Interim Results
Wetherspoon (JD) PLC
04 March 2005
J D WETHERSPOON PLC
PRESS RELEASE
J D Wetherspoon plc announces interim results for the six months to 23 January
2005.
Highlights
Turnover up 4% to £403.3m
Operating profit* down 11% to £34.4m
Profit before tax* down 20% to £22.3m
Earnings per share* down 14% to 7.7p
Free cash flow per share down 11% to 19.3p
Interim dividend per share up 10% to 1.46p
*before exceptional items
Commenting on the results, Tim Martin, the Chairman of J D Wetherspoon plc,
said:
'The half year to 23 January 2005 was a testing period for the company. Sales
increased by 4% to £403.3 million (2004: £389.0 million). Operating profit
(before exceptional items) declined by 11% to £34.4 million (2004: £38.6
million). We recently announced plans to make about 10% of our pubs non-smoking
by May 2005, for all new openings to be non-smoking and for the rest of the
estate to become non-smoking by May 2006. In spite of the recent slow trading
conditions, as a result of our strong cash generation, high level of sales per
pub and dedicated team, I remain confident of future prospects'.
Enquiries:
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
Chairman's statement
The half year to 23 January 2005 was a testing period for the company. Sales
increased by 4% to £403.3 million (2004: £389.0 million). Operating profit
(before exceptional items) declined by 11% to £34.4 million (2004: £38.6
million) and profit before tax and exceptional items by 20% to £22.3 million
(2004: £27.8 million). Earnings per share (before exceptional items) declined by
14% to 7.7p (2004: 9.0p).
Capital investment was £20.8 million and net gearing at the period end was 113%
(2004: 103%). Net interest was covered 2.9 times (2004: 3.6 times) by operating
profits. Operating margins before interest and tax were 8.5% (2004: 9.9%),
mainly as a result of higher labour and utility costs.
Like-for-like sales increased by 0.3% in the period and sales at new pubs were
in line with expectations.
The company continues to review the pubs within its estate and has identified 16
pubs which do not meet our current business requirements. A capital loss on
disposal is anticipated in respect of these pubs of approximately £6 million
which has been provided as an exceptional item in the period under review.
Free cash flow, after capital investment of £8.2 million in existing pubs, £2.0
million in respect to purchases of shares under the company's Share Incentive
Plan and payments of tax and interest, declined by 17% to £36.5 million. This
resulted in free cash flow per share of 19.3p (2004: 21.7p) before investment in
new pubs and dividend payments. In the period under review, all our new pub
capital expenditure was financed from free cash flow.
Economic profit, calculated by adding depreciation to profit after tax
(excluding deferred tax) and before exceptional items and subtracting capital
investment in existing pubs, decreased by 14% to £30.0 million (2004: £34.7
million).
Dividend
The Board has declared an interim dividend of 1.46p per ordinary share (2004:
1.33p), a 10% increase on last year payable on 27 May 2005 to shareholders on
the register at 29 April 2005.
Share buyback
During the period, the company acquired 1,800,000 shares for cancellation. The
total cash outflow of £9.4m in the period includes £5.2m in relation to shares
acquired towards the end of the previous financial year.
Financing
The period under review saw a reduction in the company's total net borrowings
from £337.6 million to £327.3 million at the end of the previous financial year.
Total facilities at 23 January 2005 were £400.0 million. The company will
continue to monitor the wide range of funding alternatives available to ensure
the appropriate ongoing capital structure for the company.
Distribution arrangements
In September 2004, the company introduced a new central distribution system with
a purpose built centre at Daventry. This centre is used to distribute food, as
well as a number of bar products to all our pubs. The introduction of this
system has been significantly more expensive during this 6 months period than
anticipated. Considerable work is continuing to attempt to reduce costs for the
remainder of this financial year and future years, although the new system has
given rise to exceptional start up charges of £2.2 million for the period under
review. It is possible that there will be further exceptional charges in the
second half of the financial year.
Non-Smoking
We recently announced plans to make about 10% of our pubs non-smoking by May
2005, for all new openings to be non-smoking and for the rest of the estate to
become non-smoking by May 2006.
Over the last 30 years, the number of smokers has halved to about 25% of the
population. Customers are generally becoming more health conscious and there is
an increasing desire from staff and customers to avoid 'passive smoking'.
Our research undertaken in California, which has been visited on a number of
occasions by Wetherspoon representatives, indicates that sales have increased in
the years after a smoking ban, in spite of a dip in the one or two years after
the ban was instigated.
Our first two non-smoking pubs in Exeter and St. Albans, one trading as a
Wetherspoon and the other as a Lloyds, have been very successful so far with
sales substantially higher than the company average. A third pub at the Merry
Hill Centre near Birmingham opened in the last few days.
For information, I have enclosed a list of the additional 61 pubs which will
switch to a non-smoking policy before the end of May this year.
Current trading and prospects
Like-for-like sales in February 2005 declined by 1.9% and overall sales
increased by 2.1%. In addition to the 9 pubs opened since the end of the
previous financial year (including 3 in February 2005) there are 5 sites in the
course of construction and the company has planning and licensing permission to
open a further 16 sites.
In view of the big structural changes in the industry resulting from the new
licensing laws and the situation with regard to smoking, the company has adopted
a cautious approach to capital expenditure and expansion and this will continue
until this uncertainty is alleviated.
Sales and profits in the last six months have been slower than anticipated. The
company continues to review its costs and expects significant savings to be made
in the running of pubs and at the head office over the next few months.
In spite of the recent slow trading conditions, as a result of our strong cash
generation, high level of sales per pub and dedicated team, I remain confident
of future prospects.
Tim Martin
Chairman
4 March 2005
List of Non-Smoking Pubs
Abraham Derby, Merry Hill Centre (new opening) The Paper Moon, Dartford
Back of Beyond, Reading ( 9th March) The Pennsylvanian, Rickmansworth (9th March)
Becketts Bank, Leeds The Playfair, Edinburgh
George's Meeting House, Exeter (new opening) The Plimsoll Line, Redcar
Jewel of the Severn, Bridgnorth The Pommelers Rest, Tower Bridge
Lloyds No. 1 Bar, Portsmouth The Portland Hotel, Chesterfield
The Angel, Islington The Poste of Stone, Stone
The Archibald Simpson, Aberdeen The Postern Gate, York
The Battesford Court, Witham The Quay, Poole
The Blue Coat, Rotherham The Quayside, Newcastle Upon Tyne
The Brass Balance, Birkenhead The Rhinoceros, Rotherham
The Briar Rose, Birmingham The Ritz, Lincoln
The Capital Asset, Perth The Roebuck Inn, Nottingham
The Central Bar, Cardiff The Sennockian, Sevenoaks
The City Arms, Coventry The Sir John Oldcastle, Farringdon
The Clydesdale Inn, Lanark The Standard Bearer, Stevenage
The Commercial Rooms, Bristol The Standing Order, Derby
The Counting House, Dundee The Swan, Weymouth
The Counting House, Glasgow The Three John Scotts, Kingston Upon Hull
The Dee Hotel, West Kirby The Tom Toya Lewis, Newport
The Gog & Magog, Plymouth The Trawl Boat Inn, St. Anne's On Sea
The Good Yarn, Uxbridge The Waterhouse, Manchester
The Grid Inn, Southfields The Welkin, Liverpool (9th March)
The King & Castle, Windsor The West Gate Inn, Canterbury
The King of Wessex, Bath (9th March) The Whiffler, Norwich
The Last Post, Loughton Waterend Barn, St Albans (new opening)
The Maidenhead Inn, Basingstoke Wetherspoons, Eastbourne
The Moon and Sixpence, Hatch End Wetherspoons, Ipswich
The Moon Under Water, Cheltenham Wetherspoons, Livingston
The Moon Under Water, Milton Keynes Wetherspoons, Metrocentre, Gateshead (9th March)
The Moon Under Water, Watford Wetherspoons, Sheffield
The Old Manor, Bracknell Wetherspoons, Southport
Profit and loss account
for the six months ended 23 January 2005
Notes Unaudited Unaudited Unaudited Unaudited Unaudited Audited Audited
half year half year half year half year half year full year full year
2005 2005 2005 2004 2004 2004 2004
£000 £000 £000 £000 £000 £000 £000
Before Exceptional After Before After Before After
exceptional items exceptional exceptional exceptional exceptional exceptional
items (note 3) items items items items items
Turnover 403,341 - 403,341 388,964 388,964 787,126 787,126
Operating 2 34,365 (2,229) 32,136 38,561 38,561 77,628 77,628
profit
Exceptional 3 - (5,818) (5,818) - (7,098) - (7,758)
items
Net interest (12,021) - (12,021) (10,739) (10,739) (23,554) (23,554)
payable
Profit on 22,344 (8,047) 14,297 27,822 20,724 54,074 46,316
ordinary
activities
before
taxation
Tax on profit 4 (7,773) 1,697 (6,076) (9,537) (8,047) (18,727) (17,042)
on ordinary
activities
Profit on 14,571 (6,350) 8,221 18,285 12,677 35,347 29,274
ordinary
activities
after
taxation
Dividends 11 (2,732) - (2,732) (2,511) (2,511) (7,331) (7,331)
Retained 11,839 (6,350) 5,489 15,774 10,166 28,016 21,943
profit for
the period
Earnings per 5 7.7p (3.4p) 4.3p 9.0p 6.3p 17.7p 14.6p
ordinary
share
Fully diluted 5 7.7p (3.4p) 4.3p 9.0p 6.2p 17.6p 14.6p
earnings per
ordinary
share
Dividend per 11 - - 1.46p - 1.33p - 3.89p
share
All activities relate to continuing operations.
There were no gains or losses recognised in any of the above results other than
the profit for the period.
Cash flow statement
for the six months ended 23 January 2005
Notes Unaudited Unaudited Unaudited Unaudited Audited Audited
half year half year half year half year full year full year
2005 2005 2004 2004 2004 2004
£000 £000 £000 £000 £000 £000
Net cash inflow from operating 6 62,002 62,002 69,289 69,289 128,874 128,874
activities
Returns on investments and servicing of
finance
Interest received 3,571 3,571 84 84 20 20
Interest paid - existing pubs (12,590) (12,590) (10,165) (10,165) (19,329) (19,329)
Refinancing costs paid - - (1,325)
Net cash outflow from returns on
investment and servicing of finance (9,019) (10,081) (20,634)
Taxation
Corporation tax paid (6,363) (6,363) (7,087) (7,087) (13,942) (13,942)
Capital expenditure
Purchase of tangible fixed assets for (8,180) (8,180) (8,148) (8,148) (20,590) (20,590)
existing pubs
Proceeds of sale of tangible fixed 6,546 6,796 7,891
assets
Purchase of own shares for Share (1,989) (1,989) - (1,556) (1,556)
Incentive Plan
Investment in new pubs and pub (18,616) (25,572) (54,056)
extensions
Net cash outflow from capital (22,239) (26,924) (68,311)
expenditure
Equity dividends paid (4,839) (4,700) (7,322)
Net cash inflow before financing 19,542 20,497 18,665
Financing
Issue of ordinary shares 86 349 1,219
Purchase of own shares (9,416) (25,744) (48,583)
(Repayments)/advances under bank loans (2,500) (2,414) 22,928
Advances under US senior notes - 22 271
Net cash outflow from financing (11,830) (27,787) (24,165)
Increase/(decrease) in cash 7 7,712 (7,290) (5,500)
Free cash flow 5 36,451 43,973 73,477
Free cash flow per ordinary share 5 19.3p 21.7p 36.7p
Summarised balance sheet
as at 23 January 2005
Notes Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Fixed assets
Tangible assets 9 772,514 766,410 783,574
Current assets
Stocks 12,684 12,087 12,009
Assets held for sale 4,554 3,349 1,933
Debtors due after more than one year - - 9,005
Debtors due within one year 11,562 15,913 11,897
Cash at bank and in hand 17,372 7,870 9,660
46,172 39,219 44,504
Creditors due within one year (142,611) (138,971) (150,368)
Net current liabilities (96,439) (99,752) (105,864)
Total assets less current liabilities 676,075 666,658 677,710
Creditors due after one year (321,030) (297,313) (322,512)
Provisions for liabilities and charges (66,282) (63,555) (66,244)
Total net assets 288,763 305,790 288,954
Capital and reserves
Called up share capital 3,748 3,975 3,783
Share premium account 128,425 127,084 128,340
Capital redemption reserve 581 343 545
Revaluation reserve 22,755 23,075 23,117
Profit and loss account 133,254 151,313 133,169
Equity shareholders' funds 10 288,763 305,790 288,954
Notes
1 Basis of preparation
The interim report for the six months ended 23 January 2005 is unaudited and
does not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985. It has been prepared under the historical cost convention
modified by the revaluation of freehold and leasehold properties, and on a basis
consistent with the accounting policies for the year ended 25 July 2004. The
results for the year ended 25 July 2004 and the balance sheet at that date are
an extract from the statutory accounts for that year, which have been filed with
the Registrar of Companies and on which the Company's auditors gave an
unqualified report under Section 235 of the Companies Act 1985, which did not
contain a statement under Section 237(2) or (3) of that Act. The results for
the six months ended 25 January 2004 are an extract from the unaudited interim
report for that period. Comparative amounts have been restated where necessary
to conform to current presentation in that certain items have been reclassified
from administrative expenses to cost of sales.
2 Analysis of continuing operations
Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Turnover 403,341 388,964 787,126
Cost of sales (350,035) (332,345) (672,481)
Gross profit 53,306 56,619 114,645
Administrative expenses (18,941) (18,058) (37,017)
Operating profit before exceptional items 34,365 38,561 77,628
Cost of sales includes distribution costs and all pub operating costs.
3 Exceptional items
Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Operating items:
Distribution start up costs 2,229 - -
Non-operating items:
Net loss on disposal and anticipated disposal 5,818 6,732 6,159
of trading properties
Net loss on disposal and anticipated disposal - 366 1,599
of non trading properties
8,047 7,098 7,758
4 Taxation
The taxation charge for the six months ended 23 January 2005 is calculated by
applying an estimate of the effective tax rate for the year ending 31 July 2005.
The UK standard rate of corporation tax is 30% (2004: 30%), and the latest
estimate of the current tax payable on profits before exceptional items for the
financial year ending 24 July 2005 is 30% (2004: 25%).
Unaudited Unaudited Unaudited Unaudited Unaudited Audited Audited
half year half year half year half year half year full year full year
2005 2005 2005 2004 2004 2004 2004
£000 £000 £000 £000 £000 £000 £000
Before Exceptional After Before After Before After
exceptional items exceptional exceptional exceptional exceptional exceptional
items items items items items items
Current tax 6,705 (669) 6,036 6,858 6,911 13,165 13,217
Deferred tax 1,068 (1,028) 40 2,679 1,136 5,562 3,825
Tax on profit on 7,773 (1,697) 6,076 9,537 8,047 18,727 17,042
ordinary activities
5 Earnings and cash flow per share
The calculation of basic earnings per share is based on profits on ordinary
activities after taxation of £8,221,000 (2004: £12,677,000) and on 188,616,286
(2004: 202,693,580) 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:
Unaudited Unaudited
half year half year Earnings per Earnings per
Earnings Earnings share share
2005 2004 2005 2004
£000 £000 pence pence
Earnings and basic earnings per share 8,221 12,677 4.3 6.3
Exceptional costs, net of tax 6,350 5,608 3.4 2.7
Earnings and earnings per share before 14,571 18,285 7.7 9.0
exceptional items
Fully 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 fully diluted calculation is 188,845,052
(2004: 203,205,682).
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 and inflows and outflows of
financing from outside sources, dividend payments and and is based on the same
number of shares in issue as that for the calculation of basic earnings per
share.
6 Net cash inflow from operating activities
Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Operating profit 34,365 38,561 77,628
Depreciation of tangible fixed assets 22,522 21,887 43,948
Employee incentive plan 405 - 149
Change in stocks (675) (1,335) (1,257)
Change in debtors 391 674 (37)
Change in creditors 7,292 9,502 8,443
Net cash inflow from operating activities pre exceptional 64,300 69,289 128,874
Outflow related to exceptional items (2,298) - -
Net cash inflow from operating activities 62,002 69,289 128,874
7 Reconciliation of net cash flow to movement in net debt
Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Increase/(decrease) in cash in the year 7,712 (7,290) (5,500)
Cash outflow/(inflow) from movement in debt financing 2,500 2,392 (23,199)
Movement in net debt during the period 10,212 (4,898) (28,699)
Opening net debt (337,559) (308,860) (308,860)
Closing net debt (327,347) (313,758) (337,559)
8 Analysis of net debt
Audited Non-cash Unaudited
full year Cash movement half year
2004 flow 2005 2005
£000 £000 £000 £000
Cash at bank and in hand 9,660 7,712 - 17,372
Debt due within one year (25,000) 25,000 (25,000) (25,000)
Debt due after one year (322,219) (22,500) 25,000 (319,719)
Net debt (337,559) 10,212 - (327,347)
9 Tangible fixed assets
Unaudited Unaudited Audited
half year half year full year
2005 2004 2004
£000 £000 £000
Opening net book value 783,574 773,823 773,823
Additions 20,841 32,002 73,543
Disposals (47) (10,739) (17,229)
Transfers to assets held for sale (9,332) (6,789) (2,615)
Depreciation (22,522) (21,887) (43,948)
Closing net book value 772,514 766,410 783,574
10 Capital, reserves and shareholders' funds
Called up Share Capital Revaluation Profit and Unaudited
share premium redemption reserve loss half year
capital account reserve account 2005
shareholders'
funds
£000 £000 £000 £000 £000 £000
At start of period 3,783 128,340 545 23,117 133,169 288,954
Allotments 1 75 - - - 76
Transfer - - - (362) 362 -
Re-purchase of shares (36) - 36 - (4,184) (4,184)
Amount deducted in respect of SIP - - - - (1,582) (1,582)
Profit for the period - - - - 8,221 8,221
Dividends - - - - (2,732) (2,732)
QUEST transfer - 10 - - - 10
At end of period 3,748 128,425 581 22,755 133,254 288,763
11 Dividend
On 27 May 2005 the company will pay an interim dividend of 1.46 pence per share,
for the half year ended 23 January 2005 to shareholders on the register at the
close of business on 29 April 2005. The unpaid dividends in respect of the year
ended 25 July 2004 due on own shares purchased by the company have been credited
to the dividend line in the profit and loss account.
Independent review report to J D Wetherspoon plc
Introduction
We have been instructed by the company to review the financial information which
comprises a summarised profit and loss account, summarised balance sheet
information as at 23 January 2005, summarised cash flow statement, comparative
figures and associated notes. We have read the other information contained in
the interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 23 January 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
London
4 March 2005
Notes:
(a) The maintenance and integrity of the JD Wetherspoon plc
website is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and, accordingly, the
auditors accept no responsibility for any changes that may have occurred to the
interim report since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial information may differ from legislation in other
jurisdictions.
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