Ei Group, formerly Enterprise Inns, has reported a 1.6% increase in like-for-like net income across its tenanted and leased estate for the six months ended 31 March 2017.
The company said it was performing well with all operations maintaining like-for-like growth momentum and that its strategic evolution was on track.
Group revenue climbed from £305m to £310m, whilst underlying EBITDAfor the six months stood at £140m (H1 2016: £142m), which the company said was in line with expectations and reflected the impact of planned disposals.
Underlying profit before tax was £57m (H1 2016: £57m) as interest savings from reduced debt offset reduction in EBITDA.
Statutory profit after tax reduced to £10m (H1 2016: £33m), primarily due to non-underlying finance costs of £30m (H1 2016: £7 million) associated with, previously announced, partial refinancing of the 2018 corporate bonds which delivered “smoother and extended debt maturity profile”.
Net proceeds from disposals stood at of £65m (H1 2016: £27m).
Total capital investment during the period was £35m (H1 2016: £30m) with 57% focused on growth-driving investment schemes (H1 2016: 50%). Average pre-tax returns on all such investment of 21% (H1 2016: 19%).
Simon Townsend, chief executive, said: “We are pleased to have maintained the growth momentum in our leased and tenanted estate while making significant progress in building our commercial property portfolio and managed businesses. Our transformation of the group remains on track.
“Trading in the first six weeks of the second half of the year has been strong, assisted by the timing of the Easter holiday period. We expect our trading performance to reflect more challenging comparatives in June and July as we benefited from the UEFA Euro football championship last year. We are mindful of the potential for continuing economic uncertainty over the coming months, and remain vigilant regarding possible headwinds from the Pubs Code depending upon its interpretation and application.
“Whilst taking into account these factors, we are confident that we will continue to deliver positive like-for-like net income growth in our leased, tenanted and commercial estates for the full year, we are encouraged by the trading performance of our expanding portfolio of managed houses, and we remain committed to the successful implementation of our strategic plan to deliver long-term growth in shareholder value.”
Leased & Tenanted estate
Publican Partnerships contributed £162m (H1 2016: £167m) to the underlying EBITDA of the group reported in the first half of the year.
As at 31 March 2017, the company had 4,283 pubs trading within the leased and tenanted estate and have grown their like-for-like net income by 1.6% through the first six months of the financial year. The company said that the improvement in trading performance has been achieved across its estate and was delivered despite the benefit of an early Easter holiday period assisting the prior year comparative.
It said: “It is pleasing to see like-for-like net income growth being delivered across the country with pubs in the North sustaining the positive momentum that was achieved last year, with further growth (up 1.2%). We have maintained our like-for-like net income growth in the Midlands (up 1.4%) and delivered strong growth in the South (up 1.9%).”
MRO
From the date of the implementation of the new Pubs Code, the company said there has been 499 rent review or agreement renewal events which could potentially have triggered an MRO request.
It said: “We have issued 171 MRO offers of which 59 have been concluded by way of mutually agreed tied deals, which we estimate will result in no significant change in our net income; 4 have been concluded with new mutually agreed free-of-tie agreements, which we estimate may result in a 18% reduction in our net income; two pubs have since been sold and one lease has been repurchased from the occupational tenant. The balance of 105 have yet to be concluded. Of these, 61 have been referred to the Pubs Code Adjudicator for determination. It is our working assumption that the majority of those cases which have been referred to the Adjudicator will ultimately lead to new, free-of-tie agreements being granted. We remain vigilant to the trends evolving and the impact on our business which has been limited to date.”
Commercial Properties
The company’s c300-strong Commercial Properties division contributed £9m (H1 2016: £7m) to the underlying EBITDA of the group reported in the first half of the year, with sites that traded as commercial properties throughout both this year and the prior year delivering like-for-like net income growth of 1.1%.
On 16 March 2017, the company sold a package of 18 commercial properties to investment clients of OLIM Property which comprised 13 pubs and 5 convenience stores geographically spread across England. The transaction generated £20m of net proceeds, representing a 15% premium to the prior year-end book value and a 6.57% yield based upon the gross rental income of £1.33m. The company said that this package disposal demonstrated the “inherent realisable value of the portfolio”. Coffer Corporate Leisure acted on the deal.
Managed Operations: Craft Union Pub Company
The company’s Craft Union business operated 100 sites at 31 March 2017. It now operates 122 sites and EIGs expect it to be operating around 165-175 sites by 30 September 2017. This business predominantly operates in the north of England, but has expanded into the Midlands and the south coast, and the company expects 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 group said it was in the process of trialling a very simple food offer within three Craft Union sites to assess the operational implications and the financial benefits of a more extensive consumer offer.
As at 31 March 2017, it had 57 pubs operating within the Craft Union business that had traded for more than six months. To date, these pubs are generating average annualised site EBITDA of £87,000, from an average capital investment of £134,000, and a ROI of 26%. As the estate matures and the concept further develops the consumer offer, EIG expects Craft Union sites to generate average site EBITDA in the range of £80,000 to £100,000. After an average capital investment in the region of £100,000 to £120,000, it expects to deliver a ROI in excess of 20%.
Managed Operations: Bermondsey Pub Company
At 31 March 2017, the company operated 36 managed pubs within its Bermondsey business. As of today it operates 39 pubs and expect to have in the region of 45-50 pubs in this model by 30 September 2017. All of these Bermondsey pubs operate under its Meeting House format, an upper mid-market, mixed food and drink offer. During the last six months the company said it has tailored the Meeting House format to satisfy three specific consumer occasions such that we now have three defined trading offers: City Social, Upbeat Urban and Modern Local. We expect these additional classifications of trading offer to enhance our future site selection and investment decision analysis.
At 31 March 2017, it had 17 pubs operating within its Bermondsey business that had traded for more than six months. To date, these pubs are generating average annualised site EBITDA of £123,000, from an average capital investment of £197,000, which delivers a ROI of 25%. The group said that as it enhances its offer within the Bermondsey business it 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 it expects to deliver a ROI in excess of 15%.
Managed Investments
The company now has seven managed investment partnerships with the creation of: Hippo Inns, established with Rupert Clevely, founder of Geronimo Inns; Mash Inns, a venture with Laine Pub Group; Frontier Pubs, a venture with Food & Fuel; Hunky Dory Pubs in conjunction with Oakman Inns; Marmalade Pub Company, a venture with the Marylebone Leisure Group; Dirty Liquor, a venture with Hugh O’Boyle and Caroline Jones; and PubLove, a multi-site pub and boutique hostel operation.
As at 31 March 2017, it had 22 pubs operating under the venture and today it has a total of 24 pubs trading under its various relationships. The company plans to expand this model in the coming year such that by 30 September 2017 its expects to be operating with around nine partners and trading in the region of 30-35 pubs.
At 31 March 2017 the company had seven pubs operating within its Managed Investments business that had traded for more than six months and these pubs are to date generating average annualised site EBITDA of £261,000, from an average site capital investment of £685,000, which delivers a ROI, excluding the minority interest, of 18%.
The company said: “As we evolve and grow the mix of operators within the Managed Investments business we would expect the average capital investment to be in the region of £400,000 to £500,000 with average site EBITDA to be in the range of £150,000 to £250,000, which we expect to deliver a ROI in excess of 20%.”
The group said that trading in the first six weeks of the second half of the year has been strong, assisted by the timing of the Easter holiday period. However it said: “We expect trading performance to reflect more challenging comparatives in June and July as we benefited from the UEFA Euro football championship last year.
