28th Mar 2008 07:00
Enterprise Inns PLC28 March 2008 28th March 2008 Enterprise Inns plc Pre close statement Enterprise Inns plc (ETI), which will be announcing its interim results for theyear ending 31st March 2008 on 13th May 2008, provides an update on trading. Current trading There has been no material change in the performance of the ETI business sincethe publication of the Interim Management Statement on 17th January 2008 andEBITDA remains broadly in line with the pro-forma EBITDA reported in our 2007interim results. Trading conditions continue to be difficult, with the smokingban having a particularly adverse impact on pubs that are predominantly wet led.There is however cause for optimism that the new smoke free environment willbegin to attract those who in the past may have shunned pubs due to the smokyatmosphere. Consumer confidence is low and, for most people, disposable income is underpressure. The global credit crunch has made many people concerned about thevalue of their homes and the cost of their borrowing, at the same time as seeingtheir disposable income shrink as a result of increases in taxation, food, fueland utility bills. The Government's punitive and ill conceived increases in dutyon alcohol will impact all responsible pub goers and do absolutely nothing toaddress the much publicised problems of anti social behaviour and bingedrinking. Against this background, it is the quality of the ETI estate and the resilienceof our licensees that underpins our current EBITDA performance. Having acquiredsome of the best available pub estates over the past ten years, aggressivelychurned out underperforming assets and invested alongside our licensees to growpotential profits, we have an estate of the highest quality. However, in thesetesting times for the pub trade, it remains especially important that wecontinue to work closely with our licensees, helping to develop businessopportunities where appropriate and offering support through rent concessionsand special discount schemes to assist licensees who are genuinely struggling,despite their best efforts. Balance sheet Due to the quality of the ETI estate and the conservative basis of the annualvaluation, we remain comfortable with the strength of our balance sheet. Basedupon the independent valuation carried out at 30th September 2007, including arevaluation uplift of some 6% from the prior year, our pubs on average continueto produce a cash yield of more than 9%. We are advised that, were EBITDA toremain broadly flat for the balance of this financial year, there would be amore modest revaluation uplift at 30th September 2008, reflecting currenttrading conditions. ETI has a flexible financing structure comprising bank syndicated debt,corporate bonds and securitised bonds. Underlying net debt is unchanged from thestart of the financial year at £3.7 billion. Current facilities, some 89% ofwhich are at fixed rates of interest of approximately 6.5% for an average ofeleven years are sufficient to meet all ongoing requirements, with appropriateheadroom in place. The next refinancing requirement is the £1 billion syndicateddebt facility which expires in May 2011. Refinancing and REITS In May 2007 we outlined plans to refinance the Unique securitisation and toraise some £750 million of additional debt within the Unique structure. The cashgenerative nature of our business, together with the medium and long termmaturities of our debt, mean that we are under no time constraints to undertakesuch a refinancing. Due to the current volatile and uncertain conditions in thedebt markets, we are not actively progressing the refinancing at present.However, when market conditions improve, and assuming the benefits to the groupof refinancing some of its debt in this way remain, we fully intend to proceedwith the Unique debt issuance as planned. In order to enhance the refinancing exercise we propose introducing a revisedcorporate structure based on the incorporation of a new operating company. Thiscompany will take an intermediate lease on arm's length terms over the freeholdpub estate from Unique Pub Properties. We believe that the enhanced structure which we are proposing will be preferredby both bondholders and ratings agencies. At present the securitisation doesnot benefit from the control and operation of supply contracts, whereas underthe revised structure supply contracts will be operated by the newlyincorporated operating company. In May 2007 we also announced that we were exploring with advisors whether theGroup could meet the qualifying criteria for admission as a REIT. As all ourpubs are let to third parties and we do not operate any managed pubs we believethere is scope for us to convert to REIT status without demerging. Inparticular, we believe the revised corporate structure contemplated as part ofthe proposed refinancing exercise would enhance the Group's ability to convert. Over the past year we and our tax advisors, Ernst & Young LLP and KPMG LLP, havebeen involved in ongoing discussions with HMRC regarding a potential conversionto REIT status. In August 2007 we submitted to HMRC a detailed briefing paper outlining arestructuring of the entire Group based on the Unique refinancing proposals.Following a meeting with HMRC in September we made a formal Code of Practice 10submission to HMRC on 18th October 2007 requesting confirmation of our analysisof the Group's eligibility to join the REIT regime. Our tax advisors andlawyers, CMS Cameron McKenna LLP, are all of the opinion that the restructuringwe are proposing should enable Enterprise Inns plc to elect into the REIT regimeif the Board decides to recommend this. Since October we have provided additional information to HMRC as requested andanswered questions which they have raised. In particular, we understand thatthere is one area upon which HMRC are obtaining legal advice which is the effectof the grant of the intermediate lease. Once they have received this advice, wehope that HMRC will be able to provide a swift response to the Code of Practice10 submission. A further announcement will be made in due course. Enquiries: Emma Baines, Investor Relations Manager 07990 550210Ted Tuppen, Chief Executive 0121 733 7700David George, Chief Financial Officer 0121 733 7700 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
EI Group