Six Continents to cut jobs to help finance demerger

25 March 2003 by
Six Continents to cut jobs to help finance demerger

Six Continents, revealing details of its proposed demerger this week, has pledged a raft of cost-cutting measures to ease the £109m cost of splitting its hotels and retail businesses.

Its hotels division, to be renamed InterContinental Hotel Group after the Six Continents name proved unpopular with investors, claims it can raise at least £31m by the end of 2004. It promises more management changes "to ensure the right people are in the right jobs" and a "rigorous hotel-by-hotel review". A major chunk of this, it is understood, will be through sale-and-leaseback deals.

Mitchells & Butlers (M&B), the retail division, which includes All Bar One and Harvester, has confirmed an overall cut of about 10% of jobs at its headquarters.

M&B intends to cut down on support services, which will help save about £10m a year. Staff productivity, it said, needs to improve through sales training and new scheduling processes.

The cost of the split, which includes a £51m bill for legal, printing and advertising fees, is to be divided equally between the two companies. Shareholders are to vote for or against the demerger of the company at a meeting on 30 March. The published details also give potential bidders for either of the companies a chance for the first time to assess the value of each company as a separate entity.

Speculation over whether there might be a bid for some, or all, of the retail division has focused on Hugh Osmond, the entrepreneur who floated PizzaExpress; while the hotel group could be an attractive prospect to the likes of Blackstone, the US equity firm that owns the Savoy Group. Hilton was also tipped as a firm favourite, but last week it dismissed as "tittle-tattle" reports that the two might combine.

Some analysts, however, believe the separation will mark the individual businesses as higher-risk investments, particularly following Six Continents' last trading statement in which it reported "depressed" trading among its hotels and a "significant" slow-down in its retail business.

"In the past, one part of the business could help the other: if the hotels market was down, it would be buoyed by the retail sector. We are likely to see more extreme trading results now," said David Liston, analyst at investment bank Gerrard.

By Christina Golding

The World of Six ContinentsHistory Six Continents, formerly called Bass, has its roots in brewing beer when, in 1777, William Bass established a brewery in Burton upon Trent which grew to become a leading domestic brewer. During the 1990s the group took some major steps to diversify into the global corporation it is today.

1990 Acquires Holiday Corporation including Holiday Inn and Holiday Inn Crowne Plaza.
1994 Holiday Inn spins off Crowne Plaza.
1997 Development of Staybridge Suites by Holiday Inn.
1998 Acquires InterContinental Hotels from Japan-based Saison Group.
2000 Sells its brewing interests for £2.3b to Interbrew.
2001 Changes name from Bass to Six Continents; acquires Posthouse business from Compass Group, rebranding 79 hotels to its Holiday Inn brand.
2002 Announces split of hotels from pub and restaurant business, scheduled for April 2003.

Trading statement Six Continents said revenue per available room (revpar) had increased in all regions during the three months to 31 December 2002. But this was measured against a particularly weak period in 2001, and revpar was down compared with the same period in 2000.

In the Americas, hotel operating profits were up marginally on last year. But in the Europe, Middle East and Africa (EMEA) division, trading was depressed due to the hotels' dependency on US guests. Cost increases and the loss of profits from hotels under refurbishment meant that EMEA profits were "substantially down" on last year.

Six Continents was more upbeat about the prospects for its soon-to-be-demerged restaurants and pubs business, which is mainly UK-based, with brands including All Bar One pubs and Harvester restaurants.

While sales in Greater London and in high-street locations had seen a "significant slow-down", pubs and restaurants in suburban areas had experienced "more resilient trading". Total sales in the 16 weeks to 18 January were up by 1%, with food sales 3% ahead and drinks sales slightly down.

The demerged companies
InterContinental Hotel Group
The group has almost 3,000 hotels worldwide under the Holiday Inn, Holiday Inn Express and Crowne Plaza brands, mostly under franchise agreements. The majority of its owned and leased hotels are InterContinentals, of which it has 135 properties in 65 countries.

Company value: £3.8b (valued at 30 September 2002)
Net debt forecast for the end of financial year 2003: £1.2b

Mitchells & Butlers
The restaurant and pub group has more than 500 branded restaurants and high-street outlets and more than 350 branded and 1,000 unbranded pubs. Brands include O'Neill's, It's a Scream, All Bar One, Harvester and Vintage Inns.

Company value: £3.5b (valued at 30 September 2002)
Net debt forecast for end of financial year 2003: £1.3b

Boys for the jobs Sir Ian Prosser will be chairman of InterContinental Hotels. Richard North, formerly group financial director, takes on the role of chief executive, and Richard Solomons will become finance director. Solomons was previously chief financial officer.

Mitchells & Butlers will have Richard Carr as non-executive chairman. Tim Clarke will switch from chief executive of Six Continents to chief executive of Mitchells & Butlers, and Karim Naffah, formerly director of strategic planning, will be finance director.

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