Final Results

RNS Number : 8019C

Wetherspoon (JD) PLC

04 September 2008

 



5 September 2008                                                           PRESS RELEASE

J D WETHERSPOON PLC

PRELIMINARY RESULTS

(For the 52 weeks ended 27 July 2008)

RECORD FREE CASH FLOW PER SHARE

Financial Highlights	Reported Results
=                   Revenue £907.5m	+2.1%
=                   Operating profits £87.2m	-4.3%
=                   Operating margin 9.6%	-0.6%
=                   Adjusted profit before tax £55.0m	-11.4%*
=                   Statutory profit before tax £54.2m	-12.7%
=                   Adjusted earnings per share 25.7p	-8.4%**
=                   Statutory earnings per share 25.2p	-20.9%
=                   Free cash flow per share 50.7p (2007: 35.6p)	+42%

* Excluding fair value loss on derivatives of £0.8m.

**Excluding the fair value loss in FY08 and excluding the benefit of change in corporation tax rate in FY07.

Tim Martin, Chairman of J D Wetherspoon plc, comments:

'The year under review is the first following the smoking ban in England in July 2007. Total sales increased by £19.1 million to £907.5 million, a rise of 2.1% (2007: 4.8%). We achieved an increase in LFL food sales (up 7.9%) combined with an anticipated decline in LFL bar sales (down by 4.3%), resulting in an overall LFL sales decline of 1.1%. Free cash flow was £71.7 million (2007: £52.4 million), resulting in record free cash flow per share of 50.7p (2007: 35.6p). 

In the five weeks to 31 August 2008, like-for-like sales increased by 1.1% and total sales by 5.5%, making this August our busiest ever. As a result of our strong cash flow, our dedicated management team and our efforts to improve every area of the business, we remain confident of our prospects.'

John Hutson                                         Chief Executive Officer                                      01923 477777

Keith Down                                           Finance Director                                                 01923 477777

Eddie Gershon                                    Company Spokesman                                      07956 392234

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

Notes to editors

1.        JD 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 www.jdwetherspoon.co.uk

3.            This announcement has been prepared solely to provide additional information to the shareholders of JD 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. 

4.             The next Interim Management Statement will be issued on 4 November 2008

 

CHAIRMAN'S STATEMENT AND OPERATING REVIEW

The year under review is the first following the smoking ban in England in July 2007. Total sales increased by £19.1 million to £907.5 million, a rise of 2.1% (2007: 4.8%). We achieved an increase in LFL food sales (up 7.9%) combined with an anticipated decline in LFL bar sales (down by 4.3%), resulting in an overall LFL sales decline of 1.1%. Including those bar purchases made in association with table meals, diners now account for approximately two-thirds of sales. 

A consequence of this shift in sales towards food was a slight decline in operating margin, from 10.3% in the previous year to 9.6%, resulting from food margins being lower than bar margins and higher labour costs. Operating profit decreased by 4.3% to £87.2 million (2007: £91.1m). Profit before tax (excluding a non-cash 'mark to market' loss, in respect of interest rate swaps of £0.8m) decreased by 11.4% to £55.0 million (2007: £62.0m). Earnings per share decreased by 8.4% to 25.7p (2007: 28.1p), excluding the 'mark to market' loss and the benefit resulting from the change in corporation tax rates last year. 

Net interest was covered 2.7 times (2007: 3.1 times) by operating profit. Free cash flow, after payments of tax, interest, share purchases under the company's share plans and capital investment of £12.3 million in existing pubs (2007: £24.0m), was £71.7 million (2007: £52.4m), resulting in record free cash flow per share of 50.7p (2007: 35.6p). Capital expenditure in the year under review was lower, since the previous year saw higher investment in gardens and kitchens in anticipation of the smoking ban. In addition, the working capital movement improved by £10 million in the year. 

During the year the company financed cash dividend payments of £17.4 million, share buybacks of £12.0 million and expenditure of £48.6 million on new pubs and site acquisitions, with net borrowings increasing slightly by £5.8 million to £439.6 million (2007:£433.8m).

Property

The company opened 23 pubs during the year, compared with 18 in the previous year, resulting in a total estate of 694. We currently intend to open around 30 pubs in the year ending July 2009 and anticipate having sufficient properties in the course of acquisition and development to be able to continue this rate of expansion in future. 

Property prices and rent-review settlements appear to have declined significantly in the course of the year. These reasonable property prices will clearly create opportunities for profitable investment by Wetherspoon in the future. 

Dividends, return of capital

The board proposes, subject to shareholders' consent, to pay a final dividend of 7.6p per share, on 21 November 2008, to those shareholders on the register on 24 October 2008, giving an unchanged total dividend for the year of 12.0p per share. Dividend cover is 2.1 times (2007:2.3 times).

During the year 3,835,000 shares (representing approximately 2.7% of the issued share capital) were purchased by the company for cancellation, at a cost of £12.0 million, representing an average cost per share of 314p.

Taxation

The overall tax charge for the year is 34.4% (2007: 33.3% comparable basis adjusted for change in the deferred tax rate from 30% to 28%). The increase is largely due to a reduced tax credit from employee share schemes. 

Finance 

The company had £82.6 million (2007: £88.4m) of unutilised banking facilities and cash balances as at 27 July 2008 , with total facilities of £522.2 million (2007: £522.2m). The year's capital expenditure on new pub developments was more than covered by free cash flow. The company remains in a sound financial position.

Further progress 

As indicated in previous years, our approach is to try to make lots of small improvements in diverse areas of the business, creating momentum in the services and facilities offered to customers, as well as sales and financial momentum for the company. 

In the area of real ale, we stock over 600 guest beers throughout the year, from breweries across the UK, Ireland and other countries. We are in the course of training more than 1,500 staff, in association with local breweries and Cask Marque, in order to continue sales growth in this area. Currently, 131 of our pubs are recommended in the CAMRA Good Beer Guide 2007 - more pubs, and a higher percentage of the estate, than any other substantial company. We ran the biggest real-ale festival in the world during April 2008, selling 2.5 million pints over 18 days - an increase in LFL volumes of over 7%, compared with the same festival in 2007.

We also ran a wine festival during May and June, selling over 495,000 equivalent bottles of wine - an increase of 20% on the same period last year. During the festival, we broke the Guinness world record for the largest multiple-location wine tasting event, with over 17,500 participants. 

We introduced Coors Light, which is now our third best selling lager, and have become the largest retailer of this product in the UK. This helped return draught lager sales, adversely affected by the smoking ban, to growth in the 4th quarter, demonstrating the company's capability in terms of nationwide product launches, following similar successes with Kopparberg cider, Pimm's and Lavazza coffee, for example. 

Food accounted for 29% of our sales during the year, compared with 27% in the previous year, 17% 11 years ago, and 5% at flotation in 1992. Including those bar purchases made in association with table meals, diners now account for approximately two-thirds of sales. Food sales per pub, per week, for the year were £8,800 incl. VAT. (2007: £8,200). In the light of our competitive prices, we believe that we sell more meals per pub, per week, than any other substantial pub company.

Coffee and tea sales continue to increase, up 6.6% in total to average 443,000 per week. We are now the world's number-one seller of 'Tierra', Lavazza's sustainable coffee from Rainforest Alliance.

We also won Eat Out magazine's 'Menu Masters 2008 Best Kids Menu' award, recognising the work which we have carried out to increase organic and free range products on the menu.

In both food and bar sales, it remains our aim to continue to provide the highest-quality products at competitive prices, and to introduce a limited range of new brands, in association with our suppliers, in the course of future months and years. 

Recycling

We continue to concentrate on recycling and believe that we recycle more than any other pub company. In 2007/08, we recycled 5,281 tonnes of waste (an increase of 4%), including 3,136 tonnes of cardboard, 1,616 tonnes of cooking oil, 95 tonnes of plastic, 19 tonnes of aluminium and 415 tonnes of paper. Pubs' recycling has exceeded 16,000 tonnes over the last four years.

Glass-recycling has been given greater emphasis; together with our partner, Biffa, we successfully recycled 5,000 tonnes in 2007/08, representing over 23% of the glass waste which we generate. 

We were recognised for our efforts in recycling and received the High Street Recycling Champion award 2007 from letsrecycle.com.

Government taxation and regulation

The pub industry, in common with many businesses, has been strongly affected by increases in taxation and regulation in recent years. In the current financial year, we continue to estimate that increases in excise duty on alcoholic drinks, minimum wage related costs and increased statutory holiday entitlements will amount to £16 million. Energy increases, which clearly have an inflationary effect, receive widespread attention from economists and the media. It is interesting to note that the effects of government legislation on our business have a far greater impact, and are, therefore, more inflationary than energy increases.  

Licensing

It is the company's policy to work closely with a variety of organisations, including local authorities and the police, to improve behaviour in association with pub visits. We strongly support Pubwatch, an organisation bringing together licensees and the police, which has been extremely successful in improving standards of behaviour in many town and city centres. As a company, we are also a member of National Pubwatch and The Drink Aware Trust, and support the activities of the Portman Group. 

We operate the Challenge 21 policy in all of our pubs. In order to ensure effective implementation of this campaign we provide support and training to all of our staff and carry out regular audits of our performance.

People

The most important factor in successful pubs is good customer service. Wetherspoon continues to provide a comprehensive employee training system which has won many awards, over the years, from the relevant training bodies. This year our National Diploma in Leisure Retail Management Course, operated in conjunction with Nottingham Trent University, won an award as part of the National Innkeeping Training Awards and we featured in Britain's Top 100 Employers handbook, as published by The Guardian, for the fifth consecutive year.

We encourage internal promotion, with many pub managers starting as bar staff and many area managers being promoted from pub manager. Outstanding examples are Su Cacioppo, our personnel & legal director, having started her career as a trainee pub manager 17 years ago, and John Hutson, our chief executive, who started as an area manager around the same time.

In addition, we provide monthly bonuses for all of our pub staff, whatever their length of service in the company. In the year under review, we spent a total of £16 million on bonuses and share awards for employees. 

I would like to thank our employees, partners and suppliers, once again, for their excellent work in the past year. 

Current trading and outlook

In the five weeks to 31 August 2008, LFL sales increased by 1.1% and total sales by 5.5%, making this August our busiest ever.  

In common with many pub and restaurant businesses, we continue to expect a considerable increase in the current year in expenditure relating to energy, food, labour and tax. We hope to offset this by improvements in every area of the business and by increases in sales. In order to achieve a similar trading performance this year we currently estimate we would need LFL sales of around 3%. 

In a traumatic year for the pub industry following the smoking ban, Wetherspoon has again demonstrated that concentrating on customer service, standards, and placing emphasis on staff training and incentives, are the key ingredients to long term success, especially during a downturn in the general economy.

As a result of our strong cash flow, our dedicated management team and our efforts to improve every area of the business, we remain confident of our prospects. 

Tim Martin

Chairman

 

5 September 2008

  INCOME STATEMENT for the 52 weeks ended 27 July 2008

	Notes	52 weeks ended 27 July 2008	52 weeks ended 29 July 2007
		Total  £000	Total £000
Revenue		907,500	888,473
Operating costs		(820,318)	(797,360)
Operating profit		87,182	91,113
Finance income	2	337	206
Finance costs	2	(32,566)	(29,295)
Fair value loss on financial derivatives	2	(794)	-
Profit before tax		54,159	62,024
Income tax expense	3	(18,624)	(15,190)
Profit for the year		35,535	46,834
Earnings per share (pence)	4
Earnings per ordinary share		25.2	31.8
Adjusted earnings per ordinary share (excluding one-off benefit to tax charge)		25.2	28.1
Fully diluted earnings per share		25.1	31.6
Adjusted fully diluted earnings per ordinary share (excluding one-off benefit to tax charge)		25.1	27.9

All activities relate to continuing operations. 

Statement of recognised income and expense for the 52 weeks ended 27 July 2008

	Notes	52 weeks ended 27 July 2008 £000	52 weeks ended 29 July 2007 £000
Cash flow hedges: gain taken to equity	8	1,256	5,833
Tax on items taken directly to equity	3, 8	(350)	(1,777)
Net gain recognised directly in equity		906	4,056
Profit for the year		35,535	46,834
Total recognised income for the year		36,441	50,890

  CASH FLOW STATEMENT for the 52 weeks ended 27 July 2008

	Notes	52 weeks ended 27 July 2008             £000	52 weeks ended 27 July 2008     £000	52 weeks ended 29 July 2007 £000	52 weeks ended 29 July 2007  £000
Cash flows from operating activities
Cash generated from operations	5	134,369	134,369	124,933	124,933
Interest received		268	268	189	189
Interest paid		(29,488)	(29,488)	(27,610)	(27,610)
Corporation tax paid		(17,974)	(17,974)	(19,598)	(19,598)
Purchase of own shares for  share-based payments		(3,181)	(3,181)	(1,489)	(1,489)
Net cash inflow from operating activities		83,994	83,994	76,425	76,425
Cash flows from investing activities
Purchase of property, plant and equipment, intangible assets and non-current assets for existing pubs		(12,323)	(12,323)	(24,046)	(24,046)
Proceeds on sale of property, plant and equipment		793		4,768
Investment in new pubs and pub extensions		(48,559)		(51,951)
Net cash outflow from investing activities		(60,089)	(12,323)	(71,229)	(24,046)
Cash flows from financing activities
Equity dividends paid	7	(17,380)		(10,295)
Proceeds from issue of ordinary shares		461		5,927
Purchase of own shares	8	(12,031)		(77,015)
Advances under bank loans	6	3,184		76,135
Finance lease principal payments		(739)		(1,988)
Net cash outflow from financing activities		(26,505)		(7,236)
Net increase/(decrease) in cash and cash equivalents	6	(2,600)		(2,040)
Opening cash and cash equivalents	6	19,052		21,092
Closing cash and cash equivalents	6	16,452		19,052
Free cash flow	4		71,671		52,379
Free cash flow per ordinary share	4		50.7p		35.6p

  BALANCE SHEET as at 27 July 2008

	Notes	27 July 2008 £000	29 July 2007 £000
Assets
Non-current assets
Property, plant and equipment		792,741	782,269
Intangible assets		4,417	3,566
Deferred income tax assets		583	975
Other non-current assets		7,276	6,685
Total non-current assets		805,017	793,495
Current assets
Inventories		15,896	19,029
Other receivables		13,489	11,761
Assets held for sale		93	848
Cash and cash equivalents		16,452	19,052
Total current assets		45,930	50,690
Total assets		850,947	844,185
Liabilities
Current liabilities
Trade and other payables		(115,379)	(119,183)
Financial liabilities		(900)	(559)
Current income tax liabilities		(10,457)	(9,679)
Total current liabilities		(126,736)	(129,421)
Non-current liabilities
Financial liabilities		(444,040)	(440,232)
Derivative financial instruments		(14,692)	(16,335)
Deferred tax liabilities		(79,231)	(79,400)
Provisions and other liabilities		(5,701)	(6,190)
Total non-current liabilities		(543,664)	(542,157)
Net assets		180,547	172,607
Shareholders’ equity
Ordinary shares		2,775	2,849
Share premium account		141,880	141,422
Capital redemption reserve		1,646	1,569
Retained earnings		34,246	26,767
Total shareholders’ equity	8	180,547	172,607

  1. Authorisation of financial statements and statement of compliance with IFRSs

The preliminary announcement for the 52 week period ended 27 July 2008 has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Details of the accounting policies adopted in this preliminary announcement are set out within the investors section of the Company's website, www.jdwetherspoon.co.uk

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 period ended 27 July 2008 on which an unqualified report has been made by the company's auditors.

The 2007 statutory accounts have been filed with Registrar of Companies. The 2008 statutory accounts will be sent to shareholders in October 2008 and will be filed with the Registrar of Companies following their adoption at the forthcoming Annual General Meeting. 

2. Finance income and costs

	52 weeks ended 27 July 2008 £000	52 weeks ended 27 July 2007 £000
Finance costs
Interest payable on bank loans and overdrafts	25,300	22,685
Interest payable on US senior loan notes	6,704	6,027
Amortisation of bank loan issue costs	303	474
Interest payable on obligations under finance leases	259	109
Finance costs before fair value loss on financial derivatives	32,566	29,295
Fair value loss on financial derivatives	794	-
Total finance costs	33,360	29,295
Bank interest receivable	(337)	(206)
Total net finance costs	33,023	29,089

The fair value loss on financial derivatives relates to the mark to market value of basis swap derivatives taken out during the year. Over the life of the basis swap derivatives which run from August 2008 to September 2009, the company's cumulative fair value gain/loss on this financial derivative will be £nil as it is the company's intention to hold this to maturity.

3.  Income tax expense

Tax charged in the income statement

	52 weeks ended 27 July 2008 £000	52 weeks ended 29 July 2007 £000
Current income tax:
Current income tax charge	18,752	18,470
Total current income tax	18,752	18,470
Deferred tax:
Origination and reversal of timing differences	(128)	2,192
Impact of change in UK tax rate	-	(5,472)
Total deferred tax	(128)	(3,280)
Tax charge in the income statement	18,624	15,190
Tax relating to items charged or credited to equity
Deferred tax:
Tax charge on cash flow hedges	350	1,633
Impact of change in UK tax rate	-	144
Tax charge in the statement of recognised income and expense	350	1,777

On 1 April 2008 the UK standard rate of corporation tax changed from 30% to 28%. 

4.  Earnings and cash flow per share

Basic earnings per share has been calculated by dividing the profit attributable to equity holders of 
£35,535,000 (2007: £46,834,000) by the weighted average number of shares in issue during the year of 141,247,914 (2007: 147,256,488). 

Diluted earnings per share has been calculated on a similar basis, taking account of 129,049 (2007: 910,449) dilutive potential shares under option, giving a weighted average number of ordinary shares adjusted for the effect of dilution of 141,376,963 (2007: 148,166,937).

An adjusted earnings per share has also been included to reflect the impact of the deferred taxation credit arising from the corporation tax rate change.

Earnings per share	Earnings	Earnings	Basic earnings per share	Basic earnings per share	Diluted earnings per share	Diluted earnings per share
	52 weeks ended 27 July 2008 £000	52 weeks ended 29 July 2007 £000	52 weeks ended 27 July 2008  pence	52 weeks ended 29 July 2007  pence	52 weeks ended 27 July 2008  pence	52 weeks ended 29 July 2007  pence
Profit for the year	35,535	46,834	25.2	31.8	25.1	31.6
Adjusted profit for the year (excluding one-off benefit to tax charge in 2007)	35,535	41,362	25.2	28.1	25.1	27.9
Adjusted profit for the year (excluding fair value loss on financial derivatives)	36,329	46,834	25.7	31.8	25.7	31.8

Free cash flow per share

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, tax, all other reinvestment in pubs open at the start of the period and the purchase of own shares under the employee Share Incentive Plan ('free cash flow'). It is calculated before taking account of proceeds from property disposals, inflows and outflows of financing from outside sources and dividend payments and is based on the same number of shares in issue as that for the calculation of basic earnings per share. 

5.  Cash generated from operations

	52 weeks ended  27 July 2008 £000	52 weeks  ended  29 July 2007 £000
Profit attributable to shareholders	35,535	46,834
Adjusted for:
Tax	18,624	15,190
Amortisation of intangible assets	1,160	1,044
Depreciation of property, plant and equipment	43,687	42,554
Lease premium amortisation	214	348
Impairment of fixed assets	-	876
Net loss/(profit) on disposal on anticipated disposal of trading properties	1,268	(1,281)
Share based payments	3,630	3,014
Interest income	(337)	(206)
Amortisation of bank loan issue costs	303	474
Interest expense	32,263	28,821
Fair value loss on financial derivatives	794	-
	137,141	137,668
Change in inventories	3,133	(5,341)
Change in receivables	(1,665)	(1,717)
Change in payables	(4,240)	(5,677)
Net cash inflow from operating activities	134,369	124,933

 6.  Analysis of changes in net debt

	At 29 July 2007 £000	Cash flows   £000	Non-cash movement £000	At 27 July 2008 £000
Cash at bank and in hand	19,052	(2,600)	-	16,452
Debt due after one year	(437,840)	(3,184)	(1,181)	(442,205)
Derivative financial instrument – fair value hedge	(15,017)	-	1,181	(13,836)
Net borrowings	(433,805)	(5,784)	-	(439,589)
Derivative financial instruments
– cash flow hedge	(1,318)	-	1,256	(62)
– other financial derivatives	-	-	(794)	(794)
Net debt	(435,123)	(5,784)	462	(440,445)

7.  Dividends paid and proposed

	52 weeks ended 27 July 2008 £000	52 weeks ended 29 July 2007 £000
Declared and paid during the year:
Dividends on ordinary shares:
Final dividend for 2007: 8p (2006: 3.1p)	11,255	4,537
Interim for 2008: 4.4p (2007: 4.0p)	6,125	5,758
Dividends paid	17,380	10,295
Proposed for approval by shareholders at the AGM:
Final dividend for 2008: 7.6p (2007: 8.0p)	10,547	11,396

On 4 November 2008, the company intends to recommend a final dividend of 7.6 pence per share, for the year ended 27 July 2008 to shareholders on the register at close of business on 24 October 2008. These preliminary results do not reflect this dividend payable.

8.  Statement of changes in shareholders' equity

	Called up  share capital £000	Share premium account  £000	Capital redemption reserve  £000	Retained earnings £000	Total  £000
At 30 July 2006	3,076	135,532	1,305	61,662	201,575
Exercise of options	37	5,890	-	-	5,927
Repurchase of shares	(264)	-	264	(77,015)	(77,015)
Share-based payments	-	-	-	3,014	3,014
Purchase of shares held in trust	-	-	-	(1,489)	(1,489)
Profit for the year	-	-	-	46,834	46,834
Cash flow hedges: gain taken to equity	-	-	-	5,833	5,833
Tax on items taken directly to equity	-	-	-	(1,777)	(1,777)
Dividends	-	-	-	(10,295)	(10,295)
At 29 July 2007	2,849	141,422	1,569	26,767	172,607
Exercise of options	3	458	-	-	461
Repurchase of shares	(77)	-	77	(12,031)	(12,031)
Share-based payments	-	-	-	3,630	3,630
Purchase of shares held in trust	-	-	-	(3,181)	(3,181)
Profit for the year	-	-	-	35,535	35,535
Cash flow hedges: gain taken to equity	-	-	-	1,256	1,256
Tax on items taken directly to equity	-	-	-	(350)	(350)
Dividends	-	-	-	(17,380)	(17,380)
At 27 July 2008	2,775	141,880	1,646	34,246	180,547

As at 27 July 2008, the company had distributable reserves of £15,400,000 (2007: £7,000,000).

 

END

 

 

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