Final Results
Wetherspoon (JD) PLC
01 September 2005
J D WETHERSPOON PLC
PRESS RELEASE
J D Wetherspoon plc announces its preliminary results for the year ended 24 July
2005.
Highlights
Turnover up 3% to £809.9m
Operating margin (before exceptional items) 8.7% (last year 9.9%)
Like--for-like sales -0.6%
Profit before tax (before exceptional items) down 15% to £46.1m
Profit before tax (after exceptional items) down 16% to £38.7m
Earnings per share (before exceptional items) down 7% to 16.4p
Earnings per share (after exceptional items) down 10% to 13.1p
Free cash flow down 6% to £68.8m
Free cash flow per share 37.1p (last year 36.7p)
Dividend per share increased by 10%
13 pubs opened, 1 sold, creating a total of 655
Commenting on the results, Tim Martin, chairman of J D Wetherspoon plc, said:
'Sales for the year increased by £22.7 million to £809.9 million, a rise of 3%.
Free cash flow, after payments of tax, interest and capital investment of £14.2
million in existing pubs, decreased by 6% to £68.8 million, resulting in free
cash flow per share of 37.1p, more than double earnings per share. The company,
as indicated in our interim results statement, has made considerable efforts to
reduce costs, both at head office and in the pubs. We are also keeping a tight
grip on capital investments, pending clarity on the impact of a smoking ban -
initially in Scotland and then in the rest of the UK. '
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 2 September 2005
CHAIRMAN'S STATEMENT AND OPERATING REVIEW
Sales for the year increased by £22.7 million to £809.9 million, a rise of 3%.
Operating margins (before exceptional items) were 8.7%, compared with 9.9% last
year, mainly as a result of the anticipated higher labour, utilities and repair
costs. Operating profit (before exceptional items) decreased by 9% to £70.4
million, and profit before tax (before exceptional items) reduced by 15% to
£46.1 million. Profit before tax (after exceptional items) was £38.7 million
(2004: £46.3 million). Earnings per share (before exceptional items) decreased
by 7% to 16.4p, with earnings per share (after exceptional items) being 13.1p
(2004: 14.6p).
Cash outflow, in respect of capital investment, was £38.7 million, and net
gearing at the year end was 129% (2004: 117%). This increase in gearing was due
to a reduction in the number of shares in issue as a result of share purchases
by the company. Net interest was covered 2.9 times (2004: 3.3 times) by
operating profit (before exceptional items). Free cash flow, after payments of
tax, interest and capital investment of £14.2 million in existing pubs,
decreased by 6% to £68.8 million, resulting in free cash flow per share of
37.1p, more than double earnings per share.
The company recorded exceptional losses in the year of £7.4 million before
taxation (2004: £7.8 million). This amount included the anticipated loss on the
sale of 8 pubs, together with provisions against several other properties. It
also includes £3.0 million of exceptional start-up costs, under our new
distribution arrangements, and £0.9 million of restructuring costs.
We opened 13 pubs during the year, compared with 28 in the previous year. The
total number of pubs now operated by the company is 655. Average sales per pub
increased by 1% in the year under review, with like-for-like sales declining by
0.6%, offset by higher sales from newly opened pubs.
Dividends
The board proposes, subject to shareholders' consent, to pay a final dividend of
2.82p per share on 25 November 2005 to those shareholders on the register on 28
October 2005, bringing the total dividend for the year to 4.28p per share, a 10%
increase on the previous year.
Finance
The company had £53.1 million (2004: £74.7 million) of unutilised banking
facilities and cash balances as at the balance sheet date, with total facilities
of £387 million (2004: £412 million). The year's capital expenditure on new pub
developments was more than covered by free cash flow. We anticipate that, in the
current financial year, the company will generate a cash surplus, after capital
expenditure and dividends, which will be available for debt reduction, share
buybacks or a combination of both.
Return of capital
During the year, 16,455,000 shares (representing approximately 9% of the issued
share capital) were purchased by the company for cancellation, at a cost of
£43.1 million, representing an average cost per share of 262p. There was a cash
outflow in the year, in respect of shares purchased, of £45.7 million.
Contribution to the UK economy
Pubs often receive criticism for antisocial behaviour, resulting from excessive
drinking. However, it should be borne in mind that the percentage of alcoholic
drinks consumed in pubs has declined dramatically in the last 25 years, from
approximately 83% of total consumption to approximately 60% now.
In assessing the effect of companies like Wetherspoon on the economy, it is
important to note that we pay approximately £311 million in annual taxes of one
kind or another. In addition, almost all of our remaining turnover involves
payments to our 18,000 staff and independent British and Irish companies, many
of which are small businesses. The great majority of our customers is extremely
well behaved, and the company makes a major contribution towards the economy.
Licensing
In April 2004, the company was successful in renewing the licenses of all of our
existing pubs, without any objections from either local residents or the police,
and also successfully lodged licensing applications for all of our pubs and
managers under the new legislation. Most pubs have not yet had their
applications granted, but the indications are that permission will be granted
and that pubs will, therefore, be able to open approximately one hour later than
now, on weekdays, and approximately 1-2 hours later, on Friday and Saturday
evenings. These hours are similar to those operated in Northern Ireland and
Scotland, where the company trades successfully and where there does not appear
to be significantly greater problems of social disorder than in England and
Wales.
The process involves considerable initial and continuing expense, and we
strongly argued in favour of the retention of magistrates, but the
administration so far of licensing by local authorities has not caused undue
problems.
The trading environment
As indicated in our recent annual announcements, pubs in general have
experienced a considerable increase in competition from supermarkets, the
off-trade generally and from duty-free imports from the continent. This has been
combined with a reduction in the number of people visiting many town and city
centres, as a result of unfavourable media coverage of problems associated with
excessive drinking in some areas.
Wetherspoon has attempted to address some of these issues. We continue the
strong promotion of food, soft drinks and coffee. We have also, alone among our
competitors, banned 2-for-1 drink offers and the discounting of double measures
of spirits. In the case of spirits, this has resulted in the percentage of
double measures reducing from 90% to 50% in the course of the last two years.
This may have had some impact on turnover and profitability, but indicates our
willingness to adopt sensible policies and our co-operation with the authorities
in this area.
Non-smoking
We have continued opening non-smoking pubs and have now opened 7 new pubs which
do not permit smoking and have converted 29 existing pubs to this format. We
plan to bring the total number of non-smoking pubs to approximately 50 by this
Christmas. This will then allow us to review the performance of these
non-smoking conversions in the early part of 2006.
The initial impact of introducing non-smoking in existing pubs has resulted in
turnover declining by approximately 7% and profit margins declining, as there is
a significant swing from bar sales to lower-margin food sales and a
consequential increase in labour costs.
A ban on smoking in pubs, as most commentators agree, is inevitable - and we
feel that it is important to learn, as early as possible, about the nature of
the impact and the types of marketing and other policies which can be adopted to
minimise the economic impact on our business.
Some critics have stated that it would be better to wait until smoking is
banned, before banning it in our own pubs. However, we feel that it is better to
take the initiative, rather than adopting a non-smoking policy at the same time
as everyone else, without significant previous experience of its impact.
Board changes
Tony Lowrie resigned as a non-executive director of the company on 23 March
2005, and Brian Jervis has intimated that he will not seek re-election at this
year's annual general meeting. I would like to thank both Tony and Brian for
their significant contribution to the company over the years. Liz McMeikan was
appointed as non-executive director on 1 April 2005, and it is our intention to
appoint a further non-executive director, following Brian's intended
resignation.
People
I would like to thank our employees, partners and suppliers for their dedicated
work in what has been a challenging year for the company.
International financial reporting standards (IFRS)
The company is required to report for the first time under IFRS for the 6 months
to January 2006. This transition is not expected to have any significant impact
on the stated results of the company and preparations for the transition are
well advanced. A separate announcement detailing the impact of IFRS on the
opening balance sheet and profits is anticipated in November 2005.
The likely areas of impact include the treatment of lease incentives, property
leases, deferred tax on rolled over property gains and interest rate hedging.
Current trading and outlook
Like-for-like sales in August declined by 1.7%. The company, as indicated in our
interim results statement, has made considerable efforts to reduce costs, both
at head office and in the pubs. We are also keeping a tight grip on capital
investments, pending clarity on the impact of a smoking ban - initially in
Scotland and then in the rest of the UK.
The company continues to strive to widen the range and improve the quality of
products offered to customers. For example, in the course of the next few
months, we are introducing Italy's number-one coffee, Lavazza, and a range of
new bottled beers, draught ales and lagers, as well as new products in most
other categories. In addition, the company has introduced a number of
award-winning cider and perry products over the last few months and has seen a
significant increase in sales of other products, such as Pimm's. Food remains a
significant part of our business, and we continue to experiment with regional
and local produce, together with trialling enhanced menu availability,
particularly in our non-smoking pubs.
As a result of our strong cash flow, our dedicated and experienced management
team and the loyalty of our customers, we remain confident for the future.
Tim Martin
Chairman
2 September 2005
Profit and loss account
for the year ended 24 July 2005
Notes Before Exceptional After Before After
exceptional items exceptional exceptional exceptional
items (note 3) items items items
2005 2005 2005 2004 2004
£000 £000 £000 £000 £000
Turnover 809,861 - 809,861 787,126 787,126
Operating profit 2 70,384 (4,911) 65,473 77,628 77,628
Non operating exceptional items 3 - (2,469) (2,469) - (7,758)
Net interest payable 4 (24,329) - (24,329) (23,554) (23,554)
Profit on ordinary activities before 46,055 (7,380) 38,675 54,074 46,316
taxation
Tax on profit on ordinary activities 5 (15,647) 1,276 (14,371) (18,727) (17,042)
Profit on ordinary activities after 30,408 (6,104) 24,304 35,347 29,274
taxation
Dividends 6 (7,552) - (7,552) (7,331) (7,331)
Retained profit for the year 22,856 (6,104) 16,752 28,016 21,943
Earnings per ordinary share 7 16.4p (3.3p) 13.1p 17.7p 14.6p
Diluted earnings per ordinary share 7 16.4p (3.3p) 13.1p 17.6p 14.6p
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
2005 2004
£000 £000
Reported profit on ordinary activities before taxation 38,675 46,316
Difference between historical cost depreciation charge and actual 666 574
depreciation charge for the year, calculated on the revalued amount
Realisation of property deficits of previous years (103) (1,252)
Historical cost profit on ordinary activities before taxation 39,238 45,638
Historical cost profit for the year retained after taxation and dividends 17,315 21,265
Cash flow statement
for the year ended 24 July 2005
Notes Statutory Statutory
2005 2005 2004 2004
£000 £000 £000 £000
Net cash inflow from operating activities 8 123,460 123,460 128,874 128,874
Returns on investments and servicing of finance
Interest received 3,598 43 20 20
Interest paid (24,108) (24,108) (19,329) (19,329)
Refinancing costs paid - - (1,325)
Net cash outflow from returns on investment and (20,510) (20,634)
servicing of finance
Taxation
Corporation tax paid (12,632) (12,632) (13,942) (13,942)
Capital expenditure and financial investment
Purchase of tangible fixed assets for existing (14,173) (14,173) (20,590) (20,590)
pubs
Proceeds of sale of tangible fixed assets 8,547 7,891
Purchase of own shares for Employee Share (3,816) (3,816) (1,556) (1,556)
Incentive Plan
Investment in new pubs and pub extensions (24,495) (54,056)
Net cash outflow from capital expenditure and (33,937) (68,311)
financial investment
Equity dividends paid (7,520) (7,322)
Net cash inflow before financing 48,861 18,665
Financing
Issue of ordinary shares 271 1,219
Purchase of own shares (45,718) (48,583)
Repayment of bank loans (25,000) (25,000)
Advances under bank loans 29,999 47,928
Advances under US senior loan notes - 271
Net cash outflow from financing (40,448) (24,165)
Increase/(decrease) in cash 9 8,413 (5,500)
Free cash flow 7 68,774 73,477
7
Cash flow per ordinary share 37.1p 36.7p
Balance sheet
at 24 July 2005
Notes 2005 2004
£000 £000
Fixed assets
Tangible assets 11 762,739 783,574
Current assets
Stocks 12,777 12,009
Assets held for resale 1,691 1,933
Debtors due after more than one year 12 - 9,005
Debtors due within one year 12 12,195 13,966
Cash 18,073 9,660
44,736 46,573
Creditors due within one year 13 (150,929) (152,437)
Net current liabilities (106,193) (105,864)
Total assets less current liabilities 656,546 677,710
Creditors due after more than one year 14 (329,167) (322,512)
Provisions for liabilities and charges 15 (67,495) (66,244)
Total net assets 259,884 288,954
Capital and reserves
Called up share capital 3,458 3,783
Share premium account 128,607 128,340
Capital redemption reserve 874 545
Revaluation reserve 22,554 23,117
Profit and loss account 104,391 133,169
Equity shareholders' funds 16 259,884 288,954
Notes to the accounts
for the year ended 24 July 2005
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 24 July 2005 and 25
July 2004 on which unqualified reports were made by the company's auditors.
The 2004 statutory accounts have been filed with the Registrar of Companies. The
2005 statutory accounts will be sent to shareholders in October 2005 and will be
filed with the Registrar of Companies following their adoption at the
forthcoming Annual General Meeting.
Certain comparative amounts have been reclassified where appropriate to conform
to current presentation. There is no overall effect on profit or net assets.
2 Analysis of continuing operations
Before After
exceptional exceptional
items Exceptional items
items
2005 2005 2005 2004
£000 £000 £000 £000
Turnover 809,861 - 809,861 787,126
Cost of sales (705,734) (4,052) (709,786) (676,154)
Gross profit 104,127 (4,052) 100,075 110,972
Administrative expenses (33,743) (859) (34,602) (33,344)
Operating profit 70,384 (4,911) 65,473 77,628
Cost of sales includes distribution costs and all pub operating costs.
3 Exceptional items
2005 2004
£000 £000
Operating items:
Distribution start-up costs 2,984 -
Restructuring costs 859 -
Impairment of fixed assets 1,068 -
4,911 -
Non-operating items:
Net loss on disposal and anticipated disposal of trading properties 2,306 6,159
Net loss on disposal and anticipated disposal of non-trading properties 163 1,599
7,380 7,758
4 Net interest payable
2005 2004
£000 £000
Interest payable on bank loans and overdraft 18,837 17,629
Interest payable on US senior loan notes 5,724 4,915
Refinancing costs - 1,602
Less:
Interest receivable (232) (592)
Charge to profit and loss account 24,329 23,554
5 Taxation
a) Analysis of current period tax charge
Current tax 2005 2005 2004 2004
£000 £000 £000 £000
UK corporation tax on profits before exceptional items 14,270 13,165
Current tax on exceptional items (1,150) 52
Total current tax (note 5(b)) 13,120 13,217
Deferred tax
Origination and reversal of timing differences 1,377 5,562
Movement arising from disposals (exceptional items) (126) (1,737)
Total deferred tax 1,251 3,825
Total tax charge 14,371 17,042
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:
2005 2005 2004 2004
£000 % £000 %
Profit on ordinary activities before tax 38,675 46,316
Current tax on profit on ordinary activities calculated at the
standard rate of corporation tax in the UK of 30% 11,603 30 13,895 30
Accelerated capital allowances (504) (1) (4,820) (10)
Movement in other short-term timing differences (850) (2) (467) (1)
Capital loss on asset disposals 695 2 1,953 4
Other allowable deductions (68) - (371) (1)
Expenses not deductible for tax purposes 2,244 6 3,027 7
Current tax charge for period (note 5(a)) 13,120 35 13,217 29
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
2005 2004
£000 £000
Interim paid of 1.46p per share (2004: 1.33p) 2,681 2,488
Final proposed of 2.82p per share (2004: 2.56p) 4,871 4,843
7,552 7,331
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 £24,304,000 (2004:
£29,274,000) and on 185,524,467 (2004: 200,067,030) ordinary shares, being the
weighted average number of ordinary shares in issue and ranking for dividend
during the period, taking into account the buyback transactions during the year.
Earnings per share before exceptional items is calculated as follows:
Earnings per Earnings per
share (p) share (p)
Earnings Earnings
2005 2004
£000 £000
2005 2004
Earnings and basic earnings per share 24,304 29,274 13.1 14.6
Exceptional costs, net of tax 6,104 6,073 3.3 3.1
Earnings and earnings per share before 30,408 35,347 16.4 17.7
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 185,760,654 (2004: 200,636,714).
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 interest on existing pubs, tax,
purchase of own shares for Employee Share Incentive Plan and all other
reinvestment in those 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.
8 Net cash inflow from operating activities
2005 2004
£000 £000
Operating profit (before exceptional items) 70,384 77,628
Depreciation of tangible fixed assets 48,157 43,948
Employee Share Incentive Plan charge 985 149
Exceptional costs (3,843) -
Change in stocks (768) (1,257)
Change in debtors (247) (2,106)
Change in creditors 8,792 10,512
Net cash inflow from operating activities 123,460 128,874
9 Reconciliation of net cash flow to movement in net debt
2005 2004
£000 £000
Increase/(decrease) in cash in the year 8,413 (5,500)
Cash inflow from increase in debt financing (4,999) (23,199)
Movement in net debt during the period 3,414 (28,699)
Opening net debt (337,559) (308,860)
Closing net debt (334,145) (337,559)
10 Analysis of net debt
Non-cash
movement
2004 Cash flow 2005
£000
£000 £000 £000
Cash at bank and in hand 9,660 8,413 - 18,073
Debt due within one year (25,000) 25,000 (25,000) (25,000)
Debt due after one year (322,219) (29,999) 25,000 (327,218)
Net debt (337,559) 3,414 - (334,145)
11 Tangible fixed assets
Freehold
and long
leasehold Short Equipment, Expenditure on Total
property leasehold fixtures unopened
property and properties
£000 fittings
£000 £000
£000
£000
Cost or valuation
At 25 July 2004 415,334 331,126 225,475 17,993 989,928
Reclassification 8,182 1,103 - (9,285) -
Additions 10,929 3,010 16,669 3,349 33,957
Transfer between assets held (1,073) (168) (2,926) - (4,167)
for resale
Disposals (1,066) - (589) (472) (2,127)
At 24 July 2005 432,306 335,071 238,629 11,585 1,017,591
Depreciation
At 25 July 2004 26,140 47,986 132,228 - 206,354
Charge for the year 7,538 8,493 32,126 - 48,157
Transfer between assets held (73) 836 (1,445) - (682)
for resale
Impairment - 1,068 - 413 1,481
Disposals (78) - (380) - (458)
At 24 July 2005 33,527 58,383 162,529 413 254,852
Net book value
At 24 July 2005 398,779 276,688 76,100 11,172 762,739
At 25 July 2005 389,194 283,140 93,247 17,993 783,574
12 Debtors
2005 2004
£000 £000
Amounts falling due after more than one year:
Other debtors - 9,005
Amounts falling due within one year:
Other debtors 2,666 4,801
Prepayments 9,529 9,165
12,195 13,966
13 Creditors due within one year
2005 2004
£000 £000
Bank loans 25,000 25,000
Trade creditors 54,025 52,661
Corporation tax 7,556 7,067
Other tax and social security 22,224 21,888
Other creditors 4,325 3,989
Dividend payable 4,875 4,843
Accruals and deferred income 32,924 36,989
150,929 152,437
14 Creditors due after more than one year
2005 2004
£000 £000
Bank loans repayable by instalments 240,000 235,001
US senior loan notes repayable in a single instalment in 2009 87,218 87,218
327,218 322,219
Other creditors 1,949 293
329,167 322,512
15 Provisions for liabilities and charges
2005 2004
£000 £000
Deferred tax
Accelerated capital allowances 59,057 57,509
Other timing differences 8,438 8,735
Full provision for deferred tax 67,495 66,244
Provision at start of year 66,244 62,419
Deferred tax charge in profit and loss account for year 1,251 3,825
Provision at end of year 67,495 66,244
16 Capital, reserves and shareholders' funds
Called up Share Capital Profit
share premium redemption and
capital account reserve Revaluation Shareholders'
reserve loss
£000 £000 £000 account funds
£000
£000 £000
At start of year 3,783 128,340 545 23,117 133,169 288,954
Allotments 4 267 - - - 271
Transfer - - - (563) 563 -
Share Incentive Plan - - - - (2,832) (2,832)
Purchase of shares (329) - 329 - (43,261) (43,261)
Profit for the year - - - - 24,304 24,304
Dividends - - - - (7,552) (7,552)
At end of year 3,458 128,607 874 22,554 104,391 259,884
This information is provided by RNS
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