Enterprise Inns whittles away at debt mountain

Interim earnings at pubs group Enterprise Inns were a few fluid ounces of a full pint but the market was cheered by the group's rapidly improving debt position.

Profit before tax, excluding exceptional items, in the six months to March 31st slipped to £64m from £74m the year before, and were some way below the £69.0m expected by the market.

Earnings before interest, tax, depreciation and amortisation retreated to £168m from £179m at the interim stage last year.

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Adjusted earnings per share declined to 9.6p from 10.8p a year ago and were below the 10.2p expected by the market.

Revenue was little changed at £342m from £346m the year before. The good news on this front is that like-for-like (LFL) net income in what the group calls its "substantive estate" - the pubs it wants to keep - was up 1.5% in the first half of the fiscal year, having been down 1.5% year-on-year in the corresponding period a year earlier.

Unfortunately, the less desirable part of the group's estate dragged down the performance such that LFL net income for the total estate was down 1.6%, though this was an improvement on the 5.0% decline suffered in the first half of last year.

The non-substantive estate includes some 155 pubs which are currently operating under, or planned for conversion to, the group's Beacon managed tenancy format. On average Beacon conversions deliver a 30% improvement in pub income compared to the three month period prior to conversion.

Strong cash flows from operating activities and its asset disposal programme further reduced the overall level of borrowings to £2.91bn, from £3.13bn a year earlier, with net bank debt reduced to £397m.

The group has commenced discussions with its bank group with a view to extending our bank facilities beyond December 2013.

The group raised £89m from the sale of unwanted pubs in the period. For the full year the group expects to deliver total disposal proceeds of around £200m, followed by a further £150m next year.

Over a two-year period to September 30th 2011 the group raised around £264m from the sale of 1,045 pubs. Enterprise Inns has written down the value of pubs moved to assets held for resale by £16m (2011: £45 million) of which £10m (2011: £32 million) was charged to the income statement.

Chief executive and founder of the company Ted Tuppen said the second half of the trading year has started well, and although market conditions are expected to remain challenging, the pub trade seems certain to benefit from the royal jubilee celebrations and the Olympics taking place in the UK this year, as well as the Euro 2012 football championships, although Tuppen was probably going a bit too far with the optimism when he suggested that Euro 2012 would offer the chance for "communities to gather in their local pubs and celebrate national success."

"As we continue to move the business back into growth, we remain confident that, in the medium term, we will be in a good position to deliver positive returns to shareholders," Tuppen said.

The board believes that, given current economic uncertainty, it is not appropriate to resume the payment of dividends at this time, which will have come as no surprise to the market.

The shares rose 0.75p to 68.75p in early trading on the morning of the results announcement.

JH