Greene King PLC Annual Financial Report (1885X)

TIDMGNK

RNS Number : 1885X

Greene King PLC

08 August 2018

Greene King plc

Annual report and financial statements and AGM circular

In accordance with Listing Rule 9.6.1, copies of the annual report and financial statements for the year ended 29 April 2018 and of the circular convening the 2018 annual general meeting (AGM) have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.morningstar.co.uk/uk/NSM.

The annual report and the AGM circular will also be available on the company's website, www.greeneking.co.uk.

Lindsay Keswick

Company Secretary

Greene King plc

LEI: 213800R9N5F2WRMGTR50

8 August 2018

Information required by the Disclosure and Transparency Rule 6.3.5

The principal purpose of this announcement is to notify the submission by the company to the UK Listing Authority of copies of the annual report and financial statements and of the AGM circular. However, the information set out below, which is extracted from the annual report, is also included in the announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issues as to how to make annual financial reports public. It should be read in conjunction with the company's preliminary results announcement released on 28 June 2018. This material is not a substitute for reading the full annual report. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the annual report.

Responsibility statement

The following statement is extracted from page 75 of the annual report and is not connected to the extracted information presented in this announcement or in the preliminary results announcement.

"Statement of directors' responsibilities in respects of the financial statements

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

The United Kingdom Companies Act 2006 requires the directors to prepare financial statements for each financial period that give a true and fair view of the financial position of the group and the parent company and the financial performance and cash flows of the group for that period. Under that law the directors have elected to prepare the group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and in accordance with applicable law, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101").

In preparing these financial statements the directors are required to:

   --     select suitable accounting policies and then apply them consistently; 
   --     make judgments and estimates that are reasonable and prudent; 

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

-- in respect of the group financial statements, state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the group's financial position and financial performance;

-- in respect of the parent company financial statements, state whether applicable United Kingdom Accounting Standards, including FRS 101 have been followed, subject to any material departures disclosed and explained in the financial statements; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and/or the group will continue in business.

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

Under applicable law and regulations the directors are also responsible for preparing a strategic report, directors' report, directors' remuneration report and corporate governance statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

The directors confirm, to the best of their knowledge:

-- that the consolidated financial statements are prepared in accordance with IFRSs, as adopted by the European Union and in accordance with applicable law, give a true and fair view of the assets, liabilities, financial position and profit of the company and undertakings included in the consolidation taken as a whole;

-- that the annual report, including the strategic report, includes a fair review of the development and performance of the business and the position of the company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-- having taken into account all matters considered by the board and brought to the attention of the board during the year, the directors consider that the annual report, taken as a whole, is fair, balanced and understandable. The directors believe that the disclosures set out in this annual report provide the information necessary for shareholders to assess the company's performance, business model and strategy."

The names of the directors who gave these statements are:

Rooney Anand (chief executive)

Philip Yea (chairman)

Mike Coupe

Gordon Fryett

Rob Rowley

Richard Smothers

Lynne Weedall

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 33 of the report and accounts.

"This section highlights some of the key risks and uncertainties which affect Greene King. The group is of course exposed to risks wider than those listed, but these are believed to be likely to have the greatest impact on our business at this moment in time.

Strategic priorities

   1.   Build brands that customers admire 
   2.   Provide offers that deliver compelling value, service and quality 
   3.   Develop people who exceed expecations 
   4.   Maintain a well located and invested estate 
   5.   Manage our finances prudently 

Strategic risks

   1.      Business strategy 

Specifics and potential impact

Failure to adopt the right strategy for the group or poor execution of the group's strategy could lead to reduced revenue, profitability and lower growth rates than our strategic objectives.

Link to strategic priorities

1, 2, 3,4

Change since last year

No change

Mitigation

Our strategy is focussed on building brands that customers admire, creating offers that deliver compelling value, service and quality, developing people who exceed expectations, maintaining a well-located and invested estate and managing our finances prudently. 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, with a particular focus on our Pub Company business.

Risk tolerance

We are comfortable managing risks which we understand and are consistent with the delivery of our strategic objectives.

   2.      Customer offer 

Specifics and potential impact

Failure to deliver an appealing customer offer, to identify and respond to fast-changing consumer tastes and habits (including the use of digital media), to respond to increased competition, to price products appropriately and to align the portfolio to the market could all lead to reduced revenue, profitability and lower market share and growth rates than anticipated. It is unclear how consumers will respond to the outcome of the Brexit negotiations.

Link to strategic priorities

1,2,3,4,5

Change since last year

Increased.

Mitigation

We will focus on our four main brands going forward, as explained elsewhere in this report, although we retain the ability to tailor a pub's offer to its local customer requirements. We use guest satisfaction tools, TripAdvisor scores and net promoter scores to collect customer feedback and measure performance of our pubs.

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. The success of the GBP10m we invested this year in the customer offer continues to be monitored. Food and drink quality remain a high priority, as do a focus on team training and digital enhancements.

Risk tolerance

With our vision to be the best pub and beer company in the UK we expect to be able to react swiftly and appropriately to changing consumer trends to maintain earnings and the achievement of our strategic objectives.

Economic and market risks

   3.      Economic uncertainty and cost pressures 

Specifics and potential impact

We are at risk of a weakening economy and softer consumer confidence in the UK, which may become more volatile as Brexit looms. We also continue to face significant cost headwinds, including the National Living Wage, the Apprenticeship Levy, the sugar tax and utilities taxes, which could all lead to reduced revenue, profitability and lower growth rates. In Pub Partners any difficulties our tenants are facing, such as cost/revenue pressure and the availability of finance to fund investment, also impact us.

Link to strategic priorities

1,2, 3, 4

Change since last year

Increased.

Mitigation

We have a relentless focus on value, service and quality and are continuing to invest in our pubs. Plans have been developed to mitigate much of the anticipated cost increases facing the business, including changes to the management structure to increase our competitiveness and agility. We have a broad geographic spread of pubs across the country, including in London and the south east.

Risk tolerance

We acknowledge and recognise that in the normal course of business, the group is exposed to risks in this area. We are willing to accept a level of risk in order to achieve our strategic priorities and will manage the business accordingly.

Operational and people risks

   4.      GDPR compliance 

Specifics and potential impact

The implementation of the General Data Protection Regulation in the UK has highlighted the need to ensure that all our data processing activities are compliant with the new legislation, that we have the technical and operational systems in place to secure the data we hold. A significant personal data breach could impact our ability to do business, impacting both revenue and profitability. In addition the risk of reputational damage and financial damage from fines or compensation has increased.

Link to strategic priorities

1,3,5

Change since last year

new

Mitigation

A GDPR implementation team, under the sponsorship of senior management, has implemented a range of policy, procedural, and compliance control improvements across the business, covering all aspects of the new requirements, and activities will continue to improve the management of these risks, led by our data governance committee, data protection officer and data protection champions across the business. Staff training has been introduced for all employees and further specialist follow-up training will be provided to employees whose roles involve significant processing of personal data. Solutions are being implemented for a number of issues identified during the implementation programme. There will be an ongoing programme to monitor data processing activities and ensure compliance going forward.

Risk tolerance

We have a low tolerance for significant breaches of GDPR.

   5.      Cyber/IT security 

Specifics and potential impact

A significant cyber security breach or other loss of data could impact our ability to do business, impacting both revenue and profitability as well as potentially compromising employee, customer and supplier data. Deliberate acts of cyber crime are on the increase, targeting all markets and heightening risk exposure.

Link to strategic priorities

1,3,5

Change since last year

Increased.

Mitigation

We constantly monitor cyber threats to our business and have a programme of works to counter ongoing cyber threats. Our cyber programme focuses on a continuous evaluation of threat and a programme of strengthening controls to mitigate the evolving threats such as ransomware, IT security controls, threat surveillance, patching, retirement of legacy systems and user education - to ensure our defences are strong and evolve as necessary. Disaster recovery plans for our critical applications have been successfully tested, and the architecture is constantly being updated and tested to improve the scale of speed of recovery of our IT systems.

Risk tolerance

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

   6.      Recruitment, retention and development of employees and licensees 

Specifics and potential impact

If we are unable to recruit, develop and retain key employees it may be more difficult to execute our business plans and strategy, impacting our revenue and profitability. The impact of Brexit negotiations is yet to be fully understood. For our Pub Partners division we face similar issues with regard to licensees.

Link to strategic priorities

1,2,3

Change since last year

Increased

Mitigation

We have both a branded recruitment plan to ensure that we attract suitable candidates and operate a range of apprenticeship programmes. 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 GBP3m in the year on training and development, and have rolled out 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. For our tenanted pub business we have a range of tenancy agreements, training programmes and support available to attract and retain the best quality licensees.

Risk tolerance

The nature of the sector in which we operate is predisposed to high employee turnover levels, but we have a low tolerance for levels which exceed the sector average, and we expect our staff to have the appropriate skills to deliver the functions of the business.

   7.      Suppliers, distributors and our own production facilities 

Specifics and potential impact

We are reliant on a number of key suppliers and third party distributors to supply goods 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 increased costs. If we were unable to brew, package and distribute our own beers for long periods we could suffer loss of revenue and profitability.

Link to strategic priorities

1,2

Change since last year

Increased

Mitigation

We maintain back up plans in case of the failure by or loss of a key supplier, and we expect our key suppliers to maintain disaster recovery plans which we review on a regular basis. Regular monitoring is undertaken of KPIs applicable to both third party suppliers and distributors, with issues flagged for resolution. In the event of a failure in our own production and distribution activities a range of alternative solutions exist to enable us to continue to brew, package and distribute our own beers.

Risk tolerance

We recognise that we carry an inherent risk in relation to both our own production facilities and third party suppliers but we seek to minimise this risk through management and control.

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

Specifics and potential impact

If we fail to comply with major health and safety legislation and cause serious injury or loss of life to one of our customers, employees or tenants, this could have a significant impact on our reputation, leading to financial loss. If there is an issue in our food supply chain, including the provision of incorrect allergen information, that leads to serious illness or loss of life to one of our customers this could lead to restrictions in supply, potential increases in the cost of goods and reduced sales.

Failure to comply with employment-related legislation such as those relating to the National Minimum Wage and right to work could lead to HMRC fines and additional expense.

Link to strategic priorities

1,2, 3,4

Change since last year

No change.

Mitigation

We have a comprehensive range of formally documented policies and procedures in place, including centrally managed systems of compliance KPI tracking and internal and independent audits to ensure compliance with current legislation and approved guidance. Our health and safety policies have been reviewed by our primary authority partner, Reading Borough Council, which has rated our safety management system, which includes training for all relevant staff, as very good. We have also established a link between environmental health 'Scores on the Doors' and remuneration incentives for relevant employees, and we have introduced procedures to improve in-pub support at times of change of general manager.

In our tenanted estate we have a detailed compliance programme to ensure that pubs are safely handed over to new tenants and we provide technical support and audit to our key tenanted food businesses and those with the poorest hygiene ratings. In relation to our food supply chain we require all suppliers to have BRC or SALSA accreditation as a minimum and we risk rate suppliers on an annual basis to determine audit type and frequency. Regular meetings are held with key suppliers to review issues and follow up on any corrective actions required.

We have systems designed to ensure compliance with right to work and National Minimum Wage legislation.

Risk tolerance

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

Financial risks

   9.      Funding requirements 

Specifics and potential impact

If we are unable to meet the funding requirements of the group we risk reduced revenue and lower profitability than our strategic plan.

Link to strategic priorities

1, 4, 5

Change since last year

Decreased

Mitigation

The group's debt structures and financing requirements are reviewed by the board who ensure that the capital structure plan continues to support the requirements of the strategic 3 year plan. The group has a GBP400m revolving credit facility for general corporate purposes outside the securitisation and debenture vehicles, which expires in 2021. In November 2017 we signed a new 3-year revolving credit facility for GBP350m to finance the purchase of pubs from the Spirit debenture to refinance the debenture debt. In December 2017 we prepaid the Spirit debenture A1, A6 and A7 bonds, eliminating cash sweep and margin step up in the debenture.

Risk tolerance

We expect the group to be able to access suitable financial facilities to meet the ongoing requirements of the business and our longer term strategic objectives.

   10.    Covenant risks 

Specifics and potential impact

If we are unable to meet the covenant requirements of the group's debenture, securitisation and other financing arrangements our ability to pay dividends or reinvest cash could be affected, which in turn would damage our reputation and ongoing creditworthiness.

Link to strategic priorities

1, 4, 5

Change since last year

No change.

Mitigation

Long term strategy and business plans are formulated to ensure that financial covenants can be met and monitored on a regular basis. Working capital is carefully forecast, regularly reviewed and closely managed by the finance teams. Our refinancing model closely tracks future covenant headroom across all debt platforms through all transactions considered.

Risk tolerance

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

   11.    Pension scheme funding 

Specifics and potential impact

Any inability to meet the funding requirements of our defined benefit pension schemes, which are subject to the risk of changes in life expectancy, actual and expected price inflation and investment yields, could impact our balance sheet, whilst the volatility of the deficit makes longer-term planning more difficult.

Link to strategic priorities

5

Change since last year

No change.

Mitigation

All our final salary schemes are closed to future accrual to reduce volatility. Liability management programmes are in place and there is an ongoing dialogues with the trustees regarding funding requirements. 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.

Risk tolerance

We expect to maintain funding levels for our pension schemes at manageable levels."

Related party transactions

The following description of related party transactions is extracted from page 122 of the annual report.

   "31       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 is deemed to be related parties. The results and financial position of these entities have been consolidated.

Compensation of directors and other key management personnel of the group

 
                                                                               2018    2017 
                                                                               GBPm    GBPm 
 Short term employee benefits (including national insurance contributions) 
  Post-employment pension and medical benefits                                  5.2     5.1 
  Termination benefits                                                          0.6     0.6 
  Share based payments                                                            -       - 
                                                                                0.1     0.1 
---------------------------------------------------------------------------  ------  ------ 
                                                                                5.9     5.8 
 

Key management personnel

Key management personnel are deemed to be those employees who are directors of Greene King plc or its subsidiaries.

Directors' interests in an employee share incentive plan

Details of the options held by executive members of the board of directors are included in the remuneration report. No options have been granted to the non-executive members of the board under this scheme."

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August 08, 2018 04:24 ET (08:24 GMT)