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Introduction and strategy update

Greene King has delivered another strong performance. For the 52 weeks to 2 May 2010, we achieved record revenues of £984.1m, up 3.1% on last year, despite the difficult trading environment. Operating profit* of £211.3m was 2.3% below last year but profit before tax* was 3.8% up on last year at £123.0m. Adjusted earnings per share was down 18.7% at 43.4p, due primarily to the higher number of shares following the rights issue. The board has recommended a final dividend of 15.6p per share, 3.3% ahead of last year.

Market and business overview

Our performance was delivered in another year of challenging market conditions. Although the UK consumer was better off than in the previous year following various government stimuli, bank lending remained low and the savings ratio grew. In addition, we had a tough winter, duty and VAT rises and the increasing consumer uncertainty over the election. The overall eating out market remained subdued and on-trade beer volumes again fell.

Within this environment there were excellent achievements in all of our businesses; we delivered record revenues close to £1bn, strong Retail like-for-like-sales growth, second half profit per pub growth in Pub Partners, own-brewed volume growth and another record profit from Belhaven. We successfully balanced our revenue growth with effective cost mitigation and margin management to protect our margins and we generated sufficient cash to reduce our debt, pay an attractive dividend and increase our targeted investment in our assets, brands and people.

We are operationally focused on delivering outstanding value, exceptional service and unbeatable quality throughout Greene King.

We have consciously enhanced the value proposition to our customers over the last two years and while the UK consumer continues to demand exceptional value, we will deliver it, at the same time maintaining our commitment to generating healthy cash margins.

Strategy update

Greene King has been providing its customers with authentic pub and beer experiences for over 200 years and central to this longevity is our ability to develop our business to reflect changing consumer preferences and economic conditions. This has been particularly true in the last three years as we successfully adapted to the challenges of the smoking ban, the banking crisis and the recession.

We have a strong business which has been augmented in the last two years by two significant initiatives. Firstly, we have invested over £100m from our rights issue in high quality, freehold, retail outlet acquisitions from our competitors and below par debt buybacks. To date, the average return on the capital invested in the acquisitions is 19.4%, as we use our operating expertise and brand strength to drive material uplifts in sales and profit. Secondly, we have continued investing in our estate, particularly in our leading pub restaurant brands, which has delivered exceptional returns in recent years.

The success of these initiatives has enabled Greene King to emerge from the recession in a stronger position to take advantage of the further opportunities for growth and market share gains that exist. Whilst risks still remain, this success gives us confidence to accelerate the pace of change and growth at Greene King towards a more retail and branded focus.

The main elements of our strategy over the next three to five years are:

1. Expand branded retail

Drive growth through expanding our branded, food-led, retail estate. We are targeting 1,100 outlets, from our current base of 888, through a combination of acquisitions and internal transfers from tenancy. We see opportunities for growth in our destination pubs and restaurants, pubs with rooms and traditional suburban pubs.

2. Improve quality and reduce size of tenanted estate

Generate sustainable and improved rates of cash returns from a higher quality, more customer focused, tenanted estate. As part of this process, we will reduce the estate from our current base of 1,584 outlets to c. 1,200 through a combination of disposals and transfers to retail. We will further leverage our purchasing scale and retail infrastructure to deliver higher returns for our licensees and our shareholders.

3. Increase core beer brand investment

Deliver continued profitable growth in our branded beer business through additional investment in Greene King IPA, the UK's leading cask ale, Old Speckled Hen, the UK's leading premium ale and Belhaven Best, Scotland's leading ale brand.

Overall, our aim is to be the best pub and beer business in Britain and we believe this retail expansion and brand investment strategy will help us achieve that over the next three to five years. It will generate faster, profitable sales growth, supported by enhanced purchasing and operating synergies, to deliver a step change in our focus on retail and increase our exposure to the long-term growth of the eating out market. This acceleration in our retail expansion will be financed through our existing funding headroom, the remaining rights issue proceeds and the accelerated tenanted disposal programme. We will continue to generate strong trading cash flows to maintain our ongoing investment requirements, meet our debt obligations and pay dividends to shareholders.

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