Continental shift

Six Continents chief executive Tim Clarke is looking forward to taking the helm of the new £3bn retail pub business in April. By Mark Stretton.

Tim Clarke can't wait to take the helm of the newly created Six Continents pub business. "I'm tremendously excited," he says. "This is the business I love and I have spent the vast majority of my career in pubs.

"This will allow us to focus. In a few years' time, I believe and know our existing estate will have satisfied many more customers. I think we will be bigger and that hopefully our brands will have added value to a number of properties that are out there."

From April the chief executive will head up a retail business that includes such brands as All Bar One, Ember Inns, O'Neill's and Vintage Inns. It will be a separate company listed on the stock exchange with an expected value of £3bn.

But this, it would seem, is just the beginning of the story. There are said to be scores of managed businesses queuing up to sell to 6C and many are predicting a period of feverish corporate raiding after April.

But Tim, 45, and an apparent master of swerving an awkward question, will not be drawn. "We will expect to grow but we still have about 500 houses earmarked for conversion to our brands - there is enough growth within the existing estate," he says.

"Having said that where we see opportunities to add value with our brands we will of course take a look, but a deal would have to be absolutely on the right terms."

The chief executive does say that the various components of its business had in the past prevented it from doing deals - pubs are unattractive to hotel groups and hotels are unattractive to pub groups.

The 6C chief believes that specialist, focused companies work better than conglomerates and from April his will be made up of the cream of the UK's managed pubs. The 2,000-strong estate has effectively been cherry-picked from 11,000 pubs, Tim says. Bass originally owned 7,500 pubs, of which it now owns about 1,100. When 3,500-strong Allied Domecq was sold off, 6C picked about 500 from the top. In the last few years it has acquired about another 350 in individual buys and new builds.

Meanwhile, most of the 6,000 pubs it has disposed of have been converted to tenancy. "Managed houses are about large sites and high takes," Tim says. "We haven't sold 6,000 pubs to tenancy without the view that many pubs are better off that way. There are probably about 8,000 pubs from 60,000 that should be managed."

The 6C split will see the pubs arm take on a hefty £1.3bn in debt. "That is right and appropriate for a business that generates cash and returns - it makes our balance sheet more efficient," he adds.

"This is a development business and you don't want to see it starved of cash. It's about long-term profits and sales and attracting more customers."

The company has come under fire for frittering millions of pounds on its pubs without seeing decent returns. This was most recently highlighted in a broker's note that suggested the company had made little if any gains from invested capital. "The simple facts of the matter are that based on organic growth, over the past seven or eight years, we have made pre-tax returns of 14 per cent," says Tim. "Total cash returns on the entire estate including acquisitions post-tax exceed 10 per cent against a cost of capital of seven per cent.

"You show me any publicly quoted company and I'll show you numerous buy and sell notes for each. Our long-term track record speaks for itself."

Tim knows more than most about the world of analysts. After reading economics at Corpus Christi, Oxford, he spent 10 years at Panmure as a brewing analyst before joining Bass shortly after the Beer Orders. He became head of the pub business in 1995, and then chief executive in 2000.

Aside from headline financial figures Tim points to the retail concepts that have emerged at Six Continents. "You have to look at the reality of the innovations across our estate," he says. "Ember Inns and All Bar One have reinvigorated their respective sectors."

The company is not always recognised for the strength of its brands. In particular, O'Neill's often attracts derogatory comments. "It's a great business and we have over 90," says Tim. "The figures tell us that there is still a great demand for the Irish bar concept.

"At the height of the Irish boom there were 15 concepts. Now there are just two - us and Waxy O'Connor's."

The high street, where O'Neill's is found, is braced for a tough time. Tim says there is too much capacity and those with differentiated brands will win.

The high street is only a small part of the 6C offer. "The guts of our business, about 70 per cent, is in residential areas, appealing to middle Britain. Most have huge cross-generational appeal," says Tim.

Through the Allied Domecq deal, the company acquired scores of imposing houses in suburban areas. "The Allied estate had gone through breathtaking neglect," he says. "But underneath, they were magnificent pubs. Brands like Ember have reinvigorated the appeal of these local pubs. With Ember we are not just taking customers from other pubs - scores of people are rediscovering the appeal of the UK pub."

Tim says that 10 years ago the British pub was facing a bleak future. "Everyone was worried that pubs were no longer in growth," he says. "Customers were leaving in droves - the pub has had to reinvent itself."

The changes are reflected in the 6C business. Eight years ago food sales across the Six Continents estate were less than £100m. Today food sales are over £500m. At the same time draft beer sales have gone from 75 per cent of turnover to just a third.

"The real issue of this business is capturing a long-term customer appeal," he says. "We have three per cent of the houses in the UK but we have nine per cent of the sales. We believe this is because of the power of our brands."

The profits of the managed pub business have doubled in seven years. "It's a great growth story," says Tim. "We have taken average sales per pub from £6,000-a-week to £14,000."

Six Continents also operates 20 bars in Germany under the Alex banner plus a single All Bar One. "That business is about us experimenting to see if we can export the large managed houses we operate here," says Tim. "I would be very surprised if we haven't developed a significant international retail business in five years' time.

"We will of course follow the golden rules of expansion - don't rush, know your customer and get the offer right."

Although Tim says he will not miss spending half his life on planes there are key lessons he will take from running a global hotel business. "In hotels like Holiday Inn and InterContinental you see the real power of brands," he says.

Aside from the monumental task of splitting two businesses, the chief executive has been heavily involved in licensing reform. Tim is one of three industry representatives, along with Anthony Fuller and Ted Tuppen, who has regularly met with Dr Kim Howells, the minister responsible for licensing reform, through the consultation process in the run up to a reform bill.

"I'm absolutely sure in my mind that negotiating is getting a better result than standing back and saying no thanks," Tim says.

"It's quite clear that the key objectives that the industry is aiming for are liberalised hours, uniform guidelines for local authorities, a clear judicial framework and a clear framework of costs.

"What we want to do is instead of shouting from the soap boxes, get in there and work out how we're going to make it work. We happen to be very fortunate that we have a minister who is very pro-pub but clearly there is still much more work to do."

With direct involvement in changes to both a major public company and the UK drinking laws, it would seem Tim Clarke has his hands full. "It's difficult to i