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BrewDog founder draws line on selling to bigger company

BREWDOG co-founder James Watt has declared the rapidly growing brewer and bar firm would never sell to a major, stating that such a move would be "the opposite" of everything it set out to achieve.

PLEA: James Watt wants a VAT exemption for start-up firms.
PLEA: James Watt wants a VAT exemption for start-up firms.

Mr Watt and co-founder Martin Dickie have watched BrewDog grow into a business with turnover approaching £19 million since setting it up with a £20,000 bank loan and second-hand brewing equipment in April 2007.

The company now exports to 42 countries, owns bars in the UK and abroad and last week revealed the first in its planned chain of craft beer bottle shops will open in London in March.

Mr Watt said the duo set out to offer an alternative to the "bland" and "industrial beers" which dominated the market in recent decades. Seven years on he insisted it is this goal which continues to drive them.

Asked whether any major brewer had expressed interest in acquiring BrewDog, Mr Watt said: "No, but anyone who knows me could anticipate the answer that they would get.

"It is not why we do it. Our motivation has never been financial. We want to change the face of the beer industry in the UK.

"We want to get more and more people excited about good beer. That's what motivates us, that's what gets us out of bed in the morning, that's what excites our team.

"To sell it to a bigger company would just be then complete opposite of that. I can think of nothing worse than sitting on a beach somewhere watching a big, monolithic, evil company tearing to pieces everything our team has worked so hard to do."

BrewDog's most recently available accounts at Companies House show it made a pre-tax profit of £485,936 in 2012, up from £424,101, on turnover of £10.6m, up from £5.9m.

It has previously said it expects turnover to have almost doubled in 2013. But Mr Watt notes the journey has not always been easy.

He recalled the first year as being especially tough as the business struggled to secure bank funding - not least because of the global financial crash - and noted it was "born of frustration" that the company pursued crowdfunding, the alternative finance model.

BrewDog's Equity for Punks scheme, which launched in 2009, has raised more than £7m in three rounds, from 15,000 investors buying shares priced £95 each.

The most recent scheme raised £4.25m, £1m of which was pledged in the first month, with "punk" investors now holding around 13% of the equity. The funding has helped to bankroll the firm's sequence of bar openings and its £4.5m investment in a new brewery in Ellon a year ago.

Mr Watt refused to rule going back to the crowd for further funding.

Asked whether the government could do more to help small businesses get off the ground, Mr Watt said a review of the VAT (value added tax) system would help.

He said: "I think the current VAT structure makes it difficult for small companies to invest. It makes difficult for them to invest in the UK.

"As an example, the first bottling machine we bought was a £100,000 investment when we didn't have £100,000. If we wanted to buy that in the UK we would have had to find not £100,000, but £120,000.

"That £20,000 would then be out of cash flow for up to three months, so it was an incentive for us to buy from overseas and an incentive for us to not to invest.

"I think small companies, in the first two years of business, rather than paying VAT and then claiming it back, should just not have to pay the VAT. It would reduce the paperwork from an HMRC perspective, there would be no net reduction in the amount of tax revenue and it would make it easier for smaller companies to invest and to invest in the UK."

Mr Watt recalled that BrewDog's fortunes had been transformed in 2008 when it won a Tesco beer competition, which led it from selling in farm shops to a contract supplying 400 stores nationwide.

Mr Watt said: "I didn't mention anything at all about the fact it was two guys and one dog filling bottles by hand. At that time we were tiny. We had four months until this was due to kick off."

A deal followed with Sainsbury's, before it opened its first bar in 2010.

Mr Watt acknowledged the firm had also been helped by progressive beer duty, a tapered system of tax relief for brewers who produce up to 60,000 hectolitres per year.

Noting that 2014 could be the first year it pays full duty - BrewDog's output last year was 53,000 hectolitres - he said it helped small businesses get started and helped to level the playing field between large and small producers. But he objected to beer duty being charged at one and a half times for beers over 7.5% ABV (alcohol by volume) in strength.

Mr Watt said: "These are beers that are expensive anyway.

"People consume them in small measures. These are beers that are consumed by connoisseurs and aficionados. I don't think they should be punished for appreciating and understanding beers over that ABV."

Mr Watt is even more scathing about the strategies used by major drinks companies to discourage binge drinking, branding them "stupid, two-faced, conceited and doing more damage than good." He said the way to tackle alcohol misuse was to encourage people to savour quality products.

Neither is he convinced by the strategies used by drinks trade lobby groups to deal with the culture of binge drinking. He pointed to a more positive role-model in the shape of the Brewers Association in the US.

Meanwhile, as BrewDog continues to grow, Mr Watt said maintaining the company's independent ethos was "our biggest challenge but it is also our biggest opportunity".

He said: "For us it is all about people, so company culture, personal development. Customer experience is all shaped by people so what myself and Martin spend most of our time on at the moment is not only maintaining company culture, but enhancing it."

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