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1、TIME WELL SPENTAnnual report 2016Greene King is theLEADING PUB COMPANY AND BREWER IN BRITAINGreene King is the countrys leading integrated pubretailer and brewer.In June 2015 we acquired Spirit Pub Company.At our year end we operated 3,035 managed,tenanted,leased and franchised pubs,restaurants and
2、hotels,including well known brands such as Hungry Horse,Chef&Brewer,Flaming Grill,Farmhouse Inns and our Greene King locals estate.We also have a proud history of brewing award-winning ales for more than 200 years and our leading ale brand portfolio includes Old Speckled Hen,Greene King IPA,Abbot Al
3、e and Belhaven Best.3,035PUBS,RESTAURANTSAND HOTELSSTRATEGIC REPORT2 Investment case4 Performance highlights5 Chairmans statement6 Focus area Best for customers8 Focus area Best for teams10 Focus area Best for communities12 Chief executives review16 Our business model18 Our markets20 Our strategy22
4、Key performance indicators23 Operational review 23 Pub Company 26 Pub Partners 28 Brewing&Brands30 Financial review33 Risks and uncertainties38 Corporate social responsibilityCORPORATE GOVERNANCE46 Board of directors47 Corporate governance statement51 Nomination committee report52 Audit committee re
5、port55 Remuneration report67 Directors report and disclosures69 Directors responsibilities statements FINANCIAL STATEMENTS71 Independent auditors report77 Group income statement78 Group statement of comprehensive income 79 Group balance sheet80 Groupcashflowstatement81 Group statement of changes in
6、equity82 Notes to the accounts 117 Company balance sheet118 Company statement of changes in equity119 Notes to the company accountsSHAREHOLDER INFORMATION123Groupfinancialrecord124 Shareholder informationIBC GlossaryVIEW THIS REPORT ONLINE KING PLC Annual report 20162STRATEGIC REPORTInvestment caseO
7、uroverallvisionistoBUILD THE BEST PUBS BUSINESS IN BRITAIN1 COMPELLING BLEND OF GROWTH AND DIVIDENDSOver the last five years our proven growth strategy,combined with our attractive dividend policy,has delivered a total shareholder return of 104%compared with a total return for the FTSE All-Share of
8、29%.This includes 29.2%growth in Greene King dividends and 67.1%share price appreciation.11.Past performance is not an indicator of future returns.GREENE KING SHARE PRICE 20112016(p)May 2011 May 2012 May 2013 May 2014 May 2015 May 20162004006008001,0000+67.1%A compelling blend of growth anddividends
9、 Significant and exciting opportunitiesfollowingtheacquisitionofSpiritPubCompany Synergy,scale and reinvestment Brand optimisation Award-winning teams A high quality,well positioned estate A strong and flexible balance sheetOur overall vision is to build the best pubs business in Britain;best for ou
10、r customers,best for our teams,best for our shareholders and best for our communities.Within this,our aim is to offer customers experiences that they will value,remember and want to share.We will achieve this aim principally through the delivery of our five strategic priorities that will ensure we o
11、ffer compelling brand propositions,in high quality pubs,with unrivalled value,service and quality delivered by our award-winning teams.TOTAL DIVIDEND PER SHARE 20122016(p)5101520253530+29.2%201220132014201520160Annual report 2016 GREENE KING PLC3STRATEGIC REPORT4 A HIGH QUALITY,WELL POSITIONED ESTAT
12、EAs at 1 May 2016 we operated 3,035 managed and tenanted pubs.The acquisition of Spirit Pub Company,completed in the year,has increased our national presence while maintaining a focus on the South East(including London)and the East,wherearoundhalfofourestateissituated.We own the freehold title on 83
13、%of our estate.This gives us more freedom to renovate our pubs as we see fit and to buy and sell pubs when we want to in order to optimise growth and returns from the estate.It also removes the ongoing requirement to use a proportion of the cash that we generate to pay rent.We believe that these ben
14、efits,among others,outweigh the initial capital outlay associated with purchasing the freehold title of a pub.Our preference is to hold the freehold title of our assets and,where it makes sense to do so,we will look to acquire the freehold title of leasehold pubs that we currently operate.2 SIGNIFIC
15、ANT OPPORTUNITIES FOLLOWING THE ACQUISITION OF SPIRIT PUB COMPANYSynergy,scale and reinvestmentThe acquisition of Spirit Pub Company was an important step towards achieving our vision to be the best pub company in Britain.In addition to enhanced brand reach and recognition,we have the opportunity to
16、 realise significant cost synergies.We have announced a target of 35m annualised cost savings and we will reinvest synergies in excess of this target in our people,our systems and our brands.Brand optimisationGreene King acquired a strong portfolio of brands and formats with Spirit one that it would
17、 have been very difficult to replicate organically and we have embarked on an exciting journey to optimise the combined brand portfolio.The brand optimisation programme will be an important driver of future growth andvaluecreation.We have identified five growth brands Hungry Horse,Flaming Grill,Farm
18、house Inns,Chef&Brewer and the Greene King brand.The portfolio of growth brands and formats covers a wide range of consumer occasions.DestinationLocalValueMainstreamPremiumGrowth brands/formatsWe estimate profit upside from investment in over 300 of our existing pubs to reposition them into these gr
19、owth brands over the next three years.In 2016/17 we expect to spend 4050m onconvertingaround100sitestoagrowthbrand.3 AWARD-WINNING TEAMSOur people are fundamental to the success of our business andbeingthefirstchoiceforpeoplewhowanttoworkinthehospitality sector is important to us.Key to this is our
20、strategy to engage employees through learning and,having exceeded our target of offering 2,000 apprenticeships last year,we have committed to employing a further 10,000 apprentices across the business over the next three years.During the year,we were recognised by the Sunday Telegraph as a Top 50 Ap
21、prenticeship Employer and following our investment in people and training we were named as the Macro Apprenticeship Employer of the Year 2016 by Apprenticeships 4 England.5 A STRONG AND FLEXIBLE BALANCE SHEETOur aim is to maximise the strength and the flexibility of our balance sheet,and through a r
22、elentless focus on cash generation we will continue to cover our debt service obligation,our core capital expenditure and our dividend through internally generated cash flow.As at 1 May 2016,our net debt relative to EBITDA stood at 3.9x.1 We have successfully reduced this ratio in each of the last f
23、ive years from 5.1x in 2012.NET DEBT RELATIVE TO EBITDA (MULTIPLE OF EBITDA)123452012201320142015201610HALFoftheestatein theSouthEast andtheEast1.Pro-forma.GREENE KING PLC Annual report 20164STRATEGIC REPORT5102403304202,2001,0001,4001,800Performance highlightsGROWTH IN ALL AREASREVENUE(m)2,073.0m+5
24、7.6%EBITDA2(m)496.9m+55.8%OPERATING PROFIT BEFORE EXCEPTIONALS(m)392.2m+53.1%ADJUSTED BASIC EARNINGS PERSHARE1,3(p)69.9p+14.6%PROFIT BEFORE TAX ANDEXCEPTIONALS3(m)256.5m+52.2%DIVIDEND PER SHARE(p)32.05p+7.7%27011015019023020162016201520152014(53 wks)2014(53 wks)20132013201220122,073.0256.51,315.3168
25、.51,301.6173.11,194.7158.21,140.4147.2400801602403202016201520132012392.2256.2265.6248.2236.27035.003015.004020.005025.006030.00201620162016201520152015201320132013201220122012496.969.932.05319.061.029.75329.761.428.4306.555.626.6292.051.324.81501.As throughout,profit figures are shown before except
26、ional items.2.EBITDA represents earnings before interest,tax,depreciation,amortisation and exceptional items and is calculated as operating profit before exceptionals adjusted for the depreciation and amortisation charge for the period.3.20112013 adjusted for the impact ofIAS19(R).4.Previously Retai
27、l.5.Coffer Peach Business tracker.6.Pro-forma,calculated by inclusion of Spirit management accounts data for the seven week pre-acquisition period.EBITDA is adjusted for exceptional items as detailed in note 3 of the financial statements.Market outperformance Pub Company4 like-for-like(LFL)sales+1.5
28、%;aheadofthemarket+1.3%5 Pub Partners LFL net income+2.7%Brewing&Brands own-brewed volume(OBV)+2.9%;alemarketshareup40basispointsto10.5%Financial strength Operating cash flow+24.1%;net debt/EBITDA improvedto3.9x6 Group return on capital employed(ROCE)+10basispointsto9.4%Dividend per share up 7.7%,co
29、ntinuing ourprogressivedividendtrackrecordStrategic and operational progress Five strategic priorities outlined to drive future underlyinggrowth Record customer satisfaction scores in Greene King PubCompany;netpromoterscore(NPS)+7.9%pts Greene King named Best Managed Pub Operator atthe2016PublicanAw
30、ardsAcquired Spirit Pub Company;integration and synergies aheadofplan 16.7m of cost synergies delivered versus year one targetof12m Tenanted and leased integrated ahead of schedule;integration of the managed business well under way Five retail growth brands identified and optimisation programme comm
31、enced to deliver long-term growth6002014(53 wks)2014(53 wks)2014(53 wks)2014(53 wks)Annual report 2016 GREENE KING PLC5STRATEGIC REPORTChairmans statementA STRONG BUSINESSI became chairman of Greene King on 2 May 2016 and so this is my first report to you on the company,its performance and prospects
32、.Greene King is a strong business with an excellent track record and,following the acquisition of Spirit Pub Company during the year,we are at an exciting time in our development.I look forward to working with the board and senior executive team to build upon the success of my predecessor in creatin
33、g further value for all our stakeholders.Overview2016 was a year of strong growth for Greene King,reflecting a continued good performance from the underlying business,enhanced by a substantial contribution from Spirit.Including a 45 week contribution from Spirit,group revenue grew 57.6%and exceeded
34、2bn.Including synergies,operating profit before exceptional items increased by 53.1%and profit before tax and exceptional items grew 52.2%to 256.5m,resulting in a 14.6%increase in adjusted earnings per share to 69.9p.Cash generation remained strong and net debt to EBITDA improved to 3.9x.Excellent p
35、rogress has been made integrating the Spirit business and we realised synergies ahead of target inthefirstyear.DividendAs a result of this strong growth and reflecting confidence in future prospects,the board has recommended a final dividend of 23.6p,giving a total dividend for the year of 32.05p.Th
36、is represents growth of 7.7%compared to last year and continues the long-term track record of progressive dividends.The board continues to target minimum cover of around two times earnings.Our peopleGreene King is a people business and the strength of the business performance during the Spirit integ
37、ration demonstrates the dedication,hard work and passion of our teams.I would like to thank everyone who has worked so hard within the enlarged group during the last year to deliver such strong results while successfully integrating Spirit.Board changesOn 2 February 2016,it was announced that Tim Br
38、idge would be retiring at the end of the financial year after more than 45 years with the company including ten years as chief executive followed by over ten years as chairman.Under Tims leadership,Greene King has been transformed and it is a testament to his astute assessment of people and business
39、 opportunities that the group is in such a good state both operationally and financially.It is a privilege to succeedTimBridgeaschairmanandonbehalfoftheboardIwouldliketothank him for his enormous contribution to Greene King over the years.At the beginning of the financial year,Rob Rowley took over t
40、he role of senior independent director and will be taking the chairmanship of the audit committee at this years annual general meeting(AGM).Ian Durant will be retiring at the AGM after completing nine years as a director,latterly as chair of audit,and I wish to record our sincere thanks for his valu
41、able input andadviceoverthisperiod.Looking aheadThe choice available to the UK consumer who wants to enjoy a drink or amealwithfamilyorfriendshasneverbeenwiderandcapitalcontinuesto be attracted to leisure dining.Greene King has great teams,great brands and great assets and is well placed within this
42、 dynamic environment.The recent decision by the UK to leave the EU will need time to be implemented and the uncertainty this brings is likely to weigh on the economy in the near term.We will not be immune from its effects,but our business has shown resilience in the past,our teams are motivated and,
43、particularly following the Spirit acquisition,we have many opportunities.I look forward to reporting on our continued progress.Philip YeaChairman28 June 2016“We are at an exciting time in our development following the acquisition of Spirit.”Chief executives review page 12Board of directors page 46Co
44、rporate governance page 47GREENE KING PLC Annual report 20166STRATEGIC REPORT BEST FOR CUSTOMERSWe aim to be the best in the eyes of the customer,which means offering our customers industryleading value,service and quality,delivered by the best people and in high quality,appealing pubs with clearand
45、 exciting brands and formats.We acquired a strong portfolio of brands with Spirit and,together withthe existing Greene King brands and formats,we have begun a brand optimisation programme.We reviewed the combined portfolio in order to select those brands and formats that will drive future growth.Foc
46、us areaWeconsidered:the relevance of the brand or format to current and future customers;long-term opportunities to grow and expand the brand;financial performance;and proximity to other brands within the combined group to ensure that we have a balanced portfolio.Following the review,our five growth
47、 brands are Hungry Horse,Flaming Grill,Chef&Brewer,Farmhouse Inns and the Greene King locals estate brand.We then matched each pub with the most appropriate brand andselected a number of pubs in which to trial brand changes.Annual report 2016 GREENE KING PLC7STRATEGIC REPORTIn winter 2015,the Bees K
48、nees Fayre&Square inLeicesterreopenedastheBeesKneesHungryHorseapubrestaurantfocusingongreatvalue food and with zoning allowing more families todineinacomfortableenvironment,whileothercustomers enjoy the option to watch sport.We are very pleased with the results to date:average weekly turnover has in
49、creased by 42%and we have generated a strong return on our investment.We have had some positive feedback from our customers too!BEES KNEES REFURBISHMENTWe commissioned a third party to ask our customers what they thought of the change for their local pub to the Hungry Horse brand.This research has c
50、onfirmed that there is now an increased intention toeatintherestaurantbothduringthedayandintheevening.Ithasalso confirmed that the pub has become more family friendly and likely to be chosen as a venue to celebrate special occasions.These results are in line without overall strategic objective to bu
51、ild strong and attractive brandsandwithinthistobroadentheappealofourpubs.Average weekly takings Before:19.4kAfter:27.5k28%15%Eat in the daytime26%12%Bring my family18%6%Come for special occasions17%9%Eat in the evening12%7%Use it for early evenings ofsocial drinking“Looking ahead,for each of the fol
52、lowing activities below,please say whether you think you will do this more often than before in this pubrestaurant?”Source:PDIQ Brand Conversion Research(Dec 2015)Pre conversion Post conversionGREENE KING PLC Annual report 20168STRATEGIC REPORT BEST FOR TEAMS“I really enjoy working in such a fast-pa
53、ced team and developing not only my education,but also myself.I can see myself growing as a person and would recommend to anybody wanting to learn on the job to look into becoming an apprentice.”Gabrielle Green,18,an apprentice chef at the Ship in BedfordFocus areaAnnual report 2016 GREENE KING PLC9
54、STRATEGIC REPORTOur people make us who we are and they are our greatest asset.We employ more than 44,000 team members across the country,so attracting and retaining the best people,and developing and investing in them,is key to our continued success.We want to offer the best for our teams and one of
55、 the ways in which we support their career aspirations is through our awardwinning apprenticeship programme.Apprenticeships provide learners with valuable skills which will help them to build their career with us.Our programme offers bespoke qualifications that cover a range of jobs,including front
56、of house,kitchen and management,which are tailored to each of ourbrands.Last year,we exceeded our pledge of recruiting 2,000 apprentices,withmore than 3,100 starting their apprenticeship and working towards a nationally recognised qualification.This year,we announced our pledge to recruit a further
57、10,000 apprentices over the next three years.This is our commitment to our people and also to young people looking for that all important first step on the career ladder.The acquisition of Spirit Pub Company provided us with the opportunity to review both apprenticeship programmes and make improveme
58、nts which will benefit the business in the years to come.The main development is that more of our team members are now able to access apprenticeship qualifications across the country.Our apprenticeship programme continues to grow.We have seen a 175%increase in applications to join Greene King as an
59、apprentice compared to the previous year.We are seeing a particular increase in 1624 year olds interested in enrolling on our apprenticeship scheme and,as our business grows,we are committed to supporting this age group further by providing more opportunities to join.Our apprenticeship programme has
60、 been recognised during the last 12months by winning a number of awards,including:one of the Daily Telegraph and Top Apprenticeship Careers Lists Top50 Apprenticeship Employers in the UK;named as a Top 100 Apprenticeship Employer by the National Apprenticeship Service;Apprenticeships 4 Englands Macr
61、o Employer of the Year;VQ Employer of the Year;and National Apprenticeship Service Regional Winner(East of England).3,100APPRENTICES STARTED LAST YEAR,EXCEEDING OUR PLEDGE OF 2,00010,000FURTHER APPRENTICES BY MARCH 2019“we believe we have a responsibility to support young people by creating these op
62、portunities to earn and learn.”GREENE KING PLC Annual report 201610STRATEGIC REPORTFocus area BEST FOR COMMUNITIESFor centuries,pubs have been at the heart of the community and today we continue as our ancestors did before us by serving,and supporting,those who choose to spend time with us.We want t
63、o be the best we can be for our communities.One of the ways we support them is through our charity programme.We wanted to unlock the powerful opportunity we have to raise money for important causes through our local community pubs so,in May 2012,we embarked on our first charity partnership with Macm
64、illan Cancer Support.At that time,we set ourselves a stretching target of raising 1m in three years.We were delighted,and proud,to announce that after three and half years we had raised 2m.We see our team members and guests as the real heroes as they pulled together to show such enthusiasm,passion,b
65、lood,sweat and tears to beat our fundraising goal.Some of the key pieces of activity during the last year included:the Worlds Biggest Coffee Morning;the Hungry Horse Macmillan Week;locals Macmillan Fundraising Month of May;and in local communities,family fun days,bingo nights,bike rides,marathons,cl
66、imbs and much more!This year,we were proud to receive the Pub Aid Award at the All Party Parliamentary Beer Group Annual Awards for our fundraising achievements for Macmillan.The impact and reward of the partnership is not just felt by Macmillan.Ithas helped us to connect with our local communities
67、and allowed our team members to show their creativity,strength and bravery intheir fundraising and build stronger relationships together.We know the 2m raised will make a huge impact on cancer patients and their families and,this year,we revealed we would continue our successful partnership with Mac
68、millan for a further three years.The money raised over the next three years will continue to fund vital services such as Macmillan nurses and local support programmes supporting people withcancer to better self-manage in their own communities.2mPROUD TO HAVE RAISED 2M FOR MACMILLAN CANCER SUPPORT3 y
69、earsEXTENDED PARTNERSHIP FOR A FURTHER THREEYEARSAnnual report 2016 GREENE KING PLC11Our partnership with Greene King began in May2012 and we continue to be overwhelmed by the generosity and ingenuity of Greene King employees and customers in raising money for Macmillan.The money that Greene King ha
70、s raised willmake a real difference to the lives of people affected by cancer and their families.It will provide practical,medical,financial and emotional support andwill help them take back control of their lives.At Macmillan we believe that no one should face cancer alone and with the continued su
71、pport of our partner Greene King no one will.”Rachel Gascoigne,partnership manager at MacmillanCancerSupportSTRATEGIC REPORTChief executives reviewA TRANSFORMATIONAL YEARGROUP REVENUE WAS:2,073.0mOPERATING PROFIT BEFORE EXCEPTIONALITEMS WAS UP:53.1%PROFIT BEFORE TAX ANDEXCEPTIONALSWAS:256.5mADJUSTED
72、 BASIC EARNINGS PERSHAREGREW:14.6%It has been a transformational year for Greene King,with the acquisition of Spirit in June 2015 followed by significant progress integrating the best of both businesses and realising cost synergies,helping to deliver further improvement in earnings and dividends,and
73、 strong returns.Trading environmentIn the first half,improvements in the economic environment,including increased consumer confidence and sustained real income growth,were slow to positively impact the UK eating and drinking out market.As the UK referendum approached in the second half,the environme
74、nt softened and consumers appeared more reluctant to spend discretionary income due to the uncertainty.Following the UKs vote to leave the European Union,the increasingly uncertain trading environment is likely to weigh on consumer sentiment inthenearterm.However,GreeneKinghasastrongtrackrecordofper
75、forming well in challenging trading environments and we have levers topullwithinourbusiness,particularlyfollowingtheSpiritacquisition,torefocusourinvestmentandhelplimittheindirectimpactfromlowerconsumer confidence.In addition,we have limited exposure to European sales,although we have some exposure
76、to foreign exchange rate movements through overseas sourcing.We will look to mitigate the impact of this asfaraspossible.Outside of the consequences of the vote,UK eating and drinking out remains a dynamic market with intense competition for every pound in the consumer pocket.This environment of inc
77、reasing consumer choice extends beyond the traditional pub and restaurant sector and includes thesupermarketsandthetakeawayaggregatorswhohavemadeeatingathomemoreattractive.Understandingthis,andensuringourofferiscompelling enough to compete successfully with this broader competitive set,is increasing
78、ly important for delivering long-term growth.Consumers remain highly value conscious with a heightened awareness ofprice,ademandforexcellentandpersonalisedservice,andadesireforhigher quality on the plate and in the glass.These trends will be exacerbated by the uncertainty surrounding Brexit and we a
79、re well positioned to take advantage of any weakening in spending power utilising our successful value brands and formats.They are also seeking experiences they can share with both friends and family and with a much wider audience on social media.Our aim is to create experiences that our customers w
80、ill value and remember,and that they want to share with others.While digital and technology will increasingly contribute to the overall customer experience,it is the physical interaction with our people and our pubs that will enhance these experiences.We believe that our high quality estate,together
81、 with our approach to digital,can set us apart from our broad competitive set.Annual report 2016 GREENE KING PLC13STRATEGIC REPORTOur people are core to our business and we constantly strive to pay them appropriately for their hard work while also ensuring we maintain a high level of investment in t
82、heir development and training.We remain confident of being able to mitigate most of the impact from the ongoing increases in the National Living Wage.We continue to expect the benefits of mitigating actions to be fully achieved in 2018/19 and there are no changes to our estimate that the incremental
83、 impact,over and above general wage inflation,will be 2m in the current financial year and will reach an annualised run rate of 6m per annum in 2018/19.Now that the revised statutory Pubs Code has been announced,and assuming there are no further changes,we are planning for the introduction of the Co
84、de at the end of July 2016.We believe the overall financial impact on the group will be immaterial.Performance summary Total revenue grew 57.6%to 2,073.0m while operating profit1 was 53.1%higher than last year at 392.2m,including 16.7m of synergies achieved during the year.The operating margin was 1
85、8.9%,0.6%pts lower than last year.This comprised a positive contribution from cost synergies,diluted by a higher contribution from managed pubs,higher lease costs following the Spirit acquisition and incremental investment in our people and in customer service.In Pub Company,this investment in our p
86、eople helped to drive LFL sales growth of 1.5%,ahead of the market2,and included LFL sales growth in the original Greene King managed estate of 1.9%.Total sales growth in Pub Company was 68.7%while operating profit grew by 56.8%to 299.2m.13 new pubs were opened during the year.Having achieved a reco
87、rd customer satisfaction score in Greene King Pub Company in the first half,further progress was achieved in the second half resulting in a 7.9%pts increase in the full year.We also saw an improved trend in team member retention and in our food safety ratings.The improvements in these metrics indica
88、te the success of our teams in continuing with business as usual during the integration process.The tenanted and leased businesses were successfully integrated at the end of the first half and the combined Pub Partners business grew LFL net income by 2.7%in the year.Average EBITDA per pub increased
89、by 14.3%reflecting further improvements in estate quality as a result of the Spirit acquisition,the disposal of 48 pubs from the combined estate and synergy contribution.Brewing&Brands achieved record revenue of 196.9m,including 2.9%OBV growth,and we extended our share of the UK ale market by 40bps
90、to 10.5%.Operating profit grew 9.7%to 32.7m.The integration of Spirit progressed ahead of plan,with synergy realisation of 16.7m in the year exceeding our expectations.Overall,the positive group performance delivered a 24.1%increase in net cash flow generated from operations and we again covered our
91、 debt service obligation,core capital expenditure and dividend from internally generated cash.Net debt to EBITDA improved to 3.9x.Adjusted earnings per share grew 14.6%to 69.9p and,as a result of thisgrowthandourconfidenceinthefuture,wehavedeclareda7.7%increase in the dividend per share,maintaining
92、our long-term progressive dividend policy.The business achieved another year of robust returns,generating a ten basis point increase in ROCE to 9.4%,which remains comfortably ahead of our weighted average cost of capital(WACC).1.Throughout this review,operating profit,operating profit margin and EBI
93、TDA arestatedonapre-exceptionalbasis.2.Coffer Peach Business Tracker.Serving food ataHungry Horse.GREENE KING PLC Annual report 201614STRATEGIC REPORTChief executives reviewcontinuedSpirit integration On 23 June 2015,we completed the acquisition of Spirit Pub Company,adding 791 managed pubs and 416
94、tenanted and leased pubs to the estate.Following a thorough review of Spirit,we commenced the exciting task of integrating these two leading pub businesses using a best of both companies approach.At the end of the first half of the year,our two tenanted and leased businesses were integrated ahead of
95、 schedule.We also drove strong acceptance of the Greene King beer brands within Spirits managed pubs and we announced a decision to retain both the Spirit and Greene King head offices.During the second half,the Greene King beer portfolio gained further traction within Spirit pubs,we commenced the ro
96、ll out of the best of both pub IT system and the majority of the people transition wascompleted.The scale of change in the combined business since the acquisition is significant.While maintaining trading momentum,we have driven fundamental improvements to how the business is structured and run.Keepi
97、ng Spirits Burton office as the headquarters for our managed pub business and putting together a senior management team with the requisite retailing experience and skills has given us a platform to create an exceptional retailing business that can generate sustainable competitive advantage.Following
98、 a strong start,momentum with the realisation of cost synergies continued in the second half with good progress on procurement,where we saw a number of supplier negotiations concluded sooner than anticipated.As a result,16.7m of cost synergies were achieved in the year compared with our original exp
99、ectation of around 12m.We continue to anticipate annual cost synergies in the region of 35m by the end of 2017/18,of which 80%will be realised by the end of this financial year.Non-recurring costs of achieving these synergies are still expected to total 25m.Our intention remains to invest cost syner
100、gies in excess of our stated target tostrengthenkeyareaswithinPubCompanysuchasourpeople,oursystems and our brands.“The acquisition of Spirit in June 2015 was followed by significant progress integrating the best of both businesses.”The new Pub Company support centre in Burton,Spirits former headquar
101、ters.Annual report 2016 GREENE KING PLC15STRATEGIC REPORTBrand optimisation We acquired a strong portfolio of brands and formats with Spirit one that would have been very difficult to replicate organically and we continue to anticipate material benefits from optimising the combined brand portfolio,w
102、hich will provide an exciting growth opportunity over the next few years.The combined business has 20 brands and formats and our plan is to reduce this to around ten.We are evolving the future brand portfolio and plan tofocusonfivegrowthretailbrandsandformats:HungryHorse,FlamingGrill,Farmhouse Inns,
103、Chef&Brewer and Greene King.We will also continue to develop our hotels and Metropolitan,our premium London pub format.In order to select the growth brands and formats to invest in,we looked at the consumer relevance and financial performance of each brand,the long-term opportunities to grow and exp
104、and and the proximity to other pubs within the combined group.There is potential profit upside from investment in over 300 of our existing pubs to reposition them into the growth brands over the next three years.Our priority in 2016/17 is to convert around 100 Fayre&Square pubs into the growth brand
105、s,of which the majority will be rebranded as Hungry Horse.We also plan to simplify our Local Pubs estate.We will reduce the number of formats and we will replace any existing retail branding with Greene King branding,considerably increasing the size of the Greene King branded estate and creating a s
106、ignificant pub retail brand in the UK eating and drinking out market.In the current year,we expect to spend around 4050m on these conversions and anticipate generating EBITDA returns significantly above our cost of capital.We expect a 1m dilutive profit impact in the first year,including the impact
107、of additional opening costs.Best for our communitiesOur pubs are at the heart of the community and have a unique opportunity to play an active role in the communities they serve.We understand the importance of operating a sustainable and responsible business and,as an industry leader,it is our duty
108、to set an example by delivering a winning social responsibility programme.During the year,we were proud to deliver the following initiatives:in March we announced that our teams and customers raised 2m forourcharitypartner,MacmillanCancerSupport,doublingourinitialtarget.To mark the milestone,we were
109、 pleased to renew our partnership with Macmillan Cancer Support for a further three years;a partnership with The Princes Trust to launch ten programmes across the country giving unemployed young people an opportunity to step into work;for the third year running,we donated to the Pub is the Hub Commu
110、nity Services Fund in order to help to support rural pubs that want to diversify their services for the benefit of their communities;and further reduction in water consumption with Spirit named as the Water Efficient Project of the Year at the 2015 Energy Awards.Outlook Trading in the first eight we
111、eks of the year has strengthened,helped by the European Football Championships and better weather in May,with Pub Company LFL sales up 2.8%.We are pleased with the initial performance of the brand optimisation programme and the exciting opportunity this presents to deliver long-term growth,and today
112、 we have outlined five strategic priorities todeliverourvisionofbeingthebestpubcompanyinBritain.The increasing uncertainty surrounding the UKs future withdrawal from the European Union is likely to have a negative impact on the economy and on consumer confidence in the near term.However,with our tra
113、ck record of success in previous challenging conditions,our strong balance sheet and the limited direct impact on our business from Brexit,we remain confident that our strategy will drive further growth in earnings,returns and dividends and we look forward to delivering further financial and strateg
114、ic progress in the current financial year.Rooney AnandChief executive28 June 2016Dining at a Chef&Brewer pub.GREENE KING PLC Annual report 201616STRATEGIC REPORTOur business modelDELIVERING VALUE TO ALL STAKEHOLDERSThe Greene King vision is to be the bestcompanyinBritain:thebestforourcustomers,thebe
115、stforourteams,the best for our shareholders and thebestforourcommunities.Our integrated business model is predicated on balancing strong cash generationwithinvestmenttofurtherposition the business towards long-term growth markets and,as a result,deliver valuetoallofourkeystakeholders.Our business co
116、nsists of three divisions:PubCompany(previouslyRetail),PubPartnersandBrewing&Brands.Underpinning our business model is a financial strategy tomaximisethestrength,flexibilityandefficiencyofourbalance sheet,with the aim of supporting growth through investmentinourexistingestateandselectivelyacquiringn
117、ewsites,whilemaintainingourprogressivedividendpolicy.Pub Company:Our Pub Company consists of both more food-focused destination pubs and restaurants and more community-focused local pubs.The principal revenue streams are food and drink available for consumption on our premises.We gain further revenu
118、e from our accommodation offer on some sites,and a number of our sites have gaming machines.The success of our Pub Company is driven by our customers desire to eat and drink outside of their homes and is specifically determined by the number of customers we attract and the amount that they spend wit
119、h us.Pub Company(1,841 pubs)is the key growth driver for the group and in this division we typically own andoperatethepubs.Thisdivisionisakeyfocusareaforgrowthandwewill continue to invest the cash generated from the group in our people and ourpubstoensurethatPubCompanycontinuestogainshareoftheUKeati
120、nganddrinkingoutmarket.Pub Partners:Pub Partners is responsible for operating our tenanted,leased and franchised pubs and aims to ensure that each pub has the right licensee to operate it,on the right agreement with the right offer.Revenue in our Pub Partners business of 1,215 pubs is principally ac
121、hieved through the supply of beer and other drinks to our licensees and the rent that they pay us for the pub and our support.We also derive a small portion of revenue from gaming machines.Although we invest in this business to ensure that wecanofferprospectivelesseesthebestpubsthecashgeneratedispri
122、ncipallyreinvestedintoPubCompany.Brewing&Brands:Our Brewing&Brands division operates two breweries,one in Bury St Edmunds and the other in Dunbar,that brew our core portfolio of ales,which are complemented by an innovative range of craft ales.We generate revenue in this division from the sale and di
123、stribution of ales produced by us in our own breweries,and from the sale and distribution of drinks(both alcoholic and non-alcoholic)produced by third parties.As well as to our internal customers in the other divisions,we also sell our ales tootherpubcompaniesandtoindividualfreetradecustomers.Afurth
124、erimportant revenue stream is the sale of our own-brewed ales to supermarkets and other retail outlets and,increasingly,in the export market.An integrated business modelIn addition to driving growth in Pub Company through enhanced investment,further benefits of our integrated business model include
125、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 arecustomersofBrewing&Brandsincreasingthedistributionofourales.Acquisition of SpiritThe acquisition of Spirit has added additional s
126、cale in both Pub Company and Pub Partners,which,in addition to increasing our brand presence and recognition,creates opportunities to realise cost synergies in areas such as procurement and distribution.We have outlined a best of both companies approachtotheintegration.Forexample,wehavebasedourPubCo
127、mpanydivision at the Spirit office in Burton-upon-Trent,while continuing to locate the Pub Partners division,Brewing&Brands and the company headquarters in Bury St Edmunds.This arrangement means that Pub Company is more centrally located,reflecting our national scale and reach in this division,while
128、 protecting the heritage and legacy of Greene King by retaining a significant presence in Suffolk.We will also optimise the combined brand portfolio,reducing the number of brands and formats from 20 to around ten,including five growth brands,and focusing our investment.Pub PartnersBrewing&BrandsPub
129、CompanyAnnual report 2016 GREENE KING PLC17STRATEGIC REPORTHungry Horse awarded Best Value Pub Restaurant Menu1Best Managed Pub Operator2Improved value,service andquality;recordNPSTop 50 Apprenticeship Employer4Best Work Experience Provider20155Will employ a further 10,000 apprentices over three yea
130、rsRaised 2m forMacmillandoubleourinitialtargetWater Efficient ProjectoftheYear3Princes Trust partnershipROCE 9.4%+10bpsOperating cash flow+24.1%Full year dividend+7.7%CustomersCommunitiesShareholdersTeamsBEST FOR OUR.1.Menu Innovation and Development Awards.2.2016 Publican Awards.3.2015 Energy Award
131、s.4.The Daily Telegraph.5.Springboard Awards forExcellence.Delivering value toallstakeholdersGREENE KING PLC Annual report 201618STRATEGIC REPORTOverviewOur core markets are the UK eating out and UK drinking out markets.We also compete in the UK ale market with our brewing of cask and premium ales,a
132、nd have a foothold in the UK staying out market.Over the last 12 months our core markets have continued to be supported bythemacroeconomicenvironment.Alongsidetherestofthesector,wecontinuetonavigateanumberofchangesintheregulatoryenvironment,inparticulartheintroductionoftheNationalLivingWageandthesta
133、tutoryPubs Code.The long-term fundamentals behind our core markets remain strong and we are cautiously optimistic about the future.We have seen the UK eating out market grow and expect it to continue to do so.We also believe it will become increasingly dynamic with intense competition for every poun
134、d in the consumers pocket.The UK drinking out market will continue to show resilience and hold its share of leisure spend.Positive sector LFL growth continued,although it was alittle more subdued in the second half of the yearUK MARKET LFL GROWTH(%ROLLING MAT)Jun 2012Jun 2013Jun 2014Jun 2015Apr 2016
135、0.5%1.0%1.5%2.0%2.5%0.0%Source:Coffer Peach Business Tracker.While recent sector like-for-like(LFL)sales growth has been a little more subdued,within Pub Company,our largest and fastest growing business,we successfully outperformed the market in the 12 months to April 2016,growingourLFLsalesby1.5%,i
136、ncludingby1.9%intheoriginalGreeneKingmanaged estate.Economic environmentThe macroeconomic environment continued to provide a strong backdrop to our core markets with consumers experiencing increases in average weekly earnings(supportedbyatighteninglabourmarket).Asaresultofalowinflationary environmen
137、t,the climb in consumer confidence throughout 2015 and an increasing appetite for households to spend rather than save,we saw UKrealhouseholdspendinggrowbyc.2.8%in2015.1However,the picture was mixed across the year and,in the second half,astheUKreferendumontheEuropeanUnionapproached,consumerconfiden
138、ce dipped and the economic environment showed some signs ofsofteningwithconsumersmorereluctanttospenddiscretionaryincome in the face of such uncertainty.We remain cautiously optimistic about the future UK economic outlook and expect consumer discretionary spend to continue to grow,albeit ataslowerra
139、teasthegrowthinaverageweeklyearningsslows(asthecountry approaches full employment)and inflation picks up.Although the referendum is now behind us,the process by which Britain extracts itself from Europe is uncertain.We are mindful of the potential impact of this uncertainty on the consumer and expec
140、t consumer confidence to remain more subdued until this is clearer.We are also mindful of the longer-term impact on household incomes from government plans to reduce welfare spending,which are likely tohaveadisproportionateimpactonthosewithlowerincomes.Households have been increasingly choosing to s
141、pend rather than saveUK HOUSEHOLD SAVING RATIO(%)Consumer confidence was strong throughout 2015,but dipped in early 2016UK CONSUMER CONFIDENCE COMPOSITE INDEXPolitical environmentRegulatory forces have played,and will continue to play,a key role inshapingourmarketsandourbusiness.In July 2015,it was
142、announced that the UK government would introduce acompulsoryminimumwagepremiumforallstaffover25yearsofage,known as the National Living Wage.Our people are core to our business and we constantly strive to pay them appropriately for their hard work while maintaining a high level of investment in devel
143、opment and training.We remain confident of being able to mitigate most of the impact from the ongoing increases in the National Living Wage.Throughout the year,the Small Business,Enterprise and Employment Act has taken steps towards implementation,with the publication of a draft statutory Pubs Code
144、in April 2016.Now that the revised Code has been announced,and assuming there are no further changes,we can start to plan for its introduction at the end of July 2016.We believe that the overallfinancialimpactonthegroupwillbeimmaterial.We welcomed the Chancellors decision to freeze excise duty in Ma
145、rch 2016.We maintain our support for an alcohol minimum unit price(MUP).We believe MUP,alongside other measures such as improved alcohol education,can be a highly effective measure in reducing irresponsible retailing and consuming of alcohol,therefore helping to reduce the costs to society of rising
146、 alcohol related illness and crime.We await more detail around the proposed Apprenticeship Levy and will again look to work with government to ensure that this legislation supports rather than hinders investment in people development and training.1.Source:Thomson Datastream,Capital Economics.Sep 201
147、2May 2013May 2014May 2015May 2016-30-20-10010-40Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 20154%2%6%8%10%12%14%0%Our marketsSource:GfK.Source:Capital Economics.Annual report 2016 GREENE KING PLC19STRATEGIC REPORTUK eating outWe offer a variety of eating out options and experiences across both ourdestina
148、tionandlocalcommunitypubs,witheatingoutrepresentingc.40%ofleisurespendin2015.We compete in a broad UK eating out market made up of around 330,000 outlets and annual total spend of c.85bn1.Within this market,the pubs and bars segment consists of around 50,000 outlets and total spend ofc.22bnc.25%ofov
149、eralleatingoutspend.The market is increasingly dynamic.An environment of increasing consumer choice extends beyond the traditional pub and restaurant sector and includes the supermarkets,who have successfully made eating at home more attractive,and the takeaway aggregators who facilitate the option
150、of combining the ease of eating out with the comforts of home.Understanding this,and ensuring ourofferiscompellingenoughtocompetesuccessfullywiththisbroadercompetitive set,is increasingly important for delivering long-term growth.The overall UK eating out market is expected to grow at an average ann
151、ual rate of c.34%over the next three years1,supported by rising real incomes,supply growth in the market and increases in the proportion ofadultseatingoutofhomeandthefrequencywithwhichtheydoso,driveninparticularbyyoungeradults.Hectic lifestyles and the increasing desire to seek experiences mean that
152、 consumers are increasingly attracted to both informal dining with great value food and drink across all day parts as well as more premium offerings.Segments of the market such as fast food and retail grab and go will therefore be among the fastest growing parts of the market.We will continue to dev
153、elop our offer to meet these needs,and are making progress in improving our coffee offer and targeting breakfast and snack sales as well as the more traditional out-of-home dining occasions.The pubs and bars segment is forecast to hold its share of this market atc.25%.Managedandbrandedpubswillbethek
154、eydriversoftheevolution of the pub sector as consumers are drawn to brands that standoutandhavedefined,consistentpropositionsthatsignalreassuringbrand familiarity,excitement and the opportunity to try something new.Incontrast,overallspendinthetenantedandleasedsectorwillcontinueto decline primarily a
155、s a result of falling supply.We see an opportunity here to buck the inherent market decline by strengthening the quality ofourestatetowinsharefromlesswellinvestedcompetitors.UK drinking outThrough our pubs and our portfolio of award-winning ales we offer choice for all types of drinkers and occasion
156、s.Drink is a key driver of overall spend in the pubs sector with 40%of all meals involving an alcoholic drink and 52%of consumers saying that alcohol is an important choice driver for where to eat.2 A strong drinks range is therefore a crucial factor in achieving overall customer satisfaction and we
157、 aim to capture share of spend by providing a drinks range that offers value,quality and an experience to our guests.After a notable decline in alcohol consumption between 2007 and 2012,consumption has levelled off more recently.3 We have seen drinking out spend retain its share of leisure spend at
158、c.22%.4 We expect to see continued resilience in drinking out spend in value terms,which will be supported by the broader increase in discretionary and leisure spend.We also expect the price differential between the on and off trades to become less relevant as consumers aredrawntotheexperienceofdrin
159、kingoutoftheirhomes.Other marketsUK ale marketWe are the UKs leading cask ale brewer and premium ale brewer.The overall UK ale market was flat in the 12 months to April 2016.This improving picture has been driven by a slowing in the decline of standard ale in keg and can formats and continued growth
160、 of premium ale through cask and bottle formats.During this period,we were successful in extending our share of the UK ale market by 40bps to 10.5%,which we have achieved through building consumer loyalty to our core ale brands,which have all grown in the year,and through developing our innovative r
161、ange of seasonal and craft beers to appeal to a new generation of beer drinkers.We expect the UK ale market to continue to evolve and improve and to see low single-digit growth in the total market.We remain confident in our ability to continue to grow share with our enviable portfolio of brands that
162、 can meet the needs of consumers across all drinking occasions.UK staying out marketWe compete in the UK provincial staying out market and offer great value and convenience to guests on both business and leisure visits,with our estate at the year end consisting of 3,399 bedrooms.We see the combinati
163、on of a pub restaurant and adjacent rooms to be an attractive guest proposition in the context of increasing business and leisure travel,and therefore one which offers plenty of opportunity for pubs to take share from the more traditional branded hotel chains.The staying out market enjoyed a strong
164、year in 2015,benefiting from the economic recovery and a buoyant travel market.RevPAR(revenue per available room)in the market continued to grow in the provinces,and RevPAR across our combined Pub Company estate grew by 4.5%across the financial year.RevPAR in the provincial staying out market is exp
165、ected to grow by c.34%over the next two years(i.e.continuedgrowth,albeitataslowerrate)drivenbymoderateincreases in occupancy and hoteliers average daily rate.51.M&C Allegra(2015).2.CGA Peach.3.%of UK population who drank in the last week(aged 16 and over)(source:adultdrinkinghabitsinGreatBritain,201
166、4ONS,releasedMarch2016).4.GK Leisure Tracker.5.PwC(2016).The pubs and bars segment is c.25%of the total UK eating out marketUK EATING OUT MARKET STRUCTURE 2015(BN)We have seen more recent signs of the decline in alcohol consumption levelling offUK ALCOHOL CONSUMPTION%IN LAST WEEK 2005201420052006200
167、7200820092010201120122013201458%60%62%64%66%56%Pubs and bars Restaurants Fast food Hotels Coffee and sandwichretailers Retail grab and go Other Independent Tenanted and leased Managed and branded2015 UK Eating out859781120722Source:ONS.Source:M&C Allegra(2015).2261062015 UK Pubs and barsGREENE KING
168、PLC Annual report 201620STRATEGIC REPORTOur strategyBest for our customers,best for our teams,best for our shareholders and best for our communitiesDelivering attractive shareholder returns,earnings and dividend growthTO BE THE BEST PUB COMPANY IN BRITAINOur vision is to be the best pub company in B
169、ritain;the best for our customers,our teams,our communities and our shareholders.By being the best,we believe we will generate superior underlying growth and returns for our stakeholders.Pubs have to contend with a wider set of competitors,including coffee shops,takeaway aggregators and grab and go
170、stores and a faster pace of consumer change than ever before.This means we will look to redefine what our pubs offer their customers,ensuring they have a broader and more lasting appeal.In order to deliver our vision,we have identified five strategic priorities for the medium term:1 BUILD ATTRACTIVE
171、 AND STRONG BRANDS2 INDUSTRY-LEADING VALUE,SERVICE AND QUALITY3 WORK WITH THE BEST PEOPLE4 OWN THE BEST INVESTED PUB ESTATE IN BRITAIN5MAINTAIN A STRONG BALANCE SHEET AND FLEXIBLE CAPITAL STRUCTUREAnnual report 2016 GREENE KING PLC21STRATEGIC REPORT1 BUILD ATTRACTIVE AND STRONG BRANDSWe must ensure
172、our brands stand out and remain relevant totodaysincreasinglydemandingconsumerinordertodrivelong-term growth.We are optimising our brands and formats and using the scale this brings to increase investment in our brand propositions to drive greater brand awareness and loyalty.We will look to broaden
173、the appeal of our pubs,both in terms of the customers who use them and their reasons for visiting.ForourLocalPubsestate,PubPartnersandBrewing&Brands,the Greene King brand is key to superior performance and we will extend our brand marketing leadership by investing more in communicating the brands be
174、nefits.A strong digital presence is vital in building successful brands and we will create the digital industry leader through combining the best of Greene King and Spirits digital expertise to drive customer engagement,engender higher levels of customer brand loyalty and improve the return on our m
175、arketing investment.4 OWN THE BEST INVESTED PUB ESTATEWe want to own and run the best pubs in Britain,which we will achieve through proactive management of our pub portfolio and continued industry-leading investment in our estate.We will further grow the share of our profits from managed pubs,where
176、we can determine the customer experience,while valuing the role that Pub Partners plays in generating cash,adding scale and promoting the Greene King brand.The best pubs have the best beers and we will continue to brew our own industry-leading beer brands.We believe the strong relationship between o
177、ur pubs and our breweries is a clear competitive advantage.We now operate 1,823 pubs,restaurants and hotels in our managed estate.We will selectively build and acquire new pubs and transfer exceptional tenanted and leased pubs to Pub Company when the opportunity arises.We will also selectively reduc
178、e the size of our current managed estate by selling pubs that dilute returns or have an unattractive long-term outlook.In Pub Partners,we now operate 1,212 pubs and we will reduce the size of the estate through disposals from the tail and through transfers to Pub Company.Ourmedium-termtargetforourPu
179、bPartnersestateisaround1,000 pubs.Our preference remains to own the freehold title of our assets and,where it makes financial sense,we will selectively acquire pub freeholds where we currently operate the pub on a lease.5 MAINTAIN A STRONG BALANCE SHEET AND FLEXIBLE CAPITAL STRUCTUREUnderpinning our
180、 company strategy is a financial strategy tomaximisethestrengthandflexibilityofourbalancesheet.Through a relentless focus on cash generated from operations,we will continue to cover our debt service obligation,our core capital expenditure and our dividend through internally generated cash flow.After
181、 the year end,we successfully completed the issuance of an additional 300m of bonds in the Greene King secured financing vehicle,realising net proceeds of 180m after settling certain interest rate swap liabilities.This additional financing provides longer-term funding for general business operations
182、 including increasing our optionality to invest in the business.2 INDUSTRY-LEADING VALUE,SERVICE AND QUALITYWe remain committed to exceeding customer expectations and we will achieve this by constantly improving the value offer to our customers,the service delivery of our teams and the quality of ou
183、r food and drink offer.We will use our scale to deliver leading value propositions through the successful execution of known value item(KVI)and everyday low pricing(EDLP)strategies to drive a sustainable mix of volume and spend per head growth.We will increase investment in our people to ensure we l
184、ead theindustryonserviceandsuccessfullycompetewiththewidercompetitive set.Lastly,we will evolve and improve the quality ofthefood,drinkandaccommodationweofferourcustomers,regularly benchmarking against the best in class.3 WORK WITH THE BEST PEOPLEBeing the first choice for people who want to work in
185、 the hospitality sector is important to us and we want to offer every existing team member the opportunity to grow and develop.Our refreshed career pathway Craft your career provides individuals with structured development opportunities while further initiatives include our focus on apprenticeships
186、across thebusiness,whichhasledtoacommitmenttoemployafurther 10,000 apprentices over the next three years.We also want to recruit,retain and develop the best operators in our Pub Partners business and this means extending our focus on training and development to both existing and future licensees.Ove
187、rall,investing more in the recruitment,retention and development of our people will lead to a better trained and more motivated team across our business,which will be reflected in ongoing improvements in team retention and customer service.GREENE KING PLC Annual report 201622STRATEGIC REPORTKey perf
188、ormance indicatorsTomaintainfocusonourfivestrategicpriorities,wehaveasetofoverallfinancialandnon-financialKPIs,whicharealsousedtohelptoalignremunerationtoperformance.KPIPROGRESS IN FY16Pub Company like-for-like sales(%)The sales this year compared to those in the previous year for all PubCompanysite
189、sthatweretradingthroughoutthetwoperiodsbeingcompared,expressedasapercentage.In Pub Company,on a combined basis,LFL sales grew by 1.5%,ahead of the market,which grew by 1.3%over a broadly comparable period1.LFL sales growth in the original Greene King estate of 1.9%(2015:0.4%2).EBITDA per pub:Pub Com
190、panyEBITDA(operating profit before depreciation,amortisation andexceptionals)dividedbytheaveragenumberoftradingpubsintheperiod.In FY16,EBITDA per pub in Pub Company was impacted by synergies and fairvalueadjustmentsoffsetbythehigherproportionofleaseholdpropertiesin Spirit as a result EBITDA per pub
191、fell by-3.6%.However,in the original Greene King managed estate average EBITDA per pub grew by 2.3%(2015:-0.2%2),which excludes synergy contribution.Pub Partners LFL net incomeNet income is EBITDA in our leased,tenanted and free-of-tie pubs,stated before property costs and administrative expenses th
192、e change innetincomeisonasameestatebasis(i.e.adjustingfordisposals).The tenanted and leased businesses were successfully integrated at the end ofthefirsthalfandthecombinedPubPartnersbusinessgrewnetincomeby2.7%intheyear(2015:+3.5%2).EBITDA per pub:Pub PartnersEBITDA(operating profit before depreciati
193、on,amortisation andexceptionals)dividedbytheaveragenumberoftradingpubsintheperiod.Average EBITDA per pub increased by 14.3%(2015:+15.5%1)reflecting thecontributionoftheSpiritsites,ongoingimprovementsinthequalityoftheestate(suchasthedisposalof48pubsfromthecombinedestate)andsynergycontribution.Brewing
194、&Brands OBV growth(%)Year-on-year growth in the sold volume of our own-brewed ales.Brewing&Brands achieved 2.9%OBV growth(2015:+4.2%2),and helped ustoextendourshareoftheUKalemarketby40bpsto10.5%.Return on investment(%)The incremental EBITDA delivered as a result of our developments,divided by the va
195、lue of the capital investment.Annualised return on development capex improved to 27.8%(2015:22%2).Return on capital employed(ROCE)(%)Pre-exceptional operating profit divided by the average capital employed throughout the year.Capital employed is defined as total net assets excluding deferred tax bal
196、ances,derivatives,post-employment liabilities and net debt.The business achieved another year of robust returns,generating a ten basis point increase in ROCE to 9.4%(2015:9.3%)which remains comfortably ahead of our cost of capital.Adjusted basic earnings per share(pence)Profit for the period attribu
197、table to equity holders,excluding the effect of exceptional items,divided by the weighted average number of shares in issue during the period excluding own shares held.Earnings per share before exceptional items was 69.9p(2015:61.0p),upby14.6%.Pub Company net promoter score(NPS)(%)The percentage of
198、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.Record customer satisfaction scores;NPS+7.9%pts(2015:+12.3%pts).Team turnover(%)The percentage of leavers against
199、 the average headcount over a rolling annual period,excluding any student leavers.We saw an improved trend in team turnover.The improvements indicate thesuccessofourteamsincontinuingwithbusinessasusualduringtheintegration process.Team engagement(%)The proportion of respondents who agreed with the fo
200、llowing statement:I would recommend Greene King as a great place to work to others.Team engagement currently stands at 73%across the combined group.Investing more in the recruitment,retention and development of our people will lead to a better trained and more motivated team working across our busin
201、ess,which will be reflected in ongoing improvements in team engagement,team retention and the service we give to guests.1.Coffer Peach Business Tracker.2.Greene King:excludes synergies arising in the Greene King business.Annual report 2016 GREENE KING PLC23Operational reviewPUB COMPANYAt the year en
202、d our Pub Company division comprised 1,823pubsandrestaurantsopenacrossBritain,appealingtoabroadrangeofthepopulation.OUR GROWTH BRANDSREVENUE1,688.2mSHARE OF TOTAL REVENUE81.4%The Boathouse in Peterborough has been converted to a Chef&Brewer during the year.GREENE KING PLC Annual report 201624STRATEG
203、IC REPORTOperational reviewcontinued LIKE-FOR-LIKE SALES+1.5%OPERATING PROFIT1+56.8%NPS IN THE GREENE KING ESTATE+7.9%ptsINCREASE IN ONLINE TABLE BOOKINGS41%Our Pub Company strategy is to attract customers with exciting brands that deliver unrivalled value,service and quality.The acquisition of Spir
204、it Pub Company has helped us accelerate this strategy through the addition of successful brands and the opportunity to learn from each other and enhance the customer offer.It also allows us to generate greater scale todrivecostefficienciesthatcanbereinvestedinthebusiness.In the former Greene King es
205、tate,total sales grew by 5.1%,while total sales increased 68.7%to 1,688.2m when including Spirit.Full year LFL sales growth in the Greene King and Spirit managed estates was 1.9%and 1.0%respectively.On a combined basis,LFL sales grew by 1.5%,ahead of the market,which grew by 1.3%2 over a broadly com
206、parable period.We achieved LFL sales growth in food,drink and accommodation and,by brand,we saw notable strength in Chef&Brewer.1.Before exceptionals.2.Coffer Peach Business Tracker.On a combined basis,operating profit increased 56.8%to 299.2m.The combined operating margin declined 1.4%pts reflectin
207、g higher lease costs following the Spirit acquisition and a 0.3%pt reduction in the margin in the Greene King managed estate due to ongoing investment in our people and our service proposition.1.Build attractive and strong brandsWe constantly improve our brands and the offer within them to ensure th
208、ey remain fresh and appealing to todays demanding consumer.For example,to extend the appeal of Hungry Horse while retaining the brands family focus,we are trialling improved zoning,allowing more families to dine in a comfortable environment,while other customers enjoy the option to watch sport.On di
209、gital,we have combined the best of both from the Greene King and Spirit businesses and our ambition is to create seamless hospitality across the whole customer experience.Aiming to facilitate the customer journey,we developed our online booking capabilities,which contributed to a 41%increase in onli
210、ne bookings.Feedback from our customers on how we are doing is important to us and during the year we relaunched our Hungry For Feedback initiative in Hungry Horse while,recognising the increasingly important role of social media,we further rolled out the Always On Service initiative encouraging pub
211、 teams to engage with customers on Facebook atapublevel.Wecontinuedtopersonalisethecontentofouremailcommunications with customers and saw an 18%increase in visits to ourpubwebsites.Our food festivals turn classic pub food and drink into interesting events,giving customers more reasons to visit and o
212、ffering them the opportunity to trade up,which can drive spend per head.Further initiatives to expand the appeal of the traditional pub included the relaunch of our value-oriented breakfast offer in Farmhouse Inns,extended breakfast service hours in Hungry Horse and the introduction of a Grab n Go p
213、rice point for a coffee and a pastry in Local Pubs.Including the Spirit estate,the proportion ofsalesgeneratedbefore5.00pmincreasedby7.6%,includingby8.6%inthefiveretailgrowthbrands.2.Industry-leading value,service and qualityDuring the year,we expanded the number of KVIs across the Greene King estat
214、e,driving repeat visits among core customers and positively impacting volumes and gross margins.We introduced an EDLP approach into the Spirit estate and,aiming to enhance the customer experience,particularly ahead of the Euros,upgraded our sports viewing facilities in Flaming Grill and in Local Pub
215、s.Elsewhere,we were proud to see Hungry Horse win best value pub restaurant menu at the Menu Innovation and Development Awards.On service,initiatives focusing on great service at all customer touch points led to further increases in NPS since the half year and a 7.9%pt increase in the full year in t
216、he original Greene King estate to a new company record since measurement began in 2011.Quality improvements included a refreshed Steak Education programme in Flaming Grill,and,in the Greene King estate,further improvements in core dishes contributed toa2.3%ptincreaseinqualityscorescomparedtolastyear
217、.“The acquisition of Spirit added successful brands and the opportunity to enhance the customer offer.”PUB COMPANY CONTINUEDAnnual report 2016 GREENE KING PLC25STRATEGIC REPORT3.Work with the best peopleOur teams are vital to our success and we are pleased with the trend in team member retention sin
218、ce the acquisition of Spirit,demonstrating the resilience and commitment of our pub teams throughout the integration progress todate.Duringtheyear,webegandevelopingupdatedemployeevaluepropositions by brand,which outline recruitment,retention and development opportunities in each as well as the overa
219、ll employee experience.This initiative has delivered positive results to date including the highest team member retention in Hungry Horse since measurement began.On apprenticeships,we had over 3,000 apprentices in learning during the year and we were delighted to be recognised for our commitment to
220、apprenticeships through the award of Macro Employer of the Year by Apprenticeships 4 England.We were also named as one of the top 50 apprenticeship employers in the UK by the Daily Telegraph.4.Own the best invested pub estate We continued to invest in our estate to ensure that our pubs remain entici
221、ng places for our customers to spend their time.During the year,wespent139.0monmaintaininganddevelopingthecombinedestate,including 51.8m on the Spirit managed estate and,reflecting a rigorous approach to investment allocation,we achieved annualised EBITDA returns in excess of 27%.Taking advantage of
222、 opportunities to selectively and strategically expand our Pub Company estate,we opened 13 new pubs in the year.We disposed of 26 pubs from the combined managed business including ten disposals that were required by the Competition and Markets Authority(CMA).Overall,we were pleased to be recognised
223、with the award of Best Managed Operator at the prestigious Publican Awards.“We had over 3,000 apprentices in learning during the year.”AVERAGE NUMBER OF PUBS TRADINGGreene King 1,062+1.9%Combined 1,740+67.0%OPERATING PROFITGreene King1 197.2m+3.4%Combined2 299.2m+56.8%EBITDAGreene King1 249.9m+4.2%C
224、ombined2 386.0m+61.0%AVERAGE EBITDA PER PUBGreene King1 235.3k+2.3%Combined2 221.8k-3.6%REVENUEGreene King1 1,051.6m+5.1%Combined2 1,688.2m+68.7%OPERATING PROFIT MARGINGreene King1 18.8%-0.3%ptsCombined2 17.7%-1.4%pts1,8002006001,0001,4002016201620162016201620161,0621,7402014201420142014201420141,00
225、72015201520152015201520151,0421.Excludes synergies in the existing Greene King business.2.Includes Spirit acquisition fair value accounting adjustments,synergies and a 45-week contribution from Spirit.1,8002006001,0001,4001,688.2963.01,000.7400200250300350249.9386.0236.5239.8300100150200250197.2299.
226、2187.7190.8201617181918.817.719.519.1240200210220230235.3221.8234.9230.11,051.6GREENE KING PLC Annual report 201626STRATEGIC REPORTOperational reviewcontinuedREVENUE187.9mSHARE OF TOTAL REVENUE9.1%PUB PARTNERSPub Partners is responsible for operating our tenanted,leased and franchised pubs across Br
227、itain and aims to be the preferred partner forthebestoperatorsintheindustry.Standard tenancy agreement Scholarship tenancy agreement Standard lease agreement Meet&Eat franchise agreement Local Hero franchise-style agreement Turnover agreementOUR AGREEMENTSWe have expanded our range ofpartner supplie
228、rs to include premium brands such as Italian cuisine-focused Barrel&Stone.Annual report 2016 GREENE KING PLC27STRATEGIC REPORTIn Pub Partners,our strategy is to be the preferred partner for the best operators in the industry.We will achieve this through the offer of the best retail partnerships,in f
229、lexible formats and in the best pubs.During the year,we made further significant progress with this,accelerated by the acquisition of Spirit,including its high quality tenanted and leased estate and talented operations team.The integration of Pub Partners and Spirit Leased was successfully achieved
230、ahead of schedule at the end of the first half.Pub Partners traded well throughout the year and the combined estate delivered LFL net income growth of 2.7%.Average EBITDA per pub increased by 14.3%,reflecting the contribution of the Spirit pubs,ongoing improvements in the quality of the estate and s
231、ynergy contribution.The addition of 416 tenanted and leased pubs from Spirit led to growth in revenue and operating profit in the year of 54.1%and 58.0%respectively.Excluding Spirit,revenue declined 2.1%due to disposals,although the operating margin improved by 1.3%pts reflecting good cost control a
232、nd higher estate quality.The combined Pub Partners operating margin increased by 1.1%pts and was positively impacted by the performance in the original Greene King estate,offset by the increased proportion of leaseholds following the Spirit acquisition.Average revenue per pub grew 13.8%in the combin
233、ed estate.Central to the successful execution of our strategy is the ability to offer licensees the best pubs in their location.During the year,we spent 21.1m on maintaining and developing our Pub Partners estate.We also continued to optimise the combined estate through the disposal of a further 48
234、pubs.These disposals included six that were required by the CMA.Aiming to attract and retain the best licensees,we increased our focus on food to further support licensees to build sustainable,quality businesses and expanded our range of partner suppliers to include premium brands such as Italian cu
235、isine-focused Barrel&Stone.We also continued to develop our range of attractive and innovative agreements.During the year,Local Hero,our franchise-style agreement built around local provenance,saw the opening of its 50th site while,together with Spirit,we refreshed our suiteof turnover agreements.Di
236、gital is a means through which we can further engage with current and prospective licensees and in the year we launched a new and improved online application process and expanded our use of social media.Overall,our number of Twitter followers increased by 75%and traffic to the PubPartners website in
237、creased twelvefold.Our teams are important in ensuring we are preferred partners and can attract the best operators.Training initiatives included a Bury St Edmunds heritage experience for our Spirit teams and a continued focus on apprenticeships where we now have 154 qualified apprentices comparedwi
238、th 85 this time last year.These initiatives have contributed to a consistently low proportion of bad debts in the estate and a stable average licensee tenure at around five years.REVENUE PER PUB+13.8%EBITDA PER PUB+14.3%50thLOCAL HERO FRANCHISESTYLE SITEOPENED1,3005007009001,1008291,1931,2138811.Exc
239、ludes synergies in the existing Greene King business.2.Includes Spirit acquisition fair value accounting adjustments,synergies and a 45-week contribution from Spirit.200100125150175119.4187.9149.6121.91054560759062.095.374.961.6903045607554.485.365.354.0464243444545.645.443.644.3854555657574.879.961
240、.769.9AVERAGE NUMBER OF PUBS TRADINGGreene King 829-5.9%Combined 1,193+35.4%OPERATING PROFITGreene King1 54.4m+0.7%Combined2 85.3m+58.0%EBITDAGreene King1 62.0m+0.6%Combined2 95.3m+54.7%AVERAGE EBITDA PER PUBGreene King1 74.8k+7.0%Combined2 79.9k+14.3%REVENUEGreene King1 119.4m-2.1%Combined2 187.9m+
241、54.1%OPERATING PROFIT MARGINGreene King1 45.6%+1.3%ptsCombined2 45.4%+1.1%pts201620162016201620162016201420142014201420142014201520152015201520152015GREENE KING PLC Annual report 201628STRATEGIC REPORTBREWING&BRANDSBrewing&Brands sells and distributes a wide range of award-winning craftalestoboththe
242、onandtheoff-trade.TheyarebrewedinoneofourtwobreweriesinBuryStEdmundsandDunbar.OUR CORE BRANDSREVENUE196.9mSHARE OF TOTAL REVENUE9.5%Operational reviewcontinuedThe new Greene King IPA branding was extended to bottle formats during the year.Annual report 2016 GREENE KING PLC29STRATEGIC REPORTIn Brewin
243、g&Brands,our strategy is to drive growth and cash generation through building consumer loyalty to our core ale brands and our innovative range of seasonal and craft ales.This strategy has led us to being the UKs leading cask ale brewer.Significant progress was achieved in the year and,including addi
244、tional volumes to Spirit pubs,OBV grew by 2.9%,increasing our share of the UK ale market by 40bps to 10.5%2.Revenue grew 2.2%to a record 196.9m,while operating profit grew by 9.7%to 32.7m leading to a 1.1%pt increase in the margin.The margin increase was predominantly driven by new sales to Spirit m
245、anaged pubs,which are included in the Pub Company revenues along with those to the rest of the Greene King estate,but there was also a benefit from a positive channel mix and additional costefficienciesrealisedinthesecondhalfofthepreviousfinancialyear.During the year,initiatives to further build con
246、sumer loyalty and engagement included the Greene King IPA To The Pub campaign,which reached an audience of over 20 million and resulted in 60%of ale drinkers surveyed saying that the adverts encouraged them to buy Greene King IPA on their next visit to the pub.Other initiatives were a 1.2m investmen
247、t in a multi-channel media campaign in the Hen brand family and increased use of social media to promote the Abbot Ale brand,with industry-leading engagement levels to date3.Our three core ale brand families Greene King IPA,Old Speckled Hen and Belhaven saw further volume growth in the year and our
248、ale portfolio benefited from a number of exciting new partnerships,including Greene King IPAs sponsorship of the England and Wales Cricket Board.Greene King IPA was positively impacted by a brand refresh in the on-trade and growing popularity REVENUE196.9m+2.2%200160170180190EBITDA37.8m+8.3%38303234
249、36OPERATING PROFIT32.7m+9.7%3426283032OPERATING PROFIT MARGIN16.6%+1.1%pts1713141516201620152014“Greene King IPA,Old Speckled Hen and Belhaven all saw volume growth in the year.”in the export market led by China.Overall,volumes of Greene King IPA grew by 8.0%,increasing its share of the UK cask ale
250、market by 0.4%pts.The Hen brand family had another successful year,particularly in take-home where penetration increased by 3%4 on last year and,overall,Old Speckled Hen remains the number one premium ale brand in Great Britain.5New product development remains a core part of our strategy and helpsus
251、toremainrelevanttocoreconsumerdrinkingoccasions.VolumesofEastCoastIPAcontinuedtogrowthroughouttheyear,welaunchedOldSpiritedHenandwealsoreleasedlimitededitionalessuchasPurpleReign,launched in celebration of Her Majestys 90th birthday.Elsewhere,we were proud to see Belhaven awarded Distributor of the
252、Year inScotlandattheprestigiousDRAMawardsandanumberofourales,includingGreene King IPA,Abbot Ale and Belhaven Best,won gold at this years Monde Awards.The launch of our new beer caf at our Bury St Edmunds brewery has added to the brewery tour experience,which itself received a Certificate of Excellen
253、ce on TripAdvisor for the fourth consecutive year.Following the acquisition of Spirit,we have been encouraged by the response oftheSpiritpubmanagersandtheirdesiretosellGreeneKingbeersandaredelighted that Greene King IPA is on sale in over 90%of Spirit managed pubs.1.Before exceptionals.2.BBPA May 20
254、15-May 2016.3.Google analytics.4.Kantar Worldpanel 52 w/e 24 April 2016.5.CGA Brand Index On-Trade Survey,52 weeks to 03/16/Nielsen Scantrack volume data 52 weeks to 04/16.16.616.1 OPERATING PROFIT1+9.7%OWN BREWEDVOLUME+2.9%ALE MARKET SHARE+40bps to 10.5%GREENE KING IPAVOLUMES+8.0%2016196.92015192.7
255、2014189.02014201637.8201534.936.120142016201532.729.830.415.5STRATEGIC REPORTFinancial reviewSTRONG RETURNS AND FURTHER DIVIDEND GROWTHGROUP REVENUE INCREASED:57.6%FREE CASH FLOW:50.2mROCE:9.4%DIVIDEND:32.05p“Operating cash flows remained strong.”Income statement Revenue was 2,073.0m,an increase of
256、57.6%compared to the prior year.Excluding a 705.1m contribution from Spirit,revenue increased 4.0%to 1,367.9m.Pub Company was the biggest driver of this increase,with revenue up 68.7%and average revenue per pub rising 1.0%.The combined Pub Company business now accounts for over 81%of group revenue.T
257、otal revenue in Pub Partners was 187.9m.This included the Greene King tenanted and leased estate where revenue of 119.4m was down 2.1%,due to the impact of pub disposals.Average tenanted and leased revenue per pub increased 13.8%and average EBITDA per pub grew 14.3%,demonstrating improvements in the
258、 quality of the estate and also benefiting from the inclusion of synergies and fair value accounting.Brewing&Brands grew revenue 2.2%to 196.9m.Operating profit before exceptionals was 392.2m,which was an increase of 53.1%on the prior year.Group operating profit margin before exceptional items was do
259、wn 60bps to 18.9%,reflecting a higher contribution from the managed estate and,within this,a reduction in Pub Company margin from 19.1%to 17.7%.The reduction of the Pub Company margin was in line with expectations and reflected ongoing investment in labour and training along with the impact of the h
260、igher proportion of leasehold pubs in the Spirit estate compared to the Greene King estate.Net interest costs before exceptional items were 135.7m and included 49.0m of interest relating to Spirit.Profit before tax and exceptionals was 256.5m,an increase of 52.2%on last year.The tax charge before ex
261、ceptional items equated to an effective tax rate of 19.3%.Earnings per share before exceptional items of 69.9p was up 14.6%.Statutory profit before tax was 189.8m,up 60.6%on last year.Cash flow and capital structureOperating cash flows remained strong.We generated free cash flow(FCF)of 50.2m,ahead o
262、f our scheduled debt repayments of 43.3m and after our core capital expenditure and dividend payments.Overall,EBITDA before exceptional items was 496.9m.Group net debt at the year end was 2,048.4m,an increase of 679.7m from the previous year end due to acquiring net debt of 674.5m with theSpiritbusi
263、ness.Annual report 2016 GREENE KING PLC31STRATEGIC REPORTIn line with our strategic priorities,our objective is to maximise the strength and flexibility of our balance sheet,and the group has a capital structure aimed at meeting the short,medium and longer-term funding requirements of the business.T
264、he principal elements of the groups capital structure are a shorter dated 460m revolving credit facility to June 2018 that was 315m drawn at the year end and two long-term asset-backed financing vehicles.The Greene King securitisation has secured bonds with a carrying value of 1,140.9m and an averag
265、e life of 11 years,while the Spirit debenture has secured bonds with a carrying value of 788.7m andanaveragelifeof12years.Our credit metrics remain strong with 96.1%of our interest costs at a fixed rate and an average cost of debt of 6.6%.As a consequence of the Spirit acquisition,fixed charge cover
266、 reduced to 2.3x from 2.9x last year,while interest cover increased to 3.3x from 3.0 x last year.On a pro-forma basis,annualised net debt to EBITDA improved to 3.9x.Our Greene King secured vehicle had a free cash flow debt service cover ratio of 1.5x at the year end,giving 26%headroom.The Spirit deb
267、enture vehicle had a free cash flow debt service cover ratio of 1.9x giving headroom of 33%.After the year end,the group issued a 300m A6 bond at a coupon of 4.06%,realising net proceeds of 180m after settling certain interest rate swap liabilities.Capitalising on our high proportion of freehold ass
268、ets,this transaction increased the proportion of longer-term debt in our capital structure and took the outstanding nominal value of bonds issued by Greene King Finance plc at that point to 1,447.7m.The Greene King bond portfolio is secured against 1,543 pubs with a market value of2.2bnandacarryingv
269、alueof1.6bn.Capital expenditure and disposalsDuring the year,we invested in both maintaining and developing our existing estate.Total expenditure during the year was 168.4m,made up of 110.3m in Greene King and 58.1m in Spirit.In addition to the acquisition of Spirit,we added 13 new pubs,investing 46
270、.7m in our retail expansion.Total cash capital expenditure was 194.1m,including 137.5m of core capital expenditure.Core capital expenditure included 45.9m on the Spirit estate.We disposed of 48 pubs from the combined Pub Partners estate,including six required by the CMA.We also disposed of 26 Pub Co
271、mpany pubs,including ten required by the CMA.Total cash proceeds were 82.6m and a net profit on disposal of 23.3m has been recognised.Return on capital employedThe group is focused on delivering the best possible returns on our assets and on the investments we make.We are focused on capital discipli
272、ne,coupling targeted investment in new build pubs,single-site acquisitions and in developing our existing estate to drive organic growth with disposals ofnon-corepubs.Thishascontributedtoa10bpimprovementingroupROCE to 9.4%.These returns were achieved despite a 10bp dilutive impact fromSpirit.ROCErem
273、ainscomfortablyaheadofthegroupscostofcapital.DividendTheboardhasrecommendedafinaldividendof23.6ppershare,up8.3%.This will be paid on 12 September 2016 to shareholders on the register atthecloseofbusinesson12August2016.The proposed final dividend brings the total dividend for the year to 32.05p per s
274、hare,up 7.7%.This maintains our long-term track record ofannualdividendgrowthandisinlinewiththeboardspolicyofmaintaininga minimum dividend cover of around two times underlying earnings,whilecontinuingtoinvestforfuturegrowth.TaxThe effective rate of corporation tax(before exceptional items)was 19.3%c
275、ompared to 21.0%in the previous year,resulting in a charge to operating profits(before exceptional items)of 49.4m.This is slightly below the standard UK corporation tax rate due to adjustments in respect of prior periods.The exceptional tax credit of 50.5m is discussed under exceptional items.The gr
276、oups business strategy generates revenue,profits and employment,all of which deliver substantial tax revenues for the UK government in the form of duties,VAT,income and corporation tax.In the year,total tax revenues paid and collected by the group were 570m(2015:405m).The groups tax policy,which has
277、 been approved by the board,aligns with this strategy and ensures that the group fulfils its obligations as a responsible UK taxpayer.Since the year end,a formal agreement has been reached with HMRC on a number of historical tax positions.We expect to draw the remaining issue to a close and this wil
278、l be heard by the Court of Appeal in July.The provision for uncertain tax positions and related interest accrued at the balance sheet date were 10.5m(2015:31.6m)and 5.9m(2015:13.9m)respectively.PensionsFollowing the Spirit acquisition,the group now maintains three defined contribution schemes,which
279、are open to all new employees and three defined benefit schemes,which are closed to new entrants and to future accrual.At 1 May 2016,there was an IAS 19 pension deficit of 52.3m representing a reduction of 6.9m since the previous year end.The 52.3m comprised 48.6m in respect of Greene King schemes a
280、nd 3.7m in respect of the Spirit scheme.The deficit reduction resulting from the effect of contributions paid to theschemesandthereductioninschemeliabilitiesfollowingchangestodemographic assumptions are partially offset by the impact of changes to the market-derived actuarial assumptions and a reduc
281、tion in the market value of the schemes assets since the previous year end.Total cash contributions in the year were 12.5m for past service.The triennial funding valuation and recovery plans have now been agreed for the three defined benefit pension schemes and future deficit recovery contributions
282、are expected to be 3.3m per annum,a reduction of 8.6m per annum.Exceptional itemsWe recorded a net exceptional charge of 16.2m,consisting of a 25.9m charge to operating profit before tax,a 40.8m charge to finance costs and a net exceptional tax credit of 50.5m.The following items were recognised in
283、the year:A 17.5m charge for legal,professional,integration and reorganisation costs following the Spirit acquisition.A net impairment charge of 32.2m(2015:27.4m)was made against the carrying value of our pubs and other assets.This comprises an impairment charge of 79.8m offset by reversals of previo
284、usly recognised impairment losses of 47.6m.A net surplus on disposal of property plant and equipment,which includes a number of high alternative use value disposals,of 23.3m.39.1m of exceptional finance costs in respect of the mark-to-market movements in the fair value of interest rate swaps not qua
285、lifying for hedge accounting within the Spirit debenture.The exceptional tax credit of 50.5m consists of a 11.4m tax credit onexceptionalitems,adeferredtaxcreditof33.6minrespectofthelicensed estate,a 0.7m tax credit in respect of prior periods and a 4.8m tax credit in respect of rate changes.The def
286、erred tax credit in respect of the licensed estate includes a credit of 26.8m in relation to revaluation and rolled over gains on the licensed estate following clarification from HMRC on the treatment of certain judgmental terms.GREENE KING PLC Annual report 201632STRATEGIC REPORTFinancial reviewcon
287、tinuedSpirit acquisition The group completed the acquisition of Spirit Pub Company plc on23June2015forconsiderationof763.1m.A fair value exercise was undertaken upon completion and the final assessment in respect of the assets and liabilities acquired has been concluded.The goodwill on acquisition f
288、ollowing the fair value exercise is 434.0m.Key fair values include the following:Property,plant and equipment values,for which valuations have been performed by external surveyors,of 1,413.4m.A 168.3m intangible operating lease asset.The brands acquired with the Spirit business have been valued at 1
289、6.1m.A 312.7m liability recognised in respect of lease arrangements that are not considered to have market rate terms.Derivative liabilities in respect of interest rate swaps of 165.2m.Deferred tax asset of 68.7m recognised relating to losses,derivatives and other temporary differences.Net debt acqu
290、ired,which totalled 674.5m and included cash of 147.5m.The impact of fair value adjustments and other accounting alignments on the annual results has been to increase operating profit by 7.1m,largely as a result of the treatment of the off-market lease liability.The benefit toprofitbeforetaxandexcep
291、tionalshasbeen7.4m.Therehasbeennoimpactoncash.Guidance for financial year 2016/17The 2016/17 pre-exceptional tax rate is expected to be c.20%.In Pub Company,we anticipate opening 1015 pubs in the current year and disposing of 6575 pubs from the estate.In Pub Partners,we expect to reduce the estate b
292、y 5065 pubs in the financial year.These disposals,as well as potential transfers to Pub Company,will improve the quality of the estate while generating cash for other uses across the business.We anticipate spending 130140m in the current financial year,excluding brand optimisation capex,on maintaini
293、ng and developing our pubs,in order to ensure that they remain attractive places for customers to spend their time.Spend on the brand optimisation programme is expected to total 40m50m in the current financial year out of a total spend over three years of 120150m and we are targeting EBITDA returns
294、significantly ahead of our cost of capital.Our blended cost of debt is expected to be c.6.3%.Kirk DavisChief financial officer28 June 2016Income statement analysisGreene KingSpirit1F16m Synergiesm Totalm F16m Synergiesm Accountingadjustments 2m Totalm Totalgroupm Revenue1,367.9 1,367.9705.1 705.12,0
295、73.0EBITDA3326.5 5.6 332.1 143.4 11.1 10.3 164.8 496.9 Operating profit3258.3 5.6 263.9 110.1 11.1 7.1 128.3 392.2 Net finance cost3(86.7)(86.7)(49.3)0.3(49.0)(135.7)Profit before tax3171.6 5.6 177.2 60.8 11.1 7.4 79.3 256.5 Operating profit analysis3Greene KingSpirit1F16m Synergiesm Totalm F16m Syn
296、ergiesm Accountingadjustments 2m Totalm Totalgroupm Pub Company197.2 3.5 200.7 82.9 10.0 5.6 98.5 299.2 Pub Partners54.4 1.1 55.5 27.2 1.1 1.5 29.8 85.3 Brewing&Brands31.7 1.0 32.7 32.7 Corporate(25.0)(25.0)(25.0)Total258.3 5.6 263.9 110.1 11.1 7.1 128.3 392.2 1.Post acquisition since 23 June 2015.2
297、.Accounting alignments and income statement impact of fair value adjustments.3.Before exceptional items.Annual report 2016 GREENE KING PLC33STRATEGIC REPORTRisks and uncertaintiesAswithanybusiness,GreeneKingfacesarangeofrisksanduncertaintiesinthecourseofitsbusiness.Itisessentialthatweidentifyandmana
298、getheseriskseffectivelyinordertodeliveronourstrategicobjective of being the best pub company in the UK and to maximise shareholder returns.Approach to risk managementBoardThe board has overall responsibility for the groups risk management framework.It reviews the groups principal risks on an annual
299、basis,together with the actions taken to mitigate them.This year there has been a particular focus on developing our approach to risk appetite.The board has started this by defining group-level risk appetite statements,to set out the boards desired risk-taking approach to the achievement of our stra
300、tegic objectives,in the context of managing our principal risks.Our risk appetite is an expression of the types and amount of risk we are willing to take or accept to achieve our plan.By defining our risk appetite,we will be able to better determine the mitigating activities required to manage to wi
301、thin acceptable levels both the likelihood of risks occurring and their potential impact.Details of our broad risk appetite in relation to each of our key risks is set out in the table on page 34.Audit committeeThe board has delegated to the audit committee responsibility for reviewing the effective
302、ness of the groups risk management processes.It regularly reviews the risk management processes for each business unit and functional area.ManagementThe implementation of risk management and internal control systems is the responsibility of the executive directors and other senior management,with ea
303、ch 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 processClassification of risks follows a standard methodology
304、 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.Once the key economic,operational,financial,people and strategic riskshavebeenidentified,eachbusinessunitandfunctionalareaisthenrespons
305、ible for evaluating current controls,drawing up plans to improve controls and managing new risks.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 sen
306、ior management on a regular basis.In addition,a group-wide risk committee reviews the individual risk registers in detail,monitors the risk mitigation plans and assists in the production of the group risk register,whereby risk registers are aggregated and considered on a top-down basis in the contex
307、t 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.MANAGING RISKBOARDOverall responsibility
308、for risk managementSets the groups risk appetiteGROUP RISK COMMITTEEReviews individual riskregistersandmitigationplansEnsures consistency of risk profilingacrossthegroupAggregates risk registers to create group risk registerAUDIT COMMITTEEDelegated responsibility for monitoring risk profile andmitig
309、ationRegularly reviews risk management processes foreachdivisionandfunctionalareaSENIOR MANAGEMENTResponsibility for identification of risks,implementation of mitigating actions and maintenance of business unit and functional riskregisters1 Build attractive and strongbrands2 Industry-leading value,s
310、ervice andquality3 Work with the bestpeople 4 Own the best investedpubestate 5 Maintain a strong balancesheet and flexiblecapital structureGREENE KING PLC Annual report 201634STRATEGIC REPORTRisks and uncertaintiescontinuedPrincipal risks and uncertaintiesThis section highlights some of the key risk
311、s 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.For the first time this year we have indicated whether we believe the risk has increased
312、,decreased or remained the same during the year and also how each risk relates to our strategic priorities.STRATEGIC RISKSCHANGEPOTENTIAL IMPACTMITIGATION AND MONITORINGRISK APPETITELINK TOSTRATEGYIntegration of Spirit Pub Company and failure to deliver the full anticipated synergiesReduced revenue,
313、profitabilityandlowergrowth rates than our strategic objectives.Integration steering committee overseeing integration.Retentionarrangementsinplaceforcritical-to-retainstaff.Communicationplandesignedtokeepallstaffandotherstakeholders informed of progress and changes impacting them.Synergy targets est
314、ablished and systems are in place to record synergiescaptured.Brand swap plans in place and being implemented and monitored.We have an appetite for risks which we understand and which are consistent with the delivery of our strategic objectives.1 3 4Failure to develop an appealing customer offer,to
315、identify and respond to fast-changing consumer tastes and to maintain and grow market shareReduced revenue,profitabilityandlowergrowthratesthanourbudget.Research conducted into consumer trends and plans developed to respond to key trends,including the piloting of new variations of existing brands.Us
316、e of guest satisfaction tools and net promoter scores to collect customer feedback and measure performance of our pubs.Increased investment in support and training for our employees to ensure service standards meet guest expectations and continue to improve.Increased use of social media to enhance c
317、ommunication with our guests and other consumers.With our vision to be the best pub company in the UK we expect to be able to react swiftly and appropriately to changing consumer trends to ensure continuity of earnings growth and achievement of our strategic objectives.1 2 3 4 5ECONOMIC AND MARKET R
318、ISKSCHANGEPOTENTIAL IMPACTMITIGATION AND MONITORINGRISK APPETITELINK TOSTRATEGYReduced consumer confidence in the UK,particularly in light of the referendum vote to leave the European Union and increasing competitor activityReduced revenue,profitabilityandlowergrowth rates.Focusonvalue,serviceandqua
319、litytoappealtoabroadrangeofconsumers.Pilotingofnewvariationsofexistingbrands.Costs are kept under constant review and mitigation plans preparedandimplementedwhereappropriate.Broad geographic spread of pubs including in London andtheSouthEast.Ongoing agreement innovation,training and support forourte
320、nants.Monitoringofcompetitoractivityatstrategicandtacticallevels.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.1 2 4STR
321、ATEGIC PRIORITIESAnnual report 2016 GREENE KING PLC35STRATEGIC REPORTOPERATIONAL AND PEOPLE RISKSCHANGEPOTENTIAL IMPACTMITIGATION AND MONITORINGRISK APPETITELINK TOSTRATEGYSignificant cyber security breachPotential impact on our ability to do business,impacting revenue andprofitability.Reputational
322、damage andfinancialdamagefromfinesorcompensation.Networksareprotectedbyfirewallsandanti-virusprotectionsystemswithback-upproceduresalsoinplace.Plans in place to further enhance controls in this area including ongoinginvestment.Constant monitoring of threats to data protection by viruses,hacking and
323、breach of access controls,with additional controls added during the year.Data governance committee drives improved behaviours andmanagementresponse.We have a low appetite forsignificantbreacheswithin our IT operations.3 5Risks associated with the recruitment,retention and development of employees an
324、d licenseesInability to execute ourbusinessplansandstrategy.Potential impact on theprofitabilityofourPubPartnersbusinesswhere the risks relate to licensees.A branded recruitment plan is in place with a strong pipeline ofsuitablecandidates.Inaddition,weoperatearangeofapprenticeship programmes.Remuner
325、ation packages are benchmarked to ensure that they remain competitive and appropriate mechanisms are in place formanagingpayprogression.Career development programmes are in place to retain key employees and leadership training has been introduced for alllevelsofmanagement.Our annual employee engagem
326、ent survey is used to obtain direct feedback from employees on a range of issues.Exitinterviewsareconductedwithallheadoffice,Brewing&BrandsandPubCompanymanagerstoenableactionplanstobedeveloped to deal with key leaver reasons.The range of tenancy agreements,training programmes andsupportavailableisde
327、signedtoattractandretainthebestqualitylicensees.The nature of the sector inwhichweoperateispredisposedtohighturnover levels,but we have a low tolerance for levels which exceed the sector average.We expect ourstafftohaveappropriateskills to deliver the functions of the business.3Reliance on a number
328、of key suppliers and third party distributors and on our own ability to produce,package anddistribute our own beersSupply disruption couldimpactcustomersatisfaction,leading tolossofrevenue.Key supplier or distributor withdrawal or long-term failure could reduce revenues or lead to increased costs.In
329、ability to brew and distribute our own beers could lead to lossofrevenue.Back-up plans are maintained in the event of the failure byorlossofakeysupplier.Detailed risk management and mitigation plans exist in our internal production and distribution activities,which are tested regularlyacrossthebusin
330、ess.Key suppliers are expected to maintain disaster recovery plans,whichwereviewonaregularbasis.We recognise that we carry an inherent risk in relation to third party suppliers,but we seek to minimise this risk through management and control.1 21 Build attractive and strongbrands2 Industry-leading v
331、alue,service andquality3 Work with the bestpeople 4 Own the UKs bestinvested pubestate 5 Maintain a strong balancesheet and flexiblecapital structureGREENE KING PLC Annual report 201636STRATEGIC REPORTRisks and uncertaintiescontinuedREGULATORY RISKSCHANGEPOTENTIAL IMPACTMITIGATION AND MONITORINGRISK
332、 APPETITELINK TOSTRATEGYRisk of increased regulation,and failure to respond to recent changes in regulation,in relation to any matter affecting ourretail business,including National Living Wage,the apprenticeship levy,the anticipated rates revaluation in 2017 andpotential future changes in relation
333、to the sale of alcoholLegislation such as the National Living Wage and the apprenticeship levy will drive up costs as will any increases in rates charged on our pubs and restaurants.Legislation impacting consumers could potentially reduce demand leading to reduced revenue.We have developed a plan which will in part mitigate the cost impact of the National Living Wage and the apprenticeship levy ov
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