Annual Financial Report

Greene King plc

Report and accounts and AGM circular

In accordance with Listing Rule 9.6.1, copies of the annual report and accounts for the year ended 1 May 2011 and of the circular convening the 2011 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 report and accounts and the AGM circular will also be available on the company's website, www.greeneking.co.uk.

Lindsay Keswick

Company Secretary

28 July 2011

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 report and accounts and of the AGM circular. However, the information set out below, which is extracted from the report and accounts, 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 30 June 2011. This material is not a substitute for reading the full report and accounts. Page numbers and cross- references in the extracted information below refer to page numbers and cross-references in the report and accounts.

Responsibility statement

The following statement is extracted from page 81 of the report and accounts 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 (EU).

Under company law the directors must not approve the group financial statements unless they are satisfied that they present fairly the financial position, the 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;

§ 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 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 continue in business.

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 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."

The names of the directors who have given these statements are:

Rooney Anand (chief executive)

Tim Bridge (chairman)

John Brady

Ian Bull

Ian Durant

Norman Murray

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 24 of the report and accounts.

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. Formal risk management processes are in place to identify and evaluate risks, taking into account the likelihood of their occurrence, the scale of potential impact on the business and the impact of planned risk mitigation actions, so that risks can be ranked and actions suitably prioritised. 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.

Using a group-wide consistent approach, each business unit or functional area reviews its risks and mitigation plans on a regular basis, and draws up plans to manage new risks or gaps in mitigation plans. Progress of these risk implementation plans is monitored by senior management on a regular basis. In addition, a company-wide risk committee reviews in detail and monitors those risk mitigation plans, ensuring that plans work across the group as well as the sharing of best practice. Particular emphasis has been placed during the year on reviewing plans to deal with those risks which might arise from catastrophic events, and on emerging strategic risks. There has also been an increased focus on ensuring that risk mitigation plans are subject to independent review and audit.

At executive level, each of the risks has an identified owner to ensure senior management accountability for risk mitigation measures. Each business unit managing director or functional head presents a report to the audit committee once a year on the risk management processes for which they are responsible. The audit committee also reviews the company's top risks, as set out on the group's risk register, on an annual basis, prior to their submission to the board, which retains ultimate responsibility for the company's risk management framework.

The paragraphs below highlight some of the key risks and uncertainties which affect Greene King but are not intended to be an exhaustive analysis of all risks facing the business.

Economic risks

Risks

The group's business operations are sensitive to economic conditions and in particular to levels of consumer spending. Any delay in economic recovery could affect consumer expenditure and therefore our revenue. There is an on-going risk to our business of increases in the cost of key products, including food, drink, Sky and utilities. Our licensees are also affected by the economic climate, leading to the risk of more tenant defaults and business failures. Property values are also impacted by the economic uncertainty, and with it our ability to continue to make disposals at appropriate values.

Mitigation processes

We have a diversified business encompassing brewing and drinks distribution, pubs and restaurants, with a wide range of offers targeted at different consumer groups, as well as a broad geographic spread. The board and the senior management team regularly review the impact of the economic conditions on the group's budget and strategic plans. By emphasising excellent quality, service, value for money and up-to-date product offers, we aim to broaden our appeal to customers.

All parts of our business are constantly reminded of the need to keep costs, including labour costs, down. Our purchasing team has successfully negotiated various contracts to protect us against significant increases in major cost items and a range of other techniques are also employed to keep costs down and protect us from price volatility.

The vital signs of our licensee health are constantly monitored and additional operational and financial support is provided to licensees where necessary and appropriate. The introduction and roll out of our new franchise agreement is designed to ensure that more of our tenants are able to run profitable businesses.

The long term value of each of our sites is regularly assessed. Decisions are made on a site by site basis around further improvements, operational focus for poorer performing sites, appropriate impairments where necessary and the active marketing of sites that no longer have long-term value for Greene King.

Regulatory risks

Risks

The last few years have seen an increased governmental focus on alcohol consumption, in regard to both its impact on the health of drinkers and law and order issues. There is a risk of further legislation in these areas, including additional taxation, which may adversely impact our business.

A failure to comply with health and safety legislation, including in relation to food safety or fire safety, could lead to an incident which causes serious illness, injury or even loss of life to one of our customers, employees or tenants, in turn leading to a significant impact on our reputation.

The tied model in the UK has faced continuous scrutiny by various governmental bodies over the years and despite the EU block exemption and clean bills of health by the OFT, it could remain so in the future. Any changes to the model could impact our strategy and relations with our licensees.

Mitigation processes

We are committed to acting as a responsible retailer and engage actively with government to ensure that it recognises our belief that the safest and most responsible place to consume alcohol is in well-managed licensed on-trade premises. Internally we ensure that our training covers all aspects of licensing requirements and have due diligence in place to ensure that all our pubs comply with all relevant licensing legislation.

We have a range of policies and procedures in place, including training and e-learning, the carrying out of risk assessments, reporting and regular monitoring, to ensure compliance with existing regulatory requirements in relation to health & safety, including food safety. Audits of all managed houses are carried out every year by an independent company to measure their performance against strict standards, and scores continue to improve year on year. All of our Retail sites have had an independent fire risk assessment completed during the year, whilst in Pub Partners we have continued to improve the systems in place to protect our assets, our brand and our tenants.

We remain committed to the tied pub model and firmly believe that material changes to the tie, including its abolition, would lead to accelerated pub closures due to the higher costs of entry and ongoing overheads for licensees. Our new Code of Practice is designed to ensure that we continue to have a transparent and mutually beneficial relationship with our tenants.

Supply chain risks

Risks

Alongside the production and distribution of our own beers, we work with a number of key suppliers (particularly in relation to food, lager and wines, spirits and minerals) and third party distributors to supply our pubs and restaurants. Our business could be at risk of both interruption of supply and of failure of such key suppliers or distributors.

Mitigation processes

We have detailed risk mitigation and risk management plans in our internal production and distribution activities, including an on-going programme of testing the relevant disaster-recovery systems. We are always looking to improve and learn from other best-in-class operators in this area.

With regard to third-party suppliers, producers and supply chain partners, we review the disaster recovery plans of key suppliers regularly as well as our own back-up plans which are designed to ensure that we can cope in the event of the failure by or loss of a key supplier.

We also regularly review the financial position of our major suppliers to assess the risk of them ceasing to be able to trade and, with the help of external consultants, we monitor the financial stability of those we regard as of highest risk.

Operational risks

Risks

We are a consumer facing business with some well known national brands. Poor service standards and non-compliance with brand standards could lead to a loss of trade and a reduction in our perceived valuation by key stakeholders.

We are reliant on information systems and technology for many aspects of our business, which could be damaging if they were to fail for any length of time.

Mitigation processes

We endeavour to maintain tight controls to protect and enhance our reputation and brand values. We focus constantly on consistency and quality, with staff training, targeted investment programmes and mystery guest visits all designed to help maintain standards, and have systems in place to escalate and respond to relevant incidents. The introduction of PDAs for our Retail business development managers has helped improve the effective monitoring of brand standards.

A business continuity plan is in place to regularly review our critical business processes and ensure that we can continue to operate in the event of a major incident affecting our systems or technology. We have access to an off-site disaster recovery facility, which is regularly tested, in the event of a major issue with our head office or its systems.

Financial risks

Risks

It is vital to the business that we continue to meet our financial covenants and to ensure that there is sufficient short term financing to meet our business needs. We are exposed to interest rate risk on the variable and floating rate components of our financing.

We are also reliant on maintaining sound systems of internal control to protect us from risk of financial fraud or material error in our financial statements.

Mitigation processes

Our performance against our financial covenants is regularly monitored. We also undertake detailed and regular stress-testing of our performance against those covenants. Working capital is carefully forecast and closely managed. At the year end 98% of our floating rate debt was hedged through the use of derivative financial instruments, more details of which can be found in note 24 to the financial statements. During the year we successfully negotiated a new £400m 5 year bank facility.

We continue to move towards a single platform financial accounting system to unify the systems, processes and organisation of our finance teams. Our systems of internal control, which include segregation of duties and authority levels for expenditure and payments, are reviewed on a regular basis to ensure that they remain suitable.

People risks

Risks

A failure to attract, retain, develop and motivate the best employees and tenants across all our managed and tenanted pubs, our brewing operations and our head office may impact our ability to deliver our operational and strategic objectives.

Mitigation processes

We aim to recruit the best people with the right skills and offer training and development programmes to ensure that we retain them. Remuneration packages are benchmarked to ensure that they remain competitive, including incentive arrangements where appropriate. There has been an increasing emphasis on succession planning across the group.

We carry out an annual employee engagement survey to obtain direct feedback from our employees, and make sure that our businesses act on the results thereof to improve employee engagement.

Our licensee recruitment and training programmes, and the variety of rental agreements and support available, are designed to attract and retain the best quality licensees.

Related party transactions

The following description of related party transactions is extracted from page 70 of the report and accounts.

"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."