Genco Shipping & Trading Limited Annual Report 2015

FY2015 Annual Report · Genco Shipping & Trading Limited

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TIME WELL SPENT

A N N UA L R EP O RT 2015

G R EEN E K ING PLC

WE ARE ONE OF THE
COUNTRY’S LE ADING PUB
AND BRE WING COMPANIES

At our year end we ran over 1,900 managed,
tenanted, leased and franchised pubs, restaurants
and hotels, including some well-known brands such
as Hungry Horse and Loch Fyne Seafood & Grill.
We also have a proud history of brewing
award-winning ales for more than 200 years.

GREENE KING PLC Annual report 2015

Strategic reportSTR ATEGIC R EPORT

Investment case

2
4 Performance highlights
5 Chairman’s statement
6 Retail overview
8 Pub Partners overview
10 Brewing & Brands overview
12 Chief executive’s review
14 Our business model
16 Our markets
18 Operational review

18 Retail
Pub Partners
21
23 Brewing & Brands

25 Financial review
27 Key performance indicators
28 Risks and uncertainties
31 Corporate responsibility

COR POR ATE GOV ER N A NCE

37 Board of directors
38 Corporate governance statement
42 Report of the nomination committee
43 Report of the audit committee
46 Directors’ remuneration report
58 Directors’ report and disclosures
61 Directors’ responsibilities statements

FIN A NCI A L STATEMENTS

63 Independent auditor’s report (group)
67 Group income statement
68 Group statement of comprehensive income
69 Group balance sheet
70 Group cash flow statement
71 Group statement of changes in equity
72 Notes to the accounts
101 Independent auditor’s report (company)
102 Company balance sheet
103 Notes to the company accounts

SHAREHOLDER INFORMATION

107 Group financial record
108 Shareholder information

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Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder information

IN V ES TM ENT C A S E

OUR OVER ALL VISION IS TO
BUILD THE BEST PUBS AND
BEER BUSINESS IN THE UK

We aim to create a clear industry leader that is the first choice for employees,
for customers who want to spend their discretionary income on eating and
drinking out, and for shareholders who want to invest in the leisure sector.

Within this, our objective is to offer our customers memorable experiences
through the delivery of outstanding value, exceptional service and unbeatable
quality across our businesses, differentiated by investment in innovation
and in our people.

A HIGH QUALITY,
WELL-POSITIONED ESTATE

ALIGNED WITH
CONSUMER TRENDS

As at 3 May 2015 we ran 1,909 managed and tenanted pubs.
57% of our estate is situated in the South-east and East, which
has proved beneficial throughout the economic recovery.

We own the freehold title on 94% of our estate. This gives
us freedom to renovate our pubs and removes the ongoing
requirement to use a proportion of the cash that we generate
to pay rent. We believe that these benefits, among others,
outweigh the initial capital outlay associated with
purchasing the freehold title of a pub.

We constantly develop our Retail offer to ensure we remain
relevant in an environment of increasing consumer choice
and awareness, and we have identified a number of ongoing
and emerging consumer trends.

Value hunters
– ‘Every day low pricing’ approach to value
– Offer of ‘key event’ meal and other selective deals
enticing customers to treat themselves with us

Proportion
of the estate in
the South-east
and East

All-day eating out
– Continuous enhancement and extension
of a breakfast offer across our estate

– Hot beverage and snack availability designed

to attract customers in between meals

57%

Use of and access to technology in leisure
– Hungry Horse ordering apps and pager trials

to boost service

– Mobile-enabled booking websites designed
to engage with the customer on the move

GREENE KING PLC Annual report 2015

Strategic reportCOMPELLING BLEND OF GROWTH AND DIVIDENDS

Over the last five years our proven growth strategy combined with our attractive dividend policy has delivered an average annual
total shareholder return 30% higher than the FTSE All-share average annual return over the same period. This includes 29%
growth in Greene King dividends and 79.4% share price appreciation1.

1. Past performance is not an indicator of future returns.

TOTAL DIVIDEND PER SHARE 2011–2015 (p)

GREENE KING SHARE PRICE 2010–2015

2 9 %

2
6
6

2
8
4

2
9
.
7
5

2
4
8

2
3
.
1

+ 7 9 . 4 %

1,000

800

600

400

200

2011

2012

2013

2014

2015

May 2010 May 2011 May 2012 May 2013 May 2014 May 2015

A DIVERSIFIED AND ROBUST
BRAND PORTFOLIO

THE BEST AND MOST HIGHLY MOTIVATED
PEOPLE IN THE SECTOR

We have a number of well-known pub and restaurant
brands and ales, including:

– Award-winning national pub restaurant, restaurant and

accommodation brands such as Hungry Horse, Loch Fyne
Seafood & Grill and Old English Inns. During the year we
were proud to be named the winner of the 2015 National
Fish & Chip awards.

– Well-known brands such as Greene King IPA,
Old Speckled Hen, and Abbot Ale, as well as
Belhaven Best in Scotland and our craft ale portfolio.

Our people are fundamental to the success of our business
and we aim to employ and develop the best and most highly
motivated people in the sector.

Key to this is our strategy to engage employees through
learning and we have committed to offering a further
2,000 apprenticeships in the current year.

Our investment in our people, skills and development was
demonstrated in the award of the VQ (Vocational
Qualifications) Employer of the Year in May 2015.

CORPORATE RESPONSIBILITY PAGE 31

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationPER FOR M A NC E HIG HLIG HTS

ANOTHER RECORD YE AR

REVENUE (£m)

OPERATING PROFIT BEFORE EXCEPTIONALS (£m)

PROFIT BEFORE TAX AND EXCEPTIONALS4 (£m)

£1,315.3m +3.0%1

£256.2m -1.7%1

£168.5m -0.8%1

1,400

1,200

1,000

800

600

330

300

270

240

210

1
,
3
1
5
3

1
,
3
0
1
.
6

1
,
1
9
4
7

1
,
1
4
0
4

1
,
0
4
2
7

2
6
5
6

2
5
6
2

2
4
8
2

2
3
6
2

2
2
2
0

270

240

210

180

150

180

160

140

120

100

1
7
3
.
1

1
6
8
5

1
5
8
2

1
4
7
2

1
3
5
8

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

EBITDA3 (£m)

ADJUSTED BASIC EARNINGS PER SHARE2,4 (p)

DIVIDEND PER SHARE (p)

£319.0m -1.4%1

61.0p +1.3%1

29.75p +4.8%

3
2
9
7

3
1
9
0

3
0
6
5

2
9
2
0

2
7
6
6

6
1
.
4

6
1
.
0

5
5
6

5
1
.
3

4
6
8

2
8
4

2
9
.
7
5

2
6
6

2
4
8

2
3
.
1

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

– Record revenue; Retail revenue has reached £1bn.
– Retail like-for-like (LFL) sales5 +0.4%; Pub Partners LFL net income +3.5%;

Brewing & Brands own-brewed volume (OBV) +4.2%.

– Adjusted earnings per share growth of 9.2%6 with strong cash flow, lower leverage

and continued dividend growth.

– Return on capital employed (ROCE) further increased to 9.3%.
– Completed successful five-year strategic plan: expanded Retail sites by 19.4%;

increased tenanted EBITDA per pub by 33%; and grew ale market share by 120bps.
– Completed acquisition of Spirit Pub Company plc, post year end, creating the UK’s

leading managed pub company; integration process underway.

1. Variances shown on an adjusted 52 week basis.

2. As throughout, profit figures are shown before exceptional items.

3. EBITDA represents earnings before interest, tax, depreciation and exceptional items and is calculated

as operating profit before exceptionals adjusted for the depreciation charge for the period.

4. 2011–2013 figures are adjusted for the impact of IAS 19(R).

5. Revenue from the sale of drink, food and accommodation.

6. Retained business, see page 26.

GREENE KING PLC Annual report 2015

Strategic reportC H A IR M A N ’ S S TATEM ENT

DIVIDEND GROW TH

“Maintaining our long-term track record of dividend growth,
the total dividend for the year will be 29.75p per share, up 4.8%.”

“It has been
a year of strong
underlying growth
for the company.”

SEE ALSO

CHIEF EXECUTIVE’S REVIEW
PAGE 12

BOARD OF DIRECTORS
PAGE 3

CORPORATE GOVERNANCE
PAGE 37

Results
In the year, total revenue was £1,315.3m, up 3.0%1 and another record
figure for the company. The operating profit before exceptional items
was down 1.7% to £256.2m and profit before tax and exceptional items
(PBTE) was down 0.8%, each being affected by lower LFL sales growth
and the impact of the disposal of 275 pubs to Hawthorn Leisure.
Our adjusted earnings per share were up 1.3% to 61.0p. After making
allowance for the disposal of the pubs, the retained business grew
PBTE by 6.9% and adjusted earnings per share by 9.2%.

Dividend
Following a year of strong underlying growth for the company, the
board has recommended a final dividend of 21.8p per share, up 4.8%
on last year. This takes the total dividend for the year to 29.75p per share,
up 4.8%, continuing our long track record of dividend growth.
The final dividend is expected to be paid on 14 September 2015 to those
shareholders on the register at the close of business on 14 August 2015.

Acquisitions
On 23 June, after the year end, we completed the acquisition of
Spirit Pub Company plc, the largest acquisition in the company’s
history. This added 791 retail sites and 416 tenanted and leased sites
to our pub estate. During the year, we added 32 sites to our retail estate
at a total cost of £75.9m, leaving us with 1,060 sites at the year end.

Board
Sadly, Matthew Fearn, our chief financial officer, had to leave us in
September 2014 because of his ill health. In his place, we appointed
Kirk Davis, who was formerly the finance director at JD Wetherspoon plc.
We welcomed him onto our board as chief financial officer on
3 November 2014.

In July 2014, Rob Rowley joined our board as a non-executive
director. He was formerly at Reuters Group plc, where he held
various roles including that of finance director, and will be taking
the chairmanship of the audit committee from Ian Durant next year.

People
I would like to thank everyone who has worked for Greene King
over the course of the year, whether it be those who work in our
managed pub business, our tenanted and leased pub business or our
beer business. Wherever you are in the company, or in the country,
your efforts and your achievements are, as always, highly valued
and appreciated.

On the most recent note of all, I would like to welcome all of the Spirit
employees. We look forward to working with you, sharing ideas and
making the most of our joint opportunity to forge a successful
future together.

Disposals
During the year, we sold 314 non-core sites for a total of £94.1m,
including the sale to Hawthorn Leisure. The 39 disposals outside
of the Hawthorn Leisure transaction realised a sale value of £18.5m.

Tim Bridge
Chairman
30 June 2015

1. Throughout this statement, 2013/14 figures are rebased to 52 weeks

for comparative purposes.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationR E TA IL OV ERV IE W

GREENE KING PLC Annual report 2015

Strategic reportRE TAI L

Our retail business comprises both branded
and unbranded pubs, restaurants and hotels
that we manage across the UK.

The City Barge in Chiswick is one of our
Metropolitan pubs, where the focus is on a
premium food and drink offer in interesting
surroundings. Its menu features classic British
ingredients, with British fish and seafood
being particularly popular.

OPERATIONAL REVIEW
PAGE 18

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationPU B PA RTN ER S OV ERV IE W

GREENE KING PLC Annual report 2015

Strategic reportPU B
PARTN ER S

Our Pub Partners business offers people the
opportunity to run their own pubs across the UK
on a tenanted, leased or franchised basis.

We aim to help licensees with various aspects of
their business, from training to investment, where
appropriate. We recently contributed over £140k
to upgrade the kitchen facilities and extend the
trading space at the Swan in Long Melford, Suffolk,
and it has since received a two-rosette rating
from the AA for its food offer.

OPERATIONAL REVIEW
PAGE 21

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationB R E W ING & B R A N DS OV ERV IE W

BRE WI N G
& BR AN D S

Our Brewing & Brands business brews a wide
range of well-known and award-winning ales
in our two breweries, in Bury St Edmunds
and in Dunbar.

Its flagship brand, Greene King IPA,
has undergone a re-brand during the year,
with a more contemporary, stylish pump clip
which has been well received by consumers.

OPERATIONAL REVIEW
PAGE 23

GREENE KING PLC Annual report 2015

Strategic reportAnnual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationC HIEF E X ECUTI V E’ S R E V IE W

ANOTHER
RECORD YE AR

“As well as increasing revenue we also made good financial and
strategic progress as we came to the end of our five-year strategic plan.”

GROUP REVENUE WAS:

£1,315.3m

OPERATING PROFIT BEFORE
EXCEPTIONAL ITEMS WAS UP:

3.8%1

ADJUSTED EARNINGS
PER SHARE GREW:

9.2%2

PROFIT BEFORE TAX
AND EXCEPTIONALS WAS:

£168.5m

Performance summary
It has been another record year for Greene King with Retail revenue
exceeding £1bn for the first time and underlying growth in Pub Partners
and Brewing & Brands. We have made good financial and strategic
progress and completed a successful five-year strategic plan,
culminating in the disposal of over 300 non-core sites in the year
and, after the year end, the acquisition of Spirit Pub Company.

We grew total revenue by 3.0%1, while the retained business, excluding
non-core pub disposals, achieved 5.0% growth. Operating profit was
1.7% lower than last year although it was up 3.8% on a retained business
basis. The operating margin on a retained business basis fell 20bps
to 19.4%, following a significant recovery in the second half.

Adjusted earnings per share were up 1.3% and up 9.2% on a retained
business basis. As a result of this continued strong underlying growth,
the board has recommended an increase of 4.8% in the dividend
per share.

Although underlying retail growth was lower than anticipated at
the start of the year, we increased our ROCE to 9.3%, ahead of WACC.

We also made significant progress in key operational metrics, including
a 12.3%pt increase in our Retail Net Promoter Scores (NPS) and a 13.4%
reduction in Retail team turnover.

Market overview
While economic indicators generally continued to improve throughout
the year, the underlying trends within the sector slowed down as
customers diverted discretionary spending towards ‘bigger ticket
items’. However, we are confident that our continued investment
in the business will feed through into stronger underlying growth
going forward, supported by ongoing improvements in consumer
confidence and disposable income.

With 62%3 of UK leisure spending, the eating and drinking out
markets dominate the UK leisure market. Within the eating out market,
27% of spend comes from pubs and bars with spend in branded pubs
and bars forecasted to be 14% in 2015, up from 11% in 2010. We believe
pubs and bars, and particularly branded pubs and bars, will continue
to play a significant role within the UK leisure market.

Now that the Small Business, Enterprise and Employment Bill has
become law, we will continue to work closely with the Government
to make sure that important secondary legislation is balanced, does
not add unnecessary ‘red tape’ and encourages continued investment
in the tenanted and leased sector.

Our Scottish business suffered in the year from the introduction of
a lower drink-driving limit just before Christmas. We have mitigated
the impact as much as we can through a number of initiatives.
However, the lower limit has changed consumer behaviour towards
drinking out in Scotland and we expect to see continued LFL sales
weakness, at least in the first full year following its introduction.

1. Throughout this review, 2013/14 figures are rebased to 52 weeks

for comparative purposes.

2. Retained business, see page 26.

3. Greene King Leisure Spend Tracker, April 2015.

GREENE KING PLC Annual report 2015

Strategic reportStrategy update
Our five-year strategic plan to improve growth and returns to
our shareholders has been successful, helping to drive significant
change in the business and better positioning Greene King for
sustainable long-term growth. During the last five years, we have:

While consumer spending on eating and drinking out is improving,
spending on big ticket items has been the main beneficiary of the
return to real income growth so far. In this environment, we will
continue to focus on improving customer experiences in order
to drive sustainable growth across the core business.

We are looking forward to integrating Spirit and to building the
leading pub hospitality company in the UK, combining the best
people, brands and processes from both businesses. We have only
recently completed the acquisition, but our early analysis of the
business is encouraging and we see a number of exciting
opportunities for the combined business.

We are confident of delivering another year of financial
and strategic progress for our shareholders.

Rooney Anand
Chief executive
30 June 2015

1. BBPA, company.

1. Expanded our Retail estate by 19.4% and improved average

EBITDA per pub by 24%. Since 2010, we have added 172 sites to
our retail estate, including 32 sites this year, ending the year on
1,060 pubs, restaurants and hotels. The acquisitions of Cloverleaf,
RealPubs and Capital Pubs accelerated our progress in Retail
and, overall, average EBITDA per pub improved 24% over the
five years. The return on the cash we invested during the period
in new sites was 15.1%, ahead of WACC, and generating
shareholder value.

2. Reduced our Pub Partners estate by 46% and improved

average EBITDA per pub by 33%. Over the five years, we sold or
transferred 735 tenanted and leased sites including 310 this year,
taking us significantly ahead of our initial target of 1,200 sites.
Since 2010, average EBITDA per pub has risen by 33% to £69.9k.

3. Continued our cask ale leadership position through

consistent and industry-leading brand investment. Since
2010, OBV grew 19.7% against an ale market that declined 12.6%.
This outperformance was driven by investment and innovation in
our industry-leading brand portfolio. Over the five years, we increased
our volume share of the UK ale market by 1.2%pts to 10.0%1.

Having successfully delivered on our five-year plan, our immediate
focus looking forward is to manage the twin challenges of delivering
sustainable performance improvements in Greene King Retail,
while successfully integrating Spirit Pub Company to create a clear
industry leader.

We have worked hard this year to drive improvements in value,
service and quality across Retail, but we are clear that more needs
to be done if we are to deliver positively memorable experiences
to more savvy and connected customers, in an increasingly
competitive marketplace.

Linked to the core business challenge is the opportunity that the
acquisition of Spirit brings. We completed the acquisition on 23 June,
following the CMA’s formal acceptance of our undertaking to sell
16 pubs, thereby creating the UK’s leading managed pub company.
With a combined estate of 3,100 pubs, restaurants and hotels,
including over 1,000 in London and the South-east, we are well
positioned to deliver long-term growth.

We expect to generate at least £30m of cost synergies and we
anticipate there being further opportunities for value creation.
The greater the benefits we realise, the more we will seek to invest
in key areas of the combined business such as people, IT and marketing,
thereby helping to further strengthen the core Retail business.

Current trading and outlook
We have seen a steady start to the new financial year. In the first
eight weeks, Retail LFL sales were up 0.6%, LFL net income in Pub
Partners was up 1.2% and OBV in Brewing & Brands was down 3.7%,
against tough comparatives and a year-on-year delay in the timing
of export sales. The new drink-driving regulations in Scotland reduced
Retail LFLs by 50bps during the period. For the same eight-week
period, managed LFL sales at Spirit were up 0.8%.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOU R BUS IN ESS MODEL

BUILDING THE BEST PUBS
AND BEER BUSINESS IN BRITAIN

The Greene King business model balances strong cash generation with
investment aimed at further positioning us towards long-term growth markets
and thereby delivering sustainable growth and dividends for our shareholders.

ST O
U
C

Robust corporate governance
and corporate social
responsibility, centred on our
people and our customers,
support our business model.

DERS

S H A

S
R
E

R E H OLD

Further underpinning our business model is a financial strategy to maximise
the strength, flexibility and efficiency of our balance sheet, with the aim
of supporting growth through investment in our existing estate and selectively
acquiring new sites, while maintaining our progressive dividend policy.

As at 3 May 2015 we owned or operated 1,909 pubs, restaurants and hotels
and we brew the country’s leading cask ale brands. We operate through
three main business units.

PUB PARTNERS

RE TAIL

BREWING & BRANDS

C A S H G E N E R ATO R

G R O W T H D R I V E R

C A S H G E N E R ATO R

GREENE KING PLC Annual report 2015

Strategic reportK E Y B U S I N E S S D R I V ER S

RE TAIL

Our retail business is split into two divisions – our more
food-focused Destination Pubs and Restaurants division
(466 sites) and our more community-focused Local Pubs
division (594 sites).

The success of our Retail business is driven by our
customers’ desire to eat and drink outside of their homes
and is specifically determined by the number of customers
we attract and the amount that they spend with us.

Our principal revenue streams are food and drink available
for consumption on our premises. We gain further revenue
from our accommodation offer at some sites, and a number
of our sites have gaming machines.

O P E R AT I O N A L P R I O R I T I E S

– Consistently providing outstanding value, exceptional

service and unbeatable quality to our customers

– Constantly innovating to ensure that we offer our

customers differentiated and compelling experiences

– Selectively and strategically expanding our estate
– Ongoing training of our teams, who are crucial

to our Retail success

PUB PARTNERS

Our Pub Partners business offers entrepreneurs the
opportunity to operate our pubs in England and Scotland.

We offer a flexible range of agreements, for tenanted pubs,
leased pubs and franchised pubs.

Revenue in our Pub Partners business is principally achieved
through the supply of beer and other drinks to our licensees
and the rent that they pay us to have access to the pub and
our support. We also derive a small portion of revenue
from gaming machines.

O P E R AT I O N A L P R I O R I T I E S

– Continuing to recruit and retain quality licensees
– The offer of a flexible and attractive range of agreements

to existing and future licensees

– Ongoing training of our people to offer industry-leading

support to our licensees

– Selective and strategic pub disposals to ensure we
maintain an attractive and cash-generative estate

BRE WING & BR ANDS

Our Brewing & Brands division operates two breweries,
one in Bury St Edmunds and the other in Dunbar.

We generate revenue in our Brewing & Brands business from
the sale and distribution of ales produced by us in our own
breweries, and from the sale and distribution of drinks (both
alcoholic and non-alcoholic) produced by third parties.

As well as to our internal customers in the other divisions,
we also sell our ales to other pub companies and to individual
free trade customers. A further important revenue stream is
the sale of our own-brewed ales to supermarkets and other
retail outlets and, increasingly, in the export market.

O P E R AT I O N A L P R I O R I T I E S

– Evolving our business model to pursue channels of growth
within the sector such as the take-home and export markets

– Maximising our market share and cash generation in markets
such as the on-trade by ensuring we have an exciting and
appealing portfolio of own-brewed brands

– Rigorously training and investing in our people to deliver

consistently high levels of service and quality

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOU R M A R K E TS

MARKE T OVERVIEW

UK MARKET: LFL GROWTH &
CONTRIBUTION FROM NEW SPACE
(ROLLING MAT)

BEER DUTY (£ PER 1% ABV/HL)1

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

A pr-15
M ar-15
Feb-15
O ct-14
D ec-14
N ov-14
Jan-15
Sep-14
A ug-14
Jun-14
Jul-14
M ay-14
A pr-14
M ar-14
Feb-14
Jan-14
O ct-13
D ec-13
N ov-13
Sep-13
Jun-13
M ay-13
Jul-13
A ug-13

UK market LFL growth

UK market growth
in new space

Jan-94

O ct-96

Jan-98

A pr-0 0

Jun-02

M ar-04

M ar-05

M ar-07

D ec-08

M ar-10

D ec-11

M ar-13

M ar-15

1. https://www.uktradeinfo.com/Statistics/Pages/TaxAndDutybulletins.aspx.

Introduction
The key markets in which we operate are the UK drinking out,
eating out and staying out markets. We aim to grow our share of
these markets by utilising our industry-leading brands, our high
quality asset base and our talented teams to offer customers
unrivalled value, service and quality.

The introduction of a lower drink driving limit in Scotland has
changed consumer behaviour in that localised market. The new
lower limit of 50mg of alcohol was brought in without any
consultation and has had a significantly negative impact on pub
sales across Scotland, with rural pubs in small communities
most affected.

Over the last 12 months, while sector LFL sales growth has been
more subdued than in previous years within Greene King Retail,
our largest and fastest growing business, we have successfully
outperformed the total market and grown total sales by 5.9%. LFL
beer volumes in Pub Partners, our tenanted, leased and franchised
division, have also outperformed the UK on-trade beer market, while
in our Brewing & Brands business own-brewed volumes of our core
ale brands have continued to outperform the total UK ale market.

Environmental analysis
Political
The recent election result has provided more certainty as to the
direction of policy towards the pub industry which is to be welcomed.
In the last 12 months, under a coalition Government and with
a devolved Scottish parliament, the pub industry had more than
its fair share of political involvement.

While we were pleased to see a third beer duty cut in three years at
the pre-election budget, we continue to believe that the statutory code
for pub companies, brought in within the Small Business, Enterprise
and Employment Act, is unnecessary and has the potential for material,
unintended consequences for the wider pub industry. Although we
believe we will be able to mitigate the potential financial impact of
the market rent only (MRO) option, essentially an option for licensees
to go free of their beer tie, the introduction of this option will create
significant additional red tape for the ultimate benefit of just a small
number of licensees across the UK.

We maintain our support for an alcohol minimum unit price (MUP).
We believe MUP, alongside other measures such as improved
alcohol education, can be a highly effective measure in reducing
irresponsible retailing and consuming of alcohol, therefore helping
to reduce the costs to society of rising alcohol-related illness
and crime.

Economic
The macro-economic backdrop continued to improve during the
year, with further GDP growth and consumers finally seeing a
return to real income growth driven by both improving employment
and slowing inflation. Consumer confidence trends have been
equally positive.

There has been a lag in these positive indicators feeding through
to sustainable increases in consumer spend in the UK eating and
drinking out market, with spend on bigger ticket items the clear
beneficiary of the economic recovery to date. Due to regional
variances in employment levels and exposure to slowing inflation,
not all consumers have enjoyed a similar return to real income
growth as demonstrated by the continued outperformance
of the London market.

Nevertheless, customers continue to treat themselves and we have
traded well over key events during the year. We continue to evolve
and tailor our customer-focused strategy to ensure that we capture
any incremental spend in our markets and that our portfolio of
brands and concepts is well positioned as the effects of real income
growth is increasingly felt by our consumers.

GREENE KING PLC Annual report 2015

Strategic reportCONSUMER CONFIDENCE IN PERSONAL
FINANCIAL SITUATION

GREENE KING SHARE OF THE MANAGED
AND BRANDED PUB MARKET 2010–2015

15
10

5
0
-5
-10
-15
-20
-25
-30

A ug-07

A pr-08

D ec-08

A ug-09

A pr-10

D ec-10

A ug-11

A pr-12

D ec-12

A ug-13

A pr-14

D ec-14

A pr-15

12.5%

12.0%

11.5%

11.0%

10.5%

10.0%

9.5%

2010

2011

2012

2013

2014

2015

Last 12 months

Next 12 months

GK market share
by turnover

GK market share
by number of sites

Greene King figures are based on the relevant company years. Market numbers
are based on Allegra Project Restaurant 2014 and Allegra Project Pub 2015.

Social
Alcohol consumption in the UK continues to decline with changes
in lifestyle including a greater focus on health a contributory factor.
However, 2014 was a positive year for beer sales, with total sales
rising 0.8% in 2014 following nine years of decline1 and skewed to
the off-trade, where total beer sales grew by 3.2% compared to the
on-trade where total beer sales declined by 1.3%1. Beer sales have
undoubtedly been helped by three years of beer duty cuts and further
supported by the increasing popularity of craft beer, as demonstrated
by the 6.4% increase in the premium market in the year encompassing
increases in both the on and the off-trade channels1.

The UK eating out market continues to grow with increases in both
the proportion of adults eating out of home and the frequency with
which they do so. In Q4 2014 84% of adults said that they visited pubs
for food2. Hectic lifestyles and the desire to treat themselves or
others are key drivers of this trend and consumers are increasingly
interested in informal dining – great value food and drink – across
all day parts.

The UK pub market continues to develop in order to meet these
customer-led trends. For example, many pubs have improved their
coffee offer and are targeting breakfast sales as well as the more
traditional out-of-home dining occasions. In many cases, the distinction
between a pub and a restaurant or casual dining outlet is diminishing
and, more generally, the various sub-sectors in the UK eating-out
market are less distinct. Managed and branded pubs are the key
drivers of the evolution of the pub sector and between 2012 and
2015 are forecast to grow turnover at an average annual rate of 3.9%
compared with the forecast total pub market growth of 1.1%2.

The UK provincial staying out market enjoyed a strong year in 2014
benefiting from the economic recovery and a buoyant travel market.
RevPAR (revenue per available room) grew at 7% in the provinces,
outperforming the London staying out market, and driven by increases
in both occupancy and the average daily rate3. The 2015 outlook for
the UK staying out market is positive. Ongoing improvements in both
the UK and international economies are anticipated to feed through
to further growth in both business and leisure related travel in 2015,
with contributions from inbound visitors and domestic ‘staycations’.

Greene King performance
We continue to grow our market share in our core markets of eating
out, drinking out and staying out. Over the course of our five-year
strategy plan we are pleased to have increased our market share of the
UK branded and managed pub market from 10.1% to 11.3% by turnover,
while maintaining our market share by number of sites at 12%.
In the staying-out market we have increased our share by turnover
by ten basis points to 0.2%, led by our Old English Inns portfolio.

In total we have added 172 sites to our Retail business over the last
five years aided by acquisitions such as Cloverleaf, Real Pubs and
Capital Pubs. These acquisitions have performed well and together
have achieved returns broadly in line with initial plans in addition
to increasing our exposure to the buoyant London market.

1. BBPA MAT December 2014.

2. Allegra Project Pub 2015.

3. PwC UK hotels forecast 2014, PwC UK hotels forecast 2015.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOPER ATION A L R E V IE W

RE TAI L

REVENUE

£1,000.7m

REVENUE INCREASE

+5.9%1

SHARE OF TOTAL REVENUE

76%

At the year end our Retail division comprised 466 destination
pubs and restaurants and 594 segmented local pubs across
Britain, appealing to a broad range of the population.

H I G H L I G H T S O F O U R Y E A R

AVERAGE WEEKLY SALES

OPERATING PROFIT

NET PROMOTER SCORES

FACEBOOK FOLLOWERS

+2.3%
to £18,100

+3.6%1

+12.3%

+64%

1. Variances shown on an adjusted 52 week basis.

GREENE KING PLC Annual report 2015

Strategic reportK E Y PER F O R M A N C E I N D I C ATO R S

AVERAGE NUMBER OF TRADING SITES

REVENUE (£m)

EBITDA (£m)

1,042 +3.5%

£1,000.7m +5.9%1

£239.8m +3.3%1

1
,
0
4
2

1
,
0
0
7

9
7
1

1,050

1,000

950

900

850

1,100

1,000

900

800

700

1
,
0
0
0
.
7

9
6
3
0

8
6
3
6

250

225

200

175

150

2
3
6
5

2
3
9
8

2
1
2
3

2013

2014

2015

2013

2014

2015

2013

2014

2015

OPERATING PROFIT (£m)

£190.8m +3.6%1

OPERATING PROFIT MARGIN (%)

19.1% -0.4%pts

EBITDA PER SITE (£k)

£230.1k -0.2%1

195

180

165

150

135

1
8
7
7

1
9
0
8

1
6
7
7

1
9
4

1
9
5

1
9
.
1

2
3
4
9

2
3
0
.
1

2
1
8
6

240

220

200

180

160

2013

2014

2015

2013

2014

2015

2013

2014

2015

Further strategic and operational progress helped to deliver another
year of growth in Greene King Retail. Total Retail revenue grew by 5.9%,
outperforming the market2, which grew by 4.9% over a comparable
period. LFL sales growth was 0.4%. LFL sales were affected by a
disappointing World Cup in the first half, tougher comparatives in
the second half and the impact of the new drink driving legislation
in Scotland from December.

Room sales achieved the best LFL sales growth while LFL sales in
drink and food performed broadly similarly. Our best performing
brands and formats were Metropolitan, our premium London estate,
Farmhouse Inns, our growing carvery brand, core Local pubs and OEI.

We exceeded £1bn of total Retail revenue for the first time and this
was up 5.9%, or £55.9m, on the previous year. Both Retail divisions,
Local Pubs and Destination Pubs, enjoyed growth in the year and
the average weekly sales per pub across Retail grew 2.3% to £18,100.
Operating profit was up 3.6% to £190.8m while the operating margin
was down 40bps, having been down 80bps in the first half. The margin
decline was due to the dilutive effect of lower sales growth and
increased labour investment, partly offset by cost savings and
a more benign cost environment.

Our ongoing progress in Retail is driven by a number of key factors,
all predicated on putting customers at the heart of our business,
offering them experiences to remember and ensuring their time
and money are well spent.

1. Managing constant change in customer perceptions

of value, service and quality

In terms of value, we re-launched and expanded our known value
item (KVI) strategy across Hungry Horse, Meet & Eat and Flame Grill
offering customers enhanced value at 80% more sites than the previous
year. In OEI, both leisure and corporate customers were able to take
advantage of our great-value breaks, while in Farmhouse Inns we
introduced a ‘Carvery Baps’ lunch offer for £3.95 and a new
breakfast menu with ‘generosity’ at its core.

On service, initiatives such as enhanced menu training programmes
and menu simplification helped to improve our average Net Promoter
Scores by 12.3%. In Farmhouse Inns, we reconfigured the carvery
layout to reduce queue times by over 60%, while in Hungry Horse
we introduced pagers to proactively manage peak trading
customer requirements.

On quality, we expanded the fresh supply chain in our Premium
Locals format, which was subsequently recognised with the award
of ‘best pub menu’ by Restaurant Magazine, while we were proud
to see Flame Grill announced as the winner of the National Fish
and Chip Awards in 2015.

1. Variances shown on an adjusted 52 week basis.

2. Coffer Peach Business Tracker.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOPER ATION A L R E V IE W CONTIN U ED

RE TAI L C ON TI N U E D

Serving coffee in a Hungry Horse.

A ‘Crabacado’ burger in a Metropolitan pub.

5. Employing and developing the best-trained and most

motivated people in the sector

Our people are fundamental to the success of our business and we
continued to grow our own talent with the launch of initiatives such
as a bespoke apprenticeship scheme in Loch Fyne Seafood & Grill
and the introduction of a coffee diploma for all team members in
Hungry Horse. The impact of our people initiatives is evident in a
13.4% reduction in team turnover across Retail and improvements
across our annual employee engagement survey. Now that we have
completed the acquisition of Spirit, we employ over 40,000 people,
half of whom are under 25. We take the responsibility of employing
and developing so many young people seriously and will look
to further increase investment in our people going forward.

6. Continuing industry-leading asset investment
We lead the industry in terms of investing in our existing estate and
additions to our estate. Our investment in repairing, maintaining and
improving the quality of our existing estate rose 5.5% to £79.3m,
while we opened 26 sites and transferred in six sites from Pub Partners
in the year helping to take the estate to 1,060 sites at the year end.
We spent £75.9m on acquiring and developing these sites. Our expansion
programme slowed in the year as resources were diverted to important
M&A activity, while, following the acquisition of Spirit’s 1,207 sites,
we expect to open around 15 additional high quality new sites in the
2016 financial year. We also expect to sell a similar number of non-core
Retail sites, on top of the agreed CMA disposals.

2. Staying close to our customers
We have identified a number of ongoing and emerging consumer trends
including all-day eating out and inter-generational eating out occasions.

Daytime Retail sales grew 8% following an expansion of the
breakfast offer in Hungry Horse, the introduction of ‘Afternoon Tea’
in Farmhouse Inns, new lighter snacks such as chocolate-coated
popcorn and a salt-beef sandwich, and a new weekend brunch offer
in Loch Fyne Seafood & Grill, which recognises the brand’s Scottish
heritage by including meals such as ‘the full Scottish’, and has led
to a 76% increase in weekly sales from 7.00am to 11.00am.

We continue to promote family dining in our sites, with the roll-out
of our ‘Golden Years’ offers to further brands across the estate and
the introduction of sharing tables and zones designed to enhance
sharing occasions in selected new sites. We also introduced a new
ice cream offer for families in Farmhouse Inns to complement
our successful ‘Cakeaway’ offer.

3. Expanding our digital platform
For the increasingly connected consumer, we further extended our
digital capability, getting closer to our customers by increasing the
channels through which we engage with them. Digital initiatives
included the ‘Golden Ticket’ data capture project in Hungry Horse,
with 115,000 customers signing up through a monthly prize draw
to win £100 golden tickets, and the development of our OEI
accommodation website to engage more customers on the move.
We also introduced an app-based platform to capture live feedback
from field-based employees. Overall, traffic to our websites grew
by 20%, the number of loyalty card holders grew by 17%
and the number of Facebook followers grew by 64%.

4. Growing our branded retail presence in the eating

and drinking out markets

All our pubs are branded, utilising at least one of the pub name,
a format or retail brand name, or Greene King. We are focused on
growing our retail branding and at the year end we had 763 sites
with a retail brand or format, against 710 12 months earlier. Our
leading brands and formats by number of sites are Hungry Horse,
with 241 sites at the year end, Meet & Eat (182 sites) and OEI
(115 sites). The brands receiving the most expansion investment
are Hungry Horse and Farmhouse Inns.

GREENE KING PLC Annual report 2015

Strategic reportPU B PARTN ER S

REVENUE

£121.9m

REVENUE DECREASE

16.9%1

SHARE OF TOTAL REVENUE

Pub Partners is responsible for operating our tenanted, leased
and franchised pubs across Britain and aims to ensure that
each pub has the right licensee to operate it, on the right
agreement, with the right offer.

H I G H L I G H T S O F O U R Y E A R

O U R AG R EEM EN T S

SALE OF

310

NON-CORE PUBS

EBITDA PER PUB

+15.5%1

REVENUE PER PUB

+14.3%1

AVERAGE TENURE

5 years
and 7 months

1. Variances shown on an adjusted 52 week basis.

– Standard tenancy agreements
– Scholarship tenancy agreement
– Horizon lease agreement
– Meet & Eat franchise agreement
– Local Hero franchise-style agreement

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOPER ATION A L R E V IE W CONTIN U ED

PU B PARTN E R S C ON TI N U E D

Pub Partners’ strategy is to be the preferred partner to the best operators,
sharing sustainable profit growth, enabled by industry-leading
business support and a high quality estate.

Pub Partners traded ahead of our expectations in the year, delivering
LFL net income growth of 3.5% and average EBITDA per pub
growth of 15.5%.

Revenue was down 16.9% on last year following the sale of 275
non-core pubs to Hawthorn Leisure in May 2014, but level with last
year on a retained basis. The average size of the estate fell 27.4% and
average revenue per pub increased 14.3%. EBITDA was £61.6m, down
16.2%, but up 3.9% on a retained basis. The acceleration of our disposal
strategy also impacted operating profit although the margin and
ROCE improved versus last year, reflecting the higher quality of the
remaining Pub Partners estate and the strong trading performance.

In order to be the preferred partner to the best operators, we need
the best pubs. In total, we sold 310 pubs in the year and we transferred
six sites to Retail where we considered we would generate sufficient
incremental profit to justify the transfer. We also continued to invest
in our retained estate, spending £18.9m in total over the year.

Supporting our partner ambitions, we continue to develop the strength
of our internal team and the quality and reach of our recruitment
programme to attract and retain the best operators. Over 30% of
attendees to our quarterly open days became licensees with us and we
have leveraged the digital expertise in other parts of the Greene King
business to successfully engage with potential applicants through
targeted social media campaigns. We have increased investment in
our licensed training programmes, including hosting 16 regional

social media training events and, within our internal team, over
two thirds of our business development managers have now attended
diploma or masters courses at Birmingham City University. We were
proud to see a member of the Pub Partners team crowned National
BDM of the Year by the ALMR, the second successive year that we
have achieved this recognition.

We provide a range of agreements to potential licensee partners,
including short-term tenancies, longer leases, Local Hero, our
franchise-style agreement with a retail concept built around local
provenance, and Meet & Eat, a fully accredited turnkey franchise
agreement. We increased the number of franchise and franchise-style
agreements by 26% to 58.

We further developed our online communications platform and
launched a bi-monthly ‘Innsight’ magazine, which is written in
partnership with licensees for licensees and, more recently, we launched
the ‘Flying Start Project’ designed to enhance licensee experience in
the build-up to, and during, their first 100 days as our business partners.

All of these initiatives led to a further increase in average licensee
tenure, which, at the end of the year, stood at five years and seven
months. We also saw continued low levels of licensee debt and the
number of temporary agreements remained at just 12 at the year end.

Looking ahead, the acquisition of Spirit will further improve the
quality of our Pub Partners estate, as we add 416 pubs at an average
EBITDA per pub of £77k.

K E Y PER F O R M A N C E I N D I C ATO R S

AVERAGE NUMBER OF TRADING SITES

REVENUE (£m)

EBITDA (£m)

881 -27.4%

£121.9m -16.9%1

£61.6m -16.2%1

1,400

1,200

1,000

800

600

1
,
3
2
6

1
,
2
1
3

8
8
1

160

140

120

100

1
5
3
7

1
4
9
6

1
2
1
.
9

2013

2014

2015

2013

2014

2015

OPERATING PROFIT (£m)

£54.0m -15.7%1

OPERATING PROFIT MARGIN (%)

44.3% +0.7%pts

6
8
.
1

6
5
3

5
4
0

4
4
3

4
3
6

7
6
3

7
4
9

6
1
.
6

2013

2014

2015

AVERAGE EBITDA PER PUB (£k)

£69.9k +15.5%1

6
9
9

6
1
.
7

5
7
5

2013

2014

2015

2013

2014

2015

2013

2014

2015

1. Variances shown on an adjusted 52 week basis.

GREENE KING PLC Annual report 2015

Strategic reportBRE WI N G
& BR AN D S

REVENUE

£192.7m

REVENUE INCREASE

SHARE OF TOTAL REVENUE

3.9%1

15%

Brewing & Brands sells and distributes a wide range of award-winning
craft ales to both the on and the off-trade. They are brewed in one
of our two breweries, in Bury St Edmunds and Dunbar.

H I G H L I G H T S O F O U R Y E A R

O U R CO R E B R A N DS

– Core own brewed volume +4.2%
against ale market –1.2%
– Ale market share +40bps to 10.0%
– Hen family 16% growth
– Record year for export

1. Variances shown on an adjusted 52 week basis.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationOPER ATION A L R E V IE W CONTIN U ED

BRE W I N G & BR AN D S C ON TI N U E D

Brewing & Brands’ strategy is to grow market share through
an appealing portfolio of core brands, complemented by an
innovative range of craft and seasonal ales. This growth is
enhanced by sector-leading investment in sales and marketing
and, by simultaneously running an efficient cost base, maximising
cash generation for the group.

Significant progress was made in the year. OBV was up 4.2% in a UK
ale market down 1.2% in the 12 months to April 20151, with our share
rising 40bps to 10.0%1. We remain the UK’s leading cask ale brewer.

Revenue grew by 3.9% to £192.7m, while operating profit was 0.1%
lower at £29.8m, reflecting the sale of 275 leased and tenanted pubs
to Hawthorn Leisure at the beginning of the year. Excluding the
impact of disposals, operating profit was up 4.4% to £29.3m.

The ‘Hen’ brand family had another successful year with volume
growth of over 16%, outperforming the UK premium ale market
which grew 6.5%1. Old Speckled Hen remains the number one
premium ale brand in Great Britain2 and has seen its volume
almost quadruple since we acquired it in 1999.

Export enjoyed a record year driven by strong sales in Russia,
supplemented by the US and Europe. Volumes in the take home
channel were also up significantly and Greene King is now the leading
British-owned brewer in multiple grocers3.

Key innovation in the year comprised the Greene King IPA brand
relaunch with an accompanying quality assurance programme,
designed to further engage with our trade customers and to enhance
point-of-sale quality. We continued our focus on new product
development and during the year we launched East Coast IPA,
an American influenced keg beer, and the limited edition
‘Old Nutty Hen’.

Other exciting developments included winning the exclusive rights
to the Goose Island beer range in England and Wales, including the
award-winning 312 Urban Wheat brand, and Greene King IPA
winning a gold award at the 2015 Monde awards.

K E Y PER F O R M A N C E I N D I C ATO R S

REVENUE (£m)

£192.7m +3.9%4

EBITDA (£m)

£34.9m -1.5%4

1
8
9
0

1
9
2
.
7

1
7
7
4

2013

2014

2015

OPERATING PROFIT (£m)

£29.8m -0.1%4

3
0
0

3
0
4

2
9
8

200

180

160

140

120

3
5
4

3
6
.
1

3
4
9

2013

2014

2015

OPERATING PROFIT MARGIN (%)

15.5% -0.6%pts

1
6
9

1
6
.
1

1
5
5

2013

2014

2015

2013

2014

2015

1. BBPA May 2014 to April 2015.

2. CGA Brand Index MAT to 21 February 2014, Nielson ScanTrack MAT to 25 April 2015.

3. Nielson ScanTrack MAT to 25 April 2015.

4. Variances shown on an adjusted 52 week basis.

GREENE KING PLC Annual report 2015

Strategic reportFIN A NCI A L R E V IE W

STRONG OPER ATIONAL
PERFORMANCE

“Retail sales exceeded £1bn for the first time, and there
was underlying growth in Pub Partners and Brewing & Brands.”

REVENUE UP

3.0%1

FREE CASH FLOW

£55.7m

ADJUSTED EARNINGS PER SHARE

61.0p

ROCE

9.3%

Results
Total revenue grew to £1,315.3m, an increase of 3.0%1. The biggest
driver of growth continues to be our Retail business, where revenue
grew by 5.9% and average revenue per site rose 2.4%. Retail now
accounts for 76% of group revenue. Total revenue in Pub Partners was
down 16.9%, due primarily to the impact of pub disposals, although
average revenue per pub increased 14.3%. Brewing & Brands grew
revenue by 3.9%. On a retained business basis, stripping out the
impact of disposals, total revenue was up 5.0% to £1,313.0m.

Operating profit before exceptionals was £256.2m, down 1.7%
on last year, with the operating margin down 90bps to 19.5%. On a
retained business basis, operating profit rose 3.8% to £254.4m, with
the operating margin down 20bps to 19.4%. The reduction in the
retained business operating margin was due to lower retail revenue
growth and our additional investment in labour. Net interest costs,
before exceptional items of £87.7m, were 3.4% lower than last year,
due to strong cash flow management and the impact of disposal
proceeds. PBTE was £168.5m, a decrease of 0.8%. Adjusted earnings
per share of 61.0p were up 1.3%, benefiting from the reduction in
the effective tax rate. Statutory profit before tax was £118.2m, up
12.4% on a 53 week basis, as a result of the impact of exceptional
items, summarised below.

Tax
The effective rate of corporation tax (before exceptional items)
was 21% compared to 23% in the previous year, resulting in a charge
to operating profits (before exceptional items) of £35.3m. This is in
line with the standard UK corporation tax rate.

The group’s business strategy 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 £405m (2014: £400m). The group’s tax policy, which has been
approved by the board, aligns with this strategy and ensures that
the group fulfils its UK tax responsibilities, while structuring its
operations in a tax efficient manner. There are a number of open tax
positions in relation to historical transactions and an estimate of the
expected total payment relating to these transactions is included
within the tax creditor of £50.8m (2014: £46.5m).

Pensions
As at the year end, the group maintained two defined contribution
schemes, which are open to all new employees. The group’s two
defined benefit schemes are both closed to new entrants and
to future accrual.

At the year end, there was an IAS 19 pension deficit of £59.2m, which
compares to £52.2m at the previous balance sheet date. The movement
is primarily due to an increase in value of the schemes’ liabilities
as a consequence of the reduction in the discount rate applied.

Total cash contributions in the period under the schemes’ deficit
recovery plans were £6.9m.

1. Unless otherwise stated, all numbers in this review

are based on an adjusted 52 week year.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationFIN A NCI A L R E V IE W CONTIN U ED

Exceptional items
We recorded a net exceptional charge of £43.9m, consisting of a £43.9m
charge to operating profit before tax, a £6.4m charge to finance costs
and a net exceptional tax credit of £6.4m. Full details are set out
in note five and the principal items are as follows:

Net debt and treasury
Net debt at the year end was £1,368.7m, a reduction of £66.9m from
the previous year end, with the key movements being positive FCF
of £55.7m, disposal proceeds of £94.1m and the continued investment
in growing our Retail estate, through new sites, of £75.9m.

1. An impairment charge of £27.4m (2014: £22.0m) was made against
the carrying value of a small number of our pubs where specific
market conditions impacted trading.

Our high quality pub estate supports £1,180.7m of securitised bonds
with amortisation of £31.1m and a weighted average maturity of 12 years.

2. During the year, the group incurred £15.8m in exceptional advisory
fees in relation to the acquisition of Spirit Pub Company and open
tax positions. In addition, we incurred £1.5m of exceptional
employee costs, which included restructuring costs and costs
associated with changes to key management.

3. The exceptional tax credit of £6.4m includes a £7.0m tax credit

on exceptional items, a deferred tax credit of £2.3m, in respect of
the licensed estate, a £9.5m income tax charge in respect of prior
periods and an £6.6m deferred tax credit in respect of prior periods.

Cash flow
Operating cash flows continue to be strong. We generated free cash flow
(FCF) of £55.7m, which was significantly ahead of our scheduled debt
repayments of £31.1m. EBITDA was £319.0m, down 1.4%, but from
13.0% fewer pubs.

During the year, we disposed of 314 sites as part of our strategy to
improve the quality of our estate, with the cash proceeds totalling £94.1m.
We also made good progress with our strategic Retail expansion
plan, adding 26 new pubs to our Retail estate, investing £73.4m.

Capital expenditure
We invested in maintaining and developing our core estate, in addition
to growing the size of our Retail estate. Total expenditure during
the period was £160.5m.

Capital expenditure on the core estate, including maintenance
capital, was £84.6m, an increase of £2.3m. In addition, we invested
£75.9m on our retail expansion, with £20.6m invested in acquiring
single sites and £55.3m on developing those assets.

Our credit metrics remain strong with interest rate hedges in place
for 96% of the variable rate debt and a blended average cost of debt
of 6.1%. Fixed charge cover has improved slightly to 2.9x, while
interest cover remained at 3.0x. Group net debt to EBITDA reduced
to 4.3x. Our securitised vehicle had a FCF debt service cover ratio
of 1.5x at the year end, giving 24% headroom.

Following the recent acquisition of Spirit Pub Company, the pro-forma
net debt of the group is £2.02bn1 with net debt to EBITDA at 4.2x2.

Dividend
The board has recommended a final dividend of 21.8p per share, up
4.8%. This will be paid on 14 September 2015 to all shareholders on
the register at the close of business on 14 August 2015.

The proposed final dividend brings the total dividend for the year
to 29.75p per share, up 4.8%. This is in line with the board’s policy
of maintaining a dividend cover of around two times underlying
earnings, while continuing to invest for future growth, and maintains
our long-term track record of annual dividend growth.

Kirk Davis
Chief financial officer
30 June 2015

1. Pro-forma net debt – the sum of net debt as reported by Greene King at 3 May 2015
of £1,368.7m and the nominal value of net debt reported by Spirit at 7 March 2015
of £649.4m.

2. Pro-forma EBITDA – the sum of EBITDA reported by Greene King for the

52 weeks to 3 May 2015 of £319.0m and calculated for Spirit for the 53 weeks
to 7 March 2015 of £163.0m.

Underlying retained business

52 weeks to 3 May 2015

53 weeks to 4 May 2014

Underlying
retained
business
£m

Tenanted
disposals
£m

Before
exceptional
items
£m

Underlying
retained
business
£m

Tenanted
disposals
£m

Before
exceptional
items
£m

Revenue1
Operating profit1
Net finance costs2

Profit before tax
Tax3

Profit attributable to equity holders of parent

1,313.0
254.4
(87.4)

167.0
(35.0)

132.0

2.3
1.8
(0.3)

1.5
(0.3)

1.2

1,315.3
256.2
(87.7)

168.5
(35.3)

133.2

Earnings per share – adjusted basic4

60.4p

0.6p

61.0p

1,274.0
249.9
(90.7)

159.2
(36.6)

122.6

56.4p

27.6
15.7
(1.8)

13.9
(3.2)

10.7

5.0p

1,301.6
265.6
(92.5)

173.1
(39.8)

133.3

61.4p

1. Adjusted for FY 15 and FY 14 revenue and operating profit of tenanted pubs disposed of in the 52 week period ended 3 May 2015 and the 53 week period ended 4 May 2014.

2. Estimated reduction in finance costs assuming disposal proceeds were received at the start of FY 14; calculated by applying marginal bank facility interest rates

to net proceeds received.

3. Tax at the group’s pre-exceptional tax rates of 21% and 23% for FY 15 and FY 14 respectively.

4. Profit attributable to equity holders divided by the weighted average number of shares of 218.3m and 217.2m for FY 15 and FY 14 respectively.

GREENE KING PLC Annual report 2015

Strategic reportK E Y PER F O R M A N C E I N D I C ATO R S

ADJUSTED BASIC EARNINGS
PER SHARE (p)2

61.0p

DIVIDEND PER SHARE
(p)

29.75p

PBTE
(£m)2

£168.5m

FREE CASH FLOW
(£m)

£55.7m

6
0
2

6
1
.
0

5
5
6

5
1
.
3

4
6
8

2
9
.
7
5

2
8
4

2
6
6

2
4
8

2
3
.
1

180

160

140

120

100

1
6
9
8

1
6
8
5

1
5
8
2

1
4
7
2

1
3
5
8

6
7
9

6
3
.
1

5
5
.
7

5
1
.
2

3
8
5

2011

2012 2013

20141

2015

2011

2012 2013

20141

2015

2011

2012 2013

20141

2015

2011

2012 2013

2014

2015

Summary
Strong underlying returns together
with the impact of a reduction in the
group’s effective tax rate result in
earnings per share of 61.0p, an
increase of 1.3% compared to last year.

Summary
The board recommend a final dividend
payment of 21.8p per share, 4.8% ahead
of last year. The total dividend per share
for the year of 29.75p is 4.8% ahead
of last year.

Summary
Profit before tax and exceptionals
of £168.5m is down 0.8%1 compared to
last year. Operating profits decreased
by 1.7%1 with interest costs decreasing
by 1.8%1 compared to last year.

Summary
Operating cash flows remain strong
and we generated free cash flow of £55.7m,
down from £67.9m in the previous year,
but comfortably ahead of our scheduled
debt repayments of £31.1m.

Definition
Profit for the period attributable to
equity holders, excluding the effect
of exceptional items, divided by the
weighted average number of shares
in issue during the period excluding
own shares held.

Definition
Total dividend per share paid and
proposed in respect of the period.

Definition
Group profit for the period after
financing charges but before tax
and exceptional items.

Definition
Free cash flow is the movement in net
debt due to operating cash flows, after
interest payments, tax payments, core
capex and dividends, but excluding
exceptional items, acquisitions,
disposals and share movements.

FIXED CHARGE COVER
(x)

RETURN ON CAPITAL EMPLOYED
(%)

2.9x

9.3%

EBITDA PER SITE:
RETAIL (£k)

£230.1k

EBITDA PER PUB:
PUB PARTNERS (£k)

£69.9k

2
9

2
8

2
7

2
6

2.5

1.5

9
2

9
3

8
9

8
5

250

220

190

160

130

2
3
0
5

2
3
0
.
1

2
1
8
6

2
0
4
4

1
9
3
9

6
9
9

6
0
5

5
7
5

5
3
2 5
5
2

2011

2012 2013

20141

2015

2011

2012 2013

2014

2015

2011

2012 2013

20141

2015

2011

2012 2013

20141

2015

Summary
Our overall credit metrics remain
strong with fixed charge cover
improving to 2.9x from 2.8x last year.

Definition
Fixed charge cover is calculated
using the formula EBITDAR (operating
profit before depreciation, rent and
exceptionals) less maintenance capex
divided by the sum of interest and rent.

Summary
Strong capital disciplines, coupled
with our consistent strategy of investing
trading cash flows and disposal proceeds
into expanding our retail estate, have
resulted in our return on capital employed
increasing by 0.1%pts to 9.3%.

Definition
Return on capital employed is
calculated by dividing pre-exceptional
operating profit by average capital
employed throughout the year. Capital
employed is defined as total net assets
excluding deferred tax balances,
derivatives, post-employment
liabilities and net debt.

1. 2014 rebased on a 52 week basis.

2. 2010–2013 adjusted for the impact of IAS 19(R).

Summary
Greene King Retail’s EBITDA per site
declined by 0.1%1, with lower sales growth
and increased labour investment
resulting in a lower operating margin.

Definition
EBITDA (operating profit before
depreciation and exceptionals) divided
by the average number of trading pubs
in the period.

Summary
Our strategy to reduce the size of the
Pub Partners estate, improve estate
quality and increase our offer
influence has seen EBITDA per site
grow by 15.5%1.

Definition
EBITDA (operating profit before
depreciation and exceptionals) divided
by the average number of trading pubs
in the period.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationR I S K S A N D U NC ERTA INTIES

We have a formal risk management process which is designed to identify, assess
and prioritise risks within the business, so that their impact on sustainable
profitability is minimised and the group is able to deliver our business plans
and strategic objectives, as well as to maximise shareholder returns.

The board retains ultimate responsibility for the group’s risk
management framework and reviews the group’s principal risks on
an annual basis. The board has delegated responsibility for assurance
for the risk management process to the audit committee, which
regularly reviews the risk management processes for each division
and functional area. The implementation of risk management and
internal control systems is the responsibility of the executive
directors and other senior management.

Each division and functional area is tasked with maintaining,
reviewing and regularly updating a risk register. Classification
of risks takes into account the likelihood of their occurrence and
the scale of potential impact (both financial and reputational) on
the business. Each division and functional area is then responsible
for evaluating current controls and drawing up plans to improve
controls and manage new risks. Progress of these risk implementation
plans is monitored by senior management on a regular basis.
In addition, a group-wide risk committee reviews the individual
risk registers in detail, monitors the risk mitigation plans and
assists in the production of the group risk register.

Given that some risks are external and not fully within our control,
the risk management processes are designed to manage risks which
may have a material impact on our business, rather than to fully
mitigate all risks.

This section highlights some of the key risks and uncertainties
which affect Greene King, but it is not intended to be an exhaustive
analysis of all risks facing the business.

BOARD
Overall responsibility for risk and internal
mitigation processes

AUDIT COMMITTEE
Delegated responsibility for monitoring risk profile
and mitigation

Regularly reviews risk management process
for each division and functional area

GROUP RISK
COMMITTEE
Reviews individual
risk registers and
mitigation plans

Ensures consistency of
risk profiling across
the group

SENIOR
MANAGEMENT
Responsibility for
identification of risks,
implementation of
mitigating actions and
maintenance of business
unit and functional
risk registers

SPECIFIC RISK AREAS

POTENTIAL IMPACT

MITIGATION

S T R AT E G I C R I S K S

Integration of Spirit Pub
Company and delivery
of anticipated synergies.

Reduced revenue, profitability
and lower growth rates.

Integration steering committee established to oversee integration, with agreed
guidelines as to the aims of the integration.

Retention arrangements in place for key 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.

Plans to deliver revenue synergies through rationalisation of brands and offers
are being drawn up.

Research conducted into consumer trends and plans developed to respond to key trends.

Use of guest satisfaction tools and Net Promoter Scores to collect customer
feedback and measure performance of our pubs.

Greater investment in support and training for our employees to ensure service
standards meet consumer expectations.

Enhanced use of social media to communicate better with our customers
and other consumers.

Diversification options kept under constant review.

Failure to develop an appealing
customer offer (including through
diversification), to identify
and respond to fast-changing
consumer tastes and to maintain
and grow market share.

Reduced revenue, profitability
and lower growth rates.

GREENE KING PLC Annual report 2015

Strategic reportE CO N O M I C A N D M A R K E T R I S K S

SPECIFIC RISK AREAS

POTENTIAL IMPACT

MITIGATION

Consumer confidence
in the UK and increasing
competitor activity.

Reduced revenue, profitability
and lower growth rates.

Focus on value, service and quality to appeal to a broad range of consumers.

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.

O PER AT I O N A L A N D PE O PL E R I S K S

SPECIFIC RISK AREAS

POTENTIAL IMPACT

MITIGATION

Brand damage caused by poor
service standards, food
provenance issues or other
factors could deter customers.

Loss of revenue and
reputational damage.

Risk of major systems failure,
cyber security breach and
breach of the Payment Card
Industry Data Security
Standard regarding customer
credit card data.

Potential impact on our ability
to do business, impacting revenue
and profitability.

Reputational damage and financial
damage from fines or compensation.

Tight controls in place to protect and enhance our reputation and brand values.

Staff training, mystery guest visits, product recall procedures and incident
escalation systems are in place.

Social media monitoring to facilitate responses to issues being raised online.

Supplier assurance programme ensures we are able to verify food provenance.

Third party audits on food take place regularly to ensure standards
are being maintained.

Networks are protected by firewalls and anti-virus protection systems
with backup procedures also in place.

Business continuity plan for critical business processes in place,
which is regularly reviewed and tested.

We have systems in place to ensure compliance with the necessary payment card
industry standards and keep these under regular review.

We have access to an off-site disaster recovery facility if required.

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 response management.

Risks associated with the
recruitment and retention
and development of employees
and licensees.

Inability to execute our business
plans and strategy.

A branded recruitment plan is in place with a strong pipeline of suitable
candidates and we operate a range of apprenticeship programmes.

Potential impact on the profitability
of our Pub Partners business where
the risks relate to licensees.

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.

Reliance on a number of key
suppliers and third party
distributors and on own ability
to produce, package and
distribute our own beers.

Supply disruption could impact
customer satisfaction.

Key supplier or distributor failure over
the longer term could reduce revenues
or lead to increased costs.

Backup 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.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationR I S K S A N D U NC ERTA INTIES CONTIN U ED

R E G U L ATO RY R I S K S

SPECIFIC RISK AREAS

POTENTIAL IMPACT

MITIGATION

Risk of increased regulation,
and failure to respond to recent
changes in regulation, in relation
to the sale or consumption of
alcohol, including changes to
drink driving laws, minimum
pricing or other similar measures.

Potentially reduces demand leading
to reduced revenue and profitability.

Use of price changes and promotions to encourage customers to drink responsibly,
and education of our customers to ensure that they understand the legislation.

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.

Failure to comply with health
and safety legislation, including
in the areas of food safety
and fire safety.

Serious illness, injury or even loss of
life to one of our customers, employees
or tenants could have a significant
impact on our reputation, leading
to financial loss too.

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 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.

Compliance with the Pubs Code
to be introduced under the
Small Business, Enterprise
and Employment Act 2015.

The mandatory ‘market rent only’
option to be introduced by the Pubs
Code, and the other provisions thereof,
could increase costs for Pub Partners
(including the risk of fines) and
reduce revenue.

New, innovative agreements are being introduced to minimise the impact
of the Pubs Code.

Arrangements to monitor compliance with the current voluntary code
will continue under the new Pubs Code.

FI N A N C I A L R I S K S

SPECIFIC RISK AREAS

POTENTIAL IMPACT

MITIGATION

Inability to meet the
funding requirements
of the enlarged group.

Reduced revenue, profitability
and lower growth rates.

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.

Liquidity and covenant risk
relating to the group’s
securitisation and other
financing arrangements.

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.

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.

Failure to maintain sound
systems of internal control to
deal accurately with the large
numbers of transactions
undertaken by the business and
ensure compliance with statutory
obligations, including those
relating to tax.

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.

Fraud being perpetrated against us.

Damage to our reputation caused
by non-compliance with statutory
obligations or a material mis-statement
in the reported results of the company.

Our systems of internal control, more details of which appear on page 45, include
robust controls, appropriately qualified staff, segregation of duties and authority
levels for expenditure and payments.

Appropriate advice is taken to ensure relevant statutory compliance and there
is regular board oversight of open tax positions and the group’s tax policy.

Increased deficit being recognised on
our balance sheet, and volatility of the
deficit makes longer-term planning
more difficult.

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.

GREENE KING PLC Annual report 2015

Strategic reportC ORP OR ATE
RE SP ON SI BI LI T Y

As a leading UK pub hospitality company, we understand the importance of operating
a sustainable and responsible business. We are committed to being a good corporate
citizen and delivering an effective social responsibility programme.

Our ambition is to offer our customers time, well spent, either in our pubs, restaurants or hotels or by enjoying our
beers. We recognise we have an important role to play in being a responsible corporate citizen and have continued
to develop our corporate social responsibility (CSR) with a focus on four key stakeholders: our customers, our people,
our communities and our environment. If you would like to find out more about our CSR policies, please visit
the social responsibility section of our website: www.greeneking.co.uk.

Following our recent acquisition of Spirit Pub Company, we are now looking forward to reporting
on the CSR initiatives of the combined business next year.

Mainstream High Street menu
has 10 under 500 calories dishes

We have raised £1.6m
for Macmillan Cancer Support

OUR CUSTOMERS
PAGE 32

OUR COMMUNITIES
PAGE 33

We will again recruit
2,000 apprentices this year

60% of our Retail sites have
converted to LED lighting

OUR PEOPLE
PAGE 34

OUR ENVIRONMENT
PAGE 35

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationCOR POR ATE R ES PON S IBILIT Y CONTIN U ED

O U R C U S TOM E R S

We want to deliver the best experience possible for our customers
when they visit us. Our pubs have an important role to play in providing
a safe, affordable and convenient experience for our customers,
families and communities across the country.

To support our customers wishing to make healthier lifestyle decisions,
we are committed to providing great quality and choice. We continue
to focus on delivering industry-leading value, service and quality
to our customers.

Healthy eating
This year, we have developed one of the industry’s leading menus
with ‘under 500 calories’ options. Our Mainstream High Street
menu now offers a selection of ten under 500 calories dishes.

Our nutritional manager continues to support the development
of healthier menu options for our customers and manages our
continued commitment to the Government’s Public Health
Responsibility Deal food pledges.

We have also implemented a food management system, which will
enable us to have greater visibility of the nutritional content of our
products and dishes.

Allergens
In line with the allergen legislation that came into effect in December last
year, we have increased awareness on the importance of allergens both
internally and externally. We have developed and rolled out an allergen
training module which gives our staff an understanding of allergens,
and we now provide full allergen information across our retail estate to
help customers make more informed decisions when dining with us.

Gluten
This year, we have continued to expand our range of non-gluten
containing menu choices for our customers wishing to avoid gluten.

Our continued focus for the future is to expand our nutritional
expertise along with developing our menus with lower calorie
and healthier options for our customers.

Awards
We have won a number of awards this year, demonstrating our hard
work and commitment to providing great value and choice to our
customers, including:

– Flame Grill won the 2015 National Fish and Chips Awards for food

quality, marketing activity, customer service and commercial awareness.

– Premium Locals won the Best Pub Menu award at Restaurant

magazine’s Development Chef Awards.

Food standards
We are committed to delivering and actively promoting excellent
food and kitchen standards. In our Retail business, we set to do this
by training, external audits, open dialogue with local authorities
and operational incentive schemes.

Quality standards for our beers
Once again, the Westgate Brewery in Bury St Edmunds and the
Belhaven Brewery in Dunbar both maintained an A grade rating
with the British Retail Consortium. These awards confirm that our
beer is produced to the highest quality and food safety standards.

Since launching the quality and dispense services department in our
Brewing & Brands division, we have completed over 1,000 trade quality

GREENE KING PLC Annual report 2015

audits covering our entire Pub Partners and Inns estates. As a result,
we have improved the quality standards in our cellars and dispense
equipment which has led to improved standards in Pub Partners as
the pass rate rose from 65% to 88%. We are now progressing with
the auditing of the rest of our Retail estate.

This year, eight of our beers won awards at the Monde Selection,
an independent stamp of approval for quality. The results included
a grand gold and five gold awards, including Belhaven Scottish Ale
receiving the highest honour and Greene King IPA, Old Hoppy Hen
and East Coast IPA also receiving awards.

Responsible retailing
Tackling under-age sales
We train all new bar staff on our central online training tool, which
provides learning on obligations and responsibilities of the employee
to materials highlighting the impact of alcohol on children. The training
course must be completed and passed before our staff can serve alcohol.

All of our Retail premises operate the ‘Challenge 21’ or
‘Challenge 25’ programmes.

We also support the principles laid out in the Portman Code of
Practice on responsible retailing of alcohol. Not only are all retail
managers and bar staff trained when they join us, we ensure this
training is ongoing so they understand their role in promoting
the responsible consumption of alcohol by our customers.

Best Bar None and Pub Watch schemes
We support National Best Bar None and, importantly, at a local level
we work with a number of regions to promote and roll out the scheme.
For example, Nottinghamshire County Council has opened up a Best
Bar None scheme and all available Greene King venues are participating.

We are proud that a significant number of our Belhaven pubs
achieved Best Bar None accreditations this year, including 36 golds,
41 silvers and 13 bronze awards.

In England, our Retail pubs belong to Pub Watch and Best Bar None
where access to these schemes is available.

Limit awareness
We continue to support the Government’s anti-drink drive Christmas
campaign. For the sixth year running, we supported the Designated
Driver Christmas Campaign in conjunction with Coca-Cola Enterprises
Limited in the majority of our pub estate, where designated drivers
were offered free soft drinks at Christmas.

Minimum unit pricing for alcohol
Greene King has long advocated the need for a minimum unit price (MUP)
for alcohol in the UK in order to tackle the misuse of alcohol, which
causes ill health and can lead to anti-social behaviour within communities.
We remain committed to the introduction of minimum unit pricing.

Public Health Responsibility Deal
We are currently signed up to eight pledges in the Government’s
Public Health Responsibility Deal (PHRD) to make improvements
which affect our customers, people and environment. We have again
progressed with these during the last year. The PHRD aims to tap
into our potential to make a significant contribution to improving
public health by taking a joint approach to tackling the challenges
caused by lifestyle changes. By signing up to these pledges we are
committed to taking voluntarily action to improve public health.
For details of our signed pledges and our progress visit the Department
of Health PHRD website www.responsibilitydeal.dh.gov.uk.

Strategic reportO U R C OM M U N I TI E S

Pubs have always played an important role in the community and
they continue to do so. They provide a place where everyone can
come together to relax or put the world to rights, to enjoy time with
family or celebrate with friends. We understand that maintaining
the presence of a pub in a community is essential and therefore we
have developed a programme to support key organisations that
address inequalities in our society.

Pub is the Hub
Once again, we have supported Pub is the Hub by providing £15,000
of central funding. This is the second year we have donated to this
not-for-profit organisation that is dedicated to offering advice and
support to licensees, rural pubs and community services.

Our funding supported the Community Services Fund, which aims
to provide funds to licensees who are looking to broaden their services
to the wider community and cannot find suitable funding from other
sources. The fund has benefited over 40,000 people, supported
38 projects in England and helped offer more than 47 types
of additional services, such as libraries or butchers.

Macmillan Cancer Support
Three years ago, we embarked on our first Greene King national
charity partnership with Macmillan Cancer Support. Through the
hard work, commitment, creativity and passion of our employees
and the generosity and support of our customers, we were delighted
to announce that we have raised £1.6m in those three years.

The partnership has brought unity to our business and generated
positive local and trade press, and goodwill within our local communities.

We were delighted to be shortlisted for the Employee Engagement
category of the Third Sector Business Charity Awards 2014, recognising
our investment and commitment in launching our first charity
partnership and the incredible success in engaging our employees.

Focus 12
We continue to support the charity Focus 12, based close to our
head office and brewery in Bury St Edmunds, Suffolk. Focus 12 provides
treatment for clients with drug and alcohol dependency, as well as
guidance and counselling for affected family members.

We once again championed the annual charity ball this year, which
took place in St Edmundsbury Cathedral, close to our brewery.
The event and online auction raised more than £25,000, and we
have now raised more than £80,000 for the charity.

ITV’s Text Santa
More than 600 of our pubs took part in ITV’s Text Santa fundraising
appeal by hosting pub quizzes across the country in the lead up to
Christmas. The money raised was split between the chosen charities
Teenage Cancer Trust, Guide Dogs, WellChild, Marie Curie Cancer
Care, Alzheimer’s Society and Together for Short Lives.

Dementia Friends
This year, more than 1,000 of our employees got behind the Alzheimer’s
Society’s initiative and signed up to become a Dementia Friend. As a pub,
restaurant and hotel operator, our employees have the opportunity
to make a difference to the lives of our customers with dementia
and by learning more about the condition will be able to give greater
understanding and support to those that live with the disease.

CASE STUDY

Reaching £1.6m
We are proud that our pubs and employees have made our
partnership with Macmillan such a success. To raise £1.6m,
they have engaged our customers, communities, shareholders
and suppliers. They have been creative with fundraising,
but most of all they have pushed themselves and each other.
Some highlights from our partnership include:

– In May 2014, over 160 employees came together from across
the whole business to take on the Yorkshire Three Peaks
Challenge, raising over £80,000.

– We are one of the largest corporate supporters of

Macmillan’s World’s Biggest Coffee Morning, raising
over £342,000 in the past three years.

– The partnership has delivered a number of highly successful
commercially focused activities, including promotions on
selected desserts, which has raised over £150,000.

– A central donation to the Woolverstone fundraising appeal
to build a cancer treatment centre in Ipswich, which will
support people from our local community around our head
office in Suffolk.

– And finally, our people. We have seen some inspired divisional
fundraising events: Local Pubs’ Macmillan May (fundraising
during the whole month of May); Hungry Horse ‘Tour de Horse’
(a bespoke cycle challenge that followed the route of the Tour
de France in the UK); Belhaven’s month of fundraising; and
the individuals who continue to challenge themselves to raise
money by hiking through foreign countries, running marathons,
climbing mountains, swimming lakes, and organising quizzes,
cake sales and fun days.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationCOR POR ATE R ES PON S IBILIT Y CONTIN U ED

O U R PEOPLE

Our people are our lifeblood and our greatest asset. With around
40,000 employees in total following the Spirit acquisition, attracting
and retaining the best people and developing and nurturing talent is
essential to our continued success and the future growth of our business.

Where we create new jobs when acquiring, refurbishing or building
new businesses, we work closely with Job Centre Plus to provide
opportunities through pre-employment training for young people
and the long-term unemployed.

Employee engagement
This year we have enhanced our employee engagement questionnaire
in order to identify areas that are most important to our employees
at work, as well as their experiences. This has given us greater insight
into four key indicators: clarity, confidence, enablement and impact
– all of which create a high performance environment. Change can
be unsettling but we were pleased that our employee engagement
remained level versus last year at 70%. We were also able to evaluate
our Net Promoter Score (NPS) which resulted in 89% of employees
saying they would recommend Greene King as a place to work.

The results are currently being cascaded throughout the business
and detailed action plans for areas of improvement will be implemented.

Developing our talent
At Greene King, we recognise the wider benefits of developing
internal talent and career paths that support increased employee
retention and productivity, employee engagement and provide
long-term career opportunities.

Apprenticeships
We believe in the value of apprenticeships and continue to invest in
our employees but also to support young people to get that all-important
first step on the career ladder. We signed up to the Government’s
apprenticeship scheme in February 2011 and, so far, more than
3,000 employees have achieved a qualification. For the second year
running, we have committed to recruiting another 2,000
apprenticeships this year.

Our apprenticeship scheme has supported our ambition to combat
the industry shortage of chefs and since last summer, more than
75% of all recruited apprentices have been for ‘back of house’ roles,
including in the kitchen.

CASE STUDY

Apprenticeships – Mark Robinson, Masons Arms
Mark Robinson, 25, is a duty manager at one of our busiest pubs,
the Masons Arms in Wickersley. He can see the career potential
in hospitality and is using apprenticeships to get there.

With the goal of becoming a general manager, Mark is now working
towards his fourth apprenticeship since he started working at
Greene King seven years ago. He has completed Hospitality
Services Level 2, Team Leading Level 2 and Customer Services
Level 3 and has recently started ILM (Institute of Leadership
and Management) Level 4 qualification.

Mark said: “They were right when they said the Level 4 leadership
and management qualification would require a lot of effort but it
is worth it as I know there will be so many benefits from completing
the course. So far we’ve looked at management theories and learning
styles. It is fascinating stuff and I hope this will stand me in good
stead to become a strong general manager. Meeting and networking
with managers from other brands has been eye opening too and
has given me a fresh perspective on management.”

Creating jobs
Through the opening of new sites for Hungry Horse and Farmhouse
Inns, we created 1,328 new jobs across the country in the last 12 months.

Diversity
We operate an equal opportunities policy to ensure that employees
are recruited, developed, remunerated and promoted on the basis of
their skills and suitability for the work performed. We are committed
to making full use of the talents and resources of all our employees
and to ensuring that no employee receives less favourable treatment
on the grounds of their colour, nationality, race, religion/belief, ethnic
or national origin, sex, marital or civil partnership status, gender
reassignment (whether proposed, started or completed and under
or not under medical supervision), disability or past disability, part-time
or fixed-term status, pregnancy or maternity, parental responsibilities,
sexual orientation or age (a protected characteristic).

Gender diversity

Male

Female

Total

female

Percentage

Directors
Senior managers
(excluding directors)
All employees

129
12,107

34
12,890

163
24,997

14%

21%
52%

Zero hours
It is company policy not to operate ‘zero hours’ contracts.

Workplace pensions
We are fully compliant with Workplace Pensions Reform Regulations and
enrol our employees automatically into a qualifying workplace pension.

Support for our tenants
Greene King Pub Partners has been successfully providing opportunities
for self-employed entrepreneurs for over 200 years and continues
to provide a variety of different agreement options for a high quality
estate of pubs, ranging from Michelin-starred premium food pubs
to the village local at the heart of the community. Our pubs are as
individual as the people who run them, and often thrive on offering
genuine local provenance and community activity. The level of support
that we provide to our tenants and lessees is central to us being
a preferred partner for the best licensees in the country.

Our support is tailored to meet the individual needs of our licensee
partners and includes industry-leading training for them and their staff,
expert business advice, and effective marketing support. In addition
to this we have this year introduced a new range of initiatives, led
by our Brewing & Brands dispense team, to enable our tenants and
lessees to maintain consistently outstanding cellar quality ensuring
that our beer brands are consistently being offered at their best.

This is all underpinned by our professionally qualified BDMs
who are trained to the highest levels in the industry and who are
dedicated to supporting all our licensee partners in making the
most of their business opportunities.

GREENE KING PLC Annual report 2015

Strategic reportO U R E N VI RON M E N T

Our aim is to reduce the environmental impact of our business wherever
we can. Particular areas of focus for us are reducing our energy and
water consumption and reducing waste across on the business.

Energy
We have continued to convert the lighting in our pubs, restaurants
and hotels to the latest low energy LED light bulbs, converting
another 260 sites during the year. We now have 60% of our retail
business converted to LED lighting.

A further 36 sites have been fitted with voltage optimisers which
reduce the electricity used and prolong the life of electrical
equipment in the premises.

Further gas efficiencies have been achieved by upgrading
the boilers and heating control systems in another 55 sites.

Water
We have continued to observe water usage in the 200 sites with
water monitors and have used this information to set benchmarks
for the different types of outlets. Pubs selling mainly drinks, smaller
restaurants, Hungry Horse, Farmhouse Inns, Loch Fyne restaurants
and hotels now all have their own targets that allow us to spot
significant usage variances and instigate remedies.

We continue to work with the 20 water companies that supply us
nationally to ensure more frequent and accurate meter readings and
to use their local teams to help us investigate leaks and implement
best practice to make further savings.

In 980 comparable sites, we have used marginally less water than
the previous year and helped offset the additional water use in
kitchens as food sales grow.

The amount of water required to make a barrel of beer reduced at
our Belhaven brewery last year. However, at our Bury St Edmunds
brewery, this increased, largely as a result of the success of our
take-home operations. The change in mix from cask and keg to
bottle and can incorporates more processing and, therefore, more
water is required. We are planning water saving projects during
the next year to counterbalance this trend.

Direct emissions scope 1

Total direct emissions scope 1

Indirect emissions scope 2

Gross emissions

Turnover in Retail and Brewing & Brands (£’000)

Tonnes CO2e per £100k turnover

Waste
As a HaFSA signatory, we continue to work with WRAP to increase
the overall rate of food and packaging waste being recycled, sent to
anaerobic digestion (AD) or composted to at least 70% by the end of 2015.

Recycling over the past year has increased by over 6% as a result
of bin optimisation, resulting in less waste going to landfill. We are
currently exploring opportunities to further increase recycling
by expanding our food collections throughout the estate.

Over 570 of retail sites divert more than 80% of their waste from landfill.

Mandatory greenhouse gas reporting
The table below, which has been produced in compliance with the
requirements of the Companies Act 2006 (Strategic and Directors’
Report) Regulations 2013, shows the main greenhouse gas emissions
in tonnes of CO2 equivalent (CO2e) for our scope 1 (direct) and scope
2 (indirect) CO2 emissions.

Scope 1 relates to the direct emissions from the fuels we use in our
breweries, pubs, restaurants, hotels and offices such as natural gas
and liquid petroleum gas. It also includes emissions from owned
vehicles (including company cars) but excludes logistics where we
outsource this to third parties. Refrigerant gas and F-gas emissions
in respect of our breweries, pubs and restaurants are also included.

We have used the UK Government’s GHG Conversion Factors for
Company Reporting for all scope 1 emissions (2013 for 2013/14 and 2014
for 2014/15). GHG emissions from refrigeration and air conditioning
units for 2014/15 have been determined using the simplified material
balance method (which is a more accurate method of calculating
emissions) as described in the Environmental Reporting Guidelines
2013, whereas the emissions for 2013/14 were calculated using the
screening method.

Scope 2 relates to the indirect emissions associated with the generation
of electricity consumed in our sites. Emissions have been calculated
using the Carbon Reduction Commitment (CRC) Energy Efficiency
Scheme factor (2013 for 2013/14 and 2014 for 2014/15).

Electricity and gas figures in the table below cover the CRC reporting
period from 1 April to 31 March each year, whilst all other figures cover
our respective financial years. The intensity ratio refers to turnover
in our Retail and Brewing & Brands businesses as the vast majority
of our CO2 emissions relate to those businesses.

Source of emissions

2014/15 tonnes of CO2e

2013/14 tonnes of CO2e

Natural gas

Gas oil

Kerosene

LPG

Red diesel

Refrigerants

Owned vehicles

Electricity

41,741

806

197

2,624

3,196

7,486

56,131

111,240

167,371

11,934

14.025

41,414

603

2,052

2,380

277

1,634

6,829

55,189

109,292

164,481

11,519

14.28

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationC ORP OR ATE
G OVERN AN C E

GREENE KING PLC Annual report 2015

BOA R D OF DIR EC TOR S

TIM BRIDGE, DL (66)
Chairman

ROONEY ANAND (51)
Chief executive

KIRK DAVIS (43)
Chief financial officer

MIKE COUPE (54)
Non-executive director

N A

Commenced role – 2005
(Appointed to the board in 1977)

Commenced role – 2005
(Appointed to the board in 2001)

Commenced role – 2014

Commenced role – 2011

Tim Bridge joined Greene King
in 1970 and was appointed to
the board in 1977. He held a
variety of positions within the
group, becoming managing
director in 1990 and chief
executive in 1994. In 2005
he stepped down as chief
executive to take over the
role of chairman.

Rooney Anand joined the group
as managing director of the
brewing division and was
promoted to chief executive
in 2005. He was previously
president and managing director
of the UK bakery division at Sara
Lee, the international consumer
goods business, and, prior to that,
was at United Biscuits.

Kirk Davis joined Greene King
from JD Wetherspoon plc
where he had been finance
director since 2011. He has
extensive retail experience
having held senior finance roles
at Tesco and Marks & Spencer
and is a member of the
Chartered Institute of
Management Accountants.

Mike Coupe is the chief
executive of J Sainsbury plc
and also brings knowledge and
experience from working for
other large, multi-site retail
organisations, including Asda
and Tesco, before that.

SENIOR MANAGEMENT
The senior management team
comprises Rooney Anand,
chief executive, Kirk Davis,
chief financial officer, the
managing directors of each
of the group’s business
units and the heads of key
functional areas, including
retail, trading and marketing,
HR and property. They meet
once every four weeks under
the chairmanship of the
chief executive.

IAN DURANT (56)
Non-executive director

ROB ROWLEY (65)
Senior independent
non-executive director

LYNNE WEEDALL (48)
Non-executive director

N R

KEY TO COMMITTEES

Commenced role – 2007

Commenced role – 2014

Commenced role – 2012

Ian Durant is a former finance
director at Liberty International
plc and has extensive financial
experience. He is also chairman
of Capital & Counties Properties
PLC and Greggs plc and a
non-executive director of Home
Retail Group plc. Ian stood
down as senior independent
director at the end of the
financial year.

Rob Rowley joined the board in
July 2014 and has extensive board
experience gained as a former
finance director of the Reuters
Group plc. He is currently a
non-executive director and
chairman of the audit committees
at Taylor Wimpey plc,
Moneysupermarket.com Group
PLC and Morgan Advanced
Materials plc. Rob was appointed
senior independent director at the
start of the financial year 2015–16.

Lynne Weedall is currently
group HR director for Dixons
Carphone Warehouse Group plc
and brings to the board a
wealth of experience of HR
and organisational development
gained from a variety of roles
in the retail sector.

N Nomination committee

A Audit committee

R Remuneration committee

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationCOR POR ATE GOV ER N A NC E S TATEM ENT

C H A IR M A N ’ S INTRODUC TION

I am pleased to have the opportunity once again to introduce the
company’s corporate governance report. It is vital to have a strong and
effective governance system if the business is to be able to deliver its
strategy, generate shareholder value and safeguard our shareholders’
long-term interests. Well balanced and effective boards, strong
oversight of risk management, alignment of remuneration policies
with shareholder interests and sound shareholder relations are all
key elements of our governance framework.

In our corporate governance report and the reports from the board
committees, we describe the operation of the board and explain
how we applied the principles of good governance set out in the
code during the year.

One key priority this year has been the issue of board succession,
with John Brady retiring at the end of July 2014 and the
appointment of Rob Rowley as his successor.

We also had to respond to the illness of our group finance director,
Matthew Fearn, who left the business in the autumn to focus on his
health. Kirk Davis was appointed as our new chief financial officer
and joined us in November 2014.

The audit committee continued to review key accounting and
reporting matters and further details are set out in its report.
Likewise, the remuneration committee report sets out more details
of its activities during the year, whilst the directors’ remuneration
report includes details of the remuneration paid to directors
during the year.

Two other areas of particular focus for the board this year
have been the acquisition of Spirit Pub Company plc (Spirit) and
board evaluation. For the Spirit acquisition the board was closely
involved in the strategic considerations surrounding the proposed
acquisition, as well as having oversight of the processes followed
to put together the formal takeover documentation.

The board also followed best practice and undertook an externally
facilitated board evaluation exercise, more details of which are set
out on page 41. The evaluation will be very useful in guiding future
ways of working for the board and its committees.

Tim Bridge
Chairman

Statement of compliance with the UK
Corporate Governance Code
The company is subject to the UK Corporate Governance Code
which is issued by the Financial Reporting Council and which is
available at www.frc.org.uk. The code sets out guidance in the form
of principles and provisions on how companies should be directed
and controlled to follow good governance practice. Companies
listed in the UK are required to disclose how they have applied the
main principles and whether they have complied with its provisions
throughout the financial year. Where the provisions have not been
complied with companies must provide an explanation.

The board considers that the company has complied with the UK
Corporate Governance Code dated September 2012 throughout the
year. We will report against the revised version of the Code, which
was published in September 2014, next year.

Board independence – current directors

Name

Tim Bridge
(chairman)
Rooney Anand
Mike Coupe
Kirk Davis
Ian Durant
Rob Rowley
Lynne Weedall

Independent

Nomination
committee

Audit Remuneration
committee

committee

No
No
Yes
No
Yes
Yes
Yes

*
*
*

*
*

*
*
*

GREENE KING PLC Annual report 2015

Corporate governanceThe board
Board composition
As at the year end the board comprised the chairman, two executive
directors and four non-executive directors. The board believes that
the structure and size of the board is appropriate and that no single
individual or group dominates the decision making process.

Independence of non-executive directors
In compliance with the UK Corporate Governance Code, more
than half of the board, excluding the chairman, are non-executive
directors. The board is satisfied that all of the non-executive directors
were independent throughout the year, in that they satisfied the
independence criteria of the code on their appointment and
continue to satisfy those criteria.

The non-executive chairman is Tim Bridge and the chief executive
is Rooney Anand. The senior independent director during the year
was Ian Durant.

John Brady, who was appointed to the board as a non-executive
director in 2005, retired from the board in July 2014 and was
succeeded by Rob Rowley, who also took over as senior independent
director from the beginning of the current financial year.

Matthew Fearn, our chief financial officer, fell ill during the year and
agreement was reached with him on 1 October 2014 that he should
stand down as a director so that he and his family could focus on his
health. The board appointed Kirk Davis as chief financial officer
in his place and he joined the board on 3 November 2014. More
details on the board changes can be found in the nomination
committee report.

The directors’ biographies are on page 37.

Tim Bridge, the chairman, was not independent on appointment,
having previously served as chief executive. However, the board is
satisfied that he shows independent judgment, that his performance
as chairman is effective and that he demonstrates continued
commitment to the role.

Ian Durant was the senior independent non-executive director
during the year. From the beginning of the current financial year
this role was taken over by Rob Rowley, given Ian Durant’s upcoming
retirement from the board in March 2016. Neither has ever been
employed by the company and both have diverse business interests.
The board considers that Ian Durant remained independent in both
character and judgment, that his performance was effective and
that he demonstrated commitment to the role. The board considers
that the same applies to Rob Rowley. As well as supporting the
chairman and acting as a sounding board for the chairman and an
intermediary for other directors, a key responsibility for the senior
independent director is to be available for direct contact from
shareholders should they require.

GREENE KING BOARD

The board is ultimately responsible for the long-term success of the company. Its principal responsibilities are to:
– approve the group’s long-term objectives, commercial strategy and the overall funding strategy;
– approve the budgets and financial statements, including the report and accounts;
– approve acquisitions and disposals; and
– oversee the group’s operations and review performance in the light of the group’s strategy, objectives, business plans and budgets.

NOMINATION

– reviews structure, size and
composition of the board;
– makes recommendations
for appointments; and
– succession planning.

Committees

AUDIT

– reviews and monitors full year and
interim results;
– monitors internal financial controls;
– oversees external audit relationship; and
– oversees risk management.

Members

REMUNERATION

– sets remuneration policy;
– sets executive director remuneration
and incentives;
– approves annual performance
objectives; and
– approves granting of long-term
incentives.

Tim Bridge (Chairman)

Ian Durant (Chairman)

Lynne Weedall (Chairman)

Mike Coupe

Ian Durant

Rob Rowley

Lynne Weedall

Mike Coupe

Rob Rowley

Mike Coupe

Ian Durant

Rob Rowley

NOMINATION COMMITTEE REPORT
PAGE 42

AUDIT COMMITTEE REPORT
PAGE 43

DIRECTORS’ REMUNERATION REPORT
PAGE 46

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationCOR POR ATE GOV ER N A NC E S TATEM ENT CONTIN U ED

Leadership
Role of the board
The board has collective responsibility for the long-term success of the
company and for its leadership, strategy, control and management.

The offices of chairman and chief executive are separate and distinct
and the division of responsibilities between them has been clearly
established, set out in writing and agreed by the board.

The chairman is responsible for the leadership and effectiveness of
the board and for ensuring that each non-executive director is able
to make an effective contribution to the board through debate and
discussion with the executive directors. He is also responsible
for setting the style and tone of board discussions.

The chief executive’s role is to develop the company’s strategic direction
and to lead senior management in executing the company’s strategy
and managing the operational requirements of the business.

The non-executive directors have a particular responsibility to
ensure that the strategies proposed by the executive directors are
carefully examined and fully discussed, that the performance of
the company is monitored and challenged and that the financial
information provided is comprehensive and accurate. They are also
responsible for ensuring, through the relevant committees, that
appropriate remuneration arrangements are in place for the
executive directors.

Operation of the board
The board has a formal schedule of matters which are reserved for
its consideration, including approval of the long-term objectives and
strategy, approval of budgets and financial statements including the
annual report and accounts, acquisitions and disposals, changes to
the structure of the group and overall corporate governance issues.
It reviews trading performance and considers major capital
expenditure and acquisition opportunities.

The board has delegated certain responsibilities to standing
committees, details of which are set out on page 39. By delegating
key responsibilities to these committees, the board is able to ensure
that adequate time is devoted by board members to the oversight
of key areas within their responsibility.

Day-to-day management and control of the business is delegated
to the executive directors, business unit managing directors and
certain key functional heads, who meet formally on a four-weekly
basis together with other senior managers as appropriate.

Board meetings are scheduled to be held eight times a year, with
main meetings linked to key events in the company’s financial
calendar, with the annual results and dividend being approved in
June or July and the interim results and dividend in November or
December. Regular agenda items include an overview of the market
and current trading as well as a detailed review of financial
performance against agreed targets.

There is a two-day meeting for the board in February each year
focusing on strategy, with the business unit managing directors and
heads of the main functional areas, namely commercial, HR and
property, attending for part thereof. The strategy sessions include
an in-depth review of relevant economic factors, management’s
projections for the medium term and provide the board with an
opportunity to agree the strategic plans across all areas for the short
and medium term. Following approval of the company’s strategy,
budgets are prepared for the next financial year to be approved by
the board in April. The board also has a programme to review each
business unit and main functional area in detail on a regular basis,
with particular focus on the achievement of strategic objectives.
The relevant managing director or functional head attends such
meetings to present and answer questions.

GREENE KING PLC Annual report 2015

The board has responsibility for determining whether the annual
report, taken as a whole, is fair balanced and understandable to
enable shareholders to assess the company’s performance, business
model and strategy. In coming to its view, the board took into account
its own knowledge of the group, its strategy and performance in the
year, the guidance given to all contributors to the annual report and
a detailed review by senior management of the overall content.

A key matter considered during the year was the proposed acquisition
of Spirit. The board determined initially that the proposed acquisition
was consistent with the group’s stated strategy. It then oversaw the offer
process, reviewed the detailed documentation necessary to effect the
acquisition, including the merger synergy estimate, and received
regular reports on the regulatory process undertaken to obtain the
necessary antitrust approval for the proposed acquisition. More
recently the board has focused its attentions on the planned integration
of the Spirit business, and it will continue to oversee the integration
to ensure that planned synergies are effectively captured and that the
business is appropriately managed both during the integration period
and thereafter.

Other matters specifically considered during the year included
property disposals, financing, taxation, risk management and
key group risks, which are discussed on page 28.

Between meetings, as required, the board can be in frequent
contact to progress the company’s business and if necessary, board
meetings can be held at short notice. Where possible, however, ad hoc
committees of the board are appointed to deal with matters which
it is known will need to be dealt with between scheduled board
meetings. It is expected that all directors attend board and relevant
committee meetings, unless they are prevented from doing so by
prior commitments. If directors are unable to attend meetings
in person or by telephone they are given the opportunity to be
consulted and comment in advance of the meeting.

Attendance at scheduled meetings held during the year is set out below.

Board

Nomination
committee

Audit Remuneration
committee

committee

Executive directors
Rooney Anand
Kirk Davis1
Matthew Fearn2
Non-executive directors
Tim Bridge
John Brady3
Mike Coupe4
Ian Durant
Rob Rowley5
Lynne Weedall

8/8
4/4
0/3

8/8
1/1
7/8
8/8
7/7
8/8

—
—
—

4/4
0/1
4/4
4/4
3/3
4/4

—
—
—

—
1/1
2/3
3/3
2/2
—

—
—
—

—
1/1
3/3
3/3
—
3/3

1. Kirk Davis was appointed to the board on 3 November 2014.

2. Matthew Fearn was granted leave of absence due to illness in March 2014
and stepped down from the board with effect from 29 September 2014.
Matthew attended no meetings during his leave of absence.

3. John Brady retired from the board with effect from 27 July 2014.

4. Mike Coupe was unable to attend one board meeting and one audit committee

meeting due to prior commitments with J Sainsbury plc.

5. Rob Rowley was appointed to the board on 18 July 2014.

Board papers are circulated seven days prior to each board or
committee meeting to ensure that directors have sufficient time to
review them before the meeting. Documentation includes detailed
management accounts, reports on current trading, reports from
each business unit and main functional areas and full papers on
matters where the board is required to give its approval.

The chairman holds regular, informal meetings with the
non-executive directors without the executive directors being
present and the non-executives also meet with the chairman
and the chief executive on an informal basis twice each year.

Corporate governanceBoard effectiveness
Board performance and evaluation
The board conducts an annual evaluation of its own performance
and that of its committees and directors. This year, in line with the
UK Corporate Governance Code, an externally facilitated evaluation has
been undertaken. Nigel Davies of NJMD Corporate Services Limited
was appointed to conduct the evaluation, which commenced towards the
end of the financial year. The evaluation took the form of a detailed
questionnaire that all directors were asked to complete. The questionnaire
covered a range of areas including questions on board structure and
composition, strategy and financials, board processes, risks, the board’s
committees and on corporate governance generally. This was followed
up with a series of interviews of the directors by the external facilitator,
who then produced a written report for the board. A number of
observations (relating to matters including training for directors,
the role of the senior independent director, diversity, succession
plans and risk management) were made by the external facilitator
which will be addressed in the coming months, but there were no
areas of major concern identified for the board to consider, and the
evaluator concluded that the board was effectively run and administered.
In addition to the formal evaluation exercise there is an ongoing
dialogue within the board to ensure that it operates effectively
and that any matters raised are addressed in a timely manner.

An appraisal of the chairman’s performance was undertaken by
the senior independent director, Ian Durant, in conjunction with
the other non-executive directors. The performance of the executive
directors is reviewed annually by the remuneration committee in
conjunction with their annual pay review and the payment of bonuses.

Training and support
The training needs of the board and its committees are regularly
reviewed and each director is responsible for ensuring that they
remain up to date in their skills and knowledge of the company.
Particular emphasis is placed on ensuring that directors are aware
of proposed legislative changes in areas such as corporate governance,
financial reporting and sector specific issues. All directors are also
encouraged to visit the company’s pubs and restaurants and do so
throughout the year.

Newly appointed directors receive a tailored induction on joining the
board to acquaint them with the company, which takes the form of
meetings with other board members and senior management, and the
provision of an induction pack containing general information on
the company, its policies and procedures, financial and operational
information and a briefing on directors’ responsibilities. Both
Rob Rowley and Kirk Davis received appropriate inductions
on joining the board.

There is an agreed procedure, set out in writing, for directors, in
furtherance of their duties, to take independent professional advice
at the company’s expense. Directors also have access to the services
of the company secretary. The company has in place directors’
and officers’ liability insurance.

Commitment and conflicts of interest
All significant commitments which the directors have outside
Greene King are disclosed prior to appointment and on an ongoing
basis when there are any changes. The board is satisfied that each of
the non-executive directors commits sufficient time to their duties
and fulfils their obligations to the company.

The board has the right, under the articles of association, to
approve potential situational conflicts of interest. A small number of
such potential conflicts have been approved by the board following
disclosure by certain directors, in each case with the relevant director
not taking part in any decision relating to their own position. Directors
are also aware that the disclosure and authorisation of any potential
conflict situation does not detract from their requirement to notify
the board separately of an actual or potential conflict in relation
to a proposed transaction by the company.

Communication with shareholders
The board is keen to ensure that our shareholders have a good
understanding of the business and its performance, and that the
directors are aware of any issues or concerns which shareholders
may have. Communication with shareholders takes a variety of forms.

Institutional shareholders and analysts
There is a regular dialogue with institutional shareholders,
including meetings after the announcement of the year end and
interim results. Analysts are also invited to presentations at those
times and separately to analyst trips to visit our premises and hear
presentations on specific divisions of the business. The board
receives regular reports and feedback on the meetings held
between the executive directors and principal shareholders,
and copies of analysts’ reports on the company.

The senior independent non-executive director, Rob Rowley, is
available to shareholders if they have concerns about governance
issues which the normal channels of contact fail to resolve.

AGM
The AGM is fully utilised as a means of communicating directly
with private shareholders, who receive a brief presentation on the
business before the formal business of the meeting begins. They
also have the full opportunity to ask questions during the meeting
and to meet directors and senior management informally after the
meeting. The board aims to ensure that all members of the board,
including in particular the chairmen of the board committees, are
available to answer questions at the AGM.

The notice of the AGM is sent to shareholders at least twenty working
days before the meeting. All substantive items of business at shareholders’
meetings are dealt with under separate resolutions, including a
resolution to adopt the report and accounts. The chairman announces
the results of the proxy voting on each resolution after it has been
dealt with on a show of hands.

The next AGM will be held on 8 September 2015 at the Millennium
Grandstand, Rowley Mile Racecourse Conference Centre, Newmarket,
Suffolk CB8 0TF. Details can be found in the separate notice of meeting.

Website
The company maintains a website (www.greeneking.co.uk) to provide
up-to-date, detailed information on the company’s operations and brands,
which includes a dedicated investor relations section. All company
announcements are available on this site, as are copies of slides used
for presentations to investment analysts. We are happy to answer
questions by telephone or email (investorrelations@greeneking.co.uk
or companysecretary@greeneking.co.uk).

Board committees
The board has established a nomination committee, a remuneration
committee and an audit committee, each of which has formal terms
of reference governing its method of operation. Each of the terms
of reference, which have been approved by the board, are available
on request or to download from the company’s website and will
be available for inspection at the AGM.

DTR disclosure
The information required by DTR 7.2 is set out in this report,
the nomination committee report and the audit committee report,
except for information required under DTR 7.2.6 which is set out
in the directors’ report.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationR EPORT OF TH E NOMIN ATION COM MIT TEE

“I am pleased to have the opportunity to introduce our
nomination committee report for 2014/15 and to explain
the focus and the activities of the committee during the year.”

Tim Bridge Chairman of the nomination committee

The role of the committee is principally focused on the size,
composition and structure of the board. To do that, its role is to
propose appointments to the board following a formal, rigorous
and transparent appointment process.

search, and produced a long-list of candidates for the role.
The chairman and other members of the nomination committee
interviewed a short-list of candidates and selected Rob Rowley
based on objective criteria.

Membership
During the year the nomination committee was chaired by Tim Bridge.
The other members of the committee were John Brady (until his
retirement in July 2014), Mike Coupe, Ian Durant, Rob Rowley (who
joined the board and the committee in July 2014) and Lynne Weedall.
Apart from the chairman, all members were considered by the
board to be independent.

Responsibilities
The role of the nomination committee is to identify, evaluate
and nominate candidates for appointment to the board, to
review regularly the structure, size and composition (including
skills, knowledge and experience) of the board and to make
recommendations to the board with regard to any adjustments
that are deemed necessary.

The committee is also responsible for considering the company’s
succession plans for board members and senior management, taking
into account the challenges and opportunities facing the company,
and what skills and expertise are therefore needed on the board in
the future, and for reviewing membership of the board’s committees
to ensure that undue reliance is not placed upon any individuals.

Activities during the year
The committee held four meetings during the year. Attendance at these
meetings by the committee members is shown in the table on page 40.

With John Brady retiring from the board in July 2014, a key activity
for the committee was to find a suitable successor to him. When
making new appointments, the policy of the company is to recruit
on merit for each role on offer, whether executive or non-executive.
We set out a job specification and a profile of the likely characteristics,
qualifications, experience and merits required before starting a search,
and aim to find the individual who is best suited to the role, without
prejudice between male and female candidates.

For our new non-executive director, the Zygos Partnership, which
has signed up to the voluntary code of conduct on matters such as
diversity for executive search firms, was appointed to conduct the

GREENE KING PLC Annual report 2015

For the chief financial officer role, the search was conducted by
Hoggett Bowers, which has also signed up to the voluntary code
of conduct on matters such as diversity for executive search firms.
A number of committee members met Kirk Davis prior to recommending
him as the new chief financial officer, replacing Matthew Fearn
who sadly had to leave us because of his ill health.

The committee also considered committee composition during the
year. On the recommendation of the committee, Rob Rowley was
appointed as a member of the nomination committee and of the audit
committee when he joined the board. With his recent and relevant
financial experience (as former finance director of Reuters Group plc)
it is currently anticipated that he will take over the chairmanship
of the audit committee in due course from Ian Durant, who is due
to retire from the board in March 2016. No other changes were
recommended to the composition of the board committees. Since
the year end Rob Rowley has also been appointed as a member of the
remuneration committee, again on the recommendation of the
nomination committee.

The issues of succession planning and board structure will remain the
ongoing focus of the committee during the course of the forthcoming year.

On the recommendation of the nomination committee, and taking
into account the continuing effective performance of the directors,
the board has decided once again this year to ask all directors to
stand for re-election at the forthcoming AGM.

Other matters considered by the committee during the year
included the board evaluation exercise, training requirements
for directors and the committee’s terms of reference.

Diversity
The board approves of the principle of trying to recruit more women
into senior management and director roles. We currently have one
female director on the board, Lynne Weedall, who is chairman of the
remuneration committee. With a board of seven people, we believe
the key is to ensure a suitable range of skills, experience and knowledge
across the board members, and that the issues of gender and diversity
are just two considerations to be taken into account when filling
board vacancies.

Corporate governanceR EPORT OF TH E AU DIT COM MIT TEE

“I am pleased to introduce our audit committee report for 2014/15.
The committee provides support to the board in performing its duties and,
in particular, has responsibility for monitoring the integrity of the group’s
financial reporting, internal controls and risk management procedures.”

Ian Durant Chairman of the audit committee

During the year the committee has focused on the following key
areas: the year-end audit and interim audit review; the relationship
with the external auditor; and the development of the internal audit
function. During 2015/16 the committee is expecting to focus on
the risk management and control internal control aspects of the
integration of Spirit Pub Company plc and the changes to the UK
Corporate Governance Code which will take effect next year.

Membership
The audit committee was chaired during the year by Ian Durant.
The other members of the committee were Mike Coupe and
Rob Rowley, following his appointment to the board in July 2014.
John Brady was also a member of the committee prior to his
retirement in July 2014. All members are considered by the board
to be independent. The board is satisfied that Ian Durant has recent
and relevant financial experience, as the former finance director of
Liberty International plc, since renamed as Intu Properties PLC,
and the current audit committee chairman at Home Retail Group plc.

Responsibilities
The audit committee has responsibility for reviewing financial
reporting, controls and risk management processes across the
group. As part of its role, the committee assesses the external audit
conclusions on both the full year and interim results, in each case
prior to their submission to the board. The board has continued to
undertake the required assessment that the annual report is fair,
balanced and understandable and consequently does not ask the
audit committee to advise it on this. The committee reviews the
company’s internal control systems, advises the board on the
appointment of external auditor, oversees the relationship with
the external auditors, and reviews the quality and effectiveness of
both the internal and the external audit. The committee is also
responsible for considering the company’s whistle blowing procedures
and reviewing their effectiveness in practice. In relation to risk
matters, the committee also reviews the group’s risk management
policies and procedures prior to submission to the board and receives
detailed reports on the risk management processes within the
business units and key functional areas. The committee receives
regular updates on regulatory, accounting and reporting
developments and their application to the company.

Operation of the committee
The committee met three times during the year. Attendance at
these meetings by the committee members is shown in the table
on page 40. On each occasion the chief financial officer (or interim
finance director) and senior members of the finance function attended,
as well as the company secretary, head of risk and members of the
internal audit function. The external auditors attended all of the
meetings. By rotation, operational managers present risk reports at
audit committee meetings. There is an opportunity at each meeting
for the committee to discuss matters privately with the auditor without
management present. In addition, the chairman of the committee is
in regular contact with the external audit partner to discuss matters
relevant to the company. Details of the committee’s specific
responsibilities and how the committee exercised those responsibilities
are set out in the remainder of this report. The committee’s detailed
terms of reference are available on the company’s website and these are
reviewed annually and updated to reflect changes in the responsibility
and regulation of the committee, including as a result of regulatory
changes. In addition, the committee conducts a review of its own
performance on an annual basis, taking input from the members
of the committee, the external auditor and senior members of the
finance function, and assesses developments made over the course
of the year and where improvements might be made in future.

Financial statements and audit
Before the start of the audit cycle, the committee reviewed the
audit plan presented by the external auditor and agreed the scope
of the audit work. In reviewing the financial statements the
committee reviewed the accounting policies to ensure consistency
on a year-to-year basis and across the group, and the methods used
to account for significant or unusual transactions. Significant issues
that the committee addressed in relation to the financial statements
are set out in the table below. The committee also reviewed
management’s attestation paper setting out the information that
had been provided to the auditor to enable it to form its opinion on
the group’s financial statements and demonstrating that it was
appropriate for the directors to make the representations set out
in the letter of representation.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationR EPORT OF TH E AU DIT COM MIT TEE CONTIN U ED

Significant issues considered by the audit committee in relation to the financial statements for 2014/15

Matter considered

What the committee did

Uncertain tax positions

Impairment of property, plant
and equipment and goodwill

Funding headroom and covenants

Accounting for supplier income
and customer rebates

A detailed review of several uncertain tax positions, which have not yet been agreed or are
in dispute with HMRC, was undertaken by the committee. The current status of each item
was noted by the committee and consideration was given to the views of the group’s specialist
advisers as to the most likely outcome for each. Particular attention was paid to the largest
of these, an internal funding arrangement undertaken in 2003/4, known as Sussex. The
committee satisfied itself that appropriate provisions were in place in respect of the uncertain
tax positions following discussion with the external auditor and, in particular, that the increase
in the year was appropriate.

The committee considered two detailed reports, prepared by management, concerning the
methodology used to determine the extent of any impairment required. Questions raised by
the committee included those over the underlying growth rates (and the changes thereto as
applied to the retail estate), the discount rate and the process for review. The committee
also questioned management’s reviews on a site by site basis and the expected timetable for
disposals of non-core sites. Management’s proposals were also discussed with the external
auditors and the committee took into account their views on the questions raised. Following
the review and discussions the committee concluded that an impairment of £27.4m was appropriate
in relation to property, plant and equipment. As regards goodwill, it was determined that
£2.9m should be written off in relation to disposals undertaken during the year.

The committee reviewed the group’s funding headroom and covenants in conjunction with
the review of the use of the going concern assumption, and extended this to cover the enlarged
group following the acquisition of Spirit Pub Company plc. As part of the review, the committee
challenged management’s projections, assumptions and stress testing, as well as the extent
to which mitigating actions would achieve the desired outcomes. The committee took into
account the external auditor’s comments on its own work on this issue.

In light of recent market awareness of the issue, the committee requested a specific
review by the group’s internal audit function of the group’s accounting for supplier income,
including listing fees, performance fees and volume rebates. The committee noted that
the annual value of such fees and rebates amounted to approximately £12m, and that such
income is not recognised until it can be reliably estimated. A separate report on customer
rebates was also considered by the committee. Such rebates amounted to £20m in the year.
The committee was satisfied that the current controls in place provided reasonable assurance
that the risks associated with these areas are being appropriately managed. On the
recommendation of the internal audit function, the committee requested that
enhanced documentation be maintained.

Effectiveness of external audit
After the 2013/14 audit was completed a review of the effectiveness
of the auditor and of the audit service was undertaken, supported
by a questionnaire completed by the audit committee chairman,
the interim finance director, and a number of key members of the
finance team involved in the preparation of the statutory accounts.
The overall quality of the service, the audit partner and the audit
team were all reviewed and matters such as the management of the
audit team, the quality of its challenge, insight and communications
and the cost-effectiveness of the audit were considered. Taking into
account the internal review and the outcome of the Financial
Reporting Council’s (FRC) Audit Quality Review Team’s review
of Ernst & Young the committee was satisfied that the quality
of the audit service provided by Ernst & Young was appropriate.
The feedback from the review was also provided to Ernst & Young.
The maintenance of audit independence was also considered
and is covered in more detail below.

Ensuring external auditor independence
The audit committee is cognisant of the importance of auditor
independence and objectivity and accordingly has an established
policy in relation to the use of the auditor for non-audit work.
The company will award non-audit work to the firm which provides
the best commercial solution for the work in question, taking into
account the skills and experience of the firm and (if the audit firm
is being considered) the nature of the services involved, the level
of fees relative to the audit fee and whether there are safeguards in
place to mitigate to an acceptable level any threat to objectivity and
independence in the conduct of the audit resulting from such services.

Work estimated to cost in excess of £25,000 is put out to tender
unless agreed otherwise by the chairman of the audit committee.
The finance director may approve specific engagements up to
£50,000 (in aggregate up to £100,000 p.a.), and the chairman of
the audit committee may approve engagements up to £100,000
(in aggregate up to £200,000 p.a.), with fees in excess of those
limits being subject to approval of the full committee.

During the year the company made use of specialist teams within
Ernst & Young for non-audit work. Taxation advisory support was
provided until 31 July 2014, in relation to tax matters on which
Ernst & Young specialists had originally advised.

Ernst & Young were also appointed as reporting accountants on the
acquisition of Spirit Pub Company plc. This is a role conventionally
performed by the auditor. The board considered the appropriateness of
appointing Ernst & Young for this work and the risks to Ernst & Young’s
independence and the committee assessed the steps taken by Ernst
& Young to ensure the continuing independence of the audit partner
and audit team. The board then concluded that there were significant
benefits of using Ernst & Young, including the ability to proceed
quickly, added efficiency from existing knowledge of the company,
and tighter confidentiality by minimising the number of parties involved.
Thus the board approved the appointment of Ernst & Young to the
role of reporting accountants to this acquisition. This resulted in a
high ratio of non-audit fees to audit fees. However the committee
has noted that this level of fee is not material to Ernst & Young, and
is not likely to recur regularly. The total fees paid to Ernst & Young
during the year amounted to £1.63m, of which £1.30m related
to non-audit work.

GREENE KING PLC Annual report 2015

Corporate governanceThe committee has in place a policy in relation to the appointment of
former partners or employees of the auditor by the group. The policy
provides that audit partners will not be offered employment by
Greene King or any of its subsidiary undertakings within two years
of undertaking any role on the audit. Other key team members will
not be offered employment by Greene King within six months of
undertaking any role on the audit. Other audit team members who
accept employment by Greene King must cease activity on the audit
immediately they tender their resignation to the audit firm. No
members of the audit team have joined Greene King in the period.

External auditor – tendering and re-appointment
The company last tendered the external audit contract in 1997 and
Ernst & Young have been the auditor since then, with an annual
rolling contract and subject to an annual shareholder vote at the
AGM. Ernst & Young are required to rotate the audit partner
responsible for the group every five years and the current audit
partner’s term will end after the 2015/16 audit. The committee
continues to monitor legislative and best practice changes in this
area. It remains the board’s intention to put the audit of the group
and subsidiary accounts out to tender with a view to any change
taking effect for the 2016/17 statutory accounts, to coincide with
the end of the current audit partner’s five-year term.

The board, however, will consider the implications of the transitional
provisions in the EU and Competition and Markets Authority
regulation on audit matters, which would allow a further period until
April 2024 before an audit tender and change would be required.

In light of the assessment described above, the committee was satisfied
that auditor independence and objectivity was safeguarded and that
it was appropriate to recommend to the board Ernst & Young’s
re-appointment as auditor. This resolution will be put to
shareholders at the AGM.

Internal audit
The committee reviewed the company’s internal audit function,
which, during the year, extended its remit to cover central functions
as well as the group’s Retail division. Under the terms of reference
for the function, the internal audit team has direct access to the
audit committee chairman to enable it to raise any significant
issues. Members of the internal audit team also attend the audit
committee meetings to report on the progress and actions taken by
the function. During the year, the internal audit function reported
to the committee on a number of areas making recommendations
for improvements in a number of areas, including supplier income,
customer rebates and free trade loans.

Other matters
The committee reviewed, as it does on an annual basis, the group’s
whistle blowing policy and its application across the business.
All whistle blowing reports were investigated and resolved
satisfactorily, with no significant issues emerging.

The committee has continued to review the issue of cyber security
and receives regular reports from the internal data governance
committee with additional continuing dialogue when threats are
identified. In addition, the committee reviewed the company’s
hedging strategy and use of derivatives including the accounting
for derivatives.

The terms of reference of the committee were also reviewed during
the year and an exercise was undertaken to assess the effectiveness
of the audit committee itself.

The company completed the acquisition of Spirit Pub Company plc
following the year end. The audit committee is mindful that there
will be extensive work undertaken during the integration of the
business and this will be one of the focuses of the committee during
the 2015/16 financial year.

Internal control and risk management
The board has overall responsibility for the group’s risk
management framework and systems of internal control and for
reviewing their effectiveness, whilst the audit committee monitors
and reviews those internal controls and risks on a regular basis, and
reports to the board on its findings. During the course of the year
the committee reviewed in detail reports from a number of business
units and functional areas on their respective risk management
processes and key risks. Representatives of the relevant business
unit or functional area attended those meetings to present the
reports and answer questions from the committee.

A summary of the risk management framework is set out on page 28.
The risk management framework and internal control systems are
designed to manage to an acceptable level, and not to eliminate, the
risk of failure to achieve business objectives. They can provide reasonable,
but not absolute, assurance that the group’s assets are safeguarded
and that the financial information used within the business and
for external reporting is reliable.

The company has in place procedures to assess the key risks to which it
is exposed and has formalised the control environment needed to address
these and other issues. There are processes in place which accord with the
Financial Reporting Council’s Internal Control: Guidance to Directors,
and these remained in place up to the date of this report. The board is
satisfied that there are no significant weaknesses in these systems and
that the group’s internal controls are operating effectively. The committee
acknowledges that the FRC’s Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting will replace
the Internal Control: Guidance to Directors for the forthcoming year
and will work with management to ensure compliance.

The key elements of the internal control framework are:

– the schedule of matters reserved for the board;
– the group’s defined management structure with suitable authority

limits and responsibilities, staffed by appropriate personnel;

– regular updates for the board on strategy;
– a comprehensive planning and financial reporting procedure

including annual budgets and a three-year strategic plan, both
of which are reviewed and approved by the board;

– ongoing monitoring by both the board and senior management of
performance against budgets, through the periodic reporting of
detailed management accounts and key performance indicators;

– ongoing monitoring by the board of compliance with

financial covenants;

– a centralised financial reporting system and close process,

with controls and reconciliation procedures designed to facilitate
the production of the consolidated accounts;

– clearly defined evaluation and approval processes for acquisitions
and disposals, capital expenditure and project control, with
escalating levels of authority (including board approval for major
acquisitions and disposals), detailed appraisal and review
procedures and post-completion reviews;

– review of retail operational compliance by the retail internal

audit team responsible and other analytical and control
procedures facilitated by the EPOS till system;

– audits conducted by the group internal audit function of business

and functional control environments; and

– documented policies to cover bribery and whistle blowing

and regular updates on any incidents.

The previous group finance director stepped down from the board
in September 2014 following a period of extended leave of absence
for health reasons. The audit committee was satisfied that the
arrangements put in place during his absence ensured the continued
appropriate leadership of the finance function and maintained
effective levels of internal control. Kirk Davis was appointed
chief financial officer in November 2014.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationDIR EC TOR S’ R EM U N ER ATION R EPORT

“I am pleased to introduce our directors’ remuneration report for the
2014/15 financial year and to summarise the company’s remuneration
strategy and the way in which it has been implemented during the year.”

Lynne Weedall Chairman of the remuneration committee

A N N UA L S TATEM ENT

Shareholders approved the remuneration policy for the company’s
directors at the 2014 AGM, and this will apply until replaced by a new
or amended policy. In line with the new regulations on directors’
remuneration, the company will submit its policy to shareholders
for approval once every three years, unless circumstances dictate
otherwise. The remuneration committee is of the view that the policy
continues to remain appropriate and should therefore continue to
operate for 2015/16. Whilst the policy is not required to be presented
this year, it has been set out in full in this report to assist you in
reviewing the implementation of the policy in the 2014/15 financial
year, details of which are set out in the annual report on remuneration
on pages 50 to 57. This latter report is subject to an advisory shareholder
vote at the forthcoming AGM.

The committee remains mindful of the need to ensure that remuneration
policies and practices at Greene King drive behaviour that is in the
long-term interests of the company and its shareholders.

As a clear focus of attention for the company will be the integration
of the Spirit Pub Company plc (Spirit) business and recognising the
importance of achieving the synergy targets, the annual bonus
targets for the executive directors for 2015/16 will include a specific
synergy target. The LTIP will continue to be based on EPS and
ROCE targets and, while they do not take into account the potential
impact of the Spirit Pub Company acquisition at this stage, given
that it has only very recently completed, the committee will review
what changes may be needed to those targets in due course.

Further, given the significant changes to the size and complexity of
the group as a result of the Spirit acquisition, the committee intends
to review the executive director base salary levels and other elements of
the company’s directors’ remuneration policy during the forthcoming
year. Major shareholders will be consulted if appropriate and any
formal shareholder approval will be sought if necessary at next
year’s AGM.

Pay for performance
Bonus payouts for this year were 60% of salary for the chief executive
and 74% of salary for the chief financial officer (pro-rated for time
served to 37%), reflecting the very stretching targets set at the beginning
of the year. The long-term incentive plan (LTIP), however, will vest
in August this year at 100%. This is as a result of the company
exceeding the adjusted free cash flow (accounting for 60% of the
award) and EPS (accounting for 40% of the award) targets that
were set by the remuneration committee in 2012.

Going forward
We continue to exercise restraint in executive pay levels and,
notwithstanding the significant changes facing the business, executive
directors will receive base salary increases of 2.5% for this year.
Other benefits, including pension provision, will be maintained at
existing levels or by reference to percentages of base salary as applicable.

GREENE KING PLC Annual report 2015

Consistent with our aim of promoting share ownership widely
across the company, we are putting forward at the AGM proposals
for a new save as you earn scheme, for all employees of the group,
to replace the existing scheme which expires this year.

We are happy to receive feedback from shareholders at any time
in relation to our remuneration policies and hope to receive your
support for the resolution referred to above at the forthcoming AGM.

Lynne Weedall
Chairman of the remuneration committee
30 June 2015

Corporate governancePOLICY REPORT
This section of the report sets out Greene King’s future remuneration
policy. Details of actual remuneration paid, LTIP awards made and
the associated performance conditions are set out in the annual report
on remuneration which starts on page 50. This policy report was
put to a shareholder vote at the 2014 AGM and approved by 96%
of shareholders who voted. There is no requirement to vote on the
policy this year, and the policy is set out below for information only.

Policy overview
The key objective of the company’s remuneration policy is to
provide a remuneration structure that is aligned with shareholder
interests and that enables us to attract, motivate and retain talented
and high quality individuals able to deliver continued growth of the

business and achieve the group’s strategic aims. The remuneration
package is designed to be competitive but not excessive and to contain
an appropriate balance between fixed and variable remuneration
and, for the variable remuneration, between short-term and
longer-term performance.

The committee has considered whether there are any aspects of
the policy which could inadvertently encourage executives to take
inappropriate risk and is satisfied that this is not the case. The committee
has also ensured that the incentive structure for executive directors and
senior management does not raise environmental, social or governance
risks by inadvertently motivating irresponsible behaviour.

Details of each element of remuneration, their purpose, link to strategy
and their operation and performance metrics are set out below.

Policy table
Element of remuneration Purpose and link to strategy

Salary

To recruit, reward
and retain high calibre
executives with
an appropriately
competitive base salary.

Annual
performance
bonus

To incentivise executive
directors to deliver
superior performance
during the course of a
year, and to promote
retention and stability
amongst the senior
management team.
Performance measures
and targets are designed
to reinforce strategic
priorities for the year.

Operation

Maximum opportunity

Performance metrics

Base salaries are reviewed annually
or when a change in responsibility
occurs, to reflect the executive’s
responsibilities, market value
and sustained performance level.
In setting pay levels, the committee
considers current market practice
and makes comparisons against
a selection of other companies
determined by reference to
turnover, market capitalisation
and operational details.

When reviewing base salaries,
the committee is mindful of the
gearing effect that increases in
base salary will have on the
potential total remuneration
of the executive directors.

Performance measures and
targets are set at the beginning
of each financial year to ensure
that the measures and weightings
are appropriate and support
the business strategy. Bonuses
are payable after the end of
each financial year, based
on performance against
those targets. Bonuses are
non-pensionable. A clawback
mechanism applies in
the event of a material
misstatement of the
group’s accounts, error
or gross misconduct.

—

There is no prescribed
maximum annual
increase. The committee
is guided by the general
increase for the broader
employee population but
on occasions may need to
recognise, for example,
an increase in the scale,
scope or responsibility
of the role.

Performance is measured
relative to challenging
targets in key financial
measures. Details of
measures and weightings
for the 2014/15 financial
year and of the proposed
measures and weightings
for next year’s annual
bonus, are set out in
the annual report on
remuneration which starts
on page 50. An explanation
of how the performance
measures were chosen
is given in the notes
on the next page.

A maximum of 100% of
salary can be earned by
the executive directors,
with no bonus payable
for below threshold
performance and up to
75% of salary for target
levels of performance.
Payment of bonuses is
dependent on a mixture
of financial targets and
specific personal targets.
In relation to the financial
targets, awards are made
on a straight-line basis for
performance between
threshold and target and
on a separate straight-line
basis for performance
between target
and maximum.

Annual report 2015 GREENE KING PLC

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Policy table continued
Element of remuneration Purpose and link to strategy

Operation

Maximum opportunity

Performance metrics

Long-term
incentive plan
(LTIP)

To incentivise the
executive directors to
deliver superior levels
of long-term performance
for the benefit of
shareholders, thereby
aligning their interests
with those of our
long-term shareholders.

Shareholding
policy

To align the interests
of the executive directors
with shareholders
and to promote a
long-term approach.

Pension

To offer market competitive
levels of benefit.

Benefits

To be appropriately
competitive with those
offered at comparator
companies.

All-employee
share schemes

All employees, including
executive directors, have
the opportunity to build
their shareholding in
a tax-efficient way by
participating in the
company’s HMRC
approved sharesave
scheme.

The committee normally makes
an annual LTIP award, usually
in the form of nil-cost options.
The awards are subject to suitably
stretching performance conditions
set by the committee, which are
reviewed annually. Awards
normally vest on the third
anniversary of grant, subject
to performance, and will be
exercisable until the tenth
anniversary of grant. A clawback
mechanism applies in the event
of a material misstatement
of the group’s accounts, error
or gross misconduct.

Executive directors are
required to build and retain
a shareholding of at least 100%
of salary. To the extent that the
shareholding requirement has
not been met, executives will be
expected to retain at least 50%
of the net exercised LTIP awards
until the requirement is met.

The company contributes to
defined contribution pension
arrangements for the executive
directors or provides cash in lieu
where appropriate.

Benefits comprise the provision
of company cars (or cash
allowances in lieu thereof ), fuel
for company cars, life assurance,
permanent health insurance
and private medical insurance.

Employees are invited
to participate in the sharesave in
January each year provided that
they have the requisite service.

A maximum of 200% of
salary can be awarded
each year, 100% as a core
LTIP and 100% as a
growth LTIP. Dividend
equivalents will be paid
on any shares that vest.

The core LTIP will
be subject to a suitably
stretching EPS target
and the growth LTIP to a
suitably stretching ROCE
target. Performance will
normally be measured over
a three year period. Vesting
will generally be subject
to continued employment.
The committee retains
the discretion to scale back
the vesting levels of the
growth LTIP award in
appropriate circumstances.

—

Current company
contribution levels
are 25% for the
chief executive and
20% for the chief
financial officer.

Benefits are reviewed
periodically in line
with market practice
and are not pensionable.

The maximum saving
under the sharesave
scheme will be no more
than HMRC approved
limits, allowing employees
to buy company shares
at up to a 20% discount
at the end of a three or
five-year savings period.

Notes:
1. A description of how the company intends to implement the policy set out in
this table for 2015/16 is set out in the annual report on remuneration which
starts on page 50.

2. The choice of performance metrics applicable to the annual bonus scheme

reflect the committee’s belief that the compensation should be appropriately
stretching, but achievable, and tied to both the delivery of profit growth, key
financial metrics and specific individual objectives.

3. The EPS performance condition underpinning the core LTIP award was selected
by the committee on the basis that it would reward the delivery of long-term
financial growth and is the most widely understood profit-based measure across
the business. ROCE was chosen as the performance condition to apply to the
growth LTIP award as it will ensure that management focuses on generating
the necessary returns in excess of the cost of capital and because it provides
a more strategic measure of long term performance, where capital needs to
be re-deployed in order to focus on Retail. The performance targets are set
by the committee following a detailed review of the company’s projections
and are believed to be appropriately stretching.

4. The policy and practice for the remuneration of employees generally differs

from that for the executive directors as follows:

– A lower level of maximum annual bonus opportunity (or zero bonus opportunity)
may apply to employees other than the executive directors and certain
senior executives and targets may differ by business unit and by employee.
– Other employees may receive fewer or lower levels of benefits than those
for executive directors. Company car benefits are only offered where
required for the role or to meet market norms.

– Pension contribution levels may be lower for employees generally compared

with those for the executive directors.

– Participation in the core LTIP is limited to the executive directors and
around 40 senior managers. Participation in the growth LTIP is limited
to an even smaller senior management population.

These differences generally arise from the development of remuneration
arrangements that are market competitive for various categories of employees.
They also reflect the fact that, in the case of executive directors and senior
executives, there is a greater emphasis on performance related pay.

5. Subject to the achievement of the applicable performance conditions, executive
directors are eligible to receive payment from any award made prior to the
approval and implementation of the remuneration policy detailed in this report.

GREENE KING PLC Annual report 2015

Corporate governance
Indicative total remuneration levels
The graphs below provide scenarios for the potential future reward
opportunity for each executive director, and the potential split
between the different elements of remuneration, under three different
performance scenarios – minimum, on-target and maximum.

Chief executive

3,000,000

2,500,000

2,000,000

1,500,000

£1,735k

33%

Core and growth LTIP

£2,445k

47%

Annual bonus

Salary, pension and benefits

1,000,000

500,000

£741k

100%

24%

43%

23%

30%

Minimum

On-target

Maximum

Chief financial officer

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

£1,394k

47%

24%

£984k

33%

25%

42%

29%

£410k

100%

Minimum

On-target

Maximum

Notes:
1. Minimum relates to the value of the package assuming that salary, benefits

and pension alone are paid.

2. The on-target annual bonus opportunity, based on stretching performance

targets, is 75% of salary for the chief executive and 75% for the chief
financial officer.

3. The on-target vesting level under the core LTIP and the growth LTIP

is assumed to be 50% and 50% respectively.

4. The maximum scenario assumes full bonus payout and full vesting

of LTIP awards.

5. No assumption as to share price growth is made in either the on-target

or the maximum scenarios.

Approach to recruitment and promotions
The remuneration package for a new executive director would
be set in accordance with the terms of the company’s prevailing
approved remuneration policy at the time of recruitment. In
particular, the annual bonus potential will be limited to 100% of
salary and awards under the LTIP will be limited to 200% of salary.

In the case of an external hire, if required to secure an individual,
the committee may offer additional cash and or share-based
elements when it considers them to be in the best interests of the
company, to take account of deferred remuneration forfeited by the
new hire when leaving their former employer. Any such additional
payments would be one-off in nature, would reflect where possible
the nature, time horizons and performance requirements attaching
to that forfeited remuneration and would be limited to the value
of the forfeited remuneration.

For an internal promotion to executive director level, any variable
pay element awarded in respect of the prior role may be allowed to
pay out in accordance with its terms, adjusted as relevant to take

into account the appointment. In addition, any other ongoing
remuneration obligations existing prior to appointment may
continue, provided that they are put to shareholders for approval
at the earliest opportunity.

For both external and internal appointments, the committee may
agree that the company may meet certain relocation and/or
incidental expenses as appropriate.

Service agreements and exit payment policy
Newly appointed executive directors are offered a service agreement
with a notice period of one year. In the event of the employment of
an executive director being terminated, the committee would take
into account the commercial interests of the company, pay due regard
to best practice and apply usual common law and contractual
principles, including the individual’s duty to mitigate their loss.

The payment of any annual bonus in respect of the year of
termination is subject to the discretion of the committee, which
may determine that an annual bonus is payable with respect to the
period of the financial year served, but pro-rated for time served,
and not paid until the normal due date for the payment of bonuses.

The vesting of any LTIP awards will be governed by the rules
of the LTIP. Awards will normally lapse unless the individual
is considered a ‘good leaver’. An individual would generally be
considered a ‘good leaver’ if they left the group’s employment
by reason of death, injury, ill health, disability approved by the
committee, or retirement, although the committee has the absolute
discretion to treat any individual as a ‘good leaver’ for any other
reason. In the case of a ‘good leaver’, payments would normally
be scaled back to recognise the shorter period of service than the
award was intended to cover and remain subject to outstanding
performance conditions.

Rooney Anand, whose employment with the company commenced
on 6 August 2001, is subject to a one-year notice period from the
company. His terms of employment do not contain any additional
terms relating to compensation for termination of employment.
The terms of his appointment as chief executive were agreed and
set out in a letter dated 24 December 2004.

Kirk Davis’s employment, which commenced on 3 November 2014,
is subject to the terms of a contract dated 29 September 2014.
His employment may be terminated by the company on giving one
year’s notice, without any additional terms relating to compensation
for termination of employment.

There are no obligations on the company contained within the
existing directors’ contracts which would give rise to payments
not disclosed in this report.

Non-executive director policy table
Non-executive directors are appointed pursuant to letters of
appointment for three-year periods. The table below sets out the
start and expiry date of their respective appointments.

Director

Tim Bridge
Mike Coupe
Ian Durant
Rob Rowley
Lynne Weedall

Date of appointment

Present expiry date

2 May 05
26 Jul 11
16 Mar 07
18 Jul 14
11 Oct 12

30 Apr 17
25 Jul 17
15 Mar 16
17 Jul 17
10 Oct 15

The appointments of all these non-executive directors can be
terminated by the company at any time on three months’ written
notice, notwithstanding the present expiry dates above.

Annual report 2015 GREENE KING PLC

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Non-executive director policy table continued
The table below summarises each of the components of the remuneration package for the non-executive directors. The non-executive
directors are not entitled to receive any pension, bonus or long-term incentive benefits from the company in respect of their roles as
non-executive directors.

Element of remuneration

Purpose and link to strategy

Operation

Reward

Performance metrics

Fee

To recruit and retain
appropriately qualified
non-executive directors.

The chairman and non-executive
director fees are typically
reviewed every two years. Fees
are benchmarked against similar
roles in the sector and in other
similar sized companies and
reflect the time commitments
and responsibilities of each role.

Non-executive director
fees may include a basic
fee and a fee for acting
as a committee chairman.
They are set at a level that
is considered appropriately
competitive in the light
of market practice.

Benefits

To be appropriately
competitive with those offered
at comparator companies.

The chairman’s benefits include
private healthcare and the
provision of a company car.

Benefits are reviewed
periodically in line
with market practice.
The value of the
chairman’s benefits
will be comparable with
those offered to the
executive directors.

—

External directorships
The company’s policy is to allow executive directors to take up one or more non-executive directorships in an external company, subject
to board approval. Fees received for serving as a non-executive director of an external company are retained by the executive director.

Consultation
The company engages regularly with shareholders on matters relating to its strategy and business operations. Where necessary, we also
engage with shareholders and their representative bodies on matters relating to executive remuneration and it is the committee’s policy
to consult with major shareholders prior to making any major changes to its executive remuneration structure.

Consideration of conditions elsewhere in the group
The committee does not consult with employees when deciding remuneration policy, although it does receive information on salary
increases and long-term incentives for employees across the group.

ANNUAL REPORT ON REMUNERATION
This section of the report explains how Greene King’s remuneration policy has been implemented during the year.

The remuneration committee
The remuneration committee is appointed by the board. The members are Lynne Weedall (chairman), Mike Coupe, and Ian Durant.
John Brady was a member of the committee until his retirement in July 2014 and, following the year end, Rob Rowley was appointed
as an additional member of the committee on 5 May 2015. All of the committee members are regarded by the board as independent
non-executive directors.

The role of the committee, as set out in its terms of reference (which are available on the company’s website), includes determining the
remuneration policy for the executive directors, the chairman and certain members of senior management. It agrees total individual
remuneration packages, considers the granting of awards under the long-term incentive plan and determines bonuses payable to the
executive directors and certain senior executives.

It approves the service contracts of the executive directors and any compensation arrangements arising from their termination.
The committee is made aware of, and takes into account, the salary levels of the wider senior management team and of the incentive
arrangements operating throughout the company.

During the year there were three scheduled meetings of the committee. Attendance at these meetings is shown in the table on page 40.

Advisers to the remuneration committee
The committee seeks advice on general remuneration matters and comparator information from New Bridge Street, part of Aon plc.
Aon plc provides insurance broking and consultancy services to the group. The committee is satisfied that the provision of these services
does not in any way prejudice the position of New Bridge Street as independent advisers to the committee. Fees paid during the year
to New Bridge Street in respect of advice to the committee were £23k.

Rooney Anand, chief executive, attends meetings of the committee and provides advice to help the committee determine appropriate
remuneration and incentive packages for the finance director and the other senior executives, but he leaves the meeting when his own
remuneration is being discussed. The chairman of the board also attends meetings of the committee.

GREENE KING PLC Annual report 2015

Corporate governanceShareholder voting at the 2014 AGM
The table below shows the results of the binding vote on the directors’ remuneration policy and the advisory vote on the 2013/14 directors’
remuneration report at the AGM held on 10 September 2014.

Approval of the directors’ remuneration policy
Approval of the remuneration report

Votes
for

Percentage

Votes
against

Percentage

Votes
withheld

138,964,449
139,950,012

95.83% 6,047,870
653,750
99.54%

4.17% 2,105,782
0.46% 6,070,028

Audited information
Single figure of remuneration
The tables below show the details of the total remuneration paid to each director in 2014/15 and 2013/14. A large proportion of the remuneration
paid to Rooney Anand has resulted from the vesting of awards under the LTIP and specifically from the share price growth since the original
date of grant, from which all shareholders have benefited.

2014/15 (52 weeks) (audited)
Executive directors
Rooney Anand
Kirk Davis
Matthew Fearn
Non-executive directors
Tim Bridge
John Brady
Mike Coupe
Ian Durant
Rob Rowley
Lynne Weedall

2013/14 (53 weeks) (audited)
Executive directors
Rooney Anand
Matthew Fearn
Non-executive directors
Tim Bridge
John Brady
Mike Coupe
Ian Durant
Lynne Weedall

Salary
or fees
£’000

Taxable
benefits
£’000

Pension-
related
benefits1
£’000

Annual
bonus
£’000

Long-term
incentives2
£’000

554
160
134

174
10
44
51
35
51

22
6
11

33
—
—
—
—
—

139
32
45

—
—
—
—
—
—

332
118
—

—
—
—
—
—
—

1,088
—
550

—
—
—
—
—
—

Total
£’000

2,135
316
740

207
10
44
51
35
51

Salary
or fees
£’000

Taxable
benefits
£’000

Pension-
related
benefits1
£’000

Annual
bonus
£’000

Long-term
incentives2
£’000

Total
£’000

551
348

178
45
45
52
52

19
13

32
—
—
—
—

138
70

—
—
—
—
—

525
257

1,284
—

2,517
688

—
—
—
—
—

210
45
45
52
52

Notes:
1. Pension benefits for the executive directors comprised cash in lieu of pension contributions.

2. Long-term incentives in 2014/15 comprised the value of the awards granted in August 2012, which will vest in August 2015 and which were subject to performance
targets measured over the three years to May 2015. The value of the award has been calculated using 849p, being the average share price for the last three months
of the 2014/15 financial year, and also takes into account the dividend equivalent payable on the award. 100% vesting of the 2012 awards has been assumed. For the
long-term incentives in 2013/14 the actual share price on the date of vesting has been used (restated from the estimated value of £1,422 disclosed in the 2013/14 report).
The original value of Rooney Anand’s 2012 and 2011 awards were £700k and £684k respectively. The remaining value of the awards has resulted from the share price
growth and dividend equivalent payments from which all shareholders have benefited.

Details of the elements included in the table above are as follows:

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Audited information continued
Base salary
The base salaries for 2014/15 for Rooney Anand and Kirk Davis were £554,115 and £320,000 respectively. Prior to his departure from the company,
Matthew Fearn’s base salary was £348,000. The base fee for the chairman was £174,250, whilst the base fees for the non-executive directors
were £44,100 for John Brady, Mike Coupe and Rob Rowley and £51,250 for Ian Durant and Lynne Weedall (due to their roles as chairmen
of the audit and remuneration committees respectively).

Taxable benefits
Taxable benefits were provided to directors in line with the policy table set out on page 48.

Pension-related benefits
Cash in lieu of pension contributions were in line with the policy table set out on page 48.

Annual bonus
Executive directors may earn bonuses depending on the company’s performance and their own individual performance. Awards for
the chief executive were based 90% on financial performance and 10% on individual performance, whilst for the chief financial officer
the respective percentages were 65% on financial performance and 35% on individual performance.

For the chief executive, the financial performance measures were based on PBTE and free cash flow, whilst the chief financial officer had
an additional financial target based on return on investments. The committee has decided that it will not disclose specific short-term financial
targets as these are still considered to be commercially sensitive although they will be disclosed next year. Both PBTE and free cash flow
are among the group’s KPIs, details of which are on page 27.

The awards to be made are as follows:

Bonus outcome

Rooney Anand
PBTE
Free cash flow
Personal targets1

Total

Kirk Davis
PBTE
Free cash flow
Personal targets2

Total

Maximum
percentage
of bonus

Actual
percentage
of bonus

75.0
15.0
10.0

100.0

50.0
15.0
35.0

100.0

35.0
15.0
10.0

60.0

24.0
15.0
35.0

74.0

Notes:
1. The personal targets for Rooney Anand included targets relating to succession planning and corporate reputation and the amount payable in respect thereof were

decided at the discretion of the committee.

2. The personal targets for Kirk Davis included targets relating to corporate reputation and certain financial targets which have not been disclosed on grounds

of commercial sensitivity.

Performance against the combined financial and individual targets resulted in bonuses being paid at £332k (60% of salary) for the chief executive
and at £118k (74% of salary pro-rated down to 37% for six months’ service) for the chief financial officer. No bonus was paid to Matthew Fearn
in respect of his term as chief financial officer during the year.

Disclosure of 2013/14 bonus targets
The financial targets and the company’s performance against those targets for the 2013/14 financial year are set out below. The group delivered
a strong financial result for the year, achieving record sales and profit, with revenue up 8.9%, operating profit before exceptional items up 7.0%,
profit before tax and exceptional items up 9.4% and adjusted earnings per share up 10.4%. Operating cash flows also continued to be strong.

Performance measure

PBTE
Free cash flow
Return on investment

GREENE KING PLC Annual report 2015

Actual
Target range performance

£164.5m–£174.0m
£46.8m–£52.8m
19.2%–21.2%

£173.1m
£64.6m
22.7%

Percentage
of bonus
opportunity
awarded

96%
100%
100%

Corporate governanceLong-term incentive plans
The LTIP award granted on 6 August 2012 was based on a three year performance period ended 3 May 2015. A maximum of 60% of each
award vests if an adjusted free cash flow target has been met and the remaining 40% vests if an EPS target has been met. The target ranges,
calculated on a straight-line basis from 0% to 100%, are set out below.

Performance measure

Earnings per share1
Free cash flow

Outcome

Performance

Actual
target performance

Threshold
vesting
of award

Maximum
percentage
of award

Actual
percentage
of award

52.4p–60.4p

61.0p
£262.0m–£302.0m £362.7m

0%
0%

40%
60%

100%

40%
60%

100%

Notes:
1. The earnings per share target was adjusted last year to take account of the disposal of 275 pubs which completed in June 2014. The prior target range was 56.4p–64.4p.
The committee is satisfied that the adjustment was appropriate and that the revised target was a fairer measure of performance and was no more or less difficult to achieve
than the previous range.

The award details for the executive directors are therefore as follows:

Director

Rooney Anand
Matthew Fearn3

Number
of shares
at grant

117,000
74,000

Number
of shares
to vest

117,000
59,611

Number
of shares
to lapse

—
14,389

Estimated
value1
£’000

993
506

Dividend
equivalent
on shares
to vest2
£’000

95
44

Total
estimated
value
£’000

1,088
550

Notes:
1. The estimated value of the vested shares is based on the average share price during the three months to 3 May 2015 (849 pence). As explained in the single remuneration
table above, a significant proportion of the estimated value of the LTIP award derives from the increase in the share price from which all shareholders have benefited.

2. The LTIP enables award holders to benefit from the payment of dividend equivalents but only to the extent that the underlying share awards vest.

3. Matthew Fearn’s LTIP award was pro-rated to reflect time served prior to his departure from the company.

Board changes – chief financial officer
Matthew Fearn stepped down from the board and from his role as chief financial officer on 29 September 2014 in order to focus on his
health. He will remain an employee of the company until 24 August 2016 (‘date of cessation’). During that time he will not be entitled
to any remuneration other than as set out below and will not be required to perform any work for the company.

In accordance with the company’s remuneration policy, an amount equal to £234,802 was paid to Matthew Fearn based on six months’
salary, the value of his company car and the anticipated cost of private medical cover until his date of cessation. The company also maintained
Matthew’s private medical insurance cover until he was able to procure alternative cover on comparable terms at his own cost.

Life assurance cover will be provided until the date of cessation and any permanent health insurance payments will not be paid until after
the date of cessation. The company also agreed to pay £15,650 plus VAT towards the costs of Matthew’s legal fees incurred in connection
with the agreement.

No payments in respect of annual bonus for the 2014/15 or any future financial years was or will be paid.

Awards granted in 2012 and 2013 under the Greene King LTIP will vest at the normal vesting date subject to performance and time pro-rating.

Kirk Davis was appointed as chief financial officer on 3 November 2014. A summary of the main components of his package, which are
in accordance with the company’s remuneration policy, is as follows:

– Base salary: £320,000 (subsequently increased by 2.5% for the 2015/16 financial year)
– Annual bonus: maximum award of 100% of salary
– LTIP: maximum award of 200% of salary
– Pension: 20% of salary

Annual report 2015 GREENE KING PLC

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Audited information continued
Interests under the LTIP
A summary of the directors’ interests under the LTIP at the beginning and end of the year, and changes during the year, is below:

Date
of grant

Type
of award

Exercise
price

Outstanding
as at
4 May 2014

Granted
during the
period

Rooney Anand

4 Aug 2011

6 Aug 2012

4 Oct 2013

restricted
forfeitable shares
restricted
forfeitable shares
Core LTIP

4 Oct 2013

Growth LTIP

24 Jul 2014

Core LTIP

24 Jul 2014

Growth LTIP

Matthew Fearn

6 Aug 2012

4 Oct 2013

restricted
forfeitable shares
Core LTIP

4 Oct 2013

Growth LTIP

nil

147,000

117,000

68,630

—

66,361

74,000

43,290

—

Vested
during the
period

147,000

—

Lapsed Outstanding

during the
period1

as at Performance
period

3 May 2015

—

14,389

22,396

22,395

—

117,000 May 2012 –
May 2015
68,630 May 2013 –
May 2016
68,630 May 2013 –
May 2016
66,361 May 2014 –
May 2017
66,361 May 2014 –
May 2017
59,611 May 2012 –
May 2015
20,894 May 2013 –
May 2016
20,895 May 2013 –
May 2016

Notes:
1. The awards granted to Matthew Fearn were scaled back on a time-apportioned basis when terms were agreed for his departure from the company and the

additional shares lapsed.

For the 2013 core LTIP award, there will be no vesting for EPS growth of 16% or less above a base of 51.5p, increasing on a straight-line basis
to full vesting for growth of 28% during the performance period above that base.

For the 2013 growth LTIP award, there will be no vesting for ROCE of 9.1% or less, increasing on a straight-line basis to full vesting for ROCE
of 9.8% at the end of the performance period.

For the 2014 core LTIP award, there will be no vesting for EPS growth of 22% or less above a base of 56.1p, increasing on a straight-line basis
to full vesting for growth of 31% during the performance period above that base.

For the 2014 growth LTIP award, there will be no vesting for ROCE of 9.4% or less, increasing on a straight-line basis to full vesting for ROCE
of 10.0% at the end of the performance period.

The committee is mindful of the potential impact of the recent acquisition of Spirit on the existing targets and will consider, during the course
of this year, whether any adjustments should be made to the targets as a result. Details of any adjustments will be disclosed in next year’s report.

Details of the awards granted to the directors on 24 July 2014 are as follows:

Director

Rooney Anand

Scheme

Core LTIP

Type
of award

nil-cost
option

Growth
LTIP

nil-cost
option

Basis
of award
granted

Share price
used for
award
purposes1

Number of
shares over

which award Face value of Performance
period
was granted

award

Exercisable between

100% of
salary of
£554,115
100% of
salary of
£554,115

835.0p

66,361

£554,114 May 2014 –
May 2017

24 July 2017 –
22 July 2024

835.0p

66,361

£554,114 May 2014 –
May 2017

24 July 2017 –
22 July 2024

Note:
1. The share price used for award purposes was determined by reference to the average closing share price on the three days immediately prior to the date of the award.

GREENE KING PLC Annual report 2015

Corporate governanceInterests under the executive share option scheme
A summary of the directors’ outstanding interests under the group’s executive share option scheme (under which no awards have been
made since September 2008) at the beginning and end of the year, and changes during the year, is below:

Rooney Anand

Date
of grant

4 Aug 2005

Option
price

528p

Outstanding
as at
4 May 2014

Granted
during the
period

Exercised
during the
period

Lapsed Outstanding
as at
3 May 2015

during the
period

Exercise period

74,751

—

74,751

—

— 4 Aug 2008 – 3 Aug 2015

The gain on sale of the shares on the exercise date of 10 April 2015 amounted to £235k.

Interests under the sharesave scheme
The interests of the directors in options granted under the sharesave scheme were as follows:

Kirk Davis
Matthew Fearn

—
2,325

3,050
—

—
2,325

—
—

3,050
—

580
387

1 April – 30 Sept 2018
1 April – 30 Sept 2015

Outstanding
as at
4 May 2014

Granted
during the
period

Exercised
during the
period

Lapsed Outstanding
as at
3 May 2015

during the
period

Option
price (p)

Exercise period

Matthew Fearn’s gain on the exercise date of 28 April 2015 amounted to £8k.

Directors’ shareholdings and share interests
Under the shareholding guidelines executive directors are required to build and retain a shareholding of at least 100% of salary and must
retain 50% of the net exercised value of vested LTIP awards until the requirement is met.

Details of the directors’ shareholdings are set out in the table below.

Director

Rooney Anand
Kirk Davis
Tim Bridge
Mike Coupe
Ian Durant
Rob Rowley
Lynne Weedall

At 4 May 2014

At 3 May 2015

Legally
owned

381,782
—
1,389,998
2,000
22,320
—
2,000

467,265
—
1,438,531
2,000
22,320
—
2,000

Subject to
performance
under the
LTIP

386,982
—
—
—
—
—
—

Total

854,247
—
1,438,531
2,000
22,320
—
2,000

Shareholding
as percentage
of salary
as at
3 May 2015

687%
—
—
—
—
—
—

Other information (unaudited)
Performance graph and chief executive pay
A graph showing the total shareholder return of Greene King relative to the FTSE All-Share Index over the last six years is shown below.
We have chosen this comparator group as it is the most appropriate market index of which the company is a member.

Greene King plc

FTSE All-Share

)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T

300

250

200

150

100

May 2009

April 2010

April 2011

April 2012

April 2013

May 2014

May 2015

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder information

DIR EC TOR S’ R EM U N ER ATION R EPORT CONTIN U ED

Other information (unaudited) continued
Performance graph and chief executive pay continued
The table below shows the total remuneration for the chief executive over each of the last six years.

CEO single figure (£’000)
Annual bonus percentage of maximum
LTIP percentage of maximum

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

1,096
97%
0%

1,406
100%
0%

1,248
75%
0%

2,689
72%
100%

2,517
97%
100%

2,135
60%
100%

Percentage increase in the chief executive’s remuneration
The table below shows the percentage change in the chief executive’s remuneration from the prior year compared to the average percentage
change in remuneration for all four-weekly paid employees (which include pub and restaurant managers but exclude colleagues working
for them in those pubs and restaurants), who have been selected as the comparator as they participate in similar remuneration
arrangements to the executive directors.

Salary
Taxable benefits
Annual bonus

Chief executive
% change

Employees
% change

2.5%
18.7%
-36.7%

5.5%
3.8%
-22.8%

Relative importance of spend on pay
The following table shows the company’s actual spend on pay (for all employees) relative to dividends and group revenue.

m
£

1,400

1,200

1,000

800

600

400

200

Dividends and
share buy-backs

Wages
and salaries

Revenue

2015

2014

Remuneration from other company directorships
Rooney Anand is non-executive chairman of JB Drinks Holdings Limited, which is unconnected with the group, and received and retained
£45k (2014: £30k) from that company by way of fees.

Implementation of remuneration policy in 2015/16
Salary
The executive directors’ salaries are reviewed annually and the base salaries of the executive directors with effect from 4 May 2015
will be as follows:

Name

Position

Rooney Anand
Kirk Davis

Chief executive
Chief financial officer

2014/15
base salary

2015/16
base salary

Percentage
increase

£554,115
£567,970
£320,000 £328,000

2.5%
2.5%

These increases compare with average pay rises for the group’s four-weekly paid employees (which include pub and restaurant managers
but exclude colleagues working for them in those pubs and restaurants) of 2.0%.

Pension and benefits
The pension contributions and benefits will continue in line with the policy table on pages 48.

GREENE KING PLC Annual report 2015

Corporate governance
Annual bonus
The annual bonus opportunity will remain unchanged for 2015/16. The chief executive’s financial performance targets will continue to be
based primarily on group PBTE (although the weighting of this will be reduced from 75% to 62.5%) and free cash flow (maximum weighting
remains at 15%). In addition the chief executive will have a financial target relating to the achievement of synergies from the acquisition
of Spirit Pub Company plc (maximum weighting 12.5%) and a further 10% of his bonus will be based on individual targets relating
to succession planning.

The chief financial officer’s main financial performance targets will be based on PBTE (maximum weighting 50%) and free cash flow
(maximum weighting 12.5%). There will also be a financial target relating to the achievement of synergies from the acquisition of Spirit
(maximum weighting 12.5%) and two other individual targets (maximum weighting 25%) which are commercially sensitive.

The committee has decided that the bonus targets should not be disclosed prospectively due to commercial sensitivity. The committee expects
to publish the performance targets once they have ceased to be commercially sensitive, in the 2016/17 annual report.

LTIP
The awards to be made in 2015 will be based on 200% of the executive director’s base salary (100% for the core LTIP and 100% for the
growth LTIP), calculated by reference to the average closing prices on the three business days immediately prior to the date of the award.

The awards will vest three years after the date of the award, subject to continued employment within the group and dependent on
performance over the three financial years to May 2018. There will be no vesting under the core LTIP award for EPS growth (from a base
of 61.0p) of 7.5% or less, increasing on a straight-line basis to full vesting for growth of 16.5%. For the growth LTIP award, there will be no
vesting for ROCE of 9.2% or less, increasing on a straight-line basis to full vesting for ROCE of 9.7%. The committee retains the discretion
to scale back the vesting levels of the growth LTIP awards in appropriate circumstances.

These targets were set without taking into account the potential impact of the recent acquisition of Spirit Pub Company plc. The committee
will consider, during the course of this year, whether any adjustments should be made to the targets as a result thereof and details of any
adjustments will be disclosed in next year’s report.

Chairman and non-executive directors’ fees
The fees payable to the chairman and the non-executive directors in 2015/16 are as set out below. There will be no changes to the benefits
receivable by the chairman. Fees for the chairman and the non-executive directors will be reviewed again in 2016 in the light of the recent
acquisition of Spirit Pub Company.

Name

Position

Tim Bridge
Mike Coupe
Ian Durant
Rob Rowley
Lynne Weedall

Chairman
Non-executive director
Non-executive director
Non-executive director
Non-executive director

2014/15
base fee

2015/16
base fee

Percentage
increase

£174,250
£44,100
£51,300
£44,100
£51,300

£183,000
£46,000
£53,400
£46,000
£53,400

5.0
4.3
4.1
4.3
4.1

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationDIR EC TOR S’ R EPORT A N D DI SCLOSU R ES

The directors present their annual report together with the audited
financial statements of the company and the group for the 52 weeks
ended 3 May 2015.

Profits and dividends
The group’s profit before taxation and exceptional items for the
period amounted to £168.5m (2014 (53 weeks: £173.1m). An interim
dividend of 7.95p per share (2014: 7.60p) was paid on 23 January 2015.
The directors recommend a final dividend of 21.80p per ordinary share
(2014: 20.80p), making a total dividend for the year of 29.75p per share
(2014: 28.40p). Subject to the approval of shareholders at the AGM,
the final dividend will be paid on 14 September 2015 to shareholders
on the register at the close of business on 14 August 2015.

Directors
Details of the current directors are given on page 37. Rob Rowley
and Kirk Davis were appointed to the board on 18 July 2014 and
3 November 2014 respectively. During the year Matthew Fearn
stepped down from the board with effect from 29 September 2014 due
to his illness, and John Brady retired from the board on 27 July 2014,
having served as a non-executive director for nine years.

The board has recommended that all of the directors offer
themselves for re-election at the forthcoming AGM.

Details of the directors’ service agreements, remuneration, and
interests in share options and awards are set out in the directors’
remuneration report. There have been no changes in their interests
between 3 May 2015 and the date of this report.

Directors’ interests in shares
The beneficial interests of each of the directors and their immediate
families in the ordinary share capital of the company are shown below:

Rooney Anand
Tim Bridge
Mike Coupe
Kirk Davis
Ian Durant
Rob Rowley
Lynne Weedall

4 May 2014

3 May 2015

381,782
1,389,998
2,000
—
22,320
—
2,000

467,265
1,438,531
2,000
—
22,320
—
2,000

At 3 May 2015, Tim Bridge had a non-beneficial interest in 87,900
(2014: 87,900) shares, in addition to the holding shown above.

There have been no changes in the interests of the directors
between 3 May 2015 and the date of this report.

Interests in contracts
No director had a material interest in any contract, other than an
employment contract, that was significant in relation to the group’s
business at any time during the period.

Substantial shareholdings
The company has been notified of the following interests in 3%
or more of the issued share capital of the company:

Standard Life Investments Limited
Capital Research Global Investors
UBS Investment Bank
Royal London Asset Management1

3 May 2015

30 June 2015

13.94%
11.34%
5.95%
3.02%

8.06%
9.17%
<3%
3.02%

1. Formal notification of a change to shareholding not received before 30 June

2015. We have assumed that the shareholding remains unchanged.

GREENE KING PLC Annual report 2015

Share capital
Details of the authorised and issued share capital of the company,
which comprises a single class of shares, ordinary shares of 12½p,
are set out in note 25 to the accounts. The rights attaching to the
shares are set out in the articles of association. There are no special
control rights in relation to the company’s shares and the company
is not aware of any agreements between holders of securities that
may result in restrictions on the transfer of securities or on
voting rights.

A total of 668k ordinary shares, with an aggregate nominal value of
£83.5k were allotted, for cash, during the period in connection with
the company’s sharesave and executive option schemes. In addition
a further 111k shares were acquired by the company to satisfy
awards under the company’s deferred share option scheme.

The company makes regular use of the employee benefit trust
(EBT) to satisfy the exercise of share options and will make market
purchases of the company’s shares from time to time to ensure that
it has sufficient shares to enable it to do so. During July 2014, the
EBT purchased a total of 500k shares at a total price of £4.206m.
The average share price was 841.1p per share.

Purchase of own shares
In accordance with the company’s articles of association, authority
was sought at the last AGM to purchase up to 10% of the company’s
shares in issue as at 21 July 2014. The authority, which has not been
exercised, was approved and remains exercisable until the next
annual general meeting or 8 February 2017, whichever is earlier.
The directors have again sought approval for the authority
to purchase the company’s own shares.

Allotment of shares
In connection with the proposed acquisition of Spirit Pub Company plc,
on 13 January 2015, at a general meeting of the company and pursuant
to section 551 of the Companies Act 2006, the shareholders approved
the authority of the directors to allot shares up to an aggregate
nominal value of £11.25m. This authority, which is in addition to
the authority to allot shares granted at the last AGM, shall expire
on 31 December 2015.

Voting rights
In a general meeting of the company, on a show of hands, every
member who is present in person or by proxy and entitled to vote
shall have one vote. On a poll every member who is present in
person or by proxy shall have one vote for every share of which they
are the holder. The AGM notice gives full details of deadlines for
exercising voting rights in respect of resolutions to be considered
at the meeting.

No voting rights will be exercised in respect of any own shares held
by the company.

Transfer of shares
There are no restrictions on the transfer of shares in the company
other than those which may from time to time be applicable under
existing laws and regulations (for example under the Market
Abuse Directive).

In addition, pursuant to the Listing Rules of the Financial Conduct
Authority, directors of the company and persons discharging
managerial responsibility are required to obtain prior approval
from the company to deal in the company’s securities, and are
prohibited from dealing during closed periods.

Corporate governanceChange of control
All of the company’s share incentive plans contain provisions
relating to a change of control and full details of these plans are
provided in the directors’ remuneration report. Outstanding
options and awards would normally vest and become exercisable
on a change of control, subject to the satisfaction of performance
conditions, if applicable, at that time.

The group’s banking facility agreements contain provisions entitling
the counterparties to exercise termination or other rights in the
event of a change of control. Certain of the company’s trading
contracts also contain similar provisions.

There are two employees who, on a change of control of the company
resulting in the termination of their employment, would be entitled
to compensation for loss of office. However, in the context of the
company as a whole, these agreements are de minimis.

Articles of association
The company’s articles of association may only be amended
by special resolution at general meetings of shareholders.

Appointment and replacement of directors
The number of directors on the board shall be no less than five
nor more than twelve. Directors may be appointed by the company
by ordinary resolution or by the board of directors. A director
appointed by the board of directors holds office until the next
following AGM, and is then eligible for election by the shareholders.

The articles provide that at each AGM all those directors who were
elected, or last re-elected, at the AGM held in the third calendar
year before the current year shall retire from office and may stand
for re-election. In practice directors submit themselves for annual
re-election in accordance with the provisions of the UK Corporate
Governance Code.

The company may by ordinary resolution, of which special notice
has been given, remove any director from office.

Any director automatically ceases to be a director if (i) they give the
company a written notice of resignation, (ii) they give the company
a written offer to resign and the directors decide to accept this offer,
(iii) all of the other directors remove them from office by notice in
writing served upon them, (iv) they are or have been suffering from
mental ill health and have a court order for their detention or the
appointment of a guardian made in respect of them, (v) a bankruptcy
order is made against them or they make any arrangement or
composition with their creditors generally, (vi) they are prohibited
from being a director by law or (vii) they are absent from board
meetings for six months without leave and the other directors
resolve that their office should be vacated.

Directors’ ordinary remuneration
The ordinary remuneration of the directors refers to the remuneration
of the non-executive directors who are paid by way of directors’ fees
and does not relate to the salaries of the executive directors. Approval
will be sought at the upcoming AGM to increase the level of the
ordinary remuneration of the directors to £600,000 per annum in
aggregate. It is not proposed that the non-executive directors’ fees
will be increased materially from the levels which are stated in the
annual report.

Powers of the directors
The business of the company is managed by the directors who may
exercise all the powers of the company, subject to its articles of
association, any relevant legislation and any directions given by
the company by passing a special resolution at a general meeting.
In particular, the directors may exercise all the powers of the
company to borrow money, issue shares, appoint and remove
directors, and recommend and declare dividends.

Communications with shareholders
Shareholders who are interested in signing up to e-communications
should refer to the shareholders information page for further
information on how to register via www.greeneking-shares.com.

Charitable donations
The group continues to support community initiatives and charitable
causes, in particular Macmillan Cancer Support, full details of which
are given in the corporate social responsibility section of this annual
report. The group makes no political donations.

Employment and recruitment policies
It is the company’s policy to ensure that employees are recruited,
selected, developed, remunerated and promoted on the basis of
their skills and suitability for the work performed. The company
is committed to treating all colleagues fairly and equally and will
endeavour to provide workplace adaptations and training for
colleagues or candidates who have a disability and colleagues
who become disabled during their employment.

The company values colleague engagement across the business and
produces a monthly publication that is circulated to all employees
containing company news and articles, which is circulated to all
colleagues. In addition, the company provides regular briefings and
presentations to staff on the company’s performance and strategy
as well as annual and interim results. The company operates an
HMRC approved share save scheme open to all employees which
helps to align employees with the performance of the company.
The current scheme is due to expire later in the year and a resolution
to approve a new scheme will be proposed at the AGM.

We are a people business so it is vitally important that we recruit
and train the right people to deliver value, service and quality to
our customers. The company works in partnership with local
communities to promote and provide opportunities for all.

Human rights
Even though the company does not have a formal human rights
policy, it is committed to conducting business with integrity
and fairness.

Corporate responsibility
Disclosure of the group’s greenhouse gas emissions is contained
within the corporate responsibility statement on page 35.

Directors’ and officers’ indemnity insurance
The group has taken out insurance to indemnify, against third party
proceedings, the directors of the company against third party
proceedings whilst serving on the board of the company and of any
subsidiary. This cover indemnifies all employees of the group who
serve on the boards of all subsidiaries. These indemnity policies
subsisted throughout the year and remain in place at the date
of this report.

Financial instruments
The group’s policy on the use of financial instruments is set out
in note 23.

Post balance sheet events
Details of events occurring after the year end are set out in note 31.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationDIR EC TOR S’ R EPORT A N D DI SCLOSU R ES CONTIN U ED

Auditor
Ernst & Young LLP has expressed its willingness to continue
in office and a resolution to re-appoint the firm as the company’s
auditor will be proposed at the AGM.

Annual general meeting
The AGM will be held at 12 noon on Tuesday 8 September 2015 at
the Millennium Grandstand, Rowley Mile Racecourse Conference
Centre, Newmarket, Suffolk. The notice of the AGM is set out
in the separate circular to shareholders.

The directors consider that all of the resolutions set out in the notice
of AGM are in the best interests of the company and its shareholders as
a whole. The directors will be voting in favour of them and unanimously
recommend that shareholders vote in favour of each of them.

By order of the board

Lindsay Keswick
Company secretary
30 June 2015

Directors’ statement as to disclosure of information
to the auditor
The directors who were members of the board at the time of
approving the directors’ report are listed on page 37. Having made
enquiries of fellow directors and of the company’s auditor, each
of these directors confirms that:

– to the best of each director’s knowledge and belief, there is no

information relevant to the preparation of their report of which
the company’s auditor is unaware; and

– each director has taken all the steps a director might reasonably be
expected to have taken to be aware of relevant audit information
and to establish that the company’s auditor is aware of that information.

Going concern
The group’s business activities, together with the factors likely to
affect its future development, performance and position, are set out
in the chief executive’s review. The financial position of the group,
its cash flows, liquidity position and borrowing facilities are described
in the financial review. In addition, note 23 to the financial statements
includes the group’s objectives, policies and processes for managing
its capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposure
to credit and liquidity risk.

The directors are of the opinion that the group’s forecast and
projections, which take account of reasonably possible changes
in trading performance, and its stress testing to take account of
expected payments in respect of uncertain tax positions show that
the group should be able to operate within its current borrowing
facilities and comply with its financing covenants.

After making enquiries, the directors have a reasonable expectation
that the company and the group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the
annual report and financial statements.

GREENE KING PLC Annual report 2015

Corporate governanceDIR EC TOR S’ R ES PON S IBILITIES S TATEM ENTS

Statement of directors’ responsibilities in respect
of the group financial statements
The directors are responsible for preparing the annual report
and the group financial statements in accordance with applicable
United Kingdom law and those International Financial Reporting
Standards as adopted by the European Union.

transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the company financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.

Directors’ responsibility statement
The directors confirm, to the best of their knowledge:

– that these financial statements prepared in accordance with
IFRS, as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit of the
parent 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 directors of Greene King plc are listed on page 37.

T J W Bridge
Director
30 June 2015

R Anand
Director

Under company law the directors must not approve the group
financial statements unless they are satisfied that they present fairly
the financial position, financial performance and cash flows of the
group for that period. In preparing those group financial statements
the directors are required to:

– select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;

– present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;

– provide additional disclosures when compliance with the specific
requirements in IFRS 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;

– state that the group has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements; and

– make judgments and estimates that are reasonable and prudent.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the group’s transactions and
disclose with reasonable accuracy at any time the financial position
of the group and enable them to ensure that the group financial
statements comply with the Companies Act 2006 and Article 4
of the IAS Regulation. They are also responsible for safeguarding
the assets of the group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.

Statement of directors’ responsibilities in respect
of the parent company financial statements
The directors are responsible for preparing the strategic report, the
directors’ 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 financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law).
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 company and of the profit or loss
of the company for that period. In preparing those 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;
– state whether applicable UK Accounting Standards 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 appropriate to presume that the company will not
continue in business.

The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationFI N AN C I AL
S TATE M EN TS

IN DEPEN DENT AU DITOR’ S R EPORT (G ROU P)
To the members of Greene King plc

We present our audit report on the group financial statements (as defined below) of Greene King plc, which comprise the group primary
statements and related notes set out on pages 67 to 101.

Opinion on financial statements
In our opinion Greene King plc’s group financial statements:

– give a true and fair view of the state of the group’s affairs as at 3 May 2015 and of its profit for the year then ended;
– have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union; and
– have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Overview

Materiality

Audit scope

Areas of focus

Overall group materiality of £7.8m (2014: £8.8m) which represents approximately 5% of pre-tax profit before
exceptional items.

We performed an audit of the complete financial information of all of the trading components and the corporate
centre which together contribute to the group’s results for the year.
We have obtained an understanding of the entity-level controls of the group which assisted us in identifying
and assessing risks of material misstatement due to fraud or error, as well as assisting us in determining the most
appropriate audit strategy.

Asset impairment considerations in relation to the trading estate and associated goodwill.
Risks relating to uncertain tax positions.
Funding headroom and compliance with debt covenants.
Revenue recognition in relation to beer and liquor sales and the associated retrospective discounts.

What has changed

Our assessment of the above risks of material misstatement is consistent with the prior year.

Our application of materiality
The scope of our work is influenced by materiality. We apply the concept of materiality in planning and performing the audit, in evaluating
the effect of identified misstatements on the audit and in forming our audit opinion.

As we develop our audit strategy, we determine materiality at the overall level and at the individual account level (referred to as our
‘performance materiality’).

MATERIALITY

£7.8m

PERFORMANCE MATERIALITY

REPORTING THRESHOLD

£5.9m

£390k

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements.

We determined materiality for the group to be £7.8m (2014: £8.8m), which is approximately 5% (2014: 5%) of pre-tax profit before exceptional
items. Our materiality amount provides a basis for determining the nature and extent of our risk assessment procedures, identifying and
assessing the risk of material misstatement and determining the nature and extent of further audit procedures. Materiality is assessed on
both quantitative and qualitative grounds. With respect to disclosure and presentational matters, amounts in excess of the quantitative
thresholds above may not be adjusted if their effect is not considered to be material on a qualitative basis.

Rationale for basis
We used pre-tax profit before exceptional items of £168.5m because it is a key performance indicator used in communications with investors,
it is more reflective of underlying trading profitability and it is a key metric used by the group in the assessment of the performance of
management. We also note that market and analyst commentary on the group uses pre-tax profit before exceptional items as a key metric.
Therefore, in our view, we consider that pre-tax profit before exceptional items to be the most appropriate performance metric on which
to base our materiality calculation as we considered this to be the most relevant performance measure to the stakeholders of the group.
This provided the basis for determining the nature, timing and extent of our audit procedures, and identifying and assessing the risk
of material misstatement.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our assessments of risk and the group’s overall control environment, our judgment was that overall performance
materiality (i.e. our tolerance for misstatement in an individual account or balance) for the group should be 75% (2014: 75%) of planning
materiality, namely £5.9m (2014: £6.6m), due to the low level of historic uncorrected misstatements. Our objective in adopting this approach
was to ensure that the total of any detected (but unadjusted) and undetected audit differences was unlikely to exceed our assessment of
materiality for the financial statements as a whole. Full scope audit procedures are completed for all trading divisions and the corporate
centre which together contribute to the group’s results for the year. Audit work on individual components is undertaken using a percentage
of our total performance materiality. This percentage is based on the size of the component relevant to the group as a whole and our
assessment of risk of misstatement at that component. In the current period the range of performance materiality allocated
to components was £2.3m to £5.3m.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationIN DEPEN DENT AU DITOR’ S R EPORT (G ROU P) CONTIN U ED
To the members of Greene King plc

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the audit committee that we would report to the committee all audit differences in excess of £390,000 (2014: £400,000),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected
misstatements against both the quantitative measures of materiality discussed above and in the light of other relevant qualitative considerations.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.

Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the group which, when taken together, enable us to form an opinion on the group financial statements under International
Standards on Auditing (UK and Ireland). We take into account size, risk profile, changes in the business environment and other factors
when assessing the level of work to be performed at each entity.

The group’s operations are based solely in the United Kingdom and therefore all audit procedures are completed by one audit team based
in the head office location working across both the group and subsidiary financial statement audits.

Our assessment of focus areas
We identify below the risks of material misstatement which had the greatest effect on the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team. This is not a complete list of all the risks identified in our audit. We have also
set out how we tailored our audit to address these specific areas in order to provide an opinion on the group financial statements as a whole
and should be read in this context. This is not a complete list of all the procedures we performed in respect of these areas.

Changes from the prior year
Our audit approach and assessment of areas of focus changes in response to changes in circumstances affecting the Greene King business
and impacting the group financial statements.

Our assessment of the risks of material misstatement below is consistent with the prior year.

Area of focus

How our audit addressed the area of focus

Asset impairment considerations in relation to the trading estate and associated goodwill
The group had property, plant and equipment
balances of £2,235.4m relating to its trading
estate and £700.9m of goodwill as at the
period end.

We performed a walk-through of the process employed to identify indicators of impairment and
to estimate appropriate impairments of individual sites at individual CGU level or of goodwill
at segment level. We then tested key elements of those processes.

In particular for both the trading estate and goodwill:

– we compared assumed profit growth rates in cash flow forecasts to the budget, external

market growth estimates and recent actual profit growth rates, and corroborated
explanations for anomalies;

– we utilised our valuation specialists to determine the reasonableness of the discount

rate applied to cash flows through benchmarking to comparator companies and market
expectations; and

– we reperformed management’s sensitivities applied to the cash flows and considered

management’s judgment of how a reasonably possible change in assumptions would lead
to impairment based upon our knowledge of the group’s activities and factors in the sector.

For the trading estate, additionally:

– where the fair value less costs of sale (FVLCS) was required to support the recoverable

value of a site, we assessed the reasonableness of management’s estimate of FVLCS, using
our own property valuation specialists, who utilised their knowledge of property valuation
and comparator transactions;

– where impairment indicators existed but no impairment had been booked, we sought and
corroborated explanations from management on individual pubs to assess whether an
impairment charge was required; and

– we checked a sample of sites to ensure that the site’s recoverable value used in the impairment

model is the higher of value in use and FVLCS.

For the trading estate, impairments are
considered on a site by site basis when an
impairment indicator has been identified
through reduced profit performance. Goodwill
is assessed at an operating segment level
(i.e. Retail, Pub Partners and Brewing &
Brands), being the lowest cash generating
units (CGU) at which goodwill is monitored.

In assessing impairment, management
estimates the recoverable value of each site
by reference to the higher of its value in use
(based on management’s key assumptions
relating to discount rate, growth in profits
and cash forecasts) and fair value less costs
to sell (based on management’s estimates).
The recoverable value is compared to the
carrying value of each site to determine any
impairment. For goodwill management
performs its impairment analysis by considering
the value in use of the operating segment,
based on forecast cash flows for that segment.

These processes have a high degree of
judgment and therefore carry a higher level
of inherent risk of material error.

GREENE KING PLC Annual report 2015

Financial statementsArea of focus

How our audit addressed the area of focus

Risks relating to uncertain tax positions
The group has implemented a number of
intra-group arrangements to finance third
party acquisitions and to effect other
intra-group transactions. A number of the
arrangements are in dispute with HMRC or
have yet to be agreed. The uncertainty over
resolution of these arrangements has required
the directors to make judgments on the level
of tax benefit that is likely to be realised
compared to the level previously recorded.
The directors obtain opinions from third party
independent advisers to help them assess
the level of tax liability required against the
benefit previously recorded in prior periods.

Estimated liabilities for uncertain tax
positions are included within Income tax
payable of £50.8m (2014: £46.5m).

We used our tax audit specialists to assess the reasonableness of management’s judgments
in relation to the uncertain tax positions, including the following steps:

– we inspected correspondence with HMRC on the issues under dispute or not yet agreed;
– in making our own assessment of the technical merits of each arrangement, we applied
our own technical expertise and considered advice to management from third party
specialists on the likely outcome of each arrangement;

– we discussed management’s options for resolution of each issue in isolation
and as a whole, and assessed the likely outcome of management’s strategies;

– we employed our understanding as a firm of HMRC dispute resolution to test

management’s assumptions on certain cases; and

– we tested that the basis for estimation of the tax liability was consistently applied across

all of the arrangements, but taking account of new facts and developments.

Funding headroom and compliance with debt covenants
The group utilises two key sources of debt
financing: (1) corporate bonds issued through
the ring-fenced securitisation vehicle; and
(2) a bank revolving credit facility of £460m.
Both of these debt facilities require the group
to comply with certain key covenants.
Management prepare monthly covenant
and headroom calculations and periodic
investor reports and compliance certificates.

Management’s assessment of funding
headroom and covenant compliance
involves significant forecast estimation,
principally relating to revenue and
profitability growth, and the quantum
and timing of tax payments.

– We performed a walk-through of the process employed by the group and related
controls to ensure its compliance with debt covenants and sufficiency of funding;

– We checked that the models used were consistent with the assumptions adopted

by the group in the impairment models, tested by the audit team as described above;

– We checked management’s stress testing of the forecasting model to determine whether
reasonably foreseeable issues could result in a shortage of funds or a breach of covenants
in the forecast period;

– We considered whether the forecast model adequately addressed the funding needs
and covenant compliance of the enlarged group following the acquisition of Spirit,
taking into account the information made available by Spirit in the acquisition process;

– We checked key covenant terms included in the forecast model to copies of the executed
bank agreements and re-performed covenant calculations to ensure that management’s
covenant forecasts were correctly performed; and

– We assessed all of the group’s work in this area to determine whether the directors

had an appropriate basis for concluding on going concern.

Revenue recognition in relation to beer and liquor sales and the associated retrospective discounts
In accordance with International Standards on
Auditing (UK and Ireland) there is a presumed
fraud risk relating to revenue recognition.

We performed a walk-through of the processes for the recognition of beer and liquor sales
in the Brewing & Brands and Pub Partners divisions and separately for the recognition
of retrospective discounts by the group as a whole.

We consider that there is a higher level of risk
associated with the appropriate recognition
of sales in the correct accounting period on
beer and liquor sales in the Brewing & Brands
and Pub Partners divisions. There is also
a higher level of risk associated with the
accuracy and completeness of retrospective
discounts due to the area being more
susceptible to management override.

For beer and liquor sales:

– we performed detailed transaction testing by agreeing a sample of individual revenue

items to sales invoices, evidence of delivery and subsequent cash receipt;

– we performed sales cut-off testing immediately before and after period end by testing

sales invoices to evidence of delivery to ensure that revenue had been recognised in the
correct accounting period; additionally we have performed similar detailed testing on
credit notes to confirm that the credit note has been recognised in the appropriate
accounting period; and

– we conducted specific analytical procedures on revenue and credit notes recognised
either side of the year-end to test management’s conclusion that the related revenue
had been recognised in the correct accounting period.

For retrospective customer discounts:

– we agreed the nature and terms of certain significant discount arrangements to contracts

or other supporting documentation;

– we performed specific analytical procedures to compare discounts by customer relative
to expectations, taking into account the terms of the discount arrangements and prior
period amounts; and corroborated explanations for anomalies; and

– we tested a sample of recognised rebates to the terms of the rebate, subsequent invoice

and settlement to ensure the amounts accrued were reasonable.

Refer to audit committee report (page 43) and the accounting policies section of the group financial statements (page 72) for discussion
of the related issues.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationIN DEPEN DENT AU DITOR’ S R EPORT (G ROU P) CONTIN U ED
To the members of Greene King plc

What we have audited
We have audited the group financial statements of Greene King plc for the 52 weeks ended 3 May 2015 which comprise the group primary
statements, being the group income statement, group statement of comprehensive income, group balance sheet, group cash flow statement
and group statement of changes in equity; and the related notes 1 to 32. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement set out on page 61, the directors are responsible for the preparation
of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an
opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion:

– the information given in the strategic report and the directors’ report for the financial year for which the group financial statements

are prepared is consistent with the group financial statements; and

– the information given in the corporate governance statement set out on pages 38 to 45 with respect to internal control and risk

management systems in relation to financial reporting processes and about share capital structures is consistent with the group financial
statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course

of performing our audit; or

– is otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the
audit and the directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report
appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit; or
– a corporate governance statement has not been prepared by the company.
Under the Listing Rules we are required to review:

– the directors’ statement, set out on page 60, in relation to going concern; and
– the part of the corporate governance statement relating to the company’s compliance with the ten provisions of the UK Corporate

Governance Code specified for our review.

Other matter
We have reported separately on the parent company financial statements of Greene King plc for the 52 weeks ended 3 May 2015
and on the information in the directors’ remuneration report that is described as having been audited.

Bob Forsyth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, statutory auditor
Cambridge
30 June 2015

GREENE KING PLC Annual report 2015

Financial statementsG ROU P INCOM E S TATEM ENT
For the fifty-two weeks ended 3 May 2015

Revenue

Operating costs

Operating profit

Finance income

Finance costs

Profit before tax

Tax

Profit attributable to equity holders of parent

Note

2,3

2,4

Earnings per share

– basic

– adjusted basic

– diluted

– adjusted diluted

Dividends per share (paid and proposed in respect of the period)

2015

2014

Before Exceptional
items
(note 5)
£m

exceptional
items
£m

Before
exceptional
items
£m

Exceptional
items
(note 5)
£m

Total
£m

1,315.3

—

1,315.3

1,301.6

—

1,301.6

(1,059.1)

(43.9)

(1,103.0)

(1,036.0)

(66.2)

(1,102.2)

256.2

0.3

(88.0)

168.5

(35.3)

133.2

(43.9)

—

(6.4)

(50.3)

6.4

(43.9)

212.3

0.3

(94.4)

118.2

(28.9)

89.3

265.6

(66.2)

0.4

(92.9)

173.1

(39.8)

133.3

—

(1.7)

(67.9)

30.7

(37.2)

2015

2014

Before
exceptional
items

Note

Before
exceptional
items

Total

40.9p

40.6p

61.0p

60.6p

29.75p

61.4p

61.1p

28.4p

199.4

0.4

(94.6)

105.2

(9.1)

96.1

Total

44.2p

44.0p

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationG ROU P S TATEM ENT OF COM PR EH EN S I V E INCOM E
For the fifty-two weeks ended 3 May 2015

Profit for the period

Other comprehensive (loss)/income to be reclassified to the income statement in subsequent periods:

Cash flow hedges:

– (Losses)/gains taken to equity

– Transfers to income statement on cash flow hedges

Tax on cash flow hedges

Items not to be reclassified to the income statement in subsequent periods:

Actuarial (losses)/gains on defined benefit pension schemes

Tax on actuarial losses/gains

Other comprehensive (expense)/income for the period, net of tax

Note

2015
£m

89.3

2014
£m

96.1

(93.4)

29.7

12.7

(51.0)

(11.9)

2.4

(9.5)

(60.5)

32.0

32.1

(19.9)

44.2

6.8

(3.3)

3.5

47.7

Total comprehensive income for the period, net of tax

28.8

143.8

GREENE KING PLC Annual report 2015

Financial statementsG ROU P B A L A NC E S H EE T
As at 3 May 2015

Non-current assets

Property, plant and equipment

Goodwill

Financial assets

Deferred tax assets

Prepayments

Trade and other receivables

Current assets

Inventories

Financial assets

Trade and other receivables

Prepayments

Cash and cash equivalents

Property, plant and equipment held for sale

Current liabilities

Borrowings

Derivative financial instruments

Trade and other payables

Income tax payable

Provisions

Non-current liabilities

Borrowings

Trade and other payables

Derivative financial instruments

Deferred tax liabilities

Post-employment liabilities

Provisions

Total net assets

Issued capital and reserves

Share capital

Share premium

Capital redemption reserve

Hedging reserve

Own shares

Retained earnings

Total equity

Net debt

Signed on behalf of the board on 30 June 2015

T J W Bridge
Director

R Anand
Director

As at
3 May
2015
£m

As at
4 May
2014
£m

Note

2,235.4

700.9

2,169.7

703.8

21.3

62.0

0.4

0.1

24.2

51.3

0.3

0.1

3,020.1

2,949.4

32.1

9.1

58.9

18.0

210.3

328.4

0.4

328.8

(189.9)

(28.1)

(294.1)

(50.8)

(0.5)

30.5

8.6

60.2

13.3

216.2

328.8

81.7

410.5

(202.0)

(9.4)

(256.5)

(46.5)

(0.5)

(563.4)

(514.9)

(1,389.1)

(1,449.8)

(1.0)

(208.8)

(91.1)

(60.5)

(6.1)

—

(163.0)

(110.0)

(53.5)

(6.0)

(1,756.6)

(1,782.3)

1,028.9

1,062.7

27.5

259.3

3.3

(167.0)

(4.9)

910.7

27.4

256.6

3.3

(116.0)

(6.3)

897.7

1,028.9

1,062.7

1,368.7

1,435.6

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationG ROU P C A S H FLOW S TATEM ENT
For the fifty-two weeks ended 3 May 2015

Operating activities

Operating profit

Operating exceptional items

Depreciation

EBITDA1

Working capital and other movements

Interest received

Interest paid

Tax paid

Net cash flow from operating activities

Investing activities

Purchase of property, plant and equipment

Advances of trade loans

Repayment of trade loans

Sales of property, plant and equipment

Net cash flow from investing activities

Financing activities

Equity dividends paid

Issue of shares

Purchase of own shares

Financing costs

Repayment of borrowings

Advance of borrowings

Advance of liquidity facility

Net cash flow from financing activities

Net increase in cash and cash equivalents

Opening cash and cash equivalents

Closing cash and cash equivalents

1. EBITDA represents earnings before interest, tax, depreciation, and exceptional items.

Note

2015
£m

2014
£m

212.3

199.4

43.9

62.8

319.0

4.6

0.3

(86.0)

(40.6)

66.2

64.1

329.7

(4.5)

0.4

(83.6)

(37.7)

197.3

204.3

(160.5)

(169.6)

(5.5)

7.9

94.0

(5.4)

6.7

38.4

(64.1)

(129.9)

(62.8)

(58.7)

2.8

(4.2)

—

(61.1)

—

(125.3)

7.9

202.4

210.3

2.9

(1.9)

(2.6)

(89.4)

100.0

157.5

107.8

182.2

20.2

202.4

GREENE KING PLC Annual report 2015

Financial statementsAt 28 April 2013

Profit for the period

Other comprehensive income:

Actuarial gains on defined benefit pension
schemes (net of tax)

Net loss on cash flow hedges (net of tax)

Total comprehensive income

Issue of ordinary share capital

Release of shares

Repurchase of shares

Share-based payments

Tax on share-based payments

Equity dividends paid

At 4 May 2014

Profit for the period

Other comprehensive income:

Actuarial losses on defined benefit pension
schemes (net of tax)

Net loss on cash flow hedges (net of tax)

Total comprehensive income

Issue of ordinary share capital

Release of shares

Repurchase of shares

Share-based payments

Tax on share-based payments

Equity dividends paid

At 3 May 2015

G ROU P S TATEM ENT OF C H A NG ES IN EQU IT Y
For the fifty-two weeks ended 3 May 2015

Note

Share
capital
(note 25)
£m

27.3

—

Capital
premium redemption
(note 26)
£m

(note 26)
£m

253.8

—

3.3

—

Hedging
reserve
(note 26)
£m

(160.2)

—

Own
shares
(note 26)
£m

(9.1)

—

Retained
earnings
(note 26)
£m

856.4

96.1

—

0.1

—

2.8

—

44.2

—

27.4

—

256.6

—

3.3

—

(116.0)

—

0.1

—

2.7

—

(51.0)

—

4.7

(1.9)

—

(6.3)

—

5.6

(4.2)

—

Total
£m

971.5

96.1

3.5

44.2

143.8

2.9

—

(1.9)

4.4

0.7

3.5

—

99.6

—

(4.7)

—

4.4

0.7

(58.7)

897.7

1,062.7

89.3

(9.5)

—

79.8

—

(5.6)

—

3.1

(1.5)

(62.8)

(9.5)

(51.0)

28.8

2.8

—

(4.2)

3.1

(1.5)

(62.8)

27.5

259.3

3.3

(167.0)

(4.9)

910.7

1,028.9

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS
For the fifty-two weeks ended 3 May 2015

1 Accounting policies
Corporate information
The consolidated financial statements of Greene King plc for the 52 weeks ended 3 May 2015 were authorised for issue by the board of
directors on 30 June 2015. Greene King plc is a public limited company incorporated and domiciled in England and Wales. The company’s
shares are listed on the London Stock Exchange.

Statement of compliance
The group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted
by the EU as they apply to the financial statements of the group for the 52 weeks ended 3 May 2015 (prior year 53 weeks ended 4 May 2014)
and in accordance with the provisions of the Companies Act 2006.

Basis of preparation
The consolidated financial statements have been prepared in accordance with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS. They are presented in pounds sterling, with values rounded to the nearest hundred thousand, except
where otherwise indicated.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of Greene King plc, its subsidiaries and its related party, Greene
King Finance plc. Greene King Finance plc is a special purpose entity set up to raise bond finance for the group. As Greene King plc has full
control over the entity it is fully consolidated. The financial statements of subsidiaries are prepared for the same reporting year as the
parent company with adjustments made to their financial statements to bring their accounting policies in line with those used by the group.

The results of subsidiaries are consolidated from the date of acquisition, being the date on which the group obtains control, and continue to be
consolidated until the date that such control ceases. Intercompany transactions, balances, income and expenses are eliminated on consolidation.

Changes in accounting policies
The accounting policies adopted are consistent with those of the previous financial year, apart from the changes arising from the adoption
of new accounting standards set out below:

Amendment to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair
value less costs of disposal. Disclosures in note 14 have been amended accordingly.

The Group has also adopted the following standards and interpretations which have been assessed as having no financial impact
or disclosure requirements at this time:

– IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements (as revised in 2011)
– IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures (as revised in 2011)
– IFRS 12 Disclosure of Interests in Other Entities
– IAS 32 Offsetting Financial Assets and Financial Liabilities (Amendment)
– IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (Amendment)

Significant accounting policies
Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost on transition to IFRS, less accumulated depreciation and any impairment in value.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset.

Freehold land is not depreciated. Freehold and long leasehold buildings are depreciated to their estimated residual values over periods
up to 50 years, and short leasehold improvements are depreciated to their estimated residual values over the shorter of the remaining term
of the lease or useful life of the asset. Residual value is reviewed at least at each financial year end and there is no depreciable amount if
residual value is the same as, or exceeds, book value. Plant and equipment assets are depreciated over their estimated lives which range
from three to 20 years.

Residual values, useful lives and methods of depreciation are reviewed for all categories of property, plant and equipment and adjusted,
if appropriate, at each financial year end.

An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use.
Profit or loss on de-recognition is calculated as the difference between the net disposal proceeds and the carrying amount of the asset,
and is included in the income statement in the year of de-recognition.

Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquire. The
choice of measurement of non-controlling interests, either at fair value or at the proportionate share of the acquiree’s identifiable net
assets, is determined on a transaction by transaction basis. Acquisition costs incurred are taken to the income statement.

When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes
the separation of embedded derivatives in host contracts of the acquiree.

Any contingent consideration to be transferred to the vendor will be recognised at fair value at the acquisition date. Subsequent changes
to the fair value of the contingent consideration which are deemed to be an asset or a liability will be recognised in accordance with IAS 39
either in the income statement or in other comprehensive income. If the contingent consideration is classified as equity, it should not be
re-measured until it is finally settled within equity.

GREENE KING PLC Annual report 2015

Financial statementsGoodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred
and the amount recognised for the non-controlling interest over the net identifiable amounts of the assets acquired and liabilities assumed
in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the
settlement of pre-existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business
combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal
or separability criterion, are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised
if the acquisition-date fair value can be measured reliably.

If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling
interest is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held
in the business acquired, the difference is recognised in the income statement.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Impairment
Property, plant and equipment
Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash inflows
independent of the cash inflows of other groups of assets.

An assessment is made at each reporting date as to whether there is an indication of impairment. If an indication exists, the group makes
an estimate of the recoverable amount of each asset group. An asset’s or cash generating unit’s recoverable amount is the higher of its fair
value less costs of disposal and value-in-use and is determined for an individual asset, unless the asset does not generate cash inflows that
are largely independent of those from other assets or groups of assets.

An impairment loss is recognised where the recoverable amount is lower than the carrying value of assets. If there is an indication that any
previously recognised impairment losses may no longer exist or may have decreased, a reversal of the loss may be made only if there has
been a change in the estimates used to determine the recoverable amounts since the last impairment loss was recognised. The carrying
amount of the asset is increased to its recoverable amount only up to the carrying amount that would have resulted, net of depreciation,
had no impairment loss been recognised for the asset in prior years.

Impairment losses and any subsequent reversals are recognised in the income statement.

Details of the impairment losses recognised in respect of property, plant and equipment are provided in note 14.

Goodwill
Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value
may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the group’s
cash-generating units (or groups of cash-generating units) that are expected to benefit from the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated represents the
lowest level within the group at which goodwill is monitored for internal management purposes and cannot be larger than an operating
segment before aggregation.

Impairment is determined by the recoverable amount of an operating segment. Where this is less than the carrying value of the operating
segment an impairment loss is recognised immediately in the income statement. This loss cannot be reversed in future periods.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, any goodwill associated with
the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the
cash-generating unit retained.

Goodwill amortised prior to the conversion to IFRS on 3 May 2004 has not been reinstated and the net book value of goodwill at that date
has been carried forward as the carrying value. Prior to May 1998, goodwill was written off to reserves. Such goodwill has not been
reinstated and is not included in determining profit or loss on disposal.

Financial instruments
Financial instruments are recognised when the group becomes party to the contractual provisions of the instrument and are de-recognised
when the group no longer controls the contractual rights that comprise the financial instrument, normally through sale or when all cash
flows attributable to the instrument are passed to an independent third party.

Financial assets
Financial assets are classified as either financial assets at fair value through the income statement, loans and receivables, held-to-maturity
investments or available-for-sale financial assets. The group determines the classification of its financial assets at initial recognition and,
where appropriate, re-evaluates this designation at each financial year end.

The group makes trade loans to publicans who purchase the group’s beer. Trade loans are non-derivative and are not quoted in an active
market and have therefore been designated as ‘Loans and receivables’, carried at amortised cost using the effective interest method. Gains
and losses are recognised in income when the loans and receivables are de-recognised or impaired, as well as through the amortisation process.

The group assesses at each balance sheet date whether any individual trade loan is impaired. If there is evidence that an impairment loss has
been incurred, the amount of loss is measured as the difference between the loan’s carrying amount and the expected future receipts, (excluding
future credit losses that have not been incurred), discounted at the loan’s original effective interest rate. The loss is recognised in operating profit.

Trade receivables
Trade receivables are recorded at their original invoiced amount less an allowance for any doubtful amounts when collection of the full
amount is no longer considered probable.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

1 Accounting policies continued
Significant accounting policies continued
Inventories
Inventories are valued at the lower of cost and net realisable value. Raw materials are valued at average cost. Finished goods and work
in progress comprise materials, labour and attributable production overheads where applicable, and are valued at average cost.

Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of
three months or less. For the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.

Property, plant and equipment held for sale
Property, plant and equipment is classified as held for sale only if it is available for sale in its current condition, management are committed
to the sale and a sale is highly probable and expected to be completed within one year from the date of classification. Property, plant and equipment
classified as held for sale is measured at the lower of carrying amount and fair value less costs of disposal and is no longer depreciated or amortised.

Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value of the consideration received, net of issue costs. After initial recognition,
interest-bearing loans and borrowings are measured at amortised cost using the effective interest method.

Finance costs and income
Finance costs are expensed to the income statement using the effective interest method. Finance income is recognised in the income
statement using the effective interest method.

Derivative financial instruments and hedge accounting
The group uses interest rate swaps to hedge its exposure to interest rate fluctuations on its variable rate loans, notes and bonds.

Interest rate swaps are initially measured at fair value, if any, and carried on the balance sheet as an asset or liability. Subsequent
measurement is at fair value determined by reference to market values for similar instruments. If a derivative does not qualify for hedge
accounting the gain or loss arising on the movement in fair value is recognised in the income statement.

Hedge accounting
To qualify for hedge accounting the hedge relationship must be designated and documented at inception. Documentation must include the
group’s risk management objective and strategy for undertaking the hedge and formal allocation to the item or transaction being hedged.
The group also documents how it will assess the effectiveness of the hedge and carries out assessments on a regular basis to determine
whether it has been, and is likely to continue to be, highly effective.

Hedges can be classified as either fair value (hedging exposure to changes in fair value of an asset or liability) or cash flow (hedging the
variability in cash flows attributable to an asset, liability, or forecast transaction). The group uses its interest rate swaps as cash flow hedges.

Cash flow hedge accounting
The effective portion of the gain or loss on an interest rate swap is recognised directly in equity, whilst any ineffective portion is recognised
immediately in the income statement.

Amounts taken to equity are transferred to the income statement in the same period that the financial income or expense is recognised,
unless the hedged transaction results in the recognition of a non-financial asset or liability whereby the amounts are transferred to the
initial carrying amount of the asset or liability.

When a hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting, amounts previously
recognised in equity are held there until the previously hedged transaction affects profit or loss. If the hedged transaction is no longer
expected to occur, the cumulative gain or loss recognised in equity is immediately transferred to the income statement.

Trade payables
Trade payables are non-interest bearing and are stated at their nominal value.

Provisions
Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, when it is probable that
an outflow of resources will be required to settle the obligation, and when a reliable estimate can be made of the amount of the obligation.

Provisions are discounted to present value, where the effect of the time value of money is material, using a pre-tax discount rate that
reflects current market estimates of the time value of money and the risks specific to the liability. The amortisation of the discount is
recognised as a finance cost.

Pensions and other post-employment benefits
Defined benefit pension schemes
The group operates two defined benefit pension schemes which require contributions to be made into separately administered funds.
The cost of providing benefits under the schemes is determined separately for each plan using the projected unit credit actuarial method
on an annual basis. The current service cost is charged to operating profit. Any actuarial gains and losses are recognised in full in the group
statement of comprehensive income in the period in which they occur.

When a settlement or curtailment occurs the obligation and related scheme assets are re-measured and the resulting gain or loss is recognised
in the income statement in the same period.

Net interest is calculated by applying the discount rate to the net defined benefit liability or asset and is recorded in the group income statement.

The defined benefit asset or liability recognised on the balance sheet comprises the present value of the schemes’ obligations less the fair
value of scheme assets. Defined benefit assets are restricted to the extent that they are considered recoverable.

GREENE KING PLC Annual report 2015

Financial statementsDefined contribution pension schemes
The cost of the group’s defined contribution pension schemes amounts to the value of contributions made. Contributions are charged
to the income statement as they become payable.

Share-based payments
Certain employees and directors receive equity-settled remuneration, whereby they render services in exchange for shares or rights over
shares. The fair value of the shares and options granted is measured using a Black-Scholes model, at the date at which they were granted.
No account is taken in the fair value calculation of any vesting conditions (service and performance), other than market conditions
(performance linked to the price of the shares of the company). Any other conditions that are required to be met in order for an employee
to become fully entitled to an award are considered non-vesting conditions. Like market performance conditions, non-vesting conditions
are taken into account in determining the grant date fair value. The fair value of shares and options granted is recognised as an employee
expense with a corresponding increase in equity spread over the period in which the vesting conditions are fulfilled ending on the relevant
vesting date. The cumulative amount recognised as an expense reflects the extent to which the vesting period has expired, adjusted for
the estimated number of shares and options that are ultimately expected to vest. The periodic charge or credit is the movement in the
cumulative position from beginning to end of that period.

No expense is recognised for awards that do not ultimately vest provided vesting is not conditional on market or non-vesting conditions.
The dilutive effect of outstanding options is reflected as additional share dilution in calculating earnings per share figures.

Own shares
Own shares consist of treasury shares and shares held within an employee benefit trust. The group has an employee benefit trust for the
granting of shares to applicable employees.

Own shares are recognised at cost as a deduction from shareholders’ equity. Subsequent consideration received for the sale of such shares
is also recognised in equity, with any difference between the sale proceeds from the original cost being taken to revenue reserves. No gain
or loss is recognised in the performance statements on transactions in treasury shares.

Revenue
Generally, revenue represents external sales (excluding taxes) of goods and services, net of discounts. Revenue is recognised to the extent
that it is probable that the economic benefits will flow to the group and is measured at the fair value of consideration receivable, excluding
discounts, rebates, and other sales taxes or duty relating to brewing and packaging of certain products. Revenue principally consists of
drink, food and accommodation sales, which are recognised at the point at which goods or services are provided, rental income, which
is recognised on a straight-line basis over the lease term and machine income, where net takings are recognised as earned.

Operating leases
Leases where the lessor retains substantially all the risks and benefits of ownership are classified as operating leases. Lease payments
are recognised as an expense in the income statement on a straight-line basis over the period of the lease.

Lease premiums paid on entering into or acquiring operating leases represent prepaid lease payments and are held on the balance sheet
as current (the portion relating to the next financial period) or non-current prepayments. These are amortised on a straight-line basis over
the lease term.

Taxes
Income tax
The income tax charge comprises both the income tax payable based on profits for the year and the deferred income tax. It is calculated
using taxation rates enacted or substantively enacted by the balance sheet date and is measured at the amount expected to be recovered
from or paid to the taxation authorities.

Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Deferred tax
Deferred tax is provided for using the liability method on temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying values in the financial statements.

Deferred tax is recognised for all temporary differences except where the deferred tax arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination that, at the time of the transaction, affects neither the accounting profit
nor taxable profit or loss or, in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal
of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences and carry forward of unused tax losses only to the extent that
it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax
losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets
are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow
the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured, on an undiscounted basis, at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

1 Accounting policies continued
Significant accounting policies continued
Exceptional items
Exceptional items are defined as items of income or expense which, because of their nature, size or expected frequency, merit separate
presentation to allow a better understanding of the financial performance in the period.

New standards and interpretations not applied
As at the date of approval of the financial statements there are a number of standards and interpretations issued by the IASB and IFRIC
with an effective date after the date of these financial statements and which have not been early adopted by the group. These are expected
to be applied as follows:

IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was first issued in November 2009 and has since been amended several times. A complete version of the
standard was issued in July 2014 and is a replacement of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 covers the
classification, measurement and derecognition of financial assets and financial liabilities, together with a new hedge accounting model and
the new expected credit loss model for calculating impairment. The new standard becomes effective for annual periods beginning on or after
1 January 2018, subject to EU adoption. The group is currently considering the impact of IFRS 9 on its consolidated results and financial position.

IFRS 15 Revenue from Contracts with Customers
The IASB issued IFRS 15 Revenue from contracts with customers in May 2014. The new standard provides a single, five-step revenue
recognition model, applicable to all sales contracts, which is based upon the principle that revenue is recognised when the control of goods
or services is transferred to the customer. This standard replaces all existing revenue recognition guidance under current IFRS and becomes
effective for annual period beginning on or after 1 January 2017, subject to EU adoption. The group is currently considering the impact
of IFRS 15 on its consolidated results and financial position.

Other standards and interpretations that are relevant to the group have been assessed as having no financial impact or additional
disclosure requirements at this time.

Significant accounting judgments and estimates
The preparation of financial statements requires management to make judgments, estimates and assumptions in the application of accounting
policies that affect reported amounts of assets and liabilities, income and expense. The group bases its estimates and judgments on historical
experience and other factors deemed reasonable under the circumstances, including any expectations of future events. Actual results may
differ from these estimates. The estimates and judgments considered to be significant are detailed below:

Taxation
Judgment is required when determining the provision for taxes as the tax treatment of some transactions cannot be finally determined
until a formal resolution has been reached with the tax authorities. Assumptions are also made around the assets which qualify for capital
allowances and the level of disallowable expenses and this affects the income tax calculation. Provisions are also made for uncertain exposures
which can have an impact on both deferred and current tax. Tax benefits are not recognised unless it is probable that the benefit will be
obtained and tax provisions are made if it is possible that a liability will arise. The final resolution of these transactions may give rise to
material adjustments to the income statement and/or cash flow in future periods. The group reviews each significant tax liability or benefit
each period to assess the appropriate accounting treatment.

Share-based payments
Judgment is required when calculating the fair value of awards made under the group’s share-based payment plans. Note 8 describes the
key assumptions and valuation model inputs used in the determination of these values. In addition estimates are made of the number of
awards that will ultimately vest, judgment is required in relation to the probability of meeting non-market based performance conditions
and the continuing participation of employees in the plans.

Pension liabilities
The present values of pension liabilities are determined on an actuarial basis and depend on a number of actuarial assumptions which are
disclosed in note 9. Any change in these assumptions will impact on the carrying amount of pension liabilities. Note 9 describes the key
assumptions used in the accounting for retirement benefit obligations.

Impairment of goodwill
The group determines whether goodwill is impaired on at least an annual basis. Details of the tests and carrying value of the assets are shown
in note 13. This requires an estimation of the value-in-use of the cash-generating units to which the goodwill is allocated. Value-in-use calculations
require assumptions to be made regarding the expected future cash flows from the cash-generating unit and choice of a suitable discount
rate in order to calculate the present value of those cash flows. If the actual cash flows are lower than estimated, future impairments
may be necessary.

Impairment of property, plant and equipment
The group determines whether property, plant and equipment is impaired where there are indicators of impairment. This requires an
estimation of the value-in-use and fair value less costs of disposal at a site level. Value-in-use calculations require assumptions to be made
regarding the expected future cash flows from the cash-generating unit and choice of a suitable discount rate in order to calculate
the present value of those cash flows.

Note 14 describes the assumptions used in the impairment testing of property, plant and equipment together with an analysis of the sensitivity
to changes in key assumptions.

Residual values
Residual values of property are determined with reference to current market property trends. If residual values were lower than estimated,
an impairment of asset value and reassessment of future depreciation charge may be required. Useful lives are reassessed annually which
may lead to an increase or reduction in depreciation accordingly.

GREENE KING PLC Annual report 2015

Financial statementsProperty provisions
The group provides for its onerous obligations under operating leases where the property is closed or vacant and for properties where
rental expense is in excess of income. The estimated timings and amounts of cash flows are determined using the experience of internal
and external property experts. However, changes to the expected method of exiting from the obligation could lead to changes in the level
of provision recorded.

2 Segment information
The group has determined the following three reportable segments that are largely organised and managed separately according
to the nature of products and services provided, distribution channels and profile of customers:

Retail: 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.

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

2015

Revenue
Operating costs

Segment operating profit
Exceptional items
Net finance costs
Income tax expense

Balance sheet
Segment assets
Unallocated assets1

Segment liabilities
Unallocated liabilities1

Net assets

Other segment information
Capital expenditure – tangible assets
Goodwill disposed
Impairment of property, plant and equipment
Depreciation
EBITDA2

Retail
£m

1,000.7
(809.9)

190.8

Pub
Partners
£m

Brewing
& Brands
£m

Corporate
£m

121.9
(67.9)

54.0

192.7
(162.9)

29.8

—
(18.4)

(18.4)

2,058.2

608.7

358.7

51.0

2,058.2
(110.0)

608.7
(14.1)

358.7
(73.7)

51.0
(103.9)

Total
operations
£m

1,315.3
(1,059.1)

256.2
(43.9)
(94.1)
(28.9)

89.3

3,076.6
272.3

3,348.9
(301.7)
(2,018.3)

(110.0)

(14.1)

(73.7)

(103.9)

(2,320.0)

1,948.2

594.6

285.0

(52.9)

1,028.9

139.4
(0.8)
(21.1)
(49.0)
239.8

18.9
(2.1)
(6.3)
(7.6)
61.6

4.7
—
—
(5.1)
34.9

2.6
—
—
(1.1)
(17.3)

165.6
(2.9)
(27.4)
(62.8)
319.0

1. Unallocated assets/liabilities comprise cash, borrowings, pensions, net deferred tax, net current tax and derivatives.

2. EBITDA represents earnings before interest, tax, depreciation and exceptional items and is calculated as operating profit before exceptionals adjusted

for the depreciation charge for the period.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

2 Segment information continued

2014

Revenue
Operating costs

Segment operating profit
Exceptional items
Net finance costs
Income tax expense

Balance sheet
Segment assets
Unallocated assets1

Segment liabilities
Unallocated liabilities1

Net assets

Other segment information
Capital expenditure – tangible assets
Goodwill disposed
Impairment of property, plant and equipment
Impairment of disposal group
Depreciation
EBITDA2

Retail
£m

963.0
(775.3)

187.7

Pub
Partners
£m

149.6
(84.3)

65.3

Brewing
& Brands
£m

189.0
(158.6)

30.4

Corporate
£m

—
(17.8)

(17.8)

1,991.1

697.2

361.1

43.0

1,991.1
(96.6)

697.2
(10.0)

361.1
(67.5)

43.0
(88.9)

Total
operations
£m

1,301.6
(1,036.0)

265.6
(66.2)
(94.2)
(9.1)

96.1

3,092.4
267.5

3,359.9
(263.0)
(2,034.2)

(96.6)

(10.0)

(67.5)

(88.9)

(2,297.2)

1,894.5

687.2

293.6

(45.9)

1,062.7

146.3
(0.3)
(3.5)
—
(48.8)
236.5

20.1
(6.1)
(18.5)
(34.2)
(9.6)
74.9

4.9
—
—
—
(5.7)
36.1

4.3
—
—
—
—
(17.8)

175.6
(6.4)
(22.0)
(34.2)
(64.1)
329.7

1. Unallocated assets/liabilities comprise cash, borrowings, pensions, net deferred tax, net current tax and derivatives.

2. EBITDA represents earnings before interest, tax, depreciation and exceptional items and is calculated as operating profit before exceptionals adjusted

for the depreciation charge for the period.

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.

3 Revenue
Revenue is analysed as follows:

Goods
Services

2015
£m

2014
£m

1,224.4
90.9

1,204.7
96.9

1,315.3

1,301.6

GREENE KING PLC Annual report 2015

Financial statements
2015

2014

Before

exceptional Exceptional
items
£m

items
£m

66.8
448.4
336.8
62.8

17.0
127.3
—

—
—
0.9
—

—
43.1
(0.1)

Before
exceptional
items
£m

Exceptional
items
£m

65.4
451.7
323.4
64.1

17.9
113.5
—

—
—
—
—

—
59.8
6.4

Total
£m

66.8
448.4
337.7
62.8

17.0
170.4
(0.1)

Total
£m

65.4
451.7
323.4
64.1

17.9
173.3
6.4

1,059.1

43.9

1,103.0

1,036.0

66.2

1,102.2

4 Other income and expenses
Operating profit is stated after charging:

Changes in inventory of finished goods and work in progress
Cost of products sold recognised as an expense
Employment costs (note 6)
Depreciation of property, plant and equipment
Operating lease rentals
– minimum lease rentals
Other operating charges
Net loss on disposal

Fees paid to the auditor during the period consisted of:

Audit of the consolidated financial statements
Audit of subsidiaries
Other services relating to acquisition
Tax advisory services

Included in other operating charges

Fees paid in respect of tax advisory services are shown net of amounts recharged to third parties.

5 Exceptional items

Included in operating profit
Legal and professional fees
Impairment of disposal group (note 20)
Impairment of property, plant and equipment (note 14)
Exceptional VAT
Employee costs
Share-based payment credit
Insurance proceeds
Net (profit)/loss on disposal of property, plant and equipment and goodwill

Included in financing costs
Interest on tax adjustment in respect of prior periods
Ineffective cash flow hedges – fair value losses/(gains)
Interest on exceptional VAT

Total exceptional items before tax

Tax impact of exceptional items
Tax credit in respect of the licensed estate
Tax credit in respect of rate change
Adjustment in respect of prior periods – income tax
Adjustment in respect of prior periods – deferred tax

Total exceptional tax

Total exceptional items after tax

2015
£m

0.2
0.1
1.2
0.1

1.6

2015
£m

15.8
—
27.4
—
1.5
(0.6)
(0.1)
(0.1)

43.9

4.0
2.4
—

50.3

(7.0)
(2.3)
—
9.5
(6.6)

(6.4)

43.9

2014
£m

0.2
0.1
—
0.1

0.4

2014
£m

—
34.2
22.0
7.0
—
—
(3.4)
6.4

66.2

1.1
(1.1)
1.7

67.9

(10.5)
(6.5)
(18.8)
3.9
1.2

(30.7)

37.2

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

5 Exceptional items continued
Exceptional operating costs
During the period, the group recognised £15.8m (2014: £nil) of exceptional legal and professional fees that related to the acquisition of
Spirit Pub Company plc and other potential acquisitions and defending uncertain tax provisions. These amounts include £10.6m of fees
that were contingent on the completion of the acquisition of Spirit Pub Company plc which have been recognised in accordance with IAS
32 and will be settled in financial year ending 1 May 2016.

During the period the group recognised an impairment loss of £27.4m (2014: £22.0m) in respect of its licensed estate. The impairment has
been recognised in respect of pubs where the higher of value-in-use and fair value less costs of disposal has fallen below the net book value.

In the period, the group received further insurance compensation to meet the costs of restoring sites damaged by fire in a previous period
totalling £0.1m (2014: £3.4m).

During the period ended 2 May 2010 the group received a refund of £7.0m from HMRC in respect of VAT on gaming machines following
a ruling involving the Rank Group plc that the application of VAT contravened the EU’s principal of fiscal neutrality. HMRC appealed the
ruling issuing protective assessments to recover the VAT in the event their appeal was successful. On 30 October 2013 the decision was
overturned and the group was therefore required to repay the VAT of £7.0m and associated interest of £1.7m. On 16 April 2014 the Supreme
Court granted Rank permission to appeal and the case was heard on 21 April 2015. A decision is expected during 2015.

The group incurred £1.5m (2014: £nil) of exceptional employee costs, which included restructuring costs and costs associated with changes
to key management.

A share-based payment credit of £0.6m results from the reversal of charges recognised in previous years following a reassessment
of expected scheme performance.

The net profit on disposal of property plant and equipment of £0.1m (2014: £6.4m loss) comprises a total profit on disposal of £10.2m
(2014: £8.0m) and a total loss on disposal of £10.1m (2014: £14.4m).

On 1 May 2014 the group announced the disposal of 275 non-core pubs from our Pub Partners’ estate; this disposal completed on 2 June 2014.
In the prior period, an impairment charge totalling £34.2m was recognised as a result of this disposal: £19.6m in respect of the carrying
value of the assets and a charge of £14.6m relating to the impairment of goodwill allocated to these sites.

Exceptional finance costs
The £2.4m fair value loss (2014: £1.1m gain) is the mark-to-market movement on the ineffective element of cash flow hedges resulting
from changes in the LIBOR yield curve.

Exceptional tax
The tax credit in respect of the licensed estate has arisen from movements in their tax base cost, including the impact of indexation.

The Finance Act 2013 reduced the rate of corporation tax from 21% to 20% from 1 April 2015. The effect of the reduced rate was included
in the accounts for the previous period.

The adjustment in respect of prior periods’ income tax arises from finalising the tax returns for earlier periods including the reversal of tax
relief previously taken on intra-group transactions.

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

6 Employment costs

2015

2014

Wages and salaries
Other share-based payments (note 8)

Total wages and salaries
Social security costs
Other pension costs (note 9)
– defined contribution

Before

exceptional Exceptional
items
£m

items
£m

307.4
3.7

311.1
21.1

4.6

336.8

1.5
(0.6)

0.9
—

—

0.9

Total
£m

308.9
3.1

312.0
21.1

293.3
4.4

297.7
21.3

4.6

4.4

337.7

323.4

Before
exceptional
items
£m

Exceptional
items
£m

Total
£m

293.3
4.4

297.7
21.3

4.4

323.4

—
—

—

The total expense of share-based payments relates to equity-settled schemes.

The average number of employees during the period was as follows:

Retail
Pub Partners
Brewing & Brands
Corporate

The figures above include 15,256 (2014: 12,132) part-time employees.

Details of directors’ emoluments are shown in the directors’ remuneration report on page 50.

GREENE KING PLC Annual report 2015

2015

2014

22,709
56
875
485

21,263
55
829
430

24,125

22,577

Financial statements7 Finance (costs)/income

Bank loans and overdrafts
Other loans
Ineffective element of cash flow hedges
Interest on tax adjustment in respect of prior period
Unwinding of discount element of provisions
Net finance cost from pensions

Total finance costs

Bank interest receivable

Total finance income

Net finance costs

2015

2014

Before

exceptional Exceptional
items
£m

items
£m

(10.6)
(76.2)
1.6
—
(0.8)
(2.0)

(88.0)

0.3

—
—
(2.4)
(4.0)
—
—

(6.4)

—

Before
exceptional
items
£m

Exceptional
items
£m

(11.6)
(79.8)
1.6
—
(0.6)
(2.5)

(92.9)

0.4

—
—
1.1
(2.8)
—
—

(1.7)

—

Total
£m

(10.6)
(76.2)
(0.8)
(4.0)
(0.8)
(2.0)

(94.4)

0.3

Total
£m

(11.6)
(79.8)
2.7
(2.8)
(0.6)
(2.5)

(94.6)

0.4

(87.7)

(6.4)

(94.1)

(92.5)

(1.7)

(94.2)

8 Share-based payment plans
The group operates three types of share-based payment arrangements: a senior management long-term incentive plan (LTIP/Growth LTIP),
a deferred share scheme for other management and a general employee share option plan (SAYE). In prior periods a deferred bonus scheme
and an executive share option plan (ESOS) have also been operated.

The general terms of each plan are detailed in the directors’ remuneration report starting on page 46. All are equity settled.

The total charge recognised for the period arising from share-based payment transactions including National Insurance contributions
is £3.4m (2014: £6.0m). A corresponding credit of £3.1m (2014: £4.4m) has been recognised in equity.

The fair value of the LTIP/growth LTIP issued since 2014 is considered to be equal to the share price on the date of issue. For 2015 issue the fair
value was 8.40p (2014: 7.81p). Future dividend payments have not been factored into the valuation as participants are entitled to dividend payments.

The fair value of previous issued equity-settled options and LTIP were estimated using the Black-Scholes model.

The fair value of other equity-settled options is estimated using a Black-Scholes model. The fair value of the grants and model inputs used
to calculate the fair values of grants during the period were as follows:

2015

Weighted average share price
Exercise price
Expected dividend yield
Risk-free rate of return
Volatility
Expected life (years)
Weighted average fair value of grants in the year

2014

Weighted average share price
Exercise price
Expected dividend yield
Risk-free rate of return
Volatility
Expected life (years)
Weighted average fair value of grants in the year

SAYE

857p
590p
3.6%
0.7%
20.1%
3.3
215p

SAYE

865p
701p
3.3%
0.6%
21.6%
3.3
163p

Risk-free rate of return is the yield on zero-coupon UK Government bonds with the same life as the expected option life. Expected
volatility is based on historical volatility of the company’s share price which assumes that the past trend in share price movement is
indicative of future trends. The expected life of options has been taken as the mid-point of the relevant exercise period. This is not
necessarily indicative of future exercise patterns.

No other feature of the equity instruments granted was incorporated into the fair value measurement.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

8 Share-based payment plans continued
Movement in outstanding options and rights during the period is as follows:

ESOS

Outstanding at the beginning of the period
Forfeited
Exercised

Outstanding at the end of the period

Exercisable at the end of the period

SAYE

Outstanding at the beginning of the period
Granted
Forfeited
Exercised

Outstanding at the end of the period

Exercisable at the end of the period

LTIP

Outstanding at the beginning of the period
Granted
Forfeited
Vested

Outstanding at the end of the period

Exercisable at the end of the period

Number
of options

Weighted average
exercise price

2015
m

0.3
—
(0.2)

0.1

2014
m

0.6
—
(0.3)

0.3

2015
p

506
528
500

528

2014
p

472
493
444

506

Number
of options

Weighted average
exercise price

2015
m

1.6
1.1
(0.3)
(0.5)

1.9

0.2

2014
m

1.8
0.4
(0.2)
(0.4)

1.6

0.2

2015
p

502
590
586
375

570

378

2014
p

400
701
446
329

502

349

Number of shares

2015
m

2.5
0.7
(0.3)
(0.8)

2.1

—

2014
m

2.7
0.9
(0.2)
(0.9)

2.5

—

The options and shares granted under the LTIP are at nil cost therefore the weighted average exercise price for rights outstanding
at the beginning and end of the period, granted, forfeited and exercised during the period is £nil (2014: £nil).

ESOS, SAYE and LTIP
Options were exercised on a range of dates. The weighted average share price through the period was 809p in 2015 and 841p in 2014.

The rights outstanding at 3 May 2015 under the LTIP had an exercise price of £nil (2014: £nil) and a weighted average remaining contractual
life of 1.3 years (2014: 1.3 years).

The outstanding options for the ESOS scheme had an exercise price of 528p (2014: between 408p and 528p) and for the SAYE scheme
between 349p and 701p (2014: between 274p and 701p).

The weighted average remaining contractual life was 0.3 years for the ESOS (2014: 1.1 years) and 3.4 years for the SAYE scheme (2014: 2.8 years).

Deferred share bonus scheme
In the prior period selected senior executives participated in a deferred share bonus scheme. Awards made under this scheme were based
on a percentage of salary and were paid in shares. Awards were made to eligible employees on the achievement of corporate targets and
vested once required service periods were completed. During the year no shares (2014: 0.04m) were purchased to fulfil awards made in 2013/14
(2012/13) under this scheme.

GREENE KING PLC Annual report 2015

Financial statements9 Pensions
The group maintains two defined contribution schemes, which are open to all new employees, and two defined benefit schemes.

The group also has a past service liability in relation to post-employment medical benefits previously offered to employees to cover any
medical costs after employment. This benefit is no longer given to employees.

Defined contribution pension scheme
Member funds for the defined contribution schemes are held and administered by the Friends Life Group. The total cost recognised
in operating profit for the period was £4.6m (2014: £4.4m).

Defined benefit pension schemes and post-employment benefits
The group maintains the following defined benefit schemes which are both closed to new entrants and were closed to future accrual during 2013.
Both schemes have had full actuarial valuations in the last three years: Greene King Pension Scheme (last valued as at 5 April 2012) and
Belhaven Pension Scheme (last valued as at 4 May 2011).

Member funds for the defined benefit schemes are held in separate funds independently of the group’s finances and are administered
by pension trustees. Pension benefits are related to members’ final salary at the earlier of retirement or closure to future accrual and their
length of service.

Since the pension liability is adjusted for the changes to the consumer price index, the pension plan is exposed to inflation, interest rate risks
and changes in the life expectancy for pensioners. As the plan assets include significant investments in quoted equity shares of entities in
manufacturing and consumer product sector, the group is also exposed to equity market risk arising in the manufacturing and consumer
products sector.

The total cost recognised in the income statement was:

Net interest on net defined liability

Pension schemes

Post-employment benefits

2015
£m

(2.0)

2014
£m

(2.5)

2015
£m

—

2014
£m

—

The values of the schemes’ liabilities have been determined by a qualified actuary based on the results of the last actuarial valuation,
updated to 3 May 2015 using the following principal actuarial assumptions:

Discount rate
Expected pension payment increases
Rate of inflation (RPI)
Rate of inflation (CPI)

The mortality assumptions imply the following expectations of years of life from age 65:
Man currently aged 40
Woman currently aged 40
Man currently aged 65
Woman currently aged 65

2015

3.4%
3.2%
3.3%
2.3%

24.5
26.7
22.3
24.4

2014

4.1%
3.3%
3.6%
2.7%

24.6
27.0
22.4
24.5

Mortality assumptions are based on standard tables adjusted for scheme experience and with an allowance for future improvement
in life expectancy.

The table below shows the investment allocation of pension assets against the related liabilities of the pension schemes and other
post-employment benefits:

Investment quoted in active markets
Equities
With profits
Bonds
Unquoted investments
Cash

Total fair value of assets
Present value of scheme liabilities
Funded plans
Unfunded plans

Non-current liability recognised

Pension plans’ value

Post-employment benefits

2015
£m

2014
£m

2015
£m

2014
£m

257.0
3.0
62.7

225.7
2.8
63.4

1.7

3.6

324.4

295.5

(383.6)
—

(347.7)
—

(59.2)

(52.2)

—
—
—

—

—
(1.3)

(1.3)

—
—
—

—

—
(1.3)

(1.3)

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

9 Pensions continued
Defined benefit pension schemes and post-employment benefits continued
The movements in the pension schemes’ net liability during the period are as follows:

At beginning of period
Pension costs charged to income statement
Net interest

Benefits paid
Re-measurement gains/(losses) in other comprehensive income
Return on plan assets (excluding amounts included
in net interest expenses)
Actuarial changes arising from changes in demographic assumptions
Actuarial changes arising from changes in financial assumptions
Experience adjustments

Contributions paid – employers

At end of period

At beginning of period
Settlements and curtailments

At end of period

Pension assets

Pension liabilities

Net pension liability

2015
£m

2014
£m

2015
£m

2014
£m

2015
£m

2014
£m

295.5

280.3

(347.7)

(344.1)

(52.2)

(63.8)

12.0

12.0
(10.6)

10.9

10.9
(10.1)

20.6
—
—
—

20.6
6.9

7.1
—
—
—

7.1
7.3

(14.0)

(14.0)
10.6

—
2.1
(35.0)
0.4

(32.5)
—

(13.4)

(13.4)
10.1

—
2.1
(1.4)
(1.0)

(0.3)
—

(2.0)

(2.0)
—

20.6
2.1
(35.0)
0.4

(11.9)
6.9

(2.5)

(2.5)
—

7.1
2.1
(1.4)
(1.0)

6.8
7.3

324.4

295.5

(383.6)

(347.7)

(59.2)

(52.2)

Post-employment
benefits liability

2015
£m

(1.3)
—

(1.3)

2014
£m

(1.5)
0.2

(1.3)

Decrease/(increase)
in liability

2015
£m

16.8
(13.8)
(12.5)

2014
£m

15.0
(12.3)
(12.4)

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:

0.25% points increase in discount rate
0.25% points increase in inflation assumption
Additional one year increase to life expectancy

The following payments, which are also the minimum funding requirements, are the expected contributions to the defined benefit plan
in future years:

Within 1 year
Between 2 and 5 years
Between 5 and 10 years

The average duration of the defined benefit plan obligation at the end of the reporting period is 18 years (2014: 17 years).

2015
£m

6.9
27.5
17.4

51.8

2014
£m

6.9
27.5
24.8

59.2

GREENE KING PLC Annual report 2015

Financial statements10 Taxation

Consolidated income statement

Income tax
Corporation tax before exceptional items
Recoverable on exceptional items

Current income tax
Adjustment in respect of prior periods

Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Tax credit in respect of rate change

Tax charge in the income statement

Group statement of comprehensive income

Deferred tax
(Loss)/gain on actuarial valuation of pension liability
Net (loss)/gain on revaluation on cash flow hedges
Tax charge in respect of rate change

Group statement of changes in equity

Deferred tax
Share-based payment – future taxable benefit
Tax charge in respect of rate change

Deferred tax reported in equity

Income tax
Share-based payments – current taxable benefit

Total tax reported in equity

Reconciliation of income tax expense for period
The effective rate of taxation is lower than the full rate of corporation tax. The differences are explained below:

Profit before tax

Profit before tax multiplied by standard rate corporation tax 20.9% (2014: 22.8%)
Effects of:
Expenses not deductible for tax purposes
Exceptional deferred tax credit in respect of licensed estate
Exceptional tax credit in respect of rate change
Adjustment in respect of prior periods – income tax
Adjustment in respect of prior periods – deferred tax (credit)/charge

Income tax expense reported in the income statement

2015

2014

Before
exceptional
items
£m

Exceptional
items
£m

Before

exceptional Exceptional
items
£m

items
£m

38.5
—

38.5

(3.2)
—
—

(3.2)

35.3

—
(1.2)

(1.2)
9.5

8.3

(8.1)
(6.6)
—

(14.7)

(6.4)

Total
£m

38.5
(1.2)

37.3
9.5

46.8

(11.3)
(6.6)
—

(17.9)

28.9

43.6
—

43.6

(3.8)
—
—

(3.8)

39.8

Total
£m

43.6
(2.6)

41.0
3.9

44.9

(18.2)
1.2
(18.8)

(35.8)

9.1

2014
£m

1.3
12.9
9.0

23.2

2014
£m

0.5
0.7

1.2

(1.9)

(0.7)

2014
£m

105.2

24.0

5.3
(6.5)
(18.8)
3.9
1.2

9.1

—
(2.6)

(2.6)
3.9

1.3

(14.4)
1.2
(18.8)

(32.0)

(30.7)

2015
£m

(2.4)
(12.7)
—

(15.1)

2015
£m

3.4
—

3.4

(1.9)

1.5

2015
£m

118.2

24.7

3.6
(2.3)
—
9.5
(6.6)

28.9

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

10 Taxation continued
Income tax payable
The income tax liability of £50.8m (2014: £46.5m) includes an assessment of the expected payments on uncertain tax positions which have
yet to be agreed or are in dispute with HMRC.

Deferred tax
The deferred tax included in the balance sheet is as follows:

Deferred tax liability
Accelerated capital allowances
Rolled over gains and property revaluation

Deferred tax asset
Pensions and post-employment medical benefits
Other accruals and deferred income
Derivatives
Share-based payment

Net deferred tax liability

The deferred tax included in the income statement is as follows:

Deferred tax in the income statement
Accelerated capital allowances
Rolled over gains and property revaluations
Pensions and post-employment medical benefit
Other accruals and deferred income
Derivatives
Share-based payments
Tax losses carried forward

Deferred tax expense

2015

Before

exceptional Exceptional
items
£m

items
£m

(3.5)
—
0.9
—
—
(0.6)
—

(3.2)

(0.8)
(14.6)
—
1.2
(0.5)
—
—

(14.7)

The movements on deferred tax assets and liabilities during the period are shown below:

Deferred tax liabilities

At 28 April 2013
Credit to the income statement

At 4 May 2014
Credit to the income statement

At 3 May 2015

2015
£m

33.7
57.4

91.1

(12.1)
(0.9)
(47.1)
(1.9)

(62.0)

29.1

2014

Before
exceptional
items
£m

Exceptional
items
£m

(4.0)
—
1.0
—
—
(0.9)
0.1

(3.8)

(7.7)
(24.8)
—
0.3
0.2
—
—

(32.0)

Total
£m

(4.3)
(14.6)
0.9
1.2
(0.5)
(0.6)
—

(17.9)

Accelerated
capital
allowances
£m

Rolled over
gains and
property
revaluation
£m

49.7
(11.7)

38.0
(4.3)

33.7

96.8
(24.8)

72.0
(14.6)

57.4

2014
£m

38.0
72.0

110.0

(10.6)
(2.1)
(33.9)
(4.7)

(51.3)

58.7

Total
£m

(11.7)
(24.8)
1.0
0.3
0.2
(0.9)
0.1

(35.8)

Total
£m

146.5
(36.5)

110.0
(18.9)

91.1

GREENE KING PLC Annual report 2015

Financial statementsDeferred tax assets

At 28 April 2013
Charge to equity/comprehensive income
Charge/(credit) to the income statement

At 4 May 2014
(Credit)/charge to equity/comprehensive income
Charge/(credit) to the income statement

At 3 May 2015

Pensions
and post-
employment
medical
benefits
£m

Other
accruals and
deferred
income
£m

Derivatives
£m

Share-
based
payments
£m

(14.9)
3.3
1.0

(10.6)
(2.4)
0.9

(12.1)

(2.4)
—
0.3

(2.1)
—
1.2

(0.9)

(54.0)
19.9
0.2

(33.9)
(12.7)
(0.5)

(47.1)

(5.0)
1.2
(0.9)

(4.7)
3.4
(0.6)

(1.9)

Taxes
losses
carried
forward
£m

(0.1)
—
0.1

—
—
—

—

Total
£m

(76.4)
24.4
0.7

(51.3)
(11.7)
1.0

(62.0)

There are no income tax consequences attaching to the payment of dividends by Greene King plc to its shareholders.

Factors that may affect future tax charges
The Finance Act 2013 reduced the rate of corporation tax from 21% to 20% from 1 April 2015. The effect of the reduced rate was included
in the accounts for the previous period.

11 Dividends paid and proposed

Declared and paid in the period
Interim dividend for 2015: 7.95p (2014: 7.6p)
Final dividend for 2014: 20.8p (2013: 19.45p)

Proposed for approval at AGM
Final dividend for 2015: 21.8p (2014: 20.8p)
Total proposed dividend for 2015: 29.75p (2014: 28.4p)

Dividends on own shares have been waived.

2015
£m

2014
£m

17.4
45.4

62.8

67.1
84.5

16.6
42.1

58.7

45.4
62.1

12 Earnings per share
Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £89.3m (2014: £96.1m) by the weighted
average number of shares in issue during the period (excluding own shares held) of 218.3m (2014: 217.2m).

Diluted earnings per share has been calculated on a similar basis taking account of 1.6m (2014: 1.1m) dilutive potential shares under option,
giving a weighted average number of ordinary shares adjusted for the effect of dilution of 219.9m (2014: 218.3m). There were no (2014: nil)
anti-dilutive share options excluded from the diluted earnings per share calculation. The performance conditions for share options granted
over 1.5m (2014: 2.6m) 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 items and is presented to show the underlying performance of the group
on both a basic and diluted basis.

Earnings

Basic earnings per share

Diluted earnings per share

Adjusted earnings per share

Profit attributable to equity holders
Exceptional items

2015
£m

89.3
43.9

2014
£m

96.1
37.2

Profit attributable to equity holders before exceptional items

133.2

133.3

2015
p

40.9
20.1

61.0

2014
p

44.2
17.2

61.4

2015
p

40.6
20.0

60.6

2014
p

44.0
17.1

61.1

Treasury shares and shares held by the EBT are excluded from the calculation of weighted average number of shares in issue.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

13 Goodwill

Cost
At 28 April 2013
Disposal
Transfer to assets held for sale

At 4 May 2014
Disposal

At 3 May 2015

Impairment
At 28 April 2013
Impairment of disposal group (note 5)
Transfer to assets held for sale

At 4 May 2014 and 3 May 2015

Net book value
At 3 May 2015
At 4 May 2014
At 28 April 2013

£m

724.8
(6.4)
(14.6)

703.8
(2.9)

700.9

—
(14.6)
14.6

—

700.9
703.8
724.8

All goodwill was purchased as part of business combinations. As from 3 May 2004, the date of transition to IFRS, goodwill is no longer
amortised but is subject to annual impairment testing.

Goodwill has been allocated to operating segments, the lowest group of cash-generating units in the group at which goodwill is monitored
internally, based on the extent that the benefits of acquisitions flow to that segment.

Goodwill disposed of in the year is the amount of goodwill allocated to parts of operating segments disposed of during the year.
The amount disposed is calculated based on the relative value of the operation disposed and the portion of the operating segment retained.

The carrying amount of goodwill has been allocated £352.7m (2014: £353.5m) to Retail, £133.7m (2014: £135.8m) to Pub Partners,
and £214.5m (2014: £214.5m) to Brewing & Brands.

The recoverable amount of each segment was determined on a value-in-use basis, using cash flow projections based on one year budgets
approved by the board, and in all cases exceeded the carrying amount.

The key assumptions used in the value-in-use calculations are budgeted EBITDA, the pre-tax discount rate and the growth rate used
to extrapolate cash flows beyond the budgeted period.

Budgeted EBITDA is based on past experience adjusted to take account of the impact of expected changes to sales prices, volumes,
business mix and margin, based on the current estate and committed capital expenditures.

Cash flows are discounted at 9.0% (2014: 9.0%) which is used as an approximation for the risk-adjusted discount rate of the relevant
operating segment. A growth rate of 1.0% (2014: 2.0%) has been used to extrapolate cash flows. The growth rate is below the long-term
average growth rate for the industry and reflects trends in trading performance.

Sensitivity to changes in assumptions
The calculation is most sensitive to changes in the assumptions used for budgeted cash flow, pre-tax discount rate and growth rate.
Management considers that reasonable possible changes in assumptions would be an increase in discount of 1% point, a reduction in growth
rate of 1% point or a 10% reduction in budgeted cash flow. As an indication of sensitivity, when applied to the value-in-use calculation neither
a 1% reduction in growth rate or a 10% reduction in cash flow would have resulted in an impairment of goodwill in the period, a 1% increase
in the discount rate would have resulted in a £4.6m (2014: £nil) impairment to the goodwill allocated to Pub Partners, with the carrying
amount equalling the recoverable amount at a discount rate of 9.9%.

GREENE KING PLC Annual report 2015

Financial statements
14 Property, plant and equipment

Cost
Balances at 28 April 2013
Additions during period
Transfer to property, plant and equipment held for sale
Disposals during period

Balances at 4 May 2014
Additions during period
Transfer to property, plant and equipment held for sale
Disposals during period

Licensed estate

Other

Land and
buildings
£m

Plant and
equipment
£m

Land and
buildings
£m

Plant and
equipment
£m

Total
£m

2,094.0
98.8
(87.5)
(45.2)

2,060.1
99.1
(0.8)
(28.1)

597.1
67.6
(26.9)
(6.0)

631.8
59.3
(0.1)
(9.7)

61.8
2.4
—
(0.8)

63.4
2.8
—
(0.1)

66.1

10.8
2.4
(0.1)
—
—

13.1
1.8
—
—
—

119.1
6.8
—
—

125.9
4.4
—
—

2,872.0
175.6
(114.4)
(52.0)

2,881.2
165.6
(0.9)
(37.9)

130.3

3,008.0

75.2
3.3
—
—
—

78.5
4.4
—
—
—

660.9
64.1
(22.4)
41.6
(32.6)

711.5
62.8
(28.6)
27.4
(0.5)

Balances at 3 May 2015

2,130.3

681.3

Depreciation and impairment
Balances at 28 April 2013
Provided during the year
Written back on disposals
Impairment (see below)
Transfer to property, plant and equipment held for sale

Balances at 4 May 2014
Provided during the year
Written back on disposals
Impairment (see below)
Transfer to property, plant and equipment held for sale

145.3
8.5
(19.5)
41.6
(8.8)

167.1
7.5
(23.1)
27.4
(0.4)

429.6
49.9
(2.8)
—
(23.9)

452.8
49.1
(5.5)
—
(0.1)

Balances at 3 May 2015

178.5

496.3

14.9

82.9

772.6

Net book value
At 3 May 2015
At 4 May 2014
At 28 April 2013

1,951.8
1,893.0
1,948.7

185.0
179.0
167.5

51.2
50.3
51.0

47.4
47.4
43.9

2,235.4
2,169.7
2,211.1

The licensed estate relates to properties, and assets held within those properties, licensed to trade (i.e. managed, tenanted and leased houses).
Other assets relate to property, plant and equipment associated with unlicensed properties (i.e. brewing, distribution, and central assets).

The net book value of land and buildings comprises:

Freehold properties
Leasehold properties >50 years unexpired term
Leasehold properties <50 years unexpired term

2015
£m

1,895.9
64.7
42.4

2014
£m

1,842.8
60.3
40.2

2,003.0

1,943.3

Valuation
The licensed estate properties were valued by the group’s own professionally qualified chartered surveyors, as at 20 December 2003,
on the basis of existing use value, in accordance with the Royal Institution of Chartered Surveyors’ Appraisal and Valuation Standards.
A representative sample of properties was also valued by external valuers, Gerald Eve Chartered Surveyors and Property Consultants,
who confirmed that the values were consistent with their appraisal. Frozen revaluation has been taken as deemed cost on the transition
to IFRS; therefore, no historic cost analysis is provided.

Up to 1999 the brewery and depots were valued at depreciated replacement cost and other properties at open market value. These valuations
have been retained but they have not been updated. Subsequent additions have been included at cost or, in the case of acquisitions, at fair value.

Charges over assets
Included in land and buildings are properties with a net book value of £1,425.2m (2014: £1,422.1m) over which there is a first charge
in favour of the securitised debt holders as detailed in note 22.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

14 Property, plant and equipment continued
Future capital expenditure

Contracted for

2015
£m

7.0

2014
£m

9.0

Impairment of property, plant and equipment
During the year £27.4m of impairment losses (2014: £41.6m) were recognised in the income statement as exceptional costs.
The prior year impairment charge includes a £19.6m charge in relation to the sale of the disposal group as discussed in note 5.

These are analysed between the group’s principal reporting segments as shown below:

Retail
Pub Partners
Pub Partners in respect of disposal group (note 5)

2015
£m

21.1
6.3
—

27.4

2014
£m

3.5
18.5
19.6

41.6

The group considers that each of its individual pubs is a cash-generating unit (CGU). Each CGU is reviewed annually for indicators of impairment.
When indicators of impairment are identified the carrying value of the CGU is compared to its recoverable amount. The recoverable
amount is the higher of the CGU’s fair value less costs of disposal and its value-in-use.

The group estimates value-in-use using a discounted cash flow model. The key assumptions used are the discount rate applied to cash flow
projections of 9% (2014: 9%) and the projected cash flows extrapolated using an average growth rate of 1% (2014: 2%) which is below the
long-term average growth rate for the industry and reflects trends in trading performance. Cash-flow projections relating to individual
CGUs have been made based on historic trends adjusted for management’s estimates of medium term trading prospects.

Estimates of fair value less costs of disposal are based on valuations undertaken by in-house property experts. The valuation considers
assumptions such as current, and future projected income levels, which take account of the location and quality of the pub. In addition
recent market transactions in the sector and potential alternative use values have been considered.

The valuation techniques applied are consistent with the principles in IFRS 13 Fair Value Measurement. As they use significant
unobservable inputs they are classified within Level 3 of the fair value hierarchy; this hierarchy is further explained in note 23.

The impairment charge recognised in relation to a small number of pubs was driven by changes in the local competitive and trading
environment at their respective sites, and decisions taken to exit some sites where current market values are lower than book values.

The prior year impairment in respect of the disposal group was calculated based on expected net disposal proceeds.

Sensitivity to changes in assumptions
The level of impairment is predominantly dependent upon judgments used in arriving at fair values, future growth rates and the discount
rate applied to cash flow projections. The impact on the impairment charge of applying different assumptions to fair values, the growth
rates used to calculate cash flow projections and in the pre-tax discount rates would be as follows:

Increased impairment resulting from a 10% reduction in fair value less cost of disposal:

Retail
Pub Partners

Increased impairment resulting from a 1% increase in discount rate:

Retail
Pub Partners

Increased impairment resulting from a 1% reduction in growth rate:

Retail
Pub Partners

GREENE KING PLC Annual report 2015

2015
£m

10.5
2.3

12.8

2015
£m

5.0
1.0

6.0

2015
£m

5.0
1.0

6.0

2014
£m

0.9
2.8

3.7

2014
£m

0.6
1.9

2.5

2014
£m

0.6
1.9

2.5

Financial statements15 Financial assets

Trade loans (net of provision)

Total current

Trade loans (net of provision)
Other financial assets

Total non-current

2015
£m

9.1

20.8
0.5

21.3

2014
£m

8.6

23.7
0.5

24.2

Trade loans are net of provisions of £4.1m (2014: £4.1m). During the year £0.2m (2014: £0.2m) of the provision was utilised and £0.2m
(2014: £0.2m) of new provision created. All trade loans that are neither past due nor impaired are expected to be fully recoverable.

Trade loans are advanced to customers on terms linked to supply terms such that returns are greater than interest income. The fixed rate
trade loans amounted to £20.7m (2014: £21.7m) and variable rate trade loans amounted to £13.3m (2014: £14.7m). Included in fixed rate loans
are £17.5m of loans with settlement related to purchase levels (2014: £14.2m). The write-down of these loans has been taken on a straight-line
basis over the remaining term of the loan as an approximation of the settlement.

The fixed rate trade loans had a weighted average interest rate of 0.64% (2014: 0.73%) and a weighted average period of 4.55 years
(2014: 5.20 years). Interest rates on variable rate trade loans are linked to base rate.

Trade loans

Balance at beginning of period
Advances
Repayments

Balance at end of period

16 Subsidiary undertakings
The main subsidiary undertakings are:

Subsidiary undertakings

Greene King Brewing and Retailing Limited
Greene King Retailing Parent Limited
Greene King Pubs Limited
Greene King Investments Limited
Greene King Retailing Limited
Greene King Services Limited
Greene King Retail Services Limited
Greene King Properties Limited
Greene King Developments Limited
Premium Dining Restaurants and Pubs Limited

Principal activity

Brewing and retailing
Holding company
Property
Holding company
Pub retailing
Employment
Employment
Property
Property
Retailing

Held by

Subsidiary
Parent
Parent
Parent
Subsidiary
Subsidiary
Subsidiary
Parent
Parent
Subsidiary

17 Inventories

Raw materials and work in progress
Finished goods and goods for resale
Consumable stores

2015
£m

32.3
5.5
(7.9)

29.9

2014
£m

33.6
5.4
(6.7)

32.3

Proportion
of voting
rights

Holding

Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares

2015
£m

4.5
25.4
2.2

32.1

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

2014
£m

4.8
23.9
1.8

30.5

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder information

NOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

18 Trade and other receivables

Other receivables

Total non-current

Trade receivables
Other receivables

Total current

Trade and other receivables are non-interest bearing.

The ageing analysis of trade receivables is as follows:

Neither past due nor impaired
Past due but not impaired
– Less than 30 days
– 30–60 days
– Greater than 60 days

Trade receivables are shown net of a provision of £4.0m (2014: £4.6m).

19 Cash and cash equivalents

Cash at bank and in hand
Short-term deposits
Liquidity facility reserve (note 22)

Cash and cash equivalents for balance sheet
Bank overdrafts

Cash and cash equivalents for cash flow

2015
£m

0.1

50.5
8.4

58.9

2015
£m

47.5

2.2
0.5
0.3

2014
£m

0.1

54.2
6.0

60.2

2014
£m

51.7

0.7
1.4
0.4

50.5

54.2

2015
£m

50.0
2.8
157.5

210.3
—

210.3

2014
£m

31.3
27.4
157.5

216.2
(13.8)

202.4

Included in cash at bank and in hand and short-term deposits is £34.3m (2014: £16.1m) held within securitised bank accounts which are only
available for use by the securitisation entities within the group. The securitisation entities comprise Greene King Retailing Parent Limited
and its subsidiaries.

The liquidity facility reserve is restricted cash as explained in note 22.

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.

20 Property, plant and equipment held for sale

Property, plant and equipment held for sale

2015
£m

0.4

2014
£m

81.7

At the period end, property plant and equipment held for sale of £0.4m (2014: £81.7m) represents pubs that are being actively marketed for sale
with expected completion dates within one year. The value of property plant and equipment held for sale represents the expected net disposal
proceeds, further details on the valuation of fair value less costs of disposal are held in note 14. The impairment charge on reclassification
to assets held for sale for these sites was £nil (2014: £19.6m) and is included as an exceptional item.

GREENE KING PLC Annual report 2015

Financial statements21 Trade and other payables: current

Trade payables
Other payables
– Other taxation and social security costs
– Accruals and deferred income
– Interest payable

Total current

Other payables

Total non-current

2015
£m

107.2

49.5
114.9
22.5

294.1

1.0

2014
£m

90.8

55.2
90.6
19.9

256.5

—

Trade payables and other payables are non-interest bearing. Interest payable is mainly settled monthly, quarterly or semi-annually
throughout the year, in accordance with the terms of the related financial instrument.

22 Borrowings

Bank overdrafts
Liquidity facility loan
Bank loans – floating rate
Securitised debt

2015

2014

Repayment
date

Current Non-current
£m

£m

Total
£m

Current Non-current
£m

£m

On demand
On demand
2018
2005 to 2036

—
157.5
—
32.4

—
—
248.3
1,140.8

—
157.5
248.3
1,173.2

13.8
157.5
—
30.7

—
—
276.6
1,173.2

Total
£m

13.8
157.5
276.6
1,203.9

189.9

1,389.1

1,579.0

202.0

1,449.8

1,651.8

Bank overdrafts
Overdrafts are utilised for the day to day management of cash. The group has facilities of £25.0m (2014: £25.0m) available with interest
linked to base rate.

Bank loans – unsecured
In the prior period the group increased and extended a 5-year revolving credit facility of £460m, of which £248.2m (2014: £276.6m) was
drawn down at the year end. Any amounts drawn down bear interest at a margin above LIBOR, with commitment payments on the undrawn
portions. Interest is payable at each renewal date which vary in maturity. Although any individual draw-downs are repayable within 12 months
of the balance sheet date, the group expects to renew this funding and, immediate renewal is available under the £460m facility until June 2018.
Final repayment of the total drawn-down balance is due as one payment on the agreement repayment date.

Liquidity facility
During the prior period the standby liquidity facility provider had its short-term credit rating downgraded below the minimum prescribed
in the facility agreement and as such the group exercised its entitlement to draw the full amount of the facility and hold it in a designated
bank account. The corresponding balance of £157.5m (2014: £157.5m) held in this bank account is included within cash and cash equivalents.
The amounts drawn down can only be used for the purpose of meeting the securitisation’s debt service obligations should there ever
be insufficient funds available from operations to meet such payments. As such these amounts are considered to be restricted cash.

Securitised debt
The group has issued various tranches of bonds in connection with the securitisation of 2,035 of the group’s pubs held in Greene King
Retailing Limited at the date of the most recent tap. The bonds are secured over the properties and their future income streams and were
issued by Greene King Finance plc.

The group’s securitised debt consists of the following tranches:

Tranche

A1
A2
A3
A4
A5
B1
B2

Nominal
value
(£m)

123.2
242.7
84.9
258.9
250.2
120.9
99.9

Carrying value (£m)1

2015

122.0
240.4
84.0
257.4
250.2
119.9
99.3

2014

131.1
244.3
94.8
257.4
257.2
119.8
99.3

Interest

Floating
Fixed
Floating
Fixed
Floating
Fixed/floating
Floating

1,180.7

1,173.2

1,203.9

Interest
rate2
(%)

6.11%2
5.32%
6.09%2
5.11%
7.76%2
6.54%
6.92% 2

Principal
repayment
period

2031
2031
2021
2034
2033
2034
2036

Average life3

6.8 years
10.8 years
3.5 years
13.4 years
11.3 years
18.2 years
20.3 years

1. Carrying value is net of related deferred finance fees.

2. Includes the effect of interest rate swaps and future rate step-ups.

3. This assumes notes are held until final maturity.

Repayment of nominal is made by quarterly instalments, in accordance with the repayment schedule, over the period shown above.
Payment of interest is made on quarterly dates for all classes of bond. All of the floating rate bonds are fully hedged using interest rate swaps.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

22 Borrowings continued
Securitised debt continued
The Class A1, A2, A3, A4 and A5 bonds rank pari passu in point of security and as to payment of interest and principal, and have
preferential interest payment and repayment rights over the Class B bonds. The Class B1 and B2 bonds rank pari passu in point of security,
principal repayment and interest payment.

The securitisation is governed by various covenants, warranties and events of default, many of which apply to Greene King Retailing
Limited, a group company. These include covenants regarding the maintenance and disposal of securitised properties and restrictions
on its ability to move cash to other group companies.

23 Financial instruments
The primary treasury objectives of the group are to identify and manage the financial risks that arise in relation to underlying business
needs, and provide secure and competitively priced funding for the activities of the group. If appropriate, the group uses financial
instruments and derivatives to manage these risks.

The principal financial instruments held for the purpose of raising finance for operations are bank loans and overdraft, securitised bonds,
cash and short-term deposits. Other financial instruments arise directly from the operations of the group, such as trade receivables,
payables and trade loans.

Derivative financial instruments, principally interest rate swaps, are used to manage the interest rate risks related to the group’s operations
and financing sources. No speculative trading in derivative financial instruments is undertaken.

The main risks from the group’s financial instruments are interest rate risk, liquidity risk, credit risk and cash flow risk. The policy for
managing each of these risks is set out below.

Interest rate risk
Exposure to changes in interest rates on the group’s borrowings is reviewed with regard to the maturity profile and cash flows of the
underlying debt. The group uses a mixture of fixed and floating interest rate debt with exposure to market interest rate fluctuations
primarily arising from the floating rate instruments. The group operates a policy that no less than 95% of the overall interest exposure
should be hedged. The group enters into interest rate swaps to manage the exposure. The swaps are designated as cash flow hedges
at the date of contract included within the accounts, and tested for effectiveness every six months.

In accordance with IFRS 7, the group has undertaken sensitivity analysis on its financial instruments which are affected by changes in
interest rates. This analysis has been prepared on the basis of a constant amount of net debt, a constant ratio of fixed to floating interest
rates, and on the basis of the hedging instruments in place at 3 May 2015 and 4 May 2014. The analysis relates only to balances at these
dates and is not representative of the year as a whole. The following assumptions were made:

– Balance sheet sensitivity to interest rates applies only to derivative financial instruments, as the carrying value of debt and deposits

does not change as interest rates move.

– Gains and losses are recognised within equity or the income statement in line with the accounting policies of the group.
– Cash flow hedges were assumed to be effective or ineffective on the same basis as those as at the year end. An explanation for the split between

those hedges that were effective at the year end and those that were ineffective is detailed within the cash flow hedging note.

Based on the group’s net position at the year end, a 1% increase or decrease in interest rates would change the group’s profit before tax
by approximately £0.6m (2014: £0.6m) and the group’s equity by £87.6m (2014: £81.0m).

Liquidity risk
The group mitigates liquidity risk by managing cash generated by its operations combined with bank borrowings and long-term debt.
The group’s objective is to maintain a balance between the continuity of funding and flexibility through the use of overdrafts and bank
loans. The group also monitors the maturity of financial liabilities to avoid the risk of a shortage of funds.

The standard payment terms that the group has with its suppliers is 60 days following month end (2014: 60 days following month end).

Excess cash used in managing liquidity is placed on interest-bearing deposit with maturities fixed at no more than 1 month. Short-term
flexibility is achieved through the use of short-term borrowing on the money markets.

GREENE KING PLC Annual report 2015

Financial statementsThe table below summarises the maturity profile of the group’s financial liabilities at 3 May 2015 and 4 May 2014 based on contractual
undiscounted payments including interest.

Period ended 3 May 2015

Interest-bearing loans and borrowings:
– Capital
– Interest

Interest rate swaps settled net

Trade payables and accruals
Provisions in respect of financial liabilities

Period ended 4 May 2014

Interest-bearing loans and borrowings:
– Capital
– Interest

Interest rate swaps settled net

Trade payables and accruals
Provisions in respect of financial liabilities

Within 1 year
£m

1–2 years
£m

2–5 years
£m

>5 years
£m

Total
£m

190.4
55.2

245.6
28.2

273.8
222.1
0.5

496.4

34.8
57.4

92.2
23.7

115.9
—
0.5

366.7
160.0

526.7
53.7

580.4
—
1.5

996.3
416.1

1,412.4
162.5

1,574.9
—
6.9

1,588.2
688.7

2,276.9
268.1

2,545.0
222.1
9.4

116.4

581.9

1,581.8

2,776.5

Within 1 year
£m

1–2 years
£m

2–5 years
£m

>5 years
£m

Total
£m

202.4
56.2

258.6
29.8

288.4
181.4
0.5

470.3

32.9
61.2

94.1
23.8

117.9
—
0.5

390.4
193.2

583.6
43.7

627.3
—
1.5

1,037.3
532.0

1,569.3
99.3

1,668.6
—
6.2

1,663.0
842.6

2,505.6
196.6

2,702.2
181.4
8.7

118.4

628.8

1,674.8

2,892.3

Credit risk
The policy for third party trading is that all customers who wish to trade on credit terms are subject to regular credit verification
procedures. Receivable balances are also monitored on an ongoing basis and provided against where deemed necessary to limit
the exposure to bad debts to a non-significant level.

Other financial assets includes trade loans and cash. Credit risk is the risk of default by the counterparty to discharge their obligation
and the maximum exposure of the group is the carrying amount of these instruments.

There is no significant collateral held and there are no significant concentrations of credit risk within the group.

Cash flow hedging
At 3 May 2015 the group held 3 (2014: 4) interest rate swap contracts for a nominal value of £135m (2014: £170m), designated as a hedge
of the cash flow interest rate risk of the £248.3m (2014: £276.6m) draw-down from the revolving credit facility in the year. The interest rate
swaps are held on the balance sheet as a fair value liability of £32.8m (2014: £23.4m). The cash flows occurred semi-annually based
a variable rate of interest based on LIBOR.

At 3 May 2015 the group held 5 (2014: 5) interest rate swap contracts for a nominal value of £558.1m (2014: £585.1m), entered into as part
of the securitisation and subsequent securitisation taps. A fair value liability of £204.1m (2014: £149.0m) has been recognised on the balance
sheet in respect of these contracts which are designated cash flow hedges against £558.1m (2014: £585.1m) of variable rate bonds, receiving
a variable rate of interest based on LIBOR and paying a weighted average fixed rate of 7.3% (2014: 7.3%). The contract maturity dates
are December 2034 and March 2036. The bonds and interest rate swaps have the same critical terms excluding credit risk.

Changes in cash flow hedge fair values are recognised in the hedging reserve to the extent that the hedges are effective. The interest rate
swaps have been assessed as highly effective during the period and are expected to remain highly effective over their remaining contract lives.
The ineffectiveness amounting to £0.8m loss (2014: £2.7m gain) have been recognised with finance costs/income.

The percentage of debt that was fixed as at the year end was 95.5% (2014: 95.5%), in line with the group’s policy of fixing at least 95% of all debt.

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

23 Financial instruments continued
Interest rate risk
The following tables set out the group’s exposure to interest rate risk and the maturity profile for each class of interest bearing financial
asset and financial liability.

3 May 2015

Fixed rate
Securitised debt
Financial asset
Variable rate
Securitised debt
Bank loans
Overdraft
Financial asset
Cash and short-term deposits
Interest rate swap liabilities

4 May 2014

Fixed rate
Securitised debt
Financial asset
Variable rate
Securitised debt
Bank loans
Overdraft
Financial asset
Cash and short-term deposits
Interest rate swap liabilities

Within 1 year
£m

1–2 years
£m

2–3 years
£m

3–4 years
£m

4–5 years
£m

>5 years
£m

Total
£m

4.4
(6.9)

28.0
—
—
(2.1)
(52.8)
28.1

5.1
(4.4)

29.2
—
—
(1.8)
—
23.4

5.9
(2.9)

30.4
—
—
(1.7)
—
19.4

6.8
(2.2)

31.7
248.2
—
(1.6)
—
16.7

7.7
(1.6)

32.9
—
—
(1.6)
—
14.4

587.8
(2.7)

403.3
—
—
(4.5)
—
134.9

617.7
(20.7)

555.5
248.2
—
(13.3)
(52.8)
236.9

Within 1 year
£m

1–2 years
£m

2–3 years
£m

3–4 years
£m

4–5 years
£m

>5 years
£m

Total
£m

3.8
(6.2)

26.9
—
13.8
(2.5)
(58.7)
9.4

4.4
(4.2)

28.0
—
—
(2.2)
—
9.1

5.1
(3.4)

29.2
—
—
(2.1)
—
8.3

5.9
(2.5)

30.4
—
—
(2.0)
—
8.3

6.7
(1.9)

31.6
276.6
—
(1.9)
—
8.3

595.6
(3.5)

436.3
—
—
(4.0)
—
129.0

621.5
(21.7)

582.4
276.6
13.8
(14.7)
(58.7)
172.4

The interest on variable rate financial instruments is repriced at intervals of less than one year. The interest on fixed rate financial
instruments is fixed until the maturity of the instrument. Other financial assets, trade and other receivables, and trade and other payables
are not included above as they are non-interest bearing and are not subject to interest rate risk.

Fair values
Set out in the table on page 97 is a comparison of carrying amounts and fair values of all of the group’s financial instruments.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced liquidation or sale. The following methods and assumptions were used
to estimate the fair values:

Cash and cash equivalents (comprising cash at bank and in hand and short-term deposits) – approximates to the carrying amount stated
in the accounts.

Financial assets – these are carried at amortised cost using the effective interest method and fair value is deemed to be the same as this.

Short-term loans and overdrafts – approximates to the carrying amount because of the short maturity of these instruments.

Long-term loans – based on quoted market prices in the case of the securitised debt; approximates to the carrying amount in the case
of the floating rate bank loans and other variable rate borrowings.

Interest rate swaps – calculated by discounting all future cash flows by the market yield curve at the balance sheet date and adjusting for,
where appropriate, the group’s and counterparty’s credit risk. The changes in credit risk had no material effect on the hedge effectiveness
assessment for derivatives designated in hedge relationships.

GREENE KING PLC Annual report 2015

Financial statementsFinancial liabilities
Overdraft
Interest-bearing loans and borrowings
– securitised debt
– floating rate bank loans
– liquidity facility loan
Interest rate swaps
Financial assets
Cash
Liquidity facility reserve
Financial assets

Hierarchical
classification

Fair
value
2015
£m

Carrying
value
2015
£m

Fair
value
2014
£m

Carrying
value
2014
£m

Level 2

—

13.8

Level 1
Level 2
Level 2
Level 2

Level 2
Level 2
Level 3

1,247.0
248.3
157.5
236.9

1,173.2
248.3
157.5
236.9

1,234.7
276.6
157.5
172.4

1,203.9
276.6
157.5
172.4

(52.8)
(157.5)
(29.9)

(58.7)
(157.5)
(32.3)

Carrying values are stated net of any deferred finance fees which amounted to £9.2m (2014: £11.4m).

Hierarchical classification of financial assets and liabilities measured at fair value
IFRS 13 requires that the classification of financial instruments at fair value be determined by reference to the source of inputs used
to derive fair value.

The classification uses the following three-level hierarchy:

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly.

Level 3 – techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

During the periods ending 3 May 2015 and 4 May 2014 there were no transfers between levels 1, 2, or 3 fair value measurements.

Capital risk management
The group aims to maximise shareholder value by maintaining a strong credit rating and a core level of debt which optimises the weighted
average cost of capital (WACC) and shareholder value.

A number of mechanisms are used to manage debt and equity levels (together referred to as capital), as appropriate in the light of economic
and trading conditions. To maintain or adjust the capital structure, the group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the period.

The group monitors capital using interest cover and several other measures including fixed charge cover, the ratio of net debt to EBITDA
and free cash flow debt service coverage. Interest cover is calculated by dividing operating profit before exceptional items by net finance
costs before exceptional items (note 7). For the period to 3 May 2015 interest cover was 3.0x (2014: 3.0x). The board’s dividend policy
is to maintain a minimum dividend cover of two times adjusted basic earnings per share.

24 Provisions

At 28 April 2013
Reclassification from trade and other payables
Unwinding of discount element of provisions
Provided for during the period
Utilised during the period

At 4 May 2014
Unwinding of discount element of provisions
Provided for during the period
Utilised during the period

At 3 May 2015

Property
leases
£m

7.7
—
0.6
0.3
(2.1)

6.5
0.4
0.5
(0.8)

6.6

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

24 Provisions continued
Provisions have been analysed between current and non-current as follows:

Current
Non-current

3 May
2015
£m

0.5
6.1

6.6

4 May
2014
£m

0.5
6.0

6.5

The provision for property leases has been set up to cover operating costs of vacant or loss making premises. The provision covers the expected
shortfall between operating income and rents payable. Payments are expected to be ongoing on these properties for an average of 15 years.

25 Share capital

Called up, allotted and fully paid
At beginning of period
Issue of share capital – share options exercised

At end of period

2015

2014

Number of
issued shares
m

Share
capital
£m

Number of
issued shares
m

Share
capital
£m

219.0
0.7

219.7

27.4
0.1

27.5

218.3
0.7

219.0

27.3
0.1

27.4

Details of options granted and outstanding are included in note 8.

26 Reserves
Share premium account
Share premium represents the excess of proceeds received over the nominal value of new shares issued.

Capital redemption reserve
Capital redemption reserve arose from the purchase and cancellation of own share capital, and represents the nominal amount of the share
capital cancelled.

Hedging reserve
Hedging reserve adjustments arise from the movement in fair value of the group’s derivative instruments used as an effective hedge, in line
with the accounting policy disclosed in note 1. Amounts recycled to income are included within finance costs in the income statement.

Own shares
Own shares relates to shares held in treasury, held by the employee benefit trust or purchased to fulfil awards made under the deferred
share bonus scheme. At 3 May 2015 0.13m shares (2014: 0.53m) were held in treasury, 0.61m shares (2014: 0.55m) were held by the employee
benefit trust and nil (2014: 0.04m) were held to fulfil awards under the deferred share bonus scheme. The market value at 3 May 2015 of the
treasury shares was £1.1m (2014: £4.6m), of the shares held by the employee benefit trust was £5.0m (2014: £4.8m) and of the shares held
for the deferred share bonus scheme was nil (2014: £0.3m).

The employee benefit trust is independently managed and has purchased shares in order to satisfy outstanding employee share options and
potential awards under the long-term incentive plan.

At the year end nil (2014: 0.39m) treasury shares and 0.31m (2014: 0.31m) shares in the employee benefit trust were allocated to meet
awards under the long-term incentive plan.

A transfer of £5.6m (2014: £4.7m) from own shares to retained earnings has been made to reflect transfers to satisfy awards under the
long-term incentive plan and options exercised under the executive share option plan and reflects the weighted average cost of own shares.

During the period nil (2014: 0.04m) shares were repurchased at a cost of nil (2014: £0.3m) to fulfil awards made under the deferred
share bonus scheme with 0.04m (2014: 0.04m) shares transferred to individuals to satisfy awards. The employee benefit trust purchased
0.5m shares (2014: 0.2m) at a cost of £4.2m (2014: £1.6m) and 0.82m (2014: 0.70m) shares were transferred to satisfy awards under
the long-term incentive plan.

Goodwill
The cumulative amount of goodwill written off to retained earnings in respect of acquisitions made prior to May 1998 amounts to £89.7m.

GREENE KING PLC Annual report 2015

Financial statements27 Working capital and non-cash movements

Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Decrease in provisions
Share-based payment expense
Difference between defined benefit pension contributions paid and amounts charged
Exceptional items

Working capital and other movements

28 Analysis of and movements in net debt

Cash in hand, at bank1
Liquidity facility reserve1
Overdrafts
Current portion of borrowings
Liquidity facility loan
Non-current portion of borrowings

Closing net debt

1. Included in cash on the balance sheet.

Movement in net debt

Net increase in cash and cash equivalents
Proceeds – advances of borrowings
Proceeds – advance of liquidity facility (note 22)
Repurchase of securitised debt
Repayment of principal – securitised debt
Repayment of principal – loans and loan notes
Finance issue costs

Decrease in net debt arising from cash flows
Other non-cash movements

Decrease in net debt
Opening net debt

Closing net debt

2015
£m

(1.6)
(1.4)
16.8
(0.3)
3.7
(7.0)
(5.6)

4.6

2014
£m

(3.5)
12.9
(3.8)
(1.7)
4.4
(7.5)
(5.3)

(4.5)

2015
£m

2014
£m

52.8
157.5
—
(32.4)
(157.5)
(1,389.1)

58.7
157.5
(13.8)
(30.7)
(157.5)
(1,449.8)

(1,368.7)

(1,435.6)

2015
£m

7.9
—
—
—
31.1
30.0
—

69.0
(2.1)

2014
£m

182.2
(100.0)
(157.5)
60.0
29.4
—
2.6

16.7
(1.9)

66.9
(1,435.6)

14.8
(1,450.4)

(1,368.7)

(1,435.6)

Annual report 2015 GREENE KING PLC

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

29 Financial commitments
The group has entered into commercial leases on certain properties and items of plant and machinery. The terms of the leases vary but typically
on inception a property lease will be for a period of up to 30 years and plant and machinery will be for less than 5 years. Most property
leases have an upwards only rent review based on open market rents at the time of the review.

Future minimum rentals payable under non-cancellable operating leases:

Within 1 year
Between 1 and 5 years
After 5 years

2015
£m

12.9
43.9
134.2

191.0

2014
£m

13.9
46.9
141.5

202.3

The group leases part of its licensed estate and other non-licensed properties to tenants. The majority of lease agreements have terms of
between 6 months and 25 years and are classified for accounting purposes as operating leases. Most of the leases with terms of over 3 years
include provision for rent reviews on either a 3 year or 5 year basis.

Future minimum lease rentals receivable under non-cancellable operating leases are as follows:

Within 1 year
Between 1 and 5 years
After 5 years

2015
£m

28.5
81.8
54.6

2014
£m

30.4
79.7
65.8

164.9

175.9

Future minimum lease rentals include £2.9m receivable in respect of non-cancellable subleases.

30 Related party transactions
No transactions have been entered into with related parties during the period.

Greene King Finance plc is a structured entity set up to raise bond finance for the group, and as such is deemed a related party.
The results of the entity have been consolidated.

Compensation of directors and other key management personnel of the group

Short-term employee benefits (including national insurance contributions)
Post-employment pension and medical benefits
Termination benefits
Share-based payments

2015
£m

4.6
0.6
0.4
2.1

7.7

2014
£m

4.0
0.5
—
1.7

6.2

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 under this scheme.

31 Post balance sheet events
Final dividend
A final dividend of 21.8p per share (2014: 20.8p) amounting to a dividend of £67.1m (2014: £45.5m) was proposed by the directors at their
meeting on 30 June 2015. These financial statements do not reflect the dividend payable.

Acquisition of Spirit Pub Company plc
On 23 June 2015 the group completed the acquisition of Spirit Pub Company plc creating the UK’s leading managed pub company.

The group acquired 100% of the share capital of Spirit Pub Company plc for an estimated consideration of £763.1m, made up of 89,095,959
shares of Greene King plc.

In accordance with the findings of the Competition and Markets Authority review the group is committed to the sale of 16 pubs from
the combined estate, of which 9 are from the current Greene King estate, to ensure a fair level of competition within all our local markets.

As part of the deal Greene King has incurred legal and profession fees of £15.2m, all recognised in this financial year. A further £2.1m legal
and professional fees have been incurred for the issuance of shares as mentioned above.

Given the proximity of the acquisition date to the date of issue of these financial statements management are yet to conclude an assessment
of the fair value of the assets and liabilities acquired.

32 Contingent liabilities
The group has provided guarantees totalling £1.0m at 3 May 2015 (2014: £1.1m) in respect of free trade customers’ bank borrowings.

100

GREENE KING PLC Annual report 2015

Financial statementsIN DEPEN DENT AU DITOR’ S R EPORT (COM PA N Y )
To the members of Greene King plc

We have audited the parent company financial statements of Greene King plc for the 52 weeks ended 3 May 2015 which comprise the
parent company balance sheet and the related notes 33 to 42. The financial reporting framework that has been applied in their preparation
is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor
As explained more fully in the directors’ responsibilities statement set out on page 61, the directors are responsible for the preparation
of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and
express an opinion on the parent company financial statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.

Opinion on financial statements
In our opinion the parent company financial statements:

– give a true and fair view of the state of the company’s affairs as at 3 May 2015;
– have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
– have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

– the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements

are prepared is consistent with the parent company financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

– adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received

from branches not visited by us; or

– the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement

with the accounting records and returns; or

– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.

Other matter
We have reported separately on the group financial statements of Greene King plc for the 52 weeks ended 3 May 2015.

Bob Forsyth (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Cambridge
30 June 2015

Notes:
1.

The maintenance and integrity of the Greene King plc website is the responsibility of the directors; the work carried out by the auditor
does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.

Annual report 2015 GREENE KING PLC

101

Corporate governanceStrategic reportFinancial statementsShareholder informationAs at
3 May
2015
£m

As at
4 May
2014
£m

Note

2,597.9

2,618.0

68.3

2.1

11.7

(1.0)

(1.5)

—

27.3

(1.1)

—

(1,722.9)

(1,825.5)

(1,643.3)

(1,799.3)

954.6

818.7

(248.2)

(276.6)

(0.2)

706.2

27.5

259.3

2.5

(1.2)

93.9

(4.9)

329.1

706.2

(0.8)

541.3

27.4

256.6

2.5

(1.9)

93.9

(6.3)

169.1

541.3

COM PA N Y B A L A NC E S H EE T
As at 3 May 2015

Fixed assets

Investments

Current assets

Amounts due from subsidiaries

Prepayment

Cash

Creditors: due within one year

Derivative financial instruments

Income tax payable

Other creditors

Net current liabilities

Total assets less current liabilities

Creditors: due after more than one year

Medium and long-term debt

Derivative financial instruments

Net assets

Capital and reserves

Called-up share capital

Share premium account

Revaluation reserve

Hedging reserve

Other reserve

Own shares

Profit and loss account

Shareholders’ funds

Signed on behalf of the board on 30 June 2015.

T J W Bridge
Director

R Anand
Director

102

GREENE KING PLC Annual report 2015

Financial statementsNOTES TO TH E COM PA N Y ACCOU NTS
For the fifty-two weeks ended 3 May 2015

33 Accounting policies
Basis of accounting and presentation
The accounts are prepared on a going concern basis, in accordance with the Companies Act 2006 and applicable accounting and financial
reporting standards in the United Kingdom (UK GAAP). They are prepared under the historical cost convention with the exception of
derivatives, where the company uses interest rate swaps to hedge its exposure to interest rate fluctuations on its variable rate borrowings.

Changes in accounting policy
The accounting policies adopted are consistent with those of the previous financial year.

Investments
Investments in subsidiaries are recorded at cost less impairment and held as fixed assets on the balance sheet. The carrying value of
investments is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.

Deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax,
with the following exceptions:

– Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and gains on disposal
of fixed assets that have rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement
to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date,
it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement
assets are sold.

– Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable

taxable profits from which the future reversal of the underlying timing difference can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences
reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Financial instruments
Financial instruments are recognised when the company becomes party to the contractual provisions of the instrument and are
de-recognised when the company no longer controls the contractual rights that comprise the financial instrument, normally through
sale or when all cash flows attributable to the instrument are passed to an independent third party.

The company is exempt, in accordance with FRS 29.2D, from producing disclosure required by the standard as the group accounts contain
disclosure that complies with FRS 29 (IFRS 7).

Derivative financial instruments and hedge accounting
The company uses interest rate swaps to hedge its exposure to interest rate fluctuations on its variable rate borrowings.

Hedge accounting
To qualify for hedge accounting the hedge relationship must be designated and documented at inception. Documentation must include
the company’s risk management objective and strategy for undertaking the hedge and formal allocation to the item or transaction being
hedged. The company also documents how it will assess the effectiveness of the hedge and carries out assessments on a regular basis
to determine whether it has been, and is likely to continue to be, highly effective.

Hedges can be classified as either fair value (hedging exposure to changes in fair value of an asset or liability) or cash flow (hedging the
variability in cash flows attributable to an asset, liability, or forecast transaction). The company uses its interest rate swaps as cash flow hedges.

For these cash flow hedges, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the
ineffective portion is recognised in the profit and loss account. Amounts taken to equity are transferred to the profit and loss account when
the hedged transaction affects profit or loss.

If a forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to profit or loss. If the
hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked,
amounts previously recognised in equity remain in equity until the forecast transaction occurs and are then transferred to the profit and
loss account as above. If the related transaction is not expected to occur, the amount is taken to profit and loss.

Own shares
Own shares consist of treasury shares and shares held within an employee benefit trust. The company has an employee benefit trust
for the granting of shares to applicable employees.

Own shares are recognised at cost as a deduction from equity shareholders’ funds. Subsequent consideration received for the sale of such
shares is also recognised in equity, with any difference between the sale proceeds and the original cost being taken to revenue reserves.
No gain or loss is recognised in the performance statements on transactions in treasury shares.

Annual report 2015 GREENE KING PLC

103

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E COM PA N Y ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

33 Accounting policies continued
Share-based payments
Certain employees and directors of subsidiary companies receive equity-settled remuneration, whereby they render services in exchange
for shares or rights over shares. The fair value of the shares and options granted is measured using a Black-Scholes model, at the date at
which they were granted. No account is taken in the fair value calculation of any vesting conditions (service and performance), other than
market conditions (performance linked to the price of the shares of the company). Any other conditions that are required to be met in order
for an employee to become fully entitled to an award are considered non-vesting conditions. Like market performance, non-vesting conditions
are taken into account in determining the grant date fair value. The fair value of shares and options granted is recognised as an increase
in the company’s investments in its subsidiaries with a corresponding increase in equity spread over the period in which the performance
conditions are fulfilled ending on the relevant vesting date. The cumulative amount recognised as an investment reflects the extent
to which the vesting period has expired, adjusted for the estimated number of shares and options that are ultimately expected to vest.

Related party transactions
In accordance with FRS 8 Related Party Disclosures the company is not required to disclose transactions with its wholly owned subsidiaries.

34 Profit for the period
No profit or loss account is presented for the company as permitted by section 408 of the Companies Act 2006. The profit after tax for the period
is £225.3m (2014: £10.6m).

35 Auditor’s remuneration
Auditor’s remuneration in respect of the company audit was £16,500 (2014: £16,300).

36 Directors’ remuneration and employee costs
Details of directors’ remuneration is contained in the directors’ remuneration report on page 50. The company has no employees other
than directors and the directors are not remunerated through this company. Details of share options issued by the company are given
in note 8 to the group accounts.

The directors do not believe that it is practicable to apportion these amounts between their services as directors of the company and their
services as directors of other group companies.

Investments
in
subsidiaries
£m

Loans to
subsidiaries
£m

Total
£m

1,579.8
3.1

1,038.2
—

2,618.0
3.1

1,582.9

1,038.2

2,621.1

(23.2)

—

(23.2)

1,559.7
1,579.8

1,038.2
1,038.2

2,597.9
2,618.0

Principal
activity

Held by

Holding

Brewing and retailing
Holding company
Property
Holding company
Pub retailing
Employment
Employment
Property
Property
Retailing

Subsidiary
Company
Company
Company
Subsidiary
Subsidiary
Subsidiary
Company
Company
Subsidiary

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

37 Investments

Cost at 4 May 2014
Share-based payment awards to employees of subsidiaries

Cost at 3 May 2015

Impairment
Impairment of non-trading subsidiaries

Impairment at 3 May 2015

NBV at 3 May 2015
NBV at 4 May 2014

Principal subsidiaries

The country of incorporation for all companies is the United Kingdom.

104

GREENE KING PLC Annual report 2015

Financial statements

38 Other creditors

Accruals and deferred income
Amounts owed to subsidiaries

39 Borrowings

2015
£m

16.7
1,706.2

2014
£m

4.3
1,821.2

1,722.9

1,825.5

Within
one year
£m

2015

After
one year
£m

Total
£m

Within
one year
£m

2014

After
one year
£m

Total
£m

Bank loans – floating rate

—

248.2

—

276.6

At 3 May 2015 the company held 2 (2014: 3) interest rate swap contracts to hedge cash flow interest rate risk related to floating rate debt.
The swaps had nominal value of £75m (2014: £110m) and are held on the balance sheet as a net fair value liability of £1.2m (2014: £1.9m).
The details of terms and interest rates are included as part of the group’s portfolio in note 23.

Bank loans due after one year are repayable as follows:

Due between two and five years

2015
£m

2014
£m

248.2

276.6

Although the draw-down is repayable within 12 months of the balance sheet date, immediate renewal is available until June 2018
(2014: June 2018) for the facility.

40 Allotted and issued share capital

Allotted, called-up and fully paid

Ordinary shares of 12.5p each
219.7m shares (2014: 219.0m)

Further information on share capital is given in note 25 of the group accounts.

2015
£m

2014
£m

27.5

27.4

Annual report 2015 GREENE KING PLC

105

Corporate governanceStrategic reportFinancial statementsShareholder informationNOTES TO TH E COM PA N Y ACCOU NTS CONTIN U ED
For the fifty-two weeks ended 3 May 2015

41 Reconciliation of shareholders’ funds

Share
capital
£m

Share
premium
£m

Revaluation
reserve
£m

Hedging
reserve
£m

Other
reserve
£m

Own
shares
£m

Profit and
loss
account
£m

At 28 April 2013
Cash flow hedges – loss taken to equity
Issue of share capital
Release of shares (note 26)
Repurchase of shares
Share-based payment credit in respect
of subsidiaries
Profit for the period
Dividends

At 4 May 2014
Cash flow hedges – loss taken to equity
Issue of share capital
Release of shares (note 26)
Repurchase of shares
Share-based payment credit in respect
of subsidiaries
Profit for the period
Dividends

27.3
—
0.1
—
—

—
—
—

27.4
—
0.1
—
—

—
—
—

253.8
—
2.8
—
—

—
—
—

256.6
—
2.7
—
—

—
—
—

2.5
—
—
—
—

—
—
—

2.5
—
—
—
—

—
—
—

(4.0)
2.1
—
—
—

—
—
—

(1.9)
0.7
—
—
—

—
—
—

93.9
—
—
—
—

—
—
—

93.9
—
—
—
—

—
—
—

(9.1)
—
—
4.7
(1.9)

—
—
—

(6.3)
—
—
5.6
(4.2)

—
—
—

At 3 May 2015

27.5

259.3

2.5

(1.2)

93.9

(4.9)

217.5
—
—
(4.7)
—

4.4
10.6
(58.7)

169.1
—
—
(5.6)
—

3.1
225.3
(62.8)

329.1

Total
£m

581.9
2.1
2.9
—
(1.9)

4.4
10.6
(58.7)

541.3
0.7
2.8
—
(4.2)

3.1
225.3
(62.8)

706.2

Share premium account
Share premium represents the excess of proceeds received over the nominal value of new shares issued.

Other reserve
The other reserve consists of £3.3m (2014: £3.3m) capital redemption reserve arising from the purchase of own share capital and £90.6m
(2014: £90.6m) arising from transfer of revalued assets to other group companies and will only be realised when the related assets are
disposed of by the group.

Hedging reserve
Hedging reserve adjustments arise from the movement in fair value of the company’s derivative instruments used as an effective hedge,
in line with the accounting policy disclosed in note 33.

Own shares
Own shares relates to shares held in treasury and by the employee benefit trust. Movement in own shares is described in note 26
to the group accounts.

42 Post balance sheet events
Final dividend
A final dividend of 21.8p per share (2014: 20.8p) amounting to a dividend of £67.1m (2014: £45.5m) was proposed by the directors at their
meeting on 30 June 2015. These financial statements do not reflect the dividend payable.

Acquisition of Spirit Pub Company plc
On 23 June 2015 the group completed the acquisition of Spirit Pub Company plc, creating the UK’s leading managed pub company.

The company acquired 100% of the share capital of Spirit Pub Company plc for an estimated consideration of £763.1m, made up
of 89,095,959 shares of Greene King plc.

106

GREENE KING PLC Annual report 2015

Financial statementsG ROU P FIN A NCI A L R ECOR D

Income statement

Revenue
Operating profit before exceptionals
Profit before taxation and exceptionals
Profit before taxation

Basic earnings per share1
Adjusted basic earnings per share1
Adjusted dividend per share1

Adjusted operating profit/revenue
Adjusted tax expense/profit before tax
Adjusted interest cover (times)
Adjusted dividend cover (times)2

Balance sheet

Property, plant and equipment
Goodwill
Financial assets
Property, plant and equipment held for sale
Working capital
Derivatives
Provisions
Net debt

Net assets

Gearing

Cash flow and investment

EBITDA before exceptionals

Cash inflow from operations
Interest, tax and dividends
Capital expenditure
Proceeds from sales of property, plant and equipment
Trade loans and investments
Acquisitions
Other

Decrease/(increase) in debt

2015
(52 weeks)
£m

1,315.3
256.2
168.5
118.2

40.9p
61.0p
29.75p

19.5%
20.9%
2.9
2.1

2014
(53 weeks)
£m

1,301.6
265.6
173.1
105.2

44.2p
61.4p
28.4p

20.4%
23.0%
3.0
2.1

2013 3
(52 weeks)
£m

1,194.7
248.2
158.2
111.0

44.1p
55.6p
26.6p

20.8%
24.0%
2.9
2.1

20123
(52 weeks)
£m

1,140.4
236.2
147.2
125.1

46.0p
51.3p
24.8p

20.7%
25.0%
2.7
2.1

20113
(52 weeks)
£m

1,042.7
222.0
135.8
116.8

48.3p
46.8p
23.1p

21.3%
26.0%
2.7
2.0

£m

2,235.4
700.9
30.4
0.4
(236.4)
(236.9)
(96.2)
(1,368.7)

2,169.7
703.8
32.8
81.7
(198.6)
(172.4)
(118.7)
(1,435.6)

2,211.1
724.8
34.1
8.4
(174.2)
(239.2)
(143.1)
(1,450.4)

2,191.3
729.3
39.0
6.2
(168.6)
(200.8)
(157.9)
(1,493.2)

2,094.9
705.8
40.4
3.7
(164.5)
(116.3)
(172.9)
(1,410.2)

1,028.9

1,062.7

971.5

945.3

980.9

133%

135%

149%

158%

144%

£m

319.0

323.6
(189.1)
(160.5)
94.0
2.4
—
(3.5)

£m

329.7

306.5

292.0

276.6

325.2
(179.6)
(169.6)
38.4
1.3
—
(0.9)

312.5
(170.7)
(123.6)
28.0
3.0
(0.9)
(5.5)

282.0
(167.1)
(126.8)
29.9
2.2
(70.8)
(32.4)

279.2
(163.5)
(96.2)
27.8
1.5
(60.5)
(50.4)

66.9

14.8

42.8

(83.0)

(62.1)

1. Adjusted earnings per share, operating profit, taxation, interest cover and dividend cover exclude the effect of exceptional items.

2. 2014 assumes adjusted basic earnings per share on a 52 week basis.

2011–2013 restated for the impact of IAS 19.

Annual report 2015 GREENE KING PLC

107

Corporate governanceStrategic reportFinancial statementsShareholder informationS H A R EHOLDER IN FOR M ATION

Financial calendar

Ex-dividend date
Record date for final dividend
Annual general meeting
Payment of final dividend
Announcement of interim results
Payment of interim dividend
Preliminary announcement of the 2014/15 results

13 August 2015
14 August 2015
8 September 2015
14 September 2015
2 December 2015
January 2016
June 2016

Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Telephone: 0871 664 03001
Fax:
E-mail:
Website: www.capitaassetservices.com

01484 601512
shareholder.services@capita.co.uk

1. Calls cost 10p per minute plus network extras; lines are open 8.30am to 5.30pm,

Monday to Friday.

Capita Share Dealing Services
Telephone: +44 (0) 371 664 04451
Website: www.capitadeal.com

1. Calls are charged at the standard geographic rate and will vary by provider.
Calls from outside the UK are charged at the applicable international rate.
Lines are open 8.00am to 4.30pm, Monday to Friday.

Capital gains tax
For the purpose of computing capital gains tax, the market value of the
ordinary shares on 31 March 1982, after adjustment for the capitalisation
issues in 1980 and 1982 was 72.5625 pence. After take-up of the rights
issue in July 1996, the March 1982 value becomes 129.6875 pence.
With the take-up of the rights issue in May 2009, the March 1982
value becomes 182.3046875p.

Shareholder vouchers
We are pleased to offer shareholders with 100 or more shares in the
company, a booklet of discount vouchers for use across our retail pubs
and restaurants. Those holding shares in their own name will receive
the vouchers directly. If you hold shares in a nominee account please
contact your nominee provider to obtain a set of vouchers. Unfortunately,
we are not able to deal with individual requests for vouchers from
underlying beneficiaries. Please visit www.findaproperpub.co.uk
for details of the participating outlets.

E-communications
To register to receive shareholder communications from the company
electronically, visit www.greeneking-shares.com and either log in
or click on ‘register new user’ and follow the instructions.

By registering your e-mail address you will receive e-mails with a
web link to information posted on the company’s website, including
the report and accounts, notice of meetings and other information
communicated to shareholders.

Unsolicited communication
Please note that we will never contact our shareholders by telephone.
If you receive an unsolicited call from anyone purporting to be from
or calling on behalf of Greene King, please do not disclose any of your
personal details to the caller. You can find out more information about
investment scams, how to protect yourself and report any suspicious
telephone calls from the Financial Conduct Authority (FCA) by visiting
their website (www.fca.org.uk) or contacting them on 0800 111 6768.
The FCA advises that if it sounds too good to be true, it probably is.

Indirect investors’ information rights
Beneficial owners of shares held on their behalf by a different registered
holder now have certain information rights regarding Greene King.
They have the right to ask their registered holder to nominate them to
receive all non-personalised information distributed to shareholders, in
accordance with the provisions of section 146 of the Companies Act 2006.

Corporate advisers
Financial advisers
Lazard & Co. Limited
50 Stratton Street
London W1J 8LL

Joint stockbrokers
Deutsche Bank AG London
Winchester House
1 Great Winchester Street
London EC2N 3EQ

Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
Canary Wharf
London E14 5LB

Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF

Solicitors
Linklaters
One Silk Street
London EC2Y 8HQ

Should you wish to be nominated to receive information from
Greene King directly, please contact your registered holder, who
will need to notify our registrars, Capita Asset Services, accordingly.
Please note that, once nominated, beneficial owners of shares must
continue to direct all communications regarding those shares to
the registered holder of those shares rather than to the registrars
or to Greene King directly.

Company secretary and registered office
Lindsay Keswick
Westgate Brewery
Bury St Edmunds
Suffolk IP33 1QT

Telephone: 01284 763 222
Fax:
01284 706 502
Website: www.greeneking.co.uk

Share dealing services
Stocktrade
Telephone: 0131 240 0400

Redmayne Bentley
Moseley’s Farm Offices
Fornham All Saints
Bury St Edmunds
Suffolk IP28 6JY

Telephone: 01284 723 761

108

GREENE KING PLC Annual report 2015

Shareholder informationPrinted by Park Communications on FSC® certified paper. Park is an
EMAS certified company and its Environmental Management System
is certified to ISO 14001. 100% of the inks used are vegetable oil based,
95% of press chemicals are recycled for further use and, on average 99%
of any waste associated with this production will be recycled. This
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product is bleached using an elemental chlorine free (ECF) process.

Greene King plc
Registered in England No. 24511

Registered Office
Westgate Brewery
Bury St Edmunds
Suffolk
IP33 1QT

Telephone: 01284 763222
www.greeneking.co.uk