UK pub sector trying to limit impact of crisis

In the last two years, the UK pub sector has experienced significant pressure ensuing from the current economic downturn as well as changing beer-consumption habits and the ban on smoking in public places, Moody's Investors Service said in a sector performance update.
Pub operators are enacting meaningful changes to limit the negative impact of the economic downturn, particularly as the quality of pubs and the marketing concepts behind them are becoming essential in the challenging market, Moody’s added.
The rating agency currently rates the Corporate Family Rating (CFR) of one pub operator, Enterprise Inns plc, and four whole business property transactions (WBS) secured by pub portfolios located in the UK.
Owners of leased pubs have tried to support their licensees during the downturn through rent concessions and beer discounts. The managed pub companies focus on improving operational standards and reducing their overall operating costs. The owners of highly leveraged pub portfolios, like Punch Taverns, are also focusing on disposing of non-core and underperforming pubs and use the sale proceeds to increase free cash flow and reduce their overall levels of debt.
The observed declining cash flows as well as decreasing operating and profit margins reported by the transactions have resulted in increased concerns about the medium-term cash flow generation ability of the securitised portfolios relative to the outstanding debt levels in the transactions.
"All four transactions reported declining performance trends over the past year; albeit to different extents" said Magdalena Umsonst-Suminska, co-author of the report.
"Overall, decreasing cash flows and worsening business prospects have adversely affected the current and expected debt service coverage ratios, and consequently, negatively impacted ratings in 2009."
"As of early 2010, Moody's remains cautious about the short- to medium-term trading prospects of the UK pub sector and expects the weak UK consumer environment to persist during 2010 due to the current difficult economic environment as well as continued uncertainty in respect of changing customer habits and profile", added Thomas Babin, co-author of the same report.