Strategy & Operations » Leadership & Management » Interview: Go-Ahead FD Keith Down

WHAT DO Tesco, a bus & rail operator, a pub chain and an online electrical goods retailer all have in common? Aside from the fact that Keith Down, group finance director of Go-Ahead, has worked in their finance departments at one stage or another, it’s the basics of product and service supply.

“Every single day you’re opening a store, opening a pub, providing a service or product – the information is there, the product is there, the service is there. The principles of what you’re doing are very similar,” he explains.

It is this varied commercial aspect that attracted him to the Go-Ahead role, and the board to him. “I consider myself to be a general manager/director who happens to have a specialism in finance. Nowadays, all finance directors absolutely have to have a tinge of commerciality,” he suggests.

Go-Ahead made £102.5m in group operating profit on £2.6bn in group revenue during the last financial year to 29 June 2013. Down helped shift the focus from rail to buses so that the company could mitigate any risk of losing a rail franchise and not make a “desperate” bid.

“In the tendering process, you can make mistakes if you’re too aggressive. The idea is that if you have a good strong core bus business that supports your leverage and dividend, the rail franchises become a nice-to-have, not a must-have … but we still want them,” he adds.

Go-Ahead is currently bidding on the Thames Link franchise which, if added to its existing franchise First Capital Connect, will produce a super franchise contract worth £1bn a year. A decision on that is likely before the end of 2014.

Down won’t be pushed on potential profit margin on such a contract, but reveals that the industry average is about 2% to 3%. Total rail operating profit in 2013 at Go-Ahead was £24.3m with a margin of 1.3% against total revenue. This compares to an operating profit of £78.2m for total bus operations, equating to a 10.3% margin against revenue. Indeed, the main component of Go-Ahead is its bus business, which accounts for about 76% of group operating profit.

“You live or die largely by the success of your execution and your ability to attract customers from the car or other bus operators, so it’s important to have easy access, safe, clean, CCTV camera-enabled buses,” he explains.

It runs some 25% of the bus market in London. The Department for Transport and Transport for London take the fare and Go-Ahead is paid a fee for its operations – on a pence-per-mile basis. One of Down’s first acts in the role was to commission hybrid and electrical buses to improve that pence-per-mile ratio. It is his commercial experience that stands him in good stead when dealing with such issues, bringing a mixture of commerciality and cost control in times of hardship.

In the beginning, there was a…
In his first FD role, at cigarette vending machine business Mayfair Vending, he saw his first round of difficult trading conditions. “The first year I was there, we had a 25% volume drop,” he says. Although not a smoker, Down dug deep to understand the market. The main culprit for the decline was growing import duty, which in turn led to increased tobacco smuggling, rife in pubs.

“This is where you learn how to challenge the existing pre-conditions of any business that you join – it doesn’t matter if it’s vending, trains or buses,” explains Down. He looked at efficiency savings that wouldn’t pull the rug from under Mayfair’s feet.

Historically, Mayfair delivery drivers picked up cigarettes from a depot, but that process was expensive. He found space in its sister company (a retailer) and arranged for pick-ups from there, so he could drop a huge overhead. “I think that is a great strength of someone in finance, that you can reflect the environment,” he says.

He left the company prior to its Imperial Tobacco sale, for FTSE 250 business T&S Stores, joining as a financial controller.

“It [T&S Stores] required quite a big sort-out, a lot of work to integrate systems – so it was a case of rolling up your sleeves and [dealing with] reporting and integrating, a hell of a lot of work,” he says. It wasn’t long before the convenience store business was acquired by Tesco, which was looking to expand its Tesco Express arm.

Every little helps
Down was the only person from the T&S management that moved across to Tesco. “I was seen as the person who was probably the most indispensable,” he says.

But it was down to the T&S Stores CFO having the confidence to leave him to it that allowed him to shine, he adds: “I did as much of the CFO role as I possibly could and [the CFO] allowed me to develop.”

That lesson still resonates with Down who says that you need “somebody to give you the chance, but equally you need to be ready to fill the gap”.

Down joined the online division where, in the course of a year, he got a taste of a vast range of different ideas for product and services. The burgeoning business was trialling anything and everything, including estate agency, wine selling, energy and grocery shopping. He also acted as then UK FD (now group CFO) Laurie McIlwee’s understudy.

“There was an amazing energy and speed about that business,” he beams.

However, Tesco senior management were expected to work overseas, which wasn’t good timing for Down, who had a young family. In order to proceed to the next step, he left the business for FTSE 250 pub chain JD Wetherspoon as its CFO.

Like the previous regulatory issues affecting the market that he faced with Mayfair Vending, the UK had just introduced a smoking ban which was having a huge impact on pub takings. It was 2008 and the recession was also starting to bite. Down was part of the team that helped change Wetherspoon’s focus to a more food-friendly environment – with the company, in turn, making record profits.

However, the relationship failed to end on the best of terms. Down admits that he didn’t see eye to eye with chairman Tim Martin on certain subjects, and they parted company after just two years. The financial press suggested that Down’s focus on efficiencies to manage margins went against Martin’s expansionary vision.

“It’s very much his [Martin’s] business – he started it with one pub,” says Down. “Like EasyJet with Sir Stelios Haji-Ioannou, it’s not an easy environment to deal with. Ultimately, I think someone like Tim wanted to run things his own way and he had done that very successfully over the years.”

Down but not out
He landed the Go-Ahead role less than five months later.

While the bus division is the more profitable side of the business, rail is a far more complex beast, calling on Down’s commercial experience. The track is owned by Network Rail, but if things go wrong, Go-Ahead’s train franchises are the face of the problem. It means the company must work closely with the track owner to ensure the smooth running of the trains, and make Network Rail understand the impact of its decisions on Go-Ahead’s customer base.

Some would suggest that a single provider of track and train services would be a better option, but there is no merger on the horizon. And anyway, Down believes that a single operator would be too cumbersome – creating a jack-of-all-trades business.

Go-Ahead is currently focusing on buses, setting a £100m profits target for the division – from £70m – over the next three years to 2015/16. A key part of that initiative is to introduce integrated thinking and reporting across the business. The company has, so far, had a good year. Its share price has increased 45 in the last 12 months to 2,025p, with a market cap of £867.6m.

Down believes integrated reporting is one of the best tools a company has in order to attract investment. “We spend a lot of time looking at what is leading edge in terms of reporting and we take it seriously,” he explains.

The investors work almost like science and maths teachers, he explains. They want to see how you arrived at your decision, which to them is more important than the end result. “It plays into the balanced scorecard approach that we have – that everything should be in balance: the focus on the customer, the environment, and looking at the finance side as all equally important,” he says. ?

A pensions conundrum

Go-Ahead has recently closed a consultation to end its final salary pension scheme to new members, a scheme that Down says was just not feasible for the business. “We have got to reduce the risk as much as we can – otherwise, this deficit will keep increasing. There will still be liabilities, so we still have to manage the fund we have, but we are not allowing it to get any bigger by offering more,” he explains.

The trend emerging from larger companies is to move the risk onto the pensioner, rather than the pension fund. However, Go-Ahead is trying to come up with more creative ways to fund the scheme, such as giving it title over some of its properties.


2011 – present Group FD, Go-Ahead
2008 – 2010 FD, JD Wetherspoon
2003 – 2008 FD, Tesco
2001 – 2003 Operations FD, T&S Stores
1997 – 2001 FD, Mayfair Services
1995 – 1997 FC, Stocks Lovell
1987 – 1995 General practice manager, KPMG