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Preliminary Results 30 September 2005

Preliminary Results 30 September 2005. VISIT OUR WEBSITE www.enterpriseinns.com. Financial highlights 12 months to 30 September 2005. Operating profit before exceptionals up 29% to £520.2m Profit before tax and exceptionals up 32% to £305.6m Adjusted earning per share up 33% to 63.2 pence

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Preliminary Results 30 September 2005

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  1. Preliminary Results30 September 2005 VISIT OUR WEBSITEwww.enterpriseinns.com

  2. Financial highlights12 months to 30 September 2005 • Operating profit before exceptionals up 29% to £520.2m • Profit before tax and exceptionals up 32% to £305.6m • Adjusted earning per share up 33% to 63.2 pence • Final dividend of 12.4 pence. Full year dividend up 50% to 18.0 pence

  3. Group profit & loss accountAdjusted EPS up 33%

  4. Group operating profitOperating profit reflects the inclusion of Unique for a full year

  5. Gross margin analysisIncreased margin on beer sales

  6. Group cash flow statement Free cash inflow of £137m

  7. TaxationCash tax outflow of 17%

  8. Group balance sheetPub estate valued at £5.2billion

  9. Group debt structureNet debt reduced by £157m in 12 months • Fully hedged • Weighted average interest rate of 6.9% • Unique securitisation £93m ahead of repayment schedule • Headroom of £230m within bank syndicated debt facility

  10. Scheduled bond repaymentsLong maturity profile £600m • Corporate bonds • Securitised bonds £m £275m £125m £125m £60m Years (2006 - 2032)

  11. Syndicated debt facilityHeadroom of £230m • facility • debt 545 490 490 490 430 370 Headroom £230m No repayment due until March 2007

  12. Flexible financing structurePrudent loan to value ratios *Syndicated debt and securitised bonds are shown net of cash Fixed assets includes £30m of other assets

  13. Financial ratiosComfortably within target ratios *”Enterprise” target ratios agreed with rating agencies: Interest cover 2.5 times, debt : EBITDA 5.75 times “Enterprise” bank covenants at September 2005: Interest cover 2.15 times, debt : EBITDA 6.30 times “Unique” (securitised) has two covenants : net worth > £150m - £1bn at 30 September 2005 : dscr > 1.1 - 2.0 at 30 September 2005

  14. IFRS • Timing • First application – year commencing 1 October 2005 • Full details to be published in April 2006 • Key points • No impact on cash flows or debt covenants • Minor impact on reported EBITDA • Pubs subject to depreciation charge (scoping £5m pa) • Potential volatility • Interest rate swaps marked to market • Pub values below historic cost • Revaluations subject to deferred tax provisioning

  15. Operating highlights 12 months to 30 September 2005 • Profit before tax and exceptionals up 32% to £305.6m • Average operating profit per pub up 8% to £60,100 • Integration of Unique completed in all respects • £49m capital expenditure invested into the estate • 21 high quality individual acquisitions for £14m • 158 underperforming and high AUV outlets sold for £47m

  16. Adjusted earnings per share32% annual compound growth Adjusted earnings per share (pence)

  17. DividendsFull year dividend up 50% Dividend cover 3.2x 4.2x 4.2x 4.0x 3.5x

  18. Operating profit per pubImproved by 8.3% * 2004 is prepared on a proforma basis including Unique for a full year All numbers reflect operating profit per pub after charging goodwill

  19. Leases and tenanciesA robust business model • Appreciating freehold assets • Strong and predictable cash flow • The best unbranded franchise in the world

  20. Leases and tenanciesAppreciating freehold assets, increasing returns *Source: Christie & Co outlook 2005 (from 1999-2004) Value underpinned by range of alternative uses

  21. Leases and tenancies Strong and predictable cash flow • Operating profit • Operating cash flow

  22. Leases and tenanciesBest unbranded franchise in the world • 8,600 individual businesses • Entrepreneurial flair and commitment of licensees • Non-branded, non-formulaic, non-standard • Not centrally controlled • Flexible operating and cost structures

  23. Key objectives for a successful pubco • Top quality assets • Profitable licensees

  24. Top quality assets Continued improvement in estate quality Score definitions 1 Excellent 2 Good 3 Good average 4 Below average 5 Disposal Source: Estates Review – September 2005

  25. Licensee profitability Licensee profitability up by 5% Source: Estates Review – September 2005

  26. Licensee profitabilityHow are they really doing? • 92% of pubs let on substantive agreements • Bad debts consistent at less than 0.2% of turnover • Rent concessions consistent at 0.4% of rent roll • 1,139 rent reviews, average 2.5% annual increase • 2 rent reviews decided at arbitration, both found in ETI favour • 900 fully funded, fully screened quality applicants • 7,600 enquiries converted to 1,700 formal applications

  27. Licensee profitability Continued improvements in licensee profitability profile Average Licensee Profit* £11k £24k £37k £51k £66k £96k *Includes domestic accommodation and other benefits in kind- average is £8k per licensee, range from £nil to £12k Source: Estates Review – September 2005

  28. Annual estates review 2005 Churn focused in lower profit pubs

  29. Annual estates review 2005 Churn focused in lower quality pubs

  30. Annual estates review Capital investment opportunity in over a third of the estate

  31. Current issues • Licensing act • Smoking

  32. Licensing act 2003An opportunity for increased flexibility • 89% of ETI estate applying for additional hours • All applications submitted by 6 August • New hours operational from 24 November • Increased flexibility

  33. SmokingEnterprise well placed to manage change • Current proposals lack coherence and industry support • Total ban in Scotland (140 pubs), likely in Wales (392 pubs) • Industry initiative progressing well across ETI estate * No smoking at the bar – 23% * No smoking back of house – 85% * Smoking reduction plan in place – 65% • 79% of pubs have outside drinking areas • Evolution not revolution – an opportunity for quality pubs

  34. SmokingLicensees adapting to new market Current status Outside areas Food offering

  35. Growth in a tenanted estateManage the pubs, the cash flow and the balance sheet Core growth in operating profit (target 3% growth) Invest and churn (target 10-15% return) Evaluate all acquisition opportunities Manage balance sheet leverage in line with profit growth and estate valuation Return spare cash to shareholders Double digit growth in EPS

  36. Summary • 33% growth in adjusted earnings per share • Strong cash generation • 50% increase in dividend • Cash available to buy back shares • Improving pub quality and profitability • Increasing licensee profitability • Clear strategy for growth in shareholder value • Continued progress in challenging conditions

  37. Questions www.enterpriseinns.com

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