Guy Hands - banking on change

The Beer Orders gave Guy Hands his big chance — and he says it is now time for another sort of shake-up.

As a father of four, Guy Hands is a big fan of Bass' Harvester family pub near his home in Sevenoaks, Kent.

"My kids can go in there and feel at home," he said. "As a kid, we stood out in the cold. All we had was a bottle of Coke, a soggy sandwich and a packet of crisps. There wasn't an inviting attitude."

Perhaps it was these chilling childhood memories that spurred him on to change the face of Britain's pub industry as head of Japanese bank Nomura's Principal Finance Group.

It owns about 5,000 tenanted and leased pubs through Inn Partnership, Inntrepreneur Pub Company, Unique Pub Company and Phoenix Inns, with a stake in managed pub operator Wizard Inns.

Speaking at this month's Publican Conference, he traced his interest in pubs back to nine years ago when the Beer Orders had shaken up the British beer industry.

"I saw a great opportunity," he said. "The pub industry at that time seemed to be demotivated. A lot of pubs were unwanted, orphaned.

"There was a lack of capital coming into the business. In the past four years more money has been invested in pubs than over the previous 25 years."

The idea that made him one of the highest-paid figures in the City — it is estimated he is worth about £50m — was securitisation, using future cashflow from assets, such as tenants' rents, as the basis for investment bonds.

"The people taking the risk on these cashflows are capital market investors. It's not the operator or company owning the pubs," he explained.

"The advantages are that we reduce the cost of capital and we have time to concentrate on getting the operations of the pubs to improve and getting the environment of them better."

In 1995 he made his first deal, buying more than 1,800 Phoenix pubs from Grand Metropolitan's Inntrepreneur estate and another 4,300 in September 1997. In December last year it bought Inn Partnership from Greenalls.

It is still on the look-out for major acquisitions, although it withdrew from the battle for Allied Domecq Retailing.

"We were tempted this summer but decided to keep our powder dry — for the moment," Hands said.

Some of Nomura's lessees have created successful retail brands, while Inn Partnership operates franchised concepts, but Hands is a great believer in the unbranded local.

"We don't rely on branding," he said. "We quickly decided that branding of individual pubs was a specialised venture to leave to the experts. It's capital intensive and cyclical.

"There will always be a demand for good community pubs which will always have robust cashflows."

His favourite pub, the King's Head in Sevenoaks, is unbranded and run by two lessees — ironically one of the Allied Domecq pubs he considered buying over the summer. It is now owned by Punch Group, which has now replaced Nomura as Britain's biggest pub owner.

He said the uniqueness of the King's Head, which offers dishes from suckling pig to paella, reflected the importance of good licensees.

"The publicans running these pubs are effectively the managing director of the pub and sometimes we don't pay enough attention to that," he said. "These individual publicans are what make our business successful.

"We invest in bricks and mortar and in systems, but do we invest in these individuals?"

He said the biggest threat to pubs was beer duty and outdated licensing laws.

"When I travel to work on the M25 I see the vans with the thousands of pints of beer flowing in," he said. "They are dangerous to community pubs and in particular rural pubs."

He called for more liberal licensing, in line with continental Europe.

"The British are not that much more immature than the Germans or the French, so why do we have to have different laws?" he said.

But Hands continues to believe in the potential of pubs.

"The pub industry today is alive and kicking and there's more diversity in terms of choice of which pub to go to than we could ever have imagined 10 years ago," he said.

"The industry has done a spectacular job, not just because of the amount of money invested, the systems and capital expenditure, but also because of the individuals running the business."