Business Opinion

Full steam ahead, at last, for Tattershall

You couldn't accuse managed operator Tattershall Castle, named after its flagship floating pub moored on the Thames opposite London's County Hall, of breaking speed limits since it was set up by private equity firm Alchemy Partners two years ago. Formed after the acquisition of Spirit's City Day and Night division, its estate was badly in need of investment and rationalisation. (Producing around £30m of ebitda in a full year during its Spirit ownership days, this has slipped to £12.9m in the six months up to the point of sale.)

First of all, Tattershall Castle had to offload 18 nightmare sites previously sold and leased back by Spirit at rents that made them difficult to trade at a profit. They were moved on in March 2006 with the help, it is rumoured, of a reverse premium. A total of 13 nightclubs and other sites, including its Evolution brand, were also put on the market late last year, with the sale of a number of them still outstanding. Progress was also delayed by the departures of chief executive Peter Brook and chief operating officer Phil Sermon in July 2006.

Not unnaturally, the new chief executive David Ford wanted to have a close look at capital expenditure plans when he arrived in August last year, a situation that effectively put a temporary freeze on development plans. Brook told me almost two years ago that he wanted to invest around £8m on 37 pub refurbishment schemes by August 2006 - according to the company's accounts it completed just 18.

It would also be fair to describe Tattershall Castle as one of the most widely-ranged and poorly-positioned managed operations on acquisition. With less than 10% of sales coming from food in August 2005, the business was quite a rag-bag of nightclubs, sports bars, gay bars and mini-brands with eroded equity like Henry's and Bar 38. Nevertheless, it still held many first-rate sites with under-utilised potential and had a 50% freehold/long leasehold content.

Meeting David Ford this week, it was clear that Tattershall Castle is at last making substantial headway, with 120 sites due to be refurbished by this time next year. He admits that upon arrival he felt the key was to bring greater clarity to Tattershall strategy. His review of strategy led to clearer segmentation of the estate, identification of key investment prospects (and the recruitment of development director Peter Cherry in December last year), the installation of state-of-the-art information systems, and evolution of food offers. Food sales are now in double-digit growth (although from a very low base) and Ford believes the company can push on to achieve 20% of total sales.

There's also real innovation going on with the development of its Oasis concept, aimed at broadening out as many as 15 venues too narrowly focused on a younger clientele. Plans are afoot to spend around £800,000 at each of five or six of its high-energy, late-night venues. Henry's has had a blood transfusion to restore its stylish café-bar credentials.

It's clear that Alchemy Partners is not following the private equity stereotype with this business. Ford describes his bosses at Alchemy as "appropriately demanding" and "very straightforward to deal with". This is no strip-out-costs-and- sell-for-fast-profit situation. (Its first-year figures showed a loss of £7.5m, on a turnover of £122m. It had an operating loss of £2.6m, which included £5m on non-cash items, so making it effectively cash positive to the tune of £2.4m).

Ford says that achieving the right level of profitability in a few years means a couple of years where profit figures are cratered by the investments that are required to get there.

In the meantime, "the figures will be what they'll be," he says.

A few months after Alchemy set up Tattershall, you'll remember that it took Inventive Leisure private. Some wondered whether the companies might be combined.

As it has turned out, the management of the two companies have been kept completely separate. Interestingly, though, Tattershall Castle has passed over four sites, including ones in York and Richmond, to its sister company for conversion

to Revolution vodka bars.