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Fri 1st May 2015 - Friday Opinion
Subjects: BrewDog’s eye-watering valuation, the importance of European representation in Europe for the sector and health or healthism
Authors: Martyn Cornell, Kate Nicholls and Paul Chase

The eye-watering value on BrewDog is all part of the hype by Martyn Cornell

Back towards the end of the last century I had some spare cash, for once, and decided to invest some of it in a small brewery – to be specific, Hop Back, in Salisbury, brewer of Summer Lightning, the first big “golden ale” brand, which was raising money through an issue of shares under the old Business Expansion Scheme. This was not because I though Hop Back was a good investment: that wasn’t the point. It was because the head brewer, Steve Wright, and his wife Wendy were friends, and I rather liked the idea of owning a small part of a brewery. I would not have been awfully upset if my investment had produced no returns at all, though I was reasonably certain that my money was safe, since Hop Back was (and is) an excellent operation with a good reputation. As it happens, when I found myself a bit ‘brassic’ some ten years later, I was able to sell my Hop Back shares for twice the sum they had been issued at – a compound increase of 8% a year, which is fair by almost any standard. And that’s not counting the dividend payments.

Today, Hop Back’s current share price gives it a “market capitalisation” of a mere £1.3m or so, which for a company with a turnover of close to £4m, is something to make the BrewDogs and Camden Towns laugh and sneer. Camden Town Brewery, with a last reported turnover of just under £9m, valued itself at £75m when it went to Crowdcube earlier this year to raise money. It later cut that back to £50m when it was offered £10m for 20% of the company by a group of Belgian investors who turned up after the Crowdcube exercise. That still gives Camden Town a turnover-to-value ratio of 5.5, however, which would suggest Hop Back ought to be worth more than £21m, and its shares a lot more than the 90-something pence each they fetched the last time any were sold – though the last time any were sold was back in December.

At the same time, BrewDog’s current fund-raising effort, as Propel has pointed out, suggests a value for the company of £305m. That’s a ratio to turnover of around ten to one, which would make Hopback worth £40m or so. I’m sure John Gilbert, founder of Hop Back, has had approaches every week for the past ten years from people wanting him to sell the brewery to them, but I’m not certain anybody has ever offered him £40m.

So should all right-minded people, as John Stepek suggested, writing in Money Week, get no closer to BrewDog’s attempt to raise £25m through its latest Equity for Punks scheme than the length of a very long barge pole? Stepek is surely right to point to the risks: at £47.50 a share, minimum purchase two shares, it’s a high price for no guarantee of any returns, and only the promise of a discount in BrewDog’s bars, and an invite to BrewDog events such as new bar openings and the annual shareholders’ meeting in Aberdeen (which is, to be fair, more like an annual rock-and-beer festival). There is no guarantee of any sort of return on the investment – not even the guarantee of a tidy exit that will give you your money back. A stock market listing is merely a “longer-term aspiration”. Most of the company remains in the hands of James Watt and Martin Dickie, its founders, and other BrewDog employees. There are safer, more regulated investments if what you are looking for is a good return. And that £300m-plus valuation gives a price-to-earnings ratio of 116 times, which would have been thought steep even in the days of the dot.com boom.

But just like me and Hop Back, BrewDog’s existing 14,500 individual shareholders are almost all, I suggest, not in it for the money. The company says those who bought in its first funding round were able to cash in at a return of more than 500% recently in a selling opportunity, but I’d be surprised if that many shareholders sold. The profile of the average BrewDog shareholder, I strongly suspect, is going to be someone much the same age as Watt and Dickie, now in their very early 30s, someone delighted to buy into the rebel imagery, the iconoclasm, that BrewDog has represented from the start, and thrilled that the company they support is now worth, apparently, hundreds of millions of pounds. Just like the “strongest beer in the world” stunts, the deliberate winding up of the Portman Group, the bottles of beer stuffed into roadkill and the tank driven through the streets of London, that £300m valuation is part of the hype that has made BrewDog what it is. Anyone who puts up cash for this latest fundraising will be doing so with their eyes open: they don’t need the warnings of people like John Stepek, because they’re not investors in any normal sense, they’re people paying money to join a club, like football season ticket holders.
 
Mind, whether there are enough BrewDog fanboys and girls still with spare cash to stump up the whole £25m the company is seeking remains to be seen: but I don’t believe Dickie and Watts will be that upset is they miss their target, even by a large amount. Once again, they have managed to get the BrewDog name all over the public prints, at very little cost to themselves. They really are the best guerrilla marketers in the business.
Martyn Cornell is managing editor of Propel Info

Why it’s important the sector is represented in Europe by Kate Nicholls

It’s not something I tend to tell everyone – in today’s UKIP dominated debate, Europe is all too often a dirty word – but my first job was working in the European Parliament during the Maastricht negotiations. Those were the days of John Major’s cabinet of Euro-sceptic dissidents – and the debate in England doesn’t appear to have become any more sophisticated since then.

So I found it really interesting to travel to Luxembourg last week to the heart of the EU institutions to see what, if anything had changed. I was there to be formally inducted as the UK representative of the hospitality industry on HOTREC, the pan-European trade body responsible for lobbying on EU laws. The fact that before I arrived there had been no UK voice in Europe for the last two years suggests plus ca change!

Despite the fact that so much of our legislation comes from Europe – allergen labelling, menu labelling, employment law, the rules around VAT and duty rates, even alcohol policy – I was amazed to find when I took over as ALMR chief executive that there was no UK representation. That is not only bad for British businesses – because it means that their views and concerns are not being taken into account when vital legislation is drawn up – but it is also bad for Europe, because it doesn’t have the insight, energy and enthusiasm of the most vibrant, dynamic and mature hospitality market place.

How many of you cursed the law makers for imposing a pre-Christmas deadline for allergen labelling? Wouldn’t it have been great to have a strong UK voice in Europe arguing against that date? Thankfully, now we are members, we can stop that happening again.

We’ve been working with HOTREC for the last eight months prior to taking up our seat as UK hospitality rep, and during the time the benefits of that two-way engagement have been hammered home. Working together at a European level we have already been able to secure an EU wide cap on credit card charges of 0.2%; we have stopped a European Parliament call for a ban on the sale of alcohol in restaurants, pubs and shops in the vicinity of a school; we have orchestrated competition law investigations into on-line booking, distribution and review sides with fines for those restricting hotel and restaurant direct marketing and the promise of EU wide standards of transparency on reviews; we have averted changes to the Package Travel Directive which would have required pubs with rooms and hostels to take out huge indemnity insurance; we are actively engaged in preventing mandatory allergen and calorie labelling.

Still to come are EU debates on alcohol duty structures – so many of the solutions people propose such as increased duty on off sales or differential duty rates for different types of product are simply not possible under EU law – and changes to the VAT regime. Last time round we were successful in securing the right to apply a reduced rate to hospitality and eating and drinking out – even if the Chancellor remains unconvinced he should use it; and, we are getting stuck into rewrites of the Working Time Directive.

And the benefits since joining last week have been immediate and important – we’ve presented a strong voice for the night time economy and late night entertainment in meetings with the European Commission and European Parliament Tourism Intergroup and now we have been asked to represent the whole of HOTREC and European hotel, restaurant and bar interests in a critical summit on the European Alcohol Strategy – looking at calorie labelling of alcohol and Minimum Pricing.

Europe is different to the UK – but when I was talking to my counterparts in Belgium, France, Greece, Sweden and Ireland I was struck by how many of the issues were the same. The Swedes wanted to talk about PPL and PRS and whether a new Spotify for Business could help. The Belgians wanted to compare notes on the beer tie – the only other major market that has such a network of agreements – and whether there were lessons to be learnt from the European debate. And the Irish delegation wanted to compare notes on food and licensing – as well as sharing the craic on the late night economy.

It brought home to me the importance of collaboration, co-operation and engagement. We were able to secure so many wins for UK interests because we had much to give and were willing to share. As with all trade bodies, you get out what you put in – it is not just a truism that we are better and stronger together.

So if you want to rant at the Brussels bureaucrats or influence the legislation that affects your business, then you know who to call!
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers

Public health or healthism by Paul Chase

‘Public health’ has historically been a noble cause. Its origins are in the eighteenth century, but humanitarianism was the ‘big idea’ of the nineteenth century and this idealism, combined with the ingenuity of Victorian engineers, contrived the delivery of clean drinking water on tap, covered sewers, municipal refuse collection and the like. The discovery of the benefits of hygiene and then, beginning in the 1940s, the mass use of penicillin and other antibiotics contributed to a huge leap forward in life expectancy and public health.

So, how should we regard today’s custodians of public health, with their emphasis on lifestyle diseases and social engineering? “Alcohol has become the new tobacco” is a cliché, but no less true for that fact. And now we are increasingly seeing the assault on modern lifestyles broadened out into the realms of food, with demands made that food producers reformulate their products to reflect the latest fashionable view of ‘healthy food’. ‘Public health’ has gone a long way beyond the promotion of hygiene and the benefits of preventive medicine. How did this begin?

Firstly, what I term the ‘new public health movement’ (NPHM) began in the 1970s with a group of radical addiction specialists in the Nordic countries who focussed initially on the use of alcohol. Their belief that public health had to be taken “beyond the limits of medicine”, and had to address personal lifestyle choices, quickly became the new orthodoxy of a growing number of ‘troubled persons’ professionals who had a vested interest in getting this game going.

The most brilliant critic of this whole development is the late Dr Petr Skrabanek. In his book ‘The Death of Humane Medicine and the Rise of Coercive Healthism’ he wrote the following:

“The roads to un-freedom are many. Signposts on one of them bear the inscription “HEALTH FOR ALL.” This book is about the danger posed by healthism – the ideology of the ‘health of the nation’ – to our right to do as we like with our lives, to our autonomy to pursue our kind of happiness.

All totalitarian ideologies use the rhetoric of freedom and happiness, with false promises of a happy future for all. For those who do not, or do not wish to recognise the Utopian nature of the health promotion movement, my critique will be misinformed at best and misanthropic or malicious at worst.

Healthism, as encountered in Western democracies, involves the state going beyond education and information on matters of health and using propaganda and various forms of coercion to establish norms of a ‘healthy lifestyle’ for all. Human activities are divided into approved and disapproved, healthy and unhealthy, prescribed and proscribed, responsible and irresponsible.”

Following in the tradition of Skrabanek, a book entitled ‘Doctoring Data – How to Sort Out Medical Advice from Medical Nonsense’ was published recently. Its author Dr. Malcolm Kendrick is a practising GP and he details some fascinating examples of the false factoids generated by the NPHM in relation to obesity. In previous articles I have detailed the way in which ‘overweight’ and ‘obesity’ are frequently conflated to exaggerate the scale of the ‘obesity epidemic’. But, along with Dr. Kendrick, I assumed that the definitions of ‘normal weight’, ‘overweight’ and ‘obese’ had some basis in medical science. ‘Body Mass Index’ or ‘BMI’ is the usual way of assessing whether you are overweight or obese. But according to Kendrick ‘BMI’ should really be understood to mean ‘Being Mostly Invented’!

Kendrick writes: “Over many years of researching medicine, I have come to realise that some of our most widely believed medical ‘facts’ are based on almost no evidence at all.” He went on to point out that the assumption that the basic weight categories of normal weight, overweight and obese – this last defined as a BMI greater than 30 – were based on science, turned out to be untrue. He has found no significant studies that establish these categories scientifically. So where did the figure of 30 come from? He eventually tracked it down to a World Health Organisation conference in 1995 which resulted in a 600 page document being published. On page 400 he read the following: “The method used to define BMI cut-off points has been largely arbitrary.” Or to put it another way: they made it up!

And it turns out that ‘overweight’ people with a BMI of 25 to 30 live longer than those defined as ‘normal weight’ – a BMI of 19 to 25. He adds: “supposedly healthy levels of cholesterol in the blood were set in a similar way.” And readers may well recall how Richard Smith, a former editor of the British Medical Journal, admitted that the sensible drinking limits established in 1987 were “plucked out of the air”.

Starting with a set of simple moral certainties and constructing a set of false factoids to ‘nudge’ people in the ‘right direction’ is a characteristic of healthist ideologues. The fact that such guess-work or well-intentioned inventions form the basis of hugely significant public health policies is something that ought to worry us all – not least those of us who run businesses that sell food and drink.
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol policy

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