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Interim Results 2009
Financial performance 6 months to 31 March 2009
Results in line with management expectations
Adjusting for Easter, net income per pub down 8%
EBITDA £225m (2008 - £256m)
Pre tax profit £103m (2008 - £132m)
Adjusted EPS 15.1p (2008 – 19.3p)
Debt reduction programme on track
Appropriate headroom to all financial covenants
Write down in pub estate value of £195m (3.5%)
Interim Results 2009
EBITDA Average income per pub down 8%
6 months to 31 March Year to 30
Sept
£m 2009 2008 2008
Revenue 404 438 880
Cost of sales (159) (166) (336)
Gross profit 245 272 544
Administrative expenses (20) (16) (32)
EBITDA 225 256 512
Average net income per pub 6 months to 31 March
2009 2008 % Decline
Gross profit 245 272
Adjust for: Easter/extra day (3)
Property costs 3 3
Adjusted net income 248 272
Average no of pubs 7,711 7,756
Average net income per pub 32.2 35.1 (8)%
Interim Results 2009
Profit & loss account Adjusted EPS down by 22%
6 months to
31 March
Year to
30 Sept
£m 2009 2008 2008
Revenue 404 438 880
EBITDA 225 256 512
Depreciation (5) (4) (8)
Interest (117) (120) (241)
PBT (pre exceptional items) 103 132 263
Taxation (28) (36) (68)
Profit after tax (pre exceptional items) 75 96 195
Adjusted EPS (p) 15.1 19.3 39.2
Weighted average no. of shares (m) 497.6 497.8 497.4
Dividend per share (p) 0.0 5.8 16.2
Interim Results 2009
Gross margin analysis Margins impacted by duty increases and discretionary concessions
£m Beer,
cider
& fabs
Licensee discounts Wines,
spirits &
minerals
Rent Machines & other Total
2008/09 Contr-
actual Special Income
Special discount
Turnover 285 (22) (4) 16 124 (4) 9 404
Cost of sales (144) - - (12) (3) - - (159)
Gross profit 141 (22) (4) 4 121 (4) 9 245
49.5% 60.6%
2007/08
Turnover 304 (23) (2) 16 132 (1) 12 438
Cost of sales (151) - - (12) (3) - - (166)
Gross profit 153 (23) (2) 4 129 (1) 12 272
50.3% 62.1%
Interim Results 2009
Exceptional items No cash impact in H1 2009
6 months to 31 March
Year to 30 Sept
£m 2009 2008 2008
Administrative expenses - - (2)
Profit on sale of pubs 1 1 2
Movement in valuation of pub estate (54) (2) (53)
Movement in MTM of swaps (41) (9) (1)
(94) (10) (54)
Tax impact: Administrative expenses - - 1
Movement in valuation of pub estate 15 1 14
Movement in MTM of swaps 11 2 -
Indexation (7) 13 33
Total tax 19 16 48
Total exceptional items (75) 6 (6)
Interim Results 2009
Cash flow statement Reduction in creditors and timing of interest rollovers
6 months to
31 March
Year to
30 Sept
£m 2009 2008 2008
Operating profit 220 252 502
Operating cash inflow 207 270 536
Interest (108) (102) (246)
Tax (34) (43) (77)
Free cash flow pre investment 65 125 213
Dividends (52) (52) (81)
Pub capital expenditure (23) (37) (68)
Other capital expenditure (1) (1) (2)
Free cash (outflow)/inflow (11) 35 62
Interim Results 2009
Debt reduction programme On track to meet targets
2009 2009 Scoping*
£m H1 actual From To
Free cash flow pre investment 65 150 200
Capital expenditure (24) (50) (40)
Acquisitions of pubs (3) (5) (5)
Disposals of pubs 42 50 100
Potential cash generation 80 145 255
* Per 2008 preliminary results
Interim Results 2009
Balance sheet Robust balance sheet
31 March 30 Sept
£m 2009 2008 2008
Goodwill & investments 417 417 417
Pubs & other assets 5,660 5,789 5,888
Net debt (3,804) (3,809) (3,767)
Net other liabilities (150) (179) (170)
Deferred tax (648) (690) (690)
Net worth 1,475 1,528 1,678
Underlying net debt reduced by £58m over 12 months offset by non cash movement in MTM of swaps
Minimal net pension liabilities
Minimal leasehold liabilities
Interim Results 2009
Pub estate valuation Consistent methodology
In line with RICS “Red Book” profits methodology
Valuers assess fair maintainable turnover (FMT)
Disregard of under and over performance of licensee
Trading peaks and troughs are disregarded if considered temporary
Profit before rent is calculated based on FMT to determine the fair rent
Valuation is derived by applying yields to income streams
Yields reflect pub quality and the sustainability of income streams
Valuation results reviewed by management and external auditors to ensure consistency
Interim Results 2009
Pub estate value 2009 interim valuation
Background
Board considered there had been a general downward movement in pub values
Discussions with our independent valuers
Detailed review by qualified in-house team
Estate valued in line with accounting policies and consistent methodology
Valuation results
Pub estate reduced in value by £195m
Majority of estate written down by 3%
1,000 lower quality pubs written down by an average of 9%
Bottom 200 pubs written down by over 20% on average
Interim Results 2009
Debt structure Parent company net debt reduced by £117m over 12 months
As at 31 March Year to
30 Sept
£m 2009 2008 2008
Bank debt (908) (1,000) (1,000)
Corporate bonds (1,185) (1,185) (1,185)
Free cash 18 (7) 8
Parent company net debt (2,075) (2,192) (2,177)
Voyager loan (100) (50) (31)
Unique :securitised bonds (1,586) (1,586) (1,586)
cash 85 94 90
Subsidiary net debt (1,601) (1,553) (1,533)
Underlying Group net debt (3,676) (3,734) (3,704)
Interim Results 2009
Attractive features
Leveraged structure at below market interest rates
Smooth amortisation profile over 23 years
Benefits to parent company
£70m – £80m pa dividends received
£30m pa Group buying benefit retained
Sharing of Group overhead costs
Unique securitisation Secure and effective debt instrument
Interim Results 2009
Unique securitisation £85m ahead of repayment schedule
£m Rate* Expiry
Floating rate notes (FRN) 201 6.9% Sept 2013
Fixed rate notes 1,385 6.3% Sept 2032
1,586 6.5%
2010 2011 2012 2013
FRN amortisation schedule (£m):- 9 67 67 58
No penalty cost for early prepayments of FRNs
* Weighted average interest rate including the impact of interest rate swaps
Interim Results 2009
Unique securitisation No medium term covenant or cash trap issues
Covenants Test Mar 2009 Sept 2008
DSCR 1.10x 1.98x 2.06x
Net worth - £m 150 1346 1448
Liquidity facility £190m
Cash balance of £85m at March 2009
Structure is “self sufficient” with debt amortising annually
Attractive below market fixed interest rates
Prepayment of FRNs results in no medium term cash trap risk
Efficient, attractive financing structure
Interim Results 2009
Corporate bonds Secure and effective debt instrument
Attractive below market fixed rates (6.5% weighted average)
Non-amortising, constant leverage
Annual injection or withdrawal of pubs as required or permitted
First charge over pub portfolio, subject to valuation and income tests, measured annually
Second charge over balance of pubs held at parent company level
Security to bondholders
Attractive features
Maturity Profile
£60m 6.0% debenture 2014
£600m 6.5% bond 2018
£125m 6.875% bond 2021
£125m 6.875% bond 2025
£275m 6.375% bond 2031
Interim Results 2009
Bank facility Attractive terms with two years remaining
As at
Covenant March 2009
March 2008
Net debt:EBITDA 6.50x 5.78x 5.80x
Interest cover 2.00x 2.58x 2.62x
Fixed charge cover 1.00x 1.52x 1.44x
Total property assets cover 1.50x 2.10x 2.00x
Flexible element of the financial structure
Club arrangement, including core relationship banks
Attractive terms with two years remaining
Comfortable headroom on financial covenants
Interim Results 2009
Bank facility Appropriate headroom for covenants
Leverage covenants (£m) March 2009
Sept 2008
Net debt (bank facility and corporate bonds)* 2,071 2,171
EBITDA (12 months) 283 304
Dividends and interest payments from Unique 75 70
358 374
Interest payable (139) (143)
Debt:EBITDA 5.78 5.80
Interest cover 2.58x 2.62x
Current margin payable of 80 bp. Maximum margin of 120 bp if debt:EBITDA exceeds 5.9x
Covenants measured semi-annually on a MAT basis
*Net of fees
Interim Results 2009
Bank facility Appropriate headroom for covenants
Valuation covenants (£m) March 2009
Sept 2008
Total property assets 3,052 3,169
A. Less pubs outside corporate bonds (1,351) (1,462)
Pubs secured against corporate bonds 1,701 1,707
Less debenture debt (1,185) (1,185)
B. Second charge property assets 516 522
C. Bank debt* (888) (990)
First charge cover (A/C) 1.52x 1.48x
Total property assets ratio ((A+B)/C) 2.10x 2.00x
* Net of fees
Covenants measured semi-annually on a MAT basis
Interim Results 2009
What’s it really like out there? Most challenging trading conditions in living memory
Total concessions increased to £8m (£3m) at the end of H1
311 (480) rent reviews were completed at an average annual
increase of 0.6% (2.5%)
Overdue balances at 1.1% (0.6%) of turnover, bad debts still
low at less than 0.4% (0.1%) of turnover
116 (82) abandonments in H1
141 (257) lease assignments, average premium £63k (£86k)
Interim Results 2009
What’s it really like out there? Majority are resilient, attractive and sustainable
82% of estate let on substantive agreements (85%)
Income down by less than 3% in substantives in past twelve months
2,045 (3,200) enquiries converted to 419 (790) formal applications
831 (530) fully screened applicants on the database
430 (190) pubs let in H1
Interim Results 2009
What are the challenges? More of the same, just different
Consumer has evolved
Smoking ban on top of new licensing regime
Supermarket promotions
Government regulation
Compounded by recession
Interim Results 2009
Real impact on earnings Extra costs for ETI
£m Gross Margin
Overheads EBITDA
2008 interim accounts 272 (16) 256
Easter/ extra day (3) - (3)
Disposals (2) - (2)
Additional support to lessees (5) - (5)
Regain control of assets (4) (1) (5)
Rebuild damaged businesses (1) (2) (3)
Sub total 257 (19) 238
Substantives (1) - (1)
Non-substantives (11) (1) (12)
2009 interim accounts 245 (20) 225
Interim Results 2009
What is ETI doing about it? More of the same, just different
Investment in skills, leadership
New consumer insight
New support packages
Continually evolving business model
new agreements
interventionist strategies
Interim Results 2009
New agreements Continual evolution
Lease or non-assignable tenancy – 6 month cooling-off
Flexible terms and incentive discounts
Control, compliance, repairs packages
Over 400 new lets since launch (November 2008)
Interim Results 2009
Intervention strategies Clear benefits at a cost
Support deserving licensees – £8m (H1 2008 £3m)
Regain control of our assets – £9m (H1 2008 £4m)
Rebuild damaged businesses – £3m
Interim Results 2009
Support deserving licensees Extra £5m cost of discretionary activity
Increased business support
Improved business controls
Temporary financial assistance
Rent concessions
Special discounts
Code of Practice reviews
Interim Results 2009
Regain control of assets £5m additional cost of robust action
Negotiated surrender – 275 (H1 2008 – 177)
Breach and termination – 139 (H1 2008 – 54)
Loss of income
Business damage
Repairs, utilities
Legal costs
Interim Results 2009
Rebuild damaged businesses New expenditure of £3m to revitalise pubs
Temporary management contract
Agreed retail proposition (including RSP)
Business controls and retail standards
Transparent P&L to reassess trading potential
Rebuild customer franchise
Flexible new agreement
Interim Results 2009
Real earnings opportunity £13m upside
£m Gross Margin
Overheads EBITDA
2008 interim accounts 272 (16) 256
Easter/ extra day (3) - (3)
Disposals (2) - (2)
Additional support to lessees (5) - (5)
Regain control of assets (4) (1) (5)
Rebuild damaged businesses (1) (2) (3)
Sub total 257 (19) 238
Substantives (1) - (1)
Non-substantives (11) (1) (12)
2009 interim accounts 245 (20) 225
Interim Results 2009
What are the opportunities? Getting this right really matters
Fewer, better, more sustainable pubs
More versatile, responsive, professional retailers
Attractive, profitable business opportunities
Well placed to benefit from recovery
Interim Results 2009
Enterprise Inns business model: Does it still work?
Trading in a recession: Can pubs survive?
Pub valuations: Are they realistic?
Levels of debt: Are they manageable?
Challenges The questions we ask ourselves
Interim Results 2009
Interim results Summary
Solid results in a tough market, in line with expectations
Tenanted model remains robust and fair
Top quality freehold estate, fairly valued
Debt reduction programme on target
Comfortable headroom to all financial covenants
Effective actions taking place to protect long term earnings
Well placed to benefit from recovery
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