TIDMJDW
RNS Number : 2716C
Wetherspoon (JD) PLC
16 October 2020
16 October 2020
J D WETHERSPOON PLC
PRELIMINARY RESULTS
(For the 52 weeks ended 26 July 2020)
FINANCIAL HIGHLIGHTS Var%
Before exceptional items (pre-IFRS 16)
Like-for-like sales -29.5%
Revenue GBP1,262.0m (2019: GBP1,818.8m) -30.6%
(Loss)/profit before tax -GBP34.1m (2019: GBP102.5m) -133.3%
Operating profit GBP7.2m (2019: GBP131.9m) -94.6%
Earnings per share (including shares held in trust)
-27.6p (2019: 75.5p) -136.6%
Free cash flow per share -54.2p (2019: 92.0p) -158.9%
Full year dividend 0.0p (2019: 12.0p) -100%
Before exceptional items (post-IFRS 16)
IFRS 16 did not apply in the previous financial year,
so no comparison is included.
Loss before tax -GBP44.7m
Operating profit GBP17.0m
Earnings per share (including shares held in trust)
-35.5p
After exceptional items (pre-IFRS 16)
(Loss)/profit before tax -GBP94.8m (2019: GBP95.4m) -199.3%
Operating (loss)/profit -GBP6.0m (2019: 131.9m) -104.6%
Earnings per share (including shares held in trust)
-82.6p (2019: 69.0p) -219.7%
After exceptional items* (post-IFRS 16)
Loss before tax -GBP105.4m
Operating profit GBP3.8m
Earnings per share (including shares held in trust)
-89.9p
*Exceptional items as disclosed in account note 4.
Commenting on the results, Tim Martin, the Chairman of J D
Wetherspoon plc, said:
"Warren Buffett, chairman of Berkshire Hathaway, commented in
1989 (below) on the dangers of what he calls the 'institutional
imperative' and how it compels companies to stay on the same
course, even if it's the wrong course - and how it compels
companies to imitate competitors. The institutional imperative
applies just as much to governments as it does to boards of
directors. Professor Johan Giesecke, the Warren Buffett of
epidemiology, is obviously perplexed in an April TV interview
(appendix 1 below) as to how 100 countries all reacted, almost
overnight, in the same way to the Covid-19 problem, based on the
deeply flawed analysis of Imperial College.
"As Warren Buffett explains:
"My most surprising discovery: the overwhelming importance in
business of an unseen force that we might call "the institutional
imperative." In business school, I was given no hint of the
imperative's existence and I did not intuitively understand it when
I entered the business world. I thought then that decent,
intelligent, and experienced managers would automatically make
rational business decisions. But I learned over time that isn't so.
Instead, rationality frequently wilts when the institutional
imperative comes into play."
"For example: (1) As if governed by Newton's First Law of
Motion, an institution will resist any change in its current
direction; (2) Just as work expands to fill available time,
corporate projects or acquisitions will materialize to soak up
available funds; (3) Any business craving of the leader, however
foolish, will be quickly supported by detailed rate-of-return and
strategic studies prepared by his troops; and (4) The behavior of
peer companies, whether they are expanding, acquiring, setting
executive compensation or whatever, will be mindlessly
imitated."
"Institutional dynamics, not venality or stupidity, set
businesses on these courses, which are too often misguided. After
making some expensive mistakes because I ignored the power of the
imperative, I have tried to organize and manage Berkshire in ways
that minimize its influence. Furthermore, Charlie and I have
attempted to concentrate our investments in companies that appear
alert to the problem."
"Since 100 governments adopted a lockdown strategy, it was very
difficult for any government to adopt a different course. However,
pubs eventually reopened in England on 4 July and in the rest of
the UK shortly thereafter.
"The lockdown was far longer than was necessary to achieve its
stated objective of 'flattening the curve' so as to assist the
health service. Before pubs reopened, a detailed and comprehensive
operating plan for the hospitality industry was nevertheless agreed
on among the government, parliamentary committees, UK Hospitality,
civil servants and other interested parties.
"The regulations and guidelines reflected in the plan
drastically reduced pub capacity, but were carefully thought out
and had the backing of the industry, legislators, licensing
officials, local authorities and the public.
"For the two months following reopening, it appeared that the
hospitality industry, in difficult circumstances, was adapting to
the new régime and was getting 'back on its feet', albeit in
survival mode.
"It appears that the government and its advisers were clearly
uncomfortable as the country emerged from lockdown. They have
introduced, without consultation, under emergency powers, an
ever-changing raft of ill-thought-out regulations - these are
extraordinarily difficult for the public and publicans to
understand and to implement. None of the new regulations appears to
have any obvious basis in science.
"For example, a requirement for table service was introduced -
which is expensive to implement and undermines the essential nature
of pubs for many people - pubs have now become like restaurants.
Customers can approach the till in a shop, but not in a pub - which
is, in no sense, 'scientific'.
"In addition, face-coverings, for which the health benefits are
debatable, need not be worn while seated, yet must be worn to go to
visit the bathroom - another capricious regulation.
"The most damaging regulation relates to the 10pm curfew, which
has few supporters outside of the narrow cloisters of Downing
Street and SAGE meetings. This has meant that many thousands of
hospitality industry employees, striving to maintain hygiene and
social-distancing standards, go off duty at 10pm, leaving people to
socialise in homes and at private events which are, in reality,
impossible to regulate.
"In marked contrast to the consistency of the comparatively
successful Swedish approach, which emphasises social distancing,
hygiene and trust in the people, the erratic UK government is
jumping from pillar to post and is both tightening and tinkering
with regulations, so we are now in quasi-lockdown which is
producing visibly worse outcomes than those in Sweden, in respect
of both health and the economy.
"Risk cannot be eliminated completely in pubs, but sensible
social-distancing and hygiene policies, combined with continued
assistance and co-operation from the authorities, should minimise
it.
"Like-for-like sales in the first 11 weeks have been 15.0% below
those of last year, with strong sales in the first few weeks,
followed by a marked slowdown since the introduction of a curfew
and other regulations, some of which are referred to above.
"The recent curfew and introduction of table service only have
been particularly damaging for trade, depressing sales for
customers who find it too much 'faff', at the same time as
substantially increasing costs.
"As a result of recent changes in regulations, the outlook for
pubs over the remainder of the current financial year is even more
unpredictable than hitherto."
"The company has successfully adapted its business, over the
last 41 years, to cope with widely different political and economic
circumstances. We now employ over 40,000 people, 10,000 of whom are
shareholders in the company, and are a major contributor to
national income, paying approximately one pound in every thousand
of treasury receipts in 2019 and in preceding years.
"However, the company and the entire hospitality industry need a
more sensible and consistent regulatory framework in which to
operate - the current environment of lockdowns, curfews and
constantly changing regulations and announcements threatens not
only pub companies, but the entire economy. The most important
lesson, as Professor Mark Woolhouse of Edinburgh University has
said, is that "lockdown just defers the problem; it doesn't solve
it"."
Enquiries:
John Hutson Chief Executive Officer 01923 477777
Ben Whitley Finance Director 01923 477777
Eddie Gershon Company spokesman 07956 392234
Photographs are available at: www.newscast.co.uk
Notes to editors
1. J D Wetherspoon owns and operates pubs throughout the UK. The
Company aims to provide customers with good-quality food and drink,
served by well-trained and friendly staff, at reasonable prices.
The pubs are individually designed and the Company aims to maintain
them in excellent condition.
2. Visit our website jdwetherspoon.com
3. The financial information set out in the announcement does
not constitute the company's statutory accounts for the periods
ended 26 July 2020 or 28 July 2019. The financial information for
the period ended 28 July 2019 is derived from the statutory
accounts for that year which have been delivered to the Registrar
of Companies. The auditors reported on those accounts: their report
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under s498(2) or (3) of
the Companies Act 2006. Statutory accounts for 2020 will be
delivered to the registrar of companies in due course. The auditors
have reported on those accounts: their report was unquali ed,
contained an emphasis of matter highlighting a materiality
uncertainly related to going concern and did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
This announcement has been prepared solely to provide additional
information to the shareholders of J D Wetherspoon, in order to
meet the requirements of the UK Listing Authority's Disclosure
and
Transparency Rules. It should not be relied on by any other
party, for other purposes. Forward-looking statements have been
made by the directors in good faith using information available up
until the date that they approved this statement. Forward-looking
statements should be regarded with caution because of inherent
uncertainties in economic trends and business risks.
4. The annual report and financial statements 2020 has been
published on the Company's website on 16 October 2020.
5. The current financial year comprises 52 trading weeks to 25 July 2021.
6. The next trading update will be issued on 11 November 2020.
CHAIRMAN'S STATEMENT
Financial performance
The company was founded in 1979 - and this is the 37th year
since incorporation in 1983. The table below outlines some key
aspects of our performance during that period.
Summary accounts for the years ended July 1984 to 2020
Financial Total sales Profit/(loss) Earnings Free cash Free cash
year flow flow
before tax per share per share
and exceptional before exceptional
items items
GBP000 GBP000 pence GBP000 pence
1984 818 (7) 0
1985 1,890 185 0.2
1986 2,197 219 0.2
1987 3,357 382 0.3
1988 3,709 248 0.3
1989 5,584 789 0.6 915 0.4
1990 7,047 603 0.4 732 0.4
1991 13,192 1,098 0.8 1,236 0.6
1992 21,380 2,020 1.9 3,563 2.1
1993 30,800 4,171 3.3 5,079 3.9
1994 46,600 6,477 3.6 5,837 3.6
1995 68,536 9,713 4.9 13,495 7.4
1996 100,480 15,200 7.8 20,968 11.2
1997 139,444 17,566 8.7 28,027 14.4
1998 188,515 20,165 9.9 28,448 14.5
1999 269,699 26,214 12.9 40,088 20.3
2000 369,628 36,052 11.8 49,296 24.2
2001 483,968 44,317 14.2 61,197 29.1
2002 601,295 53,568 16.6 71,370 33.5
2003 730,913 56,139 17.0 83,097 38.8
2004 787,126 54,074 17.7 73,477 36.7
2005 809,861 47,177 16.9 68,774 37.1
2006 847,516 58,388 24.1 69,712 42.1
2007 888,473 62,024 28.1 52,379 35.6
2008 907,500 58,228 27.6 71,411 50.6
2009 955,119 66,155 32.6 99,494 71.7
2010 996,327 71,015 36.0 71,344 52.9
2011 1,072,014 66,781 34.1 78,818 57.7
2012 1,197,129 72,363 39.8 91,542 70.4
2013 1,280,929 76,943 44.8 65,349 51.8
2014 1,409,333 79,362 47.0 92,850 74.1
2015 1,513,923 77,798 47.0 109,778 89.8
2016 1,595,197 80,610 48.3 90,485 76.7
2017 1,660,750 102,830 69.2 107,936 97.0
2018 1,693,818 107,249 79.2 93,357 88.4
2019 1,818,793 102,459 75.5 96,998 92.0
2020 1,262,048 (34,095) (27.6) (58,852) (54.2)
Notes
Adjustments to statutory numbers
1. Where appropriate, the earnings per share (EPS), as disclosed
in the statutory accounts, have been recalculated to take account
of share splits, the issue of new shares and capitalisation
issues.
2. Free cash flow per share excludes dividends paid which were
included in the free cash flow calculations in the annual report
and accounts for the years 1995-2000.
3. The weighted average number of shares, EPS and free cash flow
per share include those shares held in trust for employee share
schemes.
4. Before 2005, the accounts were prepared under UKGAAP. All
accounts from 2005 to date have been prepared under IFRS.
5. Apart from the items in notes 1 to 4, all numbers are as
reported in each year's published accounts.
6. Financial year 2020 data is based on pre IFRS 16 numbers.
Hygiene Record and Reopening Preparations
For many years, Wetherspoon has emphasised the importance of
hygiene standards, an area under close scrutiny today. Local
authorities run a 'scores on the doors' scheme in England, Wales
and Northern Ireland; this awards pubs from zero to five stars,
following inspections by environmental health officers. Wetherspoon
is rated the top large pub company, averaging 4.96 out of a maximum
of five, with 758 pubs scoring a maximum of five.
Before pubs reopened after lockdown, the company, after
consultation with employees, local authorities, the police and
licensing officers, invested GBP13.1m to ensure that its staff and
customers were safe.
Since reopening, Wetherspoon has operated comprehensive social
distancing and hygiene practices in all of its pubs. These include
reduced capacity levels, the spacing-out of tables, the
installation of floor screens between tables and the addition of
till-surround screens at the bar.
Staff conduct regular surface-cleaning, so that all hand
contact-points in our pubs are frequently cleaned and sanitised
throughout the day. Numerous hand sanitisers have been installed in
each pub. All pubs are also thoroughly cleaned at the end of every
trading day.
The Financial Consequences of the UK Government's Covid-19
Policies
The financial effects of the closure of pubs by the government
in March, which lasted for approximately three months, were severe.
Pretax profits* of GBP102m in the financial year ended July 2019
were followed by a loss of GBP34m* in the year of the lockdown -
the financial year ended July 2020. In addition, exceptional costs
of GBP29.1m were incurred in respect of Covid-19-related matters in
FY20.
Wetherspoon and other pub and restaurant companies have always
generated far more in taxes than is earned in profits. Wetherspoon
generated total taxes of GBP764m in FY19 (see table below). In
FY20, mainly as a result of the lockdown, total taxes paid to the
government declined by GBP327m to GBP437m, net of furlough
payments.
Taxes generated by Wetherspoon (including staff and
customers):
2020 2019
GBPm GBPm
VAT 244.3 357.9
Alcohol duty 124.2 174.4
PAYE and NIC 106.6 121.4
Business rates 39.5 57.3
Corporation tax 21.5 19.9
Machine duty 9 11.6
Climate change levy 6.1 10.4
Carbon tax 0 1.9
Fuel duty 1.7 2.2
Stamp duty 4.9 3.7
Sugar tax 2 2.9
Premise licence and
TV licences 1.1 0.8
TOTAL TAX 560.9 764.4
Tax per pub (GBP000) 677.6 871.4
Tax as % of sales 44.40% 42.00%
Furlough tax rebate -124.2 0
TOTAL TAX ADJUSTED
FOR FURLOUGH TAX REBATE 436.7 764.4
Tax per pub adjusted
for furlough tax rebate
(GBP000) 527.6 871.4
* Before exceptional items
Mainly as a result of the lockdown, there have been substantial
further 'knock-on' effects on the sales and profits of our
third-party suppliers and contractors, ranging from large
international brewers to architects, builders and small suppliers,
such as window cleaners. Their losses are difficult to quantify,
but we estimate that the total cost to the UK economy - to
Wetherspoon (decline in profits equals GBP165.6m), the government
(decline in tax generated equals GBP327.7m) and third parties - of
closing Wetherspoon's pubs for approximately three months in the
financial year was probably over GBP500m.
The academic, medical and political worlds have been split
regarding the efficacy of lockdowns and the extent to which they
confer health benefits which might justify these costs. SAGE
members and the government appear broadly to believe that lockdowns
improve health outcomes, whereas Professors Gupta and Heneghan of
Oxford University, Professor Woolhouse of Edinburgh University,
Nobel Prize winner Professor Levitt of Stanford University and many
others broadly take the opposite view.
In general, Wetherspoon supports the Swedish view of Professor
Johan Giesecke, Anders Tegnell and others, which emphasises social
distancing, hand-washing and trusting the people, rather than
coercive measures such as lockdowns, curfews and fines, favoured by
the UK government and its advisers. It seems to us that the Swedish
approach is working relatively well, with fewer fatalities per
million people than the UK, Spain and Italy, for example, as well
as materially less economic damage.
Examples of important contributions to the debate also include
those of writer Mathew Parris, who has argued that the view against
lockdown is 'mainstream' and is under-represented in some sections
of the media, and former Supreme Court judge Jonathan Sumption QC,
who has argued that the use of emergency powers has infringed basic
democratic rights and led to poor administrative standards.
Covid-19- the risks associated with pubs
There have been approximately 46 million customer visits to
Wetherspoon's UK pubs since 4 July. There have been no instances
reported to Wetherspoon through the NHS test and trace system, or
from local health officials, of a transfer of the virus from staff
to customers or vice versa - or among customers.
There has been one case in which enquiries by Wetherspoon
auditors and local authority health officials concluded that
insufficient social distancing in staff areas, not accessible to
customers, probably resulted in four staff members testing
positive. Following this incident, further training and information
were provided to all Wetherspoon staff.
Many people presume that pubs are likely to be centres of virus
transmission - it's 'commonsensical', as one government minister
recently said. However counterintuitive though it may be, that does
not appear to be the case. As Professor Johan Giesecke said in
April (see Sky News interview, appendix 1): "If you don't get too
close to other people, they won't infect you." The pub industry
generally has worked very hard to maintain social distancing and
Covid-safe environments, with considerable success.
As Councillor Ian Ward, leader of Birmingham City Council, has
said:
"The data we have shows that the infection rate has risen,
mainly due to social interactions, particularly private household
gatherings. In shops and hospitality venues, there are strict
measures in place to ensure they are Covid safe, whereas it is much
easier to inadvertently pass on the virus in someone's house, where
people are more relaxed and less vigilant."
Following a significant increase in testing in the UK, 429 (1%)
Wetherspoon employees have tested positive for the virus since 4
July - from a total of 43,000 employees. In the UK as a whole,
there have been 603,716 (0.9%) positive tests (as at Sunday 11
October, www.worldometers.info). Comparative information is not
widely available, but Amazon, for example, recently reported 20,000
positive tests among its 1.37 million US employees (1.5%). If pubs
were, indeed, 'centres of transmission', it might be expected that
infection rates would be higher among employees than those of
either the general population or companies like Amazon.
Internal enquiries indicate that most Wetherspoon employees who
tested positive have had mild symptoms or been asymptomatic.
Certainty is impossible, yet it appears that most positive tests
resulted from contacts outside of work. 670 pubs (77%) have had
zero positive tests among staff; 116 pubs (13%) have had one
positive test; 85 pubs (10%) have had two or more positive
tests.
Financial Outcome
Total sales in the financial year were GBP1,262.0m, a decrease
of 30.6%. Like-for-like sales decreased by 29.5%, having increased
by 5.9% in the first half. Bar sales decreased by 29.3%, food sales
by 30.1%, slot/fruit machine sales by 20.9% and hotel room sales by
38.7%.
Pre-IFRS 16 operating profit, before exceptional items decreased
by 94.6% to GBP7.2m (2019: GBP131.9m). The operating margin, before
exceptional items was 0.6% (2019: 7.3%).
Pre-IFRS 16 profit before tax and exceptional items decreased by
133.3% to -GBP34.1m (2019: GBP102.5m), including property losses of
GBP0.6m (2019: GBP5.6m). Earnings per share, including shares held
in trust by the employee share scheme, before exceptional items,
were -27.6p (2019: 75.5p).
Net interest was covered 0.3 times by operating profit before
interest, tax and exceptional items (2019: 3.9 times).
Total capital investment was GBP171.6m in the period (2019:
GBP167.6m), almost all of which occurred, or was contracted, before
lockdown. GBP41.0m was invested in new pubs and pub extensions
(2019: GBP35.2m), GBP32.1m in existing pubs and IT (2019: GBP55.2m)
and GBP98.5m in freehold reversions, where Wetherspoon was already
a tenant (2019: GBP77.2m).
Exceptional items totalled GBP60.7m (2019: GBP7.0m). There was a
GBP3.5m loss on disposal, an impairment charge of GBP44.0m,
expenditure in relation to Covid-19 of GBP29.1m and a credit of
GBP15.9m in respect of a long-standing claim with HMRC for VAT on
fruit/slot machines.
The total cash effect of exceptional items was a net cash
outflow of GBP10.6m. There was an outflow related to Covid-19
expenditure of GBP23.2m, while beer and food stock losses, as a
result of lockdown, were GBP5.9m. An inflow resulted from a
successful HMRC fruit/slot machine VAT claim of GBP15.9m and pub
disposal receipts of GBP2.6m. Since the current pub disposal
programme started in 2015, it has produced a net inflow of GBP23m
from the disposal of 109 pubs.
Free cash flow, after capital payments of GBP44.3m for existing
pubs (2019: GBP54.3m), GBP11.1m for share purchases for employees
(2019: GBP16.0m) and payments of tax and interest, decreased by
GBP155.9m to -GBP58.9m (2019: GBP97.0m). Free cash flow per share
was -54.2p (2019: 92.0p).
IFRS 16
On 29 July 2019, the company adopted the IFRS 16 leases
standard. For the year ending 26 July 2020, as a result of the new
standard, EBITDA has increased by GBP58.5m and operating profit by
GBP9.8m. Finance costs increased by GBP21.5m. There will be no
impact on cash flows, except in relation to tax payments. As a
result of this new accounting standard, gross assets as at 26 July
2020 are GBP521.1m higher than last year and net assets are GBP8.0m
lower.
Management actions
The company implemented an extensive set of measures to
safeguard the business when the government closed pubs in March.
These measures included the cancellation of the dividend, the
raising of equity, a reduction in capital expenditure and the
introduction of the government furlough scheme for employees.
Following a downturn of trade in the pub and restaurant
industry, the company took the difficult decision to reduce the
number of employees at its head office by 108. It has also started
a consultation process to reduce staff numbers at airport pubs,
where sales are generally much lower and where a high percentage is
closed.
Dividends and return of capital
No interim dividend was paid in March 2020. The board is not
proposing a final dividend payment for the year.
During the year, 419,741 shares (0.40% of the share capital)
were purchased by the company for cancellation, at a cost of
GBP6.5m, an average cost per share of 1,523p.
Financing
As at 26 July 2020, the company's total net debt, excluding
derivatives, was GBP817.0m (2019: GBP737.0m), an increase of
GBP80.0m.
Year-end net-debt-to-EBITDA ratio was 9.48 times (2019: 3.36
times) - EBITDA was GBP133m lower and net-debt increased by GBP80m
in 2020. The company has a waiver agreement in place, against the
financial covenant tests, which extends to October 2021.
As at 26 July 2020, the company had GBP194.0m (2019: GBP158.0m)
of cash or cash equivalents. There has been an increase in total
facilities to GBP993.0m (2019: GBP895.0m), following the addition
of a US private placement in August 2019.
In August 2020, the company raised an additional GBP48.3m under
the coronavirus large business interruption loan scheme
(CLBILS).
In order to try to avoid increased costs, the company has fixed
its LIBOR interest rates in respect of GBP770m until March 2029.
The weighted average cost of the swaps is 2.42% for this financial
year (excluded the banks' margin); this will reduce to 1.61% at the
end of July 2021.
The company has fully drawn down its revolving credit facility.
As previously stated, it is the company's intention that the
maximum net-debt-to-EBITDA ratio should be around 3.5 times, other
than in the short term. The ratio has risen mainly as a result of
the temporary closure of pubs. The company intends to reduce the
level in a timely manner, as and when more normal trading
conditions resume. The company has previously stated that debt
levels of between 0 and 2 times EBITDA are a sensible long-term
benchmark, although higher levels may be justified at times of very
low interest rates.
The company conducted a non-pre-emptive placing of 15% of the
company's issued ordinary share capital to raise GBP141m, with a
good level of support from institutional investors; directors and
members of the senior management team participated, alongside the
equity placing, to raise a further GBP0.3m. The net proceeds were
used to strengthen the company's balance sheet, working capital and
liquidity position.
Taxation
The current tax credit (ie the cash which the company will
receive from HMRC) for the period is GBP2.6m (2019: GBP22.5m
charge). The rate of corporation tax recovered on current year
losses is 4.5%. The 'accounting' tax credit, which appears in the
income statement, is GBP6.2m (2019: GBP22.8m).
The company is awaiting an HMRC refund of excise duty totalling
GBP524k, in relation to goods sent to the Republic of Ireland, when
pubs first opened in the country. The company has been charged
excise duty on the same goods twice, as they were purchased in the
UK, and excise duty was paid in full, then Irish excise duty was
also paid in full, when the goods were sent to Ireland. To ensure
that taxpayers aren't subject to 'double taxation', there are
provisions in place to allow the UK duty to be reclaimed from HMRC
('duty drawback'). However, owing to alleged procedural omissions,
the company has been unable to reclaim this duty, even though it is
transparently clear that the duty has been paid.
VAT equality
As we have previously stated, the government would generate more
revenue and jobs if it were to create tax equality among
supermarkets, pubs and restaurants. Supermarkets pay virtually no
VAT in respect of food sales, whereas pubs pay 20%. This has
enabled supermarkets to subsidise the price of alcoholic drinks,
widening the price gap, to the detriment of pubs and
restaurants.
Pubs also pay around 20 pence a pint in business rates, whereas
supermarkets pay only about 2 pence, creating further
inequality.
Pubs have lost 50% of their beer sales to supermarkets in the
last 35 or so years.
It makes no sense for supermarkets to be treated more leniently
than pubs, since pubs generate far more jobs per pint or meal than
do supermarkets, as well as far higher levels of tax. Pubs also
make an important contribution to the social life of many
communities and have better visibility and control of those who
consume alcoholic drinks.
Tax equality is particularly important for residents of less
affluent areas, since the tax differential is more important there
- people can less afford to pay the difference in prices between
the on and off trade.
As a result, in these less affluent areas, there are often fewer
pubs, coffee shops and restaurants, with less employment and
increased high-street dereliction.
Tax equality would also be in line with the principle of
fairness in applying taxes to different businesses.
On 8 July 2020, the chancellor, Rishi Sunak, announced a
temporary reduction in VAT to 5% in respect of food and
non-alcoholic drinks sales. As a result, the company lowered its
pricing on a wide range of products, including food, soft drinks
and real ale. If the chancellor decides to make these VAT
reductions permanent, the company intends to retain these lower
prices indefinitely.
Corporate governance
The comments made in last year's annual report are just as
relevant today and are repeated here:
The underlying ethos of corporate governance is to comply with
the guidelines or to explain why you do not.
The original creators of the rules must have realised that
business success takes many forms, so a rigid structure, applicable
to all companies, cannot be devised - hence the requirement to
explain non-compliance.
Wetherspoon has always explained its approach. For example, in
2016, our approach to corporate governance was summed up in the
annual report as follows:
"I have said that many aspects of current corporate governance
advice, as laid out in the Combined Code, are deeply flawed..."
I then went on to say:
"I believe that the following propositions represent the views
of sensible shareholders:
"The Code itself is faulty, since it places excessive emphasis
on meetings between directors and shareholders and places almost no
emphasis on directors taking account of the views of customers and
employees which are far more important, in practice, to the future
well-being of any company.
"For example, in the UK Corporate Governance Code (September
2014), there are 64 references to shareholders, but only three to
employees and none to customers - this emphasis is clearly
mistaken.
-- "The average institutional shareholder turns over his
portfolio twice annually, so it is advisable for directors to be
wary of the often perverse views of 'Mr Market' (in the words of
Benjamin Graham), certainly in respect of very short-term
shareholders.
-- "A major indictment of the governance industry is that modern
annual reports are far too long and often unreadable. They are full
of semiliterate business jargon, including accounting jargon, and
are cluttered with badly written and incomprehensible governance
reports.
-- "It would be very helpful for companies, shareholders and the
public, if the limitations of corporate governance systems were
explicitly recognised. Common sense, management skills and business
savvy are more important to commercial success than board
structures. All of the major banks and many supermarket and pub
companies have suffered colossal business and financial problems,
in spite of, or perhaps because of, their adherence to inadvisable
governance guidelines.
-- "There should be an approximately equal balance between
executives and non-executives. A majority of executives is not
necessarily harmful, provided that non-executives are able to make
their voices heard.
-- "It is often better if a chairman has previously been the
chief executive of the company. This encourages chief executives,
who may wish to become a chairman in future, to take a long-term
view, avoiding problems of profit-maximisation policies in the
years running up to the departure of a chief executive.
-- "A maximum tenure of nine years for non-executive directors
is not advisable, since inexperienced boards, unfamiliar with the
effects of the 'last recession' on their companies, are likely to
reduce financial stability.
-- "An excessive focus on achieving financial or other targets
for executives can be counter-productive. There's no evidence that
the type of targets preferred by corporate governance guidelines
actually works and there is considerable evidence that attempting
to reach ambitious financial targets is harmful.
-- "As indicated above, it is far more important for directors
to take account of the views of employees and customers than of the
views of institutional shareholders. Shareholders should be
listened to with respect, but caution should be exercised in
implementing the views of short-term shareholders. It should also
be understood that modern institutional shareholders may have a
serious conflict of interest, as they are often concerned with
their own quarterly portfolio performance, whereas corporate health
often requires objectives which lie five, 10 or 20 years in the
future."
I also quoted Sam Walton of Walmart in the 2014 annual report.
He said:
"What's really worried me over the years is not our stock price,
but that we might someday fail to take care of our customers or
that our managers might fail to motivate and take care of our
(employees)... Those challenges are more real than somebody's
theory that we're heading down the wrong path... As business
leaders, we absolutely cannot afford to get all caught up in trying
to meet the goals that some ... institution ... sets for us. If we
do that, we take our eye off the ball.... If we fail to live up to
somebody's hypothetical projection for what we should be doing, I
don't care. We couldn't care less about what is forecast or what
the market says we ought to do."
It is, therefore, very disappointing that one large
institutional shareholder does not appear, by its actions, to
support the central tenet of our stance on the issue of governance,
which is that experience is extremely important and that the
so-called 'nine-year rule' is perverse and counterproductive.
This shareholder failed to support the re-election of two of our
non-executive directors at last year's AGM. I arranged a meeting,
in April 2019, for all of our main institutional shareholders, to
further explain our position, which the shareholder in question
failed to attend. I then arranged a further meeting, in May 2019,
with the shareholder at that shareholder's office.
Following the meeting, there was no confirmation that the
shareholder would support the re-election of our long-serving
non-executive directors. As a result, three of our four
non-executives, in the best interests of the company, offered to
leave, on a rotational basis.
The company contacted all of its main shareholders to inform
them of this proposal. The shareholder in question agreed. However,
several other shareholders expressed their discontent with the
proposed resignations.
The executive board and I feel strongly that these sorts of
board change disrupt and weaken the company. I wrote to the
shareholder on 9 September 2019 to ask them to reconsider their
position, but have not received a reply.
Wetherspoon has had harmonious relationships with almost all of
its shareholders over many years and has complied with the
corporate governance requirement for explanation. Judging from the
absence of any adverse comment, our approach has generally been
accepted by investors.
This year's annual general meeting will take place on 17
December 2020.
Further progress
As always, the company has tried to improve as many areas of the
business as possible, on a week-to-week basis, rather than aiming
for 'big ideas' or grand strategies. Frequent calls on pubs by
senior executives, the encouragement of criticism from pub staff
and customers and the involvement of pub and area managers, among
others, in weekly decisions, are the keys to success.
We now have 781 pubs rated on the Food Standards Agency's
website - the average score is 4.96, with 96.9% of the pubs
achieving a top rating of five stars and 2.3% receiving four stars.
We believe this to be the highest average rating for any
substantial pub company.
In the separate Scottish scheme, which records either a 'pass'
or a 'fail', all of our 62 pubs have passed.
We paid GBP33m in respect of bonuses and free shares to
employees in the year, of which 98% was paid to staff below board
level and 87% was paid to staff working in our pubs.
The company has been recognised as a Top Employer UK (2020) by
The Top Employers Institute for the 17th consecutive year.
Thanks to fantastic efforts by our employees and customers, in
association with the charity CLIC Sargent, approximately GBP1.1m
was raised, bringing the total (since August 2002) to over
GBP18.7m.
Property
The company opened two pubs during the year and sold or closed
nine, resulting in a trading estate of 872 pubs at the financial
year end.
The average development cost for a new pub (excluding the cost
of freeholds) was GBP2.3m, compared with GBP2.6m a year ago. The
full-year depreciation charge, excluding right-of-use assets, was
GBP79.3m (2019: GBP81.8m).
Ten years ago, the company's freehold/leasehold split was
41.3%/58.7%. As at 26 July 2020, as a result of investment in
freehold reversions (relating to pubs where the company was
previously a tenant) and freehold pub openings, the split was
64.3%/35.7%. As at 26 July 2020, the net book value of the
property, plant and equipment of the company was GBP1.4 billion,
including GBP1.1 billion of freehold and long-leasehold property.
The properties have not been revalued since 1999.
Property litigation
As previously reported, Wetherspoon agreed on an out-of-court
settlement with developer Anthony Lyons, formerly of property
leisure agent Davis Coffer Lyons, in 2013 and received
approximately GBP1.25m from Mr Lyons.
The payment relates to litigation in which Wetherspoon claimed
that Mr Lyons had been an accessory to frauds committed by
Wetherspoon's former retained agent Van de Berg and its directors
Christian Braun, George Aldridge and Richard Harvey. Mr Lyons
denied the claim - and the litigation was contested.
The claim related to properties in Portsmouth, Leytonstone and
Newbury. The Portsmouth property was involved in the 2008/9 Van de
Berg case itself.
In that case, Mr Justice Peter Smith found that Van de Berg, but
not Mr Lyons (who was not a party to the case), fraudulently
diverted the freehold from Wetherspoon to Moorstown Properties
Limited, a company owned by Simon Conway. Moorstown leased the
premises to Wetherspoon. Wetherspoon is still a leaseholder of this
property - a pub called The Isambard Kingdom Brunel.
The properties in Leytonstone and Newbury (the other properties
in the case against Mr Lyons) were not pleaded in the 2008/9 Van de
Berg case. Leytonstone was leased to Wetherspoon and trades today
as The Walnut Tree public house. Newbury was leased to Pelican plc
and became Café Rouge.
As we have also reported, the company agreed to settle its final
claim in this series of cases and accepted GBP400,000 from property
investor Jason Harris, formerly of First London and now of First
Urban Group. Wetherspoon alleged that Harris was an accessory to
frauds committed by Van de Berg. Harris contested the claim and has
not admitted liability.
Before the conclusion of the above cases, Wetherspoon also
agreed on a settlement with Paul Ferrari of London estate agent
Ferrari Dewe & Co, in respect of properties referred to as the
'Ferrari Five' by Mr Justice Peter Smith.
Press corrections
Following lockdown, a large number of press reports
misrepresented Wetherspoon's position in several important areas.
The company complained to the media organisations concerned and
obtained apologies or corrections from the Times, the BBC, Sky
News, the Mirror, the Sun, the Daily Mail, Forbes and several other
publications. Please see the article I wrote on this subject in
appendix 2.
Current trading and outlook
Warren Buffett, chairman of Berkshire Hathaway, commented in
1989 (below) on the dangers of what he calls the 'institutional
imperative' and how it compels companies to stay on the same
course, even if it's the wrong course - and how it compels
companies to imitate competitors. The institutional imperative
applies just as much to governments as it does to boards of
directors. Professor Johan Giesecke, the Warren Buffett of
epidemiology, is obviously perplexed in an April TV interview
(appendix 1 below) as to how 100 countries all reacted, almost
overnight, in the same way to the Covid-19 problem, based on the
deeply flawed analysis of Imperial College.
As Warren Buffett explains:
"My most surprising discovery: the overwhelming importance in
business of an unseen force that we might call "the institutional
imperative." In business school, I was given no hint of the
imperative's existence and I did not intuitively understand it when
I entered the business world. I thought then that decent,
intelligent, and experienced managers would automatically make
rational business decisions. But I learned over time that isn't
so. Instead, rationality frequently wilts when the institutional
imperative comes into play.
"For example: (1) As if governed by Newton's First Law of
Motion, an institution will resist any change in its current
direction; (2) Just as work expands to fill available time,
corporate projects or acquisitions will materialize to soak up
available funds; (3) Any business craving of the leader, however
foolish, will be quickly supported by detailed rate-of-return and
strategic studies prepared by his troops; and (4) The behavior of
peer companies, whether they are expanding, acquiring, setting
executive compensation or whatever, will be mindlessly
imitated.
"Institutional dynamics, not venality or stupidity, set
businesses on these courses, which are too often misguided. After
making some expensive mistakes because I ignored the power of the
imperative, I have tried to organize and manage Berkshire in ways
that minimize its influence. Furthermore, Charlie and I have
attempted to concentrate our investments in companies that appear
alert to the problem."
Since 100 governments adopted a lockdown strategy, it was very
difficult for any government to adopt a different course. However,
pubs eventually reopened in England on 4 July and in the rest of
the UK shortly thereafter.
The lockdown was far longer than was necessary to achieve its
stated objective of 'flattening the curve' so as to assist the
health service. Before pubs reopened, a detailed and comprehensive
operating plan for the hospitality industry was nevertheless agreed
on among the government, parliamentary committees, UK Hospitality,
civil servants and other interested parties.
The regulations and guidelines reflected in the plan drastically
reduced pub capacity, but were carefully thought out and had the
backing of the industry, legislators, licensing officials, local
authorities and the public.
For the two months following reopening, it appeared that the
hospitality industry, in difficult circumstances, was adapting to
the new régime and was getting 'back on its feet', albeit in
survival mode.
It appears that the government and its advisers were clearly
uncomfortable as the country emerged from lockdown. They have
introduced, without consultation, under emergency powers, an
ever-changing raft of ill-thought-out regulations - these are
extraordinarily difficult for the public and publicans to
understand and to implement. None of the new regulations appears to
have any obvious basis in science.
For example, a requirement for table service was introduced -
which is expensive to implement and undermines the essential nature
of pubs for many people - pubs have now become like restaurants.
Customers can approach the till in a shop, but not in a pub - which
is, in no sense, 'scientific'.
In addition, face-coverings, for which the health benefits are
debatable, need not be worn while seated, yet must be worn to go to
visit the bathroom - another capricious regulation.
The most damaging regulation relates to the 10pm curfew, which
has few supporters outside of the narrow cloisters of Downing
Street and SAGE meetings. This has meant that many thousands of
hospitality industry employees, striving to maintain hygiene and
social-distancing standards, go off duty at 10pm, leaving people to
socialise in homes and at private events which are, in reality,
impossible to regulate.
In marked contrast to the consistency of the comparatively
successful Swedish approach, which emphasises social distancing,
hygiene and trust in the people, the erratic UK government is
jumping from pillar to post and is both tightening and tinkering
with regulations, so we are now in quasi-lockdown which is
producing visibly worse outcomes than those in Sweden, in respect
of both health and the economy.
Risk cannot be eliminated completely in pubs, but sensible
social-distancing and hygiene policies, combined with continued
assistance and co-operation from the authorities, should minimise
it.
Like-for-like sales in the first 11 weeks have been 15.0% below
those of last year, with strong sales in the first few weeks,
followed by a marked slowdown since the introduction of a curfew
and other regulations, some of which are referred to above.
The recent curfew and introduction of table service only have
been particularly damaging for trade, depressing sales for
customers who find it too much 'faff', at the same time as
substantially increasing costs.
As a result of recent changes in regulations, the outlook for
pubs over the remainder of the current financial year is even more
unpredictable than hitherto.
The company has successfully adapted its business, over the last
41 years, to cope with widely different political and economic
circumstances. We now employ over 40,000 people, 10,000 of whom are
shareholders in the company, and are a major contributor to
national income, paying approximately one pound in every thousand
of treasury receipts in 2019 and in preceding years.
However, the company and the entire hospitality industry need a
more sensible and consistent regulatory framework in which to
operate - the current environment of lockdowns, curfews and
constantly changing regulations and announcements threatens not
only pub companies, but the entire economy. The most important
lesson, as Professor Mark Woolhouse of Edinburgh University has
said, is that "lockdown just defers the problem; it doesn't solve
it".
Appendix 1 - Transcript of interview, former Swedish chief
epidemiologist Johan Giesecke, SKY NEWS AUSTRALIA - 29th April
2020
Question: You've been a strong critic of the idea of lockdowns,
Sweden has avoided these sort of lockdowns that we're seeing here
in Australia. Tell us your thoughts - are lockdowns the correct way
to go?
Johan: You introduced me by saying that I would say that you got
it all wrong. I don't think you go it all wrong but you painted
yourself into a corner and I'm watching with interest how you and
100 other countries will climb out of the lockdown, because I don't
think any government that I know gave a minute's thought about how
they would get out of the different lockdowns that are installed.
Take the school closure for example, if you close the schools, when
are you going to open them, what's the criteria? I don't think
anyone thought about that when the closure was decided on. Anyway,
so Sweden doesn't have such a strict lockdown, there are a few
things that are forbidden - the crowd can't be more than 50 people,
at restaurants that are mostly open, there should be 5ft or 1.5
meters between the tables, you have to sit down to eat, there are a
few things like that but rather mild things... there are very few
laws and ordinances passed, you can go out without being stopped by
the police and fined or threatened with prison and mostly we talk
about trust... we trust the people - people are not stupid.
That's... the basic line [in Sweden]. If you tell people what's
good for them and what's good for their neighbours and other
people, they do that. You take a restriction that's sensible and
understandable, people will follow it.
Question: You said that you think the results are going to be
similar across most countries regardless of the approach they've
taken, can you take us through that?
Johan: There is a tsunami of a rather mild infection spreading
around the globe and I think that's there's very little chance to
stop it by any measure we take. Most people will become infected by
this and most people won't even notice. We have data now from
Sweden that shows between 98 and 99 percent of the cases have had a
very mild infection or didn't even realise they were infected. So
we have this spread of this mild disease around the globe and most
of it is happening where we don't see it. It's among people that
don't get very sick, spread it to someone else that doesn't get
very sick and what we're looking at is a thin layer at the top of
people who do develop the disease and even thinner layer of people
that go into intensive care and then even thinner layer of people
who die. But the real outbreak is happening where we don't see
it.
Question: So.....you're saying that at some point pretty much
everybody is going to get this disease to some degree or another.
Here in Australia we've done an incredibly good job suppressing it.
I'm wondering do you think we've done too good a job, is it
possible to do too good a job suppressing it in the early stages
such that you won't ever be able to take the foot off the break on
your restrictions to get the disease just to a manageable flow of
cases that the health system, which we were told this was all about
preparing for that, be allowed to handle the cases as they come
through.
Johan: Yes... one point is to flatten the curve a bit so that
the health care isn't overused. You may succeed, and New Zealand
may also succeed, but I've been asking myself when New Zealand or
Australia has stamped out every case in the country, what do you do
for the next 30 years. Will you close your borders completely?
Quarantine everyone who is going to Australia or New Zealand?
Because the disease will be out there. I don't know how you are
going to handle that. That's your problem.
Question: You've said you think in most countries regardless of
the measures we take, eg. Taiwan has been very successful and other
countries like Italy have been disaster cases, but you think at the
end of the day they're all pretty much going to end up with the
same fatalities, the same results, the same deaths regardless of
what measures they took. Explain that.
Johan: Yes. Basically I think it will be the same because, like
I said, the real epidemic is invisible and it's going on all the
time around us. The other thing with a lockdown is when you open
it, you will have more cases, so the countries who pride themselves
in having a few deaths now, will get these deaths when they start
lifting the lockdown.
Question: Tell us briefly about the Imperial College results
that sparked this worldwide panic. You believe they were flawed,
these were the initial results that were coming out and the
modelling that was saying millions are gonna die. You thought that
was flawed, tell us why.
Johan: Yes, there are a few procedural things... One is that the
paper was never published which is normal scientific behaviour. The
second thing it wasn't peer-reviewed, which means it wasn't looked
upon by other people, which is also normal scientific procedure. So
it was more like an internal departmental communication, a memo.
And then the big mistake of the Imperial group was under-estimating
the proportion of the very mild cases that would never be detected,
that's the main thing with that prediction. And it's fascinating
how it changed the policy of the world. The UK made a u-turn
overnight [upon] the publication of the paper which is fascinating.
So, yes, there were several other mistakes with the paper but it
gets very technical to get into that.
Question: You mention that the overwhelming majority of people
that get this disease have no symptoms or very minimal symptoms. Do
we even know the real fatality rate of the coronavirus?
Johan: No. Well it's around 0.1%.
Question: We were told it was 3% initially, initially 2%, are
you saying now that it's 0.1%., that's pretty much the same
fatality rate as the regular flu isn't it?
Johan: I think it's a bit higher actually. I said before in
Sweden that this is like a severe influenza. I don't think that's
completely true - it will be a bit more severe than the influenza,
maybe double but not tenfold.
Question: With all of the health care systems focusing on
flattening the curve and being prepared for these waves of
infection, which aren't necessarily coming because of the very
restrictive measures, overall are we gonna see more people dying,
we talked a little bit about this before on the show, of cancers,
heart attacks, things like that, simply because they're too scared
to go to the hospital because they think they won't get treated. Is
there going to be other deaths that are going to be caused by our
overweighting focus just on this one particular disease?
Johan: Could well be. The emergency rooms here in Stockholm have
about 50% of the usual number of patients coming in, and one reason
is probably that people are scared of contracting the disease when
they go into hospitals, and another is that, I think, they say they
can wait a bit until the thing is over.
Question: You've said the best policy, the correct policy, would
be to simply protect the old and the frail. Is that correct?
Johan: Yes, and that's the Swedish model. It has... two pillars.
One is only use measures that are evidence-based. And there are two
that are evidence-based... one is washing hands... we've known that
for 150 years since Semmelweis in Austria a long time ago. The
other is social distancing. If you don't get too close to other
people, they won't infect you. And the third may be trust people.
People are not stupid, if you tell them what's good for them they
will do what you say. You don't need soldiers on the street - and
police. It's unnecessary.
.
Appendix 2 - Tim's Viewpoint, Wetherspoon News, Summer 2020
The press plays a vital role - but don't believe everything you
read
Some journalists apply more spin than a Shane Warne googly and
more venom than a Waqar Younis Yorker
The press plays a vital role in a free society by shining a
light on privilege and power, including on those who run businesses
- and by informing and entertaining.
We blame the press for many sins, but there's some truth in the
defence that it's often just saying what we like to read.
To understand what makes a press 'story', it's useful to hark
back to 2003, when a customer wrote to Wetherspoon News complaining
about swearing in one of our pubs.
I replied in this magazine that I would ask customers to 'mind
their language'.
Believe it or not, that workaday response to a customer in our
humble publication became one of the biggest news stories in the
world, for a few days.
It was a leading news headline on BBC and ITV and featured in
most local papers - as well as in numerous publications in faraway
India, Canada, the US, Australia and elsewhere.
I was even phoned by a relative living in the Swedish 'outback',
saying that the story was on the front page of the village paper...
but why did it go viral?
In truth, the story was given a 'twist' by a journalist from a
pub industry newspaper who said that Wetherspoon might 'punish'
customers for swearing.
This transformed the story from 'true, but boring' into 'not
quite true, but very interesting'.
Some people think that newspapers should always stick to the
truth, but, to be fair, the 'Wetherspoon bans swearing' story was
probably innocent fun - no harm done
- and the public knew instinctively that it wasn't LITERALLY
true.
Part (but only part) of the reason for buying a newspaper is to
be entertained - no one attending a Billy Connolly or Kevin Bridges
show expects them, for example, to stick to the literal truth.
Artistic licence is permitted to embellish a comedian's
monologue, and the same can be true of journalists - with the
proviso that, in the process, innocent parties should not be
unfairly damaged or duped.
Hence, we have libel laws and controls over press accuracy,
including a 'right of reply' - to protect what Shakespeare called
the 'bubble reputation'.
However, a vicious side of the press was revealed after 20
March, when pubs and restaurants were closed, without notice, by
the government, throwing Wetherspoon and almost the entire pub and
restaurant industry into default on bank loans - with hundreds of
thousands out of work.
I recorded an internal company video, less than 48 hours after
pubs were closed, hoping to reassure employees that they would be
'furloughed' and would not lose their jobs - which was happening,
on a large scale, elsewhere in the economy.
The video said: "All our endeavours are going to be on trying to
make sure that you get your money."
And an e-mail, which went out with the video, said that
"employees will be paid as normal on Friday 27 March".
In fact, staff were paid on that Friday and have been paid on
every Friday since - thanks, above all, to the lightning-quick
creation of a furlough scheme and, in our case at least, great
flexibility from banks.
However, the press was looking for a 'story' with a villain, and
the truth was subject to malicious distortion.
Times journalist Caitlin Moran, for example, with more spin than
a Shane Warne googly, said that Wetherspoon employees "wouldn't get
paid until the end of April for work they had done" which The Times
has now retracted through gritted teeth.
Fellow Times columnist Alistair Osborne referred to me as a rat,
while Caitlin Moran herself, with more venom than a Waqar Younis
yorker, called me the worst word in the language, albeit with
hyphens replacing some letters - as did the Daily Mail.
Ben Marlow of The Daily Telegraph said that I was "Britain's
worst ever boss" - and scores of press stories made similar
accusations.
Maybe the press can justify this hyperbole - it has newspapers
to sell in an Internet-ravaged industry.
However, the wackiest behaviour, during these mad March days,
was from two MPs, Rachel Reeves and Jo Stevens, who, with
Wetherspoon and the hospitality industry at their most vulnerable,
tried to turn the story to personal political advantage.
Jo Stevens, MP for Cardiff Central, invented a story on Twitter
that I had appeared in front of a parliamentary committee (the
BEIS) then chaired by Rachel Reeves, MP for Leeds West, and, as a
result of that appearance, had "u-turned on decision not to pay
43,000 staff while pubs are shut".
This was complete cobblers.
I never appeared in front of the BEIS Committee, as both Stevens
and Reeves know, and Wetherspoon had already undertaken to pay
staff on 27 March.
They must have been bonkers to have made up a fictitious
appearance in front of a parliamentary committee - since that could
so easily be disproved.
Rachel Reeves added to Twitter 'disinformation' and confusion
(7, opposite) by saying that Wetherspoon was at "first refusing to
lock down altogether".
That's a complete lie.
All Wetherspoon pubs shut, when requested, on Friday 20 March -
ask any of our staff or customers.
I wrote to Reeves on 2 April to complain, yet received no
reply.
Wetherspoon's response to the torrent of 'disinformation' has
been to wade through the press articles, one by one, and to write
to the various publications to ask them to print a correction.
Bravo and thanks to publications like the Daily Mirror, Sky News
and local newspapers like the Herald Express and the Loughborough
Echo which cared enough about the truth to publish a correction or
a Wetherspoon article in response.
For democracy to work, the press itself, given its huge power,
has to be subject to regulation and scrutiny.
If the press is the guardian of democracy, who guards the
guardians, as Lord Leveson famously asked in his inquiry into the
press, stemming from the phone-hacking scandal.
Politicians themselves, over the years, have championed the
campaign to require the media to correct inaccurate statements.
As the public realises, the press often, but not always, bends
the truth out of any recognisable shape, in pursuit of a story.
It is disturbing, therefore, that MPs Jo Stevens and Rachel
Reeves have, themselves, resorted to blatant fabrication - which,
itself, was the source of much media inaccuracy.
Perhaps John Webster, Shakespeare's contemporary, was right when
he said:
"A politician is the devil's quilted anvil; he fashions all sins
on him, and the blows are never heard."
But just as a free society needs the press, it also needs honest
politicians.
Even in our murky and compromised world, the truth will out -
that's why democracy works so well, despite its trials and
tribulations.
Tim Martin
Chairman
PRE-IFRS 16 INCOME STATEMENT for the 52 weeks ended 26 July
2020
J D Wetherspoon plc, company number: 1709784
Notes 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended Ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note 4) items
4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
Revenue 1 1,262,048 - 1,262,048 1,818,793 - 1,818,793
Operating costs (1,254,896) (13,201) (1,268,097) (1,686,876) - (1,686,876)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit/(loss) 2 7,152 (13,201) (6,049) 131,917 - 131,917
Property (losses)/gains 3 (641) (47,476) (48,117) 5,599 (7,040) (1,441)
Finance income 6 161 - 161 41 - 41
Finance costs 6 (40,767) - (40,767) (35,098) - (35,098)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
(Loss)/profit
before tax (34,095) (60,677) (94,772) 102,459 (7,040) 95,419
Income tax expense 4,158 1,004 5,162 (22,830) 188 (22,642)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
(Loss)/profit for
the period (29,937) (59,673) (89,610) 79,629 (6,852) 72,777
------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings per share
(p)
- Basic[1] 8 (27.6) (55.0) (82.6) 77.2 (6.6) 70.6
- Diluted[2] 8 (27.6) (55.0) (82.6) 75.5 (6.5) 69.0
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
RECONCILIATION TO STATUTORY PROFIT for the 52 weeks ended 26
July 2020
Notes 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note 4) items
4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Profit before IFRS
16 (29,937) (59,673) (89,610) 79,629 (6,852) 72,777
Operating costs 58,503 - 58,503 - - -
Amortisation and
depreciation
Right-of-use
assets (49,059) - (49,059) - - -
Lease premium 368 - 368 - - -
Disposal of leases 3 1,125 - 1,125 - - -
Impairment
Right-of-use
assets 3 - (4,722) (4,722) - - -
Property, plant
and equipment - 3,311 3,311 - - -
Onerous leases
provision - 1,411 1,411 - - -
Finance income 6 451 - 451 - - -
Finance costs 6 (21,980) - (21,980) - - -
Income tax expense 2,012 629 2,641 - - -
------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
Profit for the
period (38,517) (59,044) (97,561) 79,629 (6,852) 72,777
------------------- ----- ----------- ----------- ----------- ----------- ----------- -----------
[1] Calculated excluding shares held in trust.
[2] Calculated using issued share capital which includes shares
held in trust.
To provide meaningful comparatives the above statement has been
presented under IAS 17 and does not form part of the audited
financial statements
PRE-IFRS 16 CASH FLOW STATEMENT for the 52 weeks ended 26 July
2020
J D Wetherspoon plc, company
number: 1709784
Notes Free cash Free cash
Flow[1] Flow[1]
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
26 Jul 26 Jul 28 Jul 28 Jul
2020 2020 2019 2019
GBP000 GBP000 GBP000 GBP000
----------------------------------- ----- --------- --------- --------- ---------
Cash flows from operating
activities
Cash generated from operations 9 38,718 38,718 227,176 227,176
Interest received 59 59 33 33
Interest paid (29,914) (29,914) (33,957) (33,957)
Corporation tax paid (10,971) (10,971) (19,661) (19,661)
----------------------------------- ----- --------- --------- --------- ---------
Net cash flow from operating
activities (2,108) (2,108) 173,591 173,591
----------------------------------- ----- --------- --------- --------- ---------
Cash flows from investing
activities
Reinvestment in pubs (43,370) (43,370) (47,398) (47,398)
Reinvestment in business
and IT projects (926) (926) (6,923) (6,923)
Investment in new pubs and
pub extensions (50,408) (26,778)
Freehold reversions and investment
properties (98,467) (77,207)
Lease premiums paid - (451)
Proceeds of sale of property,
plant and equipment 4,810 9,319
----------------------------------- ----- --------- --------- --------- ---------
Net cash flow from investing
activities (188,361) (44,296) (149,438) (54,321)
----------------------------------- ----- --------- --------- --------- ---------
Cash flows from financing
activities
Equity dividends paid 11 (8,371) (12,652)
Purchase of own shares for
cancellation (6,456) (5,399)
Purchase of own shares for
share-based payments (11,125) (11,125) (16,004) (16,004)
Loan issue cost 10 (1,323) (1,323) (6,268) (6,268)
Advances under private placement 10 98,000 -
Advances under / (repayment
of) bank loans 10 100,000 (13,865)
Advances under asset-financing 10 16,152 12,000
Issue of share capital 137,995
Asset-financing principal
payments 10 (2,902) (2,106)
----------------------------------- ----- --------- --------- --------- ---------
Net cash flow from financing
activities 321,970 (12,448) (44,294) (22,272)
----------------------------------- ----- --------- --------- --------- ---------
Net change in cash and cash
equivalents 10 131,501 (20,141)
----------------------------------- ----- --------- --------- --------- ---------
Opening cash and cash equivalents 42,950 63,091
Closing cash and cash equivalents 174,451 42,950
----------------------------------- ----- --------- --------- --------- ---------
Free cash flow 8 (58,852) 96,998
----------------------------------- ----- --------- --------- --------- ---------
Free cash flow per ordinary
share (p) 8 (54.2) 92.0
[1]Free cash flow is a measure not required by accounting
standards; a definition is provided in our accounting policies
To provide meaningful comparatives the above statement has been
presented under IAS 17 and does not form part of the audited
financial statements.
PRE-IFRS 16 BALANCE SHEET as at 26 July 2020
J D Wetherspoon plc, company number: 1709784
Notes 26 Jul 2020 28 Jul 2019
GBP000 GBP000
--------------------------------------------- ----- ----------- -----------
Non-current assets
Property, plant and equipment 13 1,439,467 1,384,971
Intangible assets 12 8,895 23,070
Investment property 14 11,527 5,531
Other non-current assets 7,520 7,888
Derivative financial instruments - 321
Deferred tax assets 7 15,617 8,342
--------------------------------------------- ----- ----------- -----------
Total non-current assets 1,483,026 1,430,123
--------------------------------------------- ----- ----------- -----------
Current assets
Assets held for sale - 3,146
Inventories 23,095 23,717
Receivables 36,387 21,903
Current income tax receivables 7,672 -
Cash and cash equivalents 174,451 42,950
--------------------------------------------- ----- ----------- -----------
Total current assets 241,605 91,716
--------------------------------------------- ----- ----------- -----------
Total assets 1,724,631 1,521,839
--------------------------------------------- ----- ----------- -----------
Current liabilities
Borrowings (7,610) (3,287)
Trade and other payables (267,677) (308,326)
Current income tax liabilities - (10,986)
Provisions (4,759) (4,072)
--------------------------------------------- ----- ----------- -----------
Total current liabilities (280,046) (326,671)
--------------------------------------------- ----- ----------- -----------
Non-current liabilities
Borrowings (983,828) (776,683)
Derivative financial instruments (82,194) (49,393)
Deferred tax liabilities 7 (42,138) (39,416)
Provisions (1,488) (1,934)
Other liabilities (9,738) (10,930)
--------------------------------------------- ----- ----------- -----------
Total non-current liabilities (1,119,386) (878,356)
--------------------------------------------- ----- ----------- -----------
Net assets 325,199 316,812
--------------------------------------------- ----- ----------- -----------
Shareholders' equity
Share capital 2,408 2,102
Share premium account 280,975 143,294
Capital redemption reserve 2,337 2,329
Hedging reserve (66,577) (40,730)
Currency translation reserve 7,089 5,370
Retained earnings 98,967 204,447
--------------------------------------------- ----- ----------- -----------
Total shareholders' equity 325,199 316,812
--------------------------------------------- ----- ----------- -----------
To provide meaningful comparatives the above statement has been
presented under IAS 17 and does not form part of the audited
financial statements.
INCOME STATEMENT for the 52 weeks ended 26 July 2020
J D Wetherspoon plc, company
number: 1709784
Notes 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note items
4) 4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
Revenue 1 1,262,048 - 1,262,048 1,818,793 - 1,818,793
Operating costs (1,245,084) (13,201) (1,258,285) (1,686,876) - (1,686,876)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit/(loss) 2 16,964 (13,201) 3,763 131,917 - 131,917
Property (losses)/gains 3 484 (47,476) (46,992) 5,599 (7,040) (1,441)
Finance income 6 612 - 612 41 - 41
Finance costs 6 (62,747) - (62,747) (35,098) - (35,098)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
(Loss)/profit before
tax (44,687) (60,677) (105,364) 102,459 (7,040) 95,419
Income tax expense 7 6,170 1,633 7,803 (22,830) 188 (22,642)
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
(Loss)/profit for
the period (38,517) (59,044) (97,561) 79,629 (6,852) 72,777
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
Earnings per share
(p)
- Basic[1] 8 (35.5) (54.4) (89.9) 77.2 (6.6) 70.6
- Diluted[2] 8 (35.5) (54.4) (89.9) 75.5 (6.5) 69.0
Operating profit/(loss)
per share (p)
- Diluted[2] 8 15.8 (12.3) 3.4 125.1 - 125.1
------------------------ ----- ----------- ----------- ----------- ----------- ----------- -----------
STATEMENT OF COMPREHENSIVE INCOME for the 52 weeks ended 26 July
2020
Notes 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
------------------------------------------------------- ----- --------- --------
Items which may be reclassified subsequently
to profit or loss:
Interest-rate swaps: loss taken to other comprehensive
income (33,122) (24,963)
Tax on items taken directly to other comprehensive
income 7 7,275 4,243
Currency translation differences 1,293 181
-------------------------------------------------------- ----- --------- --------
Net loss recognised directly in other comprehensive
income (24,554) (20,539)
(Loss)/profit for the period (97,561) 72,777
-------------------------------------------------------- ----- --------- --------
Total comprehensive income for the period (122,115) 52,238
-------------------------------------------------------- ----- --------- --------
[1] Calculated excluding shares held in trust.
[2] Calculated using issued share capital which includes shares
held in trust.
CASH FLOW STATEMENT for the 52 weeks ended 26 July 2020
J D Wetherspoon plc, company
number: 1709784
Notes Free cash Free cash
Flow[1] Flow[1]
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
26 Jul 26 Jul 28 Jul 28 Jul
2020 2020 2019 2019
GBP000 GBP000 GBP000 GBP000
---------------------------------------- ----- --------- --------- --------- ---------
Cash flows from operating activities
Cash generated from operations 9 75,665 75,665 227,176 227,176
Interest received 59 59 33 33
Interest paid (29,914) (29,914) (33,957) (33,957)
Corporation tax paid (10,971) (10,971) (19,661) (19,661)
Lease interest (18,080) (18,080) - -
---------------------------------------- ----- --------- --------- --------- ---------
Net cash flow from operating
activities 16,759 16,759 173,591 173,591
---------------------------------------- ----- --------- --------- --------- ---------
Cash flows from investing activities
Reinvestment in pubs (43,370) (43,370) (47,398) (47,398)
Reinvestment in business and
IT projects2 (926) (926) (6,923) (6,923)
Investment in new pubs and pub
extensions (50,408) (26,778)
Freehold reversions and investment
properties (98,467) (77,207)
Lease premiums paid - (451)
Proceeds of sale of property,
plant and equipment 4,810 9,319
---------------------------------------- ----- --------- --------- --------- ---------
Net cash flow from investing
activities (188,361) (44,296) (149,438) (54,321)
---------------------------------------- ----- --------- --------- --------- ---------
Cash flows from financing activities
Equity dividends paid 11 (8,371) (12,652)
Purchase of own shares for cancellation (6,456) (5,399)
Purchase of own shares for share-based
payments (11,125) (11,125) (16,004) (16,004)
Loan issue cost 10 (1,323) (1,323) (6,268) (6,268)
Advances under private placement 10 98,000 -
Advances under / (repayment
of) bank loans 10 100,000 (13,865)
Advances under asset-financing 10 16,152 12,000
Lease principal payments (18,867) (18,867) -
Issue of share capital 137,995
Asset-financing principal payments 10 (2,902) (2,106)
---------------------------------------- ----- --------- --------- --------- ---------
Net cash flow from financing
activities 303,103 (31,315) (44,294) (22,272)
---------------------------------------- ----- --------- --------- --------- ---------
Net change in cash and cash
equivalents 10 131,501 (20,141)
---------------------------------------- ----- --------- --------- --------- ---------
Opening cash and cash equivalents 42,950 63,091
Closing cash and cash equivalents 174,451 42,950
---------------------------------------- ----- --------- --------- --------- ---------
Free cash flow 8 (58,852) 96,998
---------------------------------------- ----- --------- --------- --------- ---------
Free cash flow per ordinary
share 8 (54.2)p 92.0p
[1] Free cash flow is a measure not required by accounting
standards; a definition is provided in our accounting policies.
[2] Within reinvestment in business and IT projects, all amounts
were intangible assets (2019: GBP5,859,000, with the remaining
balance being related equipment).
BALANCE SHEET as at 26 July 2020
J D Wetherspoon plc, company number: 1709784
Notes 26 Jul 2020 28 Jul 2019
GBP000 GBP000
---------------------------------------- ----- ----------- -----------
Non-current assets
Property, plant and equipment 13 1,442,778 1,384,971
Intangible assets 12 8,895 23,070
Investment property 14 11,527 5,531
Other non-current assets 15 - 7,888
Right-of-use assets 514,169 -
Derivative financial instruments - 321
Deferred tax assets 7 15,617 8,342
Lease assets 11,115 -
---------------------------------------- ----- ----------- -----------
Total non-current assets 2,004,101 1,430,123
---------------------------------------- ----- ----------- -----------
Current assets
Lease assets 1,736 -
Assets held for sale - 3,146
Inventories 23,095 23,717
Receivables 32,176 21,903
Current income tax receivables 7 10,313 -
Cash and cash equivalents 174,451 42,950
---------------------------------------- ----- ----------- -----------
Total current assets 241,771 91,716
---------------------------------------- ----- ----------- -----------
Total assets 2,245,872 1,521,839
---------------------------------------- ----- ----------- -----------
Current liabilities
Borrowings (7,610) (3,287)
Trade and other payables (255,085) (308,326)
Current income tax liabilities 7 - (10,986)
Provisions (3,038) (4,072)
Lease liabilities (65,343) -
---------------------------------------- ----- ----------- -----------
Total current liabilities (331,076) (326,671)
---------------------------------------- ----- ----------- -----------
Non-current liabilities
Borrowings (983,828) (776,683)
Derivative financial instruments (82,194) (49,393)
Deferred tax liabilities 7 (42,138) (39,416)
Provisions - (1,934)
Other liabilities - (10,930)
Lease liabilities (489,388) -
---------------------------------------- ----- ----------- -----------
Total non-current liabilities (1,597,548) (878,356)
---------------------------------------- ----- ----------- -----------
Net assets 317,248 316,812
---------------------------------------- ----- ----------- -----------
Shareholders' equity
Share capital 2,408 2,102
Share premium account 280,975 143,294
Capital redemption reserve 2,337 2,329
Hedging reserve (66,577) (40,730)
Currency translation reserve 7,089 5,370
Retained earnings 91,016 204,447
---------------------------------------- ----- ----------- -----------
Total shareholders' equity 317,248 316,812
---------------------------------------- ----- ----------- -----------
STATEMENT OF CHANGES IN EQUITY
J D Wetherspoon plc, company
number: 1709784
Notes Share Share Capital Hedging Currency Retained Total
capital premium redemption reserve translation earnings
account reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
At 29 July 2018 2,110 143,294 2,321 (20,010) 4,767 154,080 286,562
Total comprehensive
income (20,720) 603 72,355 52,238
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
Profit for the period 72,777 72,777
Interest-rate swaps:
cash flow hedges (24,963) (24,963)
Tax on cash flow hedges 7 4,243 4,243
Currency translation
differences 603 (422) 181
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
Purchase of own shares
for cancellation (8) 8 (5,399) (5,399)
Share-based payment
charges 11,558 11,558
Tax on share-based
payments 7 509 509
Purchase of own shares for share-based
payments (16,004) (16,004)
Dividends 11 (12,652) (12,652)
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
At 28 July 2019 2,102 143,294 2,329 (40,730) 5,370 204,447 316,812
Total comprehensive
income (25,847) 1,719 (97,987) (122,115)
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
Profit for the period (97,561) (97,561)
Interest-rate swaps:
cash flow hedges (33,122) - (33,122)
Tax on cash flow hedges 7 7,275 - 7,275
Currency translation
differences 1,719 (426) 1,293
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
Issue of share capital 314 137,681 - 137,995
Purchase of own shares
for cancellation (8) 8 (6,456) (6,456)
Share-based payment
charges 10,705 10,705
Tax on share-based
payments 7 (197) (197)
Purchase of own shares for share-based
payments (11,125) (11,125)
Dividends 11 (8,371) (8,371)
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
At 26 July 2020 2,408 280,975 2,337 (66,577) 7,089 91,016 317,248
-------------------------- ------ ------- ------- ---------- -------- ----------- -------- ---------
The balance classified as share capital represents proceeds
arising on issue of the company's equity share capital,
comprising 2p ordinary shares and the cancellation of shares
repurchased by the company.
The capital redemption reserve increased owing to the repurchase
of a number of shares in the year.
Shares acquired in relation to the employee Share Incentive Plan
and the Deferred Bonus Scheme are held in trust,
until such time as the awards vest. At 26 July 2020, the number
of shares held in trust was 1,996,358 (2019: 2,259,401),
with a nominal value of GBP35,447 (2019: GBP45,188) and a market
value of GBP16,961,227 (2019: GBP34,794,775); these are
included in retained earnings.
During the year, 419,741 shares were repurchased by the company
for cancellation, representing approximately 0.40% of the
issued share capital, at a cost of GBP6.5m, including stamp
duty, representing an average cost per share of 1,523p.
The currency translation reserve contains the accumulated
currency gains and losses on the long-term financing and balance
sheet translation of the overseas branch. The currency translation
difference reported in retained earnings is the restatement of the
opening reserves in the overseas branch at the current year end
currency exchange rate.
As at 26 July 2020, the company had distributable reserves of
GBP31.5m.
NOTES TO THE FINANCIAL STATEMENTS
1. Revenue
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
-------------------- --------- ---------
Bar 761,065 1,094,001
Food 452,150 656,955
Slot/fruit machines 35,931 46,404
Hotel 11,780 19,699
Other 1,122 1,734
-------------------- --------- ---------
1,262,048 1,818,793
-------------------- --------- ---------
2. Operating profit/loss - analysis of costs by nature
This is stated after charging/(crediting): 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
-------------------------------------------------------- -------- --------
Concession rental payments - 32,086
Minimum operating lease payments - 38,241
Variable concession rental payments 4,609 -
Short leases 204 -
Repairs and maintenance 75,861 76,879
Net rent receivable (1,484) (1,545)
Share-based payments (note 5) 10,705 11,558
Depreciation of property, plant and equipment (note 13) 75,386 73,779
Amortisation of intangible assets (note 12) 3,806 7,634
Depreciation of investment properties (note 14) 79 55
Amortisation of right-of-use assets 49,059 -
Amortisation of other non-current assets (note 15) - 343
-------------------------------------------------------- -------- --------
Auditor's remuneration 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
------------------------------------------------------- -------- --------
Fees payable for the audit of the financial statements
- Standard audit fees 171 167
- Additional audit work - 23
Fees payable for other services:
- Audit related services 27 27
-------------------------------------------------------- -------- --------
Total auditor's fees 198 217
-------------------------------------------------------- -------- --------
Analysis of continuing operations 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
----------------------------------------- ----------- -----------
Revenue 1,262,048 1,818,793
Cost of sales (1,217,521) (1,639,378)
----------------------------------------- ----------- -----------
Gross profit 44,527 179,415
Administration costs (40,764) (47,498)
----------------------------------------- ----------- -----------
Operating profit after exceptional items 3,763 131,917
----------------------------------------- ----------- -----------
Included within cost of sales is GBP449.2m (2019: GBP640.5m)
relating to cost of inventory recognised as expense.
3. Property gains and losses
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note 4) items items (note 4) items
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Disposals
Fixed assets 1,002 2,769 3,771 (4,650) 1,015 (3,635)
Leases (1,125) - (1,125) - - -
Additional costs of disposal 258 684 942 230 568 798
------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
135 3,453 3,588 (4,420) 1,583 (2,837)
Impairments
Property, plant and equipment (note
13) - 28,602 28,602 - 3,550 3,550
Intangible assets (note 12) - 10,699 10,699 - - -
Right-of-use assets - 4,722 4,722 - - -
Other assets (note 15) - - - - 145 145
------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
- 44,023 44,023 - 3,695 3,695
Other - - -
Onerous lease provision - - - - 1,762 1,762
Other property gains (619) - (619) (1,179) - (1,179)
------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
(619) - (619) (1,179) 1,762 583
Total property (gains)/losses (484) 47,476 46,992 (5,599) 7,040 1,441
------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
4. Exceptional items
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
-------------------------------------------- -------- --------
Operating exceptional items
Covid-19
Stock losses 5,862 -
Equipment 6,167 -
Staff costs 17,062 -
--------------------------------------------- -------- --------
29,091 -
Other
Gaming machine settlement (15,890) -
Total exceptional operating costs 13,201 -
--------------------------------------------- -------- --------
Exceptional property losses
Disposal programme
Loss on disposal of pubs 3,453 1,583
Impairment of property plant and equipment 4,698 1,298
Impairment of other non-current assets - 93
Onerous lease provision - 1,134
--------------------------------------------- -------- --------
8,151 4,108
Other property losses
Impairment of early stage development costs 1,290 -
Impairment of delayed projects 2,112 -
Impairment of trading pubs 25,224 2,304
Impairment of intangible assets 10,699 -
Onerous lease provision - 628
--------------------------------------------- -------- --------
39,325 2,932
Total exceptional property losses 47,476 7,040
--------------------------------------------- -------- --------
Exceptional tax
Impact of corporate tax rate change 4,252 -
Tax effect on exceptional items (5,885) (188)
--------------------------------------------- -------- --------
(1,633) (188)
Total exceptional items 59,044 6,852
--------------------------------------------- -------- --------
Covid-19
The company had recognised an exceptional charge of
GBP29,091,000 which included GBP5,862,000 for stock which perished,
GBP6,167,000 for personal protective equipment and hygiene products
and GBP17,062,000 on pub-based staff costs during the closure
period. The payments made to staff during this period are amounts
paid by the company to staff over and above the furlough grants
received and the costs of employing staff during preopening
training and pub-cleaning.
Assuming that the company would have been trading in a similar
manner in the second half of the year to that of the first,
the full impact of 'lockdown' on the company is estimated to be
GBP0.5 billion in lost sales, GBP152 million in lost profits and
a
GBP156-million reduction in free cash flow [1].
[1] Information on the impact of Covid-19 on the full-year
results is an estimate based on historic trends and does not form
part of the required reporting within these financial statements;
consequently, a review of these numbers does not form part of the
audit work completed by the company's auditor.
.
4. Exceptional items (continued)
Gaming machine settlement
The income of GBP15,890,000 related to a long-standing claim
with HMRC, relating to VAT on gaming machines. HMRC first paid the
company these monies in April 2010; following an appeal by HMRC,
the company paid back the original monies and an interest charge of
GBP997,000 in October 2013. During the financial year, HMRC agreed
to settle this amount with the company. The amount recognised is
the settlement value including interest less professional fees paid
by the company in support of
this case.
The company has requested that HMRC repay the interest of
GBP997,000 charged to the company between April 2010 and October
2013. As repayment of these monies is not certain, it has not been
recognised in the financial year ended 26 July 2020.
Disposal programme
The company has offered several of its sites for sale. At the
year end, a further eight (2019: eight) sites had been sold.
The company closed one pub in the year which fell outside of the
disposal programme's scope.
In the table above, the costs classified as loss on disposal are
the losses on sold sites and associated costs to sale.
Other property losses
The company has reviewed its approach to capitalising costs in
the early stages of a pub's development. In future, some initial
costs will be expensed to the income statement. A property
impairment charge of GBP1,290,000 relates to similar costs held on
the balance sheet at the start of the year. A further impairment
charge for early stage project costs of GBP2,112,000 related to
projects being delayed as a result of the current economic
environment following lockdown.
Property impairment relates to the situation in which, owing to
poor trading performance, pubs are unlikely to generate sufficient
cash flows in the future to justify their current book value. In
the year, an exceptional charge of GBP25,224,000 (2019:
GBP2,304,000) was incurred in respect of the impairment of assets
as required under IAS 36. This comprises an impairment charge of
GBP25,224,000 (2019: GBP2,304,000), offset by impairment reversals
of GBPNil (2019: GBPNil).
During the year, the company reviewed its accounting for the
development and implementation of information technology systems.
As a result of this review, it is the company's assessment that it
will not achieve the future economic benefit from some of these
assets, which it had previously anticipated. The impairment charge
of GBP9,540,000 reflects the company's view of future economic
benefits which will be achieved. An additional impairment charge of
GBP1,159,000 was made for the development and implementation of
information technology systems for projects which were delayed or
cancelled.
The exceptional items listed above generated a net cash outflow
of GBP10,575,000 (2019: outflow of GBP6,040,000).
Taxation
An exceptional tax credit of GBP5,885,000, relating to the
exceptional operating items, the impairment of right-of-use
assets
and a proportion of the impairment of intangible assets, has
been recognised.
During the year, the UK government has announced that
corporation tax rates will increase from 17% to 19%; this has
resulted in an increase in the company's deferred tax liabilities
of GBP4,252,000.
5. Employee benefits expenses
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
------------------------------------------------ --------- --------
Wages and salaries 565,032 568,758
Government grant (131,539) -
Social Security costs 31,710 35,783
Other pension costs 8,308 6,912
Share-based payments 10,705 11,558
------------------------------------------------ --------- --------
484,216 623,011
------------------------------------------------ --------- --------
Directors' emoluments 2020 2019
GBP000 GBP000
------------------------------------------------ --------- --------
Aggregate emoluments 1,547 1,858
Aggregate amount receivable under long-term
incentive schemes 173 515
Company contributions to money purchase pension
scheme 165 162
------------------------------------------------ --------- --------
1,885 2,535
------------------------------------------------ --------- --------
Government grants disclosed above are amounts claimed by the
company under the coronavirus job retention scheme.
5. Employee benefits expenses (continued)
The totals below relate to the monthly average number of
employees during the year, not the total number of employees at the
end of the year (including directors on a service contract).
2020 2019
Number Number
-------------------------- ------ ------
Full-time equivalents
Managerial/administration 4,696 4,442
Hourly paid staff 20,952 21,035
-------------------------- ------ ------
25,648 25,477
-------------------------- ------ ------
2020 2019
Number Number
Total employees
Managerial/administration 4,792 4,541
Hourly paid staff 38,427 37,358
-------------------------- ------ ------
43,219 41,899
-------------------------- ------ ------
The shares awarded as part of the above schemes are based on the
cash value of the bonuses at the date of the awards. These awards
vest over three years - with their cost spread equally over their
three-year life. The share-based payment charge above represents
the annual cost of bonuses awarded over the past three years. All
awards are settled in equity.
The company operates two share-based compensation plans. In both
schemes, the fair values of the shares granted are determined by
reference to the share price at the date of the award. The shares
vest at a GBPNil exercise price - and there are no market-based
conditions to the shares which affect their ability to vest.
Share-based payments 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
---------------------------------------------- -------- ---------
Shares awarded during the year (shares) 568,821 1,390,290
Average price of shares awarded (p) 1,542 1,313
Market value of shares vested during the year
(GBP000) 14,097 17,173
Total obligation of the share-based payments
scheme (GBP000) 14,999 16,259
---------------------------------------------- -------- ---------
6. Finance income and costs
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
------------------------------------------------ -------- --------
Finance costs
Interest payable on bank loans and overdrafts 21,292 21,089
Amortisation of bank loan issue costs (note 10) 1,541 925
Interest payable on swaps 14,522 12,705
Interest payable on asset-financing 503 379
Interest payable on private placement 2,909 -
------------------------------------------------ -------- --------
Finance costs, excluding lease interest 40,767 35,098
Interest payable on leases 21,980 -
------------------------------------------------ -------- --------
Total finance costs 62,747 35,098
Bank interest receivable (161) (41)
Lease interest receivable (451) -
------------------------------------------------ -------- --------
Total finance income (612) (41)
The finance costs in the income statement were covered 0.3 times
by earnings before interest, tax and exceptional items. On a
pre-IFRS 16 basis, the finance costs in the income statement were
covered 0.2 times (2019: 3.9 times) by earnings before interest,
tax and exceptional items.
7. Income tax expense
(a) Tax on profit on ordinary activities
The standard rate of corporation tax in the UK is 19.00%. The
company's profits for the accounting period are taxed at a rate of
19.00% (2019: 19.00%).
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note items
4) 4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Taken through income
statement
Current income tax:
Current income tax (credit)/charge (2,827) (7,502) (10,329) 23,406 (273) 23,133
Previous period adjustment 227 - 227 (922) - (922)
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total current income
tax (2,600) (7,502) (10,102) 22,484 (273) 22,211
Deferred tax:
Temporary differences (3,660) 1,617 (2,043) 2,174 85 2,259
Previous year deferred
tax charge/(credit) 90 - 90 (1,828) - (1,828)
Impact of change in
UK tax rate - 4,252 4,252 - - -
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total deferred tax (3,570) 5,869 2,299 346 85 431
Tax (credit)/charge (6,170) (1,633) (7,803) 22,830 (188) 22,642
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2019 2019 2019
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note items
4) 4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Taken through equity
Current tax (226) - (226) (514) - (514)
Deferred tax 423 - 423 5 - 5
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Tax charge/(credit) 197 - 197 (509) - (509)
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 28 July 28 July 28 July
2020 2020 2020 2019 2019 2019
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note items
4) 4)
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Taken through comprehensive
income
Deferred tax charge
on swaps (5,720) - (5,720) (4,243) - (4,243)
Impact of change in
UK tax rate (1,555) - (1,555) - - -
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Tax credit (7,275) - (7,275) (4,243) - (4,243)
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
7. Income tax expense (continued)
(b) Reconciliation of the total tax charge
The taxation charge for the 52 weeks ended 26 July 2020 is based
on the pre-exceptional profit before tax of GBP44.7m
and the estimated effective tax rate before exceptional items
for the 52 weeks ended 26 July 2020 of 13.8% (2019: 22.3%).
This comprises a pre-exceptional current tax rate of 5.8% (2019:
22.0%) and a pre-exceptional deferred tax charge of
8.0% (2019: 0.3% charge).
The UK standard weighted average tax rate for the period is
19.0% (2019: 19.0%). The current tax rate is higher than
the UK standard weighted average tax rate, owing mainly to
depreciation which is not eligible for tax relief.
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
26 July 26 July 28 July 28 July
2020 2020 2019 2019
Before After Before After
exceptional exceptional exceptional exceptional
items items items items
GBP000 GBP000 GBP000 GBP000
------------------------------------ ----------- ----------- ----------- -----------
(Loss)/profit before income
tax (44,687) (105,364) 102,459 95,419
Profit multiplied by the UK
standard rate of (8,491) (20,019) 19,467 18,130
corporation tax of 19.0% (2019:
19.0%)
Abortive acquisition costs and
disposals 6 6 85 85
Other disallowables 86 216 384 567
Other allowable deductions (35) (35) (111) (111)
Capital gains - effects of reliefs 603 603 (380) (295)
Non-qualifying depreciation 83 5,122 2,487 3,368
Deduction for shares and SIPs 622 622 (449) (449)
Remeasurement of other balance
sheet items (67) (67) (71) (71)
Unrecognised losses in overseas
companies 706 1,180 557 557
Unrecognised losses capital
losses - - 3,611 3,611
Adjust current year deferred
tax movement to 19.0% - 4,252 - -
Previous year adjustment - current
tax 227 227 (922) (922)
Previous year adjustment - deferred
tax 90 90 (1,828) (1,828)
------------------------------------ ----------- ----------- ----------- -----------
Total tax expense reported in
the income statement (6,170) (7,803) 22,830 22,642
------------------------------------ ----------- ----------- ----------- -----------
(c) Reconciliation of the total tax charge
Current tax liability/(asset)
--------------------------------- --------
GBP000
As at 29 July 2018 8,950
Charge to the income statement 22,211
Credited to equity (514)
Paid (19,661)
----------------------------------- --------
As at 28 July 2019 10,986
----------------------------------- --------
Credited to the income statement (10,102)
Credited to equity (226)
Paid (10,971)
----------------------------------- --------
As at 26 July 2020 (10,313)
----------------------------------- --------
7. Income tax expense (continued)
(d) Deferred tax
The deferred tax in the balance sheet is as follows:
The Finance Act 2020 maintained the main rate of corporation tax
rate at 19% from 1 April 2020, overriding the Finance Act 2017
which had reduced the main rate to 17% from that date. Deferred tax
balances at the year end have been recognised
at a corporation tax rate of 19% (2019: 17%).
Deferred tax liabilities Accelerated tax Other Total
depreciation temporary
differences
GBP000 GBP000 GBP000
------------------------------------------------------------ --------------- ------------- -------
At 28 July 2019 36,799 4,255 41,054
Previous year movement posted to the income statement 683 (593) 90
Movement during year posted to the income statement (5,077) 2,637 (2,440)
Impact of tax rate change posted to the income statement 3,812 440 4,252
--------------------------------------------------------------- --------------- ------------- -------
At 26 July 2020 36,217 6,739 42,956
--------------------------------------------------------------- --------------- ------------- -------
Deferred tax assets Share Interest-rate Total
based swaps
payments
GBP000 GBP000 GBP000
------------------------------------------------------------ --------------- ------------- -------
At 28 July 2019 1,638 8,342 9,980
Previous year movement posted to the income statement - - -
Movement during year posted to the income statement (397) - (397)
Movement during year posted to comprehensive income - 5,720 5,720
Movement during year posted to equity (423) - (423)
Impact of change in tax rate posted to comprehensive income - 1,555 1,555
--------------------------------------------------------------- --------------- -------------
At 26 July 2020 818 15,617 16,435
--------------------------------------------------------------- --------------- ------------- -------
The company has recognised deferred tax assets of GBP16.4m,
which it expected to offset against future profits.
Deferred tax assets and liabilities have been offset as
follows:
Other temporary differences of GBP6.7m include deferred tax of
GBP2.5m on the gaming machine settlement and GBP4.2m of
rolled-over property gains.
2020 2019
GBP000 GBP000
---------------------------------------- ------ -------
Deferred tax liabilities 42,956 41,054
Offset against deferred tax assets (818) (1,638)
----------------------------------------- ------ -------
Deferred tax liabilities 42,138 39,416
------------------------------------------- ------ -------
Deferred tax assets 16,435 9,980
Offset against deferred tax liabilities (818) (1,638)
----------------------------------------- ------ -------
Deferred tax asset 15,617 8,342
------------------------------------------- ------ -------
As at 26 July 2020, the company had a potential deferred tax
asset of GBP4.9m (2019: GBP3.6m), relating to capital losses.
8. Earnings and free cash flow per share
(a) Weighted average number of shares
Earnings per share are based on the weighted average number of
shares in issue of 108,550,647 (2019: 105,439,345), including those
held in trust in respect of employee share schemes. Earnings per
share, calculated on this basis, are usually referred to as
'diluted', since all of the shares in issue are included.
Accounting standards refer to 'basic earnings' per share - these
exclude those shares held in trust in respect of employee share
schemes.
During a period where a company makes a loss, accounting
standards require that 'dilutive' shares - for the company, those
held in trust in respect of employee share schemes - not be
included in the earning per share calculation, because they will
reduce the reported loss per share; consequently, all per-share
measures in the current period are based on the number of shares in
issue less shares held in trust of 106,554,289.
Weighted average number of shares 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
--------------------------------------------------------------- ----------- -----------
Shares in issue (used for diluted EPS) 108,550,647 105,439,345
Shares held in trust (1,996,358) (2,313,464)
--------------------------------------------------------------- ----------- -----------
Shares in issue less shares held in trust (used for basic EPS) 106,554,289 103,125,881
--------------------------------------------------------------- ----------- -----------
The weighted average number of shares held in trust for employee
share schemes has been adjusted to exclude those shares which have
vested, yet remain in trust.
(b) Earnings per share
52 weeks ended 26 July 2020 Profit Basic EPS Diluted EPS
GBP000 pence pence
---------------------------------------------- -------- --------- -----------
Earnings (loss after tax) (97,561) (89.9) (89.9)
Exclude effect of exceptional items after tax 59,044 54.4 54.4
---------------------------------------------- -------- --------- -----------
Earnings before exceptional items (38,517) (35.5) (35.5)
Exclude effect of property gains (484) (0.4) (0.4)
---------------------------------------------- -------- --------- -----------
Underlying earnings before exceptional items (39,001) (35.9) (35.9)
---------------------------------------------- -------- --------- -----------
52 weeks ended 26 July 2020 - pre IFRS 16 Profit Basic EPS Diluted EPS
----------------------------------------------
GBP000 pence pence
---------------------------------------------- -------- --------- -----------
Earnings (loss after tax) (89,610) (82.6) (82.6)
Exclude effect of exceptional items after tax 59,673 55.0 55.0
---------------------------------------------- -------- --------- -----------
Earnings before exceptional items (29,937) (27.6) (27.6)
Exclude effect of property losses 641 0.6 0.6
---------------------------------------------- -------- --------- -----------
Underlying earnings before exceptional items (29,296) (27.0) (27.0)
---------------------------------------------- -------- --------- -----------
52 weeks ended 28 July 2019 Profit Basic EPS Diluted EPS
GBP000 pence pence
--------------------------------------- ------- --------- -----------
Earnings (profit after tax) 72,777 70.6 69.0
Exclude effect of exceptional items
after tax 6,852 6.6 6.5
--------------------------------------- ------- --------- -----------
Earnings before exceptional items 79,629 77.2 75.5
Exclude effect of property gains (5,599) (5.4) (5.3)
--------------------------------------- ------- --------- -----------
Underlying earnings before exceptional
items 74,030 71.8 70.2
--------------------------------------- ------- --------- -----------
The diluted earnings per share before exceptional items have
decreased by 138.5% (2019: decreased by 4.7%).
9. Earnings and free cash flow per share (continued)
(c) Free cash flow per share
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 current pubs, after
funding interest, corporation tax, operating lease principal
payments, loan issue costs, 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, inflows
and outflows of financing from outside sources and dividend
payments and is based on the weighted average number of shares in
issue, including those held in trust in respect of the employee
share schemes.
Free cash Basic free Diluted
free
flow cash flow cash flow
per share per share
GBP000 pence pence
---------------------------- --------- ---------- ---------
52 weeks ended 26 July 2020 (58,852) (54.2) (54.2)
52 weeks ended 28 July 2019 96,998 94.1 92.0
---------------------------- --------- ---------- ---------
(d) Owners' earnings per share
Owners' earnings measure the earnings attributable to
shareholders from current activities adjusted for significant
non-cash items and one-off items. Owners' earnings are calculated
as profit before tax, exceptional items, depreciation and
amortisation and property gains and losses less reinvestment in
current properties and cash tax. Cash tax is defined as the current
year's current tax charge.
52 weeks ended 26 July 2020 Owners' Basic Diluted
Earnings Owners' Owners'
EPS EPS
GBP000 pence pence
---------------------------------------- -------- ------- -------
Loss before tax and exceptional items
(income statement) [1] (34,095) (32.0) (31.4)
Exclude depreciation and amortisation
(note 2) 79,271 74.4 73.0
Exclude amortised on other fixed assets
[2] 368 0.3 0.3
Less reinvestment in current properties 32,062 30.1 29.6
Exclude property losses (note 3) 641 0.6 0.6
Less accelerated tax relief on leases
[3] (2,012) (1.9) (1.9)
Less cash tax (note 7) 2,827 2.7 2.7
---------------------------------------- -------- ------- -------
Owners' earnings 79,062 74.2 72.8
---------------------------------------- -------- ------- -------
52 weeks ended 28 July 2019 Owners' Basic Diluted
Earnings Owners' Owners'
EPS EPS
GBP000 pence pence
---------------------------------------- -------- ------- -------
Profit before tax and exceptional items
(income statement) 102,459 99.4 97.2
Exclude depreciation and amortisation
(note 2) 81,811 79.3 77.6
Less reinvestment in current properties (55,239) (53.6) (52.4)
Exclude property gains (note 3) (5,599) (5.4) (5.3)
Less cash tax (note 7) (23,406) (22.7) (22.2)
---------------------------------------- -------- ------- -------
Owners' earnings 100,026 97.0 94.9
---------------------------------------- -------- ------- -------
The diluted owners' earnings per share decreased by 23.3% (2019:
increased by 6.0%).
As the company made an owners' earnings profit in the period,
the 'diluted' owners'-earnings-per-share calculation includes
shares held in trust, as their inclusion would not have an
'antidilutive' effect.
[1] Loss pre-IFRS 16.
[2] Being the amortisation of other fixed assets which would
have been charged, if IFRS 16 were not adopted.
[3] Being the accelerated tax relief received on leases as a
result of the introduction of IFRS 1
8. Earnings and free cash flow per share (continued)
Analysis of additions by type 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
---------------------------------------------- -------- --------
Reinvestment in existing pubs 32,062 55,239
Investment in new pubs and pub extensions 41,047 35,172
Freehold reversions and investment properties 98,463 77,207
----------------------------------------------- -------- --------
171,572 167,618
---------------------------------------------- -------- --------
Analysis of additions by category 52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
---------------------------------------------- -------- --------
Property, plant and equipment (note 13) 164,450 161,242
Intangible assets (note 12) 1,047 5,925
Investment properties (note 14) 6,075 -
Other non-current assets (note 15) - 451
----------------------------------------------- -------- --------
171,572 167,618
---------------------------------------------- -------- --------
(e) Operating profit per share
Operating Basic operating Diluted
operating
profit profit profit
per share per share
GBP000 pence pence
---------------------------- --------- --------------- ----------
52 weeks ended 26 July 2020
before exceptional items 16,964 15.5 15.8
Impact of exceptional items (13,201) (12.3) (12.3)
52 weeks ended 26 July 2020
after exceptional items 3,763 3.4 3.4
52 weeks ended 28 July 2019 131,917 127.9 125.1
---------------------------- --------- --------------- ----------
As the company made an operating profit in the period the
'diluted' operating profit per shares includes shares in held in
trusts as the inclusion of these share would not have an
'anti-dilutive' effect.
9. Cash generated from operations
52 weeks* 52 weeks 52 weeks
ended ended ended
26 July 26 July 28 July
2020 2020 2019
GBP000 GBP000 GBP000
----------------------------------------- --------- --------
(Loss)/profit for the period (89,610) (97,561) 72,777
Adjusted for:
Tax (note 7) (5,162) (7,803) 22,642
Share-based charges (note 2) 10,705 10,705 11,558
Loss/(gain) on disposal of property,
plant and equipment (note 3) 3,771 3,771 (3,635)
Disposal of capitalised leases (note
3) - (1,125) -
Net onerous lease provision (note 3) 1,411 - 1,762
Net impairment charge (note 3) 42,612 44,023 3,695
Interest receivable (note 6) (161) (161) (41)
Interest payable (note 6) 39,226 39,226 34,173
Lease interest receivable (note 6) - (451) -
Lease interest payable (note 6) - 21,980 -
Amortisation of bank loan issue costs
(note 6) 1,541 1,541 925
Depreciation of property, plant and
equipment (note 13) 75,386 75,386 73,779
Amortisation of intangible assets (note
12) 3,806 3,806 7,634
Depreciation on investment properties
(note 14) 79 79 55
Amortisation of other non-current assets
(note 15) 368 - 343
Aborted properties costs 33 33 430
Amortisation of right-of-use assets - 49,059 -
84,005 142,508 226,097
Change in inventories 622 622 (417)
Change in receivables (21,263) (17,052) 1,228
Change in payables (24,646) (50,413) 268
Cash flow from operating activities 38,718 75,665 227,176
*This column shows the cash generated from operations as it
would have been reported, before the introduction of IFRS 16.
The amount of GBP38,718,000 shown is presented at the start of
the pre-IFRS 16 cash flow presented within the
primary statements.
The difference of GBP36,947,000 between the cash flow from
operating activities of GBP75,665,000 and the pre-IFRS 16
number
of GBP38,718,000 shown in the table below.
26 July
2020
GBP000
--------
Cash flow from operating activities 75,665
Lease liability payments made (38,330)
Lease assets payments received 1,383
--------
Cash flow from operating activities - pre-IFRS 16 38,718
--------
10. Analysis of change in net debt
28 July IFRS 16 Cash Non-cash 26 July
2019 migration flows movement 2020
GBP000 GBP000 GBP000 GBP000 GBP000
Borrowings
Cash and cash equivalents 42,950 - 131,501 - 174,451
Asset-financing creditor - due before one year (3,287) - (13,250) 8,927 (7,610)
Current net borrowings 39,663 - 118,251 8,927 166,841
Bank loans - due after one year (770,076) - (98,998) (1,498) (870,572)
Asset-financing creditor - due after one year (6,607) - - (8,927) (15,534)
Private placement - due after one year - - (97,679) (43) (97,722)
Non-current net borrowings (776,683) - (196,677) (10,468) (983,828)
Net debt (737,020) - (78,426) (1,541) (816,987)
Derivatives
Interest-rate swaps asset - due after one year 321 - - (321) -
Interest-rate swaps liability - due after one year (49,393) - - (32,801) (82,194)
Total derivatives (49,072) - - (33,122) (82,194)
Net debt after derivatives (786,092) - (78,426) (34,663) (899,181)
Leases
Lease assets - due before one year - 1,583 (1,056) 1,209 1,736
Lease assets - due after one year - 11,853 - (738) 11,115
Lease obligations - due before one year - (61,252) 19,923 (24,014) (65,343)
Lease obligations - due after one year - (570,052) - 80,664 (489,388)
Net lease liabilities - (617,868) 18,867 57,121 (541,880)
Net debt after derivatives and lease liabilities (786,092) (617,868) (59,559) 22,458 (1,441,061)
The cash movement on the private placement of GBP97,679,000 is
disclosed in the cash flow statement as an advance under private
placement of GBP98,000,000 and a cash payment of loan issue costs
of GBP321,000.
The cash movement on the bank loans of GBP98,998,000 is
disclosed in the cash flow statement as an advance under bank
loans
of GBP100,000,000 and a cash payment of loan issue costs of
GBP1,002,000. Total loan issue costs of GBP1,323,000 are disclosed
in the cash flow statement.
The cash movement on asset- financing of GBP13,250,000 is
disclosed in the cash flow statement as an advance under
asset-financing of GBP16,152,000 and principal payments of
GBP2,902,000.
Non-cash movements
The non-cash movement in bank loans and the private placement
relate to the amortisation of loan issue costs.
The amortised charge for the year of GBP1,541,000 is disclosed
in note 6. These are upfront payments made to obtain new
borrowings. These costs are charged to the income statement over
the expected life of the loan. The movement in interest-rate swaps
relates to the change in the 'mark to market' valuations for the
year.
10. Analysis of change in net debt (continued)
The migration movement of GBP617,868,000 is the recognition of
the lease liability of GBP631,304,000 and the lease asset of
GBP13,436,000 on adoption of IFRS 16. The non-cash movement in
lease liabilities is analysed in the table below.
Non-cash movement in net lease liabilities 26 July
2020
GBP000
Recognition of new leases (27,361)
Remeasurements of existing leases liabilities (7,207)
Remeasurements of existing leases assets 471
Disposal of lease 85,115
Cancelled principal payments 6,127
Exchange differences (24)
Non-cash movement in net lease liabilities 57,121
The table below calculated a ratio between net debt, being
borrowings less cash and cash equivalents, and earnings before
interest, tax and depreciation (EBITDA). The numbers in this table
are all before the effect of IFRS 16.
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
-------- --------
Profit before tax (income
statement) (34,095) 102,459
Interest (note 6) 40,606 35,057
Depreciation 79,639 81,811
-------- --------
Earnings before interest, tax and
depreciation (EBITDA) 86,150 219,327
--------
Net debt/EBITDA 9.48 3.36
-------- --------
The depreciation charge in the table above of GBP79,639,000
comprises the non-lease depreciation and amortisation charges
disclosed in note 2 of GBP79,271,000 and the amortisation of
GBP368,000 which would have been charged on other non-current
assets, had IFRS 16 not been implemented.
11. Dividends paid and proposed
52 weeks 52 weeks
ended ended
26 July 28 July
2020 2019
GBP000 GBP000
-------------------------------------------------- -------- --------
Declared and paid during the year:
Dividends on ordinary shares:
- final for 2017/18: 8.0p (2016/17: 8.0p) - 8,435
- interim for 2018/19: 4.0p (2017/18: 4.0p) - 4,217
- final for 2018/19: 8.0p (2017/18: 8.0p) 8,371 -
8,371 12,652
Proposed for approval by shareholders at the AGM:
- final for 2019/20: 8.0p (2018/19: 8.0p) - 8,397
- 8,397
Dividend per share (p) 8 12
Dividend cover - 5.8
Dividend cover is calculated as profit after tax and exceptional
items over dividend paid. Dividend cover has not been shown for the
current year, as the company reported a loss in the year.
12. Intangible assets
Computer Assets Total
software under
and
development construction
GBP000 GBP000 GBP000
Cost:
At 29 July 2018 66,944 1,799 68,743
Additions 1,733 4,192 5,925
Transfers 1,562 (1,562) -
Disposals (22) - (22)
At 28 July 2019 70,217 4,429 74,646
Additions 466 581 1,047
Transfers 4,206 (4,206) -
Disposals (41,472) - (41,472)
At 26 July 2020 33,417 804 34,221
Accumulated amortisation:
At 29 July 2018 (43,964) - (43,964)
Provided during the period (7,634) - (7,634)
Disposals 22 - 22
At 28 July 2019 (51,576) - (51,576)
Provided during the period (3,806) - (3,806)
Impairment loss (10,699) - (10,699)
Disposals 40,755 - 40,755
At 26 July 2020 (25,326) - (25,326)
Net book amount at 26 July
2020 8,091 804 8,895
Net book amount at
28 July 2019 18,641 4,429 23,070
Net book amount at
29 July 2018 22,980 1,799 24,779
The majority of intangible assets relates to computer software
and software development. Examples include the development costs of
our SAP accounting system, our 'Wisdom' property-maintenance system
and the 'Wetherspoon app'.
13. Property, plant and equipment
Freehold Short- Equipment, Assets Total
and
long-leasehold leasehold fixtures under
property property and fittings construction
GBP000 GBP000 GBP000 GBP000 GBP000
Cost:
At 29 July 2018 1,110,875 356,160 617,800 54,202 2,139,037
Additions 75,547 2,429 38,214 45,052 161,242
Transfers from investment
property 1,984 - - - 1,984
Transfers 23,689 1,492 5,316 (30,497) -
Exchange differences 226 22 90 294 632
Transfer to held for
sale (5,076) - (810) - (5,886)
Disposals (7,605) (3,412) (4,349) - (15,366)
Reclassification 29,532 (29,532) - - -
At 28 July 2019 1,229,172 327,159 656,261 69,051 2,281,643
Additions 97,419 2,464 24,608 39,959 164,450
Transfers 11,804 1,675 9,412 (22,891) -
Exchange differences 685 39 120 505 1,349
Disposals (6,012) (6,290) (5,669) - (17,971)
Reclassification 30,038 (30,038) - - -
At 26 July 2020 1,363,106 295,009 684,732 86,624 2,429,471
Accumulated depreciation and impairment:
At 29 July 2018 (222,037) (184,575) (426,352) - (832,964)
Provided during the period (18,271) (11,733) (43,775) - (73,779)
Transfers from investment
property (76) - - - (76)
Exchange differences (45) (18) (117) - (180)
Impairment loss (1,326) (1,404) (820) - (3,550)
Transfer to held for
sale 2,063 - 677 - 2,740
Disposals 3,648 3,497 3,992 - 11,137
Reclassification (17,781) 17,781 - - -
At 28 July 2019 (253,825) (176,452) (466,395) - (896,672)
Provided during the period (19,675) (10,826) (44,885) - (75,386)
Exchange differences (47) (77) (162) - (286)
Impairment loss (17,631) (4,122) (6,849) - (28,602)
Disposals 2,051 6,298 5,904 - 14,253
Reclassification (18,170) 18,170 - - -
At 26 July 2020 (307,297) (167,009) (512,387) - (986,693)
Net book amount at 26 July
2020 1,055,809 128,000 172,345 86,624 1,442,778
Net book amount at
28 July 2019 975,347 150,707 189,866 69,051 1,384,971
Net book amount at
29 July 2018 888,838 171,585 191,448 54,202 1,306,073
Impairment of property, plant and equipment
In assessing whether a pub has been impaired, the book value of
the pub is compared with its anticipated future cash flows and fair
value. Assumptions are used about sales, costs and profit, using a
pre-tax discount rate for future years of 8% (2019: 7%).
If the value, based on the higher of future anticipated cash
flows and fair value, is lower than the book value, the
difference
is written off as property impairment.
As a result of this exercise, a net impairment loss of GBP
28,602,000 (2019: GBP3,550,000) was charged to property
losses in the income statement, as described in note 4. The
assets impaired in the year had a recoverable value of
GBP24,700,000 at year end. In the period depreciation was
GBP961,000 lower due historic impairment charges. At the period
end, an impairment provision of GBP44,058,000 in carried in
relation to property, plant and equipment.
14. Investment property
The company owns three (2019: one) freehold properties with
existing tenants - and these assets have been classified
as investment properties. During this year, the company has
purchased a further two investment properties.
GBP000
Cost:
At 29 July 2018 7,751
Transfer to property, plant and equipment (1,984)
At 28 July 2019 5,767
Additions 6,075
At 26 July 2020 11,842
Accumulated amortisation:
At 29 July 2018 (257)
Provided during the period (55)
Transfer to property, plant and equipment 76
At 28 July 2019 (236)
Provided during the period (79)
At 26 July 2020 (315)
Net book amount at 26 July 2020 11,527
Net book amount at 28 July 2019 5,531
Net book amount at 29 July 2018 7,494
Rental income received in the period from investment properties
was GBP 641,000 (2019: GBP 310,000 ).
Operating costs, excluding depreciation, incurred in relation to
these properties amounted to GBP38 ,000 (2019: GBP 8,000 ).
In the opinion of the directors, the fair value of the
investment properties is approximately GBP12,000,000.
15. Other non-current assets
GBP000
Cost:
At 29 July 2018 12,727
Additions 451
Disposals (75)
At 28 July 2019 13,103
Transfers to right-of-use asset (13,103)
At 26 July 2020 -
Accumulated depreciation and impairment:
At 29 July 2018 (4,802)
Provided during the period (343)
Impairment loss (145)
Disposals 75
At 28 July 2019 (5,215)
Transfers to right-of-use asset 5,215
At 26 July 2020 -
Net book amount at 26 July 2020 -
Net book amount at 28 July 2019 7,888
Net book amount at 29 July 2018 7,925
16. Going concern
The directors have made enquiries into the adequacy of the
Company's financial resources, through a review of the Company's
budget and medium-term financial plan, including capital
expenditure plans and cash flow forecasts.
The Company has modelled a range of scenarios, with the base
forecast being one in which, over the next 12 months, sales recover
gradually to preCovid levels. In addition, the directors have
considered several 'downside' scenarios, including adjustments to
the base forecast, a period of significantly lower like-for-like
sales, regional pub closures for a prolonged time period and the
possibility of another national temporary closure ('lockdown') of
all of its pubs.
The directors are satisfied that the Company has sufficient
liquidity to withstand adjustments to the base forecast, as well as
the downside scenarios. The length of the liquidity period, in
relation to each outcome, depends on those actions which the
Company chooses to take (eg the extent to which cash expenditure is
reduced) and also on the level of government financial support (eg
reduced business rates) which the Company might receive.
In addition, the directors have noted the range of possible
additional liquidity options available to the Company, should they
be required.
Material uncertainty, which may cast significant doubt over the
Company's ability to trade as a going concern, has resulted from
the impact of the Covid-19 virus on the economy and the hospitality
industry. It is not clear when the current operating restrictions,
such as social distancing measures and reduced pub opening times,
will return to 'normal' preCovid levels.
The Company has agreed with its lenders to replace existing
financial covenant tests with a minimum liquidity covenant for the
period up to and including July 2021. There is material uncertainty
beyond this date as to whether financial covenant tests will be
satisfied or whether further waivers will be agreed on by lenders.
The Company will remain in regular dialogue with its lenders
throughout the period.
As a result, the directors have satisfied themselves that the
Company will continue in operational existence for the foreseeable
future. For this reason, the Company continues to adopt the
going-concern basis in preparing its financial statements.
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END
FR EAEEKFEPEFEA
(END) Dow Jones Newswires
October 16, 2020 02:00 ET (06:00 GMT)
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