David George: leaving his ship on course

David George, joint Enterprise founder and finance director, retired last week. Phil Mellows meets the man behind Britain's biggest tenanted operator.

When I get back from the rather weird toilets at the Mall Tavern in Notting Hill (a tale for another time) David George's face, lit by his smartphone, is in a state of glee rarely seen in a finance man.

"We've sold another 29 pubs," he announces. It means that Enterprise Inns has chipped £42.6m off its bank debt with another set of sales and leasebacks. As chief financial officer of Britain's biggest pubco, such deals have become central to his work over the past year or two.

George retired last week 20 years after helping to found the company with chief executive Ted Tuppen, two-thirds of the way into a sale and leaseback programme that aims to take Enterprise's £1bn debt down by £200m to £300m.

He departs with the air of a man who feels he has broken the back of a problem and can now leave it to others — although he'll still be doing "project work" for his old boss.

"Suddenly, I've got 60 free hours a week," he says. "I'm going to devote half the time to business opportunities and half to golf."

One of those business opportunities is a pub. Before you ask, the Hopping Hare, near George's home in Northampton, is not an Enterprise tenancy. It's a large freehold operation with 19 letting rooms managed by his son, another David.

He's also got a half-share with his brother-in-law in a Birmingham hotel. "I'm not hands-on at all, but it's so interesting to be a part of something like that and see what works and what doesn't."

So George is not the kind of money man who hardly looks up from the figures. He may not have talked much about it in the past, but he knows his pubs, having learned about the trade with another giant of the industry, albeit from a different era.

When he was introduced to Tuppen by a mutual friend, he was finance director for Grand Met's brewing division after having worked on the pubs side with both Mann's and Norwich breweries.

Tuppen invited him to join the management team he had pulled together to take advantage of the opportunities to buy pubs from the big brewers in the wake of the Beer Orders.

"There were a lot of people looking to do the same thing. My career was at a crossroads. I could have stayed with Grand Met until I retired."

But he took the risk, eventually getting Enterprise off the ground with 370 pubs from Bass.

"It was very difficult to get financing in 1991 and the quality of that first lot of pubs was not great. I could never have imagined how big we would become."

Unexpected growth​

Indeed, according to George's story, the growth of Enterprise was not only unexpected

but unintentional.

"John Labatt came to us with another 400 pubs, and from that we got the reputation of being acquisitive. The real turning point came in 2002, though, when we hit 3,500 pubs after buying the old Whitbread tenanted estate, 1,800 good-quality leases. Then Guy Hands, of Nomura, came to us and asked us if we wanted to buy Unique Pub Company. In two years we had gone from 3,500 to 9,000 pubs.

"It wasn't a deliberate strategy to do that, but it turned out we were brilliant at it. We were always very analytical about what we bought. Our regional managers visited every pub. Some businesses we were offered we weren't interested in."

Hasn't it all backfired, though? Isn't Enterprise now paying the price for all that debt-funded expansion? George insists that the high levels of debt were "appropriate" for the business, and the current adjustment is no more than reducing that debt in line with changed circumstances.

"We haven't fundamentally changed our strategy. We've got a lot of debt because we've got a lot of value in the business. Nothing has changed, but there is less profit and we need to reduce the debt to the right level.

"It's a fantastic financial structure we've got. It is quite complicated, but it means we have flexibility, and that's a huge asset."

Enterprise's 1,000 pubs within the M25 have also proved an asset as the company has looked to raise cash by selling them profitably, mainly to small property companies, and leasing them back on 35-year agreements. The Mall Tavern, where we are sitting, is a typical example — sold at auction for £1.8m and rented back for £90,000 a year, a 5% return over the period.

It's the kind of thing George believes could happen only in London. "There are probably 500 pubs out of that 1,000 that a commercial property investor will buy — because they're in central London.

"It's a sensible thing for us to do. But it's true that, if the world hadn't fallen apart, we wouldn't have done it. The banking crisis, the problems of 2008/09 were unprecedented," he continues. "It was the perfect storm — a bit like when we started.

"But then, while 10,000 pubs closed, 16,000 opened. It was a disaster for the industry.

"This time, pubs at the bottom end have to come out of the equation — and it's a painful process. I can't help but feel sorry for people, especially newcomers to the business."

Accusations​

He rejects accusations that the way major tenanted pubcos are run has something to do with the level of pub closures.

"Tenants have to have someone to blame," he says. "But the leased and tenanted model does work. Most of our pubs have to be run that way. The tie means we can buy beer more cheaply and it gives us a chunk of profit to share.

"The model is evolving. We can offer pubs the option of cheaper beer but the trade-off is more rent. The package has to be right and that deal is under pressure now because pubs' turnover has been hit. We were giving £20m of support a year to tenants to see them through. Sometimes Enterprise gets it wrong. But we make corrections.

"We stopped upward-only rent reviews 10 years ago. Lots of rents have gone down, and we are doing a lot more discounting.

"But a lot of pubs are not viable — wet-led pubs in over-pubbed areas. And a lot of licensees aren't good enough. We're a lot more disciplined in making sure they have business plans and proper advice to minimise the risk, but people are still failing. Domestic problems are still the biggest reason — and that often stems from a financial problem."

For George, it's the tax and VAT that are bringing pubs down. When he left an ailing engineering industry to join Grand Met back in the 1980s he was struck by just how profitable pubs could be.

"We had problems then that are similar to today, but now the Government is increasing the level of tax — and VAT didn't exist back then. VAT is plainly unfair. Pubs pay VAT on food, but supermarkets don't. Pubs are an easy target for the Government to raise cash."

George leaves Enterprise in a financial state he believes will help see it through the crisis.

"Without doubt we have a core of 5,000 to 6,000 pubs that are profitable and I'm confident Enterprise will survive and prosper and we'll see a return to normality.

"We've had three difficult years and this one is unlikely to be easier— but we're through the worst."

My kind of pub​

"I like pubs with atmosphere. My wife's into food and we've visited all the local gastropubs.

"We'll drive 50 miles to eat at a good pub. Our nearest is the Althorp Coaching Inn at Great Brington, Northamptonshire. It's 500-years-old with a thatched roof and a dog in

the corner."

Key dates​

• 1973 — David George starts working life as a graduate trainee with Courtaulds

• 1974 — Joins engineering giant Massey Ferguson as financial analyst

• 1980 — Moves to cars division of British Leyland

• 1982 — Enters the brewing industry with Mann's Brewery

• 1986 — Moves within Grand Metropolitan to Norwich Brewery

• 1987 — Finance and systems director for the merged 1,200-pub Mann's & Norwich Brewery

• 1989 — Finance director for Grand Met's production division, responsible for five breweries

• 1991 — Foun