interim results - enterprise-inns group website · interim results 2009 bank facility appropriate...

Interim Results 2009

Interim Results

31 March 2009

VISIT OUR WEBSITE www.enterpriseinns.com


David George

Chief Financial Officer


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%)


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)%


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


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%


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)


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


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


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


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


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


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)


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


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


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


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


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


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


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


Simon Townsend

Chief Operating Officer


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)


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


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


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)



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


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)


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


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


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


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


Real earnings opportunity £13m upside

£m Gross Margin

Overheads EBITDA


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)



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


Ted Tuppen

Chief Executive


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 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


QUESTIONS

www.enterpriseinns.com

http://www.enterpriseinns.com/

interim results - enterprise-inns group website · interim results 2009 bank facility appropriate...

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