Starbucks UK and EMEA Report Financial Results for Fiscal Year 2017
Starbucks UK and EMEA companies reported stable growth and higher revenues, reaching £372m and $227m respectively
Gross profits down across all companies, as investment into new products and stores continues
Royalties are collected and taxed in the UK for a third year, following transfer of IP in 2015
Total corporation tax paid in the UK for the period equalled $18.3m / £13.7m
Starbucks Coffee Company, UK (“Starbucks UK”), and Starbucks Coffee Company, EMEA, today filed accounts for the year ending October 1, 2017, for the UK company and four UK-based subsidiaries. Starbucks EMEA Limited, Starbucks EMEA Holdings Ltd, Starbucks EMEA Investment Limited, and Starbucks International Holdings Limited, collectively known as "Starbucks EMEA", were created in 2014 following the relocation of the region’s EMEA headquarters to London. Together these accounts represent the economic activity of Starbucks in the UK, key European markets, the Middle East and Africa, and is the third set of accounts filed in the UK.
Despite ongoing trading conditions and reduced retail traffic in the UK market, like-for-like sales improved in 2017, with sales up 1.2% compared to 2016. In addition, as part of the overall strategy to improve profitability in the UK, the company continued to transfer company-operated stores to local licensee business partners resulting in a 2% decline in total revenue to £372m.
Operating costs increased in 2017, up to £301m, primarily due to ongoing investment into higher quality products, with a number of new food and drink items offered in stores. This included investment into a menu of new cold coffees such as Nitro Cold Brew and Cappuccino Freddo. Nitro Cold Brew is now offered in 75 stores in the UK. The UK company has also extended its fresh food offer for both the breakfast and lunch menu, by introducing two new hot porridge varieties and expanding the range of fresh salads and under 500 calorie hot lunch boxes.
Despite a reduction in Administrative expenses, Operating profit for Starbucks UK declined to £0.7m from £6.4m in the prior period. This decline was offset in part through profit on disposals of equity stores of £3.7m, boosting Profit before tax to £4.5m for the period vs £13.4m in 2016. As a result of these factors, the tax expense was £3.3m for 2017 for the UK company vs £6.7m in 2016.
Growth within Starbucks EMEA has remained stable during the period. Starbucks EMEA saw turnover increase by 5% to $227m, driven by consistent performance across EMEA markets overall, with exceptional performance in Turkey and the Middle East in particular. 333 new Starbucks stores were opened during the period across all EMEA markets. The premium Starbucks Reserve™ offer was also introduced to new markets, including France, Kuwait, Qatar and Kazakhstan.
Costs increased during the period, rising to $98 million, up from $74m in 2016. This was primarily because of increased distribution costs, investment into the global Starbucks brand, and research and development for new products. The roasting plant in Amsterdam will continue to roast and distribute all coffee (excluding Starbucks Reserve) for over 3000 stores in the region.
Operating Profit was supported by investment income of $43million, boosting the total profit for the period to $66m, with corporate tax expenses totalling to $14.0m.
The intellectual property of the Starbucks brand in EMEA has resided in the UK since 2015, enabling the local collection of royalties for the region. This collection of royalty income is subject to corporation tax and combined with corporate tax paid by the UK company, has led to a combined corporation tax charge of £13.7m for the period and £71.8m over the last four years.
Martin Brok, president for Starbucks EMEA said "These results demonstrate our commitment to quality and delivering the best customer experience, through investment and innovation. It’s still challenging to operate in the UK, as one of the world’s most competitive coffee markets, but we will continue to invest for long-term growth. Our trusted licensed business partners continue to deliver good results for the EMEA business, and we will support them with future growth. We look forward to bringing Starbucks for the first time to Italy with the opening of our Starbucks Reserve Roastery in Milan, as well as growing our premium Starbucks Reserve store experiences to more locations in EMEA.”