Wetherspoon achieved record sales, profit and earnings per share last year, and points out that although margins were 8.7% against 9.0% the previous year, profits nonetheless have increased as new business develops (for example, breakfast and coffee sales).
Food revenue has now reached 32.9% and continues to grow (by 10.9% in the last year), though it varies widely from pub to pub: from over 70% to from 20% to 30% in some London pubs. It is noticeable that, though students are using pubs less – part of a general and significant trend amongst 18 to 25 year olds exacerbated by the continuing availability of cheap alcohol in supermarkets – they are taking advantage of the value food offerings available in Wetherspoon outlets.
Commenting on the preliminary results for the 52 weeks to 28 July 2013, Tim Martin, the chairman of J D Wetherspoon plc, said:
“I am pleased to report another year of progress, with record sales, profit* and earnings per share*, despite having paid £551.5m in taxes during the year (equivalent to £632,000 per pub) and rewarding staff with £28.6m of bonuses. Our post-tax profit* increased by £7.9m, yet our taxes paid increased by £32.2m.
“It is unsustainable to have far higher taxes for the pub industry than those for supermarkets. Already, 10,000 pubs have closed and many others are suffering, through insufficient investment. In particular, there should be VAT equality for pubs, restaurants and supermarkets. Wetherspoon, along with many other pub and restaurant groups, is supporting Jacques Borel’s VAT Club on Tax Parity Day (Wednesday 25 September) – and we will offer a one-day 7.5% reduction in our prices, to publicise this inequality.
“In the year, we successfully concluded the long-running series of legal cases, following the successful Van de Berg judgment, receiving out-of-court settlements of £1.25m from Anthony Lyons, formerly of Davis Coffer Lyons, and £400,000 from Jason Harris, formerly of First London. Both Mr Lyons and Mr Harris denied liability – and the cases were contested.
“In the six weeks to 8 September 2013, like-for-like sales increased by 3.6%. In the last fortnight, like- for-like sales were 2.5% – and this level may be an indicator for future sales growth. Overall, the company is aiming for a reasonable outcome in the current financial year.”
Financial Highlights
*Pre-exceptional items
Like-for-like sales, on a 52-week basis, increased by 5.8%, with total sales of £1,280.9 million for the 52 weeks, increasing by 7.0%, compared with the 53-week period in the previous year (2012: 11.7%). Like-for-like bar sales increased by 3.8% (2012: 2.8%), food sales by 10.9% (2012: 4.8%) and machine sales by 0.4% (2012: decreased by 2.8%).
Operating profit before exceptional items increased by 3.7% to £111.3 million (2012: £107.3 million) and, after exceptional items, decreased by 2.5% to £91.5 million (2012: £93.8 million). The operating margin, before exceptional items, decreased to 8.7% (2012: 9.0%), mainly as a result of increases in taxation, utilities and bar and food costs. The operating margin after exceptional items was 7.1% (2012: 7.8%).
Profit before tax and exceptional items increased by 6.3% to £76.9 million (2012: £72.4 million) and, after exceptional items, decreased by 3.0% to £57.1 million (2012: £58.9 million).
Earnings per share (which exclude shares held in trust by the employee share scheme) before exceptional items increased by 13.3% to 46.8p (2012: 41.3p). Basic earnings on the same basis after exceptional items increased by 7.6% to 38.3p (2012: 35.6p).
Total capital investment was £101.8 million in the period (2012: £120.6 million), with £60.9 million on new pub openings (2012: £75.4 million) and £40.9 million on existing pubs and IT infrastructure (2012: £45.2 million).
Exceptional items before tax totalled £19.8 million (2012: £13.5 million), £0.2 million of which resulted in the expenditure of cash. The exceptional items relate to the impairment of trading pub assets of £15.6 million (2012: £7.8 million), a provision for onerous leases of £3.3 million (2012: £2.2 million) and a loss on the disposal of property, plant and equipment of £1.0 million (2012: £1.1 million). The total provision for impairment and onerous leases is now £47.6 million, compared with the original cost of our assets of £1.58 billion.
Property
The company opened 29 pubs during the year, with three pubs sold, resulting in a total estate of 886 pubs at the financial year end. The average development cost for a new pub (excluding the cost of freeholds) was £1.55 million, compared with £1.42 million a year ago. There was continued increased expenditure on kitchens, customer areas and beer gardens. The full-year depreciation charge was £53.1 million (2012: £49.2 million).
Wetherspoon currently intends to open around 30 pubs in the year ending July 2014.
Further progress
During the year, the catering team upgraded many items on the menu and introduced several new items which, together, helped to produce strong like-for-like sales growth. As regards bar sales, in the face of fierce competition from supermarkets, record volumes of traditional ales and ciders were achieved. Attracting and retaining the best employees is key to future success: bonuses and free shares totalling £28.6 million, which amounts to 37% of profits before tax, were paid to employees. About 83% of this sum was paid to employees working in the pubs, with just over half being paid to the pub management team and the remainder being paid to hourly paid staff.
General tax matters
As Wetherspoon has pointed out in previous years, they believe that pubs are taxed excessively and that the government would create more jobs and receive higher levels of overall revenue, if it were to create tax parity among supermarkets, pubs and restaurants. Supermarkets pay virtually no VAT in respect of food sales, whereas pubs pay 20% – and this disparity enables supermarkets to subsidise their alcoholic drinks sales to the detriment of pubs and, indeed, restaurants. This serious economic disadvantage has contributed to the closure of many thousands of pubs, and the pub industry has lost approximately 50% of its beer sales to supermarkets since VAT was increased from 8% over 30 years ago.
This does not make economic sense for the government, since pubs create far more jobs per meal or per pint than supermarkets, for reasons which are self-evident. They also pay far more taxes per pint or per meal than supermarkets, and this would remain the case even if VAT levels were reduced in pubs. It cannot make sense for any government to perpetuate a tax advantage for supermarkets in this context.
A main consequence of the tax disparity between supermarkets and pubs is that pubs in the less- well-off areas of the country suffer most, as do the residents and local authorities in those areas, who are deprived of the facilities and, to an extent, the income from taxes they would otherwise receive. This is because customers in less-well-off areas are more sensitive, as a matter of common sense, to the price differential which is created by the current tax régime. As a result, they inevitably end up using supermarkets more and pubs less. The results are evident to see, with large numbers of pubs closing in less-affluent areas, with undesirable social and economic consequences in the majority of the country. In affluent areas, the price differential between pubs and supermarkets is less acutely felt, although still important for a considerable percentage of those living in these areas.
Wetherspoon is happy to pay its share of tax and, in this respect, is a major contributor to the economy. In the year under review, total taxes of £551.5 million were paid, an increase of £32.2 million compared with the previous year, which equates to approximately 43% of sales.