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Article Excerpt
PARTICIPANTS
. Hubert Reid, Enterprise Inns Plc, Chairman . David George, Enterprise Inns Plc, CFO . Ted Tuppen, Enterprise Inns Plc, CEO . Simon Townsend, Enterprise Inns plc, COO . Jamie Rollo, Morgan Stanley, Analyst . Charles Winston, Redburn Partners, Analyst . Tim Ramskill, Dresdner Kleinwort, Analyst . Geof Collyer, Deutsche Bank, Analyst . Paul Hickman, KBC Peel Hunt, Analyst . Nick Thomas, RBS, Analyst . Ian Rennardson, Merrill Lynch, Analyst . Tim Barratt, Cazenove, Analyst
OVERVIEW
ETI.L reported adjusted EPS for year ending 09/30/08 of 39.2p.
FINANCIAL DATA
A. Key Data From Call 1. Adjusted EPS for year ending 09/30/08 = 39.2p. 2. Net assets at year-end = GBP1.7b. 3. Debt as of 09/30/08 = GBP3.8b.
PRESENTATION SUMMARY
S1. Financial Review (D.G.) 1. Highlights: 1. 2008 has been a difficult year for pubs. 1. In 1H, suffered impact of smoking ban through winter months. 2. In 2H, pubs have had to content the falling consumer spending due to recession. 2. EBITDA in the year at GBP512m, down 3% from prior year. 1. EBITDA in 2H of GBP256m, same level as in 1H. 3. PBT fell by 13% YonY due to higher interest costs. 4. Adjusted EPS of 39.2p, 1% lower than prior year. 5. Full-year dividend payments of 16.2p, 4% higher than prior year and this covered 2.4 times based on an adjusted EPS. 6. Believes, ETI.L has flexible financing structure in place. 2. EBITDA: 1. EBITDA at GBP512m, 3% down on prior year. 1. EBITDA in 2H of GBP256m, 5% down on last year's 2H EBITDA of GBP270m. 2. Trading conditions worsened through the year as consumer spending fell. 1. Not helped by another poor summer. 3. Cost of support given to licensees doubled in 2H to almost GBP6m. 1. Provided GBP9m support to licensees in the full year. 4. Gross profit of GBP544m, 3% below last year, but Co. had GBP2m of overhead cost savings. 5. In 1H06/07, completed minor internal reorganization, which saved some GBP2m of overhead costs. 3. P&L: 1. Adjusted EPS fell 1% on prior year. 2. Tax rate of 26% is below the rate expected to apply when reported at half-year. 1. As Co. [fell within closed], most tax enquiries relating to 2004 or 2005, ETI.L has not received any enquiries in respect to 2006. 3. Expects corporation tax rate of 28% will apply in 2009. 4. GM Analysis: 1. Margin on beer sales before discounts continued to move forward by 0.5 percentage point YonY. 1. Despite the fact that lower proportion of lager and cider sales costs Co. some GBP3m to profit. 2. Giving increased discounts to licensees. 1. About two-thirds of the support given to licensees was in the form of discounts as part of business recovery initiative. 1. This is a GBP6m of discretionary discounts. 2. Remaining GBP3m of support for licensees was in the form of rent concessions. 3. Rental income, although only 1% down in the year, was 4% down in 2H. 1. In 2H, rental fell by 4% reflecting a robust stands taken in terminating agreements with licensees who do not comply with their contractual obligations and cost of support given to licensees struggling, despite their hard work and best efforts. 2. This low level of rental at the start of new financial year will adversely impact on rental income in 2009. 5. Cash Flow Statement: 1. Operating cash flow in the year of GBP536m increased YonY with about GBP25m of favorable working capital movements. 2. Operating cash inflow in the period after mandatory interest and tax payments was GBP213m and after discretionary payments in respect of CapEx and dividends was some GBP62m. 6. Balance Sheet: 1. Net assets at year-end, GBP1.7b, an increase of GBP0.2b. 2. Pub estate increased in value by GBP0.2b to GBP5.9b with half this increase coming through CapEx into estate and other half being a 1% increase in valuation. 1. Valuation is based on sum of individual pub values without the addition of lotting premium and have used additional conservative pub values. 3. With GBP3.8b of debt, loan-to-value ratio has marginally improved to 64%. 4. Market conditions did deteriorate in 2H. 7. Financing Structure: 1. Underlying net debt has reduced by small amount to GBP3,704m. 1. This comprises GBP3,802m of gross debt, net of GBP98m of cash. 2. Underlying net debt is a key measure of debt, excluding non-cash items such as mark-to-market of interest rate swaps. 2. Weighted avg. Life & Cost of Debt: 1. Debt facilities cover short, medium and long-term requirements. 2. 89% of Group debt is fixed at an avg. interest rate of 6.5% for an avg. period of ten years. 3. First major refinancing requirement is GBP1b bank facility, which matures in May 2011. 4. Monitoring bank conditions very closely. 3. Three Pronged Financing: 1. Has three elements of debt: 1. Bank borrowings of GBP1b. 2. A corporate bond portfolio of GBP1.2b. 3. Securitized bonds within Unique securitization of GBP1.6b. 2. Each element of debt has attractive features. 1. It is a combination of all three that provides maximum flexibility. 3. Pubs can be transferred for security purposes between portfolios securing corporate bonds and bank debt. 1. If pubs are sold by Unique, then proceeds can be used for CapEx or to repay debt within securitization. 4. Can transfer pubs into an active security for corporate bonds as necessary. 1. Has aggregate headroom of GBP551m, a total pub valuation of GBP3.2b. 2. Pubs will have to fall in value by 17% for Co. runs out of excess asset cover. 4. Bank Debt: 1. During year, replaced GBP100m uncommitted bank facility with GBP100m committed facility. 1. GBP69m of this facility was undrawn at year-end. 2. Has GBP25m working capital overdraft facility. 1. Can arrange additional borrowings of up to GBP100m, if Co. wishes. 3. There are four covenants applicable to GBP1b facility. 1. Has significant headroom to all covenants. 4. EBITDA includes dividends of GBP70m per annum received from Unique. 5. Interest cover ratio has fallen, reflecting step up in debt and interest costs in 2008, which will not recover in 2009. 6. Headroom to other covenants has not changed significantly in the year. 1. Carefully reviews financial forecasts each month to ensure ongoing covenant compliance. 5. Corporate Bonds: 1. Ahead of all covenants with exception of Bond 2 where Co. has specifically managed actual income cover to match covenant. 2. Primary security of bondholders is a first charge over a portfolio of pubs for each bond. 3. All pubs are independently valued at year-end...
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