Leader of the pack

Wolverhampton & Dudley's Ralph Findlay tells Mark Stretton about the changes that have transformed the once-ailing company.

IT is a hot summer's evening and Ralph Findlay is pulling the pints at the Four Ashes in Wolverhampton. It is August 2001 and he and fellow directors are hosting a party for Wolverhampton & Dudley's pub managers.

They are officially celebrating the hard work of their front-line troops, but they are also toasting survival and contemplating the future of the company. It is 24 hours since the company survived a battle of David-and-Goliath proportions.

The previous day Wolves defeated a hostile takeover bid by Pubmaster backed by hotshot City financier Robin Saunders of WestLB, by the narrowest of margins. Against all the odds, shareholders had backed the management by 53 per cent to 47, voting against a proposed 513p-per-share bid, which had valued Wolves at £485m. It was the end of an exhausting five-month takeover fight and almost a year since uncertainty over the company's future arose.

Wolves had won a huge battle, but it still had to win the proverbial war. Although it had escaped the clutches of Pubmaster and WestLB the management had it all to prove.

The company was still vulnerable to takeovers. There were Arnie-Terminator-style murmurings that Pubmaster, and bid-partner Noble House, would "be back" to bid again.

As part of the bid defence Wolves made a number of promises, including the return of up to £200m to shareholders, and that the frowned-on mix of breweries, tenanted pubs and managed houses would be run separately, streamlined and invested in.

Ultimately, they had to transform the business into a lean, efficient concern that produced better margins and more profits.

The most optimistic of City experts predicted that the board had 12 months to prove itself. The less charitable said the shares, which were about 475p, would never break 500p, that W&DB was a company on borrowed time and the vote had merely delayed the inevitable.

To cap it all a survey of corporate Britain had just named Wolves the least admired company in Britain alongside the insolvent Independent Insurance and the now defunct Railtrack.

IT is January 2004. Wolves' share-price is sailing high at a handsome 785p, valuing the company at £567.5m and chief executive Ralph Findlay is reflecting on the changes that have taken place in the last two-and-a-half years.

"The course of action we would take if the bid was defeated was very clearly explained to investors," says Ralph. "When it was defeated, nobody felt like celebrating. It was a case of getting on with it and delivering.

"When it [the hostile bid] happened the company had just trebled in size with the acquisitions of Marston's and Mansfield. It went from a business with tight control in the centre as a vertically integrated business, to one that needed to change because of its newfound scale.

"We needed more decision-making closer to the customer rather than at head office where people could not see what was happening."

The company split its operations into three separate divisions, creating a managed pub division called Pathfinder Pubs, a tenanted arm called Union Pub Company and a beer business that was recently named WDB Brands.

"The whole point was to unite each group of people behind a common cause. We delegated authority and, having seen the positive impact, we have done it more and more," says Ralph.

"It has made a huge difference, for example, to have a UPC board company meeting where the development and success of UPC is the sole focus - it has worked extremely well."

Rafts of cost have been taken out, margins have improved and it has so far returned about £138m to shareholders through buybacks and a further £45m in dividends. There is a perception that the company has not delivered on its promise to return up to £200m, in addition to dividends, but insists the flexible approach has the full support of shareholders. Wolves will return further cash if it fails to find suitably priced acquisitions.

In the last three years the company has sold 900 pubs to groups such as Avebury, Innspired, Pyramid and Royal Bank of Scotland. "The drive has been to position the pub estate in the upper half of the market," says Ralph. "Pressure in the market will be felt most by those in the other half."

The group still has a handful of sites that it needs to move on, but there will be no more large-scale sell-offs, according to the chief executive. About 30 pubs will be transferred from managed to leased this year. In the past three years around 300 have moved from Pathfinder to UPC.

The company sold the Lloyds and Varsity concepts a couple of years ago. These chains have both performed well under the new ownership of Wetherspoon and Barracuda, but it is not something Ralph regrets. "Both have flourished but it was part of our move out of the high street."

It continues to operate Pitcher & Piano but is keen to point out that at 28 pubs, it accounts for a very small part of its 477-strong managed business.

The company is firmly focused on community pubs. Its Bostin' Local and Service That Suits have driven managed growth. It has 86 Bostins (Bostin is a Black Country expression meaning great), which are high standard wet-led houses, and 20 Service That Suits, which are food-led community houses. "We considered getting out of formal food-pubs altogether," says Ralph. "We felt it was a market we should be exploiting but didn't seem to be achieving the right returns.

Then Alistair Darby came up with a new concept and conducted some trials, which proved successful. The template, which had extremely high standards and proper service levels, formed Service That Suits."

Wolves has plans for 75 more Bostins and 20 more Service That Suits over the next two years, at a development cost of around £300,000 a time.

In UPC, the company now has 350 licensees on 21-year leases from a standing start just over a year ago, and recently unveiled like-for-like turnover growth of five per cent.

In the brewing division, the company has cut the breweries it runs from four to two, renamed the division WDB Brands and taken about £115m of capital out. Margins at the brewery have increased to 17.4 per cent and return on capital is now up at 25.5 per cent from 10.8 percent three years ago. It will invest £2m at Burton this year.

WDB Brands last year unveiled Marston's Old Empire, a new high-strength IPA as well as a new look for its Banks's range of beers. Plans are also afoot to take Marston's Bitter forward. On the back of its "Uncompromising" marketing campaign, Marston's Pedigree recently overtook Bass as the number two premium cask ale in the country, with market share moving from 8.5 per cent to 10.3 in the pub trade.

A complete culture shift has underpinned the enhanced performance of the business. W&DB directors used to have separate offices to the rest of the staff at the company's Wolverhampton headquarters. The distance between the brewery and Albany House is only 200 yards but might as well have been a million miles.

"It was an enormous barrier," says Ralph. "When we moved in to Albany House with everyone else it was a symbol of change and made a huge difference to the visibility and accessibility of directors."

The sign of success at the company used to be whether you had your own parking spot. The privilege was reserved for only certain ranks. The named spots have disappeared and now it is strictly first come, first serve. "It's quite a good incentive to get to the office early," says Ralph. Any day is dress-down day.

Wolves has also launched a 24-hour independent helpline for staff, where they can get free access to advice from solicitors, counsellors or whatever it is they might need. Depending on use, it costs about £50,000 a year. "There is a huge temp