Enterprise Inns chief executive Simon Townsend talks to MCA on the back of the group’s performance in the first half of this financial year. He stresses that the transition period for implementation of the pubs code should be several months, sets out how the Partnership Tenancy Plus offer will work and explains how Laine Pub Company will be helping to develop the Craft Union managed estate.
Evolution of strategy
Townsend said that the company’s evolving strategy centred around the belief that “the tied tenanted and leased model alone was not enough to meet our objectives” leading to the creation of a number of new retail propositions.
The company will still invest in tenancies but chief financial officer Neil Smith said it is “unlikely to invest in leased pubs as we can no longer be certain of returns on our investments”. There will also be no new tied leases available.
Townsend said: “We are allowing different business units to compete for assets as and when they become available and we’re making assessments based on returns to determine which path to follow and where to allocate capital.”
He stressed that the leased and tenanted part of the business would continue to make up the bulk of the estate into the immediate future, although it would almost halve in size by 2020. He said the Partnership Tenancy Plus offer was aimed at strengthening the offer to licensees with Enterprise taken on a greater share of repairing responsibility and also matching on a pound-for-pound basis the publican’s investment in the site, where this was deemed appropriate. Townsend said it would also offer an “industry leading product range” and free of tie on wines and spirits.
The offer is to be tested in 50 new lettings in the second half of the year.
Townsend told MCA: “We think this package shows very transparently to a publican that we will work with them to put their pub in the best possible position. We now intend to test it in the next six months to fully understand its attractiveness and make sure it works well for everyone. Beyond that, we will see what the scope for expansion of it is.”
Pubs code
Townsend said that the delay to the pubs code allows both pub companies and tenant groups the opportunity “to contribute to any further thinking by the Government”. He said he hoped it would lead to the Government introducing a reasonable transition period of several months.
He told MCA: “There is a great deal of detail here and that detail has changed on a number of occasions during the consultation. The only thing that matters is that pub companies, publicans, the adjudicator are all able to implement this new regime clearly and fairly. To ensure that is possible a transition period of a matter of months, which allows everyone to learn as they go and training to be properly implemented, is entirely reasonable. It is specified in the act that the adjudicator publishes guidance on the implementation of the act and there hasn’t been the opportunity for that yet.”
Reform campaigners have called on the major pubcos to respect the initial implementation date of 26 May or ensure the code is enacted retrospectively.
Townsend said: “It would be inappropriate to make any commitment on any decisions when we still have to see the final details. Both ourselves and our publicans can only make informed decisions when we have all the facts to hand.”
Speaking to investors at a presentation yesterday, Townsend said: “We have established a team of specialist negotiators within our existing operations team who will take full account of our preferred outcome on the occasion of each event including where intend to transition pubs out of our tied estate into one of our other operating models.
“We don’t know how many tied tenants will opt for MRO but while there are some risks and uncertainties of the legislation there are also a range of mitigating factors which allow us to minimise the risk we face.
“The next event in some 700 leases is expiry and we will be actively occupying pubs under management at the end of a lease, as we are entitled to do. Some 500 leases will become available through assignment over the next couple of years, which gives us the opportunity to negotiate new terms with the buyers of these businesses and we may choose to acquire the businesses ourselves four our managed house operations. In some 800 pubs the beer volumes at risk are so low that a commercial free-of-tie agreement may actually be the optimal outcome anyway.”
Managed operations
Townsend said he expected the Manged Investments estate to more than double before the end of the year. The original partnership with Rupert Clevely in Hippo Inns is due to open another two sites in H2 while there are also likely to be two sites each for Mash Inns, the joint venture with Laine Pub Company, and Frontier Pubs, with the Karen Jones-led Food & Fuel.
Townsend also explained to MCA how Laine would be helping the Craft Union estate.
He said: “The advice and the value Laine will be providing to us in Craft Union will centre around food. They have developed in wet-led businesses a very good array of food offers. Craft Union is currently entirely wet-led but we believe it has appeal across the country and we are already moving it beyond the north and think that a food offer attached to a wet-led business will be important over time.”
The company’s projections show it hopes to up to five partners by the end of the financial year, growing to 10 by 2017, however Townsend said there was not an ultimate target number of partners.
He said the group’s original estimates of 800 managed sites by 2020 remained achievable and were likely to be split into 500 Craft Union pubs, 200 Bermondsey and 100 Managed Investments.
The company will explore a second retail concept within its Bermondsey estate, after admitting that its value-led Friends and Family offer had not achieved the desired level of returns. The five sites operating under the model will be reassessed.
Disposals
Alongside yesterday’s H1 results, Enterprise revealed it had signed an unconditional contract for the sale of 22 sites from the commercial property portfolio for £20m.
On further disposals from the portfolio, Townsend said: “In the commercial property business while scale and quality of earnings is the prime objective, we will take opportunities to monetise the value we have created as we have done with these 22 pubs.”
