3 Aug 2017 16:34
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 30 April 2017 and of the circular convening the 2017 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.morningstar.co.uk/uk/NSM.
The annual report and the AGM circular will also be available on the company's website, www.greeneking.co.uk.
Lindsay Keswick
Company Secretary
Greene King plc
LEI: 213800R9N5F2WRMGTR50
3 August 2017
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 2017. 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
Gordon Fryett
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.
Strategic priorities:
1. Build strong and attractive brands
2. Industry leading service and quality
3. Work with the best people
4. Own the UK's best invested pub estate
5. Maintain a strong balance sheet and flexible capital structure
Strategic risks
1. Business strategy
Specifics and potential impact
Failure to adopt the right strategy for the group or poor execution of the group's strategy could lead to reduced revenue, profitability and lower growth rates than our strategic objectives.
Link to strategic priorities
1, 2, 3,4
Change since last year
Increased.
Mitigation
Our strategy is focussed on building strong and attractive brands, delivering industry leading service and quality, working with the best people, owning the UK's best invested pub estate and maintaining a strong balance sheet and flexible capital structure.
Overall strategy is determined by the board at an annual two day strategy meeting, and progress against strategic plans is reviewed regularly by the board and the operating board, which is tasked with the execution of the plans on a day to day basis. There is regular review of the execution of strategic plans by management in operating board meetings and at other relevant meetings.
Risk tolerance
We are comfortable managing risks which we understand and are consistent with the delivery of our strategic objectives.
2. Customer offer
Specifics and potential impact
Failure to deliver an appealing customer offer, to identify and respond to fast-changing consumer tastes and habits (including the use of digital media), to respond to increased competition, to price products appropriately and to align the portfolio to the market could all lead to reduced revenue, profitability and lower market share and growth rates than anticipated.
Link to strategic priorities
1,2,3,4,5
Change since last year
Increased.
Mitigation
We have identified a range of consumer trends and developed plans to respond to them, including the piloting of new brands or variations of existing brands and the sale of non-core sites. We use guest satisfaction tools and net promoter scores to collect customer feedback and measure performance of our pubs. Each brand has its own pricing strategy and discounting and promotions are carefully targeted. Competitor activity is monitored at both a strategic and tactical level, and we provide training, support and a range of innovative agreements for our tenants, so that they are also able to compete in their markets.
We support and train our employees to ensure service standards meet guest expectations and continue to improve, and we are increasing our use of social media to enhance our communications with our guests and other consumers.
Risk tolerance
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 maintain earnings and the achievement of our strategic objectives.
Economic and market risks
3. Economic uncertainty and cost pressures
Specifics and potential impact
We are at risk of a weakening economy and softer consumer confidence in the UK, particularly given the recent UK general election and as Brexit negotiations unfold. We also face significant cost headwinds, including wage cost inflation as a result of the introduction of the National Living Wage, higher business rates and increased costs of goods, which could all lead to reduced revenue, profitability and lower growth rates.
Link to strategic priorities
1,2, 3, 4
Change since last year
Increased.
Mitigation
We have a relentless focus on value, service and quality and are continuing to invest in our pubs, as well as piloting new brands and variations of existing brands, to ensure that our pubs appeal to a broad range of consumers. Plans have been developed to mitigate much of the anticipated cost increases facing the business, including better procurement and labour scheduling and otherwise reducing our cost base. We have a broad geographic spread of pubs across the country, including in London and the south east.
Risk tolerance
We acknowledge and recognise that in the normal course of business, the group is exposed to risks in this area. We are willing to accept a level of risk in order to achieve our strategic priorities and will manage the business accordingly.
Operational and people risks
4. Data security
Specifics and potential impact
A significant cyber security breach or other loss of data could impact our ability to do business, impacting both revenue and profitability. In addition we could suffer reputational damage and financial damage from fines or compensation. Deliberate acts of cyber crime are on the increase, targeting all markets and heightening risk exposure.
Link to strategic priorities
1,3,5
Change since last year
Increased.
Mitigation
A data governance group oversees improvements in systems and processes, including information security, designed to maintain securely employee, customer and other data held by the group, and also seeks to raise awareness of issues among employees and ensure their compliance with our IT policies.
A range of enhanced controls have been introduced across the business by the group's information security team to improve the security of our networks and systems, including encryption, enhanced access and information handling controls. Our networks are protected by firewalls and anti-virus protection systems, and threats to our data security, by viruses, hacking or breach of access controls, are constantly monitored.
Risk tolerance
We have a low tolerance level for significant breaches within our IT operations.
5. Recruitment, retention and development of employees and licensees
Specifics and potential impact
If we are unable to recruit, develop and retain key employees it may be more difficult to execute our business plans and strategy, impacting our revenue and profitability. For our Pub Partners division we face similar issues with regard to licensees.
Link to strategic priorities
1,2,3
Change since last year
Increased
Mitigation
We have both a branded recruitment plan to ensure that we attract suitable candidates and operate a range of apprenticeship programmes. Career development plans are in place to retain key employees, whilst remuneration packages are benchmarked to ensure that they remain competitive. We have recently launched our new values programme, Winning Ways, to improve engagement across the business.
Where appropriate exit interviews are conducted to enable action plans to be developed to deal with key leaver reasons, and our annual employee engagement survey is used to obtain direct feedback from employees on a range of issues. Managers are tasked with developing action plans to deal with the feedback received.
For our tenanted pub business we have a range of tenancy agreements, training programmes and support available to attract and retain the best quality licensees.
Risk tolerance
The nature of the sector in which we operate is predisposed to high employee turnover levels, but we have a low tolerance for levels which exceed the sector average, and we expect our staff to have the appropriate skills to deliver the functions of the business.
6. Suppliers, distributors and our own production facilities
Specifics and potential impact
We are reliant on a number of key suppliers and third party distributors and on our own ability to produce, package and distribute our own beers. Supply disruption could impact customer satisfaction and lead to loss of revenue whilst the long term failure or withdrawal of a key supplier or distributor could also lead to increased costs. If we were unable to brew, package and distribute our own beers for long periods we could suffer loss of revenue and profitability.
Link to strategic priorities
1,2
Change since last year
No change.
Mitigation
We maintain back up plans in case of the failure by or loss of a key supplier, and we expect our key suppliers to maintain disaster recovery plans which we review on a regular basis. Regular monitoring is undertaken of KPIs applicable to both third party suppliers and distributors, with issues flagged for resolution.
In the event of a failure in our own production and distribution activities a range of alternative solutions exist to enable us to continue to brew, package and distribute our own beers.
Risk tolerance
We recognise that we carry an inherent risk in relation to both our own production facilities and third party suppliers but we seek to minimise this risk through management and control.
7. Health and safety and food safety
Specifics and potential impact
If we fail to comply with major health and safety legislation and cause serious injury or loss of life to one of our customers, employees or tenants, this could have a significant impact on our reputation, leading to financial loss. If there is an issue in our food supply chain, including the provision of incorrect allergen information, that leads to serious illness or loss of life to one of our customers this could lead to restrictions in supply, potential increases in the cost of goods and reduced sales.
Link to strategic priorities
1,2, 3,4
Change since last year
No change.
Mitigation
We have a comprehensive range of formally documented policies and procedures in place, including centrally managed systems of compliance KPI tracking and internal and independent audits to ensure compliance with current legislation and approved guidance. Our health and safety policies have been reviewed by our primary authority partner, Reading Borough Council, which has rated our safety management system, which includes training for all relevant staff, as very good. We have also established a link between EHO 'Scores on the Doors' and remuneration incentives for relevant employees.
In our tenanted estate we have a detailed compliance programme to ensure that pubs are safely handed over to new tenants.
And in relation to our food supply chain we require all suppliers to have BRC or SALSA accreditation as a minimum and we risk rate suppliers on an annual basis to determine audit type and frequency. Regular meetings are held with key suppliers to review issues and follow up on any corrective actions required.
Risk tolerance
We have no tolerance for health and safety or food safety breaches within our operations.
Financial risks
8. Funding requirements
Specifics and potential impact
If we are unable to meet the funding requirements of the group we risk reduced revenue and lower profitability than our strategic plan.
Link to strategic priorities
1, 4, 5
Change since last year
No change.
Mitigation
The group's debt structures and financing requirements are kept under regular review. The group has a £400m bank facility to support activities outside the securitisation and debenture vehicles, which is available until 2021, and we completed a tap of the Greene King securitisation vehicle in May 2016.
The Spirit debenture has secured bonds with a carrying value of £770m and an average life of 11 years. A group treasurer has been appointed to manage the group's funding requirements going forwards.
Risk tolerance
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.
9. Covenant risks
Specifics and potential impact
If we are unable to meet the covenant requirements of the group's debenture, securitisation and other financing arrangements our ability to pay dividends or reinvest cash could be affected, which in turn would damage our reputation and ongoing creditworthiness.
Link to strategic priorities
1, 4, 5
Change since last year
No change.
Mitigation
Long term strategy and 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 and closely managed by the finance teams. Refinancing model closely tracks future covenant headroom across all debt platforms through all transactions considered.
Risk tolerance
We expect to be able to meet out payment obligations and covenant levels under a range of cautious but plausible liquidity scenarios.
10. Pension scheme funding
Specifics and potential impact
Any inability to meet the 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, could impact our balance sheet, whilst the volatility of the deficit makes longer-term planning more difficult.
Link to strategic priorities
5
Change since last year
No change.
Mitigation
All schemes are closed to future accrual to reduce volatility. We are proposing to extend a liability management programme in the Spirit scheme to the Greene King scheme, whilst there is regular monitoring of the schemes' investments and an ongoing dialogue with the trustees regarding funding requirements.
Risk tolerance
We expect to maintain funding levels for our pension schemes at manageable levels."
Related party transactions
The following description of related party transactions is extracted from page 120 of the annual report.
"31 Related party transactions
No transactions have been entered into with related parties during the period.
Greene King Finance plc and Spirit Issuer plc 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
| 2017 £m | 2016 £m | |
Short term employee benefits (including national insurance contributions) Post-employment pension and medical benefits Termination benefits Share based payments |
5.1 0.6 - 0.1 |
4.9 0.5 1.0 2.3 | |
| 5.8 | 8.7 |
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."