Interim Results: 31 March

Transcription

1 Interim Results: 31 March

2 Introduction Robert Walker Chairman

3 Overview Simon Townsend Chief Executive Officer

4 Highlights Trading performance Pubs Average annualised net income per pub Building a quality portfolio Average annualised net income per property Pubs Return on investment Pubs Partners 3, % % % Like-for-like net income up by 0.6% Average annualised net income of 80,900 per pub Expanding and enhancing quality Average annualised net income of 68,600 per property 223 Craft Union 53 Bermondsey Maturing returns from conversions Average annualised site EBITDA of 99,000 per pub Expanding pub numbers Average annualised site EBITDA of 198,000 per pub Broad mix of operating styles Net asset value per share up 8% to 3.26 (H1 2017: 3.01) 3

5 4 Financial & Trading Review Neil Smith Chief Financial Officer

6 Income statement Maintaining growth momentum in underlying EPS 6 months to 31 March months to 31 March 2017 Year to 30 Sept 2017 m Underlying Underlying Underlying EBITDA Depreciation (9) (8) (17) Operating profit Finance costs (73) (75) (149) Profit before tax Taxation (10) (11) (22) Profit after tax Underlying EPS (p) Weighted average no. of shares (m) Non-underlying items detailed on slide 10 5

7 Segmental analysis Like-for-like growth maintained in EiPP and increasing contribution from managed and commercial properties 6 months ending 31 March m 2018 Movement 2017 Change % EiPP like-for-like net income % Disposals 1 (4) 5 Non like-for-like net income/(costs) - (8) 8 EiPP total net income 151 (11) 162 Commercial properties Managed Group net income 175 (1) 176 Property costs (15) - (15) Total Publican Partnerships like-for-like net income growth of 0.6% Beginning to see growing contribution from commercial and managed businesses Translates to EBITDA reduction of 0.7% due to asset disposals, with trading pub numbers down 194 (4.1%) vs H Administrative expenses (21) - (21) Underlying EBITDA 139 (1) 140 (0.7)% 6

8 H1 FY17 LfL net income Beer income Discounts H1 FY18 LfL net income EiPP like-for-like net income up 0.6% Stable rental income and continued growth in beer income 3 (2) Sales-led improvement with growing income from beer, aided by discounts Stable rental income No increase in discretionary support: stable at 2m Full detailed analysis included as appendix 2 7

9 Unplanned business failures Keeping on top of unplanned business failures Number of unplanned business failures Only 30 unplanned business failures in the first half, or 1.3% of the estate Regional teams remain vigilant in identification of early warning signs Tied publicans can be offered extended credit terms to ease pressures H1 17 H1 18 8

10 EiPP regional performance Growth in the South, broadly flat elsewhere 6 months ended 31 March Location No. of pubs Net income H m % H m Yearon-year change % North 1, (0.5) Midlands (0.4) South 2, Total 3,

11 Non-underlying items Materially reduced from last year due to absence of refinancing charges 6 months ended 31 March m Property charges: Valuation change on sold pubs/future sales 6 8 Disposals (2) (6) Goodwill allocated to disposals 4 7 Property charges 8 9 Finance charges 1 30 Other charges 3 5 Taxation (2) (8) Total non-underlying charges Property charges in line with last year and relate to impact of asset disposals Finance charges last year relate to early redemption costs associated with 250m bond refinancing Other charges primarily relate to surrender premiums 10

12 Strong operational cash generation Enabling investment, debt reduction and share buyback m 6 months ending 31 March months ending 31 March 2017 Year ending 30 Sept 2017 Operating profit Depreciation and amortisation Movement in working capital (11) (9) (1) Operating cash inflow Interest (72) (78) (149) Tax - (9) (16) Free cash flow pre-investment Disposals Free cash flow to allocate Capital investment (42) (35) (80) Debt amortisation (40) (38) (77) Financing charges/bond purchases (5) - (33) Other - (1) 1 Excess cash flow Operating cash inflow remains strong at 125m Interest outflow reducing in line with debt reduction Repayments received in respect of prior year tax offset current year cash payments Forecast full year excess cash flow of 20m has been utilised to fund share buyback 11

13 Improving estate quality Reinvesting disposal proceeds to enhance returns H1 FY18 34m Disposals Disposal proceeds of 34m includes; 83 largely under-performing pubs Investment Growth Growth investment: 22m Publican Partnerships 9m Letting & maintenance No. of schemes 42m Average investment ( k) high value disposals, 52% of capital investment focused on growth driving initiatives 228 pubs in the estate enjoyed significant growth investment 17% ROI on growth driving investment schemes Managed 13m

14 Loan to value at 54% (58% excluding lotting premium) Bank debt Convertible bonds Corporate bonds Securitised bonds Net debt Assets Lotting premium Total 40m securitised bonds repaid in period through amortisation Bank debt drawn 75m, net of cash at 31 March 2018 was 48m Total available bank facilities of 190m providing sufficient headroom to repay 100m corporate bond due December 2018 Group ratios H Leverage 7.3x 7.4x 7.5x 7.8x 8.0x Interest cover 1.9x 1.9x 1.9x 1.9x 1.8x 13

15 Capital allocation framework As at 15 May 2018 Framework Status at May Define priority calls on cash flow To determine excess cash available 2. Use of excess cash Leverage reduction/management versus investment or returns Forecast excess cash for FY2018 of 20m has been used to purchase and cancel 15 million shares at an average share price of Use the rate of return model To evaluate additional investment or returns to shareholders 14

16 2018 Financial guidance Unchanged from November preliminary results Targeting full year like-for-like net income growth in EiPP and EiCP Total underlying administrative charges of c. 43m - 44m Full year underlying interest costs of c. 144m - 146m Full year underlying effective tax rate c. 18.0% % Disposals of c. 60m - 70m Capital investment of c. 80m 15

17 16 Operational & Strategic Review Simon Townsend

18 Creating value for stakeholders Evolving business Robust core Ei Group plc The core tenets of our strategy for value creation remain unchanged Cash generative, largely freehold asset-backed business Consistent financial performance delivering stable returns Transition of assets to optimum use is business as usual Proactive portfolio management to create and release value Highly disciplined and returns-driven management Operational and financial strategy will continue to unlock value from our asset base Cash generation and monetisation will optimise returns for all stakeholders 17

19 Evolution of our business Strategic development is now normal operational execution BUILD EXECUTE MONETISE Publican Partnerships Stabilise and grow core estate MRO infrastructure Optimise estate under tenancy & lease Flexible MRO options Drive growth in income, cash and NAV Managed Pubs Build in-house capabilities Develop business models Identify investment partners Improving trading performance Enhance in-house capabilities Monetise value from investment structures Commercial Properties Evolve legacy portfolio Selective disposals to enhance quality MRO transition Drive returns and NAV Focus on quality not quantity Monetise value Capital Allocation Framework Strengthen balance sheet through deleverage Opportunistic shareholder returns Optimise capital structure Utilisation of surplus cash Sustainable capital structure Regular returns to shareholders Our business objective is to drive returns to shareholders 18

20 Refining our approach Our flexible business model allows us to respond to changing environment Market conditions Influencing factors Inflationary environment Casual dining over supply Ei response Early exit from friends and family managed concept Focus on core strength of wet-led pubs Quality not quantity Lower MRO take up as vast majority of tied publicans remain tied Reduced failure rate and slow down of assignment market limits availability Adjust Commercial Property rate of growth Adjust Managed Operations rate of growth Simplification and efficiency Focus on core pub operations Consolidate where possible to simplify back office support Establish normalised pipeline approach to conversions to drive efficiency Combine Managed Operations of Bermondsey and Craft Union Efficient conversion pipeline established to deliver c.125 managed sites per annum 19

21 Strategic execution at 31 March 2018 Transition of assets to optimum use Premium (43) (53) (351) Wet led (3,856) Food led (223) Value Trading estate (nos.) March 2018 Sept 2017 EiPP 3,856 4,051 EiMO & EiMI EiCP Total trading 4,526 4,638 20

22 Value creation through new operating models Indicative business unit composition 2020 Sites As at 30 Sept 2017 Site EBITDA As at 31 March 2018 Sites Site EBITDA Updated indicative profile 30 Sept 2020 Sites Site EBITDA Publican Partnerships 4,051 80k 3,856 81k 3, k Commercial Properties k k k Managed Operations k k* k Managed Investments k k* k Quality asset selection Efficient conversions Simplification of execution Note: Site EBITDA figures represent average annualised net income which exclude property and central overhead costs * Based on sites trading for greater than 6 months 21

23 Updated expectations for 2020 Clear distinction between pub operations and asset management Pub Operations Growing value through investment and asset optimisation Premium (c.100) Asset Management Creation of value through monetisation (c.3,050) (c.500) Wet led Food led (c.500) Value Total estate c. 4,150 22

24 Ei Publican Partnerships Tied leases and tenancies to protect and grow value Reinvigorated model Investment Invest where returns are more certain tenancies Utilise MRO investment waiver to make significant investment in selected new leases Support and efficiency Targeted support for tied tenancies and leases 28 Pub Principle Guides issued 40% of publicans ordering via new online platform Implications Utilise lease expiries to grow managed estate Share best practice and experience from managed operations 2018 expectations Sustain like-for-like net income growth Provide pipeline to managed and commercial properties 23

25 MRO - estate profile Most common MRO trigger events are rent review and renewal 6% (7%) 15% (13%) 43% of estate let on tied leases at 31 March % (10%) 9% (11%) 42% (41%) At next rent event: 6% have more than 10 years remaining 9% have between 5 and 10 years remaining 9% have up to 5 years remaining 19% where the next event is expiry of the lease 19% (18%) Commercial & managed Lease end Leases 5-10 yrs Tenancy Leases less than 5 yrs Leases over 10 years Note: Percentages shown in brackets on the chart state the position at 30 September

26 Management of MRO events Proactively addressing opportunities and risks Number of tied leases Since November 2014, we have 3,035 2,069 1,942 reduced long-term tied leases (> 5 years) from 3,035 to 1,942 (36%) at 31 March 2018 Number of events Nov-14 Sep-17 Mar-18 Actual Estimated We expect to reduce exposure to tied leases by c.10% per annum 990 lease rent review or agreement renewal events from 21July 2016 to 31 March 2018 FY 2016 FY 2017 FY 2018 Lease rent review Lease renewals Lease assignments Other events 25

27 MRO offers 990 potential trigger events from 21 July 2016 to 31 March 2018 MRO offers concluded MRO offers issued New tied deal New FOT terms agreed Other* Active MRO offers With Adjudicator or Independent Assessor In progress * Primarily represents pubs sold to Publicans or lease buybacks 26

28 Ei Managed Operations Fully managed pub operations to grow value 2018 expectations c pubs operational National geographic presence 276 Managed pubs at 31 March 2018 (223 Craft Union and 53 Bermondsey) For 165 sites trading more than 6 months at 31 March 2018 Average capex of 157,000 Average weekly takings of 10,400 Average site EBITDA of 99,000 Average ROI of 21% Total ROCE of 11% Craft Union operation consists of wellinvested wet-led community pubs Bermondsey operations consist of mix of styles, largely wet-led, often retaining existing retail offer 27

29 Ei Managed Investments Partnering with exceptional retailers to create and monetise value 2018 expectations c partners c. 55 pubs 43 pubs operating at 31 March 2018 For 21 sites trading more than 6 months at 31 March Average capex of 431,000 Average weekly takings of 21,000 Average site EBITDA of 198,000 Average ROI of 16% Total ROCE of 13% Ten managed expert ventures provide broad range of offers Focus now is to grow scale of each venture with high quality additional pubs Quality of offering recognised by five winners of Most Loved Local in Time Out 2018 Awards 28

30 Ei Commercial Properties Attractive, high quality asset class capable of monetisation Profile of 351 estate as at 31 March 2018 Average annualised net income of 68,600 per site Average rent of estate is 70,000 Annualised rental income of 25 million Asset value of 289 million (8.5% yield) Yield of 7.7% on 305 freehold assets Average lease length 19 years Building a quality portfolio but retain flexibility to realise value 2018 full year expectations c.375 sites c. 70,000-72,000 average rent 29

31 Ei Group plc Evolved from strategy to business execution Our operating businesses are well placed to maintain our progress despite a more challenging industry-wide back drop We have embedded our strategic plan into our day-to-day business and have evolved our execution as an efficient portfolio manager We are executing the appropriate strategy to yield significant returns for shareholders Our financial guidance for FY18 remains unchanged 30

32 31 Questions and Answers

33 Appendices 1. EiPP operational metrics 2. EiPP like-for-like net income analysis 3. Supporting our publicans 4. Income statement 5. Balance sheet 6. Net debt analysis 7. EIG bank facility and term loan 8. EIG corporate bonds 9. Unique securitisation 10. Alternative performance measures 11. Forward-looking statements 32

34 Appendix 1 EiPP operational metrics 156 rent reviews completed at an average annual increase of 1.8% (H increase of 1.0%) 75% of substantive agreements linked to RPI (H %) 94% of publicans receiving contractual BCF discount (H %) Overdue balances increased to 0.9% of turnover, as we extend credit where appropriate (H %) Total discretionary support 2m (H m) Average length of occupation 7 years (H years) 33

35 Appendix 2 EiPP like-for-like net income analysis m Beer, cider & fabs Contractual discounts Net beer, cider and fabs Rental income Discretionary concessions Wines, spirits and minerals Machines and other Total H Turnover 204 (36) (2) Cost of sales (87) - (87) - - (9) - (96) Net income 117 (36) (2) H Turnover 201 (34) (2) Cost of sales (87) - (87) - - (8) - (95) Net income 114 (34) (2)

36 Appendix 3 Supporting our publicans Publican Recruitment & Training Operations & Property Suppliers & Range Marketing & Community Technology & Media Digital journey Applicant channel Social media Tailored events Applicant profiling/retention Bespoke training E-learning Dedicated field based Ops team Comprehensive Property support Targeted discretionary support H1: 2m Knowledge/best practice All major suppliers c. 500 brewers c. 1,700 product lines SIBA/Craft/Festivals Barrel Top/Beerista Booker E-market Retail marketing support Key events 28 Pub principles Ei Live c3,500 visitors across five venues Awards for excellence Royal British Legion Web presence Publican channel Online ordering Satellite offer Pub WIFI Yext 35

37 Appendix 4 Income statement 6 months to 31 March months to 31 March 2017 Year to 30 Sept 2017 m Underlying Total Non underlying Underlying Total Non Underlying Underlying Non Underlying EBITDA 139 (3) (5) (9) 278 Depreciation (9) - (9) (8) - (8) (17) - (17) Operating profit 130 (3) (5) (9) 261 Property related - (8) (8) - (9) (9) - (24) (24) Finance costs (73) (1) (74) (75) (30) (105) (149) (30) (179) Profit/(loss) before tax 57 (12) (44) (63) 58 Taxation (10) 2 (8) (11) 8 (3) (22) 18 (4) Profit/(loss) after tax 47 (10) (36) (45) 54 Underlying EPS (p) Total Weighted average no. of shares (m)

38 Appendix 5 Balance sheet m As at 31 March 2018 As at 31 March 2017 As at 30 Sept 2017 Goodwill Pubs and other assets 3,615 3,621 3,626 Net debt (2,088) (2,170) (2,110) Net other liabilities (141) (133) (149) Deferred tax (173) (182) (176) Net asset value 1,521 1,450 1,503 NAV per share

39 Appendix 6 Net debt analysis m As at 31 March 2018 As at 31 March 2017 As at 30 Sept 2017 EIG bank debt (75) (80) (55) EIG cash EIG net bank debt (48) (46) (29) Captive insurance cash Convertible bonds (97) (97) (97) Corporate bonds (1,125) (1,125) (1,125) Total EIG net debt (1,260) (1,256) (1,241) Unique securitised bonds (945) (1,028) (989) Unique cash Total Unique net debt (832) (920) (874) Underlying Group net debt (2,092) (2,176) (2,115) Fair value and other adjustments Group net debt (2,088) (2,170) (2,110) 38

40 Appendix 7 EIG bank facility and term loan Revolving credit bank facility Facility commenced October 2016 Term loan Facility commenced September 2017 Undrawn commitment fee fixed at 1.00% Amount Cost over LIBOR Expiry Status Amount Drawn cost over LIBOR Expiry Status 140m 3.00% August 2020 Fully revolving, no amortisation 50m 3.10% % July 2020 Currently undrawn, no amortisation Covenant As at 31 March 2018 As at 31 March 2017 Interest cover greater than 1.50x 1.89x 1.91x First charge asset cover greater than Total property asset cover greater than 1.33x 4.81x 5.18x 1.50x 14.89x 14.55x 39

41 Appendix 8 EIG corporate bonds Value Rate Redemption Covenants Asset cover Market price 31 March Income cover m 6.500% x 2.0x m 6.875% x 1.5x m 6.375% x 2.0x m 6.000% x 2.0x m 6.875% x 1.5x m 6.375% x 1.5x ,125m 40

42 Appendix 9 Unique securitisation Amortisation in the period - 30m of A3 notes and 10m of A4 notes Purchased and cancelled 4m of A4 notes 78m ahead of amortisation schedule Value Rate Note Final redemption Market price 31 March m 6.542% A m 5.659% A m 7.395% M m 6.464% N m 41

43 Appendix 10 Alternative performance measures Like-for-like Publican Partnerships net income - represents the likefor-like pub level profits from our Publican Partnerships estate, for all pubs that traded as Publican Partnerships pubs for the six months to the 31 March 2018 and also in the six months to 31 March 2017, stated before property costs and central costs Like-for-like Commercial Properties net income - represents the like-for-like asset level rental income from our Commercial Properties estate, for all assets that traded as commercial properties for the six months to the 31 March 2018 and also in the six months to 31 March 2017, stated before property costs and central costs. Annualised average net income per pub represents the annualised net income (turnover less discounts less cost of sales) for EiPP assets trading at 31 March 2018 divided by the total EiPP assets trading at 31 March 2018 Annualised average net income per property represents the annualised net income (turnover less cost of sales) for EiCP assets trading at 31 March 2018 divided by the total EiCP assets trading at 31 March 2018 Managed like-for-like sales represents the like-for-like sales performance from our Managed estate for those pubs that traded post investment in a managed format for the for the six months to the 31 March 2018 and also in the six months to 31 March 2017 Excess cash flow - represents operating cash flow less interest paid, taxation paid, plus net cash flow from investing activities less scheduled debt amortisation, debt restructuring and open market debt purchases EBITDA - represents the earnings before finance costs, taxation, depreciation and amortisation Underlying EBITDA - represents earnings before finance costs, taxation, depreciation and amortisation excluding non-underlying items. Non-underlying items that are excluded from underlying EBITDA include reorganisation costs and assignment premiums paid to a publican in order to take the assignment of a lease or to break a lease at any point other than at renewal during the period of our strategic review Underlying profit before tax - excludes non-underlying items. Nonunderlying items excluded from profit before tax include reorganisation costs, assignment premiums paid to a publican in order to take the assignment of a lease or to break a lease at any point other than at renewal during the period of our strategic review, the profit/loss on sale of property, plant and equipment, the movement in valuation of the estate and related assets, costs incurred in respect of refinancing and the gain/loss on purchase of own debt Underlying earnings per share - is based on profits after tax excluding non-underlying items as explained above Growth driving capital investment - is discretionary capital cash spend on the Group s assets which is intended to generate incremental income at returns ahead of our target return on investment Letting & maintenance capital investment - is all capital cash spend that is not growth driving capital investment, typically focused on maintaining the quality of our assets and supporting the letting programme Return on investment - is measured as the incremental income delivered as a result of the investment divided by the value of the capital investment Unplanned business failures - are all lease and tenancy agreements that do not reach their full-term, where failure is not through the mutual agreement of ourselves and the departing publican. For example, through publican abandonment or via legal proceedings 42

44 Appendix 11 Forward-looking statements This document contains statements that are, or may be deemed to be, forward-looking statements which are prospective in nature. These forward-looking statements may be identified by the use of forward-looking terminology, or the negative thereof such as plans, expects or does not expect, is expected, continues, assumes, is subject to, budget, scheduled, estimates, aims, forecasts, risks, intends, positioned, predicts, anticipates or does not anticipate, or believes, or variations of such words or comparable terminology and phrases or statements that certain actions, events or results may, could, should, shall, would, might or will be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are not based on historical facts, but rather on current predictions, expectations, beliefs, opinions, plans, objectives, goals, intentions and projections about future events, results of operations, prospects, financial condition and discussions of strategy. By their nature, forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of Ei Group plc. Forward-looking statements are not guarantees of future performance and may and often do differ materially from actual results. Important factors that could cause these uncertainties include, but are not limited to, those discussed in the 2017 Annual Report and Accounts of Ei Group plc and Principal risks and uncertainties in the 2018 Interim Results of Ei Group plc. Neither Ei Group plc nor any of its subsidiaries or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. You are cautioned not to place undue reliance on these forward-looking statements which only speak as of the date of this document. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation, the Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Ei Group plc is not under any obligation and Ei Group plc and its subsidiaries expressly disclaim any intention, obligation or undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of Ei Group plc since the date of this document or that the information contained herein is correct as at any time subsequent to its date. No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Ei Group share for the current or future financial years would necessarily match or exceed the historical published earnings per Ei Group plc share. This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this presentation does not constitute a recommendation regarding any securities. 43