Enterprise Inns feels the squeeze

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The Independent Online

The pub chain Enterprise Inns has thrown a financial lifeline to 850 of its publicans struggling to survive because of falling beer sales and rising rents.

Enterprise, the second largest pub group, warns that earnings before tax and other charges were down 5 per cent in the second half of the year just ended and would finish 3 per cent lower for the 12 months. The market expects profits of around £270m. The group is also shelving plans to convert itself into a real estate investment trust because of the turmoil in financial markets.

The chief executive Ted Tuppen admitted trading had been difficult because of the ' adverse impact of the smoking ban, a poor summer and above all continuing weakness in consumer spending.'

Full-year profits would be hit because it had to spend £5.5m in the second half and around £9m in total supporting 850 of its 7,500 licensees, mainly in the form of discounts on beer prices.

"We try to come up with a plan which frees up cash and allows the landlord to generally invigorate the pub and make it more attractive for customers," said Mr Tuppen.

He claimed that "even in these difficult times" around 40 per cent of pubs increased income from beer sales. The group bought 58 pubs in the year for £49m and sold another 58 for £29m.

Mr Tuppen eased some concerns over the group's £3.8bn of borrowings. He said the next debt refinancing was not due until May 2011, while 89 per cent of its debt had an average life of 10 years at an interest rate of 6.5 per cent.

The broker Evolution Securities, which was a buyer of the shares, has now turned seller, pointing to "tough times ahead" on the back of a sharp 10 per cent fall in industry wide beer sales and predicts that "up to 20 per cent of pub tenancies may become unviable".

There is also concern that the conveyor belt of new publicans financed by the sale or re-mortgage of their own homes may soon start drying up because of the credit crisis.