The group has also said it is using its new segmentation model to identify sites suitable for conversion to managed or disposal.
The company reported like-for-like sales growth of 0.8% for the year with a 1% rise in the final quarter. Growth was most significant in the south with Enterprise’s 661 Greater London pubs growing like-for-like sales by 3.1%.
EBITDA before exceptional items increased from £121m to £122m while revenue of £625m (down from £632m the year before).
Enterprise said it had reinvigorated its tied tenanted business with “improved underlying stability and growth momentum” and a further reduction in business failures. Across the year 260 pubs were disposed of, realising £75m (2014: £73m) of net proceeds.
The company said: “We have developed, with the support of LEK Consulting and Deloitte, a comprehensive segmentation model which allows our operational teams to assess the supply and demand dynamics of the local markets in which every one of our pubs is located. We have now started to utilise these consumer insights to inform recruitment and investment decisions, and to determine the optimal retail format in which each of our pubs could potentially operate.”
The company said it re-invested £69m (2014: £66m) in its estate during the year with 44% (2014: 41%) directed toward income enhancing opportunities. It targets Return on Investment (ROI) in excess of 15% on its growth oriented capital expenditure and has achieved an average ROI of 19% on such schemes completed in the last twelve months.
Enterprise said it is using its segmentation tools to identify assets that are under-performing and which have challenging local market conditions such that disposal becomes the optimum outcome.
On its managed estate it said: “Greater operational control, complete transparency of all sales and cost lines and the use of consumer insights are giving us greater certainty over the returns we can generate from these pubs, together with the opportunity to leverage best practice across the wider Enterprise estate. We have demonstrated how such attributes can be applied to great effect in smaller, wet-led pubs in our Beacon estate over the last few years, and are now applying these disciplines more widely.”
The company said its first pub under the Expert model – the JV with Rupert Clevely, Hippo Inns – had started well with The Signal in Forest Hill, on 8 October 2015. It has identified a further four sites which will convert to the Hippo trading format over the next year.
Enterprise is aiming to establish, at least, a further three Expert partnerships during 2016, with the objective of having around 8 to 12 sites in total operating in the Expert model by 30 September 2016.
It said the work with Clevely had shown the need to tailor agreements which suit the particular circumstances ofoperating partners, and as a result Enterprise has designed three variants of the commercial agreement to allow it to partner with both start-up and established businesses and to enable it to work alongside other investors.
Fourteen of the current managed houses are operated under the Bermondsey Pub Company, where sites have been identified using the segmentation tool.
There are currently eight operating in the “Meeting House” format - an upper mid-market, mixed food and drink offer. Four of these sites are in London and the South East. The “Friends & Family” format is currently operating six sites in the mid-market, mixed food and drink segment, predominantly in the North.
The average capital investment in these sites has been £159,000 to date, and the sites are currently achieving average weekly takings of £11,000. The expectation is to deliver returns in excess of our 15% ROI hurdle rate across this estate.
The company anticipates operating approximately 25 to 35 sites in the Bermondsey Pub Company by 30 September 2016.
There are 21 managed sites within the Craft Union Pub Company, which has developed a wet-led, good value, community pub offer operating in predominantly urban and neighbourhood locations.
The company said: “Conversion to this trading format is relatively straightforward and we are pleased with the performance of these outlets to date. Capital investment upon conversion has averaged £105,000, with a significant proportion of the expenditure directed towards high quality installations of sports-viewing audio visual equipment, and we are currently generating average weekly takings of £7,000 and returns on investment ahead of our 15% ROI hurdle rate.”
Enterprise said it had identified the requirement to recruit new expertise, particularly in such areas as retail operations, concept development, change programme management and systems and financial reporting.
On legislation in the tied pub sector, the company said it expected approximately 200 events that may potentially constitute an MRO (Market Rent Only offer) event under the new regulatory regime and some 600 such events per year thereafter.
The company said: “We have already started to address outstanding rent reviews and renewal discussions with publicans and have introduced strategies to mitigate potential MRO risks, as this often enables us to make assets available for alternative operating models where our returns can be optimised. Resolution can take many forms and can include renewals where the MRO risk has not been removed but has most likely been delayed until the next trigger event, usually five years later.
“In our management of these potential MRO events it is clear that many publicans recognise the value of working with us as our partner and appreciate the support and operational simplicity the tied tenanted model offers. Additionally they recognise the increased risk to their business associated with MRO as their operational gearing is significantly higher and their working capital funding needs increased.”
Commenting on the results, chief executive Simon Townsend said: “We are pleased to report further operational progress and a second, successive full year of like-for-like growth in net income across our leased, tenanted and free-of-tie estate. This has been achieved by maintaining a relentless focus on the many operational activities and initiatives with which we are supporting our publicans to improve their profitability. Trading in the first six weeks of the new financial year has been in line with our expectations and continues to maintain our growth momentum.
“While the market in which our pubs operate remains highly competitive, and as we prepare for the implementation of new legislation in 2016, we are encouraged by the continuing momentum of our business, reflecting the exceptional efforts of our publicans and the strength of our relationships with them.
“The implementation of our strategic plan is on track, providing us with greater flexibility with which to optimise returns from each of our assets and deliver greater value to our shareholders. Our managed house estate is being successfully expanded and our commercial property portfolio continues to grow in both scale and quality in line with our plans.
“We have attracted some outstanding talent to help us execute our new strategy. They bring a wealth of experience to complement the quality, loyalty and determination of the existing Enterprise team which, combined with the skills and expertise of our publicans, gives us confidence in the Group’s prospects.”