Falling beer sales hit Enterprise Inns

Enterprise Inns has reported that falling beer sales and rising lessee support will result in earnings before interest, tax, depreciation and amortisation (EBITDA) being three per cent lower in the current financial year.

In a trading update issued today, the UK's second largest pubco said rent concessions were on the increase and more than £5.5m-worth of lessee assistance was being spent.

Enterprise said EBITDA for the second half of the year to September 30 was expected to be similar to the first half.

"Whilst a robust performance in a very tough market, this does represent a worsening of like for like EBITDA, expected to be down by some five per cent in the second half, three per cent for the full year, driven in large part by lower beer sales and the cost of licensee support through rent concessions and special discounts which amounted to more than £5.5 million in the second half.

"Trading conditions have, as expected, remained difficult during the second half of the year, with on-trade beer volumes reflecting the adverse impact of the smoking ban, a poor summer and, above all, continuing weakness in consumer spending," the group said.

However it said it remained on track to deliver earnings and dividends within market expectations.

Enterprise said it was currently offering special concessions to 850 licensees, "a figure which has increased through the fourth quarter but which is now beginning to stabilise".

Despite the problems facing wet-led pubs, Enterprise claimed 40 per cent of its pubs "have actually grown income from the sale of beer on a like for like basis over the past year".

The group said its cashflow position meant an "ongoing opportunity for the reduction of debt", while a recent valuation of the pub estate saw a "modest net revaluation uplift at the year end".

Acquisitions will be scaled back, the pubco said, and its investment programme "will return to its normalised level of around £45 million, focusing capital expenditure on the licensee support programme. At the same time, resources will be reallocated to pub disposals, which we believe will continue to be sold for close to book value".

Enterprise said its next refinancing requirement was the £1bn syndicated debt facility, which expires in May 2011.

On the subject of Enterprise becoming a real estate investment trust (REIT), despite being given the nod by the tax authorities the group said "in light of the current turmoil in the financial markets, the Board does not however consider it appropriate to seek the consent of bondholders at this time.

"We are therefore adopting a cautious approach to the costs and processes of conversion, continuing to work with our advisers to explore the options and to develop a solution which is demonstrably in the best long term interests of all stakeholders.

"We are not working to a particular timetable and will make further announcements as and when appropriate."