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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Wetherspoon ( J.d.) Plc | LSE:JDW | London | Ordinary Share | GB0001638955 | ORD 2P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-1.00 | -0.14% | 723.50 | 725.50 | 728.50 | 732.00 | 723.00 | 724.50 | 116,388 | 16:35:06 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Drinking Places (alcoholic) | 990.95M | 24.89M | 0.1933 | 37.61 | 936.01M |
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.
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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
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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
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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
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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
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---------------------- ----- --------- --------- ------------ --------- ------------- ---------- --------- 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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