The sale of 15 bars to Stonegate and the process to dispose of the rest of its late-night estate, including the flagship Tiger, Tiger brand, will leave Novus Leisure a very different business. James Wallin talks to Novus chief executive Toby Smith about the new direction for the group and the opportunities for its Tank & Paddle and Balls Brothers brands.

Toby Smith admits that while Novus Leisure is a name with strong resonance in the industry, he often finds it difficult to answer the question “So, what is that you do exactly” to outsiders.

He says: “Where do you start? It’s such a diverse business – there are iconic sites in London, Balls Brothers has been around since 1860 and Tank & Paddle is starting to get recognition. But often you get a blank look until you say –‘oh, and we own Tiger, Tiger’. Everyone has been to Tiger, Tiger.”

So it was that when the news emerged at the start of the summer that Novus was working with Sapient Corporate Finance to assess its options, the reports inevitably led with “Tiger, Tiger operator, Novus Leisure”. Now Novus is gearing up to part company with its famous nightclub brand, as part of the wider divestment of its late-night business.

The first step in this process was taken last month with the sale of 15 sites to Smith’s former employer, Stonegate, with a further 10 late-night venues – including the six Tiger, Tiger clubs – still to be sold.

Novus is really two very different businesses

The process is part of Smith’s long-term strategy, backed by investors Hayfin, to simplify Novus’ business model, and focus on a rollout of Balls Brothers and Tank & Paddle.

He says: “Novus is really two very different businesses – the late night bars and clubs, then this bar and restaurant business that was champing at the bit to get going but wasn’t getting the 100% focus it really needed.

“Trying to be really good in two very different areas makes for a complex business – there’s a lot of dual-running and your supply chain gets ridiculous. I’ve had the view for a long time that we needed to focus on one area, it was just a question of which.”

Surely the earnings profile of Novus’ the late-night portfolio would have been the most attractive to investors?

Smith says: “It’s interesting to see how investors look at things. You have a business like Tiger, Tiger – which can take £350,000 a week at Christmas – and that seems punchy to people in the industry. But, investors have their fingers in a lot of pies and when you compare that figure to some industries it starts to look less startling.

“What is key is to be able to look at a business and confidently predict what sort of returns you’re going to see.

“The earnings profile of Balls Brothers and Tank & Paddle is really solid, whereas with the late-night sector – although the peaks are much, much higher – you’re dealing with a lot of volatility. I reckon every single one of our Balls Brothers sites probably fluctuates between +3% and -3% as opposed to +25% and -25%, which is not uncommon in the late-night sector. Add in to that the massive rents and rates you’re paying on some of these club sites and you can see how complicated that kind of business is to run. Get it right and it’s super profitable but you need to have your sales trajectory exactly right and your costs fixed.

“Investment is another key one – we can get ROI on a Balls Brothers of 35% and that’s fine because the one we did in May 2015 still looks virtually new. With a club you need to be getting 65% ROI because it takes a year to get your money back, a year to get some profit for the next refurb and then you have to do it all again.”

Smith says he is keen to hear offers for the Tiger, Tiger brand but admits its geographic spread – taking in London, Portsmouth, Cardiff, Leeds, Manchester and Newcastle – may be offputting. And, of course, the portfolio won’t come cheap. The UK’s biggest club operator Deltic Group is the most obvious suitor, although Smith is too diplomatic to comment on the possibility.

He says: “Tiger Tiger is an institution and I really hope that someone comes along and invests behind it. We’ve had various people talk to us over the years about the prospect for it as an international brand because it’s got that real recognition. You could see it working in somewhere like Dubai. That was never in our business plan but it might be right for someone else.”

Some of the sites we sold almost operate as a Be At One but without the name above the door

That Stonegate were the successful bidders for the 15 sites is unsurprising, both because of Smith’s history with the company (he was chief executive from 2011 to 2014), and because of the fit with their estate. The acquisition of Be At One at the same time indicates an obvious strategy for many of the sites.

Smith says: “When we look at the sites they bought from us and look at Be At One, it makes a lot of sense. Some of the sites we sold almost operate as a Be At One but without the name above the door.”

With the c£30m in proceeds from the sale to Stonegate and another windfall on the horizon when Tiger Tiger finds a buyer, there is plenty of firepower left for expansion of its two core brands, although Smith insists he is not a mission to grow at all costs.

“We don’t see ourselves as a Manchester City – wanting to snap up loads of marque sites just because we have the firepower to do it. That’s when you get into trouble. You can never guarantee every site is going to be right but if you take your time and give every one your full attention, that gives you the best possible chance.”

Tank & Paddle is the newest addition to the Novus estate, currently at three sites across London, and the offer is deliberately simple. The menu consists of eight varieties of pizza, mac ‘n’ cheese, salads and nibbles. From 3pm the pizzas are available as sharing boards. The drinks menu, as is fairly obvious from the name, centres around fresh tank beer, with the cylinders taking pride of place in the restaurants.

There’s quite a few people going through some tough times and that provides opportunities for a brand like Tank & Paddle

Smith says: “We’re three down and feel like we’ve got it where we want it to be and ready for rollout. I see most of the opportunity within the M25 but there’s a huge amount of scope there. There’s going to be some good stuff coming on the market - there’s quite a few people going through some tough times and that provides opportunities for a brand like Tank & Paddle.”

What of the latest chapter for the 160-year-old Balls Brothers brand, which was whittled down to four sites under Novus’ ownership back to 10 at present?

Smith says: “There’s a very modern Balls Brothers now. We ummed and aahed about whether to kill the brand and invent a new one for the format we had in mind or whether to adapt Balls Brothers. We eventually decided that to throw away such a heritage was a colossal shame.

“There’s still this perception that it’s all underground and bathed in cigar smoke with blokes in pinstripes quaffing claret. The truth is we sell very little claret. We do sell a lot of lager and an awful lot of gin.

“The site that best represents the model we want to roll out is Canary Wharf, which is the newest. It was one of the package of Rocket Restaurants we bought. Overall Balls Brothers averages £28k net a week, but Canary Wharf is doing mid-40s and its only five days. That’s still less than 30% food and that food trade is fairly concentrated at lunch time. Evening food tends to be groups, drinks-related and a lot of sharers – platters and such-like. From a brand point of view I’m happy with no more than 30% food. At lunchtime the food occasion is probably 80%. But after that – we really like wet-led businesses that sell a lot of great products.”

On the expansion prospects for this venerable brand, Smith says London remains the key focus but that ultimately it would work in many of the same locations the Ivy Collection is targeting. Although, he is at pains to point out he has no plans to match the Richard Caring-backed brand’s frenetic rollout pace.

With such a fundamental change to the core business model it seems logical that a name change will eventually follow for the company, which already branded from Urbium in 2005 to reflect the pivot of direction at that time.

Smith says: “When we’ve completed the sale of the late night business, it may not feel very much like Novus any more so maybe it would be the time to consider a name change. If anyone has any suggestions, I’m open to ideas.”