Annual Financial Report

Greene King plc

Annual report and financial statements and AGM circular

In accordance with Listing Rule 9.6.1, copies of the annual report and financial statements for the year ended 4 May 2014 and of the circular convening the 2014 annual general meeting (AGM) have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.hemscott.com/nsm.do.

The annual report and the AGM circular will also be available on the company's website, www.greeneking.co.uk.

Lindsay Keswick

Company Secretary

6 August 2014

Information required by the Disclosure and Transparency Rule 6.3.5

The principal purpose of this announcement is to notify the submission by the company to the UK Listing Authority of copies of the annual report and financial statements and of the AGM circular. However, the information set out below, which is extracted from the annual report, is also included in the announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issues as to how to make annual financial reports public. It should be read in conjunction with the company's preliminary results announcement released on 3 July 2014. This material is not a substitute for reading the full annual report. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the annual report.

Responsibility statement

The following statement is extracted from page 63 of the annual report and is not connected to the extracted information presented in this announcement or in the preliminary results announcement.

"Statement of directors' responsibilities in respects of the group financial statements

The directors are responsible for preparing the annual report and the group financial statements, in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union.

Under company law the directors must not approve the group financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the group for that period. In preparing those group financial statements the directors are required to:

§ select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

§ present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

§ provide additional disclosures when compliance with the specific requirements in IFRS's is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group's financial position and financial performance; and

§ state that the group has complied with IFRS's, subject to any material departures disclosed and explained in the financial statements; and

§ make judgments and estimates that are reasonable and prudent.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group's transactions and disclose with reasonable accuracy at any time the financial position of the group and enable them to ensure that the group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Statement of directors' responsibilities in respect of the parent company financial statements

The directors are responsible for preparing the strategic report, the directors' report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing those financial statements, the directors are required to:

§ select suitable accounting policies and then apply them consistently;

§ make judgments and estimates that are reasonable and prudent;

§ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

§ prepare the financial statements on the going concern basis unless it is appropriate to presume that the company will not continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the company financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Directors' responsibility statement

The directors confirm, to the best of their knowledge:

· that these financial statements prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the parent company and undertakings included in the consolidation taken as a whole; and

· that the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· having taken into account all matters considered by the board and brought to the attention of the board during the year, the directors consider that the annual report, taken as a whole, is fair, balanced and understandable. The directors believe that the disclosures set out in this annual report provide the information necessary for shareholders to assess the company's performance, business model and strategy.

The names of the directors who gave these statements are:

Rooney Anand (chief executive)

Tim Bridge (chairman)

John Brady

Mike Coupe

Ian Durant

Matthew Fearn

Lynne Weedall

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 30 of the report and accounts.

We have a formal risk management process which is designed to identify, assess and prioritise risks within the business, so that their impact on sustainable profitability is minimised and the group is able to deliver our business plans and strategic objectives, as well as to maximise shareholder returns.

The board retains ultimate responsibility for the company's risk management framework and reviews the group's principal risks on an annual basis. The board has delegated responsibility for assurance for the risk management process to the audit committee, which regularly reviews the risk management processes for each division and functional area. The implementation of risk management and internal control systems is the responsibility of the executive directors and other senior management.

Each division and functional area is responsible for maintaining, reviewing and regularly updating a risk register. Classification of risks takes into account the likelihood of their occurrence and the scale of potential impact (both financial and reputational) on the business. Each division and functional area is then responsible for evaluating current controls and drawing up plans to improve controls and manage new risks. Progress of these risk implementation plans is monitored by senior management on a regular basis. In addition, a company-wide risk committee reviews the individual risk registers in detail, monitors the risk mitigation plans and assists in the production of the group risk register.

Given that some risks are external and not fully within our control, the risk management processes are designed to manage risks which may have a material impact on our business, rather than to fully mitigate all risks.

This section highlights some of the key risks and uncertainties which affect Greene King, but it is not intended to be an exhaustive analysis of all risks facing the business.

Strategic Risks

Specific risk area

To achieve our Retail expansion plans we need to be able to acquire existing pubs, smaller pub businesses and brown- or green-field sites on which to build new pubs. The upturn in the economy has resulted in increased activity meaning more businesses competing for the same sites.

Potential impact

A failure to find and secure the acquisition (and development where appropriate) of top quality sites could reduce our rate of growth in the future. We risk costs creep due to supply and demand on land, materials and labour.

Mitigation

We maintain a pipeline of sites (currently 100+) available for purchase and have expanded our team of acquisition managers responsible for securing new sites. Our in-house property development team is employed to help deliver new-build projects on time and on budget.

Monitoring /assurance

Regular updates are provided to management as to the status of potential acquisitions and of development progress for new build sites or major conversions of acquired pubs. Monthly estate plan meetings are held to discuss progress.

Economic and market risks

Specific risk area

The wider economic situation within the UK continues to affect consumer confidence, with a consequential impact on levels of consumer spending in our pubs and those of our tenants and lessees. We also face increasing competitor activity.

Potential impact

Consumers spending less in our pubs, whether due to concerns over interest rates, spending on large ticket items, or significant competitor activity, could reduce our revenue and lead to lower growth rates.

Mitigation

By focusing on value, service and quality we aim to continue to appeal to a broad range of consumers. We have a wide geographic spread of pubs including the more affluent areas of London and the South East, and a good range of customer offers. We provide on-going training, operational and financial support for our tenants alongside continued agreement innovation to ensure that more of our tenants are able to run profitable businesses.

Monitoring/assurance

The executive teams and the board receive regular updates on performance. Competitor activity is monitored at both a strategic and tactical level to enable suitable actions to be developed in response. All business units keep and update profit protection plans in case of any downturn in trading conditions. Our Pub Partners division constantly monitors the vital signs of our licensee health, including debt levels and the numbers of tenancies at will.

Specific risk area

Inflationary trends increase the costs of our key products, including food, drink and site services including utilities.

Potential impact

Higher costs could impact margins and lead to reduced profitability.

Mitigation

We have contracts in place with major suppliers designed to protect us against significant increases in major cost items and against price volatility. We continually evolve the composition of menus and retail prices to optimise value to the customer and profits for the company.

Monitoring/assurance

All costs, including labour, are closely monitored by the executive teams to ensure that they remain in line with budget.

Operational and people risks

Specific risk area

An event or series of events (including poor service standards and food provenance issues) may occur which damages our brand in the eyes of our customers, particularly in the age of increasing use of social media.

Potential impact

Customers may stop visiting our sites or visit less frequently, leading to a loss of revenue and reputational damage.

Mitigation

We maintain tight controls to protect and enhance our reputation and brand values, alongside staff training, targeted investment programmes and mystery guest visits. Incident escalation and management systems are also in place. We have upweighted technical support in key areas including product recall procedures.

Monitoring/assurance

We have introduced a new supplier assurance programme to enable us to give appropriate assurances to our customers as to the provenance of the food in our pubs. Our new e-commerce team monitors social media comments about us. Third party audits on food take place regularly to ensure standards are being maintained.

Specific risk area

We are reliant on information systems and technology for many aspects of our business.

Potential impact

An inability to quickly recover key operating systems could impact our ability to do business and cause reputational damage. Loss of theft of personal data belonging to our customers or employees (including by cyber attack) could also cause reputational and financial damage.

Mitigation

Our networks are protected by firewalls and anti-virus protection systems and back-up procedures are also in place. A business continuity plan is in place for critical business processes. We have access to an off-site disaster recovery facility in the event of a major issue with our head office or our systems. A working party has been established to review data security and drive improved behaviours and response management. A data security manager has been recruited.

Monitoring/assurance

The IT department constantly monitor threats to data protection by viruses, hacking and breach of access controls. The business continuity plan is also regularly reviewed and tested.

Specific risk area

We are reliant on a number of key suppliers and third party distributors to supply our pubs and restaurants and are also at risk of an event occurring which may prevent us from producing, packaging and distributing our own beers.

Potential impact

Supply disruption (whether of our own beers or any third party products) could impact customer satisfaction. Additionally a key supplier or distributor failure could over the longer term reduce our revenue or lead to increased costs if alternative arrangements are required.

Mitigation

Detailed risk management and mitigation plans exist in our internal production and distribution activities. Our key suppliers are expected to maintain disaster recovery plans. We also maintain back up plans in the event of the failure by or loss of a key supplier.

Monitoring/assurance

Risk mitigation and product recall plans are reviewed and tested regularly across the business and disaster recovery plans of suppliers are reviewed regularly.

Specific risk areas

We are reliant on the quality of our employees and our licensees.

Potential impact

A failure to attract, develop, retain, motivate and (in the case of senior employees) plan for the succession of the best employees across our expanding Retail business may mean that we are not able to execute our business plans and strategy. A failure to attract and retain good quality licensees will impact our Pub Partners business.

Mitigation

A branded recruitment plan in in place with a strong pipelines of suitable candidates. Remuneration packages are benchmarked to ensure that they remain competitive. Career development plans are in place to retain key employees and leadership training has been introduced for all levels of management. Exit interviews are conducted with all retail managers to enable action plans to be developed to deal with key leaver reasons. Upgraded apprenticeship schemes are provided through a new supplier. The range of tenancy agreements, training programmes and support available is designed to attract and retain the best quality licensees.

Monitoring/assurance

Our annual employee engagement survey is used to obtain direct feedback from employees on a range of issues. Both staff and licensee turnover is measured and reviewed by relevant management teams.

Regulatory risks

Specific risk area

The government has confirmed that it proposes to introduce a statutory code to manage the relationship between pub companies and their tenants, which could have significant implications for our Pub Partners division.

Potential impact

A mandatory statutory code, particularly if it introduced greater controls on how pub companies can deal with their tenants, could increase costs for Pub Partners and reduce revenue.

Mitigation

We will continue to engage actively with government in relation to its proposed plans. We have increased resources within Pub Partners compliance team to ensure the voluntary code is complied with and will review resources again if a statutory code in introduced.

Monitoring/assurance

The regulatory landscape is monitored on an on-going basis by our public affairs team, so we remain aware of any potential changes which may adversely impact our business. Arrangements to monitor compliance with any new statutory code will be reviewed once details are confirmed.

Specific risk area

We are required to comply with a wide range of health & safety legislation, including in the areas of food safety and fire safety, across all parts of our business.

Potential impact

A major food safety or health & safety incident which causes serious illness, injury or even loss of life to one of our customers, employees or tenants could have a significant impact on our reputation.

Mitigation

We have a comprehensive range of formally documented policies and procedures in place to ensure compliance with current legislation and approved guidance in this area, as well as our own high standards. Our health & safety policies are continually reviewed by our primary authority partner, Reading Borough Council, which has rated our safety management systems as very good. Safety levels for new tenants have been improved, and safety measures are in place to ensure that product integrity is maintained and that all food and drink products are fully traceable.

Monitoring/assurance

We have a centrally managed system of compliance tracking (KPI's), which is validated by both internal and independent external audits carried out at all Retail sites to measure performance against certain strict health & safety standards including food safety and fire safety. Operational managers are regularly briefed on performance and remedial actions are tracked from the centre. We also make use of external benchmarking.

Financial risks

Specific risk areas

Our financing structure requires us to be able to repay capital borrowed and interest on time and to ensure that we operate within certain financial covenants.

Potential impact

Breaching our financial covenants would have a significant impact on our ability to pay dividends or reinvest cash back into the business. It could also impact our reputation and on-going creditworthiness.

Mitigation

Our long term strategy and yearly business plans are formulated to ensure that financial covenants can be met. Our securitised vehicle had a free cash flow debt service cover ratio at the year end of 1.5x, giving 29% headroom. Under our bank facility we had 75% headroom on the key net debt/EBITDA covenant.

Monitoring/assurance

We regularly monitor our performance against our financial covenants, including stress-testing. Working capital is carefully forecast, regularly reviewed by the finance teams and closely managed.

Specific risk area

We are reliant on maintaining robust systems of internal control to deal accurately with the large numbers of transactions undertaken by the business and to ensure compliance with statutory obligations particularly with regard to taxation.

Potential impact

Inadequate internal control systems increase the risk of fraud being perpetrated against us. Non-compliance with statutory obligations or a material mis-statement in the reported results of the company could damage our reputation.

Mitigation

Our systems of internal control, more details of which appear on page 48 of the annual report, include robust controls, appropriately qualified staff, segregation of duties and authority levels for expenditure and payments. Appropriate advice is taken to ensure relevant statutory compliance and there is regular board oversight of open tax positions and the group's tax policy.

Monitoring/assurance

Regular management accounts are produced for each area and reviewed in detail, to enable irregularities to be exposed. There is a detailed external audit of our statutory accounts.

Specific risk area

We maintain two defined benefit pension schemes which must be funded to meet the required benefit payments. The value and funding of the schemes are subject to the risk of changes in life expectancy, actual and expected price inflation and changes in investment yields.

Potential impact

The difference in value between the schemes' assets and liabilities may vary, resulting in an increased deficit being recognised on our balance sheet. The volatility of this deficit makes longer term planning more difficult.

Mitigation

All the schemes are now closed to future accrual to reduce volatility.

Monitoring/assurance

There is regular monitoring of the schemes' investments and dialogue with the trustees on an on-going basis regarding funding requirements.

Related party transactions

The following description of related party transactions is extracted from page 101 of the annual report.

"31 Related party disclosures

No transactions have been entered into with related parties during the period.

Greene King Finance plc is a special purpose entity set up to raise bond finance for the group, and as such is deemed a related party. The results of this entity have been consolidated.

Compensation of directors and other key management personnel of the group

Directors' interests in an employee share incentive plan

Details of the options held by executive members of the board of directors are included in the remuneration report. No options have been granted to the non-executive members of the board under this scheme."