INTERIM RESULTS FOR THE 24 WEEKS TO 14 OCTOBER 2018

Transcription

1 INTERIM RESULTS FOR THE 24 WEEKS TO 14 OCTOBER 2018 Group revenue Adjusted profit before tax 1,2 Statutory profit before tax Adjusted earnings per share 1,2 Dividend per share 3 Net debt: EBITDA 1,2 Return on capital employed 2 1,051.2m 128.2m 127.7m 33.1p 8.8p 4.2x 8.5% +1.9% +0.2% +3.2% +0.3% Flat Flat -0.5%pts HIGHLIGHTS 2 Continued LFL sales momentum in Pub Company Pub Company like-for-like (LFL) sales up 2.7%, ahead of the market 4 up 1.1% Driven by the ongoing benefits from our investment in value, service and quality (VSQ), our strategic focus on four core brands, and boosted by good weather and the World Cup Pub Partners LFL net income up; Brewing & Brands revenue up 7.5% Consistent cash generation, disciplined capital allocation & attractive property valuation Operating cash generated 5 covers scheduled debt repayment, core capex and dividends Further steps taken to refinance Spirit debenture, reducing cost and increasing flexibility of our debt; to date annualised cash interest saving c. 13m and net present value benefit c. 45m Interim dividend maintained at 8.8p per share; dividend cover 5 of 1.9x Estate optimisation; tail disposal proceeds fund new builds, helping to grow average weekly take in Pub Company by 7.9% over the last three years Pub estate valuation supports maintained leverage; market value of 4.5bn Current trading and outlook LFL sales in Pub Company were up 2.9% at week 30; Pub Partners and Brewing & Brands performing in line with expectations Christmas bookings well ahead of last year Remain on track to limit full year net cost inflation to 10-20m Rooney Anand, chief executive officer We have seen continued positive momentum in Pub Company, which was sustained beyond the boost of the World Cup and the summer weather. The hard work of our teams, combined with the investments we made to improve our customer experience, is driving sales outperformance to the market. We remain highly cash generative, meeting our debt repayment requirements, investing in our pubs and paying an attractive, sustainable dividend out of operating free cashflow. Good progress was made refinancing the Spirit debenture, which will reduce the cost of our debt and increase the strength and flexibility of our balance sheet. Looking forward, Christmas bookings are up on last year and we look forward to ensuring customers have a great time celebrating the festive season in our pubs. Ongoing uncertainty around Brexit may impact on consumer confidence, but as a team we are focused on our key strategic priorities and remain confident of our outlook for the financial year. FOR FURTHER INFORMATION Greene King plc Rooney Anand, chief executive officer Tel: Richard Smothers, chief financial officer Finsbury Alastair Hetherington / Philip Walters Tel: Further information is available at or on Twitter There will be a presentation for analysts and investors at 9.30am at TLT, 20 Gresham Street, London EC2V 7JE. 1

2 The conference will also be accessible by phone: ; UK Toll Free; +44 (0) Standard International Access. Conference ID: Greene King HEADLINE GROUP RESULTS 24 weeks H119 H118 YOY Change Total revenue 1,051.2m 1,031.4m +1.9% Pub Company 850.3m 837.0m +1.6% Pub Partners 90.9m 92.1m -1.3% Brewing & Brands 110.0m 102.3m +7.5% Group EBITDA 1, m 240.7m -2.0% Group operating profit before exceptional and nonunderlying items 1, m 188.4m -2.0% Pub Company 134.2m 136.9m -2.0% Pub Partners 41.4m 43.6m -5.0% Brewing & Brands 15.0m 14.8m +1.4% Group profit before tax and exceptional and nonunderlying items m 127.9m +0.2% Basic EPS p 35.1p -5.7% Adjusted basic EPS 1,2 33.1p 33.0p +0.3% Dividend per share 3 8.8p 8.8p Flat Core capital expenditure m 60.0m - 1.8m Net debt 2,017.9m 2,118.9m m Net cash flow from operations 153.5m 96.9m m Free cash flow m 10.6m m 1. Adjusted measures exclude the impact of exceptional and non-underlying items as detailed in note 3 of this statement. 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 32 of this announcement. 3. Dividend per share paid and proposed in respect of the period. 4. Coffer Peach Business Tracker 5. On a last twelve month basis 6. Exceptional and non-underlying tax has been restated. As a consequence basic EPS has been restated. See note 4 for further details. NOTES FOR EDITORS Greene King was founded in 1799 and is headquartered in Bury St. Edmunds, Suffolk. It currently employs around 39,000 people across its main trading businesses; Pub Company, Pub Partners and Brewing & Brands At the end of the period, Greene King operated 2,798 pubs, restaurants and hotels across England, Wales and Scotland, of which 1,714 were retail pubs, restaurants and hotels, and 1,084 were tenanted, leased and franchised pubs. Its leading retail brands are Greene King, Chef & Brewer, Farmhouse Inns and Hungry Horse Greene King also brews quality ale brands from its Bury St. Edmunds and Dunbar breweries. Its industry-leading portfolio includes Greene King IPA, Old Speckled Hen, Abbot Ale and Belhaven Best 2

3 CHIEF EXECUTIVE S REVIEW The positive momentum at the start of the financial year continued through the first half with Pub Company maintaining its market outperformance, reflecting the success of initiatives to drive underlying sales growth, recording LFL sales growth of 2.7%. Our Greene King branded local pubs traded particularly well, with LFL sales of 4.9%. Pub Partners LFL net income was ahead of last year and Brewing & Brands revenue was up 7.5%, helped by the good summer weather. Our cost mitigation programme is on track and we still expect to offset 30-35m of the 45-50m gross cost inflation forecast for the year. Meanwhile, we made further steps towards refinancing the Spirit debenture and have now refinanced 43% of this debt platform, reducing the cost of our debt and increasing the strength and flexibility of our balance sheet. We remain focused on upholding our long track record of strong cash flow generation before disposal proceeds, covering our scheduled debt repayments, core capex requirements and our attractive, sustainable dividend. In addition, we continue to improve our estate quality and drive higher returns by recycling capital from non-core pub disposals to fund new builds and acquisitions. Through this proven strategy we can continue to deliver long-term value for our shareholders. PERFORMANCE SUMMARY Group revenue was 1,051.2m, 1.9% ahead of last year, driven by strong sales performances in Pub Company and Brewing & Brands. This sales growth, as well as the reduction in interest costs from the ongoing Spirit debenture refinancing programme, offset the underlying cost pressures and enabled group profit before tax and non-underlying and exceptional items 1,2 to increase by 0.2% to 128.2m. Pub Company delivered total sales of 850.3m, up 1.6% from 2.4% fewer pubs. Average weekly take (AWT) per pub was 20.6k, up 4.0%, reflecting the programmes in place to improve underlying sales, as well as the good weather and the successful World Cup. LFL sales were up 2.7%, driven predominantly by higher drink volumes. Pub Company operating profit was 134.2m, down 2.0%, and the operating profit margin was 15.8%, down 0.6%pts, due to cost inflation, the implementation of the VSQ investment programme in the second half of last year and the phasing of cost mitigation plans during the year. Pub Partners revenue was down 1.3% to 90.9m due to 4.6% fewer pubs trading year-on-year. LFL net income was ahead of last year, driven by higher LFL rental income as well as increased LFL drink sales. Pub Partners operating profit margin was down 1.8%pts and LFL net profit was down 1.0%, due to higher central costs, including one-off legal costs. Brewing & Brands revenue was up 7.5% to 110.0m following the good summer weather and the World Cup. Operating profit was up 1.4%, while the operating profit margin was down 0.9% due to mix, with an increased sales contribution coming from third party beers. Free cash flow, which is reported before disposal proceeds, was 25.4m, up 14.8m due to reduced tax and interest payments, and our operating cash over the last twelve months more than covered our scheduled debt repayments, core capital expenditure and dividend payments. Proceeds from the disposal of 40 pubs and 13 other properties were 30.7m, from which we funded three new builds and two single site acquisitions. Adjusted earnings per share were up 0.3% to 33.1p and the board has recommended a half year dividend per share of 8.8p, 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 returns on investment for core development capex were over 30% and the net asset value per share was As part of the Spirit debt refinancing programme, we carried out an estate revaluation which indicated a market value of 4.5bn, versus a book value of 3.6bn. TRADING ENVIRONMENT Conditions in our main markets are reducing the supply of competitors, with the pace of eating and drinking out outlet closures accelerating. The annual rate of decline increased from 1.3% in March 2018 to 2.5% in June 2018 (source: CGA & Alix Partners Market Growth Monitor). Restaurant numbers, which were up 11.0% in total for the five years from , declined by 1.0% in the second quarter of 2018, while pubs and bars declined by 1.3%. 3

4 The drink-led segment continued to outperform the food-led segment and this trend was intensified by good summer weather and the World Cup. The moving annual total (MAT) LFL sales growth for drink-led pubs was up 2.7%, while pub restaurants MAT LFL sales were up 0.3% and restaurants were down 0.9% (source: Coffer Peach Business Tracker October 2018). Our strong portfolio of brands and our active estate management programme enable us to react dynamically to shifting consumer behaviour. We extended the Greene King brand into more food-led pubs, which helped to improve our drinks offer in those pubs through better ranging, especially in categories such as gin and cider. Both consumer confidence and leisure spending increased over the summer months but declined more recently, driven by negative sentiment around levels of personal debt and disposable income (Deloitte UK Leisure Consumer Q3 2018). Subdued consumer confidence coupled with the growing uncertainty around Brexit means that providing the best VSQ for our customers is critical for improving market share. Our ongoing customer investment programme helped drive increases in Net Promoter Scores (NPS) and TripAdvisor scores across each of our four focus brands, with Farmhouse Inns recently topping the MCA Pub Brand Monitor rankings for average customer scores. While the cost inflationary environment remains a headwind for the industry, we have a robust mitigation programme in place to help offset increased costs and protect our consumers from rising prices. We remain on track to mitigate 30-35m of costs and made further progress refinancing the Spirit debenture, thereby reducing our total cost of debt. PRIORITIES FOR THE YEAR At our full year 2018 results, we identified three strategic priorities for the year, on which we have delivered good progress over the first half. Pursuing these clear priorities will help us deliver on our long-term vision of being the best pub and beer company in Britain. In addition, we are putting contingency plans in place in the event of a no deal Brexit to mitigate potential disruption to the business. 1. Improve underlying sales growth We are focused on continuing to deliver sales growth and market outperformance. We will not drive LFL sales at any cost and will seek to strike the right balance between sales growth and margin delivery. Progress delivered so far this year includes: Local marketing investment increased 21% Labour deployment at weekends improved KVI (known value item) drinks pricing extended into 420 more pubs; 9% average price reduction Improved key dish ingredient quality; food quality NPS improved to 89.4% Total NPS up to 61.5% and total TripAdvisor score up to non-core pubs disposed; three new builds opened and two acquisitions completed Eight pubs transferred between Pub Company and Pub Partners, four each way 2. Develop a more efficient and effective organisation We will continue to operate a diversified but integrated business model covering managed pubs, tenanted pubs and brewing. Within this, given the ongoing industry cost pressures and the fast pace of consumer change, we have to become a more efficient and effective organisation. Progress delivered so far this year includes: Head office and field-based staff restructure completed Committed investment in training; 1.6m invested in the period; improved induction training attendance Introduction of tablets for pub general managers to improve administrative efficiency Improved engagement scores for business development managers, general managers and kitchen managers; overall engagement up to 63% 3. Further strengthen our capital structure We have a strong and flexible balance sheet supported by our relentless focus on generating sufficient cash, pre-disposals, to cover our debt service requirements, our core estate capex and an attractive dividend to our shareholders. To further strengthen our capital structure and pursue the delivery of this strategy, we will continue to invest in growth opportunities while looking to refinance the Spirit debenture. Our Spirit refinancing plan is both reducing the overall cost of debt and increasing the flexibility of our debt platform. 4

5 We announced the prepayment of 55% of the A4 bonds during the period and have now prepaid 331m or 43% of the Spirit debenture in total, delivering both cash and P&L benefits Strengthening our capital structure will help ensure that, in a challenging trading environment, we can continue to pay attractive dividends and return dividend cover to around 2x in the longer-term Based on the recent revaluation of our estate, our loan to value (LTV) was 47.2% 4. Putting plans in place to help mitigate potential Brexit disruption We continue to monitor the progress of Brexit negotiations and have identified the key areas of risk to our business from a no deal outcome. We are working closely with our supply chain partners to safeguard the continued supply of goods to our pubs and breweries, as well as the export of our beers. We have a relatively small percentage of our workforce who are non-uk EU nationals and we are taking steps to ensure those employees have our full support through this period of uncertainty. PEOPLE Greene King s greatest asset is our people and we have around 39,000 team members employed across the group. Retaining the best people and developing and investing in them are critical to our continued success. During the period, we completed a head office restructure to better align the Pub Company support centre to the simplified brand portfolio and to develop a more efficient organisation. At the same time, we increased our investment in training, spending 1.6m in the period and supporting over 3,000 employees through training workshops. Our company-wide online training platform continues to attract high levels of participation and around 130,000 courses were completed. We also invested in improving our staff benefits programme, helping to increase employee engagement to 63% and reduce vacancies in our pub leadership teams by 11%. Our award winning apprenticeship programme continued to grow with over 1,000 apprentices joining the business and more than 300 vacancies being filled through the scheme during the period. We continue to draw down on our Apprenticeship Levy and would like to see government reallocate unused levy funds to companies like Greene King who could support the employment of more apprentices. Over 11,000 apprentices have benefitted from the Greene King apprenticeship programme since its launch in We were ranked Top 100 Apprenticeship Employer by both Rate My Apprenticeship and All About School Leavers. In addition, we were thrilled to receive the UK Social Mobility Award for Best Recruitment Programme of the Year 2018, as well as the Princess Royal Training Award 2018, recognising our commitment to learning and development. COMMUNITY Our pubs are at the heart of communities across the country. Our national charity partnership with Macmillan Cancer Support is now in its seventh year and continues to go from strength to strength. We raised 840k during the period, including a record 370k raised during our annual fundraiser, Macmillan May, and to date we have raised a total of 4.9m. In addition, we continue to support the Prince s Trust Get into Hospitality initiative and delivered one programme during the period, with six more planned for the year, bringing the total to 17, benefitting 185 young people so far. We are committed to operating sustainably and as part of our commitment to send Zero Waste to Landfill by 2020, we announced the removal of single use plastic straws from our business, replacing them with a compostable alternative. Our unique closed loop supply chain means the straws are collected in the pub and then sent back through our supply chain to an industrial composter. This saves over 30m plastic straws every year. 5

6 PUB COMPANY 24 weeks H119 H118 YOY Change Ave. no. of pubs trading 1,722 1, % Revenue 850.3m 837.0m +1.6% EBITDA m 180.7m -2.3% Operating profit m 136.9m -2.0% Operating profit margin % 16.4% -0.6%pts Ave. EBITDA per pub k 102.4k +0.2% 1. Before exceptional and non-underlying items 2. Coffer Peach Business Tracker Pub Company total sales were up 1.6% to 850.3m despite 2.4% fewer pubs trading on average. Strong drinks sales growth was partially offset by a decline in food sales. Premium draught lager was up 12.9% and packaged lager was up 17.0% while cocktails were up 17.6% and spirits were up 20.3%. Pub Company AWT was up 4.0% to 20.6k and average EBITDA per pub was up 0.2% to 102.6k. Pub Company operating profit margin was down due to cost inflation and the increased VSQ investment year-on-year. LFL sales were up 2.7%, ahead of the market 2 by 1.6%pts, driven by our investment in VSQ, our strategic focus on the four core brands and boosted by the strong weather and the World Cup. Since the acquisition of Spirit in 2015, we have pruned the retail portfolio to focus on the strongest brands that will maximise sales potential and deliver economies of scale and efficiencies within Pub Company. We now have four focus brands - Greene King, Hungry Horse, Chef & Brewer and Farmhouse Inns - and they cover over 90% of the managed pub estate. Our 1,000 Greene King branded local pubs traded particularly well, with LFL sales of 4.9%, outperforming the drink-led pub segment by 1.2%pts. This strong sales performance was underpinned by a successful World Cup campaign. Chef & Brewer and Hungry Horse delivered LFL sales growth, outperforming their segments. Chef & Brewer continued to benefit from strong returns on investment and sales were boosted by an increased drinks focus over the summer. We invested more in the adultonly areas of Hungry Horse pubs and focused on rhythm of the week food offers, helping to support the improved sales performance. Farmhouse Inns, our suburban and out of town carvery offer, was negatively impacted by the summer weather but recently topped MCA s Pub Brand Monitor rankings for average customer scores following our focus on driving improved service at the busiest times. Our VSQ investment contributed strongly to our market outperformance. We extended KVI drinks pricing into 420 more pubs. Investment in local marketing activities increased 21% and labour deployment at the weekend was significantly improved. We delivered improvements in food quality by focusing on key dish ingredient quality and our food quality NPS improved to 89.4%. As a result of our VSQ investment, NPS and Trip Advisor scores improved at each of our four focus brands, driving total Pub Company NPS to 61.5% and the total TripAdvisor score to 3.8. Our LFL sales growth was also supported by our strong World Cup campaign. We maximised the sales opportunity presented by England s longevity in the tournament through our successful partnership with Chris Kamara and advertising activity on Talk Sport. 3.7m pints of beer were sold in our pubs during England s seven World Cup matches and LFL sales on the day of the semi-final were up 61%. Our digital marketing activities were also key to our World Cup campaign. Our Season Ticket app, which has had over 160,000 subscribers since its launch, drove sales of over 3.5m through its targeted sports offers. Improvements in our websites and CRM targeting resulted in 11.9% more online bookings year-on-year, while our Facebook following rose to above 4m users. With our increased online engagement and proven sports marketing strategies we will continue to target sales opportunities from sports events in the second half of the year. 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 while maintaining a focus on driving sales and customer-facing activities. 67m capex was spent in Pub Company in the period, comprising 43m of core capex and 24m in new builds, freehold reversions and brand optimisation. We disposed of 16 pubs, generating income of 6

7 5m, and opened three new builds and completed one single site acquisition. In addition, we transferred four pubs from Pub Company to Pub Partners and four pubs from Pub Partners to Pub Company. Our active estate management helped drive average EBITDA 1 per pub up 0.2% to 102.6k. PUB PARTNERS 24 weeks H119 H118 YOY Change Ave. no. of pubs trading 1,098 1, % Revenue 90.9m 92.1m -1.3% EBITDA m 48.3m -5.2% Operating profit m 43.6m -5.0% Operating profit margin % 47.3% -1.8%pts Ave. EBITDA per pub k 42.0k -0.7% 1. Before exceptional and non-underlying items In Pub Partners we have a high quality portfolio of 1,084 mainly drink-led pubs. The division generates significant cash for the group, adds purchasing scale, enhances the Greene King brand and provides flexibility in our estate planning. Pub Partners sales were down 1.3% to 90.9m, impacted by the 4.6% reduction in the average number of pubs trading. LFL net income was comfortably ahead of last year, driven by higher LFL rental income as well as increased LFL beer, wine and spirits sales. LFL net profit was down 1.0%, due to higher central costs, including one-off legal costs relating to a legal challenge to the Pubs Code Adjudicator. The high quality of our Pub Partners estate has been achieved through ongoing estate portfolio management and disciplined capital allocation. We disposed of 24 non-core pubs this period, raising 25m in proceeds, completed one acquisition and invested 9m in the core estate. Pub Partners gained four pubs via internal transfers from Pub Company but another four pubs were transferred to Pub Company where we will generate better returns under the managed pub model. We have mitigated the majority of requests to go Market Rent Only (MRO); we currently have five MRO agreements in place and expect one more to complete by the end of the year. Meanwhile, the average licensee tenure increased to six years, reflecting the strong relationships we build with our licensees. Our support to licensees in driving footfall and maximising profit resulted in average EBITDA per pub of 41.7k. We are providing 13% of Pub Partners pubs with food through the Greene King supply chain and the number of pubs signed up to our digital services package for online purchasing increased from 142 at the year end to 328 at the period end. In addition, 265 of our operators currently use our Sports Club package, delivering customer promotions for sports events. We remain committed to investing in our licensees and supported nearly 800 delegates through training programmes during the period. Finally, the Red Lion & Sun in Highgate, one of our Pub Partners sites, was awarded UK s Best Pub at the Great British Pub Awards. BREWING & BRANDS 24 weeks H119 H118 YOY Change Revenue 110.0m 102.3m +7.5% EBITDA m 17.1m +2.9% Operating profit m 14.8m +1.4% Operating profit margin % 14.5% -0.9%pts 1. Before exceptional and non-underlying items 2. BBPA total ale market data 7

8 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. Revenue in Brewing & Brands was up 7.5%, driven by increased sales of third party beers as a result of the good summer weather and the World Cup. OBV was down 2.2% but ahead of the ale market 2 which was down 5.0%. Operating profit was up 1.4% to 15.0m while the operating profit margin was 13.6%. 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 is 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 in the UK; Old Speckled Hen Gluten Free is the best-selling gluten free ale in Britain; and Belhaven Best remains the number one draught ale in Scotland and number four keg ale in the UK. In addition, East Coast IPA continued its strong growth, with total volume growth of 28%. The success of our brands is supported by our disciplined brand investment programme. Greene King IPA is the official beer of England Cricket and the official sponsor of the Greene King IPA Rugby Championship. To drive Old Speckled Hen sales, we ran our biggest-ever on-pack promotion, the Win a Richer Life competition, with nearly 40,000 entries. The Belhaven brewery celebrates its 300th birthday in 2019 and we are pursuing a high profile PR and marketing campaign to mark the occasion, including launching a Belhaven celebration ale. In addition, we 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 strong portfolio of beers and our ongoing innovation in brewing, especially at our Belhaven brewery. Twisted Grapefruit IPA was named Beer of the Year 2018 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 2018 winning the gold award in the Ale & Others category. Finally, our New Product Development brewer Ross O Hara qualified as a Master Brewer from the Institute of Brewing and Distilling, which made him the youngest Master Brewer in the world. OUTLOOK The strong momentum in Pub Company has been maintained since the period end with LFL sales up 2.9% after 30 weeks. Ongoing uncertainty around Brexit may impact on consumer confidence, but as a team we are focused on our key strategic priorities and remain confident of our outlook for the financial year. Rooney Anand Chief executive officer 28 November

9 FINANCIAL REVIEW INCOME STATEMENT million 24 weeks to 14 October weeks to 15 October 2017 Revenue 1, ,031.4 Adjusted operating profit Adjusted net finance costs 1 (56.4) (60.5) Adjusted profit before tax Exceptional and non-underlying items (0.5) (4.2) Profit before tax Adjusted measures exclude the impact of exceptional and non-underlying items. Revenue was 1,051.2m, 1.9% ahead of last year boosted by the good weather during the summer and the successful World Cup. Pub Company sales were 850.3m, accounting for 81% of group revenue. Total revenue in Pub Partners was 90.9m and in Brewing & Brands was 110.0m. Operating profit before exceptional and non-underlying items was 184.6m, which was 2.0% below last year. Group operating profit margin before exceptional and non-underlying items was down 0.7%pts to 17.6%, reflecting a 0.6%pts reduction in Pub Company margin to 15.8% and a decline in Brewing & Brands margin of 0.9%pts to 13.6%. The reduction in Pub Company margin was due to the investment in VSQ year-on-year and significant cost inflation. This was only partially offset by cost mitigation plans which are more weighted to the second half of the year, while the Brewing & Brands margin fall was due to channel mix and the increased sales contribution from third party beers. Net interest costs before exceptional and non-underlying items were 56.4m. The interest costs for the full year are expected to be between 125m and 130m. Profit before tax, exceptional and non-underlying items was 128.2m, 0.2% ahead of last year. The tax charge before exceptional and non-underlying items equated to an effective tax rate of 20.0% (2017: 20.0%). Adjusted basic earnings per share before exceptional and non-underlying items were 33.1p, 0.3% higher than Statutory profit before tax was 127.7m, up 3.2%, benefitting from reduced finance costs and a reduction in exceptional and non-underlying items compared to the previous year. TAX The effective rate of corporation tax (before exceptional and non-underlying items) of 20.0% is in line with the same period last year. This resulted in a charge to operating profits (before exceptional and non-underlying items) of 25.6m (2017: 25.6m). The exceptional and non-underlying tax credit of 0.6m (2017: 10.7m) is discussed under exceptional and non-underlying items. EXCEPTIONAL AND NON-UNDERLYING ITEMS We recorded an exceptional and non-underlying items credit of 0.1m in the period, consisting of a 1.9m charge to operating profit before tax, a 1.4m credit to finance costs and a net exceptional and non-underlying tax credit of 0.6m. Items recognised in the year included the following: 1. A 4.8m charge for employee costs and other legal and professional fees relating to restructuring activity undertaken in the period 2. A net impairment credit of 0.2m (2017: net charge of 14.0m) made against the carrying value of our pubs and other assets. This comprises an impairment charge of 26.2m offset by reversals of previously recognised impairment losses of 26.4m 3. A net surplus on disposal of property plant and equipment of 8.2m (2017: 9.3m) 4. A 7.0m charge (2017: 7.7m) increasing the property lease provision for onerous contracts 5. A 1.5m pension settlement credit in relation to the pension increase exchange exercise within the Greene King pension scheme m of credits to exceptional and non-underlying finance costs which includes 5.1m of credits in respect of the mark-to-market movements in the fair value of interest rate swaps not 9

10 qualifying for hedge accounting, 5.1m costs recycled from the hedging reserve in respect of settled interest rate swap liabilities and a 1.4m gain on settlement of financial liabilities 7. The exceptional and non-underlying tax credit of 0.6m consists of a 1.7m tax charge on exceptional items and a 2.3m tax credit in respect of non-underlying items Of the 0.1m total exceptional and non-underlying items credit, we incurred cash expenditure of 3.7m relating to restructuring costs, refinancing activity and previously accrued items. CASH FLOW AND CAPITAL STRUCTURE million 24 weeks to 14 October weeks to 15 October 2017 Adjusted EBITDA Working capital and other movements 2 (22.1) (20.3) Net interest paid 2 (60.1) (65.2) Tax (paid)/ refunded (9.5) Adjusted cash generated from operations Core capital expenditure (58.2) (60.0) Dividend (75.6) (75.6) Net repayment of trade loans/ other non-cash movements Free cash flow Disposal proceeds New build/ brand conversion capital expenditure (24.5) (22.8) Exceptional and non-underlying items/ share issues (3.7) (49.0) Payment of derivative liabilities (13.5) - Change in net debt 14.4 (44.4) 1 Adjusted EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional and non-underlying items. 2 Adjusted measures exclude the impact of exceptional and non-underlying items. The group continued to be highly cash generative with cash generated from operations of 157.2m, up 11.5m compared with last year. This more than covered our debt repayment requirements, core capital expenditure and dividend during the period. Disposal proceeds of 30.7m reflected our ongoing programme of estate optimisation and we invested 24.5m in three new builds and 37 brand conversions. The group disposed of 16 pubs in Pub Company and 24 pubs in Pub Partners, raising proceeds of 30.3m, with a further 0.4m generated through the sale of unlicensed property. The group has continued to develop a strong, flexible and cost effective balance sheet. On 28 June 2018, 62.3m (30%) of the Spirit A4 secured bond was repaid at 103.3% of its par value, resulting in an exceptional gain on early settlement of 0.4m. The group also made a payment of 7.4m to terminate 30% of the corresponding interest rate swap contract. On 28 September 2018, a further 51.9m (25%) of the Spirit A4 secured bond was repaid at 101.6% of its par value, resulting in an exceptional gain on early settlement of 1.0m. The group also made a payment of 6.1m to terminate a further 25% of the corresponding interest rate swap contract. The gains on early settlement amount to the difference between the carrying value of the repaid bonds (comprising the nominal value and a fair value premium) and the settlement amount paid (comprising the nominal value and a prepayment penalty). Since June 2017, the group has repaid a total of 331m of Spirit secured bonds which represents 43% of the nominal value of the Spirit securitised debt outstanding at F17 year end. The refinancing to date has generated an annualised cash interest saving of c. 13m and a net present value (NPV) benefit of c. 45m. 10

11 In line with our strategic priorities, the group s objective is to maximise the strength and flexibility of its balance sheet, and maintain a capital structure aimed at meeting the short, medium and longerterm funding requirements of the business. The principal elements of the group s capital structure are its revolving credit facilities, which were 338m drawn at the period end, and two long-term assetbacked financing vehicles. At the period end, the Greene King securitisation had secured bonds with a carrying value of 1,318.1m and an average life of 10 years, secured against 1,414 pubs with a carrying value of 1.7bn. The Spirit debenture had secured bonds with a carrying value of 444.2m and an average life of nine years, secured against 831 pubs with a carrying value of 1.0bn. The group s credit metrics remain strong with 88.2% of net interest costs at a fixed rate and an average cash cost of debt of 5.9%. On an annualised basis, fixed charge cover was 2.2x and net debt to EBITDA was 4.2x. The Greene King secured vehicle had a free cash flow debt service cover ratio of 1.6x at the period end, giving 29% headroom. The Spirit debenture vehicle had a free cash flow debt service cover ratio of 2.4x giving 45% headroom. Group net debt at the period end was 2,017.9m, a reduction of 14.4m from the previous year end and 101.0m lower than last year. BALANCE SHEET million 14 October April 2018 Restated 1 Goodwill and other intangibles 1, ,223.9 Property, plant and equipment 3, ,597.8 Post-employment assets Net debt (2,017.9) (2,032.3) Derivative financial instruments (204.6) (241.1) Other net liabilities (505.7) (485.7) Net assets 2, ,076.2 Share capital and premium Reserves 1, ,775.5 Total equity 2, , Deferred tax, goodwill and retained earnings have been restated. See note 4 for further details. PENSIONS 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 14 October 2018, there was an IAS 19 pension asset of 30.4m representing an improvement of 16.8m since the previous year end. The improvement in position is due to the ongoing pension increase exchange exercise within the Greene King pension scheme and an increase in the discount rate. The triennial valuations for both the Greene King and Spirit pension schemes will be as at April 2018 and are due to be finalised by July The last triennial valuation was carried out in 2015 and resulted in a combined 16.1m funding deficit across both the Greene King and Spirit schemes. RETURN ON CAPITAL EMPLOYED The group is focused on delivering the best possible return on assets and on the investments made. We are focused on capital discipline, through targeted investment in new build pubs, single site acquisitions and in developing our existing estate to drive organic growth, alongside disposals of noncore pubs. ROCE of 8.5% was down 0.5% pts from last year, primarily as a result of trading conditions at the end of the last financial year and the ongoing impact of cost headwinds. 11

12 DIVIDEND The board has declared an interim dividend of 8.8 pence per share, which is in line with last year. This will be paid on 18 January 2019 to shareholders on the register at the close of business on 7 December GUIDANCE FOR FINANCIAL YEAR 2018/19 There has been no material change in guidance since the preliminary results announced in June We expect total gross cost inflation of around 45-50m and, after our cost mitigation plans of 30-35m, we expect net cost inflation of 10-20m. We anticipate opening c.9 pubs and disposing of pubs and expect to raise disposal proceeds of 60-70m in the full year. We anticipate investing m, excluding brand optimisation capital expenditure, on maintaining and developing our pubs, in order to ensure they remain attractive places for customers to spend their time. Spend on the brand optimisation programme is expected to total 15-20m, out of a total spend over four years of m, and we are targeting EBITDA returns significantly ahead of our cost of capital. We expect the interest charge to be in the region of m when taking into account the charge relating to our debt facilities, pensions and provisions, and the in-year benefit from the Spirit refinancing. The pre-exceptional tax rate is now expected to be c.20% due to the level of non-qualifying depreciation in relation to buildings which are not entitled to tax relief. Richard Smothers Chief financial officer 28 November

13 RISKS AND UNCERTAINTIES The principal risks and uncertainties facing the group during the period under review and going forwards for the remainder of this year have not materially changed from those set out on pages 31 to 37 of the 2017/2018 annual report and accounts, which can be viewed via the website. In addition, in relation to Brexit, the group has identified significant risks in relation to a potential no deal Brexit that could materially affect the business including supply chain disruption and availability of products, difficulties in attracting and retaining employees from within the EU, increased administration on tax and customs as well as a tightening of the property markets affecting both acquisitions and disposals. Elsewhere in this interim report there is more information on the risks associated with the economy, consumer sentiment and the trading performance of the group and, whilst a number of the risks facing the business have increased or broadened in scope since the year end, so too have the mitigation actions being undertaken to deal with them. The risks that were set out in the 2017/18 annual report are summarised as follows: Failure to adopt the right strategy for the group, and poor execution of the strategy 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 and to consumer sentiment following the UK s departure from the EU 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 Non-compliance with the General Data Protection Regulation and related legislation. A significant cyber security breach or other loss of data Inability to attract, retain, develop and motivate talented employees and licensees, including following the UK s departure from the EU Reliance on a number of key suppliers and third party distributors and on our ability to produce, package and distribute our own beers Non-compliance with health and safety legislation, food safety legislation and employment legislation Inability to meet the funding requirements of the enlarged group Liquidity and covenant risk relating to the group s securitisation and other financing arrangements Funding requirements of the group s defined benefit schemes 13

14 RESPONSIBILITY STATEMENT The directors confirm that to the best of their knowledge: a) the condensed set of financial statements has been prepared in accordance with IAS34; b) the interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year ; and c) the interim management report includes a fair review of the information required by DTR 4.2.8R disclosure of related party transactions and changes therein. On behalf of the board Philip Yea Chairman Rooney Anand Chief executive 14

15 UNAUDITED GROUP INCOME STATEMENT for the twenty-four weeks ended 14 October weeks to 14 Oct weeks to 15 Oct 2017 Before Before Exceptional exceptional Exceptional and nonunderlyinunderlying and non- and nonunderlying Exceptional and nonunderlying Items Items Total items Items Total (Note 3) (Note 3) Restated 1 Restated 1 Note m m m m m m Revenue 2 1, , , ,031.4 Operating costs (866.6) (1.9) (868.5) (843.0) (16.3) (859.3) Operating profit (1.9) (16.3) Finance income Finance costs (56.9) 1.4 (55.5) (60.9) 12.1 (48.8) Profit before tax (0.5) (4.2) Tax 4 (25.6) 0.6 (25.0) (25.6) 10.7 (14.9) Profit attributable to equity holders of parent Earnings per share - basic p 35.1p - adjusted basic p 33.0p - diluted p 35.1p - adjusted diluted p 33.0p Dividend proposed per share in respect of the period 8.8p 8.8p 1 Exceptional and non-underlying tax has been restated. As a consequence basic EPS has been restated. See note 4 for further details. 2 Adjusted earnings per share excludes the effect of exceptional and non-underlying items. 15

16 UNAUDITED GROUP STATEMENT OF COMPREHENSIVE INCOME for the twenty-four weeks ended 14 October weeks to 24 weeks to 14 Oct Oct 2017 Restated 1 m m Profit for the period Other comprehensive income to be reclassified to the income statement in subsequent periods: Cash flow hedges Gains on cash flow hedges taken to other comprehensive income Transfers to income statement on cash flow hedges Tax on cash flow hedges (3.3) (3.2) Items not to be reclassified to the income statement in subsequent periods: Re-measurement gains on defined benefit pension schemes Tax on re-measurement gains (2.4) (3.6) Other comprehensive gain for the period, net of tax Total comprehensive income for the period, net of tax 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 4 for further details. 16

17 UNAUDITED GROUP BALANCE SHEET as at 14 October As at As at 14 Oct Apr 2018 Restated 1 Note m m Non-current assets Property, plant and equipment 3, ,589.2 Intangible assets Goodwill 1, ,099.2 Financial assets Derivative financial instrument Deferred tax assets Post-employment assets Prepayments Trade and other receivables , ,881.2 Current assets Inventories Financial assets Income tax receivable Prepayments Trade and other receivables Cash and cash equivalents Property, plant and equipment held for sale Total assets 5, ,240.5 Borrowings 8 (77.1) (54.6) Derivative financial instruments 9 (9.9) (20.6) Trade and other payables (394.1) (420.0) Off market contract liabilities 10 (17.8) (17.9) Income tax payable (14.4) - Provisions 10 (33.0) (29.5) (546.3) (542.6) Non-current liabilities Borrowings 8 (2,061.2) (2,146.2) Trade and other payables (1.8) (1.8) Off market contract liabilities 10 (225.9) (228.6) Derivative financial instruments 9 (199.5) (222.0) Provisions 10 (25.7) (23.1) (2,514.1) (2,621.7) Total liabilities (3,060.4) (3,164.3) Total net assets 2, ,076.2 Issued capital and reserves Share capital Share premium Merger reserve Capital redemption reserve Hedging reserve (141.8) (158.1) Own shares (0.1) (0.5) Retained earnings 1, ,178.8 Total equity 2, ,076.2 Net debt 8 2, , Deferred tax, goodwill and retained earnings have been restated. See note 4 for further details.

18 UNAUDITED GROUP CASH FLOW STATEMENT for the twenty-four weeks ended 14 October weeks to 24 weeks to 14 Oct Oct 2017 Note m m Operating profit Operating exceptional and non-underlying items Depreciation and amortisation EBITDA Working capital and other movements 7 (25.8) (43.1) Interest received Interest paid (60.4) (65.6) Tax refund/(paid) 3.6 (35.5) Net cash flow from operating activities Investing activities Purchase of property, plant and equipment (82.7) (82.8) Advances of trade loans (2.1) (1.9) Repayment of trade loans Sales of property, plant and equipment Net cash flow from investing activities (51.2) (64.6) Financing activities Equity dividends paid 6 (75.6) (75.6) Issue of shares Purchase of own shares - (0.5) Payment of derivative liabilities (13.5) - Financing costs 8 (2.9) - Repayment of borrowings 8 (140.1) (52.9) Advance of borrowings Net cash flow from financing activities (171.3) (98.7) Net decrease in cash and cash equivalents (69.0) (66.4) Opening cash and cash equivalents Closing cash and cash equivalents EBITDA represents earnings before interest, tax, depreciation, amortisation, exceptional and non-underlying items. 18

19 UNAUDITED GROUP STATEMENT OF CHANGES IN EQUITY for the twenty-four weeks ended 14 October 2018 Share Share Merger Capital Hedging Own Retained Total capital premium reserve redemption reserve shares earnings m m m m m m m m Restated at 29 April (158.1) (0.5) 1, ,076.2 Profit for the period Other comprehensive income Total comprehensive income Issue of share capital Release of shares 0.4 (0.4) - Share-based payments Equity dividends paid (75.6) (75.6) At 14 October (141.8) (0.1) 1, ,132.0 Share Share Merger Capital Hedging Own Retained Total Capital Premium Reserve redemption reserve Shares Earnings m m m m m m m m At 30 April 2017 as previously stated (192.2) (0.2) 1, ,944.2 Prior year restatement (note 4) Restated at 30 April (192.2) (0.2) 1, ,948.8 Profit for the period Other comprehensive income Total comprehensive income Issue of share capital Release of shares (0.2) - Purchase of shares (0.5) - (0.5) Share-based payments Equity dividends paid (75.6) (75.6) At 15 October (171.8) (0.5) 1, ,

20 NOTES TO THE ACCOUNTS for the twenty-four weeks ended 14 October BASIS OF PREPARATION The interim condensed consolidated financial statements are prepared in accordance with Disclosure and Transparency rules and with IAS 34 Interim Financial Reporting. The financial information contained in this interim statement does not constitute statutory accounts as defined in section 435 of the Companies Act The figures for the period ended 29 April 2018 have been derived from the statutory accounts of the group for that year. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by auditors without qualification, emphasis of matter or statement under Sections 498(2) and 498(3) of the Companies Act 2006 and have been filed with the Registrar of Companies. The comparatives have been restated in respect of deferred tax, see note 4 for further details. The interim condensed consolidated financial statements for the 24 weeks ended 14 October 2018 and the comparatives to 15 October 2017 are unaudited but have been reviewed by the auditor; a copy of their review report is included at the end of this report. A combination of the strong operational cash flows generated by the business, and the significant available headroom on its credit facilities, support the directors' view that the group has sufficient funds available to meet its foreseeable working capital requirements. The directors, having also considered the principal risks, have therefore concluded that the going concern basis of accounting remains appropriate. The accounting policies adopted in the preparation of the interim report are consistent with those applied in the preparation of the group's annual report for the period ended 29 April 2018, except for the adoption of new standards and interpretations applicable as of 30 April The preparation of the interim report requires management to make judgements, estimates and assumptions in the application of accounting policies that affect reported amounts of assets and liabilities, income and expense. The estimates and judgements considered to be significant are consistent with those applied in the preparation of the group's annual report for the period ended 29 April New standards and interpretations IFRS 15 Revenue from Contracts with Customers The group adopted IFRS 15 on 30 April 2018 using the cumulative catch-up ( modified ) transition method with the effect of initially applying this standard recognised at the date of initial application. Accordingly, the information presented for comparative periods has not been restated and is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. IFRS 15 provides a single, five-step revenue recognition model, applicable to all sales contracts, which is based upon the principle that revenue is recognised when control of goods or services is transferred to the customer. It replaces all existing revenue recognition guidance under current IFRS. IFRS 15 has not had a material impact on the recognition of revenue for any of the revenue streams of the group. Accordingly no separate presentation of its impact on the financial statements is presented. 20