Final Results

JD WETHERSPOON PLC 10 September 1999 J D WETHERSPOON PLC J D Wetherspoon plc announces preliminary results for the year ended 1 August 1999 Highlights Turnover up 43% to £269.7m *Operating profit (pre impact of sale and leaseback rentals) up 40% to £40.2m *Statutory operating profit up 28% to £36.2m *Profit before tax up 30% to £26.2m *Earnings per share up 30% to 12.9p Proposed final dividend per share up 10% to 1.60p 84 new pubs opened *excluding exceptional items Commenting on the results, Tim Martin, the Chairman of J D Wetherspoon plc, said: 'I am pleased to report another year of good progress for Wetherspoon. We opened 84 pubs during the year bringing the total number to 327. On Monday 13 September we are introducing a number of new brands and a national price list for 23 products at all pubs apart from those in Central London and at airports. For example, we are offering estate wide, Boddingtons, Carling and Coca Cola all at standard prices substantially less than our major competitors. As a result of our recent trading performance, a continuing trend over many years, I remain confident of our future prospects.' Enquiries: Tim Martin Chairman 01923 477777 John Hutson Managing Director 01923 477777 Jim Clarke Finance Director 01923 477777 Eddie Gershon Finance Director 01923 477777 Chairman's statement I am pleased to report another year of good progress for Wetherspoon. Sales increased by £81.2million to £269.7 million, a rise of 43%. Operating profit, before the impact of increased property rentals on the sale and leaseback of freehold properties, increased by 40% to £40.2 million and profit before tax rose by 30% £26.2 million. Earnings per share rose by 30% to 12.9p. Capital investment was £109.8 million and net gearing at the year end was 61%. Interest was covered 3.6 times by operating profit. Operating margins before depreciation, interest, sale and leaseback rentals and tax were 20.8%, compared to 21.2% last year, as a result of lower pub operating margins offset by lower head office costs. Free cashflow after capital investment of £8.8 million in existing pubs, and payments of tax, interest and dividends increased by 57% to £37.0 million resulting in cashflow per share of 18.8p before investment in new pubs and loan repayments. Economic profit, calculated by adding depreciation to profit before tax and subtracting capital expenditure on existing pubs, increased by 51% to £33.2 million, partly as a result of a reduction of capital investment in existing pubs to 3.3% of turnover compared to 5% of turnover in the previous period. Dividends ========= The Board proposes subject to shareholders' consent, to pay a final dividend of 1.60p net, bringing the total dividend for the year to 2.43p, a 10% increase on the previous year. At this level, dividends will be covered 5.3 times compared to 4.5 times in 1998. A scrip alternative will again be offered to shareholders. Finance ======= As indicated in our interim statement, the Company undertook the sale and leaseback of 54 pubs in the course of the year for a total consideration of £80 million, including a deferred element and interest thereon. The Company has also re-negotiated its banking facilities, resulting in unsecured loan facilities of £225 million, compared to net borrowings at the period end of £125m. We also reported at the half year the sale of 9 pubs to the Ambishus Pub Company for £4.7 million. These pubs were smaller than average and no further pub sales are planned for the time being. Further Progress ================ We opened 84 pubs during the year, compared with 68 in the comparable period, bringing the total number to 327. As in previous years, in keeping with the pattern of our existing estate, the new pubs are located in a variety of areas, including major city centres, predominantly residential suburban areas and in some smaller towns. Pubs opened in the last couple of financial years have been slower to reach maturity, but sales accelerated substantially in the second half of the year under review, so that in recent months pubs for every year of opening have on average reached the sales levels anticipated at their acquisition. Having a long track record of success in major urban areas, we are particularly encouraged by success in smaller towns such as Oxted in Surrey, Tiverton in Devon, Trowbridge in Wiltshire and Heanor in Derbyshire. Another feature of the year under review has been the great success of suburban sites outside London, which are relatively new for the Company, and are performing particularly well in areas such as Greater Manchester, Liverpool, Glasgow and Bristol. Success in suburban areas outside London and smaller towns indicates considerable potential for future openings. After a slow start to the year, established pubs performed well with like-for-like sales increasing by 8.6%, and profits by 10.1%, helped by a quiet comparative period in the last two months of the previous financial year. Like-for-like sales were strongest for the most recent year of openings, although good growth was achieved in every year without exception. The Company has always tried to listen to customers and to colleagues to obtain ideas to upgrade every area of the business, believing that small advances in many areas are more productive in the long run than major changes. In the current year, as a result of suggestions made, we have, for example, continued to concentrate on upgrading our information technology systems, improved our range of soft drinks, reviewed our menu and have worked hard to create individually designed pubs. We also continue to try to make ourselves a more attractive company to work for and, following the introduction of a 48 hour week for pub managers, have substantially increased the 'London weighting' for managers in that area. We have re-negotiated our major beer supply agreements, achieving marginally lower buying prices, and we will be introducing on Monday 13 September a number of new brands and a national price list for 23 products at all pubs apart from those in Central London and at airports. For example, we are offering Boddingtons at £1.29 a pint, Carling at £1.49 a pint and Coca Cola at 90p a pint, substantially less than prices charged by our major competitors. We believe this is the first time that a large number of products have been made available across the country at competitive prices and that this initiative will be popular with the public. We have also upgraded our web site (www.jdwetherspoon.co.uk), previously used for recruitment purposes, but which now provides a variety of other information, including the location of our pubs, our own quarterly magazine Wetherspoon News, and financial information for investors including today's results. People ====== As a result of great efforts and innovation by many people in the Company, and also from a considerable number of our suppliers and advisers, we have continued to make improvements to the business and I would like to thank them sincerely for their dedicated work. The Economy =========== The major economic issue for Britain relates to the Euro. I believe that participation would be economic folly since the crucial ingredient of all successful major currencies in the world is a single government and this ingredient does not exist in the Euro's case. Many commentators including, for example, the CBI (the Confederation of British Industry), do not appear to have acknowledged this central fact. We experienced severe economic dislocation as a result of the failed attempt to impose the ERM (the exchange rate mechanism), the Euro's predecessor, on diverse European economies, and should learn from history. Prospects ========= Like-for-like sales in August, helped by poor weather which benefits high street pubs, increased by 19% and total Company sales increased by 49%. The encouraging sales growth in recently opened pubs has also continued, with an excellent start from the 10 pubs opened since the period end. We also have 35 sites in the course of development, all of which are expected to open in the current calendar year, 38 sites with all the necessary permissions for development and a further 105 sites for which terms have been agreed. Due to a reduction in competition from other pub operators for sites, the market is more favourable to Wetherspoon than in recent years. Following our strong trading performance, a trend established over many years, I remain confident of our future prospects. Tim Martin Chairman Profit and loss account for the year ended 1 August 1999 Before After Before After Excep- Excep- Excep- Excep- Excep- Tional Tional Tional Tional Tional Items Items Items Items Items 1999 (Note 3) 1999 1998 1998 £000 £000 £000 £000 £000 Turnover 269,699 - 269,699 188,515 188,515 -------- ------- ------- ------- ------- Operating profit 36,226 (837) 35,389 28,367 28,367 (2) Profit on - 22,625 22,625 - 14,968 disposal of tangible fixed assets (3) Net interest (10,012) - (10,012) (8,202) (8,202) payable (4) -------- ------- ------- ------- ------- Profit on 26,214 21,788 48,002 20,165 35,133 ordinary activities before taxation Tax on profit on (751) - (751) (726) (726) ordinary activities (5) ------- ------- ------- ------ ------ Profit on 25,463 21,788 47,251 19,439 34,407 ordinary activities after taxation Dividends (6) (4,809) - (4,809) (4,321) (4,321) ------- ------- ------ ------ ------ Retained profit 20,654 21,788 42,442 15,118 30,086 for the year ======= ======= ====== ====== ====== Earnings per 12.9p 11.1p 24.0p 9.9p 17.5p Ordinary share (7) Fully diluted 12.8p 11.0p 23.8p 9.8p 17.3p earnings per share (7) All activities relate to continuing operations. Statement of total recognised gains and losses 1999 1998 £000 £000 Profit for the 47,251 34,407 financial year after taxation Unrealised surplus on 1,938 2,086 revaluation of properties ------ ------ Total recognised gains 49,189 36,493 relating to the year ====== ====== Note of historical cost profits 1999 1998 £000 £000 Reported profit on ordinary activities 48,002 35,133 before taxation Realisation of property revaluation (880) 772 (deficits) / gains of previous years Difference between historical cost 495 494 depreciation charge and the actual depreciation charge of the year calculated on the revalued amount ------ ------ Historical cost profit on ordinary 47,617 36,399 activities before taxation ------ ------ Historical cost profit for the year 42,057 31,352 retained after taxation and dividends ====== ====== Cash flow statement for the year ended 1 August 1999 1999 1998 £000 £000 £000 £000 Net cash inflow from 60,863 60,863 42,984 42,984 operating activities (8) ------ -------- ------- ------- Returns on investments and servicing of finance Interest received 782 782 351 351 Interest paid - existing (12,117) (12,117) (7,209) (7,209) business Interest paid - new pubs (2,548) (1,849) -------- ------- Net cash outflow from returns (13,883) (8,707) on investment and servicing of finance -------- ------- Taxation -------- ------- Advance corporation tax paid (636) (434) -------- ------- Corporation tax paid 0 (150) (636) (636) (584) (584) Capital expenditure Purchase of tangible fixed (8,804) (8,804) (9,377) (9,377) assets for existing pubs Proceeds of sale of tangible 76,526 35,443 fixed assets Investment in new pubs and (106,390) (100,351) pub extensions --------- -------- Net cash outflow from capital (38,668) (74,285) expenditures --------- -------- Equity dividends paid (3,037) (3,037) (2,626) (2,626) --------- -------- Net cash inflow / (outflow) before financing 4,639 (43,218) Financing Issue of ordinary shares 973 939 Advances under secured bank 50,000 48,833 loans Repayments of secured bank (5,784) (1,000) loans ------ ------ Net cash inflow from 45,189 48,772 financing (9) ------ ------ Increase in cash (10) 49,828 5,554 ====== ====== ------ ------ Free cash flow (7) 37,051 23,539 ====== ====== Cash flow per Ordinary share 18.8p (7) 12.0p Balance sheet at 1 August 1999 1999 1998 £000 £000 Fixed assets Tangible assets (11) 370,148 334,695 ------- ------- Current assets Investments 253 286 Stocks 3,845 3,195 Debtors due within one year 11,472 11,385 Debtors due after more than one year 5,588 - Cash 62,578 12,750 -------- -------- 83,736 27,616 Creditors due within one year (12) (67,296) (62,564) -------- -------- Net current assets / (liabilities) 16,440 (34,948) ------- -------- Total assets less current liabilities 386,588 299,747 Creditors due after one year (13) (180,592) (140,555) ------- ------- Total Net Assets 205,996 159,192 ======= ======= Capital and reserves Called up share capital 3,962 3,931 Share premium account 65,463 62,000 Revaluation reserve 25,166 22,843 Profit and loss account 111,405 70,418 ------- ------- Equity shareholders' funds (14) 205,996 159,192 ======= ======= 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 1 August 1999 and 2 August 1998, on which unqualified reports were made by the Company's auditors. The 1998 statutory accounts have been filed with the Registrar of Companies. The 1999 statutory accounts will be sent to shareholders on 6 October 1999 and will be filed with the Registrar of Companies following their adoption at the forthcoming Annual General Meeting. 2 Analysis of continuing operations Before After Exception Exception- Exceptio- -al Items al Items nal 1999 Items 1998 £000 £000 1999 £000 £000 Turnover 269,699 - 269,699 188,515 Cost of sales (219,035) - (219,035) (149,317) --------- ------ --------- ------- Gross profit 50,664 - 50,664 39,198 --------- ------ --------- ------- Administrative (14,438) (837) (15,275) (10,831) expenses --------- ------ --------- ------- Operating profit 36,226 (837) 35,389 28,367 ========= ====== ======== ======= Cost of sales includes distribution costs and all pub operating costs. The company reviewed for impairment its capitalised expenditure on unopened properties. The additional loss arising from this review have been shown as an exceptional administration expense. 3 Exceptional Items 1999 1998 £000 £000 Charged against operating profit: Costs relating to abortive property (837) - acquisitions Non-operating items: 22,625 14,968 Net profit on disposal of trading properties, other properties and fixed asset investments ------- ------- 21,788 14,968 ======= ======= No tax is attributable to profits arising on property disposals as the proceeds are used to fund the continuing expansion programme and therefore attract rollover relief. 4 Net interest payable 1999 1998 £000 £000 Interest payable on bank loans 14,358 10,805 Less: Interest capitalised (3,282) (2,202) Interest receivable (1,064) (401) ------- ------ Charge to profit and loss account 10,012 8,202 ======= ====== 5 Taxation 1999 1998 £000 £000 Corporation tax at 31 % (1998:31% ) 1,050 - Advance corporation tax (299) 726 ------ ----- 751 726 ====== ===== To date the Company has written off £3.1 million (1998: £4.1 million) advance corporation tax which will be available to offset against future mainstream corporation tax liabilities. 6 Dividends 1999 1998 £000 £000 Interim paid of 0.83p per share (1998: 1,639 1,471 0.75p) Final proposed of 1.60p per share 3,170 2,850 (1998: 1.45p) ------ ------ 4,809 4,321 ====== ====== 7 Earnings and cash flow per share The calculation of basic earnings per share is based on profits on ordinary activities after taxation for the period of £25,463,000 (1998: £19,439,000) and on 197,270,170 Ordinary shares (1998: 195,888,289), being the weighted average number of Ordinary shares in issue and ranking for dividend during the period. 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 calculations is 198,829,600 (1998: 198,722,365). The calculation of 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 and dividend payments and all other reinvestment in pubs open at the start of the period ('free cash flow'). It is calculated before taking into account proceeds from property disposals and inflows and outflows of financing from outside sources, and is based on the same number of shares in issue as for the calculation of basic earnings per share. 8 Net cash inflow from operating activities 1999 1998 £000 £000 Operating profit before exceptional 36,226 28,367 items Depreciation of tangible fixed assets 15,771 11,236 Change in stocks (650) (980) Change in debtors 1,102 123 Change in creditors 8,414 4,238 ------- ------- 60,863 42,984 ======= ======= 9 Reconciliation of net cash flow to movement in net debt 1999 1998 £000 £000 Increase in cash in the year 49,828 5,554 Cash inflow from increase in debt (44,216) (47,833) financing --------- --------- Movement in net funds/(debt) during 5,612 (42,279) the period Net debt at 2 August 1998 (130,916) (88,637) --------- --------- Net debt at 1 August 1999 (125,304) (130,916) ========= ======== 10 Analysis of net debt 1998 Cash flow 1999 £000 £000 £000 Cash at bank and in hand 12,750 49,828 62,578 Debt due within one year (5,785) (5,034) (10,819) Debt due after one year (137,881) (39,182) (177,063) -------- -------- --------- Net Debt (130,916) 5,612 (125,304) ======== ====== ========= 11 Tangible fixed assets Freehold Short Equip- Expendi- Total land and leasehold Ment, Ture buildings land and fixtures On buildings And Unopened Fittings Pro- perties £000 £000 £000 £000 £000 Cost or valuation At 3 August 1998 104,999 153,677 61,907 42,674 363,257 Reclassification 15,500 12,876 0 (28,376) 0 Additions 29,314 30,865 18,826 30,837 109,842 Revaluations (203) 2,141 0 0 1,938 Disposals (55,334) (3,013) (1,606) (2,705) (62,658) -------- -------- ------- ------- -------- At 1 August 1999 94,276 196,546 79,127 42,430 412,379 ======== ======== ======= ======= ======== Depreciation At 3 August 1998 2,147 8,488 17,927 0 28,562 Reclassification (411) 411 0 0 0 Charge for the 1,288 4,321 10,162 0 15,771 year Disposals (1,231) (240) (631) 0 (2,102) ------- ------- ------ ----- ------ At 1 August 1999 1,793 12,980 27,458 0 42,231 ======= ======= ====== ===== ====== Net book value At 1 August 1999 92,483 183,566 51,669 42,430 370,148 ------- ------- ------ ------ ------- At 2 August 1998 102,852 145,189 43,980 42,674 334,695 ======= ======= ====== ====== ======= 12 Creditors due within one year 1999 1998 £000 £000 Bank loans 10,819 5,785 Trade creditors 30,477 29,775 Corporation tax 966 - Advance corporation tax - 935 Other tax and social security 5,594 4,295 Other creditors 3,226 1,522 Dividend payable 3,170 2,850 Accruals and deferred income 13,044 17,402 ------ ------ 67,296 62,564 ====== ====== 13 Creditors due after one year 1999 1998 £000 £000 Bank loans repayable by instalments 177,063 137,881 Other creditors 3,529 2,674 ------- ------- 180,592 140,555 ======= ======= Bank loans were secured by floating charges over the Company's assets. 14 Capital, reserves and shareholders' funds At start of year 3,931 62,000 22,843 70,418 159,192 124,663 Re- - 1,070 - (1,070) - - classification Allotments 31 2,393 2,424 2,357 Revaluation 1,938 1,938 2,086 Transfer of 880 (880) 0 0 realised deficit on disposal of revalued assets Transfer (495) 495 0 0 Profit for the 47,251 47,251 34,407 year Dividends (4,809) (4,809) (4,321) ----- ------ ------ ------- ------- ------- At end of year 3,962 65,463 25,166 111,405 205,996 159,192 ===== ====== ====== ======= ======= =======

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