Enterprise Inns moves to reassure shareholders

MIDLAND pubco Enterprise Inns today moved to calm the fears of shareholders over the size of its mounting debt by announcing it had renewed its banking facility with its existing banks.

The Solihull-based firm saw 11% wiped off the value of its shares last week amid fears it might not be able to agree a deal with lenders to reduce its huge debt.

Announcing its interim results today, the company said it had agreed a refinancing of its bank debt by signing a new £625m forward start facility.

Chief executive Ted Tuppen said: “We are pleased to have renewed our bank facility with our existing club of banks on terms which fairly reflect current market conditions.”

Pre-tax profits rose from £9m last year to £91m, strengthened by the £135m it was able to raise from the sale of assets, which realised an exceptional profit of £32m.

However, the firm is not out of the woods yet. The results show the extent of the difficult year it has had to endure with declining revenues and failing businesses.

In the six months to the end of March earnings before interest and other items fell from £226m in the same period last year to £204m. The average net income per pub also fell during the period, declining to £31.2k from £32.2 last year.

It succeeded in reducing net debt by £163m during the period but admitted it was still affected by failing pubs, albeit at a reduced rate.

It has also warned that trading is likely to remain difficult with market conditions only improving very slowly.

Nevertheless Mr Tuppen was upbeat in his results statement.

He said: “In the face of very challenging trading conditions across the pub sector, these are solid results which reflect the quality of our pub estate, the resilience of the leased and tenanted pub model and, above all, the skills and determination of our retail partners and the Enterprise team.
 
“We have a robust balance sheet, a secure, flexible and tax efficient debt structure and we continue to generate strong operating cash flows, enhanced by our successful programme for disposing of underperforming and non-core pubs.”

“We expect trading conditions to remain challenging during the second half of the year and we remain confident in our strategy and in our ability to deliver results for the full year in line with our expectations,” he added.
  
Average net income per pub was down by 3%, compared to an 8% decline during the same period last year and on a like-for-like basis fell by just 2% in the 86% of the pubs let on substantive agreements.
 
The board said it was pleased that the refinancing deal had been agreed and the refinancing is set to start in May next year.

In the meantime, the firm said it would continue to focus on its debt reduction programme. One effect of this has seen the firm decide not to pay an interim dividend.

The decline in pub income varies from region with inns in the north suffering the worst with a 5% decline on average compared with a 1% decline in pubs in the south of the county. Pubs in the Midlands show a 3% fall.
 
The firm said 86% of its pubs, which represent 94% of net income, were now let on substantive agreements and trading appeared to be stabilising.

Rent concessions and special discounts designed to prop up the struggling pubs cost the firm £7m during the first half of the year, broadly the same as last year.

It said its troubleshooting temporary management agreement programme has largely served its purpose, having taken control of failing pubs and quickly turning them around, mainly through refurbishment and relaunch.

There were 134 TMA pubs this time last year, increasing to a peak of 218 during the third quarter of the last financial year. This number fell to 84 at the end of March and Enterprise said it expected this to fall further during the second half.
 
On its failing pubs, the company said|: “While the continuing difficulties facing the trade mean that failures are inevitable, we are encouraged that the rate of failure is declining, and is lower in the first half of the year compared with the same period last year, a trend which we expect to continue.

“The level of bad debts remains low and has slightly reduced during the first half, to just 0.3% of turnover, whilst overdue balances remain stable at approximately 1% of turnover.”

It said it was also pleased that the business was attracting new landlords, with a 100% increase in applicants compared with the same period last year.

The firm’s pub estate now comprises 7138 pubs, valued at £5.3bn, an average of £740,000 per pub. It owns the freehold on 97% by number and 99% by value of the estate and total annualised leasehold rent payable amounts to approximately £6m.

The value of the estate reflects that of the commercial property sector and Enterprise said it did not believe there had been any material change in the value of the estate.