Final Results
Wetherspoon (JD) PLC
03 September 2004
J D WETHERSPOON PLC
PRESS RELEASE
J D Wetherspoon plc announces its preliminary results for the year ended 25 July
2004.
Highlights
• Turnover up 8% to £787.1m
• Operating profit up 4% to £77.6m
• Net operating margin 9.9% (2003: 10.3%)
• Profit before tax (before exceptional items) down 4% to £54.1m
• Profit before tax (after exceptional items) £46.3m (2003: £52.5m)
• Earnings per share (before exceptional items) up 4% to 17.7p
• Earnings per share (after exceptional items) 14.6p (2003: 15.9p)
• Free cash flow per share down 3% to 37.5p, more than double EPS
• Dividend per share increased by 10%
Commenting on the results, Tim Martin, chairman of J D Wetherspoon plc, said:
'After a good first half, sales in the second half of the financial year slowed,
which affected profits. This notwithstanding, we achieved another increase in
sales per pub to their highest level ever and continue to generate strong cash
flow. Looking forwards, we have several competitive pricing initiatives to
drive sales, in what is a challenging competitive and political climate for
pubs.'
John Hutson Chief Executive Officer 01923 477777
Jim Clarke Finance Director 01923 477777
Eddie Gershon Company Spokesman 07956 392234
Photographs are available at: www.newscast.co.uk 3 September 2004
CHAIRMAN'S STATEMENT AND OPERATING REVIEW
After a good first half to the financial year (six months to 25 January 2004),
sales in the second half of the year slowed, which affected profits. For the
year as a whole, sales increased by £56.2 million to £787.1 million, a rise of
8%. Operating margins were 9.9%, compared with 10.3% last year, mainly as a
result of higher labour and other pub costs. Operating profit increased by 4% to
£77.6 million and profit before tax (before exceptional items) reduced by 4% to
£54.1 million. Profit before tax (after exceptional items) was £46.3 million
(2003: £52.5 million). Earnings per share (before exceptional items) increased
by 4% to 17.7p due to the benefit of share buybacks, with earnings per share
(after exceptional items) being 14.6p (2003: 15.9p).
Cash outflow in respect of capital investment was £74.6 million, and net gearing
at the year end was 117% (2003: 97%). This increase was due to the ongoing share
buyback programme. Net interest was covered 3.3 times (2003: 4.0 times) by
operating profit. Free cash flow, after payments of tax, interest and capital
investment of £20.6 million in existing pubs, decreased by 10% to £75.0 million,
resulting in free cash flow per share of 37.5p, more than double earnings per
share. Free cash flow decreased, primarily as a result of both a higher cash tax
charge and capital reinvestment in existing pubs rising from 2.2% of turnover to
2.6% of turnover.
Economic profit, calculated by adding back depreciation to profit before tax
(before exceptional items) and subtracting capital expenditure on existing pubs
and cash tax, decreased by 8% to £64.3 million. As with cash flow, economic
profits were affected by a higher tax charge and an increased level of capital
reinvestment.
The company recorded an exceptional loss in the year of £7.8 million before
taxation. This included the sale of 20 pubs together with provisions against the
disposal of further properties.
We opened 28 pubs during the year, compared with 45 in the previous year. The
total number of pubs now operated by the company is 643. As in previous years,
the new pubs opened are bigger than the average of our estate and have helped
average sales per pub to rise by 6% in the year under review. Like-for-like
sales increased by 3.4%, although like-for-like profits declined by 1%,
principally as a result of higher costs for labour and repairs.
Dividends
The board proposes, subject to shareholders' consent, to pay a final dividend of
2.56p per share on 26 November 2004 to those shareholders on the register on 29
October 2004, bringing the total dividend for the year to 3.89p per share, a 10%
increase on the previous year.
Finance
The company had £74.7 million (2003: £103.1 million) of unutilised banking
facilities and cash balances as at the balance sheet date, with total facilities
of £412 million (2003: £412 million). The year's capital expenditure on new pub
developments was more than covered by free cash flow. As a result of reductions
in our planned new opening programme we anticipate that in the current financial
year the company is expected to generate a cash surplus after capital
expenditure and dividends which will be available for debt reduction or share
buybacks or both.
Return of capital
During the year, 19,010,000 shares (representing approximately 9% of the issued
share capital) were purchased by the company for cancellation, at a cost of
£51.1 million, representing an average cost per share of 269p. £48.6 million of
the cost was a cash outflow in the year under review.
Regulation and taxation
As we have indicated in previous years, pubs pay approximately 40% of their
turnover in tax, equivalent to a contribution to public finances by Wetherspoon
and its employees of approximately £315 million. This level of tax is about nine
times our profit after tax (before exceptional items) and, like many businesses,
we are very concerned about continuing increases in taxation of one type or
another. In particular, the government has increased excise duty by considerable
amounts in the last two years, collectively costing Wetherspoon approximately £7
million. Since the public is free to import alcohol from abroad at low or
negligible rates of duty, the competitiveness of pubs and restaurants, important
parts of the British economy, is being reduced.
The trading environment
Like-for-like sales declined from 4.8% in the first half to 1.9% in the second
half of the financial year. Food sales growth remained strong but bar sales came
under increasing pressure, even leaving aside the impact of the Euro 2004
football tournament. We believe that this pressure is due to several factors,
including greater competition from supermarkets, themselves responding, in part,
to a growth in imports from the continent, leading to off-trade prices remaining
at approximately the levels of 1997. Pub prices have continued to increase since
1997 at, or above, the level of inflation, so that a greater percentage of beer,
wine and spirit consumption now takes place at home. When Wetherspoon started
business, 25 years ago, off-trade sales accounted for about 20% of beer, wine
and spirit consumption. Estimates suggest that off-sales rose to a record 40% of
overall sales during Euro 2004 and that present trends indicate that off-sales
could rise to about 50% by 2010.
This situation has put pressure on Wetherspoon's prices and margin, as well as
on the pub trade generally, and we are today launching a new marketing campaign,
emphasising a new traditional ale range featuring Marston's Burton Bitter at
£1.29 per pint and Marston's Pedigree at £1.49 per pint.
From 4 to 17 October 2004 we are holding our biggest ever beer festival
featuring traditional ales from British and Irish regional and micro breweries.
These festivals have been very successful in the past, but we are doubling the
duration to two weeks this year, and hope to sell one million pints of
traditional ale during the fortnight, five times as much as the excellent Camra
Great British Beer Festival held at Olympia annually.
We are also reducing the price of our biggest-selling standard-strength lager,
Carling, to £1.49 per pint. Following the recommendation of the Glasgow
Licensing Board, we have stopped all 2-for-1 offers and have stopped offering
financial incentives to customers to buy double measures of spirits instead of
singles. This has resulted in an increase in the number of single 25ml
(equivalent to 1 unit of alcohol) measures of spirits, although it has reduced
our sales and profits to some extent.
Binge drinking
There has been a lot of media attention over the issue of binge drinking and
there can be no doubt that attitudes to drinking need to change in some sections
of society, as has successfully been achieved in the area of drink driving.
However, it is doubtful whether binge drinking is a new phenomenon or uniquely
applicable to young people or pubs. Approximately forty per cent of our sales
now relate to food and soft drinks, a percentage which is increasing. We believe
that our strong training ethos, recently winning the British Institute of
Innkeeping Supreme Training Award for the second year in a row, combined with an
average of six managers per pub, helps to create a safe and controlled
environment. In addition, our non-music policy and relatively low pricing
attract an older clientele, as well as young people, creating a more convivial
atmosphere for the consumption of alcohol. The introduction of family areas in
our pubs, so that families can dine until the early evening, has also
contributed to a better pub environment.
We do not believe that competitive prices in our pubs lead to lower standards of
behaviour. Companies like Wetherspoon and brewers such as Samuel Smith and
Joseph Holt, as well as working men's clubs, have lower-than-average bar prices,
but are not generally associated with rowdy behaviour in town centres on Friday
and Saturday nights. We have tried to lead the way in areas such as the
prohibition of 'selling-up', through the removal of financial incentives to do
so, and have also been proactive in the marketing of food and soft drinks,
alongside alcoholic products. In addition to our investment in management
training, we participate actively, wherever we can, with bodies such as the
police and local authorities, to improve matters in this difficult area.
Minimum pricing
Several licensing authorities in Scotland and England, combined with the police
and local publicans, are introducing minimum-pricing schemes in an effort to
control anti-social behaviour. We believe that it would be better to introduce a
broad range of measures, such as those relating to selling-up, training, making
food available all day in pubs and so on. Minimum-pricing schemes for pubs will,
in our opinion, dramatically improve the competitive position of supermarkets
and will encourage people to drink at home and elsewhere, which is unlikely to
result in an improvement in behaviour. It will also penalise those people on a
low income, including senior citizens and students, who are important customer
groups. The pub industry has been repeatedly investigated during 1960-1980s,
culminating in the beer orders in the late 1980s forcing brewers to divest their
pubs. Brewers were deemed to be operating a monopoly and pushing up the price of
a pint, beyond the level of inflation, which was seen to be against the public
interest. It would be ironic if efforts to bring down the price of a pint were
reversed by individual licensing authorities, often following consultation with
local publicans, imposing their own views on the prices which customers should
pay. The likely long-term winners of price-fixing will be the supermarkets; this
may result in more alcohol consumption in circumstances where there is less
control and supervision.
People
I would like to thank, again, our employees, partners and suppliers for their
dedicated work in creating another year of progress for the company.
Current trading and outlook
Like-for-like sales in August were flat, and total company sales increased by
3%. Sales per pub in the last financial year recorded another increase to their
highest level ever, although the rate of growth slowed over the summer months.
Together with the initial impact of our competitive pricing initiatives and
anticipated cost increases, this slowdown in sales will affect our profits -
although it is certainly too early in the current financial year to predict the
probable outcome.
Reflecting uncertainties in sales, the approach of licensing authorities and
continued cost and taxation increases, we are reducing further the number of
pubs we plan to open to about 15 in the current financial year, to maintain a
cash flow surplus after all capital investment.
The competitive and political climate for pubs is challenging at the current
time, but our track record over 25 years and our committed and experienced
management team, combined with our strong cash flow give confidence for our
future prospects.
Tim Martin
Chairman
3 September 2004
Profit and loss account
for the year ended 25 July 2004
Notes Before Exceptional After Before After
exceptional items exceptional exceptional exceptional
items (note 3) items items items
2004 2004 2004 2003 2003
£000 £000 £000 £000 £000
Turnover 787,126 - 787,126 730,913 730,913
Operating profit 2 77,628 - 77,628 74,983 74,983
Loss on disposal of tangible fixed
assets 3 - (7,758) (7,758) - (3,688)
Net interest payable 4 (23,554) - (23,554) (18,844) (18,844)
Profit on ordinary activities before
taxation 54,074 (7,758) 46,316 56,139 52,451
Tax on profit on ordinary activities 5 (18,727) 1,685 (17,042) (19,744) (18,407)
Profit on ordinary activities after
taxation 35,347 (6,073) 29,274 36,395 34,044
Dividends 6 (7,331) - (7,331) (7,434) (7,434)
Retained profit for the year 28,016 (6,073) 21,943 28,961 26,610
Earnings per ordinary share 7 17.7p 14.6p 17.0p 15.9p
Diluted earnings per ordinary share 7 17.6p 14.6p 16.9p 15.9p
All activities relate to continuing operations.
The company has no recognised gains and losses, other than the profit above:
therefore, no separate statement of recognised gains and losses has been
presented.
Note of historical cost profits
2004 2003
£000 £000
Reported profit on ordinary activities before taxation 46,316 52,451
Difference between historical cost depreciation charge and actual
depreciation charge for the year, calculated on the revalued amount 574 606
Realisation of property (deficits)/surplus of previous years (1,252) 341
Historical cost profit on ordinary activities before taxation 45,638 53,398
Historical cost profit for the year retained after taxation and dividends 21,265 27,557
Cash flow statement
for the year ended 25 July 2004
Notes 2004 2004 2003 2003
£000 £000 £000 £000
Net cash inflow from operating activities 8 128,874 128,874 130,565 130,565
Returns on investments and servicing of finance
Interest received 20 20 109 109
Interest paid (19,329) (19,329) (21,251) (21,251)
Refinancing costs paid (1,325) -
Net cash outflow from returns on investment and
servicing of finance (20,634) (21,142)
Taxation
Corporation tax paid (13,942) (13,942) (10,277) (10,277)
Capital expenditure and financial investment
Purchase of tangible fixed assets for existing pubs (20,590) (20,590) (15,896) (15,896)
Proceeds of sale of tangible fixed assets 7,891 10,732
Purchase of own shares for ESOP trust - (153)
Purchase of own shares for Employee Share
Incentive Plan (1,556) -
Investment in new pubs and pub extensions (54,056) (77,275)
Net cash outflow from capital expenditure and
financial investment (68,311) (82,592)
Equity dividends paid (7,322) (5,438)
Net cash inflow before financing 18,665 11,116
Financing
Issue of ordinary shares 1,219 233
Purchase of own shares (48,583) (17,369)
Repayment of bank loans (25,000) (25,000)
Advances under bank loans 47,928 32,527
Advances under US senior loan notes 271 44
Net cash(outflow) from financing (24,165) (9,565)
(Decrease)/increase in cash 9 (5,500) 1,551
Free cash flow 7 75,033 83,250
Cash flow per ordinary share 7 37.5p 38.8p
Balance sheet
at 25 July 2004
Notes 2004 2003
£000 £000
Restated
Fixed assets
Tangible assets 11 783,574 773,823
Current assets
Stocks 12,009 10,752
Assets held for resale 1,933 -
Debtors due after more than one year 12 9,005 8,448
Debtors due within one year 12 11,897 12,655
Cash 9,660 15,160
44,504 47,015
Creditors due within one year 13 (150,368) (140,150)
Net current liabilities (105,864) (93,135)
Total assets less current liabilities 677,710 680,688
Creditors due after more than one year 14 (322,512) (299,942)
Provisions for liabilities and charges 15 (66,244) (62,419)
Total net assets 288,954 318,327
Capital and reserves
Called up share capital 3,783 4,149
Share premium account 128,340 126,739
Capital redemption reserve 545 165
Revaluation reserve 23,117 22,439
Profit and loss account 133,169 164,835
Equity shareholders' funds 16 288,954 318,327
Notes
1 These preliminary statements do not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985. They have, however,
been extracted from the statutory accounts for the periods ending 25 July
2004 and 27 July 2003 on which unqualified reports were made by the
company's auditors.
The Urgent Issues Task Force abstracts 17 (Employee share schemes) - as
amended and 38 (Accounting for ESOP) trusts) have been adopted in the
current year. This has resulted in shares held by the Trust being
reclassified as a reduction in shareholders funds, rather than within
current asset investments. The net results in respect of the current and
prior periods are unchanged but reserves have reduced by £301,000 in
respect of prior years.
The 2003 statutory accounts have been filed with the Registrar of
Companies. The 2004 statutory accounts will be sent to shareholders in
October 2004 and will be filed with the Registrar of Companies following
their adoption at the forthcoming Annual General Meeting.
Comparative amounts are restated where necessary to conform to current
presentation.
2 Analysis of continuing operations
2004 2003
£000 £000
Turnover 787,126 730,913
Cost of sales (672,332) (621,894)
Gross profit 114,794 109,019
Administrative expenses (37,166) (34,036)
Operating profit 77,628 74,983
Cost of sales includes distribution costs and all pub operating costs.
3 Exceptional items
2004 2003
£000 £000
Non-operating items:
Net loss on disposal of trading properties 6,159 2,732
Provision against future disposal of properties 1,249 956
Net loss on disposal of non-trading properties 350 -
7,758 3,688
4 Net interest payable
2004 2003
£000 £000
Interest payable on bank loans and overdraft 17,629 16,429
Interest payable on US senior loan notes 4,915 4,850
Refinancing costs 1,602 329
Less:
Interest capitalised - (1,954)
Interest receivable (592) (810)
Charge to profit and loss account 23,554 18,844
5 Taxation
a) Analysis of current period tax charge
Current tax 2004 2004 2003 2003
£000 £000 £000 £000
UK Corporation tax on profits before exceptional items 13,165 13,317
Current tax on exceptional items 52 70
Total current tax 13,217 13,387
Deferred tax
Origination and reversal of timing differences 5,562 6,427
Movement arising from disposals (exceptional items) (1,737) (1,407)
Total deferred tax 3,825 5,020
Total tax charge 17,042 18,407
b) Factors affecting current period tax charge
The current year tax charge for the year is less than the statutory rate of
corporation tax in the UK of 30%. The reasons for this difference are explained
below:
2004 2004 2003 2003
£000 % £000 %
Profit on ordinary activities before tax 46,316 52,451
Current tax on profit on ordinary activities calculated at the 30
standard rate of corporation tax in the UK of 30%
13,895 30 15,735
Accelerated capital allowances (4,820) (10) (5,884) (11)
Capitalised interest allowable for tax purposes - - (472) (1)
Movement in other short-term timing differences (467) (1) - -
Disposals 1,953 4 1,107 2
Other allowable deductions (371) (1) (182) -
Expenses not deductible for tax purposes 3,027 7 3,083 6
Current tax charge for period 13,217 29 13,387 26
c) Factors which may affect future tax charges
Current levels of investment ensure that capital allowance claims exceed
depreciation; while this will continue, the company would expect the excess of
capital allowances over depreciation to diminish over time.
No provision has been made for deferred tax on gains recognised on revaluing
properties to their market value. Such tax would become payable only if the
properties were sold without it being possible to claim roll-over relief. The
total amount unprovided for is approximately £6.9 million. At present, it is not
envisaged that any tax will become payable in respect of such properties in the
foreseeable future.
6 Dividends
2004 2003
£000 £000
Interim paid of 1.33p per share (2003: 1.21p) 2,488 2,600
Final proposed of 2.56p per share (2003: 2.33p) 4,843 4,834
7,331 7,434
7 Earnings and cash flow per share
The calculation of basic earnings per share is based on profits on ordinary
activities after taxation and exceptional items of £29,274,000 (2003:
£34,044,000) and on 200,067,030 (2003: 214,312,883) ordinary shares, being the
weighted average number of ordinary shares in issue and ranking for dividend
during the period.
Earnings per share before exceptional items is calculated as follows:
Earnings per Earnings per
share (p) share (p)
Earnings Earnings 2004 2003
£000 £000
2004 2003
Earnings and basic earnings per share 29,274 34,044 14.6 15.9
Exceptional costs, net of tax 6,073 2,351 3.1 1.1
Earnings and earnings per share before 35,347 36,395 17.7 17.0
exceptional items
Diluted earnings per share has been calculated in accordance with FRS14 and is
after allowing for the dilutive effect of the conversion into ordinary shares of
the weighted average number of options outstanding during the period. The number
of shares used for the diluted calculation is 200,636,714 (2003: 214,725,340).
The calculation of free cash flow per share is based on the net cash generated
by business activities and available for investment in new pub developments and
extensions to existing pubs, after funding all interest payments, tax and all
other reinvestment in pubs open at the start of the period ('free cash flow').
It is calculated before taking account of proceeds from property disposals,
inflows and outflows of financing from outside sources, purchase of own shares
and dividend payments and is based on the same number of shares in issue as that
for the calculation of basic earnings per share. Prior to 27 July 2003, interest
on new pub developments was capitalised and was excluded from free cash flow;
the comparative figures have been amended to reflect the revised definition
above.
8 Net cash inflow from operating activities
2004 2003
£000 £000
Operating profit 77,628 74,983
Profit on disposal of fixed assets - -
Depreciation of tangible fixed assets 43,948 43,209
Employee Share Incentive Plan charge 149 -
Change in stocks (1,257) (1,007)
Change in debtors (37) (1,238)
Change in creditors 8,443 14,618
Net cash inflow from operating activities 128,874 130,565
9 Reconciliation of net cash flow to movement in net debt
2004 2003
£000 £000
Decrease in cash in the year (5,500) 1,551
Cash inflow from increase in debt financing (23,199) (7,571)
Movement in net debt during the period (28,699) (6,020)
Opening net debt (308,860) (302,840)
Closing net debt (337,559) (308,860)
10 Analysis of net debt
Non-cash
2003 Cash flow movement 2004
£000 £000 £000 £000
Cash at bank and in hand 15,160 (5,500) - 9,660
Debt due within one year (24,799) 24,799 (25,000) (25,000)
Debt due after one year (299,221) (47,998) 25,000 (322,219)
Net debt (308,860) (28,699) - (337,559)
11 Tangible fixed assets
Freehold
and long
leasehold Short Equipment, Expenditure on Total
property leasehold fixtures unopened
property and properties
fittings
£000 £000 £000 £000 £000
Cost or valuation
At 27 July 2003 397,236 311,810 208,636 25,507 943,189
Reclassification 8,980 3,210 - (12,190) -
Additions 21,013 21,983 22,419 8,128 73,543
Transfer to assets held for resale - (1,765) (178) (1,683) (3,626)
Disposals (11,895) (4,112) (5,402) (1,769) (23,178)
At 25 July 2004 415,334 331,126 225,475 17,993 989,928
Depreciation
At 27 July 2003 19,912 41,503 107,495 456 169,366
Charge for the year 7,164 8,533 28,251 - 43,948
Transfer to assets held for resale - (945) (66) - (1,011)
Disposals (936) (1,105) (3,452) (456) (5,949)
At 25 July 2004 26,140 47,986 132,228 - 206,354
Net book value
At 25 July 2004 389,194 283,140 93,247 17,993 783,574
At 27 July 2003 377,324 270,307 101,141 25,051 773,823
12 Debtors
2004 2003
£000 £000
Amounts falling due after more than one year:
Other debtors 9,005 8,448
Amounts falling due within one year:
Other debtors 4,801 3,860
Prepayments 7,096 8,795
11,897 12,655
13 Creditors due within one year
2004 2003
£000 £000
Bank loans 25,000 24,799
Trade creditors 52,661 57,559
Corporation tax 7,067 7,792
Other tax and social security 21,888 22,616
Other creditors 3,989 3,875
Dividend payable 4,843 4,834
Accruals and deferred income 34,920 18,675
150,368 140,150
14 Creditors due after more than one year
2004 2003
£000 £000
Bank loans repayable by instalments 235,228 212,274
US senior loan notes repayable in a single instalment in 2009 86,991 86,947
322,219 299,221
Other creditors 293 721
322,512 299,942
15 Provisions for liabilities and charges
2004 2003
£000 £000
Deferred tax
Accelerated capital allowances 57,509 54,151
Other timing differences 8,735 8,268
Full provision for deferred tax 66,244 62,419
Provision at start of year 62,419 57,399
Deferred tax charge in profit and loss account for year 3,825 5,020
Provision at end of year 66,244 62,419
16 Capital, reserves and shareholders' funds
Called up Share Capital
share premium redemption Profit 2004
capital account reserve Revaluation and Shareholders'
reserve loss funds
£000 £000 £000 account
£000 £000 £000
At start of year as
previously stated 4,149 126,739 165 22,439 165,136 318,628
Prior year adjustment
- UITF38 and UITF17 - - - - (301) (301)
At start of year 4,149 126,739 165 22,439 164,835 318,327
Allotments 8 715 - - - 723
Transfer - - - 678 (678) -
Share Incentive Plan - - - - (1,407) (1,407)
Purchase of shares (380) - 380 - (51,129) (51,129)
Profit for the year - - - - 29,274 29,274
Dividends - - - - (7,331) (7,331)
QUEST transfer 6 886 - - (395) 497
At end of year 3,783 128,340 545 23,117 133,169 288,954
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 22nd November 2024
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