SFI: Slugging it out

Andrew Latham has taken over the helm of SFI Group at a crucial time. Mark Stretton looks at how the chief executive is turning the company around.

As Chris Tarrant packed up his record box after the last of his live broadcasts from the Litten Tree, and dejected England fans made their way to work, Andrew Latham smiled. England had lost, but under his leadership, SFI Group is starting to look more like a winner again.

The company, which operates Bar Med, Havana, Litten Tree, and Slug & Lettuce, has had some bitter pills to swallow. Andrew has taken the helm at perhaps the company's most crucial period - not so long ago the shares were rock-bottom, and the City's perception of SFI was less than brilliant.

Some, perhaps over-zealous, commentators thought the company was heading for the wall. The ailments included lack of focus, a stretched balance sheet, no transparency in comparable figures, an estate made up almost entirely of leaseholds and trading concerns over Bar Med.

Founder Tony Hill, the man Andrew replaced and, who legend has it, checked the share price practically every hour of the day, had been accused in some quarters of almost gearing the company to death. Until recently it was geared at 140 per cent.

Some suggest the desire to get the share-price moving through rapid growth almost doomed the company, a sentiment the current chief rejects. "We would not have done it any differently," he said. "Public funding is highly beneficial. This company is owned by shareholders and I think the relationship between them and management can be a healthy one."

But the company has taken note. "We have listened to people's concerns," said Andrew. "Whether we agree or not is a different matter but it would be daft not to listen to shareholders."

SFI will focus on what it does best - complementary high street brands - and ditch For Your Eyes Only, the lap-dancing chain.

"We are reducing gearing but, with our level of return, debt is cheaper for us than equity," he said. The company will not borrow a penny more. Using free cash flow of around £40m, it will grow organically, opening 24 new sites this year.

Consequently the growth will slow. "We are a fast-growing company," said Andrew. "As you get bigger, the rate at which you grow must slow otherwise you end up having to open 500 sites a year in order to maintain the figures."

It has successfully repackaged the Bar Med concept. "Initially we thought Bar Med would be a café bar during the daytime and then a bit of late night stuff," he said. "Clearly the daytime stuff isn't there, it's much more about the late night. We now know that Bar Med must have a 1am licence and it must be at least 4,000sq ft. "It started life somewhere between Slug [& Lettuce] and where it is now. Now we've re-positioned it, it's trading very well." The new format is impressive, but about half of the Bar Med estate has yet to be converted.

The company bought the 24-strong bar and cafe chain Parisa in March for £14.2m. More scepticism greeted the deal, with some suggesting the company had bought its way out of a profits warning. But the price was good and it has worked out well, with most of the acquisitions converted to Slug & Lettuce.

The share price is still languishing around 200p, from a high of 288p just over a year ago.

"The rating we have is a disappointment to us, but that's the way it is, you can't spend your life worrying about these things," he said. "We are confident the price won't be where it is for very long." Even the most hardened of City analysts have eased their views on the company. It is worth noting that some remained very positive all along.

Andrew says he won't worry too much about the City's view. Instead, the SFI management worries about retailing and operating the business as effectively as possible.

He says some £1m has come out of operational costs. The company has its own label on low brand-value beverages such as energy drinks and bottled water - worth some £300,000 to the bottom line. It controls its route to market through logistics group Tradeteam.

Andrew looks to supermarkets as a great source for retailing ideas, such as plan-o-grams - where products should be positioned to best entice a compulsive purchase.

He says there is a lot to learn from high street retailers and points to Marks & Spencer, once the darling of the high street and now on the road to recovery.

Marks has installed acoustic tiling on the main gangways in its stores. Any hard-heeled shoes produce a loud click with each step, driving people off the surface and on to the safe haven of carpet. Once on the carpet, customers are surrounded by merchandise.

Tesco has revolving doors in some stores to slow punters down as they enter ensuring they take everything in and do not walk by potential items of interest. Fruit and vegetables are generally the first products on display, delivering messages of freshness and quality.

Britain's number one supermarket also pipes fresh bread and coffee smells to the front of stores, creating a homely feel. SFI has piloted a similar technique in a number of London pubs to drive early trading.

Perhaps more significantly, Andrew says the company has worked hard on design and ergonomics - making sure the lay-out and furnishings of each venue is right. Feng-shui and the customer's spiritual well-being is not necessarily the motivation. "It is about making sure we can take money quickly when we are very busy," he said. "The bar areas are all brighter and lighter because people move away into the darker, more comfortable lighting areas."

When demand for the SFI offer is low, on Mondays for instance, the price of drinks will drop. "We use price to bring customers in," he said "High street retailers have been doing it for years - the aeroplane and train companies also do it very successfully."

A man at the helm of a high street bar company would not perhaps seem the most likely of royalists, but working in the royal household at Balmoral gave him a unique insight in to the ways of the Windsors.

"It was a fascinating experience," he said. "I think it's sad the way the public don't appreciate the 100 per cent, total commitment and effort the family puts in to the country.

"The Queen works incredibly hard."

His royal appointment was crow barred between Brighton Polytechnic and joining Grand Metropolitan as a graduate trainee. He ran a pub with a 110-cover restaurant for 13 months as part of his training. The experience struck a cord and Andrew insists central staff return to the shopfloor every six months.

From Grand Met he joined Surrey Free Inns, when it was no more than a fledgling four-pub company borne out of an Enterprise Investment Scheme.

Because of the way the company was launched it started life with many small private investors. Institutions now make up about 40 per cent of the company's share register, as opposed to the norm of about 70 per cent.

Andrew stayed with the company for six years before doing a five-year stint with Greenalls.

He returned as commercial director, and took the helm earlier this year.

Andrew has a fair task ahead of him as far as the City is concerned. He has to convert the rest of the Bar Med units to the new, vastly improved format, find a buyer for For Your Eyes Only and maintain respectable growth.

Licensing reform may pose a threat. SFI's late-night venues rely on rival high street pub brands closing at 11pm and the possible abolition of restrictive hours may affect trade.

But the company has already taken steps to ensure any adverse changes have a minimum affect on its business. SFI has secured two years' worth of liquor licence approvals in case the licensing process turns to "treacle".

Andrew says it is his team's job to continually adapt the company in order to improve. "The key function of managem