Seizing the Laurel crown
Laurel Pub Company is now owned byproperty tycoon Robert Tchenguiz. The PMA Team meets new chief executive Julian Sargeson, who will imminently present his long-term plan for the company to the board
The final six months of 2004 could hardly have been busier for Julian Sargeson. In June, he helped sell Wizard Inns, the 65-strong managed pub company founded by Chris Hutt, to Wolves & Dudley for a tidy £89.9m. One of the disappointed final three bidders for Wizard was R20, the pub-buying vehicle controlled by property tycoon Robert Tchneguiz, who is reputed to have cleared a £50m profit on his stake in Pubmaster.
Sargeson, who was operations director at Wizard for seven years, and Hutt, must have impressed Tchenguiz during the Wizard sale negotiations; within a few months of the sale, he asked Sargeson to undertake an in-depth review of Walkabout operator Regent Inns. Regent was struggling at the time with a breached banking covenant and other woes.
The exact detail of Sargeson's report on Regent is unknown. But it is fair to assume that its content was reasonably favourable since Tchneguiz went on to build a 12.6% stake in it. "I did a presentation about the state of Regent to Robert and I'd like to think [he] took some actions out of that and continued or recommenced investment in Regent," says Sargeson.
Speculation is rife about Tchneguiz's next move at Regent, although the last week has seen part of his stake being sold. After a 200% increase in the value of his Regent interest, creating a £9m profit, the temptation to sell may become irresistible.
It may well be that his investment in Regent was an opportunistic (and highly profitable) one. Last autumn, after all, it was clear that Tchneguiz was focusing an enormous amount of energy on acquiring Laurel Pub Company, while his interest in Regent lay dormant. Sargeson found himself moving from part-time helper on Regent Inns to full-time adviser on Laurel. The eventual acquisition of Laurel for £151m (plus around £12m in costs) around nine times earnings in December is widely regarded as one of the most complicated deals in recent years. (The Laurel sale price, incidentally, was £10m more than the management team led by Ian Payne was prepared to pay.)
Laurel had shrunk from 3,000 pubs to 157 high street sites in three years. One bidder, GI Partners, withdrew from the sale because of concern about the "un-measurable" risk attached to areas such as pension and property liabilities. Whilst Tchenguiz and R20's accountants and lawyers wrestled with the Laurel paperwork, Sargeson was tasked with drawing up a 100-day post-acquisition plan for Laurel. "I did a lot of visiting Laurel pub sites during and after the acquisition as I wanted to get to know the Laurel estate it was absolutely paramount," he says.
So what kind of shape was Laurel in upon acquisition? Its former chief executive Ian Payne claimed double-digit sales growth throughout 2004, with earnings at around £17m per annum. Its largest brand, Hog's Head, had seen around two-thirds of its 65 sites converted to a new up-dated format.
"Having struggled with Hog's Head we really did turn it around," Payne told the Morning Advertiser last month. Its "core" Tavern Venue sites this division includes 10 RSVPs, six Casas, 12 Bar Me sites and a larger number of unbranded venues also "trade well", according to Payne. The Bar Me sites, aimed squarely at the 18 to 24-year-old market, presented the biggest problem in the current political climate.
In the coming week, Sargeson will present his long-term strategy for Laurel to the board. What's clear is that this strategy has been heavily influenced by what Sargeson calls the "constant bombardment" of social responsibility and other issues hitting the trade at the moment.
"To have one of the big issues of smoking, social responsibility and licensing on the agenda would be a fair challenge. To have these three plus the (24-hour drinking) campaign from the middle-market press at the same time is very hard."
He adds: "These issues have to be tackled and we must respond to the current climate and changing social attitudes when shaping the future of the business. We are, for example, in the process of reviewing every offer in our estate."
"Our major opportunity lies in moving away from the extreme youth end of the marketplace and transferring the values of Hog's Head and some of the successful Tavern Venue outlets bright, airy, modern, safe and welcoming sites into more bars and pubs."
Sargeson has already set in motion a slew of initiatives as part of his 100-day plan. All operations and support staff will see the introduction next month of objectives-based bonus schemes. He will also launch quarterly directors' forums, where site managers will be invited to sit down with the senior management and discuss the future of the business.
Sargeson has identified food as one of the biggest sales opportunities at Laurel. "Food currently accounts for 11% of our total sales," he says. "Our target is to achieve upwards of 20% during the next three years."
He plans to improve the provision of table service, something he successfully pioneered at Wizard Inns, where food accounted for up to 25% of total sales.
"We already have a table service concept called Service that Sells', but I think it only goes halfway, varies too much from site to site and, therefore, can be greatly improved.
"We know our customers like it, we just need to get a more robust framework in place and the overall standard right to match our customers' expectations and demands."
Sargeson's chairman Chris Hutt has spoken out in the past against the "lemming rush into brands" during the 1990s. Wizard Inns preferred to tailor each and every one of its pubs to the local market and avoid heavy branding.
Hog's Head was, of course, Whitbread's main branded high-street offer. "While I'm not a fan of brands there's an opportunity to strengthen Hog's Head," Sargeson says. "Customers like Hog's Head, find them safe and secure. That's an amazingly important issue for me to consider in the current climate."
Industry observers expect to see Tchenguiz use Laurel as a platform for consolidation in the high street, whether or not he launches a takeover for Regent Inns. For Sargeson, though, the immediate focus is on driving profits at Laurel.
Of larger consolidation plans, he says: "We are not putting any deadline on it that would be a recipe for disaster. But we are ambitious. For now, we have a good business with a lot of potential for sales growth and we have a highly talented management team."
The mover and shaker
Sargeson, 41, was recruited to join Wizard Inns in 1997 when it had just 30 pubs, from Scottish & Newcastle Retail, where he was in charge of 190 pubs as a regional operations director.
"My part of S&NR had a turnover of more that £100m a year, but I didn't have the freedom to change the price of a packet of crisps," he says. "Wizard was a clean sheet of paper and everything in the day-to-day running of the company was mine."
Of the original 30 pubs Wizard bought from Phoenix Inns, 12 sites were sold on for a sum that nearly recouped the price paid for the whole package. "There were a couple of really amazing sites in there, like one in Virginia Water that was sold for just over £2.5m compared to the original book value of £500,000," he says.
Sargeson rates the 20 pubs Wizard bought from Regent Inns as its best acquisition. "It was a very bizarre decision to sell some very high-profit and turnover pubs. These pubs did not fit in with the brand culture at Regent and the pressure from the City was to sell them. The two in Waterloo the Fire Station and the Wellington took £150,000 a week at Christmas between them. Regent had invested the best part of £1.5m in the Wellington and then sold it to us a few days later.
"We bought 20 pubs and definitely wanted to keep 18 of them. That's a pretty good ratio. The strength of
