A successful half year for Wetherspoon

It’s Red Nose Day, when millions of people set aside the prevailing gloom to look on the bright side for the benefit of others. How appropriate that it is accompanied by “good news” from the drinks and leisure sector.

Tim Martin, the chairman of JD Wetherspoon, began this morning’s announcement of the pubs group’s interim results by saying: “I am pleased to report continuing progress in the six months ended 25 January 2009”, and added: “I remain confident of the company’s future prospects.” Not only that, the document was headed: “A Successful Half Year”.

The group’s like-for-like sales increased by 1.9%, with total sales, including new pubs, rising by 6.5% to £468.7 million. Operating profit before exceptional items increased by 1.3% to £46.8m but after exceptional items was 4.7% lower. Earnings per share before exceptionals increased by 15.1% to 16.0p but after including exceptionals decreased by 3.1% to 12.5p. Crucially, free cash flow jumped by to 150% to 28.2p per share.

True Wetherspoon had already announced a significant reduction in capital expenditure, especially on new openings, and is not paying a dividend as part of its drive to protect shareholder value. But the results show its resilience and readiness to adapt to circumstances, as evidenced by offering a pint for 99p since Christmas. And as many companies report dismal figures, Wetherspoon’s like-for-like sales increased by 1.9% in the six weeks to March 8, while total sales rose by 5.6%. It has also been able to arrange a new line of finance from an additional banking source; few companies can boast that in today’s environment.

Compare Wetherspoon’s progress with Punch Tavern’s, Britain’s largest pubs group. It has (it thought discreetly) let other companies such as Greene King, Fuller Smith & Turner and Young’s know that it will seriously consider individual offers for its prime pubs in an attempt to reduce its mountain of debt. In effect, it is willing to sell its jewels while retaining just their mountings.

Mr Martin, however, used Wetherspoon’s results to back the industry’s campaign and point out to the Treasury that it cannot be milked for further taxes without doing irreparable damage. He noted that the company’s post-tax profit in the half year was £17.3m, yet the taxes it generated were £190m including VAT, excise duty, national insurance, property taxes and corporation tax. “On an annualised basis,” he said “this equates to JDW making £50,000 after-tax profit per pub while generating tax of about £530,000 per pub. The levels of tax now being levied are unsustainable for many pubs, and this, combined with other factors, is contributing to the closure of pubs in record numbers.” 

Finance on Friday, 13.02.09