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Interim Results 31 March 2005

Interim Results 31 March 2005. VISIT OUR WEBSITE www.enterpriseinns.com. Financial highlights 6 months to 31 March 2005. Operating profit before exceptionals up 69% to £253.3m Profit before tax and exceptionals up 53% to £143.6m Adjusted earning per share up 52% to 29.6 pence

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Interim Results 31 March 2005

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  1. Interim Results31 March 2005 VISIT OUR WEBSITEwww.enterpriseinns.com

  2. Financial highlights6 months to 31 March 2005 • Operating profit before exceptionals up 69% to £253.3m • Profit before tax and exceptionals up 53% to £143.6m • Adjusted earning per share up 52% to 29.6 pence • Interim dividend up 56% to 5.6 pence • Free cash inflow of £58m • £170m tap issue and re-financing of £393m securitised debt

  3. Group profit & loss accountAdjusted EPS up 52%

  4. Group cash flow statement Free cash inflow of £58m

  5. Group balance sheet Pub estate valued at £5billion

  6. Group debt structureNet debt reduced by £210m in 12 months

  7. Group debt structureLow – risk financing • Fully hedged • Weighted average interest rate of 6.9% • Unique securitisation £111m ahead of repayment schedule • Headroom of £140m within bank syndicated debt facility • Long maturity profile

  8. Syndicated debt facilityHeadroom of £140m • Original facility • Revised facility (to save commitment fee) • Drawn debt 610 580 550 545 490 490 490 430 Headroom £140m 370 No repayment due until March 2007

  9. Scheduled bond repaymentsLong maturity profile £600m • Corporate bonds • Securitised bonds £m £275m £125m £125m £60m Years (2005 - 2032)

  10. Flexible financing structurePrudent loan to value ratios * Syndicated debt and securitised bonds are shown net of cash

  11. Group operating profitOperating profit reflects the inclusion of Unique

  12. Gross margin analysisIncreased margin on beer sales

  13. Growth in average operating profit per pubAverage operating profit per pub up 9%

  14. TaxationCash tax outflow of 14%

  15. IFRSNo material impact Earnings • First application – year commencing 1 October 2005 • Transition balance sheet to be published with 2005 accounts Key points • Anticipate relatively minor impact on reported earnings - Goodwill no longer amortised - Additional depreciation charge - Some impact of share-based payments - Some impact of change in swap values • Impact on balance sheet - Deferred tax provision increased to reflect asset values - Interest rate swaps recognised at fair value • No impact on cash flows or debt covenants

  16. Operating highlights 6 months to 31 March 2005 • Average operating profit per pub up 9% to £29,200 • Integration of Unique completed in all respects • £27m synergies secured • £24.8m million capital expenditure invested into the estate • 11 high quality individual acquisitions for £6.5m • 94 underperforming and high AUV outlets sold for £27.1m

  17. Profits before tax and exceptional items up 53% to £143.6m • Half year • Full year • Consensus full year Consensus (Hemscott 16 May)

  18. Adjusted earnings per share10 years of 30% compound growth • Half year • Full year • Consensus full year Adjusted earnings per share (pence) Consensus (Hemscott 16 May)

  19. DividendsInterim dividend up 56% • Half year • Full year • Consensus full year Dividends (pence) Dividend cover 3.2x 4.2x 4.3x 4.0x 4.0x Consensus (Hemscott 16 May)

  20. Operating profit per pubImproved by 9% in first half * 2004 is prepared on a proforma basis including Unique for a full year All numbers reflect operating profit per pub after charging goodwill

  21. Integration of UniqueThree sector structure complete Enterprise Inns Group Unique Pub Group North South Unique North South Unique 3 sectors 21 divisions 138 regions Southeast North Southwest

  22. Why leases & tenancies? • Appreciating freehold assets • Strong and predictable cash flow • The best unbranded franchise in the world

  23. Why leases & tenancies?Appreciating freehold assets, fairly valued *Source: Christie & Co outlook 2005 (from 1999-2004) Source: Enterprise Inns preliminary results 2004

  24. Why leases & tenancies?Appreciating freehold assets, increasing returns *Source: Christie & Co outlook 2005 (from 1999-2004) Source: Enterprise Inns preliminary results 2004

  25. Why leases & tenancies?Appreciating freehold assets, fairly valued and fairly rented

  26. Why leases & tenancies?Strong and predictable cash flow • Operating profit • Operating cash flow

  27. Why leases and tenancies?The best unbranded franchise in the world • 8600 individual businesses • Entrepreneurial flair and commitment of licensees • Non-branded, non-formulaic, non-standard • Not centrally controlled • Flexible operating and cost structures • Value underpinned by range of alternative uses

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

  29. Key objectives for a successful pubco Top quality assets Score definitions 1 Excellent 2 Good 3 Good average 4 Below average 5 Disposal Pub quality scores Source: Estates Review – August 2004, updated for H1 churn

  30. Key objectives for a successful pubco Profitable licensees Averagelicensee profit £13k £24k £37k £51k £66k £95k Level of licensee profit (post rent) Source: Estates Review – August 2004, updated for H1 churn

  31. Licensee profitabilityHow are they really doing? • 94% 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 • 550 rent reviews, average 2.5% annual increase • 1 review to arbitration, found in ETI favour • 771 fully funded, fully screened quality applicants • 261 pubs to let

  32. Current Issues • Licensing Act • Trade and Industry Select Committee • Smoking

  33. Licensing Act 2003An opportunity for increased profits • 95% of ETI estate applying for additional hours • All applications submitted by 6 August • New hours operational from November • Increased flexibility • Improved profitability

  34. Trade and Industry Select CommitteeA clean bill of health • Conclusions and Recommendations published 21st December 2004 • Committee confirmed that – • No competition issues exist in the UK on-trade market • The Tie for drinks supply provides benefits to licensees • Committee recommended that – • Upward only Rent Review clause is removed (ETI 1995) • Linked supply and distribution contracts removed (ETI 1999) • New licensees should take professional advice (ETI will be mandatory) • Disclosure to new licensees is improved (ETI vendor pack being introduced) • Industry-wide Code of Practice is introduced (accreditation in hand)

  35. SmokingAnticipate of total ban within 4 years • Current proposals lack credibility • Total ban in Scotland (140 pubs), likely in Wales (407 pubs) • Industry initiative progressing well across ETI estate * No smoking at the bar * No smoking back of house * Smoking reduction plan in place • 80% of pubs have outside drinking areas • Evolution not revolution – an opportunity for quality pubs

  36. Growth in a tenanted estateIt starts with getting the quality right • Good pubs do well, the licensee is profitable, pays his bills and develops his business ... and the pub gets better • Bad pubs do badly and probably get worse • Core operating profit growth across ETI estate at 3% (inflation plus a bit) will not squeeze good licensees out of existence!

  37. 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) Manage balance sheet leverage in line with profit growth and estate valuation Return spare cash to shareholders Double digit growth in EPS and TSR

  38. Growth in a tenanted estate Cash and balance sheet managementFor example... £m £m Operating profit 500 Annual valuation increase 150 Profit before tax 250 New debt 100 Free cash 150

  39. Growth in a tenanted estateRobust cash generative model, another theoretical example • 3% annual growth • No pub capex, no churn, no share buy back • Only repay debt and grow dividends in line with earnings 10 year annual compound EPS growth of 8% and all debt repaid within 14 years

  40. Growth in a tenanted estateSensitivities

  41. Growth in a tenanted estateAcquisition opportunities Evaluate all major acquisition opportunities against stringent quality, return on capital and earnings enhancement criteria and only proceed if the long term results are enhanced. The future is about quality, not quantity

  42. Summary • 9% growth in pub profitability • Unique integration completed • 52% growth in earnings per share • Strong cash generation • 56% increase in dividend • Clear strategy for growth in shareholder value

  43. Questions www.enterpriseinns.com

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