30th Sep 2008 07:00
Enterprise Inns plc
Pre close statement
Enterprise Inns plc (ETI), which will be announcing its preliminary results for the year ending 30th September 2008 on 18th November 2008, provides an update on trading.
Trading
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.
EBITDA for the second half of the year is 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 5% in the second half, 3% 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. ETI is currently offering special concessions to 850 licensees, a figure which has increased through the fourth quarter but which is now beginning to stabilise. As expected in these tough market conditions, there has during the second half of the year been a small reduction in the number of pubs let on long term substantive agreements, from 85% to 83% of the whole estate.
It is encouraging to see the continuing growth of food sales in our pubs, reflecting the changing nature and improving quality of our estate. Furthermore, even in these difficult times for on-trade beer sales, we estimate that some 40% of our pubs have actually grown income from the sale of beer on a like for like basis over the past year.
Strong cash generation is a key feature of our business model and has remained robust throughout the year. Overall, we anticipate delivering earnings and dividends in line with market expectations for the year.
Balance Sheet
During the year, ETI has acquired 58 pubs for £49 million and has invested some £70 million in improvements to the estate, in large part related to mitigating the impact of the smoking ban. During the same period, ETI has disposed of 58 pubs and a number of plots of surplus land for a consideration of £29 million, realising a small surplus over book value. A further 30 pubs, with estimated proceeds of £18 million have either exchanged contracts for sale or are in the hands of solicitors pending sale.
The free cash flow generated by the business remains strong, providing an ongoing opportunity for the reduction of debt. Furthermore, during the coming year, the acquisition programme will be reduced and the 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.
Our independent valuers have now completed their year end valuation exercise for the ETI estate. As the profile and profit potential of the estate has evolved, there have been some quite material changes in the value of individual pubs and overall there has been a modest net revaluation uplift at the year end.
ETI retains a flexible and efficient financing structure comprising bank syndicated debt, corporate bonds and securitised bonds. Current facilities, some 89% of which are at fixed rates of interest of 6.5% for an average of ten years are sufficient to meet all ongoing requirements, with appropriate headroom in place. The next refinancing requirement is the £1 billion syndicated debt facility which expires in May 2011.
Real Estate Investment Trust (REIT)
We continue to make good progress with the REIT conversion appraisal, with all technical and valuation methodology issues now agreed with HMRC and consent in principle for the necessary restructuring received from our banking syndicate.
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.
Enquiries: Emma Baines, Investor Relations manager 07990 550210
Ted Tuppen, Chief Executive 0121 733 7700
David George, Chief Financial Officer 0121 733 7700
A conference call for analysts and investors will commence promptly at 8.30am BST (3.30am EDT).
Interested parties can dial into the conference facility on the number that relates to their country.
UK Participants 0800 358 1448
USA Participants 1 866 928 6048
Rest of World: +44 (0)20 8609 1270
A follow-up conference call will take place at 2.00 pm BST (9.00am EDT)
UK participants: 0800 358 1448
USA participants: 1 866 928 6048
Rest of World: +44 (0)20 8609 1270
Recorded playbacks of both conference calls will be available for seven days.
To access the playback, please dial your country number listed below and enter the code of the appropriate conference call when prompted.
UK Participants 0800 358 2189
USA Participants 1 866 676 5865
Rest of World +44 (0)20 8609 0289
Pin Code for 8.30am Call 234591#
Pin Code for 2.00pm Call 234596#
Related Shares:
EI Group