Preliminary results for the 52 weeks to 30 April17

RECORD RESULTS, MARKET OUTPERFORMANCE & INTEGRATION COMPLETED A YEAR AHEAD OF SCHEDULE

Preliminary results for the 52 weeks to 30 April 2017

HIGHLIGHTS2

Continued market outperformance

· Pub Company like-for-like (LFL)2 sales up 1.5%, ahead of the market3, driven by a good Christmas, a stronger fourth quarter and a strong performance from Greene King Locals.

· Record performance from Pub Partners; LFL net profit2 up 5.0%.

· Brewing & Brands revenue up 1.7%; own-brewed volume (OBV) down 2.8%, beating the UK cask ale market4.

Strong financial metrics supporting growth and shareholder returns

· Record revenue, up 6.9% to £2,216.5m, and operating profit before exceptional and non-underlying items, up 4.9% to £411.5m.

· Strong free cash flow generation; £119.6m post core capex2 & dividends, covers scheduled debt repayments.

· 4.0x net debt to EBITDA1,2; long-term debt financing.

· Return on capital employed2 (ROCE) maintained at 9.4%.

· Dividend per share up 3.6%; continued long-term dividend progression.

Spirit integration completed a year ahead of schedule

· £35m targeted annual synergies delivered.

· Pub Company IT system rolled out across over 1,700 pubs.

· Integrated supply chain in place.

· Organisational restructure completed.

· Year one brand conversions achieved sales uplifts of over 30%.

Rooney Anand, chief executive officer

"Greene King has delivered another set of record results, generating full year EBITDA of over £500m for the first time. The team has worked hard to maintain momentum during the period and successfully completed the integration of Spirit a year ahead of schedule. This has led to a stronger, more competitive business with an industry-leading portfolio of brands.

"Our performance has been achieved against a demanding backdrop of increased costs, weaker consumer confidence and increasing competition. While I expect these challenges to intensify over the next few years, Greene King has a very strong track record of delivery in tough market conditions.

"Using the scale that the Spirit acquisition has brought, we will continue towards our aim of being the best pub company in Britain. We will achieve this goal by ensuring we have the best brands, the best invested estate and the best people in the industry. We will target further market outperformance, in a growing market, supported by additional cost efficiencies, a robust balance sheet and strong cash generation to deliver long-term growth and attractive returns for our shareholders."

FOR FURTHER INFORMATION

Further information is available at www.greeneking.co.uk or on Twitter using @greeneking.

There will be a presentation for analysts and investors at 9.30am at Deutsche Bank, 1 Great Winchester St. London, EC2N 2DB.

The conference will also be accessible by phone: 0808 109 0700 UK Toll Free; +44 (0) 20 3003 2666 - Standard International Access.

Conference ID: Greene King

HEADLINE GROUP RESULTS

1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this financial statement.

2. The directors use a number of Alternative Performance Measures (APM) that are considered critical to aid the understanding of the group's performance. Key measures are explained on page 30 of this announcement.

3. Coffer Peach tracker 52 weeks to end of April 2017.

4. BBPA Beer Market data to April 2017.

NOTES FOR EDITORS

· Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs around 44,000 people across its main trading businesses; Pub Company, Pub Partners and Brewing & Brands.

· At the end of the year, it operated 2,924 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,769 were retail pubs, restaurants and hotels, and 1,155 were tenanted, leased and franchised pubs. Its leading retail brands and formats include Greene King Local Pubs, Hungry Horse, Flaming Grill, Farmhouse Inns and Chef & Brewer. Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries. Its industry leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.

CHAIRMAN'S STATEMENT

In my first statement a year ago, I stated that Greene King was a strong business with an excellent track record which, following the Spirit acquisition, was at an exciting time in its development. A year on, this remains the case. The team has worked extremely hard over the last two years on the integration which has completed one year ahead of schedule. This means we can now give all our focus to pursuing opportunities to grow and take share, prioritising long-term value creation, while delivering continued strong cash generation and maintaining a robust balance sheet. Ours is a strategically strong and well-managed business which is positioned to address the tougher trading environment forecast for the next few years.

OVERVIEW

We achieved another year of record results and market outperformance, driven by a good performance from the underlying business and an additional seven week contribution from Spirit. Group revenue grew 6.9% to over £2.2bn, while operating profit before exceptional and non-underlying items1,2 increased by 4.9% to £411.5m. Profit before tax, exceptional and non-underlying items1,2 grew 6.6% to £273.5m, leading to a 1.3% increase in adjusted earnings per share1,2 to 70.8p. 

DIVIDEND

Reflecting this performance and confidence in our long-term prospects, the board has recommended a final dividend of 24.4p, giving a total dividend for the year of 33.2p. This represents growth of 3.6% compared to last year and continues the long-term track record of progressive dividends. The board continues to target minimum dividend cover of around two times earnings.

PEOPLE

We have 44,000 talented and hard-working team members. The continued success of the business during the Spirit integration demonstrates the effort they have put in over the last 12 months. I would like to take this opportunity to thank everyone who has worked so hard during the last year helping us to deliver these results at the same time as completing the integration of Spirit ahead of schedule.

BOARD CHANGES

At the AGM in September 2016, Ian Durant retired from the board after nine years, latterly as chairman of the audit committee. Rob Rowley took over as audit chair at the same time. In December 2016, Gordon Fryett joined the board bringing a wealth of experience of both retail and property through his career at Tesco. I should like to record the board's thanks to Ian for his contribution to Greene King over such a critical period.

LOOKING AHEAD

We are excited about the opportunities we see in our core pub retailing brands, where the results from our brand conversions are showing very positive sales uplifts. We will continue with the programme over the coming years, ensuring our pubs remain attractive and relevant to our customers as they face into the challenges that the economic uncertainties will undoubtedly bring.

Within the pub sector, Greene King's combination of brands, teams and assets leaves us well placed to deliver long-term growth and returns to shareholders. Uncertainty affecting both business and consumer confidence is likely to continue following the recent election and the unknown length and outcome of the Brexit negotiations. Alongside the rest of the industry, we are experiencing significant cost pressures but Greene King's scale and the consequent cost efficiencies, not least from the Spirit integration, should enable us to mitigate much of the cost increases. Our aim is to ensure that Greene King emerges from the near-term period of uncertainty stronger than ever and I look forward to reporting on our progress towards this goal in a year's time.

Philip Yea

Chairman

28 June 2017

1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement.

2. The directors use a number of Alternative Performance Measures (APM) that are considered critical to aid the understanding of the group's performance. Key measures are explained on page 30 of this announcement.

CHIEF EXECUTIVE'S REVIEW

PERFORMANCE SUMMARY

Total revenue grew 6.9% to a record high of £2,216.5m, driven by another good performance from the underlying business and by the additional seven weeks of Spirit trading in comparison with last year.

EBITDA1,2 surpassed £500m for the first time in the company's history, reaching £524.1m, up 5.5% on last year.

Operating profit before exceptional and non-underlying items1,2 was up 4.9% at £411.5m while the operating margin1,2 decreased 0.3%pts to 18.6%. This comprised a positive contribution from Spirit synergies, offset by brand conversion costs and the more challenging cost environment.

Pub Company delivered LFL sales growth1,2 of 1.5%, outperforming the market by 0.4%pts3. Total sales growth in Pub Company was 7.7%, while operating profit grew 3.0% to £308.1m. 11 new pubs were opened during the year while 65 disposals were completed.

Pub Partners revenue was up 5.8% to £198.8m and LFL net profit growth2 was up 5.0%. Average EBITDA1,2 per pub increased 7.9%, reflecting further improvements in estate quality as a result of the Spirit acquisition, the disposal of 54 pubs from the combined estate and synergy contribution. Operating profit grew 8.8% to £92.8m.

Brewing & Brands achieved revenue of £200.3m in the year, up 1.7%. OBV was down 2.8%, in line with the total ale market and beating the cask ale market. Our share of the UK cask ale market was 10.3%. Operating profit was down 5.2% to £31.0m and operating profit margin was down 1.1%pts to 15.5%. Factors impacting profit conversion included increased cost of goods sold and investment in marketing and price, mainly in the second half of the year.

The integration of Spirit was completed a year early with annual cost synergy realisation of £35m.

The group delivered strong free cash flow2 from operations of £119.6m and we again covered our debt service obligation, core capital expenditure and dividend from internally generated cash. Net debt to EBITDA1,2 was 4.0x.

Adjusted earnings per share grew 1.3% to 70.8p and we have recommended a 3.6% increase in the dividend per share, maintaining our long-term progressive dividend policy.

The business achieved another year of strong returns, generating a ROCE2 of 9.4%, which remains comfortably above our weighted average cost of capital (WACC).

TRADING ENVIRONMENT

Consumer confidence in the UK has softened over the last 12 months with nominal wage growth starting to fall behind rising levels of cost inflation leading to a squeeze on disposable household income. While spending on essentials has held up, discretionary spending has started to fall. Within this, we believe that affordable treats such as visits to the pub will continue to play an important role in consumer discretionary spending. We anticipate that this challenging environment will intensify over the next few years, partly due to the ongoing political and economic uncertainty in the UK. If this is the case, we think our business model is well placed to outperform the market: Pub Company has good national coverage with a bias towards London and the South East; we operate pubs in the value, mainstream and premium sectors; and we have a good mix of sales between drink, food and rooms. In addition, 30% of our profits come from our cash generative non-retail businesses, Pub Partners and Brewing & Brands.

As well as the macro themes evident over the last year, we have also seen a number of developing consumer trends within the eating and drinking out sectors. Consumers are raising their expectations for their eating and drinking out experiences, particularly in the value, quality, service and environment of the offer, while they are also increasingly seeking out healthier options in their food and drink options. The digitalisation of leisure continues to develop at pace, with digital channels becoming increasingly important in getting closer to the consumer and in growing market share. We are active in using our scale, following the Spirit integration, to continue to invest in areas to ensure we meet consumer expectations going forward.

1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement.

2. The directors use a number of Alternative Performance Measures (APM) that are considered critical to aid the understanding of the group's performance. Key measures are explained on page 30 of this announcement.

3. Coffer Peach tracker 52 weeks to end of April 2017.

At the same time that the consumer is becoming more demanding, the cost environment has become more challenging. Regulatory pressures including the National Living Wage, the Apprenticeship Levy and business rates, compounded by inflation and foreign exchange costs, are impacting margins across the hospitality industry. We are at an advantage in that we have the benefits of the Spirit acquisition and integration to help offset these cost pressures but we shall also seek out opportunities for further cost savings.

Due in some degree to the cost pressures described above, competition for market share is intensifying and broadening. We are the leading pub company in an eating and drinking out market that is expected to grow 7.2%, or £6.2bn, over the next few years1. At the same time, it is expected that the local, wet-led pub sector will see an ongoing decline in the number of pubs, following falls of 12.5%, 8.2% and 12.5% in England, Scotland and Wales since 20112. Competition for wet-led pubs comes predominantly from the off-trade, where we are seeing continued discounting being used to drive volume. Competition for our food-led destination pubs comes from the increasing supply of food-led outlets, expected to increase 1.9% between 2017 and 20201, but also from the night in, supported by better home comforts, value offers from grocers and growth in delivery and takeaway aggregator sites.

INTEGRATION

Following the acquisition of Spirit in June 2015, we have managed to complete its integration in just two years, one year ahead of the original schedule. This integration has created a much stronger business and a better platform for long-term growth and outperformance. There have been four key elements to the physical integration of Greene King and Spirit: -

1. Cost synergies - having originally targeted annual cost synergies of £30m within three years, we subsequently upgraded the target to £35m and we have managed to meet that target within two years. The main elements of the cost synergies included savings through overheads, purchasing and distribution. We may be able to generate additional synergies from the acquisition and these could be used to both invest in key areas of our business such as people, systems and brands and to offset some of the cost increases we are experiencing.

2. IT systems - we have seamlessly rolled out the Pub Company IT system into over 1,700 pubs. We have also developed a single database for the combined business which is now in use and which is increasing customer insight while significantly improving efficiencies.

3. Distribution - the Spirit and Greene King food supply chains have been consolidated. Over 1,000 pubs have successfully changed their supply model with no impact on availability to menu items. We have also finished consolidating our non-food supply chain and our integrated drinks supply chain is in place. The integration of supply chains will enable us to optimise our network and improve group efficiency.

4. Organisation structures - we have completed an organisational restructure of the wider group, including reorganising the functions and teams within Pub Company to better align to our focus brands and combining the leadership of Pub Partners and Brewing & Brands. We believe this will enable further development of our focus brands, as well as delivering cost efficiencies and further synergies from the combined management of the non-retail divisions. We have also appointed a new chief commercial officer who joined from Reckitt Benckiser and is responsible for all Greene King's retail commercial activities across both the marketing and trading functions, and a new group HR director who joins us from Brakes in October.

With the integration complete, we can increase focus on our brand optimisation strategy. This strategy is targeted at creating efficiencies through having a smaller number of larger pub retail brands including the five focus brands of Greene King Locals, Hungry Horse, Flaming Grill, Farmhouse Inns and Chef & Brewer. In the year, we spent £30.2m on brand conversions with 63 pubs successfully converted to more suitable brands within the combined Greene King portfolio. The average sales uplift for these pubs is over 30%. Looking ahead, we expect to make annual investments of £30m to £40m in brand conversions between F18 and F20.

1. MCA Allegra

2. Alix Partners

STRATEGIC PRIORITIES

Our vision is to be the best pub company in Britain; the best for our customers, our teams, our communities and our shareholders. By being the best, we should generate superior underlying growth and returns for our stakeholders. Pubs have to contend with a wider set of competitors and a faster pace of consumer change than ever before. We shall therefore continue to refine what our pubs offer their customers, ensuring they have a broader and more lasting appeal. In order to deliver our vision, we have five strategic priorities for the medium term: -

1. Build attractive and strong brands

We have a strong portfolio of category-leading brands and ensuring that our portfolio remains attractive and relevant to the increasingly demanding consumer will be critical in driving long-term growth. Our brand optimisation programme will convert pubs to the most suitable brand within our portfolio and we will maintain flexibility in this programme to ensure that we develop our brands in line with the changing economic environment. For Local Pubs, Pub Partners and Brewing & Brands, the Greene King brand is key to superior performance and we will continue to invest in communicating the brand's benefits in order to maintain our brand marketing leadership. A strong digital presence is vital to sustain and grow successful brands and we will continue to expand our already extensive digital programmes to further build customer engagement and loyalty. 

2. Industry-leading value, service and quality

We remain committed to exceeding customer expectations and we will achieve this by constantly improving the value offer to our customers, the service delivery of our teams and the quality of our food and drink offer. We will use our scale to deliver leading value propositions through the successful execution of known value item (KVI) and every-day low pricing (EDLP) strategies to drive a sustainable mix of volume and spend per head growth. We will continue investing in our people as well as our digital capabilities to ensure we lead the industry on service and successfully compete with the wider competitive set. Lastly, we will evolve and improve the quality of the food, drink and accommodation we offer our customers, regularly benchmarking against the best in class.

3. Work with the best people

We employ around 44,000 people at Greene King and being an attractive place to work means offering a sociable and engaging environment in which to work, while creating opportunities to develop and grow careers. Greene King is uniquely positioned to offer careers across a number of roles, disciplines, environments and locations and we work hard to ensure that every member of our team gets the opportunity to learn and progress. We put apprenticeships at the core of our talent strategy to help us develop skilled and committed individuals and our industry-leading position has been recognised at the Springboard Awards for having the Best Apprenticeship Strategy. We also want to attract, recruit, retain and develop the best operators in our Pub Partners business and this means extending our focus on training and development to both existing and future licensees. Working with, and investing in, the best people will help us to deliver the very best service to our customers across our managed and tenanted pubs, our breweries and our depots.

4. Own the best invested pub estate

Our aim is to own and run the best pubs in Britain, which we will achieve through proactive management of our pub portfolio and continued industry-leading investment in our estate. We will continue to drive the quality of our estate upwards within both Pub Company and Pub Partners by acquiring properties at the top end of our portfolio while divesting of those at the bottom. We will also look for investment opportunities to put more premium offers into our assets to better protect the long-term cash generation from our pubs. Annual core capital investment is expected to be £130m to £145m over the next three years. We will retain an element of flexibility in both brand conversion capex and core capex to ensure we invest in the most suitable way in response to the changing economic environment.

5. Maintain a strong balance sheet and flexible capital structure

Underpinning our company strategy is a financial strategy designed to maximise the strength and flexibility of our balance sheet. Through a relentless focus on cash generated from operations, we will continue to cover our debt service obligation, our core capital expenditure and our dividend through internally generated cash flow. Our long-term financing provides us with funding for general business operations including increasing our optionality to invest in the business.

COMMUNITY

We raised over £800,000 for Macmillan Cancer Support over the year and, in May, the company reached a new fundraising milestone, having raised over £3m for the charity over our five year partnership. Greene King will now embark on its 'Miles for Macmillan' campaign, in which the company's 44,000 team members and its guests are invited to walk, run, bike or swim enough miles to reach the moon. The impressive feat will see them cover a combined quarter of a million miles, taking part in marathons, a London to Paris bike ride in July and a climb of Mount Kilimanjaro in October.

Last year, we announced our partnership with the Prince's Trust, launching a new scheme giving unemployed young people an opportunity to develop skills in the hospitality sector, achieve accredited hospitality qualifications and apply for an internship at the group. Nine programmes were completed this year, with 103 young people taking part and 49 offers of permanent employment made.

We also made a donation of £15,000 to Pub is The Hub's Community Services Fund in order to help to support rural pubs who want to diversify their services for the benefit of their communities. This is the fourth year we have given to the fund, bringing the total donated to £60,000.

PUB COMPANY

*Before exceptional and non-underlying items

Our Pub Company strategy is to attract customers with exciting brands that deliver unrivalled value, service and quality. The acquisition of Spirit has helped us accelerate this strategy through the addition of successful brands and the opportunity to learn from each other and enhance the customer offer. It also provides greater scale to drive cost efficiencies that can be reinvested in the business and help to protect margins.

Pub Company is the core driver of growth within our business and it grew 0.4%pts faster than the market1 over the year with LFL sales growth of 1.5%.

1. Coffer Peach Tracker 52 weeks to end of April 2017

Revenue was up 7.7% to £1,817.4m, driven by a good Christmas, a stronger fourth quarter, an impressive performance from our wet-led local pubs and a 4.1% increase in the average number of pubs trading. Sales figures were also boosted by average uplifts of over 30% from the brand conversions completed over the year. Drink sales growth was notably strong in the year.

Operating profit grew 3.0% to £308.1m while the operating profit margin was down 0.7%pts to 17.0% following investment in food quality, customer service and price, as well as the difficult cost environment.

We also had a notably strong year from Local Pubs and we have recently invested in the ex-Spirit Taylor Walker estate in London, converting over 100 pubs to the Greene King brand. The performance of Local Pubs has been supported by marketing campaigns such as the 'To the Pub' digital campaign and the 'Best of British' campaign and we will continue to target growth in Local Pubs through campaigns this year such as 'Summer of Sound', Greene King's own music competition, run in conjunction with Radio X.

On an underlying basis, our net promoter score (NPS) grew 0.5%pts to 58.4%. We continue to target improved service and expect increased investment in labour and training to lift guest satisfaction scores across the business in the new financial year.

The most important element of our business is the people we employ, with around 44,000 people working at Greene King, of which more than 95% work in Pub Company. Following a year of considerable change, we saw a small increase in team turnover compared to the previous year although employee engagement scores remained strong at 85%. Our leading apprenticeship programme saw another 3,076 starters in the year and we were pleased to receive the Best Apprenticeship Strategy at the Springboard Awards as well as being the only pub company to appear in the Rate My Apprenticeship Top 70 School Leaver Employers Table 2017. Our increased investment in the recruitment, retention and development of our people will lead to a better trained and more motivated team across our business, which will be reflected in ongoing improvements in team retention and customer service. 

Consistent investment in our estate is one of the key differentiators of Greene King and a significant driver of our growth. We invested £93.3m in core capex over the year, we opened 11 new pubs at the top end of our estate and we successfully completed the disposal of 65 pubs at the bottom end as we continue to improve the overall quality of our estate.

Digital is becoming ever more important in the eating and drinking out sectors. We now have one combined database platform across the group, improving the effectiveness of our customer digital communications. Our social media audience continues to expand with a 42% increase in followers of the Greene King Twitter feed, a 19% increase in LinkedIn followers and an increase of 24% in our Facebook fan base to 2.9 million. Our new corporate website was launched in July 2016 and we have since seen a 148% increase in users to 80,000 per month. The website has had over 4 million page views in total this year. Now that we have completed the integration of the two businesses, we can look toward further investment in digital innovation in order to increase engagement with, and insight into, our customers.

PUB PARTNERS

*Before exceptional and non-underlying items

In Pub Partners, our strategy is to be the preferred partner for the best operators in the industry. We will achieve this through the offer of the best retail partnerships, in flexible formats and in the best pubs.

Pub Partners has had another impressive year of growth, recording sector-leading LFL EBITDA growth and receiving a series of well-deserved industry awards.

The division operated 0.3% more pubs on average during year, while revenue was up 5.8% to £198.8m. Revenue growth was driven by the increased number of turnover agreements in our estate, food supply agreements with licensees and the inclusion of the Spirit acquisition for a full year. EBITDA was up 8.2% to £103.1m and average EBITDA per pub was up 7.9% to £86.2k. LFL net profit2 was up 5.0% against a 4.4% comparative in F16.

We will continue to target growth and profitability within the division through increasing the number of turnover agreements, expanding the number of pubs ordering food directly through our supply chain and developing the offer available to those already benefitting from our supply chain, alongside a strong investment programme.

Investment in our partners, including leadership, multi-site training and apprenticeship support, led to 12 month retention of new licensees of 96%. Over 2,000 delegates benefitted from training over the year and we recently launched a 12 month Management Development Programme, designed to help licensees develop and retain their key team members.

We continue to dispose of non-core pubs which we do not believe will deliver good returns in the long term and to help us invest in those pubs with a long-term future. Over the course of the year, we sold 54 non-core pubs in line with this strategy. Most of our investment is targeted at repositioning pubs from value to mainstream or mainstream to premium, increasing the food mix within our pubs and improving the trading potential of outdoor spaces. This has driven improved financial performance in Pub Partners ROI and ROCE.

The statutory Pubs Code went live in July 2016 and before the launch we trained over 100 team members to ensure we were as fully compliant with the statutory code as we were with the voluntary code. The main impact on Pub Partners will come from the ability of licensees to take a Market Rent Only (MRO) option, or essentially, a commercial free of tie agreement. We have 27 MRO applications currently going through the adjudication process and at the year end we had no MRO agreements taken. We remain of the view that MRO will have no material impact on the group.

Our success in being the preferred partner for the best independent operators was recogniser when we received the Publican award for Leased and Tenanted Pub Company of the year, the NITA training prize for our licensee development programme and the ALMR BDM of the year.

BREWING & BRANDS

*Before exceptional and non-underlying items

In Brewing & Brands, our long-term strategy is to win market share and increase cash generation through building consumer loyalty to our core ale brands and our innovative range of seasonal and 'craft' ales. This strategy has led us to being the UK's leading premium cask ale brewer.

OBV fell 2.8% in a cask ale market down 3.8%1 and a total ale market down 2.7%1. Performance over the full year was held back by the weaker ale market combined with the reduction in our exposure to lower margin accounts in the on- and off-trade channels. The second half saw improved trading leading to full year record revenue of £200.3m, up 1.7%. Margins were impacted, however, by increased cost of goods sold and investment in marketing and price.

1. BBPA Beer Market data to April 2017.

Greene King's core brands maintained their UK market leading positions: Greene King IPA continues to be the fastest selling cask ale brand in the on-trade; Old Speckled Hen is still the number one premium ale brand with the highest prompted awareness amongst beer drinkers of 75%; Abbot Ale continues to be the number one premium cask ale brand and delivered a particularly strong year of growth; and Belhaven Best, Scotland's number one draught ale, became the number four keg ale in the UK.

This continued success was helped by maintaining our industry-leading brand investment: our sponsorship of the England and Wales Cricket Board included a new television advert starring Alastair Cook, Ben Stokes and Michael Vaughan; we won additional sporting sponsorships across rugby, football and cricket; we became the official beer supplier to the Royal Albert Hall; and we have been trialling a new lager brand for the Scottish market called Saltire. Most recently, Greene King partnered with Radio X to make a Radio X beer, available exclusively in Greene King pubs, called Amplified Ale.

Brewing & Brands had a particularly innovative year, launching its Craft Academy in February and debuting five new beer brands developed by our team of apprentice brewers. The beers are Over Easy (3.8% session IPA), Big Bang IPA (5.6% bold and citrusy IPA), Bitter Sweet (6% black IPA), Desert Ryeder (4.8% rye beer) and High & Dry (5% dry hop lager). In addition, we successfully launched new gluten-free variants of Greene King IPA and Old Speckled Hen in January.

Our beers won multiple awards this year. Our flagship iconic brand, Greene King IPA achieved the sought-after Best Advertising Campaign at the Beer Marketing Awards and Best Packaging Redesign at the International Beer Challenge; Belhaven was named Exporter of the Year at the Scottish Beer Awards and scooped Best TV/Cinema advert in the Scottish Creative Awards; and six prestigious gold medals were awarded in the internationally-recognised Monde Selection to Old Crafty Hen, Mighty Moose IPA, Twisted Grapefruit IPA, Twisted Thistle IPA, Intergalactic Dry Hop Lager and Bitter Sweet IPA.

Our brewery tours were also awarded a fifth consecutive Certificate of Excellence by TripAdvisor and the Westgate brewery brought home a President's Award from ROSPA for achieving its 11th consecutive gold safety award.

At the end of the year, we decided to combine the leadership of Brewing & Brands and Pub Partners, which we believe will foster greater collaboration between the two divisions as well as bringing increased cost efficiencies. We remain fully committed to investment in our market-leading brands and to driving further innovation within the Brewing & Brands business.

CURRENT TRADING

In the first eight weeks of the year, Pub Company trading has been in line with our expectations, bearing in mind the tough comparatives from last year. Pub Partners has seen a slower start to the year but this was anticipated as we start to annualise the benefits from the Spirit integration. Brewing & Brands has returned to OBV growth with a strong start to the year in the take home, free trade and export channels.

Rooney AnandChief executive officer28 June 2017

FINANCIAL REVIEW

INCOME STATEMENT

Revenue was £2,216.5m, an increase of 6.9% compared to the prior year reflecting the benefit from LFL sales growth and a full year contribution from Spirit. Pub Company was the biggest driver of the increase, with revenue up 7.7% and average revenue per pub rising 3.4%. The combined Pub Company business now accounts for over 82% of group revenue. Total revenue in Pub Partners was £198.8m. Average tenanted and leased revenue per pub increased 5.5% and average EBITDA per pub grew 7.9% due to the improved quality of the pub estate and also benefitting from fair value accounting and the inclusion of synergies. Brewing & Brands grew revenue 1.7% to £200.3m.

Operating profit before exceptional and non-underlying items was £411.5m, which was an increase of 4.9% on the prior year. Group operating profit margin before exceptional and non-underlying items was down 30 basis points to 18.6%, reflecting a higher contribution from the managed estate and, within this, a reduction in Pub Company margin from 17.7% to 17.0%. The reduction of the Pub Company margin reflected our ongoing investment in value, service and quality, alongside significant inflationary increases in cost of goods sold and labour.

Net interest costs before exceptional and non-underlying items were £138.0m, 1.7% higher than last year due to the full year impact of Spirit debt costs partially offset by refinancing activities in year.

Profit before tax, exceptional and non-underlying items was £273.5m, an increase of 6.6% on last year. The tax charge before exceptional and non-underlying items equated to an effective tax rate of 19.9% (2016: 19.3%).

Basic earnings per share before exceptional and non-underlying items of 70.8p was up 1.3%. Statutory profit before tax was £184.9m, down 2.6% on last year.

CASHFLOW AND CAPITAL STRUCTURE

Operating cash flows remained very strong. We generated free cash flow (FCF) of £119.6m, ahead of our scheduled debt repayments of £55.0m and after our core capital expenditure and dividend payments. Free cash flow benefitted from favourable working capital timing, a small reduction in core capex as we focused on brand conversions and the utilisation of non-recurring Spirit tax losses. Overall, EBITDA before exceptional and non-underlying items was £524.1m.

In October, we agreed an amendment and extension to our revolving credit facility. The revised £400m facility runs to 31 October 2021 and provides shorter-term financing at more favourable pricing than the previous facility.

Group net debt at the year end was £2,074.5m, an increase of £26.1m from last year.

In line with our strategic priorities, our objective is to maximise the strength of our balance sheet, and the group has a capital structure aimed at meeting the short, medium and longer-term funding requirements of the business. The principal elements of the group's capital structure are our revolving credit facility that was £170m drawn at the year end and two long-term asset-backed financing vehicles. At the year end, the Greene King securitisation had secured bonds with a carrying value of £1,392.5m and an average life of 11 years, secured against 1,464 pubs with a carrying value of £1.7bn and valuation at the time of issuance of £2.2bn. The Spirit debenture had secured bonds with a carrying value of £777.6m and an average life of 11 years, secured against 1,010 pubs with a market value and carrying value of £1.5bn.

Our credit metrics remain strong with 96% of our interest costs at a fixed rate and an average cash cost of debt of 6.3%. Fixed charge cover was maintained at 2.3x and net debt to EBITDA increased slightly to 4.0x from 3.9x last year. The Greene King secured vehicle had a free cash flow debt service cover ratio of 1.7x at the year end, giving 35% headroom. The Spirit debenture vehicle had a free cash flow debt service cover ratio of 1.9x giving headroom of 32%.

CAPITAL EXPENDITURE AND DISPOSALS

During the year, we invested in both maintaining and developing our existing estate. Total capital expenditure during the year was £194.9m with a further £39.1m of expenditure relating to pub repairs and maintenance recorded in the income statement. Core estate capital expenditure was £126.0m with a further £35.9m invested in acquiring pubs and developing previously acquired pubs. There were 11 new pub openings during the year. We also invested £33.0m in our brand conversion and IT integration programme.

We disposed of 65 pubs in Pub Company, 54 pubs in Pub Partners and three closed pubs, which led to a profit on disposal of £3.4m and raised proceeds of £88.6m.

RETURN ON CAPITAL EMPLOYED

The group is focused on delivering the best possible returns on our assets and on the investments we make. We are focused on capital discipline, through targeted investment in new build pubs, single site acquisitions and in developing our existing estate to drive organic growth with disposals of non-core pubs. This has contributed to maintaining ROCE at 9.4%. ROCE remains comfortably ahead of the group's cost of capital.

DIVIDEND

The board has recommended a final dividend of 24.4 pence per share, up 3.4%, subject to shareholder approval. This will be paid on 15 September 2017 to shareholders on the register at the close of business on 11 August 2017.

The proposed final dividend brings the total dividend for the year to 33.2 pence per share, up 3.6%. This maintains our long-term track record of annual dividend growth and is in line with the board's policy of maintaining a minimum dividend cover of around two times underlying earnings, while continuing to invest for future growth.

TAX

The effective rate of corporation tax (before exceptional and non-underlying items) was 19.9%, which is in line with the standard UK corporation tax rate, compared to 19.3% in the previous year. This resulted in a charge to operating profits (before exceptional and non-underlying items) of £54.3m (2016: £49.4m). The exceptional and non-underlying tax credit of £21.1m (2016: £50.5m) is discussed under exceptional and non-underlying items.

The group generates revenue, profits and employment, all of which deliver substantial tax revenues for the UK government in the form of duties, VAT, income tax and corporation tax. In the year, total tax revenues paid and collected by the group were £580m (2016: £570m). The group's tax policy, which has been approved by the board, aligns with this strategy and ensures that the group fulfils its obligations as a responsible UK taxpayer.

On 6 June 2016, a formal agreement was reached with HMRC on a number of historical tax positions and on 22 July 2016 the Court of Appeal published its final decision on the Sussex case. As a result, the group settled tax of £20.7m and interest of £12.2m during the year.

We have one remaining open historical position with HMRC, which is an internal property arrangement implemented in 2012. The group is at a relatively early stage in discussions with HMRC and will continue to defend its position robustly. 

The provisions for uncertain tax positions and related interest accrued at the balance sheet date were £8.0m (2016: £31.6m) and £1.9m (2016: £13.8m) respectively.

PENSIONS

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

At 30 April 2017, there was an IAS 19 pension deficit of £11.2m representing a reduction of £41.1m since the previous year end. The closing assets of the group's two pension schemes totalled £888.0m and closing liabilities were £899.2m compared to £801.2m and £853.5m respectively at the previous year end.

The deficit reduced due to strong asset returns and contributions made by the group during the year, combined with the impact of changes to market-based discount rates and inflation assumptions.

Total cash contributions in the year were £3.9m for past service.

The next triennial reviews for both the Greene King and Spirit pension schemes will be as at April 2018 and are due by July 2019.

EXCEPTIONAL AND NON-UNDERLYING ITEMS

We recorded an exceptional and non-underlying items charge of £67.5m, consisting of a £65.0m charge to operating profit before tax, a £23.6m charge to finance costs and a net exceptional and non-underlying tax credit of £21.1m. Items recognised in the year included the following: -

1. A £10.8m charge for legal, professional, integration and reorganisation costs following the Spirit acquisition.

2. A net impairment charge of £58.6m (2016: £32.2m) was made against the carrying value of our pubs and other assets. This comprises an impairment charge of £77.7m offset by reversals of previously recognised impairment losses of £19.1m. A £23.7m impairment charge has been recognised in relation to a small number of pubs due to changes in the local trading environment and a further £34.9m of impairment has been recognised following the planned exit of certain sites during the current financial year.

3. A net surplus on disposal of property plant and equipment of £3.4m (2016: £23.8m).

4. £23.6m of exceptional and non-underlying finance costs which includes £23.6m costs in respect of the mark-to-market movements in the fair value of interest rate swaps not qualifying for hedge accounting, £11.8m costs recycled from the hedging reserve in respect of settled interest rate swap liabilities and a £12.2m gain on settlement of interest rate swap liabilities.

5. The exceptional and non-underlying tax credit of £21.1m consists of a £5.0m tax credit on exceptional items, a £2.8m tax credit on non-underlying items, a deferred tax credit of £9.5m in respect of the licensed estate, a £0.5m tax charge in respect of prior periods and a £4.3m tax credit in respect of rate changes.

Of the £67.5m total exceptional and non-underlying items charge, cash expenditure was £47.3m relating primarily to integration costs of £14.4m and settling £32.9m of historic tax positions with HMRC.

GUIDANCE FOR FINANCIAL YEAR 2017/18

We expect total gross cost inflation of around £60m and, after our cost mitigation plans of £40-45m, we expect net cost inflation of £15-20m.

In Pub Company, we anticipate opening c.10 pubs and disposing of 50-60 pubs.

In Pub Partners, we expect to dispose of 40-50 pubs. These disposals will continue to improve the quality of the estate while generating cash for other uses across the business.

We anticipate spending £130-145m, excluding brand optimisation capex, on maintaining and developing our pubs, in order to ensure they remain attractive places for customers to spend their time.

Spend on the brand optimisation programme is expected to total £30-40m - out of a total spend over four years of £120-150m - and we are targeting EBITDA returns significantly ahead of our cost of capital.

New build development capex is expected to be £30-40m.

We expect the interest charge to be in the region of £135-£140m when taking in to account the charge relating to our debt facilities, pensions and provisions.

The pre-exceptional tax rate is expected to be c.19%.

Kirk DavisChief financial officer28 June 2017

Group income statement

for the fifty-two weeks ended 30 April 2017

* Adjusted basic earnings per share excludes the effect of exceptional and non-underlying items.

Group statement of comprehensive income

for the fifty-two weeks ended 30 April 2017

Group balance sheet

as at 30 April 2017

Group cashflow statement

for the fifty-two weeks ended 30 April 2017

1EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items

GROUP Statement of change in equity

for the fifty-two weeks ended 30 April 2017

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

1 Basis of preparation

The consolidated financial statements and preliminary announcement of Greene King plc for the 52 week period ended 30 April 2017 were authorised for issue by the board of directors on 28 June 2017.

The financial information included within this preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the "Act").

The financial information for the 52 week period ended 30 April 2017 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued.

The 2017 Report & Accounts will be posted to shareholders on 3 August 2017 and copies will be available from that date from the company secretary at the registered office of the company, Westgate Brewery, Bury St. Edmunds, Suffolk IP33 1QT. The statutory accounts for the period end 30 April 2017 will be delivered to the Registrar of Companies following the company's Annual General Meeting.

The statutory accounts for the prior financial year, for the 52 week period ended 1 May 2016, have been delivered to the Registrar of Companies, and the auditors have made a report thereon under Chapter 3 of part 16 of the Act. That report was unqualified and did not contain a statement under sections 498(2) or 498(3) of the Act.

The consolidated financial statements of Greene King plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) as required by European Union law and as applied in accordance with the Companies Act 2006.

The accounting policies adopted are consistent with those of the previous financial year. New standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.

2 Segment information

At the start of the financial period Greene King reverted to three reportable segments, largely organised and managed separately according to the nature of products and services provided, distribution channels and profile of customers. The segments include the following businesses:

Pub Company: Managed pubs and restaurants

Pub Partners: Tenanted and leased pubs

Brewing & Brands: Brewing, marketing and selling beer

These are also considered to be the group's operating segments and are based on the information presented to the chief executive who is considered to be the chief operating decision maker. No aggregation of operating segments has been made.

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

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

2 SEGMENT INFORMATION (CONTINUED)

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

2 SEGMENT INFORMATION (CONTINUED)

1 EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and is calculated as operating profit before exceptional and non-underlying items adjusted for the depreciation and amortisation charge for the period.

2 Unallocated assets/liabilities include cash, borrowings, pensions, net deferred tax, net current tax, indirect tax provisions and derivatives.

Management reporting and controlling systems

Management monitors the operating results of its strategic business units separately for the purpose of making decisions about allocating resources and assessing performance. Segment performance is measured based on segment operating profit or loss referred to as trading profit in our management and reporting systems. Included within the corporate column in the table above are functions managed by a central division.

No information about geographical regions has been provided as the group's activities are predominantly domestic.

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

3 Exceptional AND NON-UNDERLYING items

Exceptional operating costs

Acquisition and integration costs are items of one-off expenditure, including legal and professional fees, the costs of dedicated integration project teams and redundancy costs, incurred in connection with the acquisition and integration of Spirit Pub Company.

During the period to 30 April 2017 the group has recognised a net impairment loss of £58.6m (2016: £32.2m). This is comprised of an impairment charge of £77.7m (2016: £79.5m) and reversal of previously recognised impairment losses of £19.1m (2016: £47.3m). £23.7m impairment charge has been recognised in respect of a small number of pubs and is driven by changes in the local competitive and trading environment at the respective sites, and £34.9m due to a decision taken to exit some sites during the financial year. Impairment reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future cash flows from previously impaired sites or increases to fair value less costs of disposal.

Non-underlying operating costs

The net profit on disposal of property plant and equipment and goodwill of £3.4m (2016: £23.8m) comprises a total profit on disposal of £38.2m (2016: £50.6m) and a total loss on disposal of £34.8m (2016: £26.8m).

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

3 Exceptional AND NON-UNDERLYING items (CONTINUED)

The group incurred £3.7m of non-underlying employee costs, which included restructuring costs and costs associated with changes to key management. In addition a share based payment credit of £3.1m was recognised which resulted from the reversal of charges recognised in earlier years following a reassessment of expected scheme performance.

Exceptional and non-underlying finance costs

Following the issue of £300m secured bonds, a number of the group's swap liabilities were settled at a discount recognising a £12.2m exceptional gain. The cash cost of settling this was £116.6m.

The swaps concerned were hedging cash flows relating to the A5 bond and floating rate bank loans. These cash flows are still expected to occur and therefore in accordance with IAS 39 the cumulative losses taken to the hedging reserve will be recycled to the income statement over the same period during which the hedged forecast cash flows affect profit or loss. A non-underlying charge of £11.8m has been recognised in respect of this during the period.

During the prior period the group acquired as part of the business combination derivatives that are subsequently accounted for at fair value through profit and loss as opposed to existing derivatives which are designated in hedge relationships. An exceptional charge of £23.6m (2016: £39.1m) relates to the mark-to-market movement on these derivatives, excluding amortisation of fair value on acquisition which reduces the pre-exceptional finance costs that include the interest paid. 

Exceptional tax

The exceptional tax credit in respect of the licensed estate relates to impairment.

On 6 June 2016 a formal agreement was reached with HMRC on a number of historical tax positions and on 22 July 2016 the Court of Appeal published its final decision on the Sussex case. As a result the group settled income tax of £20.7m and interest of £12.2m during the period. An income tax credit of £0.8m is included within adjustment in respect of prior periods (referred to below).

The remaining historical tax position is an internal property arrangement for which discussions with HMRC are at an early stage.

Non-underlying tax

The tax credit in respect of the licensed estate has arisen from movements in their tax base cost and indexation.

The Finance (No.2) Act 2015 reduced the rate of corporation tax from 20% to 19% from 1 April 2017 and the Finance Act 2016 further reduced the rate to 17% from 1 April 2020. Both these rate reductions were substantively enacted at the balance sheet date and are therefore included in these accounts. The net deferred tax asset has been calculated using the rates at which each temporary difference is expected to reverse. The effect of these rate reductions is to reduce the deferred tax provision by a net £0.6m comprising a credit to the income statement of £4.3m and a charge to the group statement of comprehensive income of £3.6m, and a charge to the group statement of changes in equity of £0.1m.

The adjustment in respect of prior periods' tax arises from finalising the tax returns for earlier periods and revaluation and rolled over gains on the licensed estate.

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

4 Taxation

Income tax payable

The income tax liability of £12.6m (2016: £30.3m) includes an assessment of the expected liabilities in respect of uncertain tax positions which have yet to be agreed or are in dispute with HMRC.

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

5 Earnings per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £151.7m (2016: £190.9m) by the weighted average number of shares in issue during the period of 309.4m (2016: 296.2m).

Diluted earnings per share has been calculated on a similar basis taking account of 0.8m (2016: 1.6m) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 310.2m (2016: 297.8m). There were no (2016: nil) anti-dilutive share options excluded from the diluted earnings per share calculations. The performance conditions for share options granted over 2.4m (2016: 1.6m) shares have not been met in the current financial period and therefore the dilutive effect of the number of shares which would have been issued at the period end has not been included in the diluted earnings per share calculation.

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

6 Dividends paid and proposed

Dividends on own shares have been waived.

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

7 cash and cash equivalents

Included within cash at bank and in hand and short term deposits is £112.0m (2016: £109.1m) and £88.9m (2016: £113.0m) held within securitised bank accounts which are only available for use by the Greene King Secured financing vehicle and the Spirit Secured financing vehicle respectively.

The Greene King Secured financing vehicle comprises Greene King Retailing Parent Limited and its subsidiaries and the Spirit Secured financing vehicle comprises Spirit Pubs Debenture Holdings Limited and its subsidiaries.

Interest receivable on cash and short term deposits is linked to base rate and is received either monthly or in line with the term of the deposit.

8 Borrowings

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

9 Working capital and non-cash movements

10 Analysis OF and movements in net debt

1included in cash and cash equivalents on the balance sheet

Notes to the accounts

for the fifty-two weeks ended 30 April 2017

11 post balance sheet events

On 28 June 2017 the group repaid the £27.7m Class A3 secured loan note issued by Spirit Issuer plc at par.

A final dividend of 24.4p per share (2016: 23.6p) amounting to a dividend of £75.6m (2016: £72.9m) was proposed by the directors at their meeting on 26 June 2017. These financial statements do not reflect the dividend payable.

12 Dividend payments

Subject to the approval of shareholders at the Annual General Meeting, the final dividend will be paid on 15 September 2017 to shareholders on the register at the close of business on 11 August 2017.

ALTERNATIVE PERFORMANCE MEASURES

The performance of the group is assessed using a number of Alternative Performance Measures (APMs).

The group's results are presented both before and after exceptional and non-underlying items. Adjusted profitability measures are presented excluding exceptional and non-underlying items as we believe this provides both management and investors with useful additional information about the group's performance and aids a more effective comparison of the groups trading performance from one period to the next and with similar businesses. Adjusted profitability measures are reconciled to unadjusted IFRS results on the face of the income statement with details of exceptional and non-underlying items provided in note 3.

In addition, the group's results are described using certain other measures that are not defined under IFRS and are therefore considered to be APMs. These measures are used by management to monitor on-going business performance against both shorter term budgets and forecast but also against the group's longer term strategic plans. The definition of each APM presented in this report and, also, where a reconciliation to the nearest measure prepared in accordance with IFRS can be found is shown below.

APMs used to explain and monitor group performance:

APMs used to explain and monitor the performance of the group business segments:

In addition the group uses the following non-financial KPIs to assess performance against its strategic objectives:

APM RECONCILIATIONS

A. NET DEBT : EBITDA

For the period ended 1 May 2016 a pro-forma net debt : EBITDA calculation was presented to take account the EBITDA of Spirit for the period prior to acquisition. The calculation of pro-forma EBITDA is shown below.

B. FREE CASH FLOW