Preliminary Results: 30 September 2016 · 07 Investor presentation 2016 Total leased & tenanted like-for-like net income growth of 2.1% Commercial property like-for-like income up

Preliminary Results: 30 September 2016

www.enterpriseinns.com

Introduction

Robert Walker

Overview

Simon Townsend

Highlights

Investor presentation 201603

Trading performance

Definitions disclosed in appendix 11

Like-for-likenet income

+2.1%

RE-INVIGORATEDTIED TENANCY

BUSINESS

Like-for-likenet income growth in all

regions

Unplannedbusinessfailures

14%

lower

Supporting publicans to reduce business failures

Pubs*

116

EXPANDEDMANAGED

PUBS

75Craft Union

30 Bermondsey

11Managed

Investments

InvestmentPartners*

5

Five partners in place –

developing strong pub

rollout plans

Capitalinvestment

£74m

CAPITALINVESTMENT

AND DISPOSALS

57% invested in growth initiatives

Disposals

£98m

Funding investment programme

Growingportfolio*

291

QUALITYCOMMERCIAL

PROPERTY PORTFOLIO

Expanding the portfolio of properties

Opportunistic realisation of

value

Averagerental

income*

Strong growth in average

rental income. Up

from £56k last year

£62k

*As at 15 November 2016

Recycling capital to drive returns

Highlights


Strategic implementation progressing at pace

Operation Measure On plan

Publican partnershipsLike-for-like net income growth

Managing the effects of new legislation R

Commercial propertiesOn track to grow quality portfolioc. 400 - 450 by September 2017Value realisation demonstrated R

Managed pubsDeveloping managed capability to runc. 250 by September 2017Strong pipeline established R

Investment & disposals

Recycling disposal proceeds to fund investment and

enhance returns

Actual ROI - 22%R

Capital allocationReducing Group net debt, proactively managing

maturities and delivering returns to shareholders R

Enhance management

team

Portfolio managers blending experience with new

capability R

Financial & Trading Review

Neil Smith

Income statement


Year ending30 September 2016

Year ending30 September 2015

£mPre

excep Excep TotalPre

excep Excep Total

EBITDA 292 (3) 289 296 (1) 295

Depreciation (16) - (16) (16) - (16)

Operating profit 276 (3) 273 280 (1) 279

Property related - (37) (37) - (166) (166)

Finance costs (154) (7) (161) (158) (26) (184)

Profit/(loss) before tax 122 (47) 75 122 (193) (71)

Taxation (25) 21 (4) (25) 31 6

Profit/(loss) after tax 97 (26) 71 97 (162) (65)

Adjusted EPS (p) 19.6 19.4

Weighted average no. of shares (m) 496.8 501.0

Delivered Adjusted EPS growth

Reconciliation of EBITDA and like-for-like net income


Total leased & tenanted

like-for-like net income

growth of 2.1%

Commercial property like-

for-like income up 3.8%

Translates to EBITDA

reduction of 1.4% due to

asset disposals, with

pub numbers down 219

(4%) and administrative

expenses growing to

support strategic evolution

Year ending 30 September 2016

£m 2016 Movement 2015 Change %

L&T like-for-like net income1 338 7 331 2.1

Commercial property2 17 - 17

Managed3 6 - 6

FY16 disposals 4 (4) 8

FY15 disposals - (4) 4

Unallocated costs & income (4) - (4)

Net income 361 (1) 362

Property costs (29) - (29)

Administrative expenses (40) (3) (37)

EBITDA 292 (4) 296 (1.4)%

1 Relates to 4,470 L&T trading estate at 30 September 20162 Relates to 273 commercial property estate at 30 September 20163 Relates to 107 managed pubs at 30 September 2016

Improved L&T like-for-like net income – up 2.1%


Growth achieved in all

financial quarters and

across all geographies

Sales-led improvement

with growing income

from beer, aided

by discounts

Stable rental income

Discretionary support

reducing

331

8

(3)

1

1

338

FY1

5 n

et

inc

om

e

Be

er

inc

om

e

Dis

co

un

ts

Dis

cre

tio

na

ry

co

nc

ess

ion

s

Win

es,

sp

irits

& m

ine

rals

FY1

6 n

et

inc

om

e

Year ending 30 September 2016 (£m)

Full detailed analysis included as appendix 2

Stabilisation of rental income and growth in beer income

Reducing level of unplanned business failures


Unplanned business

failures are most

damaging to our

income

Unplanned business

failures reduced by a

further 14%

Represents only 1.6%

of estate

Only 59 closed houses

to re-open

Proactive intervention improving performance

257

157

87 75

2013 2014 2015 2016Agreement failures (unplanned)

Number of unplanned business failures

Asset valuation

2016 2015

Property exceptionals

Valuation 18 120

Other 19 46

37 166

Other exceptionals 10 27

Taxation (21) (31)

Total 26 162


2016 2015

Pub estate pre valuation 3,602 3,739

Exceptional P&L charge (18) (120)

Revaluation reserve 21 19

Total valuation adjustment 3 (101)

Pub estate post valuation 3,605 3,638

% valuation adjustment 0.1% (2.7)%

Exceptional charges significantly reduced as asset valuation stabilises

Valuation effect (£m)Exceptional charges (£m)

Total estate valuation increased by £3m (0.1%)

Comprehensive, independent external valuation of assets

94% of asset value (2015: 92%) now subject to annual external valuation

Provides robust underpin to net asset value of £2.96 per share

Strong operational cash generation


Operating cash flow remains strong

Tax cash outflow reduced due to prior year over-payments refunded

2016 Excess cash flow of £48m stated after:● £13m – Capital restructuring

● £10m – Unique market bond

purchases

Will be used to primarily fund:

● £27.5m costs to repurchase

£250m 2018 bonds

● £25m share buyback – of

which £10m incurred to 30

September 2016

Year ending 30 September

£m 2016 2015

Operating profit 273 279

Depreciation & amortisation 16 16

Movement in working capital (3) (4)

Operating cash inflow 286 291

Interest (154) (157)

Tax (11) (26)

Free cash flow pre-investment 121 108

Disposals 98 75

Free cash flow to allocate 219 183

Capital investment (74) (69)

Debt amortisation (74) (71)

Other (23) (28)

Excess cash flow 48 15

Enhancing our estate quality


Return on growth investment (ROI) schemes completed at 22%

439 pubs in the estate enjoyed significant growth investment

Total of 226 assets sold at average proceeds of £433k, includes;

● On 7 June sold 22 sites in the commercial property portfolio for £20m proceeds - achieved 15x multiple of income

● 11 pubs sold to regional brewers for £15m proceeds achieved 12x multiple of income

Reinvesting disposal proceeds to enhance returns

£74m

£98m

Investment

Divestment

Growth Letting & maintenance

Disposals

FY16

Growth investment: £42m

£28m

£13m

£1m

Leased &

tenanted

Managed

Commercial

property

No. of

schemes

Average

Investment

(£k)

363 77

70 185

6 167

Loan-to-value at 56%


Total net debt reduced by £122m to £2.2bn

Group leverage ratio reduced from 7.8x to 7.5x

Bank debt net of cash at 30 Sept 2016 was £32m

Unique securitised debt reduced by £74m of amortisation and £10m of purchases and cancellation

(60% excluding lotting premium)

0.0 0.1

1.11.0

2.2

0.3

1.61.8

3.7

1.8

3.9

Net debt Assets Lotting premium

Corporate

bonds

Bank

debt

Securitised

bonds

TotalConvertible

bonds

See appendix 7 for full analysis of Group net debt

£bn

Group ratios 2016 2015 2014

Leverage 7.5x 7.8x 8.0x

Interest cover 1.9x 1.9x 1.8x

Refinancing


4 November 2016 - completed

partial refinancing of 2018

bond

● £250m of 2018 repurchased at

111% and refinanced with new

2022 bond at 6.375%

● Removes near term material

refinancing needs

24 October 2016 - completed

new £120m revolving credit

facility

● Extended maturity to 2020

● Terms unchanged

Partial refinancing of Enterprise Corporate Bonds

0

50

100

150

200

250

300

350

400

450

500

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

£m

New ETI 2022 bond

ETI bond

Unique bond

2017 Technical guidance


Targeting full year leased & tenanted like-for-like net income growth for

2017

Total administrative charges of c. £42m

Full year interest costs (excluding exceptional charges) of £148-150m

Full year effective tax rate c. 20.0%

Disposals of c. £70m

Capital investment of c. £80m

Operational & Strategic Review

Simon Townsend

Market dynamics

Pub sector

● UK beer market stable

● Regulatory framework embedded

● UK Pubs property yields compressing

● Input cost pressures in FY17

• National living wage, apprenticeship levy, business rates

Consumer trends

● Quality and value-for-money, premiumisation

● Investment and innovation are key to growth

● Food-led occasions driving wet sales

BREXIT


Current influences

Vision and structure


Unlocking group-wide benefits

Our Group vision

“To be recognised as the most innovative, progressive, value-creating portfolio manager of pubs and properties in the UK”

(291)

(11)

Strategic execution at 15 November 2016


New operating models providing operational and investment flexibility

Premium

Food LedWet Led

Value

(75)

(30)

(4,437)

Total trading estate

@ 15 Nov

2016 - 4,844

Operating models – indicative profile 2020


Our 5 year ambitions set out in May 2015 remain appropriate

Premium

Food LedWet Led

Value

(c.500)

(c.1,000)

(c.100)

(c.200)

(c.2,400)

Total estate

c. 4,200

Value creation through new operating models


Indicative business unit composition 2020

Note: Site EBITDA figures exclude property & central overhead costs

* Based on sites trading for greater than 6 months at 30 September 2016

Indicative profile30 September 2020

As at30 September 2016

Sites Site EBITDA Sites Site EBITDA

Publican Partnerships 2,400 £75-100k 4,470 £76k

Commercial Properties 1,000 £60-80k 273 £62k

Craft Union 500 £80-100k 71 £92k*

Bermondsey 200 £125-175k 28 £116k*

Managed Investments 100 £150-250k 8 N/A

5 yrs to 2020

Total capital investment £350m

Total disposals - c 1,000 £300m

Enterprise Publican Partnerships


Evolving the model in our new strategy

Investment

● Only invest where returns are more certain –

tenancies

● Utilise MRO investment waiver to make significant

investment in selected leases

New Enterprise Partnership Tenancy Plus

agreement

● Reduced repairing liability

● Match publican capital investment

● Industry leading product range

Support

● Targeted support for tied tenancies

Implications

● Utilise lease expiries to grow managed estate

● No new tied leases available

Tied tenancies - reinvigorated model

2017 Expectation

Sustain like-for-like net income growth

Provide pipeline to managed and commercial

properties

Migrate leases to tenancies to mitigate MRO

risk

Pubs Code and Adjudicator

Statutory Code of Practice overseen by independent Adjudicator● Applies to 6 companies (>500 tied pubs) which own ~ 13,000 pubs

● Adjudicator appointed and operational

Market Rent Only (MRO) option● Specified trigger events allow tied tenants to opt for MRO

● Trigger events include lease renewal, cyclical rent review, “significant” price increases, significant change of circumstances

Legislation implemented from 21 July 2016 ● Guidance and interpretation will be required from adjudicator

● Implications of MRO not likely to be clear until late 2017

● Short term impact on lettings

Timeline for MRO process within Legislation ● MRO quote request within 21 days of tied rent proposal

● 56 days for negotiation of tied rent or MRO

● Referral to Adjudicator if no settlement achieved

● Adjudicator appoints arbitrator to determine open market rent


Regulations effective from 21 July 2016

Management of MRO events


Proactively addressing opportunities and risks

Number of events

Since November 2014, we have

reduced long term tied leases

(> 5 years) from 3,035 to 2,401 at

30 September 2016

Events since 21 July 2016

● 285 potential trigger events

● 94 valid MRO requests received

● Too early to determine how many

will opt to take MRO

605 510343

11087

57

94100

100

536

400

350

FY 2016 FY 2017 FY 2018

Lease rent review Lease expiries Lease assignments Other events

Actual Estimated

3,035

2,401

Nov-14 Sep-16

Number of tied leases


Estate profileMost likely MRO trigger event is rent review and renewal

51% of estate let on tied leases

At next rent event:● 10% have more than 10 years

remaining

● 10% have between 5 and 10 years remaining

● 18% have up to 5 years remaining

● 13% where the next event is expiry of the lease

597 rent review and renewal events from 1 Oct 2016 to 30 Sept 2017

8%

41%

13%

18%

10%

10%

Commercial & managed Tenancy

Lease end Lease less than 5 yrs

Leases 5 - 10 yrs Leases over 10 years

Enterprise Commercial Properties


Attractive, high quality, rapidly expanding asset class

Estate size grown to 291 sites at 15 November 2016

Estate profile

● Average rent of estate is £62,000

● Annualised rental income of £18.0 million

● Asset value of £208 million (8.7% yield)

● Average lease length 13 years

Building a quality portfolio but willing to sell packages to realise value

Completed disposal of 22 sites for £20m at yield of 6.7% on 7 June 2016

2017 Expectations

c. 400 - 450 sites

c. £64,000 average rent

Enterprise Managed Operations


75 Craft Union sites at 15 November 2016

● For 38 sites trading more than 6 months:

• Average capex of £126,000

• Average weekly takings of £9,000

• Average site EBITDA of £92,000

• Average ROI of 36%

• Total ROCE of 12%

Well invested wet-led community / urban

hubs

Strong overlap with L&T estate, particularly

Beacon

Craft Union Pub Company

2017 Expectations

c. 170 pubs operational

Simple food offering developed

National geographic presence

Enterprise Managed Operations


30 Bermondsey pubs at 15 November 2016

● For 11 sites trading more than 6 months:

• Average capex of £187,000

• Average weekly takings of £14,000

• Average site EBITDA of £116,000

• Average ROI of 25%

• Total ROCE of 12%

All sites trading as “Meeting House” concept

Bermondsey Pub Company

2017 Expectations

c. 50 fully managed pubs

Second retail concept trialled and available

Enterprise Managed Investments


11 pubs operating at 15 November 2016

● Average weekly takings of £25,000

Five managed expert ventures announced;

● Hippo Inns – Rupert Clevely

● Mash Inns – Laine Pub Co

● Frontier Pubs – Food & Fuel

● Hunky Dory – Oakman Inns

● Marmalade – Marylebone Leisure

Strong pipeline of interest from further partners

Partnering with exceptional retailers

2017 Expectations

c. 10 partners

c. 30 pubs

Marmalade

Enterprise Inns plc


Building a more valuable Enterprise

Evolution of business strategy on plan and proceeding at pace

Business financial performance robust and in line with expectations

Highly cash generative, largely freehold asset-backed business

Significant opportunity through proactive portfolio management to:

● drive increased profitability and returns

● unlock embedded value

Clear asset optimisation strategy with robust capital allocation framework

Increase distributable cash flow for shareholders alongside continued

deleveraging and proactive balance sheet management

Highly disciplined and returns-driven management team

Questions & Answers

Appendices

1. Operational metrics

2. L&T like-for-like net income analysis

3. Supporting our publicans

4. Annual estate valuation

5. Exceptional items

6. Balance sheet

7. Net debt analysis

8. ETI bank facility

9. ETI corporate bonds

10. Unique securitisation

11. Definitions

12. Forward-looking statements


Appendix 1

605 rent reviews completed at an average annual increase of 1.3%

(2015 - 485 increase of 1.0%)

73% of substantive agreements linked to RPI (2015 - 70%)

92% of publicans receiving contractual BCF discount (2015 - 90%)

Overdue balances remained at £2.1m (2015 - £2.1m)

Total discretionary support down £1m to £5m (2015 - £6m)

Average length of occupation 6 years


Operational metrics

Appendix 2


L&T like-for-like net income analysis

£m

Beer,cider& fabs

Contractualdiscounts

Net beer, cider & fabs

Rentalincome

DiscretionaryConcessions

Wines,spirits &minerals

Machines& other Total

2016

Turnover 470 (77) 393 142 (5) 28 9 567

Cost of sales (209) - (209) - - (20) - (229)

Net income 261 (77) 184 142 (5) 8 9 338

2015

Turnover 465 (74) 391 142 (6) 26 9 562

Cost of sales (212) - (212) - - (19) - (231)

Net income 253 (74) 179 142 (6) 7 9 331

Appendix 3


Supporting our publicans

Road shows

• Over 2,000 pubs in attendance

• Over £9k of value per pub

Training

• c1,900 delegates

• e-Learning c1,000 delegates

• 100 days programme

Range

• Over 500 brewers

• Over 1,700 product lines

Discretionary support

• £5m in FY16

Technology & Media

• Publican channel

• Online ordering

• Sky/BT• Pub WIFI

Supplier partnerships

• Supplier directory

• Booker• Brakes• Snacks

Community

• Community Heroes

• Pubs in Bloom

• CRUK• Royal British

Legion

Publican

Appendix 4

2%

19%

34%

24%

21%

< £250k

£250k to £500k

£500k to £750k

£750k to £1m

£1m+


Annual estate revaluation

Geography% of

pubs

% of net

income

% of

value

% valn

movt

North 30 28 27 (1)

Midlands 20 19 18 (1)

South 50 53 55 2

By value banding

Appendix 5


Year ending 30 September (£m) 2016 2015

Property related:

Profit on sale of pubs 5 5

Valuation change on sold pubs (9) (27)

Write down on sold pubs (4) (22)

Valuation change on future sales (6) (16)

Valuation change on pubs retained in fixed assets (18) (120)

Goodwill (9) (8)

Total property exceptionals (37) (166)

Finance costs (7) (26)

Other (3) (1)

Exceptional items pre taxation (47) (193)

Taxation 21 31

Total exceptional items (26) (162)

Exceptional items

Appendix 6

Balance sheet As at

30 Sept 2016

As at

30 Sept 2015

Goodwill 321 330

Pubs & other assets 3,660 3,706

Net debt (2,198) (2,320)

Net other liabilities (150) (147)

Deferred tax (185) (223)

Net asset value 1,448 1,346

NAV per share £2.96 £2.70


Balance sheet

Appendix 7


Net debt analysis

As at 30 September

£m 2016 2015

ETI bank debt (55) (75)

ETI cash 23 25

ETI net bank debt (32) (50)

Captive insurance cash 10 9

Convertible bonds (97) (97)

Corporate bonds (1,125) (1,125)

Total ETI net debt (1,244) (1,263)

Unique securitised bonds (1,066) (1,150)

Unique cash 112 93

Total Unique net debt (954) (1,057)

Underlying Group net debt (2,198) (2,320)

Fair value and other adjustments - -

Group net debt (2,198) (2,320)

Appendix 8


ETI bank facility

AmountCost over

LIBORTerm Status

£120m 3.00% 4 years Fully revolving, no amortisation

CovenantAs at 30

Sept 2016

As at 30

Sept 2015

Interest cover greater than 1.50x 1.91x 1.96x

First charge asset cover

greater than1.33x 7.36x 6.17x

Total property asset cover

greater than1.50x 21.09x 15.60x

New facility commenced on 24 October 2016 at £120m as follows:

Appendix 9


ETI corporate bonds

Value Rate Redemption

Covenants Market price 30 Sept

Asset cover

Incomecover 2016 2015

£350m* 6.500% 2018 1.67x 2.0x 108 106

£125m 6.875% 2021 1.50x 1.5x 108 104

£250m 6.000% 2023 1.67x 2.0x 102 99

£125m 6.875% 2025 1.50x 1.5x 102 102

£275m 6.375% 2031 1.67x 1.5x 101 99

£1,125m

* £250m redeemed and refinanced with new 2022 bond on 4th November 2016

Appendix 10

Amortisation in the period - £53m of A3 notes and £21m of A4 notes

Bond purchases - £10m of A4 notes

£80m ahead of amortisation schedule


Unique securitisation

Value Rate NoteFinal

redemption

Market price

30 September

2016 2015

£284m 6.542% A3 2021 106 105

£367m 5.659% A4 2027 105 102

£225m 7.395% M 2024 100 103

£190m 6.464% N 2032 86 89

£1,066m

Appendix 11

Like-for-like leased and tenanted net income –

represents the like-for-like pub level profits from our

leased and tenanted estate, for all pubs that

traded as leased and tenanted pubs for the two

years to the 30 September 2016, stated before

property costs and central costs

Like-for-like commercial properties net income –

represents the like-for-like asset level rental income

from our commercial property estate, for all assets

that traded as commercial properties for the two

years to the 30 September 2016, stated before

property costs and central costs.

Excess cash flow – represents Operating cash flow

less interest paid, taxation paid, plus net cash flow

from investing activities less scheduled debt

amortisation, debt restructuring and open market

debt purchases

EBITDA before exceptional items – represents the

earnings before interest, taxation, depreciation and

amortisation and excludes exceptional items

Adjusted earnings per share – which the directors

believe reflects the underlying performance of the

Group, is based on profits after tax excluding

exceptional items

Growth driving capital investment –

is discretionary capital cash spend on the Group’s

assets which is intended to generate incremental

income at returns ahead of our target return on

investment

Maintenance & letting capital investment –

is all capital cash spend that is not growth driving

capital investment, typically focused

on maintaining the quality of our assets and

supporting the letting programme

Return on investment (ROI) – is measured as the

incremental income delivered as a result of the

investment divided by the value of the capital

investment

Unplanned business failures – are all lease and

tenancy agreements that do not reach their full

term, where failure is not through the mutual

agreement of ourselves and the departing

publican. For example, through Publican

abandonment or via legal proceedings.


Definitions

Appendix 12

This document contains statements that are, or may be deemed to be, “forward-looking statements” which are prospective in nature. These forward-looking statements may be identified by the use of forward-looking terminology, or the negative thereof such as “plans”, “expects” or “does not expect”, “is expected”, “continues”, “assumes”, “is subject to”, “budget”, “scheduled”, “estimates”, “aims”, “forecasts”, “risks”, “intends”, “positioned”, “predicts”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words or comparable

terminology and phrases or statements that certain actions, events or results “may”, “could”, “should”, “shall”, “would”, “might” or “will” be taken, occur or be achieved. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Forward-looking statements are not based on historical facts, but rather on current predictions, expectations, beliefs, opinions, plans, objectives, goals, intentions and projections about future events, results of operations, prospects, financial condition and discussions of strategy.

By their nature, forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of Enterprise Inns. Forward-looking statements are not guarantees of future performance and may and often do differ materially from actual results. Important factors that could cause these uncertainties include, but are not limited to, those discussed in the 2016 Annual Report and Accounts of Enterprise Inns and “Principal risks and uncertainties” in the 2015 Preliminary Results of Enterprise Inns.

Neither Enterprise Inns nor any of its subsidiaries or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. You are cautioned not to place undue reliance on these forward-looking statements which only speak as of the date of this document. Other than in accordance with its legal or regulatory obligations (including under the Market Abuse Regulation, the Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), Enterprise Inns is not under any obligation and Enterprise Inns and its subsidiaries expressly disclaim any intention, obligation or undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This document shall not, under any circumstances, create any implication that there has been no change in the business or affairs of Enterprise Inns since the date of this document or that the information contained herein is correct as at any time subsequent to its date.

No statement in this document is intended as a profit forecast or a profit estimate and no statement in this document should be interpreted to mean that earnings per Enterprise Inns share for the current or future financial years would necessarily match or exceed the historical published earnings per Enterprise Inns share.

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities. The making of this presentation does not constitute a recommendation regarding any securities.


Forward-looking statements

Documents

Preliminary Results: 30 September 2016 · 07 Investor presentation 2016 Total leased & tenanted like-for-like net income growth of 2.1% Commercial property like-for-like income up