Home Human Resources NewsEntrepreneurial NewsLuke Johnson: "Holidaying abroad is hurting our trade deficit"

Luke Johnson: "Holidaying abroad is hurting our trade deficit"

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10th Aug 12 9:12 am

We meet the ever-outspoken former Channel 4 chairman, investor and restaurateur

Luke Johnson is known for coming out with salacious soundbites. He famously decried Google as โ€œmonstrousโ€ and seems to relish now telling me itโ€™s a โ€œparasiteโ€.

He also thinks the dominance of Apple, Amazon and co is โ€œunhealthyโ€, because these tech giants are โ€œvery good at not paying much in the way of tax locally, and actually they donโ€™t employ that many people locally either, relatively speakingโ€.

Well, you can say that again โ€“ news broke on Wednesday that Expert advises Brits of upcoming โ€˜payments on accountโ€™ deadline to avoid a 7.5% HMRC interest charge.

What else? โ€œWhen [Brits] go on holiday they contribute to the trade deficit,โ€ says the former Channel 4 chairman, investor and entrepreneur. โ€œIf the French holidayed abroad as much as us theyโ€™d have a huge trade deficit, much bigger than ours.โ€

He is defending the hospitality industry, which he feels people โ€œtotally underappreciateโ€. (He was and is prolifically involved with restaurants and food, having built Pizza Expressโ€™ share price from 40p to 900p in six years, and founding then selling Strada for ยฃ60m.)

VAT on hospitality and leisure needs to be cut, he says.

As for the Office of Fair Trading, โ€œas it happens, I donโ€™t think thatโ€™s a well-run organisation โ€“ Iโ€™m glad the man that was running that is leaving.โ€

Harsh? Maybe. But Johnson, in his early 50s and dressed in a purple polo shirt and brown khakis that crumple over his slight frame, is not the type of entrepreneur who feels it necessary to radiate sunbeams of unerring enthusiasm and joy in a bid to enchant everyone else. Heโ€™s notoriously a rather unnerving character, not only because of his commercial prowess but because he can come across as distinctly frosty. When I suggest there is a snobbishness among university-leavers about working in entry-level hospitality and leisure jobs, he retorts: โ€œShould they be journalists on online websites?โ€ At other points heโ€™s warmer, but never quite reaches the point of full-throttle friendliness.

The roll-call of his past business achievements is far too long for one paragraph: as well as restaurants and media, he founded Dental Holdings, which he sold for ยฃ100m within 10 years; is non-exec director of Metro Bank; and has/had a vast swath of stakes in businesses as diverse as greyhound racing (GRA) and Topps Tiles.

Food is his big thing though, along with media. As founder and chairman of private equity firm Risk Capital Partners, he is part-owner of Giraffe, Patisserie Valerie and a spread of other food-related companies.

He laments that the British attitude to the restaurant and hospitality sectors isnโ€™t more like โ€œin France, and to a degree Spain and Italy โ€“ they have a tradition of it being a long-term career and itโ€™s taken rather more seriouslyโ€. He says it is getting better here, but still โ€œambitious, clever people miss that itโ€™s a great way to run your own business. [โ€ฆ] Thereโ€™s always innovation, thereโ€™s always room for new players to come along.

โ€œLondon is the quarter of all that inventiveness, where 95% of all the new ideas and the clever, fresh brands come from. The different cuisines, the original offerings, are independent. Theyโ€™re not corporates or groups [which are] generally hopeless at coming up with the new ideas.โ€

โ€œThereโ€™s a wall of money out there.โ€ How do people get their hands on it then? โ€œHave a compelling proposition.โ€ Right.

His unwavering belief that โ€œanyone with some fire in their belly and some nous can run their own businessโ€ would perhaps feel a tad more inspiring if delivered with more enthusiasm, but I actually quite like the fact he doesnโ€™t over-egg recipes such as: โ€œFor those who want the independence and the freedom of doing their own thing, delaying it [because of the economic climate], waiting for the perfect situation, is not realistic. I think they should get stuck in, make it work, and move on if they pick the wrong opportunity.โ€

But does he really think the pace of growth he achieved with Strada and Pizza Express is achievable in todayโ€™s climate? โ€œWhy not?โ€ Well, thereโ€™s no finance around for a start. โ€œThatโ€™s rubbish. Thereโ€™s a wall of money out there.โ€ How do people get their hands on it then? โ€œHave a compelling proposition.โ€ Right.

โ€œVenture capital is quite scarce, but Britain is awash with private equity. Admittedly your companyโ€™s got to be of a certain scale before you raise that kind of capital, but, like I say, itโ€™s not easy and it never has been.โ€

Johnson actually does make it sound misleadingly easy, sounding blasรฉ about how he grew Pizza Express from 12 to 250 branches in six years, and Strada from scratch to 30 units in the same length of time: โ€œIn the first year you open a few branches, next year five or six, then 10 then next year, then 12.

โ€œYou gradually recruit good people,โ€ he explains, reeling off the list of key characters, โ€œideally promoting from within if possible so youโ€™ve got talent who understand the business and are loyal.โ€

Johnson clearly has an innate grasp of business, but he studies hard too โ€“ no doubt a trait picked up from studying medicine at Oxford, where running club nights gave him the taste for entrepreneurialism. Heโ€™s got at least 200 of his business books lining the room weโ€™re in, โ€œand theyโ€™re only a fraction of my books. Iโ€™ve got several more bookshelves in the rest of the offices, and many, many, many more business books at home.โ€

โ€œIf youโ€™re exiting, thereโ€™s an awful lot of private equity houses out there who will want to invest.โ€

But no amount of swotting up can fully safeguard you from setbacks. โ€œEach location I ever open is a gamble. [โ€ฆ] Iโ€™ve opened loads and loads and you never know which are going to be the winners and which are going to disappoint. Itโ€™s part of the excitement of it.โ€

When it comes to expansion, โ€œYou probably want, in my experience, to grow as fast as you reasonably can without falling over.โ€ Warning signs of over-expansion are quality standards falling, and new outlets failing to perform. โ€œYouโ€™ve got to have controls of cash and youโ€™ve got to have proper reporting of the numbers,โ€ he advises.

โ€œThere will always be moments of chaos [โ€ฆ] but you need a sufficient critical mass in the centre thatโ€™s highly profitable and working well before you start, you know, going mad, opening up everywhere. Quite often people get excited and blow their brains out.โ€

As for the companies he invests in through Risk Capital Partners, weโ€™re talking businesses turning over less than ยฃ50m, with ยฃ3m-ยฃ5m profit, and, of course, great growth prospects. He likes โ€œcomplicated or messy circumstancesโ€ where there is some kind of problem to be unravelled, some potential to be unlocked using the contacts or expertise of him and his partners. โ€œThat helps secure the deal, if you like.

โ€œIf youโ€™re just another provider of capital then youโ€™re the same as everyone else, then youโ€™re a commodity.โ€ He would rather โ€œadd some value, help make a differenceโ€.

Returns have been longer since recessions version one and two. But, as most in the space seem to agree, thereโ€™s large demand for good businesses. โ€œIf youโ€™re exiting, thereโ€™s an awful lot of private equity houses out there who will want to invest. But theyโ€™re finding it very difficult to deploy money because an awful lot of companies have blotted their copy book in the sense that, you know, theyโ€™ve had hiccups [in growth].

โ€œSo I think itโ€™ll take a year or two more of recovery for businesses that have suffered in the downturn to resume their progress.โ€

Short supply is also pushing prices up on the acquisition side. โ€œWe go into an auction to buy a business, and if it has highly-regarded management, and wonderfu
l track record growth and lots of great prospects, then prices are normally too rich for us.โ€

Floating rather than selling is not the option it once was for companies looking to exit. โ€œWhen I was younger companies went public. Hardly anyone goes public now. The stock markets are moribund. And I think itโ€™s a great shame. But itโ€™s too expensive, itโ€™s too highly regulated and restrictive, and there are alternative sources of capital.โ€

Does Johnson buy into the argument that itโ€™s easier to float in the US? โ€œTheyโ€™re more regulated there. Iโ€™ve sat on the board of an American public company and, believe me, they report quarterly there โ€“ itโ€™s a much more onerous regime than here. So that isnโ€™t true. Itโ€™s a bigger economy and theyโ€™ve got more money, so of course itโ€™s a more popular place for IPOs.โ€

Thereโ€™s not much chance of Johnson moving Stateside though, despite the rather unexciting activity shortage here. โ€œIt was 38 degrees yesterday in New York. Is that what you want? 38 degrees and 95% humidity. Thatโ€™s unspeakable.โ€

Besides, โ€œLondon is arguably the greatest city on earth in terms of places to visit. We donโ€™t have the weather, but who cares about that? And this is alright. Obviously I want some sunshine but weโ€™re here for culture [he was appointed chairman of the RSA in 2008 and invests in theatre], for museums, theatre, music, restaurants, celebrities, history, galleries.โ€

Well, thatโ€™s something to be cheery about.

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