To say that 2008 has been a trying year for Tim Clarke, chief executive of Mitchells & Butlers, would be an understatement.

At the start of the year, few in the City could have imagined the 50-year-old would today still be at the helm of Britain’s largest managed pub operator.

A botched hedging operation on a property-based deal with Robert Tchenguiz had just wiped out two years of group profits and angry shareholders were calling for boardroom heads to roll after management announced a strategic review of the business that in effect put the company in play.

The debacle, which racked up nearly £400m in losses for M&B and cost management much of its credibility, led to the departure of Karim Naffah, the finance director.

Mr Clarke, who has headed the group through its various incarnations since 1995, hung on only after his offer to resign was rejected by the board.

Ten months on, the fallout from the ill-fated hedging positions continues to weigh on the business. Last week, the company took the decision to suspend dividend payments and slash capital spending plans to conserve cash and pay down the debt incurred from the hedge.

Pre-tax annual losses widened to £238m.

In an interview with the Financial Times, Mr Clarke says the affair was “extremely regrettable”, but declines to be drawn on criticism from some commentators that management has got off with nothing more than a slap on the wrist.

“Clearly when I offered my resignation, I didn’t do that lightly,” he says.

“To have presided over the losses that we made on the financial instrument was a very difficult experience to go through. But we have put that behind us now and …our focus] now is maintaining and driving forward our operational performance.”

In many ways, the deterioration in consumer confidence in recent months has played to the group’s advantage and City sentiment towards the company has changed markedly since January.

With the pub industry facing its worst downturn in recent memory and trading conditions not expected to improve soon, investors and analysts have taken the view that M&B, for all its hedging woes, is best placed to weather the recessionary storm.

Over the past 10 years, the 2000-pub company, whose brands include Harvester, All Bar One and Browns, has repositioned many of its pubs from wet-led to food-led establishments.

Figures from the group last week reaffirmed the strength of this strategy.

Like-for-like sales for the eight weeks to November 22 rose 1 per cent, with food sales, driven mainly by its budget meal offerings, up 3.5 per cent and drink sales up 0.5 per cent.

This is no small feat at a time when many rivals are reporting declining comparable sales and beer sales volume in the sector are down 8 per cent in the last quarter.

But if analysts have taken a more favourable view of the company in recent months, this is also probably because of the departure of Robert Tchenguiz from the group’s share register.

As M&B’s largest shareholder until he was forced to sell his 25.7 per cent stake in a fire sale in October following the collapse of Kaupthing, the Icelandic bank that had financed the holding, Mr Tchenguiz had been relentless in pushing the company to unlock value from its vast property portfolio.

It was this desire to extract cash from the group’s real estate that ultimately prompted M&B to agree to place 1,300 of its pubs into a joint venture with him.

The company took out hedging positions – against long-term interest rate rises and long-term inflation – in preparation for the debt funded deal.

But the onset of the credit crunch meant the deal was pulled and M&B was left nursing losses on an unwanted hedge.

Mr Clarke says he has no regrets over having gone into a deal – against warnings from the City – with Mr Tchenguiz.

”Had we been able to pull it off, we would have returned over £3 a share in cash to our shareholders in July of 2007,” he says.

“What I do regret was that we got exposed to the hedges and that we took the advice, which was a mistake, to keep the hedge open.”

Nonetheless, Mr Clarke plays down the prospect of another property-based deal with the Iranian-born entrepreneur at any time soon.

“The structures that we were looking at 18 months, two years ago are simply not implementable,” he says. “They are not relevant to the new world.”

Analysts say Mr Tchenguiz’s departure should remove much of the pressure on the company to adopt property value extraction strategies, although some have questioned the motives of Joe Lewis, the Bahamas-based British billionaire that Mr Tchenguiz sold his stake to.

“I think it’s inappropriate for me to go into private conversations with individual shareholders,” says Mr Clarke when asked about his relationship with Mr Lewis, who is believed to have close ties to Mr Tchenguiz.

“All I can say is that Mr Lewis is a long-term value investor interested in the successful execution of the company’s operational strategy as the key root to value.”

Mr Clarke says his focus is on repaying debt and positioning the business to take further market shares from its rivals.

“This company has made some of its biggest market share gains in previous recessions,” he says.

“And I don’t expect things to be different this time around.”

He added that M&B would be interested in buying arch-rival Punch Taverns’ managed pub business Spirit should it ever come on the market.

“After the profit declines that business has gone through over the last couple of years, the opportunity for us transforming the profitability is very clear,” he says.

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