Simon Townsend... not quite a new broom...

So Ted Tuppen is to retire from his role as CEO of Enterprise Inns in 2014... here are his farewell remarks made to City analysts where he bigs up those he leaves behind...

“I feel like Sachin Tendulkar walking to the crease for the last time without the talent and without the adulation. So where have we got to on this journey to rehabilitation? It has been a good year after a tricky start ending with like-for-like growth in Quarter Four, a trend that’s continued in the first seven weeks of the year. You’ve heard from Simon Townsend how hard we are now working and the progress we are now making to deliver against this key like-for-like challenge for 2014. What have we achieved? Well, we have certainly dealt with Stage One. We have reduced our debts by well over £1billion with our bank overdraft now standing at just £41million net. This reduction in the level of our borrowings has been reflected in the increased value of the equity of our business and you will recall that we explained that in some charts last year – we would focus on paying down debt as we could see that creating real value for shareholders. 

We have successfully launched our £100million convertible bond, reducing the cash cost of our borrowings and extending the maturity thereof. We have a tax efficient structure and a manageable amortisation profile that will no longer require asset disposals to pay down debt - and that is hugely important. Getting the confidence of the market that we were going to continue to be here was probably going to be worth about £1 per share. 

So what next? Sustainable like-for-like growth in income per pub - we’ve done (that for) a quarter and we’ve done another seven weeks (since). But the key is to continue this, to deliver sustainable like-for-like income growth. The comparables for the coming year are reasonably helpful and all we have to do is deliver like-for-like income growth. The whole business is structured to deliver that growth and everyone in the company is aware of what we have to do to drive publican profitability and reduce the cost of business failures. Stage Two is being achieved and the sustainable bit is within reach and I think if we can deliver sustainable like-for-like income growth that ought to be worth £2 per share. 

To some extent we have already dealt with Stage Three. Subject to the impact of our historic disposal programme working its way out of the business over the next few years, we should now be in a position where, if we get like-for-like income growth and we efficiently recycle disposal proceeds back into the estate, we have a genuine expectation of delivering real EBITDA growth. EBITDA growth leads to additional cash generation, improving pub values, amortising debts and increasing value for shareholders. (We) reckon this ought to be worth at least £3 per share. And if you look at the share price over the last few years it’s been an interesting journey. The green line is our underlying asset value and I have to say, I’m pretty proud of the fact that during this very tumultuous, tempestuous period of the last few years we have managed to keep that green line pretty stable around about the £3 per share level. There was a moment of massive over excitement in 2006 as you can see by the black line - the level to which the share prices fell at around 25p. But the nice thing is if you just look at us getting control of things over the last three years you can see that we have moved from 88% discount to net asset value to a smaller number now. We are making real progress and we just have to continue that journey. 

Who is going to deliver the next part of that journey? I leave the board on 6 February and will be around for a while after that to just make sure the team are not distracted from those key operational tasks by the outcome of Vince Cable’s consultation. I have taken responsibility for dealing with that and will continue to do so. We have been building this succession infrastructure for a few years now and the board is confident that we have got it right. (Our finance director) Neil Smith has been with us for three years now, has had a tremendous impact on the business and has built real confidence amongst you and our institutions. James Croft, our property director, has been with Enterprise for ten years, first of all in finance roles. He has now been in charge of property for a couple of years and we have seen his robust approach have a very positive impact on the overall condition of the estate, through investment and enforcement, both of which are equally important. As well as driving our disposal programme and our capital expenditure programme towards a higher level of profit generation we have a very clear task - and that is to be able to use 60%, say, of our £60 million a year disposal proceeds for really driving the business forward, proper trade-generating capex. (Commercial director) 

Ed Cottrell, two years in, has had to deal with the collapse of WaverleyTBS and, at just the wrong time this September, had to deal with the strike and the work-to-rule by our major beer supplier, our only beer supplier. These have been very time-consuming and Ed has done a fantastic job. At the same time as dealing with these real crises, he has launched our Sky and BT entertainment packages, made available free Wi-Fi across the entire estate and, most importantly, built a team around him that will drive innovation and sales growth across the business. 

On the operations side, you’ll see that there won’t be a Chief Operating Officer (COO) because we have developed our three managing directors, Nick Light, Ian Ronayne and Kim Francis, to take on the roles of regional or sector COOs. So we have a COO North, a COO Midlands and a COO South. It has been their responsibility, with full understanding of the challenges, to make sure they have (created) a fully committed, skilled and effective team of divisional directors and regional managers, who completely ‘get it’ and who will deliver consistent improvement in publican ability, profitability and stability – in short, to deliver growth across their sector of the business. 

Finally, and most importantly, is Simon Townsend, who joined me in 1999 and joined the board in 2000 and became COO in 2006, just in time to get used to the job before the crash came. Simon has worked tirelessly and with great integrity as we have striven to keep our pubs open and our publicans profitable often in the face of ill-informed and unjustified abuse from the campaign groups who seek to change the business model for their own ends. 

So I am confident in that team, I wouldn’t be leaving otherwise and I am confident that I am leaving the business in good hands to carry on with out clear strategy and to deliver real value for our shareholders. The outlook? We are making progress on all fronts. I am retiring in the knowledge that Enterprise is being run by a great team of people and the whole team have real confidence in and total commitment to the continuing success of Enterprise.”

In his opening remarks this asset stripper par exellence at least has the honesty to admit he neither has the talent of  Sachin Tendulkar and that his departure will no be met with adulation. I can think of many hundreds of tenants and ex-tenants of his company who will certainly not shed a tear at his departure.

But note the emphasis on sweet-talking City Analysts into accepting a share value of £3, never have I seen such a cynical attempt to manipulate a share price, one that will bring this pugnacious retiree a fortune of many millions of pounds if he cashes in at that price. For the tenants (he insists are earning some £37,000 a year from his over-rented pubs buying his over-priced beer, whilst CAMRA proved 80% of tied tenants earned considerably less) this will be of no solace, as they've probably had no spare cash to invest in Enterprise shares.

At least those in "profitable" pubs will be relieved to learn that no more disposals will be required to service Enterprise's debts and their future in their respective pubs are today just a little more secure. What will make their lives easier, fairer and more profitable will be the "distraction" of Dr Cable's consultation into the relationship between pubco/brewery landlords and their tenants, the outcome of which and the recommendations thereof are now overdue. It seems that Ted is not quite done buggering up the pub industry however, as he seems to indicate he will be sticking around to have his usual reasoned and temperate (not) say in whatever BIS comes up with.

One can only hope those who remain do concentrate on "publican profitability and stability", honour Ted's "pledge" to cap beer price increases (a bit of a joke given the eye-watering level being charged currently) even in the face of "ill-informed" campaigners who just want the over-arching principle of "no tied tenant being worse off than a free of tie tenant" which Parliament has expressed as its will in this matter.

If it weren't so painful for many Enterprise tenants this type of self-serving tosh might be mildy amusing, but I fear Ted may yet have the last laugh as he swans off into the sunset counting his grubby millions.

New Dinoasaur Species Fossil Found In Solihull ...

Ted Tuppen, head of Enterprise Inns is reported as saying the movement of a mere £102 millions of economic value from pubcos to tenants mooted in the current government consultation on pubco regulation will lead to "unintended consequences", such as pubcos not having any incentive to support their tenants.

Amazing how Mr Tuppen can spin anything to his company's benefit. According to my daily email from Langton Capital, reporting on first half figures for Enterprise the support they provide is enumerated thus:

"The group subsidised lessees to the tune of £3m in H1 (no change on last year)"

Note the use of the word subsidised there, one assumes this means rent concessions? Perhaps if the rents being charged were not excessive (along with tied product pricing) no such subsidy would be required... oh, but wait... isn't that the point of the consultation and proposed regulation?

This £3 millions subsidy is presumably continued in H2, thus leading to an annual subsidy of £6 millions? If so the mean average subsidy across the estate is of the order of £1,049 per pub. Not the £10,000 per pub quoted by Mr Tuppen.

More from the Enterprise report:

"Capital spending is now less defensive in nature; it should settle at around £60m per annum"

Is this the £10,000 per pub per year "support" Tuppen speaks of? Sorry but capital expenditure on the fabric of ones own bricks and mortar can hardly be described as "support" for ones tenants.

If one reads elsewhere on Publican's Morning Advertiser about the number of tenants claiming tax credits, a fair proportion of whom are likely to be Enterprise tenants, then perhaps the natural conclusion is, despite their best efforts some tenants simply cannot earn enough to live on without being "subsidised" by other taxpayers. Hardly evidence that the existing pubco model is sustainable, let alone fair, and is only evidence for the urgent need of reform as championed by #fairdeal4yourlocal .

As for "unintended consequences" ... well those arising from the original Beer Orders, which, allowed the rise of such debt-laden behemoths as Enterprise have been pretty horrific for the national estate ... a 30% loss of pubs since the early 1980s.

Does anyone think things could become more dire for tied tenants if Tuppens portents of doom become manifest, as opposed to the "last chance saloon" mutterings of the dinosaur from Solihull?

I think not ... unless Tyranosaurus Tuppen would like to elaborate on his comments, one can only hope that T.Tup is in the same evolutionary dead end as T.Rex ...

Smoke and Mirrors ... Solihull Style ...

Roony, Ted, Roger ... come on lend us a hand ...

Bank of England

I was interested to read of an initiative in the motor manufacturing industry by Jaguar Land Rover (JLR) to assist its component suppliers secure vital bank lending to gear up for its expected £400 million expansion of its Solihull and Wolverhampton plants.

JLR are giving 22 bankers detailed briefings of its financial plans regarding its growth plans, which, will see downstream purchasing contracts for its suppliers worth £2 billion. By taking the unusual step of disclosing this usually confidential information not only is JLR reassuring lenders that its suppliers will be able to service any debt associated with gearing up but also reassuring the wider market place of what steps it is taking to secure JLR's future.

From what I read, in the trade press and varius forums, publicans, especially those who are tenants or lessees of the pubcos and brewers find it very difficult to get lenders to support their businesses. Perhaps pubcos and brewers with tenanted estates could take a leaf out of JLR's book.

Securing short to medium term finance for Small and Medium Enterprises (and none more so than pubs) has always been problematic as lenders  view these businesses in vacuo and not part of a larger concern. It's time for industry "leaders" to start leading and add value to their customers' businesses and thankfully for these cash-strapped behemoths it shouldn’t cost them too much.

The knock on effect for those in the free trade who really are on their own would be increased confidence in the pub industry and a clearer understanding of our complex and varied industry by bankers.

The boost for our much benighted, but vitally important, sector of the wider economy has the potential to deliver an exponential return for all stakeholders and allow the pub trade to be one of the engines of economic recovery … so come on Rooney, Ted, Roger how about co-operating to present a united front to support your thousands of tenant customers?

A distraction from filling out your tax return ...

As many of you approach the deadline for filing your tax returns and the realisation of exactly how much profit (or loss) you made last year I thought I would share with you some extracts from the company report for Punch and for your convenience have worked out a few figures for you to digest whilst you work out how to pay your tax bill.

If you are one of the 2,000 pubs in the "turnaround" division of Punch (i.e. "non-core "or non-essential to the long term plans of company) this is Punch's stated policy from the company report:

"The plan for the turnaround division is to maximise short-term returns with a clear focus on costs and cash flow. It is expected that these pubs will be disposed of over a five-year period and will be phased to ensure a balance between speed of disposal and value. "

From the accounts published in the report  the EBITDA  (operating profit) the following figures can be calculated.  For those of you in "turnaround" the earnings per pub was  £33,122, from core pubs the amount per pub was £73,873 .The average per  pub (for all of Punch's pubs)  was £51,558.

Now look at your tax return.

Whilst you compare your EBITDA with the company's here is some more interesting reading from the report:

"Punch as a Group achieved 21st place in the Sunday Times Best Big Companies to Work For 2011, the only major pub company to be listed. This is a fantastic achievement and reflects our commitment to develop our team and our Company culture to make us a ‘Great Place to Work’. We were rated highly for open and honest communication from managers, staff feeling they could make a contribution to the success of the Company and teams being fun to work with, as well as being nominated for a special award for wellbeing."

How open and honest were your communications from Punch last year? Do you think it's fun being a Punch tenant/lessee? Are you bathed in the glow of "wellbeing" emanating from Burton on Trent?

And whilst they were all feeling so well and having fun here's some details from the Remuneration Report for Directors:

CEO Roger Whiteside earns a base salary of £430k, plus a chance to earn  250% in bonus (1/3rd in shares) and a contribution to his pension pot of 25% of his salary.

The total Roger got last year, including all benefits and bonus  was £931,000

The total all the 12 directors earned from Punch last year was £3,363,000, an increase from £2,432,000 in 2010.This means a total increase in their remuneration packages of 38%, with average pay of £280,000 a year.

Now look at your tax return again.

Picked yourself up off the floor yet? Now work out if the profit you made from your pub increased by 38% last year or were you able to give your staff a wage increase of 38% last year?

For those of you that have invested in Punch let's also have a quick look at how your investment performed from 2006 to 2011 compared to FTSE indices:

I know it's a bit blurry, but the orange line is Punch, the other to look at is the grey line which shows the Travel and Leisure sector's performance and shows that for a nominal £100 what your 2006 investment was worth in 2011. Bet that investment is looking just dandy now isn’t it?

Now over to Solihull for news from Enterprise. They report, for October 2011, an EBITDA of £366 millions, which means they earned £58,196 per pub.

From £500 millions of sales of beers, wines and spirits they made £200 millions of gross profit, not bad for just sitting there taking orders.

On the £198 millions of rent they collected (average per pub £31,483) they spent out £5 millions on repairs and maintenance (average £795 per pub) or just 2.5%.  Measure this against a total revenue of some £711 millions and it is just 0.7%! Compare that to the ALMR Benchmark Report (October 2011) on the running costs of a pub which puts average spend on premises repairs by pub operators at 5.6%

Look at your profit and loss account and I'll wager you spent out more than £795 on repairing and maintaning their assets (your pub) last year. 

And the directors? Nine of them, in total, earned £3,070,000 or on average £341,111 down 3.6%  on the previous year. Mind you they did increase their earnings from £2,240,000 in 2009 to £3,185,000 in 2010 which was an increase of £945,000 or 42%.

Ted Tuppen the Enterprise CEO still managed to claw in a staggering £910,00 in 2011 and £1.223 million in 2010;

So how did Enterprise investors fair compared to the market places then? Take a look at the graph below:

Not much better than Punch's poor benighted investors.

At least the Enterprise Annual Report spares us the PR waffle and cuddly graphics so prevalent in the Punch document.

Inevitably I am, again, drawn to the definition of zombie: “the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose”  when I read these reports.

And you wonder why the likes of Vince Cable want to introduce shareholder vetoes on board salaries or wonder why the BIS committee in the Commons queries if tenants and lessees are getting a fair deal from pubcos? Not!

Why corporate responsibility must be more than "window-dressing"

If companies are to be taken seriously about their stance on corporate responsibility then they must actually take responsibility.

Many of you will have read of the tragic death of a Liverpool licensee, Paul Lee, when a faulty gas-fire caused him to experience a heart attack, from which he subsequently died.

The owners of the pub that Mr Lee rented, Enterprise Inns, had not properly inspected or maintained the gas fire in Mr Lee's pub and were found guilty of Health and Safety breaches incurring costs and a fine of £300,000.

As an isolated case it would be bad enough, but the Health and Safety Executive also discovered that Enterprise had failed to carry out 474 other inspections on gas appliances it was responsible for.

Calls from campaign groups such as Justice for Licensees have echoed the calls from Mr Lee's family for the CEO of Enterprise to resign and have now been articulated in an Early Day Motion brought by Mr Lee's constituency MP, Bill Esterson.

Mr Tuppen and Enterprise have remained silent on the matter but would do well to look at the words of Jane Simms in the Institute of Directors magazine from August 2009:

Corporate responsibility could be a saviour of British business if larger companies embraced the idea with more enthusiasm. But too many seem to have lost their moral compass .... The financially driven and short-term culture endemic in so many large organisations is at odds with the more inclusive and longer-term approach to a range of different stakeholders that being “responsible” implies.

The result is the kind of moral bankruptcy that we see in corporate attempts to force through “payments for failure”. It is also evident in the big pub companies’ abuse of their tenants—the majority of whom earn less than £15,000 a year—as revealed in a Business and Enterprise Select Committee report"

That or stand as accused by Joel Bakan in The Corporation: The Pathological Pursuit of Power - 

"Corporate social responsibility, though sometimes yielding positive results, most often serves to mask the corporation's true character, not to change it."