Interim Results

GREENE KING plc

Interim results for the 24 weeks to 19 October 2014

RECORD SALES, STRONG RETURNS & FURTHER PROGRESS

*excluding exceptionals as detailed in Note 3 **excludes the performance of non-core pubs sold during F14 and H115.

HIGHLIGHTS

· Record sales; retained business growth of 5.3%.

· Retail like-for-like sales +0.8%; Pub Partners like-for-like net income +3.7%; Brewing & Brands own-brewed volume +5.9%.

· Retained business adjusted earnings per share growth of 5.3% with strong cash flow, lower leverage & dividend growth.

· Return on capital employed up 20 basis points on first half last year to 9.2%.

· Further strategic progress:

o Added 11 sites to Retail, taking estate to 1,040.

o Pub Partners estate now 864 sites; average EBITDA per site up 13.8%.

· Recommended proposal to acquire Spirit Pub Company, post period-end.

· After 30 weeks, Retail LFL sales were +0.8% and +1.5% last 12 weeks.

· Bookings for Christmas across Retail are +7.2%.

Rooney Anand, Greene King chief executive officer, comments:

"We have delivered record sales and strong returns against a challenging backdrop, reflecting the inherent strength of our business model and our proven strategy. Retail, our largest business, delivered profit growth, while we maintained momentum in Pub Partners and Brewing & Brands. As a result, we improved our ROCE, lowered our leverage and increased the dividend.

"In addition, we have made further, significant strategic progress by increasing our retail estate and disposing of non-core tenanted pubs to enhance further the quality of our estate, and making a recommended offer for Spirit Pub Company.

"With real incomes struggling to grow, customers remain cautious about spending on eating and drinking out. As a result, we will continue to tailor our customer-focused strategy to ensure we deliver another year of progress, long-term growth and strong returns to our shareholders."

A copy of this release and the accompanying results presentation will be available on our website: www.greeneking.co.uk. We can also be followed on twitter via @greeneking.

For further information:

NOTES FOR EDITORS

· Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs 23,000 people across its main trading businesses; Retail, Pub Partners and Brewing & Brands.

· It operates 1,904 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,040 are retail pubs, restaurants and hotels, and 864 are tenanted, leased and franchised pubs. Its leading retail brands are Hungry Horse, Old English Inns, Eating Inn and Loch Fyne Seafood & Grill. 93% of the estate is either freehold or long leasehold.

· Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries, and is the UK's leading cask ale brewer and premium ale brewer. Its industry-leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.

CHAIRMAN'S STATEMENT

RESULTS

During the first half of the financial year, we achieved a good financial result with revenue up 3.3% to £614.9m, another record for the company. Operating profit before exceptional items was down 3.1% to £123.3m and profit before tax and exceptional items (PBTE) was down 3.5% to £82.6m due to lower like-for-like sales growth and the impact of the disposal of 275 pubs to Hawthorn Leisure. Adjusted earnings per share were down 1.6% to 29.9p. However, adjusting for the disposal, the retained business grew PBTE by 3.0% and adjusted earnings per share by 5.3%.

DIVIDEND

The board has declared an interim dividend of 7.95p per share, up 4.6% on last year, reflecting underlying growth in earnings and our confidence in the long-term growth prospects for the company. The interim dividend will be paid on 23 January 2015 to those shareholders on the register at the close of business on 19 December 2014.

ACQUISITIONS

Following a period of due diligence, and subsequent to the period-end, on 16 October we made a recommended share for share offer for Spirit Pub Company. Assuming the deal is completed, this would add around 800 managed pubs and 430 tenanted and leased sites to our estate. We are hopeful it will complete before the end of this financial year.

Aside from Spirit, we continued our ongoing expansion plans. We added 11 sites to our retail estate at a total cost of £14.5m, leaving us with 1,040 sites at the period-end.

DISPOSALS

At the start of the year, we completed the disposal of 275 non-core sites to Hawthorn Leisure for £75.6m. Since then we have continued to dispose of additional non-core sites as we aim to reduce our tenanted and leased estate to around 750 sites. In the first half, we sold, or transferred to Retail, a further 26 sites, taking Pub Partners to 864 sites. Outside the Hawthorn disposals, proceeds totalled £9.3m, slightly ahead of book value.

BOARD

In September, our chief financial officer, Matthew Fearn, left Greene King because of his continuing ill-health. We wish Matthew and his family well for the future and thank him for the great contribution he made during his three years with us.

We welcome Kirk Davis to our board to replace Matthew. Kirk was formerly the finance director at JD Wetherspoon Plc and joined us as chief financial officer on 3 November 2014, after the period-end.

While Matthew was away, David Brown covered for him as interim finance director and I would like to thank him for all of his hard work and support during the last eight months.

PEOPLE

My thanks go out, too, to everyone who has worked for Greene King over the course of the year so far. I would especially like to thank all the pub managers who work for us. Running a pub is very challenging and it takes a special individual to run one successfully. We have more than a thousand such people working in our business and I am immensely proud of the effort and dedication they show, day after day, to build our business for the long-term.

Tim BridgeChairman

3 December 2014CHIEF EXECUTIVE'S REVIEW

PERFORMANCE SUMMARY

In the first half of our financial year, we delivered record sales, driven by both organic growth and new sites in Retail, and supported by continued progress in our Pub Partners and Brewing & Brands businesses, strong returns and further operational and strategic progress.

In the 24 weeks to 19 October, and on a retained business basis, we achieved group revenue growth of 5.3%, which converted into operating profit growth of 1.8%. Due to lower Retail LFL sales growth, labour and utility cost increases in Retail and the ongoing change in channel mix within Brewing & Brands, the retained business operating margin fell 70 basis points (bps). We expect the decline in operating margin for the retained business to moderate slightly over the course of the full year due to improved trading, increased cost savings and lower net cost inflation.

Adjusted earnings per share for the retained business were up 5.3% in the period, and this, combined with the strength of our people, our brands and our strategy, gives us the confidence to increase our dividend per share by 4.6% to 7.95p.

We also delivered a return on capital employed (ROCE) of 9.2%, in line with the end of the previous financial year, but a 20 bps improvement over the first half last year.

This performance was achieved despite a subdued consumer environment. The consumer outlook is favourable, but current consumer caution has been reflected in volatile spending on eating and drinking out over the last few months, as highlighted by the Greene King Leisure Spend Tracker.

In this market context, we made progress in a number of key areas of the business including food sales rising to 42% of Retail sales, achieving a material improvement in our Net Promoter Score (NPS) and improving our food hygiene scores by 4.7%.

We were surprised and disappointed with the amendment to the Small Business, Enterprise and Employment Bill, after our period-end, which introduces the concept of a 'Market Rent Only' option for tied licensees. While there are a number of unknowns in the amendment, we are confident we will have sufficient optionality to mitigate the potential impact, if and when the proposed changes take effect.

STRATEGIC PROGRESS

We are into the final year of our current five-year strategic plan to improve growth and returns to our shareholders. During the period we made further significant progress: -

1. Expanding Retail to 1,100 sites and improving estate quality. We acquired or transferred in 11 sites to take the estate to 1,040 pubs, restaurants and hotels. Since our current strategy commenced, the average EBITDA per pub generated by new sites of £413k is significantly higher than our original expectation for the five-year plan.

2. Reducing the Pub Partners estate and improving estate quality. In Pub Partners, we accelerated our strategy with the disposal of 275 non-core pubs to Hawthorn Capital. In total, we sold 299 non-core sites in the period and transferred two to Retail, taking the estate to 864 pubs and generating growth in the average EBITDA per pub of 13.8%.

3. Maintaining industry-leading beer brand investment to strengthen our leadership position. We again invested in our core ale brands to drive own-brewed volume (OBV) growth and UK ale market outperformance in Brewing & Brands. We increased our volume share of the UK ale market by 80bps to 10.1%*.

* BBPA May to October 2014

On 4 November, we announced we had reached an agreement with the board of Spirit Pub Company on the terms of a recommended offer for the company. The transaction is strategically and financially compelling, accelerating the growth of our retail estate, strengthening our position in the eating out market and delivering value to our shareholders.

The combined entity would comprise an estate of over 3,100 pubs, restaurants and hotels including over 1,000 pubs in London and the south east. A combined managed estate of over 1,800 pubs will create the UK's leading managed pub operator and will allow us to extract significant operational synergies including benefiting from enhanced purchasing and distribution scale. Overall, we expect to realise operational efficiencies and cost savings of at least £30m per annum, supplemented by potential further revenue synergies from brand optimisation and sharing best practice.

Spirit Pub Company is our near-term priority and would represent an important strategic step for Greene King. Following completion of the acquisition and integration of Spirit, the enlarged estate would position us to continue to explore suitable opportunities to further increase our exposure to eating out and daytime trading.

GREENE KING RETAIL

Greene King Retail generated further growth, coupled with strategic and operational progress, in the first half. We outperformed the sector delivering total sales growth of 6.4% compared to 4.0%* sector growth. LFL sales growth was 0.8%, due to a disappointing first quarter, impacted by tough comparatives from the excellent summer last year and a disappointing World Cup this year, and a stronger second quarter. All main sales categories achieved LFL sales growth. Metropolitan, our premium London estate, continued to perform particularly well as did Farmhouse Inns, our carvery restaurant brand. In line with our strategic objective, food, as a share of sales, is now 42%.

* Peach Coffer Tracker

Total revenue was £465.5m, up 6.4%, or £28.0m versus last year, with growth in both our Local and Destination divisions. The average weekly take grew 2.3% to £18.7k. Operating profit was up 2.3% to £91.7m with operating margins down 80bps due to the impact of lower LFL trading, additional investment in our employees, upward cost pressure from utilities and other costs. We expect the margin decline to moderate slightly in the second half of the year.

Our ongoing progress in Retail is driven by a number of key factors, all predicated on putting customers at the heart of our business, offering them time and money well spent, and providing compelling reasons to visit our pubs time and time again.

1. Consistently exceeding customer value, service and quality expectations

We are committed to the delivery of industry-leading value, service and quality to our customers. In the period, we re-launched our known value item (KVI) strategy across many Hungry Horse sites offering customers enhanced value, including entry-price burgers at £3.99 and a kid's meal deal for £2.99. We increased first time product availability across Retail by 70bps, to 99.7%, we improved NPS and our average food hygiene 'scores on the doors' rating improved 4.7%. We also reconfigured the carvery layout in Farmhouse Inns to reduce queue times by over 60% and drive further improvements in consistency and quality. Further examples of quality developments in the period include the introduction of Red Tractor accredited sirloin beef in Eating Inn and a new meal quality guarantee in Hungry Horse.

2. Broadening our customer appeal through growth categories and exciting innovation

We constantly evolve our offer to ensure we stay relevant in an environment of increasing consumer choice. New product additions in the period included lighter snacks such as chocolate-coated popcorn and, in Old English Inns, we added separate evening menus including a new cocktail menu. In our Premium High Street and Premium Community pubs, we revitalised our weekly deals to include 'Gourmet Burger' nights. In Hungry Horse, new dishes included 'Chicken Fingers', while in Eating Inn we added freshly baked bread across the menu.

3. Understanding and aligning our estate to ongoing and emerging consumer trends

Emerging consumer trends include a rise in inter-generational leisure occasions, an increase in the use of and access to technology in leisure and eating-out becoming an all-day occasion. We continue to promote family dining in our sites, with the roll-out of our 'two courses for' 'Golden Years' offer to further brands across the estate, and in Eating Inn where we have added additional vouchers for children in our Christmas voucher booklet. Also, following the launch of a breakfast offer in Hungry Horse last year, breakfast sales in the brand grew by 23%.

4. Employing the best-trained and most motivated people in the sector

Since 2011, over 2,400 colleagues have achieved a nationally recognised apprenticeship qualification, an increase of 200 since the year-end. During the period, we launched a bespoke apprenticeship scheme in Loch Fyne Seafood & Grill, while the overall spend on training has risen 14%. Our Retail employee engagement score rose 3.2%pts to 76.1%.

5. Continued investment in our core estate

We continued to invest in our existing estate and ensure that our pubs remain attractive places for customers to spend their time. During the first half of the year, our investment in repairing, maintaining and improving the quality of our existing estate increased by 16.7% to £12.6m, a 2.9% increase in the average investment per pub.

6. Selective acquisitions

We have acquired selectively and strategically in the first half and increased our trading estate by 11 sites, taking the estate to 1,040 sites at the period-end. Our Retail expansion programme was slightly slower than anticipated as we focused our property resources on more significant M&A activity, including due diligence on the Spirit Pub Company estate. We therefore continue to see openings to be more heavily weighted to the second half of the year and we expect to open a further 30-35 sites by July 2015.

7. Expanding our digital platform

We continue to expand our digital offer. During the period, traffic to our websites grew by 18%, the number of loyalty card holders grew by 22%, and our overall database grew by 55%. This was driven by the 'Golden Ticket' data capture initiative in Hungry Horse, whereby customers can enter a monthly prize draw to win a £100 golden ticket.

PUB PARTNERS

Pub Partners made further financial and strategic progress in the first half of the year. It traded ahead of our expectations with LFL net income up 3.7% and average EBITDA per pub up 13.8%.

Revenue was down 17.2% on last year reflecting the disposal of 275 pubs to Hawthorn Leisure, which reduced the average size of the estate by 26.6%. Average revenue per pub was therefore up 12.8%. EBITDA was £29.3m, down 16.3%. Operating profit was also impacted by the acceleration of our disposal strategy, but the margin improved, reflecting the higher quality of the remaining Pub Partners estate.

Our strategy for Pub Partners remains focused on recruiting the right licensees in the right pubs on the right agreement and offer.

We have made good progress in all of those areas: -

· Right pubs. The disposal of 275 pubs to Hawthorn Leisure for £75.6m accelerated our progress towards owning the best tenanted and leased estate in the UK. This strategic exit of non-core assets continued in the period with the sale of a further 24 non-core pubs and the transfer of two sites to Retail. These moves combined to leave 864 pubs at the period-end including six closed for disposal. We invested £10.3m in our estate with successful developments including the Woolpack, Islip, and The Red Lodge Inn, Bury St Edmunds.

· Right people. Recruitment is core to the success of our tenanted pub estate and our quarterly open days for prospective licensees continued to go from strength to strength with a conversion ratio of 25-30%. We launched a new recruitment website, enabling us to reach out more effectively via social media. On training, we collaborated with a new apprenticeship provider and developed further learning programmes including a free sports module designed to help licensees maximise the opportunity from sporting occasions.

· Right offer. We continued to work with our licensees, supporting and influencing them where appropriate, to create the best offer. For example at the beginning of the period we launched a bi-monthly 'Innsight' magazine, which is written, in partnership with licensees, for licensees. We continued to provide commercial support for individual licensees at key events and, in our Premier Partners estate, we invited partners to present innovative retail concepts and ways of collaborating with us, in a 'Dragon's Den' style forum.

As a result of these initiatives, average licensee tenure continued to rise and at the end of the half year stood at five years and five months. We also saw continued low levels of licensee debt and the number of temporary agreements reached a new low, at just 12 at the period-end.

BREWING & BRANDS

Brewing & Brands continued to take share in the UK ale market and remains the leading cask ale brewer in the UK. Own-brewed volume (OBV) was up 5.9% in a UK ale market down 1.6% in the six months to October*, with our share rising 80bps to 10.1%.

Revenue grew by 4.1% to £91.1m, while operating profit was 0.7% lower at £13.8m, reflecting the sale of 275 leased and tenanted pubs to Hawthorn Leisure at the beginning of the year. Excluding the impact of the disposals, operating profit was up 5.4% to £13.7m.

Volumes in the take home channel were up significantly and Greene King is now the leading British owned beer brewer among the multiple grocers. Growth in our exports was up by a fifth, driven by the emerging markets and supported by an improvement in sales to the US and a stronger pound.

Old Speckled Hen and the broader 'Hen' brand family continued to perform strongly with volume growth of over 20%. This strongly outperformed the UK premium ale market which was up 6.2%*.

We continued to invest in our industry-leading ale portfolio with much of our focus on new product development. The period included the launch of East Coast IPA, an American influenced keg beer, and the limited edition 'Old Nutty Hen'.

Other exciting developments included winning the exclusive rights to the US beer range Goose Island in England and Wales, encompassing the award-winning 312 Urban Wheat brand, while Greene King IPA performed strongly in a national blind taste test, scoring well against its closest competitor and ahead of three further top selling cask ales.

*BBPA May to October 2014 

FINANCIAL REVIEW

RESULTS

Revenue grew by 3.3% on last year to £614.9m. The biggest driver of this growth came from our retail business where revenue grew by 6.4%, with average revenue per pub rising by 2.3%. Our retail business now accounts for 76% of group revenue. Total revenue in Pub Partners was down 17.2%, driven primarily by the impact of pub disposals, with the average revenue per pub increasing by 12.8%. Brewing & Brands grew revenue by 4.1%. On a retained business basis, stripping out the impact of disposals, total revenue was up 5.3% to £613.1m.

Operating profit before exceptionals was £123.3m, down 3.1% on last year, with the operating margin down 130bps to 20.1%. In the first half of the year, the disposed business contributed £1.1m of operating profit, compared to £7.2m in the first half last year and £14.8m in the full year last year. On a retained business basis, operating profit rose 1.8% to £122.2m, with the operating margin down 70bps to 19.9%. The main driver of the reduction in the retained business operating margin was a reduction in the Retail margin, due to lower like-for-like sales, increased employee costs, higher utility charges and other costs.

Net interest costs, before exceptional items, of £40.7m were 2.2% lower than the same period last year, as a result of strong cash flow management and the impact of disposal proceeds. Profit before tax and exceptionals was £82.6m, a decrease of 3.5% on last year. The tax charge before exceptional items of £17.3m equates to an effective tax rate of 21%. Earnings per share before exceptional items of 29.9p were down 1.6%. Statutory profit before tax was £72.0m, up 9.8% on last year.

CASH FLOW

Operating cash flows remained strong. We delivered EBITDA before exceptional items of £152.5m, down 2.0% on last year but on 13.0% fewer pubs. After investing in the core estate, paying interest, tax and dividends, we generated free cash flow of £29.4m, comfortably ahead of our debt service obligation of £15.3m. This remains a consistent part of our long-term financial strategy.

During the period, we disposed of 302 sites as part of our strategy to improve the quality of our estate with the cash proceeds totalling £84.9m.

The cash outflow on acquisitions and acquired or transferred sites totalled £35.8m, bringing the net cash inflow in the period to £73.2m.

CAPITAL EXPENDITURE

We also invested in both maintaining and developing our core estate, in addition to growing the size of our retail estate. Total expenditure during the period was £76.8m.

Capital expenditure on the core estate, including maintenance capital, was £41.0m, an increase of £2.7m over last year. A further £11.2m was invested in acquiring single sites and £24.6m was invested on developing previously acquired sites and transfers from Pub Partners. On a full year basis, we expect investment in the core estate to be in the region of £85m.

NET DEBT AND TREASURY

Net debt at the period-end was £1,362.4m, a reduction of £73.2m from the previous year-end, with the key movements being positive free cash flow of £29.4m, disposal proceeds of £84.9m and investment in growing our retail estate of £35.8m. At the period-end, our revolving credit facility was £220m drawn. 

Our overall credit metrics remain strong, with interest rate hedges in place for 97% of the variable rate debt and a blended average cost of debt of 6.0%. Fixed charge cover declined slightly to 2.9x and interest cover improved to 3.1x. Annualised net debt to EBITDA reduced to 4.2x. Our securitised vehicle had a free cash flow debt service cover ratio of 1.5x at the period-end, giving 26% headroom.

DIVIDEND

The board has declared an interim dividend of 7.95p, up 4.6%. This will be paid on 23 January 2015 to shareholders on the register at the close of business on 19 December 2014. 

PENSIONS

The group maintains two defined contribution schemes which are open to all new employees. The group's two defined benefit schemes are closed to new entrants and to future accrual.

At 19 October 2014, there was an IAS 19 pension deficit of £82.1m, which compares to £52.2m at the previous balance sheet date. The movement is primarily due to an increase in the present value of the scheme's liabilities resulting from changes to the market derived, actuarial assumptions together with a reduction in the market value of the scheme assets since the year-end.

Total cash contributions in the period were £2.7m for past service.

EXCEPTIONAL ITEMS

As set out in note three to the interim condensed financial statement, we recorded a net exceptional charge of £1.0m during the period, consisting of a £10.6m charge to profit before tax and an exceptional tax credit of £9.6m.

During the period, the group incurred £0.8m of exceptional employee costs, which included restructuring costs and costs associated with changes to key management. In addition, we incurred a total of £1.0m in exceptional legal and professional fees in relation to potential acquisitions and uncertain tax positions.

An impairment charge of £4.6m was made against the carrying value of a small number of our pubs where specific market conditions have impacted trading. A net loss of £2.9m, which included a £2.1m charge relating to goodwill, was recognised in respect of the disposal pubs and other properties in the period.

A £1.4m finance charge in respect of fair value gains on the ineffective element of the group's cashflow hedges was also recognised.

The exceptional tax credit of £9.6m was made up of three items: a £2.9m credit on revaluation and rolled-over property gains, a £1.6m credit in relation to tax on exceptional items and a £5.1m credit in relation to prior periods.

CURRENT TRADING

After 30 weeks, Retail LFL sales were up 0.8%, implying growth of 1.5% over the last twelve weeks. Within this, our southern estate strongly outperformed our northern estate. While the latest Greene King Leisure Spend Tracker highlighted that more people expect to spend less on eating and drinking out this Christmas, encouragingly, bookings for the festive period are currently up 7.2% on last year.

Looking ahead, we expect a slight moderation in the operating margin decline for the retained business in the full year due to improved trading, increased cost savings and lower net cost inflation.

We have maintained momentum in our other two businesses. After 28 weeks, Pub Partners' LFL net income was up 3.4% while in the last six weeks Brewing & Brands OBV was up 12.0%, leading to growth of 7.1% after 30 weeks.

With real incomes struggling to grow, customers remain cautious about spending on eating and drinking out. As a result, we will continue to tailor our customer-focused strategy to ensure we deliver another year of progress, long-term growth and strong returns to our shareholders.

Rooney Anand

Chief executive officer

3 December 2014

Risks and uncertainities

The principal risks and uncertainties facing the group during the period under review and going forwards for the remainder of this year have not materially changed from those set out on pages 30 to 32 of the 2013/2014 annual report and accounts, which can be viewed via the www.greeneking.co.ukwebsite. The risks are summarised as follows:

· Ability to acquire and build new managed pubs

· UK economic conditions impacting customer spend and causing inflationary cost pressures

· Poor service standards or other brand damage leading to poor financial performance

· Information systems' data security and technology failure

· Supply chain failure and major supply chain problems

· Inability to attract, retain, develop and motivate talented employees and tenants

· Introduction of a statutory code to manage the relationship between pub companies and their tenants

· Non-compliance with health and safety legislation

· Failure to meet our financial covenants

· Financial fraud, material error in our financial statements or non-compliance with statutory obligations

· Changes to the valuation of the group's defined benefit schemes

UNDERLYING RETAINED BUSINESS

1 Adjusted for H1 15 and H1 14 revenue and operating profit of tenanted pubs disposed of in the 53 week period ended 4 May 2014 and the 24 week period ending 19 October 2014.

2 Estimated reduction in finance costs assuming disposal proceeds were received at the start of H1 14; calculated by applying marginal bank facility interest rates to net proceeds received.

3 Tax at the group's pre-exceptional tax rates of 21% and 23% for H1 15 and H1 14 respectively.

4 Profit attributable to equity holders divided by the weighted average number of shares of 218.1m and 216.3m for H1 15 and H1 14 respectively.

Responsibility statement

The directors confirm that to the best of their knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS34;

b) the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - "indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year"; and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R - "disclosure of related party transactions and changes therein".

On behalf of the board

Tim Bridge Rooney Anand

Chairman Chief executive

Unaudited group income statement

 for the twenty-four weeks ended 19 October 2014

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

Unaudited group statement of comprehensive income

for the twenty-four weeks ended 19 October 2014

Unaudited group balance sheet

as at 19 October 2014

Unaudited group cashflow statement

for the twenty-four weeks ended 19 October 2014

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

Unaudited GROUP statement of changes in equity

for the twenty-four weeks ended 19 October 2014

Notes to the accounts

for the twenty-four weeks ended 19 October 2014

1 Basis of preparation

The interim condensed consolidated financial statements are prepared in accordance with in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.

The figures for the period ended 4 May 2014 have been derived from the statutory accounts of the group for that year. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

The interim condensed consolidated financial statements for the 24 weeks ended 19 October 2014 and the comparatives to 13 October 2013 are unaudited but have been reviewed by the auditor; a copy of their review report is included at the end of this report.

A combination of the strong operational cashflows generated by the business, and the significant available headroom on its credit facilities, support the directors' view that the group has sufficient funds available to meet its foreseeable working capital requirements. The directors have concluded therefore that the going concern basis remains appropriate.

The accounting policies adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the period ended 4 May 2014, except for the adoption of new standards and interpretations applicable as of 5 May 2014.

The group has adopted a number of new standards and interpretations, which have been assessed as having no financial impact or disclosure requirements at the interim.

2 Segment information

The group has determined 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. The segments include the following businesses:

Retail: Managed pubs and restaurants

Pub Partners: Tenanted and leased pubs

Brewing & Brands: Brewing, marketing and selling beer

These are also considered to be the group's operating segments and are based on the information presented to the chief executive who is considered to be the chief operating decision maker.

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

2 Segment information (continued)

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

3 Exceptional items

Exceptional employee costs of £0.8m recognised in the period includes restructuring costs and costs associated with changes to key management.

During the period the group incurred exceptional legal and professional fees in relation to potential acquisitions and defending uncertain tax positions totaling £1.0m.

During the 24 week period to 19 October 2014 the group has recognised an impairment loss of £4.6m (2013: £15.7m) in respect of its licensed estate. The impairment has been recognised in respect of pubs where the higher of value-in-use and fair value less costs to sell has fallen below the net book value.

The net loss on disposal of property, plant and equipment of £2.9m (2013: £2.0m) comprises a total profit on disposal of £2.2m (2013: £3.6m) and a total loss on disposal of £5.1m (2013: £5.6m). The total loss on disposal includes £2.1m (2013: £2.7m) in respect of goodwill allocated to parts of operating segments disposed of in the period.

During the period ended 2 May 2010 the group received a refund of £7.0m from HMRC in respect of VAT on gaming machines following a ruling involving The Rank Group plc that the application of VAT contravened the EU's principal of fiscal neutrality. HMRC appealed the ruling issuing protective assessments to recover the VAT in the event their appeal was successful. On 30 October 2013 the decision was overturned and the group was therefore required to repay the VAT of £7.0m and the associated interest of £1.7m. On 16 April 2014 the Supreme Court granted The Rank Group plc permission to appeal which is due to be heard on 20 April 2015.

3 Exceptional items (continued)

The £1.4m fair value loss (2013: gain £4.2m) is the mark to market movement on the ineffective element of cash flow hedges resulting from changes in the LIBOR yield curve.

Exceptional tax

The tax credit in respect of the licensed estate arises from movements in their cost base, including the impact of indexation.

The adjustment in respect of prior periods is in respect of deferred taxation on revaluation and rolled over gains on the licensed estate.

4 Tax

The tax charge before exceptional items is £17.3m which equates to an effective tax rate of 21% which is estimated to be the effective rate before exceptional items for the 52 weeks ended 3 May 2015. This compares to an effective rate of 23% for the same period last year.

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £64.3m (2013: £68.6m) by the weighted average number of shares in issue during the period (excluding own shares held) of 218.1m (2013: 216.8 m).

Adjusted earnings per share excludes the effect of exceptional items and is presented to show the underlying performance of the group.

Diluted earnings per share has been calculated on a similar basis taking account of 1.1m (2013: 1.7m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 219.2m (2013: 218.5m).

Treasury shares and shares held by the EBT are excluded from the calculation of weighted average number of shares in issue.

6 Dividends paid

7 Working capital and non-cash movements

8 Analysis and movements in net debt

*included in cash and cash equivalents on the balance sheet

8 Analysis and movements in net debt (continued)

9 Financial instruments

IFRS 13 requires the classification of financial instruments measured at fair value to be determined by reference to the source of inputs used to derive fair value.

The following derivative financial liabilities are held at fair value:

The inputs used to calculate the fair value of interest rate swaps fall within Level 2 of the prescribed three level hierarchy in IFRS 13. Level 2 fair value measurements use inputs other than quoted prices that are observable for the relevant asset or liability either directly or indirectly. There were no transfers between levels during any period disclosed.

The fair value of derivative financial liabilities recognised are calculated by discounting all future cash flows by the appropriate market yield and are adjusted to reflect the group's associated credit risk.

The fair value of financial instruments are equal to their book values with the exception of the group's securitised debt. The fair value of the group's securitised debt, based on quoted market prices, at 19 October 2014 was £1,250.1m (4 May 2014: £1,234.7m) compared to a carrying value of £1,188.9m (4 May 2014: £1,203.9).

10 Post balance sheet events

An interim dividend of 7.95p per share (2013: 7.60p) amounting to a dividend of £17.4m (2013: £16.6m) was declared by the directors at their meeting on 3 December 2014. These financial statements do not reflect this dividend payable.

On 4 November 2014 the group announced it had reached an agreement with the board of Spirit Pub Company plc on the terms of a recommended offer that value the company at approximately £774m. The offer is conditional on, amongst other things, the approval of Greene King plc shareholders and Spirit Pub Company plc shareholders.

INDEPENDENT REVIEW REPORT TO GREENE KING PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 19 October 2014 which comprises the group income statement, group statement of comprehensive income, group balance sheet, group cashflow statement, group statement of changes in equity, and notes 1 to 11. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 24 weeks ended 19 October 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Cambridge

3 December 2014

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