Final Results

15 November 2016

Enterprise Inns plc

Preliminary announcement for the financial year ended 30 September 2016

A successful year of financial performance and strategic delivery

Enterprise Inns plc (ETI or Enterprise), the largest pub owner in the UK, today announces its results for the year ended 30 September 2016.

Financial highlights

Ø EBITDA* before exceptional items of £292 million (2015: £296 million), in line with expectations and reflecting the impact of planned disposals

Ø Profit before tax and exceptional items of £122 million (2015: £122 million) as interest savings from reduced debt offset reduction in EBITDA*

Ø Profit after tax of £71 million (2015: £65 million loss), primarily due to lower exceptional refinancing costs and lower property charges arising from the annual estate valuation. This year's estate valuation increased by 0.1% (2015: down 2.7%)

Ø Adjusted earnings per share# up to 19.6p (2015: 19.4p)

Ø Strong cash generation enables further net debt reduction, to £2.2 billion (2015: £2.3 billion)

Ø Smoother and extended debt maturity profile achieved through the partial refinancing of the 2018 corporate bonds, completed on 4 November, and a new revolving bank facility in place to 2020

* Earnings before interest, tax, depreciation and amortisation

# Excludes exceptional items

Operational and strategic progress

Ø Publican Partnerships - our reinvigorated tied leased and tenanted business

o Continued momentum with leased and tenanted like-for-like net income up 2.1% (2015: up 0.8%) with growth achieved across all geographic regions

o Improved trading and enhanced operational support have helped to further reduce unplanned business failures, down 14% compared to the prior year

Ø Commercial Properties - our high quality commercial property portfolio

o Commercial property like-for-like net income up 3.8%

o Rapidly expanding portfolio with 291 commercial properties at 15 November 2016 at an improved average annualised rental income of £62,000 (2015: £56,000)

Ø Managed Operations - our directly managed house business

o The total number of pubs trading within our 100% owned Managed Operations business at 15 November 2016 has grown to 105 with 30 trading under our Bermondsey operation and 75 under our Craft Union operation

Ø Managed Investments - our innovative partnerships with expert managed house operators

o There are 11 pubs at 15 November 2016 which are trading within our Managed Investments business unit and are operated through trading agreements with five managed partners

Ø Capital allocation

o Net cash flows from operating activities increased to £269 million (2015: £265 million)

o Net proceeds from disposals of £98 million (2015: £75 million)

o Total capital investment of £74 million (2015: £69 million) with 57% focused on growth driving investment initiatives (2015: 44%) yielding an average return on investment of 22% (2015: 19%)

o In line with amortisation schedule, repaid £74 million (2015: £71 million) and purchased and cancelled an additional £10 million (2015: £nil) of Unique securitised notes

o Commenced a share buyback programme of up to £25 million in respect of the issued share capital of ETI, with 14 million shares purchased to date for cancellation

Commenting on the results, Simon Townsend, Chief Executive Officer said:

"We are pleased to have delivered our financial objectives for the year, maintaining the growth momentum in our leased and tenanted business, while making significant progress in building our commercial property portfolio and managed operations and investments businesses. Our plan to transform the Group to best serve our publicans and their communities whilst maximising returns from each of our assets remains on track.

Whilst there is the potential for some economic uncertainty in the months ahead, trading in the first six weeks of the new financial year has been in line with our expectations and we are confident that the actions we are taking to execute our strategic plans are the most appropriate response to changes in the regulatory and economic environment. Our proactive management of debt refinancing and our returns-driven approach to allocating excess cash will deliver both near and long-term benefits to all our stakeholders."

Enquiries: Simon Townsend, Chief Executive Officer 0121 272 5000

Neil Smith, Chief Financial Officer 0121 272 5000

Tulchan Communications, Jonathan Sibun/Peter Hewer 020 7353 4200

The Preliminary Results presentation will be available on the Company website at www.enterpriseinnsplc.com. A live video webcast of the presentation will be available on the investor zone section on the above website from 9.30am GMT. Alternatively, a live conference call of the presentation can be accessed at 9.30am GMT by dialling +44 (0) 20 3003 2666 or 1 866 966 5335 (USA callers). A replay of the conference call will be available for seven days on +44 (0) 20 8196 1998 and 1 866 595 5357 (USA callers) using replay passcode 5718159#.

Forward-looking statements

This announcement contains certain statements about the future outlook for ETI. Although we believe that our expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

OPERATIONAL AND STRATEGIC REVIEW

Overview

We are pleased to report our full year results for the year ended 30 September 2016, during which period we have delivered EBITDA before exceptional items of £292 million, down £4 million on the comparative period primarily as a result of planned asset disposals. Profit before taxation, excluding exceptional items, was unchanged at £122 million as lower interest costs, resulting from reduced levels of debt, have offset the decline in EBITDA.

Through the execution of our strategic plan we have set out to improve our capability in retailing, developing our understanding and usage of consumer insights to help us to identify the most appropriate retail proposition for each of our assets, to inform our subsequent investment decisions and to determine the appropriate operating model with which to optimise the return from each asset and deliver greater shareholder value. This means we are evolving from a predominantly leased and tenanted operation to a portfolio of businesses operating a variety of models and trading styles. Our Group vision is to be recognised as the most innovative, progressive, value-creating portfolio manager of pubs and properties in the UK.

Enterprise Publican Partnerships

Enterprise Publican Partnerships is the trading name for our tied leased and tenanted business which is the largest part of our Group. Whilst the scale of our tied leased and tenanted business is expected to decline over the coming years, as we migrate assets to alternative operating models, we are confident that the quality of the retained Enterprise Publican Partnerships estate will be enhanced. Such quality enhancement will be delivered through the disposal of the poorer performing sites; continued capital investment in tied tenancies to drive enhanced retail offers; market-leading support from our highly trained regional managers; our plans to share the knowledge and experience we are gaining from our directly managed operations with our tied publicans; and our ability to leverage scale benefits from managed operations which can then be shared with our tied publicans.

As at 30 September 2016, there were 4,470 pubs trading within the total leased and tenanted estate which delivered growth in like-for-like net income of 2.1% in the financial year. The improvement in trading performance has been achieved across all geographic regions within our estate throughout the year.

It is particularly pleasing to see like-for-like net income growth being delivered across all regions with the North reporting growth for the first time in several years (up 1.1%). We have maintained our like-for-like net income growth in the Midlands (up 1.7%), and delivered strong growth in the South, (up 2.7%).

We provide our tied leased and tenanted publicans with a broad range of services to help them operate their pubs efficiently and effectively. Where appropriate we also provide direct financial assistance to publicans. In the year we provided £5 million (2015: £6 million) of such assistance. As a consequence of the successful application of these initiatives we have further reduced the number of unplanned business failures, down 14% in the current year compared to the prior year. The proactive intervention of our regional managers to identify and then avoid these potential business failures is a key driver of the consistent improvements achieved in our like-for-like net income.

Following the recent regulatory changes and specifically the introduction of the Market Rent Only (MRO) option for publicans there is now a degree of uncertainty with regard to the level of future income that we might earn from long-term tied leases. Therefore we no longer offer new tied leases for a period of greater than five years, we are unlikely to invest significantly in existing long-term tied leases and we more closely scrutinise such agreements at the time of renewal or assignment to protect our interests. We do offer a wide range of tied tenancy agreements to prospective publicans including our Beacon "managed tenancy", for the competitive value wet-led retail offer, and our new Partnership Tenancy Plus, which we launched in the second half of the financial year.

Enterprise Commercial Properties

We continue to expand our high quality commercial property portfolio operated within our Enterprise Commercial Properties business and in the financial year properties that traded as commercial properties throughout both this year and the prior year increased like-for-like net income by 3.8%.

As at 30 September 2016 we had 273, and today we have 291, commercial properties, the vast majority of which trade as pubs on a free-of-tie basis. These properties have an annualised rental income of £18.0 million (with an average rent of £62,000) and were valued at 30 September 2016 at £208 million, resulting in a gross yield of 8.7%.

On 7 June 2016 we sold a portfolio of 22 commercial properties which comprised of 17 pubs and 5 convenience stores geographically spread across England. The disposal generated £20 million of net proceeds, representing a 9% premium to the prior year-end book value and a 6.7% yield based upon the gross rental income of £1.34 million. The disposal package is typical of the type of assets we are now adding to our commercial property portfolio and therefore provides an indication of the inherent value of the portfolio.

We expect to be operating around 400 to 450 commercial properties by 30 September 2017, although, as demonstrated by the recent disposal described above, growing the scale of our commercial property portfolio in itself is not our primary objective, and we will constantly assess opportunities to crystallise and capture value from this estate.

Managed Pubs

We are building the capability to operate a significant managed house business and we are pleased with the progress made to date. Greater operational control, complete transparency of all sales and cost lines and the use of consumer insights are giving us increased certainty over the returns achievable from these managed pubs.

Utilising our segmentation model we have identified that our existing pub estate provides us with a robust pipeline for the future expansion of our managed retail formats and we are confident that the original target, set in May 2015, of a managed house estate comprising between 750 and 850 pubs by 2020 is deliverable.

Indicative forecast profile of pubs under management:

Enterprise Managed Operations: Craft Union Pub Company

Our largest managed house operation is the Craft Union business which operated 71 sites at 30 September 2016. It now operates 75 sites and we expect it to be operating around 170 sites by 30 September 2017. This business predominantly operates in the north of England, but is beginning to expand south and we expect its offer to appeal nationally. Currently, its offer is wet-led with quality beers, at affordable prices, served in local, well-invested, community pubs. The simplicity of the offer mitigates our execution risk and also improves the efficiency of our capital investment.

As at 15 November 2016, we had 38 pubs operating within Craft Union that had traded for more than six months and these pubs are to-date generating average annualised site EBITDA of £92,000, from an average capital investment of £126,000, which delivers pre-tax returns of 36%. A number of these early sites have delivered exceptional trading performance which we may not be able to replicate as we extend our offer and accelerate the rollout programme. We would expect our Craft Union sites to generate site EBITDA in the range of £80,000 to £100,000 on average. After an average capital investment in the region of £100,000, we expect to yield returns on investment in excess of 20%.

Enterprise Managed Operations: Bermondsey Pub Company

As at 30 September 2016 we operated 28 managed pubs within our Bermondsey business. As of today we operate 30 pubs and expect to have in the region of 50 pubs in this model by 30 September 2017. All of these Bermondsey pubs operate under our successful "Meeting House" format, an upper mid-market, mixed food and drink offer.

During the year we trialled five Bermondsey sites operating under our "Friends and Family" format in the value-led, mixed food and drink segment. We found this market segment to be highly competitive, requiring significant investment and scale of operation in order to deliver adequate returns. We have therefore determined that this retail segment should not be a priority for our business and have subsequently either sold, let free-of-tie or converted the trial sites to an amended retail offer within our managed operations.

At 15 November 2016 we had 11 pubs operating within our Bermondsey business that had traded for more than six months and these pubs are to-date generating average annualised site EBITDA of £116,000, from an average capital investment of £187,000, which delivers pre-tax returns of 25%. As we enhance our offers within the Bermondsey business we would expect the average capital investment to be in the region of £200,000 with average site EBITDA expected to grow to be in the range of £125,000 to £175,000, which we expect to yield returns on investment in excess of 15%.

Enterprise Managed Investments

In some retail segments, pub operators have to be both innovative and highly flexible in order to be able to continually adapt more complex retail offers to the changing demands of consumers. Within our Managed Investments business we have developed a partnership model whereby we can work with carefully selected managed house operators to share in the benefits of trading certain high quality establishments in such retail segments.

We entered our first such partnership with Hippo Inns, established with Rupert Clevely, founder of Geronimo Inns, and Hippo Inns currently has six pubs in operation. To date we have established four additional partnerships with the creation of: Mash Inns, a new venture with Laine Pub Group; Frontier Pubs, a venture with Food & Fuel; Hunky Dory Pubs in conjunction with Oakman Inns; and Marmalade Pub Company, a venture with the Marylebone Leisure Group. In aggregate these partnerships enable us to provide a broader range of consumer offers across a wider geographic market than we might have achieved on our own. As at 30 September 2016 we had eight pubs and today we have a total of 11 pubs trading under our various relationships and we expect to grow this model in the coming year such that by 30 September 2017 we expect to be operating with around ten partners and trading in the region of 30 pubs.

Optimising capital allocation to enhance returns

Enterprise generates significant cash flows from trading activities supplemented by disposals of under-performing assets. We have established a returns-based approach to the use of our future cash flows which seeks to continue our debt reduction programme and to provide a balance between additional value enhancing investment opportunities and more immediate returns to shareholders.

Our capital allocation framework first seeks to ensure that all priority calls upon cash flows are satisfied, including corporation tax, interest, scheduled debt amortisation and costs associated with debt refinancing, followed by on-going investment in our business. We are committed to gradually reducing our leverage over the medium term and, assuming we are on track to satisfy this objective, then any "excess" cash flow can be assessed for alternative use, including in particular, further investment in the estate or the return of capital to shareholders.

Capital investment

Capital investment is a value-enhancing use of cash generated by the business and includes the recycling of proceeds of disposals. It is an important contributor to delivering improved like-for-like net income within our leased and tenanted business and is an essential element of the strategic evolution of the business as we invest in the conversion of pubs to our managed operations.

Total capital investment in the year was £74 million (2015: £69 million), of which 57% was directed toward income growth opportunities (2015: 44%). We target Return on Investment (ROI) in excess of 15% on our growth oriented capital expenditure and have achieved an average ROI of 22% (2015: 19%) on schemes delivered during the financial year.

Allocation of excess cash

During the year to 30 September 2016 we generated £48 million of excess cash flow. Applying our capital allocation framework, the Board decided to utilise this excess cash flow to fund the £27.5 million cost to repurchase £250 million of the 2018 bonds and, in order to optimise shareholder returns, to fund a £25 million share buyback of ETI shares for cancellation. This share buyback programme was initiated on 22 March 2016 and to date we have purchased 14 million shares at an average price of 91p per share.

OUTLOOK

Trading in the first six weeks of the new financial year has been in line with our expectations and we are confident that the actions we are taking to execute our strategic plans are the most appropriate response to changes in the regulatory and economic environment. Whilst mindful that the potential impact of the regulatory changes is not yet completely clear, we plan to deliver positive like-for-like net income growth in our leased and tenanted tied pub estate for the full year and to further expand our commercial property and managed house businesses in line with our strategy.

REGULATORY REVIEW

On 21 July 2016 the new Statutory Code of Practice introduced by the Small Business, Enterprise and Employment Act 2015 came into effect. The Pubs Code applies to the six companies with over 500 pubs operating under tied leased and tenancy agreements in England and Wales, and is overseen by an independent Adjudicator.

The new legislation includes a tenant's right, under certain circumstances, to change the freely-negotiated commercial terms of their existing agreement to a new Market Rent Only (MRO) compliant agreement. This enables some occupational tenants to elect to opt-out of the supply tie at certain points or after certain exceptional events during the term of their lease agreement and therefore occupy the premises on a standard commercial property lease, paying rent only. In the event that a tenant elected to invoke this option, whilst our income derived from the supply of tied drinks products would be partially offset by increases in rent, it is possible that our total income from that property would be adversely affected.

The impact of MRO is expected to take effect over five years, as MRO trigger events are largely expected to arise through the cycle of five yearly rent reviews and agreement renewals, which apply only to our leases. As such, since the concept of MRO agreements was first announced in November 2014, we have worked hard to reduce our exposure to such longer-term leases and increase the proportion of our tied business operating under shorter-term tenancies where rent reviews and renewals do not apply. As at November 2014 we had 3,035 long-term lease agreements and this has reduced by 634 to 2,401 as at 30 September 2016.

From the date of the implementation of the new Pubs Code, there have been 285 potential MRO trigger events. In 94 of these cases the publican made a valid request for an MRO quote. Whilst none of these requests has yet to result in the introduction of an MRO compliant agreement, at this stage it is too early to say how many may ultimately do so. In our 2017 financial year we expect to have approximately 600 cyclical rent reviews and agreement renewals which may potentially constitute MRO events. Although we experienced a short-term slowdown in letting activity upon implementation of the Pubs Code, due to the need to re-market all lets in line with the new regulatory requirements, we do not expect this to impact our expectations for the current year financial performance.

FINANCIAL REVIEW

Income statement

*presented before exceptional items

We have delivered EBITDA before exceptional items of £292 million, down £4 million compared to the prior year primarily due to our disposal programme.

Leased and tenanted estate like-for-like net income, the primary component of our EBITDA, is derived from our rental income and our net income from the sale of beer and other products to our publicans. Adjusted for the effect of disposals we have seen our like-for-like leased and tenanted net income grow to £338 million (2015: £331 million), up 2.1%. In the year our like-for-like net income from rents is in line with last year, primarily assisted by growth at rent reviews and the reduction in unplanned business failures. This reduction in failures has enabled us to reduce our discretionary support by £1 million, whilst our net income from beer supply has grown by £6 million as pricing and mix benefits, net of discounts, have offset volume decline.

Pre-exceptional administrative costs in the year were £40 million (2015: £37 million), reflecting the recruitment of additional capability to assist in the delivery of our strategic objectives and an element of incremental cost associated with the introduction of the new Pubs Code. Whilst we continue to apply rigorous focus on tightly controlling our cost base we do expect our administrative costs to grow further, to around £42 million, in the current financial year in support of our strategic development.

Pre-exceptional net finance costs of £154 million (2015: £158 million) are £4 million lower than the comparative period as a result of our strategy of debt reduction, a strategy which we plan to continue in the current financial year, resulting in expected pre-exceptional net finance costs of around £148 million to £150 million.

Total pre-tax exceptional charges are £47 million (2015: £193 million) comprising a charge of £7 million (2015: £26 million) in respect of debt refinancing costs; a £33 million (2015: £163 million) charge in respect of the valuation of the property estate; a £9 million (2015: £8 million) charge relating to goodwill allocated to disposals; a £3 million (2015: £1 million) charge of exceptional administrative costs and a profit on disposal of property, plant and equipment of £5 million (2015: £5 million). The property estate valuation charge of £33 million (2015: £163 million) consists of a charge of £18 million (2015: £120 million) arising from the annual valuation exercise and a charge of £15 million (2015: £43 million) arising from the revaluation of assets on transfer to non-current assets held for sale.

Total tax in the period was a charge of £4 million (2015: £6 million credit), representing a charge of £25 million (2015: £25 million) on the pre-exceptional trading profit and a credit of £21 million (2015: £31 million) relating to the tax on exceptional items. The effective tax rate on the pre-exceptional trading profits arising in the year is 20.1% (2015: 20.5%) which is in line with our estimated effective tax rate for the financial year ending 30 September 2017.

Adjusted earnings per share (EPS) of 19.6p (2015: 19.4p), was up 0.2p on the prior year. Basic EPS was 14.2p compared to a loss per share of 13.0p in the prior year, primarily due to lower exceptional charges incurred in respect of debt refinancing and property valuation movements.

Cash flow

Net cash flow from operating activities at £269 million (2015: £265 million), was higher than the comparative period primarily as a result of tax payments being lower by £15 million due to the tax benefits from the prior year refinancing costs and repayments from HMRC in respect of prior year overpayments and capital allowance claims.

Net cash flows from investing activities created an inflow of £24 million (2015: £6 million). We reinvest the majority of our net disposal proceeds in capital investment in the estate, with net proceeds received from disposals of £98 million (2015: £75 million) helping fund the £74 million (2015: £69 million) invested in the period.

Financing cash flows of £275 million (2015: £267 million), primarily reflect net interest paid of £154 million (2015: £157 million), net loan repayments of £104 million (2015: £77 million), refinancing costs of £7 million (2015: £28 million) and £11 million (2015: £5 million) of payments to acquire own shares.

Balance sheet

Our balance sheet remains strong with a total net asset value of £1.4 billion, represented by £3.6 billion of property assets offset by net debt of £2.2 billion. The property asset valuation is based upon the valuation undertaken as at 30 September 2016. The Unique property estate is valued by Colliers International and the assets that secure the ETI corporate bonds are valued by GVA Grimley with the balance of the estate being valued internally. The basis of valuation is consistently applied with 94% of the property portfolio valued by independent external valuers. The result from this year's valuation was an increase in the total value of the estate by £3 million, or 0.1%, compared to a reduction in the prior year of £101 million, or 2.7%.

The share price at 30 September 2016 of 93p (2015: 108p), which equates to an equity value of £454 million (2015: £540 million), compares to a net asset value per share of £2.96 (2015: £2.70). We believe that the successful execution of our strategic plan, which will optimise the use and value of our asset portfolio, should lead to a significant reduction of this value differential.

Capital structure

We have a long-term, secure, flexible and tax efficient financing structure comprising of bank borrowings, securitised notes and corporate bonds. We are a cash generative business and have, over the past few years, used excess cash to reduce debt. During the year we have used cash generated by the business to meet the scheduled amortisation of securitised notes leaving total net debt at £2.2 billion (2015: £2.3 billion).

Corporate and convertible bonds

As at 30 September 2016 we had £1,125 million (2015: £1,125 million) of secured corporate bonds outstanding which are non-amortising, secured against ring-fenced portfolios of freehold pubs and attracting fixed interest rates averaging approximately 6.5% (2015: 6.5%).

On 4 November 2016, we completed a partial refinancing of our corporate bonds. Prior to the refinancing, £350.5 million of secured corporate bonds due in 2018 were outstanding with a coupon of 6.5%. We repurchased £250 million of these bonds at a cash purchase price of 111.0% of their principal amount, representing a cash payment of £27.5 million, which will be recorded as an exceptional finance charge in the current year income statement. The repurchase was financed by the issue of a new £250 million secured corporate bond due in February 2022 at a coupon of 6.375%. The result of the transaction is a reduction of the corporate bonds maturing in 2018 to £100.5 million.

In addition to the corporate bonds, we have unsecured convertible bonds that were issued in September 2013 for gross proceeds of £97 million and which mature in 2020. The convertible bonds have a coupon rate of 3.5% and are convertible at a share price of £1.91 into 50.8 million ordinary shares at any time up to 2020.

Bank borrowings

At 30 September 2016 our drawn bank borrowings net of Enterprise company cash were £32 million (2015: £50 million). The non-amortising revolving credit facility of £138 million, which was in place throughout the financial year ended 30 September 2016, was replaced on 24 October 2016 by a new £120 million non-amortising revolving credit facility which is available through to August 2020. The terms of the new facility are consistent with the old facility, including a coupon rate of 3% above LIBOR applicable to any drawn portion of the facility.

Securitised notes

During the period we have repaid, in accordance with scheduled amortisation, £74 million of the Unique A3 and A4 securitised notes. In addition we purchased and cancelled £10 million (2015: nil) of securitised notes in the open market, which left £1.1 billion outstanding at 30 September 2016. Operational cash generated from the business has been used to meet this scheduled amortisation of the securitised notes. The notes amortise over a period to 2032 and attract interest rates of between 5.7% and 7.4%. At 30 September 2016 the Group was £80 million ahead of the amortisation schedule of the "class A" securitised notes through early repayment and market purchases. Scheduled amortisation will require us to make payments of £77 million in 2017, £81 million in 2018 and £85 million in 2019.

On 24 March 2016 the noteholders of the Unique securitisation voted in favour of proposals to amend certain aspects of the transaction documentation to permit increased numbers of managed houses within the securitisation property portfolio. With these amendments in place, we believe the capital structure can fully accommodate the delivery of our strategic plans.

W S Townsend

15 November 2016

Group Income Statement

for the year ended 30 September 2016

Statement of Comprehensive Income

for the year ended 30 September 2016

Group Balance Sheet

as at 30 September 2016

Group Statement of Changes in Equity

at 30 September 2016

Group Cash Flow Statement

for the year ended 30 September 2016

Notes

The financial information for the years ended 30 September 2016 and 2015 is based on the statutory accounts for those years. The auditors issued unqualified opinions on the statutory accounts for those years which did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and which did not contain a statement under s498(2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 30 September 2015 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2016 have not yet been delivered to the Registrar of Companies. The information contained in this announcement was approved by the Board on 14 November 2016.

These results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

These preliminary financial statements have been prepared on a consistent basis using the accounting policies set out in the Annual Report and Accounts for the year ended 30 September 2015. New standards and interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee becoming effective during the year have not had a material impact on the results or the financial position of the Group.

The directors have considered the Group's financial resources including a review of the medium-term financial plan, which includes a review of the Group's cash flow forecasts for the period of at least 12 months from the date of approval of these financial statements and the principal risks facing the Group.

Based on the outcome of the above considerations the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the period of the review. For this reason the directors continue to adopt the going concern basis of accounting in preparing the financial statements. 

The Group has elected to classify certain items as exceptional and present them separately on the face of the Income Statement. Exceptional items are classified as those which are separately identified by virtue of their size or nature to allow a full understanding of the underlying performance of the Group and are explained further in notes 3 to 7 below.

An exceptional charge of £3 million (2015: £1 million) has been recognised in the year relating to costs incurred in respect of assignment premiums paid.

During the year 226 properties (2015: 260 properties) and various other plots of land with a book value of £91 million (2015: £68 million) were disposed of generating gross proceeds of £104 million (2015: £82 million) which, after taking account of disposal costs, resulted in an overall profit of £5 million (2015: £5 million).

In accordance with IAS 36 purchased goodwill is allocated to operations disposed of. Accordingly, goodwill of £9 million (2015: £8 million) has been allocated to the 226 properties (2015: 260 properties) disposed of during the year.

A valuation of the entire estate excluding non-current assets held for sale has been carried out at the year end. The result of the valuation is that the estate, excluding non-current assets held for sale, has increased in value by £3 million (2015: fallen by £101 million). Of this net increase, £21 million (2015: £19 million) has been credited to Other Comprehensive Income and £18 million (2015: £120 million) has been charged to the Income Statement as an exceptional item, reflecting property value movements below historic cost.

In respect of assets revalued on transfer to non-current assets held for sale, a total net write-down of £16 million (2015: £44 million) has been recorded. Of this net write-down, £1 million (2015: £1 million) has been debited to Other Comprehensive Income and £15 million (2015: £43 million) has been charged to the Income Statement as an exceptional item. At the year end, there are 68 properties (2015: 114 properties) included within non-current assets held for sale which have been recorded at the lower of carrying value on transfer to non-current assets held for sale, as assessed at the time of transfer, and fair value less costs to dispose.

The Group has completed a full strategic and legal review of its capital structure to ensure that it did not constrain its ability to execute its operational strategy. A significant output of this review was the consent solicitation approved by the noteholders of the Unique securitisation voting in favour of proposals to amend certain aspects of the documentation to permit the increased operation of managed houses within the securitisation.

Of the total fees incurred in this strategic review, £7 million has been recognised as an exceptional item in the Income Statement and £7 million has been deferred over the remaining life of the Unique securitised bonds.

The exceptional finance cost of £26 million recognised in the prior year related to the partial refinancing of the 2018 corporate bonds and the replacement of the bank facility.

7. Taxation

a) Pre-exceptional tax

The pre-exceptional tax charge of £25 million (2015: £25 million) equates to an effective tax rate of 20.1% (2015: 20.5%). The effective tax rate does not include the effect of exceptional items.

b) Exceptional tax

The items below are classified as exceptional due to their size and either because they do not relate to any income or expense recognised in the Income Statement in the same period or because they relate to exceptional items.

Under IFRS, a deferred tax liability has been recognised on the Balance Sheet relating to the estate. On transition to IFRS, the Group elected to apply IFRS 3 retrospectively to acquisitions from 1 January 1999 which led to an increase in goodwill in respect of this deferred tax of £330 million. As this pre-acquisition liability changes due to capital gains indexation relief and changes in the rate of UK tax, the movement is recognised in the Income Statement. The impact of capital gains indexation relief is calculated based on the movement in the Retail Price Index (RPI). A credit of £1 million (2015: charge of £7 million) has been classified as an exceptional item due to its size and because it does not relate to any income or expense recognised in the income statement in the same period.

The current rate of corporation tax is 20%, however the UK Government announced in March 2016 a reduction in the rate of corporation tax of 3% to 17% by 1 April 2020 and this was enacted during the year. Where appropriate, deferred taxation has therefore been calculated based on the current substantively enacted rate of 17% resulting in an exceptional tax credit of £9 million (2015: £nil).

A deferred tax credit of £4 million (2015: £28 million) relating to the movements in valuation of the estate and related assets and net profit/(loss) on disposal of properties has been recognised in the Income Statement.

An exceptional tax credit of £7 million (2015: £10 million) has been recognised in relation to all other exceptional items in the Income Statement. The total exceptional tax credit is therefore £21 million (2015: £31 million).

c) Tax recognised in Other Comprehensive Income

A charge of £nil (2015: £7 million) has been recognised in Other Comprehensive Income related to the revaluation of the estate.

In addition, a further credit of £24 million (2015: £nil) has been recognised in Other Comprehensive Income following the restatement of the deferred tax liability for the change in UK tax rate.

The calculation of basic earnings per share is based on the profit/(loss) attributable to ordinary shareholders for the year divided by the weighted average number of equity shares in issue during the year after excluding shares held by trusts relating to employee share options and shares held in treasury.

Adjusted earnings per share, which the directors believe reflects the underlying performance of the Group, is based on earnings attributable to ordinary shareholders adjusted for the effects of exceptional items, net of tax divided by the weighted average number of equity shares in issue during the year after excluding shares held by trusts relating to employee share options and shares held in treasury.

The dilution adjustments for share options and the convertible bonds are reviewed independently and where they are dilutive to the calculation of basic diluted earnings per share they are included in the calculation of both basic diluted and adjusted diluted earnings per share.

For the year ended 30 September 2016, the adjustment for share options is assessed as being dilutive (2015: anti-dilutive) which has resulted in an adjustment to the weighted average number of equity shares in issue during the period of 7.3 million shares (2015: nil).

For the year ended 30 September 2016, the adjustment for the convertible bonds is assessed as being dilutive (2015: anti-dilutive) which has resulted in an adjustment to profit in the calculation of diluted earnings per share of £5.2 million (2015: £nil) for the post tax interest cost associated with the convertible bonds and an adjustment to the weighted average number of equity shares in issue during the period of 50.8 million shares (2015: nil).

9. Property, plant and equipment

10. Non-current assets held for sale

When assets are identified for disposal and meet the criteria within IFRS 5 they are reclassified from property, plant and equipment to non-current assets held for sale and are revalued at that point to their fair value less costs to dispose. At the end of the year non-current assets held for sale includes 68 properties (2015: 114 properties) which are expected to be sold within the next year.

11. Additional cash flow information

a) Reconciliation of net cash flow to movement in net debt

b) Analysis of net debt

Underlying net debt represents amounts repayable to banks and other lenders net of cash retained in the business. Cash includes £112 million held in the securitised Unique sub-group, of which £65 million is held in a securitised reserve account.

12. Post Balance Sheet Events

On 24 October 2016 the Group replaced its existing £138 million revolving credit facility (RCF) that expired in September 2018 with a new £120 million RCF, which is non-amortising, attracts interest at 3% and expires in August 2020.

On 4 November 2016 the Group completed a partial refinancing of the 2018 corporate bond. The partial refinancing results in a lower interest coupon and an extended debt maturity. Prior to the refinancing £350.5 million of 2018 secured corporate bonds were outstanding with a coupon of 6.5%. The Group received and accepted tender instructions for £250 million of these bonds at a cash purchase price of 111% of their principal amount resulting in a £27.5 million repurchase premium which will be charged as an exceptional item in the year ending 30 September 2017. In connection with this partial refinancing the Group issued new £250 million secured corporate bonds, due in February 2022, at a coupon of 6.375%, resulting in a reduction of the corporate bonds maturing in 2018 to £100.5 million. The new issue benefits from a security package on substantially the same terms as the 2018 bonds.

Subsequent to the year end the Company has purchased 3 million shares at an average price of 92p per share which, when combined with the 11 million shares purchased during the year to 30 September 2016, totals 14 million shares purchased as part of its ongoing share buyback programme, at an average price of 91p per share.

13. Alternative Performance Measures (APMs)

Like-for-like leased and tenanted net income

Leased and tenanted like-for-like net income of £338 million (2015: £331 million) represents pre-exceptional EBITDA of £292 million (2015: £296 million), stated before property costs of £29 million (2015: £29 million), unallocated central costs of £44 million (2015: £41 million) and excluding £23 million (2015: £23 million) of net operating profit relating to commercial properties and managed houses and £4 million (2015: £12 million) of income in respect of disposals.

Like-for-like commercial properties net income

Commercial properties will increasingly become an important element of our business and we believe it is appropriate to assess the financial performance of these assets by measurement of their like-for-like net income. Commercial properties achieved like-for-like net income growth of 3.8% in the year to 30 September 2016 and relates to £7.1 million (2015: £6.8 million) of net income from the 138 commercial properties that traded as commercial properties throughout the financial years ended 30 September 2015 and 2016.

Total commercial net income in the year to 30 September 2016 was £17 million (2015: £17 million) which includes income derived from properties that converted to commercial properties during the financial years ended 30 September 2015 and 2016. The commercial properties net income in the year represents pre-exceptional EBITDA of £292 million (2015: £296 million), stated before property costs of £29 million (2015: £29 million), unallocated central costs of £44 million (2015: £41 million) and excluding £344 million (2015: £337 million) of net operating profit relating to leased and tenanted properties and managed houses and £4 million (2015: £12 million) of income in respect of disposals.

Excess cash flow

In the year we have introduced a Capital Allocation Framework to help us to optimise the use of excess cash flow. We therefore believe that the measurement of excess cash flow is an important new metric. Excess cash flow in the year was £48 million (2015: £15 million) and is derived from net cash flows from operating activities of £269 million (2015: £265 million) plus net cash flows from investing activities of £24 million (2015: £6 million) less net interest paid of £154 million (2015: £157 million) less debt restructuring and extinguishment costs of £7 million (2015: £28 million) less payments to acquire own debt of £10 million (2015: nil) less scheduled debt amortisation of £74 million (2015: £71 million).

ADDITIONAL INFORMATION

Principal risks and uncertainties

This section summarises the principal risks and uncertainties facing the Group. Full details of the principal risks and uncertainties are set out in the Annual Report and Accounts. This is not an exhaustive analysis of all the risks the Group may face, some risks have not been included in this section on the basis that they are not considered to be material. The Group has formal risk management processes in place to identify and evaluate these risks, however some of the risks are external and therefore beyond our direct control. The Board formally reviews all key risks and ensures that these are appropriately managed by the executive management team and the Board retains overall responsibility for the Group's risk management framework.

The internal audit function provides assurance to the Audit Committee on the effectiveness of the internal control procedures. This is done through completion of the annual internal audit plan, which takes into account current business risks. The Board has delegated to the Audit Committee responsibility for reviewing annually the overall effectiveness of the risk management programme.

In summary the most significant principal risks and uncertainties are:

Regulatory factors

The new Statutory Code of Practice introduced by the Small Business, Enterprise and Employment Act 2015 came into effect on 21 July 2016. This includes a tenant's right, under certain circumstances, to change the freely-negotiated commercial terms of their agreement to a new MRO compliant agreement, and is overseen by an independent Adjudicator.

Although this removes some of the uncertainty in the sector, there remains a lack of clarity around some areas of the Code, leaving elements open to interpretation. The operation of the regime could have an impact upon our profitability, our operational strategy and our relationships with our publicans.

In addition, there is a risk that other changes to the regulations relating to the sale of alcohol could have an impact on the Group's business and the ability of our publicans to operate their pubs. These risks include changes to licensing legislation, increases to alcohol duties imposed by the Government and the impact of social responsibility issues on the industry in general.

Mitigation process: The Group already operated effective policies and procedures in order to satisfy the existing industry code of practice framework, and had recruited additional compliance resource to ensure that we could satisfy any additional requirements of the Pubs Code. Now that we have more certainty over the content of the Code, we can ensure that our resource is suitably directed to safeguard compliance.

In order to mitigate any potential impact to total income, the Group is developing the necessary operational flexibility and capabilities to enable it to apply alternative operating models to the pubs in the estate that could potentially be affected by MRO.

The Group is a member of a number of trade bodies and associations, is a contributor to the Drinkaware Trust, and works closely with these organisations to promote responsible drinking practices. Further details can be found in the Corporate Social Responsibility section of our website at www.enterpriseinnsplc.com. We also work closely with Local Authorities as necessary to ensure licensing requirements are dealt with whenever appropriate.

Property valuations

Valuations of the Group's property portfolio have been affected by general economic conditions and resulting downwards pressure on maintainable income streams. These circumstances could continue and therefore reduce the valuation of the portfolio over time. There is a risk that future changes in the UK property market, including the uncertainty following the vote to exit the EU persisting, and general economic conditions could impact the value of our portfolio and the ability to dispose of underperforming pubs and the realisations from such disposals. Property valuations also have an implication for the overall value of the Group and impact on financial covenants. 

Mitigation process: The Group ensures that every pub in its portfolio is valued annually at market value by qualified external and internal valuers in accordance with RICS Valuation Standards (8th Edition). These valuations comply with the requirements of International Financial Reporting Standards. The valuation this year has led to a marginal uplift in the book values of the pubs recorded in property, plant and equipment.

While the valuers have noted some abnormal uncertainty in the property market following the vote to exit the EU, they have noted that there has been no material impact to-date and the market has remained strong post the vote.

Liquidity risk

The Group has a flexible financing structure comprising bonds issued from the Unique securitisation (securitised bonds), corporate bonds issued by the Company and bank borrowings.

The primary liquidity risks are the requirement to meet all on-going finance costs, repay the principal amounts of the securitised borrowings as they amortise and the corporate bonds as they fall due, ensuring there are sufficient funding facilities in place to enable the business to meet all cash flow requirements as they fall due and meeting the financial covenants associated with the financing structure.

Mitigation process: The Board regularly reviews detailed financial forecasts to ensure there is sufficient cash available to meet the requirements of the Group. These reviews include the ability to meet restricted payment conditions in the securitised bonds in order that any excess cash is permitted to be released by the payment of dividends through the securitisation structure to the Company.

There are a number of options available to the Group to manage its financing commitments including the disposal of pubs, reducing capital expenditure on the estate as well as raising new capital through a bank facility or issuing new corporate bonds.

Throughout the year the Group tests all of the financial covenants and forecasts are prepared during the budgeting process. The Board regularly reviews detailed financial forecasts of the Group to ensure there is sufficient headroom on all covenants.

On 24 October 2016 the Group concluded the arrangement of a new bank facility of £120 million which extends maturity to 2020. In addition, on 4 November 2016 it completed a refinancing of £250 million of the outstanding £350.5 million corporate bonds due in 2018. The new £250 million bonds are non-amortising, and have a maturity of 2022.

Economic climate and market risk

The Group's business operations are sensitive to economic conditions and the general economic outlook remains uncertain, especially post Brexit, which could impact publican profitability due to decreased consumer spending or an increase in the underlying cost base of our publicans. In addition, changes in interest rates and other economic factors could lead to an increase in the Group's weighted average cost of capital (WACC), reduced revenues or increased cost, all of which could impact our profitability and could lead to an impairment in the value of goodwill carried on the Balance Sheet.

Mitigation process: The Group regularly monitors its key income streams and publicans' performance to ensure the Group is competitively placed in the market, including regularly reviewing financial forecasts to assess the impact of economic conditions on its budget, strategic plans and its publicans. Careful consideration is given to all publicans' requests for additional operational and financial support as well as assessing appropriate investment in the development of our pubs to ensure that we remain competitively placed in the market.

The Group continues to foster mutually beneficial relationships with key suppliers to ensure the impact of any price increases is minimised wherever possible.

The Group regularly reviews its WACC in line with the capital structure, and how it compares to its competitors. It annually reviews the carrying value of goodwill and would write down the value if it deemed an impairment was necessary.