Greene King Regulatory News (GNK)

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 28 April 2019 and of the circular convening the 2019 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

6 August 2019

Information required by the Disclosure Guidance 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 Guidance 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 27 June 2019. 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 95 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.

The United Kingdom Companies Act 2006 requires the directors to prepare financial statements for each financial period that give a true and fair view of the financial position of the group and the parent company and the financial performance and cash flows of the group for that period. 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 in accordance with applicable law, 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").

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 are 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 United Kingdom 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 United Kingdom 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 and in accordance with applicable law, 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:

Nick Mackenzie (chief executive)

Philip Yea (chairman)

Mike Coupe

Gordon Fryett

Rob Rowley

Richard Smothers

Sandra Turner

Lynne Weedall

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from pages 52 to 57 of the annual report.

"Greene King is not alone in facing a range of risks and uncertainties in the course of its business. Our aim is to identify and manage these risks effectively so that we can deliver on our strategic objective of being the best pub and beer company in the UK and to maximise shareholder returns.

The board has overall responsibility for ensuring that there is a robust assessment of the principal risks facing the group, being those which would threaten our business model, future performance and solvency and liquidity. The board has defined the group-level risk tolerances to set out the board's desired risk-taking approach to the achievement of our strategic objectives, in the context of managing our principal risks. Our risk tolerance is an expression of the types and amount of risk we are willing to take or accept to achieve our plan, and enables us to better determine the mitigating activities required to manage our principal risks to within acceptable risk levels.

The nature of our principal risks has remained largely unchanged during the year. Many of the risks are impacted by external factors, although the board has noted the additional steps being taken to monitor and mitigate against these external factors. One such external factor is the outcome of the Brexit negotiations with the EU, which has been specifically considered by the board. Whilst Brexit-related risks are not included as a separate item in the list below, Brexit does pose a number of risks to our business, including heightened macro-economic uncertainty and more specifically at a recruitment level, and these have been reflected in the detail of the relevant risks already facing the business.

Strategic priorities

1. Build distinct brands that more customers choose

2. Provide offers that deliver compelling value, service and quality

3. Develop engaged and high performing colleagues

4. Maintain a well located and invested estate

5. Prudent financial management

Strategic risks

1. Business strategy

Specifics and potential impact

Failure to adopt the right strategy for the group or one of its business units or poor execution of that 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

No change

Mitigation

Our strategy is focussed on building brands that customers admire, creating offers that deliver compelling value, service and quality, developing engaged and high performing teams, maintaining a well-located and invested estate and managing our finances prudently. Pub Company continues to focus on its four key brands, on reducing costs and on improving service standards. For Pub Partners a key focus area is to reduce the impact of the MRO option tenants have under the Pubs Code and in Brewing & Brands the focus is on improving productivity and driving OBV growth. 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. It remains unclear how consumers will respond to the outcome of the Brexit negotiations.

Link to strategic priorities

1,2,3,4,5

Change since last year

No change.

Mitigation

We are continuing to invest in delivering value, service and quality to our customers and to focus on our four main brands. We maintain an active estate management programme, refining brands and segmenting our portfolio to align our offers with shifting consumer trends. Marketing is targeted towards encouraging more visits, often with a focus on events and where appropriate managers are encouraged to organise events designed to appeal to their local population. We use guest satisfaction tools, TripAdvisor scores and net promoter scores to collect customer feedback and measure performance of our pubs and we encourage our managers to respond to relevant feedback. Competitor activity is monitored at both a strategic and tactical level and each brand has its own pricing strategy, while discounts and promotions are carefully targeted. Food and drink quality remain a high priority, as do a focus on team training and digital enhancements. For Pub Partners there is an ongoing focus on improving the support we offer to licensees and in Brewing & Brands we have relaunched a focus on quality.

Risk tolerance

With our vision to be the best pub and beer 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 in the light of the ongoing Brexit uncertainty and political impasse. We also continue to face significant cost headwinds, including the National Living Wage/National Minimum Wage, the Apprenticeship Levy, business rates and utilities taxes, all of which could lead to reduced revenue, profitability and lower growth rates to the extent that we are not able to mitigate against them. In Pub Partners any difficulties our tenants face also impact us.

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. We aim to mitigate many of the anticipated cost increases facing the business, through procurement and productivity savings, with a particular focus on cross functional co-operation and the use of technology. On procurement we aim to work closely with our key suppliers to reduce costs without impacting the customer offer. We have a well hedged portfolio, with a broad geographic spread of pubs across the country, including in London and the south east, brands covering each of the value, mainstream and premium segments of the market, and a mixture of drink-led and food-led pubs. We maintain an active estate management programme, enabling us to refine our brands and segment our portfolio to align with shifting consumer trends.

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. GDPR compliance

Specifics and potential impact

A significant personal data breach through failure to comply with the EU General Data Protection Regulation and the UK Data Protection Act 2018 could impact our ability to do business, impacting both revenue and profitability. In addition the risk of reputational damage and financial damage from fines or compensation has increased.

Link to strategic priorities

1,3,5

Change since last year

No change.

Mitigation

A wide range of policy, technical, procedural, and operational compliance control improvements have been implemented across the business, covering all aspects of the requirements. We have a data governance committee, data protection officer and data protection champions across the business. Processes are in place to manage data breaches, which are followed up appropriately to ensure that lessons are learnt, and subject access requests are now handled centrally to ensure legislative requirements are met. Staff training is given to all employees and solutions have been or are being implemented for a number of issues identified during the implementation programme. A range of activities will further improve management of these risks during the year, including the provision of specialist training for those employees whose roles involve significant amounts of personal data processing.

Risk tolerance

We have a low tolerance for significant breaches of GDPR.

5. Cyber/IT security

Specifics and potential impact

A significant cyber security breach or other loss of data could impact the company financially or our ability to do business, impacting both revenue and profitability as well as potentially compromising employee, customer and supplier data. 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

Decreased.

Mitigation

Working with specialist third party companies we continuously monitor and evaluate cyber threats to our business. As a result of this evaluation our cyber security programme is constantly adapted to strengthen our IT security controls, improve our threat surveillance, patching and user education and to ensure that we continue to retire legacy systems so that our defences remain robust and relevant in the ever-changing threat landscape. Disaster recovery plans for our critical applications have been successfully tested, and the architecture has been updated and tested to improve the scale of speed of recovery of our IT systems.

Risk tolerance

We have a low tolerance level for significant breaches within our IT operations.

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 to supply goods, including in particular food and drinks, to our pubs and on our own ability to produce, package and distribute our own beers. Short term supply disruption could impact customer satisfaction and lead to loss of revenue whilst the long term failure or withdrawal of key suppliers or distributors could also lead to significantly 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

Increased

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. We have agreed a one year extension to our drinks distribution contract with our third party supplier and are reviewing a range of options to provide longer term security of supply to our pubs and those of our customers. 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. 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. Whilst the long term impact of the Brexit negotiations is yet to be fully understood, we are already seeing reduced migration from the EU. This, coupled with unemployment being at historically low levels, gives rise to a challenge in recruiting and retaining enough talented people. 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 and other initiatives designed to attract people into the business.

More effective recruitment processes have been put in place for key roles in our pubs and we have improved induction training to improve retention in the early few months. We spent over £2.6m in the year on training and development, and utilise a company-wide training platform to all employees. Career development plans are in place to retain key employees, whilst remuneration packages are benchmarked to ensure that they remain competitive. We plan to improve retention through greater engagement with our staff through digital HR and through our ongoing focus on the Winning Ways values programme. Key leaver reasons are monitored so that specific issues can be dealt with, 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.

We will also look at opportunities to reduce our exposure through more efficient shift planning and task allocation and look at areas where technology investment can reduce our reliance on people. 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.

8. Compliance with a range of legislation including health and safety, food safety and employment legislation

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, in our pubs, offices or breweries, this could have a significant impact on our reputation, leading to investigations by relevant authorities and 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. Failure to comply with employment-related legislation such as those relating to the National Minimum Wage and right to work could lead to HMRC fines and additional expense.

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 environmental health 'Scores on the Doors' and remuneration incentives for relevant employee. We have refreshed our training modules to make them more engaging for our young workforce.

In our brewing business we are working closely with our distribution partners to raise standards of health and safety across the sector and are improving safety competence and awareness amongst our middle management population. In our tenanted estate we have a detailed compliance programme to ensure that pubs are safely handed over to new tenants and we provide technical support and audit to our key tenanted food businesses and those with the poorest hygiene ratings. 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. We have systems designed to ensure compliance with right to work and National Minimum Wage legislation.

Risk tolerance

We have no tolerance for health and safety or food safety breaches within our operations.

Financial risks

9. 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

Decreased

Mitigation

 The group's debt structures and financing requirements are reviewed by the board who ensure that the capital structure plan continues to support the requirements of the strategic 3 year plan. Long term financing is provided by the group's securitisation and debenture vehicles, which have remaining weighted average lives of 9 years and 8 years respectively. The group also has available £750m under revolving credit facilities of which £400m is available to provide liquidity and to manage its seasonal cash flows. The remaining £350m is available to fund the internal transfer of pubs from the Spirit debenture vehicle, improving the group's ability to refinance its Spirit secured loan notes and related interest rate swaps. During the second half of the financial year, we made further progress on our debt refinancing plan. Since June 2017, we have repaid £393m, or 51% of the nominal value of the Spirit debenture, while we tapped the Greene King securitisation for £250m at 3.6%, creating headroom within our revolving credit facility for future bond repayments from the debenture.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.

10. 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 headroom against financial covenants is maintained at a prudent level. Forward looking covenant headroom is reviewed by the board on an ongoing basis. Working capital performance is regularly reviewed and closely managed by the finance teams. The impact on covenant headroom across all debt platforms is considered by management when assessing potential future transactions.

Risk tolerance

We expect to be able to meet out payment obligations and covenant levels under a range of cautious but plausible liquidity scenarios.

11. 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

Decreased.

Mitigation

All our final salary schemes are closed to future accrual to reduce volatility. There is regular monitoring of the schemes' investments and plans are in place to de-risk the investment strategy of the Greene King pension scheme. The Greene King and Spirit schemes both underwent a full actuarial valuation during 2018/19. The Spirit scheme is in surplus on an actuarial basis and therefore continues to not require funding from the company. The Greene King scheme remains in deficit, but does not require a material increase from the current £3m funding annual contribution. The company is engaged proactively with each pension scheme trustee on journey planning.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 165 of the annual report.

"30 Related party transactions

No transactions have been entered into with related parties during the year.

Greene King Finance plc and Spirit Issuer plc are structured entities set up to raise bond finance for the group, and as such are 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

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 of directors."