Interim results

GREENE KING plc

Interim results for the 24 weeks to 13 October 2013

STRONG GROWTH, ATTRACTIVE RETURNS AND DIVIDENDS

PERFORMANCE HIGHLIGHTS

· Retail like-for-like sales up 3.5%; Retail margin increased ten basis points to 20.5%.

· Average EBITDA per pub up 5.2% in Pub Partners; core like-for-like EBITDA up 1.7%.

· Brewing & Brands core own-brewed volume up 1.7%.

· Strong cash flow; earnings & dividend growth.

· Further improvement in ROCE, up ten basis points since the year-end to 9.0%.

· Current trading strong; Retail like-for-like sales up 3.5% after 30 weeks.

STRATEGIC PROGRESS

· Strong growth from key sales categories; food now 41% of Retail sales.

· 1,008 Retail sites with 22 added; targeting further 90 sites over next 18 months.

· 59 disposals in Pub Partners; trading estate now 1,218 sites, down 28% from peak.

· Further balance sheet strengthening; net debt to EBITDA has fallen to 4.6x.

* before exceptional items

** H113 restated for the impact of IAS 19 (revised 2011), see note nine of the interim financial statements

Rooney Anand, Greene King chief executive officer, comments:

"This is a very pleasing set of figures and we have made great progress in the first half of this financial year. Growth has once again been led by our retail business, which grew profits by 8% over last year, helped by a combination of organic growth and further strategic acquisitions. The tenanted and brewing businesses also performed well, helping the overall business to deliver healthy earnings, dividend growth and further improvement in our return on capital employed.

While trading through the first half of the year and since the period-end has been strong, and the economic outlook looks to be improving, customers remain careful with their money, particularly outside London and the South East. We believe that our strategy, tailored for these conditions, will continue to deliver growth and further value to our shareholders across the rest of this year and beyond."

A copy of the 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 over 22,000 people across its main trading businesses; Retail, Pub Partners and Brewing & Brands.

· It operates 2,226 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,008 are retail pubs, restaurants and hotels, and 1,218 are tenanted, leased and franchised pubs. Its leading retail brands are Hungry Horse, Old English Inns, Eating Inn and Loch Fyne Seafood & Grill. 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, 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

These are strong interim results that were helped by the good summer weather but hindered by continued consumer caution. Our revenue for the 24 weeks was £595.4m, up 5.2%, and our operating profit before exceptional items was £127.2m, up 3.7%. Profit before tax and exceptional items was £85.6m, up 5.7%, while adjusted earnings per share were 30.4p, up 6.3%.

DIVIDEND

The board has declared an interim dividend of 7.6p per share, up 6.3% on last year, following another strong first half of our financial year. The interim dividend will be paid on 24 January 2014 to those shareholders on the register at the close of business on 20 December 2013.

ACQUISITIONS

In the period, we made further progress with the expansion of our Retail business. We spent £9.6m on acquiring 14 new sites and exchanged on a further six sites for development. At the period-end, we had 1,008 Retail sites, up from 888 sites when we started our Retail expansion strategy.

DISPOSALS

We also continue to dispose of sites that we consider no longer have a long-term sustainable future within our estate. These mainly come from Pub Partners, from which we disposed of 59 sites in the period. At the period-end, our Pub Partners trading estate totalled 1,218 sites, down from a peak of 1,700. In total, the disposed properties raised proceeds of £16.6m, just ahead of book value.

PEOPLE

After another period of growth and strong shareholder returns, it is important to reflect on the contribution to our performance from the 22,000 plus colleagues across our business. They take part in millions of transactions with our customers every year and are crucial to Greene King's success.

I would like to thank them for their efforts and their achievements in the first half of this year and look forward to seeing continued company progress over the rest of the year. It will not be easy, despite the improving economy, but I am confident that Greene King, led by our people, will continue to deliver a profitable future for our shareholders.

Tim BridgeChairman

02 December 2013CHIEF EXECUTIVE'S REVIEW

PERFORMANCE SUMMARY

It has been a strong first half of the financial year for Greene King, with all three of our businesses achieving good progress against their financial and strategic targets. Our largest and fastest growing business, Greene King Retail, led the way with profit growth of 8.0%: -

· Group revenue was £595.4m, up 5.2%.

· Operating profit before exceptional items was up 3.7% at £127.2m.

· Profit before tax and exceptional items was £85.6m, up 5.7%.

· Adjusted earnings per share grew 6.3% to 30.4p.

· The board has declared an interim dividend of 7.6p per share, up 6.3%.

· ROCE improved a further ten basis points since the year-end to 9.0%.

There is no doubt the good weather this summer helped trading, with strong like-for-like (LFL) performances in May, July and August. However, trading in June, due to the tough comparatives from last year's European Championship football, and in September, when our customers became more careful with their money, was not as strong. Overall, revenue grew 5.2%, with Retail delivering the strongest growth at 7.4%.

We continue to focus on providing our customers with industry-leading value, service and quality, across our three main markets of eating out, drinking out and staying out. This drove strong underlying sales performance with like-for-like (LFL) sales in Retail up 3.5%. Retail now generates 73% of group revenue and 67% of operating profit.

Despite significant pressure on input costs, we expanded the Retail operating margin by ten basis points (bps). The group margin fell 30bps, as a result of the group's changing business mix with the retail estate growing and the tenanted estate declining, in line with our strategy. Operating profit before exceptional items grew 3.7%.

This led to earnings per share growth and dividend per share growth of 6.3%. Our underlying performance, combined with the impact of our retail expansion strategy, ensured we improved our Return on Capital Employed (ROCE) by a further 10bps to 9.0%. Group ROCE has now improved 90 bps since 2010, when we initiated our accelerated retail expansion strategy, and is above our Weighted Average Cost of Capital.

MARKET CONTEXT

Our first half performance was achieved in the context of steadily improving economic conditions although, with real disposable household incomes still in decline, the improving macroeconomic data is not yet translating into a sustainable recovery in household spending. Our customers remain prudent and we believe the 'voucher culture' is here to stay. Providing our customers with 'affordable treats', through excellent value, service and quality, means we have continued, and can continue, to grow our business by taking market share across our three main markets: the eating out, drinking out and staying out markets in the UK.

Our ability to take market share will be crucial to continuing our growth momentum in the current conditions. To do this, we will need to keep giving our customers compelling reasons to visit our pubs, restaurants and hotels. Examples of initiatives launched in the first half of the year, aimed at attracting customers to our sites, included: the launch of gift cards across our main Retail brands and formats; the introduction of an estate-wide cider festival during July; and the launch of this year's Horse Factor talent show, which attracted 8,000 entrants.

STRATEGIC PROGRESS

We are now in the fourth year of our current five-year strategy to improve growth and returns to shareholders through increasing our exposure to more attractive categories in our markets. We made further material progress in the year so far: -

1. Expanding Retail to 1,100 sites and improving estate quality. We acquired or transferred in 22 sites to take the estate to 1,008 pubs, restaurants and hotels. Of these sites, eight are new Hungry Horse sites, six are Old English Inns (OEI) sites and two are Metropolitan sites.

2. Reducing the Pub Partners estate, improving estate quality and increasing our offer influence. In Pub Partners, we disposed of 59 non-core sites and transferred eleven sites to Retail. Average EBITDA per pub grew 5.2% and there were 481 sites under an element of central offer influence.

3. Maintaining industry-leading brand investment to strengthen our leadership position. We again invested in our core ale brands to drive own-brand volume (OBV) growth and UK ale market outperformance in Brewing & Brands. We increased our volume share of the UK ale market by 30bps to 10.8%*.

* Nielsen Scantrack MAT to 12/10/13, CGA Brand Index MAT to 07/09/13

GREENE KING RETAIL

Greene King Retail, our flagship business, performed well against tough comparatives and delivered further strategic progress in the period. LFL sales were up 3.5% in the first half, outperforming the sector by 230bps*, with total sales growth of 7.4%. Our LFL sales growth consisted of 2.2% volume growth and 1.3% price, mix & spend per head improvements. We achieved growth across all our main sales categories with food LFL sales up 4.5%, drink LFL sales up 2.6% and room LFL sales growth up 5.8%. Food generated 41% of our total Retail sales. We also achieved growth across all our main brands and segments, with Metropolitan, our premium London estate, performing particularly well.

* Coffer Peach Tracker, Company

Total revenue was £437.5m, up 7.4% on 3.3% more sites, with the average weekly take up 4.0% to £18.3k. Retail also achieved strong profit growth, with operating profit of £89.6m, up 8.0%. The operating margin was 20.5%, an improvement of 10bps. Further productivity gains were mainly offset by another year of above inflationary cost increases, especially in soft drinks and utilities, and the introduction of the new BT Sport channel into the estate.

Our continued success in Retail is driven by a number of key factors, including: -

1. The consistent delivery of excellent value, service and quality. Examples of value initiatives include our 'Two for £3.99' offer for over 60's in Meet & Eat and our new weekly offers in Hungry Horse such as 'Clucking Monday' and 'Rib Tickling Wednesday'. On service, Hungry Horse won a national award at the Annual Customer Experience Awards and the number of colleague commendations from customers rose 18%. On quality, we introduced a 28 day aged Black Angus steak in Flame Grill and we significantly improved the quality of our salads, across the business, by including new items such as edamame beans and pomegranate seeds.

2. Broadening our appeal through growth categories such as food, rooms and hot beverages. Total food sales grew 10.4%, with side orders and desserts growing 18% and 16% respectively. We launched a weekend breakfast offer across part of the Hungry Horse estate, we widened our range of sharing platters and we introduced 'Stoups', which are a cross between a soup and a stew and served with grilled flatbread. Revenue per available room across Retail rose 5.3% as a result of our ongoing room investment programme in OEI, while we introduced unlimited Big Bean coffee with breakfast in Hungry Horse and Joe's Tea into our premium local pubs.

3. Understanding important consumer trends such as convenience, customisation and health. Our Local Pubs lunchtime 'deli deal' accounts for 19% of covers in 'Mainstream High Street' sites. The new Flame Grill menu has eleven different meat and fish grilling options, while we introduced 'flip your chips' in Hungry Horse, so that customers can choose a healthy option such as salads or jacket potatoes, instead of chips.

4. Continued investment in our core estate. We invested £25.4m in our core estate, up 4% on last year. Based on their first half performance, these developments are achieving an annualised return on investment (ROI) of 34.0% with the efficacy of our investments improved by clear branding and segmentation across the retail estate.

5. Targeted acquisitions. We spent £9.6m acquiring new sites and invested an additional £24.1m into these, previously acquired sites and transfers from Pub Partners. We acquired seven sites and opened four newly-built sites during the period, in Sheffield, Wallsend, Bristol and Braintree. Immediately after the period-end, we opened our first new-build site in Scotland. Sites added since we began our retail expansion strategy have delivered an average site EBITDA ROI of 15.0%.

6. Employing the best trained and most motivated people in the sector. Either 'in learning' or 'achieved', we have seen 3,400 colleagues go on an apprenticeship programme since February 2011, with 2,000 qualifying and an ongoing retention rate of 75%. Our progress has been recognised through winning the Eastern Region Macro Employer award, becoming a Top 100 Apprenticeship Employer and coming runner-up in the national competition at the National Apprenticeship awards.

7. Expanding our digital platform. Visits to our websites grew 22% to 3.9m with almost half now from mobile platforms. Our online sales and reservations were up 13% and 17% respectively, while our facebook followers rose 76% to 298,000. Finally, we launched a gift card offer across our estate for the first time, ahead of Christmas, and initial sales have been very encouraging.

PUB PARTNERS

It was a successful first half of the year for Pub Partners, with robust trading in line with our expectations, and further strategic progress.

With 7.9% fewer pubs, Pub Partners achieved revenue of £70.4m, down 4.7%. Revenue per pub was up 3.5%, with both beer volume per pub and rental income per pub ahead of last year. EBITDA was £35.0m, down 3.3%, although average EBITDA per pub was up 5.2% and LFL EBITDA in the core estate was up 1.7%. Operating profit was £30.7m, down 5.2%, with the operating margin down 20bps at 43.6%. The difference in performance between EBITDA and operating profit is due to a higher proportion of capital repairs as opposed to revenue repairs compared to the prior period. This has no impact on operating profit.

Pub Partners is focused on operating the right pubs, with the right people, on the right agreement with the right offer. We made good progress in all of those areas: -

· Right pubs. During the period, we sold 59 non-core sites and transferred eleven to Retail. This left 1,218 trading sites and 25 sites closed for disposal at the period-end. With 1,243 sites at the end of the period, we have almost reached our 2015 target of 1,200 sites. We invested £10.2m in our core estate, up from £8.8m in the same period last year, including successful developments at the Mason's Arms in Bury St Edmunds, the Old Peacock in Leeds and the Weathercock in Woburn Sands.

· Right people. Recruitment remains at the heart of a successful tenanted pub estate. We launched a series of open days for prospective licensees, including a National Open Day in Bury St Edmunds. These have increased our future licensee talent pool, with over 1,000 licensees now on our database, and helped us to let particularly difficult sites. On training, we introduced additional courses for both licensees and Business Development Managers, with a particular focus on quality and food safety. We also launched 'Premier Partners', a programme to support and retain our top 100 licensees.

· Right agreements. We now have 259 sites operating under new agreements, including 207 Touchstone or Touchstone Plus tenancies and 44 franchise or franchise-style agreements. Our innovative concept, Local Hero, continues to grow, with 26 sites operating by the period-end. 73% of our trading estate, or 892 sites, are operating under some form of free-of-tie agreement, highlighting the flexibility of our agreements.

· Right offer. We continue to positively influence our licensees' offer where appropriate. We have 481 sites, or 39% of the trading estate, under an element of central offer influence. We used our company scale to recruit an additional 130 new Sky subscribers to the estate, which generated £0.5m of licensee discounts. Additionally, and for the first time, we introduced cider and beer festivals into the estate this summer.

As a result of these initiatives, average licensee tenure rose 5% to four years and ten months, temporary agreements fell to just 1.9% of the estate and 209 sites achieved 100% mystery guest scores during the period.

BREWING & BRANDS

Brewing & Brands is the leading cask ale brewer in the UK, with a 15.1%* volume share, up 160bps on last year. Core OBV was up 1.7% in the period, well ahead of the UK ale market, which was down 2.2%** in the five months to the end of September. Our volume share of the total UK ale market rose 30bps to 10.8%.

Old Speckled Hen, the UK's no.1 premium ale brand, drove this outperformance and strengthened its leadership position, with volume growth of 6.9%, against a premium ale market up 3.0%**. Volumes of Greene King IPA were in line with last year, gaining share for the brand in a standard ale market down 4.5%**. New brands, such as Old Golden Hen and Belhaven Black, achieved volume sales of over 27,000 barrels in the period, up 60% on last year.

* CGA 24 weeks to 07/09/2013

** BBPA

Revenue was £87.5m, up 3.1%, EBITDA fell 1.8% to £16.3m, while operating profit was 1.4% lower at £13.9m. As expected, the higher levels of input cost inflation experienced in the previous period have, in the main, abated. However, residual cost inflation, combined with the ongoing impact of channel mix, drove the operating profit decline.

We continued to invest in our industry-leading core ale portfolio, including the continuation of our Greene King IPA 'crafted for the moment' campaign, in support of Greene King IPA's sponsorship of the rugby union Championship in England, while both Old Speckled Hen and Belhaven Best continued their TV advertising campaigns.

Other exciting initiatives launched in the period included the building of our new St. Edmund Brewhouse, which opened on 20 November, to brew and pack a new range of innovative craft beers off shorter runs with a broader range of raw materials. We also successfully introduced new mini-kegs into the off-trade for both Greene King IPA and Old Speckled Hen and amalgamated our Trade Quality and Cellar Services teams to form one quality-focused team, ensuring our high quality standards are maintained right through the value chain, from 'field to font'.

FINANCIAL REVIEW

The benefits of a consistent and clear strategy to deliver sustainable earnings and dividend growth continue to be seen in the performance of the business.

RESULTS

Revenue grew by 5.2% on last year to £595.4m. The biggest driver of this growth came from our retail estate where revenue grew by 7.4%, with average revenue per pub rising by 3.9%. Our retail estate now accounts for 73% of group revenue. Total revenue in Pub Partners was down 4.7% driven by the reduction in the tenanted estate of 7.9%, while the average revenue per pub increased by 3.5%. Brewing & Brands grew revenue by 3.1%.

Operating profit before exceptionals was £127.2m, up 3.7% on last year, with the operating margin down 30bps to 21.4%. The main driver of the reduction in the group operating margin remains the changing business mix of the group, as Retail grows and Pub Partners reduces in size. Control over costs and cash remained strong with the operating margin of the retail estate growing 10bps over last year at 20.5%, despite significant cost inflation.

Net interest costs, before exceptional items, of £41.6m were 0.2% lower than the same period last year, as a result of strong cash flow management. Profit before tax and exceptionals was £85.6m, an increase of 5.7% on last year. The tax charge before exceptional items of £19.7m equates to an effective tax rate of 23.0%. Earnings per share before exceptional items of 30.4p was up 6.3%. Statutory profit before tax was £65.6m, down 20.6% on last year.

CASH FLOW

Operating cash flows were strong. We delivered EBITDA before exceptional items of £155.6m, up 4.1% on last year, from 3.2% fewer pubs. After investing in the core estate, paying interest, tax and dividends, we generated free cash flow of £28.9m, comfortably ahead of our debt service obligation of £14.5m. This remains a consistent part of our long-term financial strategy.

During the period, we disposed of 60 sites as part of our strategy to improve the quality of our estate, with the cash proceeds totalling £16.6m.

We made good progress towards our target of growing our retail estate to 1,100 sites with cash outflow on acquisitions, acquired and transferred sites totalling £33.7m, bringing the net cash inflow in the period to £11.6m.

CAPITAL EXPENDITURE

We also continued to invest in both maintaining and developing our core estate, in addition to growing the size of our retail estate. Total expenditure during the period was £75.1m.

Capital expenditure on the core estate, including maintenance capital, was £38.3m, an increase of £4.0m over last year. A further £9.6m was invested in acquiring single sites and £24.1m was invested on these, previously acquired sites and transfers from Pub Partners. In addition, £3.1m was spent on reinstating fully insured fire-damaged sites.

Looking forward, we have a strong pipeline of new retail sites from a combination of new builds, single-site acquisitions and transfers.

NET DEBT AND TREASURY

Net debt at the period-end was £1,438.8m, a reduction of £11.6m from the previous year-end, with the key movements being positive free cash flow of £28.9m, disposal proceeds of £16.6m and investment in growing our retail estate of £33.7m.

Our high quality and primarily freehold assets support £1,226.6m of securitised bonds with amortisation of £14.5m in the first half.

In June, we announced the purchase, at par, of the entire £60m tranche of the AB1 bond. This was financed from bank loan facilities, which were increased to £460m and extended until June 2018. At the period-end, our revolving credit facility was £290m drawn. 

Our overall credit metrics remain strong with interest rate hedges in place for 98% of the variable rate debt and a blended average cost of debt of 6.0%. Fixed charge cover has improved slightly to 3.0x, while interest cover has improved to 3.2x. Annualised net debt to EBITDA reduced to 4.6x and will continue to improve as we maximise the annual EBITDA returns from our investments. Our securitised vehicle had a free cash flow debt service cover ratio of 1.5x at the period-end, giving 27% headroom.

DIVIDEND

The board has declared an interim dividend of 7.6p, up 6.3%. This will be paid on 24 January 2014 to shareholders on the register at the close of business on 20 December 2013.

PENSIONS

The group maintains a defined contribution scheme, which is open to all new employees. The group's three defined benefit schemes are all closed to new entrants and to future accrual.

At 13 October 2013, there was an IAS 19 pension deficit of £52.3m, which compares to £63.8m at the previous balance sheet date. The movement is primarily due to a reduction in the present value of the scheme's liabilities resulting from changes to the market derived actuarial assumptions since the year-end.

The triennial valuation for our main pension scheme was completed last year and, as a result, half-year pension contributions reduced to £3.2m.

IAS 19 (revised 2011) has been applied retrospectively from 30 April 2012. Other finance expenses include a £1.1m pension finance charge and the comparative figures for the period to 14 October 2012 have been restated and now include a £1.3m IAS 19 finance cost. The impact of the application of the revised accounting standard is shown in note nine.

EXCEPTIONAL ITEMS

As set out in note three to the financial statement, we recorded a net exceptional credit of £2.7m during the period, consisting of a £20.0m charge to profit before tax and an exceptional tax credit of £22.7m.

In a prior period, the group received a refund of £7.0m from HMRC in respect of VAT on gaming machines, the application of which was deemed to have contravened the EU's principle of fiscal neutrality. HMRC appealed the decision and on 30 October 2013, following hearings involving the Rank Group plc, the Court of Appeal found in favour of HMRC. While Rank has applied for leave to appeal this latest decision, we have taken an exceptional charge of £7.0m and associated interest of £2.0m in expectation of HMRC enforcing its protective assessments issued at the time.

During the period, an impairment charge of £15.7m was made against the carrying value of a small number of our pubs where specific market conditions impacted trading. A net loss of £2.0m, which includes a £2.7m charge relating to goodwill written off on disposal, was recognised in respect of the disposed pubs and other properties in the period.

In the period, we received insurance compensation to meet the costs of restoring fire-damaged sites totalling £2.5m. Further amounts are receivable as the projects progress.

Offsetting the above £2.0m exceptional finance charge on VAT was a £4.2m credit to finance income in respect of fair value gains on the ineffective element of the group's cashflow hedges.

The exceptional tax credit of £22.7m is made up of four items: a credit of £18.8m arising from the reduction in the rate of corporation tax to 21%, effective April 2014; a £3.1m credit on revaluation and rolled-over property gains; a £3.2m credit in relation to tax on exceptional items; and a £2.4m charge in relation to prior years.

CURRENT TRADING AND OUTLOOK

Momentum across the business has continued since the period-end, helped by a strong sales performance around half-term week and Halloween. After 30 weeks of the year, LFL sales in Retail were up 3.5%, with food LFL sales particularly strong over the last six weeks. After 28 weeks, average EBITDA in Pub Partners was up 5.6% while, in the last six weeks, core OBV in Brewing & Brands was up 7.0%, taking year-to-date growth to 2.7%. Christmas bookings are ahead of last year by 13%.

Although the economy is showing increasingly positive signs of picking up, we remain cautious given the ongoing weakness in real disposable income for our customers and the competitive nature of our markets. However, we are confident that we have the right strategy for current conditions and expect to open around 20 new-build sites in the second half of the year. Looking ahead, we will continue to tailor our strategy to maximise opportunities as and when conditions improve. As a result, we are confident we can continue to provide sustainable earnings and dividend growth, and improving returns, to our shareholders.

Rooney Anand

Chief executive officer

02 December 2013

Unaudited group income statement

for the twenty-four weeks ended 13 October 2013

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

Unaudited group statement of comprehensive income

for the twenty-four weeks ended 13 October 2013

Unaudited group balance sheet

as at 13 October 2013

Unaudited group cashflow statement

for the twenty-four weeks ended 13 October 2013

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

Unaudited GROUP statement of changes in equity

for the twenty-four weeks ended 13 October 2013

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

1 Basis of preparation

The interim condensed consolidated financial statements are prepared in accordance with UK listing rules and with IAS 34 Interim Financial Reporting. 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 year ended 28 April 2013 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 13 October 2013 and the comparatives to 14 October 2012 are unaudited but have been reviewed by the auditor; a copy of the 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 year ended 28 April 2013, except for the adoption of new standards and interpretations applicable as of 29 April 2013, the following of which have had an impact on the group's financial statements:

IAS 19 Employee Benefits (revised 2011)

IAS 19 (revised 2011) has been applied retrospectively from 30 April 2012 with comparatives restated for the impact of its adoption. The standard replaces interest costs and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net pension liability/asset. The impact of IAS 19 (revised 2011) on the comparative period is shown in note 9.

IFRS 13 Fair Value Measurement

IFRS 13 applied prospectively for financial periods that began on or after 1 January 2013 and establishes a single source of guidance under IFRS for all fair value measurement. IFRS 13 does not change when an entity is required to use fair values, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted and extends the disclosures required in respect of fair value measurement. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The default risk, i.e. the entity's own credit risk, must also be reflected in the fair value of a liability. The additional disclosures resulting from the introduction of IFRS 13 are provided in note 10.

IAS 1 Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)

The amendments to IAS 1 introduce a grouping of items presented in the other comprehensive income. Items that could be reclassified (or recycled) to profit or loss at a future point in time, for example net gains on cash flow hedges take to equity, are now presented separately from items that will never be reclassified, for example actuarial gains and losses on defined benefit pension schemes. The amendment has affected the presentation of the consolidated statement of comprehensive income and has had no impact on the group's financial position or performance.

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

1 Basis of preparation (continued)

IAS 34 Interim Financial Reporting and Segment Information for Total Assets and Liabilities (Amendment)

The amendment clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments. Disclosure of total assets and liabilities for a reportable segment is required only when the amounts are regularly provided to the chief operating decision maker and there has been a material change in the total amount disclosed in the entity's previous Annual Report and Accounts for that reportable segment. Segment total assets and total liabilities have been disclosed for each reportable segment in note 2.

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 pubs

Brewing & Brands: Brewing beer, marketing and selling

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

2 Segment information (continued)

* Unallocated assets/liabilities comprise cash, borrowings, pensions, net deferred tax, net current tax, and derivatives.

** EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items and is calculated as operating profit before exceptionals adjusted for the depreciation charge for the period.

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

3 Exceptional items

During the financial year ended 2 May 2010 the group received refunds totaling £7.0m from HMRC. This followed hearings involving The Rank Group plc which concluded that there had been a breach of fiscal neutrality in the treatment of gaming machine income as liable to VAT. HMRC appealed the decision and issued protective assessments to recover the repayment in the event of a successful appeal. On 30 October 2013 the Court of Appeal found in favour of HMRC. Whilst Rank have applied for leave to appeal to the Supreme Court it is likely that HMRC will enforce the protective assessments and recover the VAT with interest. As a result an exceptional operating charge of £7.0m and associated finance costs of £2.0m have been recognised.

During the 24 week period to 13 October 2013 the group has recognised an impairment loss of £15.7m (2012: £7.3m) 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 £2.0m (2012: profit £2.0m) comprises a total profit on disposal of £3.6m (2012: £4.4m) and a total loss on disposal of £5.6m (2012: £2.4m). The loss on disposal includes £2.7m (2012: £nil) in respect of goodwill allocated to parts of operating segments disposed of in the period.

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

3 Exceptional items (continued)

Exceptional tax

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

The Finance Act 2013 reduced the rate of corporation tax from 23% to 21% from 1 April 2014 and to 20% from 1 April 2015. The lower rate of 20% has been used to determine the overall net deferred tax liability as the temporary differences are expected to reverse at the lower rate.

The effect of the lower rate is to reduce the deferred tax provision by a net £9.1m, comprising a credit to the Group Income Statement of £18.8m and a debit to Group Statement of Comprehensive Income of £9.7m.

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 £19.7m which equates to an effective tax rate of 23% which is estimated to be the effective rate before exceptional items for the year ended 04 May 2014. This compares to an effective rate of 24% for the same period last year.

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit after taxation of £68.6m (2012: £72.9m) by the weighted average number of shares in issue of 216.8m (2012: 215.6 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 into account 1.7m (2012: 0.7m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 218.5m (2012: 216.3m).

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

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

6 Dividends paid

7 Working capital and non-cash movements

8 Analysis and movements in net debt

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

8 Analysis and movements in net debt (continued)

9 RETIREMENT BENEFITS

IAS 19 (revised 2011) has been applied retrospectively from 30 April 2012. As a result, expected returns on pension schemes' assets are no longer recognised in profit or loss. Instead, net interest on the net defined benefit obligation is recognised in profit or loss, calculated using the discount rate used to measure the pension liability.

The impact on the prior year's interim consolidated income statement, consolidated statement of comprehensive income and earnings per share is as follows. There is no impact on the consolidated balance sheet or consolidated cashflow statement.

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

10 Financial instruments

IFRS 13 requires the classification of financial instruments measured at fair value 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 hierachy in IFRS 13. Level 2 fair value measurements use inputs other than quoted prices that are observable for the relevent 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 13 October 2013 was £1,201.5m (28 April 2013: £1,259.9m) compared to a carrying value of £1,218.6m (28 April 2013: £1,292.7).

11 Post balance sheet events

An interim dividend of 7.60p per share (2012: 7.15p) amounting to a dividend of £16.5m (2012: £15.6m) was declared by the directors at their meeting on 2 December 2013. These financial statements do not reflect this dividend payable.

Notes to the accounts

for the twenty-four weeks ended 13 October 2013

12 Risks and uncertainties

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 28 to 30 the 2012/2013 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

· Ability to reduce the size of our tenanted estate

· Success of investment in our core ale brands

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

· Failure to meet our financial covenants

· Financial fraud or material error in our financial statements

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

· Further legislation in relation to alcohol consumption and licensing

· Non-compliance with health and safety legislation

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

· Information systems and technology failure

· Supply chain failure and major supply chain problems

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

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

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 13 October 2013 which comprises the group income statement, group statement of comprehensive income, group balance sheet, group cashflow statement, group statement of changes in equity, and the related explanatory notes. 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 Services 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 13 October 2013 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

2 December 2013

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