Wetherspoon (J.D) Regulatory News (JDW)

2 Sep 2005 07:00

Wetherspoon (JD) PLC01 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 £14.2million in existing pubs, decreased by 6% to £68.8 million, resulting in freecash 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 toreduce costs, both at head office and in the pubs. We are also keeping a tightgrip 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 477777Jim Clarke Finance Director 01923 477777Eddie 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% lastyear, mainly as a result of the anticipated higher labour, utilities and repaircosts. Operating profit (before exceptional items) decreased by 9% to £70.4million, 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) decreasedby 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 netgearing at the year end was 129% (2004: 117%). This increase in gearing was dueto a reduction in the number of shares in issue as a result of share purchasesby the company. Net interest was covered 2.9 times (2004: 3.3 times) byoperating profit (before exceptional items). Free cash flow, after payments oftax, 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 of37.1p, more than double earnings per share. The company recorded exceptional losses in the year of £7.4 million beforetaxation (2004: £7.8 million). This amount included the anticipated loss on thesale of 8 pubs, together with provisions against several other properties. Italso includes £3.0 million of exceptional start-up costs, under our newdistribution arrangements, and £0.9 million of restructuring costs. We opened 13 pubs during the year, compared with 28 in the previous year. Thetotal number of pubs now operated by the company is 655. Average sales per pubincreased by 1% in the year under review, with like-for-like sales declining by0.6%, offset by higher sales from newly opened pubs. Dividends The board proposes, subject to shareholders' consent, to pay a final dividend of2.82p per share on 25 November 2005 to those shareholders on the register on 28October 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 bankingfacilities and cash balances as at the balance sheet date, with total facilitiesof £387 million (2004: £412 million). The year's capital expenditure on new pubdevelopments was more than covered by free cash flow. We anticipate that, in thecurrent financial year, the company will generate a cash surplus, after capitalexpenditure and dividends, which will be available for debt reduction, sharebuybacks or a combination of both. Return of capital During the year, 16,455,000 shares (representing approximately 9% of the issuedshare 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 cashoutflow 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 excessivedrinking. However, it should be borne in mind that the percentage of alcoholicdrinks consumed in pubs has declined dramatically in the last 25 years, fromapproximately 83% of total consumption to approximately 60% now. In assessing the effect of companies like Wetherspoon on the economy, it isimportant to note that we pay approximately £311 million in annual taxes of onekind or another. In addition, almost all of our remaining turnover involvespayments to our 18,000 staff and independent British and Irish companies, manyof which are small businesses. The great majority of our customers is extremelywell 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 ourexisting pubs, without any objections from either local residents or the police,and also successfully lodged licensing applications for all of our pubs andmanagers under the new legislation. Most pubs have not yet had theirapplications granted, but the indications are that permission will be grantedand that pubs will, therefore, be able to open approximately one hour later thannow, on weekdays, and approximately 1-2 hours later, on Friday and Saturdayevenings. These hours are similar to those operated in Northern Ireland andScotland, where the company trades successfully and where there does not appearto be significantly greater problems of social disorder than in England andWales. The process involves considerable initial and continuing expense, and westrongly argued in favour of the retention of magistrates, but theadministration so far of licensing by local authorities has not caused undueproblems. The trading environment As indicated in our recent annual announcements, pubs in general haveexperienced a considerable increase in competition from supermarkets, theoff-trade generally and from duty-free imports from the continent. This has beencombined with a reduction in the number of people visiting many town and citycentres, as a result of unfavourable media coverage of problems associated withexcessive drinking in some areas. Wetherspoon has attempted to address some of these issues. We continue thestrong promotion of food, soft drinks and coffee. We have also, alone among ourcompetitors, banned 2-for-1 drink offers and the discounting of double measuresof spirits. In the case of spirits, this has resulted in the percentage ofdouble 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 ourwillingness to adopt sensible policies and our co-operation with the authoritiesin this area. Non-smoking We have continued opening non-smoking pubs and have now opened 7 new pubs whichdo not permit smoking and have converted 29 existing pubs to this format. Weplan to bring the total number of non-smoking pubs to approximately 50 by thisChristmas. This will then allow us to review the performance of thesenon-smoking conversions in the early part of 2006. The initial impact of introducing non-smoking in existing pubs has resulted inturnover declining by approximately 7% and profit margins declining, as there isa significant swing from bar sales to lower-margin food sales and aconsequential increase in labour costs. A ban on smoking in pubs, as most commentators agree, is inevitable - and wefeel that it is important to learn, as early as possible, about the nature ofthe impact and the types of marketing and other policies which can be adopted tominimise the economic impact on our business. Some critics have stated that it would be better to wait until smoking isbanned, before banning it in our own pubs. However, we feel that it is better totake the initiative, rather than adopting a non-smoking policy at the same timeas everyone else, without significant previous experience of its impact. Board changes Tony Lowrie resigned as a non-executive director of the company on 23 March2005, and Brian Jervis has intimated that he will not seek re-election at thisyear's annual general meeting. I would like to thank both Tony and Brian fortheir significant contribution to the company over the years. Liz McMeikan wasappointed as non-executive director on 1 April 2005, and it is our intention toappoint a further non-executive director, following Brian's intendedresignation. People I would like to thank our employees, partners and suppliers for their dedicatedwork 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 monthsto January 2006. This transition is not expected to have any significant impacton the stated results of the company and preparations for the transition arewell advanced. A separate announcement detailing the impact of IFRS on theopening balance sheet and profits is anticipated in November 2005. The likely areas of impact include the treatment of lease incentives, propertyleases, 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 ourinterim results statement, has made considerable efforts to reduce costs, bothat head office and in the pubs. We are also keeping a tight grip on capitalinvestments, pending clarity on the impact of a smoking ban - initially inScotland and then in the rest of the UK. The company continues to strive to widen the range and improve the quality ofproducts offered to customers. For example, in the course of the next fewmonths, we are introducing Italy's number-one coffee, Lavazza, and a range ofnew bottled beers, draught ales and lagers, as well as new products in mostother categories. In addition, the company has introduced a number ofaward-winning cider and perry products over the last few months and has seen asignificant increase in sales of other products, such as Pimm's. Food remains asignificant part of our business, and we continue to experiment with regionaland 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 managementteam and the loyalty of our customers, we remain confident for the future. Tim MartinChairman2 September 2005 Profit and loss accountfor 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 - 809,861 787,126 787,126Operating profit 2 70,384 (4,911) 65,473 77,628 77,628Non 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 46,316taxationTax 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 29,274taxationDividends 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 beenpresented. Note of historical cost profits 2005 2004 £000 £000 Reported profit on ordinary activities before taxation 38,675 46,316Difference between historical cost depreciation charge and actual 666 574depreciation charge for the year, calculated on the revalued amountRealisation of property deficits of previous years (103) (1,252)Historical cost profit on ordinary activities before taxation 39,238 45,638Historical cost profit for the year retained after taxation and dividends 17,315 21,265 Cash flow statementfor 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 financeInterest received 3,598 43 20 20Interest 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 TaxationCorporation tax paid (12,632) (12,632) (13,942) (13,942) Capital expenditure and financial investmentPurchase of tangible fixed assets for existing (14,173) (14,173) (20,590) (20,590)pubsProceeds of sale of tangible fixed assets 8,547 7,891Purchase of own shares for Employee Share (3,816) (3,816) (1,556) (1,556)Incentive PlanInvestment 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 FinancingIssue of ordinary shares 271 1,219Purchase of own shares (45,718) (48,583)Repayment of bank loans (25,000) (25,000)Advances under bank loans 29,999 47,928Advances under US senior loan notes - 271Net 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 sheetat 24 July 2005 Notes 2005 2004 £000 £000Fixed assetsTangible assets 11 762,739 783,574 Current assetsStocks 12,777 12,009Assets held for resale 1,691 1,933Debtors due after more than one year 12 - 9,005Debtors due within one year 12 12,195 13,966Cash 18,073 9,660 44,736 46,573Creditors due within one year 13 (150,929) (152,437)Net current liabilities (106,193) (105,864)Total assets less current liabilities 656,546 677,710Creditors 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 reservesCalled up share capital 3,458 3,783Share premium account 128,607 128,340Capital redemption reserve 874 545Revaluation reserve 22,554 23,117Profit and loss account 104,391 133,169Equity shareholders' funds 16 259,884 288,954 Notes to the accountsfor the year ended 24 July 2005 Notes 1 These preliminary statements do not constitute statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. They have, however, beenextracted from the statutory accounts for the periods ending 24 July 2005 and 25July 2004 on which unqualified reports were made by the company's auditors. The 2004 statutory accounts have been filed with the Registrar of Companies. The2005 statutory accounts will be sent to shareholders in October 2005 and will befiled with the Registrar of Companies following their adoption at theforthcoming Annual General Meeting. Certain comparative amounts have been reclassified where appropriate to conformto 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 - 809,861 787,126Cost of sales (705,734) (4,052) (709,786) (676,154)Gross profit 104,127 (4,052) 100,075 110,972Administrative 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 £000Operating 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 6,159Net 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 17,629Interest payable on US senior loan notes 5,724 4,915Refinancing costs - 1,602Less: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 £000UK corporation tax on profits before exceptional items 14,270 13,165Current tax on exceptional items (1,150) 52Total current tax (note 5(b)) 13,120 13,217 Deferred taxOrigination and reversal of timing differences 1,377 5,562Movement 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 ofcorporation tax in the UK of 30%. The reasons for this difference are explainedbelow: 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 30Accelerated 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 4Other 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 exceeddepreciation; while this will continue, the company would expect the excess ofcapital allowances over depreciation to diminish over time. No provision has been made for deferred tax on gains recognised on revaluingproperties to their market value. Such tax would become payable only if theproperties were sold without it being possible to claim roll-over relief. Thetotal amount unprovided for is approximately £6.9 million. At present, it is notenvisaged that any tax will become payable in respect of such properties in theforeseeable future. 6 Dividends 2005 2004 £000 £000 Interim paid of 1.46p per share (2004: 1.33p) 2,681 2,488Final 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 ordinaryactivities 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 theweighted average number of ordinary shares in issue and ranking for dividendduring 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 14.6Exceptional costs, net of tax 6,104 6,073 3.3 3.1Earnings and earnings per share before 30,408 35,347 16.4 17.7exceptional items Diluted earnings per share has been calculated in accordance with FRS14 and isafter allowing for the dilutive effect of the conversion into ordinary shares ofthe weighted average number of options outstanding during the period. The numberof 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 generatedby business activities and available for investment in new pub developments andextensions to existing pubs, after funding interest on existing pubs, tax,purchase of own shares for Employee Share Incentive Plan and all otherreinvestment 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 sharesand dividend payments and is based on the same number of shares in issue as thatfor 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 77,628Depreciation of tangible fixed assets 48,157 43,948Employee Share Incentive Plan charge 985 149Exceptional costs (3,843) -Change in stocks (768) (1,257)Change in debtors (247) (2,106)Change in creditors 8,792 10,512Net 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 - 18,073Debt 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 £000Cost or valuationAt 25 July 2004 415,334 331,126 225,475 17,993 989,928Reclassification 8,182 1,103 - (9,285) -Additions 10,929 3,010 16,669 3,349 33,957Transfer between assets held (1,073) (168) (2,926) - (4,167)for resaleDisposals (1,066) - (589) (472) (2,127)At 24 July 2005 432,306 335,071 238,629 11,585 1,017,591DepreciationAt 25 July 2004 26,140 47,986 132,228 - 206,354Charge for the year 7,538 8,493 32,126 - 48,157Transfer between assets held (73) 836 (1,445) - (682)for resaleImpairment - 1,068 - 413 1,481Disposals (78) - (380) - (458)At 24 July 2005 33,527 58,383 162,529 413 254,852Net book valueAt 24 July 2005 398,779 276,688 76,100 11,172 762,739At 25 July 2005 389,194 283,140 93,247 17,993 783,574 12 Debtors 2005 2004 £000 £000Amounts falling due after more than one year:Other debtors - 9,005 Amounts falling due within one year:Other debtors 2,666 4,801Prepayments 9,529 9,165 12,195 13,96613 Creditors due within one year 2005 2004 £000 £000 Bank loans 25,000 25,000Trade creditors 54,025 52,661Corporation tax 7,556 7,067Other tax and social security 22,224 21,888Other creditors 4,325 3,989Dividend payable 4,875 4,843Accruals 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 240,000 235,001US senior loan notes repayable in a single instalment in 2009 87,218 87,218 327,218 322,219Other creditors 1,949 293 329,167 322,512 15 Provisions for liabilities and charges 2005 2004 £000 £000Deferred taxAccelerated capital allowances 59,057 57,509Other timing differences 8,438 8,735Full provision for deferred tax 67,495 66,244 Provision at start of year 66,244 62,419Deferred tax charge in profit and loss account for year 1,251 3,825Provision 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 23,117 133,169 288,954Allotments 4 267 - - - 271Transfer - - - (563) 563 -Share Incentive Plan - - - - (2,832) (2,832)Purchase of shares (329) - 329 - (43,261) (43,261)Profit for the year - - - - 24,304 24,304Dividends - - - - (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 The company news service from the London Stock Exchange