Final Results

GREENE KING plc

Preliminary results for the 52 weeks to 01 May 2011

Record results; strong growth in sales, profits and dividends

Highlights

§ Record revenue of over £1bn drives record profit

§ Accelerated Retail growth; like-for-like sales +4.9% & food like-for-like sales +8.1%

§ Retail operating margin up 60bps

§ Strong progress on Retail expansion strategy:

o Additional 47 high quality Retail sites

o Cloverleaf and Realpubs fuel expansion and increase food and premium exposure

o Food-related sales now c. 60% of total sales and over 36m meals sold

n Like-for-like EBITDA up in Pub Partners; franchise innovation growing pub profitability

n Profit up 4.1% in Brewing and Brands, led by growth in core brands

n Strong cash generation funds dividend growth of 7.4%

Rooney Anand, Greene King chief executive, comments:

"This has been a very successful year for Greene King, delivering revenue of over £1bn for the first time, record profits and a 7.4% dividend increase. Our Retail business continues to spearhead our growth, as we increase our share of the eating out market. Our Retail expansion strategy is on track with our most recent acquisitions, Cloverleaf and Realpubs, trading well. Our teams across the business have delivered these results by giving our customers compelling value, service and quality and going forward, there are numerous opportunities for further growth.

Looking ahead, we foresee another testing year. The UK economy continues to face inflationary pressures, impacting on both our customers' spending power and our cost base, and the impact of the government's cutbacks is still to take full effect. However, these results show, through our sales momentum, our Retail expansion strategy and our strong profit conversion, that we can continue to deliver attractive returns to our shareholders."

* before exceptional items

A copy of the results presentation will be available on our website: www.greeneking.co.uk.

For further information:

Notes for editors

§ Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs 20,000 people across its main trading divisions: Retail, Pub Partners and Brewing and Brands.

§ It operates 2,429 pubs and restaurants across England, Wales and Scotland, of which 915 are retail pubs and restaurants and 1,514 are tenanted or leased pubs. Its leading retail brands are Hungry Horse, Old English Inns, Eating Inn and Loch Fyne Restaurants. 95% of the estate is either freehold or long leasehold.

§ Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries. Its leading ale brands are Greene King IPA, the No.1 cask ale in the UK, Old Speckled Hen, the No.1 premium ale in the UK, Abbot Ale, the No.1 premium cask ale in the UK and Belhaven Best, the No.1 ale brand in Scotland.

Chairman's statement

Results

We have had a very successful year with record results and strong growth across the business. For the first time, our turnover for the year has topped the billion pound mark at £1,042.7m, up 6.0% on last year, with operating profit up 5.1% to £222.0m*. Profit before tax and exceptional items also reached a record level, up 13.8% on last year to £140.0m, with earnings per share up 11.1% to 48.2p.

Dividend

As a result of the company's strong earnings growth and cash generation, the board is able to recommend a final dividend payment of 16.8p per share. This will take the total dividend payment for the year to 23.1p per share, up 7.4% on last year. The final dividend is expected to be paid on 12 September 2011 to those shareholders on the register at the close of business on 12 August 2011.

Acquisitions

The company's strategy is focused on driving long-term growth and profitability by expanding and continuing to improve the quality of the Retail estate. In line with this strategy, in January we acquired Cloverleaf Restaurants for £55.7m. At the time, Cloverleaf had eleven food-led sites trading in the North of England and the Midlands. We have since opened a twelfth site and have a healthy pipeline of further sites.

Then, in April, we acquired Realpubs for £52.2m. This group comprised 14 premium local pubs in London. We also acquired a further 13 sites for £22.8m and exchanged on eight greenfield sites.

Disposals

During the year, we disposed of 108 non-core pubs and other properties for £27.8m, ahead of book value.

Board

In March, we bid farewell to Jane Scriven, who had served on our board as a non-executive director for six years. I express my thanks to her for the sound and reliable contribution she made at board and committee meetings over that time. We wish Jane well in the future.

I would also like to thank Ian Bull, our group finance director for the last five years, who is leaving us at the end of June. He has played a most important role in driving our performance and continued success and he leaves us in a strong position, both financially and operationally, with our best wishes for the future.

We have appointed Matthew Fearn as group finance director to replace Ian and he will be joining us at the beginning of September.

People

I would like to welcome all those who have joined us during the year, not least those who were working in the businesses we have acquired. We look forward to benefiting from the skills they bring and wish them every success with the company.

May I also extend my thanks to everyone at Greene King for the important part they have played, and continue to play, in helping us to deliver these record results, particularly given the challenging conditions that we face. We have a strong team and we want to be the best.

Tim BridgeChairman

29 June 2011

*As throughout this document, profit figures are shown before exceptional items

Chief executive's review

This has been another strong year for Greene King with good progress across all businesses delivering record revenue and profit. Revenue was £1,042.7m, up 6.0% on last year, with strong growth in Greene King Retail and Brewing and Brands. Operating profit was £222.0m, 5.1% ahead of last year, with a healthy operating margin of 21.3%. Profit before tax and exceptionals was £140.0m, up 13.8% on last year and another record performance, while adjusted earnings per share was up 11.1% at 48.2p. The board is recommending a final dividend of 16.8p per share, 7.7% ahead of last year, taking the total dividend for the year to 23.1p per share, up 7.4%.

Market and business overview

We have delivered a record performance in a year in which the UK economy moved out of recession but failed to deliver anticipated growth levels. Real household income fell and is expected to do so again in 2011, impacting on consumer confidence. We also saw changeable trading in the second half of the year due to the weather, with snow across the country in December but much better Spring weather. We also benefitted from a successful Royal Wedding weekend. 

The pub and beer industry also continues to face political and social challenges. The duty escalator is penalising responsible drinkers and accelerating the closure of pubs and clubs in communities across the country, as alcohol is increasingly consumed in the home. We believe the government should be doing more to reverse current consumption trends, starting with setting a credible and meaningful minimum price for alcohol to target irresponsible retailers and drinkers without penalising the responsible majority.

To deliver a record performance in this context demonstrates the success of our strategy for growth and the strength of the people, the brands and the pubs at Greene King. We believe the best way to deliver long-term, profitable growth is to focus on expanding our Retail business and growing our share of the eating out market. This strategy is supported by improving the quality of our tenanted and leased estate via targeted disposals, agreement innovation and enhanced control of the offer, and investing in our leading ale brand portfolio.

Across all businesses, our operational focus on delivering industry-leading Value, Service & Quality (VSQ) to our customers has driven our record performance. In this austere age, our customers are looking for 'affordable treats', which we are delivering by continuously adding value to our offers, particularly in food, by exceeding customer expectations on service, and by maintaining industry leading product and offer quality.

We are focused on increasing our share of the growing eating-out market. In Retail, food and food-related sales are approaching 60% of total sales following another year of strong growth. We have upgraded kitchen facilities across the estate, further developed our menus and targeted cover growth and share gains through delivering exceptional value to our customers. Similarly in Pub Partners, our investment is focused on improving the food capability of our pubs. Our recruitment and training is increasingly geared to improving the overall food expertise amongst our licensees and we continue to utilise our Retail expertise to offer licensees a range of food solutions to grow their food sales.

We are investing in the development of the Greene King brand. We have launched our 'proper pubs' and 'proper pint' campaigns, investing £2.5m, and since the year-end, we have launched the new Greene King brand identity. We have updated brand imagery, brand colours and the company website, to reflect Greene King's reputation for delivering authentic hospitality to its customers.

We have completed the integration of Belhaven, maintaining business continuity and capturing anticipated synergies of £1m per annum. Belhaven has been a great success story for Greene King. Profits have increased by 77% since the 2005 acquisition, following another good year this year. Investment in Scotland continues: our new brewhouse opened for business in May 2011 and we acquired another four Retail pubs in the year. I am confident that the fully integrated Scottish operations will continue to be successful going forward. As a result of this integration, our Business Review is presented on the basis of the post integration model.

Strategy update

Our strategy for growth is three-fold: first, expanding the number of sites in Retail, our biggest and fastest growing division, to 1,100, and improving the overall quality of the estate; second, reducing our tenanted and leased business to around 1,200 sites, and taking more control over the offer in the core estate; and third, increasing investment and driving growth of our core ale brands. Following good progress in the year, we remain on track to meet our targets.

Retail expansion

We started the year with 888 sites and ended the year with 915 sites. We acquired, or transferred in from Pub Partners, 39 sites and disposed of a small number of sites, mainly from the value high street segment. In addition, we exchanged on eight greenfield sites. All acquisitions should improve the overall quality of the Retail estate by either driving greater exposure to the eating out market or driving the premiumisation of our overall offer. The net acquisition cost of the acquired sites was £130.7m and these acquired sites are expected to deliver an average site EBITDA of £436.4k, more than double the average for the existing estate.

We acquired Cloverleaf Restaurants on 28 January 2011 for £55.7m. Cloverleaf consists of 12 freehold, food-led sites, delivering, at the time of the acquisition, an average weekly turnover (AWT) of c.£40k and average EBITDA per site of c.£540k. Food is 69% of sales. Cloverleaf brings us carvery expertise and another concept to expand through our new-build programme. The Cloverleaf pipeline of new sites will deliver a minimum of ten additional sites trading by the end of April 2013 and we are looking to expand the concept further south and into Scotland.

We acquired Realpubs on 27 April 2011 for £52.2m. Realpubs consists of 14 London pubs, all but one freehold, trading a well developed premium pub dining concept. AWT is c.£25k and EBITDA per site is c.£450k. Food is currently 33% of sales and growing strongly. We are looking to work closely with the team at Realpubs to spearhead our premium growth by converting a number of Greene King London pubs to the Realpubs concept, acquiring additional sites in London and expanding the Realpubs concept outside of the M25.

Tenanted quality improvement

We reduced the number of tenanted and leased pubs by 4% and grew average EBITDA per pub in Pub Partners by 1.9%. We are increasingly operating Pub Partners as a more customer focused business, becoming more directive and influential over our licensees' offers. This is reflected in the agreement innovation we have delivered in the year, including the launch of Blueprint, our new and innovative franchise-style agreement, which is delivering site profit increases of £65-£70k per annum. We are recruiting better quality licensees through a more demanding recruitment process, we are reducing direct licensee support and we have increased investment in our pubs by 33%.

Core ale brand growth and investment

In the year we launched 'Man Deserves a Proper Pint', a £1m media campaign for Greene King IPA. The campaign is expected to reach around 14m men through the national press and male targeted magazines. We also increased our 'above-the-line' media investment in Belhaven Best with a new TV advertising campaign. Greene King IPA is the official beer of England Rugby and Old Speckled Hen sponsors prime time on the Dave TV Channel. Total investment in our brands in the year was £6.8m.

Retail

Greene King Retail has again demonstrated its ability to generate profitable, industry-leading sales growth, both through underlying organic growth and by growing the size and quality of its estate. Revenue was £710.7m, up 8.1% on last year on 1.5% more sites. LFL sales growth was 4.9%. Operating profit was £132.0m, up 11.2% on last year with operating margins growing 60bps in the year. In the year, all brands and segments performed well, as did all strategic growth categories, including food, wine, soft drinks, coffee and cask ale.

Our strong growth has been achieved through a focus on three strategic pillars: -

1. Delivering the best VSQ in the industry to drive volume and value growth

2. Investing behind our food offer to drive industry-leading growth and a greater share of the sales mix: and

3. Focusing on operating branded and segmented offers

Value, Service & Quality

We only operate pubs, restaurants or hotels if they can deliver the best VSQ in their markets to drive both organic volume and value growth. We have improved value across the estate through menu management, targeted promotional activity and known value item (KVI) drink pricing. We have enhanced our service standards as measured by a 230bps improvement in our Net Promoter Score and by rolling out table service through the Eating Inn brand. On quality, we are rolling out illy coffee, which is driving a 9% increase in sales per site, we have won a series of awards for our exclusive wine range, we have signed up 400 apprentices to our new apprenticeship scheme and we have invested £76m in improving the fabric and facilities of our pubs, restaurants and hotels.

Food

The eating out market in the UK is worth over £40bn and is expected to deliver long-term growth. Greene King is outperforming the market with food sales in the year of £263m, up 13% on last year, and LFL food sales growth of 8.1%. We sold over 36m meals, of which two million were fish & chips, and food is now almost 40% of sales with food-related sales approaching 60%. We are investing in kitchen improvements to drive higher maximum cover turns and improve service standards. Our growing scale, which has facilitated moving to a central distribution (CD) system in Local Pubs, taking the total food distributed through CD to 94%, and increasing buying and food development expertise, are allowing us to offset rising cost pressures. And, we are acquiring food-led businesses, such as Cloverleaf, and expanding existing food-led brands, such as Eating Inn and Hungry Horse.

Branding and segmentation

Greene King Retail operates a focused branded and segmented structure. In Destination Pubs, every pub or restaurant is branded, operating a strict, centralised commercial and operating structure. Each brand appeals to specific segments of the population and is targeted at specific occasions during the week. In Local Pubs, we operate under a segmented operating policy, but each pub appeals to a broad cross-section of the local community and each house manager has significant opportunity to stamp their own flair and imagination on each business, to cater for specific local needs. This brand and segmented approach gives us significant buying scale, facilitates a higher level of customer understanding and analysis, and simplifies our acquisition strategy and capital expenditure programme. All brands have their own market positions and are taking market share.

Destination Pubs

It was another strong year in Destination Pubs. Hungry Horse delivered good growth, with LFL sales up over 10% for the third year running and average weekly turnover (AWT) up 7.0% to £19.0k. VSQ improvements delivered cover growth of 17%, with further dish innovation such as the 'Leaning Tower of Pizza Burger'.

Our success over the last two to three years has led to Hungry Horse winning the 2011 Great British Pub Food 'Concept of the Year' award.

Old English Inns (OEI) also had a good year with good LFL sales growth and all major categories in growth. AWT grew 6.6% to £18k. Food covers grew 12% and we introduced a cultural change programme to OEI, putting service and people at the heart of the customer offer. 

Our mid-market family dining brand, Eating Inn, is now up to 14 sites with a further 19 to be developed this year. Eating Inn offers full table service, a contemporary design, excellent value for money and a fresh, healthy food offer. Food is 68% of sales.

Loch Fyne Restaurants (LFR) saw LFL sales slightly down. We launched the first loyalty card in Greene King across a number of trial sites in LFR, signing up an average of 300 customers per trial site, of which 72% were new to the database. Their average transaction value is 7% higher than the LFR average. We introduced new feature dishes such as the 'Fisherman's Plate' sharing platter and Awatere Pass Sauvignon Blanc, exclusive to LFR, won a gold medal in the recent Sommelier Wine Awards.

It was another successful year for Belhaven Retail. LFL sales were +4.1% with all major sales categories in growth. Coffee sales grew 71%, LFL wine sales were up 6.4% and food grew 130bps to over 30.0% of sales.

Local Pubs

Our Value, Mainstream and Premium segments all achieved strong LFL sales growth. In Value, we extended food trading hours and improved our value proposition with total food spend per head falling 7.0% to below £5, driving covers up 32%. We made another step-change in product quality including introducing 'hand-battered' Fish & Chips.

In Mainstream, LFL sales growth accelerated in the second half of the year driven by strong growth in food sales with spend per head flat at just over £6 and food covers up 14%. We enhanced our lunchtime meal deals, improved our mystery guest scores and increased the amount of fresh food on the menu.

Excluding Realpubs, Premium is now 40% of Local Pubs sales value. LFL sales growth was strong and food is up to 28% of sales. Spend per head was flat, at over £8, while covers grew 9%. We revamped our segment operating policies, focusing on improved service standards, we extended our range of world beers, including San Miguel and Estrella Damm, and we began rolling out illy coffee.

Pub Partners

Pub Partners has delivered profit per pub growth and made good progress in further improving the quality of its agreements, its licensees, their offers and its pubs. This was in the context of another challenging year for the tenanted and leased sector and the successful integration of the Belhaven tenanted estate. Our strategy to reduce the size and improve the quality of the estate is on track. We are also driving customer focus throughout Pub Partners, have launched, and embedded into the business, our new BII accredited Code of Practice, and we have recently won the HIM Tenant Tracker Pub Company of the Year, based on a survey of licensees across the industry.

Revenue was £166.4m, up 1.7% on a per pub basis, while operating profit was £74.5m, up 1.5% on a per pub basis. In the original Pub Partners estate, excluding Belhaven, LFL EBITDA was +1.0% and average EBITDA per pub was +2.9%. Operating profit margin was 44.8%, only 10bps below last year.

Recruiting and retaining the best licensees to run our pubs remains the most important factor in a successful tenanted and leased business. We have upweighted our recruitment team and campaigns, with particular focus on our online programme, and we have toughened the recruitment process, including holding final interviews for every prospective licensee with an operations director and delivering mandatory training for all new licensees. By the year-end, we were receiving seven enquiries for each vacancy in the English estate, compared to four at the end of the first half, while licensee churn fell six percentage points. Including Belhaven, there were just seven pubs closed for reopening and 76 TAWs at the year-end, while bad debt was 0.7% of sales.

Pub Partners is driving innovation in its agreements, including: -

1. Blueprint - a franchise-style agreement within which Pub Partners directs and controls the product offer, driving a minimum forecast franchisee profit of £45k per year

2. Business Builder - lower wholesale prices are linked to VSQ contracts with licensees and Pub Partners invests up to £15k

3. Local Hero - the pub is transformed into a 'local' pub, selling local ales and local food, supported by local licensees and the local community.

There are 60 of these agreements in place, with a further 150 planned for the new financial year. This would take the share of the core estate under an element of Greene King control to almost 20%.

We are also unique amongst our main competitors in two innovative ways. First, we have introduced a mystery customer programme, called 'Missing Something', to improve service levels and encourage return visits and spend per head. Second, we have introduced a diploma for our Business Development Managers (BDM) in Multi-Unit Leadership in conjunction with Birmingham City University. The first group of our BDMs, across England and Scotland, have already started using their learnings from the course to improve their ways of working and effectiveness in the business, to the benefit of our licensees.

Investment in our pub estate, to support our agreement innovation and our efforts to improve returns for both Pub Partners and its licensees, has increased 33% to £16.3m. Our investments are strategic and focused on improving the long-term profitability of an outlet, through improving both the external décor and the internal facilities, particularly by improving the provision of food. The average return on expansionary capital was 37%.

Brewing and Brands

Brewing and Brands is the UK's leading independent brewer with the best ale brand portfolio: Greene King IPA, the UK's no.1 cask ale brand; Old Speckled Hen, the UK's no.1 premium ale brand; Abbot Ale, the UK's no.1 premium cask ale brand; and Belhaven Best, Scotland's no.1 ale brand. Our profitable growth is driven by our focus on using an efficient production and distribution model to maintain the best product quality and consistency in the market and to invest ahead of the market in our core brands.

Own-brewed volumes were -2.0% against the UK ale market down 6.3%, while total volumes, driven by another excellent year in Free Trade and Belhaven, were up 2.5% against the total UK beer market at -2.1%. This was converted into revenue up 5.0% to £165.6m, driven by price and mix benefits, while operating profit grew 4.1% to £33.1m. The margin was just 20bps lower at 20.0% despite cost increases in the year of £3.4m.

Old Speckled Hen was our biggest selling brand in the year and is the UK's no.1 premium ale. Its leading share of the growing premium off-trade ale market rose 70bps to 13.2%. The brand's success is supported by sponsorship of prime time on Dave TV, which reaches 17m ale drinkers through the year. The future for the brand looks strong: in recent research by YouGov, Old Speckled Hen ranked second in 'brand health' within the long alcoholic drinks category, while it ranked first in all age categories in terms of the ale brand consumers most want to see in their pub or on their supermarket shelf.

Greene King IPA outperformed a weak UK standard ale market. It is the UK's no.1 cask ale brand, a truly national brand with top five market positions in nine UK regions. The official beer of England Rugby saw over 2,000 on-trade outlets activating our rugby promotional activity. Installations of our innovative Revolution font are up almost 70% to over 1,500 and we are targeting a further 1,000 this year. Revolution continues to deliver excellent rates of sale increases and strong returns. We invested £1.0m in launching our Proper Pint campaign and Very Special Greene King IPA won its first Monde gold award.

We successfully completed the integration of Belhaven, while Belhaven Best, Scotland's No.1 ale brand, grew again, with volumes up 2.2%. We again came first in the DRAM awards for customer service in Scotland, including achieving 100% for delivery times, despite the particularly inclement weather. Belhaven Scottish Stout won a silver medal at the International Beer Awards, maintaining its record of winning an award every year since its launch.

Brewing and Brands has an intense focus on product quality. We complete over 100 quality checks on each product batch, which includes the approval of an independent panel. No product leaves the brewery without meeting our exacting quality standards. We are currently awarded an A* by the British Retail Consortium for our quality and food safety standards and we have ISO9001 accreditation and Red Tractor status for all brands. We invested £80k in cellar upgrades in Local Pubs, delivering an average 12% cask ale volume uplift, while 3,000 employees have taken our new Cask Beer Masters course.

Financial review

Revenue grew 6.0% to £1,042.7m from a 1.4% smaller estate. The main drivers were our Destination Pubs and Brewing and Brands divisions. Our continued focus on controlling costs and generating cash helped us to offset £3.4m more than the £9.0m increase in non-wage costs and inflation, particularly in liquor, food and utilities. Central costs include an additional £1.8m share-based payment charge for the year.

Operating margin was down 20bps to 21.3%, delivering operating profit before exceptionals of £222.0m, up 5.0% on last year. Adverse divisional mix was 40bps, of which half was mitigated in the year through operational actions. Underlying core profit growth was 2.5%. All pub businesses grew profits on a per pub basis, while Brewing and Brands achieved strong profit per barrel growth.

Interest costs of £82.0m were 7.1% lower than the same period last year, as a result of strong cash flow management and a smaller IFRS pension interest charge of £0.2m. Profit before tax and exceptionals was £140.0m, an increase of 13.8% on last year. The tax charge before exceptional items of £36.4m equates to an effective tax rate of 26.0%.

Earnings per share of 48.2p is up 11.1%, notwithstanding the slightly higher effective tax rate and a small increase in the average number of shares in issue.

Cash flow

Continuing to focus on generating strong cash flows is the key to providing options and flexibility for the group. We delivered EBITDA of £276.6m, up 4.6% on last year, from 1.4% fewer pubs. With another year of strong working capital management delivering a cash inflow of £15.9m, we have further improved our cash platform, allowing us to maintain investment levels in the core estate for both maintenance and expansionary purposes, to pay down debt (comfortably ahead of our normal amortisation) and to pay increasing dividends to shareholders. This remains a consistent part of our long-term financial strategy.

Continued investment, expansion and disposals

Capital expenditure across the group, excluding investment in acquired sites, was £71.9m, slightly ahead of last year. This investment, across over 383 schemes in the year, benefitted our business in both the short-term and the long-term by delivering a return on investment in excess of 20% in Retail and over 30% in Pub Partners. We completed the disposal of 108 trading and non-trading assets, realising £27.8m net proceeds at a net profit of £3.6m over book value. The disposed and transferred pubs would have delivered an annualised EBITDA of £1.2m in Pub Partners. These actions helped to increase group ROCE by 40bps over last year.

On 28 January 2011, we completed the purchase of Cloverleaf Restaurants for £55.7m. This bought us 12 high quality, food-led, freehold trading sites across the north of England and the Midlands and on an annualised outlet EBITDA multiple of 8.7x. Cloverleaf will open a further ten sites from its pipeline by the end of F13 at what is expected to be a higher level of EBITDA per site than the average for the existing twelve. We expect to invest a further c.£25m in this pipeline, comfortably delivering returns ahead of our cost of capital.

On 27 April 2011, we acquired Realpubs for £52.2m, which brought 14 premium London pubs, all but one freehold, into our Retail estate. Its well developed premium offer is expected to deliver average EBITDA per site of £450k, with returns ahead of our cost of capital in year one.

We also exchanged on four greenfield sites for development into food-led retail pubs, in addition to the Cloverleaf pipeline, which will begin trading in 2011/12.

Financing and treasury

Net debt at the year-end was £1,410.2m, an increase of £62.1m from the previous year-end, having invested £131.2m in expanding Retail with new and greenfield sites.

Our high quality and primarily freehold assets support £1,355m of securitised bonds with a flat debt service profile and amortisation of £24.9m in the year.

On 4 April 2011, we announced a new five-year, £400m, revolving, credit facility with our banking partners, starting in April 2011. This replaced the existing £400m facility, which was due to expire in April 2012, and is fully available for five years. At the year-end, and following our recent acquisitions, this was £110m drawn.

The new facility, alongside our securitised debt, gives an expected blended average interest rate of 6.1%. This continued financial flexibility underpins the ongoing retail expansion and growth strategy.

During the period, there was a further improvement in our overall credit metrics, with interest rate hedges in place for 98% of the variable rate debt. Fixed charge cover improved to 2.6x, up from 2.4x at the last year-end, and interest cover likewise improved to 2.7x from 2.4x. Annualised net debt/EBITDA of 5.1x remains in our target area; it will continue to improve as cash outflows are invested ahead of the earnings stream they generate. Our securitised vehicle had a free cash flow debt service cover ratio of 1.5x at the year-end, giving 27% headroom.

Dividend

A recommended final dividend of 16.8p per share will be paid on 12 September to all shareholders on the register at the close of business on 12 August. The total dividend for the year is up 7.4% at 23.1p. The board continues to adopt a dividend policy targeting dividend cover of around two times underlying full year earnings.

Pensions

The group maintains a defined contribution scheme which is open to all new employees. The group's three defined benefit schemes were all closed to new entrants by 2005. Under IAS19, the net pension liability was £45.7m, compared with £78.7m at the previous balance sheet date. As previously reported, the triennial valuations have been completed and, following constructive dialogue with the scheme trustees, the group has agreed to increase its cash contribution by £6.6m to £13.6m per annum, comfortably within the cashflow expectations for the group.

Exceptional items

We recorded £23.2m of exceptional charges during the year, as a result of their nature or size. We continue to review the pubs in the tail of our estate and recognised an impairment of £29.4m against the net book value of a small proportion of our estate, demonstrating the overall quality of our estate, while recognising some minor adjustments around specific sites.

We achieved profit over book value on disposed pubs and other properties of £3.6m during the period. 

There is an additional £2.9m of charges for restructuring and acquisition, and a one-off exceptional gain of £5.5m for a pension credit. The pension credit has resulted following the curtailment of discretionary pension payments to members of the defined benefit pension scheme.

Current trading and outlook

Trading conditions in this calendar year have been variable and recently this has been even more pronounced. As we have previously reported, April was unusually strong. Consumers then reined in their expenditure in May. June has seen more normalised trading, notwithstanding the tough comparatives with last year's World Cup.

In the first eight weeks of our new financial year, Retail LFL sales growth is 1% with underlying LFL growth, excluding the impact of the World Cup, of 3%; Pub Partners average EBITDA per pub growth is 1% with LFL EBITDA at -1%; and core brand own-brewed volume in Brewing and Brands is -2%.

We anticipate another challenging year as continued high inflation and the impact of government cutbacks limit consumer spending power. Despite this, we remain confident of the prospects for Greene King as our Retail expansion strategy and strong group-wide operational performance, driven by value, service and quality, will underpin another year of growth and significant progress.

Rooney Anand

Chief executive

29 June 2011

Group income statement

for the fifty-two weeks ended 1 May 2011

* Adjusted earnings per share excludes the effect of exceptional items.

Group statement of comprehensive income

for the fifty-two weeks ended 1 May 2011

Group balance sheet

as at 1 May 2011

Group cashflow statement

for the fifty-two weeks ended 1 May 2011

*EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items

Statement of change in equity

for the fifty-two weeks ended 1 May 2011

Notes to the accounts

for the fifty-two weeks ended 1 May 2011

1 Basis of preparation

The financial information for the fifty-two weeks ended 1 May 2011 has been audited and has been prepared in accordance with International Financial Reporting Standards (IFRS) as required by European Union law. The accounting policies are as described in the full 2010 financial statements of Greene King plc, except for the following:

Amendment to IFRS 2 - Group Settled Share-based Payment Arrangements

The amended standard affects the accounting for cash-settled share-based payment transactions and supersedes IFRIC 8 and IFRIC 11. The adoption of the amendment had no impact on the financial performance or position of the group.

IFRS 3 (Revised) Business Combinations effective 1 July 2009

The amended standard continues to apply the acquisition method to business combinations, but with certain significant changes. All payments to purchase a business will be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value through the income statement. Goodwill and non-controlling interest may be calculated on a gross or net basis.

Non-controlling interest can be calculated at either fair value or at a share of net assets determined on an acquisition by acquisition basis.

All transaction costs will be expensed. The revision to the standard has resulted in certain transaction costs which previously would have been capitalised and formed part of goodwill on acquisition being charged to the profit and loss account as exceptional acquisition costs, see note 3.

IAS 27 (Amended) Consolidated and Separate Financial Statements effective 1 July 2009

The standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. It will no longer result in goodwill or gains and losses through the income statement. The revised standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value and a gain or loss is recognised in the income statement. The amendment to the standard has been applied prospectively and had no impact on the financial position or performance of the group.

2 Segment information

On 3 December 2010 the group announced that the Belhaven business segment would be fully integrated into Greene King. Changes to the management structure took place in January 2011. The integration took place progressively from this date and, accordingly, we have disclosed below the segmental analysis based on the current structure.

As a result of this change the group now has three reportable segments that are largely organised and managed separately according to the nature of products and services provided, brands, distribution channels and profile of customers:

Retail: Managed houses and restaurants

Pub Partners: Tenanted houses

Brewing and Brands: Brewing beer, marketing and selling

Transfer prices between operating segments are set on an arm's length basis.

Unallocated assets/liabilities include cash, borrowings, pensions, net deferred tax, net current tax, and derivatives

*EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptionals.

For information purposes we have also presented the segmental analysis based on the former structure prior to integration:

Retail: Managed houses and restaurants in England and Wales.

Pub Partners: Tenanted houses predominantly in England.

Brewing Company: Brewing beer, marketing and selling, predominantly in England.

Belhaven: Our Scottish operation which includes managed and tenanted houses and brewing and selling beer.

3 Exceptional items

Exceptional divisional restructuring and financial systems integration costs are items of one-off expenditure incurred in connection with the restructuring of certain trading segments within the group and the review of group-wide financial systems.

Acquisition costs are items of one-off expenditure incurred in connection with acquisition of businesses in the year. These costs include legal and professional fees incurred by the group and stamp duty which in accordance with IFRS 3 (Revised) can no longer be included within the consideration for the acquisition. In addition, acquisition costs include a charge of £0.3m relating to amounts payable to the former owners of Cloverleaf Restaurants.

The pension credit has resulted following curtailment to discretionary pension payments paid to members of the defined benefit pension scheme retiring early.

The net profit on disposal of property, plant and equipment of £3.6m (2010: £1.0m) comprises a total profit on disposal of £8.3m (2010: £5.0m) and a total loss on disposal of £4.7m (2010: £4.0m).

During the prior year the group received a refund of £7m from HMRC in respect of VAT on gaming machines which was recognised as exceptional income. The decisions that resulted in this refund have been referred to the European Court of Justice and the case will be heard on 30 June 2011. Should HMRC be successful in their appeal the group would be required to repay the refund with interest, and as such this represents a contingent liability. An exceptional gain of £6.8m net of associated costs was recognised.

During the year ended 2 May 2010 the group repurchased securitised debt with a nominal value of £30.3m recognising a net gain of £13.5m.

Following the receipt of the proceeds of the rights issue and the subsequent repurchase of securitised debt certain interest swaps were no longer deemed to be effective hedges. All ineffective swaps were cancelled during the period to 2 May 2010 resulting in an exceptional charge of £3.3m.

The tax credit on indexation of properties represents the tax impact of movements in RPI during the period on the tax base cost of properties.

The Provisional Collector of Taxes Act 1968 reduced the rate of corporation tax from 28% to 26% from 1 April 2011. The effect of the new rate is to reduce the deferred tax provision by a net £9.1m, comprising a credit to the Group Income Statement of £12.9m and a debit to Group Statement of Comprehensive Income of £3.8m.

The adjustment in respect of prior periods is in respect of deferred taxation on revaluation and rolled over gains on land and buildings.

4 Taxation

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £106.8m (2010: £79.9m) by the weighted average number of shares in issue during the period (excluding own shares held) of 214.8m (2010: 211.3m).

Diluted earnings per share has been calculated on a similar basis taking account of 0.6m (2010: 0.9m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 215.4m (2010: 212.2m). Share options granted over 0.6m (2010: 2.4m) have not been included in the diluted earnings per share calculation because they are anti-dilutive at the year end. The performance

conditions for share options granted over 1.9m (2010: 2.5m) shares have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end have not been included in the diluted earnings per share calculation.

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group on both a basic and dilutive basis.

6 Dividends paid and proposed

Dividends on own shares have been waived.

7 Acquisitions

The group acquired 100% of Cloverleaf Restaurants on 28 January 2011 and 100% of the Realpubs group on 27 April 2011. The group also acquired a package of four pubs from Punch Taverns for £5.3m on 8 July 2010.

The net cash flow impact of the acquisitions are expected to be:

The fair value of properties acquired was established following a review of properties that was carried out by qualified surveyors employed by the company. Retained properties have been revalued at their existing use value and properties subsequently disposed have been valued at their fair value less costs to sell. The values of other current assets and liabilities have been adjusted to amounts to be realised or paid respectively.

8 Borrowings

9 Working capital and non-cash movements

10 Analysis and movements in net debt

*included in cash and cash equivalents on the balance sheet

11 Dividend payments

Subject to the approval of shareholders at the annual general meeting, the final dividend will be paid on 12 September 2011 to shareholders on the register at the close of business on 12 August 2011.

12 Reports and accounts

The above financial information is derived from the statutory accounts for the period ended 1 May 2011 on which the auditors have issued an unqualified opinion. The information does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

The accounts for the period ended 2 May 2010 have been filed with the Registrar of Companies and the auditors of the company made a report thereon under Chapter 3 of Part 16 of the Companies Act 2006. That report was an unqualified report and did not contain a statement under Section 498 (2) or Section 498(3) of the Act.

The 2011 Report & Accounts will be posted to shareholders on 29 July 2011 and copies will be available from that date from the Company Secretary at the registered office of the company, Westgate Brewery, Bury St. Edmunds, Suffolk IP33 1QT.

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