Risk & Economy » Brexit » Greene King CFO: On a mission to build the best pub company in the UK

Greene King CFO: On a mission to build the best pub company in the UK

CFO Kirk Davis talks to Financial Director about the challenge of unlocking the financial potential of Greene King's £774m acquisition of the Spirit Pub Company in 2015

Kirk Davis joined Greene King as CFO in 2015 following key finance roles at JD Wetherspoon and Tesco.

Tasked with unlocking the financial potential of the £774m acquisition of Spirit Pub Company in 2015, over the past two years he has been focused on building the best pub company in the UK.

Clearly, the role isn’t without its challenges. As well as working to align two separate cultures and teams following the acquisition, Davis has had to battle against government policies impacting the UK’s pub industry, and the wider implications of Brexit – namely consumer confidence.

So, with Brexit being the key driver of uncertainty across all industries, how is this CFO dealing with the UK’s exit from the EU?

Davis isn’t panicking, but highlights that the consumer environment is one he has been closely monitoring, given that the pub industry is in part built on consumer sentiment.

“At the end of the day, while we’re a low-ticket item, it is a discretionary spend,” he says. “There’s other areas in the market that people naturally cut back on first – holidays, cars, home improvements – but, at some point, if you’re feeling the pinch, you’ll visit less frequently, or you’ll spend less. So, I think the consumer environment is one that we have to watch closely.”

On top of Brexit, Davis has had to plan for government finance policies in his company strategy, with the revaluation of business rates a pressing concern for pubs in the UK. He estimates that the business rate changes will cost Greene King £8 million in 2018, rising to £15 million the following year – a cost which he describes as “not insignificant”. Could it all get too much for the pub industry?

“With business rate increases and the national living wage – I’m not saying that these are bad things to be done – but when you look at the amount of regulation and cost burden that the government is putting in our direction, it’s unhelpful,” he says.

The pub industry itself has experienced major changes in the last decade, with the smoking ban entering into force in 2007 and the rise of the supermarket in the sale of beer and alcohol.

Davis describes the smoking ban as an event that “fundamentally changed the nature of the pub”, with pre-2007 data showing that 25% of UK consumers, and 75% of pubgoers, were smokers. According to Davis, the focus has now shifted to food offerings and a family-centred environment.

“The overall environment has changed,” he says. “Whether it’s the focus on food, the focus on quality and innovation within food, or the overall offering that you now provide the customer – coffees, all day breakfasts. There’s certain things that pubs deliver today that if you went back to 2005 in a time capsule weren’t there. There’s been a real change in the purpose of the pub.”

Traveling back 30 years to the 1980s, 70% of beer volumes were sold in pubs. This has undergone a “seismic shift”, says Davis, with only 50% of beer volumes now being sold by the pub industry following a significant consumer switch to supermarkets.

Yet, over the past 20 years, Greene King has been an acquisitive company, and has experienced rapid growth during that time. A total of 20 deals have been made since 1999, with the largest of all coming at the end of 2015.

There were a couple of strategic reasons behind the acquisition of the Spirit Pub Company, Davis reveals.

“Firstly, Greene King was very well represented in London and the south-east, East Anglia, and pockets around the UK. There was quite a lot of synergy with the spirit business in terms of where their assets were located, so we could get a real national reach across the UK.

“Secondly, when you look at the brand portfolio, there were some brands that Spirit had that were very attractive – Chef and Brewer, Flaming Grill, Taylor Walker pubs in London.

“Then, overall, there are some synergies. So, if you put two medium-sized companies together, you’ve got the benefits of scale and that underpinned the acquisition so the shareholder could see where we were going to create value for them while developing stronger, bigger brands across the UK and getting a better reach to our customers.”

Coordinating his arrival to Greene King with the acquisition announcement, Davis says the mantra for the past two years has been “building the best and taking the best from both companies”.

And for the next two years? “It’s continuing to harvest the benefits,” he confirms.

The acquisition has generated challenges, the most difficult being combining the two companies and creating one set of values and one vision. A key strategic decision taken by Greene King has been to keep the former Spirit office open in Burton, near Birmingham, rather than relocate the 300 roles and processes to Greene King’s headquarters in Bury St Edmunds. This has gone against the grain, with the previous 19 acquisitions resulting in closure of the acquired company’s office and movement of staffing positions to Bury St Edmunds.

“If you’re running a national business it makes sense to have a support centre in the middle of the country and Burton is a more convenient location than Bury St Edmunds,” says Davis.

The move “probably caused just a little bit more angst around people because some roles moved from Bury to Burton and some in the opposite direction,” he admits. “But, strategically, it’s the right decision to have made,” he concludes.

Communication has been key to successfully merging two cultures, with practices cherry picked from each company to create a “best of both” policy.

“One of the good bits of communication that Greene King has is that twice a year, the CEO goes on the road and does business briefings to all of our pub managers to make sure that we’re at the heart of the business and can hear straight from them what’s working and what’s not.

“One of the really good things that Spirit did on a monthly basis was have a team huddle, so – ‘what are the key messages this month? What do we need to make sure we’re engaging the teams on?’ And some of it has been blending that communication piece together,” Davis says.

When it comes to talent retention, training and development have played a significant role, says Davis. Career succession planning is “not just something you do once a year when you have a conversation over a coffee of ‘how was your year?’ You live and breathe – ‘what’s your development plan, what are you looking to develop?’. And then in terms of career – ‘where are you today? What are the next couple of roles you want to do over the next three to five years? How can you grow your career with Greene King?’”

So, what does the future look like for Greene King, and are there future acquisitions on the horizon?

“Never say never,” responds Davis. “But for now we are firmly focused on maximising the benefits and full potential of the Spirit deal and making it a success.

“What we’ve clearly articulated to the team and the market now is that our strategy is to be the best pub company in the UK, and when we say that we mean that it’s the best for our customers, the best for our team, the best for our communities and also best for our shareholders.

“There are two key priorities for us as a team at the moment – one is to ensure that we continue to strengthen the core business and make sure that we deal with the challenges that we face today, while secondly, ensure that we fully harvest the benefits of the acquisition.

“So, we’ve said to the market that we’ll deliver £35 million synergies, and I’m confident that we’ll deliver that ahead of plan. Now, we could just stop at £35 million and get on with doing the day job, or there’s more there to harvest. So, we’ve got to make sure we harvest those extra benefits over the next two to three years and that will provide an important area of growth for the future.

“You never know when the next bus comes along. It may not come along at the right time, but we’ve been a very acquisitive company in the last 20 years with 20 deals. I have a very ambitious CEO, and I’m very happy to support him on all of that so I’m sure if the right thing comes along, who knows?”

This CFO seems like he has it all under control. Is there anything that rattles him?

Cyber security is his top concern as CFO of Greene King. IT reports to Davis along with the finance function and he says that the company is far from complacent, with an awareness that they need to enhance their systems. The team is currently working to a two-year plan on cyber security; £2 million was signed off last June to strengthen core systems around cyber.

Would a data breach cause permanent reputational damage to Greene King? Davis seems to think so.

“Clearly, we hold a lot of important information, whether it’s our employees, customers, supplier data. I can’t think of a positive outcome that I’ve seen in the market yet from a reputation perspective.” Yet, his most worrying concern about data theft or a security hack would be the implications for employees or customers. “It would be the impact on those individuals,” says Davis.

Outside of Greene King, Davis is an avid supporter of his son’s under-9 football team, and, when time permits, he likes to get away for family holidays. “I make the most of that special time with the family,” he says.

Looking ahead, Davis affirms that he still has “lots to do” at Greene King. “There are lots of opportunities for me to grow personally but lots of opportunity for us at Greene King to build that best pub company in the UK.”

And further into the future?

“My gameplan is that by the time I get to my mid-fifties, hopefully I’ll be able to be lucky enough to go non-exec,” he says.

Before I leave, I ask Davis if he has any pieces of advice for other finance directors.

“Always ensure you maintain your personal integrity,” he responds. “As an FD, all you’ve got in the market and the city is your reputation, and if that goes, that’s the end of your career.

“Occasionally, from time to time, people make the wrong choice or the wrong decisions and I think with personal integrity, ethics – don’t lose sight of what your core values are.”

The pub industry may be facing a tough time ahead, but Davis doesn’t seem like one to shy away from a challenge. Determined and principled, this CFO certainly appears to have a few good rounds left in him yet before he calls last orders on Greene King’s top job in finance.

So, finally, how does he rate being a CFO at Greene King?

“It’s a fantastic business and I get to play in so many areas as CFO – whether it’s IT, property, in the commercial areas of marketing and trading.

“I feel quite lucky to be doing the job I’m doing.”

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