Interim Results

GREENE KING plc

Interim results for the 24 weeks to 17 October 2010

Strong performance driven by continued retail momentum,

further streamlining of organisation to drive strategy

Financial highlights

n Retail like-for-like sales growth of 3.8% following 4.6% growth last year

n Like-for-like profit growth of 0.4% in Pub Partners; licensee health measures improved

n Record performance at Belhaven; profit up 10.1%

n Increased revenue and profit growth of 3.1% at Brewing Company

n Margin expansion in all businesses

n Momentum maintained; strong current trading with Retail like-for-like sales growth of 3.7%

n Strong cash generation; dividend up 6.8%

Operational highlights

n Good progress on retail brand expansion strategy; 17 new retail sites since July

n Further streamlining of organisation to drive strategy through full Belhaven integration; three stronger, consumer focused businesses and additional annualised cost savings of £1m

n Focus on food and Value, Service & Quality driving Retail growth; like-for-like food sales up 8.5%

n High quality estate and simple, flexible agreements deliver further tenanted profit growth

n Investment in focused portfolio of leading ale brands drives Brewing Company outperformance

n Full year investment of up to £2.5m in building the Greene King brand

Rooney Anand, Greene King chief executive, comments:

"This has been a successful first half for Greene King. We have achieved record interim revenues while growing both profits and margins, driven by industry-leading Retail like-for-like sales growth, further profit improvement in Pub Partners, another record performance for Belhaven and share gains in Brewing.

We have performed well throughout the downturn and our strategy for growth, via expansion of our Retail estate, is making good progress. We are taking positive steps to maintain our momentum by further streamlining the business, reducing our cost base and continuing to invest in our assets and our brands.

Current trading remains strong, with Christmas bookings comfortably ahead of last year. Although we expect more challenging conditions in 2011, we are confident that we will continue to trade well and deliver strong financial results."

* before exceptional items

A copy of the results presentation is 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 18,500 people across its main trading divisions: Retail, Pub Partners, Brewing Company and Belhaven.

§ It operates 2,452 pubs and restaurants across England, Wales and Scotland, of which 891 are retail pubs and restaurants and 1,561 are tenanted or leased pubs. Its leading retail brands are Hungry Horse, Old English Inns, Loch Fyne Restaurants and Eating Inn. 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.2 premium cask ale in the UK and Belhaven Best, the No.1 ale brand in Scotland.

Chairman's Statement

Results

I am pleased to report a strong set of results for the 24 weeks to 17 October 2010. We have achieved a record turnover for the first half of the year of £484.1m, up 4.2% on last year, with operating profit up 6.5% to £110.0m*. Profit before tax and exceptional items was up 17.1% on last year to £73.1m with earnings per share up 11.5% to 25.2p. 

Dividend

As a result of the strong financial performance in the first half, and our confidence in the company's long-term strategy, the board has declared an interim dividend of 6.3p, 6.8% ahead of last year. This will be paid on 28 January 2011 to those shareholders on the register at the close of business on 24 December 2010. 

Progress

These good results have been achieved in a difficult economic and consumer environment and we continue to progress by adhering to the principles that have served us well in the past and will do in the future. We focus on supporting our employees and licensees, we consistently invest in our quality pub assets and beer brands, and we constantly aim to deliver the best value, service and quality to our customers. We also have a strategy for growth that has seen us make selective additions to our Retail estate which will assist in delivering long-term, profitable returns for our shareholders. 

People

Justin Adams will be leaving us at the end of January, having been managing director of our Brewing Company since 2005. I would like to thank him for his commitment and contribution to the business, which he leaves in good shape, as the latest results show.

I would also like to convey my genuine thanks to all the dedicated and hard working employees across the country who work for Greene King. It has been a challenging environment over the last two to three years and is unlikely to get any easier in the foreseeable future, but our people continue to deliver excellent performances across the business as these impressive half-year figures clearly demonstrate. Everyone can be proud of their contribution and achievements.

Tim BridgeChairman

2 December 2010

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

Chief Executive's Review

In the first 24 weeks of this financial year, Greene King has again demonstrated its strengths, outperforming the market in all of its businesses, generating record revenue and healthy profit growth. Revenue in the period was £484.1m, 4.2% ahead of last year, driven by strong growth in Greene King Retail and Belhaven. Operating profit was £110.0m, 6.5% ahead of last year, with the operating margin 50 basis points (bps) above last year. Profit before tax and exceptionals was £73.1m, 17.1% ahead of last year, and adjusted earnings per share was up 11.5% to 25.2p. The board has declared an interim dividend of 6.3p per share, 6.8% ahead of last year.  

Market and business overview

This strong performance across the company has been achieved despite a backdrop of demanding economic conditions. Real household discretionary income has fallen and consumer confidence has again weakened ahead of the impending fiscal squeeze. In addition, years of unhelpful government intervention on issues such as duty, VAT and licensing have penalised the UK pub industry, while some parts of the off-trade have been allowed to deploy pricing and promotional tactics to sell more alcohol at irresponsible prices. In the last 12 months, industry on-trade beer volumes have fallen another 6.6%. This ongoing shift from more regulated and controlled 'drinking out' in pubs to less regulated 'drinking in' before going out has had significant negative social consequences for the UK, as well as providing a challenging backdrop for our industry.

Our strong performance is therefore testament to both the intrinsic strengths of our business, in terms of our people, our brands and our assets, and the key initiatives we have instigated since 2008 in the midst of the 'credit crunch'. Firstly, across all businesses, we are focusing on delivering the best Value, Service and Quality (V.S.Q.) in the industry and, secondly, we are repositioning the business toward faster growing product categories, with particular focus on driving food participation to maximise the opportunity from the expected long-term growth in the eating out market. This has resulted in another period of strong like-for-like (LFL) sales growth, on top of strong growth last year, and healthy margin expansion in Greene King Retail; Pub Partners has returned to LFL profit growth based on our focus on providing simple, flexible agreements for licensees; Belhaven has achieved another record performance; and Brewing Company's profit growth has been driven by consistent investment in our market leading ale brand portfolio.

Strategy update

In our preliminary results in July, we announced our strategy for growth for the next three to five years: with our retail business being both the biggest contributor to company sales and profit and our fastest growing business segment, we intend to expand retail from c.900 sites to c.1,100; at the same time, we plan to reduce our tenanted and leased business from c.1,600 sites to c.1,200; and we plan to increase investment in our core beer brands. Progress since announcing this strategy in July has been good and we remain on track to deliver these targets.

Retail expansion and brand focus

Since July, we have either completed or exchanged on eight new Retail sites, covering both existing site acquisitions and new-build sites, the latter specifically to expand our Hungry Horse and Eating Inn brands. This takes the total acquisitions since the rights issue to 42. In addition, we have transferred, or agreed to transfer, nine sites from tenanted to managed since July. We have now utilised £122m, or

c. 60%, of the rights issue proceeds, and the pipeline for the rest of this year, in terms of single site acquisitions and reverse-transfers, is healthy. We have also launched a £1.5m media campaign, aimed at building the Greene King pub brand, around a 'proper pub' theme.

Tenanted quality improvement

We have stepped up our investment in the tenanted estate with capital expenditure up over 40% on last year. We are also helping to improve our licensees' customer focus and retailing skills through a number of initiatives including a tailored mystery guest programme for licensees involving four annual visits and numerous incentives to reward excellent customer service. We have also disposed of a further 14 lower-end tenanted sites.

Beer brand investment

Towards the end of the period, we launched 'Man Deserves a Proper Pint', a new £1m media campaign for Greene King IPA. The campaign will reach around 14m men through the national press and male targeted magazines. We have also increased our 'above-the-line' media investment in Belhaven Best with a new TV advertising campaign.

Further streamlining of the organisation to drive our strategy

Since the acquisition of Belhaven in 2005, we have delivered annual cost savings of £5m. We now plan to fully integrate Belhaven into Greene King, creating a more streamlined organisational structure that will deliver faster decision-making, tighter control of our customer offer and a lower cost base. In order to accelerate our retail expansion and brand investment strategy, this next step will deliver an additional £1m of annualised cost savings from the next financial year. A portion of the additional cost savings will be re-invested in our pub and beer brands.

Belhaven is a great success story and makes a strong contribution to Greene King. We continue to invest in our brewing and brands business in Scotland; in the period we increased support behind Belhaven Best and repositioned brand spend toward media advertising, while we are investing £750k in the brewery at Dunbar to increase capacity and improve efficiency. We intend to retain the distinctive character of our operations in Scotland and the Belhaven brand will continue to prosper through our continued investment and its strong relationship with our licensees and trade partners.

These changes will take effect from January 2011 and we will report in both the existing and new formats for the year ending 1 May 2011.

The specific changes are as follows: -

1. Brewing

We are combining Greene King Brewing Company and Belhaven Brewing into one business, Greene King Brewing and Brands, under the leadership of Euan Venters, the current managing director of Belhaven, while retaining our breweries in Bury St. Edmunds and Dunbar. The combined business will have the best portfolio of ale brands in the UK, adding Scotland's leading ale brand, Belhaven Best, to the UK's leading cask ale brand, Greene King IPA, the UK's leading premium ale brand, Old Speckled Hen, and the UK's no. 2 premium cask ale brand, Abbot Ale.

Justin Adams, the current managing director of Greene King Brewing Company, who signalled last year that after five years he would be ready for a fresh challenge outside of the group, will be leaving the business shortly. I would like to express my gratitude to him for his leadership of, and commitment to, Greene King Brewing Company over the last five years. He has made a great contribution to our business and leaves us with our very best wishes.

2. Retail

We are integrating Belhaven's 106 managed pubs into Greene King Retail. The combined business will generate around 70% of Greene King's revenues, have c. 900 sites across the UK and have leading retail brands including Hungry Horse, Eating Inn, Old English Inns and Loch Fyne Restaurants.

3. Tenanted

We are integrating Belhaven's 227 tenanted and leased pubs into Pub Partners. This will ensure a more co-ordinated approach, across the entire tenanted estate, to delivering our plan for a smaller, higher quality, sustainable tenanted pub estate of c. 1,200 sites, run by increasingly customer-focused licensees.

Greene King Retail

Greene King Retail has maintained its strong growth record and continues to outperform the market. Revenue was £293.4m, 5.5% ahead of last year on 1.3% more sites, with LFL sales growth of 3.8%. Our operational focus on providing the best V.S.Q. in the sector and in repositioning the business towards growth product categories continues to drive strong and profitable sales growth. Following LFL food sales growth of 8.5%, food sales are now 39% of total sales, up another 200 bps on last year. Both drink and accommodation achieved LFL sales growth for the period and key strategic product categories achieved strong sales growth on a per pub basis; total food sales were up 9.8%, wine sales were up 5.1%, soft drink sales were up 6.9% and cask ale sales were up 2.4%.

Operating profit was £57.2m, up 9.8% on last year, driven by both the strong sales growth and improved margins. Our operating margin was 19.5%, up 80 bps on last year. We have been able to offset £2.8m more than the anticipated group cost inflation in the period and we are on track to mitigate the £5.5m latest anticipated cost inflation for the remainder of the financial year. Overall food cost has been mildly deflationary in the period but the outlook is less attractive for the second half of the year. In the first half, improved supply chain efficiencies have been key - on average 95% of food products now come through a single supply chain, compared to 80% last year. In addition, we now source almost 90% of our wine range direct from either the vineyard or brand owner. Utility costs are down 11% in the period, benefitting from forward contracting and further operational initiatives. Sky costs are up c. 20% and we continue to review its effectiveness on a site-by-site basis, only continuing to invest where we can achieve attractive returns. 

Capital investment remains focused on expanding and improving our main retail brands, including Hungry Horse and Old English Inns, driving greater average sales, profits and returns from our assets. In the period, we invested £8.0m of expansionary capital, £11.5m on maintenance capital and a further £4.8m was spent on repairs through the revenue account. Within this, we invested over £4m in a further 17 Hungry Horse sites, almost £3m on 13 Old English Inns sites and almost £4m in another 46 Local Pubs. We have now invested in 65% of the estate over the last three years.

Within Greene King Retail, we have acquired 25 pubs and one new-build site since the rights issue last year. We have either converted or plan to convert 13 into Hungry Horse, three into Old English Inns and ten into Premium Locals. The new sites are trading very well, including healthy profit growth in year two post acquisition, and generating higher returns than anticipated at the time of acquisition.

In the last two years, we have also transferred, or agreed to transfer, 18 pubs from Pub Partners, converting or planning to convert two into Hungry Horse, five into Old English Inns and eleven into Local Pubs. As with the acquisitions, the sites already transferred, post investment, are trading ahead of our expectations.

It has been another very strong period for Hungry Horse. Eight new Hungry Horse outlets were opened, taking the total to 155 at period-end. LFL sales growth was 10.3% and the average weekly turnover grew 8.5% to £19.7k. Cover growth was 6.3%, alongside a 4.0% rise in spend per head, driven up by additional higher spend dishes on the menu and the upselling of side dishes and desserts. Food is 51% of sales. Service levels continue to improve and over 80% of meals are now served within 15 minutes of ordering. The food offer at Hungry Horse also continues to evolve and improve with new dishes on the menu such as the 'Bollywood Bad Boy Burger' and two new dishes below 500 calories.  

LFL sales at Old English Inns grew 2.4% with food, drink and accommodation all in growth. Our value offers have driven covers up by 12.3%, more than offsetting a 3.8% fall in spend per head. We have introduced a further six whiskies to our already extensive range, relaunched our soft drinks range and now run successful bi-annual cask ale festivals. We have also achieved great success with accommodation 'reader offers' in targeted magazines such as Waitrose Kitchen and BBC Homes & Antiques, with sales of c. £500k in the period.

Loch Fyne Restaurants is trading well, in a highly competitive restaurant sector, with LFL sales only marginally down on last year. Our focus is on providing additional value to consumers through alternative promotional mechanisms to widely used discount vouchers and on continuing to deliver the highest quality of standards and service in the sector. We use our extensive database to cost-effectively promote the brand, we have the highest customer service levels within Greene King and we continue to innovate and improve our food offer, with successful new dishes on the autumn menu like Goan Fish Curry and Monkfish & Chorizo Risotto.

LFL sales were up 0.7% with LFL food sales up 6.4%. Food is now 28% of sales. Menus were redesigned to emphasise product quality, provenance and freshness and to increase 'food sharing', and included successful new dishes such as Chicken and Bacon Pasta. At the end of the period, we introduced Illy coffee into our premium estate. LFL drink sales have been driven by a significant upweighting of our premium drinks range, both in terms of draught brands such as Estrella Damm and Aspalls, and packaged brands such as Brooklyn Lager and Vedett. Premium 'world beers' are now 28% of premium lager sales, up from 15% last year. Our wine range continues to improve, with our own label Giotto Pinot Grigio becoming the best selling wine in the estate, while cask ale growth, particularly in Greene King IPA and St. Edmunds, has been driven by a cellar upgrade programme, staff re-training and new employee incentives.

LFL sales were up 2.1%. Even though we invested in price to drive food cover growth of 16%, we still managed to grow food margins. We redesigned menus to emphasise freshness, value and improved customer choice, with the number of main dishes expanded from 18 to 27. We also targeted promotional activity to location, with 'two-for' deals in community outlets and lunchtime 'meal deals' in the high street. In drink, we grew sales on the back of extending Carlsberg distribution as part of a 'good-better-best' pricing strategy and we rapidly grew our cocktail range so that, across the entire Local Pubs estate, this category is now worth £2m on an annualised basis.

LFL sales were up 2.5%. Our repositioning towards food led to over 30% food cover growth in the period. We significantly invested in our kitchen facilities to broaden the number of outlets capable of serving a full food offer, we further extended our value proposition, including reducing burger and Sunday Roast prices by c. £1.50, and we extended food trading hours in a number of outlets. In drink, we lowered prices on our known value items, including reducing Carlsberg by a further c. 30p per pint, and introducing Blossom Hill wines at £6.99 per bottle.

Pub Partners

Pub Partners is leading the tenanted and leased sector, delivering both profit growth on an average and a LFL basis in the period and improved licensee health measures. This is driven by simple, flexible agreements, well located and invested pubs, targeted recruitment, industry-leading training and tight revenue, cash and cost management.

Revenue was £68.0m, down 1.2%, but up 1.9% on a per pub basis, while operating profit was £30.6m, down 1.0%, but up 2.1% on a per pub basis. LFL EBITDA was up 0.4% and average EBITDA per pub was up 2.0%. In the period, we significantly increased our investment in the estate against last year; a total of £3.6m was invested, of which £2.4m was maintenance capex and £1.2m was expansionary capex, including further investment in Brulines' i-draught technology, which is now in 830 sites. An additional £1.7m was spent on repairs through the revenue account. An average of 1,341 sites traded over the period. At the start of the financial year, 1,355 sites were trading and, during the period, 14 were sold and seven were closed for disposal. The closing balance was therefore 1,334 sites.

Licensee health measures have improved further. With just 64 temporary agreements at the period end, down from 74 at the start of the year, 95% of the estate is now on a substantive agreement. There was one pub closed for re-opening at period end, bad debts fell 20 bps to 0.9% of sales and average licensee tenure was three years and nine months. 

The more stable trading performance and improved licensee health measures are encouraging. However, there are still significant issues for the existing tenanted and leased model, with many sub-optimal locations, licensees and offers, beer volumes in permanent decline and rising cost pressures. Many tenanted and leased pubs are no longer competitive with either managed pubs or the off-trade and cannot sustain enough profit for both licensee and landlord.

In the short-term, we will continue to support those pubs under most pressure through licensee support in the form of rent concessions and wholesale discounts, and we have successfully launched our new Code of Practice, focusing on delivering greater transparency, flexibility and fairness to existing and prospective licensees. At the same time, we are pursuing a longer-term strategy for Pub Partners, as outlined in July: improving the overall quality of the estate through disposals and targeted investment; continuing to raise the retailing skills and calibre of our licensees; ensuring all financial support is contingent on the licensee agreeing a V.S.Q. contract, in which they agree to improve various aspects of their offer and environment; redirecting tailored support towards business to consumer (B2C) marketing and category management; and introducing further agreement flexibility, particularly around our preferred tenancy agreement, to better align the commercial interests of Pub Partners and its licensees.

Examples of initiatives we have taken to successfully deliver the strategy include: -

1. Retaining Independence Pub Company (IPC). IPC has been a very successful vehicle for turning around failing pubs and for managing pubs earmarked for disposal, since it was initially created in 2008. We will now split the combined Pub Partners and Belhaven estates into a core estate of c. 1,200 sites and IPC with c. 400 sites.

2. Launching, and now rolling out across the entire core estate, 'Missing Something?', a mystery guest programme to help licensees improve customer service levels.

3. Introducing 'Business Builder', a natural progression from 'Crunch Time'/'Love Your Local', offering a wider range of products at discounted prices, across a larger number of sites, with training support, capital investment including signage and merchandising advice.

4. Upweighting our Business Development Manager (BDM) training in support of our new Code of Practice, including jointly developing, with Birmingham City University, a tailor-made diploma in Multi-Unit Leadership.

Combining the inherent strengths of Pub Partners, such as our South East location bias, our preference for simple and flexible tenancy agreements, our high quality assets and our quality recruitment and training programmes, with these initiatives will ensure a sustainable and successful long-term future for Pub Partners and its licensees.

Belhaven

During a strong first half-year, Belhaven achieved revenue of £76.4m, up 5.8% on last year, and operating profit of £17.5m, up 10.1% on last year. The operating margin grew 90 bps to 22.9%. Both retail and brewing achieved strong profit growth. In the period, we also completed a major project to integrate Belhaven's IT support systems into Greene King. The number of pubs trading fell from 334 to 333 and, on average, 334 were trading during the year.

Retail growth was achieved both organically and through acquisition. LFL sales growth was 3.0%, led by strong performances from Eating Inn and high street, food-led pubs. Again, both food and drink LFLs were up on last year and food is now 31% of sales, up from 9% when we acquired Belhaven. During the period we closely monitored service levels through the successful introduction of a mystery guest programme with scores commensurate with those achieved in Greene King Retail, with particularly strong scores on food service. We also tightened margin management and improved food quality consistency through reducing menu proliferation across the estate and we improved the quality of our coffee offer. Coffee LFL sales growth in the period was 13.0%. Wine growth was also strong with LFL sales in the period up 12.6%. Since the rights issue, we have acquired 15 pubs and one new-build site. The new sites are trading well and ahead of our expectations.

Tenanted performance is in line with our expectations, although EBITDA per pub is slightly down on last year. We have further enhanced our licensee Profit Improvement Package to support our licensees during a challenging operating environment, including Sky, utility and repair support. As a result, key licensee health measures have remained stable. 

On the back of a very strong period of growth this time last year, Belhaven Best has once again grown well and outperformed the market. Volume growth in the period was 5.5% with strong growth across both the free trade and national accounts channels.

Brewing Company

Brewing Company's focus is on delivering market outperformance and profit growth through an FMCG approach to producing, marketing and selling a quality ale portfolio. During the period, we have once again outperformed the UK ale market and all leading brands have grown their respective sub-category market shares. Own-brewed volumes were down 3.7%, against the UK ale market down 7.4%*, with our share of the market growing 30 bps. Cask ale volumes were down 4.5% against the UK cask ale market down 6.9%*, with our share growing 40 basis points. Total volumes sold, including third party products through free trade, were up on last year.

Revenue in the period was up 2.2% to £46.3m and operating profit was up 3.1% to £10.0m. Notwithstanding higher input prices from third party suppliers, we were able to grow the operating margin by 20 bps to 21.6%, helped by numerous cost mitigation initiatives, including the introduction of 'dynamic routing', driving a more flexible and efficient use of our dray fleet on a daily basis.

We have kept up our relentless focus on quality: over 40 Local Pubs sites have received investment in cellars and lines totalling c. £100k; we have introduced a cask ale training programme into our Retail estate called 'Cask Beer Masters'; over 300 Pub Partners sites are enrolled into the Head Brewers Club which rewards consistently high cask ale sales and quality standards; and we were the first brewery in the UK to receive an unannounced audit by the British Retail Consortium, which provides the global standard for food safety and quality, for which we were awarded an 'A star' rating.

Greene King IPA remains the leading cask ale brand in the UK** and is achieving strong growth outside of its heartland, including in Yorkshire and the Midlands. Its status as the official beer of England Rugby has driven numerous new free trade account wins, particularly in sports clubs. It has won National Cask Ale Brand of the Year in the Morning Advertiser Pub Suppliers Awards and is the no.6 drinks brand in the Morning Advertiser 'Hot to Stock' Survey. We have successfully launched Greene King Very Special India Pale Ale (7.5% ABV, 355ml bottle) into Tesco and Sainsbury and the Cask Revolution font, now in 1,300 outlets across the UK, continues to deliver significant rate of sale outperformance versus non-Cask Revolution fonts.

Old Speckled Hen, which is the no. 1 premium ale brand in the UK***, achieved volume growth of 5.4% in the period. Its share of the premium off-trade ale category grew 50 bps and its share of the total premium ale market grew 70 bps. Research**** has confirmed that, at 87% prompted brand awareness, Old Speckled Hen is the most recognised ale brand in the UK amongst all UK ale drinkers over 25. Our investment in the brand continues - 20 new adverts were launched on Dave TV in May and, by September, 2.2m ale drinkers were much more likely to buy Old Speckled Hen as a result of seeing the adverts.

* BBPA, 6m to October

** CGA

*** AC Nielsen & CGA

**** Cardinal

Financial review

In an environment that continues to be challenging, and on a 1% smaller estate, revenue grew 4.2% to £484.1m. Our gross margins held up well and, through our consistent focus on costs and cash, we were able to offset £2.8m more than the £3.6m increase in non-wage costs and inflation, particularly in food and utilities. Operating margins have improved by 50 bps over the same period last year, more than offsetting 30 bps from the adverse change in mix across our business units. Operating profit before exceptionals of £110.0m was up 6.5% on last year, which represents underlying profit growth over the same period last year, enhanced by acquisitions.

Interest costs of £36.9m were 9.8% lower than the same period last year reflecting our strong and positive cash flow management alongside a smaller IFRS pension interest charge of £0.1m. Profit before tax and exceptionals was £73.1m, an increase of 17.1% on last year.

The tax charge before exceptional items of £19.0m equates to an effective tax rate of 26%, which we estimate to be the effective rate before exceptional items for the year ended 1 May 2011. This compares to an effective rate of 25% for the same period last year.

Earnings per share of 25.2p per share has grown by 11.5% on the same period last year, notwithstanding the 1% higher effective tax rate and a small increase in the average number of shares in issue.

We have continued our focus on cash. We delivered EBITDA of £135.4m, up 6.1% on the same period last year from 1% fewer pubs. With another year of strong cash management, including £12.2m of working capital inflow, we have further improved our strong cash platform, allowing us to continue to invest in the core estate for both maintenance and expansionary purposes, to pay down debt (and comfortably ahead of our normal amortisation) and to pay dividends to shareholders. This remains a consistent part of our long-term financial strategy.

£31.8m of capex was spent across the estate as part of our ongoing plans, which keeps capex broadly flat on a comparable estate year-on-year. This delivered returns ahead of our cost of capital across over 170 schemes in the 24 weeks, benefitting our estate and the business in both the short-term and the long-term. We have completed the disposal of 25 trading and non-trading assets, realising £6.3m net proceeds at a net profit of £0.7m over book value.

In line with our strategy to expand our Retail business, we have now used part of the rights issue proceeds to purchase 40 high quality, freehold, managed pubs since July last year. These have been quickly integrated into our Retail estates, and continue to progress well, ahead of our expectations. We have also exchanged contracts on two new sites for development. Together with the new sites, we have now committed £122m or c. 60% of the rights issue proceeds. In addition, we have agreed nine reverse-transfers from our tenanted estate back into Retail. The disposed and transferred pubs would have delivered an annualised EBITDA of £1.1m in Pub Partners.

Net debt at the period-end stood at £1,324.5m, down a further £23.6m from the previous year-end. We have commenced discussions on refinancing our currently undrawn £400m bank facility, which is available to us until April 2012. Our high quality and primarily freehold assets support £1,368m of securitised bonds. These have a flat debt service profile with amortisation of £24.9m in the full year. There is no bond refinancing required before March 2012.

During the period, there was a further improvement in our overall credit metrics, with interest rate hedges in place for 100% of the securitised debt at an overall blended interest rate of 6.0%. Fixed charge cover improved to 2.8x, up from 2.4x at the last year-end, and interest cover likewise improved to 3.0x from 2.5x. Annualised net debt/EBITDA has continued to make further good progress, down to 4.9x; this will continue to move slightly as proceeds are further invested ahead of the earnings stream they generate. Our securitised vehicle had a FCF DSCR of 1.5x at the period-end, giving 27% headroom.

The interim dividend is being increased by 6.8% to 6.3p per share. The board continues to adopt a dividend policy targeting dividend cover of around two times underlying full year earnings.

The group maintains a defined contribution scheme which is open to all new employees. The group's defined benefit schemes are all closed to new entrants. Under IAS19, the net pension liability was £84.0m, 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.

We have recorded £13.1m of exceptional charges during the period, as a result of their nature or size. We continue to review the pubs in the tail of our estate and have recognised a small impairment of £12.7m 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/properties of £0.7m during the period.

The principal risks and uncertainties for the group were set out in the 2009/10 annual report and accounts and can be viewed on our website www.greeneking.co.uk. These have not materially changed.

Current trading and outlook

Trading since the reported period end is still strong. In the 30 weeks to 28 November, Greene King Retail LFL sales were up 3.7% and Belhaven retail LFL sales were up 3.3%, while Brewing Company own-brewed volumes were down 3.2% and Belhaven Best volumes were up 4.9%. In the 28 weeks to 14 November, Pub Partners LFL EBITDA was up 0.6%.

We expect a strong Christmas based on an encouraging level of bookings, extended trading hours across our pubs and the value and quality of our offer. However, the broader trading outlook for 2011 remains uncertain; our industry will be challenged by a VAT rise in January, a further significant rise in duty in April and the impact of government spending cuts.

We are taking positive steps to offset these challenges and maintain our momentum by further streamlining the business, reducing our cost base and continuing to invest in our assets and our brands. We are confident that we will continue to trade well and deliver strong financial results.

Rooney Anand

Chief Executive

2 December 2010

Unaudited group income statement

for the twenty-four weeks ended 17 October 2010

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

Unaudited group statement of comprehensive income

for the twenty-four weeks ended 17 October 2010

Unaudited group balance sheet

as at 17 October 2010

Unaudited group cashflow statement

for the twenty-four weeks ended 17 October 2010

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

Unaudited statement of changes in equity

for the twenty-four weeks ended 17 October 2010

Notes to the accounts

for the twenty-four weeks ended 17 October 2010

1. Basis of preparation

This interim report has been 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 2 May 2010 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.

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 polices 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 2 May 2010, except for the adoption of new standards and interpretations as noted below:

IFRS 3 Business Combinations (Revised) 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. All transaction costs will be expensed. The revision to the standard has not had a material impact on the financial position or performance for the 24 weeks to 17 October 2010.

IAS 27 Consolidated and Separate Financial Statements (Amendment) 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. 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 had no impact on the financial position or performance for the 24 weeks to 17 October 2010.

2. Segment information

The group has determined four 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 houses in England and Wales, as well as Loch Fyne Restaurants.

Pub Partners: Tenanted houses predominantly in England

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

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

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

3. Exceptional items

Exceptional 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.

During the 24 week period to 17 October 2010 the group has recognised an impairment loss of £12.7m (2009: £18.0m) 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 profit on disposal of property, plant and equipment of £0.7m (2009: £nil) comprises a total profit on disposal of £1.8m (2009: £3.2m) and a total loss on disposal of £1.1m (2009: £3.2m).

Exceptional tax

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 Finance (No.2) Act 2010 reduced the rate of corporation tax from 28% to 27% from 1 April 2011. The effect of the new rate is to reduce the deferred tax provision by a net £4.5m, comprising a credit to the Group Income Statement of £6.4m and a debit to Group Statement of Comprehensive Income of £1.9m.

Additional changes to the rate of corporation tax are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014. These changes had not been substantively enacted at the balance sheet date and consequently are not included in these financial statements. The effect of these proposed reductions would be to reduce the deferred tax liability by £11.6m. Further tax changes were proposed and are subject to enactment to reduce the rate of capital allowances on plant and machinery and integral features from 20% to 18% and from 10% to 8% respectively from 1 April 2012.

4. Tax

The tax charge before exceptional items is £19.0m which equates to an effective tax rate of 26% which is estimated to be the effective rate before exceptional items for the year ended 1 May 2011. This compares to an effective rate of 25% for the same period last year.

5. Earnings per share

Basic earnings per share has been calculated by dividing the profit after taxation of £51.9 million (2009: £37.7 million) by the weighted average number of shares in issue of 215.0 million (2009: 207.0 million).

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 0.5m (2009: nil) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 215.5m (2009: 207.0m).

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

Securitised debt repurchase

During the prior period securitised debt with a nominal value of £22.4m was repurchased for cash consideration of £11.6m. The gain on repurchase of these bonds was £10.7m which, together with fees of £0.6m, resulted in a net gain on repurchase of £10.1m.

9. Post balance sheet events

An interim dividend of 6.3p per share (2009: 5.9p) amounting to a dividend of £13.5m (2009: £12.7m) was declared by the directors at their meeting on 2 December 2010. These financial statements do not reflect this dividend payable.

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

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 17 October 2010 which comprises the group income statement, group statement of comprehensive income, group balance sheet, group cash flow statement, group statement of changes in equity and the related explanatory notes 1 to 9. 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 17 October 2010 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 Services Authority.

Ernst & Young LLP

London

2 December 2010

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