Voyager Pub Group - embracing change

John Denning has fond memories of the Magpie and Stump. The pub stands next to the Old Bailey criminal courts in the City of London, and the second part of its name quaintly refers to the mutilated criminals who lost their heads at Newgate Prison which once stood nearby.

John's memories are of a slightly more recent time. During his 12-year career at Bass, he was involved in rebuilding the pub which stands on a site where beer has been sold for centuries.

So, it seemed appropriate for him to choose the Magpie and Stump to talk about his new business, Voyager Pub Group, in a place that links the old with the new.

The company is the latest evidence of the continuing trend of pubs shifting from the hands of centuries-old brewers to the new breed of private equity firms. It was formed out of 988 unbranded managed houses that Bass sold to Nomura Principal Finance Group in February for £625m.

Work has now begun on a two-year programme to convert about 850 of the pubs to lease before selling on the remaining 100 or so as managed houses.

Voyager is trying to make the transition as smooth as possible. John and the rest of the management team began working on splitting the package from the rest of Bass as far back as October last year, so most of the same faces remain at the helm.

Before becoming chief executive of Voyager, John was managing director of Bass' pubs group after joining in 1989 as property director. He was responsible for Bass' compliance with the Beer Orders, which saw its pubs estate slashed from 7,200 pubs to 4,000 in two years.

Prior to that, his career had taken him from being an estates manager for Courage West, through a spell at Forte to head of property at fast food retailer McDonald's.

He has some experience of transferring pubs to lease after being involved in the formation of the Bass Lease Company, of which he was chairman. Nearly 400 managed houses were converted to lease to create the 1,500-strong business that was later sold to create Punch Taverns.

"Leasing was a new format," he said. "It got a pretty bad name. Against that background, we managed to develop a sizeable business."

John has brought many of his colleagues from Bass with him. Finance director Andrew Winning had the same role in the pubs group, which he joined from Allied Domecq Retailing. He worked in various parts of the business, from Tetley's Brewery Wharf museum in Leeds to Dunkin' Donuts, and was involved in the sale of Allied Domecq's pub estate to Punch and Bass two years ago.

Operations director Jeremy Skingley held the same position for a batch of 836 Bass community pubs, developing branded sports locals, while the other ex-Bass men include property director Lee Middleburgh and human resources director Kevan Sproul.

"The management team is made up of people who have been in the business for a long time," John said. "That's good for us. Something that one learns about this business is that relationships and trust are hugely important, and that will be important for us going forward.

"I believe in the traditional values of mutual respect. I am a traditionalist when it comes to those values and the pubs."

Voyager is also drawing on the expertise of its sister company, Nomura's Unique Pub Company, most noticeably from business development director Keith Honeywood who has been seconded from Unique where he is operations director.

As a former regional director of Inntrepreneur Estates and then operations director of Nomura's Inntrepreneur Pub Company, he has been through quite a few transfers to lease in his time.

One of the lessons that John and Keith have learned is the importance of keeping everyone informed of what is going on, especially when it involves the livelihoods of nearly 1,000 managers and their staff.

"We want to go into the business with the maximum degree of transparency," John said. "We have been very conscious of the need to protect people's current position, making sure we maximise the opportunities for them to change their direction or find a new employer."

Many of the managers are being offered the chance to take on the leases to their pubs, but inevitably some may not be suited to being self-employed and running their own business.

"We have a group of licensees out there who, in their own right, have a wealth of skills and experience, and we want to capitalise on that as much as we can," John said. "That will bring us a substantial number of new lessees, a significant proportion from the existing licensed population.

"We are currently talking to and agreeing terms with existing licensees where they have the expertise and are interested in taking the lease - where we believe they are the most suitable person to have that lease.

"Discussions are on-going and it's very busy. We're a few weeks away from the first lease being signed."

Those pubs where the managers are moving on will be offered for lease, so Voyager will be looking for new recruits at a time when other companies, such as Enterprise Inns and Laurel Pub Company, are competing for good licensees for their new tenanted and leased pubs.

"Recruitment is not going to be easy," John admitted. "But we have started from the best place possible. We really do have the highest quality of leased houses. This is a very well-maintained estate. We are not dealing with any tail-end pubs.

"Over the next couple of years, there will be an enormous number of people with aspirations to run pubs. They may be in a managed house but looking to get a foothold in the business and looking for opportunities."

He said the Voyager lease would also prove attractive, with a national price list and rent linked to the retail price index, plus a review every five years. Agreements run from 10 to 30 years and are tied on beer, cider and flavoured alcoholic beverages but free for wine, spirits and soft drinks.

Like the Unique lease, it is expected to appeal to a lot of ambitious multiple operators who want a flexible long-term commitment.

John said: "We have a very keen interest from a quickly emerging new breed - those companies and individuals who have a pub estate already or are thinking about forming one.

"We haven't approached them but they have approached us.

"They see this as a significant opportunity for them to get into an estate which has always been Bass managed, where the turnover is greater than what has been generally available to lessees before."

In the past, larger pubs would have been available only to managers, but John believes the industry is now being more open-minded. Two years ago, a pub would be a tenancy if it made less than £5,000, but John estimates that this has now gone up to £8,000.

He said this has a lot to do with the increase in red tape on managed house operators, such as the working time directive and the minimum wage.

"Although these are the best quality assets that have ever come to market, the economics of the business mean that running managed houses is increasingly a difficult proposition," he said.

"It doesn't mean that in the hands of an entrepreneurial owner or lessee these can't be very good businesses. They just don't fit into the context and framework of running a managed house estate.

"The operational expertise in the pubs that we have got is best suited to the local business person running their own pubs absolutely for their own benefit.

"We have the benefit that they are best placed to know their local market. It's those micromarkets that are important to non-branded operations.

"They are able to understand their customers better than anyone influencing them from a head office. They have the ability to bring their own flair to the way the business is run."

While the company's name may conjure up images of a Star Trek spaceship for some, John explained that it reflected that they were at "the beginning of a journey".

"Over the past 12 years, I have always been at the forefront of change, and th