Enterprise Inns plc Annual Report and Accounts 2012

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Notes to the Accounts at 30 September 2012 14. Earnings per share The calculation of basic earnings per share is based on the earnings attributable to Ordinary Shareholders for the year of £44.1 million (2011: £24.0 million) and on 499.4 million (2011: 499.0 million) shares, being 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, of £102.2 million (2011: £117.1 million) and on 499.4 million (2011: 499.0 million) shares, being 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. Basic earnings are adjusted as follows: 2012 £m 2011 £m Profit after tax 44 24 Exceptional finance costs: Interest payable 1 3 Gain on purchase of own debt (13) – Movement in financial instruments (1) 1 Other exceptional items: Net profit on disposal of property, plant and equipment including allocation of goodwill (15) (26) Movements in valuation of pub estate and related assets 127 191 Administrative expenses 4 2 Exceptional tax (45) (78) Annual Report 2011 2012 Our Accounts Adjusted earnings 102 117 Diluted earnings per share is based on the earnings attributable to Ordinary Shareholders for the year of £44.1 million (2011: £24.0 million) and adjusted earnings of £102.2 million (2011: £117.1 million) and on 500.2 million (2011: 499.8 million) ordinary shares calculated as follows: 2012 million 2011 million Basic weighted average number of shares 499.4 499.0 Enterprise Inns Quest share save scheme – 0.6 Long-term and short-term incentive plans 0.8 0.2 Diluted weighted average number of shares 500.2 499.8 72
Notes to the Accounts at 30 September 2012 15. Goodwill 2012 £m 2011 £m At 1 October 377 392 Allocated to disposals (18) (15) At 30 September 359 377 Allocation to disposals In accordance with IAS 36 goodwill is allocated to operations disposed of, based on the relative value of the disposal to operations retained. Accordingly, goodwill of £18 million (2011: £15 million) has been allocated to the 318 pubs (2011: 571 pubs) disposed of during the year. Impairment testing Goodwill acquired via business combinations is tested annually for impairment. For this purpose, the goodwill is allocated to the pub estate being a group of Cash Generating Units (CGUs), as this represents the lowest level within the Group that goodwill is monitored for internal management purposes. The recoverable amount is the higher of fair value less costs to sell and value in use. The impairment test compares the recoverable amount of the CGU with its carrying amount. The recoverable amount is determined from value in use calculations. Value in use is calculated using budgeted EBITDA and forecasts of cash flow over a three year period, as prepared for the Board. The three year cash flows continue to be risk adjusted to reflect a conservative outlook. They include the impact of the reduction in consumer spending as a result of the difficult economic conditions and have also been adjusted to reflect the Group’s disposal programme. The key assumptions in these estimates are trading margin, rent projections and levels of working capital required to support trading. Key assumptions have been assigned values by management using estimates based on past experience and expectations of future changes in the market. These assumptions have been reviewed by the Board and are believed to be reasonable. Cash flows beyond three years are extrapolated using a 2% growth rate in operating income (2011: 2%) which was selected as prudently below the long-term average growth rate for the industry. The key driver to maintaining the growth rate is management’s focus on an on-going commitment to improve the quality of the estate whilst remaining focused on meeting the challenges of changing consumer demand. The discount rate is based on the Group weighted average cost of capital (WACC) which has been risk adjusted to reflect current market factors which have not already been captured within the cash flows. In making this adjustment to the Group WACC, management have risk adjusted the cost of debt and the cost of equity by using an average of the highest four market risk premiums and Company betas obtained from five advisors at the year end date. The cost of equity has been further inflated by using a theoretical share price derived from peer group data. The pre-tax risk adjusted discount rate used in the testing at 30 September 2012 was 8.0% (2011: 8.5%). As of 30 September 2012, the headroom on the impairment test is £584 million, the pre-tax adjusted discount rate could increase to 8.8% before any impairment would be required. Management have considered the volatility within the current economic climate within the risk adjusted cash flow and the growth rate of any cash flows beyond the budget period would need to fall by 0.9% before any impairment would be required. There is no impairment to goodwill in the period. Our Accounts Annual Report 2011 2012 73
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