KIRK DAVIS, FD of JD Wetherspoon, on the importance of strong partnerships, and an award-winning refinancing deal.

In your experience as the FD of one of the UK's strongest performing pub groups, what’s required to truly achieve ‘excellence in finance’?

KD: Four key things underpin excellence in finance. Strong financial control is an essential foundation. Second is effective business partnering, ensuring you are working to support the business across all functions on the day-to-day operation. Thirdly, acting as a catalyst and supporter for change. While finally there is a role for finance to contribute to the strategic outlook of the business, developing medium to long term plans that help to push the business forward.

Within this a primary goal is maintaining a strong team. People development is paramount, and gives you the platform to constantly improve the performance of the finance department and manage change.

How has the tough economic climate affected your sector?

KD: We offer quality, value and service and therefore have a strong following. But any business would have been impacted by the events over the last three years and the current tax and regulatory environment isn’t conducive to growth.

However, our strategic aim is to open around 1,600 pubs over time. We’re currently about half way on that journey and the property market does now offer good opportunities for expansion.

 

How much do you think regulatory changes will impact corporate businesses?

KD: The impact of banking regulations like Basel III will ultimately filter through. While I appreciate the importance of ensuring sensible balance sheets, if it’s overly prudent and leads to increased costs for lenders, over time that’s not necessarily a good thing.

It adds to issues within our own industry. We are quite heavily regulated, and there is always talk of more on the way. With VAT at 20%, duty rising above inflation, and other increases, such as carbon tax and business rates, there will be even more pressure at the same time as ongoing reductions in consumers’ disposable incomes. If the Government were to look on the industry more kindly from a tax and regulation perspective it might just give it more of a fighting chance to grow and create much needed employment in the UK.

Has there been a change in treasury and finance culture in the wake of the downturn?

KD: Finance plays an important role as businesses navigate these choppy waters. And as we’ve gone from recession into soft recovery our role has adapted. During recession there was a huge focus on minimising costs, whereas with the green shoots of recovery there is more willingness to invest and grow. But the focus on cash management remains.  

In our case, we had a US private placement to re-pay in September 2009 and had to refinance in 2010. Our goal was to ensure that we maintained the strong financial footing we’ve always had. At the same time we invested wisely in the expansion of the business. 

What role did Lloyds Bank play in the refinancing?

KD: It was run as a club deal – a four year, £550m facility with a syndicate of 11 banks. Lloyds Bank was one of the key parties jointly co-ordinating the refinancing, offering considerable funding and liquidity support, and enabling us to have the confidence to get the right deal at a pricing that was competitive, given where the market was at that stage. 

As a long standing business partner, Lloyds Bank understands our business, and is demonstrably supportive of our long term ambitions. They also supported us on a syndicated extension last year, with a deal now totalling £575m over nine banks.

What in your opinion made this one of The Treasurer’s ‘Deals of the Year’ 2011?

 KD: Three standout factors. We increased the liquidity of the deal on a smaller syndicate – proving the strength of support from our banking group. The pricing was improved, and we secured an extra two years tenor. We achieved everything we set out to, and have the financing in place to further develop the business.

What measures are you taking to optimise cash  management?

KD: The refinancing was part of a medium term strategy to diversify our capital structure. Our deal runs until March 2016 and we have fixed rate hedges in place for a similar period. We now have some flexibility when looking at the next stage of the business, which might involve a more blended capital structure using bonds, US private placements and core bank debt.

On a more day-to-day basis, one aspect of our approach is that we’ve signed up to Lloyds Bank’s Premier Direct Cash Processing Service. The fact that they developed an innovative solution for our foreign currency needs, which clears more quickly into our bank account, demonstrates their willingness to invest in solutions that deliver real benefit to the customer.

What is your approach to risk management?

KD: It’s about taking educated risks. You need a balanced approach, taking in key performance indicators and judging where to invest – be it in day-today operations that improve what the customer sees, or in the systems you need as a platform for growth. For us, increasing the overall scale of the business is part of that balance. Forecasting is key, and it’s something we’ve always been good at. We’re currently investing in a data warehouse system, which will give us even better data and analytics to further enhance our capability.  

What are your strategies for the future? And what role will Lloyds Bank play in supporting those strategies?

 KD: Our vision is to become a first class finance function. We’re three years along that journey, and investing in making it happen, from implementing a SAP system to improve our business systems to continually evolving the team and the strength of the business partnership.

The relationship with Lloyds Bank is very positive. They have the capability to deliver across a number of services, and can offer anything from a US private placement to retail bonds, as well as tailor made risk management solutions. They offer a full suite of solutions for us and the team truly understand our business. It’s clear that they’re working with us for the long term.

 

Reflecting on your career at JD Wetherspoon, what’s been your most significant experience so far?

KD: A few things stand out from my first three and a half years here, but I’d have to say that the first 18 months, when I was Deputy Finance Director, gave me a great breadth of experience. You learn a lot, and quickly, operating through a credit crunch and recession.

What’s the best business advice you have ever received?

KD: A Divisional Executive at Marks and Spencer was asked about the key to his success, and he said that at no point in his career had his delivery or work ethic been less than 100%. That, plus mentoring support and good luck along the way, had got him where he was. What I took from that was that if you are determined to succeed your efforts will be rewarded – but the support of good mentors certainly helps, and I’ve been lucky enough to have had a couple of those over my career. And you can never underestimate the value of good luck.