Enterprise reports successful ‘strategy delivery and financial performance’ in latest year: Enterprise Inns, the largest pub owner in the UK, has reported a ‘successful year of financial performance and strategy delivery for the year ended 30 September 2016. It had Ebitda before exceptional items of £292 million (2015: £296 million), in line with expectations and reflecting the impact of planned disposals. Profit before tax and exceptional items was £122 million (2015: £122 million) as interest savings from reduced debt offset reduction in Ebitda. Profit after tax was £71 million (2015: £65 million loss), primarily due to lower exceptional refinancing costs and lower property charges arising from the annual estate valuation. This year’s estate valuation increased by 0.1% (2015: down 2.7%). Strong cash generation enabled further net debt reduction, to £2.2 billion (2015: £2.3 billion). Leased and tenanted like-for-like net income was up 2.1% (2015: up 0.8%) with growth achieved across all geographic regions. Improved trading and enhanced operational support helped to further reduce unplanned business failures, down 14% compared to the prior year. Commercial property like-for-like net income was up 3.8% – it had 291 commercial properties at 15 November 2016 at an improved average annualised rental income of £62,000 (2015: £56,000). The total number of pubs trading within its 100% owned Managed Operations business at 15 November 2016 had grown to 105 with 30 trading under its Bermondsey operation and 75 under its Craft Union operation. There are 11 pubs at 15 November 2016 which are trading within its Managed Investments business unit and are operated through trading agreements with five managed partners. Simon Townsend, chief executive, said: “We are pleased to have delivered our financial objectives for the year, maintaining the growth momentum in our leased and tenanted business, while making significant progress in building our commercial property portfolio and managed operations and investments businesses. Our plan to transform the group to best serve our publicans and their communities whilst maximising returns from each of our assets remains on track. Whilst there is the potential for some economic uncertainty in the months ahead, trading in the first six weeks of the new financial year has been in line with our expectations and we are confident that the actions we are taking to execute our strategic plans are the most appropriate response to changes in the regulatory and economic environment. Our proactive management of debt refinancing and our returns-driven approach to allocating excess cash will deliver both near and long-term benefits to all our stakeholders.” 

Of the company’s Enterprise Publican Partnerships segment, the company stated: “Enterprise Publican Partnerships is the trading name for our tied leased and tenanted business which is the largest part of our group. Whilst the scale of our tied leased and tenanted business is expected to decline over the coming years, as we migrate assets to alternative operating models, we are confident that the quality of the retained Enterprise Publican Partnerships estate will be enhanced. Such quality enhancement will be delivered through the disposal of the poorer performing sites; continued capital investment in tied tenancies to drive enhanced retail offers; market-leading support from our highly trained regional managers; our plans to share the knowledge and experience we are gaining from our directly managed operations with our tied publicans; and our ability to leverage scale benefits from managed operations which can then be shared with our tied publicans. As at 30 September 2016, there were 4,470 pubs trading within the total leased and tenanted estate which delivered growth in like-for-like net income of 2.1% in the financial year. The improvement in trading performance has been achieved across all geographic regions within our estate throughout the year. It is particularly pleasing to see like-for-like net income growth being delivered across all regions with the north reporting growth for the first time in several years (up 1.1%). We have maintained our like-for-like net income growth in the Midlands (up 1.7%), and delivered strong growth in the south, (up 2.7%). We provide our tied leased and tenanted publicans with a broad range of services to help them operate their pubs efficiently and effectively. Where appropriate we also provide direct financial assistance to publicans. In the year we provided £5 million (2015: £6 million) of such assistance. As a consequence of the successful application of these initiatives we have further reduced the number of unplanned business failures, down 14% in the current year compared to the prior year. The proactive intervention of our regional managers to identify and then avoid these potential business failures is a key driver of the consistent improvements achieved in our like-for-like net income. Following the recent regulatory changes and specifically the introduction of the Market Rent Only (MRO) option for publicans there is now a degree of uncertainty with regard to the level of future income that we might earn from long-term tied leases. Therefore we no longer offer new tied leases for a period of greater than five years, we are unlikely to invest significantly in existing long-term tied leases and we more closely scrutinise such agreements at the time of renewal or assignment to protect our interests. We do offer a wide range of tied tenancy agreements to prospective publicans including our Beacon “managed tenancy”, for the competitive value wet-led retail offer, and our new Partnership Tenancy Plus, which we launched in the second half of the financial year.” 

Of its Enterprise Commercial Properties segment, the company stated: “We continue to expand our high quality commercial property portfolio operated within our Enterprise Commercial Properties business and in the financial year properties that traded as commercial properties throughout both this year and the prior year increased like-for-like net income by 3.8%. As at 30 September 2016 we had 273, and today we have 291, commercial properties, the vast majority of which trade as pubs on a free-of-tie basis. These properties have an annualised rental income of £18.0 million (with an average rent of £62,000) and were valued at 30 September 2016 at £208 million, resulting in a gross yield of 8.7%. On 7 June 2016 we sold a portfolio of 22 commercial properties which comprised of 17 pubs and 5 convenience stores geographically spread across England. The disposal generated £20 million of net proceeds, representing a 9% premium to the prior year-end book value and a 6.7% yield based upon the gross rental income of £1.34 million. The disposal package is typical of the type of assets we are now adding to our commercial property portfolio and therefore provides an indication of the inherent value of the portfolio. We expect to be operating around 400 to 450 commercial properties by 30 September 2017, although, as demonstrated by the recent disposal described above, growing the scale of our commercial property portfolio in itself is not our primary objective, and we will constantly assess opportunities to crystallise and capture value from this estate.”

Of its Managed Pubs segment, the company stated: “We are building the capability to operate a significant managed house business and we are pleased with the progress made to date. Greater operational control, complete transparency of all sales and cost lines and the use of consumer insights are giving us increased certainty over the returns achievable from these managed pubs. Utilising our segmentation model we have identified that our existing pub estate provides us with a robust pipeline for the future expansion of our managed retail formats and we are confident that the original target, set in May 2015, of a managed house estate comprising between 750 and 850 pubs by 2020 is deliverable.”

Of Craft Union Pub Company, the company stated: “Our largest managed house operation is the Craft Union business which operated 71 sites at 30 September 2016. It now operates 75 sites and we expect it to be operating around 170 sites by 30 September 2017. This business predominantly operates in the north of England, but is beginning to expand south and we expect its offer to appeal nationally. Currently, its offer is wet-led with quality beers, at affordable prices, served in local, well-invested, community pubs. The simplicity of the offer mitigates our execution risk and also improves the efficiency of our capital investment. As at 15 November 2016, we had 38 pubs operating within Craft Union that had traded for more than six months and these pubs are to-date generating average annualised site Ebitda of £92,000, from an average capital investment of £126,000, which delivers pre-tax returns of 36%. A number of these early sites have delivered exceptional trading performance which we may not be able to replicate as we extend our offer and accelerate the rollout programme. We would expect our Craft Union sites to generate site Ebitda in the range of £80,000 to £100,000 on average. After an average capital investment in the region of £100,000, we expect to yield returns on investment in excess of 20%.”

Of Bermondsey Pub Company, the company stated: “As at 30 September 2016 we operated 28 managed pubs within our Bermondsey business. As of today we operate 30 pubs and expect to have in the region of 50 pubs in this model by 30 September 2017. All of these Bermondsey pubs operate under our successful “Meeting House” format, an upper mid-market, mixed food and drink offer. During the year we trialled five Bermondsey sites operating under our “Friends and Family” format in the value-led, mixed food and drink segment. We found this market segment to be highly competitive, requiring significant investment and scale of operation in order to deliver adequate returns. We have therefore determined that this retail segment should not be a priority for our business and have subsequently either sold, let free-of-tie or converted the trial sites to an amended retail offer within our managed operations. At 15 November 2016 we had 11 pubs operating within our Bermondsey business that had traded for more than six months and these pubs are to-date generating average annualised site Ebitda of £116,000, from an average capital investment of £187,000, which delivers pre-tax returns of 25%. As we enhance our offers within the Bermondsey business we would expect the average capital investment to be in the region of £200,000 with average site Ebitda expected to grow to be in the range of £125,000 to £175,000, which we expect to yield returns on investment in excess of 15%.”

Of its Enterprise Managed Investments segment, it stated: “In some retail segments, pub operators have to be both innovative and highly flexible in order to be able to continually adapt more complex retail offers to the changing demands of consumers. Within our Managed Investments business we have developed a partnership model whereby we can work with carefully selected managed house operators to share in the benefits of trading certain high quality establishments in such retail segments. We entered our first such partnership with Hippo Inns, established with Rupert Clevely, founder of Geronimo Inns, and Hippo Inns currently has six pubs in operation. To date we have established four additional partnerships with the creation of: Mash Inns, a new venture with Laine Pub Group; Frontier Pubs, a venture with Food & Fuel; Hunky Dory Pubs in conjunction with Oakman Inns; and Marmalade Pub Company, a venture with the Marylebone Leisure Group. In aggregate these partnerships enable us to provide a broader range of consumer offers across a wider geographic market than we might have achieved on our own. As at 30 September 2016 we had eight pubs and today we have a total of 11 pubs trading under our various relationships and we expect to grow this model in the coming year such that by 30 September 2017 we expect to be operating with around ten partners and trading in the region of 30 pubs.”