Confessions of a serial chairman
John Lovering, now at the helm of Mitchells & Butlers, tells Mark Leftly how he intends to boost the pub firm's shares – and hand out dividends once again
Sunday 28 November 2010
For three-quarters of an hour, John Lovering has sat in a bland, white-walled meeting room rolling out statistics and accounting jargon, while looking dead serious and, frankly, a little bored.
It is only when he rises to leave that the south-London boy's entertainingly earthy grasp on the English language takes hold: "A friend once told me that I'd make a terrible virgin: I can't say no."
Lovering is not actually referring to matters of the flesh, but his inability to turn down big corporate roles. He once told his wife that his chairmanship of Homebase would be his last. In the seven years since he left the DIY group, Lovering has been chairman at retailers Debenhams, Peacocks, Somerfield, and gym chain Fitness First, as well as vice chairman at Barclays Capital. "You wouldn't want to believe a word I say," he smiles.
However, the Dulwich College educated 61-year-old's latest chairmanship at All Bar One and Harvester owner Mitchells & Butlers is likely to be his last big job. Lovering succeeded Simon Laffin, who was voted out in January, and was tasked with turning around the fortunes of a group that had infuriated its leading shareholders by losing £500m in a derivatives swap disaster.
The bare figures from last week's full-year results show what an impressive job Lovering and chief executive Adam Fowle have done: pre-tax profit (but not-including property write-offs) up 26.1 per cent to £169m, more than £500m raised through sales of high-street pubs.
Even debt is down, though £2bn still sounds high for a company with a market capitalisation of less than £1.5bn. "It's a hell of a lot of debt for the man on the street," admits Lovering. "But for a company with £3.1bn to £3.2bn of property this can be looked upon like a mortgage and then we're comfortably geared."
There has been plenty of speculation that M&B will follow the once popular strategy of carving the group up into operating and property companies. It was thought that this separation would lead to simpler firms for investors to understand, therefore raising their share prices.
However, as property values have tanked during the downturn, the strategy has become something of a no-no in the investment community. Lovering confirms that he has dismissed this as an idea: "I say to shareholders that what you have here is already a retailer and a property company, and we don't think that we need to be anything else."
Although Lovering is a deal-making, private-equity man by background, with most chairmanships resulting in a juicy buyout, he says M&B is a more straightforward turnaround role. Most importantly, he must bring back the share price to an acceptable level – in 2007, M&B stock topped £5, but at the height of the investor brawl they traded at below 250p.
On the back of Lovering's strategy to sell out of most drinks-led pubs and focus on food-led chains, such as Browns and Toby Carvery, the share price is back over 350p. At a dinner in the exclusive Mosimann's club in Belgravia, back in May, Lovering outlined a two-year plan, which several interpreted as meaning he aimed to get the shares back above a fiver.
Lovering admits that he thinks the share price should be "way above" what it is today, and some back-of-fag-packet calculations of how he values the company through its debt and assets would suggest that 420p a share would be his minimum ambition.
The reason Lovering held that dinner was to encourage more funds to invest in M&B. But there are two major stumbling blocks: Elpida and Piedmont. The former is an investment vehicle run by Irish tycoons John Magnier and JP McManus, the latter is Joe Lewis's fund, and between them they have 40 per cent of the company.
With such a skewed share register, new investors, needed to drive up demand and thus the share price, are hard to find. At Mosimann's, Lovering vowed to "normalise the share register". He says that this means that he has "done my job if I create the conditions where they feel that they want to sell" at a vast profit.
"Some investors as a matter of policy don't like buying into companies with large minority shareholders," Lovering conceded. "But it's like when Wayne Rooney got in trouble the other week [the Manchester United striker blamed the owners, the Glazer family, for his desire to leave the club]. When he crosses the line on match day at 3pm his job is to score 30 goals a season, not worry about who owns the club."
Where M&B did disappoint last week was in its failure to pay a dividend, which was scrapped as consumer spending dipped in 2008. However, it looks likely that these will be the last results with no payout: "We're trying to convey that we're an investable company, with proven, established management and the capability to reward shareholders with a dividend."
Lovering tilts his head forward, gives a short nod and raises his eyebrows as a means of emphasising his points. He does so as he utters the word "reward", and when he goes on to explain that M&B is looking to increase its profit margin by 1 per cent next year.
Robin Young, who was brought in as commercial director in June, is "going through the cost of the business line by line" to help Lovering achieve that aim. Cost savings are likely to be found through greater standardisation: "When our All Bar One customers go for a pee I don't think they will care if M&B has bought the same sanitary care for all the pubs."
Lovering is now playing for time. He wants the interview to continue as he is dreading the photographer snapping him in M&B's O'Neill's pub below this meeting room in Euston.
It is clear that he finds photoshoots a frivolous waste of his time: Lovering tells all his prospective employers that for two-and-a-half weeks every month he will be non-stop, that he works "for reputation, fun and something to do every day". For the rest of the month, the world struggles to pin down Lovering as he shuts off from work. He's normally animal spotting in far-away places such as Namibia, Malaysia or Borneo.
The City should enjoy Lovering while it can. Sometime in the next few years he'll be on safari full-time – for, soon, he will keep his word to his wife and retire from the big jobs for good.
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