline,' the company said, and as a consequence it had decided to close the brewery by the end of the year and 'focus on developing its pub and property estate'. But the company would retain the Brakspear's brand.
This was the masterstroke. Before anyone could organise a campaign, and before the council, local MP and other interests could put any measures in place to stop them, the company announced that it had sold the rights to produce the beer to another company. So there was nothing anyone could do. The beer would still be called Brakspear's but would be produced at some other brewery under licence. The freehold pubs could be retained and will doubtless eventually make a nice parcel to sell on to one of the mega-pub consortiums. And the company can sit tight on the acres of land at the heart of the town and wait until the council, with a decaying industrial site rather than a working brewery, gives in on the enormously lucrative residential planning permission.
With crocodile tears probably coursing down his cheeks, Michael Foster, Brakspear's chairman, on 2 August issued the company's interim results (operating profit up by 12 per cent) and said, 'I know many shareholders share my sadness at the closure of the Henley Brewery, but it is essential that we sustain the long-term financial health of the group.'
This is what the theory of shareholder value does to companies. It destroys them. If the sales of the beer are 'in long-term gentle decline', then what is the response? Do you not take measures to reverse that decline, however gentle it may be? After all, Brakspear's is not a product with a poor image. Its beers are recognised as arguably the finest there are. They regularly win national awards. The brewery and its brewers' skills are recognised as being among the best. The craft and materials employed in the historic brewery are of the highest standard. It would not be hard to turn the gentle decline around, even if the politics of the brewery world and of excise duties make it more hazardous.
But the answer is no. The idea of shareholder value can be used as a figleaf simply to offload the whole lot as a means of producing short-term financial windfalls. It is astonishing. Once again the idea of a company's role as producing a reliable and much-loved product over a long-term period for a steadily growing number of satisfied customers is seen as a laughably unsophisticated idea.
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