At present, the Group has 44 trading pubs and intends to continue growing the estate over the next two to three years. The Group already has extensive relationships with property agents specialising in the licenced trade industry and many of these relationships have been in existence for a number of years.
The Group’s acquisition strategy is broken down into four key areas and the Directors believe that these areas will provide sufficient acquisition opportunities to support the targeted growth of the Group’s pub estate.
1. Acquisition of existing pubs
Central to the Group’s acquisition strategy is buying existing pubs that are already trading well and are typically sold by private sellers. The main change is to transfer the pub’s supply contracts onto the Group’s centralised platform, quickly improving operating margins. The Group prides itself on the way it works with the existing employees in these pubs and, over a period of time, aims to integrate these employees into the Group’s entrepreneurial culture.
2. Acquisition of trading pubs requiring redirection
The Group also seeks to acquire existing pubs that require modest refurbishment and improved retailing standards. Typically, the Group will target an investment of circa £250,000 to tailor the décor to the pub’s local market and improve the liquor and food offerings, as well as help the existing staff to adopt an entrepreneurial approach in managing the pub.
3. Closed down pubs requiring extensive refurbishment
The Group also looks to acquire sites that are either underperforming or have been closed down and which provide the opportunity for the Group to substantially refurbish and improve the product offer to better serve the tastes of the Group’s target consumers.
4. Unlicensed premises
The Group is able to target sites which are currently unlicensed but which present the opportunity to be transformed into premium trading pubs.
The Group typically targets pubs and sites that produce, or are expected to produce, higher EBITDA per pub than the industry average. The Directors believe that by focusing on sites expected to produce a higher EBITDA, head office costs as a percentage of sales are reduced and this performance also enables the attraction and retention of top performing pub managers.
The Group evaluates new sites by testing them against five key target markets: residents, office workers, students, tourists and shoppers. For a new site to be considered, it must address at least four of the five key target markets.
The Group’s strategy is to enhance existing sites rather than redesign to a set formula. The Directors believe that an operation comprising individual quality outlets that are unbranded will trade better over the longer term. When refurbishing a pub, the Group adopts a timeless design style, which is one of high quality but is not fashionable or contemporary. A typical refurbishment is undertaken in a style which the Directors believe is long lasting. With regular maintenance the estate is kept to a high standard, this helps to ensure that future refurbishment costs are reduced and closures of pubs for major refurbishments are minimised.
The Group is continually appraising both individual sites and portfolios of pubs across southern England and Wales, and has developed a strong pipeline of potential acquisitions out of the large number of opportunities presented. The Group is targeting the acquisition of 8-10 pubs per annum. All acquisitions are subject to approval by the Board and a key consideration, when seeking board approval, is to recommend pubs and sites in areas which are not highly competitive. The Group has a low annual rent charge compared to its turnover (which was circa 3.4% as at 30th December 2018) and the Group intends to keep it around this level.
Recruitment and retention of high quality staff is key to the Group’s strategy, both at head office and across the estate. The Group’s staff are well trained and appropriately incentivised, given their respective roles, with the focus on attracting the most suitable employees to support the growth of the Group and maintain high levels of consumer satisfaction.
People and culture
The Group’s localised strategy requires a certain standard and quality in its staff. The inherent ability to be engaging, intelligent and motivated are key attributes. The strategy to focus within Cathedral cities means finding the right type of staff should be easier especially as universities are central to all these cities. Finding the right people is followed by training programmes and a highly rewarding incentives package that we feel is unique in the industry. Putting its staff at the heart of the business is also reflected, with two employee representatives included at every board meeting.
Operation structure and staffing
Growth, accompanied with the clustering strategy, means many General Managers are ‘homegrown’. This has allowed for progression to area manager in some cases. Each pub has a General Manager and Head Chef on-site. The average full time equivalent staff per pub ranges from 15-20 depending on size and offer (higher for those with accommodation and greater food offer). The operational structure is highly devolved fostering a more entrepreneurial spirit that is rarely seen in larger groups.
The overarching aim is to offer customers exceptional experiences, while striving to offer employees sufficient development possibilities to build a career within the Group.
The City Pub Group has developed a comprehensive incentives policy with all employees participating at some level. Importantly bonuses are based on both quantitative and qualitative targets are paid out weekly, monthly, as well as annually. This is unique in the industry, in our view.
While value for money is a major component, there is a key focus on a premium offer across the entire estate. Aligned with keeping the values of the pub intact, there is an aim for the pub to become a central part of the local community by incorporating local suppliers, local staff and providing several reasons for people to visit often.
The Group has five target markets:
• Office workers
Adapting and driving consumer preference
Shifts in consumer preferences combined with the changing profile of the high street, have blurred the lines between pubs, restaurants, cafes and coffee shops. Customers are now able to have a breakfast in a pub or dinner in a coffee shop. Menus are developed individually for each pub and offer good value across a wide range of choice. Increasingly, healthier and vegan options are being offered in each pub to broaden the appeal to a wider range of customers.
The Group adopts a long-term approach with its suppliers and has maintained relationships with its major suppliers since inception. This includes contractors, professional advisers, designers and property agents, as well as food and drink suppliers.
The Group has recently entered into a number of three year fixed-term supply agreements with its major suppliers. These agreements cover over 80% of the Group’s liquor purchases and are expected to generate c.£1 million in cost savings, compared to its previous arrangements, over the next three years. The Group has also recently centralised its food purchasing function and significantly reduced the number of its suppliers, which has resulted in an improvement in its purchasing terms and will enable greater economies of scale to be achieved as the pub estate grows.
The Group adopts a long-term approach with its suppliers and has maintained relationships with its major suppliers since inception. In certain cases the relationships date back to the Founders’ involvement with The Capital Pub Company. This includes contractors, professional advisers, designers and property agents, as well as drink and food suppliers. The Group is very conscious of the role its pubs play in the local community and as such certain pubs offer discounts to customers who work in the public services. Charity fundraising events are often held in the Group’s pubs for organisations such as The Eve Appeal and Grenfell Tower Appeal. The Group also recognises the importance of maintaining a good relationship with its employees and as such encourages employee participation. To formalise this, from May 2016 the Company invites employee representatives to attend all board meetings in order to discuss matters such as staff training, incentive schemes and staff welfare.
Bath, Brighton, Bristol, Cambridge, Cardiff, Exeter, Hampshire, London, Norfolk & Oxford.
The Board comprises of four highly experienced Executive Directors with over 80 years’ combined experience of developing and operating pub companies. In addition, the three Non-Executive Directors also add many decades of pub and drinks industry expertise.
Clive Watson ACA (57) – Executive Chairman. Clive qualified as a Chartered Accountant with Price Waterhouse in London in 1986 before joining the investment bank Manufacturers Hanover Limited where he spent three years. He joined Regent Inns PLC as Finance Director and Company Secretary in 1990. Clive left Regent Inns PLC in February 1998 and co-founded Tup Inns Limited, where he was responsible for financial and commercial matters as well as acquisitions, before becoming Chief Executive and Finance Director of Tom Hoskins PLC, an AIM listed company. Clive was founding director of the Capital Pub Company in 2000 where he served as Finance Director until 2007 and then Managing Director before becoming Chief Executive in June 2008. He over-saw the sale of the Capital Pub Company to Greene King in July 2011. Clive was appointed as Chief Executive of The City Pub Company (East) plc in December 2011 before becoming Chairman in September 2014 and served throughout the period.
Rupert Clark (46) – Managing Director. Rupert has over 20 years’ experience in the running of high-volume food and liquor-led pubs, both in and outside London. Rupert was previously Operations Manager of the Capital Pub Company and was with Capital for four years. After the sale of Capital to Greene King in 2011, Rupert stayed on to ensure the smooth integration of pubs into the Greene King estate. Prior to Capital, Rupert worked as Operations Manager at The Food and Drink Group, repositioning their city bars, and at Fullers first developing The Fine Line brand and then their unbranded bars and gastro pubs. Rupert was appointed as Joint-Chief Executive of The City Pub Company (East) PLC in April 2013 becoming sole Chief Executive in September 2014 and served throughout the period.
Alex Derrick (43) – Managing Director. Alex has over 15 years’ experience in running premium, independent pubs. He was previously the Operations Director of the Capital Pub Company and during his seven years at Capital helped oversee the expansion of the estate from 13 to 35 pubs. Prior to joining Capital, Alex was the Operations Manager for Jacomb Guinness Limited and The Union Bar and Grill Limited, which operated five premium London gastro pubs. Alex was appointed as Joint Chief Executive of The City Pub Company (West) plc in April 2013 becoming sole Chief Executive in September 2014 and was appointed as a Director of the City Pub Company (East) PLC on 25th October 2017 and served throughout the period.
Tarquin Williams ACMA (48) – Chief Financial Officer. Tarquin has considerable experience in the managed and tenanted pub industry. He spent 16 years with Fuller Smith & Turner PLC from 1997; with the last eight years as Chief Accountant for Fullers Inns, which had an estate of circa 400 pubs. Tarquin then spent a short period of time serving as Chief Operating Officer at the Ladies European Tour running their head office based at the Buckinghamshire Golf Club. Tarquin was appointed as Finance Director of The City Pub Company (East) plc in March 2015 and served throughout the period.
John Roberts (61) – Non-Executive Director. John has been involved in the food and beverage industries for over thirty-five years, with twenty-four of those years in the brewing and pubs sector. In 1994 after thirteen years with United Biscuits and before that with Britvic, John joined Courage, becoming Strategic Planning Director for the newly formed Scottish Courage. John joined the board of Fuller, Smith & Turner PLC in 1996 as Sales and Marketing Director, before then managing the Fuller’s Beer Company from 1999, initially as Beer and Brands Director, and later as its Managing Director. In addition, John has sat on a number of committees of the British Beer and Pub Association and Independent Family Brewers of Britain. John was appointed as a Non-Executive Director of the Company in December 2011. John sits on the Audit & Risk, Remuneration and Nomination Committees and served throughout the period.
Richard Prickett (67) – Senior Independent Non-Executive Director. Richard has considerable public markets experience, gained through numerous non-executive director roles including acting as Independent Non-Executive Director for Regent Inns Plc and the Capital Pub Company. Richard currently serves as a Non-Executive Director to Pioneer (City) Pub Company, a start-up EIS managed pub company, and Non-Executive Chairman for CQS Natural Resources Growth and Income Plc. Richard is also Finance Director to Landore Resources Limited. Richard qualified as a chartered accountant in 1973 with Coopers & Lybrand and has many years’ experience in corporate finance. Richard is Chairman of both the Remuneration Committee and the Audit & Risk Committee, and sits on the Nominations Committee. Richard was appointed as a Non-Executive Director on 25th October 2017 and served throughout the period.
Neil Griffiths (57) – Independent Non-Executive Director. Neil was appointed as a Non-Executive Director of the Company on 17th January 2018 and served throughout the period. Neil qualified as a Chartered Surveyor in 1987 and has over 30 years of experience in retail, leisure and property sectors. Neil worked at Punch Taverns plc from 2001 to 2017 holding a number of senior management roles including Chief Operating Officer, Chief Strategy Office, and Group Property Director. Neil joined Punch from Time Warner where he was International Property Director for their cinema division. Prior to that he held a number of Senior Management and Divisional Board roles at Bass Plc including Head of Property and Commercial Develop Director. Neil is a Trustee Director for the Prince of Wales initiative ‘Pub is the Hub. He is a former Council member of the British Beer & Pub Association having have sat on panels and committees for both the BBPA and Royal Institution of Chartered surveyors. Neil is Chairman of the Nominations Committee and sits on both the Audit & Risk and Remuneration Committees.
James Dudgeon (71) – Company Secretary. James has been Company Secretary since 2011. He was previously Company Secretary of the Capital Pub Company. He has an accounting background.
The Board has overall responsibility for the Group’s system of internal control and reviewing its effectiveness. Key elements of the system of internal control include clearly defined levels of responsibility and delegation, together with well-structured reporting lines up to the Board; the preparation of comprehensive budgets for each pub and head office, approved by the Board; a review of period results against budget, together with commentary on significant variances and updates of both profit and cash flow expectations for the period; Board authorisation of all major purchases and disposals and regular reporting of legal and accounting developments to the Board.
Nominated Adviser & Corporate Broker Liberum Capital Limited, 25 Ropemaker Street, London EC2Y 9LY
Corporate Broker Joh. Berenberg, Gossler & Co. KG, London Branch, 60 Threadneedle Street, London EC2R 8HP
Auditors Grant Thornton UK LLP, 30 Finsbury Square, London EC2P 2YU
Solicitors to the Company Addleshaw Goddard LLP, Exchange Tower, 19 Canning Street, Edinburgh EH3 8EH
Financial Public Relations Adviser to the Company Instinctif Partners, 65 Gresham Street, London EC2V 7NQ
Registrars Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6DA