Enterprise Inns to get tough on tie-breakers

Enterprise Inns' chief executive Ted Tuppen today pledged his company's support for what he called "deserving licensees", but warned those who breached the terms of their lease to expect tough treatment.

Announcing Enterprise's results for the year to September 30, 2008, which saw pre-tax profits fall more than 12 per cent but the dividend held, Tuppen said the group had spent £9m on a variety of support packages for its lessees. One might assume this figure could rise in the coming year as market conditions worsened, he added.

The majority of licensees complied with the terms of their agreements and worked closely with the company to improve the profitability of their pub, he said.

But he had a harsh message for those running his company's pubs who bought out of the tie.

"If people steal from us, which is what buying out of the tie is, we will give them a chance to repay us what they owe," he said.

"If they continue to buy out of the tie we will throw them out of the pub. When people take on a pub with us they sign a legal contract with clear visibility. Breaking the tie is a very serious matter."

Tuppen said the past 12 months had been "tough and challenging" for the group, with the range of issues affecting the industry being "well documented".

However he described the group's numbers as a "tribute to the resilience" of his company's people and pubs. "Our earnings per share is flat, which in this market is a good performance, and maintaining our dividend shows regard for our shareholders," he said.

"Good quality, stable licensees are doing pretty well," Tuppen added. Average pub earnings in the 82 per cent of its pubs on long term substantive lease or tenancy agreements had risen by two per cent to £73,000 a year.

However this left nearly 1,400 pubs where earnings had fallen, with one City analyst suggesting the average earnings decline could be as much as 25 per cent.

The group would look to sell around 200 pubs in the coming year, Tuppen said, and despite problems with the property market he was convinced the group would get decent prices for those assets it sold. He later told Reuters news agency he believed Enterprise would be able to raise between £50m and £100m via such a sale.

Commenting on the group's recent estate revaluation, which saw a "modest uplift" in value to £5.9bn, Tuppen said that since more than three quarters of the group's pubs had increased earnings "why shouldn't [the estate] increase in value? It's also obvious that the bottom end of our estate is not performing so well. But averages are dangerous numbers to use".

Enterprise said it had conducted 915 rent reviews during the year, with an average rental increase of 2.2 per cent per annum.

With many observers questioning the debt levels of companies like Enterprise, Tuppen said the group's banking syndicate was "very supportive".

"Clearly there are difficulties in the financial markets but we are putting in a debt reduction programme in place which will mean that we won't be looking for £1bn in May 2011 [when the current five year-facility terminates]," he said.

It was "realistic to recognise that banks would want to refinance a smaller amount", he added.

Meanwhile the torrid financial markets meant that moves to become a real estate investment trust (REIT) were predictably being put "on hold", Tuppen said.

As the BEC inquiry into the country's pubcos gets underway, Tuppen mounted a robust defence of his company's position. "We are purveyors of a legal contract. We believe we're entirely transparent and we will support those who are genuinely in need of it. We have no reason to feel guilty."

And as some called for the break-up of the pubco model and the power they are said to wield, Tuppen said companies like his were "far more sympathetic" to their licensees than would be a bank manager who owned a pub. "The rental cost is fair. We need to get that message across more," he said.

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Enterprise Inns results at-a-glance

Turnover: £880m (down 4.5 per cent)

Gross profit £544m (down 3.2 per cent)

Operating profit £502m (down 3.6 per cent)

Pre-tax/exceptionals profit £263m (down 12.6 per cent)

Earnings per share 39.2p (up one per cent)

Dividend per share 16.2p (up 3.8 per cent)