Albion Pub Contracts grows market share despite shrinking market

Albion Pub Contracts faces a challenge as the recovery takes hold. We report.

Albion Pub Contracts is growing its share of a rapidly shrinking market.

It was launched in 1994 when record numbers of pubs were going bust because of the recession and the continuing effects of the Beer Orders.

Today the company's potential market is shrinking. Pub closures and receiverships are on the decline, according to Deliotte Touche Corporate Recovery, which keeps a monthly record of these things.

More marginal pubs are edging up into the "profitable" list and attract significant brewery investment.

Some recent initiatives which might further shrink the market in which Albion operates include:

• Bass is rescuing many of its community pubs as O'Neill's Irish theme pubs.
• Scottish & Newcastle is inventing new themes and concepts to save its community outlets.
• Inntrepreneur is launching RetailLink, a new system of discounts for its lessees.

All this means that brewers look long and hard at a pub before turning it over to a management contract company such as Albion.

Much of the company's work is provided by banks acting as receivers for pubs.

So far Albion's rise continues. Last week the company posted pre-tax profits of £220,232 - an increase of 65 per cent for the year to December 1996.

This was an excellent performance given that turnover rose by just 14 per cent and the number of pubs operated increased by 13 per cent.

Chairman Allan Thomson said: "This was driven by excellent management performance at all levels."

The company has reorganised its offices and appointed finance controller Christine Davies. "Our new office arrangements under Christine are working well," added Thomson.

The company installed a new accounting system and purchased freehold offices in Farnborough, Hampshire. Davies said: "We incurred one-off revenue costs of £34,000 in these developments.

"We have managed to digest these changes and emerge with strong profits and an excellent foundation for the next stages of our growth."

She added that 1997 trading was strong and improving on last year. Area managers have been told of the results at a conference, where a new incentive scheme was announced. Managers will be rewarded on the basis of cost performance.

Operations director Stan Fearnley said: "We are funding this incentive ourselves in support of our clients. They will gain the benefit of the improved cost performance we achieve."

No fear there, then, of falling business because of the recovery.

Albion was increasingly asked to take on more complex operations and undertook several appraisals of business at the request of banks.

Thomson said: "I do not believe this is a changing pattern in the industry.

"I think it is more to do with establishing our credibility by achievement against the contrasting pattern of failures in the sector."

So it's not that there are fewer pubs falling into difficulties, it's more that Albion gets better jobs because of its reputation.

But as Thomson admits, rival management contract companies have gone bust recently. Although this leaves more of the market open to Albion, it may become a shrinking market.

The company currently operates 135 pubs across England and Wales for brewers, pub companies, banks and receivers.

Shareholders will get a dividend of £210 thanks to improved efficiency in pub operations and overheads.

Albion describes 1996 as a year of "consolidation" after two years spent getting off the ground.

The main initiatives taken on efficiency were:

• developing controls and management skills to cope with more complex operations
• helping receivers to assess future operations
• refusing to use working capital to buy property assets
• new administrative systems.

The plan for 1997 includes conversion of £200,000 of retained earnings to equity. Ernst & Young will carry out an audit of the company later this year.

Albion attracts clients through preliminary confidential discussions, followed by pub visits.

Profit plans are then discussed and the pub's management needs are assessed. Appropriate financial arrangements are them agreed.

This means Albion pays a rent and receives fees. Pub profits and losses are shared. Albion buys goods and drinks and negotiates buying arrangements.