Greene King plc
Annual Report and Accounts 2019
TIME WELL SPENT
OUR VISION
TO BE THE BEST
PUB AND BEER
COMPANY IN
BRITAIN
Greene King is the country’s leading integrated pub retailer and
brewer. At our year end we operated 2,730 pubs, restaurants and
hotels across England, Wales and Scotland, of which 1,687 were
retail pubs, restaurants and bars, and 1,043 were tenanted, leased
and franchised pubs. Our leading retail brands include Greene King
local pubs, Chef & Brewer, Farmhouse Inns and Hungry Horse.
We also have a proud history of brewing award-winning ales for
more than 200 years and our leading ale portfolio includes Greene
King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best.
Contents
OVERVIEW
01 Financial highlights
02 At a glance
04 Chairman’s statement
STRATEGIC REPORT
08 Chief executive’s review
12 Our business model
14 Our core markets
16 Our strategy
18 Key performance indicators
20 Focus on VSQ
22 Focus on responsible retailing
24 Focus on social mobility
26 Operational review
26 Pub Company
28 Pub Partners
30 Brewing & Brands
32
34
38
40
44
Corporate social responsibility –
At a glance
Corporate social responsibility –
Putting our people first
Corporate social responsibility –
Supporting our local communities
Corporate social responsibility –
Operating sustainably
Corporate social responsibility –
Driving responsible retailing
47 Non-financial information statement
48 Chief financial officer’s report
52 Risk management
54 Principal risks and uncertainties
CORPORATE GOVERNANCE
60 Board of directors
62 Corporate governance
68 Nomination committee report
71 Audit and risk committee report
75 Directors’ remuneration report
92 Directors’ report and disclosures
95 Directors’ responsibilities statements
FINANCIAL STATEMENTS
98
Independent auditor’s report
106 Group income statement
107 Group statement of
comprehensive income
108 Group balance sheet
110 Group cash flow statement
111 Group statement of changes in equity
112 Notes to the accounts
166 Company balance sheet
167 Company statement of changes in equity
168 Notes to the company accounts
174 Alternative performance measures
SHAREHOLDER INFORMATION
179 Shareholder information
01
FINANCIAL HIGHLIGHTS
£2,216.9m
Revenue
(£m)
2019
2018
2017
+1.8%
£2,216.9m
£2,176.7m
£2,216.5m
£368.2m
Operating profit before exceptional
and non-underlying items1
(£m)
-1.3%
2019
2018
2017
£368.2m
£373.1m
£411.5m
£246.9m
Profit before tax and exceptional
and non-underlying items1
(£m)
+1.6%
2019
2018
2017
£246.9m
£243.0m
£273.5m
64.5p
£482.0m
EBITDA1,2
(£m)
2019
2018
2017
33.2p
-0.9%
£482.0m
£486.6m
£524.1m
Adjusted basic earnings per share1
(p)
+2.9%
Dividend per share
(p)
2019
2018
2017
64.5p
62.7p
70.8p
2019
2018
2017
+0.0%
33.2p
33.2p
33.2p
1.
An explanation of the group’s use of Alternative Performance Measures (APMs), including definitions and reconciliations, are
on page 174 of this annual report.
2.
EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and
is calculated as operating profit before exceptional and non-underlying items adjusted for the depreciation and amortisation
charge for the period.
A RESPONSIBLE BUSINESS
WE CONTINUE TO DRIVE THE LONG-TERM SUSTAINABILITY
OF OUR BUSINESS.
VIEW OUR CORPORATE SOCIAL RESPONSIBILITIES ON PAGES 32 TO 46
Overview | Strategic Report | Corporate Governance | Financial Statements
02
Greene King plc | Annual Report and Accounts 2019
AT A GLANCE
As the country’s leading pub company and brewer, we
welcome our customers through our doors and brew
our iconic range of well-loved crafted ales every day.
OUR MISSION
TO BE THE BEST FOR
OUR CUSTOMERS,
EMPLOYEES,
SHAREHOLDERS
AND OUR
COMMUNITIES
OUR CORPORATE SOCIAL
RESPONSIBILITY (CSR) PILLARS
Putting our people first
Supporting our local communities
Driving responsible retailing
Operating sustainably
VIEW OUR CORPORATE SOCIAL RESPONSIBILITIES
ON PAGES 32 TO 46
OUR BUSINESS DIVISIONS
Our business is split into three complementary divisions:
Pub Company, Pub Partners and Brewing & Brands. It is
through this integrated business model that we continue
to drive long-term growth and cash generation for our
shareholders.
VIEW OUR BUSINESS MODEL ON PAGES 12 TO 13
PUB
COMPANY
PUB
PARTNERS
81%*
9%*
10%*
BREWING
& BRANDS
* of revenue
Overview | Strategic Report | Corporate Governance | Financial Statements 03
PUB
COMPANY
PUB
PARTNERS
BREWING
& BRANDS
Our food-focused destination
pubs and restaurants
and community-focused
local pubs.
Our tenanted, leased
and franchised pubs.
Our breweries, which brew
our core portfolio of ales.
FOCUS BRANDS
BRAND
CORE BRANDS
1,687
Pubs, restaurants and bars
1,043
Tenanted, leased and
franchised pubs
Two
Breweries
Westgate Brewery, Bury St. Edmunds
and Belhaven Brewery, Dunbar.
Revenue
£1,799.2m
Revenue
£190.1m
Revenue
£227.6m
MORE INFORMATION ON PUB COMPANY
SEE PAGES 26 TO 27
MORE INFORMATION ON PUB PARTNERS
SEE PAGES 28 TO 29
MORE INFORMATION ON BREWING &
BRANDS SEE PAGES 30 TO 31
04
Greene King plc | Annual Report and Accounts 2019
CHAIRMAN’S STATEMENT
OUR TEAMS WORKED HARD
TO DELIVER VALUE, SERVICE
AND QUALITY ON A
CONSISTENT BASIS.”
OVERVIEW
BOARD CHANGES
PERFORMANCE HEADLINES
Group revenue was up 1.8% to £2,216.9m,
driven by Pub Company LFL sales up 2.9%,
and group profit before tax, exceptional
and non-underlying items was up 1.6% to
£246.9m. Statutory group profit before tax
fell by 12.5% to £172.8m. Adjusted basic
earnings per share were up 2.9% to 64.5p,
whereas basic earnings per share fell 34.2%
to 38.9p.
DIVIDEND
The board has recommended a final dividend
of 24.4p, reflecting our continued confidence
in the long-term prospects for the business.
This takes the total dividend for the year
to 33.2p, in line with last year. We have
a long-term track record of covering our
debt amortisation, core capital expenditure
and dividend from cash generated from
operations and the board continues to target
a dividend covered approximately two times
by earnings.
On 30 April 2019, just after year end,
Rooney Anand resigned from the board,
leaving Greene King after 14 years as chief
executive. Rooney proved himself to be one
of the most successful business leaders of our
industry, and during his tenure the company
has been transformed. On behalf of the
board and our shareholders I should like to
take this opportunity to thank him again
for all he has done and wish him well for
the future.
After a comprehensive search we were
delighted to appoint Nick Mackenzie to
the board on 1 May in succession as chief
executive. Nick brings with him rich and
relevant experience gained from his time
at Merlin Entertainments as well as earlier
roles at Bass and Allied Domecq. I am
confident that he too will prove to be an
outstanding leader for the business and
drive continued evolution at Greene King.
The reports from the nomination and
remuneration committees give further
detail on the steps taken to manage this
important transition in leadership to the
advantage of the business.
On the same day we appointed Sandra
Turner, an experienced executive from the
FMCG and retail industries, to the board as
a non-executive director, bringing further
weight to our future deliberations. Sandra’s
background and experience can be found
later in the report.
2018/19 was a year in which Greene King
outperformed the market, making the
most of the good weather and the World
Cup while minimising cost inflation through
an ambitious ongoing cost mitigation
programme. Our teams worked hard
to improve customer experience, and
our executives made further progress in
embedding those key processes which are
so important to delivering value, service
and quality on a consistent basis. Excellent
progress was made on the refinancing of
the Spirit debenture, reducing the cost and
increasing the flexibility of our debt. With
clear momentum restored to the business
over the last year, we are fully focused on
delivering our aim of being the best pub
and beer company in Britain.
1.
2.
Adjusted measures exclude the impact of exceptional and
non-underlying items as detailed in note 5 of the financial
statements.
The directors use a number of alternative performance
measures (APMs) that are considered critical to aid the
understanding of the group’s performance. APMs are
explained on page 174 of this annual report.
Overview | Strategic Report | Corporate Governance | Financial Statements 05
33.2p
DIVIDEND PER SHARE
38,000
EMPLOYEES
“ I am confident that our new chief executive, Nick Mackenzie,
will drive continued evolution at Greene King.”
FURTHER READING
SEE CHIEF EXECUTIVE’S REVIEW ON
PAGES 8 TO 11
VIEW CHIEF FINANCIAL OFFICER’S REPORT
ON PAGES 48 TO 51
SEE OUR GOVERNANCE SECTION
ON PAGES 58 TO 95
PEOPLE
Our success relies on the continuing efforts
of the 38,000 talented and dedicated team
members within our business. This year
they have worked hard to drive momentum
back in Pub Company, delivering market
outperforming LFL sales and profit growth
in a tough cost environment. I would like to
thank everyone for their efforts and their
ongoing commitment.
LOOKING AHEAD
I believe that with Nick’s fresh approach
and extensive experience, coupled with
Greene King’s strong brands, teams and
assets, we are in a good position to deliver
on our ambition of becoming the best pub
and beer company in Britain whilst continuing
to drive strong financial returns. We cannot
count on repeating last year’s weather nor
a stable economic environment; however,
we will remain focused on the needs of our
customers, teams and shareholders.
Philip Yea
Chairman
26 June 2019
06
Greene King plc | Annual Report and Accounts 2019
THE GROUP HAS
DELIVERED GOOD RESULTS,
RETURNING TO MARKET
OUTPERFORMANCE WHILE
FULFILLING A STRONG COST
MITIGATION PROGRAMME
AND MAKING FURTHER
PROGRESS IN REFINANCING
THE SPIRIT DEBENTURE.”
Nick Mackenzie
Chief executive
Overview | Strategic Report | Corporate Governance | Financial Statements
07
STRATEGIC REPORT
08 Chief executive’s review
12 Our business model
14 Our core markets
16 Our strategy
18 Key performance indicators
20 Focus on VSQ
22 Focus on responsible retailing
24 Focus on social mobility
26 Operational review
26 Pub Company
28 Pub Partners
30 Brewing & Brands
32
34
38
40
44
Corporate social responsibility –
At a glance
Corporate social responsibility –
Putting our people first
Corporate social responsibility –
Supporting our local communities
Corporate social responsibility –
Operating sustainably
Corporate social responsibility –
Driving responsible retailing
47 Non-financial information statement
48 Chief financial officer’s report
52 Risk management
54 Principal risks and uncertainties
08
Greene King plc | Annual Report and Accounts 2019
CHIEF EXECUTIVE’S REVIEW
STRONG SALES GROWTH IN
PUB COMPANY AND BREWING
& BRANDS HELPED GROUP
REVENUE INCREASE BY 1.8%.”
The group reported good results for the last
year, delivering on each of its key priorities
to improve underlying sales growth in Pub
Company, to develop a more efficient and
effective organisation, to further strengthen
the capital structure and to protect trading
from potential Brexit disruption.
PERFORMANCE SUMMARY
Group revenue was up 1.8% to £2,216.9m
as strong sales growth in Pub Company and
Brewing & Brands offset reduced revenues
from the planned rationalisation of our estate
as we continue to manage and optimise our
portfolio. Group operating profit before
exceptional and non-underlying items was
down 1.3% to £368.2m, impacted by £14m
net cost inflation. Group net interest costs
were reduced by 6.8% to £121.3m and group
profit before tax, exceptional and non-
underlying items was up 1.6% to £246.9m.
WE AIM TO
BE THE BEST
PUB AND BEER
COMPANY
IN BRITAIN
VIEW OUR STRATEGY ON PAGES 16 TO 17
Pub Company revenue was up 1.8% to
£1,799.2m with strong Like for like (LFL)
sales growth of 2.9% offsetting the 2.5%
decrease in the average number of pubs
trading. We made good progress in both NPS
and TripAdvisor scores. Average weekly take
(AWT) was up 4.1% and average EBITDA
per trading pub was up 3.3%, reflecting our
ongoing estate optimisation programme.
Pub Company operating profit was up 1.8%
to £272.9m and the operating margin was
15.2%, flat year-on-year and up 50 basis
points in the second half of the year.
Pub Partners revenue was down 2.0% to
£190.1m, driven by the 5.0% decrease in
the average number of pubs trading. LFL
net income was up 1.5%, boosted by higher
rental income and beer sales. Average
EBITDA per pub was up 1.0% and LFL net
profit was down 0.3%, impacted by
increased central costs.
Brewing & Brands revenue was up 5.8% to
£227.6m with total beer volume growth of
0.9% supported by the good weather and
the World Cup. Own brewed volume (OBV)
was down 3.4% ahead of an ale market down
4.1% (source: BBPA). Operating profit was
down 10.7% to £27.4m, driven by the estate
rationalisation, increased costs and the lower
production volumes in our two breweries.
Cash generated from operations1 of £308.6m
comfortably covered our scheduled debt
repayments, core capital expenditure
and dividend payments. Our strong cash
generation reduced net debt by £89.0m to
£1,943.3m and net debt to EBITDA to 4.0x.
116 non-core disposals generated net
proceeds of £75.8m and £24.0m was
spent on five new builds and five single site
acquisitions, of which three will open in the
new financial year.
Adjusted basic earnings per share1 were
up 2.9% to 64.5p and the board has
recommended a final dividend of 24.4p per
share, taking the total dividend for the year
to 33.2p, in line with last year.
The business generated a strong ROCE
of 8.5% which remains comfortably above
our weighted average cost of capital. Our
annualised returns on investment in core
development capex were over 35%. As part
of the Spirit debt refinancing programme,
we carried out an estate revaluation during
the year which indicated a market value of
£4.5bn, versus a book value of £3.5bn.
TRADING ENVIRONMENT
The number of licensed premises in the UK
remains in decline and was down 2.3% in the
year to March 2019 (CGA & Alix Partners
Market Growth Monitor, May 2019), driven
by the continued closure of drink-led pubs
but also, more recently, by an acceleration in
restaurant closures. Customer demand was
strong over the year with LFL sales growth
of 1.7%, driven by drink-led pub LFL sales
growth of 3.4% and food-led pub LFL sales
growth of 1.6%, offset by slower restaurant
LFL sales growth of 0.1% (CGA’s Coffer
Peach Business Tracker, April 2019).
1.
Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
2.
The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding
of the group’s performance. APMs are explained on page 174 of this annual report.
Overview | Strategic Report | Corporate Governance | Financial Statements 09
£246.9m
GROUP PROFIT BEFORE TAX,
EXCEPTIONAL AND NON–
UNDERLYING ITEMS
4.0x
NET DEBT
TO EBITDA
8.5%
RETURN ON
CAPITAL EMPLOYED
“ Attracting and retaining the best people and developing and investing
in them are critical to our continued success.”
Despite all these changes, customers still
value high quality products, an atmospheric
environment, good service and value for
money. While we are cognisant of shifting
consumer trends and the opportunities they
present to us, we also remain focused on
providing improvements in the Value, service
and quality (VSQ) of our offers, targeting
volume-led sales growth and improved
brand loyalty.
PEOPLE
Our people are our greatest asset, with
around 38,000 team members employed
across the group. Attracting and retaining the
best people and developing and investing in
them are critical to our continued success.
We completed a support centre restructure in
the first half of the year to better align central
Pub Company support to the simplified brand
portfolio and to develop a more streamlined
FURTHER READING
SEE OUR BUSINESS MODEL
ON PAGES 12 AND 13
VIEW OUR STRATEGY
ON PAGES 16 AND 17
SEE OUR KPIs ON
PAGES 18 AND 19
and efficient organisation. We spent £3m
in learning, training and development over
the year, focusing particularly on our digital
training platform, TAP. Over 300,000 training
hours were spent on TAP in the year with
over 100,000 courses completed. Induction
course compliance was up 5% as a result of
the online platform, helping to drive improved
service scores in our pubs.
The active management of our large estate
and high quality brands enables us to react
dynamically to shifting consumer behaviour.
We extended the Greene King brand into
more food-led pubs this year, helping to
improve our drinks offer in those pubs. We
also transferred 11 pubs from Pub Company
to Pub Partners and four pubs from Pub
Partners to Pub Company.
Consumer behaviour and changing
demands continue to provide opportunities
for dynamic pub operators such as Greene
King. Experiential offers are important
for customers and this will be particularly
significant for pubs as we enter a year
without large football tournaments such
as the World Cup or the European
Championship. Wellbeing remains a key
concern for customers with millennials, in
particular, seeking healthy food and drink
options and placing greater importance on
sustainability. The drink premiumisation trend
continues, led by the growth of gin-based
drinks. Finally, digital innovation continues to
give the consumer ever greater choice and
convenience through delivery and mobile
payment platforms. Digital channels also allow
for enhanced engagement between customers
and brands, and for experiences to be shared
online on customer reviewing platforms.
10
Greene King plc | Annual Report and Accounts 2019
CHIEF EXECUTIVE’S REVIEW CONTINUED
63%
62%
PUB COMPANY NPS
EMPLOYEE ENGAGEMENT
£1.4m
RAISED FOR MACMILLAN
CANCER SUPPORT
“ During the year we launched ‘Your Voice’, a communications and
engagement forum to improve conversation within the business.”
COMMUNITY
Our pubs act as hubs for their local
communities, offering a place to sit, socialise
and make a difference to local services
and good causes. The teams at our pubs,
together with team members at our offices
and breweries, helped raise £1.4m this year
for our national charity partnership with
Macmillan Cancer Support. We are proud
to report that this took our total raised to
date for Macmillan to over £5m.
In January, we launched The Stepping Up
Report, in which we committed to creating
the best opportunities for individuals from all
backgrounds in the hospitality sector. In order
to achieve this goal, we set out five ambitions
to encourage greater social mobility:
1. Launch ‘Releasing Potential’, a new
employment programme for ex-
offenders. Working with the Ministry
of Justice, the charity Only A Pavement
Away and partners Novus, Clean Sheet
and Sodexo, we will support 50
individuals in the first year.
2. Deliver a new commitment to support
20,000 apprentices by 2022.
3. Become the first hospitality company
to sign the Business in the Community
Race at Work Charter. This will see the
appointment of an Executive Sponsor for
Race, working towards the capturing of
ethnicity data and acting to support the
career progression of ethnic minorities.
4. Pledge to increase internal appointments
to pub general manager from 64%
to 80%.
We invested in enhanced staff benefits,
including launching a Friends and Family
discount scheme, and continued to focus
on employee wellbeing, holding our second
annual Wellbeing Week and launching
Shine, a programme developed to equip
our employees with better work-life
balance management skills. In addition, we
launched ‘Your Voice’, a communications and
engagement forum to improve conversation
within the business. The forum will be used to
enable the board to engage with employees
via its designated non-executive director,
Lynne Weedall, who will attend a number
of its meetings. We have also partnered with
KPMG to provide the 9% of our workforce
who are non-UK EU nationals with a tool to
help navigate the implications of Brexit.
Our apprenticeship programme continued to
grow with over 1,900 apprentices joining the
business and more than 560 vacancies being
filled through the scheme this year. Over
11,000 apprentices have benefitted from
the Greene King apprenticeship programme
since its launch in 2011. We were thrilled to
receive the Princess Royal Training award for
our apprenticeship programme, as well as
the Best Apprenticeship Programme award
and Best Training Partnership award at the
Training Journal Awards. We were also
pleased to maintain our position in the top
100 Apprenticeship Employers by Rate My
Apprenticeship and All About School Leavers.
Our increased investment in our people and
our focus on their wellbeing helped maintain
engagement and employee NPS broadly flat
at 62% and 68% in spite of the head office
restructure carried out. We are rolling out an
employee app this summer, through which we
expect to improve engagement and employee
retention further, and drive cost efficiencies.
Overview | Strategic Report | Corporate Governance | Financial Statements
11
5. Extend our partnership with The Prince’s
Trust for a fourth year with a target to
increase the number of people being
offered a permanent role after successful
completion of the ‘Get Into Hospitality’
programme from 61% to 75%.
OUTLOOK
Over the first eight weeks of the new financial
year, trading was impacted by the poor
weather and LFL sales in Pub Company were
below last year’s strong comparatives.
Political and consumer uncertainty is likely to
continue to weigh on confidence and the cost
inflationary environment persists. However,
with clear strategic priorities and our ongoing
cost mitigation programme in place, we
are confident in delivering another year
of progress and we are well positioned to
continue driving sustainable long-term growth
for our shareholders.
The year ahead will be a 53 week year and will
see the implementation of IFRS 16 which will
affect a number of the reported KPIs. Further
information is provided in the financial review
and in note 1 of the financial statements.
Nick Mackenzie
Chief executive
26 June 2019
12
Greene King plc | Annual Report and Accounts 2019
OUR BUSINESS MODEL
WHAT WE DO
Integrated business model driving long-term growth and cash generation for our shareholders.
PUB
COMPANY
Well invested estate of
1,687 managed pubs
under four key brands
1
3
1
2
PUB
PARTNERS
High quality estate of
1,043 tenanted pubs with
a drinks-led bias
BREWING
& BRANDS
Two breweries producing
a rich portfolio of leading
ale brands
2
1 Strong cash generation reinvested into
Pub Company estate to drive growth
and support a consistent five to six year
capex cycle.
2 Own and third party beers sold to
our pubs, driving far-reaching brand
recognition and ensuring the best offer for
our customers.
3 Pubs transferred between operating
models, driving improved profit per pub.
In addition to driving growth in Pub Company through enhanced investment, further benefits of our integrated business model include the flexibility to
transfer pubs between Pub Company and Pub Partners and ensure that we match each pub with the best operating model. Both Pub Company and
Pub Partners are customers of Brewing & Brands, increasing the distribution of our sales and enhancing the recognition of our beer brands.
Qualities underpinning the operations of our three business units:
Large, category
leading brands
Consistent
investment
in our estate
Excellent estate
through sustainable,
integrated business
model
Dedicated and
talented team
members
Robust financial
management
EVERYTHING WE DO ENCOMPASSES
OUR FOUR CSR PILLARS
OUR PEOPLE
Overview | Strategic Report | Corporate Governance | Financial Statements
13
Organic cash generated from our business consistently covers:
Scheduled debt
repayment
Core capex
Attractive dividend
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 estate and the selective acquisition of new sites, while maintaining our long-term progressive
dividend policy.
HOW WE GENERATE REVENUE
PUB COMPANY
PUB PARTNERS
BREWING
& BRANDS
•
the sale of food, drink and
revenue from accommodation
and gaming machines
• rental income from our
properties and income from
the supply of food and drink
• sales from the distribution of
own and third party beers
• £227.6m revenue; £33.2m
• £1,799.2m revenue; £365.8m
• £190.1m revenue; £97.2m
EBITDA
EBITDA
EBITDA
THE VALUE WE CREATE
CUSTOMERS
EMPLOYEES
SHAREHOLDERS
COMMUNITIES
ENVIRONMENT
We place customers at
the heart of what we
do, aiming for industry-
leading value, service
and quality and regularly
benchmarking against the
best in class.
We employ around
38,000 people and
work hard to make sure
that every member of
our team is given the
opportunity to learn and
progress. We maintain high
employee engagement
scores and have developed
an award-winning
apprentice scheme.
CAPITAL ALLOCATION POLICY
We have a long-term
track record of earnings
growth, a disciplined
approach to capital
management and strong
cash flow generation,
supporting an attractive
and sustainable dividend.
Supporting local
communities in our pubs
and through our head
offices is important to
us. We are harnessing
our scale to drive change
for good through charity
partnerships and our
social mobility schemes.
We are passionate
about operating in a
sustainable way within
our environment, actively
seeking to reduce our
carbon footprint and
minimise waste.
We will allocate capital in a manner which supports our strategic objectives and in accordance with the following
framework:
1. Invest in our estate and technology to protect and support organic growth and drive innovation and productivity.
2. Improve our asset quality and financial returns by continuing to dispose of non-core properties and recycling capital realised to support
acquisition and/or development of higher quality assets.
3. Reduce financial leverage through scheduled debt amortisation programme, continue restructuring Spirit debenture incurring frictional cost
where economically sensible and, to the extent appropriate, reduce debt ahead of the scheduled amortisation.
4. Provide sustainable returns to shareholders over the cycle by paying total annual dividends equivalent to around 50% of earnings and consider
further distributions where available cash flows allow.
LOCAL
COMMUNITY
SUSTAINABLE
BUSINESS
RESPONSIBLE
RETAILING
14
Greene King plc | Annual Report and Accounts 2019
OUR CORE MARKETS
£22.5bn
PUB MARKET VALUE
2.4%
PUB MARKET
GROWTH 2018–2021
FORECAST
Our core markets are the UK eating out and UK drinking out markets.
OVERVIEW
Our core market is the UK eating and
drinking out market, in which we compete
with our 2,730 managed, tenanted and
leased pubs. We also compete in the UK ale
market through brewing our industry-leading
ale portfolio and have a foothold in the UK
staying out market through accommodation
at our pubs, and in our hotels and lodges.
ECONOMIC ENVIRONMENT
Overall consumer confidence remained
subdued this year, softening slightly as a result
of the uncertainties around Brexit which
is now the top concern for consumers in
the UK (source: GfK). Falling inflation, rising
real wages and low rates of unemployment,
however, have supported consumers’
confidence in their personal finances which
were three in May 2019 and the forecast for
personal finances over the next 12 months
is five. While we are encouraged by this
outlook, it remains crucial that we can offer
our customers the best value, service and
quality at our pubs given the wider context
of uncertainty.
POLITICAL ENVIRONMENT
We continue to face unprecedented cost
increases in the hospitality industry, driven
by the National Living Wage, duty, sugar
and utilities taxes and we expect further
cost pressures to impact on margins in our
sector. We have a strong track record of
cost savings and aim to minimise the impact
of this cost environment for our customers
and for our shareholders.
We successfully reached our target of £30-
35m of cost mitigation last year, enabling us
to limit next cost inflation to £14m through
procurement savings, improved labour
deployment, a review of our discretionary
cost base and the restructuring of head office
and field-based operations. We expect gross
cost inflation of £45-50m next year and will
target a mitigation programme of £30-35m.
UK EATING AND DRINKING OUT
We operate in the wider UK eating and
drinking out market which is valued at £89bn
and made up of a total of 327,000 outlets.
The value of this market is expected to grow
at a rate of 1.8% between 2018 and 2021
(2015-2018 CAGR: 1.7%). The pub market is
valued at £22.5bn, accounting for a quarter of
eating and drinking out spend, and is forecast
to grow at a rate of 2.4% between 2018 and
2021 (2015-2018 CAGR: 1.4%).
CONSUMER TRENDS
Consumer behaviour and changing
demands continue to provide opportunities
for dynamic pub operators such as Greene
King. Experiential offers are important
for customers and this will be particularly
significant for pubs as we enter a year
without large football tournaments such
as the World Cup or the European
Championship. Wellbeing remains a key
concern for customers with millennials, in
particular, seeking healthy food and drink
options and placing greater importance on
sustainability. The drink premiumisation
trend continues, led by the growth of
gin-based drinks. Finally, digital innovation
continues to give the consumer ever
greater choice and convenience through
delivery and mobile payment platforms.
Digital channels also allow for enhanced
engagement between customers and
brands, and for experiences to be shared
online on customer reviewing platforms.
Despite all these changes, customers still
value high quality products, an atmospheric
environment, good service and value for
money. While we are cognisant of shifting
consumer trends and the opportunities
they present to us, we also remain focussed
on providing improvements in the VSQ
of our offers, targeting volume-led sales
growth and improved brand loyalty.
Overview | Strategic Report | Corporate Governance | Financial Statements
15
CONSUMER CONFIDENCE
PUB OUTLOOK GROWTH
20
0
-20
-40
-0.2%
2021F
2018E
2015
45,991
46,284
48,866
Overall index score
Personal financial situation (next 12 months)
General economic situation (next 12 months)
Managed, branded & franchised
Independent & free of tie
Tenanted & leased
Social clubs
GREENE KING ALE MARKET
SHARE
10.5%
2019
2018
2017
2016
2015
Source: BBPA
10.5%
10.3%
10.3%
10.5%
10.1%
Total eating and drinking out outlet numbers
are expected to grow at a rate of 0.3%
between 2018 and 2021 (2015–2018 CAGR:
0.3%), driven by continued growth in numbers
of coffee and sandwich shops and fast food
outlets but offset by an accelerating decline in
restaurants. Pub outlet numbers are expected
to stabilise, declining at a rate of just -0.2%
during 2018 and 2021 (2015-2018 CAGR:
-1.8%) as growth in managed, branded and
franchised pubs and independent pubs is
forecast to offset the decline in tenanted
and leased pub numbers.
UK ALE MARKET
The UK beer market was in MAT growth
over the last year, with on-trade beer in
growth for the first time in over 15 years.
This was driven by strong lager growth as
a result of the sunny weather and successful
World Cup. Greene King total beer volumes
were up 0.9% for the year, in line with this
trend. Greene King own-brewed volumes
were down 3.4%, ahead of the UK ale market
which declined 4.1% in the year to April 2019.
With over 200 years’ experience of brewing
beer, we believe we are well placed to take
advantage of the interest from consumers
for beers with heritage and provenance. In
addition, through our innovative culture and
newer craft-style beers, we have a portfolio
which caters for a younger generation of beer
drinkers. Through this leading portfolio we
remain confident in our ability to continue to
grow market share and meet the needs of
consumers across all drinking occasions.
UK STAYING OUT MARKET
We compete in the UK provincial staying out
market and offer great value and convenience
to guests staying at our pubs, hotels and
lodges. We believe that the combination of
pubs and adjacent rooms is an attractive
guest proposition in the context of increasing
business and leisure travel. We have 3,327
bedrooms in our estate and see scope for
this to grow under the well-established and
trusted Greene King local pubs brand.
2018 saw occupancy in provincial hotels
remain broadly flat at 76%. RevPAR growth
in 2018 was 1.0% and is expected to grow
another 1.2% in 2019 (source: PWC UK
hotels forecast update 2018 and 2019).
CHANGING THE WAY
THEY USE PUBS
• Third space
• Drink resurgence
• Growth in breakfast
EATING BETTER AND
DEMANDING MORE
• Customisation
• Health and diet
• Local and fresh
• Value scrutiny
CONVENIENCE AND
INNOVATION IS KEY
• Quick service
• Delivery and the night in
• Role of technology
• New experiences
CONSUMER TRENDS
16
Greene King plc | Annual Report and Accounts 2019
OUR STRATEGY
OUR OVERALL STRATEGIC OBJECTIVE IS TO BE
THE BEST PUB AND BEER COMPANY IN BRITAIN.
This will be delivered through
our mission to create memorable
experiences that our customers
consider to be ‘time well spent’. In
order to achieve this, we are focused
on five long-term strategic pillars and
three shorter-term operating and
financial priorities.
LONG-TERM STRATEGIC PILLARS
DISTINCT BRANDS THAT
MORE CUSTOMERS
CHOOSE
OFFERS THAT DELIVER
COMPELLING VALUE,
SERVICE AND QUALITY
WHAT WE DID IN 2018/19
WHAT WE DID IN 2018/19
In Pub Company, this was the first year
since acquiring Spirit in 2015 that we were
able to focus fully on our four core brands
– Greene King, Chef & Brewer, Farmhouse
Inns and Hungry Horse – which helped
to deliver our strong LFL sales growth.
We extended the Greene King brand into
food with the continued development
of the Pub & Carvery, Pub & Dining and
Pub & Grill formats. We improved the
format segmentation within Hungry Horse
and we added five new Farmhouse Inns
sites. We stepped up our investment in
Chef & Brewer and generated strong
returns. In Brewing & Brands, we increased
support and distribution for Greene King
IPA and Abbot Ale in our own pubs and
saw continued strong growth from East
Coast IPA.
We maintained a cautious approach to
retail pricing by increasing prices below the
market rate throughout the year on both
drink and food. This led to drink volume
and food cover outperformance. We
continued to provide compelling known
value item (KVI) pricing across our value
brands and formats as we reduced further
the amount of discounting available across
our estate. We improved our overall Net
Promoter Score by 3.5%pts to 62.5% as
we redeployed labour from midweek
to the weekend and we improved both
drink and food quality. In Pub Partners, we
continued to invest in training our licensees,
supporting 1,300 delegates through
programmes over the year. In Brewing
& Brands, we relaunched a division-wide
quality improvement programme.
WHAT WE’LL DO IN 2019/20
WHAT WE’LL DO IN 2019/20
We will work across all three divisions to
define further and embed the principles
of the Greene King brand, we will use
this work to develop our employer brand
and we will make changes to the Local
Pubs segmentation to better capture sales
opportunities in the high street. Within
Brewing & Brands, we will relaunch
Greene King IPA, Old Speckled Hen and
our most successful craft brands, while
we will grow our exposure to the health
and wellbeing category.
We will continue to pursue a volume–led
sales growth strategy to deliver continued
market outperformance. We will enhance
further our season ticket and friends
and family reward programmes, invest
in our sport capability and the customer
experience, and improve our digital
booking technology and effectiveness. We
will ensure all pub brands have tailored
brand service programmes and focus our
in-house training on service standards and
product knowledge. We will continue to
improve our support to licensees in Pub
Partners and in Brewing & Brands we
will improve our distribution capability
and increase our focus on continuous
improvement at our breweries.
Overview | Strategic Report | Corporate Governance | Financial Statements
17
SEE KPIs ON PAGE 18 AND APMs ON PAGE 174 ON HOW WE MEASURE PERFORMANCE
ENGAGED AND
HIGH PERFORMING
COLLEAGUES
A WELL-LOCATED AND
INVESTED ESTATE
PRUDENT FINANCIAL
MANAGEMENT
WHAT WE DID IN 2018/19
WHAT WE DID IN 2018/19
WHAT WE DID IN 2018/19
We made good progress on improving
management induction training
attendance, we launched Your Voice,
our internal employee communications
forum, we improved further our
employee benefits and we continued
to lead the market with our leading
apprenticeship training programme.
WHAT WE’LL DO IN 2019/20
We will make further progress on our
aim to have sector-leading recruitment,
induction and retention programmes, we
will work an all aspects of pub working
to aid the drive to improve productivity,
we will signal clearer career paths for
our people, we will aim to deliver better
value and impact from our reward
programme and we will develop further
our apprenticeship programme and other
initiatives designed to attract people into
the business.
We continued to invest in our estate
on a five to six year cycle, delivering an
improved return on investment of over
30% on a reduced average project cost
and despite higher underlying costs. We
delivered on our disposal proceed targets
despite increased Brexit related concerns
and we reduced our sale and leaseback
costs through disposals and the re-
negotiation of some lease terms.
Our business model once again
generated sufficient operating cash to
cover our scheduled debt repayments,
our core capital expenditure and
attractive and well covered dividend for
shareholders. We delivered strong LFL
sales growth but not at the expense
of profit growth and we continued to
refinance the Spirit debenture, repaying
51% since F17.
WHAT WE’LL DO IN 2019/20
WHAT WE’LL DO IN 2019/20
We will maintain our consistent
investment in our estate and help to
improve further the customer experience,
we will continue to optimise the estate
through selected acquisitions and
disposals, we will ensure safe and well
maintained working environments, and we
will provide investment support for the
updated segmentation of both our Locals
pub estate in Pub Company and our Pub
Partners estate.
We will again aim to meet our three
core business requirements through
operating cashflow, we will ensure our
excess operating cash and net disposal
proceeds will be sufficient to cover
any one-off debt refinancing costs as
we continue to refinance the Spirit
debenture and we will look to continue
delevering the balance sheet.
GROUP-WIDE PROJECT PRIORITIES
1. DIGITALLY ENABLING
2. DEVELOPING A FIT-FOR-THE-
COMMERCIAL LEADERSHIP
FUTURE ORGANISATION
The objective of this project is to
understand how digital technology can
deliver commercial value in Pub Company
by implementing technical solutions that
make our team members’ and customers’
drinking and eating out experiences
easier and more rewarding.
In a period of excessive cost increases,
there is an urgent requirement to
restructure the business to reduce the
cost base, improve our ways of working
and make the whole company more
efficient. Areas under consideration
include the centralisation of certain
group services.
3. IMPROVING PUB
PRODUCTIVITY
The objective of this project is to
identify opportunities within Pub
Company operations to make
productivity/efficiency savings without
impacting on service standards to
customers or negatively impacting
our people.
18
Greene King plc | Annual Report and Accounts 2019
KEY PERFORMANCE INDICATORS
FOR THE 52 WEEKS ENDED 28 APRIL 2019
To maintain focus on our five strategic priorities, we have a set of overall
financial and non-financial KPIs which are used to track progress against
our priorities and help align remuneration to performance.
GROUP
RETURN ON
INVESTMENT1
(%)
35.8%
2019
2018
2017
RETURN ON CAPITAL
EMPLOYED (ROCE)1,2
(%)
8.5%
FREE CASH FLOW1
(£m)
£86.1m
35.8%
31.0%
2019
2018
2017
24.5%
8.5%
8.4%
9.3%
2019
2018
2017
£86.1m
£89.9m
£119.6
SUMMARY
We assess projected and actual investment
returns to ensure that we continue to focus
capital expenditure on areas that generate the
highest possible sustainable returns. In the year
we achieved a return on investment of 35.8%.
DEFINITION
Return on investment across our core pub
businesses. Calculated as the average incremental
increase in pub EBITDA post investment divided
by the total core capex invested in completed
developments.
SUMMARY
We monitor return on capital employed in
comparison to our overall weighted average costs
of capital. ROCE for the financial year of 8.5%
remains comfortably ahead of our cost of capital.
SUMMARY
The group has a strong record of organic cash
generation and we use free cash flow as a measure
of this. During the financial period the group’s free
cash flow was £86.1m.
DEFINITION
Return on capital employed is calculated by
dividing annualised pre-exceptional operating
profit by periodic average capital employed.
Capital employed is defined as total net assets
excluding deferred tax balances, derivatives, post
employment liabilities and net debt.
DEFINITION
EBITDA less working capital and non-cash
movements (excluding exceptional items), tax
payments (excluding amounts paid in respect of
settlements of historic tax positions and adjusted
for the impact of HMRC payment regime changes),
interest payments (excluding payment of interest in
respect of tax settlements), core capex, dividends
and other non-cash movements.
ADJUSTED BASIC
EARNINGS PER SHARE1
(p)
64.5p
EMPLOYEE ENGAGEMENT
SCORE
(%)
62%
2019
2018
2017
64.5p
62.7p
70.8p
2019
2018
62.0%
63.0%
SUMMARY
Adjusted basic earnings per share was 64.5p a
increase of 2.9% compared to the prior year.
SUMMARY
Employment engagement remains broadly in line
with prior year at 62%.
DEFINITION
Earnings per share excluding the impact of
exceptional and non-underlying items.
DEFINITION
The proportion of respondents who selected
“I feel engaged and committed at present” as
the statement that most accurately reflects their
current career intentions.
1. An explanation of the group’s use of Alternative Performance Measures (APMs), including definitions and reconciliations, is included on page 174 of this annual report.
2. Prior years ROCE % have been restated following adjustments to net assets and deferred tax. See note 1 of the financial statements for further details.
Overview | Strategic Report | Corporate Governance | Financial Statements
19
PUB COMPANY
PUB PARTNERS
BREWING & BRANDS
LIKE-FOR-LIKE SALES1
(%)
LIKE-FOR-LIKE NET PROFIT1
(%)
OWN BREWED VOLUME (OBV)
GROWTH1 (%)
+2.9%
-0.3%
-1.7%
2019
2018
2017
1.5%
2.9%
-0.3%
2019
2018
2017
0.4%
-3.4%
-3.4%
5.0%
2017
-2.8%
-1.2%
2019
2018
2017
SUMMARY
We monitor LFL sales in order to understand
the performance of our estate excluding the
impact of new sites and disposals. LFL sales
increased by 2.9%.
DEFINITION
Pub Company LFL sales include revenue from
the sale of drink, food and accommodation
but exclude machine income. LFL sales
performance is calculated against a
comparable 52 week period in the prior
year for pubs that were trading for the
entirety of both 52 week periods.
SUMMARY
We monitor LFL profit in order to
understand the performance of our tenanted
estate excluding the impact of disposals. LFL
net profit declined by 0.3% compared to the
prior year.
DEFINITION
Pub Partners’ LFL profit includes pub
operating profit and central overheads
but excludes exceptional items. LFL
profit performance is calculated against a
comparable 52 week period in the prior
year for pubs that were trading for the
entirety of both 52 week periods.
SUMMARY
We monitor OBV growth to assess relative
performance of our beer brands. OBV
volumes declined by 3.4% compared against
the UK ale market down 4.2%4.
DEFINITION
Year-on-year growth in the volume of sales
of beer brewed at our Greene King and
Belhaven breweries.
NET PROMOTER SCORE3
(%)
LICENSEE SURVEY SCORE3
(out of 10)
62.5%
2019
2018
2017
6.6
2019
2018
2017
62.5%
59.0%
58.4%
SERVICE SCORE3
(%)
93.9%
6.6
6.3
6.3
2019
2018
2017
93.9%
91.8%
96.3%
SUMMARY
We monitor NPS in order to track
customer satisfaction. NPS has increased
by 3.5% to 62.5%.
DEFINITION
The percentage of responses where we score
9 or 10 (out of 10) less the percentage of
responses where we score 0 to 6 (out of 10)
to the statement “I am likely to recommend
this pub to a friend and/ or relative.”
SUMMARY
The licensee survey provides independent
feedback from our licensees about how they
feel about working with Pub Partners.
The average score of 6.6 (out of 10)
represents an improvement of 5%
year on year.
DEFINITION
The licensee survey is independent research
conducted with leased/tenanted pubs across
all the major pub companies operating in the
L&T sector.
SUMMARY
We monitor service scores to assess the
proportion of orders successfully fulfilled,
to provide insight on customer satisfaction.
DEFINITION
Brewing & Brands service score is
measured as the percentage of deliveries
that are made on time and in full across all
delivery networks.
3. Key performance indicators have been aligned to provide equal prominence to non-financial and financial indicators, and to remuneration performance measures across the group.
4.
Source: BBPA Beer Market data to April 2019.
20
Greene King plc | Annual Report and Accounts 2019
FOCUS ON VALUE, SERVICE
AND QUALITY (VSQ)
PUB COMPANY
ENHANCING
THE CUSTOMER
EXPERIENCE
Providing industry-leading value, service and quality
for our customers is key to our offer. Our focus on
this helped drive our market outperformance in Pub
Company over the last year.
VALUE
We are committed to providing our customers with market
leading value and have delivered this through consistent
and competitive pricing, avoiding high-low discounting.
SERVICE
The excellent service we provide is underpinned by
our investment in training and development. Through
our new digital training channels, induction course
compliance was up 5%. Digital tools have also allowed us
to improve our team deployment, helping to optimise
resourcing at our pubs throughout the week.
QUALITY
We also invested in improving our top dish quality,
boosting our food quality NPS to 89.5%. Meanwhile,
the quality of the customer experience has been
enhanced by our commitment to acting local: our
pub managers have been given increased control
over organising local events, engaging with their local
communities more effectively and thereby driving
improved sales.
The success of our VSQ programme helped us achieve
Pub Company LFLs of +2.9% this year, outperforming
the market by 1.2%pts1, and we will continue to target
growth through further initiatives to boost VSQ for our
customers. Pub Company NPS rose 3.5%pts to 62.5%
and our average TripAdvisor score was up 4.5%.
LFLS
TRIPADVISOR SCORE
+2.9%
+4.5%
1. Coffer Peach Business Tracker.
Overview | Strategic Report | Corporate Governance | Financial Statements
21
CUSTOMERS VALUE HIGH
QUALITY PRODUCTS, AN
ATMOSPHERIC ENVIRONMENT,
GOOD SERVICE AND VALUE
FOR MONEY.
While we are cognisant of shifting consumer trends and the
opportunities they present to us, we also remain focused on
providing improvements in the VSQ of our offer, targeting
volume-led sales growth and improved brand loyalty.”
Nick Mackenzie
Chief executive
22
Greene King plc | Annual Report and Accounts 2019
FOCUS ON RESPONSIBLE
RETAILING
BREWING & BRANDS
SUCCESSFULLY
DEVELOPING LOW
ALCOHOL OLD
SPECKLED HEN
In November 2018, we launched Old Speckled
Hen Low Alcohol to reflect changing lifestyle and
consumer landscape embracing healthier living, with
a 0.5% abv. version.
The no and low alcohol beer sector is rapidly growing
and is now the second fastest growing beer category in
supermarkets after craft beer. It is now worth £48.6m,
up 35.1% in the last year according to Nielsen data.1
Nearly a quarter of adults claim they have consumed
no or low alcohol beer in the last year as the healthy
living lifestyle trend continues to rise.2
54%
fewer calories
0.5%
ABV
1. NIELSEN week commencing 06.10.18.
2. POPULUS OMNIBUS May 2018 – 2,000 respondents.
Overview | Strategic Report | Corporate Governance | Financial Statements 23
THE LOW ALCOHOL BEER
MARKET IS FAST EVOLVING AS
PEOPLE’S DRINKING HABITS
ADAPT TO FIT WITH HEALTHIER
LIFESTYLE CHOICES.
Choosing alcohol free drinks shouldn’t mean compromising on the
occasion and there is an ever increasing demand for a grown up
alternative to soft drinks and alcohol free beers that simply don’t
hit the taste mark.
Old Speckled Hen is a trusted and much loved brand whose
gluten free version swiftly rose to become market leader when
it launched in 2017 and we are confident that Old Speckled Hen
Low Alcohol will achieve just that in this market category.”
Matt Starbuck
Managing director,
Brewing & Brands
1. According to Nielsen data.
£48.6m
value of no and low
alcohol beer sector1
24
Greene King plc | Annual Report and Accounts 2019
FOCUS ON SOCIAL MOBILITY
LAUNCHING THE
STEPPING UP REPORT
In January 2019, we launched The Stepping Up Report,
challenging the barriers of social mobility and providing
a commitment to create the best opportunities for
individuals from all backgrounds in the hospitality sector.
Launched at a reception in Parliament and supported
by Education Secretary Damian Hinds, the report
comes as the prominence of social mobility as an issue
continues to rise in the UK.
In the report, we set out five ambitions to encourage
greater social mobility:
1.
2.
3.
4.
5.
Launch Releasing Potential, a new
employment programme for ex-offenders.
Working with the Ministry of Justice, the charity
Only A Pavement Away and partners Novus, Clean
Sheet and Sodexo, we will support 50 individuals in
the first year.
Deliver a new commitment to support 20,000
apprentices by 2022.
Become the first hospitality company to
become a signatory to Business in the
Community’s Race at Work Charter.
This will see the appointment of an Executive
Sponsor for Race, working towards the capturing
of ethnicity data and acting to support the career
progression of ethnic minorities.
Pledge to increase internal appointments to
pub general manager from 64% to 80%.
Extend our partnership with The Prince’s
Trust for a fourth year with a target to increase
the number of people being offered a permanent
role after successful completion of the ‘Get Into
Hospitality’ programme from 61% to 75%.
Overview | Strategic Report | Corporate Governance | Financial Statements
Overview | Strategic Report | Corporate Governance | Financial Statements 25
TYLER MARKARIAN, CHEF AT THE
DOG & PARTRIDGE IN BURY ST
EDMUNDS, HAS SPOKEN ABOUT
HIS EXPERIENCE OF WORKING
AT OUR PUBS SINCE LEAVING
PRISON. HE IS PASSIONATE
ABOUT CREATING DISHES PEOPLE
ENJOY AND HE IS DEVELOPING
HIS CAREER BY TAKING ON A
GREENE KING APPRENTICESHIP.
Tyler Markarian
Apprentice
26
Greene King plc | Annual Report and Accounts 2019
OPERATIONAL REVIEW – PUB COMPANY
OUR PUB COMPANY
DIVISION OPERATES
A RANGE OF FOOD-
FOCUSED DESTINATION
PUBS AND RESTAURANTS,
COMMUNITY FOCUSED
LOCAL PUBS AND A
VARIETY OF HOTELS.
OUR FOCUS ON OUR FOUR KEY BRANDS CONTINUES
TO DRIVE SALES GROWTH AND ENHANCED CUSTOMER
ENGAGEMENT WHILE DELIVERING ECONOMIES OF SCALE
AND EFFICIENCIES.
REVENUE
EBITDA1,2
OPERATING
PROFIT1,2
OPERATING PROFIT
MARGIN1,2
£1,799.2m
£365.8m
£272.9m
+1.8%
+0.8%
+1.8%
15.2%
flat
PUB COMPANY
Overview | Strategic Report | Corporate Governance | Financial Statements
27
62.5%
NPS
+20%
73
ONLINE BOOKINGS
CONVERSIONS COMPLETED
The ongoing cost mitigation programme was
primarily focused on Pub Company and we
made good progress delivering sustainable
procurement savings, on labour productivity
and efficiencies, and reducing non-direct costs.
We maintained a consistent core capex cycle
of five to six years in Pub Company and
spent £88.7m in core capex, covering 192
managed pub developments. Our active estate
management programme saw 73 conversions
completed, delivering EBITDA returns of 31.3%.
We disposed of 46 managed pubs, generating
proceeds of £26.6m, and we completed five
new builds under the Farmhouse Inns brand
and added four single site acquisitions, of which
three will open in the new financial year. In
addition, four pubs were transferred from
Pub Partners to Pub Company, delivering an
annualised return of 30.2%. We will continue
to explore internal transfers as part of our
ongoing estate optimisation programme.
Pub Company revenue was up 1.8% despite
a 2.5% reduction in the average number of
pubs trading from 1,754 to 1,711. LFL sales
were 2.9%, ahead of the market, driven by
strong drink sales and improving food sales,
and AWT was up 4.1% to £20.2k. Operating
profit was up 1.8% to £272.9m resulting in
an operating profit margin of 15.2%, flat on
the previous year, despite the external cost
pressures. This was driven by the strong
LFL sales growth and the successful cost
mitigation programme.
Since the acquisition of Spirit in 2015,
when we operated around 14 brands,
we have consolidated our managed pubs
portfolio around four key brands. Our focus
on Greene King Locals, Chef & Brewer,
Farmhouse Inns and Hungry Horse continues
to drive sales growth and enhanced customer
engagement while delivering economies of
scale and efficiencies.
Our programme to improve the VSQ of our
offer has boosted LFL volumes significantly.
We are targeting more compelling and
consistent pricing that our customers can rely
on and trust, avoiding the high-low discounting
that has been prevalent in the industry. Using
labour deployment optimisation software
we are making sure that we are resourced
more appropriately throughout the week,
maximising sales opportunities at busier
times. In addition, we have maintained our
commitment to investing in training to ensure
our team members deliver excellent service
more consistently to our customers. We have
also improved the quality of our leading dishes
and rolled out updated perfect drinks serving
guidelines to capitalise on the appetite for
premium drinks.
This commitment to enhancing VSQ, along
with the focus on our four core brands, led to
a 3.5%pt rise in Pub Company NPS to 62.5%,
while our average TripAdvisor score was up
4.5% with food, service and value measures all
in growth. Our brands rank in top positions
for value, food and drink quality, menu choice
and service, as voted by customers, with
Farmhouse Inns maintaining its position as
best for overall pub experience (MCA Pub
Brand Monitor Q4 2018).
Our Greene King Local pubs delivered LFL
sales up 4.6% with the brand’s predominantly
drink-led offer benefiting from the good
weather and the World Cup. Chef &
Brewer, our mid-market food-led pub brand,
performed well with particularly strong
LFL sales growth of 15.3% over the Easter
weekend and strong returns on core capex
investment. Farmhouse Inns, our suburban
and out of town carvery brand, was negatively
impacted by the good weather but saw strong
breakfast growth of over 30% as well as
improvements in service metrics following a
focus on weekend labour deployment. Hungry
Horse saw good LFL sales growth, particularly
in drinks sales, as we invested more in drinks
ranging and sports capability.
Delivering an improved customer experience
through digital innovation is important for
driving continued growth. Online bookings
grew 20% year-on-year while Season Ticket
subscribers increased to 200,000, aided by a
full app roll out in May to maximise impact
during the World Cup. Following a review of
our Order & Pay trial, we moved the focus
of the roll-out to Hungry Horse where we
believe customer behaviour will better align
to the app than in Greene King Local pubs.
We also invested in digital tools to increase
the productivity of our team members,
distributing tablets to all Pub Company
general managers to make administrative
duties easier to complete without distracting
them from customer-facing activities.
1.
Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
2.
The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding of the group’s performance.
APMs are explained on page 174 of this annual report.
28
Greene King plc | Annual Report and Accounts 2019
OPERATIONAL REVIEW – PUB PARTNERS
PUB PARTNERS HAS
A HIGH QUALITY
PORTFOLIO OF MAINLY
DRINK-LED PUBS WHICH
ARE RUN AS TENANTED,
LEASED OR FRANCHISED
PUBS, FOCUSED ON
OPTIMISING VALUE
FROM EACH PUB.
IT OFFERS TENANTS A RANGE OF DIFFERENT AGREEMENT
TYPES DESIGNED TO ALIGN THE INTERESTS OF GREENE
KING WITH THOSE OF ITS LICENSEES, THEREBY INCREASING
LICENSEE TENURE.
REVENUE
EBITDA1,2
£190.1m
-2.0%
£97.2m
-4.0%
OPERATING
PROFIT1,2
£87.1m
-4.7%
OPERATING PROFIT
MARGIN1,2
45.8%
-1.3%pts
PUB PARTNERS
Overview | Strategic Report | Corporate Governance | Financial Statements
29
11
87%
13,000
PUBS TRANSFERRED
FROM PUB COMPANY
LICENSEES CONFIDENT
IN THEIR BUSINESS
DELEGATES ATTENDED OUR
TRAINING PROGRAMMES
The development of both our licensees and
our support teams is critical. We continued to
invest in training our licensees, supporting over
1,300 delegates through programmes over
the year. We are also working on improving
our licensee engagement through more
regular listening groups and area meetings.
We recently completed a restructure of the
support centre, reducing the average number
of pubs each Business Development Manager
(BDM) is responsible for by 17%.
We continued to improve sales and
efficiencies at our licensees’ pubs, helping
to drive the average EBITDA per pub up
1.0% to £89.8k. We are providing 11% of
our Pub Partners pubs with food through
the Greene King supply chain and 30% are
signed up to our digital services package for
online purchasing. In addition, 24% of our
operators currently use our Sports Club
package, delivering customer promotions
for sports events.
We were delighted that The Red Lion & Sun
in Highgate was awarded the ‘Pub of the
Year’ and ‘Best Wine Pub’ at the Great British
Pub Awards and the Crown in Carlisle was
awarded ‘Best Turnaround Pub’. In addition,
two of our Pub Partners pubs were included
in Estrella Damm’s Top 100 Restaurants in
the UK this year.
In Pub Partners, we have a high quality
portfolio of 1,043 mainly drink-led pubs.
It generates significant and stable cash flow
for the group, adds purchasing scale, enhances
the Greene King brand and provides flexibility
in our estate planning. The success of Pub
Partners is built on our ambition to have the
best proposition in the market combined with
unrivalled people capability and a focus on
optimising value from each of our pubs.
Pub Partners revenue was down 2.0% to
£190.1m, driven by the 5.0% decrease in
the average number of pubs trading. LFL
net income was up 1.5%, boosted by higher
rental income and beer sales. LFL net profit
was down 0.3%, impacted by increased
central costs.
The high quality of our Pub Partners estate
has been maintained through ongoing estate
portfolio management and disciplined capital
allocation. We disposed of 70 non-core
pubs, generating proceeds of £49.1m, added
one single site acquisition and we invested
£18.7m in the core estate. In addition, 11
pubs were transferred from Pub Company
to Pub Partners.
We have several different agreement types in
place designed to best align the interests of
Greene King with those of its licensees and
support long and successful tenures. Since the
implementation of the Pubs Code in 2016, we
have had five licensees take up a Market Rent
Only agreement. Meanwhile, our average
licensee tenure increased to six years and two
months, reflecting the strong relationships we
build with our licensees. We were pleased
that, when surveyed earlier this year, 87% of
our licensees felt confident in their business.
1.
Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
2.
The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding of the group’s performance.
APMs are explained on page 174 of this annual report.
30
Greene King plc | Annual Report and Accounts 2019
OPERATIONAL REVIEW – BREWING & BRANDS
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.
OUR COMMITMENT TO CONSISTENT INVESTMENT IN OUR
CORE ALE BRANDS HELPED THEM WIN MARKET SHARE
AND MAINTAIN THEIR UK MARKET-LEADING INVESTMENT.
REVENUE
EBITDA1,2
£227.6m
+5.8%
£33.2m
-7.8%
OPERATING
PROFIT1,2
£27.4m
-10.7%
OPERATING PROFIT
MARGIN1,2
12.0%
-2.3%pts
BREWING & BRANDS
Overview | Strategic Report | Corporate Governance | Financial Statements
31
CORE BRANDS
In Brewing & Brands, our proven long-term
strategy is to build consumer loyalty to Greene
King through consistent investment in our core
ale brands and innovative range of seasonal and
craft ales. Through this, we continue to win
market share and contribute to Greene King’s
strong returns and cash generation.
Total beer volumes were up 0.9%, boosted
by the good weather and successful World
Cup, and revenue in Brewing & Brands
was up 5.8%, reflecting the stronger sales
contribution from foreign beers and the
trend towards premium beers. OBV was
down 3.4% against an ale market down 4.1%
and a cask ale market down 8.1% (source:
BBPA, April 2019). Operating profit was
down 10.7% and the operating profit margin
was down 2.3%pts, reflecting the estate
rationalisation, increased costs, the lower
production volumes through our breweries
and the impact of this on brewing efficiency.
As we exited the year, costs were being
realigned to these lower volumes.
Greene King’s core brands maintained their
UK market leading positions. Greene King
IPA continues to be the fastest selling top 10
cask ale brand in the on-trade. Abbot Ale saw
strong volume growth of 9.6% and remains
the number one premium cask ale brand in
the on-trade and the fourth largest ale brand
in the UK. Old Speckled Hen is the number
one premium ale brand in the UK with the
highest brand awareness in its category. This
year, we launched Low Alcohol Old Speckled
Hen and we gained distribution in 1,300 take
home outlets and 2,000 pubs, positioning it
for strong growth next year. Belhaven Best
remains the number one draught ale brand
in Scotland and number four keg ale brand in
the UK. In addition, East Coast IPA continued
its strong growth with total volume growth of
10%, making it the fastest growing of the top
ten ale brands and the sixth largest craft beer
brand in the UK.
We were appointed the exclusive UK
distributor for Estrella Galicia this year,
supplying the core brand and its 0.0% abv
and gluten-free variants, as well as 1906
Reserva Especial and 1906 Black Coupage.
Our market leading portfolio is underpinned
by a disciplined brand investment programme.
Greene King IPA continues to be the Official
Beer of England Cricket and puts its name
to the Greene King IPA Championship in
rugby. To mark Belhaven brewery’s 300th
birthday, we are investing in upgrading the
visitor experience and relaunched Belhaven’s
award-winning Twisted Thistle IPA. We
also launched a new Greene King brewery
website, featuring a 3D virtual tour of the
Westgate brewery in Bury St Edmunds.
We were pleased to receive several awards
in recognition of our beers and our ongoing
innovation in brewing: Low Alcohol Old
Speckled Hen won a Monde Silver Award for
quality; Twisted Grapefruit IPA was named
Beer of the Year at the annual Scottish Beer
Awards; Intergalactic won a gold medal at
the World Beer Awards; and we won silver
awards for Twisted Thistle IPA and Belhaven
Black. Yardbird Pale Ale was named the best
ale at the Grocer Drink Awards, winning the
gold award in the Ale & Others category. In
addition, our new head brewer Ross O’Hara
qualified as a Master Brewer with the Institute
of Brewing and Distilling, making him the
youngest Master Brewer in the world.
1.
Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
2.
The directors use a number of Alternative Performance Measures (APMs) that are considered critical to aid the understanding of the group’s performance.
APMs are explained on page 174 of this annual report.
32 Greene King plc | Annual Report and Accounts 2019
CORPORATE SOCIAL RESPONSIBILITY – AT A GLANCE
OUR OVERALL MISSION
IS TO BE THE BEST PUB
AND BEER COMPANY
IN BRITAIN IN THE
EYES OF OUR MAIN
STAKEHOLDERS AND
WITHIN THIS, CORPORATE
SOCIAL RESPONSIBILITY
(CSR) PLAYS AN
IMPORTANT PART.
Our commitment to each of our main stakeholders has helped
us grow from a regional Suffolk brewer into the leading pub and
beer company that we are today. Through the four pillars of our
CSR strategy we will continue to drive the long-term sustainability
of our business.
LAST YEAR:
OUR CSR STRATEGY IS BUILT
ON FOUR CORE PILLARS:
PUTTING OUR
PEOPLE FIRST
Developing people
who exceed expectations
Raised for Macmillan
Cancer Support
Young people in our
‘Get into Hospitality’
programme
£1.43m
110
We pride ourselves in investing in
our people. Attracting, retaining and
developing our people is at the forefront
of everything we do.
Pubs awarded four
or five star rating for
food hygiene
1,660
Spent on training
and development
£3m
38,000
TEAM MEMBERS
MORE INFORMATION
ON PAGES 34 TO 37
Overview | Strategic Report | Corporate Governance | Financial Statements
33
SUPPORTING OUR
LOCAL COMMUNITIES
OPERATING
SUSTAINABLY
DRIVING RESPONSIBLE
RETAILING
Making a difference to local
communities we serve
Operating in a more
sustainable way
Driving the responsible
retailing agenda
Our pubs are at the heart of the
community and provide support for
local charities and causes as well as
our national charity partner, Macmillan
Cancer Support.
As one of the country’s largest pub and
beer companies we have a responsibility
to the environment to champion
sustainability and this year we have
made solid progress.
We understand the importance of
providing our customers with a wide
choice of food and drink so they can
make healthier decisions when dining
or drinking with us.
£1m
DONATIONS VIA PENNIES
12m
35%
PLA STRAWS TURNED
INTO COMPOST
SUGAR REDUCTION
IN APPLE CRUMBLE
MORE INFORMATION
ON PAGES 38 TO 39
MORE INFORMATION
ON PAGES 40 TO 43
MORE INFORMATION
ON PAGES 44 TO 46
34
CORPORATE SOCIAL RESPONSIBILITY – PUTTING OUR PEOPLE FIRST
WHAT WE FOCUS ON
AT GREENE KING WE
PRIDE OURSELVES
ON INVESTING IN
OUR PEOPLE.
We are a leading UK employer, with around 38,000
team members working in our pubs, restaurants,
hotels, breweries, distribution centres and offices
across the country. Talent attraction, retention and
development are at the forefront of everything we
do and by providing a great place to work, we are
creating a sustainable future for our business.
38,000
PEOPLE
EMPLOYED
62%
EMPLOYEE
ENGAGEMENT SCORE
Apprenticeships provide the opportunity to learn and
earn. We offer apprenticeships up to Level 5, which
is equivalent to a Higher National Diploma, and have
seen time and time again our people move from a
stop-gap job serving behind the bar to developing
their career to become a general manager.”
Graham Briggs
Head of apprenticeships
Greene King plc | Annual Report and Accounts 2019 35
RECRUITING THE WORKFORCE
OF THE FUTURE
We have a strong recruitment programme
that is built on our recognised brand,
our excellent nation-wide estate and our
value proposition as one of the leading
UK employers. We are passionate about
providing employment opportunities in the
communities we serve and helping to drive
social mobility through talent attraction,
development and retention.
WORKING WITH
EX-OFFENDERS
Greene King is taking a proactive
role in employing ex-offenders
with hospitality and catering
experience and/or qualifications
from their time in prison.
Working with charities NOVUS
and Only a Pavement Away, the
programme is specifically designed
to create a clear pathway for ex-
offenders returning back into the
community to access a range of
employment opportunities with
Greene King.
MORE INFORMATION
ON PAGES 24 TO 25
APPRENTICESHIPS
THE PRINCE’S TRUST
We have worked with over 300
young people since our Get into
Hospitality programme with
The Prince’s Trust was launched
in 2016.
The three week programme helps
16–30 year olds receive work
experience with an end goal of each
student having the required skills
to help them gain a job. Where
successful with employment with us,
they have the opportunity to enrol
onto our apprenticeships scheme.
In 2018, we were the first company
to launch “Get into Hospitality
Now”; a shorter programme with
The Prince’s Trust. The two day
programme invites young people
who are ready to work but unable
to get a job, to gain valuable work
experience and so far 49 candidates
have taken part.
We value the role
apprenticeships play within our
business, providing our people
with excellent training and giving
us fantastic, motivated and
skilled employees.
Since its inception, our apprenticeship
programme has supported over
11,500 apprentices with 95% of
our pubs having benefited from the
scheme and 60% of our pubs with
an apprentice currently in training.
The programme continues to attract
high levels of applicants and 1,911
apprentices joined the scheme this
year. We were pleased to win six
awards over the last 12 months in
recognition of our success.
• 2,151 learners are currently on
the programme.
• 1,911 apprentices started this year.
• Over 11,500 people benefited
from apprenticeships so far.
• Over 25% of our learners have
additional learning support needs
and a large proportion started an
apprenticeship with grades lower
than five GCSEs (A-C).
Overview | Strategic Report | Corporate Governance | Financial Statements 36
CORPORATE SOCIAL RESPONSIBILITY – PUTTING OUR PEOPLE FIRST
CREATING A GREAT PLACE TO WORK
WE UNDERSTAND THE IMPORTANCE OF CREATING
A GREAT WORKPLACE FOR OUR PEOPLE.
WELLBEING
LGBT+ NETWORK
LEARNING AND DEVELOPMENT
Our commitment to our people
and to being one of the UK’s leading
employers means investing in our
team members’ wellbeing.
For the third year running, Wellbeing Week
was held at our support centres in Bury St
Edmunds and Burton on Trent. The week
promotes and educates team members on
their physical, social and emotional wellness,
and includes workshops, health promotion
activities, webinars and advice from a variety
of wellness experts. We have successfully
launched the ’Shine’ programme throughout
Greene King for all our leaders with a modular
programme harnessing resilience, mental and
emotional wellness to include all aspects of
both work and home life.
YOUR VOICE
In a bid to create strong and
positive two way conversations
between our teams and leadership
team, we launched ‘Your Voice’.
This communications and engagement forum
is chaired by members of the operating board
and senior leadership team and encourages our
teams to discuss things that matter to them via
their own business unit representatives.
Greene King’s LGBT+ Network,
The Village Greene, was officially
launched in April at the City of
Quebec in London, which is one of
London’s oldest gay-friendly pubs.
The Village Greene was set up to create a
community of like-minded team members to
share experiences, provide support and help
the business in promoting diversity.
TEAM 47
Team 47 has been created to help
women within Greene King to
network with each other and help
to grow women’s careers, ensuring
they are represented at all levels of
the company.
The number 47 represents the percentage
of women who make up Greene King’s
workforce.
We spent over £2.6m in the
continuous learning, training and
development of our people.
One area of focus has been to make sure
we give our teams a great start through our
enhanced and blended learning inductions.
Induction participation and engagement was
up to 93 %, which is a rise of 23% in less than
two years. After the successful launch of our
online learning platform TAP in 2017, we have
seen a significant increase in the number of
online training hours this year to 311,660 and
looking forward this engagement is only set to
continue. Examples of learning and development
programmes currently in place include:
• Talent Toolkit – general managers have
access to innovative learning tools to easily
identify the development opportunities for
them and their teams.
• TAP – global leading online platform
for learning, training and development
powered by Cornerstone.
• Greene Kingdom – innovative learning
modules supporting our people in both
their work and personal lifestyles.
• Shine – wellbeing initiative for our
leaders throughout Greene King.
Greene King plc | Annual Report and Accounts 2019 37
DIVERSITY AND INCLUSION
We promote an environment in our pubs, restaurants, hotels,
breweries and offices that is free from discrimination.
We work to a policy in which no employee
receives less favourable treatment on the
grounds of their colour, nationality, race,
religion, beliefs, 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 PAY GAP
We are committed to fairness, inclusion and equality for all our team
members. While some of the figures have improved from our 2017 report,
we recognise that we still have more to do to enable women to progress into
more senior roles and narrow our gender pay gap. We will make progress by:
• Continuing to develop our diversity and
inclusion strategy, including appointing an
executive sponsor from the business.
•
Implementing the key actions from the
diversity and inclusion strategy, in line
with the agreed timelines, to support not
only women but other currently under-
represented groups.
• Continuing to review our talent and
succession and reward and progression
related processes and provide line
managers with guidance to ensure that
decisions are free from unconscious
gender bias.
We are proud that 40% of our pub general
managers are women but we know that this
is not reflected at the more senior regional
business development manager level. Feedback
from our colleagues says that this is due to the
requirements of the job, including covering
a wide geography which can make it difficult
to balance family commitments. We have
worked to address this, including reducing the
size of the area covered by our BDMs and are
pleased to see an improvement in the number
of females being appointed to these roles, up
8% since the end of the reporting period.
AWARDS & RECOGNITION
2018 Princess Royal Training Awards
Social Mobility Award for Best
Recruitment 2018 – (Apprenticeship
Programme and Princes Trust)
Greene King
Combined
Greene King
Retail Services
Greene King
Services
Median
Mean
Median
Mean
Median
Mean
Training Journal Awards:
Best Apprenticeship Programme 2018
Best Training Partnership 2018
(with our apprenticeship provider)
Gender pay gap
1.0%
13.5%
0.0%
3.1%
9.4%
14.5%
Gender bonus gap
52.9%
19.7%
40.0%
-38.7%
6.2%
42.7%
TARGETS FOR THE NEXT 12 MONTHS
• Support 50 ex-offenders through the Releasing
Potential Programme
• Increase support for internal career progression from
64% to 68%
• Extend partnership with The Prince’s Trust
• Launch diversity and inclusion policy
Top 100 Apprenticeship Employer by
Rate My Apprenticeship – survey by our
own apprentices
Best Apprentice / School Leaver
Recruitment Strategy
Overview | Strategic Report | Corporate Governance | Financial Statements
38
CORPORATE SOCIAL RESPONSIBILITY – SUPPORTING OUR LOCAL
COMMUNITIES
WHAT WE FOCUS ON
OUR PUBS ACT
AS HUBS FOR
THEIR LOCAL
COMMUNITIES,
OFFERING A PLACE
TO SIT, SOCIALISE
AND MAKE A
DIFFERENCE TO
LOCAL SERVICES
AND GOOD CAUSES.
Alongside running social and community events,
our pubs hold fundraising events and provide
support for local charities that are important to
their team members and customers. In addition, our
pubs’ fundraising activities have been the beating
heart behind our national charity partnership with
Macmillan Cancer Support, which this year celebrated
having raised more than £5 million since 2012.
£1,437,990
RAISED FOR MACMILLAN, BRINGING
OUR OVERALL TOTAL TO £5.6M
We understand that raising so much money is not achieved
without an incredible amount of hard work, so on behalf of
Macmillan and those we help – thank you Greene King. You
are helping to make a real difference to the lives of people
living with cancer.”
Rachel Gascoigne
Senior partnership manager, Macmillan Cancer Support
Greene King plc | Annual Report and Accounts 2019 39
Image?
SUPPORTING PEOPLE LIVING
WITH CANCER AT CHRISTMAS
Our food development team partnered
with Macmillan dieticians to compile
ten Christmas recipes adapted to suit
people living with cancer.
Difficulties eating can relate to cancer itself,
such as weight loss or poor appetite, or the
side effects of treatment such as changing
tastes. The recipes aimed to provide
solutions at Christmas time when food and
cooking is so important to so many people.
We welcomed a group of people living with
cancer for a cookery experience to test
out the recipes at our development kitchen
in Burton on Trent, to effectively support
employees affected by cancer.
OTHER ACHIEVEMENTS INCLUDE
• Macmillan May 2018 – Record
breaking fundraising month, raising
£371,000
• We Love Macmillan Nurses
in September 2018 – fundraiser
to complement Macmillan’s World’s
Biggest Coffee Morning raised £165,000
A step change in our fundraising activity this year has been the launch of Pennies, the digital
charity box. Customers who are paying for a bill over £15, via chip & pin, are invited to make a
voluntary 25 pence donation with 90% going to Macmillan and 10% to Pennies. We have had
over one million individual donations and raised £215,000 through this scheme this year and
project to raise over £1 million next year.
Beyond our fundraising activity, we continued work on our Macmillan at Work training
programme, designed to give line managers and HR teams the tools and information to
effectively support team members affected by cancer.
AWARDS & RECOGNITION
Awarded Highly Commended
in the Better Society Awards
TARGETS FOR THE
NEXT 12 MONTHS
• Raise £2m for Macmillan
• Continue drive for
Macmillan May
• Embed Macmillan at Work
FIRST WORLD WAR CENTENARY
OTHER CHARITIES
Flanders Fields, the official beer of The
Royal British Legion’s campaign marking the
centenary of the end of World War One,
was brewed in collaboration with former
servicemen and women. It raised £32,961
for The Royal British Legion.
We continue to support Pub is the Hub
and this year donated £30,000 towards its
Community Services Fund, supporting rural
pubs who want to diversify their services for
the benefit of their communities. This is the
sixth year Greene King has given to the fund,
bringing the total donated to £100,000.
We are passionate about supporting local
communities and this year supported more
than 100 local causes close to our head office
and pub company support centre, through
raffle prize donations and event sponsorship.
Overview | Strategic Report | Corporate Governance | Financial Statements 40
CORPORATE SOCIAL RESPONSIBILITY – OPERATING SUSTAINABLY
WHAT WE FOCUS ON
WE ARE PASSIONATE
ABOUT OPERATING
IN A SUSTAINABLE
WAY WITHIN OUR
ENVIRONMENT
BOTH LOCALLY IN
OUR PUBS AND
BREWERIES, TO
NATIONALLY AND
BEYOND, AND
SUSTAINABILITY
IS CENTRAL TO
OUR CSR
STRATEGY.
We have focused on reducing waste and
energy and have made good progress
this year.
Our industry-leading closed loop solution
to tackling single use plastic straws has
been a big step forward for us this year
and we are proud to have turned 12
million PLA straws into compost.
Some of the things we have done this year
include conducting 411 pub energy audits
in partnership with British Independent
Utilities to ensure we have best practice
in reducing energy, introducing a kitchen
behaviour programme to ensure we have
optimum controls in place and successfully
completing a ‘Smart Cellar’ rollout,
reducing the energy used by our main
cellar chillers.
Greene King plc | Annual Report and Accounts 2019 41
WASTE STATISTICS
11,674
TONNES OF FOOD DIVERTED
TO ANAEROBIC DIGESTION TO
GENERATE ENERGY
1 tonne of food waste will generate
300kWh of energy. Greene King has
produced 3,502,200 kwh of electricity.
This is enough electricity to power 10,507
UK homes for a month (based on an
average consumption of 4000 KWH p/a).
3.33m
LITRES OF USED
COOKING OIL
CONVERTED TO
BIODIESEL
676,313
PINTS OF WATER
SAVED PER DAY
57
TONNES OF
TIN RECYCLED
20,156
TONNES OF
GLASS RECYCLED
5,169
TONNES OF
CARDBOARD
RECYCLED
761
TONNES OF MIXED
PLASTIC RECYCLED
WATER
Obtaining a Water Supply and Sewerage
Licence in 2017 gave us the control and
transparency to continue reducing the
water we use via accurate and correct
water data.
By benchmarking our estate and being
able to spot and remedy leaks quickly and
effectively, we’ve been saving 676,313 pints
per day.
FOOD WASTE
INNOVATION
In April, we became first pub
company to join forces with Too
Good To Go, a free app designed
to help businesses reduce food
waste across the country by offering
customers surplus carveries at a
discount at the end of the day.
The partnership saw all 111
Farmhouse Inns and Greene King
Pub and Carveries get on board
with the app.
Too Good To Go enables customers
to save meals towards the end of the
business’ day from going to waste.
Meals are typically half price or less,
with the Greene King carveries
costing from only £3.29.
PLASTIC
In February 2018, we removed plastic
straws from our bars, only providing them
on request and ensured used straws were
recycled. We also removed all plastic
stirrers and single use plastic cups. We
saw a 60% reduction in the straws used,
saving 18 million a year.
In August, we introduced compostable
PLA straws, across our entire managed
pub estate. Thought to be an industry
first, the scheme will remove 30 million
plastic straws from use every year.
‘In Vessel composter’ at a commercial
composting facility.
PLA, which is made from plant-based
materials, decomposes naturally in a
controlled composting environment in
as little as 12 weeks. The decomposed
straws will be recycled into nutrient-rich
soil which can be used to fertilise plants
and crops.
We worked with waste partner,
SWRnewstar, to find a unique closed loop
solution whereby the PLA straws are
segregated in the pub, taken back through
the supply chain and decomposed in an
30 million
PLASTIC STRAWS REMOVED
FROM USE
Overview | Strategic Report | Corporate Governance | Financial Statements 42 Greene King plc | Annual Report and Accounts 2019
CORPORATE SOCIAL RESPONSIBILITY – OPERATING SUSTAINABLY
AWARDS AND
RECOGNITION
Finalist in the Best Sustainable
Pub Company category
Shortlisted for the Waste
Management and Recycling
Programme of the Year
Shortlisted for the Waste
Prevention & Waste
Management Award
Best Product, Technology and
Innovation category
Insulated jackets for draught beer robots
CREATING GREENER BREWERIES AND OFFICES
Brewing & Brands
Our brewing, packaging and distribution
activities in Bury St Edmunds are
certified to the international standard for
Environmental Management Systems (ISO
14001:2015), which demonstrates our
commitment to continual improvement
in our environmental practices.
Energy and carbon
A warm up routine and insulated
jackets were implemented onto our
draught beer robots, to enable them to
continue operating efficiently during cold
weather. This is forecast to save over
200,000kWh per annum.
Water
Water saving and re-use initiatives are
continually evaluated as part of Greene
King’s production and packaging activities.
A project to re-use chiller water back into
the cask washer has resulted in savings
of approximately 500 cubic metres of
water per week, which is equivalent to the
amount three average family households
use in a year.
Greener Thinking Forum
Our Greener Thinking Forum is
supported by team members
representing departments across the
business in the bid to find greener ways
of operating. The Forum pushed for
the removal of non-recyclable cups from
the offices’ waste streams and to date
this has prevented around 80,000 cups
ending up as waste.
500m3
OF WATER SAVED PER
WEEK VIA WATER CHILLER
80,000
NON-RECYCLABLE
CUPS SAVED
43
GREENHOUSE GAS EMISSIONS
CO2 emissions by type
Direct emissions Scope 1
Total direct emissions Scope 1
Indirect emissions Scope 2
Gross emissions
Turnover in Pub Company and Brewing & Brands (£m)
Tonnes CO2e per £100k turnover
Source of emissions
Natural gas
Gas oil
Kerosene
LPG
Red diesel
Refrigerants
Owned vehicles
Electricity
The table above, 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 (CO2 e) 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
Greenhouse Gas (GHG) Conversion
Factors for Company Reporting for all
scope 1 emissions (2017 for 2017/18 and
2018 for 2018/19). GHG emissions from
refrigeration and air conditioning units
have been determined using the simplified
material balance method as described in the
Environmental Reporting Guidelines 2013.
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 (2017 for 2017/18 and
2018 for 2018/19).
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 Pub
Company and Brewing & Brands businesses
as the vast majority of our CO2 emissions
relate to those businesses.
2018/19
tonnes of
CO2e
64,209
570
302
4,134
54
3,837
8,052
81,158
93,983
175,140
2,026.8
0.086
2017/18
tonnes of
CO2e
65,247
760
367
3,943
58
3,979
8,942
83,297
116,912
200,209
1,982.8
0.101
TARGETS FOR THE
NEXT 12 MONTHS
• Convert all non-customer
facing areas to LED lights
• Remove single use plastics
from Christmas crackers
• Introduce technology to
analyse and reduce food
waste in our pubs
• Introduce endotherm
chemicals to reduce
energy for heating
• Extend food distribution
with charities Fareshare
and the Felix Project to
give unused food to those
in need
Overview | Strategic Report | Corporate Governance | Financial Statements
44 Greene King plc | Annual Report and Accounts 2019
CORPORATE SOCIAL RESPONSIBILITY – DRIVING RESPONSIBLE RETAILING
WHAT WE FOCUS ON
AS THE COUNTRY’S
LEADING PUB
RETAILER, WE
RECOGNISE OUR
RESPONSIBILITY
TO PROVIDE
OUR CUSTOMERS
WITH A WIDE
CHOICE OF
FOOD AND DRINK.
By doing this, they can choose healthier
options such as vegan dishes and low-alcohol
beer. We also label our products clearly with
allergen and calorie information.
Child eating?
45
CATERING TO OUR CUSTOMERS’ NEEDS
NUTRITION AND
ALLERGENS
We continue to work towards
full compliance with the 2017
salt targets issued by the Food
Standards Agency, regulating
the salt content of the products
which are supplied to us.
GLUTEN
As part of our spring summer
2019 menu cycle, all of our
menu brands across the estate
now have no-gluten containing
ingredient menus.
REFORMULATION
We have carried out a number
of reformulation projects with
our suppliers to reduce the sugar
content of the dishes on our
menus, in line with Public Health
England’s sugar targets.
Our main focus areas were ice
creams, sweet sauces and popular
dessert items. We have been
successful in reducing the sugar
content of our vanilla ice cream
by 5%, our chocolate sauce by
10% and toffee sauce by 15%.
We have also been successful
in achieving a 35% reduction
in sugar content for our Apple
Crumble, a 20% reduction for
our Vegan Chocolate Torte, and
a 10% reduction in sugar content
for our Triple Chocolate Brownie
product – we aim to achieve
further reductions with our Triple
Chocolate Brownie product over
the next year.
PROVIDING CHOICE AND
INFORMATION
We continue to show calorie labelling on
some of our menus and highlight where
healthier swaps can be made.
Full allergen information of all of our
meals continues to be accessible from a
member of the team at pub level, as well
as on our branded websites.
We are currently looking to invest in
improving further our allergen information
and improve the presentation of our data
for our customers both digitally in pub
and on our websites.
VEGAN DISHES
In order to cater for the sustained
popularity of vegan diets, we have
continued to challenge our suppliers
to provide new and innovative
products to progress onto our
menus as vegan dishes.
A number of our brands, for example
Pub & Dining and Farmhouse Inns,
now have dedicated menus or sections
for our vegan diners, assisting our
vegan guests in navigating to the dish
selection available to them.
Overview | Strategic Report | Corporate Governance | Financial Statements 46
CORPORATE SOCIAL RESPONSIBILITY – DRIVING RESPONSIBLE RETAILING
CHILDREN’S MENUS
We continue to implement our Children’s Menu Guideline Report, which was
devised last year by our nutrition team, to improve the dish selection available on
our children’s menus.
We have reviewed our children’s menu offerings across the estate. The following
improvements have been achieved:
•
Introduction of reduced sugar
product lines in order to ensure
sugar reduction for our dessert
dishes in particular.
• A complete portion size review
of all dishes, ensuring all brands
have appropriate portion sizes for
children up to eight years of age
and over.
• Five a day labelling on our children’s
menus, identifying key products
such our children’s pizza as an
option for our young guests to
enjoy one of their five a day through
the addition of vegetables in the
pizza sauce and topping.
•
•
Implementing ‘Pick & Mix’ selections
throughout all of our children’s
menus in order to ensure all parents
are able to make decisions on the
dishes they wish to select when
choosing to dine with us.
Improvement of the menu
messaging and imagery used on
our menus in order to encourage
healthier meal selections.
DESIGNATED DRIVER
SUGAR TAX
For the ninth year in a row over 1,000 of
our pubs took part in an annual Christmas
anti-drink drive campaign with Coca-Cola, by
offering nominated drivers free soft drinks.
LABELLING
Our brewing division is changing its packaging
to reflect the Chief Medical Officer’s 14 units
per week for both men and women, ahead
of the deadline in October. We changed
this information on the Enjoy Responsibility
website in 2016.
ENJOY RESPONSIBLY
Our Enjoy Responsibly website,
www.enjoyresponsibly.co.uk, provides
information and advice on enjoying alcohol
responsibly. All of our brands promote this
website on their marketing materials.
The Government launched its Soft Drinks
Industry Levy in 2018, making this the first
year we have worked with the ‘sugar tax’.
In a bid to offer our customers more
options, we have launched vitamin based
waters on our children’s menus as well as
slim-line/diet alternatives where possible on
our bars. This year we launched Coke Zero
on tap in an extra 500 pubs.
FOOD STANDARDS IN OUR PUBS
We are proud that, out of the 1,551
Greene King managed pubs in England and
Wales, 1,516 (97.7%) were awarded a four
or five-star rating by their local authority and
97.6% of our managed pubs in Scotland have
achieved a pass rating. It is paramount that
we provide our customers with consistently
high quality food and so we actively promote
excellent kitchen standards.
See also the information on Old Speckled Hen Low Alcohol on page 22
TARGETS FOR THE
NEXT 12 MONTHS
• Continue to reformulate
our menus to reduce the
content of sugar, salt and
calories
• Improve the way we
communicate allergen
information
• Make further
improvements to our
children’s menus to
increase choice and
signpost healthier options
Greene King plc | Annual Report and Accounts 2019 NON-FINANCIAL INFORMATION STATEMENT
47
• Data privacy notice – the company has
paid particular attention to embedding
data privacy into the company’s ways
of working through a governance
committee, incident management,
training and awareness, quality control
and a change programme that focuses
on privacy by design and default. For an
explanation of how the company uses
personal data see the privacy notice at
www.greeneking.co.uk/privacy.
ANTI-CORRUPTION AND
ANTI-BRIBERY
• This year we have released new anti-
bribery training for our support centre
staff and pub managers, who have
been encouraged to take part in the
short online training programme via
our online development platform TAP.
The session goes through the law and
responsibility each team member faces.
• We have updated our gifts and
hospitality policy and all gifts must be
recorded on a central database. Gifts
over £250 also require line manager’s
approval and anything more than
£5,000 requires permission from the
chief executive.
In accordance with the new non-financial
reporting requirements as set out in
sections 414CA and 414CB of the
Companies Act 2006, certain information
on environmental, employee and social
matters is set out in the annual report.
The strategic report contains reference to
our policies, due diligence processes and
information on how we are performing on
various measures in these areas. Pages 54
to 57 contains information on our principal
risks and uncertainties and pages 18 to 19
sets outs our non-financial key performance
indicators. For the five areas covered by
the new requirements, signposts to further
information in relevant sections of the
annual report are outlined below.
ENVIRONMENT
• Operating sustainably including
greenhouse gas emissions – corporate
social responsibility report – pages
40 to 43.
EMPLOYEES
•
It is our policy to ensure that
employees are selected, recruited,
developed, remunerated and
promoted on the basis of their skill
and suitability for the work performed.
The company is committed to treating
all employees fairly and equally and
will endeavour to provide workplace
adaptions and training for employees
or candidates who have a disability
and colleagues who become disabled
during their employment.
• Putting our people first – corporate
social responsibility report – pages
34 to 37.
• Diversity and inclusion – corporate
social responsibility report – page 37.
SOCIAL MATTERS
• Business model relationships – our
business model – pages 12 to 13.
• Driving responsible retailing –
corporate social responsibility
report – page 44 to 46.
• Alcohol – corporate social
responsibility report – page 46
and www.greeneking.co.uk/enjoy-
responsibly.
HUMAN RIGHTS
• While we do not have a formal
human rights policy, we are absolutely
committed to conducting business
with integrity and fairness.
• Our code of conduct provides that
all team members are to be treated
with respect, and their health, safety
and basic human rights protected and
promoted. It covers a range of topics
including modern slavery, working
conditions, child labour, discrimination
and anti-corruption and anti-bribery
measures, including a specific anti-
bribery policy.
• We expect our suppliers and
sub-contractors to comply with
the provisions of our code or meet
the same standard through their
own code.
• Our whistleblowing policy for our
team members encourages them to
report any wrongdoing, including
human rights violations such as modern
slavery or human trafficking and any
concerns with bribery. Our teams
are able to report via a confidential
external supplier email or hotline
and no significant issues were raised
through these during the year.
• Gender pay gap reporting –
corporate social responsibility report
– page 37.
• Modern Slavery Statement –
www.greeneking.co.uk/modern-
slavery-statement.
• Gender diversity:
Female
Male
1
46
6
141
Directors
Senior
managers
All employees
20,601
17,807
Overview | Strategic Report | Corporate Governance | Financial Statements 48
CHIEF FINANCIAL OFFICER’S REPORT
FREE CASH FLOW WAS
£86.1M AFTER CORE CAPITAL
EXPENDITURE AND THE
PAYMENT OF THE DIVIDEND.”
INCOME STATEMENT
£ million
Revenue
Adjusted operating profit1
Adjusted net finance costs1
Adjusted profit before tax1
Exceptional and non-underlying items
Profit before tax
Pub Company operating margin (%)
52 weeks ended
28 April 2019
52 weeks ended
29 April 2018
F18 reported margin
Underlying trading
2,216.9
368.2
(121.3)
246.9
(74.1)
172.8
2,176.7
Investment
373.1
(130.1)
243.0
(45.5)
197.5
Estate optimisation
Inflation
Mitigation
F19 reported margin
15.2
0.5
0.0
0.2
-2.2
1.5
15.2
Net interest costs before exceptional and non-
underlying items were £121.3m, 6.8% lower
than last year due to overall lower debt and
the impact of refinancing activities in the year.
Profit before tax, exceptional and non-
underlying items was £246.9m, 1.6% higher
than last year.
Basic earnings per share before exceptional
and non-underlying items of 64.5p was
up 2.9%. Statutory profit before tax was
£172.8m, down 12.5% versus the prior year.
Revenue was £2,216.9m, an increase of
1.8% compared to the prior year with strong
growth in Pub Company and Brewing &
Brands offsetting the planned decline in
total pub numbers. Pub Company revenue
was up 1.8% to £1,799.2m and accounts for
81% of group revenue. Non-core disposals
helped AWT per pub rise 4.1% and average
EBITDA per pub rise 3.3%. Total revenue in
Pub Partners was £190.1m, down 2.0% driven
by a decline in average trading pubs of 5.0%.
Tenanted and leased AWT per pub increased
3.0% and average EBITDA per pub grew 1.0%
due to the continuing improvement in the
quality of the pub estate. Brewing & Brands
grew revenue 5.8% to £227.6m with total
beer volumes up 0.9%.
£ million
Pub Company
Pub Partners
Brewing & Brands
Corporate
Group adjusted operating profit1
52 weeks ended
28 April 2019
52 weeks ended
29 April 2018
YOY change
£272.9
£87.1
£27.4
£(19.2)
£368.2
£268.2
£91.4
£30.7
£(17.2)
£373.1
1.8%
-4.7%
-10.7%
11.6%
-1.3%
Operating profit before exceptional and non-
underlying items was £368.2m, which was
a decline of 1.3% on the prior year. Group
operating profit margin before exceptional
and non-underlying items was down 0.5%
pts to 16.6%. Pub Company margin was flat
versus the prior year at 15.2% and it was up
0.5% pts in the second half, reflecting the
benefits from investments in VSQ and estate
optimisation. The decline in group operating
margin was driven by the reduction in both
the Pub Partners margin from 47.1% to 45.8%
and the Brewing & Brands margin from 14.3%
to 12.0%.
1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
2.
EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and is calculated as operating profit before exceptional and non-underlying items adjusted
for the depreciation and amortisation charge for the period.
Greene King plc | Annual Report and Accounts 2019 49
£482.0m
EBITDA1,2
(£m)
2019
2018
2017
-0.9%
£482.0m
£486.6m
£524.1m
£368.2m
£246.9m
Operating profit before exceptional
and non-underlying items1
(£m)
-1.3%
Profit before tax and exceptional
and non-underlying items1
(£m)
+1.6%
£368.2m
£373.1m
£411.5m
2019
2018
2017
£246.9m
£243.0m
£273.5m
2019
2018
2017
TAX
The effective rate of corporation tax
(before exceptional and non-underlying
items) of 19.1% is marginally higher than the
UK corporation tax rate of 19.0% due to
adjustments for non-deductible expenses,
compared to 20.0% in the previous year.
This resulted in a tax charge against
operating profits (before exceptional and
non-underlying items) of £47.1m (2018:
£48.6m). The exceptional and non-underlying
tax charge of £5.3m (2018: £34.4m credit)
is discussed under exceptional and non-
underlying items.
The group generates revenue, profits and
employment that deliver substantial tax
revenues for the UK government in the form
of VAT, duties, income tax and corporation
tax. In the year, total tax revenues paid and
collected by the group were £550m (2018:
£580m). The group’s tax policy, which
has been approved by the board, has the
objective of ensuring that the group fulfils its
obligations as a responsible UK taxpayer.
The group has recognised an uncertain tax
provision of £4.1m in respect of the only
open corporation tax enquiry relating to tax
deductions claimed on capitalised revenue
expenditure.
During the year the group completed a full
review of deferred tax, as a result of which,
in line with IAS 8, the group has restated
balances as at 30 April 2017, and restated its
financial results for the year ending 29 April
2018. See note 1 for further details.
EXCEPTIONAL AND
NON-UNDERLYING ITEMS
Exceptional and non-underlying items were
£79.4m, consisting of a £53.5m charge to
operating profit, a £20.6m charge to finance
costs and a net exceptional and non-underlying
tax charge of £5.3m. Items recognised in the
year included the following:
1. A £6.2m charge for employee related costs,
which included one off additional defined
contribution pensions payments as well as a
material restructuring cost associated with
changes to management. A further £0.4m of
legal and professional fees were incurred in
relation to group refinancing activities and
defending uncertain tax positions.
2. A net impairment charge of £56.7m (2018:
£70.4m). Of this total, a net £55.0m charge
was made against the carrying value of
property, plant and equipment.
3. A net profit on disposal of property plant
and equipment of £17.0m (2018: £33.0m).
4. A past service cost of £4.9m, across
both the Greene King and Spirit pension
schemes, for guaranteed minimum pension
equalisation following the High Court
judgment on this issue in relation to the
Lloyds Banking Group’s defined benefit
pension scheme.
5. The £20.6m charge (2018: £10.6m credit)
for exceptional and non-underlying finance
costs included a £5.4m loss (2018: £19.2m
gain) in respect of the mark-to-market
movements in the fair value of interest rate
swaps not qualifying for hedge accounting,
£10.7m costs (2018: £11.6m) recycled from
the hedging reserve in respect of settled
interest rate swap liabilities and a £4.1m loss
(2018: £3.0m profit) on the settlement of
financial liabilities.
6. The exceptional and non-underlying tax
charge of £5.3m consisted of a £9.2m tax
charge in respect of prior years, a £4.1m
tax charge in respect of the uncertain tax
provision explained above, a £0.9m charge
in respect of deferred tax rate changes, a
£5.5m credit in respect of non-underlying
items and a £3.4m credit in respect of
other exceptional items.
Overview | Strategic Report | Corporate Governance | Financial Statements
50
CHIEF FINANCIAL OFFICER’S REPORT CONTINUED
CASH FLOW AND CAPITAL STRUCTURE
£ million
EBITDA1
Working capital and other movements2
Net interest paid2
Tax paid2
Adjusted cash generated from operations
Core capital expenditure
Net repayment of trade loans/Other non-cash
movements
Free cash flow before dividend
Dividend
Free cash flow
Net disposal proceeds
New build/brand conversion capital expenditure
Exceptional and non-underlying items/ share issues
Refinancing items
Change in net debt
The group continued to be highly cash
generative with free cash flow of £86.1m,
after funding core capital expenditure of
£119.1m and dividend payments of £102.9m.
This is significantly ahead of scheduled
debt repayments of £52.2m. Net disposal
proceeds at £75.8m reflected our ongoing
programme of estate optimisation and we
invested £44.3m in five new builds, five single
site acquisitions of which three are to be
converted in F20 and 79 brand conversions.
The group disposed of 41 trading pubs in Pub
Company, 69 trading pubs in Pub Partners and
six closed pubs, raising proceeds of £79.3m,
which was partially offset by exiting a small
number of leases.
The group continued to make good progress
against its strategic aim to further strengthen
its capital structure. During the year the
group made unscheduled repayments of Spirit
secured bonds with a total nominal value
of £176.0m, recognising a net loss of £4.1m.
In June 2018 £62.3m (30%) of the Spirit A4
secured bond was prepaid and, in September
2018, a further £51.9m (25%) of the Spirit A4
secured bond was prepaid. In December 2018
the group, in an open-market transaction,
purchased and subsequently cancelled £61.8m
(39%) of the Spirit A5 secured bond.
52 weeks ended
28 April 2019
52 weeks ended
29 April 2018
482.0
(35.5)
(116.9)
(21.0)
308.6
(119.1)
(0.5)
189.0
(102.9)
86.1
75.8
(44.3)
(5.9)
(22.7)
89.0
486.6
(22.9)
(127.1)
(9.4)
327.2
(132.2)
(2.2)
192.8
(102.9)
89.9
117.5
(61.0)
(46.8)
(57.4)
42.2
Exceptional gains or losses recognised in
respect of these transactions amount to the
difference between the carrying value of the
repaid or cancelled bonds (comprising the
nominal value and a fair value premium) and
the settlement amount paid (comprising the
sum of the nominal value and a prepayment
penalty in the case of the A4 bonds, and the
clean purchase price paid in the case of the
A5 bonds).
The group also partially terminated two
interest rate swap contracts in line with
the partial prepayments of the A4 and
A5 Spirit secured bonds, resulting in cash
payments totalling £16.6m. A further
payment of £2.0m was made during the
year to eliminate over-hedges on interest
rate swap contracts held in respect of the
outstanding Spirit secured bonds.
The amount shown under refinancing items
in the cash flow table above comprises
£18.6m (2018: £42.6m) attributable to the
settlement of derivative liabilities and £4.1m
(2018: £14.8m) of other costs and non-cash
movements attributable to refinancing.
Since June 2017 the group has repaid a total
of £393m of Spirit secured bonds which
represents 51% of the nominal value of
the Spirit secured debt outstanding at
F17 year end.
1.
EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items.
2. Adjusted measures excluding the impact of exceptional and non-underlying items as detailed in note 5 of the financial statements.
In February 2019 the group issued an
additional £250m of secured bonds (class
A7) with a fixed coupon of 3.593% out of
the Greene King secured financing vehicle
in connection with the securitisation of an
additional 177 of the group’s pubs. The
net issuance proceeds were applied to
the repayment of revolving credit facility
loans, creating capacity to fund the further
migration of assets and debt out of the
Spirit secured financing vehicle.
Since the year end the group has given
notice that it will prepay the remaining 45%
(£93.5m) of the Spirit A4 secured bond on
28th June 2019. The group has also agreed to
fully terminate the corresponding interest rate
swap contract on this date.
In line with our strategic priorities, the group’s
objective is to maximise the strength and
flexibility of its balance sheet, and to maintain
a capital structure which meets the short,
medium and long-term funding requirements
of the business. The principal elements of
the group’s capital structure are its £750m
revolving credit facilities, which were £192m
drawn at the year end, and two long-term
asset-backed financing vehicles.
At the year end the Greene King securitisation
had secured bonds with a group carrying
value of £1,537.5m (2018: £1,343.5m) and an
average life of nine years (2018: ten years),
secured against 1,539 pubs (2018: 1,429 pubs)
with a group carrying value of £2.0bn (2018:
£1.3bn). The Spirit debenture had secured
bonds with a carrying value of £379.5m
(2018: £563.6m) and an average life of eight
years (2018: nine years), secured against 695
pubs (2018: 872 pubs) with a group carrying
value of £0.8bn (2018: £1.0bn).
The group’s credit metrics remain strong with
99.6% of net interest costs at a fixed rate, and
the group’s average cash cost of debt reduced
to 5.8% from 6.1% last year. Fixed charge cover
increased to 2.3x from 2.2x last year and net
debt to EBITDA reduced to 4.0x from 4.2x
last year. The Greene King secured vehicle
had a free cash flow debt service cover ratio
of 1.5x at the year end, giving 27% headroom.
The Spirit debenture vehicle had a free cash
flow debt service cover ratio of 2.3x giving
44% headroom.
Overall the group’s net debt reduced in the
year by £89.0m to £1,943.3m.
Greene King plc | Annual Report and Accounts 2019 51
The group has elected to use a modified
retrospective approach in valuing the right-of-
use asset on a site-by-site basis due to the age
and complexity of the estate.
IFRS 16 will be recognised as an adjustment
to the opening balance of retained earnings
as at 29 April 2019, with no restatement of
comparative information.
The following table shows the estimated
effect of adopting IFRS 16 on the consolidated
balance sheet at 29 April 2019:
£ million
Goodwill and other intangibles
Property, plant and equipment
Post-employment assets/
(liabilities)
Derivative financial instruments
Other net liabilities
Net assets
Share capital and premium
Reserves
Total equity
29 April
2019
(102)
900
–
(1,135)
–
267
(70)
–
(70)
(70)
For the period ending 3 May 2020, the
group’s operating profit metric will improve
by an estimated £15m under IFRS 16 as the
new depreciation expense is expected to be
lower than the IAS 17 operating lease charge;
however finance costs are expected to be
higher than this, estimated at £31m, such that
net profit after tax and the underlying earnings
metric are expected to be lower compared to
the previous IAS 17 reporting basis.
There is no net cash flow impact on
application of IFRS 16, although the
classification of cash flows will be affected as
operating lease payments under IAS 17 are
presented as operating cash flows; whereas
under IFRS 16, the lease payments will be split
into a principal and an interest portion which
will be presented as financing and operating
cash flows respectively.
Richard Smothers
Chief financial officer
26 June 2019
PENSIONS
RETURN ON CAPITAL EMPLOYED
Net debt
BALANCE SHEET
£ million
Goodwill and other intangibles
Property, plant and equipment
Post-employment assets/(liabilities)
Net debt
Derivative financial instruments
Other net liabilities
Net assets
Share capital and premium
Reserves
Total equity
28 April 2019
29 April 2018
restated1
1,216.9
3,543.4
31.1
(1,943.3)
(230.0)
(510.2)
2,107.9
300.9
1,807.0
2,107.9
1,240.2
3,597.8
13.6
(2,032.3)
(241.1)
(505.1)
2,073.1
300.7
1,772.4
2,073.1
The group maintains three defined
contribution schemes, which are open to
all new employees and two defined benefit
schemes, which are closed to new entrants
and to future accrual.
At 28 April 2019, there was an IAS 19 net
pension asset of £31.1m representing an
improvement of £17.5m since the previous
year end. The closing assets of the group’s
two pension schemes totalled £865.4m and
closing liabilities were £834.3m compared
to £859.2m and £845.6m respectively at the
previous year end.
The improvement in position is due to
contributions made by the group during the
year, combined with the net remeasurement
gain of £17.0m (2018: £21.5m). Included in the
remeasurement are key assumptions relating
to the discount rate of 2.5% (2018: 2.8%),
RPI inflation of 3.3% (2018: 3.1%) and CPI
inflation of 2.2% (2018: 2.0%).
Total cash contributions in the year were
£3.3m.
The triennial reviews for both the Greene
King and Spirit pension schemes have now
been finalised. The Greene King scheme has
an actuarial deficit of £25.3m, broadly in line
with the last valuation, and the Spirit scheme
has an actuarial surplus of £11.3m.
The group is focused on delivering the best
possible returns on its assets and on the
investments it makes and on capital discipline,
through targeted investment in new build
pubs, single site acquisitions and in developing
its existing estate to drive organic growth
alongside disposals of non-core pubs. ROCE
of 8.5% has improved by 10 bps compared to
the prior year and remains comfortably ahead
of the group’s cost of capital.
DIVIDEND
The board has recommended a final dividend
of 24.4 pence per share, in line with last year,
subject to shareholder approval. This will be
paid on 13 September 2019 to shareholders
on the register at the close of business on
9 August 2019.
The proposed final dividend brings the total
dividend for the year to 33.2 pence per share,
in line with last year. This is in keeping with the
board’s policy of maintaining dividend cover of
around two times underlying earnings, while
continuing to invest for future growth.
IFRS 16
The new accounting standard is applicable
for accounting periods beginning on or after
1 January 2019, and will be applied for the
first time by the group for the 53 weeks
ending 3 May 2020.
1. Deferred tax, goodwill and retained earnings have been restated. See note 1 for further details.
Overview | Strategic Report | Corporate Governance | Financial Statements 52
RISK MANAGEMENT
Greene King is not alone in facing a range of risks and uncertainties in the course of its business. Our aim is to
identify and manage these risks effectively so that we can deliver on our strategic objective of being the best
pub and beer company in the UK and to maximise shareholder returns.
GREENE KING BOARD
Overall responsibility for risk management
Sets the group’s risk tolerance
AUDIT AND RISK 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 and progress across the group
Aggregates risk registers to create group risk register
BUSINESS UNIT AND FUNCTIONAL
AREA SENIOR MANAGEMENT
Responsibility for identification of risks, implementation
of mitigating actions and maintenance of business unit and
functional risk registers
APPROACH TO RISK MANAGEMENT
Board
The board has overall responsibility for ensuring that there is a robust
assessment of the principal risks facing the group, being those which
would threaten our business model, future performance and solvency
and liquidity. The board has defined the group-level risk tolerances to
set out the board’s desired risk-taking approach to the achievement of
our strategic objectives, in the context of managing our principal risks.
Our risk tolerance is an expression of the types and amount of risk
we are willing to take or accept to achieve our plan, and enables us
to better determine the mitigating activities required to manage our
principal risks to within acceptable risk levels.
The nature of our principal risks has remained largely unchanged during
the year. Many of the risks are impacted by external factors, although the
board has noted the additional steps being taken to monitor and mitigate
against these external factors. One such external factor is outcome of the
Brexit negotiations with the EU, which has been specifically considered by
the board. Whilst Brexit-related risks are not included as a separate item in
the list of the group’s principal risks , Brexit does pose a number of risks to
our business, including heightened macro-economic uncertainty and more
specifically at a recruitment level, and these have been reflected in the
detail of the relevant risks already facing the business.
Details of our broad risk tolerance in relation to each of our key risks
is set out in the table on pages 54 to 57.
Audit and risk committee
The audit and risk committee, which has delegated responsibility for
reviewing the effectiveness of the group’s risk management processes,
regularly reviews the risk management processes for each business unit
and functional area, on a rotational basis, reviewing presentations from
relevant management and challenging their analyses.
Management
Executive directors and other senior management are responsible for
the implementation of risk management and internal control systems,
with each business unit or functional area responsible for identifying,
assessing and managing the risks in their respective areas. They are
required to maintain, review and regularly update a risk register to
assist in this process.
Risk management process
Classification of risks follows a standard methodology used in risk
management and takes into account the likelihood of their occurrence
and the scale of potential impact (both financial and reputational) on
the business.
Greene King plc | Annual Report and Accounts 2019 53
Once the key economic, operational, financial, people and strategic
risks have been identified, each business unit and functional area is then
responsible for evaluating current controls in place to manage their
risks, drawing up plans to improve controls and managing new risks as
and when they arise. Each key risk has an ‘action owner’ to ensure that
responsibilities are formally aligned. To ensure continuous improvement
across the business, progress of these risk implementation plans is
monitored by senior management on a regular basis.
Further, 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, whereby risk registers are
aggregated and considered on a top down basis in the context of
delivering our strategy for the group.
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.
VIABILITY STATEMENT
In accordance with provision C2.2 of the 2016 UK Corporate
Governance Code, the board is required to assess the prospects of
the company over an appropriate period of time selected by them.
The board concluded that for these purposes the three-year period
to the end of the 2021/22 financial year was appropriate as it is
consistent with the group’s strategic planning horizon and provides
the longer-term view of the group’s viability required by the Code.
The board also considers it to be a reasonable period over which
the group’s key risks can be assessed, given the fast moving nature
of the market in which it operates and where it can be difficult to
predict the future impact of political and economic uncertainties.
Long term financing is provided by the group’s securitisation
and debenture vehicles, which have remaining weighted average
lives of nine years and eight years respectively. The group also has
available £750m under revolving credit facilities of which £400m
(Facility A), expiring in October 2021, is available to provide liquidity
and to manage its seasonal cash flows. The remaining £350m
(Facility B), is available to fund the internal transfer of pubs from
the debenture vehicle, improving the group’s ability to refinance
its Spirit secured loan notes and related interest rate swaps. This
facility expires in November 2020 but is subject to an extension
option to October 2021, which management expects to exercise.
The board’s expectation is that Facility A would be renegotiated
prior to its maturity in October 2021 to ensure the continued
availability of liquidity. Facility B is expected to be refinanced into
longer term debt instruments.
The group’s latest strategic plan (‘the plan’), covering the period
to the end of the 2021/22 financial year, was approved by the
board in February 2019. The plan is prepared by consolidating each
business segment’s own plan and overlaying group assumptions
in respect of estate optimisation and capital structure. Key
assumptions underpinning the plan and the associated cash flow
forecasts are the economic outlook, revenue growth expectations,
expected inflationary cost pressures, and estate development
and disposal opportunities. The plan considers cash flows and
compliance with the financial covenants contained within the
group’s revolving credit facility and structured finance vehicles.
As detailed above the board has conducted a robust assessment of
the principal risks facing the company. This included consideration
of strategic risks, economic and market risks, operational and
people risks and financial risks. The resilience of the group to the
impact of these risks has been assessed by applying significant
but plausible sensitivities to the cash flow projections based on
past experience. This included modelling the effect of reduced
consumer confidence and therefore spending, UK’s withdrawal
from the EU, the failure of the group’s business to maintain and
develop compelling customer offers, food safety issues, lower
than anticipated acquisition synergies and the impact of increased
regulation across the business.
The above scenarios are hypothetical and severe for the purposes
of creating outcomes that have the ability to threaten the viability
of the group. In the case of these scenarios arising, the group has
various options available to maintain liquidity in order to continue
in operation. These options include reduction in discretionary cash
spend such as non-essential capital expenditure, dividends or
unscheduled refinancing payments.
Taking account of the company’s current position, principal risks
and the sensitivity analysis discussed above, as well as the potential
mitigating actions that the company can take, and the experience
that the company has in adapting the business to change, the board
has a reasonable expectation that the company will be able to
continue to in operation and meet its liabilities as they fall due
over the three year period of assessment.
Overview | Strategic Report | Corporate Governance | Financial Statements 54
PRINCIPAL RISKS AND UNCERTAINTIES
Risk type
Specific risk areas
Links to our
strategic priorities
Change since
last year
Mitigation
Risk tolerance
Strategic risks –
business strategy
Failure to adopt the right strategy for the group or one of its business units or poor
execution of that strategy could lead to reduced revenue, profitability and lower
growth rates than our strategic objectives.
1
2
3
4
Strategic risks –
customer offer
Failure to deliver an appealing customer offer, to identify and respond to fast-changing
consumer tastes and habits (including the use of digital media), to respond to increased
competition, to price products appropriately and to align the portfolio to the market
could all lead to reduced revenue, profitability and lower market share and growth
rates than anticipated. It remains unclear how consumers will respond to the outcome
of the Brexit negotiations.
1
2
3
4
5
Economic and
market risks –
economic
uncertainty and
cost pressures
We are at risk of a weakening economy and softer consumer confidence in the UK in
the light of the ongoing Brexit uncertainty and political impasse. We also continue to
face significant cost headwinds, including the National Living Wage/National Minimum
Wage, the Apprenticeship Levy, business rates and utilities taxes, all of which could
lead to reduced revenue, profitability and lower growth rates to the extent that we are
not able to mitigate against them. In Pub Partners any difficulties our tenants face also
impact us.
1
2
3
4
Operational and
people risks –
GDPR compliance
A significant personal data breach through failure to comply with the EU General Data
Protection Regulation and the UK Data Protection Act 2018 could impact our ability to
do business, impacting both revenue and profitability. In addition the risk of reputational
damage and financial damage from fines or compensation has increased.
1
3
5
Operational and
people risks –
cyber/IT security
A significant cyber security breach or other loss of data could impact the company
financially or our ability to do business, impacting both revenue and profitability as well
as potentially compromising employee, customer and supplier data. Deliberate acts of
cyber crime are on the increase, targeting all markets and heightening risk exposure.
1
3
5
Operational
and people
risks – suppliers,
distributors and
our own production
facilities
We are reliant on a number of key suppliers and third party distributors to supply
goods, including in particular food and drinks, to our pubs and on our own ability to
produce, package and distribute our own beers. Short term supply disruption could
impact customer satisfaction and lead to loss of revenue whilst the long term failure
or withdrawal of key suppliers or distributors could also lead to significantly increased
costs. If we were unable to brew, package and distribute our own beers for long
periods we could suffer loss of revenue and profitability.
1
2
Strategic priorities
1
3
5
Build distinct brands that more customers choose
Develop engaged and high performing colleagues
2
4
Provide offers that deliver compelling value, service and quality
Maintain a well-located and invested estate
Prudent financial management
Change since last year
Increased
Decreased
No change
Our group strategy is focussed on building brands that customers admire, creating offers that deliver compelling value, service and
We are comfortable
quality, developing engaged and high performing teams, maintaining a well-located and invested estate and managing our finances
managing risks which we
prudently. Pub Company continues to focus on its four key brands, on reducing costs and on improving service standards. For Pub
understand and are consistent
Partners a key focus area is to reduce the impact of the MRO option tenants have under the Pubs Code and in Brewing & Brands
with the delivery of our
the focus is on improving productivity and driving OBV growth. Overall strategy is determined by the board at an annual two day
strategic objectives.
strategy meeting, and progress against strategic plans is reviewed regularly by the board and the operating board, which is tasked
with the execution of the plans on a day to day basis. There is regular review of the execution of strategic plans by management
in operating board meetings and at other relevant meetings.
We are continuing to invest in delivering value, service and quality to our customers and to focus on our four main brands.
With our vision to be the
We maintain an active estate management programme, refining brands and segmenting our portfolio to align our offers
best pub and beer company
with shifting consumer trends. Marketing is targeted towards encouraging more visits, often with a focus on events and
in the UK we expect to be
where appropriate managers are encouraged to organise events designed to appeal to their local population. We use guest
able to react swiftly and
satisfaction tools, TripAdvisor scores and net promoter scores to collect customer feedback and measure performance
appropriately to changing
of our pubs and we encourage our managers to respond to relevant feedback. Competitor activity is monitored at both
consumer trends to maintain
a strategic and tactical level and each brand has its own pricing strategy, while discounts and promotions are carefully
earnings and the achievement
targeted. Food and drink quality remain a high priority, as do a focus on team training and digital enhancements. For Pub
of our strategic objectives.
Partners there is an ongoing focus on improving the support we offer to licensees and in Brewing & Brands we have
relaunched a focus on quality.
We have a relentless focus on value, service and quality and are continuing to invest in our pubs. We aim to mitigate many of
We acknowledge and recognise
the anticipated cost increases facing the business, through procurement and productivity savings, with a particular focus on cross
that in the normal course of
functional co-operation and the use of technology. On procurement we aim to work closely with our key suppliers to reduce
business, the group is exposed
costs without impacting the customer offer. We have a well hedged portfolio, with a broad geographic spread of pubs across the
to risk and we are willing to
country, including in London and the south east, brands covering each of the value, mainstream and premium segments of the
accept a level of risk in order to
market, and a mixture of drink-led and food-led pubs. We maintain an active estate management programme, enabling us to
refine our brands and segment our portfolio to align with shifting consumer trends.
achieve our strategic priorities
and will manage the business
accordingly.
A wide range of policy, technical, procedural, and operational compliance control improvements have been implemented
We have a low tolerance for
across the business, covering all aspects of the requirements. We have a data governance committee, data protection officer
significant breaches of GDPR.
and data protection champions across the business. Processes are in place to manage data breaches, which are followed up
appropriately to ensure that lessons are learnt, and subject access requests are now handled centrally to ensure legislative
requirements are met. Staff training is given to all employees and solutions have been or are being implemented for a number
of issues identified during the implementation programme. A range of activities will further improve management of these
risks during the year, including the provision of specialist training for those employees whose roles involve significant amounts
of personal data processing.
Working with specialist third party companies we continuously monitor and evaluate cyber threats to our business.
As a result of this evaluation our cyber security programme is constantly adapted to strengthen our IT security controls,
We have a low tolerance for
significant breaches within our
improve our threat surveillance, patching and user education and to ensure that we continue to retire legacy systems so
IT operations.
that our defences remain robust and relevant in the ever-changing threat landscape. Disaster recovery plans for our critical
applications have been successfully tested, and the architecture has been updated and tested to improve the scale of speed
of recovery of our IT systems.
We maintain back up plans in case of the failure by or loss of a key supplier, and we expect our key suppliers to maintain
disaster recovery plans which we review on a regular basis. Regular monitoring is undertaken of KPIs applicable to both
We recognise that we carry
an inherent risk in relation
third party suppliers and distributors, with issues flagged for resolution. We have agreed a one year extension to our drinks
to both our own production
distribution contract with our third party supplier and are reviewing a range of options to provide longer term security of
supply to our pubs and those of our customers. In the event of a failure in our own production and distribution activities a
range of alternative solutions exist to enable us to continue to brew, package and distribute our own beers.
facilities and third party
suppliers but we seek to
minimise this risk through
management and control.
Greene King plc | Annual Report and Accounts 2019 Risk type
Specific risk areas
Links to our
strategic priorities
Change since
last year
Mitigation
Our group strategy is focussed on building brands that customers admire, creating offers that deliver compelling value, service and
quality, developing engaged and high performing teams, maintaining a well-located and invested estate and managing our finances
prudently. Pub Company continues to focus on its four key brands, on reducing costs and on improving service standards. For Pub
Partners a key focus area is to reduce the impact of the MRO option tenants have under the Pubs Code and in Brewing & Brands
the focus is on improving productivity and driving OBV growth. Overall strategy is determined by the board at an annual two day
strategy meeting, and progress against strategic plans is reviewed regularly by the board and the operating board, which is tasked
with the execution of the plans on a day to day basis. There is regular review of the execution of strategic plans by management
in operating board meetings and at other relevant meetings.
55
Risk tolerance
We are comfortable
managing risks which we
understand and are consistent
with the delivery of our
strategic objectives.
We are continuing to invest in delivering value, service and quality to our customers and to focus on our four main brands.
We maintain an active estate management programme, refining brands and segmenting our portfolio to align our offers
with shifting consumer trends. Marketing is targeted towards encouraging more visits, often with a focus on events and
where appropriate managers are encouraged to organise events designed to appeal to their local population. We use guest
satisfaction tools, TripAdvisor scores and net promoter scores to collect customer feedback and measure performance
of our pubs and we encourage our managers to respond to relevant feedback. Competitor activity is monitored at both
a strategic and tactical level and each brand has its own pricing strategy, while discounts and promotions are carefully
targeted. Food and drink quality remain a high priority, as do a focus on team training and digital enhancements. For Pub
Partners there is an ongoing focus on improving the support we offer to licensees and in Brewing & Brands we have
relaunched a focus on quality.
With our vision to be the
best pub and beer company
in the UK we expect to be
able to react swiftly and
appropriately to changing
consumer trends to maintain
earnings and the achievement
of our strategic objectives.
We have a relentless focus on value, service and quality and are continuing to invest in our pubs. We aim to mitigate many of
the anticipated cost increases facing the business, through procurement and productivity savings, with a particular focus on cross
functional co-operation and the use of technology. On procurement we aim to work closely with our key suppliers to reduce
costs without impacting the customer offer. We have a well hedged portfolio, with a broad geographic spread of pubs across the
country, including in London and the south east, brands covering each of the value, mainstream and premium segments of the
market, and a mixture of drink-led and food-led pubs. We maintain an active estate management programme, enabling us to
refine our brands and segment our portfolio to align with shifting consumer trends.
A wide range of policy, technical, procedural, and operational compliance control improvements have been implemented
across the business, covering all aspects of the requirements. We have a data governance committee, data protection officer
and data protection champions across the business. Processes are in place to manage data breaches, which are followed up
appropriately to ensure that lessons are learnt, and subject access requests are now handled centrally to ensure legislative
requirements are met. Staff training is given to all employees and solutions have been or are being implemented for a number
of issues identified during the implementation programme. A range of activities will further improve management of these
risks during the year, including the provision of specialist training for those employees whose roles involve significant amounts
of personal data processing.
We acknowledge and recognise
that in the normal course of
business, the group is exposed
to risk and we are willing to
accept a level of risk in order to
achieve our strategic priorities
and will manage the business
accordingly.
We have a low tolerance for
significant breaches of GDPR.
Working with specialist third party companies we continuously monitor and evaluate cyber threats to our business.
As a result of this evaluation our cyber security programme is constantly adapted to strengthen our IT security controls,
improve our threat surveillance, patching and user education and to ensure that we continue to retire legacy systems so
that our defences remain robust and relevant in the ever-changing threat landscape. Disaster recovery plans for our critical
applications have been successfully tested, and the architecture has been updated and tested to improve the scale of speed
of recovery of our IT systems.
We have a low tolerance for
significant breaches within our
IT operations.
We maintain back up plans in case of the failure by or loss of a key supplier, and we expect our key suppliers to maintain
disaster recovery plans which we review on a regular basis. Regular monitoring is undertaken of KPIs applicable to both
third party suppliers and distributors, with issues flagged for resolution. We have agreed a one year extension to our drinks
distribution contract with our third party supplier and are reviewing a range of options to provide longer term security of
supply to our pubs and those of our customers. In the event of a failure in our own production and distribution activities a
range of alternative solutions exist to enable us to continue to brew, package and distribute our own beers.
We recognise that we carry
an inherent risk in relation
to both our own production
facilities and third party
suppliers but we seek to
minimise this risk through
management and control.
FOR MORE INFORMATION ABOUT OUR STRATEGY
SEE PAGES 16 TO 17
Strategic risks –
business strategy
Failure to adopt the right strategy for the group or one of its business units or poor
execution of that strategy could lead to reduced revenue, profitability and lower
1
2
3
4
growth rates than our strategic objectives.
Strategic risks –
customer offer
Failure to deliver an appealing customer offer, to identify and respond to fast-changing
consumer tastes and habits (including the use of digital media), to respond to increased
1
2
3
4
5
competition, to price products appropriately and to align the portfolio to the market
could all lead to reduced revenue, profitability and lower market share and growth
rates than anticipated. It remains unclear how consumers will respond to the outcome
of the Brexit negotiations.
Economic and
market risks –
economic
uncertainty and
cost pressures
We are at risk of a weakening economy and softer consumer confidence in the UK in
the light of the ongoing Brexit uncertainty and political impasse. We also continue to
face significant cost headwinds, including the National Living Wage/National Minimum
Wage, the Apprenticeship Levy, business rates and utilities taxes, all of which could
lead to reduced revenue, profitability and lower growth rates to the extent that we are
not able to mitigate against them. In Pub Partners any difficulties our tenants face also
1
2
3
4
impact us.
Operational and
people risks –
A significant personal data breach through failure to comply with the EU General Data
Protection Regulation and the UK Data Protection Act 2018 could impact our ability to
1
3
5
GDPR compliance
do business, impacting both revenue and profitability. In addition the risk of reputational
damage and financial damage from fines or compensation has increased.
Operational and
people risks –
cyber/IT security
A significant cyber security breach or other loss of data could impact the company
financially or our ability to do business, impacting both revenue and profitability as well
as potentially compromising employee, customer and supplier data. Deliberate acts of
cyber crime are on the increase, targeting all markets and heightening risk exposure.
1
3
5
Operational
and people
risks – suppliers,
distributors and
We are reliant on a number of key suppliers and third party distributors to supply
goods, including in particular food and drinks, to our pubs and on our own ability to
produce, package and distribute our own beers. Short term supply disruption could
impact customer satisfaction and lead to loss of revenue whilst the long term failure
our own production
or withdrawal of key suppliers or distributors could also lead to significantly increased
facilities
costs. If we were unable to brew, package and distribute our own beers for long
periods we could suffer loss of revenue and profitability.
1
2
Overview | Strategic Report | Corporate Governance | Financial Statements 56
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk type
Specific risk areas
Links to our
strategic priorities
Change since
last year
Mitigation
Risk tolerance
Operational and
people risks –
recruitment,
retention and
development of
employees and
licensees
If we are unable to recruit, develop and retain key employees it may be more difficult to
execute our business plans and strategy, impacting our revenue and profitability. Whilst
the long term impact of the Brexit negotiations is yet to be fully understood, we are
already seeing reduced migration from the EU. This, coupled with unemployment being at
historically low levels, gives rise to a challenge in recruiting and retaining enough talented
people. For our Pub Partners division we face similar issues with regard to licensees.
1
2
3
Operational and
people risks –
compliance with a
range of legislation
including health and
safety, food safety
and employment
legislation
If we fail to comply with major health and safety legislation and cause serious injury
or loss of life to one of our customers, employees or tenants, in our pubs, offices
or breweries, this could have a significant impact on our reputation, leading to
investigations by relevant authorities and financial loss. If there is an issue in our food
supply chain, including the provision of incorrect allergen information, that leads to
serious illness or loss of life to one of our customers this could lead to restrictions in
supply, potential increases in the cost of goods and reduced sales. Failure to comply
with employment-related legislation such as those relating to the National Minimum
Wage and right to work could lead to HMRC fines and additional expense.
1
2
3
4
Financial risks –
funding requirements
If we are unable to meet the funding requirements of the group we risk reduced
revenue and lower profitability than our strategic plan.
1
4
5
Financial risks –
covenant risks
If we are unable to meet the covenant requirements of the group’s debenture,
securitisation and other financing arrangements our ability to pay dividends or reinvest
cash could be affected, which in turn would damage our reputation and ongoing
creditworthiness.
1
4
5
Financial risks –
pension scheme
funding
Any inability to meet the funding requirements of our defined benefit pension schemes,
which are subject to the risk of changes in life expectancy, actual and expected price
inflation and investment yields, could impact our balance sheet, whilst the volatility of
the deficit makes longer-term planning more difficult.
5
Strategic priorities
1
3
5
Build distinct brands that more customers choose
Develop engaged and high performing colleagues
2
4
Provide offers that deliver compelling value, service and quality
Maintain a well-located and invested estate
Prudent financial management
Change since last year
Increased
Decreased
No change
We have both a branded recruitment plan to ensure that we attract suitable candidates and operate a range of apprenticeship
The nature of the sector
programmes and other initiatives designed to attract people into the business. More effective recruitment processes have
in which we operate is
been put in place for key roles in our pubs and we have improved induction training to improve retention in the early few
months. We spent over £2.6m in the year on training and development, and utilise a company-wide training platform to all
predisposed to high employee
turnover levels, but we have a
employees. Career development plans are in place to retain key employees, whilst remuneration packages are benchmarked
low tolerance for levels which
to ensure that they remain competitive. We plan to improve retention through greater engagement with our staff through
exceed the sector average, and
digital HR and through our ongoing focus on the Winning Ways values programme. Key leaver reasons are monitored so
we expect our staff to have
that specific issues can be dealt with, and our annual employee engagement survey is used to obtain direct feedback from
the appropriate skills to deliver
employees on a range of issues. Managers are tasked with developing action plans to deal with the feedback received. We
the functions of the business.
will also look at opportunities to reduce our exposure through more efficient shift planning and task allocation and look at
areas where technology investment can reduce our reliance on people. For our tenanted pub business we have a range of
tenancy agreements, training programmes and support available to attract and retain the best quality licensees.
We have a comprehensive range of formally documented policies and procedures in place, including centrally managed
systems of compliance KPI tracking and internal and independent audits to ensure compliance with current legislation and
approved guidance. Our health and safety policies have been reviewed by our primary authority partner, Reading Borough
We have no tolerance for
health and safety or food
safety breaches within our
Council, which has rated our safety management system, which includes training for all relevant staff, as very good. We
operations.
have also established a link between environmental health ‘Scores on the Doors’ and remuneration incentives for relevant
employees. We have refreshed our training modules to make them more engaging for our young workforce. In our brewing
business we are working closely with our distribution partners to raise standards of health and safety across the sector and
are improving safety competence and awareness amongst our middle management population. In our tenanted estate we
have a detailed compliance programme to ensure that pubs are safely handed over to new tenants and we provide technical
support and audit to our key tenanted food businesses and those with the poorest hygiene ratings. In relation to our food
supply chain we require all suppliers to have BRC or SALSA accreditation as a minimum and we risk rate suppliers on an
annual basis to determine audit type and frequency. Regular meetings are held with key suppliers to review issues and follow
up on any corrective actions required. We have systems designed to ensure compliance with right to work and National
Minimum Wage legislation.
The group’s debt structures and financing requirements are reviewed by the board who ensure that the capital structure
plan continues to support the requirements of the strategic three year plan. Long term financing is provided by the group’s
We expect the group to
be able to access suitable
securitisation and debenture vehicles, which have remaining weighted average lives of nine years and eight years respectively.
financial facilities to meet the
The group also has available £750m under revolving credit facilities of which £400m is available to provide liquidity and
to manage its seasonal cash flows. The remaining £350m is available to fund the internal transfer of pubs from the Spirit
ongoing requirements of the
business and our longer term
debenture vehicle, improving the group's ability to refinance its Spirit secured loan notes and related interest rate swaps.
strategic objectives.
During the second half of the financial year, we made further progress on our debt refinancing plan. Since June 2017, we
have repaid £393m, or 51% of the nominal value of the Spirit debenture, while we tapped the Greene King securitisation for
£250m at 3.6%, creating headroom within our revolving credit facility for future bond repayments from the debenture.
Long term strategy and business plans are formulated to ensure that headroom against financial covenants is maintained
We expect to be able to meet
at a prudent level. Forward looking covenant headroom is reviewed by the board on an ongoing basis. Working capital
all our payment obligations
performance is regularly reviewed and closely managed by the finance teams. The impact on covenant headroom across
and have adequate headroom
all debt platforms is considered by management when assessing potential future transactions.
against our covenant levels
under a range of cautious but
plausible liquidity scenarios.
All our final salary schemes are closed to future accrual to reduce volatility. There is regular monitoring of the schemes'
We expect to maintain funding
investments and plans are in place to de-risk the investment strategy of the Greene King pension scheme. The Greene King
levels for our pension schemes
and Spirit schemes both underwent a full actuarial valuation during 2018/19. The Spirit scheme is in surplus on an actuarial
at manageable levels.
basis and therefore continues to not require funding from the company. The Greene King scheme remains in deficit, but does
not require a material increase from the current £3m funding annual contribution. The company is engaged proactively with
each pension scheme trustee on journey planning.
Greene King plc | Annual Report and Accounts 2019 Operational and
If we are unable to recruit, develop and retain key employees it may be more difficult to
1
2
3
people risks –
recruitment,
retention and
development of
employees and
licensees
execute our business plans and strategy, impacting our revenue and profitability. Whilst
the long term impact of the Brexit negotiations is yet to be fully understood, we are
already seeing reduced migration from the EU. This, coupled with unemployment being at
historically low levels, gives rise to a challenge in recruiting and retaining enough talented
people. For our Pub Partners division we face similar issues with regard to licensees.
Operational and
people risks –
compliance with a
range of legislation
including health and
safety, food safety
and employment
legislation
If we fail to comply with major health and safety legislation and cause serious injury
or loss of life to one of our customers, employees or tenants, in our pubs, offices
or breweries, this could have a significant impact on our reputation, leading to
investigations by relevant authorities and financial loss. If there is an issue in our food
supply chain, including the provision of incorrect allergen information, that leads to
serious illness or loss of life to one of our customers this could lead to restrictions in
supply, potential increases in the cost of goods and reduced sales. Failure to comply
with employment-related legislation such as those relating to the National Minimum
Wage and right to work could lead to HMRC fines and additional expense.
1
2
3
4
Financial risks –
If we are unable to meet the funding requirements of the group we risk reduced
1
4
5
funding requirements
revenue and lower profitability than our strategic plan.
Risk type
Specific risk areas
Links to our
strategic priorities
Change since
last year
Mitigation
We have both a branded recruitment plan to ensure that we attract suitable candidates and operate a range of apprenticeship
programmes and other initiatives designed to attract people into the business. More effective recruitment processes have
been put in place for key roles in our pubs and we have improved induction training to improve retention in the early few
months. We spent over £2.6m in the year on training and development, and utilise a company-wide training platform to all
employees. Career development plans are in place to retain key employees, whilst remuneration packages are benchmarked
to ensure that they remain competitive. We plan to improve retention through greater engagement with our staff through
digital HR and through our ongoing focus on the Winning Ways values programme. Key leaver reasons are monitored so
that specific issues can be dealt with, and our annual employee engagement survey is used to obtain direct feedback from
employees on a range of issues. Managers are tasked with developing action plans to deal with the feedback received. We
will also look at opportunities to reduce our exposure through more efficient shift planning and task allocation and look at
areas where technology investment can reduce our reliance on people. For our tenanted pub business we have a range of
tenancy agreements, training programmes and support available to attract and retain the best quality licensees.
We have a comprehensive range of formally documented policies and procedures in place, including centrally managed
systems of compliance KPI tracking and internal and independent audits to ensure compliance with current legislation and
approved guidance. Our health and safety policies have been reviewed by our primary authority partner, Reading Borough
Council, which has rated our safety management system, which includes training for all relevant staff, as very good. We
have also established a link between environmental health ‘Scores on the Doors’ and remuneration incentives for relevant
employees. We have refreshed our training modules to make them more engaging for our young workforce. In our brewing
business we are working closely with our distribution partners to raise standards of health and safety across the sector and
are improving safety competence and awareness amongst our middle management population. In our tenanted estate we
have a detailed compliance programme to ensure that pubs are safely handed over to new tenants and we provide technical
support and audit to our key tenanted food businesses and those with the poorest hygiene ratings. In relation to our food
supply chain we require all suppliers to have BRC or SALSA accreditation as a minimum and we risk rate suppliers on an
annual basis to determine audit type and frequency. Regular meetings are held with key suppliers to review issues and follow
up on any corrective actions required. We have systems designed to ensure compliance with right to work and National
Minimum Wage legislation.
57
Risk tolerance
The nature of the sector
in which we operate is
predisposed to high employee
turnover levels, but we have a
low tolerance for levels which
exceed the sector average, and
we expect our staff to have
the appropriate skills to deliver
the functions of the business.
We have no tolerance for
health and safety or food
safety breaches within our
operations.
The group’s debt structures and financing requirements are reviewed by the board who ensure that the capital structure
plan continues to support the requirements of the strategic three year plan. Long term financing is provided by the group’s
securitisation and debenture vehicles, which have remaining weighted average lives of nine years and eight years respectively.
The group also has available £750m under revolving credit facilities of which £400m is available to provide liquidity and
to manage its seasonal cash flows. The remaining £350m is available to fund the internal transfer of pubs from the Spirit
debenture vehicle, improving the group's ability to refinance its Spirit secured loan notes and related interest rate swaps.
During the second half of the financial year, we made further progress on our debt refinancing plan. Since June 2017, we
have repaid £393m, or 51% of the nominal value of the Spirit debenture, while we tapped the Greene King securitisation for
£250m at 3.6%, creating headroom within our revolving credit facility for future bond repayments from the debenture.
We expect the group to
be able to access suitable
financial facilities to meet the
ongoing requirements of the
business and our longer term
strategic objectives.
Financial risks –
covenant risks
If we are unable to meet the covenant requirements of the group’s debenture,
securitisation and other financing arrangements our ability to pay dividends or reinvest
cash could be affected, which in turn would damage our reputation and ongoing
1
4
5
creditworthiness.
Long term strategy and business plans are formulated to ensure that headroom against financial covenants is maintained
at a prudent level. Forward looking covenant headroom is reviewed by the board on an ongoing basis. Working capital
performance is regularly reviewed and closely managed by the finance teams. The impact on covenant headroom across
all debt platforms is considered by management when assessing potential future transactions.
Financial risks –
pension scheme
funding
Any inability to meet the funding requirements of our defined benefit pension schemes,
which are subject to the risk of changes in life expectancy, actual and expected price
inflation and investment yields, could impact our balance sheet, whilst the volatility of
5
the deficit makes longer-term planning more difficult.
All our final salary schemes are closed to future accrual to reduce volatility. There is regular monitoring of the schemes'
investments and plans are in place to de-risk the investment strategy of the Greene King pension scheme. The Greene King
and Spirit schemes both underwent a full actuarial valuation during 2018/19. The Spirit scheme is in surplus on an actuarial
basis and therefore continues to not require funding from the company. The Greene King scheme remains in deficit, but does
not require a material increase from the current £3m funding annual contribution. The company is engaged proactively with
each pension scheme trustee on journey planning.
FOR MORE INFORMATION ABOUT OUR STRATEGY
SEE PAGES 16 TO 17
We expect to be able to meet
all our payment obligations
and have adequate headroom
against our covenant levels
under a range of cautious but
plausible liquidity scenarios.
We expect to maintain funding
levels for our pension schemes
at manageable levels.
Overview | Strategic Report | Corporate Governance | Financial Statements 58 Greene King plc | Annual Report and Accounts 2019
AS A BOARD WE TAKE
CORPORATE GOVERNANCE
VERY SERIOUSLY AND I WILL
CONTINUE TO ENSURE
THAT WE MAINTAIN HIGH
STANDARDS THROUGHOUT
MY TENURE.”
Philip Yea
Chairman
Overview | Strategic Report | Corporate Governance | Financial Statements
59
CORPORATE GOVERNANCE
60 Board of directors
62 Corporate governance
68 Nomination committee report
71 Audit and risk committee report
75 Directors’ remuneration report
92 Directors’ report and disclosures
95 Directors’ responsibilities statements
60 Greene King plc | Annual Report and Accounts 2019
BOARD OF DIRECTORS
PHILIP YEA (64)
Chairman
NICK MACKENZIE (51)
Chief executive
RICHARD SMOTHERS (51)
Chief financial officer
MIKE COUPE (58)
Non-executive director
DATE APPOINTED
2016
DATE APPOINTED
1 May 2019
DATE APPOINTED
2018
DATE APPOINTED
2011
EXTERNAL APPOINTMENTS
Chairman of Equiniti Group plc.
Non-executive director of Aberdeen
Standard Asia Focus plc and non-
executive director of Marshall of
Cambridge (Holdings) Ltd.
EXTERNAL APPOINTMENTS
None.
EXTERNAL APPOINTMENTS
Trustee of The National Childbirth
Trust and chair of its audit, risk and
scrutiny committee.
EXTERNAL APPOINTMENTS
Chief executive of J Sainsbury plc.
RELEVANT PREVIOUS
EXPERIENCE
Philip Yea’s prior executive career
included roles as finance director of
Diageo plc and chief executive of 3i
Group plc. He has chaired a number
of companies both public and private
across a wide range of sectors and
has been a director of UK listed
companies for over 20 years.
RELEVANT PREVIOUS
EXPERIENCE
Nick Mackenzie joined Greene
King in May 2019 from Merlin
Entertainments plc where he spent
17 years, most recently managing
director of Midway Attractions, the
largest division within the group. Nick
started his career in pubs at Bass
and Allied and held a non-executive
director role at Daniel Thwaites PLC
before joining Greene King.
RELEVANT PREVIOUS
EXPERIENCE
Richard Smothers joined Greene King
in December 2017 from Mothercare
plc where he was CFO for three
years. Prior to this he was director of
group finance at Rexam plc and he has
also held a number of senior finance
roles during 14 years at Tesco plc.
RELEVANT PREVIOUS
EXPERIENCE
Mike Coupe brings knowledge and
experience from working for other
large, multi-site retail organisations,
including Asda and Tesco.
COMMITTEE MEMBERSHIP
Nomination committee
Remuneration committee
Audit and risk committee
Committee chairman
Overview | Strategic Report | Corporate Governance | Financial Statements
61
FEMALE BOARD MEMBERS
NON-EXECUTIVE BOARD MEMBERS
25%
75%
ROB ROWLEY (69)
Senior independent
non-executive director
DATE APPOINTED
2014 (Appointed senior
independent director 2015)
EXTERNAL APPOINTMENTS
Non-executive director and chairman
of the audit, risk and security
committee at Camelot
UK Lotteries Ltd.
LYNNE WEEDALL (52)
Non-executive director
GORDON FRYETT (65)
Non-executive director
SANDRA TURNER (66)
Non-executive director
DATE APPOINTED
2012
DATE APPOINTED
2016
DATE APPOINTED
1 May 2019
EXTERNAL APPOINTMENTS
Non-executive director of
WJL Group Ltd.
EXTERNAL APPOINTMENTS
Non-executive director and member
of the nomination and remuneration
committees of Treatt plc. Non-
executive director and member of
the remuneration and nomination
committees of William Hill PLC
(from 1 July 2019).
RELEVANT PREVIOUS
EXPERIENCE
Rob Rowley has extensive board
experience gained as a former
finance director of Reuters Group
plc. He has also been non-executive
director of Moneysupermarket.com
Group plc, Taylor Wimpey plc and
Morgan Advanced Materials plc.
RELEVANT PREVIOUS
EXPERIENCE
Lynne Weedall was group HR director
of Selfridges Group and brings to
the board a wealth of experience of
HR and organisational development
gained from a variety of roles in the
retail sector, including at Dixons
Carphone, Whitbread and Tesco.
RELEVANT PREVIOUS
EXPERIENCE
Gordon Fryett has many years’
experience in retail operations and
property matters having held a
number of senior positions at Tesco
including Group Property Director.
Gordon was also non-executive
director of Severn Trent plc from
2009 until 2016.
EXTERNAL APPOINTMENTS
Non-executive director, senior
independent director and chair of
the remuneration committee of
Greggs plc. Non-executive director
and chair of the remuneration
committee of Carpetright plc. Non-
executive director and chair of the
remuneration committee of McBride
plc. Non-executive director of
Huhtamäki Oyj.
RELEVANT PREVIOUS
EXPERIENCE
Sandra Turner has many years’
experience in the consumer goods
and retail sectors, including for
Wilkinson Sword, Unilever and Tesco,
where she was commercial director
of Tesco Ireland.
SENIOR MANAGEMENT
The senior management team comprises Nick Mackenzie, chief executive, Richard Smothers, 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.
62
Greene King plc | Annual Report and Accounts 2019
CORPORATE GOVERNANCE
THE KEY PRIORITY FOR THE BOARD
WAS TO MANAGE THE SUCCESSION
OF OUR CHIEF EXECUTIVE, DEALING
WITH THE TERMS ON WHICH ROONEY
ANAND LEFT THE BUSINESS AND THE
RECRUITMENT OF NICK MACKENZIE.”
STATEMENT OF
COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE
CODE (2016 VERSION)
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 April 2016
throughout the year in all respects.
CHAIRMAN’S INTRODUCTION
I am pleased to introduce this report on how the board operates from a governance
and control perspective to ensure that we comply with the main principles and
relevant provisions of the UK Corporate Governance Code (2016 version) (the Code).
As a board we take corporate governance very seriously, and I will continue to ensure
that we maintain high standards throughout my tenure.
The key priority for the board during the 2018/19 financial year was to manage the succession
of our chief executive, dealing with the terms on which Rooney Anand stepped down as chief
executive and a director on 30 April 2019 and the recruitment of our new chief executive, Nick
Mackenzie, who joined the board on 1 May 2019. More details are set out in the nomination
committee report on page 68 and the directors’ remuneration report on page 75.
All this was done alongside an ongoing focus on the performance of the business, the debt
structure of the business, oversight of risk management, alignment of remuneration policies
with shareholder interests and sound investor relationships.
I would like to reiterate my earlier comments thanking Rooney for his huge commitment and
contribution to Greene King over the past 18 years and to welcome Nick to the board. I would
also like to thank my fellow directors for their continued support. The year just gone and
2019/20 will be ones of transition for the board and I am confident that, as we help Nick settle
into his new role, we will also continue to maintain a strong and effective governance system
to enable the business to deliver its strategy, generate shareholder value and safeguard our
shareholders’ long-term interests.
Philip Yea
Chairman
Overview | Strategic Report | Corporate Governance | Financial Statements 63
THE BOARD
Board composition
As at the year end the board comprised the chairman, two executive
directors and four non-executive directors. The non-executive chairman
is Philip Yea and the senior independent director is Rob Rowley. Rooney
Anand was chief executive throughout the year, standing down from the
board on 30 April 2019, just after the year end. Nick Mackenzie joined
the board as the new chief executive on 1 May 2019. Sandra Turner also
joined the board on 1 May 2019, bringing the number of non-executive
directors (excluding the chairman) on the board to five.
The board believes that the structure and size of the board has been
appropriate and that no single individual or group dominates the
decision making process.
The directors’ biographies are on pages 60 and 61.
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.
Philip Yea, the chairman, was independent on appointment, having
never been employed by the company and having diverse business
interests beyond the company, and in the opinion of the board
remains independent.
Rob Rowley was the senior independent non-executive director
during the year. He too has never been employed by the company
and has diverse business interests. 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.
Board independence – current directors
Name
Philip Yea
Nick Mackenzie
Mike Coupe
Gordon Fryett
Rob Rowley
Richard Smothers
Sandra Turner
Lynne Weedall
Independent
Nomination
committee
Audit and
risk committee
Remuneration
committee
Yes
No
Yes
Yes
Yes
No
Yes
Yes
In addition, during the year Rooney Anand was a director who was not independent as he was chief executive.
64
Greene King plc | Annual Report and Accounts 2019
CORPORATE GOVERNANCE CONTINUED
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. These were
updated with effect from 1 May 2019.
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. He is to take a leading role, supported
by the chief executive, in shaping the composition and structure of the
board and to ensure continuity by means of succession planning.
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 remuneration committee, 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 (updated with effect from 1 May 2019), 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.
The board has delegated certain responsibilities to standing
committees, details of which are set out below. 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.
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
Oversee the group’s operations and
review performance in light of the
group’s strategy, objectives, business
plans and budgets
NOMINATION
COMMITTEE
reviews structure, size and
composition of the board;
makes recommendations
for appointments;
succession planning.
AUDIT AND RISK COMMITTEE
REMUNERATION COMMITTEE
reviews and monitors full year
and interim results;
monitors internal financial controls;
sets remuneration policy;
sets executive director
remuneration and incentives;
oversees external audit relationship;
approves annual performance objectives;
oversees risk management.
approves granting of long-term incentives.
MEMBERS
MEMBERS
MEMBERS
Philip Yea (Chairman)
Rob Rowley (Chairman)
Lynne Weedall (Chairman)
Mike Coupe
Gordon Fryett
Rob Rowley
Sandra Turner
Lynne Weedall
Mike Coupe
Gordon Fryett
Sandra Turner (joined 1 May 2019)
Mike Coupe
Gordon Fryett
Rob Rowley
Sandra Turner
Nomination committee report
Pages 68 to 70
Audit and risk committee report
pages 71 to 74
Directors’ remuneration report
pages 75 to 91
Overview | Strategic Report | Corporate Governance | Financial Statements 65
The most significant activity for the board this year has been dealing
with the succession plans for the chief executive. During the year
Rooney Anand advised the board of his intention to step down from
the board at the end of the financial year, and work therefore began to
manage the transition to a new chief executive, including agreeing the
arrangements applicable to Rooney’s departure and recruiting a suitable
successor. The nomination committee report on page 68 outlines the
process followed for and the background to the appointment of Nick
Mackenzie as the new chief executive, and the nomination committee
report and the directors’ remuneration report on page 75 outline the
work of the committees in dealing not only with the remuneration
package agreed for Nick Mackenzie but also the terms of Rooney
Anand’s departure, including a payment of £850,000 in consideration
of him agreeing to various post-termination covenants.
Other focus areas for the board during the year included business
performance, and the actions being taken by management to address
the continuing cost challenges and to improve performance. The
board also kept under review the debt structure of the company and
the ongoing work to refinance parts of the Spirit debenture. It also
received various reports on the performance of key competitors to
enable it to gain a better understanding of the marketplace.
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.
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, with
a particular focus on the group’s largest business unit, Pub Company.
There is a two-day meeting of 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 and issues affecting the
sector and management’s projections for the medium term. The board
then has the 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, which are
reviewed and approved by the board in April. The board also has a
programme to conduct more detailed reviews of different aspects
of the business from time to time, with the schedule of topics being
regularly reviewed to ensure that it remains appropriate. The relevant
managing director or functional head attends such meetings to
present and answer questions.
The board has responsibility for determining, with the assistance of the
audit and risk committee, 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 takes into account the views of the audit and
risk committee, as well as 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.
Attendance at meetings held during the year is set out below.
Executive directors
Rooney Anand
Richard Smothers
Non-executive directors
Mike Coupe1
Gordon Fryett
Rob Rowley
Lynne Weedall
Philip Yea
Board
Nomination
committee
Audit and
risk committee
Remuneration
committee
8/8
8/8
8/8
8/8
8/8
8/8
8/8
–
–
3/3
3/3
3/3
3/3
3/3
–
–
4/4
4/4
4/4
–
–
–
–
3/4
4/4
4/4
4/4
–
1. Mike Coupe was unable to attend one scheduled meeting of the remuneration committee due to a prior commitment with J Sainsbury plc.
66
Greene King plc | Annual Report and Accounts 2019
CORPORATE GOVERNANCE CONTINUED
LEADERSHIP CONTINUED
Operation of the board continued
Board papers are generally 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 and full papers on
matters where the board is required to give its approval.
Training and support
The training needs of the board and its committees are regularly
reviewed, and each director is responsible for ensuring their skills and
knowledge of the company remain up to date. 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.
The chairman holds regular, informal meetings with the non-
executive directors without the executive directors being present
and the non-executives also meet informally with the chairman and
the chief executive on an informal basis. Although not a member of
the remuneration or audit and risk committees, and therefore not
recorded in the table above, the chairman also routinely attends
these meetings at the invitation of the committee chairmen.
BOARD EFFECTIVENESS
Board performance and evaluation
The UK Corporate Governance Code requires the board to
conduct an annual evaluation of its own performance and that of its
committees and directors.
With an external facilitator having been used for the board evaluation
exercise in the 2017/18 financial year, the decision was taken to
manage the process internally this year. A questionnaire, covering
the board and its various committees and the chairman, was made
available for completion by the board and the company secretary.
The results were fed through to the chairman, the chairmen of the
various board committees and (for the evaluation of the chairman)
the senior independent director. Topics covered included board
and committee structure, board composition and functionality,
board and committee processes, governance, strategy and risk and
communications with shareholders.
The results of the evaluation exercised were presented to the board
by the chairman in April 2019. There was a general view that the board
and its committees, despite it being a year of transition, were operating
appropriately, and the suggestions raised in the previous year were
seen as having been implemented and as improvements. No strong
themes that required addressing were raised although it was agreed
that board diversity needed improvement and that there should be
more focus on risk appetite. Consideration will also be given to
improving communications with shareholders and it was further
agreed that the non-executive directors would benefit from more
time with senior management. These topics will be considered in
more detail during the current financial year.
Rob Rowley, the senior independent non-executive director, used
the input from the questionnaires as the basis of his evaluation of the
chairman. There were no issues raised for the chairman to deal with.
In addition to the annual evaluation exercise there remains an on-going
dialogue within the board to ensure that it operates effectively and that
any matters raised are addressed in a timely manner.
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.
Newly-appointed directors receive a tailored induction (proportionate
to their role) on joining the board to acquaint them with the company.
This includes 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. New
directors are also given the opportunity to visit a number of the group’s
pubs and restaurants and the brewery. The induction programme for
Nick Mackenzie as chief executive is on-going and includes meetings with
major shareholders, advisers, key suppliers, stakeholders and other
industry leaders.
There is an agreed written procedure 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 on-going basis when
there are any changes. The board is satisfied that the chairman and
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.
Overview | Strategic Report | Corporate Governance | Financial Statements
67
In connection with the succession arrangements regarding the chief
executive the chairman and Lynne Weedall, as chairman of the
remuneration committee, met a number of institutional shareholders
and representatives of the proxy voting agencies to explain the
background behind the decisions agreed with regard to Rooney
Anand’s termination arrangements, and as regards the appointment
of Nick Mackenzie as the company’s chief executive. The composition
of the board, auditor rotation and the company’s approach to
diversity and inclusion were also discussed.
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.
Annual general meeting (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 6 September 2019 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, an audit and risk
committee and a remuneration 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 and were
updated on 1 May 2019, are available on request or to download from
the company’s website and will be available for inspection at the AGM.
68
Greene King plc | Annual Report and Accounts 2019
NOMINATION COMMITTEE REPORT
OUR SMOOTH AND
WELL-MANAGED SUCCESSION
PROCESS SUPPORTED OUR BUSINESS
AND WAS IN THE BEST INTERESTS
OF SHAREHOLDERS.”
I am pleased to introduce our
nomination committee report for
2018/19 which explains the committee’s
focus and activities during the year.
As explained further below, during
the year the committee has worked,
together with the remuneration
committee, to agree appropriate terms
for the departure of Rooney Anand
as our chief executive and for the
recruitment of Nick Mackenzie to this
role. We believe that this work facilitated
a smooth and well managed succession
process which has supported our
business and is in the best interests
of our shareholders.
I am grateful to have had the
opportunity to meet a number of
institutional shareholders recently to
explain the decisions taken with regard
to Rooney’s departure terms and the
recruitment of Nick. The discussions
were open and constructive and we are
grateful for the feedback received. During
the meetings, we also covered a number
of other governance topics with some
of the shareholders and I should make
it clear that we are happy to receive
feedback from all shareholders at any
time on any governance related issue.
Philip Yea
Chairman of the nomination committee
MEMBERSHIP
During the year the nomination committee was chaired by Philip Yea. The other members of
the committee were Mike Coupe, Gordon Fryett, Rob Rowley and Lynne Weedall. All members
were considered by the board to be independent.
RESPONSIBILITIES
The key responsibilities of the nomination committee are 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 65.
MANAGING THE SUCCESSION OF THE CHIEF EXECUTIVE
As I have explained in my chairman’s statement introducing the annual report, Rooney Anand
became our chief executive in 2005. During the following 14 years, Rooney’s leadership has
contributed significantly to build our business to where it is today.
Throughout this period, Rooney remained engaged on the contractual terms of his original
2004 letter of appointment. The terms of this contract were, however, inadequate to provide
for the smooth succession process which was a commercial imperative for Greene King in
2018/19. In particular:
• Rooney’s contract permitted Rooney to leave on six months’ notice (whereas the company
was required to give Rooney 12 months’ notice). This was sub-optimal, and would have left the
company exposed had Rooney decided to give such notice unilaterally, given that the company
would then have had to undertake a search process and that any identified successor from
outside the company would likely not be available until the end of their own notice period.
Overview | Strategic Report | Corporate Governance | Financial Statements
69
• Rooney’s contract did not contain adequate post-employment
RECRUITMENT OF NICK MACKENZIE
covenants, particularly the covenants which are now regarded as
commercially necessary to protect a company from the individual
joining mainstream competitors and non-solicitation of employees.
Again, it was vital for Greene King to secure such protections.
Rooney is one of the most experienced and successful senior
executives within the pub industry, and as he is not retiring on
stepping down from the company, he could have chosen to remain
active as an executive within our industry.
With this background, the nomination committee and the
remuneration committee, working together, reached a position
which we regarded as in the best interests of the company and
our shareholders to ensure a smooth transition, Rooney’s full focus
on working for Greene King in 2018/19 and providing important
commercial protections for our company for a further year from
May 2019. This involved:
• Rooney’s agreement to work until the end of the 2018/19
financial year. This involved Rooney serving six months’ notice
on 6 November 2018. In line with our remuneration policy, this
allowed Rooney to participate in the company’s annual bonus
plan for 2018/19 as he worked throughout this period and, given
the agreed nature of his departure, for the company to allow
Rooney ‘good leaver’ status under the company’s long-term
incentive plans.
• Rooney agreeing appropriate and clearly enforceable post-
termination non-compete and non-solicitation restrictions. During
the 12 months after his termination date, Rooney is prohibited
from taking on an executive position with 18 named competitors
(or any non-executive role with the most significant nine of these
companies). He has also agreed to indemnify the company for any
loss should these covenants be breached. In return for these new
undertakings, a payment of £850,000 (broadly equivalent to one
year’s fixed pay (salary, pension contributions and benefits) was
made to Rooney.
The principal terms of the settlement agreement agreed with
Rooney were disclosed on the company’s website on 7 May 2019
and are also described in the remuneration report on page 89. In
reaching this agreement, the committees were very conscious of the
current sentiment concerning termination payments, but felt that
the potential risk to the company arising from the weakness of the
2004 letter of appointment could not be left unaddressed, and that
payment of £850,000, being broadly equal to the one year’s base
salary plus benefits and pension contributions which would have
been payable had the company given Rooney notice of termination,
was proportionate compensation for Rooney delaying his potential
departure to ensure a smooth transition and agreeing not to
join named key competitors or soliciting current members of the
company’s team for a period of twelve months following his leaving
our employment. In working with the remuneration committee, the
nomination committee was unanimous as to the commercial risks of
having a hiatus in the company’s leadership if there had not been a
negotiated agreement, and the risks if no post-employment covenants
had been agreed. The agreed covenants themselves are in line with
best practice, being specifically tailored to named competitors and
supported by a personal indemnity in case of breach.
In order to secure the best possible successor as chief executive for
the start of the 2019/20 financial year a search was initiated to identify
potential external candidates to succeed Rooney as chief executive.
Executive search consultancy Russell Reynolds, which has no other
connection with the company and has signed up to the voluntary code
of conduct on matters such as diversity for executive search firms,
were appointed to assist the committee with the search. They drew
on their high-level professional networks, industry knowledge and
internal research resources to identify a comprehensive list of potential
candidates. Key criteria for the search were to find proven leaders who
demonstrated the right management style and who would be a good
cultural fit for the board.
The committee chairman, Philip Yea, together with the chair of the
remuneration committee, Lynne Weedall, an experienced HR executive
met with shortlisted candidates, from which a preferred candidate,
Nick Mackenzie, was selected for the final stages. Shortlisted candidates
visited a number of the company’s sites as part of the process.
All of the committee members were given the opportunity to meet
the preferred candidate, Nick Mackenzie, and the committee was
in unanimous agreement that he would be an excellent appointee,
recognising that his broad experience of and track record in the leisure
industry and knowledge of the pub business would enable him to steer
Greene King through its next phase of development. The committee
then worked with the remuneration committee to determine the
remuneration package to be offered to him and to finalise the terms
of a comprehensive service agreement, to which he has agreed,
including a number of post-termination covenants which are now
standard for all our senior executives. Further details are set out
in the directors’ remuneration report on page 75.
A conditional offer was made to Nick in October 2018 before
Rooney’s intention to step down was announced in November 2018.
Following confirmation of his intended appointment in January 2019,
Nick Mackenzie joined the board on 1 May 2019.
RECRUITMENT OF SANDRA TURNER
The committee has been working to appoint an additional female non-
executive director for some time. The Zygos Partnership (acquired by
Russell Reynolds in December 2017) assisted the committee in relation
to the search. From a long list of candidates a short list was drawn up
for the chairman to interview. The preferred candidate, Sandra Turner,
then met other members of the board and in due course the committee
agreed to recommend her appointment to the board. Sandra has many
years’ experience in the consumer goods and retail sectors, including
for Wilkinson Sword, Unilever and Tesco, where she was commercial
director of Tesco Ireland, and will bring to the board a strong mix of
experience from both these and various non-executive roles in diverse
consumer-oriented companies. Her appointment was effective from
1 May 2019.
70
Greene King plc | Annual Report and Accounts 2019
NOMINATION COMMITTEE REPORT CONTINUED
DIVERSITY
The board approves of the principle of trying to improve its diversity
and in particular to recruit more women into senior management
and director roles. It acknowledges the Hampton review’s
recommendations that boards of FTSE 350 companies should aim for a
minimum 33% female representation by 2020. There are currently two
female directors on the board, Sandra Turner and Lynne Weedall, out
of a board of eight members. Further board rotation planned in 2020
will provide another opportunity to improve diversity generally and
to increase female membership of the board, and to ensure that there
remains a suitable range of skills, experience and knowledge across
the board members.
The board also recognises the need to improve the diversity of the
company’s middle and senior executive cohorts, and is committed to
helping management take all reasonable steps to improve the diversity
mix at senior levels during the coming years.
BOARD AND MANAGEMENT SUCCESSION
PLANNING AND TALENT
Rob Rowley has indicated to the board that he currently plans not
to seek re-election at our 2021 AGM. The committee has therefore
recently begun the process of recruiting a new non-executive director
who will be able to take over in due course as chairman of the audit and
risk committee. The Lygon Group, which has no other connection with
the company and has signed up to the voluntary code of conduct on
matters such as diversity for executive search firms, has been appointed
to assist in relation to the search. A specification has been drawn up with
a view to preferably finding a current or recently retired FTSE100 chief
financial officer and work is under way to identify and interview
potential candidates.
Wider group succession plans and talent were also considered
by the committee during the year, with the group HR director
reporting on the company’s ongoing talent review, covering both
career development programmes and the apprenticeship schemes
operated by the company, as well as more specific information
on the senior management team. The committee will continue to
monitor management’s progress in increasing diversity at all levels
of employment and in improving recruitment, retention and career
progression opportunities across the group.
OTHER MATTERS CONSIDERED BY THE
COMMITTEE
The first three year term of the chairman, Philip Yea, was due to expire
in February 2019 and, ahead of that, and led by Rob Rowley as senior
independent director, an evaluation of the chairman was undertaken
as a result of which it was agreed to reappoint Philip Yea for a further
term of three years. The committee also reviewed the composition of
the various board committees and determined that, other than asking
Sandra Turner to join all of the committees, no changes were required
to the composition of the board committees.
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.
As disclosed elsewhere an internal evaluation exercise was undertaken
in relation to the board and its committees. The evaluation report for
the committee was reviewed in detail and agreement was reached on
the key point raised, namely oversight of the company’s diversity and
inclusion activities.
Other matters considered by the committee during the year included
the training requirements of the directors and the committee’s terms
of reference. It was agreed during the year to update the terms of
reference of the committee, with effect from 1 May 2019, as part of a
wider exercise looking at all of the key board governance documents.
Overview | Strategic Report | Corporate Governance | Financial Statements
71
AUDIT AND RISK COMMITTEE REPORT
IMPLEMENTATION OF THE NEW
ACCOUNTING STANDARD IFRS 16
WAS A KEY FOCUS AREA DURING
THE YEAR, GIVEN ITS EFFECTIVE START
DATE OF 29 APRIL 2019.”
This is my third year as chairman of
the audit and risk committee and I
am pleased to introduce our report
for 2018/19. The committee’s key
responsibilities include monitoring the
integrity of the group’s financial reporting,
internal controls and risk management
procedures, overseeing the internal and
external audit processes and a range of
other corporate governance activities.
During the year the committee devoted
particular attention to the following
key areas: implementation of the new
accounting standard IFRS 16; the year-
end financial statements, including the
viability statement, interim report and
associated audit matters; compliance
with the General Data Protection
Regulation; estimation of deferred tax;
and risk management processes and
internal controls.
Rob Rowley
Chairman of the audit
and risk committee
MEMBERSHIP
The audit and risk committee was chaired during the year by Rob Rowley. The board is satisfied
that Rob Rowley has recent and relevant financial experience, as a former finance director
of Reuters Group plc. The other members of the committee were Mike Coupe and Gordon
Fryett who bring a wealth of experience from other large retail operations. The board considers
all members to be independent and the committee as a whole to have relevant sectoral
competence. Since the year end Sandra Turner has been appointed to the board and also
joined the committee.
RESPONSIBILITIES
A key responsibility for the audit and risk committee is reviewing the financial reporting, controls
and risk management processes across the group. 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. Whilst the board retains responsibility for undertaking the required assessment that
the annual report is fair, balanced and understandable, the audit and risk committee, at the
request of the board, has undertaken a review of this prior to submission of the annual report
to the board, as detailed below.
The committee also advises the board on the appointment of the external auditor, oversees
the relationship with the external auditors, and reviews the quality and effectiveness of both
the internal and the external audit. In addition, the committee is responsible for considering
the company’s whistleblowing procedures and reviewing their effectiveness in practice.
In relation to risk matters, the committee 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. For further
information please see the risk management section on page 52. The committee receives
regular updates on regulatory, accounting and reporting developments and their application
to the company.
72
AUDIT AND RISK COMMITTEE REPORT CONTINUED
OPERATION OF THE COMMITTEE
The committee held four meetings during the year. Attendance at
these meetings by the committee members is shown in the table on
page 65. On each occasion the chairman of the committee, external
auditors, chief financial officer and senior members of the finance
function attended, as well as the company secretary, head of risk and
members of the internal audit function. By rotation, senior operational
managers and functional heads present risk reports at audit and risk
committee meetings.
There is an opportunity at each meeting for the committee to discuss
matters privately with the internal and external auditors without
management present. Outside of scheduled meeting times, the
chairman of the committee is in regular contact with the external
audit partner to discuss matters relevant to the company.
The committee’s 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.
In addition, the committee conducts a review of its own performance
on an annual basis and considers steps for future improvement taking
input from the members of the committee, the external auditor and
senior members of the finance function. Key priorities identified for
the coming year include an increased focus on risk appetite.
FINANCIAL STATEMENTS AND AUDIT
The committee reviewed and provided input into the audit scope and
audit plan presented by the external auditor. In considering the financial
statements the committee reviewed the group’s accounting policies to
ensure consistency on a year-to-year basis, 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 external
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.
SIGNIFICANT ISSUES CONSIDERED BY THE AUDIT AND RISK COMMITTEE IN RELATION
TO THE FINANCIAL STATEMENTS FOR 2018/19
Matter considered
What the committee did
Estimation of
deferred tax
The committee reviewed the results of testing by the external auditor and considered the scope and detailed analysis
performed by management. Particular attention was given to historical tax arrangements where deferred tax impacts were
complex and the classification of certain adjustments that impacted the determined tax basis. Following the implementation of
an agreed scope and approach, the committee was satisfied that the risk of material error had been appropriately mitigated.
Impairment of
property, plant
and equipment and
intangible assets
IFRS 16 accounting
standards (leases)
The committee continued to review the impairment analysis with management and results of their testing with the external
auditor. The committee paid particular attention to the testing over the arithmetic accuracy and consistency of the impairment
model, the key assumptions used by management in the model and the purpose of and rationale for management’s manual
adjustment of the model’s automated calculations where appropriate. The committee noted a reduction in management manual
adjustments in the impairment model. The committee also reviewed the valuation of the legacy Greene King estate by Christie
& Co and the valuation of the legacy Spirit estate by Colliers during the year. Particular attention was given to development and
rebranded sites. The committee determined that the model was fit for purpose and that the key input assumptions for growth
rates and discount rates were appropriate in the current economic environment. The committee reviewed the updated valuation
of goodwill and noted no issues with recoverability. The committee also determined that the assumptions used in
the valuation performed by management were appropriate.
Due to the company’s large portfolio of leases, the committee spent time during the year considering reports from
management on the new accounting standard IFRS 16 (leases) and its impact on both the group’s consolidated results and
financial position. The committee agreed the use of the modified retrospective approach due to the age and complexity of
the estate. The committee discussed with management the impact on the forecast FY20 figures as well as long term incentive
performance targets and agreed the approach that each division should take when assessing performance measures. The
committee determined that management’s plan to implement IFRS 16 was on track for the group’s effective start date of
29 April 2019.
Revenue recognition
The committee noted the potential fraud risk associated with the recognition of revenue across the group, but concurred
with the external auditor that the large number of individual pubs in Pub Company and Pub Partners meant there was a
low inherent risk of material fraud occurring undetected. This was further mitigated by the work of the internal retail audit
team. The committee satisfied itself that there were sufficient controls and reconciliations to eliminate the additional risk of
management override and to ensure proper revenue cut off at the year end, and were therefore satisfied that the revenue
recognised in the year was materially correct.
Greene King plc | Annual Report and Accounts 2019 73
FAIR BALANCED AND UNDERSTANDABLE
ANNUAL REPORT
One of the key governance requirements in relation to the annual
report is that it should be fair, balanced and understandable. The audit
and risk committee undertook a review of management’s processes
in this regard (including the clear guidance given to contributors and
the review process adopted by management) and also considered in
detail the draft annual report to ensure that it was fair, balanced and
understandable. The committee then recommended to the board that
it could make the required disclosure as set out on page 65.
EFFECTIVENESS OF THE EXTERNAL AUDIT
The overall quality of the service, the audit partner and the audit
team were reviewed by the committee 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. The committee was satisfied that the quality of the audit
service provided by Ernst & Young LLP was appropriate.
ENSURING EXTERNAL AUDITOR INDEPENDENCE
The audit and risk committee is cognisant of the importance of
external auditor independence and objectivity and the external
auditor’s compliance with the FRC’s ethical standard and has a policy
in relation to the use of the external 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, (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.
The committee must review any services proposed to be provided by
the external auditor, to consider whether the skills and expertise of the
audit firm make it the most suitable supplier of the non-audit services,
and to ensure that the fees for non-audit services do not exceed 70% of
the average audit fee over a three year period. These financial restrictions
apply in all situations and the audit and risk committee is required to
pre-approve all non-audit services. Any single piece of work estimated to
cost in excess of £25,000 is put out to tender unless agreed otherwise by
the chairman of the audit and risk committee. The chief financial officer
may approve specific engagements up to £50,000 (in aggregate up to
£100,000 p.a.), and the chairman of the audit and risk 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. This policy was complied with during the year.
The committee also has a policy in relation to the appointment of
former partners or employees of the auditor by the group to prevent
any potential conflict between their undertaking of the audit and their
new appointment.
During the year the company made limited use of specialist teams
within Ernst & Young LLP for non-audit work, including in relation to
the issuance of a comfort letter regarding a bond issuance relating to
the Greene King securitisation. The total fees earned by Ernst & Young
LLP during the year amounted to £667k of which £95k (14%) related
to non-audit work. Further detail is in note 4 to the accounts.
In order to assist the committee with its consideration of the
independence and objectivity of the external auditor, the external
auditor undertook an annual review of its services provided to the
group. In light of this review, and the further safeguards in place to
protect such independence and objectivity, the committee determined
that the carrying out of such services by the external auditor did not
impair the external auditor’s independence or objectivity.
EXTERNAL AUDITOR – TENDERING AND RE-
APPOINTMENT
The company last tendered the external audit contract in 1997 and
Ernst & Young LLP have been the auditor since then, with an annual
rolling contract and subject to an annual shareholder vote at the AGM.
Ernst & Young LLP are required to rotate the audit partner responsible
for the group every five years and a new audit partner was appointed
for the 2016/17 financial year.
In accordance with The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive Processes and
Audit Committee Responsibilities) Order 2014 (the Order) and in
the light of the transitional provisions on audit matters thereunder
which allow a period until April 2024 before an audit tender and
change is required the committee recommended to the board, and the
board accepted the recommendation, that Ernst & Young LLP should
be retained as the group’s external auditor for the time being. The
committee has decided to commence planning for a full audit tender,
in which Ernst & Young LLP will not be permitted to partake, during
2019/20, so that the new external auditor would be ready for the start
of the 2021/22 financial year. The company was in compliance with the
Order during the year.
The committee therefore recommended to the board that Ernst &
Young LLP should be reappointed as the company’s auditor for the
forthcoming year. This resolution will be put to shareholders at
the AGM.
INTERNAL AUDIT
The company’s internal audit function is responsible for reviewing the
effectiveness and efficiency of the systems of internal control in place
to safeguard the assets of the company. Under the terms of reference
for the function, the internal audit team has direct access to the audit
and risk committee chairman to enable it to raise any significant issues
and to maintain independence. Members of the internal audit team
also attend the audit and risk committee meetings to report on the
progress and actions taken by the function.
Overview | Strategic Report | Corporate Governance | Financial Statements 74
AUDIT AND RISK COMMITTEE REPORT CONTINUED
STATUTORY CODE
Our tenanted and leased division, Pub Partners, is committed to the
ongoing compliance of the Pubs Code etc. Regulations 2016 (the Code).
A compliance report was prepared by the Code Compliance Officer
(CCO) for the reporting period 1 April 2018 to 31 March 2019 and
submitted to the committee. During the reporting period, the company
was not subject to any investigations, enforcement or representations
in reference to unfair business practices by the Pubs Code Adjudicator
(PCA). The company participated in the Beer Duty and Waste
consultation, published by the PCA in November 2018, and has begun
implementing the changes required following the publication of the
statutory guidance in April 2019, which comes into effect on 1 July 2019.
All new and existing Business Development Managers received Code
training and further supplemental Code support through team
meetings, briefings and bulletins.
During the reporting period, the company received 23 market rent
only notices, of which 18 were accepted. One Code-related complaint
was received in relation to a breach of Regulation 41(4), provision of
discussion notes. The complaint was dealt with under the company’s
established complaints procedure and the breach was upheld. Four
referrals were made to the PCA, three of which were withdrawn
following agreeable negotiations and resolutions between the parties,
and one referral remains open.
The report was approved by the chairman of the committee to enable
submission to the Pubs Code Adjudicator in July 2019.
OTHER MATTERS CONSIDERED DURING THE YEAR
Throughout the year the committee continued to review
management’s plans and risk based approach for compliance with the
General Data Protection Regulation. The committee also received
regular reports from management on cyber security issues and how
external threats were managed. Significant investment continued to
be made in hardware, software and user awareness and management
continued to undertake testing (including by external consultants) of
the company’s defences against a cyber security attack.
The committee reviewed, as it does on an annual basis, the group’s
whistleblowing policy and its application across the business. All
whistleblowing reports were investigated by the employee relations
team and resolved satisfactorily, with no significant issues emerging.
The terms of reference of the committee were also reviewed during
the year and updated, with effect from 1 May 2019, to recognise
the additional reporting obligations in regard to section 172 of the
Companies Act 2006 and to reflect the requirements of the UK
Corporate Governance Code 2018.
The committee reviewed and proposed the company’s group tax
strategy to the board which was approved and published on its website
in May 2019.
INTERNAL CONTROL AND RISK MANAGEMENT
As disclosed in the risks and uncertainties section of this report on
page 54, there is an on-going process for identifying, evaluating and
managing the principal risks faced by the company. 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
and risk committee monitors and reviews those internal controls and
risks on a regular basis, and reports to the board on its findings.
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 Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting, and these remained
in place up to the date of this report. During the course of the year the
committee continued to review reports from a number of business units
and functional areas on their respective risk management processes
and key risks and on the key financial internal controls and to challenge
representatives of the relevant business unit or functional area who
attended those meetings and presented the relevant reports.
The key elements of the internal control framework, in addition to the
risk management processes outlined in the risks and uncertainties section
of this report, 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 data protection, modern slavery,
bribery and whistle-blowing and regular updates on any incidents.
During the year the internal audit function reported to the committee
on a number of areas where it had carried out key financial control
reviews and audit reviews, including network user access, statutory
code compliance, employee expenses and key financial control reviews.
The board is satisfied that there are no significant weaknesses in these
systems and that the group’s internal controls are operating effectively.
Greene King plc | Annual Report and Accounts 2019 DIRECTORS’ REMUNERATION REPORT
75
THE TRANSITION FROM ROONEY
ANAND TO NICK MACKENZIE WAS
DISCUSSED WITH A NUMBER OF
OUR LARGER SHAREHOLDERS.”
ANNUAL STATEMENT
2018/19 PERFORMANCE AND REMUNERATION OUTCOMES
Dear shareholder
I am pleased to present to you the
directors’ remuneration report for
the year ended 28 April 2019.
During the year the remuneration
committee considered a number of
matters including:
• 2018/19 performance and
remuneration outcomes
• The leadership changes at
Greene King
• 2019/20 remuneration approach
• Appropriate responses to
recent feedback received from
leading investors
• Changes in remuneration practice
and governance, including those
arising from the revised UK
corporate governance code to
which we are subject in 2019/20
I have summarised the key points for
you in the sections below.
As described in the strategic report, 2018/19 was a year of market outperformance with our
teams maximising the opportunities presented by the good weather and the World Cup, whilst
delivering on our cost mitigation programme. Reflecting this, total revenue was up 1.8% and
group profit before tax and exceptional and non-underlying items was up by 1.6% to £246.9m.
Progress was also made on other aspects of the strategic pillars underlying the annual business
plan. In particular, our customer measures, net promoter score and TripAdvisor ratings, continued
to show improvement. The investment in our people in both staff benefits and improved training
in addition to our focus on wellbeing helped to maintain our engagement levels. As I set out last
year, both our customer and employee KPIs are important lead indicators of business health that
we will continue to focus on during 2019/20.
Reflecting this strong performance against the stretching targets set at the beginning of the year,
bonus pay outs for the year were 77.0% of opportunity for Rooney Anand, the chief executive
(2018/19: 43.3%) and 62.8% of opportunity for Richard Smothers, the chief financial officer
(2018/19: 35.0%). Full details of the performance against each element of the bonus is set out
on page 85.
The 2016 LTIP will not vest as the performance conditions were not met.
The committee believes that the bonus and LTIP outcomes appropriately reflected the broader
performance of the company. As a result, no adjustments to the performance outcomes
achieved were made by the committee in respect of either plan.
LEADERSHIP CHANGES
It is very important that shareholders read the nomination committee report as well as the
report of the remuneration committee to understand the full context for the actions which
were taken by both committees with regards to leadership changes at Greene King in our
2018/19 financial year.
As set out by the chairman, Rooney Anand left Greene King on 5 May 2019 after 14 years as
chief executive. During his tenure Rooney transformed the business and I would like to take this
opportunity to thank Rooney for his contribution to Greene King. Details of Rooney’s leaving
arrangements are set out below and also on page 89.
The arrangements which were applied to Rooney’s departure were in line with our
remuneration policy and also, we believe, necessary and appropriate to secure the best
outcome for the company and its shareholders.
Overview | Strategic Report | Corporate Governance | Financial Statements 76
DIRECTORS’ REMUNERATION REPORT CONTINUED
Nick Mackenzie joined us as chief executive on 1 May 2019 and brings
broad experience of the leisure industry and knowledge of the pub
business. His joining arrangements are set out on page 90, but include:
• A base salary which is lower than that of our prior chief executive.
The committee is aware of the practice of phasing base salary
increases for newly appointed executive directors; however, as
Nick’s salary level is both appropriate and market aligned, there
is no intention to ‘catch-up’ to the level of the previous chief
executive’s salary in the short term. Any future increases will be
aligned with our remuneration policy and will be fully set out in
the relevant remuneration report.
• Pension contributions at 15% of base salary per annum, which are
also lower than those of our prior chief executive (25% of base
salary); and
• No ‘buy-out awards’ in respect of his pay arrangements at his
previous employer.
As a committee we have listened carefully to the strong case made by
shareholders in early 2019 regarding the ‘fairness’ of executive directors’
pension contribution rates being aligned to those available to the
majority of the workforce. Our offer of appointment terms to Nick was
originally made in October 2018 and so pre-dated these developments,
but we have committed to undertaking a company-wide review of
pensions in 2019 to better understand the granularity of the issue at
Greene King further. We expect to disclose the outcomes of this review
as part of our 2020 directors’ remuneration report and (if appropriate)
as part of our three-yearly renewal of our directors’ remuneration policy
which will take place at the 2020 AGM. We will also consider our policy
on share ownership requirements beyond cessation of employment as
we prepare for the 2020 AGM.
During the spring of 2019 we met with a number of our larger
investors and the leading proxy advisory agencies to discuss a broad
range of governance matters, and at these meetings one of the topics
discussed was the terms of the transition from Rooney to Nick as chief
executive, including the remuneration treatments for both individuals.
We received generally positive feedback from the majority of those
with whom we met, and the commercial value of the arrangements
was acknowledged, for which we are very grateful.
As explained fully in the nomination committee report, throughout
the period in which Rooney was our chief executive, Rooney remained
engaged on the contractual terms of his original 2004 letter of
appointment. The terms of this contract were, however, insufficient
to provide for the smooth succession process which was needed for
Greene King in 2018/19. Specifically, the requirement for Rooney to
give the company only six months’ notice could have left the company
exposed in the process of finding an appropriate successor, and the
absence from Rooney’s 2004 contractual terms of what would now be
regarded as standard post-termination restrictive covenants posed a
real risk to the company’s business at a time of leadership transition.
• Rooney’s intention to leave the business was announced on
6 November 2018.
• Rooney continued to work as our chief executive until the end of
the 2018/19 financial year. During this period Rooney remained fully
focused and led the team to the 2018/19 result described above.
This provided much needed stability for the business in what could
otherwise have been a period of uncertainty. This stability in the
business also allowed an appropriate search to be undertaken for
Rooney’s successor.
• Rooney additionally entered into a settlement agreement that
provides important commercial protections for the Company
until May 2020. During the period of one year from his departure,
Rooney is prohibited from taking on an executive position with
18 named competitors (or any non-executive role with the
most significant nine of these companies). He is also restricted
in the same period from soliciting any of the existing Greene
King executives to work for him in any other business. He has
also agreed to indemnify the company for any loss should these
covenants be breached.
• The remuneration treatments which we have applied to Rooney
reflect all of the above and are, we believe, appropriate and strongly
in shareholders’ best interests to secure the best outcomes for
the company:
– As Rooney worked the full 2018/19 year, he remained eligible
to receive a bonus for 2018/19 subject to the achievement of the
applicable performance conditions (as described above and as
fully disclosed on page 85 of this report).
– Rooney has been treated as a ‘good leaver’ and allowed to retain
his LTIP awards granted in 2016, 2017 and 2018, but these will
only vest subject to achievement of the original performance
conditions which will be applied three years after the grant of each
award, and subject to time pro-rating for any vested shares. To the
extent that the 2017 and 2018 awards vest, a further two-year
holding period will apply.
– A payment of £850,000 (broadly equivalent to one year’s
fixed pay (salary, pension contributions and benefits)) was paid
in May 2019 in consideration of Rooney agreeing to the post-
termination covenants and indemnities described above. This
amount is comparable to what the company would have had to
pay had we given Rooney 12 months’ contractual notice on
1 May 2019, but that theoretical scenario would not have benefited
from the very important covenants which were secured.
Greene King plc | Annual Report and Accounts 2019 77
The committee continues to be very mindful of investor views and
interest in executive remuneration and the governance around executive
remuneration and disclosure. We will continue to make changes at the
relevant time and will be carefully considering feedback and seeking views
from our larger shareholders and proxy agencies as we review our
directors’ remuneration policy during 2019/20.
I would like to thank again all our shareholders who have invested time
in considering and providing feedback on executive remuneration at
Greene King over the past year. I am happy to receive feedback from
our shareholders at any time in relation to our remuneration policies.
Shareholders will be asked to approve as a normal business matter
the annual advisory vote on our directors’ remuneration report at
the forthcoming AGM. Whilst the directors’ remuneration policy
(approved at our 2017 AGM) is not required to be presented for
shareholders’ approval this year, it has been set out in full in this report
to assist you in reviewing the directors’ remuneration report. I hope to
receive your support in relation to our directors’ remuneration report.
Lynne Weedall
Chairman of the remuneration committee
26 June 2019
2019/20 REMUNERATION APPROACH
The committee’s intended approach to executive remuneration
for 2019/20 is set out on pages 89 to 91. I would like to draw your
attention to the following points:
Salary: Nick Mackenzie’s salary at £600,000 is £45,000 below that of
Rooney Anand. Richard Smothers’ salary is unchanged for 2019/20.
Pension and benefits: As set out above, Nick Mackenzie’s pension
benefit is 10% lower than that of Rooney Anand. All other benefits are
as set out in the policy report on pages 78 to 83. Richard Smothers’
pension and other benefits are unchanged from the prior year.
Bonus: the maximum bonus opportunity for both executive directors
remains at 150% for 2019/20. Our policy towards the level of on-target
bonus remains unchanged: we are committed to paying no more than
50% of maximum bonus at on-target achievement, and in certain years
may set the level of payment for on-target below 50% of maximum
if appropriate. This was the case in 2018/19 (and remains the case in
2019/20) where on-target bonus is set at 30% of maximum to ensure
appropriate affordability of bonus within our business plan. In line
with our policy, the bonus measures continue to be weighted towards
financial metrics, however, the committee continues to believe that
a balance of financial and non-financial metrics are key to the future
success of the business and will deliver sustainable shareholder value.
LTIP: LTIP awards will remain at 150% for both executive directors for
2019/20. The measures and weightings are unchanged from 2018/19.
DEVELOPMENTS IN REMUNERATION PRACTICE
AND GOVERNANCE
During 2018/19 the committee considered the revisions to the UK
Corporate Governance Code on remuneration matters. Although we
will fully report on the committee’s response to the new code in our
directors’ remuneration report for 2019/20, the committee has already
undertaken some actions which it was appropriate to initiate at an
early stage. These include:
• clarifying the committee’s ability to adjust purely formulaic
outcomes for all incentive plans;
• supporting the whole board’s initiative to develop good structures
for employee engagement and establishing regular meaningful
dialogue with employees through the Your Voice employee
engagement forums;
•
•
inclusion of the remuneration of the company secretary in the
definition of senior executives within the committee’s terms of
reference; and
from 2019, receiving an annual report on reward structures across
our entire workforce enabling the committee to have an informed
insight on how pay arrangements across our organisation support
our strategy.
Overview | Strategic Report | Corporate Governance | Financial Statements 78
DIRECTORS’ REMUNERATION REPORT CONTINUED
POLICY REPORT (UNAUDITED)
This section of the report summarises Greene King’s current directors’
remuneration policy which was approved at the 2017 AGM by 93% of
shareholders who voted.
The policy as approved by shareholders is available to view on our
website as part of the 2017 annual report (www.greeneking.co.uk/
investor-centre). No changes have been made to the policy for 2019/20.
The summary of the policy set out in the following pages is for
information only. It reproduces the main sections of our 2017 policy
but updated to provide additional relevant information as follows:
• The indicative total remuneration levels charts have been updated
to include Nick Mackenzie and Richard Smothers
• The service contracts section includes details on Nick Mackenzie’s contract
• The non-executive directors’ appointments section has been
updated to include the date of Sandra Turner’s appointment.
Any other changes in the following summary of the policy are minor
and provide appropriate cross references to the main annual report on
remuneration.
Policy Table
Details of actual remuneration paid, LTIP awards granted and the
associated performance conditions are set out in the annual report on
remuneration which starts on page 83.
Policy overview
The key objective of the company’s remuneration policy is to promote
the long term success of the company and to enable the achievement
of 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.
Element of
remuneration
Purpose and link
to strategy
Operation
Maximum
opportunity
Salary
To recruit, reward
and retain high
calibre executives
with an appropriately
competitive base salary.
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.
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
metrics
–
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.
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.
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.
A maximum of 150% of
salary can be earned by the
executive directors, with
no bonus payable for below
threshold performance. Each
year the level of payment for
on-target performance will
be set by the committee after
having considered the level of
challenge in the annual bonus
targets for that year.
For the duration of this policy, any bonus
outcomes achieved above 100% of salary
will (after payment of taxes) be invested
in shares by the executive director. The
shares so acquired must be held for at least
one year or, if longer, until share ownership
guideline levels are attained.
Payment of bonuses is
dependent on a mixture of
financial targets, strategic
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.
Performance is measured relative to
challenging targets in key financial and
strategic measures and to appropriate
personal performance measures as set
by the committee.
For the duration of this policy, financial
measures will always have at least a two-thirds
weighting of all of the performance measures
applied in any year.
Details of measures and weightings for the
2018/19 financial year and of the proposed
measures and weightings for next year’s annual
bonus are set out in the annual report on
remuneration on page 85.
The annual bonus remains a discretionary
arrangement and the committee reserves
discretion to adjust the outcomes achieved
(from zero to any cap) under all performance
measures should it consider that to be
appropriate having considered overall
performance in the year on a holistic basis.
Greene King plc | Annual Report and Accounts 2019 79
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.
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.
For awards made from the 2017 AGM
onwards, a post-vesting holding period will
apply so that performance-vested LTIP
awards will not be exercisable until the
fifth anniversary of grant. After the holding
period awards 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.
A maximum of 150% of
salary can be awarded each
year. Dividend equivalents
will be paid on any shares
that vest and will continue to
be accrued during any post-
vesting holding period.
All LTIP awards will be subject to suitably
stretching performance targets as selected by
the committee. Performance will normally be
measured over a three year period.
The committee would expect to consult with
its major shareholders if it proposed changing
materially either the performance measures
applied for LTIP awards made to executive
directors or the relative weightings between
these performance measures.
Vesting will generally be subject to continued
employment.
Shareholding
policy
To align the interests
of the executive
directors with
shareholders and to
promote a long-term
approach.
–
Executive directors are required to build
and retain a shareholding of at least
200% 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. Vested but
unexercised awards including performance
–vested LTIPs subject to a holding period
(discounted for anticipated tax liabilities) can
be credited towards the guidelines, as can
shares acquired via bonus deferral.
Pension
Benefits
All employee
share schemes
To offer market
competitive levels of
benefit.
The company contributes to defined
contribution pension arrangements for the
executive directors or provides cash in lieu
where appropriate.
To be appropriately
competitive with those
offered at comparator
companies.
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.
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.
Current company
contribution levels are 25%1
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.
1. Pension contribution for Nick Mackenzie is 15%. See page 90 for his remuneration arrangement.
–
–
–
–
Overview | Strategic Report | Corporate Governance | Financial Statements 80
DIRECTORS’ REMUNERATION REPORT CONTINUED
Notes:
5. Malus and clawback
1.
2.
3.
A description of how the company intends to implement the policy
set out in this table for 2019/20 is set out in the annual report on
remuneration on pages 89 to 91.
The choice of performance metrics applicable to the annual bonus
scheme reflects 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, strategic
performance indicators and specific individual objectives. Details
of the performance metrics for 2018/19 and 2019/20 are set out
on pages 85 and 90.
As explained in the remuneration policy table above, LTIP awards
are subject to suitably stretching performance conditions set
by the committee, which are reviewed annually. Details of the
performance conditions and targets for the 2019/20 awards
are set out on page 91.
4.
Differences between the policy on remuneration for directors
from the policy on remuneration of other employees:
When determining executive directors’ remuneration, the
committee takes into account pay throughout the group to ensure
that the arrangements in place remain appropriate.
The group seeks to ensure that similar principles guide reward
decisions for all group employees, including executive directors,
although remuneration packages differ to take into account
appropriate factors in different areas of the business:
• Fixed pay – the company seeks to ensure that each
employee receives an appropriate level of fixed pay reflecting
appropriate market rates. All qualifying employees are enrolled
automatically into a qualifying workplace pension.
• Annual bonus – the company seeks to ensure that annual
bonus plans are a part of reward where this is appropriate.
However, the quantum of reward available and the
performance measures applied will vary between employees
at different levels within the business and the business units
in which they work.
• LTIP – our most senior employees participate in the LTIP
currently based on the same performance conditions as those
for executive directors, although the committee reserves the
discretion to vary the performance conditions for awards made
to employees below the Board for future awards.
• All-employee share plans – the committee considers it
is important for all employees to have the opportunity to
become shareholders in the company. The company offers
an HMRC tax advantaged sharesave plan in which all UK
employees can participate and acquire shares on a discounted
and tax advantaged basis.
Malus (being the forfeiture of unvested awards) and clawback
(being the ability of the company to claim repayment of paid
amounts as a debt) provisions apply to the annual bonus and
LTIP. These provisions may be applied where the remuneration
committee considers it appropriate to do so following:
• Gross misconduct;
• Material misstatement of results, and
• Error in calculating the performance condition outcomes.
6. Travel and hospitality
While the committee does not consider it to form part of
benefits in the normal usage of that term, it has been advised
that corporate hospitality (whether paid for by the company or
another) and certain instances of business travel (including any
related tax liabilities settled by the company) for both executive
and non-executive directors may technically come within the
applicable rules and so the committee expressly reserves the right
for it to authorise such activities within its agreed policies.
7. Discretions reserved in operating incentive plans
The committee will operate the annual bonus and LTIP according
to their respective rules and the above remuneration policy table.
The committee retains certain discretions, consistent with market
practice, in relation to the operation and administration of these
plans including:
•
•
•
•
•
the timing of awards and payments;
the size of awards, within the overall limits disclosed in the
policy table;
the determination of performance measures and targets and
resultant vesting and pay-out levels;
(as described in the Service agreements and exit payment policy
section below) determination of the treatment of individuals who
leave employment, based on the rules of the incentive plans, and
the treatment of the incentive plans on exceptional events, such
as a change of control of the company; and
the ability to make adjustments to existing awards made under
the incentive plans in certain circumstances (e.g. rights issues,
corporate restructurings or special dividends).
While performance conditions will generally remain unchanged
once set, the committee has the usual discretions to amend the
measures, weightings and targets in exceptional circumstances
(such as a major transaction) where the original conditions
would cease to operate as intended. Any such changes would be
explained in the subsequent annual remuneration report and, if
appropriate, be the subject of consultation with the company’s
major shareholders.
8. Prior awards
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 and Accounts 2019 81
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.
£3,000
£2,500
£2,000
£1,500
k
£
£1,000
£500
£0
Notes:
16%
30%
36%
36%
30%
28%
24%
31%
19%
50%
100%
35%
35%
30%
15%
30%
30%
25%
31%
18%
51%
100%
Share price growth
Long-term incentive
Annual bonus
Fixed
Minimum
On-target
Maximum
Max with
growth
Minimum
On-target
Maximum
Max with
growth
Nick Mackenzie
Chief executive
Richard Smothers
Chief financial officer
1. Minimum relates to the value of the package assuming that current salary, benefits and pension alone are paid.
2.
The on-target annual bonus opportunity is assumed to be 30% of the maximum award for the purposes of these illustrations to reflect the on target opportunity for 2019/20. The actual on-target level
may vary from year to year, with 50% being considered the normal level of opportunity.
3. The on-target vesting level under LTIP is assumed to be 50% of the maximum award.
4. The maximum scenario assumes full bonus pay-out and full vesting of LTIP awards.
5. The basis of the calculation of the share price appreciation in the maximum with growth column is that the share price is assumed to increase by 50% across the performance period.
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 150% of salary and awards under the
LTIP will be limited to 150% 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 ‘buy-out’ 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 the
avoidance of doubt, there is no formal limit on the value of any such buy-out awards.
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 on-going 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.
£707k£1,427k£2,507k£2,957k£527k£1,037k£1,802k£2,121kOverview | Strategic Report | Corporate Governance | Financial Statements 82
DIRECTORS’ REMUNERATION REPORT CONTINUED
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. If the individual terminates employment during a holding
period for an LTIP award, the holding period will normally continue to apply in respect of the performance-vested shares, unless the committee
thinks it is appropriate to allow the earlier release of shares in the particular circumstances.
Nick Mackenzie’s employment, which commenced on 1 May 2019, also his date of appointment to the board, is subject to the terms of a contract
dated 17 November 2018. 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.
Richard Smothers’ employment, which commenced on 4 December 2017, prior to the date of his appointment to the board on 1 February 2018
is subject to the terms of a contract dated 10 May 2017. 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.
The company has power to enter into settlement agreements with executives and to pay compensation to settle potential legal claims. In addition,
and consistent with market practice, in the event of termination of an executive director, the company may pay a contribution towards the
individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees would be disclosed as part of the detail
of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of termination payments.
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, for each of the
current directors, the start and expiry date of their respective appointments.
Director
Philip Yea – chairman
Mike Coupe
Gordon Fryett
Rob Rowley
Sandra Turner
Lynne Weedall
Date of appointment
2 February 2016
26 July 2011
1 December 2016
18 July 2014
1 May 2019
11 October 2012
Present expiry date
1 February 2022
25 July 2020
30 November 2019
17 July 2020
30 April 2022
10 October 2021
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.
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 or senior
independent director. They are
set at a level that is considered
appropriately competitive in
the light of market practice.
Greene King plc | Annual Report and Accounts 2019 83
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.
In December 2018, it was agreed that Rooney Anand could take up a paid non-executive role as chairman of Casual Dining Group once his
successor had been confirmed, provided the role took no more than one working day per month for the balance of his notice period.
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. The committee consulted with its largest
shareholders regarding the directors’ remuneration policy approved at the 2017 AGM and also during the spring of 2019 to discuss a broad range
of governance matters, including the terms of the transition from Rooney to Nick as chief executive.
Consideration of conditions elsewhere in the group
As explained in the general policy section of the directors’ remuneration policy, the committee takes into account group-wide pay and
employment conditions. The committee reviews the average group-wide base salary increase and is responsible for all discretionary and all-
employee share arrangements.
Consistent with normal practice, the committee did not consult with employees in preparing the directors’ remuneration policy.
During the year employee communication forums (Your Voice) were established to enable two way communications between our employees
and the management team and board. A range of matters have been discussed and whilst executive remuneration has not been raised to date,
the committee would consider any feedback when making its decisions on executive remuneration.
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 in 2018/19
The remuneration committee is appointed by the board. The members were Lynne Weedall (chairman), Mike Coupe, Gordon Fryett and Rob
Rowley. 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.
The committee also notes and welcomes the UK financial reporting council’s review of the UK corporate governance code and the directors
remuneration reporting regulation changes. As set out through this report and in the chair’s introductory letter, a number of changes have been
made in response to these items and the committee looks forward to explaining how further changes have been implemented in next year’s report.
During the year there were four scheduled meetings of the committee. Attendance at these meetings is shown in the table on page 65.
Advisers to the remuneration committee
FIT Remuneration Consultants LLP (FIT) provide advice to the committee on general remuneration matters and comparator information.
The committee is satisfied that FIT are independent advisers to the committee as they do not provide any other services to the company. Fees
paid during the year to FIT in respect of advice to the committee, generally charged on a time spent basis, were £66,224 plus VAT. FIT were
appointed by the committee in 2016 on the basis of their experience.
The committee also took advice from Deloitte LLP and Addleshaw Goddard during the year in connection with the senior leadership changes.
Their fees were £8,500 and £17,500 respectively. Both firms were appointed by the committee and their fees were charged on standard terms.
At the invitation of the committee, except where their own remuneration was being discussed, the following people attended meetings and
provided advice to the committee: Philip Yea (chairman), Rooney Anand (chief executive) and Andrew Bush (group HR director).
Overview | Strategic Report | Corporate Governance | Financial Statements 84
DIRECTORS’ REMUNERATION REPORT CONTINUED
Shareholder voting at the 2018 AGM
The table below shows the results of the advisory vote on the 2017/18 directors’ remuneration report at the AGM held in September 2018.
Approval of the remuneration report 1
209,958,040
99.46%
1,131,248
0.54%
11,712,806
Votes for
Percentage
Votes against
Percentage
Votes withheld
1. Details of the binding vote on the remuneration policy are provided on page 78.
Audited information
Single figure of remuneration
The tables below show the details of the total remuneration paid to each director in 2018/19 and 2017/18.
Executive directors
Rooney Anand
2018/19
2017/18
Richard Smothers 6
2018/19
2017/18
Salary or fees 1
£’000
Taxable
benefits 2
£’000
Pension-related
benefits 3
£’000
Annual
bonus
£’000
Long-term
incentives 4
£’000
645
645
425
172
29
29
17
7
161
161
85
34
745
419
400
90
–
–
–
–
–
Non-executive directors
Salary or fees
£’000
Taxable
benefits
£’000
Pension-related
benefits
£’000
Annual
bonus
£’000
Long-term
incentives
£’000
Philip Yea
2018/19
2017/18
Mike Coupe
2018/19
2017/18
Gordon Fryett
2018/19
2017/18
Rob Rowley 7
2018/19
2017/18
Lynne Weedall 7
2018/19
2017/18
Notes:
250
250
50
50
50
50
60
60
60
60
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
1,5805
1,254
927
303
Total
£’000
250
250
50
50
50
50
60
60
60
60
1. There were no increases to fees or salaries from 2017/18 to 2018/19 as set out in the 2017/18 report.
2. Taxable benefits comprised a car allowance, fuel allowance (for Rooney Anand), life assurance, permanent health insurance, health screening and private medical insurance.
3. Pension benefits for the executive directors comprised cash in lieu of pension contributions and were in line with the policy table on page 79.
4.
Long term incentives in 2018/19 comprised the value of the awards granted in July 2016, which were due to vest in July 2019. These awards were subject to performance targets measured over the three
years to May 2019. As set out on page 86, these awards failed to meet the minimum performance conditions and as such the value of the award has been stated as nil. As set out in the 2017/18 report,
awards granted in 2015 also failed to vest.
5.
Further details of Rooney Anand’s termination arrangements are set out on page 89.
6.
Richard Smothers joined the company on 4 December 2017 and the 2017/18 data provided above represents his full remuneration from that date until 29 April 2018. He joined the board on 1 February
2018 and his salary from 1 February 2018 until 29 April 2018 was £88k. 2018/19 data reflects a full year of employment.
7. Rob Rowley and Lynne Weedall continue to receive an additional fee of £10,000 over the base fee of £50,000 for chairing the audit and risk committee and the remuneration committee respectively.
8.
In 2017/18 Kirk Davis was employed as a director until 31 January 2018 when he resigned from the board and left the company. His single figure of remuneration for 2017/18 was £475,000. Full details are
provided in the 2017/18 directors remuneration report on pages 64 and 65.
Greene King plc | Annual Report and Accounts 2019
85
2018/19 annual bonus outcome
Executive directors may earn bonuses of up to 150% of salary depending on the company’s and their own individual performance.
The targets for the 2018/19 bonus were not disclosed in the 2017/18 report due to commercial sensitivity. Full details of the weightings, targets
and performance against those targets are set out in the tables below. Performance against the combined financial and individual targets resulted
in bonuses being paid at £744,975 (115.5% of salary and 77.0% of maximum bonus opportunity) for Rooney Anand and £400,350 (94.2% of
salary and 62.8% of maximum bonus opportunity) for Richard Smothers.
71.7% of Rooney Anand’s bonus was based on financial and other objective measures. The remaining 28.3% was based on personal objectives,
the key criteria of which were the identification and development of credible successors for the chief executive role and how those options were
developed in conjunction with Philip Yea, the chairman. The relative weighting of the 2018/19 bonus to these objectives reflected the strategic
importance of this work to the business as a whole. After careful consideration, given the smoothness of the handover between Rooney and
Nick Mackenzie and the degree of cooperation between him and the chairman on this crucial activity and the quality of other senior leaders
recruited during this period of transition, the committee decided to award Rooney the maximum level for this element of the 2018/19 bonus.
Given the commercial and personal sensitivities regarding this element of 2018/19 bonus, it is not possible to give further disclosure of the
specific actions which ensured the successful delivery of these objectives.
As set out on page 90, the policy requires any bonus payable in excess of 100% of salary, after tax, to be reinvested in shares and held by
Rooney for one year.
86.7% of Richard Smothers’ bonus was based on financial and other objective measures. The 13.3% relating to personal targets was based on
securing changes to the capital structure of the group and improvements to internal financial reporting. The committee considered feedback
from the chief executive when making their recommendation and decided to award 11.7% of the maximum award for this element.
The committee believes that the payments are reflective of the overall 2018/19 performance of the company.
Rooney Anand
PBTE
Free cash flow
Pub company customer net promoter score
Personal targets
Total
Richard Smothers
PBTE
Free cash flow
Pub company customer net promoter score
Staff engagement
Personal targets
Total
Percentage of
maximum bonus
Target range
Actual performance
Bonus awarded as
a percentage of
maximum
46.7%
20.0%
5.0%
28.3%
100.0%
£220.52m – £258.88m
£55.84m – £65.56m
59.0 – 64.0
£246.9m
£86.0m
62.5
see commentary above
see commentary above
26.3%
20.0%
2.4%
28.3%
77.0%
Percentage of
maximum bonus
Target range
Actual performance
Bonus awarded as
a percentage of
maximum
46.7%
20.0%
10.0%
10.0%
13.3%
100.0%
£220.52m – £258.88m
£55.84m – £65.56m
59.0 – 64.0
64.0 – 67.0
£246.9m
£86.0m
62.5
62.0
see commentary above
see commentary above
26.3%
20.0%
4.8%
0.0%
11.7%
62.8%
Overview | Strategic Report | Corporate Governance | Financial Statements
86
DIRECTORS’ REMUNERATION REPORT CONTINUED
Vesting of 2016 long-term incentive awards
The LTIP awards granted on 28 July 2016 were based on EPS and ROCE targets with a three year performance period ended 28 April 2019.
The performance conditions did not achieve the minimum level of performance and as such, all outstanding 2016 LTIP awards will lapse on the
third anniversary of their grant on 29 July 2019.
2018 LTIP awards
As set out in the 2018 remuneration report, the LTIP awards made in 2018 were subject to a maximum of 150% of the executive director’s base
salary, 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 April 2021. There will then be a two year holding period during which the executive directors will not be entitled
to exercise their performance vested awards.
The performance conditions, weighting and targets applicable to the 2018 LTIP awards were disclosed in the 2018 report and are also set out
in the table below.
Target and weighting
ROCE1: 50%
Adjusted basic EPS1: 25%
Free cash flow2: 25%
100% vesting
50% vesting
20% vesting
1. Measured for 2020/21.
2. Three year aggregate free cash flow to the end of 2020/21.
8.70%
8.50%
8.20%
72.6p
68.5p
64.6p
£210m
£195m
£185m
All awards will be subject to an underpin performance condition whereby the committee may reduce the level of vesting awards (including to
zero) if it is not satisfied regarding performance during the performance period for the LTIP awards.
Details of the awards granted to Rooney Anand and Richard Smothers on 19 July 2018 are as follows:
Director
Scheme
Type of award
Rooney
Anand
Richard
Smothers
LTIP
nil-cost option
LTIP
nil-cost option
Basis of award
granted
150% of salary
of £645,000
150% of salary
of £425,000
Share
price used
for award
purposes
Number of
shares over
which award
was granted
Face value
of award
Performance
period Holding period
Exercisable
between
543.4p
178,045
£967,500
543.4p
117,316
£637,500
April 2018
– April 2021
19 July 2021
– 19 July 2023
20 July 2023
– 18 July 2028
April 2018
– April 2021
19 July 2021
– 19 July 2023
20 July 2023
– 18 July 2028
Interests under the LTIP
A summary of the current 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 29
April 2018
Granted
during the
period
Vested
during the
period
Lapsed
during the
period
Outstanding
at 28 April
20193
Performance period
Rooney Anand
10-Aug-15
Core LTIP 1
10-Aug-15 Growth LTIP 1
28-Jul-16
Core LTIP 2
28-Jul-16 Growth LTIP 2
19-Sep-17
19-Jul-18
Richard Smothers
4-Jan-18
19-Jul-18
LTIP
LTIP
LTIP
LTIP
nil
nil
nil
nil
nil
nil
nil
nil
66,558
66,558
81,302
81,302
173,294
–
–
–
–
–
–
178,045
45,995
–
–
117,316
–
–
–
–
–
–
–
–
66,558
66,558
–
–
May 2015 – May 2018
May 2015 – May 2018
–
–
–
–
–
–
81,302
May 2016 – May 2019
81,302
May 2016 – May 2019
173,294
May 2017 – May 2020
178,045 April 2018 – April 2021
45,995
May 2017 – May 2020
117,316 April 2018 – April 2021
1. As set out in the 2017/18 report, the 2015 LTIP awards lapsed during the year.
2. As set out above the 2016 LTIP awards will lapse on the third anniversary of their grant as a result of the performance conditions not having been met.
3. Page 89 sets out details of the treatment of Rooney Anand’s outstanding awards.
Greene King plc | Annual Report and Accounts 2019 87
Interests under the sharesave scheme
The interests of the directors in options granted under the sharesave scheme were as follows:
Outstanding
as at 29 April
2018
Granted during
the period
Exercised
during the
period
Lapsed during
the period
Outstanding
as at 29 April
2019
Option price
(p)
Richard Smothers
–
4,128
–
–
4,128
436p
Exercise period
1 April 2022 –
30 September 2022
Directors’ shareholdings and share interests
Under the shareholding guidelines in place, executive directors are required to build and retain a shareholding of at least 200% of salary and must
retain 50% of the net exercised value of vested LTIP awards until the requirement is met.
In addition, each of the executive directors may receive dividend equivalent awards in relation to their LTIP awards, the amount of which will
depend on the value of dividends paid and the share price at the time thereof.
The share price as at 28 April 2019 was 704.4p.
Details of the directors’ shareholdings are set out in the table below.
At 29 April 2018
At 28 April 2019
Legally owned
Legally owned
Subject to
performance under
the LTIP
616,947
–
40,000
3,690
2,000
3,000
3,051
616,947
9,770
40,000
3,690
2,000
3,000
3,051
513,943
163,311
–
–
–
–
–
Shareholding as
percentage of
base salary as at
28 April 2019
674%
16%
–
–
–
–
–
Total
1,130,890
173,081
40,000
3,690
2,000
3,000
3,051
Executive directors
Rooney Anand
Richard Smothers1
Non-executive directors
Philip Yea
Mike Coupe
Gordon Fryett
Rob Rowley
Lynne Weedall
1.
In addition to the above Richard Smothers has an interest under the sharesave scheme disclosed above.
There has been no change in the interests of the current directors since 28 April 2019 to the date of this report.
Other information (unaudited)
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 salaried 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
0.0% increase
0.0% increase
77.8% increase
2.3% increase
15.0% decrease
27.7% increase
Overview | Strategic Report | Corporate Governance | Financial Statements 88
DIRECTORS’ REMUNERATION REPORT CONTINUED
Typical pay rises for the group’s salaried employees in 2018/19 were in the range of 2.0% to 2.5%. The 2.3% shown above reflects the average
salary change for employees. The average cost of benefits for the employee group has decreased due to a change in policy on the provision of
medical benefits and a reduction in employees eligible for the company car scheme. The value of the benefits to individual employees in real terms
has been maintained.
Details of the bonus payment for Rooney Anand are set out on page 85 and reflect the outcome of the performance measures. All bonuses paid
are performance related and the level of payment reflects business and, where relevant, personal performance.
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 ten years in 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
FTSE All-Share
300
250
200
150
100
50
0
)
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
April 2009
April 2010
April 2011
April 2012
April 2013
April 2014
April 2015
April 2016
April 2017
April 2018
April 2019
The table below shows the total remuneration for the chief executive over each of the last ten years.
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
CEO single figure (£’000)
1,096
1,406
1,248
2,689
2,517
2,139
2,295
1,154
1,254
1,580
Annual bonus percentage
of maximum
97%
100%
75%
72%
97%
60%
97.5%
LTIP percentage of maximum
0%
0%
0%
100%
100%
100%
88%
36%
9%
43%
0%
77%
0%
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.
2018
2019
2,500
2,000
1,500
m
£
1,000
500
0
Dividends and share buy-backs
Wages and salaries
Revenue
Greene King plc | Annual Report and Accounts 2019
89
Remuneration from other company directorships
During the year Rooney Anand held the following other directorships. None of these organisations are related parties of the group.
Role
Non-executive chairman of JB Drinks Holdings Limited
Senior independent director for WM Morrison Supermarkets plc
Fee
£50k (2017/18 £50k)
£104k (2017/18 £102k)
Non executive chairman of Casual Dining Group Limited (from December 2018)
£52k (5 months of annual fee of £125k)
Rooney was also appointed chairman of the education and skills charity, Worldskills UK from January 2019. He receives no fee.
Richard Smothers is a non-executive director/trustee at the National Childbirth Trust, chairing the audit, risk and scrutiny committee.
He receives no fee.
Implementation of remuneration policy in 2019/20
Leadership changes
As announced in November 2018, Rooney Anand stepped down as a director of Greene King on 30 April 2019 and ceased employment on
5 May 2019.
The details of Rooney’s leaving arrangements were announced in May 2019 and are set out below.
• Rooney received salary, contractual benefits (including pension) and payment for any accrued holiday entitlement up to 5 May 2019.
•
•
•
•
In order to secure an appropriate period of managed transition and commercial protection for the business until May 2020, a payment of
£850,000 (broadly equivalent to one year’s fixed pay (salary, pension contributions and benefits)) was paid on 10 May 2019 in consideration
of Rooney agreeing appropriate and clearly enforceable post-termination non-compete and non-solicitation restrictions. During this period,
Rooney is prohibited from taking on an executive position with 18 named competitors (or any non-executive role with the most significant
nine of these companies).
As Rooney worked the full 2018/19 year, he received a bonus for 2018/19 as set out on page 85. The remuneration policy requires that, to the
extent that any bonus is payable in an amount in excess of 100% of salary, the excess, after any tax, will be reinvested in shares and held by
Rooney for one year.
Following a pro-rata reduction (where relevant) to reflect complete months in the performance period to the date of leaving, Rooney currently
holds the following outstanding awards under the company’s long term incentive plans (LTIP):
a. nil-cost options over 115,529 company shares granted in 2017, and
b. nil-cost options over 59,348 company shares granted in 2018.
These awards will remain capable of vesting at the normal time subject to achievement of the applicable performance conditions. To the extent
that the 2017 and 2018 awards vest, a further two-year holding period will apply. To note: as set out on page 86, the 2016 LTIP award fully
lapsed as the performance conditions were not achieved.
• Legal fees of £28,187 in connection with Rooney’s leaving arrangements were paid directly to third party service providers.
• The payments set out above are in full and final settlement of all claims against the company. Rooney will also be reimbursed for any expenses
properly incurred.
Overview | Strategic Report | Corporate Governance | Financial Statements
90
DIRECTORS’ REMUNERATION REPORT CONTINUED
Nick Mackenzie joined Greene King and the board as chief executive on 1 May 2019. When agreeing Nick’s joining arrangements, the committee
carefully considered both the level of remuneration required to secure a chief executive with the skills to continue to deliver value for shareholders
and to lead Greene King through its next phase of development as well as shareholder feedback on executive remuneration. This included
a review of market information from both the hospitality sector and other organisations of a similar size to Greene King. In light of these
considerations (and as set out in the following pages), Nick’s remuneration is as follows:
Base salary
Bonus – as a percentage of base salary
LTIP – as a percentage of base salary
Pension contribution – as a percentage of base salary
£600,000
150%
150%
15%
Additionally, Nick’s contract sets out a notice period of 12 months from both him and the company and contains mitigation provisions, a 12 month
restriction on employment by a competitor and a non-solicitation clause. The inclusion of these provisions is aligned with other executives and
senior management.
Salary
Executive directors’ salaries are generally reviewed annually. The table below provides a summary of executive director salaries with effect from
29 April 2019 and previous year levels where relevant. As set out above, Nick Mackenzie’s joining salary is £600,000 and, after a market review of
the hospitality sector and other organisations of a similar size to Greene King the committee did not increase Richard Smothers pay for 2019/20.
Name
Nick Mackenzie
Richard Smothers
Position
From 29 April 2019
From 30 April 2018
Percentage increase
Chief executive
Chief financial officer
£600,000
£425,000
n/a
£425,000
n/a
0%
Typical pay increases for the group’s salaried employees (which include pub and restaurant managers but exclude colleagues working for them
in those pubs and restaurants) were 2.0 – 2.5%.
Pension and benefits
The cash in lieu of pension contributions for Richard Smothers will continue in line with the policy table on page 79. As set out above, the
committee considered shareholder feedback when agreeing the level of pension benefits for Nick Mackenzie and reduced the level to 15%
(from 25% for Rooney Anand). Benefits will be in line with the policy table on page 79.
Annual bonus for 2019/20
The annual bonus opportunity for 2019/20 for both executive directors will be 150% of salary, in line with the remuneration policy approved
by shareholders. 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 2019/20 annual report.
The table below sets out the measures and weightings of the 2019/20 annual bonus for both Nick Mackenzie and Richard Smothers. In line with
our policy, the bonus measures continue to be weighted towards financial metrics. However, the committee continues to believe that a balance
of financial and non-financial metrics are key to the future success of the business and will deliver sustainable shareholder value. The committee
considers that the targets are of the same level of stretch and difficulty as previous years, whilst providing management with then opportunity
to be rewarded for delivering performance in a difficult trading environment.
Measures
PBTE
Free cash flow
Pub Company net promoter score
Team engagement
Personal targets
Total
Nick Mackenzie
(weighting as a percentage of
maximum opportunity)
Richard Smothers
(weighting as a percentage of
maximum opportunity)
46.7%
20.0%
10.0%
10.0%
13.3%
100.0%
46.7%
20.0%
10.0%
10.0%
13.3%
100.0%
Greene King plc | Annual Report and Accounts 2019 91
LTIP awards
The awards to be made in 2019 will be subject to a maximum of 150% of the executive director’s base salary, calculated by reference to the
average closing prices on the three business days immediately prior to the date of the award in line with the policy on page 79.
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 April 2022. There will then be a two year holding period during which the executive directors will not be entitled
to exercise their performance vested awards.
The performance conditions applicable to the LTIP awards in 2019/20 will continue to be based on return on capital employed (ROCE), adjusted
basic EPS and cumulative free cash flow. The committee believes that these measures continue to be appropriate on the following basis:
• ROCE ensures that management focuses on generating returns in excess of the cost of capital and it clearly aligns with our strategy where
capital needs to be applied appropriately in order to focus on developing our pub company and generating returns; and
• Adjusted basic EPS growth rewards the delivery of growth in profits and is a widely understood profit-based measure across the business; and
• Free cash flow aligns with our strategy to maintain a strong balance sheet and flexible capital structure: cash generated enables the company to
cover debt service obligations, our core capital expenditure and our dividend.
The targets are set out in the table below
Target and weighting
ROCE: 50%
Adjusted basic EPS: 25%
Free cash flow: 25%
100% vesting
50% vesting
20% vesting
9.20%
9.00%
8.90%
68.5p
64.6p
62.3p
£240m
£220m
£180m
The performance target ranges shown above reflect the three year plan and will be measured at the end of 2021/22. Accordingly they have been
set in anticipation of the impact of IFRS 16, which will apply in the year of measurement. In detail:
• The EPS range shown above reflects a comparable level of stretch to the targets set for prior years. However, the growth takes into account
the estimated impact of IFRS 16.
• As for EPS, the ROCE range reflects a comparable level of stretch to the ROCE targets set for prior years. However, the impact of IFRS 16 is
to increase positively the inputs to ROCE (particularly operating profit due to the revised recognition of lease expenses) and accordingly the
ROCE range as stated for the period to 2021/22 is higher than that for the LTIP awards made in 2018.
•
IFRS 16 does not impact free cash flow and, as for the other measures, the targets continue to have the same degree of difficulty and stretch
as in prior years.
IFRS 16 will also impact the measurement of the EPS and ROCE performance conditions for the in-flight 2017 and 2018 LTIP awards. The
committee will consider the appropriate treatment for these awards during 2019/20 and will provide details in next year’s report.
All awards will be subject to an underpin performance condition whereby the committee may reduce the level of vesting awards (including to
zero) if it is not satisfied regarding performance during the performance period for the LTIP awards.
Chairman and non-executive directors’ fees
The fees payable to the chairman and the non-executive directors in 2019/20 are as set out below. The chairman and other non executive
directors will not be entitled to any benefits.
Name
Philip Yea
Mike Coupe
Gordon Fryett
Rob Rowley
Sandra Turner1
Lynne Weedall
Position
Chairman
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
1. Appointed 1 May 2019.
Approved by the board on 26 June 2019
Lindsay Keswick
Company secretary
From 29 April 2019
From 30 April 2018
Percentage increase
£250,000
£50,000
£50,000
£60,000
£50,000
£60,000
£250,000
£50,000
£50,000
£60,000
n/a
£60,000
0.0%
0.0%
0.0%
0.0%
n/a
0.0%
Overview | Strategic Report | Corporate Governance | Financial Statements 92
DIRECTORS’ REPORT AND DISCLOSURES
The directors present their annual report together with the audited
financial statements of the company and the group for the 52 weeks
ended 28 April 2019. The company has chosen, in accordance with
section 414C(11) of the Companies Act 2006, to include matters of
strategic importance in the strategic report which otherwise would be
required to be disclosed in the directors’ report. The following cross-
referenced material is incorporated into this directors’ report:
DIRECTORS’ INTERESTS IN SHARES
The beneficial interests of each of the directors as at the year end and
their immediate families in the ordinary share capital of the company
are shown below:
29 April 2018
28 April 2019
Viability statement
Employees
Greenhouse gas emissions
Governance report
page 53
pages 34 to 37
page 43
pages 62 to 67
Rooney Anand
Mike Coupe
Gordon Fryett
Rob Rowley
Richard Smothers
Statement of directors’ responsibilities
page 95
Lynne Weedall
Philip Yea
616,947
3,690
2,000
3,000
0
3,051
40,000
616,947
3,690
2,000
3,000
9,770
3,051
40,000
PROFITS AND DIVIDENDS
The group’s profit before tax for the period amounted to £246.9m
(2018: £197.5m). An interim dividend of 8.8p per share (2018: 8.8p)
was paid on 18 January 2019. The directors recommend a final
dividend of 24.4p per ordinary share (2018: 24.4p), making a total
dividend for the year of 33.2p per share (2018: 33.2p). Subject to the
approval of shareholders at the AGM, the final dividend will be paid
on 13 September 2019 to shareholders on the register at the close
of business on 9 August 2019.
DIRECTORS
Details of the current directors are given on page 60 to 61. After the
year end, Rooney Anand resigned from the board on 30 April 2019,
having served for 14 years as chief executive. Nick Mackenzie was
appointed to the board as the new chief executive on 1 May 2019.
Sandra Turner was also appointed as a non-executive director on
1 May 2019.
The board has recommended that all of the current directors offer
themselves for re-election at the forthcoming AGM and that Nick
Mackenzie and Sandra Turner stand for election for the first time.
Details of the directors’ service agreements, remuneration, and
interests in long term incentives and awards are set out in the
directors’ remuneration report.
DIRECTORS’ DUTIES
The directors are cognisant of their duty to promote the success of
the company in accordance with section 172 of the Companies Act
2006. During the year, processes have been put in place to enable the
directors to report in the next annual report the ways in which they
have fulfilled their duties.
Nick Mackenzie, who was appointed after the year end, held 93,515 shares
in Greene King plc on his appointment on 1 May 2019. Sandra Turner,
who was also appointed after the year end, holds no shares in Greene
King plc. There have been no other changes in the interests of the current
directors between 28 April 2019 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 significant holdings
(3% or more) of voting rights during the year:
Standard Life Investments
(Holdings) Limited / Standard
Life Aberdeen plc
The Capital Group
Companies, Inc
Royal London Asset
Management Limited
Deutsche Bank AG
BlackRock, Inc.
Dimensional Fund Advisors LP
29 April 2018
28 April 2019
5.00%
5.00%
18.22%
3.01%
8.93%
6.32%
–
9.98%
3.01%
4.99%
6.52%
5.00%
Between 28 April 2019 and the date of this report the company has
been notified of the following significant holdings (3% or more) of
voting rights:
BlackRock, Inc.
6.52%
5.83%
28 April 2019
26 June 2019
Greene King plc | Annual Report and Accounts 2019 93
SHARE CAPITAL
CHANGE OF CONTROL
Details of the authorised and issued share capital of the company, which
comprises a single class of shares, ordinary shares of 12.5p, are set out in
note 25 to the financial statements. 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 85,471 ordinary shares, with an aggregate nominal value of
£10,683.88 were allotted, for cash, during the period in connection
with the company’s share option schemes.
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.
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 18 July 2018. The authority, which has not been exercised,
was approved and remains exercisable until the next annual general
meeting or 6 December 2019, whichever is earlier. The directors have
again sought approval for the authority to purchase the company’s
own shares.
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 or by the EBT.
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 or their closely associated persons are required to obtain
prior approval from the company to deal in the company’s securities, and
are prohibited from dealing during close periods.
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.
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 12. 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 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.
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.
Overview | Strategic Report | Corporate Governance | Financial Statements 94
DIRECTORS’ REPORT AND DISCLOSURES CONTINUED
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.
DIRECTORS’ AND OFFICERS’ INDEMNITY
INSURANCE
The group has taken out insurance to indemnify 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 to the financial statements.
POST BALANCE SHEET EVENTS
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 severe
but plausible shocks to the business 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.
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 midday on Friday 6 September 2019 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.
Details of events occurring after the year-end are set out in note 31
to the financial statements.
By order of the board
Lindsay Keswick
Company secretary
26 June 2019
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 pages 60 to 61. 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.
Greene King plc | Annual Report and Accounts 2019 95
DIRECTORS’ RESPONSIBILITIES STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE FINANCIAL STATEMENTS
The directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have elected to
prepare the group financial statements in accordance with International
Financial Reporting Standards (‘IFRSs’) as adopted by the European
Union, and the parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law), including Financial
Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’).
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and the company and of the
profit or loss of the group for that period. In preparing these financial
statements the directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
•
in respect of the group financial statements, state whether
IFRSs as adopted by the European Union have been followed,
subject to any material departures disclosed and explained in
the financial statements;
• provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the group’s financial position and financial performance;
Under applicable law and regulations the directors are also
responsible for preparing a strategic report, directors’ report,
directors’ remuneration report and corporate governance statement
that comply with that law and those regulations. The directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the company’s website. Legislation
in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
DIRECTORS’ RESPONSIBILITY STATEMENT
The directors confirm, to the best of their knowledge:
•
•
that the consolidated financial statements are prepared in
accordance with IFRSs, as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit
of the company and undertakings included in the consolidation taken
as a whole;
that the annual report, including the strategic report, includes a
fair review of the development and performance of the business
and the position of the company and undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face; and
• having taken into account all matters considered by the board and
brought to the attention of the board during the year, the directors
consider that the annual report, taken as a whole, is fair, balanced
and understandable. The directors believe that the disclosures set
out in this annual report provide the information necessary for
shareholders to assess the company’s performance, business model
and strategy.
The directors of Greene King plc are listed on pages 60 to 61.
•
in respect of the parent company financial statements, state
whether applicable UK Accounting Standards, including FRS 101,
have been followed, subject to any material departures disclosed
and explained in the financial statements; and
Phillip E Yea
Director
26 June 2019
Nick S Mackenzie
Director
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company and/or the group
will continue in business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the company’s and group’s
transactions and disclose with reasonable accuracy at any time the
financial position of the company and the group and enable them to
ensure that the financial statements comply with the Companies Act
2006 and, with respect to the group financial statements, Article 4
of the IAS Regulation. They are also responsible for safeguarding the
assets of the company and group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
Overview | Strategic Report | Corporate Governance | Financial Statements 96 Greene King plc | Annual Report and Accounts 2019
Overview | Strategic Report | Corporate Governance | Financial Statements
97
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
98
Independent auditor’s report
106 Group income statement
107 Group statement of comprehensive income
108 Group balance sheet
110 Group cash flow statement
111 Group statement of changes in equity
112 Notes to the accounts
166 Company balance sheet
167 Company statement of changes in equity
168 Notes to the company accounts
174 Alternative performance measures
SHAREHOLDER INFORMATION
179 Shareholder information
98
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF GREENE KING PLC
OPINION
In our opinion:
• Greene King plc’s group financial statements and company financial statements (the ‘financial statements’) give a true and fair view of the
state of the group’s and of the company’s affairs as at 28 April 2019 and of the group’s profit for the 52 weeks then ended;
•
•
•
the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by
the European Union;
the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the group
financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Greene King plc which comprise:
Group
Company
Group balance sheet as at 28 April 2019
Company balance sheet as at 28 April 2019
Group income statement for the 52 weeks ended 28 April 2019
Group statement of comprehensive income for the 52 weeks ended 28 April 2019
Group statement of changes in equity for the 52 weeks ended 28 April 2019
Group cash flow statement for the 52 weeks ended 28 April 2019
Related notes 1 to 31 to the financial statements, including a summary of significant
accounting policies
Company statement of changes in equity for the 52 weeks
ended 28 April 2019
Related notes 32 to 43 to the financial statements including a
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the
preparation of the company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced
Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report below. We
are independent of the group and company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Greene King plc | Annual Report and Accounts 2019 99
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report
to you whether we have anything material to add or draw attention to:
•
•
•
the disclosures in the annual report set out on pages 54 to 57 that describe the principal risks and explain how they are being managed or mitigated;
the directors’ confirmation set out on page 52 in the annual report that they have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model, future performance, solvency or liquidity;
the directors’ statement set out on page 112 in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
•
the directors’ explanation set out on page 53 in the annual report as to how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
OVERVIEW OF OUR AUDIT APPROACH
Key audit matters
• Property, plant and equipment (PP&E) impairment considerations, due to the risk of material misstatement over the
net impairment charge if management’s assumptions to support the projected financial information in the impairment
assessments include incorrect judgments or estimates.
• Revenue recognition, due to the risk of fraudulent recognition of revenue through management override.
• We have identified deferred tax as a significant risk due to the identification of errors in respect of prior periods. This
has resulted in the restatement of prior period comparatives in the 2019 accounts. (The detail of this restatement is
documented in note 1)
Audit scope
• We performed an audit of the complete financial information of the three trading divisions and corporate centre which
together represent 100% of the group’s results for the period.
• 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.
Materiality
• Overall group materiality of £12.1m which represents 5% of profit before tax and exceptional and non-underlying items.
Overview | Strategic Report | Corporate Governance | Financial Statements 100
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF GREENE KING PLC
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those 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. These matters were addressed in the context of our audit of the financial statements as a whole and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How we addressed the key audit matter
Key observations communicated
to the audit and risk committee
Property, plant and equipment (PP&E) impairment
considerations, due to the risk of material misstatement
over the net impairment charge if management’s
assumptions to support the projected financial
information in the impairment assessments include
incorrect judgments or estimates (2019: £3,543.4m PP&E
net book value and £65.0m net impairment charge; 2018:
£3,589.2m and £63.3m respectively)
Refer to the audit and risk committee report (pages 71 to 74); accounting
policies (pages 118 to 126); and Note 14 of the consolidated financial
statements (pages 144 to 146)
Management perform an annual impairment assessment on a site-by-
site basis.
In assessing impairment, management estimates the recoverable
amount of each site by reference to the higher of its value in use
(VIU), based on the group’s key assumptions in relation to forecast
profits, growth rate and applied discount rate, and fair value less costs
of disposal (FVLCD). FVLCD was determined by either external or
internal valuations.
We obtained an understanding of the group’s process
employed to estimate appropriate impairments of PP&E
at a cash-generating unit (CGU) level (site level). We then
tested key elements of those processes.
We considered the reasonableness and
appropriateness of the group’s estimates,
noting that all significant assumptions fell
within a range of acceptable outcomes.
In particular:
–
–
–
–
–
–
–
We checked the arithmetical accuracy and integrity
of the impairment model.
We used our valuation experts to assess the
reasonableness of the discount rate applied to cash
flows by benchmarking to comparator companies and
market information.
We compared the profit growth rates in the cash
flow forecasts to the strategic plan and to external
market growth estimates for the industry.
We reperformed the group’s sensitivity calculations
applied to the cash flows and considered the group’s
disclosure of how a reasonably possible change in
assumptions would lead to a material impairment
based upon our knowledge of the group’s activities
and industry knowledge.
We tested, on a sample basis, that the individual site
NBVs, lease periods (where applicable) and trading
data were correctly imported into the impairment
model.
We used our property valuation experts to assess
the property valuations provided by management’s
external valuers, where management adopted the
valuers’ FVLCD instead of the internal VIU model.
We examined the appropriateness of any other
information used by management to refine the VIU
or FVLCD in the calculation of the impairment
charge.
We considered the group’s sensitivity
calculations applied to the cash flows
to be materially correct and the
disclosures of a reasonable change
to be appropriate.
We found no material errors within
the site data used in the impairment
calculations.
We considered the property valuations
provided by management’s external
valuers to fall within a range of
acceptable valuations.
We considered the other information
used by management to determine
VIU or FVLCD in the calculation of the
impairment charge to be appropriate.
As a result of the procedures
performed, we concluded that the
group’s impairment assessment for the
group’s CGUs had been carried out
appropriately and in accordance with
accounting standards.
We found that the impairment charge
had a net understatement error that
was not significant. We do not consider
the error to be material and therefore
we concluded that the impairment
calculations are appropriate and free
from material error.
Greene King plc | Annual Report and Accounts 2019 101
Key audit matter
How we addressed the key audit matter
Key observations communicated
to the audit and risk committee
Revenue recognition, due to the risk of fraudulent
recognition of revenue through management override
(2019: £2,216.9m, 2018: £2,176.7m)
Refer to the audit and risk committee report (pages 71 to 74); accounting
policies (pages 118 to 126); and Note 3 of the consolidated financial
statements (pages 127 to 128)
In accordance with International Standards on Auditing (UK and Ireland)
there is a presumed fraud risk relating to revenue recognition.
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;
•
machine income, where net takings are recognised as earned.
Greene King Pub Partners and Pub Company divisions, given their high
disaggregation with over 2,500 individual pubs and low value individual
sale transactions, have a low inherent risk of material error or fraud
occurring undetected.
Similarly, with strong revenue to cash correlation, any systemic errors
of significance would quickly be visible in balance sheet reconciliations.
Therefore the risk of material error in revenue recognition is principally
seen to reside in a topside management journal overriding financial
reporting close processes.
We have identified a significant risk of material overstatement of revenue
through management override and topside journals (for all divisions).
Estimation of deferred tax (2019: net deferred tax asset
£29.1m, 2018: £39.5m as restated)
Refer to the audit and risk committee report (pages 71 to 74); accounting
policies (pages 118 to 126); and Note 1 of the consolidated financial
statements (pages 112 to 118)
We have identified deferred tax as a new significant risk in the current
period due to the identification of errors in respect of prior periods. This
has resulted in the restatement of prior period comparatives in the 2019
accounts. (The detail of this restatement is documented in note 1.)
These errors arose as the result of complexities in the underlying
accounting for deferred tax, and the impact on deferred tax of the
historic tax planning arrangements entered into not being captured,
or not being captured correctly in the calculations prepared by
management.
•
Management has completed a detailed review of the calculation
of existing and historic deferred tax balances and assessed the
completeness of these balances as at the current and prior period
balance sheet dates.
We have walked through each significant revenue
stream and assessed the design, and for those
controls we have chosen to rely on, we have tested
the operating effectiveness of those controls.
In addition we have performed the following
procedures:
As a result of the procedures
performed, we concluded that revenue
had been recognised appropriately
in accordance with the revenue
recognition policy and accounting
standards.
–
–
–
–
Completed tests of detail on a representative
sample of revenue transactions recorded in the
period.
Used data analysis tools on 100% of revenue
transactions in the year for the largest division,
Pub Company division, to test the correlation
of revenue to cash receipts to support the
occurrence of revenue.
Performed disaggregated analytical review on
revenue recorded by division and month to
identify unusual or unexpected trends; and
Tested manual journal entries to revenue
from across the year to ensure that entries
were appropriately supported by evidence of
arrangement, delivery note or subsequent cash
receipt.
We have audited the 2019 deferred tax position
and the restated comparative position. We
used specialists in tax accounting to verify the
appropriateness of the deferred tax balances
calculated by completing the following key
procedures:
–
–
–
–
–
Reviewed memoranda prepared by management
setting out the methodology for calculating each
existing deferred tax balance and confirmed that
the principles are compliant with IAS 12.
Tested revised calculations of deferred tax
and the underlying information prepared by
management as at the FY19 and prior balance
sheet dates. This included detailed testing of
Management’s calculation in respect of deferred
tax on property, plant and equipment.
Reviewed the accounting and tax bases for
balance sheet balances and for consolidation
adjustments to assess completeness of deferred
tax impacts and accounting.
Reviewed all submitted 2018 tax returns to
confirm there are not any other items on which
deferred tax should have been recognised to
test the completeness of deferred tax balances.
Reconciled the aggregate of profit before
tax recorded in the statutory accounts of all
subsidiaries to the consolidated profit before tax
amount to identify possible further sources of
deferred tax not yet considered.
Material errors were identified in respect
of prior periods and accordingly the
comparative periods have been restated.
Disclosure of the nature and magnitude
of the restatement is documented in
note 1 in accordance with IAS 8. The
principal differences identified were as
follows:
•
•
•
Incorrect assumptions in respect of
accounting depreciation of property,
plant and equipment in the deferred
tax calculation and inconsistencies
in the supporting information were
identified;
Deferred tax calculated on the
differences between the carrying
values of the Spirit bonds and
off-market contract liabilities in the
group accounts and the equivalent
carrying values in the statutory
accounts were not calculated
correctly;
Deferred tax calculated in respect of
complex tax planning arrangements
involving derivative contracts and
intra-group lease premiums were
not calculated correctly.
Following correction of the errors in
prior period by way of a prior period
restatement, we conclude that the
deferred tax balances recorded in
the current year balance sheet are
appropriate and free from material error.
Overview | Strategic Report | Corporate Governance | Financial Statements 102
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF GREENE KING PLC
KEY AUDIT MATTERS CONTINUED
In the prior year, our auditor’s report included a key audit matter in relation to capital expenditure accounting. Based on our experience
and results of our audit in the prior year, we noted that improved processes and controls in place have increased the rigour with which additions
are reviewed and approved by management such that the opportunity for items being misclassified between capital and expense is significantly
reduced. We therefore do not consider the risk of material error to be significant, and is therefore no longer considered a significant risk and
nor was it considered a key audit matter in the current year.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
division within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size,
risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors such
as recent internal audit results when assessing the level of work to be performed at each division.
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.
We performed an audit of the complete financial information of all of the trading divisions and the corporate centre, which together represent 100%
of 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.
OUR APPLICATION OF 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.
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. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the group to be £12.1 million (2018: £12.1 million), which is 5% (2018: 5%) of profit before tax and exceptional and
non-underlying items. We used pre-tax profit before exceptional and non-underlying items of £246.9m because it is a key performance indicator
used in communications with investors, it is a key metric used by the group in the assessment of the performance of management and we note
that market and analyst commentary on the group uses pre-tax profit before exceptional and non-underlying items as a key metric. Therefore,
we consider pre-tax profit before exceptional and non-underlying items to be the most appropriate performance metric on which to base our
materiality calculation.
We determine materiality for the company using net assets, a measure chosen due to the nature of the company’s business activity, which is that
of investment holding. As the materiality calculated under this basis is higher than that for the group, we cap the materiality for the company at
that of the group being £12.1m (2018: £13.9m calculated using the net asset calculated materiality).
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 risk assessments, together with our assessment of the group’s overall control environment, our judgment was that
performance materiality was 75% (2018: 75%) of our planning materiality, namely £9.0m (2018: £9.0m). We have set performance materiality
at this percentage reflecting the absence of significant changes in the group and absence of significant audit adjustments in the prior period.
Our objective in considering and adopting this approach was to ensure that the total of any detected and undetected audit differences do
not exceed our materiality of £12.1m for the group financial statements as a whole.
Audit work on each division for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a
percentage of total performance materiality. The performance materiality set for each division is based on the relative scale and risk of the division
to the group as a whole and our assessment of the risk of misstatement at that division. In the current year, the range of performance materiality
allocated to divisions was £2.7m to £9.0m (2018: £2.3m to £8.0m).
Greene King plc | Annual Report and Accounts 2019 103
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the audit and risk committee that we would report to them all uncorrected audit differences in excess of £0.6m (2018: £0.6m),
which is set at 5% of planning materiality, 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 light of other relevant
qualitative considerations in forming our opinion.
OTHER INFORMATION
The other information comprises the information included in the annual report set out on pages 1 to 97 and 179 to 180, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information
and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 95 – the statement given by the directors that they consider the annual report
and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit and risk committee reporting set out on pages 71 to 74 – the section describing the work of the audit and risk committee
does not appropriately address matters communicated by us to the audit and risk committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 62 – the parts of the
directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure
from a relevant provision of the UK Corporate Governance Code.
OPINIONS 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.
In our opinion, based on the work undertaken in the course of the audit:
•
•
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 financial statements and those reports have been prepared in accordance with applicable legal requirements;
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial
Conduct Authority (the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements; and
•
information about the company’s corporate governance code and practices and about its administrative, management and supervisory bodies
and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Overview | Strategic Report | Corporate Governance | Financial Statements 104
INDEPENDENT AUDITOR’S REPORT CONTINUED
TO THE MEMBERS OF GREENE KING PLC
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the group and the company and its environment obtained in the course of the audit,
we have not identified material misstatements in:
•
•
the strategic report or the directors’ report; or
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
•
the 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; or
• a corporate governance statement has not been prepared by the company.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 95, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING
IRREGULARITIES, INCLUDING FRAUD
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to
fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and
implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary
responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most
significant relate to the reporting framework (IFRS, FRS 101, the Companies Act 2006 and UK Corporate Governance Code) and the relevant
tax compliance regulations in the jurisdictions in which the group operates. In addition, we concluded that there are certain significant laws and
regulations which may have an effect on the determination of the amounts and disclosures in the financial statements being the Listing Rules of
the UK Listing Authority, and those laws and regulations as disclosed within Risk and Uncertainties of the group’s business on pages 54 to 57
including The Pubs Code etc. Regulations 2016, Health & Safety Regulations, General Data Protection Regulation, and Licensing Regulations.
• We understood how Greene King plc is complying with those frameworks by making enquiries of management, internal audit, those
responsible for legal and compliance procedures and the group company secretary. We corroborated our enquiries through the attendance
at meetings held by the audit and risk committee who receive updates on such matters from divisional and functional management. As well as
enquiry and attendance at meetings, our procedures involved a review of the reporting to the committees and a review of board meetings and
other committee minutes to identify any non-compliance with laws and regulations.
Greene King plc | Annual Report and Accounts 2019 105
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur, by meeting
with management to understand where they considered there was susceptibility to fraud. We also considered performance targets and their
propensity to influence management to manage earnings and revenue by overriding internal controls. We considered the controls that the
group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors
those controls. Our procedures also included testing a risk-based sample of manual journals that may have been posted with the intention
of overriding internal controls to manipulate earnings. These procedures were designed to provide reasonable assurance that the financial
statements were free from fraud or error.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
OTHER MATTERS WE ARE REQUIRED TO ADDRESS
• We were re-appointed by the shareholders at the AGM on 7 September 2018 and signed an engagement letter with the company on
28 November 2017 confirming the terms of appointment for the audit of the financial statements for the 52 weeks ended 28 April 2019.
• The period of total uninterrupted engagement including previous renewals and reappointments is 21 years, covering the periods ending
2 May 1998 to 28 April 2019.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the company and we remain independent
of the group and the company in conducting the audit.
• The audit opinion is consistent with the additional report to the audit and risk committee.
USE OF OUR REPORT
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.
Lloyd Brown (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London, UK
26 June 2019
Notes:
1.
The maintenance and integrity of the Greene King plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Overview | Strategic Report | Corporate Governance | Financial Statements 106
GROUP INCOME STATEMENT
FOR THE 52 WEEKS ENDED 28 APRIL 2019
Before
exceptional
and non-
underlying
items
£m
2,216.9
(1,848.7)
368.2
1.1
(122.4)
246.9
(47.1)
2019
Exceptional
and non-
underlying
items
(note 5)
£m
–
(53.5)
(53.5)
–
(20.6)
(74.1)
(5.3)
2018
Before
exceptional
and non-
underlying
items
£m
Exceptional
and non-
underlying
items (note 5)
(restated1)
£m
2,176.7
(1,803.6)
373.1
1.0
(131.1)
243.0
(48.6)
–
(56.1)
(56.1)
–
10.6
(45.5)
34.4
Total
£m
2,216.9
(1,902.2)
314.7
1.1
(143.0)
172.8
(52.4)
Total
(restated1)
£m
2,176.7
(1,859.7)
317.0
1.0
(120.5)
197.5
(14.2)
199.8
(79.4)
120.4
194.4
(11.1)
183.3
64.5 p
64.3 p
38.9 p
38.7 p
33.2 p
62.7 p
62.6 p
59.1 p
58.9 p
33.2 p
Revenue
Operating costs
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit attributable to equity
holders of parent
Earnings per share
– Basic1
– Adjusted basic2
– Diluted1
– Adjusted diluted2
Dividends per share (paid and
proposed in respect of the period)
Note
3
4
3,4
7
7
10
12
12
12
12
11
1.
Exceptional and non-underlying tax has been restated. As a consequence basic and diluted EPS has been restated. See note 1 for further details.
2. Adjusted basic and diluted earnings per share exclude the effect of exceptional and non-underlying items.
Greene King plc | Annual Report and Accounts 2019 107
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE 52 WEEKS ENDED 28 APRIL 2019
Profit for the period
Other comprehensive income to be reclassified to
the income statement in subsequent periods
Cash flow hedges:
– (Losses)/gains on cash flow hedges taken to other comprehensive income
– Transfers to income statement on cash flow hedges
Deferred tax on cash flow hedges
Items not to be reclassified to the income statement in subsequent periods
Remeasurement gains on defined benefit pension schemes
Deferred tax on remeasurement gains
Other comprehensive income for the period, net of tax
Total comprehensive income for the period, net of tax
Note
10
9
10
2019
£m
120.4
(21.2)
21.9
0.6
1.3
17.0
(2.9)
14.1
15.4
135.8
2018
(restated1)
£m
183.3
15.5
25.6
(7.0)
34.1
21.5
(3.6)
17.9
52.0
235.3
1. Exceptional and non-underlying tax has been restated. As a consequence profit for the period and total comprehensive income for the period, net of tax has been restated. See note 1 for further details.
Overview | Strategic Report | Corporate Governance | Financial Statements 108
GROUP BALANCE SHEET
AS AT 28 APRIL 2019
Non-current assets
Property, plant and equipment
Intangibles
Goodwill
Financial assets
Derivative financial instruments
Deferred tax assets
Post-employment assets
Prepayments
Trade and other receivables
Current assets
Inventories
Financial assets
Income tax receivable
Trade and other receivables
Prepayments
Cash and cash equivalents
Property, plant and equipment held for sale
Total assets
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Off-market contract liabilities
Income tax payable
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Off-market contract liabilities
Post-employment liabilities
Provisions
Total liabilities
Total net assets
As at
28 April 2019
£m
Note
As at
29 April 2018
(restated1)
£m
As at
30 April 2017
(restated1)
£m
14
13
13
15
23
10
9
18
17
15
10
18
19
20
22
23
21
24
10
24
22
23
21
24
9
24
3,537.0
112.2
1,104.7
13.4
–
9.5
32.4
0.1
–
3,589.2
124.7
1,115.5
13.2
1.5
20.1
13.6
0.2
0.1
3,621.9
163.7
1,134.6
16.3
–
22.9
16.8
0.2
0.1
4,809.3
4,878.1
4,976.5
51.1
9.0
–
89.7
32.6
185.3
367.7
6.4
374.1
47.7
10.5
10.2
87.5
26.3
168.5
350.7
8.6
359.3
45.0
10.1
–
93.3
27.6
443.0
619.0
5.1
624.1
5,183.4
5,237.4
5,600.6
(66.2)
(21.7)
(408.9)
(17.8)
(13.2)
(31.3)
(559.1)
(2,062.4)
(208.3)
(1.7)
(219.2)
(1.3)
(23.5)
(2,516.4)
(3,075.5)
2,107.9
(54.6)
(20.6)
(420.0)
(17.9)
–
(29.5)
(542.6)
(2,146.2)
(222.0)
(1.8)
(228.6)
–
(23.1)
(2,621.7)
(3,164.3)
2,073.1
(219.7)
(30.9)
(429.3)
(21.3)
(12.6)
(26.9)
(740.7)
(2,297.8)
(313.9)
(1.9)
(264.1)
(28.0)
(14.6)
(2,920.3)
(3,661.0)
1,939.6
Greene King plc | Annual Report and Accounts 2019 109
As at
28 April 2019
£m
Note
As at
29 April 2018
(restated1)
£m
As at
30 April 2017
(restated1)
£m
25
26
26
26
26
26
28
38.7
262.2
752.0
3.3
(161.6)
–
1,213.3
2,107.9
1,943.3
38.7
262.0
752.0
3.3
(158.1)
(0.5)
1,175.7
2,073.1
2,032.3
38.7
261.7
752.0
3.3
(192.2)
(0.2)
1,076.3
1,939.6
2,074.5
Issued capital and reserves
Share capital
Share premium
Merger reserve
Capital redemption reserve
Hedging reserve
Own shares
Retained earnings
Total equity
Net debt
1. Deferred tax, goodwill and retained earnings have been restated. See note 1 for further details.
Signed on behalf of the board on 26 June 2019
Richard Smothers
Director
Overview | Strategic Report | Corporate Governance | Financial Statements 110
GROUP CASH FLOW STATEMENT
FOR THE 52 WEEKS ENDED 28 APRIL 2019
Operating activities
Operating profit
Operating exceptional and non-underlying items
Depreciation
Amortisation
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
Sale of other investments
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
Payment of derivative financial liabilities
Securitised bond issuance
Financing costs
Repayment of borrowings
Advance of borrowings
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Opening cash and cash equivalents
Closing cash and cash equivalents
1.
EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items.
Note
5
14
13
3
27
15
15
15
11
28
28
28
28
28
19
19
2019
£m
314.7
53.5
105.6
8.2
482.0
(41.4)
0.7
(117.6)
(21.0)
302.7
(163.4)
–
(5.5)
6.1
75.8
(87.0)
2018
£m
317.0
56.1
103.7
9.8
486.6
(46.8)
1.0
(130.2)
(44.8)
265.8
(193.2)
0.3
(3.4)
5.9
117.2
(73.2)
(102.9)
(102.9)
0.2
–
(18.6)
250.0
(15.8)
(539.9)
226.8
(200.2)
15.5
168.5
184.0
0.3
(0.5)
(42.6)
–
(3.2)
(505.2)
187.0
(467.1)
(274.5)
443.0
168.5
Greene King plc | Annual Report and Accounts 2019 111
GROUP STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEKS ENDED 28 APRIL 2019
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Note
Capital
redemption
reserve
£m
Hedging
reserve
£m
Own
shares
£m
Retained
earnings
£m
Total
equity
£m
At 30 April 2017 (as previously stated)
38.7
261.7
752.0
3.3
(192.2)
(0.2)
1,080.9
1,944.2
Prior year adjustment
At 30 April 2017 (restated)
Profit for the period (restated)
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
Purchase of shares
Share-based payments (net of tax)
Equity dividends paid
At 29 April 2018 (restated)
Profit for the period
Other comprehensive income:
Actuarial gains on defined benefit pension
schemes (net of tax)
Net gain on cash flow hedges (net of tax)
Total comprehensive income
Issue of ordinary share capital
Transfer
Release of shares
Share-based payments (net of tax)
Equity dividends paid
At 28 April 2019
–
–
–
–
–
–
(4.6)
(4.6)
38.7
261.7
752.0
3.3
(192.2)
(0.2)
1,076.3
1,939.6
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
38.7
262.0
752.0
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
25
26
8
11
25
26
8
11
–
–
–
–
–
–
–
–
–
3.3
–
–
–
–
–
–
–
–
–
–
–
183.3
183.3
–
34.1
34.1
–
–
–
–
–
–
–
–
–
0.2
(0.5)
–
–
17.9
–
17.9
34.1
201.2
235.3
–
(0.2)
–
1.3
0.3
–
(0.5)
1.3
(102.9)
(102.9)
(158.1)
(0.5)
1,175.7
2,073.1
–
–
120.4
120.4
–
1.3
1.3
–
(4.8)
–
–
–
–
–
–
–
–
0.5
–
–
–
14.1
–
14.1
1.3
134.5
135.8
–
4.8
(0.5)
1.7
0.2
–
–
1.7
(102.9)
(102.9)
1,213.3
2,107.9
38.7
262.2
752.0
3.3
(161.6)
Overview | Strategic Report | Corporate Governance | Financial Statements 112
NOTES TO THE ACCOUNTS
FOR THE 52 WEEKS ENDED 28 APRIL 2019
1 BASIS OF PREPARATION
Corporate information
The consolidated financial statements of Greene King plc for the 52 weeks ended 28 April 2019 were authorised for issue by the board
of directors on 26 June 2019. Greene King plc is a public company limited by shares 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 28 April 2019 (prior year 52 weeks ended 29 April 2018).
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 millions of pounds sterling, with values rounded to the nearest hundred thousand, except where
otherwise indicated.
Prior year adjustment
The group identified a number of errors within its assessment of deferred tax which date back prior to the earliest prior period presented within
these financial statements. In line with IAS 8, the group has restated balances as at 30 April 2017, and restated its financial results for the period
ending 29 April 2018.
The issues identified as at 30 April 2017 were as follows:
A £10.0m increase in deferred tax asset (2018: £9.5m increase in deferred tax asset) has been recognised in relation to lease premiums.
These premiums were paid between Greene King subsidiaries to take on a 15 year lease of new-build property with a restricted amount
of the premium paid by the lessee being deductible over the life of the lease.
A £6.6m decrease in deferred tax asset (2018: £9.5m increase in deferred tax asset) in respect of property, plant and equipment is the
result of an incorrect allocation between amounts recoverable for tax purposes on a use or sales basis.
A £8.3m decrease in deferred tax asset (2018: £5.9m decrease in deferred tax asset) which relates to the fair value assessment of interest
rate swaps acquired through the Spirit acquisition. The initial deferred tax asset recognised, and related goodwill, was overstated by £9.5m,
with the adjustment aligning tax and accounting treatment.
A £25.5m decrease in deferred tax asset as at 30 April 2017 (2018: £22.7m increase in deferred tax asset) has been recognised which relates
to the fair value assessment of the off market liabilities acquired through the Spirit acquisition. The initial deferred tax recognised, and related
goodwill, was overstated by £16.2m with the adjustment ensuring the correct tax base is used to calculate the deferred tax.
The financial impact of the errors identified are as follows:
Balance sheet
Goodwill
Deferred tax asset
Retained earnings
As at 29 April 2018
As at 30 April 2017
Reported
£m
Adjustment
£m
1,089.7
29.7
(1,159.5)
25.8
(9.6)
(16.2)
Restated
£m
1,115.5
20.1
Reported
£m
Adjustment
£m
1,108.8
53.3
25.8
(30.4)
4.6
Restated
£m
1,134.6
22.9
(1,076.3)
(1,175.7)
(1,080.9)
Income statement for the 52 weeks ended 29 April 2018
Profit before tax
Tax
Profit after tax
Reported
£m
Adjustment
£m
Restated
£m
197.5
(35.0)
162.5
–
20.8
20.8
197.5
(14.2)
183.3
The impact of these adjustments to the prior period basic earnings per share is an increase of 6.7p, with adjusted earnings per share remaining
unchanged for the period ending 29 April 2018. There is no cash flow implication arising from these adjustments.
Greene King plc | Annual Report and Accounts 2019
113
Basis of consolidation
The consolidated financial statements incorporate the financial statements of Greene King plc, its subsidiaries and its related parties, Greene King
Finance plc and Spirit Issuer plc. Greene King Finance plc and Spirit Issuer plc are structured entities set up to raise bond finance for the group.
As Greene King plc has full control over both entities they are fully consolidated. The financial statements of subsidiaries are prepared for the
same reporting year end 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.
Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the company and the group have adequate
resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in
preparing the financial statements. Further detail is contained in the directors’ report on page 94 and in the viability statement included in the
strategic report on page 53.
New accounting standards, amendments and interpretations adopted by the group
The following new standards, interpretations and amendments to standards are mandatory for the group for the first time for their annual
reporting period commencing 30 April 2018.
Those standards and interpretations include:
–
–
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
– Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
The group has considered the above new standards and has concluded that IFRS 9 and IFRS 15 have an impact on the group’s financial statements,
but IFRS 2 is immaterial.
IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognition and measurement of financial instruments, including impairment, derecognition and general
hedge accounting.
This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
The group adopted IFRS 9 on 30 April 2018 prospectively hence the information presented for comparative periods has not been restated
and is presented, as previously reported, under IAS 39. Additional disclosure requirements have been adopted to year ending 28 April 2019 as
shown on note 23.
Classification and measurement
The adoption of IFRS 9 has had no material impact on the measurement of financial assets and financial liabilities. The group’s financial assets (trade
loans to publicans) and trade and other receivables, both previously classified as loan and receivables carried at amortised cost under IAS 39,
continue to be carried at amortised cost under IFRS 9.
The group’s business model is to hold these assets for collection of contractual cash flow, and the cash flows represent solely payments of
principal and interest on the principal amount.
There are no changes to the classification and measurement for the group’s financial liabilities.
Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (ECL) model. The new impairment model applies to the group’s
financial assets that are held at amortised cost.
The group has determined that the application of IFRS 9’s impairment requirements as at 30 April 2018 has not resulted in an additional allowance
for impairment and given the minimal impact on retained earnings no restatement was required.
The group’s policy for measuring the expected credit loss is described in the accounting policies, note 2, and additional disclosure in note 23.
Overview | Strategic Report | Corporate Governance | Financial Statements 114
1 BASIS OF PREPARATION CONTINUED
Hedge accounting
The interest rate swaps in place as at 28 April 2019 remain highly effective on transition and therefore meet the criteria for hedge accounting
under IFRS 9.
The group’s risk management strategies and hedge documentation are aligned with the requirements of IFRS 9 and these relationships are
therefore treated as continuing hedges.
IFRS 15 Revenue from Contracts with Customers
With effect from 30 April 2018, the group has adopted IFRS 15 Revenue from Contracts with Customers using the modified retrospective
approach, without practical expedients.
Under this method of adoption, the comparative period as reported under the previous standard is not restated, with the cumulative effect of
initially applying IFRS 15 recognised as an adjustment to the opening balance of retained earnings as at the date of initial application.
The group has undertaken a review of its revenue streams under the new standard and has concluded that a large proportion of the revenue is
recognised at the point of sale, when the goods or services are provided in their entirety to the customer in return for cash.
Based on the group’s review, it has concluded that IFRS 15 does not have a material impact on the recognition of revenue, consequently not having
a material impact on the consolidated results and financial position.
Further details on the group’s adoption of IFRS 15 are provided under significant changes in accounting policy, note 2, and disclosure requirements
have been adopted in note 3 for the year ending 28 April 2019.
Standards issued but not yet effective
A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 and earlier application
is permitted; however, the group has not early adopted them in preparing these consolidated financial statements. The group has the following
updates to information provided in the last annual financial statements about the standards issued but not yet effective that may have a significant
impact on the group’s consolidated financial statements.
IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15
Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective
for annual periods beginning on or after 1 January 2019 with early adoption permitted.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term
leases and leases of low-value items.
Lessor accounting remains similar to the current standard, whereby the lessor continues to classify leases as finance or operating leases.
Transition
As a lessee, the group can either apply the standard using the full retrospective approach, retrospectively to each prior reporting period
presented, or the modified retrospective approach, with the cumulative effect of initially applying IFRS 16 recognised as an adjustment to the
opening balance of retained earnings at the date of the initial application, with no restatement of the comparative information.
The group has applied IFRS 16 on 29 April 2019, using the modified retrospective approach. The cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance of retained earnings as at 29 April 2019, with no restatement of comparative information.
The group will apply the election consistently to all of its leases.
When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the group can elect, on a
lease-by-lease basis, whether to apply a number of practical expedients on transition.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 115
The group has elected to adopt the following practical expedients on transition to IFRS 16:
–
–
–
–
–
not to reassess contracts to determine if the contract contains a lease and not to separate lease and non-lease elements; – where an onerous
lease provision is in existence, to utilise this provision to reduce the right-of-use asset value rather than undertaking an impairment review;
where an onerous lease provision is in existence, to utilise this provision to reduce the right-of-use asset value rather than undertaking an
impairment review;
to exclude initial direct costs from the measurement of the right-of-use asset;
to apply the portfolio approach where a group of leases has similar characteristics; and
to use hindsight in determining the lease term.
Impact of adoption of IFRS 16 Leases
Balance sheet
As at 28 April 2019, as set out in note 29, the group’s future minimum lease payments under non-cancellable operating leases amounted to
£1,848m, on an undiscounted basis. On 29 April 2019 the group will recognise a right-of-use lease asset of £900m (after adjustments for off
market contract liabilities, intangible assets, onerous lease provisions, lease prepayments and accrued lease expenses at 28 April 2019) and a
corresponding lease liability of £1,135m (non-current £1,100m; current £35m). A transition adjustment of £85m will be recognised as a debit to
retained earnings as a result of applying the asset recalculated asset valuation option under the modified retrospective approach. An estimated
deferred tax asset of £15m will be recognised on the transitional retained earnings adjustment.
Operating lease intangibles of £102m, off-market contract liabilities of £237m and lease prepayments and lease incentives of £7m previously
recognised in respect of the operating leases will be derecognised and the amount factored into the measurement of the right-of-use asset on
transition to IFRS 16.
The provision for onerous lease contracts which was required under IAS 37 of £21m will be derecognised and factored into the measurement of
the right-of-use assets.
On transition to IFRS 16, the group has elected to adopt the utilisation of onerous lease provision in existence at transition practical expedient.
The group will utilise this provision to reduce the right-of-use asset value rather than undertake an impairment review on transition. The right-
of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets, replacing the previous requirement to recognise a
provision for onerous lease contracts in for the 53 weeks ending 3 May 2020.
No significant impact is expected for the group’s finance leases.
Income statement
Under IFRS 16 the group will see a different pattern of expense within the income statement, as the IAS 17 operating lease expense is replaced by
depreciation and interest charges.
For the 53 weeks ending 3 May 2020, the group’s trading profit metric will improve by an estimated £15m under IFRS 16 as the new depreciation
expense is expected to be lower than the IAS 17 operating lease charge; however net finance costs are expected to be higher than this, estimated
at £31m, such that net profit after tax and the underlying earnings metric are expected to be materially lower compared to the previous IAS 17
reporting basis.
For short-term leases, of 12 months or less, and leases of low-value assets, the group will opt to recognise a lease expense on a straight-line basis
as permitted by IFRS 16.
The expenses attributable to these leases will continue to be recognised in the income statement as operating lease expenses.
Tax impact on changes to the income statement
The group will follow the accounting treatment and deduct depreciation and interest expense when calculating current tax. The tax deductions
are not expected to be materially different compared to the previous IAS 17 reporting basis.
Cash flow statement
There is no net cash flow impact on application of IFRS 16, although the classification of cash flows will be affected as operating lease payments
under IAS 17 are presented as operating cash flows, whereas under IFRS 16, the lease payments will be split into a principal and a interest portion
which will be presented as financing and operating cash flows respectively. The change in presentation as a result of the adoption of IFRS 16 will
see an improvement in 2020 of an estimated £85m in cash flow generated from operating activities, offset by a corresponding decline in cash flow
from financing activities.
Overview | Strategic Report | Corporate Governance | Financial Statements 116
1 BASIS OF PREPARATION CONTINUED
Impact on consolidated balance sheet at 29 April 2019 (extract)
The following table shows the estimated effect of adopting IFRS 16 on the consolidated balance sheet at 29 April 2019.
Non-current assets
Right-of-use assets
Intangible assets
Deferred tax asset
Current assets
Trade and other receivables
Total assets
Current liabilities
Lease liabilities
Trade and other payables
Off-market contract liabilities
Provisions
Non-current liabilities
Lease liabilities
Off-market contract liabilities
Provisions
Total liabilities
Net assets
Capital and reserves
Retained earnings
Total equity
As reported at
28 April 2019
£m
Impact of
IFRS 16
£m
As at
29 April 2019
£m
–
102
–
102
11
113
–
(5)
(18)
(3)
(26)
–
(219)
(18)
(237)
(263)
(150)
(150)
(150)
900
(102)
15
813
(11)
802
(35)
5
18
3
(9)
900
–
15
915
–
915
(35)
–
–
–
(35)
(1,100)
(1,100)
219
18
(863)
(872)
(70)
(70)
(70)
–
–
(1,100)
(1,135)
(220)
(220)
(220)
The weighted average incremental borrowing rate applied to lease liabilities was 3.9%.
Reconciliation between operating lease commitments and lease liability
The following table explains the difference between the operating lease commitments disclosed applying IAS 17 at 28 April 2019 and the estimated
lease liability recognised on adoption of IFRS 16 at 29 April 2019.
Total minimum lease payments reported at 28 April 2019 under IAS 17 (note 29)
Change in assessment of lease term under IFRS 16
Impact of discounting lease liability under IFRS 16
Lease liability recognised on transition to IFRS 16 at 29 April 2019
£m
1,848
109
(822)
1,135
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 117
IFRIC 23 Uncertainty over Income Tax Treatments
The IASB issued IFRIC 23 Uncertainty over Income Tax Treatments in June 2017 to clarify application of recognition and measurement
requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments, effective 1 January 2019. The group has completed
an impact assessment and determined that IFRIC 23 is not expected to have an impact on its consolidated results and financial position.
Significant accounting judgments and estimates
Significant accounting judgments
In the course of preparing the financial statements, the key judgment made in the process of applying the group’s accounting policies is detailed below:
Exceptional and non-underlying items
Management uses a range of measures to monitor and assess the group’s financial performance. These measures include a combination
of statutory measures calculated in accordance with IFRS and alternative performance measures. The alternative performance measures
represent the equivalent IFRS measures but are adjusted to exclude items that management considers would prevent comparison of the group’s
performance both from one reporting period to another and with other similar businesses.
Management believes that these alternative performance measures provide useful additional information about the group’s performance and are
consistent with how the business performance is measured internally by the chief decision maker.
The classification of items excluded from profit before exceptional and non-underlying items requires judgment including consideration of the
nature, circumstances, scale and impact of transaction.
The group’s definition of items excluded, together with further details of adjustments made, is provided within the accounting policy section,
note 2.
Significant accounting estimates
The areas of estimation that have a significant risk of resulting in material adjustments to carrying amounts of assets and liabilities are detailed below:
Impairment of property, plant and equipment and intangible assets
IFRS requires management to perform impairment tests annually for indefinite lived assets (goodwill), and for finite lived assets (property, plant and
equipment and other intangible assets), if events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Impairment testing requires management to judge whether the carrying value of assets can be supported by the net present value of future cash
flows that they generate. Calculating the net present value of the future cash flows requires estimates to be made in respect of long term growth
rates, and the adoption of a suitable discount rate. Management has based the long term growth rates on the performance of the operating
segments within the group’s latest three year strategic plan.
Changes to the long term growth rate or discount rate used, could significantly affect the group’s impairment charge (and reversal) recognised in
the income statement and the overall value of assets held at the balance sheet date. Management has provided analysis of the sensitivity to these
key assumptions in note 14.
Property, plant and equipment
The depreciation charge for an asset is derived using estimates of its expected residual value and useful economic life.
Residual values of property are determined with reference to current market property trends. If residual values are lower than estimated, an
impairment of asset value and reassessment of future depreciation charge may be required.
In line with its accounting policy, the residual value of the group’s freehold buildings was reviewed in the prior year and increased to reflect recent
external valuations.
This increase had no material impact on the group’s pre-tax consolidated results or financial position, nor is it anticipated to have a material impact
in future periods.
The taxation impact is reported in note 5.
Useful lives are reassessed annually which may lead to an increase or reduction in depreciation accordingly.
Overview | Strategic Report | Corporate Governance | Financial Statements 118
1 BASIS OF PREPARATION CONTINUED
Taxation
The group’s tax charge is the sum of the total current and deferred tax charges. The calculation of the group’s tax charge involves estimation and
judgment in respect of following items:
Recognition of deferred tax assets
The group has exercised significant accounting estimation and judgment in the recognition of deferred tax assets in respect of property, plant and
equipment. Significant accounting estimates and judgments include those used to determine the amount of net book value of property, plant and
equipment which is exempt from deferred tax and the unrecognised deferred tax asset on the inherent loss where tax losses are expected to be
utilised against future profits and gains.
Uncertain tax position
The group recognises provisions for uncertain tax positions when the group has a present obligation as a result of a past event, and management
judge that it is probable that the group will settle the obligation. Uncertain tax positions are assessed on an issue by issue basis, with management
estimating the most likely outcome. In some circumstances estimates are required when determining the provision for taxes as the tax treatment
cannot be finally determined until a formal resolution has been reached with the tax authorities.
Pension assets and liabilities
Management uses estimates when determining the group’s liabilities and expenses arising for defined benefit pension schemes.
The present values of pension liabilities are determined on an actuarial basis and depend on actuarial assumptions. Key assumptions have been
identified as the discount rate adopted, implied inflation rate and assumed life expectancy. Any change in these assumptions will impact on the
carrying amount of pension liabilities, with further details on assumptions adopted and related sensitivity disclosed in note 9.
The group has determined that when all members have left the scheme, any surplus remaining would be returned to the company in accordance
with the trust deed. As such the full economic benefit of the surplus under IAS 19 is deemed available to the company and is recognised in the
balance sheet.
2 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.
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 derecognised upon disposal or when no future economic benefits are expected from its use.
Profit or loss on derecognition 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 derecognition.
Intangible assets
Operating lease intangibles
The fair value attached to operating leasehold interests on acquisition are deemed to represent lease premiums, and are carried as intangible assets.
The operating lease intangible is amortised over the period of the lease.
Brand intangibles
Brand intangible assets recognised on acquisition are amortised on a straight-line basis over their estimated useful lives (15 years).
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 119
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 acquiree. 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 acquired 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 is 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 are recognised in the income statement.
If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.
Goodwill 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 IFRS. Identifiable intangible assets, meeting either the contractual-legal or separability criteria, 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.
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.
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.
Overview | Strategic Report | Corporate Governance | Financial Statements 120
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
Financial instruments – policy applicable from 30 April 2018
Financial instruments are recognised when the group becomes party to the contractual provisions of the instrument and are derecognised
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.
Classification, measurement and impairment
Financial assets
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the group’s
business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the group
initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.
Trade and other receivables that do not contain a significant financing component are measured at transaction price determined under IFRS 15.
Subsequently, the group classifies its financial assets as measured at:
– amortised cost;
– fair value through other comprehensive income; or
– fair value through profit or loss.
The classification depends on the financial asset’s contractual cash flow characteristics and the group’s business model for managing them.
The group’s financial assets measured at amortised cost include financial assets (trade loans), trade and other receivables and cash and cash equivalents.
Financial assets
Financial assets are trade loans to publicans who purchase the group’s beer and liquor. Trade loans that are held for the collection of contractual
cash flows and the cash flows received from them are solely payments of principal and interest on the principal amount outstanding is
subsequently carried at amortised cost using the effective interest method.
The amortised cost is reduced by impairment losses.
Interest revenue on the trade loans is recognised in the income statement. Any gain or loss on derecognition is recognised in the income statement.
There will be derecognition of trade loans when the group has no reasonable expectation of recovering the financial asset in its entirety or a
portion thereof.
For financial assets held at amortised cost, an estimate of a 12-month expected credit losses (ECLs) are recognised as an impairment provision
upon recognition of a new free trade loan; and at each reporting date, an assessment is made to determine if there has been a significant increase
in credit risk since initial recognition. In cases where this is evident, lifetime expected credit losses are used as the basis for the impairment
provision, otherwise the group measures the loss allowance for the financial asset at an amount equal to 12-month expected credit loss.
Lifetime expected credit loss represents the expected credit losses that will result from all possible default events over the expected life of a
financial instrument. In turn, 12-month expected credit loss represents the portion of lifetime expected credit losses that is expected to result
from default events on a financial instrument that are possible within 12-months after the reporting date.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 121
Trade and other receivables
Trade and other receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. Trade
receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when
they are recognised at fair value. The group holds trade receivables with the objective to collect the contractual cash flows and therefore measures
them subsequently at amortised cost using the effective interest method.
For trade and other receivables, the group adopts a simplified approach in calculating expected credit losses. Therefore, the group does not track
changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The group utilises a provision matrix
that has been designed based on historically observed default rates adjusted by a forward looking estimate that includes the probability of a
worsening economic environment within the next year.
The group assesses a financial asset in default when contractual payments are 90 days past due. A financial asset is written off when there is no
reasonable expectation of recovering the contractual cash flows.
Details about the group’s calculation of the loss allowance are provided in note 23.
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.
Financial liabilities
The group classifies all financial liabilities as subsequently measured at amortised cost, except for derivatives that are subsequently measured
at fair value.
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.
Trade payables
Trade payables are non-interest bearing and are stated at their nominal value.
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 and the movement is recognised in the income statement unless hedge accounting is adopted. For interest rate swaps where hedge
accounting is not applied the fair value movement is analysed between pre-exceptional finance costs and exceptional finance costs.
Pre-exceptional finance costs include cash payments or receipts on the interest rate swaps so as to show the underlying fixed rate on the
debt with the remaining fair value movement (which is generally the movement in the carrying value of the swap in the period) reflected as an
exceptional item.
For derivatives acquired at a non-zero fair value (e.g. on acquisition) the amortisation of the initial fair value is recognised in pre-exceptional finance
costs to offset the cash payments or receipts.
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 through periodic prospective effectiveness to ensure that:
•
•
•
there is an economic relationship exists between the hedged item and hedging instrument;
the effect of credit risk does not dominate the value changes that result from the economic relationship; and
the hedge ratio is the same as that resulting from actual quantities of hedged items and hedging instruments used for risk management.
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 certain of its interest rate swaps as cash flow hedges.
Overview | Strategic Report | Corporate Governance | Financial Statements 122
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Cash flow hedge accounting
The effective portion of the gain or loss on an interest rate swap is recognised in Other comprehensive income (OCI), whilst any ineffective
portion is recognised immediately in the income statement.
Amounts recognised in OCI 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 OCI are held there until the previously hedged transaction affects the income statement. If the hedged transaction is no longer expected to
occur, the cumulative gain or loss recognised in OCI is immediately transferred to the income statement.
Financial assets – policy applicable prior 30 April 2018
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. Gains and losses are recognised in the income statement
when the loans and receivables are derecognised 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).
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.
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.
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 is 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.
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 unwinding of the discount is recognised as a
finance cost.
Off-market contract liabilities
Off-market contract liabilities are recognised where contracts are at unfavourable terms relative to current market terms on acquisition. For leases
where the current rentals are below market terms, the related asset is considered to be recognised as an operating lease in intangible assets. For
other acquired pubs an off-market liability has been calculated as the difference between the present value of future contracted rentals and the
present value of future market rate rentals.
The off-market contract liability is increased by the unwinding of the discount at acquisition (using the effective rate applied in measuring the off-
market contract liabilities at the date of acquisition) and decreased by utilisation which is unwound against rental expense in the income statement
so that the income statement charge reflects current market terms.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 123
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.
Remeasurement 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 remeasured and the resulting gain or loss is recognised in
the income statement in the same period.
Net interest on the net defined benefit liability/(asset) is determined by multiplying the net defined benefit liability/(asset) by the discount rate both
as determined at the start of the annual reporting period, taking account of any changes in the net defined benefit liability/(asset) during the year as
a result of contributions and benefit payments.
The defined benefit asset or liability recognised in the balance sheet comprises the present value of the schemes’ obligations less the fair value of
scheme assets. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds
from the schemes or reduction in future contributions to the schemes.
Defined contribution pension schemes
Contributions to the group’s defined contribution pension schemes 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 because non-market performance and/or service conditions have not been met.
Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting
condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Own shares
Own shares consist of treasury shares and shares held within an employee benefit trust. The group has an employee benefit trust to satisfy the
exercise of share options that have vested under the group’s share option schemes.
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 retained earnings. No gain or loss is
recognised in the performance statements on transactions in own 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.
The group has initially applied IFRS 15 from 30 April 2018, as described in note 1.
The group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer
and payment by the customer exceeds one year. As a consequence, the group does not adjust any of the transaction prices for the time value
of money.
Overview | Strategic Report | Corporate Governance | Financial Statements 124
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Pub Company
Food and drink
Revenue is recognised at the point at which food and drinks are provided based on till receipts taken in our licensed estate. Promotional discounts
are recorded at point of sale. Revenue is reported on product sales net of VAT and discounts applied.
The performance obligation is satisfied upon the delivery of the food and drink and payment of the transaction price is due immediately when
the customer purchases the food and/or drink.
Other services
Accommodation revenue is recognised on a daily basis based on occupancy at the agreed price (net of discount and VAT). Machine income is
recognised where net takings are recognised as earned on the group’s proportion of machine proceeds in the period of sale.
The performance obligation is satisfied at the point the service is provided and payment is generally due at the end of the guest stay at the
accommodation.
Pub Partners
Drink/product sales
The group supplies tenants with a variety of products recognising the sale upon delivery to the pub. At this point the tenant is solely responsible
for stock management and no refunds are given for out of stock products, passing all risks and rewards of ownership to the tenant. The tenancy
agreement may also include volume incentives in the form of retros, which are deemed to be related transactions and therefore the cost of
retro is recognised simultaneously, provided that the cost can be measured reliably. The net of the proceeds from sale and the expected retro is
disclosed as revenue.
The accrued value for rebates payable is included within other payables.
Rental income
The group recognises rental income on a straight line basis over the term of the lease based on the contractual terms of the lease agreement.
As the obligation is satisfied over time, no allocation to purchase price is proposed to reflect standalone prices, net of discount.
Machine income
Machine income is recognised where net takings are recognised as earned on the group’s proportion of machine proceeds in the period of sale.
Brewing & Brands
Brewing & Brands drink revenue is recognised upon delivery date, net of duty and discounts applied. Export revenue is recognised on export sales
based on the invoice date.
Products are shipped on a ‘free on board’ basis, with risk and rewards of ownership being transferred from the group upon shipment rather than
the receipt by the customer.
The export revenue is immaterial to the group therefore no information about geographical regions has been provided as the group’s activities
are predominantly domestic.
Supplier rebates
Supplier rebates are included within operating profit as they are earned. The accrued value at the reporting date is included within other receivables.
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.
The fair values attached to operating leasehold interests on acquisitions are deemed to represent lease premiums, and are carried as intangible
assets, and amortised over the period of the lease.
See ‘Off-market contract liabilities’ for the accounting policy where the fair values of operating leases are a liability.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 125
Finance leases
Leases of property, plant and equipment, where the group has substantially all the risks and rewards of ownership, are classified as finance leases.
Finance leases are recognised at acquisition at the lower of the fair value of the leased asset and the present value of the minimum lease payments.
The asset is then depreciated over the shorter of the estimated useful life of the asset or the lease term. A corresponding liability is included in
the balance sheet as a finance lease obligation. Lease payments are apportioned between the finance charges and reduction of the lease liability to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs.
Merger reserve
The merger reserve represents capital contributions received and amounts recognised on the acquisition of Spirit Pub Company Limited being the
difference between the value of the consideration and the nominal value of the shares issued as consideration.
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 in OCI and equity are recognised in OCI and equity respectively.
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 assets and deferred tax liabilities are offset when there is a legally enforceable right to offset income tax assets and income tax
liabilities and they relate to the same taxable entity and same tax authority and when it is the intention to settle the balances on a net basis.
Deferred tax relating to items recognised in OCI and equity are recognised in OCI and equity respectively.
Uncertain tax positions
A current tax provision is recognised when the group has a present obligation as a result of a past event and it is probable that the group will
be required to settle that obligation. Tax benefits are not recognised unless it is probable that the benefit will be obtained and tax provisions are
made if it is probable that a liability will arise.
The group reviews its uncertain tax positions each year in order to determine the appropriate accounting treatment.
Overview | Strategic Report | Corporate Governance | Financial Statements 126
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Exceptional and non-underlying items and adjusted profitability measures
Exceptional and non-underlying items are not defined under IFRS. Exceptional items are classified as those which are separately identifiable
by virtue of their size, nature or expected frequency and therefore warrant separate presentation. Non-underlying items are other items
that management considers should be presented separately to allow a better understanding of the underlying performance of the business.
Presentation of these measures is not intended to be a substitute for or intended to promote them above statutory measures.
The group’s income statement provides a reconciliation of the adjusted profitability measures, excluding exceptional and non-underlying items to
the equivalent unadjusted IFRS measures. Exceptional and non-underlying items are then further detailed in note 5 to the financial statements.
Items that are considered to be exceptional or non-underlying and that are therefore separately identified in order to aid comparability may
include the following.
Exceptional items:
– profits or losses resulting from the disposal of a business or investment;
– costs incurred in association with business combinations, such as legal and professional fees and stamp duty, that are excluded from the fair value
of the consideration of the business combination;
– one-off restructuring and integration costs that are incurred either following a business combination or following a restructuring of the
group’s support functions. These costs can be significant and would prevent year-on-year comparability of the group’s trading if not
separately identified;
– impairment charges/reversals in respect of tangible and intangible assets as a result of restructuring, business closure, underperformance of
sites or fire damage;
– one-off past services charges in relation to guaranteed minimum pension benefits;
– finance costs or income resulting from gains or losses upon the settlement of interest rate swap and bond liabilities. These amounts may be
significant and are separately identified as the instruments they relate to would no longer form part of the group’s ongoing capital structure;
– fair value gains and losses on the ineffective element of cash flow hedges and fair value movements in respect of derivatives held at fair value
through profit and loss. Such items are separately presented as movements may be both significant and volatile; and
– significant and/or one-off tax settlements in respect of prior years (including any related interest), and the tax impact of the items identified
above and movements on the licensed estate are included as exceptional items. These items are separately identified to allow management and
investors to separately understand tax charges relating to in-year ongoing activity and what relates to prior years.
Non-underlying items may include:
– employee costs and other legal and professional fees incurred in relation to restructuring cost associated with changes to management, group
refinancing activities and defending uncertain tax positions;
– profit or loss on the disposal of property, plant and equipment, where the group disposes of properties that it no longer considers meet the
ongoing needs of the business. These profits or losses could be significant and volatile and are not reflective of the group’s ongoing trading
results;
– costs associated with property lease reversions and onerous leases. The group may incur costs and recognise liabilities in respect of leasehold
properties where the terms of the lease make them onerous or leases that have previously been disposed of but revert to the group under
privity of contract. Such costs may occur infrequently or could be significant and are not reflective of the group’s ongoing trade;
– significant credits to the income statement resulting from the reversal of share-based payment charges recognised in prior year’s performance
following the reassessment of expected scheme;
– gains or losses resulting from the settlement of liabilities in respect of the group’s pension schemes;
– finance costs or income includes the recycling to the income statement of cumulative gains or losses relating to settled swaps previously taken to
the hedging reserve;
– the impact of changes in the statutory tax rates;
– the impact of changes to the tax base cost of group’s licensed estate and indexation; and
– other adjustments in respect of prior years’ tax arising from finalising the tax returns for earlier years and rolled over gains on the licensed estate.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 127
3 SEGMENT INFORMATION
The group has 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. The segments include the following businesses:
Pub Company: Managed pubs and restaurants
Pub Partners: Tenanted and leased pubs
Brewing & Brands: Brewing, marketing and selling beer
These are also considered to be the group’s operating segments and are based on the information presented to the chief executive, who is
considered to be the chief operating decision maker. No aggregation of operating segments has been made.
Transfer prices between operating segments are set on an arm’s length basis.
2019
Revenue
Analysed as follows:
Goods
– Drink
– Food
Services
– Other services1
EBITDA2
Segment operating profit
Exceptional and non–underlying items
Net finance costs
Income tax charge
Net profit for the period
Balance sheet
Segment assets
Unallocated assets3
Total assets
Segment liabilities
Unallocated liabilities3
Total liabilities
Net assets
Other segment information:
Capital expenditure
Depreciation and amortisation
Pub Company
£m
Pub Partners
£m
Brewing & Brands
£m
Corporate
£m
Total operations
£m
1,799.2
190.1
227.6
1,000.6
720.8
1,721.4
77.8
77.8
365.8
272.9
130.5
–
130.5
59.6
59.6
97.2
87.1
227.6
–
227.6
–
–
33.2
27.4
–
–
–
–
–
–
(14.2)
(19.2)
3,643.1
863.9
395.5
53.7
3,643.1
(382.0)
–
(382.0)
3,261.1
123.9
(92.9)
863.9
(44.6)
–
(44.6)
819.3
18.9
(10.1)
395.5
(94.0)
–
(94.0)
301.5
7.9
(5.8)
53.7
(156.3)
–
(156.3)
(102.6)
5.0
(5.0)
2,216.9
1,358.7
720.8
2,079.5
137.4
137.4
482.0
368.2
(53.5)
(141.9)
(52.4)
120.4
4,956.2
227.2
5,183.4
(676.9)
(2,398.6)
(3,075.5)
2,107.9
155.7
(113.8)
Overview | Strategic Report | Corporate Governance | Financial Statements 128
3 SEGMENT INFORMATION CONTINUED
2018
Revenue
Analysed as follows:
Goods
– Drink
– Food
Services
– Other services1
EBITDA2
Segment operating profit
Exceptional and non–underlying operating costs
Net finance costs
Income tax charge4
Net profit for the period
Balance sheet
Segment assets
Unallocated assets3
Total assets
Segment liabilities
Unallocated liabilities3
Total liabilities
Net assets
Other segment information:
Capital expenditure
Depreciation and amortisation
Pub Company
£m
Pub Partners
£m
Brewing & Brands
£m
Corporate
£m
1,767.7
193.9
215.1
954.1
730.5
1,684.6
83.1
83.1
362.9
268.2
133.3
–
133.3
60.6
60.6
101.3
91.4
215.1
–
215.1
–
–
36.0
30.7
–
–
–
–
–
–
(13.6)
(17.2)
3,703.9
884.6
395.1
39.8
3,703.9
(392.1)
–
(392.1)
3,311.8
158.0
(94.7)
884.6
(45.3)
–
(45.3)
839.3
23.9
(9.9)
395.1
(101.4)
–
(101.4)
293.7
6.8
(5.3)
39.8
(157.5)
–
(157.5)
(117.7)
3.7
(3.6)
Total operations
(restated4)
£m
2,176.7
1,302.5
730.5
2,033.0
143.7
143.7
486.6
373.1
(56.1)
(119.5)
(14.2)
183.3
5,023.4
214.0
5,237.4
(696.3)
(2,468.0)
(3,164.3)
2,073.1
192.4
(113.5)
1. Other services include accommodation, rental and machine income.
2.
EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items and is calculated as operating profit before exceptional and non-underlying items
adjusted for the depreciation and amortisation charge for the period.
3. Unallocated assets/liabilities comprise cash, borrowings, pensions, net deferred tax, net current tax, derivatives and indirect tax provisions.
4. Exceptional and non-underlying tax has been restated.
Revenue from services includes rent receivable from licensed properties of £53.2m (2018: £53.6m).
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 the
group’s management and reporting systems. Included within the corporate column in the table above are functions managed by a central division.
No information about geographical regions has been provided as the group’s activities are predominantly domestic.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 129
4 OPERATING COSTS
Operating profit is stated after charging/(crediting):
Cost of products sold recognised as an expense
Employment costs (note 6)
Depreciation of property, plant and equipment (note 14)
Amortisation (note 13)
Operating lease rentals:
– Minimum lease rentals payable
Other operating charges
Net profit on disposal (note 5)
Fees earned by the auditor during the year consisted of:
Audit of the consolidated financial statements
Audit of subsidiaries
Non-audit services – other assurance
Included in other operating charges
2019
2018
Before
exceptional
and non-
underlying
items
£m
Exceptional
and non-
underlying
items
£m
769.8
581.9
105.6
8.2
69.1
314.1
–
1,848.7
–
4.0
–
–
–
66.5
(17.0)
53.5
Before
exceptional
and non-
underlying
items
£m
Exceptional
and non-
underlying
items
£m
743.0
584.7
103.7
9.8
70.0
292.4
–
–
2.5
–
–
–
86.6
(33.0)
Total
£m
769.8
585.9
105.6
8.2
69.1
380.6
(17.0)
Total
£m
743.0
587.2
103.7
9.8
70.0
379.0
(33.0)
1,902.2
1,803.6
56.1
1,859.7
2019
£m
0.5
0.1
0.1
0.7
2018
£m
0.4
0.1
0.1
0.6
Overview | Strategic Report | Corporate Governance | Financial Statements 130
5 EXCEPTIONAL AND NON-UNDERLYING ITEMS
Included in operating profit
Integration costs
Employee costs and other legal and professional fees
Net impairment of property, plant and equipment and
intangible assets (notes 13 and 14)
Insurance proceeds
Net increase in property lease provisions (note 24)
Net profit on disposal of property, plant and equipment
and goodwill
Defined benefit obligations
2019
Non-
underlying
items
£m
Exceptional
items
£m
–
–
(56.7)
–
–
–
(4.9)
(61.6)
–
(6.6)
–
0.6
(4.4)
17.0
1.5
8.1
Total
£m
–
(6.6)
(56.7)
0.6
(4.4)
17.0
(3.4)
(53.5)
Included in financing costs
(Loss)/ gain on settlement of financial liabilities
(4.1)
–
(4.1)
Amounts recycled from hedging reserve in respect
of settled interest rate liabilities
Fair value movements of derivatives held at fair value
through profit and loss
Interest in respect of uncertain tax positions
Total exceptional and non-underlying items before tax
(71.5)
Tax impact of exceptional items
Tax impact of uncertain tax positions
Tax impact of non-underlying items
Tax credit in respect of changes in accounting estimate
in relation to the licensed estate
Tax charge in respect of rate change
Adjustment in respect of prior periods
Total exceptional and non-underlying tax
Total exceptional and non-underlying items after tax
3.4
(4.1)
–
–
–
(11.5)
(12.2)
(83.7)
–
(10.7)
(10.7)
(5.4)
(0.4)
(9.9)
–
–
(10.7)
(2.6)
–
–
5.5
–
(0.9)
2.3
6.9
4.3
(5.4)
(0.4)
(20.6)
(74.1)
3.4
(4.1)
5.5
–
(0.9)
(9.2)
(5.3)
2018
Non-
underlying
items
£m
(restated)
Exceptional
items
£m
(restated)
Total
£m
(restated)
(3.7)
–
(70.4)
–
–
–
–
(74.1)
3.0
–
19.2
–
22.2
(51.9)
8.2
–
–
14.0
–
(0.4)
21.8
–
(3.5)
–
1.8
(13.3)
33.0
–
18.0
(3.7)
(3.5)
(70.4)
1.8
(13.3)
33.0
–
(56.1)
–
3.0
(11.6)
(11.6)
–
–
(11.6)
6.4
–
–
2.9
–
–
9.7
12.6
19.0
19.2
–
10.6
(45.5)
8.2
–
2.9
14.0
–
9.3
34.4
(11.1)
(79.4)
(30.1)
Exceptional operating costs
Integration costs are items of one-off expenditure, including legal and professional fees, the costs of dedicated integration project teams and
redundancy costs incurred in connection with the integration of Spirit Pub Company, which was finalised in the prior year.
During the period to 28 April 2019 the group has recognised a net impairment loss of £56.7m (2018: £70.4m). This is comprised of an impairment
charge relating to properties of £90.1m (2018: £76.1m) and reversal of previously recognised impairment losses of £35.1m (2018: £12.8m).
In addition an impairment charge of £1.7m (2018: £7.1m) was recognised in relation to intangible assets during the year.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 131
Of the impairment on properties, £33.6m impairment has been recognised in respect of a small number of pubs and is driven by changes in the
local competitive and trading environment at the respective sites, and £20.6m due to a decision taken to exit some sites during the financial year.
Impairment reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future cash
flows for previously impaired sites or increases to fair value less costs of disposal.
The impairment charge includes £0.2m in respect of properties damaged by fire in the year, and £0.6m for decontamination of a toxic nerve agent
at the Salisbury Mill pub.
On 26 October 2018, the High Court issued a judgment in a claim involving Lloyds Banking Group’s defined benefit pension schemes. This
judgment concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension
benefits. The group has worked with the trustees of the schemes and independent actuaries and estimated the cost of equalising benefits at £4.9m.
This cost has been recognised in the consolidated income statement as an exceptional item in the 52 weeks ended 28 April 2019 (2018: n/a).
Further work will be carried out with the trustees to determine the exact impact and any subsequent changes to this amount in future periods will
be treated as a change in actuarial assumption, and as such will be recognised in other comprehensive income.
Non-underlying operating costs
During the period to 28 April 2019 the group incurred £6.2m (2018: £1.6m) of non-underlying employee related costs, which includes one off
additional defined contribution pensions payments as well as a material restructuring cost associated with changes to management. These costs
are associated with a head office and field team restructure to better align the Pub Company support centre and management structures to the
simplified brand portfolio and to develop a more efficient organisation. A further £0.4m (2018: £1.9m) of non-underlying legal and professional
fees have been incurred in relation to group refinancing activities and defending uncertain tax positions.
A charge of £4.4m (2018: £13.3m) has been incurred to increase the property lease provisions relating to onerous lease contracts.
The net profit on disposal of property, plant and equipment and goodwill of £17.0m (2018: £33.0m) comprises a total profit on disposal of
£42.0m (2018: £62.5m) and a total loss on disposal of £25.0m (2018: £29.5m).
The pension and post-employment liabilities settlement gain relates to a past service credit, net of fees of £1.5m (2018: £nil), recognised for the
Greene King Pension scheme as a result of a Pension Increase Exchange exercise. Members who chose to take up their offers will receive no future
increases to their pre-1997 pension in payment (excluding GMP pensions), in exchange for an immediate one-off increase in their current pension.
In the year the group received insurance compensation of £0.6m (2018: £1.8m) to meet the costs of restoring sites damaged by fire, flood or
external contamination in a previous year.
Exceptional finance costs
During the period to 28 April 2019 the group settled financial liabilities in relation to the Spirit secured financing vehicle, recognising a net loss
of £4.1m. In June 2018 £62.3m (30%) of the Spirit A4 secured bond was repaid and in September 2018 a further £51.9m (25%) of the Spirit A4
secured bond was repaid. In December 2018 the group, in an open-market transaction, purchased and subsequently cancelled £61.8m (39%) of
the Spirit A5 secured bond. Exceptional gains or losses recognised in respect of these transactions amount to the difference between the carrying
value of the repaid or cancelled bonds (comprising the nominal value and a fair value premium) and the settlement amount paid (comprising the
sum of the nominal value and a prepayment penalty in the case of the A4 bonds, and the clean purchase price paid in the case of the A5 bonds).
During the prior period a net exceptional gain of £3.0m was recognised in respect of the termination of a financial guarantee provided by Ambac,
the full repayment of the A1, A3, A6, and A7 Spirit secured bonds at their par value of £216.9m, and the termination of two interest rate swap
contracts in connection with the repayment of these bonds.
In a prior year the group acquired as part of a business combination derivatives which have subsequently been accounted for at fair value through
profit and loss as they were deemed at acquisition not to qualify for hedge accounting. An exceptional loss of £5.4m (2018: gain of £19.2m) relates
to the mark-to-market movement on these derivatives, excluding amortisation of fair value on acquisition which reduces the pre-exceptional
finance costs that include interest paid (note 23). Mark-to-market movements are considered to be exceptional owing to their volatility and are
shown separately to ensure pre-exceptional finance costs are more readily comparable each year. Fair value amortisation is deemed to be a pre-
exceptional item as it adjusts swap interest to a market rate.
Non-underlying finance costs
In previous periods, the group settled a number of its swap liabilities that were hedging cash flows relating to the Greene King A5 bond and
floating rate bank loans.
These cash flows are still expected to occur and therefore in accordance with IAS 39 the cumulative losses taken to the hedging reserve will be
recycled to the income statement over the same period during which the hedged forecast cash flows affect profit or loss. A non-underlying charge
of £10.7m (2018: £11.6m) has been recognised in respect of this during the year.
Overview | Strategic Report | Corporate Governance | Financial Statements 132
5 EXCEPTIONAL AND NON-UNDERLYING ITEMS CONTINUED
Exceptional tax
On 29 March 2019 HMRC issued closure notices regarding the single remaining corporation tax enquiry regarding tax deductions claimed on
capitalised revenue expenditure. The group has recognised a £4.1m exceptional tax charge and associated interest in the period given the increased
likelihood of exposure following receipt of closure notices. This resulted in no cash tax impact for the year ended 28 April 2019.
On 16 October 2017 agreement was reached with HMRC regarding an internal property arrangement, a material unresolved historical tax
position. As a result the group settled corporation tax of £9.4m and interest of £2.1m during the prior period.
The £14.0m deferred tax in respect of the licensed estate in the prior period arose due to management’s revision of its estimate of the residual
value of buildings from 80% to 85%.
The adjustment in respect of prior years’ tax arises from finalising the tax returns for earlier periods and movements on the licensed estate.
Non-underlying tax
The tax credit in respect of the licensed estate in the prior year arises from movements in its tax base cost and indexation.
The Finance Act 2016 reduced the rate of corporation tax from 19% to 17% from 1 April 2020. The rate reduction was substantively enacted at
the balance sheet date and is therefore included in these accounts. The net deferred tax asset has been calculated using the rates at which each
temporary difference is expected to reverse.
The adjustment in respect of prior years’ tax arises from finalising the tax returns for earlier periods and movements on the licensed estate.
6 EMPLOYMENT COSTS
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
and non-
underlying
items
£m
2019
Exceptional
and non-
underlying
items
£m
535.6
2.0
537.6
36.5
7.8
581.9
2.6
–
2.6
0.2
1.2
4.0
Before
exceptional
and non-
underlying
items
£m
2018
Exceptional
and non-
underlying
items
£m
538.8
1.8
540.6
36.9
7.2
584.7
2.2
–
2.2
0.3
–
2.5
Total
£m
538.2
2.0
540.2
36.7
9.0
585.9
Total
£m
541.0
1.8
542.8
37.2
7.2
587.2
The total expense of share-based payments relates to equity-settled schemes.
The average number of employees during the period was as follows:
Pub Company
Pub Partners
Brewing & Brands
Corporate
The figures above include 25,670 (2018: 24,751) part-time employees.
Details of directors’ emoluments are shown in the directors’ remuneration report on pages 84 to 87.
2019
2018
37,243
37,417
63
838
750
62
862
827
38,894
39,168
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 133
7 FINANCE (COSTS) / INCOME
Bank loans and overdrafts
Other loans
Derivatives held at fair value
through profit and loss
Settlement of financial liabilities
Amounts recycled from hedging reserve in
respect of settled interest rate liabilities
Interest in respect of tax positions and
adjustments
Unwinding of discount element of provisions
and off-market contract liabilities
Net finance cost from pensions
Total finance costs
Bank interest receivable
Net finance income from pensions
Total finance income
Before
exceptional
and non-
underlying
items
£m
(12.2)
(97.3)
–
–
–
2019
Exceptional
and non-
underlying
items
£m
–
–
(5.4)
(4.1)
Total
£m
(12.2)
(97.3)
(5.4)
(4.1)
(10.7)
(10.7)
Before
exceptional
and non-
underlying
items
£m
(6.4)
(110.5)
–
–
–
(0.9)
(0.4)
(1.3)
(0.9)
(12.0)
–
(122.4)
0.7
0.4
1.1
–
–
(20.6)
–
–
–
(12.0)
–
(143.0)
0.7
0.4
1.1
(13.0)
(0.3)
(131.1)
1.0
–
1.0
2018
Exceptional
and non-
underlying
items
£m
–
–
19.2
3.0
Total
£m
(6.4)
(110.5)
19.2
3.0
(11.6)
(11.6)
–
–
–
10.6
–
–
–
(0.9)
(13.0)
(0.3)
(120.5)
1.0
–
1.0
Net finance costs
(121.3)
(20.6)
(141.9)
(130.1)
10.6
(119.5)
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).
The general terms of the LTIP/growth LTIP are detailed in the directors’ remuneration report on pages 75 to 91. All are equity settled.
The total charge recognised for the period arising from share-based payment transactions including National Insurance contributions is £2.0m
(2018: £1.8m). A corresponding credit of £2.0m (2018: £1.3m) has been recognised in equity.
The fair value of the LTIP/growth LTIP issued since 2015 is considered to be equal to the share price on the date of issue. For the awards granted
in 2019 the fair value was between 492p and 538p (2018: 558p and 573p) per share option.
Future dividend payments have not been factored into the valuation as participants are entitled to dividend payments.
The fair value of other equity-settled options are 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 year were as follows:
Weighted average share price
Exercise price
Expected dividend yield
Risk-free rate of return
Expected volatility
Expected life (years)
Weighted average fair value of grants in the year
2019 SAYE
2018 SAYE
610p
436p
4.7%
0.8%
28.2%
3.3
152p
524p
463p
6.1%
0.8%
25.0%
3.3
68p
Overview | Strategic Report | Corporate Governance | Financial Statements 134
8 SHARE-BASED PAYMENT PLANS CONTINUED
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. 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.
Movement in outstanding options and rights during the year are as follows:
Number of options
Weighted average exercise price
SAYE
Outstanding at the beginning of the year
Granted
Forfeited
Exercised
Outstanding at the end of the year
Exercisable at the end of the year
LTIP
Outstanding at the beginning of the year
Granted
Forfeited
Outstanding at the end of the year
Exercisable at the end of the year
2019
m
3.0
1.2
(1.3)
–
2.9
0.2
2018
m
2.8
1.7
(1.4)
(0.1)
3.0
0.5
2019
p
529
436
542
519
484
694
Number of shares
2019
m
2.3
1.2
(1.0)
2.5
–
2018
p
610
463
608
583
529
588
2018
m
2.3
1.2
(1.2)
2.3
–
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 year, and granted, forfeited and exercised during the year is £nil (2018: £nil).
SAYE and LTIP
Options were exercised on a range of dates. The weighted average share price through the period was 556p in 2019 and 580p in 2018.
The rights outstanding at 28 April 2019 under the LTIP had an exercise price of £nil (2018: £nil) and a weighted average remaining contractual life
of 1.6 years (2018: 1.6 years).
The outstanding options for the SAYE scheme had an exercise price of between 436p and 726p (2018: 463p and 726p) and the weighted average
remaining contractual life was 3.3 years (2018: 3.3 years).
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 135
9 PENSIONS
Defined contribution pension schemes
The group maintains three defined contribution schemes, which are open to all new employees.
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 year was £9.0m (2018: £7.2m).
Defined benefit pension schemes and post-employment benefits
The group maintains two defined benefit schemes: the Greene King Pension Scheme and the Spirit (Legacy) Pension Scheme which are closed to
new entrants and are closed to future accrual.
Only administrative costs and deficit recovery contributions are incurred going forward. The triennial reviews for both the Greene King and Spirit
pension schemes have now been finalised.
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 consumer price index, the pension schemes are exposed to inflation, interest rate risks
and changes in the life expectancy for pensioners. As the schemes’ assets include significant investments in quoted equity shares of entities in
the manufacturing and consumer products sectors, the group is also exposed to equity market risk arising in the manufacturing and consumer
products sector.
The majority of the bonds relate to UK government and corporate bonds.
Net interest on net defined liability:
Interest on pension scheme assets
Interest on scheme liabilities
Net interest on net defined benefit asset/(liability)
Pension schemes
2019
2018
Greene King
£m
10.0
(9.9)
0.1
Spirit
£m
13.5
(13.2)
0.3
Total
£m
23.5
(23.1)
0.4
Greene King
£m
9.6
(10.3)
(0.7)
Spirit
£m
14.3
(13.9)
0.4
Total
£m
23.9
(24.2)
(0.3)
The values of the schemes’ liabilities have been determined by a qualified actuary based on the results of the last actuarial valuation, updated to
28 April 2019 using the following principal actuarial assumptions:
2019
2018
Greene King
Spirit
Greene King
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
2.5%
3.1%
3.3%
2.2%
23.2
25.3
21.5
23.4
2.5%
3.1%
3.3%
2.2%
23.2
25.3
21.5
23.4
2.8%
3.0%
3.1%
2.0%
23.7
25.8
21.9
23.8
Spirit
2.8%
3.0%
3.1%
2.0%
23.7
25.8
21.9
23.8
Mortality assumptions are based on standard tables adjusted for scheme experience and with an allowance for future improvement in life expectancy.
Overview | Strategic Report | Corporate Governance | Financial Statements 136
9 PENSIONS CONTINUED
The table below shows the investment allocation of pension assets against the related liabilities of the pension schemes:
Investment quoted in active markets
Equities
Bonds
Property
Annuities
Unquoted investments
Annuities insurance contracts
Cash
Total fair value of assets
Present value of scheme liabilities:
Funded plans
Non-current (liability)/asset recognised
Greene King
£m
2019
Spirit
£m
Total
£m
Greene King
£m
2018
Spirit
£m
217.2
129.8
–
–
4.1
10.7
361.8
(363.1)
(1.3)
114.0
310.2
37.1
–
41.1
1.2
503.6
(471.2)
32.4
331.2
440.0
37.1
–
45.2
11.9
865.4
(834.3)
31.1
298.5
65.5
–
1.3
–
2.0
367.3
(365.8)
1.5
103.5
287.6
53.4
–
45.5
1.9
491.9
(479.8)
12.1
Total
£m
402.0
353.1
53.4
1.3
45.5
3.9
859.2
(845.6)
13.6
£217.5m (2018: £139.3m) of the bonds shown in the table above are liability-driven investments designed to match the change in value of the
schemes’ liabilities.
During the prior year the Spirit scheme entered into a buy-in policy that provides insurance for a proportion of its pensioner population.
The value of the buy-in policy on an IAS 19 accounting basis matches the value of the underlying pension obligations.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 137
The movements in the pension schemes’ assets/(liabilities) during the year are as follows:
Post-employment assets/(liabilities) at 30 April 2017
363.3
524.7
(391.3)
(507.9)
(11.2)
Pension assets
Pension liabilities
Greene King
£m
Spirit
£m
Greene King
£m
Spirit
£m
Net pension
(liability)/
asset
£m
Pension interest income/(costs) recognised in the income statement
Benefits paid
Remeasurement gains/(losses) in other comprehensive income:
9.6
(17.3)
14.3
(24.0)
(10.3)
17.3
(13.9)
24.0
Return on plan assets (excluding amounts included in net interest expenses)
8.1
(23.1)
Actuarial changes arising from changes in demographic assumptions
Actuarial changes arising from changes in financial assumptions
Experience adjustments
Contributions paid – employers
–
–
–
3.6
–
–
–
–
–
2.2
16.3
–
–
–
2.9
15.1
–
–
Post-employment assets/(liabilities) at 29 April 2018
367.3
491.9
(365.8)
(479.8)
Pension interest income/(costs) recognised in the income statement
Benefits paid
Past service cost
10.0
(26.4)
–
13.5
(22.0)
–
Remeasurement gains/(losses) in other comprehensive income:
Return on plan assets (excluding amounts included in net interest expenses)
7.6
20.2
Actuarial changes arising from changes in demographic assumptions
Actuarial changes arising from changes in financial assumptions
Experience adjustments
Contributions paid – employers
–
–
–
3.3
–
–
–
–
(9.9)
26.4
(0.4)
–
8.5
(25.5)
3.6
–
(13.2)
22.0
(2.8)
–
3.6
(22.5)
21.5
–
Post-employment assets/(liabilities) at 28 April 2019
361.8
503.6
(363.1)
(471.2)
Presented in the balance sheet as follows:
Post-employment assets
Post-employment liabilities
2019
£m
32.4
(1.3)
31.1
(0.3)
–
(15.0)
5.1
31.4
–
3.6
13.6
0.4
–
(3.2)
27.8
12.1
(48.0)
25.1
3.3
31.1
2018
£m
13.6
–
13.6
The past service cost for the Greene King scheme comprises a cost of £2.1m for GMP equalisation following the High Court judgment on this
issue in relation to the Lloyds Banking Group’s defined benefit pension schemes, and an offsetting credit of £1.7m relating to a Pension Increase
Exchange exercise performed over the year. The past service cost for the Spirit scheme is in relation to GMP equalisation.
Overview | Strategic Report | Corporate Governance | Financial Statements 138
9 PENSIONS CONTINUED
The sensitivities regarding the principal assumptions assessed in isolation that have been 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
Decrease/(increase) in liability
2019
£m
34.0
(27.8)
(35.2)
2018
£m
38.1
(29.9)
(34.4)
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
2019
£m
3.3
13.3
3.0
19.6
The average duration of the defined benefit scheme’s obligations at the end of the reporting year is 16–17 years (2018: 17–18 years).
10 TAXATION
2019
2018
Consolidated income statement
Income tax
Corporation tax before exceptional and non-underlying items
Recoverable on exceptional and non-underlying 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/(credit) in the income statement
Before
exceptional
and non-
underlying
items
£m
Exceptional
and non-
underlying
items
£m
41.9
–
41.9
–
41.9
5.2
–
–
5.2
47.1
–
(5.0)
(5.0)
7.5
2.5
0.2
1.7
0.9
2.8
5.3
Before
exceptional
and non-
underlying
items
£m
Exceptional
and non-
underlying
items
£m
38.7
–
38.7
–
38.7
9.9
–
–
9.9
–
(9.9)
(9.9)
(6.5)
(16.4)
(15.2)
(2.8)
–
(18.0)
Total
£m
41.9
(5.0)
36.9
7.5
44.4
5.4
1.7
0.9
8.0
2018
£m
3.3
13.1
6.4
22.8
Total
£m
38.7
(9.9)
28.8
(6.5)
22.3
(5.3)
(2.8)
–
(8.1)
52.4
48.6
(34.4)
14.2
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 Group statement of comprehensive income
Deferred tax
Remeasurement gains on defined benefit pension schemes
Net (loss)/gain on revaluation on cash flow hedges
Total tax
Group statement of changes in equity
Deferred tax
Share-based payment – future taxable benefit
Deferred tax reported in equity
Income tax
Share-based payments – current taxable benefit
Total tax reported in equity
Reconciliation of income tax expense for the year
The effective rate of taxation is higher (2018: 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 of 19.0% (2018: 19.0%)
Adjusted for the effects of:
Recurring items:
Expenditure not allowable for tax purposes
Current tax – uncertain tax provision
Impact of deferred tax in respect of licensed estate
Impact of deferred tax being at different rate to income tax
Impact of change in tax rate on deferred tax balances
Adjustment in respect of prior years – income tax
Adjustment in respect of prior years – deferred tax
Non-recurring items:
Impact of deferred tax in respect of changes in accounting estimate in relation to the licensed estate
Income tax expense reported in the income statement
139
2018
£m
3.6
7.0
10.6
2018
£m
0.3
0.3
(0.3)
–
2018
£m
197.5
37.5
(3.8)
–
4.6
(0.8)
–
(6.5)
(2.8)
(14.0)
14.2
2019
£m
2.9
(0.6)
2.3
2019
£m
0.3
0.3
–
0.3
2019
£m
172.8
32.8
2.4
4.1
3.0
(0.6)
1.5
7.5
1.7
–
52.4
Income tax payable
The group’s current tax position of £13.2m (2018: £10.2m receivable) reflects the amount of tax payable on open tax computations, and expected
liabilities in respect of uncertain tax positions of £4.1m (2018: £nil) which has been recognised in the income statement in the period in respect of
tax deductions claimed on capitalised revenue expenditure.
There are no income tax consequences attaching to the payment of dividends by Greene King plc to its shareholders.
Overview | Strategic Report | Corporate Governance | Financial Statements 140
10 TAXATION CONTINUED
Deferred tax
The deferred tax included in the balance sheet is as follows:
Deferred tax assets
At 30 April 2017
Reclass from other temporary differences
Credit to equity/comprehensive income
Charge to the income statement
Transfer from deferred tax liabilities
At 29 April 2018
Charge to equity/comprehensive income
Charge/(credit) to the income statement
At 28 April 2019
Post-
employment
liabilities
£m
Derivatives
(restated)
£m
Share-based
payments
£m
2.0
67.4
0.1
(3.6)
(0.6)
2.2
–
–
–
–
(7.0)
(11.8)
–
48.6
0.6
(5.1)
44.1
(0.3)
0.3
–
0.1
(0.3)
0.3
0.1
Off-market
contract
liabilities
(restated)
£m
Other
temporary
differences
(restated)
£m
Trading
losses carried
forward
£m
Total
(restated)
£m
22.9
(15.3)
–
(3.7)
–
3.9
–
(1.7)
2.2
10.0
1.0
–
(0.5)
3.4
12.9
–
(7.1)
5.8
–
–
–
1.0
–
(0.7)
0.3
103.4
(15.3)
(10.9)
(16.3)
5.6
66.5
0.3
(14.3)
52.5
Deferred tax liabilities
At 30 April 2017
Reclass to off-market contract liabilities
Charge to the income statement
Transfer to deferred tax assets
At 29 April 2018
Charge/(credit) to the income statement
Credit to equity/comprehensive income
At 28 April 2019
Post-
employment
assets
£m
Accelerated
capital
allowances
(restated)
£m
Operating
lease
intangibles
£m
Other
temporary
differences
£m
Total
(restated)
£m
–
–
(2.2)
(2.2)
(0.1)
(2.9)
(5.2)
(40.6)
(25.4)
15.7
–
(24.9)
4.4
–
(20.5)
6.1
–
(19.3)
2.0
–
(17.3)
(14.5)
15.3
2.6
(3.4)
–
–
–
–
(80.5)
15.3
24.4
(5.6)
(46.4)
6.3
(2.9)
(43.0)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset income tax assets and income tax liabilities and when
it is the intention to settle the balances on a net basis. Deferred tax assets and liabilities have therefore been offset and disclosed on the balance
sheet as follows:
Deferred tax liability
Deferred tax asset
Net deferred tax asset
28 April 2019
£m
29 April 2018
(restated)
£m
–
9.5
9.5
–
20.1
20.1
At 28 April 2019, the group had unused trading losses of £1.5m (2018 : £5.3m) and unused capital losses of £827.6m (2018: £805.9m). A deferred
tax asset of £0.3m (2018: £1.0m) has been recognised in respect of trading losses and no deferred tax asset (2018: £nil) in respect of capital losses
where tax losses are expected to be utilised against future profits and gains. Current legislation allows all of the group’s tax losses to be carried
forward for an unlimited period.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 141
Factors that may affect future tax charges
The Finance Act 2016 reduced the rate of corporation tax from 19% to 17% from 1 April 2020. The rate was enacted at the balance sheet date
and is therefore included in these accounts.
The net deferred tax asset has been calculated using the rates at which each temporary difference is expected to reverse.
The effect of these rate reductions is to reduce the deferred tax asset by a net £1.5m comprising a debit to the income statement of £1.5m.
There is no impact in the statement of comprehensive income or to the group statement of changes in equity.
11 DIVIDENDS PAID AND PROPOSED
Declared and paid in the period
Interim dividend for 2019: 8.8p (2018: 8.8p)
Final dividend for 2018: 24.4p (2017: 24.4p)
Proposed for approval at AGM
Final dividend for 2019: 24.4p (2018: 24.4p)
Total paid and proposed dividend for 2019: 33.2p (2018: 33.2p)
Dividends on own shares have been waived.
12 EARNINGS PER SHARE
2019
£m
27.3
75.6
102.9
75.6
102.9
2018
£m
27.3
75.6
102.9
75.6
102.9
Basic earnings per share has been calculated by dividing the profit attributable to equity holders of £120.4m (2018: £183.3m) by the weighted
average number of shares in issue during the period of 309.9m (2018: 309.9m).
Diluted earnings per share has been calculated on a similar basis taking account of 0.6m (2018: 0.5m) dilutive potential shares under option, giving
a weighted average number of ordinary shares adjusted for the effect of dilution of 310.5m (2018: 310.4m). There were nil (2018: nil) anti-dilutive
share options excluded from the diluted earnings per share calculation.
The performance conditions for share options granted over 2.7m (2018: 2.7m) 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 year end has not been included in the diluted earnings
per share calculation.
Adjusted earnings per share excludes the effect of exceptional and non-underlying items and is presented to show the underlying performance of
the group on both a basic and diluted basis.
Adjusted earnings per share
Profit attributable to equity holders
Exceptional and non-underlying items
Profit attributable to equity holders before
exceptional and non-underlying items
Earnings
Basic earnings per share
Diluted earnings per share
2019
£m
120.4
79.4
2018
(restated)
£m
183.3
11.1
2019
p
38.9
25.6
2018
(restated)
p
59.1
3.6
2019
p
38.7
25.6
2018
(restated)
p
58.9
3.7
199.8
194.4
64.5
62.7
64.3
62.6
Overview | Strategic Report | Corporate Governance | Financial Statements
142
13 GOODWILL AND OTHER INTANGIBLE ASSETS
Brand
intangibles
£m
Operating lease
intangibles
£m
Total other
intangibles
£m
Goodwill
(restated)
£m
Cost
At 30 April 2017 (restated)
Disposal
At 29 April 2018
Disposal
At 28 April 2019
Impairment and amortisation
At 30 April 2017
Amortisation
Impairment (note 5)
Disposal
At 29 April 2018
Amortisation
Impairment (note 5)
Disposal
At 28 April 2019
Net book value
At 28 April 2019
At 29 April 2018
At 30 April 2017
16.1
–
16.1
–
16.1
(2.0)
(1.1)
(1.7)
–
(4.8)
(0.9)
–
–
(5.7)
10.4
11.3
14.1
167.0
(26.5)
140.5
(3.1)
137.4
(17.4)
(8.7)
(5.4)
4.4
(27.1)
(7.3)
(1.7)
0.5
(35.6)
101.8
113.4
149.6
183.1
(26.5)
156.6
(3.1)
153.5
(19.4)
(9.8)
(7.1)
4.4
(31.9)
(8.2)
(1.7)
0.5
(41.3)
112.2
124.7
163.7
1,134.6
(19.1)
1,115.5
(10.8)
1,104.7
–
–
–
–
–
–
–
–
–
1,104.7
1,115.5
1,134.6
Due to a restatement of deferred tax, goodwill recognised as at 30 April 2017 has been increased by £25.8m to £1,134.6m.
Other intangibles consists of brand intangibles and operating lease intangibles both recognised as part of business combinations.
Brand intangibles are amortised over the expected life of the asset, and have a remaining useful life of 11 years. The recoverable amount for
assets impaired were based on value in use.
Operating lease intangibles are amortised on a straight-line basis over the length of the lease. The recoverable amount for assets impaired was
based on a combination of value in use or fair value less cost of disposal.
The impairment charge is made up of the following segments: Pub Company (£1.4m) and Pub Partners (£0.3m).
All goodwill was recognised as part of business combinations.
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.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 The carrying amount of goodwill is allocated as follows:
Pub Company
Pub Partners
Brewing & Brands
Goodwill disposed of in the year
Pub Company
Pub Partners
143
2019
£m
687.9
181.9
234.9
2018
£m
692.3
188.3
234.9
1,104.7
1,115.5
2019
£m
4.4
6.4
10.8
2018
£m
14.5
4.6
19.1
Goodwill impairment testing
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, which is based on the group’s latest three year strategic plan, reflecting a growth rate of 1.04% in Pub Company (2018: 1.15%),
1.40% in Pub Partners (2018: 1.09%) and nil% in Brewing & Brands (2018: 1.00%) has been used to extrapolate cash flows. The growth rate is
below the long-term average growth rate for the operating segments and reflects anticipated trends in future trading performance.
Cash flows are discounted at 7.50% (2018: 7.50%) which is used as an approximation for the risk-adjusted discount rate of the relevant operating
segment. The discount rate has been based on external valuations. As risk factors are considered to be similar in each of the group’s operating
segments the same level of discount rate is applied to all.
Sensitivity to changes in assumptions
The goodwill valuation 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 pre-tax discount rate 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 in
isolation, a 1% increase in discount rate would reduce the estimated recoverable amount by £39.4m, resulting in a £6.2m (2018: £nil) impairment
to the goodwill allocated to Brewing & Brands, with a carrying value equalling the recoverable amount at a discount rate of 8.3%. An impairment
charge would have also resulted based on a reduction in growth rate of 1% point or a 10% reduction in budgeted cash flow of £3.4m (2018: £nil),
and £4.0m (2018: £nil) respectively. Neither a 1% reduction in growth rate, a 10% reduction in budgeted cash flow, nor a 1% increase in the pre-
tax discount rate would have resulted in an impairment of goodwill allocated to Pub Company and Pub Partners in the year.
Overview | Strategic Report | Corporate Governance | Financial Statements 144
14 PROPERTY, PLANT AND EQUIPMENT
Cost
At 30 April 2017
Additions during year
Transfer to property, plant and equipment held for sale
Disposals during year
Reclassification
At 29 April 2018
Additions during year
Transfer to property, plant and equipment held for sale
Disposals during year
At 28 April 2019
Depreciation and impairment
At 30 April 2017
Provided during the year
Written back on disposals
Impairment (see below)
Impairment reversal (see below)
Transfer to property, plant and equipment held for sale
Reclassification
At 29 April 2018
Provided during the year
Written back on disposals
Impairment (see below)
Impairment reversal (see below)
Transfer to property, plant and equipment held for sale
At 28 April 2019
Net book value
At 28 April 2019
At 29 April 2018
At 30 April 2017
Licensed estate
Other
Land and
buildings
£m
Plant and
equipment
£m
Land and
buildings
£m
Plant and
equipment
£m
Total
£m
3,455.5
74.2
(36.3)
(58.6)
(118.6)
3,316.2
42.5
(11.5)
(45.4)
974.0
107.8
(11.6)
(14.7)
(82.8)
972.7
84.6
(2.0)
(12.8)
3,301.8
1,042.5
268.3
13.5
(18.0)
64.0
(11.7)
(28.8)
(60.4)
226.9
13.8
(11.7)
75.5
(30.2)
(5.5)
268.8
3,033.0
3,089.3
3,187.2
641.3
81.3
(8.5)
11.7
(1.1)
(10.7)
(147.2)
566.8
80.9
(8.0)
13.2
(4.2)
(1.6)
647.1
395.4
405.9
332.7
71.9
1.7
(0.2)
(5.0)
3.0
71.4
14.2
–
(2.6)
83.0
18.6
2.3
(2.5)
0.3
–
–
(1.1)
17.6
2.7
(0.3)
1.4
(0.6)
–
20.8
62.2
53.8
53.3
145.5
4,646.9
8.7
–
(0.2)
(12.5)
141.5
14.4
–
(0.1)
192.4
(48.1)
(78.5)
(210.9)
4,501.8
155.7
(13.5)
(60.9)
155.8
4,583.1
96.8
1,025.0
6.6
–
0.1
–
–
(2.2)
101.3
8.2
–
–
(0.1)
–
103.7
(29.0)
76.1
(12.8)
(39.5)
(210.9)
912.6
105.6
(20.0)
90.1
(35.1)
(7.1)
109.4
1,046.1
46.4
40.2
48.7
3,537.0
3,589.2
3,621.9
The licensed estate relates to properties, and assets held within those properties which are licensed to sell alcohol (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).
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 The net book value of land and buildings comprises:
Freehold properties
Leasehold properties >50 years unexpired term
Leasehold properties <50 years unexpired term
145
2019
£m
2,933.7
106.0
55.5
3,095.2
2018
£m
2,978.5
109.0
55.6
3,143.1
Review of property, plant and equipment
Following a review of fixed asset ledgers, a reclassification of asset categories with an aggregate cost (and accumulated depreciation) of £210.9m
was identified, and is reflected in the above reconciliation of movements in property, plant and equipment.
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 group net book value of £2,023.3m (2018: £1,334.1m) and £786.6m (2018: £1,008.3m) over
which there are first charges in favour of the securitised debt holders of the Greene King secured financing vehicle and the Spirit secured financing
vehicle respectively. The increase in the former amount during the year is driven by the securitisation of an additional 177 pubs in conjunction with
the issuance of an additional £250m of secured loan notes as explained in note 22. The reduction in the latter amount during the year is driven by
the internal transfer of properties in conjunction with the group’s strategy of migrating assets and debt out of the Spirit secured financing vehicle.
Assets held under finance leases
The group leases various licensed properties, offices and other commercial properties and other assets under finance leases. The leases have
various terms, escalation clauses and renewal rights. Included in property, plant and equipment above are properties held under finance leases
with a net book value of £22.2m (2018: £21.7m).
Future capital expenditure
Contracted for
2019
£m
10.0
2018
£m
13.6
Impairment of property, plant and equipment
During the period to 28 April 2019 the group has recognised a net impairment loss of £55.0m (2018: £63.3m).
This is comprised of an impairment charge of £90.1m (2018: £76.1m) and reversal of previously recognised impairment losses of £35.1m
(2018: £12.8m). The recoverable amounts for assets impaired were based on a combination of value in use or fair value less cost of disposal.
Overview | Strategic Report | Corporate Governance | Financial Statements 146
14 PROPERTY, PLANT AND EQUIPMENT CONTINUED
These are analysed between the group’s principal reporting segments as shown below:
Pub Company
Pub Partners
Corporate
2019
2018
Impairment
£m
Reversal of
impairment
£m
Net
impairment
£m
Impairment
£m
Reversal of
impairment
£m
Net
impairment
£m
73.6
14.9
1.6
90.1
(27.0)
(8.1)
–
(35.1)
46.6
6.8
1.6
55.0
61.9
13.9
0.3
76.1
(10.8)
(2.0)
–
(12.8)
51.1
11.9
0.3
63.3
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 for
assets impaired were based on a combination of value in use or fair value less cost of disposal.
The group estimates value in use using a discounted cash flow model. The key assumptions used are expected cash flow projections for the next
year, the discount rate applied to those cash flows of 7.50% (2018: 7.50%) and the projected cash flows extrapolated using an average growth rate
of 1.04% in Pub Company (2018: 1.15%) and 1.40% in Pub Partners (2018: 1.09%) which are below the long-term average growth rate for the
operating segments and reflects anticipated trends in future trading performance.
As risk factors are considered to be similar in each of the group’s operating segments the same level of discount rate is applied to all.
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 both internal and external valuations, with the latest external valuation being performed
in April 2019. 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, which 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 impairment reversals have been recognised following an improvement in trading performance and an increase in amounts of estimated future
cash flows for previously impaired sites.
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 net 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 net impairment resulting from:
Pub Company
Pub Partners
A 10% reduction in fair
value less cost of disposal:
A 1% increase in discount rate:
A 1% reduction in growth rate:
2019
£m
12.2
2.1
14.3
2018
£m
6.2
2.0
8.2
2019
£m
22.0
3.2
25.2
2018
£m
23.1
3.1
26.2
2019
£m
22.0
3.2
25.2
2018
£m
23.1
3.1
26.2
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 15 FINANCIAL ASSETS
Trade loans (net of provision)
Total current
Trade loans (net of provision)
Other financial assets
Total non-current
147
2019
£m
9.0
9.0
13.1
0.3
13.4
2018
£m
10.5
10.5
12.9
0.3
13.2
Trade loans are net of provisions of £2.1m (2018: £5.1m). During the year £3.3m (2018: £0.2m) of the provision was utilised and £0.3m (2018:
£0.2m) of new provision was created. All trade loans that are neither past due nor impaired are expected to be fully recoverable. All significant
overdue balances are fully provided for.
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 £13.2m (2018: £17.2m) and variable rate trade loans amounted to £10.9m (2018: £11.3m). Included in fixed rate loans are
£12.5m of loans with settlement related to purchase levels (2018: £16.2m). 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 0.1% (2018: 0.2%) and a weighted average period of 2.7 years (2018: 2.92 years).
Interest rates on variable rate trade loans are linked to base rate.
2019
£m
23.4
5.5
(6.5)
(0.3)
22.1
Principal
activity
Country of
incorporation
Held by
Holding
Trade loans (net of provision)
Balance at beginning of year
Advances
Repayments
Provisions
Balance at end of year
16 SUBSIDIARY UNDERTAKINGS
The subsidiary undertakings are:
Subsidiary undertakings
Directly held by Greene King plc
Greene King Developments Limited1
Greene King GP Limited1
Property
Dormant
England & Wales
England & Wales
Greene King Investments Limited1
Holding company
England & Wales
Greene King Pension Scheme Limited1
Pension trustee
England & Wales
Greene King Properties Limited1
Greene King Pubs Limited1
Property
Property
England & Wales
England & Wales
Greene King Retailing Parent Limited1
Holding company
England & Wales
Norman Limited2
Realpubs Limited1
Rushmere Sports Club Limited1
Holding company
Guernsey
Financing
Financing
England & Wales
England & Wales
Spirit Pub Company Limited1
Holding company
England & Wales
The Capital Pub Company Limited1
Holding company
England & Wales
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Parent
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
2018
£m
25.9
3.4
(5.9)
–
23.4
Proportion
of voting
rights
and
ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Overview | Strategic Report | Corporate Governance | Financial Statements 148
16 SUBSIDIARY UNDERTAKINGS CONTINUED
Principal
activity
Country of
incorporation
Held by
Holding
Proportion
of voting
rights and
ownership
Subsidiary undertakings
Indirectly held by Greene King plc
Allied Kunick Entertainments Limited1
Ashes Investment LP1
Aspect Ventures Limited1
AVL (Pubs) No.1 Limited1
AVL (Pubs) No.2 Limited1
Belhaven Brewery Company Limited3
Belhaven Finance Limited3
Belhaven Pubs Limited3
Property
Financing
England & Wales
England & Wales
Holding company
England & Wales
Holding company
England & Wales
Non-trading
England & Wales
Financing
Financing
Financing
Scotland
Scotland
Scotland
Capital Pub Company Trading Limited1
Non-trading
England & Wales
Chef & Brewer Limited1
City Limits Limited 1
Non-trading
England & Wales
Non-trading
England & Wales
Cleveland Place Holdings Limited1
Holding company
England & Wales
Cloverleaf Restaurants Limited1
Financing
England & Wales
CPH Palladium Limited1
Holding company
England & Wales
Dearg Limited1
Freshwild Limited1
Holding company
England & Wales
Holding company
England & Wales
G.K. Holdings No.1 Limited1
Holding company
England & Wales
Greene King Acquisitions (No.3) Limited1
Holding company
England & Wales
Greene King Acquisitions No.2 Limited1
Holding company
England & Wales
Greene King Brewing and Retailing Limited1
Brewing and retailing
England & Wales
Greene King Leasing No.1 Limited1
Holding company
England & Wales
Greene King Leasing No.2 Limited1
Greene King Neighbourhood Estate Pubs Limited1
Financing
Financing
England & Wales
England & Wales
Greene King Retail Services Limited1
Employment
England & Wales
Greene King Retailing Limited1
Greene King Services Limited1
Hardys & Hansons Limited1
Pub retailing
England & Wales
Employment
England & Wales
Financing
England & Wales
Huggins and Company Limited1
Non-trading
England & Wales
LFR Group Limited3
Mountloop Limited1
Narnain1
Old English Inns Limited1
Open House Limited1
Financing
Scotland
Non-trading
England & Wales
Holding company
England & Wales
Financing
England & Wales
Non-trading
England & Wales
Premium Casual Dining Limited1
Holding company
England & Wales
Premium Dining Restaurants and Pubs Limited3
Retailing
Scotland
R.V. Goodhew Limited1
Non-trading
England & Wales
Realpubs Developments Limited1
Realpubs II Limited1
Sapphire Food North East No.1 Limited1
Sapphire Food North West No.3 Limited1
Sapphire Food South East No.4 Limited1
Financing
Financing
Financing
Financing
Financing
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Deferred ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 149
Subsidiary undertakings
Indirectly held by Greene King plc continued
Principal
activity
Country of
incorporation
Held by
Holding
Proportion
of voting
rights and
ownership
Sapphire Food South West No.2 Limited1
Sapphire Rural Destination No.5 Limited1
Financing
Financing
England & Wales
England & Wales
Spirit (AKE Holdings) Limited1
Holding company
England & Wales
Spirit (Faith) Limited1
Property
England & Wales
Spirit (Legacy) Pension Trustee Limited1
Pension trustee
England & Wales
Spirit (PSC) Limited1
Non-trading
England & Wales
Spirit (Redwood Bidco) Limited1
Non-trading
England & Wales
Spirit (SGL) Limited1
Holding company
England & Wales
Spirit Acquisition Properties Limited1
Holding company
England & Wales
Spirit Acquisitions Guarantee Limited1,5
Non-trading
England & Wales
Spirit Acquisitions Holdings Limited1
Holding company
England & Wales
Spirit Financial Holdings Limited1
Holding company
England & Wales
Spirit Finco Limited4
Spirit Funding Limited4
Non-trading
Non-trading
Cayman Islands
Cayman Islands
Spirit Group Equity Limited1
Holding company
England & Wales
Spirit Group Holdings Limited1
Holding company
England & Wales
Spirit Group Parent Limited1
Holding company
England & Wales
Spirit Group Pension Trustee Limited1
Pension trustee
England & Wales
Spirit Group Retail (Northampton) Limited1
Non-trading
England & Wales
Spirit Group Retail (South) Limited1
Holding company
England & Wales
Spirit Group Retail Limited1
Holding company
England & Wales
Spirit Group Retail Pensions Limited1
Pension trustee
England & Wales
Spirit Intermediate Holdings Limited1
Holding company
England & Wales
Spirit Managed Funding Limited1
Financing
England & Wales
Spirit Managed Holdings Limited1
Holding company
England & Wales
Spirit Managed Inns Limited1
Spirit Parent Limited1
Non-trading
England & Wales
Holding company
England & Wales
Spirit Pub Company (Derwent) Limited1
Pub retailing
England & Wales
Spirit Pub Company (Holdco) Limited1
Holding company
England & Wales
Spirit Pub Company (Investments) Limited1
Financing
England & Wales
Spirit Pub Company (Leased) Limited1
Leasing of public houses
England & Wales
Spirit Pub Company (Managed) Limited1
Pub retailing
England & Wales
Spirit Pub Company (Services) Limited1
Administration
England & Wales
Spirit Pub Company (SGE) Limited1
Holding company
England & Wales
Spirit Pub Company (Supply) Limited1
Procurement
England & Wales
Spirit Pub Company (Trent) Limited1
Pub retailing
England & Wales
Spirit Pubs Debenture Holdings Limited1
Holding company
England & Wales
Spirit Pubs Parent Limited1
Spirit Retail Bidco Limited1
Springtarn Limited1
Holding company
England & Wales
Holding company
England & Wales
Non-trading
England & Wales
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
n/a
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Preference shares
Ordinary shares
Ordinary shares
Preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Preference shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
n/a
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Overview | Strategic Report | Corporate Governance | Financial Statements 150
16 SUBSIDIARY UNDERTAKINGS CONTINUED
Subsidiary undertakings
Indirectly held by Greene King plc continued
Principal
activity
Country of
incorporation
Held by
Holding
Proportion
of voting
rights and
ownership
The Chef & Brewer Group Limited1
Holding company
England & Wales
The Nice Pub Company Limited1
Non-trading
England & Wales
Tom Cobleigh Group Limited1
Non-trading
England & Wales
Tom Cobleigh Holdings Limited1
Holding company
England & Wales
Tom Cobleigh Limited1
Whitegate Taverns Limited1
Holding company
England & Wales
Non-trading
England & Wales
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
100%
100%
1. Registered office: Westgate Brewery, Bury St Edmunds, Suffolk, IP33 1QT.
2. Registered office: Hambro House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 3AE.
3. Registered office: Belhaven Brewery, Brewery Lane, Dunbar, East Lothian, EH42 1PE.
4. Registered office: PO Box 309, Ugland House, Grand Cayman, KY1-1004.
5. Company is limited by guarantee.
17 INVENTORIES
Raw materials and work in progress
Finished goods and goods for resale
Consumable stores
18 TRADE AND OTHER RECEIVABLES
Other receivables
Total non-current
Trade receivables
Other receivables
Total current
2019
£m
4.7
42.0
4.4
51.1
2019
£m
–
–
68.3
21.4
89.7
2018
£m
4.4
39.5
3.8
47.7
2018
£m
0.1
0.1
69.9
17.6
87.5
Trade and other receivables are non-interest bearing.
Trade receivables are shown net of a loss allowance of £4.0m (2018: £4.9m). Information about the group’s exposure to credit and market risks,
and impairment losses for trade receivables is included in note 23.
The effect of initially applying IFRS 15 and IFRS 9 is described in note 1.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 19 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Cash and cash equivalents for balance sheet
Bank overdrafts (note 22)
Cash and cash equivalents for cash flow
151
2019
£m
126.5
58.8
185.3
(1.3)
184.0
2018
£m
115.9
52.6
168.5
–
168.5
Included in cash at bank and in hand and short term deposits is £67.3m (2018: £74.6m) and £134.5m (2018: £90.4m) held within securitised bank
accounts which are only available for use by the Greene King secured financing vehicle and the Spirit secured financing vehicle respectively.
The Greene King secured financing vehicle comprises Greene King Retailing Parent Limited and one of its subsidiaries and the Spirit secured
financing vehicle comprises Spirit Pubs Debenture Holdings Limited and certain of its subsidiaries.
Interest receivable on cash and short term deposits is linked to prevailing interest rates and is received either monthly or quarterly.
20 PROPERTY, PLANT AND EQUIPMENT HELD FOR SALE
Property, plant and equipment held for sale
2019
£m
6.4
2018
£m
8.6
At the year end, property, plant and equipment held for sale of £6.4m (2018: £8.6m) 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 (2018: £0.5m).
21 TRADE AND OTHER PAYABLES
Trade payables
Other payables
– Other taxation and social security costs
– Accruals and deferred income
–
Interest payable
Total current
Other payables
Total non current
2019
£m
110.2
89.7
194.7
14.3
408.9
1.7
1.7
2018
£m
120.5
108.7
175.8
15.0
420.0
1.8
1.8
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. Interest payable in both 2019 and 2018 also includes interest on uncertain
tax positions.
Overview | Strategic Report | Corporate Governance | Financial Statements 152
22 BORROWINGS
2019
2018
Repayment date
Current
£m
Non-current
£m
Bank overdrafts
On demand
1.3
–
Unsecured bank loans – floating rate:
Total
£m
1.3
– Facility A
– Facility B
Secured debt:
2021
2020
– Issued by Greene King Finance plc
2005 to 2036
– Issued by Spirit Issuer plc
Obligations under finance leases
2015 to 2036
2015 to 2084
–
–
53.6
10.1
1.2
66.2
24.3
165.6
24.3
165.6
1,483.9
1,537.5
369.4
19.2
379.5
20.4
2,062.4
2,128.6
Current
£m
Non-current
£m
Total
£m
–
88.8
184.3
–
88.8
184.3
1,292.2
1,343.5
561.5
19.4
563.6
20.6
2,146.2
2,200.8
–
–
–
51.3
2.1
1.2
54.6
Bank overdrafts
Overdrafts are utilised for the day to day management of cash. The group has facilities of £25.0m (2018: £25.0m) available with interest linked to
base rate.
Bank loans – unsecured
The group has available revolving credit facilities totalling £750.0m, comprising a £400.0m facility (Facility A) available to fund the working capital
requirements of the group and other general corporate purposes and a £350.0m facility (Facility B) available to fund the internal transfer of pubs
from the Spirit secured financing vehicle.
Of the £400.0m (2018: £400.0m) available under Facility A, £25.0m (2018: £90.0m) was drawn down at the year end with a carrying value of
£24.3m (2018: £88.8m) which included £0.7m (2018: £1.2m) of fees.
Of the £350.0m (2018: £350.0m) available under Facility B, £167.3m (2018: £187.0m) was drawn down at the year end with a carrying value of
£165.6m (2018: £184.3m) which included £1.7m (2018: £2.7m) of fees.
Any amounts drawn down bear interest at a margin above LIBOR and the group is charged a utilisation fee based on the proportion of each
facility drawn. Commitment interest is charged on the undrawn portions. Interest is payable upon repayment of each draw-down, which vary in
length. 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 Facility A until October 2021 and Facility B until November 2020. Under each facility, final repayment of
the total drawn-down balance is due as one payment on the agreement repayment date.
Greene King secured financing vehicle
The group has issued various tranches of bonds in connection with the securitisation of pubs operated by Greene King Retailing Limited.
The bonds are secured over the properties and their future income streams and were issued by Greene King Finance plc.
In February 2019 the group issued an additional £250m of secured loan notes with a fixed coupon of 3.593% (tranche A7) in connection with
the securitisation of an additional 177 of the group’s pubs.
The net issuance proceeds were applied to the repayment of revolving credit facility loans advanced under Facility B.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 153
The group’s securitised debt issued by Greene King Finance plc consists of the following tranches:
Tranche
Nominal value
(£m)
A1
A2
A3
A4
A5
A6
A7
B1
B2
85.0
219.3
35.4
258.9
218.0
264.2
250.0
120.9
99.9
Carrying value (£m)1
2019
84.2
217.5
34.7
257.9
218.0
260.3
245.3
120.1
99.5
2018
93.8
224.4
48.0
257.8
226.8
273.2
–
Interest
Floating
Fixed
Floating
Fixed
Floating
Fixed
Fixed
120.1
Fixed/floating
99.4
Floating
Interest
rate(%)2
Last
repayment
period
Weighted
average life3
6.11%
5.32%
6.09%
5.11%
3.93%
4.06%
3.59%
5.70%4
6.92%
2031
2031
2021
2034
2033
2035
2035
2034
2036
4.8 years
7.6 years
1.3 years
9.3 years
8.5 years
8.8 years
9.6 years
14.1 years
16.2 years
1,551.6
1,537.5
1,343.5
1. Carrying value is net of related deferred finance fees.
2.
Includes the effect of interest rate swap rates on the floating rate notes; the group’s interest rate swap arrangements are discussed in note 23.
3. Assumes notes are held until final maturity.
4. The B1 tranche switches to a floating rate L+1.80% in March 2020 with a swap rate of 5.16%-L.
The interest payable on each of the floating rate tranches is as follows:
Tranche
A1
A3
A5
B2
Interest
rate payable1
Interest
rate swap
Total
interest rate
L+0.95%
5.16%-L
L+1.25%
4.84%-L
L+2.50%
1.43%-L
L+2.08%
4.84%-L
6.11%
6.09%
3.93%
6.92%
1.
For the floating rate bonds the interest rate payable is three-month LIBOR (L) plus the margin as shown.
Repayment of the 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.
The Class A1, A2, A3, A4, A5, A6 and A7 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.
The group has available various liquidity facilities which 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. There were no draw-downs under these facilities during
the year and the drawn down amount at the year end was £nil (2018: £nil).
Overview | Strategic Report | Corporate Governance | Financial Statements 154
22 BORROWINGS CONTINUED
Spirit secured financing vehicle
Following the acquisition of Spirit Pub Company in 2015, the group has various secured loan notes issued by Spirit Issuer plc. The secured loan
notes have been secured by way of fixed and floating charges over various property assets of Spirit Pub Company (Managed) Ltd and Spirit Pub
Company (Leased) Ltd.
The group’s secured loan notes issued by Spirit Issuer plc consist of the following:
Tranche
A2
A4
A5
Nominal
value
(£m)
186.6
93.5
96.7
376.8
Carrying value (£m)1
Interest rate(%)2
2019
182.7
96.4
100.4
379.5
2018
Interest
182.2
Floating
216.4 Fixed/floating5
165.0 Fixed/floating
563.6
2019
9.49%4
7.31%5
5.47%6
2018
9.38%
6.58%
5.47%
Last
repayment
period
2029
2025
2032
Weighted
average life3
8.7 years
3.3 years
11.9 years
1. Carrying value includes premium arising from fair value adjustment.
2.
Includes the effect of interest rate swap rates on the floating rate notes. The group’s interest rate swap arrangements are discussed in note 23.
3. Assumes notes are held until final maturity.
4.
In September 2018 the rate on the A2 swap increased from 6.68%-L to 6.79%-L.
5.
In December 2018 the A4 tranche switched from a fixed rate of 6.58% to a floating rate of L+2.78% with a swap rate of 4.53%-L.
6. The A5 tranche switches to a floating rate of L+0.75% in December 2028 with a swap rate of 4.53%-L.
The interest payable on the floating rate tranches is as follows:
Tranche
A2
A4
Interest
rate payable1
Interest
rate swap
Total
interest rate
L+2.70%
L+2.78%
6.79%-L
4.53%-L
9.49%
7.31%
1.
For the floating rate notes the rate payable is three-month LIBOR (L) plus the margin as shown.
Repayment of the nominal is made by quarterly instalments, in accordance with the repayment schedule, within the date ranges shown above.
Payment of interest is made on quarterly dates for all classes of secured loan notes.
The secured loan notes rank pari passu in point of security and as to payment of interest and principal.
The debenture is governed by various covenants, warranties and events of default, many of which apply to Spirit Pub Company (Managed) Ltd
and Spirit Pub Company (Leased) Ltd, both of which are group companies. These include covenants regarding the maintenance and disposal of
secured properties and restrictions on the ability to move cash to other group companies and utilisation of disposal proceeds.
The group has available a liquidity facility which can only be used for the purpose of meeting the debenture’s debt service obligations should there
ever be insufficient funds available from operations to meet such payments. There were no draw-downs under this facility during the year and the
drawn down amount at the year end was £nil (2018: £nil).
In June 2018 the group repaid £62.3m (30%) of the outstanding Class A4 secured loan note issued by Spirit Issuer plc and in September 2018 the
group repaid a further £51.9m (25%) of the Class A4 secured loan note.
In conjunction with each of these transactions the group also partially terminated the corresponding interest rate swap contract.
In December 2018 the group, in an open-market transaction, purchased and subsequently cancelled £61.8m (39%) of the Class A5 secured loan note
issued by Spirit Issuer plc. In conjunction with this transaction the group also partially terminated the corresponding interest rate swap contract.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 155
Obligations under finance leases
Upon acquisition of Spirit Pub Company in 2015, the group acquired leases of property, plant and equipment where it substantially has all the risks
and rewards of ownership, which have been classified as finance leases. In the balance sheet a corresponding liability has been included as finance
lease obligation.
The minimum lease payments under finance leases fall due as follows:
Within one year
Between one and five years
Over five years
2019
2018
Minimum lease
payments
£m
Present value of
future obligations
£m
Minimum lease
payments
£m
Present value of
future obligations
£m
1.2
4.6
48.5
54.3
1.2
3.9
15.3
20.4
1.2
4.6
49.7
55.5
1.2
3.9
15.5
20.6
23 FINANCIAL INSTRUMENTS
The effect of initially applying IFRS 9 on the group’s financial instruments is described in note 1.
Due to the transition method chosen, comparative information has not been restated to reflect the new requirements.
The group holds the following financial instruments:
2019
2018
Note
Current
£m
Non-current
£m
Total
£m
Current
£m
Non-current
£m
Total
£m
Financial assets
Financial assets at amortised cost
Trade receivables
Financial assets
Cash and cash equivalents
Derivative financial instruments
Designated as hedging instruments
Financial liabilities
Liabilities at amortised cost
Trade payables and accruals
Borrowings
Derivative financial instruments
Designated as hedging instruments
Not designated as hedging instruments
18
15
19
23
21
22
23
23
68.3
9.0
185.3
–
262.6
315.1
66.2
8.6
13.1
–
13.4
–
–
68.3
22.4
185.3
69.9
10.5
168.5
–
–
13.4
276.0
248.9
–
13.2
–
1.5
14.7
69.9
23.7
168.5
1.5
263.6
–
2,062.4
315.1
2,128.6
118.6
89.7
127.2
102.8
308.1
54.6
8.5
12.1
–
308.1
2,146.2
2,200.8
110.1
111.9
118.6
124.0
403.0
2,270.7
2,673.7
383.3
2,368.2
2,751.5
Overview | Strategic Report | Corporate Governance | Financial Statements 156
23 FINANCIAL INSTRUMENTS CONTINUED
Financial risk management
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 overdrafts, secured bonds, cash
and short-term deposits. Other financial instruments arise directly from the operations of the group, such as trade and other receivables, trade
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 arising from the group’s financial instruments are interest rate risk, liquidity risk and credit risk. The policy for managing each of
these risks is set out below.
Derivatives
The group has the following derivative financial instruments:
Financial instruments qualifying for hedge accounting
At 28 April 2019 the group held four (2018: four) interest rate swap contracts for a nominal value of £438.3m (2018: £470.1m), which are
designated cash flow hedges against £438.3m (2018: £470.1m) of variable rate bonds issued by Greene King Finance plc. These swaps are hedges
of the A1, A3, A5 and B2 tranches, receiving a variable rate of interest based on LIBOR and paying a fixed rate of 5.155% on the A1 tranche,
4.837% on the A3 tranche, 1.426% on the A5 tranche and 4.837% on the B2 tranche.
The weighted average fixed rate of the swaps was 3.2% (2018: 3.3%).
In addition, the group holds one (2018: one) forward starting swap commencing when the B1 notes issued by Greene King Finance plc switch from
fixed rate interest to floating rate in March 2020.
This swap will receive a variable rate of interest based on LIBOR and pay a fixed rate of 5.155%.
The interest rate swaps hedging the A1, A3, B1 and B2 tranches are held on the balance sheet as a fair value liability of £123.8m (2018: £118.6m).
The interest rate swap hedging the A5 tranche is held on the balance sheet as a fair value liability of £3.3m (2018: fair value asset of £1.4m). The
contract maturity dates range from September 2021 to March 2036.
Prospective hedge effectiveness testing is performed and the bonds and related 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 during the period, which is recognised within finance costs, amounted to £nil (2018: £nil).
During the year a loss of £10.7m (2018: £11.6m) was recycled from the hedging reserve to the income statement in respect of interest rate swap
liabilities settled in prior periods.
The remaining losses in the hedging reserve in respect of these swaps, which had been designated cash flow hedges, will be recycled over the
period over which the hedged forecast cash flows affect profit or loss.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 157
Financial instruments not qualifying for hedge accounting
At 28 April 2019 the group held two (2018: one) interest rate swap contracts for a nominal value of £280.0m (2018: £189.4m). These swaps,
which do not qualify for hedge accounting, are in respect of the A2 and A4 secured loan notes issued by Spirit Issuer plc, receiving a variable rate
of interest based on LIBOR and paying a fixed rate of 6.791% on the A2 tranche and 4.529% on the A4 tranche.
In addition, the group holds one (2018: two) forward starting swap commencing when the A5 notes issued by Spirit Issuer plc switch from fixed
rate interest to floating rate in December 2028. The swap will receive a variable rate of interest based on LIBOR and pay a fixed rate of 4.529%.
Upon the acquisition of Spirit Pub Company, the swaps were deemed ineffective hedges and therefore do not qualify for hedge accounting, with
movements in their fair value being recognised in the income statement. The interest rate swaps are held on the balance sheet as a fair value
liability of £102.8m (2018: £124.0m). The contract maturity dates range from March 2025 to December 2032.
Scheduled cash payments of £12.1m (2018: £18.5m) made in respect of the swaps have been recognised in pre-exceptional finance costs net
of amortisation of fair value on acquisition of £7.9m (2018: £11.3m). These amounts are included within pre-exceptional profit as they can be
deemed to be the market rate of the acquired swaps. The remainder of the fair value movement amounting to a £5.4m loss (2018: £19.2m gain) is
recognised in exceptional finance costs as it is considered to be more volatile and its inclusion in pre-exceptional profit would hinder year-on-year
comparability of performance.
During the year the group partially terminated two interest rate swap contracts in connection with the partial repayment of the A4 and A5 Spirit
secured loan notes, resulting in cash payments totalling £16.6m.
Where the nominal value of a derivative exceeds that of the related secured note (for example, due to early repayment of floating rate notes) the
group seeks to eliminate the over-hedging where this is financially practicable. During the year the group made a payment of £2.0m to eliminate
the remaining over-hedges on three interest rate swap contracts. At 28 April 2019, the nominal value of interest rate swaps outstanding on
cancelled floating rate notes which relate to the Spirit secured debt was £nil (2018: £2.9m).
On 11 June 2019 the group gave notice to repay the remaining outstanding Class A4 secured loan notes issued by Spirit Issuer plc at par on
28 June 2019. See note 31 for further details on the post balance sheet event.
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’s aim is that no less than 95% of the overall interest exposure should be at a fixed rate. The group enters into interest
rate swaps to manage the exposure. Certain 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 28 April 2019 and 29 April 2018. 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 other comprehensive income 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.
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 £23.8m (2018: £31.2m) and the group’s OCI by £55.9m (2018: £58.4m). An increase in interest rates would increase the group’s
profit and OCI.
Whilst cash flow interest rate risk is largely eliminated, the use of fixed rate borrowings and derivative financial instruments exposes the group to
fair value interest rate risk such that the group would not significantly benefit from falls in interest rates and would be exposed to unplanned costs,
such as break costs, should debt or derivative financial instruments be restructured or repaid early.
The percentage of net debt that was fixed as at the year-end was 99.6% (2018: 94.4%), in line with the group’s target of fixing 95% of all net debt.
Overview | Strategic Report | Corporate Governance | Financial Statements 158
23 FINANCIAL INSTRUMENTS CONTINUED
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 (2018: 60 days following month end).
Excess cash used in managing liquidity is placed on interest-bearing deposit using instant-access money market deposit accounts. Short-term
flexibility is achieved through the use of short-term borrowing on the money markets under the group’s revolving credit facility.
The table below summarises the maturity profile of the group’s financial liabilities at 28 April 2019 and 29 April 2018 based on contractual
undiscounted payments including interest.
Year ended 28 April 2019
Interest bearing loans and borrowings:
– Capital
– Interest
Interest rate swaps settled net
Trade payables and accruals
Finance lease obligations
Year ended 29 April 2018
Interest bearing loans and borrowings:
– Capital
– Interest
Interest rate swaps settled net
Trade payables and accruals
Finance lease obligations
Within 1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
65.6
95.4
161.0
29.7
190.7
315.1
1.2
507.0
245.9
88.1
334.0
30.6
364.6
–
1.2
365.8
294.5
224.3
518.8
75.1
593.9
–
3.4
597.3
1,516.0
386.3
1,902.3
132.3
2,034.6
–
48.5
2,083.1
Within 1 year
£m
1–2 years
£m
2–5 years
£m
>5 years
£m
52.2
92.9
145.1
24.4
169.5
308.1
1.2
478.8
75.7
89.7
165.4
27.8
193.2
–
1.2
194.4
569.1
226.4
795.5
74.2
869.7
–
3.4
873.1
1,486.5
420.5
1,907.0
140.4
2,047.4
–
49.7
2,097.1
Total
£m
2,122.0
794.1
2,916.1
267.7
3,183.8
315.1
54.3
3,553.2
Total
£m
2,183.5
829.5
3,013.0
266.8
3,279.8
308.1
55.5
3,643.4
Credit risk
Financial assets include trade loans, cash and cash equivalents and trade and other receivables. 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. The credit risk on cash and
cash equivalents is limited by investment of surplus funds with banks and financial institutions with high credit ratings assigned by international
credit agencies.
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.
There is no significant collateral held and there are no significant concentrations of credit risk within the group.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 Impairment of financial assets
The group has two types of financial assets that are subject to the expected credit loss model:
– trade and other receivables
– financial assets (trade loans with publicans) held at amortised cost
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
Impairment losses on financial assets and trade and other receivables recognised in profit or loss were as follows:
Impairment loss on trade and other receivables
Impairment loss on financial assets (trade loans with publicans)
159
2019
£m
1.0
0.3
1.3
Trade receivables
An impairment analysis is performed at each reporting date using a provision matrix to measure the expected credit losses for trade receivables.
The provision rates are based on days past due. The calculation reflects the probability-weighted outcome, the time value of money and
reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future
economic conditions. The group writes off a trade receivable when there is objective evidence that the debtor is in significant financial difficulty
and there is no realistic prospect of recovery.
Set out below is the information about the credit risk exposure on the group’s trade receivables using a provision matrix:
Not past due
Past due
– Less than 30 days
– 30-60 days
– Greater than 60 days
Gross
£m
60.0
6.6
1.5
4.2
72.3
2019
Provision
£m
(1.9)
(0.9)
(0.3)
(0.9)
(4.0)
Net
£m
58.1
5.7
1.2
3.3
68.3
2018
Net
£m
61.4
4.5
0.2
3.8
69.9
Financial assets
The group measures expected credit losses for financial assets held at amortised cost by keeping a system that identifies debts that are at a high
risk of non-recovery. Once the debts are moved into this system, the risk related to the debt is considered to have significantly increased. The
criteria taken into account by the system are: customers who have both sales and debt unpaid, and customers that have stopped trading with the
group but have an outstanding balance. For the loans considered to be at high risk of non-recovery a lifetime expected loss is calculated.
The remainder of the portfolio will be assessed under a 12-month expected credit loss model.
Set out below is the movement in the allowance for expected credit losses of trade receivables and financial assets held at amortised cost:
As at 30 April 2018
Provision for expected credit losses recognised in profit or loss during the year
Receivables written off during the year as uncollectible
At 28 April 2019
Further detail on expected credit loss methodology refer to note 2.
Trade receivables
2019
£m
Financial assets
2019
£m
(4.9)
(0.1)
1.0
(4.0)
(5.1)
(0.3)
3.3
(2.1)
Overview | Strategic Report | Corporate Governance | Financial Statements 160
23 FINANCIAL INSTRUMENTS CONTINUED
Fair values
Set out in the table below is a comparison of carrying amounts and fair values of certain of the group’s financial instruments in accordance with the
requirements of IFRS 7 and IFRS 13.
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:
Financial assets – these are carried at amortised cost using the effective interest method and fair value is deemed to be the same as this.
Interest-bearing loans and borrowings – 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.
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 credit risk. The changes in credit risk had no material effect on the hedge effectiveness assessment for
derivatives designated in hedge relationships.
Finance lease obligations – estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and
remaining maturities.
Hierarchical
classification
Fair value
2019
£m
Carrying value
2019
£m
Fair value
2018
£m
Carrying value
2018
£m
Financial liabilities
Interest-bearing loans and borrowings
– Secured debt:
Issued by Greene King Finance plc
Issued by Spirit Issuer plc
– Floating rate bank loans
Interest rate swaps
Finance lease obligations
Financial assets
Interest rate swaps
Financial assets
Level 1
Level 1
Level 2
Level 2
Level 2
Level 2
Level 3
1,596.2
1,537.5
1,423.7
1,343.5
373.6
189.9
230.0
20.4
–
(22.4)
379.5
189.9
230.0
20.4
–
(22.4)
561.1
273.1
242.6
20.6
(1.5)
(23.7)
563.6
273.1
242.6
20.6
(1.5)
(23.7)
Carrying values of the secured debt issued by Greene King Finance plc are stated net of any deferred finance fees which amounted to £14.1m
(2018: £10.2m).
Carrying values of the secured debt issued by Spirit Issuer plc include premiums arising from fair value adjustments of £2.7m (2018: £10.9m).
Floating rate bank loan notes are stated net of deferred finance fees of £2.4m (2018: £4.0m).
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 28 April 2019 and 29 April 2018 there were no transfers between fair value levels 1, 2 or 3.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 161
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 net debt and equity levels (together referred to as capital) as disclosed on the balance sheet, as
appropriate in 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 to the objectives, policies or processes during the period.
The group monitors capital using several measures including fixed charge cover, the ratio of net debt to EBITDA and free cash flow debt service
coverage. All covenants in relation to the securitisation vehicles and bank loans have been fully complied with. The board’s dividend policy is to
target a dividend cover of around two times adjusted basic earnings per share.
24 OFF-MARKET CONTRACT LIABILITIES AND PROVISIONS
Off-market
liabilities
£m
Property
leases
£m
Indirect tax
provisions
£m
Total
provisions
£m
At 30 April 2017
Unwinding of discount element of provisions
Provided for during the year
Released during the year
Utilised during the year
At 29 April 2018
Unwinding of discount element of provisions
Provided for during the year
Released during the year
Utilised during the year
At 28 April 2019
285.4
12.5
–
(17.0)
(34.4)
246.5
11.4
–
(4.1)
(16.8)
237.0
15.9
0.5
19.2
(5.9)
(1.8)
27.9
0.6
17.5
(13.1)
(3.5)
29.4
25.6
–
0.6
(1.5)
–
24.7
–
0.7
–
–
25.4
Provisions have been analysed between current and non current as follows:
28 April 2019
29 April 2018
Off-market
liabilities
£m
Property
leases
£m
Indirect tax
provisions
£m
17.8
219.2
237.0
5.9
23.5
29.4
25.4
–
25.4
Total
£m
49.1
242.7
291.8
Off-market
liabilities
£m
Property
leases
£m
Indirect tax
provisions
£m
17.9
228.6
246.5
4.8
23.1
27.9
24.7
–
24.7
Current
Non-current
326.9
13.0
19.8
(24.4)
(36.2)
299.1
12.0
18.2
(17.2)
(20.3)
291.8
Total
£m
47.4
251.7
299.1
Off-market contract liabilities
Off-market contract liabilities are recognised where contracts are at unfavourable terms relative to current market terms on acquisition. For
acquired leases where the current rentals are below market terms, an operating lease intangible asset has been recognised (see note 13). For other
acquired pubs an off-market liability has been calculated as the difference between the present value of future contracted rentals and the present
value of future market rate rentals. The liability unwinds against the rental expense so that the income statement charge reflects current market
terms over an average period of 16 years (2018: 17 years).
The off-market contract liabilities balance as at 29 April 2019 will transfer to the right-of-use asset, following the adoption of IFRS 16. See basis of
preparation – IFRS 16 Leases.
Overview | Strategic Report | Corporate Governance | Financial Statements 162
24 OFF-MARKET CONTRACT LIABILITIES AND PROVISIONS CONTINUED
Property leases
The provision for property leases has been set up to cover operating costs of vacant or loss-making premises as well as dilapidation requirements.
Payments are expected to be ongoing on these properties for an average of 24 years (2018: 23 years).
The onerous lease provision balance as at 29 April 2019 will transfer to the right-of-use asset, following the adoption of IFRS 16. See basis of
preparation – IFRS 16 Leases.
Indirect tax provisions
During a previous period the Spirit Pub Company group received VAT refunds of £17.9m from HMRC in respect of gaming machines following
a ruling involving The Rank Group plc (Rank) that the application of VAT contravened the EU’s principal of fiscal neutrality. HMRC successfully
appealed the decision in October 2013. However, HMRC did not seek to recover the VAT of £17.9m and associated interest of £7.5m because
it had accepted a guarantee that it would only repay this VAT if Rank’s litigation is finally determined in HMRC’s favour. Rank’s latest appeal was
rejected by the Supreme Court in July 2015 and the group is currently awaiting the outcome of related litigation involving Rank and others.
25 SHARE CAPITAL
Ordinary shares of 12.5p each – called up, allotted and fully paid
At beginning of year
Issue of share capital – share options exercised
At end of year
Details of options granted and outstanding are included in note 8.
2019
2018
Number of
issued shares
m
Share
capital
£m
Number of
issued shares
m
310.0
–
310.0
38.7
–
38.7
309.9
0.1
310.0
Share
capital
£m
38.7
–
38.7
26 RESERVES
Share premium account
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
Merger reserve
The merger reserve represents capital contributions received and amounts recognised on the acquisition of Spirit Pub Company Limited being the
difference between the value of the consideration and the nominal value of the shares issued as consideration.
Capital redemption reserve
The 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 28 April 2019 nil shares (2018: nil) were held in treasury, less than 0.1m shares (2018: 0.1m) were held by the employee benefit
trust and nil (2018: nil) were held to fulfil awards under the deferred share bonus scheme. The market value at 28 April 2019 of the treasury
shares was nil (2018: £nil), of the shares held by the employee benefit trust was £0.2m (2018: £0.7m) and of the shares held for the deferred share
bonus scheme was nil (2018: £nil).
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 (2018: nil) treasury shares and nil (2018: nil) shares in the employee benefit trust were allocated to meet awards under the
long term incentive plan.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 163
A transfer of £0.5m (2018: £0.2m) 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 (2018: nil) shares were repurchased at a cost of nil (2018: £nil) to fulfil awards made under the deferred share bonus scheme
with nil (2018: nil) shares transferred to individuals to satisfy awards. The employee benefit trust purchased nil shares (2018: 0.1m) at a cost of nil
(2018: £0.5m) and nil (2018: 0.07m) 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.
27 WORKING CAPITAL AND NON-CASH MOVEMENTS
Increase in inventories
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Decrease in off-market contract liabilities
Decrease in provisions
Other non-cash movement
Share-based payment expense
Defined benefit pension contributions paid
Operating exceptional and non-underlying items
Working capital and other movements
28 ANALYSIS AND MOVEMENTS IN NET DEBT
Cash and cash equivalents
Cash at bank and in hand1
Cash and cash equivalents for balance sheet
Overdrafts
Cash and cash equivalents for cash flow
Liabilities from financing activities
Included in net debt:
– Finance leases
– Unsecured bank loans – floating rate:
– Bank loans – Facility A
– Bank loans – Facility B
– Securitised borrowing
Not included in net debt:
– Derivative financial instruments2
Liabilities from financing activities
Net debt
1.
Includes short-term deposits.
2.
Includes derivative asset balances.
2019
£m
(3.4)
(8.3)
(2.5)
(16.8)
(3.5)
0.3
2.0
(3.3)
(5.9)
(41.4)
2018
£m
(2.7)
7.1
(3.6)
(19.6)
(1.8)
–
1.3
(3.6)
(23.9)
(46.8)
As at
29 April 2018
£m
Financing cash
flows
£m
Changes in fair
value
£m
Other non-cash
changes
£m
As at
28 April 2019
£m
168.5
168.5
–
168.5
16.8
16.8
(1.3)
15.5
(20.6)
0.2
(88.8)
(184.3)
(1,907.1)
(2,200.8)
(241.1)
(2,441.9)
(2,032.3)
65.0
19.8
(6.1)
78.9
18.6
97.5
94.4
–
–
–
–
–
–
–
–
–
(7.5)
(7.5)
–
–
–
–
–
–
(0.5)
(1.1)
(3.8)
(5.4)
–
(5.4)
(5.4)
185.3
185.3
(1.3)
184.0
(20.4)
(24.3)
(165.6)
(1,917.0)
(2,127.3)
(230.0)
(2,357.3)
(1,943.3)
Overview | Strategic Report | Corporate Governance | Financial Statements 164
28 ANALYSIS AND MOVEMENTS IN NET DEBT CONTINUED
As at
30 April 2017
£m
Financing cash
flows
£m
Changes in fair
value
£m
Other non-cash
changes
£m
As at
29 April 2018
£m
Cash and cash equivalents
Cash at bank and in hand1
Liquidity facility reserve
Cash and cash equivalents for balance sheet
Overdrafts
Cash and cash equivalents for cash flow
Liabilities from financing activities
Included in net debt:
– Finance leases
– Liquidity loan facility
– Unsecured bank loans – floating rate:
– Bank loans – Facility A
– Bank loans – Facility B
– Securitised borrowing
Not included in net debt:
– Derivative financial instruments2
Liabilities from financing activities
285.5
157.5
443.0
–
443.0
(21.6)
(157.5)
(168.3)
–
(2,170.1)
(2,517.5)
(344.8)
(2,862.3)
(117.0)
(157.5)
(274.5)
–
(274.5)
1.0
157.5
80.0
(183.8)
266.7
321.4
42.6
364.0
Net debt
(2,074.5)
46.9
1.
Includes short-term deposits.
2.
Includes derivative asset balances.
29 FINANCIAL COMMITMENTS
–
–
–
–
–
–
–
–
–
–
–
59.9
59.9
–
–
–
–
–
–
–
–
(0.5)
(0.5)
(3.7)
(4.7)
1.2
(3.5)
(4.7)
168.5
–
168.5
–
168.5
(20.6)
–
(88.8)
(184.3)
(1,907.1)
(2,200.8)
(241.1)
(2,441.9)
(2,032.3)
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 up to six years. Most property leases have
an upwards only-rent review based on open market rents at the time of the review.
Future minimum cash rentals payable under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
2019
£m
83.7
318.9
1,444.9
1,847.5
2018
£m
80.2
309.5
1,437.4
1,827.1
The group leases part of its licensed estate and other non-licensed properties to tenants. The majority of lease agreements have terms of between
six months and 25 years and are classified for accounting purposes as operating leases. Most of the leases with terms of over three years include
provision for rent reviews on either a three year or five year basis.
NOTES TO THE ACCOUNTS CONTINUEDFOR THE 52 WEEKS ENDED 28 APRIL 2019Greene King plc | Annual Report and Accounts 2019 Future minimum lease rentals receivable under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
165
2019
£m
43.9
118.8
135.6
298.3
2018
£m
45.1
122.9
119.5
287.5
Future minimum lease rentals include £6.8m (2018: £6.1m) receivable in respect of non-cancellable subleases.
30 RELATED PARTY TRANSACTIONS
No transactions have been entered into with related parties during the year.
Greene King Finance plc and Spirit Issuer plc are structured entities set up to raise bond finance for the group, and as such are deemed to be
related parties. The results and financial position of the entities have been consolidated in the group’s results.
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
Share-based payments
2019
£m
5.6
0.5
0.5
6.6
2018
£m
5.2
0.6
0.1
5.9
Key management personnel
Key management personnel are deemed to be those employees who are directors of Greene King plc or its subsidiaries.
Directors’ interests in an employee share-based payment 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.
31 POST BALANCE SHEET EVENTS
Final dividend
A final dividend of 24.4p per share (2018: 24.4p) amounting to a dividend of £75.6m (2018: £75.6m) was proposed by the directors at their
meeting on 26 June 2019. These financial statements do not reflect the dividend payable.
Borrowings and financial instruments
On 11 June 2019 the group gave notice to repay the remaining £93.5m outstanding Class A4 secured loan notes issued by Spirit Issuer plc at par
on 28 June 2019. The notes have a carrying value of £96.4m as at 28 April 2019, of which £10.3m is classified as a current liability and £86.1m is
classified as a non-current liability. The group has also agreed to make a payment of £11.4m on 28 June 2019 to fully terminate the corresponding
interest rate swap contract.
Overview | Strategic Report | Corporate Governance | Financial Statements 166
COMPANY BALANCE SHEET
AS AT 28 APRIL 2019
Registered number: 24511
Fixed assets
Investments
Current assets
Amounts due from subsidiaries
Cash
Creditors: amounts falling due within one year
Creditors
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Borrowings
Net assets
Capital and reserves
Called up share capital
Share premium account
Merger reserve
Revaluation reserve
Other reserve
Own shares
Retained earnings1
Equity attributable to owners of the parent
As at
28 April 2019
£m
As at
29 April 2018
£m
Note
36
3,890.6
3,474.8
99.3
–
98.2
6.9
(2,436.2)
(2,336.9)
(1,922.1)
(1,817.0)
1,553.7
1,657.8
(191.5)
1,362.2
38.7
262.2
752.0
2.5
93.9
–
212.9
1,362.2
(273.1)
1,384.7
38.7
262.0
752.0
2.5
93.9
(0.5)
236.1
1,384.7
37
38
40
41
41
41
41
1.
The profit and loss account of the parent company is omitted from the Company’s accounts by virtue of the exemption granted by section 408 of the Companies Act 2006. The profit generated in the
year for ordinary shareholders, and included in the financial statements of the parent company, amounted to £79.6m (2018: £111.9m).
Signed on behalf of the board on 26 June 2019
Richard Smothers
Director
Greene King plc | Annual Report and Accounts 2019
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE 52 WEEKS ENDED 28 APRIL 2019
167
At 30 April 2017
Profit for the year
Total comprehensive income
Issue of ordinary share capital
Purchase of shares
Release of shares
Share-based payments
Equity dividends paid
At 29 April 2018
Profit for the period
Total comprehensive income
Issue of ordinary share capital
Transfer
Share-based payments
Equity dividends paid
At 28 April 2019
Called up
share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Revaluation
reserve
£m
Other
reserve
£m
Own
shares
£m
Retained
earnings
£m
Total
£m
38.7
261.7
752.0
2.5
93.9
(0.2)
226.0
1,374.6
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
38.7
262.0
752.0
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.5
–
2.5
–
–
–
–
–
–
–
–
–
–
–
–
–
93.9
–
93.9
–
–
–
–
–
–
38.7
262.2
752.0
2.5
93.9
–
–
–
0.2
(0.5)
–
–
111.9
111.9
–
(0.2)
–
1.3
111.9
111.9
0.3
–
(0.5)
1.3
(102.9)
(102.9)
(0.5)
236.1
1,384.7
–
(0.5)
–
–
–
0.5
–
–
–
(1.4)
(1.4)
234.7
1,383.3
79.6
79.6
–
(0.5)
2.0
79.6
79.6
0.2
–
2.0
(102.9)
(102.9)
212.9
1,362.2
Change in accounting policy
Restated as at 30 April 2018
–
38.7
–
–
262.0
752.0
Overview | Strategic Report | Corporate Governance | Financial Statements 168
NOTES TO THE COMPANY ACCOUNTS
FOR THE 52 WEEKS ENDED 28 APRIL 2019
32 ACCOUNTING POLICIES
Basis of accounting and presentation
The financial statements have been prepared under the historical cost convention and in accordance with applicable UK accounting standards.
The company meets the definition of a qualifying entity under FRS 100 Application of Financial Reporting Requirements as issued by the Financial
Reporting Council (FRC). The financial statements have therefore been prepared in accordance with FRS 101 Reduced Disclosure Framework.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
– the requirements of IAS 7: Statement of Cash Flows;
– the requirements of IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors; to disclose IFRSs issued but not effective;
– the requirements of IFRS 2: Share-based payments (paragraphs 45(b) and 46 to 52);
– the requirements of IFRS 7: Financial Instruments: Disclosures;
– the requirements of IFRS 13: Fair Value Measurements;
– the requirements of IAS 24: Related Party Disclosures (to present key management personnel compensation and intragroup transactions
including wholly owned subsidiaries); and
– the requirements of IAS 1: Presentation of Financial Statements, to present certain comparative information and capital management disclosures.
The basis for all of the above exemptions is because equivalent disclosures are included in the consolidated financial statements of the group in
which the entity is consolidated.
Greene King plc is a public company limited by shares incorporated and domiciled in England and Wales. The company’s shares are listed on the
London Stock Exchange.
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. On transition to FRS 101,
the previous GAAP carrying amount at the date of transition was regarded as deemed cost.
Taxation
Corporation tax payable is provided on taxable profits using the tax rates and laws that have been enacted or substantively enacted by the balance
sheet date.
Financial instruments
Financial instruments are recognised when the company becomes party to the contractual provisions of the instrument and are derecognised
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.
Financial assets
The company classifies its amounts due from subsidiaries at amortised cost where the objective is to hold these assets in order to collect
contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value
plus transaction costs, and are subsequently carried at amortised cost using the effective interest rate method less provision for impairment.
The company recognises a loss allowance for expected credit losses on amounts due from subsidiaries. The methodology used to determine the
amount of the expected credit loss is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset.
For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses
along with gross interest income are recognised. For those where the credit risk has increased significantly or determined to be credit impaired,
lifetime expected credit losses along with the gross interest income or net interest income, respectively, are recognised.
Greene King plc | Annual Report and Accounts 2019 169
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.
Own shares
Own shares consist of treasury shares and shares held within an employee benefit trust. The company has an employee benefit trust to satisfy
the exercise of share options that have vested under the group’s share option schemes.
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 retained earnings.
No gain or loss is recognised in the performance statements on transactions in own shares.
Share-based payments
Where the company grants share-based awards over its own shares in exchange for employee services rendered to its subsidiaries (including
services provided by the company’s directors), it recognises in its individual financial statements, an increase to the cost of investment equivalent
to the share-based payment expense recognised in the consolidated financial statements and a corresponding credit in equity. The share-based
payments relating to directors are recognised as an expense by the subsidiaries, consistent with their other remuneration. 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 because non-market performance and/or service conditions have not been met.
Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting
condition is satisfied, provided that all other performance and/or service conditions are satisfied.
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 company 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. No estimates and judgments were considered to be significant.
Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 on the company’s financial statements.
As a result of the changes in the company’s accounting policies, the adjustment arising from the new impairment rules are recognised in the
opening retained earnings as at 30 April 2018. IFRS 9 has been adopted without restating comparative information.
The new accounting policy is set out above in this note.
The following table shows the adjustments recognised for each individual line item. Line items that were not affected by the changes have not
been included.
Overview | Strategic Report | Corporate Governance | Financial Statements 170
NOTES TO THE COMPANY ACCOUNTS CONTINUED
FOR THE 52 WEEKS ENDED 28 APRIL 2019
32 ACCOUNTING POLICIES CONTINUED
Company balance sheet (extract)
Fixed assets
Investments (loans to subsidiaries)
Current assets
Amounts due from subsidiaries
Capital and reserves
Retained earnings
As at 29 April 2018
As previously
reported
£m
Impact of IFRS 9
£m
Restated
£m
1,130.2
98.2
236.1
(1.3)
(0.1)
(1.4)
1,128.9
98.1
234.7
Classification and measurement
The company’s loan to subsidiaries and amounts due from subsidiaries were classified under loans and receivables under IAS 39 and now are held
at amortised cost. There is no impact from the change in classification in the company financial statements and no tax impact from the adoption
of IFRS 9.
Impairment of financial assets
The loan to subsidiary undertaking is subject to IFRS 9’s new expected credit loss model. The loans are not considered to have had an increase
in significant risk and therefore a 12-month expected credit loss has been determined. Applying the expected credit risk model resulted in the
recognition of a loss allowance of £1.4m on 30 April 2018 (previous allowance was £nil) and a further increase in the allowance by £0.2m in the
current reporting period.
33 PROFIT FOR THE PERIOD
No income statement is presented for the company as permitted by section 408 of the Companies Act 2006. The profit after tax for the period
is £79.6m (2018: £111.9m).
34 AUDITOR’S REMUNERATION
Auditor’s remuneration in respect of the company audit was £16,500 (2018: £16,500). The figures for auditor’s remuneration for the company
required by regulation 5(1)(b) of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008
are not presented here as the group accounts comply with this regulation on a consolidated basis.
35 DIRECTORS’ REMUNERATION AND EMPLOYEE COSTS
Details of directors’ remuneration are contained in the directors’ remuneration report on pages 75 to 91. 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.
Greene King plc | Annual Report and Accounts 2019 171
Investments in
subsidiaries
£m
Loans to
subsidiaries
£m
2,366.5
1.3
–
2,367.8
222.0
2.0
–
2,591.8
(23.2)
–
(23.2)
2,568.6
2,344.6
2,343.3
1,150.2
–
(20.0)
1,130.2
–
–
193.3
1,323.5
–
(1.5)
(1.5)
1,322.0
1,130.2
1,150.2
Total
£m
3,516.7
1.3
(20.0)
3,498.0
222.0
2.0
193.3
3,915.3
(23.2)
(1.5)
(24.7)
3,890.6
3,474.8
3,493.5
36 INVESTMENTS
Cost at 30 April 2017
Share-based payment awards to employees of subsidiaries
Repayment
Cost at 29 April 2018
Additions
Share-based payment awards to employees of subsidiaries
Advances
Cost at 28 April 2019
Impairment at 30 April 2017 and 29 April 2018
Impairment of non-trading subsidiaries
Impairment at 28 April 2019
NBV at 28 April 2019
NBV at 29 April 2018
NBV at 30 April 2017
Principal subsidiaries
For a full list of all subsidiaries see note 16.
Interest on amounts owed to and from group undertakings accrues at a rate of LIBOR + 1.0% and is receivable at interim and year end dates.
The current year impairment on loans to subsidiaries is constituted of £1.4m expected credit loss on transition to IFRS 9 and £0.2m of in year
expected credit loss as discussed in note 32.
37 CREDITORS
Accruals
Corporation tax payable
Amounts owed to subsidiaries
2019
£m
2.7
5.1
2,428.4
2,436.2
2018
£m
3.4
–
1,918.7
1,922.1
Interest on amounts owed to and from group undertakings accrues at a rate of LIBOR + 1.0% and is payable on demand.
Overview | Strategic Report | Corporate Governance | Financial Statements 172
NOTES TO THE COMPANY ACCOUNTS CONTINUED
FOR THE 52 WEEKS ENDED 28 APRIL 2019
38 BORROWINGS
Bank overdraft
Unsecured bank loans – floating rate:
– Facility A
– Facility B
Within
one year
£m
1.6
–
–
1.6
2019
After
one year
£m
–
24.3
165.6
189.9
Total
£m
1.6
24.3
165.6
191.5
Within
one year
£m
–
–
–
–
As explained in note 22 the company has available revolving credit facilities totalling £750.0m.
Bank loans due after one year are repayable as follows:
Due between one and two years
Due between two and five years
2018
After
one year
£m
–
88.8
184.3
273.1
2019
£m
165.6
24.3
189.9
Total
£m
–
88.8
184.3
273.1
2018
£m
–
273.1
273.1
Although any individual draw-downs are repayable within 12 months of the balance sheet date, immediate renewal is available under Facility A until
October 2021 (2018: October 2021) and under Facility B until November 2020 (2018: November 2020).
39 FINANCIAL INSTRUMENTS
Financial assets at amortised cost
Financial assets at amortised cost include the following:
Loans to subsidiaries
Less: expected credit loss
Amounts due from subsidiaries
Less: expected credit loss
2019
Non-
current
£m
Total
£m
Current
£m
1,323.5
1,323.5
(1.5)
(1.5)
1,322.0
1,322.0
–
–
–
99.4
(0.1)
99.3
–
–
–
98.2
–
98.2
2018
Non-
current
£m
Total
£m
1,130.2
1,130.2
–
–
1,130.2
1,130.2
–
–
–
98.2
–
98.2
Current
£m
–
–
–
99.4
(0.1)
99.3
See note 32 for the impact on the change in accounting policy following the adoption of IFRS 9 on the classification and impairment of financial assets.
Impairment
The company has assessed the credit risk on the intercompany loans and have concluded that there has not been an increase in credit risk since
initial recognition, therefore a 12-month expected credit loss has been calculated.
Greene King plc | Annual Report and Accounts 2019 173
The loss allowance for the loans to subsidiaries and amounts due from subsidiaries reconciles to the opening loss allowance on 30 April 2018 and
to the closing loss allowance as at 28 April 2019 as follows:
Closing expected credit loss as at 29 April 2018
Amounts restated through opening retained earnings
Opening expected credit loss as at 30 April 2018 (calculated under IFRS 9)
Increase in the allowance recognised in profit or loss during the period
Closing expected credit loss as at 28 April 2019
40 ALLOTTED AND ISSUED SHARE CAPITAL
Allotted, called-up and fully paid
Ordinary shares of 12.5p each
310.0m shares (2018: 310.0m)
Further information on share capital is given in note 25.
Details of options granted and outstanding are included in note 8.
Loans to
subsidiaries
£m
Amounts
due from
subsidiaries
£m
–
1.3
1.3
0.2
1.5
–
0.1
0.1
–
0.1
2019
£m
2018
£m
38.7
38.7
41 RESERVES
Share premium account
Share premium represents the excess of proceeds received over the nominal value of new shares issued.
Merger reserve
The merger reserve represents capital contributions received and amounts recognised on the acquisition of Spirit Pub Company Limited being the
difference between the value of the consideration and the nominal value of the shares issued as consideration.
Other reserve
The other reserve consists of £3.3m (2018: £3.3m) capital redemption reserve arising from the purchase of own share capital and £90.6m
(2018: £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.
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.
42 CONTINGENT LIABILITIES
The company has provided a guarantee to the Greene King Pension Scheme in respect of the payment obligations to the scheme of its subsidiary
Greene King Services Limited. In the event that these obligations are not met the company will become liable for amounts due to the pension
scheme; such an event is not considered probable.
Details of the group’s pension schemes are included in note 9.
43 POST BALANCE SHEET EVENTS
Final dividend
A final dividend of 24.4p per share (2018: 24.4p) amounting to a dividend of £75.6m (2018: £75.6m) was proposed by the directors at their
meeting on 26 June 2019. These financial statements do not reflect the dividend payable.
Overview | Strategic Report | Corporate Governance | Financial Statements 174
ALTERNATIVE PERFORMANCE MEASURES
The performance of the group is assessed using a number of alternative performance measures (APMs).
The group’s results are presented both before and after exceptional and non-underlying items. Adjusted profitability measures are presented
excluding exceptional and non-underlying items as management believe this provides useful additional information about the group’s performance
and aids a more effective comparison of the group’s trading performance from one period to the next and with similar businesses. Adjusted
profitability measures are reconciled to unadjusted IFRS results on the face of the income statement with details of exceptional and non-underlying
items provided in note 5.
In addition, the group’s results are described using certain other measures that are not defined under IFRS and are therefore considered to be
APMs. These measures are used by management to monitor ongoing business performance against both shorter-term budgets and forecasts but
also against the group’s longer-term strategic plans. The definition of each APM presented in this report and where reconciliation to the nearest
measure prepared in accordance with IFRS can be found is shown below.
APMs used to explain and monitor group performance:
Measure
EBITDA
Definition
Earnings before interest, tax, depreciation, amortisation and exceptional and
non-underlying items. Calculated by taking operating profit before exceptional
and non-underlying items and adding back depreciation and amortisation.
Location of reconciliation
to GAAP measure
Group cash flow
statement
Operating profit before
exceptional and non-underlying
items
Operating profit margin
Net interest before
exceptional items
Profit before tax and exceptional
and non-underlying items (PBTE)
Group operating profit excluding exceptional and non-underlying items.
Group income statement
Operating profit margin is calculated by dividing operating profit before exceptional
and non-underlying items by revenue.
Group finance costs excluding exceptional and non-underlying items.
Group profit before tax excluding exceptional and non-underlying items.
Group income statement
Adjusted basic earnings per share Earnings per share excluding the impact of exceptional and non-underlying items.
Note 13 to the accounts
Return on investment (ROI)
%
Return on investment across all our core pub businesses. Calculated as the
average incremental increase in pub EBITDA post-investment divided by the
total core capex invested in completed developments.
Net debt : EBITDA
Net debt as disclosed on the group balance sheet divided by EBITDA.
Free cash flow
EBITDA less working capital and non-cash movements (excluding exceptional items),
tax payments (excluding amounts paid in respect of settlements of historic tax positions
and adjusted for the impact of HMRC payment regime changes), interest payments
(excluding payment of interest in respect of tax settlements), core capex, dividends
and other non-cash movements.
Fixed charge cover
Calculated by dividing EBITDAR less maintenance capex by the sum of interest paid
and rental costs.
Return on capital employed
(ROCE) %
Return on capital employed is calculated by dividing operating profit before exceptional
and non-underlying items by periodic average capital employed. Capital employed
is defined as total net assets excluding deferred tax balances, derivatives, post-
employment liabilities and net debt.
Note A below
Note B below
Note C below
Note D below
Note E below
Core capex
Capital expenditure excluding amounts relating to the group’s brand swap programme,
Spirit integration, other acquisitions and in respect of new build sites.
Note F below
Non-returning capex
Investment not expected to generate incremental revenues for the group.
Note F below
Greene King plc | Annual Report and Accounts 2019
175
APMs used to explain and monitor the performance of the group business segments:
Measure
Definition
Location of reconciliation
to GAAP measure
Pub Company like-for-like
(LFL) sales growth
Pub Company LFL sales include revenue from the sale of drink, food and accommodation
but exclude machine income.
Note G below
Pub Company operating profit
before exceptional and non-
underlying items
Pub Company EBITDA
LFL sales performance is calculated against a comparable 52-week period in the prior
year for core sites that were trading for the entirety of both 52-week periods.
Pub Company operating profit excluding exceptional and non-underlying items.
Note 3 to the accounts
Pub Company earnings before interest, tax, depreciation, amortisation and exceptional
and non-underlying items.
Note 3 to the accounts
Pub Company EBITDA per pub
Calculated by dividing Pub Company EBITDA by the average number of pubs trading
in a financial period.
Pub Partners LFL net
profit growth
Pub Partners’ LFL net profit includes pub operating profit but excludes exceptional
and non-underlying items (LFL net income), and allocation of central overheads.
Note H below
LFL profit performance is calculated against a comparable 52-week period in the prior
year for core pubs that were trading for the entirety of both 52-week periods.
Pub Partners EBITDA
Pub Partners earnings before interest, tax, depreciation, amortisation and exceptional
and non-underlying items.
Note 3 to the accounts
Pub Partners EBITDA per pub
Calculated by dividing Pub Partners EBITDA by the average number of pubs trading
in a financial period.
Pub Partners operating profit
before exceptional items
Brewing & Brands operating
profit before exceptional items
Brewing & Brands EBITDA
Pub Partners operating profit excluding exceptional and non-underlying items.
Note 3 to the accounts
Brewing & Brands operating profit excluding exceptional and non-underlying items.
Note 3 to the accounts
Brewing & Brands earnings before interest, tax, depreciation, amortisation and
exceptional and non-underlying items.
Note 3 to the accounts
In addition the group uses the following non-financial KPIs to assess performance against its strategic objectives:
Measure
Definition
Employee engagement score (%) The proportion of respondents who agreed with the following statement: ‘I feel engaged and committed
at present’ as the statement that most accurately reflects their current career intentions.
Pub Company net
promoter score (NPS) (%)
The percentage of responses where we score nine or ten (out of ten) less the percentage of responses where
we score zero to six (out of ten) to the statement “I am likely to recommend this pub to a friend and/ or relative.”
Pub Partners Licensee Survey
The licensee survey is independent research conducted with leased/tenanted pubs across all the major pub
companies operating in the L&T sector.
Brewing & Brands OBV
growth (%)
Year-on-year growth in the volume of sales of beer brewed at our Greene King and Belhaven breweries.
Brewing & Brands Service
score (%)
B&B service score is a measure on percentage of deliveries that are made on time and in full across all
delivery networks.
Overview | Strategic Report | Corporate Governance | Financial Statements
176
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
APM RECONCILIATIONS
A RETURN ON INVESTMENT
Return on investment is calculated by dividing the total annualised up-lift in EBITDA from all core development schemes completed in the financial
year by the total amount invested in those schemes.
Total capital investment quoted below is the total spent on schemes completed in the year and is not intended to reconcile to total in-year capital
expenditure presented in note G below.
Incremental annualised EBITDA
Total core capital investment in completed schemes
Return on investment
B NET DEBT: EBITDA
Net debt
EBITDA
Net debt : EBITDA
C FREE CASH FLOW
EBITDA
Working capital and other movements
Add back: exceptional items
Tax payments
Add back: exceptional tax payments
Add back: impact of changes to payment regimes
Interest received
Interest paid
Add back: exceptional interest paid
Core capex
Net repayment /(advance) of trade loans
Equity dividends paid
Other non-cash movements
Free cash flow
Source
Non-GAAP
Non-GAAP
Source
Group balance sheet
Cash flow statement
Source
Cash flow statement
Note 9
Note 9
Cash flow statement
Non-GAAP
Non-GAAP
Cash flow statement
Cash flow statement
Non-GAAP
Note F below
Cash flow statement
Note 6
Non-GAAP
2019
£m
13.7
38.3
35.8%
2019
£m
1,943.3
482.0
4.0
2019
£m
482.0
(41.4)
5.9
446.5
(21.0)
–
–
(21.0)
0.7
(117.6)
–
(116.9)
(119.1)
0.6
(102.9)
(1.1)
86.1
2018
£m
15.5
50.0
31.0%
2018
£m
2,032.3
486.6
4.2
2018
£m
486.6
(46.8)
23.9
463.7
(44.8)
9.4
26.0
(9.4)
1.0
(130.2)
2.1
(127.1)
(132.2)
2.5
(102.9)
(4.7)
89.9
Greene King plc | Annual Report and Accounts 2019 177
2018
£m
486.6
90.2
(20.2)
(79.6)
477.0
129.2
(2.1)
90.2
217.3
2.2
Source
Cash flow statement
Non-GAAP
Non-GAAP
Note F below
Cash flow statement
Non-GAAP
Non-GAAP
2019
£m
482.0
90.1
(21.1)
(72.6)
478.5
116.9
–
90.1
207.0
2.3
D FIXED CHARGE COVER
EBITDA
Operating lease rentals
Add back: off-market lease liability and other
property provisions utilised in the period
Non-returning capex
Net interest paid
Add back: exceptional interest paid
Operating lease rentals
Fixed charge cover
E RETURN ON CAPITAL EMPLOYED
Operating profit before exceptional and non-underlying items
Income statement
Source
2019
£m
368.2
2018
(restated1)
£m
2017
(restated1)
£m
373.1
411.5
Average capital employed:
Net assets1
Add back:
Deferred tax assets1
Post-employment (assets)/liabilities
Derivatives
Net debt
Capital employed
Timing adjustment
Average capital employed
ROCE
Group balance sheet
2,107.9
2,073.1
1,939.6
Group balance sheet
Group balance sheet
Group balance sheet
Group balance sheet
Non-GAAP
Non-GAAP
Non-GAAP
(9.5)
(31.1)
230.0
1,943.3
4,240.6
104.3
4,344.9
8.5%
(20.1)
(13.6)
241.1
2,032.3
4,312.8
108.3
4,421.1
8.4%
(22.9)
11.2
344.8
2,074.5
4,347.2
75.2
4,422.4
9.3%
1. Deferred tax, goodwill and retained earnings have been restated. See note 1 for further details.
The timing adjustment included in the calculation above is the aggregate adjustment required to reconcile closing capital employed at the balance
sheet date and the monthly average capital employed calculated throughout the year.
F CAPITAL INVESTMENT
Non-returning capex1
Development capex
Core capex
Brand swap and new site investment
Purchase of property, plant and equipment
1. non-returning capex also referred to as ‘maintenance capex’.
Source
Non-GAAP
Non-GAAP
Non-GAAP
Non-GAAP
Cash flow statement
2019
£m
72.6
46.5
119.1
44.3
163.4
2018
£m
79.6
52.6
132.2
61.0
193.2
Overview | Strategic Report | Corporate Governance | Financial Statements 178
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
APM RECONCILIATIONS CONTINUED
G PUB COMPANY LFL SALES
2019 CALCULATIONS
Reported revenue
Less: non-LFL revenue
LFL sales
2018 CALCULATIONS
Reported revenue
Less: non-LFL revenue
LFL sales
Source
Note 2
Non-GAAP
Non-GAAP
Source
Note 2
Non-GAAP
Non-GAAP
2019
£m
1,799.2
(65.1)
1,734.1
2018
£m
1,767.7
(85.5)
1,682.2
2018
£m
1,767.7
(82.8)
1,684.9
2017
£m
1,817.4
(105.4)
1,712.0
YoY%
+1.8%
+2.9%
YoY%
-2.7%
-1.7%
Non-LFL revenue includes all machine income and the sales from pubs that have not traded for two full financial years. For pubs disposed of in
each of the financial years these amounts include all sales prior to disposal; for new pubs acquired or opened during the two-year period these
amounts include all post-acquisition sales.
H PUB PARTNERS LFL NET PROFIT AND LFL NET INCOME
2019 CALCULATIONS
Reported operating profit
Less: other non-LFL adjustments
LFL net profit
Add back: Central cost allocation on LFL sites
Add back: Depreciation on LFL sites
LFL net income
2018 CALCULATIONS
Reported operating profit
Less: other non-LFL adjustments
LFL net profit
Add back: Central cost allocation on LFL sites
Add back: Depreciation on LFL sites
LFL net income
Source
Note 2
Non-GAAP
Non-GAAP
Non-GAAP
Non-GAAP
Source
Note 2
Non-GAAP
Non-GAAP
Non-GAAP
Non-GAAP
2019
£m
87.1
(7.0)
80.1
20.3
10.0
110.4
2018
£m
91.4
(5.7)
85.7
19.0
9.6
114.3
2018
£m
91.4
(11.0)
80.4
18.6
9.8
108.8
2017
£m
92.8
(7.4)
85.4
20.0
9.5
114.9
YoY%
-4.7%
-0.3%
1.5%
YoY%
-1.5%
+0.4%
-0.5%
Non-LFL profit adjustments are in respect of pre-disposal net profit from pubs that were disposed of in the current or prior year.
Greene King plc | Annual Report and Accounts 2019 Overview | Strategic Report | Corporate Governance | Financial Statements
179
SHAREHOLDER INFORMATION
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 2019/20 results
REGISTRARS
Link Asset Services
34 Beckenham Road,
Beckenham,
Kent, BR3 4TU
Website: www.linkassetservices.com
Email: enquiries@linkgroup.co.uk
Telephone: 0871 664 03001
1.
Calls to this number are charged at 12p per minute plus network extras;
lines are open 9:00am to 5.30pm, Monday to Friday.
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.
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.
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, Link 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.
8 August 2019
9 August 2019
6 September 2019
13 September 2019
28 November 2019
January 2020
June 2020
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
4 Brooklands Avenue
Cambridge, CB2 8BB
Telephone: 01223 328323
Link Share Dealing Services
Telephone: +44 (0)371 664 04451
Website: www.linksharedeal.com
1.
Calls are charged at the standard geographic rate and will vary by provider. Calls from outside
the UK are changed 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 72.5625p. After take-up of
the rights issue in July 1996, the March 1982 value becomes 129.6875p.
With the take-up of the rights issue in May 2009, the March 1982 value
becomes 182.3046875p.
180
SHAREHOLDER INFORMATION CONTINUED
SHAREHOLDER VOUCHERS
UNSOLICITED COMMUNICATION
We are pleased to offer shareholders who hold 100 or more shares
in the company on 31 July each year 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.greeneking.co.uk for details of the participating outlets.
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
its 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.
AUDITOR
Ernst & Young LLP
1 More London Place
London, SE1 2AF
SOLICITORS
Linklaters
One Silk Street
London, EC2Y 8HQ
FINANCIAL ADVISERS
Rothschild & Co
New Court
St Swithin’s Lane
London, EC4N 8AL
JOINT STOCKBROKERS
Peel Hunt LLP
Moor House
120 London Wall
EC2Y 5ET
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
Canary Wharf
London, E14 5LB
Greene King plc | Annual Report and Accounts 2019
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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