8 Aug 2016 09:00
Greene King plc
Annual report and financial statements and AGM circular
In accordance with Listing Rule 9.6.1, copies of the annual report and financial statements for the year ended 1 May 2016 and of the circular convening the 2016 annual general meeting (AGM) have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.hemscott.com/nsm.do.
The annual report and the AGM circular will also be available on the company's website, www.greeneking.co.uk.
Lindsay Keswick
Company Secretary
5 August 2016
Information required by the Disclosure and Transparency Rule 6.3.5
The principal purpose of this announcement is to notify the submission by the company to the UK Listing Authority of copies of the annual report and financial statements and of the AGM circular. However, the information set out below, which is extracted from the annual report, is also included in the announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issues as to how to make annual financial reports public. It should be read in conjunction with the company's preliminary results announcement released on 29 June 2016. This material is not a substitute for reading the full annual report. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the annual report.
Responsibility statement
The following statement is extracted from page 69 of the annual report and is not connected to the extracted information presented in this announcement or in the preliminary results announcement.
"Statement of directors' responsibilities in respects of the financial statements
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101"). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing these financial statements the directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgments and estimates that are reasonable and prudent;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· in respect of the group financial statements, state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;
· provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group's financial position and financial performance;
· in respect of the parent company financial statements, state whether applicable UK Accounting Standards, including FRS 101, have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and/or the group will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's and group's transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006 and, with respect to the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations the directors are also responsible for preparing a strategic report, directors' report, directors' remuneration report and corporate governance statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
The directors confirm, to the best of their knowledge:
· that the consolidated financial statements are prepared in accordance with IFRSs, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the company and undertakings included in the consolidation taken as a whole;
· that the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· having taken into account all matters considered by the board and brought to the attention of the board during the year, the directors consider that the annual report, taken as a whole, is fair, balanced and understandable. The directors believe that the disclosures set out in this annual report provide the information necessary for shareholders to assess the company's performance, business model and strategy."
The names of the directors who gave these statements are:
Rooney Anand (chief executive)
Philip Yea (chairman)
Mike Coupe
Kirk Davis
Ian Durant
Rob Rowley
Lynne Weedall
Principal risks and uncertainties
The following description of the principal risks and uncertainties is extracted from page 34 of the report and accounts.
"This section highlights some of the key risks and uncertainties which affect Greene King. The group is of course exposed to risks wider than those listed, but these are believed to be likely to have the greatest impact on our business at this moment in time.
For the first time this year we have indicated whether we believe the risk has increased, decreased or remained the same during the year and also how each risk relates to our strategic priorities.
Strategic Risks
Specific risk area
Integration of Spirit Pub Company and failure to deliver the full anticipated synergies.
Change since last year
Decreased.
Potential impact
Reduced revenue, profitability and lower growth rates than our strategic objectives.
Mitigation and monitoring
Integration steering committee overseeing integration. Retention arrangements in place for critical-to-retain staff. Communication plan designed to keep all staff and other stakeholders informed of progress and changes impacting them. Synergy targets established and systems are in place to record synergies captured. Brand swap plans in place and being implemented and monitored.
Risk appetite
We have an appetite for risks which we understand and which are consistent with the delivery of our strategic objectives.
Link to strategic priorities
Build attractive and strong brands. Work with the best people. Own the best invested pub estate.
Specific risk area
Failure to develop an appealing customer offer, to identify and respond to fast-changing consumer tastes and to maintain and grow market share.
Change since last year
No change.
Potential impact
Reduced revenue, profitability and lower growth rates than our budget.
Mitigation and monitoring
Research conducted into consumer trends and plans developed to respond to key trends, including the piloting of new variations of existing brands. Use of guest satisfaction tools and net promoter scores to collect customer feedback and measure performance of our pubs. Increased investment in support and training for our employees to ensure service standards meet guest expectations and continue to improve. Increased use of social media to enhance communication with our guests and other consumers.
Risk appetite
With our vision to be the best pub company in the UK we expect to be able to react swiftly and appropriately to changing consumer trends to ensure continuity of earnings growth and achievement of our strategic objectives.
Link to strategic priorities
Build attractive and strong brands. Industry-leading value, service and quality. Work with the best people. Own the best invested pub estate. Maintain a strong balance sheet and flexible capital structure.
Economic and market risks
Specific risk area
Reduced consumer confidence in the UK, particularly in the light of the referendum vote to leave the European Union. and increasing competitor activity.
Change since last year
Increased.
Potential impact
Reduced revenue, profitability and lower growth rates.
Mitigation and monitoring
Focus on value, service and quality to appeal to a broad range of consumers. Piloting of new variations of existing brands. Costs are kept under constant review and mitigation plans prepared and implemented where appropriate. Broad geographic spread of pubs including in London and the South East. Ongoing agreement innovation, training and support for our tenants. Monitoring of competitor activity at strategic and tactical level.
Risk appetite
We acknowledge and recognise that in the normal course of business, the group is exposed to risk and we are willing to accept a level of risk in order to achieve our strategic priorities and will manage the business accordingly.
Link to strategic priorities
Build attractive and strong brands. Industry-leading value, service and quality. Own the best invested pub estate.
Operational and people risks
Specific risk area
Significant cyber security breach.
Change since last year
Increased.
Potential impact
Potential impact on our ability to do business, impacting revenue and profitability. Reputational damage and financial damage from fines or compensation.
Mitigation and monitoring
Networks are protected by firewalls and anti-virus protection systems with back-up procedures also in place. Plans in place to further enhance controls in this area including ongoing investment. Constant monitoring of threats to data protection by viruses, hacking and breach of access controls, with additional controls added during the year. Data governance committee drives improved behaviours and management response.
Risk appetite
We have a low appetite for significant breaches within our IT operations.
Link to strategic priorities
Work with the best people. Maintain a strong balance sheet and flexible capital structure.
Specific risk area
Risks associated with the recruitment and retention and development of employees and licensees.
Change since last year
No change.
Potential impact
Inability to execute our business plans and strategy. Potential impact on the profitability of our Pub Partners business where the risks relate to licensees.
Mitigation and monitoring
A branded recruitment plan is in place with a strong pipeline of suitable candidates. In addition, we operate a range of apprenticeship programmes. Remuneration packages are benchmarked to ensure that they remain competitive and appropriate mechanisms are in place for managing pay progression. Career development programmes are in place to retain key employees and leadership training has been introduced for all levels of management. Our annual employee engagement survey is used to obtain direct feedback from employees on a range of issues. Exit interviews are conducted with all head office, Brewing & Brands and retail managers to enable action plans to be developed to deal with key leaver reasons. The range of tenancy agreements, training programmes and support available is designed to attract and retain the best quality licensees.
Risk appetite
The nature of the sector in which we operate is predisposed to high turnover levels, but we have a low tolerance for levels which exceed the sector average. We expect our staff to have appropriate skills to deliver the functions of the business.
Link to strategic priorities
Work with the best people.
Specific risk area
Reliance on a number of key suppliers and third party distributors and on own ability to produce, package and distribute our own beers.
Change since last year
Increased.
Potential impact
Supply disruption could impact customer satisfaction, leading to loss of revenue. Key supplier or distributor withdrawal or long term failure could reduce revenues or lead to increased costs. Inability to brew and distribute our own beers could lead to loss of revenue.
Mitigation and monitoring
Back up plans are maintained in the event of the failure by or loss of a key supplier. Detailed risk management and mitigation plans exist in our internal production and distribution activities, which are tested regularly across the business. Key suppliers are expected to maintain disaster recovery plans, which we review on a regular basis.
Risk appetite
We recognise that we carry an inherent risk in relation to third party suppliers, but we seek to minimise this risk through management and control.
Link to strategic priorities
Build attractive and strong brands. Industry-leading value, service, quality bar.
Regulatory risks
Specific risk area
Risk of increased regulation, and failure to respond to recent changes in regulation, in relation to any matter affecting our retail business, including National Living Wage, the apprenticeship levy, the anticipated rates revaluation in 2017 and potential future changes in relation to the sale of alcohol.
Change since last year
Increased.
Potential impact
Legislation such as the National Living Wage and the apprenticeship levy will drive up costs as will any increases in rates charged on our pubs and restaurants. Legislation impacting consumers could potentially reduce demand leading to reduced revenue.
Mitigation and monitoring
We have developed a plan which will in part mitigate the cost impact of the National Living Wage and the apprenticeship levy over the next three years. Monitoring of legislative developments and active engagement with government where necessary. Diversified offer to include soft drinks, coffee, food and accommodation to reduce our reliance on alcohol based revenue.
Risk appetite
We recognise that in the normal course of business, we are exposed to legislative risk that we need to manage appropriately in order to meet our strategic objectives.
Link to strategic priorities
Build attractive and strong brands. Maintain a strong balance sheet and flexible capital structure.
Specific risk area
Failure to respond to the threats to our Pub Partners business posed by the introduction of the "market rent only" (MRO) option and the statutory code.
Change since last year
No change.
Potential impact
Loss of income and profits in Pub Partners from reduced beer margin and penalties for breach of the statutory code.
Mitigation and monitoring
Development of agreements that are exempt from the MRO option with plans to adopt these where possible. Site by site plans developed to mitigate risks. Upweighted compliance team in place with training for all relevant employees, and enhanced processes and procedures to reduce risks.
Risk appetite
We recognise that in the normal course of business, we are exposed to legislative risk that we need to manage appropriately in order to meet our strategic objectives.
Link to strategic priorities
Own the best invested pub estate. Maintain a strong balance sheet and flexible capital structure.
Specific risk area
Failure to comply with major health & safety legislation, including in the areas of food safety and fire safety, or significant food integrity issues.
Change since last year
Increased.
Potential impact
Serious illness, injury or even loss of life to one of our customers, employees or tenants, or significant food integrity issues, could have a significant impact on our reputation, leading to financial loss too.
Mitigation and monitoring
Comprehensive range of formally documented policies and procedures in place, including centrally managed system of compliance KPI tracking and internal and independent audits to ensure compliance with current legislation and approved guidance. Health & safety policies reviewed by our primary authority partner, Reading Borough Council, which has rated our safety management systems as very good. Safety measures are in place, including a supplier assurance programme, to ensure that product integrity is maintained and that all food and drink products are fully traceable. Compliance programme in place to ensure pubs are safely handed over to new tenants.
Risk appetite
We have no appetite for health and safety breaches within our operations.
Link to strategic priorities
Build attractive and strong brands. Industry-leading value, service and quality.
Financial risks
Specific risk area
Inability to meet the funding requirements of the enlarged group.
Change since last year
Decreased.
Potential impact
Reduced revenue, profitability and lower growth rates than our strategic plan.
Mitigation and monitoring
The group's debt structures and financing requirements are kept under regular review. The group has a £460m bank facility to support activities outside the securitisation vehicles, which was entered into in July 2013 and is available until July 2018. We completed a tap of our Greene King securitisation vehicle in May 2016.
Risk appetite
We expect the group to be able to access suitable financial facilities to meet the ongoing requirements of the business and our longer term strategic objectives.
Link to strategic priorities
Maintain a strong balance sheet and flexible capital structure.
Specific risk area
Liquidity and covenant risk relating to the group's securitisation and other financing arrangements.
Change since last year
No change.
Potential impact
A breach of any financial covenants applicable to the group would impact our ability to pay dividends or reinvest cash, and impact our reputation and ongoing creditworthiness.
Mitigation and monitoring
Long-term strategy and yearly business plans are formulated to ensure that financial covenants can be met and monitored on a regular basis. Working capital is carefully forecast, regularly reviewed by the finance teams and closely managed.
Risk appetite
We expect to be able to meet our payment obligations and covenant levels under a range of cautious but plausible liquidity scenarios.
Link to strategic priorities
Maintain a strong balance sheet and flexible capital structure.
Specific risk area
Funding requirements of our defined benefit pension schemes, which are subject to the risk of changes in life expectancy, actual and expected price inflation and investment yields.
Change since last year
Increased.
Potential impact
Increased deficit being recognised on our balance sheet, and volatility of the deficit makes longer term planning more difficult.
Mitigation and monitoring
All the schemes are now closed to future accrual to reduce volatility. There is regular monitoring of the schemes' investments and dialogue with the trustees on an ongoing basis regarding funding requirements.
Risk appetite
We expect to maintain funding levels for our pension schemes at manageable levels.
Link to strategic priorities
Maintain a strong balance sheet and flexible capital structure."
Related party transactions
The following description of related party transactions is extracted from page 116 of the annual report.
"32 Related party transactions
No transactions have been entered into with related parties during the period.
Greene King Finance plc and Spirit Issuer are structured entities set up to raise bond finance for the group, and as such is deemed to be related parties. The results and financial position of these entities have been consolidated.
Compensation of directors and other key management personnel of the group
| 2016 £m | 2015 £m | |
Short term employee benefits (including national insurance contributions) Post-employment pension and medical benefits Termination benefits Share based payments |
4.9 0.5 1.0 2.3 |
4.6 0.6 0.4 2.1 | |
| 8.7 | 7.7 |
Key management personnel
Key management personnel are deemed to be those employees who are directors of Greene King plc or its subsidiaries.
Directors' interests in an employee share incentive plan
Details of the options held by executive members of the board of directors are included in the remuneration report. No options have been granted to the non-executive members of the board under this scheme."