Packing a Punch

Mark Ludmon meets Punch Pub Company chief Stephen Lambert

Like many students, Stephen Lambert worked behind the bar of a local Edinburgh pub during his time at university.

It was another 20 years before he next found himself in the pub business, faced with running a troubled Wiltshire brewer and its 70 unloved pubs.

He arrived at United Breweries simply to turn it around, but he ended up staying in the industry and, seven years later, he is now chief executive of Punch Pub Company.

Since joining Punch two years ago, he has led the management team through a period of major upheaval, integrating pubs from backgrounds as diverse as Allied Domecq, Bass and Inn Business Group.

With much of the fundamentals out of the way, Stephen is now preparing the business for further expansion and potential flotation on the stock exchange.

"The key thing about a successful business is to be able to buy other businesses and put them together quickly," he said. "We integrated over 4,000 pubs in a short period of time while converting 300 managed houses to lease.

"But there is still much to do. We have so many good ideas and so much is happening to make it better."

Looking back at Stephen's career, it may seem a surprise that he has remained at the helm of a business that is in a sound position after reporting a 22 per cent increase in operating profits for the year to August.

He qualified as a chartered accountant after studying at Heriot-Watt University in Edinburgh and worked for accountancy firm Deloitte Haskins & Sells for 11 years in the UK as well as Guyana and South Africa.

In 1987, he became chief financial officer of Swiss conglomerate Inspectorate International, which was involved in monitoring shipments of commodities, such as oil, around the world.

After the group was taken over by ADIA Manpower in 1990, Stephen took on the role of turning around and disposing of its non-core businesses. These ranged from ports and shipping firms to low-tech electronics and travel businesses.

"During that time, it was all about turning businesses around and selling them on as going concerns," he said.

With this work done, some banking contacts suggested he took on the brief to rescue United Breweries, which was on the verge of insolvency.

The business, formerly the Wiltshire Brewery, was partly owned by India's top brewer United Breweries, which makes Kingfisher lager, but it was struggling to move forward after closing its brewery in Tisbury, near Stonehenge.

It was left with 70 poorly performing pubs that were brewery cast-offs or former repossessions from Allied Irish Bank.

"It was obvious even then that the industry was going through substantial change, and my background had been all about change," Stephen said.

He joined in April 1994 as finance director and, a year later, completed the acquisition of Inn Business, which had been founded by ex-Whitbread director Alan Jackson in 1991.

This grew the estate to 143 mostly tenanted pubs, of which 135 were freehold, scattered across the South and the West Midlands.

As finance director and then managing director of Inn Business Group, Stephen was involved in a string of acquisitions - including Marr Taverns, Sycamore Taverns, Trent Taverns and Scorpio Inns - which built up a tenanted estate of 677 pubs with trading profits of £13.5m.

In September 1999, the company was bought by Punch Taverns for £69m and Stephen prepared to move on.

"Inn Business had been travelling very quickly," he said. "There was change happening so many times a year, it was quite exciting.

"I decided my real forte was turning around and changing small to medium-sized businesses and that was what I wanted to carry on doing. I came up with something to do and was ready to take my money and go.

"But then I thought again and decided I would try the bigger scale of a company like Punch. I still think small businesses are interesting, but there was a lot on the horizon to be done.

"It wasn't just about running an existing big business. There were still many changes to be made. In contrast to all the various things I had been involved in before, what appealed to me in this industry was that we owned the freeholds. It's something you can touch.

"The margins in the pub industry are fantastic. In other sectors, such as travel, you can lose everything because of one bad debt since you are working with margins of just half a per cent."

He remained as finance director of the enlarged Punch Taverns, which had 1,455 leased pubs and 650 tenancies.

The business grew again with Punch Group's acquisition of Allied Domecq Retailing, which added another 1,900 pubs to Punch's leased and tenanted estate, including Allied's Vanguard Pubs & Restaurants.

With all the deals completed, Punch Group relaunched the business in spring last year, with Punch Retail running its managed houses and Punch Pub Company running the leases and tenancies.

Punch Taverns and Vanguard's regional offices were closed and everything moved to one head office in Fradley, near Lichfield, Staffordshire.

At the same time, the call centre was organised into separate regional teams dealing with finance and other support for licensees around the UK.

Punch is also transferring many of the administrative duties of the business development managers to the central office to free them up to help their publicans to develop their businesses.

"We are trying to move away from the traditional pub industry environment, bringing together three businesses with completely different cultures," Stephen said.

"While you can integrate businesses structurally within weeks, it does take a couple of years to properly integrate different cultures and people.

"Punch Taverns had an entrepreneurial approach at the top, but it had been the Bass Lease Company and, inside, was still an old-fashioned business.

"There was a history for the Vanguard people, who had worked for Allied for years and their fathers had worked there before them.

"Inn Business Group started off as a small business that had grown very quickly, so it was all about change. We had to put them all together and come up with a new culture for the new business."

The management team is made up of people from across the different businesses, such as commercial director Francis Patton from Vanguard and property and development director Deborah Kemp from Punch Taverns.

Spending on refurbishments is set to rise to £25m over the next 12 months and £27m the year after. Joint ventures involve up to £250,000 from Punch plus substantial sums from lessees.

"We are getting tremendous performance because we are being innovative and spending a lot of money on getting the sites right and getting the right people in them," Stephen said.

Punch has been buying pubs individually or in small packages, such as the 10-strong Red Rooster group in March this year for £3.5m.

Last year, it spent £30m on this acquisition programme and the figure will rise to £40m over the next 12 months.

The business is also set to be completely severed from its sister company, Punch Retail, which is run separately but is funded jointly through its parent, Punch Group.

Both businesses are expected to be floated next year, which will allow financial backers, such as Texas Pacific Group, to recoup their cash through an exit.

"Punch Pub Company is large enough and successful enough and still has a lot of growth potential, so it's perfectly capable of being a floated business so long as the market conditions are right," Stephen Lambert said.

"We are very careful that nobody should see flotation as an ending.

"It's very much a new beginning. We have to continue growing, otherwise there's no point in carrying on.

"We could operate as many as 8,000 pubs - so long as you have the structure in