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Last updated: September 14, 2012 7:25 pm
JD Wetherspoon lashed out at the government over its taxation of pubs’ games machines as it announced a £9m writedown on its 860-strong pubs estate.
Wetherspoon opened 40 pubs in the year and closed just three, helping push up total sales 12 per cent year-on-year to £1.2bn. On a like-for-like basis sales rose 3 per cent. Tim Martin, chairman and founder, scaled back the expansion plans by 10 pubs this spring, citing cost pressures.
The openings that went ahead contributed to net debt rising £25m to £463m, particularly as development costs per pub rose compared with last year as the group increased spending on kitchens and beer gardens.
Industry-wide, customers are ordering more food with their drinks, with growth in food sales outpacing that of drink. At Wetherspoon, both categories rose faster in 2012 than the previous year.
Like-for-like revenues from the pubs’ games machines, however, fell 3 per cent. Mr Martin lashed out at the government over “stealth taxes” on machines and late-night openings, which he estimated would together cost the group £4m a year.
“All pub companies are, or should be, happy to pay their share of tax, but the pub industry has been fleeced by the government, in the last decade and a half in particular,” he said.
He also said that he wanted value added tax reduced at pubs, to level the playing field with shops selling alcohol.
Pre-tax profits fell 4 per cent to £58.9m in the year to July 29. Earnings per share crept up from 35.4p a year earlier to 35.6p, boosted by a share buy-back. The group proposed a final dividend of 8p, bringing the full-year payout to 12p, the same as 2011. Total sales were helped by an additional week of trading in 2012; without that fillip, revenues rose 9 per cent.
Underlying profits before exceptionals rose to £72m from £66m the previous year, which was down from £71m the year before.
The operating margin slipped from 9.5 per cent to 9 per cent, a decline Mr Martin blamed on higher taxes and input costs.
Wetherspoon’s shares rose 3 per cent to 475.7p.
Wetherspoon has taken the decision not to pass on price increases to its cost-conscious customer base. Volumes and loyalty have been maintained. But operating margins have suffered and contributed to a year-on-year decline in pre-tax profits. Meanwhile, Wetherspoon’s cost headwinds – tax and food price increases – show no signs of abating. Nonetheless investors will want reassurance that margins, and profitability, can recover during the next year. Until then Wetherspoon’s shares, trading at more than 11 times 2013 earnings, a premium to peers Spirit Pub Co and Greene King, look fully valued.
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