J D Wetherspoon : Preliminary Results

Preliminary Results

Released : 13 Sep 2019 07:00

RNS Number : 2041M

Wetherspoon (JD) PLC

13 September 2019

13 September 2019

J D WETHERSPOON PLC
PRELIMINARY RESULTS
(For the 52 weeks ended 28 July 2019)
FINANCIAL HIGHLIGHTS	Var%
Before exceptional items
- Like-for-like sales	+6.8%
- Revenue £1,818.8m (2018: £1,693.8m)	+7.4%
- Profit before tax £102.5m (2018: £107.2m)	-4.5%
- Operating profit £131.9m (2018: £132.3m)	-0.3%
- Earnings per share (including shares held in trust)	-4.7%
75.5p (2018: 79.2p)
- Free cash flow per share 92.0p (2018: 88.4p)	+4.1%
- Full year dividend 12.0p (2018: 12.0p)	Maintained
After exceptional items*
- Profit before tax £95.4m (2018: £89.0m)	+7.2%
- Operating profit £131.9m (2018: £132.3m)	-0.3%
- Earnings per share (including shares held in trust)	+9.2%
69.0p (2018: 63.2p)

*Exceptional items as disclosed in account note 4.

Commenting on the results, Tim Martin, the Chairman of

J D Wetherspoon plc, said:

"Journalists regularly ask Wetherspoon for comments on Brexit - although some publications begrudge our few paragraphs on the subject in this section.

"The UK is clearly in political deadlock, parliament having refused to carry out the pre-referendum promise in the leaflet (Appendix 2) sent to every household which said "The Government will implement what you decide."

"Democratic power in the UK in the last 30 years has been diluted by a political faction in parliament, the media and boardrooms, which has a quasi-religious belief in the undemocratic EU - with its unelected presidents, MEPs who cannot instigate legislation and unaccountable court. Voters resent this loss of power - and distrust of politicians and the 'elite' is the result.

"In recent weeks, the 21 'Tory rebels' (over half Oxbridge), who helped to block 'no-deal' were joined by 25 bishops (two-thirds Oxbridge), the latter group asserting (Appendix 3), contrary, many of us believe, to common sense, that no- deal will be disadvantageous to the poor.

"As another straw in the wind, former Supreme Court judge and Reith lecturer Lord Sumption described Brexit supporters as 'grim fanatics' (Appendix 4).

"John Bercow, Emily Thornberry, Dominic Grieve, Keir Starmer, Jo Johnson, Philip Hammond, David Gauke, David Lidington, Hilary Benn, Rory Stewart and many other pro-EU Oxbridge MPs have played a leading role in frustrating the referendum result, by enmeshing parliament in a legal and administrative spider's web.

"The economic judgement of this faction, led in the past by the likes of Michael Heseltine, Peter Mandelson and Tony Blair, the CBI and the Financial Times, has been extremely poor.

"It advocated joining the disastrous predecessor of the euro, the exchange rate mechanism, the euro itself, and incorrectly forecast an immediate recession in the event of a Leave vote in the referendum.

"Author and athlete Matthew Syed has recently illustrated how a lack of diversity among elites leads to poor decisions. Investment guru Warren Buffett has pointed out that forecasts tell you a lot about the forecaster - but nothing about the future.

"The faction's forecast today is that leaving the EU without a deal will be a 'cliff-edge', a 'catastrophe' or a 'disaster'.

"Remainer MPs' main argument - having consistently voted against the only deal on offer - to justify their attempts to scupper Brexit, is that costs for consumers and businesses will axiomatically increase in the event of 'no deal'.

"However, leaving without a deal avoids a legal liability to pay £39 billion (Appendix 5), allows the UK to eliminate protectionist import taxes (tariffs) on over 12,000 non-EU products, (including rice, oranges, bananas, Antipodean wine, children's clothes and car parts etc) and results in resumption of the control of fishing waters.

"Above all, no-deal increases UK democracy - the most powerful economic stimulant.

"It is an absurdity to argue that a reduction in UK input costs, combined with increased democracy, will have a harmful effect on the economy - just as it would be absurd for a business to adopt this argument if its own costs were reduced.

"Free trade, which the ending of tariffs implies, never made any country poorer, as former Australian High Commissioner, Alexander Downer, recently said (Appendix 6).

"Elite Remainers are ignoring the 'big picture', regarding lower input costs and more democracy, and are mistakenly concentrating on assumed short-term problems, such as potential delays at Channel ports - which are easier to extrapolate on their computer models.

"Despite continuing political problems, stemming from the transfer of democratic power to a technocratic elite, Wetherspoon continues to perform well. Like-for-like sales for the six weeks to 8 September 2019 were up 5.9%.

"We currently anticipate a reasonable outcome (pre IFRS16) for the current financial year, subject to our future sales performance.

"As in previous years, we will provide updates, during the year, on the company's trading.

Enquiries:
John Hutson	Chief Executive Officer	01923 477777
Ben Whitley	Finance Director	01923 477777
Eddie Gershon	Company spokesman	07956 392234

Photographs are available at: www.newscast.co.uk

Notes to editors

1. J D Wetherspoon owns and operates pubs throughout the UK. The Company aims to provide customers with good-quality food and drink, served by well-trained and friendly staff, at reasonable prices. The pubs are individually designed and the Company aims to maintain them in excellent condition.
2. Visit our website jdwetherspoon.com
3. This announcement, which does not constitute the Company's annual report for the 52 weeks ended 28 July 2019, has been prepared solely to provide additional information to the shareholders of J D Wetherspoon, in order to meet the requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied on by any other party, for other purposes. Forward-looking statements have been made by the directors in good faith using

information available up until the date that they approved this statement. Forward-looking statements should be regarded with caution because of inherent uncertainties in economic trends and business risks.

1. The annual report and financial statements 2019 has been published on the Company's website on 13 September 2019.
2. The current financial year comprises 52 trading weeks to 26 July 2020.
3. The next trading update will be issued on 13 November 2019.

CHAIRMAN'S STATEMENT

Financial performance

I am pleased to report a year of record sales for the company.

The company was founded in 1979 - and this is the 36th year since incorporation in 1983. The table below outlines some key aspects of our performance during that period. Since our flotation in 1992, earnings per share before exceptional items have grown by an average of 14.6% per annum and free cash flow per share by an average of 15.0%.

Summary accounts for the years ended July 1984 to 2019

Financial year	Total sales	Profit/(loss)	Earnings	Free cash flow	Free cash flow
		before tax and	per share before		per share
		exceptional items	exceptional items
	£000	£000	pence	£000	pence
1984	818	(7)	0
1985	1,890	185	0.2
1986	2,197	219	0.2
1987	3,357	382	0.3
1988	3,709	248	0.3
1989	5,584	789	0.6	915	0.4
1990	7,047	603	0.4	732	0.4
1991	13,192	1,098	0.8	1,236	0.6
1992	21,380	2,020	1.9	3,563	2.1
1993	30,800	4,171	3.3	5,079	3.9
1994	46,600	6,477	3.6	5,837	3.6
1995	68,536	9,713	4.9	13,495	7.4
1996	100,480	15,200	7.8	20,968	11.2
1997	139,444	17,566	8.7	28,027	14.4
1998	188,515	20,165	9.9	28,448	14.5
1999	269,699	26,214	12.9	40,088	20.3
2000	369,628	36,052	11.8	49,296	24.2
2001	483,968	44,317	14.2	61,197	29.1
2002	601,295	53,568	16.6	71,370	33.5
2003	730,913	56,139	17.0	83,097	38.8
2004	787,126	54,074	17.7	73,477	36.7
2005	809,861	47,177	16.9	68,774	37.1
2006	847,516	58,388	24.1	69,712	42.1
2007	888,473	62,024	28.1	52,379	35.6
2008	907,500	58,228	27.6	71,411	50.6
2009	955,119	66,155	32.6	99,494	71.7
2010	996,327	71,015	36.0	71,344	52.9
2011	1,072,014	66,781	34.1	78,818	57.7
2012	1,197,129	72,363	39.8	91,542	70.4
2013	1,280,929	76,943	44.8	65,349	51.8
2014	1,409,333	79,362	47.0	92,850	74.1
2015	1,513,923	77,798	47.0	109,778	89.8
2016	1,595,197	80,610	48.3	90,485	76.7
2017	1,660,750	102,830	69.2	107,936	97.0
2018	1,693,818	107,249	79.2	93,357	88.4
2019	1,818,793	102,459	75.5	96,998	92.0

Notes

Adjustments to statutory numbers

1. Where appropriate, the earnings per share (EPS), as disclosed in the statutory accounts, have been recalculated to take account of share splits, the issue of new shares and capitalisation issues.
2. Free cash flow per share excludes dividends paid which were included in the free cash flow calculations in the annual report and accounts for the years 1995-2000.
3. The weighted average number of shares, EPS and free cash flow per share include those shares held in trust for employee share schemes.
4. Before 2005, the accounts were prepared under UKGAAP. All accounts from 2005 to date have been prepared under IFRS.
5. Apart from the items in notes 1 to 4, all numbers are as reported in each year's published accounts.

Total sales were £1,818.8m, an increase of 7.4%. Like-for-like sales increased by 6.8%, bar sales by 5.8%, food sales by 8.3%, slot/fruit machine sales by 10.3% and hotel room sales by 3.9%.

Operating profit, before exceptional items, decreased by 0.3% to £131.9m (2018: £132.3m). The operating margin, before exceptional items was 7.3% (2018: 7.8%).

Profit before tax and exceptional items decreased by 4.5% to £102.5m (2018: £107.2m), including property profit of £5.6m (2018: £2.9m). Earnings per share, including

shares held in trust by the employee share scheme, before exceptional items, were 75.5p (2018: 79.2p).

Net interest was covered 3.9 times by operating profit before interest, tax and exceptional items (2018: 4.8 times), owing mainly to an increase in the cost of interest-rate

'swaps' or hedges and a reduction in operating profit. Total capital investment was £167.6m in the period (2018: £110.1m). £35.2m was invested in new pubs and pub

extensions (2018: £35.9m), £55.2m in existing pubs and IT (2018: £64.7m) and £77.2m in freehold reversions, where Wetherspoon was already a tenant (2018: £9.5m).

Exceptional items totalled £7.0m (2018: £18.3m). There was a £1.6m loss on disposal and an impairment charge of £5.5m.

The total cash effect of exceptional items is a cash outflow of £6.0m. The outflow related to payments to landlords in relation to lease terminations. Since starting the current disposal programme in 2015, the company has had a net inflow of £20m from the disposal of 101 pubs.

Free cash flow, after capital payments of £54.3m for existing pubs (2018: £68.9m), £16.0m for share purchases for employees (2018: £13.6m) and payments of tax and

interest, increased by £3.6m to £97.0m (2018: £93.4m). Free cash flow per share was 92.0p (2018: 88.4p).

Dividends and return of capital

The board proposes, subject to shareholders' approval, to pay an unchanged final dividend of 8.0p per share, on 28 November 2019, to shareholders on the register on 25 October 2019, giving an unchanged total dividend for the year of 12.0p per share. The dividend is covered 5.8 times (2018: 5.3 times).

In view of the level of capital investment made and the potential for further investment going forward, the board has decided to maintain the dividend per share at its current level for the time being.

During the year, 402,899 shares (0.38% of the share capital) were purchased by the company for cancellation, at a cost of £5.4m, an average cost per share of 1,327p.

My shareholding over the last 15 years has increased, as a result of the company's share 'buybacks', to 31.8% of the issued share capital. The company has in place a rule 9 'whitewash', under the UK City Code on Takeovers and Mergers, allowing further buybacks. At the annual general meeting this year, the company will seek approval for a renewal of the whitewash.

Financing

As at 28 July 2019, the company's total net debt, excluding derivatives, was £737.0m (2018: £726.2m), an increase of £10.8m.

Year-endnet-debt-to-EBITDA was 3.36 times (2018: 3.39 times) - EBITDA was £5m higher in 2019, offsetting a small increase in debt.

As at 28 July 2019, the company had £158.0m (2018: £133.9m) of unutilised banking facilities and cash or cash equivalents, with a slight increase in total facilities to

£895.0m (2018: £860.0m). In August the company raised an additional £98m from a private placement debt facility.

In order to avoid increased costs, the company has fixed its LIBOR interest rates in respect of £770m until March 2029.

Corporation tax

The current tax charge (ie the cash the company will pay to HMRC) for the period is £22.5m (2018: £23.7m). The rate of corporation tax paid on current year profits is the

same as that of the previous year at 22.8%. The 'accounting' tax charge, which appears in the income statement, is £22.8m (2018: £23.6m).

IFRS 16

On 29 July 2019, the company adopted the IFRS 16 leases standard. This has not affected the financial statements for the year under review (ended 28 July 2019). All things being equal, the company estimates that for the year ending 26 July 2020, EBITDA will increase by c£58m and operating profit by c£8m. The interest charge will increase by c£22m and profit before tax will decrease by c£14m. On the balance sheet, a net lease liability of c£617m and total assets of c£618m will be recognised, with no change to net assets. There will be no impact on cash flows except in relation to tax payments. Further detail will be included in the accounting policies note in the 2019 annual report.

VAT equality

As we have previously stated, the government would generate more revenue and jobs if it were to create tax equality among supermarkets, pubs and restaurants. Supermarkets pay virtually no VAT in respect of food sales, whereas pubs pay 20%. This has enabled supermarkets to subsidise the price of alcoholic drinks, widening the price gap to the detriment of pubs and restaurants.

Pubs also pay around 20 pence a pint in business rates, whereas supermarkets pay only about 2 pence, creating further inequality.

Pubs have lost 50% of their beer sales to supermarkets in the last 35 or so years.

It makes no sense for supermarkets to be treated more leniently than pubs, since pubs generate far more jobs per pint or meal than supermarkets do, as well as far higher levels of tax. Pubs also make an important contribution to the social life of many communities and have better visibility and control of those who consume alcoholic drinks.

Tax equality is particularly important for residents of less affluent areas, since the tax differential is more important there - people can less afford to pay the difference in prices between the on and off trade.

As a result, there are often fewer pubs, coffee shops and restaurants, with less employment and increased high-street dereliction, in less affluent areas.

Tax equality would also be in line with the principle of fairness in applying taxes to different businesses.

Contribution to the economy

Wetherspoon is proud to pay its share of tax and, in this respect, is a major contributor to the economy. In the year under review, we generated total taxes of £764.4m, an increase of £35.6m, compared with the previous year, which equates to approximately 42% of our sales - and also amounts to approximately one-thousandth of all UK government revenue.

This results in an average payment per pub of £871,400 per annum or £16,800 per week.

	2019	2018
	£m	£m
VAT	357.9	332.8
Alcohol duty	174.4	175.9
PAYE and NIC	121.4	109.2
Business rates	57.3	55.6
Corporation tax	19.9	26.1
Machine duty	11.6	10.5
Climate change levy	10.4	9.2
Stamp duty	3.7	1.2
Sugar tax	2.9	0.8
Fuel duty	2.2	2.1
Carbon tax	1.9	3.0
Premise licence and TV licences	0.8	0.7
Landfill tax	-	1.7
TOTAL TAX	764.4	728.8
Tax per pub (£000)	871.4	825.0
Tax as % of sales	42.0%	43.0%
Pre-exceptional profit after tax	79.6	83.7

Profit after tax as % of sales

4.4%

4.9%