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TWST: Let's just start by fixing the universe; what stocks are you following closely now and how is the peer group defined?

Mr. Hawkins: We look at Bass, Scottish & Newcastle and Whitbread as the major pub operators in the UK. We also have a smaller company analyst who follows J.D.Wetherspoon, Yates Group, and PizzaExpress amongst others. Additionally, we cover Greene King and Wolverhampton & Dudley which are the last two remaining regional brewers of any size.

TWST: Bass also sold its brewery business for GBP2.3 billion, which was received as a good price, in excess of market expectations, and ungearing its balance sheet. What about Scottish & Newcastle's acquisitions; will they entail some disposals as well? What will it sell, do you think?

Mr. Hawkins: I think all three of the majors have been making some fairly major strategic moves. If you look at Bass to start with, it's already got out of not just brewing but also its tenanted pubs business, its betting business, bingo, and a number of smaller managed pubs over the last five years or so. So you've seen a huge shift there, which now means that pub retailing is about 50% of Bass' operations going forward, with hotels the other 50%. However, within these estates as I have said earlier you will see a large number of disposals from particularly the bottom end of each company's pub estates. What we are seeing is like for like sales growth from the large well-invested high street and destination pubs but significant life for like declines in a larger number of their smaller pubs which they've inherited from Greenall's in S&N's case and that Bass has had for many years. There will always be an ongoing churn of the pub estate, but what is clear is that the polarisation in performance has accelerated towards these larger units. The smaller units are seeing like for like declines in excess of 5%, which translates to profits probably declining in excess of 10% per annum. Now, it is these pubs that have been dragging down the sector generally, and it's these pubs that we would expect both Scottish and Bass to be looking to sell down fairly aggressively over the next six months or so.

TWST: What are the implications for the smaller pub sector?

Mr. Hawkins: We think the prognosis for the smaller, vertically integrated regional brewer (W&D and Greene King) is not good. On the other side of the coin the smaller managed pub companies, the ones that have sprung up around the beer orders over the last five to 10 years or so, lack an under-performing tail of pubs and have tended to trade on higher multiples. However, they too are now finding that Bass and Scottish & Newcastle in particular are being far more effective competitors in the High Street. So I think that while we've seen very good growth from the managed pub companies, that growth rate is starting to slow. Partially because they're obviously becoming a larger, but also because I think that at last, Scottish & Newcastle and Bass in particular have found out the right sort of concept that can compete effectively with them.