Enterprise Inns chief executive Simon Townsend has told MCA the group’s “transformational strategy” remains on track as it evolves its managed business and drives like-for-like growth in its tenanted and leased estate.

Townsend spoke to MCA following the group’s preliminary results for the year to 30 September, which showed revenue up to £632m from £625m last year but EBITDA before exceptional items of down to £292m, from £296m.

Townsend said: “We laid out some ambitious plans in terms of the growth in our managed and commercial property businesses and the past year has seen us lay some really important ground work.”

He said the next year would see its Craft Union model expand across the UK with a simple food offer added to the offer. He said further operating formats would also be added to the Bermondsey estate.

He said he was pleased with the growth in like-for-like net income for the leased and tenanted estate of 2.1% (2015: 0.8%) and particularly the return to growth of the northern portfolio, with a 1.1% increase. There was also growth in the south of 2.7% and Midlands of 1.7%.

He said trading in first six weeks of this year was in line with expectation with no Brexit effect seen so far.

Since the pubs code came into force, Enterprise has had 94 approaches from publicans for an MRO quote out of 285 potential MRO trigger events. 

On the pubs code, the group said: ”The impact of MRO is expected to take effect over five years, as MRO trigger events are largely expected to arise through the cycle of five yearly rent reviews and agreement renewals, which apply only to our leases. As such, since the concept of MRO agreements was first announced in November 2014, we have worked hard to reduce our exposure to such longer-term leases and increase the proportion of our tied business operating under shorter-term tenancies where rent reviews and renewals do not apply. As at November 2014 we had 3,035 long-term lease agreements and this has reduced by 634 to 2,401 as at 30 September 2016.” 

As at 30 September 2016 the company operated 28 managed pubs within its Bermondsey managed house business. As of today it operates 30 pubs and expects to have in the region of 50 pubs in this model by the end of the financial year. All of these Bermondsey pubs operate under the company’s “Meeting House” format, an upper mid-market, mixed food and drink offer.

During the year the company trialled five Bermondsey sites operating under its “Friends and Family” format in the value-led, mixed food and drink segment. It said: “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, Enterprise had 11 pubs operating within its 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%.

It said: “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%.”

The company’s largest managed house operation Craft Union which operated 71 sites at the end of the financial year and 75 now. and  Enterprise expects there to be around 170 Craft Union sites by 30 September 2017. This business predominantly operates in the north of England, but is beginning to expand south and the company expects its offer to appeal nationally.

As at 15 November 2016, the company 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%.

Enterprise said: “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%.”

As at 30 September 2016 the company had eight pubs operating under its Managed Expert umbrella and today it has a total of 11 pubs trading under its various relationships. It expects to grow this model in the coming year such that by 30 September 2017 it expects to be operating with around 10 partners and trading in the region of 30 pubs.

Total capital investment in the year was £74m (2015: £69m), of which 57% was directed toward income growth opportunities (2015: 44%). The company targets Return on Investment (ROI) in excess of 15% on its growth oriented capital expenditure and achieved an average ROI of 22% (2015: 19%) on schemes delivered during the financial year.

The group’s commercial property portfolio showed like-for-like net income growth of 3.8%, with 291 properties now in the division. It expects to operate 400 to 450 commercial properties by the end of the current financial year.

In a statement with the update, Townsend 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.”  

To read MCA’s full interview with Simon Townsend see tomorrow’s Morning Notes 

 

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