TIDMJDW
RNS Number : 7528Y
Wetherspoon (JD) PLC
11 September 2015
11 September 2015
J D WETHERSPOON PLC
PRELIMINARY RESULTS
(For the 52 weeks ended 26 July 2015)
FINANCIAL HIGHLIGHTS
Before exceptional items
Revenue GBP1,513.9m (2014: GBP1,409.3m) +7.4%
Like-for-like sales +3.3%
Profit before tax GBP77.8m (2014: GBP79.4m) -2.0%
Earnings per share (including shares held Maintained
in trust) 47.0p (2014: 47.0p)
Free cash flow per share 89.8p (2014: +21.2%
74.1p)
Full year dividend 12.0p (2014: 12.0p) Maintained
After exceptional items*
Profit before tax GBP58.7m (2014: GBP78.4m) -25.1%
Earnings per share (including shares +11.9%
held in trust) 36.7p (2014: 32.8p)
* Exceptional items as disclosed in account note 5.
Commenting on the results, Tim Martin, the Chairman of J D
Wetherspoon plc, said:
"I am pleased to report a year of progress for the company, with
record sales and free cash flow.
"As we have previously stated, we 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
equality 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 restaurants.
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, we
paid total taxes of GBP632.4m, an increase of GBP32.2m, compared
with the previous year, which equates to approximately 41.8% of our
sales. This equates to an average payment per pub of GBP673,000 per
annum or GBP12,900 per week.
"Jacques Borel, who has campaigned successfully for lower VAT
for bars and restaurants in many other countries, has also been
campaigning in this country. A large number of companies have
supported his campaign, including Heineken, Pizza Hut, Fuller's and
St Austell, among others. It is disappointing to note that some of
the biggest pub companies, including Enterprise Inns, Mitchells and
Butlers, Greene King and Marston's have failed to support Jacques'
campaign and have not campaigned themselves in any meaningful way
for VAT equality between pubs and supermarkets. Pubs have lost 50%
of their beer sales to supermarkets in the last 35 years (including
many pubs owned by these companies), as VAT has climbed from 8% to
20 %. In this connection, in my opinion, the trade newspaper, the
Publican Morning Advertiser, has entirely lost its legitimacy as a
mouthpiece for individual licensees.
"The limitations of corporate governance systems should be
recognised. Common sense, management skills and business savvy are
more important to commercial success than board structures. All the
major banks and many supermarket and pub companies have recently
suffered colossal business and financial problems, in spite of, or
perhaps because of, their adherence to governance guidelines.
"Wetherspoon increased the minimum hourly rate for staff by 5%
in October 2014 and by a further 8% at the end of July 2015. Both
decisions were taken without the knowledge that the government was
about to announce a new minimum wage, now called a "the living
wage". In addition, as Wetherspoon shareholders are aware, we pay
about 40% of our profits (GBP30.7m in the year under review) as a
bonus or free shares, over 80% of which is paid to people who work
in our pubs. By pushing up the cost of wages by a large factor, the
government is inevitably putting financial pressure on pubs, many
of which have already closed. This financial pressure will be felt
most strongly in areas which are less affluent, since the price
differential in those areas between pubs and supermarkets is far
more important to customers.
"We continue to run the world's biggest real-ale festival, twice
per annum, and have added a cider festival in recent times,
featuring a wide variety of suppliers from the UK, Europe and
elsewhere in the world. Wetherspoon sells far more beers and ciders
from craft and micro-brewers throughout the year than any other pub
company.
"In the six weeks to 6 September 2015, like-for-like sales
increased by 1.4%, with total sales increasing by 5.2%.
"As previously stated on 15 July 2015, a number of factors
likely to influence our trading performance this financial year are
difficult to quantify at this early stage. Positive aspects include
an increase in pub numbers, a better economy and slightly lower
interest rates; less favourable aspects include heightened
competition from supermarkets and restaurant groups and increased
staff, repairs, bar and food costs. We continue to anticipate a
trading performance similar to, or slightly above, that achieved in
the last financial year."
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
CHAIRMAN'S STATEMENT
Financial performance
I am pleased to report a year of progress for the company, with record sales and free cash
flow. The company was founded in 1979 - and this is the 32nd year since incorporation in 1983.
The table below outlines some key aspects of our performance during that period. Since our
flotation in 1992, earnings per share before exceptional items have grown by an average of
15.0% per annum and free cash flow per share by an average of 17.7%.
Summary accounts for the years ended July 1984 to 2015
Financial Total sales Profit/(loss) Earnings per share Free cash flow Free cash flow per
year before tax and before exceptional share
exceptional items items
GBP000 GBP000 pence GBP000 pence
---------- ----------- --------------------- -------------------- -------------- ---------------------
1984 818 (7) 0.0
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 47.0 109,777 89.8
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.
(MORE TO FOLLOW) Dow Jones Newswires
September 11, 2015 02:00 ET (06:00 GMT)
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.
Like-for-like sales increased by 3.3% (2014: 5.5%), with total
sales of GBP1,513.9m, an increase of 7.4% (2014: 10.0%).
Like-for-like bar sales increased by 1.2% (2014: 2.7%), food sales
by 7.3% (2014: 12.0%) and slot/fruit machine sales decreased by
2.8% (2014: decreased by 3.1%).
Operating profit before exceptional items decreased by 3.8% to
GBP112.5m (2014: GBP117.0m). The operating margin, before
exceptional items, decreased to 7.4% (2014: 8.3%), mainly as a
result of a lower gross margin and increases in staff costs,
utilities and depreciation.
Profit before tax and exceptional items decreased by 2.0% to
GBP77.8m (2014: GBP79.4m). Earnings per share (including shares
held in trust by the employee share scheme), before exceptional
items, were 47.0p (2014: 47.0p).
Net interest was covered 3.3 times by operating profit before
exceptional items (2014: 3.2 times). Total capital investment was
GBP173.3m in the period (2014: GBP177.5m), with GBP106.3m invested
in new pubs and extensions to existing pubs (2014: GBP97.7m). In
addition, there was expenditure of GBP44.8m on existing pubs and IT
infrastructure (2014: GBP56.2m) and GBP21.6m on freehold
reversions, where Wetherspoon was already a tenant, and investment
properties (2014: GBP23.6m).
Exceptional items totalled GBP12.6m (2014: GBP17.7m). An
exceptional charge of GBP5.2m resulted from a change in our
accounting policy regarding non-consumable inventories, including
crockery, glassware and cutlery. These items were previously
regarded as part of our year end stock-in-hand; we have now decided
to expense these when received by the pubs. An impairment charge of
GBP11.2m was realised in respect of underperforming pubs and a
charge of GBP1.9m was incurred in relation to onerous leases. A
charge of GBP0.8m resulted from a restructuring of our head office.
The total cash effect of these exceptional items was GBP0.8m. These
exceptional items led to an exceptional tax deduction of
GBP1.6m.
We have reviewed the treatment of deferred tax on "rolled-over"
capital gains and found that we had overestimated the tax
liability. This has resulted in a deferred tax credit of
GBP4.8m.
Free cash flow, after capital investment of GBP44.8m on existing
pubs (2014: GBP56.2m), GBP6.8m in respect of share purchases for
employees (2014: GBP7.3m) and payments of tax and interest,
increased by GBP16.9m to GBP109.8m (2014: GBP92.9m). The working
capital inflow was GBP27.3m in the year (2014: GBP29.6m). Free cash
flow per share was 89.8p (2014: 74.1p).
Dividends and return of capital
The board proposes, subject to shareholders' approval, to pay a
final dividend of 8.0p per share (2014: 8.0p per share), on 26
November 2015, to those shareholders on the register on 23 October
2015, giving a total dividend for the year of 12.0p per share
(2014: 12.0p per share). The dividend is covered 3.1 times (2014:
2.8 times). In view of high levels of capital expenditure in recent
years and the potential for advantageous investments in the future,
the board has decided to maintain the dividend at its current level
for the time being.
During the year, 3,618,827 shares (representing 2.9% of the
issued share capital) were purchased by the company for
cancellation, at a total cost of GBP26.9m, including stamp duty,
representing an average cost per share of 743p.
Financing
As at 26 July 2015, the company's total net debt, including bank
borrowings and finance leases, but excluding derivatives, was
GBP601.1m (2014: GBP556.6m), an increase of GBP44.5m. Factors which
have led to the increase in debt are investment in new pubs and
extensions of GBP106.3m, investment in existing pubs of GBP44.8m,
the acquisition of freehold reversions of GBP21.6m, share buybacks
of GBP12.7m and dividend payments of GBP14.6m. Year-end
net-debt-to-EBITDA was 3.37 times (2014: 3.21 times).
As at 26 July 2015, the company had GBP240.9m (2014: GBP138.1m)
of unutilised banking facilities and cash balances, with total
facilities of GBP840.0m (2014: GBP690.0m). The company's existing
interest-rate swap arrangements remain in place.
Corporation tax
The overall tax charge (including deferred tax) on
pre-exceptional items is 26.1% (2014: 25.8%). The UK standard
average tax rate for the period was 20.7% (2014: 22.3%). The
difference between the rate of 26.1% and the standard average rate
of UK corporation tax of 20.7% is 5.4% (2014: 3.5%) which is due
primarily to the level of non-qualifying depreciation (depreciation
does not qualify for tax relief).
The pre-exceptional current tax rate, which excludes deferred
tax, has increased by 6.3% to 27.7% (2014: 21.4%), owing mainly to
a reduced amount of expenditure which qualifies for capital
allowances.
The "living wage"
Wetherspoon increased the minimum hourly rate for staff by 5% in
October 2014 and by a further 8% at the end of July 2015. Both
decisions were taken without the knowledge that the government was
about to announce a new minimum wage, now called the "living wage".
In addition, as Wetherspoon shareholders are aware, we pay about
40% of our profits (GBP30.7m in the year under review) as a bonus
or free shares, over 80% of which is paid to people who work in our
pubs.
We believe there to be two main economic issues with regard to
the new living/minimum wage. The first is that pub wages are about
30% of sales. Therefore a pint purchased in a pub at the national
average price of about GBP3.50 will represent about 85 pence in
respect of wages. In contrast, a pint bought in a supermarket, at
an estimated price of GBP1, will only represent about 10 pence of
supermarket wages, since their wage percentage and selling prices
are both far lower those of pubs. By pushing up the cost of wages
by a large factor, the government is inevitably putting financial
pressure on pubs, many of which have already closed. This financial
pressure will be felt most strongly in areas which are less
affluent, since the price differential in those areas between pubs
and supermarkets is far more important to customers. It is certain
that high streets in less affluent areas, which already suffer from
serious problems of empty shops and dereliction, will suffer
further if pubs and other labour-intensive businesses close.
The second issue is that investment is bound to be affected if
businesses feel that important issues, such as the minimum wage,
are to be decided by one or two senior politicians on a whim, for
political reasons, rather than being subject to careful
consideration by organisations such as the Low Pay Commission.
Trade support for VAT equality
Jacques Borel, who has campaigned successfully for lower VAT for
bars and restaurants in many other countries, has also been
campaigning in this country. A large number of companies have
supported his campaign, including Heineken, Pizza Hut, Fuller's and
St Austell, among others. It is disappointing to note that some of
the biggest pub companies, including Enterprise Inns, Mitchells and
Butlers, Greene King and Marston's have failed to support Jacques'
campaign and have not campaigned themselves in any meaningful way
for VAT equality between pubs and supermarkets. Pubs have lost 50%
of their beer sales to supermarkets in the last 35 years (including
many pubs owned by these companies), as VAT has climbed from 8% to
20%.
Of equal or greater concern to many thousands of individual
publicans in Britain is that the main trade newspaper, the Publican
Morning Advertiser (the PMA) has itself failed to support the VAT
campaign in recent years, even though authoritative market
research, as well as common sense, overwhelmingly indicates that
publicans regard VAT equality as critical. In my view, the PMA, one
of Britain's oldest newspapers, has entirely lost its legitimacy as
a mouthpiece for individual licensees.
Contribution to the economy
As we have previously stated, we 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
equality 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
restaurants.
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, we paid total taxes of GBP632.4m, an increase of GBP32.2m,
compared with the previous year, which equates to approximately
41.8% of our sales.
This equates to an average payment per pub of GBP673,000 per
annum or GBP12,900 per week.
2015 2014
GBPm GBPm
VAT 294.4 275.1
Alcohol duty 161.4 157.0
PAYE and NIC 84.8 78.4
Business rates 48.7 44.9
Corporation
tax 15.3 18.1
Corporation (2.0) -
tax credit
Machine duty 11.2 11.3
Climate change
levies 6.4 6.3
Carbon tax 3.7 2.7
Fuel duty 2.9 2.1
Landfill tax 2.2 1.5
Stamp duty 1.8 2.1
Premise licence 0.8 0.7
TV Licences 0.8 -
TOTAL TAX 632.4 600.2
TAX PER PUB
(GBP000) 673 662
TAX AS % OF
SALES 41.8% 42.6%
PRE-EXCEPTIONAL
PROFIT AFTER
TAX 57.5 58.9
PROFIT AFTER
TAX AS % OF
SALES 3.8% 4.2%
Corporate governance
(MORE TO FOLLOW) Dow Jones Newswires
September 11, 2015 02:00 ET (06:00 GMT)
In last year's statement, the view was advanced that many
aspects of current corporate governance advice, as laid out in the
Combined Code, were "deeply flawed". The statement pointed out that
"compliant pub companies had often fared disastrously in comparison
with non-compliant ones. In particular, pub companies in which the
CEO became chairman and which had a majority of
executives......usually with previous experience of the pub trade,
avoided making catastrophic errors to which compliant companies
seem prone". It was also pointed out that setting targets for
bonuses had also often backfired, encouraging companies to take
reckless decisions in order to enhance earnings.
Last year's statement was particularly critical of the Code
itself, which placed a huge emphasis on meetings between directors
and shareholders and placed 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.
It was pointed out that the average institutional shareholder
turns over his portfolio twice annually, so it would be absurd for
directors to take account of the views of "Mr Market" (in the words
of Benjamin Graham), certainly in regard to short-term
shareholders.
Having presented our views in previous annual reports and press
articles, without receiving any dissent from any shareholders or
their representatives, I believe the following propositions
represent the views of sensible shareholders:
-- Modern annual reports are far too long and are often almost
unreadable. They are full of semi-literate business jargon,
including accounting jargon, and are cluttered with badly written
and incomprehensible governance reports.
-- The limitations of corporate governance systems should be
recognised. Common sense, management skills and business savvy are
more important to commercial success than board structures. All the
major banks and many supermarket and pub companies have recently
suffered colossal business and financial problems, in spite of, or
perhaps because of, their adherence to governance guidelines.
-- There should be an approximately equal balance between
executives and non-executives. A majority of executives is not
necessarily harmful, provided 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 chairmen in the 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 9 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 work and there is considerable evidence that attempting to
reach ambitious financial targets is harmful.
-- 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 5, 10 or 20 years in the future.
Board of directors
Further to the 18 December 2014 statement that Ben Whitley had
been appointed interim finance director, the board is pleased to
announce today that Ben is being appointed to the board with effect
from the forthcoming AGM.
Further progress
As in previous years, the company has tried to improve as many
areas of the business as possible. For example, our food hygiene
ratings are at record levels. We have 858 pubs rated on the Food
Standards Agency's website. The average score is 4.93, with 94.1%
of the pubs achieving a top rating of five stars and 5.1% 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 68 pubs have
passed.
In the 2016 Good Beer Guide, a CAMRA publication, 296 of our
pubs have been recommended, more than any other pub company. In
addition, over 937 of our pubs are Cask Marque approved - Cask
Marque is a pub-industry scheme, run in conjunction with several
brewers, which checks and approves the quality of real ale in pubs.
We continue to source our traditional ales from a large number of
microbreweries of varying sizes and believe that we are the biggest
purchaser of microbrewery beer in the UK.
We continue to run the world's biggest real-ale festival, twice
per annum, and have added a cider festival in recent times,
featuring a wide variety of suppliers from the UK, Europe and
elsewhere in the world. Wetherspoon sells far more beers and ciders
from craft and micro-brewers throughout the year than any other pub
company.
We paid GBP30.7m in respect of bonuses and free shares to
employees in the year, slightly more than the previous year, of
which 97.0% was paid to staff below board level and 81.5% was paid
to staff working in our pubs.
In the field of charity, thanks to the work of our dedicated pub
and head-office teams, we continue to raise record amounts of money
for CLIC Sargent, which supports young cancer patients and their
families. In the last year, we raised approximately GBP1.7m,
bringing the total raised to over GBP11.0m - more than any other
corporate partner has raised for this charity.
Property
The company opened 30 pubs during the year, with 6 pubs sold or
closed, resulting in a total estate of 951 pubs at the financial
year end. The average development cost for a new pub (excluding the
cost of freeholds) was GBP2.1m, compared with GBP1.6m a year ago;
four of the pubs included hotel accommodation and the average size
was around 20% bigger than the previous year, factors that
contributed to increases in costs. The full-year depreciation
charge was GBP66.7m (2014: GBP58.1m). We currently intend to open
about 15 to 20 pubs in the year ending July 2016.
Property litigation
We have previously referred to important property litigation
between Wetherspoon and a number of individuals and companies. As a
result of the importance of this litigation and the large sums of
money involved, we intend to reproduce this information for the
benefit of shareholders and the public for the foreseeable
future:
As reported at the interim results in March 2013, Wetherspoon
agreed on an out-of-court settlement with developer Anthony Lyons,
formerly of property leisure agent Davis Coffer Lyons, and has
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.
Further shareholder information about these cases is available
in a short article which I wrote for the trade publication Propel,
which is disclosed later in my chairman's statement.
Current trading and outlook
The biggest danger to the pub industry, as Wetherspoon has
previously pointed out is the VAT disparity between supermarkets
and pubs.
In the six weeks to 6 September 2015, like-for-like sales
increased by 1.4%, with total sales increasing by 5.2%.
As previously stated on 15 July 2015, a number of factors likely
to influence our trading performance this financial year are
difficult to quantify at this early stage. Positive aspects include
an increase in pub numbers, a better economy and slightly lower
interest rates; less favourable aspects include heightened
competition from supermarkets and restaurant groups and increased
staff, repairs, bar and food costs. We continue to anticipate a
trading performance similar to, or slightly above, that achieved in
the last financial year.
Newspaper article
The newspaper article below first appeared in the pub trade
publication Propel and relates to the section on property
litigation referred to above:
"Wed 22(nd) May 2013 - Propel Opinion Extra
(MORE TO FOLLOW) Dow Jones Newswires
September 11, 2015 02:00 ET (06:00 GMT)
Lessons in the property market by Tim Martin
JD Wetherspoon has always been a buyer of freeholds. Our second,
third and fourth pubs were freehold and, by the time of our 1992
flotation, 20 of our 44 pubs were freehold.
I negotiated our first 20 or so pubs myself, dealing directly
with the owners' agents, before employing Christian Braun, of Van
de Berg & Co, in about 1990. Little did I realise that Braun
was a double agent or "mole", who was to burrow deep into our
organisation, undermining the very property foundations that
underpin any retailer.
Following a tip-off in 2005, we terminated VDB's contract and
undertook a review of all our 600 or so property transactions,
using a team of up to a dozen legal and paralegal staff. We
discovered about 50 "back-to-back" transactions in which freeholds,
which were available to buy, had been diverted by VDB to third
parties, who had acquired them at the same time as JDW had taken a
lease - the rent being set at a level which created an immediate
uplift in the value of the reversion.
Proceedings were issued against VDB and its directors, Braun,
George Aldridge and Richard Harvey, in respect of about a dozen of
these transactions. In a 136-page judgment, Mr Justice Peter Smith
found that VDB had fraudulently diverted properties to number of
third parties, but he made no findings against the third parties
themselves.
Following Mr Justice Smith's judgment, JDW issued proceedings
against several third parties: Paul Ferrari of Braun's former
employer Ferrari Dewe & Co; Anthony Lyons, formerly of Davis
Coffer Lyons and Jason Harris, formerly of First London.
Liability was denied by all. The cases were contested and were
settled out of court. JDW received substantial payments in all
three cases.
A number of the pleaded properties in the VDB case, referred to
by the judge as the "Ferrari Five", involved Jersey companies with
nominee owners that were connected to Ferrari. Each of the Jersey
companies had a different name - and care was taken to use
different lawyers and nominees.
Profits from the purchasing companies were usually channelled to
a Jersey holding company called Gecko and money was then
transferred as loans or fees to companies controlled by VDB
directors.
In my opinion, the Lyons case is the most interesting for the
property market and for prospective tenants and purchasers. Lyons
stated in his defence that he was acting in his capacity as an
employee and in accordance with his duties to Davis and Coffer (now
Davis Coffer Lyons).
The Lyons case concerned properties in Portsmouth, Leytonstone
and Newbury, two of which became JDW pubs, with the third becoming
a Café Rouge. The Portsmouth property belonged to British Gas - and
Justice Smith found that VDB bid for the freehold, unbeknown to
JDW, and, once the bid was accepted, agreed with Lyons for JDW to
take a lease and for the freehold to be acquired by Moorstown
Properties, owned by a friend, and subsequently a colleague, of
Lyons - Simon Conway. No findings were made against Lyons, or
indeed Conway, in the VDB case, and neither person was a party to
the case.
Portsmouth was subsequently sold by Moorstown to Scottish
American Investment Company, a few months later, with the benefit
of a lease to JDW for a substantial profit. Illustrating the
Byzantine complexity of the transactions, Lyons' defence stated
that shares in Moorstown were "transferred", before the sale was
completed, to Northcreek which, Companies House shows, was owned by
Roger Myers, then chairman of Café Rouge owner Pelican, and his
family.
The Newbury property was acquired by Riverside Stores, a company
connected to Conway, and was leased at around the same time to Café
Rouge. Newbury was sold shortly after completion for a substantial
profit.
JDW did not allege, and is not alleging, that the Portsmouth and
Newbury transactions are connected and is not alleging that Davis
Coffer Lyons, Myers or Conway are dishonest, but it is a matter of
public importance, as well as of importance to JDW and its
shareholders, for there to be an explanation as to the
circumstances in which Moorstown, a company which clearly benefited
from the Portsmouth fraud by VDB, ended up belonging to the family
of Myers.
A key legal and ethical question for the property market that
emerges from these cases concerns the obligations of estate agents
and investors, in circumstances in which a freehold property is
first offered to a friend or colleague of an agent, who agrees to
acquire it, and the property is then offered by the agent to a
company like Wetherspoon on a "back-to-back" basis. What are the
obligations of the introducing agent? In broad terms, the third
parties in the Wetherspoon litigation argued that they owed no
duties or obligations to Wetherspoon and were not, therefore,
liable to us. The great risk that all agents and investors run, in
these circumstances, is if the retained agent, VDB in this
instance, is itself be dishonest. If so, this may open up the
possibility of a claim by an aggrieved 'end user', such as
Wetherspoon, that the introducing agent participated in the
dishonesty of the retained agent.
JDW has lost many tens of millions of pounds as a result of the
VDB frauds. Rent reviews and "yield compression" have exacerbated
the damage over the years.
Our experience teaches a number of lessons. First, buyers and
tenants should ask their agents to confirm in writing that they
have no direct or indirect interest in any property they are
acquiring and should ask their lawyers to take particular interest
if a freehold is changing hands at the same time as they are
acquiring a lease, or indeed the freehold.
Professionals and investors should also get confirmation in
writing from the "end user" in back-to-back deals that they have
consented to the transaction. Take the retained agent's word for it
at your peril.
Tim Martin is founder and chairman of JD Wetherspoon"
Tim Martin
Chairman
10 September 2015
INCOME STATEMENT for the 52 weeks ended 26 July 2015
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 27 July 27 July 27 July
2015 2015 2015 2014 2014 2014
Before Exceptional After Before Exceptional After
exceptional items exceptional exceptional items exceptional
items (note items items (note items
4) 4)
Total Total Total Total Total Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------- ------ ------------- ------------- ------------- ------------- ------------- -------------
Revenue 2 1,513,923 - 1,513,923 1,409,333 - 1,409,333
Operating costs (1,401,415) (6,013) (1,407,428) (1,292,329) - (1,292,329)
-------------------- ------ ------------- ------------- ------------- ------------- ------------- -------------
Operating profit 3 112,508 (6,013) 106,495 117,004 - 117,004
Property
gains/(losses) 4 (694) (13,053) (13,747) (1,429) - (1,429)
Finance income 7 180 - 180 67 - 67
Finance costs 7 (34,196) - (34,196) (36,280) (997) (37,277)
Profit/(loss)
before taxation 77,798 (19,066) 58,732 79,362 (997) 78,365
Income tax expense 8 (20,343) 6,435 (13,908) (20,499) -(16,744) (37,243)
-------------------- ------ ------------- ------------- ------------- ------------- ------------- -------------
Profit/(loss)
for the year 57,455 (12,631) 44,824 58,863 (17,741) 41,122
Earnings per ordinary share (p):
- Basic 9 48.6 (10.7) 37.9 48.6 (14.7) 33.9
- Diluted(3) 9 47.0 (10.3) 36.7 47.0 (14.2) 32.8
Operating profit per share (p):
- Diluted 9 92.0 (4.9) 87.1 93.4 - 93.4
(MORE TO FOLLOW) Dow Jones Newswires
September 11, 2015 02:00 ET (06:00 GMT)
STATEMENT OF COMPREHENSIVE INCOME for the 52 weeks ended 26 July
2015
Notes 52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
---------------------------------------------- ------ --------- ---------
Items which may subsequently be reclassified
to profit or loss
Interest-rate swaps: gain/(loss)
taken to other comprehensive income (9,807) 13,879
Tax on items taken directly to other
comprehensive income 8 1,961 (2,776)
Currency translation differences (2,189) 7
---------------------------------------------- ------ --------- ---------
Net (loss)/gain recognised directly
in other comprehensive income (10,035) 11,110
Profit for the year 44,824 41,122
---------------------------------------------- ------ --------- ---------
Total comprehensive income for the
year 34,789 52,232
---------------------------------------------- ------ --------- ---------
CASH FLOW STATEMENT for the 52 weeks ended 26 July 2015
J D Wetherspoon plc, company number: 1709784
Notes Free cash Free cash
flow flow(1)
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
26 July 26 July 27 July 27 July
2015 2015 2014 2014
GBP000 GBP000 GBP000 GBP000
Cash flows from operating
activities
Cash generated from operations 10 210,181 210,181 212,505 212,505
Interest received 180 180 78 78
Interest paid (31,931) (31,931) (33,996) (33,996)
Corporation tax paid (13,293) (13,293) (18,070) (18,070)
Gaming machine settlement - (16,696)
Net cash inflow from
operating activities 165,137 165,137 143,821 160,517
------------------------------- ----- ---------- --------- ---------- ---------
Cash flows from investing
activities
Purchase of property,
plant and equipment (37,577) (37,577) (46,300) (46,300)
Purchase of intangible
assets (7,176) (7,176) (9,926) (9,926)
Proceeds on sale of property,
plant and equipment 723 505
Investment in new pubs
and pub extensions (106,339) (97,694)
Freehold reversions (21,612) (14,823)
Investment properties - (8,754)
Lease premiums paid (635) (10)
------------------------------- ----- ---------- --------- ---------- ---------
Net cash outflow from
investing activities (172,616) (44,753) (177,002) (56,226)
------------------------------- ----- ---------- --------- ---------- ---------
Cash flows from financing
activities
Equity dividends paid 12 (14,591) (14,949)
Purchase of own shares
for cancellation (12,714) (24,550)
Purchase of own shares
for
share-based payments (6,831) (6,831) (7,338) (7,338)
Advances under bank loans 11 47,898 92,151
Loan issue costs 11 (3,775) (3,775) (4,103) (4,103)
Finance lease principal
payments 11 (2,648) (5,552)
------------------------------- ----- ---------- --------- ---------- ---------
Net cash inflow/(outflow)
from financing activities 7,339 (10,606) 35,659 (11,441)
------------------------------- ----- ---------- --------- ---------- ---------
Net (decrease)/ increase
in cash and cash equivalents 11 (140) 2,478
------------------------------- ----- ---------- --------- ---------- ---------
Opening cash and cash
equivalents 32,315 29,837
Closing cash and cash
equivalents 32,175 32,315
------------------------------- ----- ---------- --------- ---------- ---------
Free cash flow 9 109,778 92,850
------------------------------- ----- ---------- --------- ---------- ---------
Free cash flow per ordinary
share 9 89.8p 74.1p
BALANCE SHEET for the 52 weeks ended 26 July 2015
J D Wetherspoon plc, company number: 1709784
Notes 26 July 27 July
2015 2014
GBP000 GBP000
---------------------------------- ------ ---------- ----------
Assets
Non-current assets
Property, plant and equipment 13 1,153,756 1,068,067
Intangible assets 14 29,997 26,838
Investment properties 15 8,651 8,713
Other non-current assets 16 10,028 9,766
Deferred tax assets 8 7,994 6,033
Derivative financial instruments - 1,723
---------------------------------- ------ ---------- ----------
Total non-current assets 1,210,426 1,121,140
Assets held for sale 1,220 -
Current assets
Inventories 19,451 22,312
Receivables 26,838 23,901
Cash and cash equivalents 32,175 32,315
---------------------------------- ------ ---------- ----------
Total current assets 78,464 78,528
Total assets 1,290,110 1,199,668
---------------------------------- ------ ---------- ----------
Liabilities
Current liabilities
Borrowings (2,051) (2,636)
Derivative financial instruments - (3,149)
Trade and other payables (283,227) (243,160)
Current income tax liabilities (10,053) (3,872)
Provisions (5,231) (4,442)
Total current liabilities (300,562) (257,259)
Non-current liabilities
Borrowings (631,232) (586,230)
Derivative financial instruments (39,973) (28,740)
Deferred tax liabilities 8 (77,771) (83,686)
Provisions (4,012) (3,055)
Other liabilities (13,667) (13,530)
---------------------------------- ------ ---------- ----------
Total non-current liabilities (766,655) (715,241)
---------------------------------- ------ ---------- ----------
Net assets 222,893 227,168
---------------------------------- ------ ---------- ----------
Shareholders' equity
Share capital 2,387 2,460
Share premium account 143,294 143,294
Capital redemption reserve 2,044 1,971
Hedging reserve (31,979) (24,133)
Retained earnings 107,147 103,576
---------------------------------- ------ ---------- ----------
Total shareholders' equity 222,893 227,168
---------------------------------- ------ ---------- ----------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Capital Hedging Currency Retained Total
capital premium redemption reserve translation earnings equity
account reserve differences
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ----- --------- --------- ------------ --------- ------------- ---------- ---------
At 28 July 2013 2,521 143,294 1,910 (35,236) - 102,426 214,915
Total comprehensive
income 11,103 7 41,122 52,232
Profit for the
year 41,122 41,122
Interest-rate
swaps: gain taken
to equity 13,879 13,879
Tax on items
taken directly
to equity 8 (2,776) (2,776)
Currency translation
reserve 7 7
(MORE TO FOLLOW) Dow Jones Newswires
September 11, 2015 02:00 ET (06:00 GMT)
---------------------- ----- --------- --------- ------------ --------- ------------- ---------- ---------
Repurchase of
shares (61) 61 (24,428) (24,428)
Tax on repurchase
of shares (122) (122)
Share-based payments 7,521 7,521
Tax on share-based
payments (663) (663)
Purchase of shares
held in trust (7,304) (7,304)
Tax on purchase
of shares held
in trust (34) (34)
Dividends 12 (14,949) (14,949)
--------- --------- ------------ --------- ------------- ---------- ---------
At 27 July 2014 2,460 143,294 1,971 (24,133) 7 103,569 227,168
Total comprehensive
income (7,846) (2,189) 44,824 34,789
Profit for the
year 44,824 44,824
Interest-rate
swaps: loss taken
to equity (9,807) (9,807)
Tax on items
taken directly
to equity 8 1,961 1,961
Currency translation
reserve (2,189) (2,189)
---------------------- ----- --------- --------- ------------ --------- ------------- ---------- ---------
Repurchase of
shares (73) 73 (26,766) (26,766)
Tax on repurchase
of shares (134) (134)
Share-based payments 8,907 8,907
Tax on share-based
payments 351 351
Purchase of shares
held in trust (6,799) (6,799)
Tax on purchase
of shares held
in trust (32) (32)
Dividends 12 (14,591) (14,591)
At 26 July 2015 2,387 143,294 2,044 (31,979) (2,182) 109,329 222,893
---------------------- ----- --------- --------- ------------ --------- ------------- ---------- ---------
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 purchase of a number of shares in the period.
Shares acquired in relation to the employee Share
Incentive Plan and the 2005 Deferred Bonus Scheme
are held in trust, until such time as the awards
vest. At 26 July 2015, the number of shares held
in trust was 4,063,604 (2014: 4,174,284), with a
nominal value of GBP81,272 (2014: GBP83,486) and
a market value of GBP28,993,815 (2014: 30,597,502)
and are included in retained earnings.
Hedging gain/loss arises from the movement of fair
value in the company's financial derivative instruments.
As at 26 July 2015, the company had distributable
reserves of GBP75.2m (2014: GBP79.4m).
Notes to the financial statements
1 Accounting policies and basis of preparation
The preliminary announcement for the 52-week period ended 26
July 2015 has been prepared in accordance with the accounting
policies as disclosed in J D Wetherspoon plc's annual report and
accounts for 2014.
The annual financial information presented in this preliminary
announcement for the 52-week period ended 26 July 2015 is based on,
and is consistent with, that in the company's audited financial
statements for the 52-week period ended 26 July 2015, and those
financial statements will be delivered to the Registrar of
Companies, following the company's annual general meeting. The
independent auditors' report on those financial statements is
unqualified and does not contain any statement under section 498
(2) or 498 (3) of the Companies Act 2006.
Information in this preliminary announcement does not constitute
statutory accounts of the company within the meaning of section 434
of the Companies Act 2006. The full financial statements for the
company for the 52-week period ended 27 July 2014 have been
delivered to the Registrar of Companies. The independent auditors'
report on those financial statements was unqualified and did not
contain a statement under section 498 (2) or 498 (3) of the
Companies Act 2006.
2 Revenue
Revenue disclosed in the income statement is analysed as
follows:
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
--------------------------------- ---------- ----------
Sales of food, beverages, hotel
rooms and machine income 1,513,923 1,409,333
--------------------------------- ---------- ----------
3 Operating profit - analysis of costs by nature
This is stated after charging/(crediting):
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
--------------------------------------- --------- ---------
Concession rental payments 19,300 17,166
Minimum operating lease payments 52,658 52,538
Repairs and maintenance 53,354 56,603
Net rent receivable (1,334) (845)
Depreciation of property, plant
and equipment (note 13) 61,458 54,459
Amortisation of intangible assets
(note 14) 4,775 3,254
Amortisation of other non-current
assets (note 16) 373 321
Depreciation of investment properties
(note 15) 62 41
Share-based payments (note 6) 8,907 7,521
Auditors' remuneration
Fees payable for the audit of the
financial statements
Fees payable for other services: 177 161
- assurance services 30 30
- non-audit services 13 -
--------------------------------------- --------- ---------
Total auditors' fees 220 191
--------------------------------------- --------- ---------
Analysis of continuing operations 52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
------------------------------------- ------------ ------------
Revenue 1,513,923 1,409,333
Cost of sales (1,347,361) (1,241,584)
Gross profit 166,562 167,749
Administration costs (54,054) (50,745)
Operating profit before exceptional
items 112,508 117,004
Exceptional items (note 5) (6,013) -
Operating profit after exceptional
items 106,495 117,004
------------------------------------- ------------ ------------
Included within cost of sales is GBP578.0m (2014: GBP531.2m)
related to cost of inventory recognised as expense.
4 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 27 July 27 July 27 July
2015 2015 2015 2014 2014 2014
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
-------------------------- ------------- ------------ ------------- ------------- ------------ -------------
Loss on disposal
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of fixed assets 694 - 694 645 - 645
Impairment of
property, plant
and equipment
(note 13) - 10,705 10,705 1,192 - 1,192
Impairment of
other assets
(note 16) - 490 490 (180) - (180)
Onerous lease
provision / (reversals) - 1,858 1,858 (228) - (228)
Total property
(gains) / losses 694 13,053 13,747 1,429 - 1,429
-------------------------- ------------- ------------ ------------- ------------- ------------ -------------
Impairment charges and onerous lease provisions were considered
exceptional in the current year and not in the prior year, owing to
the magnitude of the current year charge. Please refer to note 4
for further details on exceptional items.
5 Exceptional items
52 weeks ended 52 weeks
26 July 2015 ended
GBP000 27 July
2014
GBP000
------------------------------------- --------------- ---------
Operating exceptional items
Inventory valuation 5,231 -
Restructuring costs 782 -
------------------------------------- --------------- ---------
6,013 -
Exceptional property losses
Onerous lease provision 1,858 -
Property impairment 11,195 -
13,053 -
Other exceptional items
Interest payable on gaming machine
VAT repayment - 997
Income tax expense - current
tax - (4,375)
Exceptional tax items - deferred
tax (4,809) 21,119
Tax effect on operating exceptional (1,626) -
items
(6,435) 17,741
Total exceptional items 12,631 17,741
------------------------------------- --------------- ---------
During the year, the company changed the method used for
calculating the consumption of non-consumable inventories.
Non-consumable inventory comprises items like glassware, plates,
cutlery and cleaning products used in the pubs and hotels. The
company has taken a more prudent view on recognition of
non-consumable inventories as expenses. The change in the
accounting policy for the expected life of those inventories
resulted in an exceptional charge of GBP5,231,000 (2014: GBPNil).
The effect of this change was not presented as a prior-year
adjustment, as management did not believe that previously reported
results were materially affected and the treatment adopted provides
full information.
In the table above, property impairment relates to the situation
in which, owing to poor trading performance, pubs are unlikely to
generate sufficient cash in the future to justify their current
book value.
The onerous lease provision relates to pubs for which future
trading profits, or income from subleases, are not expected to
cover the rent. The provision takes several factors into account,
including the expected future profitability of the pub, but also
the amount estimated as payable on surrender of the lease, where
this is a possible outcome. In the year, GBP1,858,000 (2014:
GBPNil) was charged in respect of onerous leases.
In the year, an exceptional charge of GBP11,195,000 (2014:
GBPNil) was incurred in respect of the impairment of property,
plant and equipment, as required under IAS 36. This comprises an
impairment charge of GBP12,383,000 (2014: GBPNil), offset by
impairment reversals of GBP1,188,000 (2014: GBPNil).
A reduction in the deferred tax liability on rolled-over gains
for differences between the tax-deductible cost and the residual
value of the reinvestment assets has resulted in a credit of
GBP4,809,000. Owing to the magnitude of the reduction and the fact
that it relates to prior periods it was considered exceptional.
6 Employee benefits expenses
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
----------------------- --------- ---------
Wages and salaries 406,821 368,335
Social Security costs 25,291 24,008
Other pension costs 3,500 3,213
Share-based payments 8,907 7,521
----------------------- --------- ---------
444,519 403,077
----------------------- --------- ---------
Directors' emoluments 2015 2014
GBP000 GBP000
----------------------------------------- -------- --------
Aggregate emoluments 1,438 1,623
Aggregate amount receivable under
long-term incentive schemes 971 346
Company contributions to money purchase
pension scheme 97 113
----------------------------------------- -------- --------
2,506 2,082
----------------------------------------- -------- --------
For further information of directors' emoluments, please see the
directors' remuneration report on pages 52 to 60.
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).
2015 2014
Number Number
---------------------------- ------- -------
Full-time equivalents
Managerial/administration 4,233 4,419
Hourly paid staff 17,885 16,911
---------------------------- ------- -------
22,118 21,330
---------------------------- ------- -------
2015 2014
Number Number
---------------------------- ------- -------
Total employees
Managerial/administration 4,690 4,419
Hourly paid staff 30,041 28,216
---------------------------- ------- -------
34,731 32,635
---------------------------- ------- -------
For details of the Share Incentive Plan and the 2005 Deferred
Bonus Scheme, refer to the remuneration report on pages 52 to
60.
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.
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 nil exercise price and there are no market-based
conditions to the shares which affect their ability to vest.
7 Finance income and costs
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
----------------------------------------------- --------- ---------
Finance costs
Interest payable on bank loans and overdrafts 17,202 14,290
Amortisation of bank loan issue costs 2,942 2,320
Interest payable on swaps 13,812 19,300
Interest payable on obligations under
finance leases 240 370
----------------------------------------------- --------- ---------
Total pre-exceptional finance costs 34,196 36,280
Bank interest receivable (180) (67)
----------------------------------------------- --------- ---------
Total pre-exceptional finance income (180) (67)
----------------------------------------------- --------- ---------
Exceptional interest charge (note 5) - 997
----------------------------------------------- --------- ---------
Net finance costs 34,016 37,210
----------------------------------------------- --------- ---------
The net finance costs during the year decreased from GBP37.2m to
GBP34.0m. The finance costs in the income statement were covered
3.3 times (2014: 3.2 times), on a pre-exceptional basis.
8 Income tax expense
(a) Tax on profit on ordinary activities
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The standard rate of corporation tax in the UK changed from
21.0% to 20.0%, with effect from 1 April 2015. Accordingly, the
company's profits for this accounting period are taxed at an
effective rate of 20.7% (2014: 22.3%).
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
26 July 26 July 26 July 27 July 27 July 27 July
2015 2015 2015 2014 2014 2014
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
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
Current income
tax:
Current income
tax charge 19,885 (1,626) 18,259 17,004 (4,375) 12,629
Adjustment in respect
of prior period 1,659 - 1,659 - - -
Total current income
tax 21,544 (1,626) 19,918 17,004 (4,375) 12,629
Deferred tax:
Origination and
reversal of temporary
differences 113 - 113 3,495 21,119 24,614
Adjustment in respect
of prior period (1,314) (4,809) (6,123) - - -
Impact of change - - - - - -
in UK tax rate
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
Total deferred
tax (1,201) (4,809) (6,010) 3,495 21,119 24,614
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
Tax charge in the
income statement 20,343 (6,435) 13,908 20,499 16,744 37,243
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
Tax relating to items charged or credited through equity
Tax on share based
payment
Current tax (446) - (446) - - -
Deferred tax 95 - 95 663 - 663
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
(351) - (351) 663 - 663
Current tax charge
on interest-rate
swaps (1,961) - (1,961) 2,776 - 2,776
Tax charge taken
through equity (2,312) - (2,312) 3,439 - 3,439
------------------------ ------------- ------------ ------------- ------------- ------------ -------------
(b) Reconciliation of the total tax charge
The tax expense after exceptional items in the income statement
for the year is higher (2014: lower) than the standard rate of
corporation tax in the UK of 20.7% (2014: 22.3%), owing largely to
less expenditure qualifying for capital allowances. The differences
are reconciled below:
52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended
26 July 26 July 28 July 28 July
2015 2015 2014 2014
Before After Before After
exceptional exceptional exceptional exceptional
items items items items
GBP000 GBP000 GBP000 GBP000
----------------------------------- ------------- ------------- ------------- -------------
Profit before income tax 77,798 58,732 79,362 78,365
Profit multiplied by the UK
standard rate of corporation
tax of 20.7% (2014: 22.3%) 16,078 12,138 17,722 17,499
Abortive acquisition costs
and disposals 163 163 78 78
Other disallowables 155 2,469 186 409
Other allowable deductions (33) (33) (334) (334)
Non-qualifying depreciation 3,577 3,577 3,654 3,654
Deduction for shares and SIPs 29 29 (69) (69)
Re-measurement of other balance
sheet items (342) (342) (331) (331)
Effect of different tax rates
and unrecognised losses in
overseas companies 302 302 - -
Adjust opening and closing
deferred tax to average of
20.67% 69 69 - -
Prior period adjustment -
current tax 1,659 1,659 - (4,375)
Prior period adjustment -
deferred tax (1,314) (6,123) - 21,119
Adjustment to deferred tax
in respect of change in tax
rate - - (407) (407)
----------------------------------- ------------- ------------- ------------- -------------
Total tax expense reported
in the income statement 20,343 13,908 20,499 37,243
----------------------------------- ------------- ------------- ------------- -------------
(c) Deferred tax
The deferred tax in the balance sheet is as follows:
Deferred tax liabilities Accelerated Other temporary
tax depreciation differences Total
GBP000 GBP000 GBP000
----------------------------- ------------------ ---------------- --------
At 27 July 2014 79,306 6,766 86,072
Prior year movement posted
to the income statement (1,515) (4,813) (6,328)
Movement during year posted
to the income statement 304 (25) 279
----------------------------- ------------------ ---------------- --------
At 26 July 2015 78,095 1,928 80,023
----------------------------- ------------------ ---------------- --------
Deferred tax assets Share- Capital Interest-rate Total
based losses swaps
payments carried
forward
GBP000 GBP000 GBP000 GBP000
----------------------------- ---------- --------- -------------- -------
At 27 July 2014 928 1,458 6,033 8,419
Movement during year posted
to the income statement 166 - - 166
Prior year movement posted
to the income statement - (205) - (205)
Taken through equity (95) - 1,961 1,866
----------------------------- ---------- --------- -------------- -------
At 26 July 2015 999 1,253 7,994 10,246
----------------------------- ---------- --------- -------------- -------
The Finance Bill 2015 included legislation to reduce
the main rate of corporation tax to 19% for the financial
years beginning 1 April 2017, 1 April 2018 and 1
April 2019, and at 18% for the financial year beginning
1 April 2020. These changes had not been substantively
enacted at the balance sheet date and consequently
are not included in these financial statements. The
effect of these proposed reductions would be to reduce
the net deferred tax liability to GBP65.8m at 19%
and GBP62.4m at 18%.
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Deferred tax assets and liabilities have been offset as
follows:
2015 2014
GBP000 GBP000
----------------------------- -------- --------
Deferred tax liabilities 80,023 86,072
Offset against deferred tax
assets (2,252) (2,386)
----------------------------- -------- --------
Deferred tax liability 77,771 83,686
----------------------------- -------- --------
Deferred tax assets 10,246 8,419
Offset against deferred tax
liabilities (2,252) (2,386)
----------------------------- -------- --------
Deferred tax asset 7,994 6,033
----------------------------- -------- --------
9 Earnings and cash flow per share
Earnings per share are based on the weighted average number of
shares in issue of 122,269,948 (2014: 125,312,581), 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.
52 weeks 52 weeks
ended ended
Weighted average number 26 July 27 July
of shares 2015 2014
---------------------------------- ------------ ------------
Shares in issue (used
for diluted EPS) 122,269,948 125,312,581
Shares held in trust (4,063,604) (4,174,284)
----------------------------------- ------------ ------------
Shares in issue less shares held
in trust (used for basic EPS) 118,206,344 121,138,297
----------------------------------- ------------ ------------
The weighted average number of shares held in trust for employee
share schemes has been adjusted to exclude those shares which have
vested, but which remain in the trust.
52 weeks ended 26 July Profit Basic EPS Diluted
2015 GBP000 pence per EPS pence
ordinary per ordinary
share share
------------------------------- -------- ----------- --------------
Earnings (profit after
tax) 44,824 37.9 36.7
Exclude effect of exceptional
items after tax 12,631 10.7 10.3
------------------------------- -------- ----------- --------------
Adjusted earnings before
exceptional items 57,455 48.6 47.0
------------------------------- -------- ----------- --------------
52 weeks ended 27 July Profit Basic EPS Diluted
2014 pence per EPS pence
ordinary per ordinary
share share
----------- --------------
GBP000
------------------------------- ------- ----------- --------------
Earnings (profit after
tax) 41,122 33.9 32.8
Exclude effect of exceptional
items after tax 17,741 14.7 14.2
------------------------------- ------- ----------- --------------
Adjusted earnings before
exceptional items 58,863 48.6 47.0
------------------------------- ------- ----------- --------------
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, 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 flow per share 52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
------------------------------ --------- ---------
Free cash flow (GBP000) 109,777 92,850
Free cash flow per share (p) 89.8 74.1
10 Cash generated from operations
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
-------- --------------
Profit for the year 44,824 41,122
Adjusted for:
Tax 13,908 37,243
Net impairment charge 11,195 1,012
Net onerous lease provision 1,858 (228)
Loss on disposal of property, plant
and equipment 694 645
Depreciation of property, plant and
equipment 61,458 54,459
Amortisation of intangible assets 4,775 3,254
Amortisation of other non-current assets 373 321
Depreciation on investment properties 62 41
Aborted properties costs 787 339
Share-based charges 8,907 7,521
Interest receivable (180) (67)
Amortisation of bank loan issue costs 2,942 2,320
Interest payable 31,254 33,960
Exceptional interest - 997
182,857 182,939
Change in inventories 2,861 (2,455)
Change in receivables (2,937) 39
Change in payables 27,400 31,982
------------------------------------------- -------- --------------
Cash flow from operating activities 210,181 212,505
------------------------------------------- -------- --------------
11 Analysis of changes in net debt
At 27 Cash Non-cash At 26 July
July flows movement 2015
2014 GBP000 GBP000
GBP000 GBP000
------------------------------ ---------- --------- ---------- -----------
Cash in hand 32,315 (140) - 32,175
Finance lease creditor
- due in one year (2,636) 2,648 (2,063) (2,051)
Bank loans - due after
one year (584,167) (44,123) (2,942) (631,232)
Finance lease creditor
- due after one year (2,063) - 2,063 -
---------- --------- ---------- -----------
(586,230) (44,123) (879) (631,232)
Net borrowings (556,551) (41,615) (2,942) (601,108)
------------------------------ ---------- --------- ---------- -----------
Interest-rate swap asset
- due after one year 1,723 - (1,723) -
Interest-rate swap liability
- due after one year (28,740) - (11,233) (39,973)
---------- --------- ---------- -----------
(27,017) - (12,956) (39,973)
Interest-rate swaps -
due before one year (3,149) - 3,149 -
Total derivatives (30,166) - (9,807) (39,973)
------------------------------ ---------- --------- ---------- -----------
Net debt (586,717) (41,615) (12,749) (641,081)
------------------------------ ---------- --------- ---------- -----------
Non-cash movements
The non-cash movement in bank loans due after one year relates
to the amortisation of bank loan issue costs.
The movement in interest-rate swaps of GBP9.8m relates to the
change in the 'mark to market' valuations for the year.
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12 Dividends paid and proposed
52 weeks 52 weeks
ended ended
26 July 27 July
2015 2014
GBP000 GBP000
--------------------------------------- --------- ---------
Declared and paid during the year:
Dividends on ordinary shares:
- final for 2012/13: 8.0p (2011/12:
8.0p) - 9,987
- interim for 2013/14: 4.0p (2012/13:
4.0p) - 4,962
- final for 2013/14: 8.0p (2012/13: 9,761 -
8.0p)
- interim for 2014/15: 4.0p (2013/14: 4,830 -
4.0p)
Dividends paid 14,591 14,949
--------------------------------------- --------- ---------
Proposed for approval by shareholders
at the AGM:
- final dividend for 2014/15: 8.0p
(2013/14: 8.0p) 9,782 9,751
--------------------------------------- --------- ---------
Dividend cover (times) 3.1 2.8
--------------------------------------- --------- ---------
As detailed in the interim accounts, the board declared
and paid an interim dividend of 4.0p for the financial
year ended 26 July 2015. Dividend cover is calculated
as profit after tax and exceptional items over dividend
paid.
13 Property, plant and equipment
Freehold Short- Equipment, Assets Total
and long- leasehold fixtures under
leasehold property and fittings construction
property
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- ----------- ----------- -------------- -------------- ----------
Cost:
At 28 July 2013 702,446 412,955 426,346 36,272 1,578,019
Additions 55,124 17,272 49,721 45,401 167,518
Transfers 23,574 1,995 2,620 (28,189) -
Disposals (1,316) (2,692) (4,429) - (8,437)
Reclassification 8,471 (8,471) - - -
At 27 July 2014 788,299 421,059 474,258 53,484 1,737,100
Additions 63,804 11,366 46,054 39,395 160,619
Transfers 22,383 663 7,054 (30,100) -
Exchange differences (6) (38) (114) - (158)
Transfer to held
for sale (1,532) - (482) - (2,014)
Disposals (43) (4,584) (5,989) - (10,616)
Reclassification 3,116 (3,116) - - -
-------------------------- ----------- ----------- -------------- -------------- ----------
At 26 July 2015 876,021 425,350 520,781 62,779 1,884,931
-------------------------- ----------- ----------- -------------- -------------- ----------
Accumulated depreciation
and impairment:
At 28 July 2013 141,044 183,304 296,202 541 621,091
Provided during
the period 12,196 13,352 28,911 - 54,459
Impairment loss 2,234 (1,179) 137 - 1,192
Disposals (895) (2,910) (3,904) - (7,709)
Reclassification 2,434 (2,434) - - -
At 27 July 2014 157,013 190,133 321,346 541 669,033
Provided during
the period 13,335 14,272 33,851 - 61,458
Exchange differences (1) (6) (18) - (25)
Impairment loss
(reversal) 3,589 4,838 2,278 - 10,705
Transfer to held
for sale (441) - (353) - (794)
Disposals - (4,112) (5,090) - (9,202)
Reclassification 954 (413) - (541) -
----------- ----------- -------------- -------------- ----------
At 26 July 2015 174,449 204,712 352,014 - 731,175
-------------------------- ----------- ----------- -------------- -------------- ----------
Net book amount
at 26 July 2015 701,572 220,638 168,767 62,779 1,153,756
-------------------------- ----------- ----------- -------------- -------------- ----------
Net book amount
at 27 July 2014 631,286 230,926 152,912 52,943 1,068,067
-------------------------- ----------- ----------- -------------- -------------- ----------
Net book amount
at 28 July 2013 561,402 229,651 130,144 35,731 956,928
-------------------------- ----------- ----------- -------------- -------------- ----------
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.
Assumptions are used about sales, costs and profit, using a pre-tax
discount rate for future years of 8% (2014: 9%).
If the value, based on future anticipated cash flows, 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
GBP10,705,000 (2014: GBP1,192,000) was charged to property losses
in the income statement, as described in note 4.
Management believes that a reasonable change in any of the key
assumptions, for example the discount rate applied to each pub,
could cause the carrying value of the pub to exceed its recoverable
amount, but that the change would be immaterial.
Finance leases
Certain items of IT equipment are subject to finance leases.
The carrying value of these assets, held under finance leases at
26 July 2015, included in equipment, fixtures and fittings, was as
follows:
2015 2014
GBP000 GBP000
------------------ -------- --------
Net book value 5,862 8,580
------------------ -------- --------
14 Intangible assets
GBP000
---------------------------------------------------------- -------
Cost:
At 28 July 2013 35,493
Additions 9,926
At 27 July 2014 45,419
Additions 7,934
-------
At 26 July 2015 53,353
---------------------------------------------------------- -------
Accumulated amortisation:
At 28 July 2013 15,327
Amortisation during the period 3,254
At 27 July 2014 18,581
Amortisation during the period 4,775
-------
At 26 July 2015 23,356
---------------------------------------------------------- -------
Net book amount at 26 July 2015 29,997
---------------------------------------------------------- -------
Net book amount at 27 July 2014 26,838
---------------------------------------------------------- -------
Net book amount at 28 July 2013 20,166
---------------------------------------------------------- -------
Amortisation of GBP4,775,000 (2014: GBP3,254,000)
is included in operating costs in the income statement.
The majority of intangible assets relates to computer
software and software development. Examples include
the development costs of our SAP accounting system
and our 'Wisdom' property maintenance system.
Included in the intangible assets is GBP5,046,000
of software in the course of development (2014:
GBP9,298,000).
Finance leases
Certain intangible assets, for example EPOS and accounting
systems, have been purchased using finance leases. The amounts
below show the reduction in net book value of assets held under
finance leases which are released from security when the debt is
repaid.
2015 2014
GBP000 GBP000
------------------ -------- --------
Net book value 580 696
------------------ -------- --------
15 Investment properties
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