Enterprise reports 5% rise in pre-tax profits and begins refinancing talks

Enterprise Inns has reported a 5% rise in pre-tax profit to £64m in the six months to 31 March on the back of a rise in like-for-like net income in its substantive estate, as it reveals that it has begun talks on refinancing.

Like-for-like net income across the total estate fell 1.6%, against a 5% fall in H1 2011, the tenanted and leased pub operator said. But in the substantive estate, like-for-like income was up 1.5%, against a 1.5% decline in the same period last year.
Average income per pub increased by 3.2%, largely reflecting the trimming of the estate, which stood at 6,143 sites at 31 March.
Overall EBITDA before exceptional items declined 6% to £168m, which the company attributed in part to a reduction in pub numbers and the impact of leasehold costs linked to its sale and leaseback programme. Profit before tax and exceptionals was £64m (H1 2011: £74m).
Adjusted earnings per share were 9.6p (H1 2011: 10.8p). No dividends will be paid.
The company bought £29m Unique A securitised bonds ahead of schedule, and has bought and cancelled a further £10m A4 and £2m A3 bonds since the period end. Net debt at the period end was £2.91bn (H1 2011: £3.13bn), with net bank debt recduced to £397m.
Chief executive Ted Tuppen said: “We have commenced discussions with our bank group to extend our bank facilities with a new forward start facility that would commence on expiration of the existing facilities on 15 December 2013.”
In the substantive estate, representing 94% of net income, there was a regional variation in performance, with substantive like-for-like income growth at c.2% in the Midlands and the south and “flat” performance in the north, representing an improvement.
“It is a reassuring indication of the improving stability of our estate that the costs of discretionary financial support have continued to reduce, alongside a further reduction in business failures, bad debts and overdue balances,” said Tuppen.
In the non-substantive estate, which provides 6% of net income, c.155 pubs are operating under or are planned to be converted to the Beacon managed tenancy concept, Enterprise said. On average, conversions to Beacon deliver a 30% improvement in pub income compared to the three months before conversion.
Enterprise made £89m from disposals in the period, Across the half year, 78 pubs were disposed of for £16m. A sale and leaseback of 17 sites generated £24m, while 36 “exceptional” properties were sold for £49m at an average multiple of 14 times income and at a profit of £9m over book value.
The total proceeds were £89m after disposal costs, generating a profit on disposal of £10m in the period, against £28m in 2011.
For the full year, Enterprise said it expects to deliver total disposal proceeds of c.£200m, with a further £150m next year.
Tuppen said: “We have now largely completed our accelerated disposal programme of assets which do not fit the future profile of the business. This programme has generated cash proceeds of £264m from the disposal of 1,045 pubs over the two years to 30 September 2011.
“Underperforming assets will still be sold but we expect this to be at normalised levels which will generate £40-50m of proceeds per annum. Furthermore, as a result of our increased focus on the most appropriate use of capital within the business, we have identified for sale a number of exceptional properties which can realise cash proceeds above book value and at healthy multiples of earnings.”
In the period Enterprise wrote down the value of its pubs moved to assets held for resale by £16m (2011: £45m), of which £10m was charged to the income statement.
In total, £39m was invested in more than 1,100 pubs across the period on schemes to increase trade. “We will continue to invest in our estate to enhance asset quality and drive income but we would envisage that the current run rate of expenditure will reduce over time to a normalised level of £50m per annum,” said Tuppen.
Enterprise said it receives 50 enquiries per week from people wanting to take on pubs.
Tuppen said: “The first half of the trading year has seen a continuation of the improving trends reported at the time of our Interim Management Statement of 9 February 2012.
“We have been subjected to extremely challenging conditions during the past four years, with cost pressures, consumer weakness, political interference, pressure on asset valuations and the volatility of capital markets combining to make life difficult for ETI and its publicans.

"Throughout this period, we have remained committed to our strategy, consistently improved the quality of our pub estate and effectively managed our financial commitments whilst working hard to ensure that we attract, support and retain the best possible publicans to meet the challenges of the marketplace.
“As we continue to move the business back into growth, we remain confident that, in the medium term, we will be in a good position to deliver positive returns to shareholders.”
He added: “The second half of the year has started well and whilst we expect trading conditions to remain challenging, we are confident that a summer of significant national events will stimulate business activity, providing a welcome boost in trade for many of our publicans. The Royal Jubilee celebrations, the UEFA European championship and the Olympic Games are all opportunities for communities to gather in their local pubs and celebrate national success.
“Our strategy is clear and the quality of our pub estate and the resilience of our publicans will ensure that we deliver results for the full year in line with our expectations. As we continue to move the business towards growth, we remain confident that in the medium term the business will be in a good position to deliver positive returns to shareholders.”