Fast start won't last, cautions Wetherspoon

Helped by a summer of special events and the fact that it is going up against soft comparatives, pubs group JD Wetherspoon has made a flying start to its new financial year, but conceded it won't be able to keep up the record pace.

In the first six weeks of the financial year just ended, like-for-like (LFL) sales were up just 0.4% year-on-year, whereas this time round in the six weeks to 9th September 2012, like-for-like sales increased by a far more eye-catching 8.4%, with total sales increasing by 12.8%, helped by a strong performance during the Olympic and Paralympic Games.

"Sales this summer have been enhanced by a number of one-off events and we do not expect to sustain this level of growth," cautioned Tim Martin, the founder and Chairman of Wetherspoon.

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Broken recordsLooking back on the financial year to July 29th, 2012, comparisons are complicated by the fact that it is a 53-week year versus a 52-week period the year before, but that did not stop the group boasting of record sales, profit and earnings per share (EPS) before exceptional items.

Like-for-like bar sales increased by 2.8% (2011: +1.7%), LFL food sales increased by 4.8% (2011: +4.2%) and machine sales decreased by 2.8% (2011: -3.9%).

Full-year revenue was up 11.7% to £1,197.1m from £1,072.0m the year before. Sales would have been up 9.3% even without the extra week and were up 3.2% on a like-for-like basis.

Profit before tax and exceptional items rose 8.4% (+5.8% stripping out the extra week) to £72.4m from £66.8m in the previous year. Statutory profit before tax dipped 4.1% to £58.9m from £61.4m.

Exceptional items before tax totalled £13.5m, versus exceptional charges of £5.4m the year before. Most of the exceptional charges this time round were paper adjustments, with just £0.6m being a cash charge.

The exceptional items relate to the impairment of trading pub assets of £7.8m (2011: £4.4m), a provision for onerous leases of £2.2m, an information technology (IT) related asset write-off of £1.7m, a loss on the disposal of property, plant and equipment of £1.1m and restructuring costs of £0.6m.

Adjusted earnings per share rose 17.0% (52 weeks basis: +14.4%) to 41.3p from 35.3p a year earlier. The full-year dividend has been held at 12p, which means a final dividend for the period of 8p.

The market had pencilled in £1.23bn for sales and pre-tax profit of £71.2m. Earnings per share were tipped to advance to 41.6p while the dividend was seen climbing to 12.95p.

No one ever says "Let's spend a night down the supermarket"As is well-known, there are only two certainties in life: death and taxes, but almost as certain is a complaint in a Wetherspoon trading statement about the government's tax treatment of pubs in comparison with supermarkets.

"As previously indicated, the biggest dangers to the pub industry, are the VAT disparity between supermarkets and pubs, combined with the continuing imposition of stealth taxes, such as the late-night levy and the increase in fruit/slot machine taxes," grumbled Tim Martin, sounding like a broken record.

"The pub trade has lost 50% of its beer sales, for example, in the last 30 years, to supermarkets. We believe that supermarkets have been increasingly able to undercut pubs' prices, as a result of the tax disparity between these types of business. In particular, pubs pay 20% VAT in respect of food sales, while supermarkets pay virtually nothing. This enables supermarkets to cross-subsidise their alcoholic drinks' prices, resulting in large numbers of pub closures and also applying enormous pressure to those pubs which remain open," Martin added.

The company pays over £11 of tax for every £1 of net profit, it noted, pointedly. "Unless there is tax equality, pubs will continue to lose trade to supermarkets - and this will be detrimental to the government, since pubs pay far more tax per meal or per pint, and employ more people, than do supermarkets," Martin noted.

Despite the tax man's demands, the company still intends to open around 25 pubs in the current financial year.

As at 29th July 2012, the company's total net debt, including bank borrowings and finance leases, but excluding derivatives, was £462.6m, up from £437.7m a year earlier. The group spent £75.4m in the fiscal year just ended opening 40 new pubs, and ploughed £45.2m into sprucing up its existing pubs estate.

Year-end net-debt-to-EBITDA (earnings before interest, tax, depreciation and amortisation) was 2.96 times, an improvement on the 2.98:1 ratio a year earlier.

Martin expects that taxation and input costs will continue to rise. "Overall therefore, the company is aiming for a reasonable outcome, in the current financial year," he concluded.

JH