REG - Wetherspoon (JD) PLC - Preliminary Results
24/03/2023 07:00
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RNS Number : 0852U Wetherspoon (JD) PLC 24 March 2023
24 March 2023
J D WETHERSPOON PLC
PRELIMINARY RESULTS
(For the 26 weeks ended 29 January 2023)
FINANCIAL HIGHLIGHTS Var %
Before separately disclosed items
Like-for-like sales (vs FY19) +5.0%
Revenue £916.0m (2019: £889.6m) +3.0%
Profit before tax £4.6m (2019(2): £50.3m) -90.9%
Operating profit £37.4m (2019(2): £63.5m) -41.1%
Basic earnings per share 1.0p (2019(2): 38.3p) -97.4%
Free cash inflow per share 132.4p (2019(2): 69.4p) +90.8%
Half year dividend 0.0p (2019: 4.0p) -100%
After separately disclosed items(1)
Profit before tax £57.0m (2019(2): £48.6m) +17.3%
Operating profit £37.4m (2019(2): £63.5m) -41.1%
Basic earnings per share 29.4p (2019(2): 36.8p) -20.1%
(1)Separately disclosed items as disclosed in account note 2.
(2)2019 figures are prior to the adoption of IFRS 16 (Lease Accounting).
Commenting on the results, Tim Martin, the Chairman of J D Wetherspoon plc,
said:
"Trade for the last seven weeks was 9.1% above the equivalent period in FY19
and 14.9% above the equivalent period in our last financial year (FY22).
"As reported last year, the company has a full complement of staff, although
the labour market is competitive, with unemployment, in spite of economic
problems, at approximately its lowest level in the last 50 or so years.
"Supply or delivery issues have largely disappeared, for now, and were
probably a phenomenon of the stresses induced by the worldwide reopening after
the pandemic, rather than a consequence of Brexit, as many commentators have
argued.
"Inflationary pressures in the pub industry, as many companies have said, have
been ferocious, particularly in respect of energy, food and labour. The Bank
of England, and other authorities, believe that inflation is on the wane,
which will certainly be of great benefit, if correct.
"Having experienced a substantial improvement in sales and profits, compared
to our most recent financial year, and with a strengthened balance sheet,
compared both to last year and to the pre-pandemic period, the company is
cautiously optimistic about further progress in the current financial year and
in the years ahead."
Enquiries:
John Hutson Chief
Executive Officer 01923 477777
Ben Whitley
Finance Director 01923 477777
Eddie Gershon Company
spokesman 07956 392234
Photographs are available at: www.newscast.co.uk
Notes to editors
1. J D Wetherspoon owns and operates pubs throughout the UK.
The Company aims to provide customers with good-quality food and drink, served
by well-trained and friendly staff, at reasonable prices. The pubs are
individually designed and the Company aims to maintain them in excellent
condition.
2. Visit our website jdwetherspoon.com
3. The financial information set out in the announcement
does not constitute the company's statutory accounts for the periods ended 30
July 2023 or 31 July 2022. The financial information for the period ended 31
July 2022 is derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors have reported on those
accounts: their report was unqualified and did not contain a statement under
section 498(2) or (3) of the Companies Act 2006. Statutory accounts for 2023
will be delivered to the registrar of companies in due course. This
announcement has been prepared solely to provide additional information to the
shareholders of J D Wetherspoon, in order to meet the requirements of the UK
Listing Authority's Disclosure and Transparency Rules. It should not be relied
on by any other party, for other purposes. Forward-looking statements have
been made by the directors in good faith using information available up until
the date that they approved this statement. Forward-looking statements should
be regarded with caution because of inherent uncertainties in economic trends
and business risks.
4. The annual report and financial statements 2022 has been
published on the Company's website on 07 October 2022.
5. The current financial year comprises 52 trading weeks to
30 July 2023.
6. The next trading update will be issued on 10 May 2023.
CHAIRMAN'S STATEMENT
Background
In order to provide perspective on the recent financial performance, sales and
profit comparisons are provided, below, with the last full financial year,
before the pandemic (FY19), and with the last financial year (FY22). Some
other comparisons, including balance sheet comparisons, are with the last
financial year only.
Trading Summary
In the first half of the financial year, ended 29 January 2023, like-for-like
sales were +5.0%, compared to the six-month period ended 27 January 2019, the
last full financial year before the pandemic.
Sales, compared to FY19, improved to +9.1% for the most recent seven weeks to
19 March 2023, being the first seven weeks of the second half of the financial
year.
Like-for-like sales were +13.0%, compared to the six-month period ended 23
January 2022 (our last financial year), and were +14.9% for the first seven
weeks of the second half of the financial year, compared to the same period in
FY22.
Compared to the first half of FY20, like-for-like sales were -0.6% in the
six-month period and were +7.0% in the first six weeks of second half, before
pubs closed as a result of the first UK lockdown.
Total sales were £916.0 million, an increase of 3.0%, compared to the
pre-pandemic 26 weeks ended 27 January 2019. Total sales increased by 13.5%
compared to the same period in FY22.
Compared to FY19, like-for-like bar sales decreased by 0.8%, food sales
increased by 12.0%, slot/fruit machine sales increased by 44.3% and hotel
rooms by 13.0%.
Compared to FY22, like-for-like bar sales increased by 8.4%, food by 19.3%,
slot/fruit machines' by 31.4% and hotel rooms by 7.3%.
The operating profit, before separately disclosed items, was £37.4 million,
compared to £63.5 million for the same period in 2019, and to £1.6 million
for the same period in in 2022.
The operating margin, before separately disclosed items, was 4.1%, compared to
7.1% in 2019 and 0.2% in 2022.
The profit before tax and separately disclosed items was £4.6 million,
compared to £50.3 million in the same period in 2019 and a £26.1 million
loss in 2022.
Other Financial Matters
Earnings per share, including shares held in trust by the employee share
scheme, before separately disclosed items, were 1.0p (2019: earnings per share
of 37.4p; 2022: losses per share of 19.7p).
Total capital investment was £47.8 million (2022: £61.0 million). £10.7
million was invested in new pubs and pub extensions (2022: £25.3 million),
£24.3 million in existing pubs and IT (2022: £19.5 million) and £10.0
million in freehold reversions of properties where Wetherspoon was the tenant
(2022: £19.2 million).
Separately disclosed items
There was a pre-tax gain of £52.4 million (2022: £13.0 million gain).
£65.1 million of the gain relates to the termination of interest rate swaps
in the period. In addition, there was a £8.6 million property impairment
charge, in respect of pubs which were deemed unlikely to generate sufficient
cash flows, in the future, to support their carrying value.
The company sold or closed 10 pubs during the period. There was a £3.1
million loss on disposal, giving rise to a cash inflow of £2.7 million.
Free Cash Flow
There was a free cash inflow of £166.0 million (2022: £34.5 million
outflow), after capital payments of £27.1 million for existing pubs (2022:
£19.5 million), £7.5 million for share purchases for employees (2022: £7.1
million) and payments of tax and interest.
The inflow benefited from a profit of £169.4 million following the sale of
the company's interest rate swaps in the period under review. Free cash inflow
per share was 132.4p (2022: 27.2p outflow).
Dividends and return of capital
The board has not recommended the payment of an interim dividend (2022: £0).
There have been no share buybacks in the financial year to date (2022: £0).
Financing
As at 29 January 2023, the company's total net debt, excluding derivatives and
lease liabilities, was £743.9 million (23 Jan 2022: £920.4m), a decrease of
£176.5m.
The half year-end net-debt-to-EBITDA ratio was 6.16 times (2022: 25.63 times).
The company's debt and liabilities to trade creditors have both reduced since
H1 2020, the period before the pandemic started. Debt has decreased by £61
million and trade creditors by £57 million.
£179 million has been invested, since then, in new pubs and freehold
reversions.
Financial Net Debt Trade and other payables Net Debt + Trade and other payables Freehold Reversions
Period(1)
£m £m £m £m
HY 2020 805 315 1,119 71
YE 2020 817 255 1,072 28
HY 2021 812 185 997 1
YE 2021 846 260 1,105 15
HY 2022 920 245 1,165 19
YE 2022 892 283 1,174 7
HY 2023 744 259 1,003 10
( )( )
(1)HY refers to half year, and YE refers to year end
The company has an agreement with its lenders, who have been extremely
supportive throughout the pandemic, that waives its debt covenants until
October 2023 and replaces them with a minimum liquidity requirement of £100
million for the first half of the current financial year and relaxed leverage
covenants for the second half. At the half-year-end liquidity was £231.9
million.
In November 2022, the company repaid government "CLBILS" loans of £100
million, which had been due to mature in August 2023.
The company has total available finance facilities of £983 million.
The company has fixed its SONIA (SONIA is a replacement for LIBOR) interest
rates in respect of £580 million until July 2023 and £400 million until
October 2025. The weighted average cost of the swaps, excluding the banks'
margin, is currently 4.28%. The total cost of the company's debt, including
the banks' margin was 6.21%, in the last 26 weeks.
The cost of the current swaps in place have been illustrated in the table
below:
Swap Value Start Date End Date Weighted Average %
£580m 31/10/2022 31/07/2023 4.28%
£400m 01/08/2023 31/10/2025 4.67%
Property
The company opened two pubs during the first six months and sold or closed 11,
resulting in a trading estate of 843 pubs at the half year end.
As at 24 July 2011, the company's freehold/ leasehold split was 43.4%/56.6%.
As at 29 January 2023, as a result of investment in freehold reversions
(relating to pubs where the company was previously a tenant) and freehold pub
openings, the split was 69.0%/31.0%.
Taxation
The total tax charge for the year is £20.0 million (2022: £1.6 million
credit). This consists of a £6.7 million (2022: £0.4 million) 'cash' tax and
a £13.3 million 'accounting' tax charge (2022: £1.2 million credit).
The accounting tax charge comprises two parts: the actual current tax charge
(the 'cash' tax) and the deferred tax charge (the 'accounting' tax). The tax
losses that arose in previous financial years have been carried forward for
use against profits in this year and future years.
The company is seeking a refund of historic excise duty from HMRC, totalling
£0.5 million, in relation to goods sent to the Republic of Ireland, when
Wetherspoon pubs first opened in that country. The company has been charged
excise duty on the same goods twice, as they were purchased in the UK, and
excise duty was paid in full. Irish excise duty was then paid in addition.
Owing to a paperwork error, in the early days of our business in the Republic,
which the company has sought to rectify, it has, to date, been unable to
reclaim this duty, even though it is transparently clear that the duty has
been paid.
Scotland Business Rates
Business rates are supposed to be based on the value of the building, rather
than the level of trade of the tenant. This should mean that the rateable
value per square foot is approximately the same for comparable pubs in similar
locations.
However, as a result of the valuation approach adopted by the government
"Assessor" in Scotland, Wetherspoon often pays far higher rates per square
foot than its competitors.
This is highlighted (in the tables below) by assessments for the Omni Centre,
a modern leisure complex in central Edinburgh, where Wetherspoon has been
assessed at more than double the rate per square foot of the average of its
competitors, and for The Centre in Livingston (West Lothian), a modern
shopping centre, where a similar anomaly applies.
As a result of applying valuation practice from another era, which assumed
that pubs charged approximately the same prices, the raison d'être of the
rating system - that rates are based on property values, not the tenants trade
- has been undermined.
Similar issues are evident in Galashiels, Arbroath, Wick, Anniesland - and
indeed most Wetherspoon pubs in Scotland. In effect, the application of the
rating system in Scotland discriminates against businesses like Wetherspoon,
which have lower prices, and encourages businesses to charge higher prices.
As a result, consumers are likely to pay higher prices, which cannot be the
intent of rating legislation.
Omni Centre, Edinburgh (April 2021 - March 2022)
Occupier Name Rateable Value (RV) Customer Area (ft²) Rates per square foot
Playfair (JDW) £218,750 2,756 £79.37
Unit 9 (vacant) £48,900 1,053 £46.44
Unit 7 (vacant) £81,800 2,283 £35.83
Frankie & Benny's £119,500 2,731 £43.76
Nando's £122,750 2,804 £43.78
Slug & Lettuce £108,750 3,197 £34.02
The Filling Station £147,750 3,375 £43.78
Tony Macaroni £125,000 3,427 £36.48
Unit 6 (vacant) £141,750 3,956 £35.83
Cosmo £200,000 7,395 £27.05
Average (exc JDW) £121,800 3,358 £38.55
The Centre, Livingston (April 2021 - March 2022)
Occupier Name Rateable Value (RV) Customer Area (ft²) Rates per square foot
The Newyearfield (JDW) £165,750 4,090 £40.53
Paraffin Lamp £52,200 2,077 £25.13
Wagamana £67,600 2,096 £32.25
Nando's £80,700 2,196 £36.75
Chiquito £68,500 2,221 £30.84
Ask Italian £69,600 2,254 £30.88
Pizza Express £68,100 2,325 £29.29
Prezzo £70,600 2,413 £29.26
Harvester £98,600 3,171 £31.09
Pizza Hut £111,000 3,796 £29.24
Hot Flame £136,500 4,661 £29.29
Wetherspoon News
There are two main issues discussed in the latest edition of Wetherspoon News,
the company magazine, read by an estimated two million people.
The first relates to the important issue of tax equality between supermarkets
and pubs. Currently, pubs pay far more VAT and business rates per pint than
supermarkets.
The second relates to the government and wider political response to Covid-19,
vital for pubs, but also for health and the wider economy.
The Covid-19 discussion contains articles by Professor Francois Balloux of
University College London Genetics Institute, writing in the Guardian,
Professor Robert Dingwall of Nottingham Trent University, writing in the
Telegraph and by other respected commentators, including former Supreme Court
judge, Jonathan Sumption and Spectator editor Fraser Nelson.
It is important for shareholders and the public to make up their own mind on
this issue, rather than waiting a possible seven years for a government
enquiry, by which time many horses may have bolted.
The articles referred to above can be found via the link below
https://www.jdwetherspoon.com/~/media/files/pdf-documents/events-2023/extracts-from-the-summer-2023-wetherspoon-news.pdf
(https://www.jdwetherspoon.com/~/media/files/pdf-documents/events-2023/extracts-from-the-summer-2023-wetherspoon-news.pdf)
.
How pubs contribute to the economy
Wetherspoon and other pub and restaurant companies have always generated far
more in taxes than are earned in profits. Wetherspoon, its customers and
staff, generated total taxes in FY19, before the pandemic, of £763.6 million.
This equated to one pound in every thousand of UK government revenue.
In the financial year ended 31 July 2022, the company generated taxes of
£662.7 million.
The table below shows the £5.6 billion of tax revenue generated by the
company, its staff and customers in the last 9.5 years. Each pub, on average,
generated £6.3 million in tax during that period. The tax generated by the
company, during this 9.5-year period, equates to approximately 27 times the
company's profits after tax.
2023 H1 2022 2021 2020 2019 2018 2017 2016 2015 2014 TOTAL
2014 to 2023 H1
£m £m £m £m £m £m £m £m £m £m £m
VAT 177.1 287.7 93.8 244.3 357.9 332.8 323.4 311.7 294.4 275.1 2,698.2
Alcohol duty 81.3 156.6 70.6 124.2 174.4 175.9 167.2 164.4 161.4 157 1,433.0
PAYE and NIC 58.7 141.9 101.5 106.6 121.4 109.2 96.2 95.1 84.8 78.4 993.8
Business rates 26.4 50.3 1.5 39.5 57.3 55.6 53 50.2 48.7 44.9 427.4
Corporation tax 8.7 1.5 - 21.5 19.9 26.1 20.7 19.9 15.3 18.4 152.0
Corporation tax credit (historic capital allowances) - - - - - - - - (2) - (2.0)
Fruit/slot Machine duty 7.6 12.8 4.3 9 11.6 10.5 10.5 11 11.2 11.3 99.8
Climate change levies 8.1 9.7 7.9 10 9.6 9.2 9.7 8.7 6.4 6.3 85.6
Stamp duty 0.7 2.7 1.8 4.9 3.7 1.2 5.1 2.6 1.8 2.1 26.6
Sugar tax 1.4 2.9 1.3 2 2.9 0.8 - - - - 11.3
Fuel duty 0.9 1.9 1.1 1.7 2.2 2.1 2.1 2.1 2.9 2.1 19.1
Carbon tax - - - - 1.9 3 3.4 3.6 3.7 2.7 18.3
Premise licence and TV licences 0.3 0.5 0.5 1.1 0.8 0.7 0.8 0.8 1.6 0.7 7.8
Landfill tax - - - - - 1.7 2.5 2.2 2.2 1.5 10.1
Employee support grants - (4.4) (213) (124.1) - - - - - - (341.5)
Eat out to help out - - (23.2) - - - - - - - (23.2)
Local Government Grants - (1.4) (11.1) - - - - - - - (12.5)
TOTAL TAX 371.1 662.7 37 440.7 763.6 728.8 694.6 672.3 632.4 600.5 5,522.5
TAX PER PUB 0.44 0.78 0.04 0.53 0.87 0.83 0.77 0.71 0.67 0.66 6.30
TAX AS % OF NET SALES 40.52% 38.10% 4.80% 34.90% 42.00% 43.00% 41.80% 42.10% 41.80% 42.60% 37.16%
PROFIT/(LOSS) 1.3 -24.9 -146.5 -38.5 79.6 83.6 76.9 56.9 57.5 58.9 204.8
AFTER TAX
Note - this table is prepared on a cash basis.
IFRS 16 was implemented in the year ending 26 July 2020 (FY20). From this
period all profit numbers in the above table are on a Post-IFRS 16 basis.
Prior to this date all profit numbers are on a Pre-IFRS 16 basis.
Corporate Governance
Wetherspoon has been a strong critic of the composition of the boards of
UK-quoted companies.
As a result of the "nine-year rule", limiting the tenure of NEDs and the
presumption in favour of "independent", part-time chairmen, boards are often
composed of short-term directors, with very little representation from those
who understand the company best - people who work for it full-time, or have
worked for it full-time.
Wetherspoon's review of the boards of major banks and pub companies, which
teetered on the edge of failure in the 2008-2010 recession, highlighted the
short "tenure", on average, of directors.
In contrast, Wetherspoon noted the relative success, during this fraught
financial period, of pub companies Fuller's and Young's, the boards of which
were dominated by experienced executives, or former executives.
As a result, Wetherspoon has increased the level of executive experience on
the Wetherspoon board by appointing four "worker directors".
All four worker directors started on the "shop floor" and eventually became
successful pub managers. Three have been promoted to area management roles.
They have worked for the company for an average of 24 years.
Board composition cannot guarantee future success, but it makes sensible
decisions, based on experience at the coalface of the business, more likely.
The UK Corporate Governance Code 2018 (the "Code") is a vast improvement on
previous codes, emphasising the importance of employees, customers and other
stakeholders in commercial success. It also emphasises the importance of its
'comply or explain' ethos, and the consequent need for shareholders to engage
with companies in order to understand their explanations.
A major impediment to the effective implementation of comply or explain seems
to be the undermanning of the corporate governance departments of major
shareholders.
For example, Wetherspoon met a compliance officer from one major institution
who is responsible for around 400 companies - an impossible task, since the
written regulatory output of each company is vast, coupled with the practical
impossibility of meeting with so many companies in any meaningful way.
As a result, it appears that compliance officers and governance advisors, in
practice, often rely on a "tick-box" approach, which is, itself, in breach of
the Code.
A further issue is that many major investors, in their own companies, for
sensible reasons, do not observe the nine-year rule, and other rules,
themselves. An approach of "do what I say, not what I do" is clearly
unsustainable.
Further progress
As always, the company has tried to improve as many areas of the business as
possible, on a week-to-week basis, rather than aiming for 'big ideas' or grand
strategies.
Frequent calls on pubs by senior executives, the encouragement of criticism
from pub staff and customers and the involvement of pub and area managers,
among others, in weekly decisions, are the keys to success.
Wetherspoon paid £15.0 million in respect of bonuses and free shares to
employees in the period ending 29 January 2023, of which 95.9% was paid to
staff below board level and 83.0% was paid to staff working in our pubs.
Wetherspoon has been the biggest corporate sponsor of 'Young Lives vs Cancer'
(previously CLIC Sargent), having raised a total of £21.3 million since 2002.
During the pandemic, our contributions had been reduced, but since the
reopening of our pubs there have been great efforts seen and our contributions
have bounced back significantly.
Wetherspoon has been recognised by The Top Employers Institute as a 'Top
Employer in the United Kingdom' for 2023. This is the 18th time that
Wetherspoon has been certified by the Institute.
Bonuses and Free Shares
As indicated above, Wetherspoon has, for many years (see table below),
operated a bonus and share scheme for all employees.
Financial year Bonus and free shares (Loss)/Profit after tax(1)
Bonus and free shares as % of profits
£m £m
2007 19 47 41%
2008 16 36 45%
2009 21 45 45%
2010 23 51 44%
2011 23 52 43%
2012 24 57 42%
2013 29 65 44%
2014 29 59 50%
2015 31 57 53%
2016 33 57 58%
2017 44 77 57%
2018 43 84 51%
2019 46 80 58%
2020 33 (39) -
2021 23 (146) -
2022 27 (25) -
2023 H1 15 1 1,500%
Total 479 558 51.6%(2)
(1)(IFRS 16 was implemented in the year ended 26 July 2020 (FY20). From this
period all profit numbers in the above table are on a Post-IFRS 16 basis.
Prior to this date all profit numbers are on a Pre-IFRS 16 basis.
(2) Excludes 2020, 2021 and 2022.
Length of Service
The attraction and retention of talented pub and kitchen managers is important
for any hospitality business. As the table below demonstrates, the retention
of managers has improved, even during the pandemic.
Financial year Average pub manager length of service Average kitchen manager length of service
(Years) (Years)
2013 9.1 6.0
2014 10.0 6.1
2015 10.1 6.1
2016 11.0 7.1
2017 11.1 8.0
2018 12.0 8.1
2019 12.2 8.1
2020 12.9 9.1
2021 13.6 9.6
2022 13.9 10.4
2023 H1 14.1 10.6
Food Hygiene Ratings
Wetherspoon has always emphasised the importance of hygiene standards.
We now have 769 pubs rated on the Food Standards Agency's website (see table
below). The average score is 4.98, with 98% of the pubs achieving a top rating
of five 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 59 pubs have passed.
Financial Year Total Pubs Scored Average Rating Pubs with highest Rating %
2013 771 4.85 87.0
2014 824 4.91 92.0
2015 858 4.93 94.1
2016 836 4.89 91.7
2017 818 4.89 91.8
2018 807 4.97 97.3
2019 799 4.97 97.4
2020 781 4.96 97.0
2021 787 4.97 98.4
2022 775 4.98 98.6
2023 H1 769 4.98 98.0
Property litigation
As previously reported, Wetherspoon agreed on an out-of-court settlement with
developer Anthony Lyons, formerly of property leisure agent Davis Coffer
Lyons, in 2013 and received approximately £1.25 million 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- 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 £400,000 from property investor Jason Harris,
formerly of First London and now of First Urban Group. Wetherspoon alleged
that Harris was an accessory to frauds committed by Van de Berg. Harris
contested the claim and has not admitted liability.
Before the conclusion of the above cases, Wetherspoon also agreed on a
settlement with Paul Ferrari of London estate agent Ferrari Dewe & Co, in
respect of properties referred to as the 'Ferrari Five' by Mr Justice Peter
Smith.
Press corrections
The press and media have generally been fair and accurate in reporting on
Wetherspoon over the decades. However, in the febrile atmosphere of the first
lockdown, something went awry and a number of harmful inaccuracies were
published.
In order to try and set the record straight, a special edition of Wetherspoon
News was published, which includes details of the resulting apologies and
corrections, which can be found on the company's website
(https://www.jdwetherspoon.com/~/media/files/pdf-documents/wetherspoon-news/does-truth-matter_.pdf
(https://www.jdwetherspoon.com/~/media/files/pdf-documents/wetherspoon-news/does-truth-matter_.pdf)
).
Current trading and outlook
As indicated above, trade for the last seven weeks was 9.1% above the
equivalent period in FY19 and 14.9% above the equivalent period in our last
financial year (FY22).
As reported last year, the company has a full complement of staff, although
the labour market is competitive, with unemployment, in spite of economic
problems, at approximately its lowest level in the last 50 or so years.
Supply or delivery issues have largely disappeared, for now, and were probably
a phenomenon of the stresses induced by the worldwide reopening after the
pandemic, rather than a consequence of Brexit, as many commentators have
argued.
Inflationary pressures in the pub industry, as many companies have said, have
been ferocious, particularly in respect of energy, food and labour. The Bank
of England, and other authorities, believe that inflation is on the wane,
which will certainly be of great benefit, if correct.
Having experienced a substantial improvement in sales and profits, compared to
our most recent financial year, and with a strengthened balance sheet,
compared both to last year and to the pre-pandemic period, the company is
cautiously optimistic about further progress in the current financial year and
in the years ahead.
J D Wetherspoon plc, company number: 1709784
Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
26 weeks 26 weeks 26 weeks 26 weeks 26 weeks 26 weeks
ended ended ended ended ended ended
29 January 29 January 29 January 23 January 23 January 23 January
2023 2023 2023 2022 2022 2022
Before separately After Before separately After
separately disclosed separately separately disclosed separately
disclosed items disclosed disclosed items disclosed
items items items items
£000 £000 £000 £000 £000 £000
Revenue 1 915,956 - 915,956 807,395 - 807,395
Other operating income - - - - 277 277
Operating costs (878,536) - (878,536) (805,767) - (805,767)
Operating profit 37,420 - 37,420 1,628 277 1,905
Property gains/(losses) 2 489 (11,665) (11,176) 1,653 (23) 1,630
Finance income 2 247 65,091 65,338 229 - 229
Finance costs 2 (33,592) (1,037) (34,629) (29,574) 12,774 (16,800)
Profit/(loss) before tax 4,564 52,389 56,953 (26,064) 13,028 (13,036)
Income tax (charge)/credit 3 (3,271) (16,767) (20,038) 1,007 560 1,567
Profit/(loss) for the period 1,293 35,622 36,915 (25,057) 13,588 (11,469)
Profit/(loss) per ordinary share (p)
- Basic 4 1.0 28.4 29.4 (19.7) (10.7) (9.0)
- Diluted 4 1.0 28.4 29.4 (19.7) (10.7) (9.0)
INCOME STATEMENT for the 26 weeks ended 29 January 2023
STATEMENT OF COMPREHENSIVE INCOME for the 26 weeks ended 29 January 2023
Notes Unaudited Unaudited Audited
26 weeks 26 weeks 53 weeks
ended ended ended
29 January 23 January 30 July
2023 2022 2022
£000 £000 £000
Items which will be reclassified subsequently to profit or loss:
Interest-rate swaps: gain taken to other comprehensive income 9 37,529 22,314 48,452
Interest-rate swaps: (loss)/gain reclassification to the income statement 9 (1,913) (2,011) (4,332)
Tax on items taken directly to other comprehensive income 3 (8,904) (9,124) (11,051)
Currency translation differences 3,211 (1,885) (1,474)
Net gain recognised directly in other comprehensive income 29,923 9,294 31,595
Profit/(loss) for the period 36,915 (11,469) 19,267
Total comprehensive profit/(loss) for the period 66,838 (2,175) 50,862
J D Wetherspoon plc, company number: 1709784
Notes Unaudited Unaudited Unaudited Unaudited Audited Audited
free cash free cash free cash
flow(1) flow(1) flow
26 weeks 26 weeks 26 weeks 26 weeks 53 weeks 53 weeks
ended ended ended ended ended ended
29 January 29 January 23 January 23 January 31 July 31 July
2023 2023 2022 2022 2022 2022
£000 £000 £000 £000 £000 £000
Cash flows from operating activities
Cash generated from/(used in) operations 5 84,187 84,187 33,215 33,215 178,510 178,510
Interest received 71 71 8 8 97 97
Interest paid (21,245) (21,245) (6,662) (6,662) (41,044) (41,044)
Cash proceeds on termination of interest-rate swaps 169,413 169,413 - - - -
Corporation tax paid (8,730) (8,730) (709) (709) (715) (715)
Lease interest (8,172) (8,172) (9,222) (9,222) (17,501) (17,501)
Net cash flow from operating activities 215,524 215,524 16,630 16,630 119,347 119,347
Cash flows from investing activities
Reinvestment in pubs (24,333) (24,333) (18,925) (18,925) (42,777) (42,777)
Reinvestment in business and IT projects (2,804) (2,804) (543) (543) (3,113) (3,113)
Investment in new pubs and pub extensions (10,669) - (22,275) - (51,083) -
Freehold reversions and investment properties (9,994) - (19,248) - (25,773) -
Proceeds of sale of property, plant and equipment 3,327 - 2,139 - 10,547 -
Net cash flow from investing activities (44,473) (27,137) (58,852) (19,468) (112,199) (45,890)
Cash flows from financing activities
Purchase of own shares for share-based payments (7,454) (7,454) (7,082) (7,082) (12,808) (12,808)
(Repayments)/advances under bank loans (140,033) - 74,990 - 50,000 -
Other loan receivables 393 - (3,986) - (3,542) -
Lease principal payments 10 (14,904) (14,904) (24,589) (24,589) (38,535) (38,535)
Asset-financing principal payments (2,855) - (3,531) - (7,132) -
Net cash flow from financing activities (164,853) (22,358) 35,802 (31,671) (12,209) (51,535)
Net change in cash and cash equivalents 6,198 (6,420) (5,061)
Opening cash and cash equivalents 40,347 45,408 45,408
Closing cash and cash equivalents 46,545 38,988 40,347
Free cash flow(1) 166,029 (34,509) 21,922
CASH FLOW STATEMENT for the 26 weeks ended 29 January 2023
( )
(1)Free cash flow is a measure not required by accounting standards; a
definition is provided in the accounting policies within the 2022 Annual
Report
BALANCE SHEET as at 29 January 2023
J D Wetherspoon plc, company number: 1709784 Notes Unaudited Restated(1) Audited
Unaudited
29 January 23 January 31 July
2023 2022 2022
£000 £000 £000
Assets
Non-current assets
Property, plant and equipment 1,417,559 1,440,368 1,426,862
Intangible assets 5,670 3,849 5,409
Investment property 23,276 12,653 23,364
Right-of-use assets 10 400,739 448,184 419,416
Other loan receivable 2,749 3,224 2,739
Derivative financial instruments 9 326 - 61,367
Lease assets 10 8,662 9,681 9,264
Total non-current assets 1,858,981 1,917,959 1,948,421
Current assets
Lease assets 10 2,001 1,638 2,001
Assets held for sale 7 1,533 2,123 800
Inventories 32,483 27,007 26,402
Receivables 14,650 16,696 29,400
Current income tax receivables 4,049 2,269 2,000
Cash and cash equivalents 46,545 38,988 40,347
Total current assets 101,261 88,721 100,950
Total assets 1,960,242 2,006,680 2,049,371
Current liabilities
Borrowings 8 (4,324) (6,740) (5,137)
Derivative financial instruments 9 (66) - -
Trade and other payables (258,733) (244,757) (282,481)
Provisions (2,877) (3,030) (2,661)
Lease liabilities 10 (47,409) (50,797) (48,471)
Total current liabilities (313,409) (305,324) (338,750)
Non-current liabilities
Borrowings 8 (789,296) (956,605) (930,404)
Derivative financial instruments 9 (9,631) (3,565) (2,031)
Deferred tax liabilities (56,984) (24,497) (34,718)
Lease liabilities 10 (406,529) (444,836) (421,583)
Total non-current liabilities (1,262,440) (1,429,503) (1,388,736)
Total liabilities (1,575,849) (1,734,827) (1,727,486)
Net assets 384,393 271,853 321,885
Shareholders' equity
Share capital 2,575 2,575 2,575
Share premium account 143,294 143,294 143,294
Capital redemption reserve 2,337 2,337 2,337
Other reserves 234,579 234,579 234,579
Hedging reserve(1) 40,329 (8,273) 13,617
Currency translation reserve 4,529 (501) (144)
Retained earnings(1) (43,250) (102,158) (74,373)
Total shareholders' equity 384,393 271,853 321,885
(1)Restated 23 Jan 2022.
STATEMENT OF CHANGES IN EQUITY
J D Wetherspoon plc, company number: 1709784
Notes Share Share premium Capital Other Restated(1) Currency Restated(1) Total
capital account redemption Reserves(2) Hedging translation Retained
reserve reserve(2) reserve(2) earnings(2)
£000 £000 £000 £000 £000 £000 £000 £000
As at 25 July 2021 as previously reported 2,575 143,294 2,337 234,579 (15,403) 1,851 (91,256) 277,977
Effect of restatement - - - - (4,049) - 4,049 -
Restated(1) At 25 July 2021 2,575 143,294 2,337 234,579 (19,452) 1,851 (87,207) 277,977
Total comprehensive income - - - - 11,179 (2,352) (11,003) (2,176)
Loss for the period - - - - - - (11,469) (11,469)
Interest-rate swaps: cash flow hedges 9 - - - - 22,314 - - 22,314
Interest-rate swaps: amount reclassified to the income statement 9 - - - - (2,011) - - (2,011)
Tax on items taken directly to comprehensive income 3 - - - - (9,124) - - (9,124)
Currency translation differences - - - - - (2,352) 466 (1,886)
Share-based payment charges - - - - - - 3,152 3,152
Tax on share-based payment - - - - - - (18) (18)
Purchase of own shares for share-based payments - - - - - - (7,082) (7,082)
Restated(1) At 23 January 2022 2,575 143,294 2,337 234,579 (8,273) (501) (102,158) 271,853
Total comprehensive income - - - - 21,890 357 30,791 53,038
Profit for the period - - - - - - 30,736 30,736
Interest-rate swaps: cash flow hedges 9 - - - - 26,138 - - 26,138
Interest-rate swaps: amount reclassified to the income statement 9 - - - - (2,321) - - (2,321)
Tax on items taken directly to comprehensive income 3 - - - - (1,927) - - (1,927)
Currency translation differences - - - - - 357 55 412
Share-based payment charges - - - - - - 2,722 2,722
Tax on share-based payment - - - - - - (2) (2)
Purchase of own shares for share-based payments - - - - - - (5,726) (5,726)
At 31 July 2022 2,575 143,294 2,337 234,579 13,617 (144) (74,373) 321,885
Total comprehensive income - - - - 26,712 4,673 35,452 66,837
Profit for the period - - - - - - 36,914 36,914
Interest-rate swaps: cash flow hedges 9 - - - - 37,529 - - 37,529
Interest-rate swaps: amount reclassified to the income statement 9 - - - - (1,913) - - (1,913)
Tax on items taken directly to comprehensive income 3 - - - - (8,904) - - (8,904)
Currency translation differences - - - - - 4,673 (1,462) 3,211
Share-based payment charges - - - - - - 3,125 3,125
Tax on share-based payment - - - - - - - -
Purchase of own shares for share-based payments - - - - - - (7,454) (7,454)
At 29 January 2023 2,575 143,294 2,337 234,579 40,329 4,529 (43,250) 384,393
(1)Restated 23 Jan 2022.
The currency translation reserve contains the accumulated currency gains and
losses on the long-term financing and balance sheet translation of the
overseas branch. The currency translation difference reported in retained
earnings is the retranslation of the opening reserves in the overseas branch
at the current period end's currency exchange rate.
(2)As at 29 January 2023, the company had distributable reserves of £236.2m
(23 January 2022: £123.6m).
NOTES TO THE FINANCIAL STATEMENTS
1. Revenue
Unaudited Unaudited
26 weeks 26 weeks
ended ended
29 January 23 January
2023 2022
£000 £000
Bar 521,088 480,453
Food 351,741 292,891
Slot/fruit machines 30,269 23,144
Hotel 11,863 10,424
Other 995 483
915,956 807,395
2. Separately disclosed items
Unaudited Unaudited
26 weeks 26 weeks
ended ended
29 January 23 January
2023 2022
£000 £000
Operating items
Local government support grants - 107
Duty drawback - 170
Operating income - 277
Total operating costs - 277
Property losses
Loss on disposal of pubs (3,052) (23)
(3,052) (23)
Other property losses
Impairment of property, plant and equipment (7,311) -
Impairment or intangible assets 74 -
Impairment of right-of-use assets (1,376) -
(8,613) -
Total property losses (11,665) (23)
Other items
Finance income 65,091 13,774
Finance costs (1,037) (1,000)
64,054 12,774
Taxation
Other tax items (5,847) (189)
Tax effect on separately disclosed items (10,920) 749
(16,767) 560
Total separately disclosed items(1) 35,622 13,588
(1)separately disclosed items were previously reported as exceptional items,
refer to accounting policy for further details.
2. Separately disclosed items (continued)
Loss on disposal of pubs
Costs classified under 'loss on disposal of pubs' relate to the (loss)/gain on
disposal sites in the estate. During the period, seven freehold pubs were sold
and the break notice served on 10 pubs.
Other property losses
Property impairment relates to pubs which are deemed unlikely to generate
sufficient cash flows in the future to support their carrying value. In the
year, a total impairment charge of £8,613k (2022: £nil) was incurred in
respect of the impairment of assets as required under IAS 36.
Finance costs
Finance costs totalling £1,000k (2022: £1,000k) relate to covenant-waiver
fees. £37k of remaining finance costs relate to other
interest.
Finance income
The company has recognised finance income of £65,091k (2022: £13,774k),
relating to the fair value movement on a proportion of its interest rate
swaps. £49,888k (2022: -£48,527k) relates to hedge gains recognised in
profit or loss in respect of hedges held at fair value through the profit or
loss. £15,203k (2022: £3,802k) relates to £13,291k reclassified from the
profit or loss to other comprehensive income for the amount relating to
terminated swaps, and a further £1,913k for the amortisation to the profit or
for cash flow hedge reserves relating to discontinued hedge relationships. See
note 9 for details.
Taxation
The current tax charge of £5,847k relates primarily to derivative contracts.
The deferred tax charge of £10,920k relates primarily to derecognition of the
deferred tax asset in respect of interest restrictions and the impact of the
change in the UK tax rate on deferred tax balances.
3. Income tax expense
The standard rate of corporation tax in the UK is 19.0%. The company's profits
for the accounting period are taxed at a rate of 21.0% (2022: 19.0%).
Unaudited Unaudited Unaudited Unaudited Audited Audited
26 weeks ended 26 weeks ended 26 weeks 26 weeks 53 weeks 53 weeks
ended
ended
ended
ended
29 January 29 January 23 January 23 January 31 July 31 July
2023 2023 2022 2022 2022 2022
Before After Before After Before After
separately separately separately separately separately separately
disclosed disclosed disclosed disclosed disclosed disclosed
items items items items items items
£000 £000 £000 £000 £000 £000
Taken through income statement
Current income tax:
Current income tax charge 866 6,625 (378) (378) 22 22
Previous period adjustment - 88 - 2 - -
Total current income tax 866 6,713 (378) (376) 22 22
Deferred tax:
Origination and reversal of temporary differences 2,405 15,771 (629) (1,380) (4,529) 10,133
Prior year deferred tax credit - (36) - - (1,053) (1,053)
Impact of change in UK tax rate - (2,410) - 189 - (2,102)
Total deferred tax 2,405 13,325 (629) (1,191) (5,582) 6,978
Tax charge/(credit) 3,271 20,038 (1,007) (1,567) (5,560) 7,000
Taken through equity
Current tax - - (2) (2) (2) (2)
Deferred tax - - 20 20 22 22
Tax charge - - 18 18 20 20
Taken through comprehensive income
Deferred tax charge on swaps 7,479 7,479 7,079 7,079 8,404 8,404
Prior year deferred tax charge/ (credit) - - - - - -
Impact of change in UK tax rate 1,425 1,425 2,045 2,045 2,647 2,647
Tax charge 8,904 8,904 9,124 9,124 11,051 11,051
4. Basic earnings/(loss) per share
Weighted average number of shares
Basic earnings/(loss) per share is calculated by dividing the profit/(loss)
after tax for the period by the weighted average number of ordinary shares in
issue during the financial year of 128,750,155 (2022: 128,750,155) less the
weighted average number of shares held in trust during the financial year of
3,337,132 (2022: 1,804,137). Shares held in trust are shares purchased by the
company to satisfy employee share schemes which have not yet vested.
Weighted average number of shares Unaudited Unaudited Audited
26 weeks 26 weeks 53 weeks
ended ended ended
29 January 23 January 31 July
2023 2022 2022
Shares in issue 128,750,155 128,750,155 128,750,155
Shares held in trust (3,337,132) (1,804,137) (1,924,810)
Shares in issue - Basic 125,413,023 126,946,018 126,825,345
Dilutive shares - - -
Shares in issue - Diluted 125,413,023 126,946,018 126,825,345
Earnings / (loss) per share
26 weeks ended 29 January 2023 unaudited Profit Basic EPS Diluted EPS
£000 pence pence
Earnings (profit after tax) 36,915 29.4 29.4
Exclude effect of separately disclosed items after tax (35,622) (28.4) (28.4)
Earnings before separately disclosed items 1,293 1.0 1.0
Exclude effect of property gains (489) (0.4) (0.4)
Underlying earnings before separately disclosed items 804 0.6 0.6
26 weeks ended 23 January 2022 unaudited Loss Basic EPS Diluted EPS
£000 pence pence
Earnings (loss after tax) (11,469) (9.0) (9.0)
Exclude effect of separately disclosed items after tax (13,588) (10.7) (10.7)
Earnings before separately disclosed items (25,057) (19.7) (19.7)
Exclude effect of property gains (1,653) (1.3) (1.3)
Underlying earnings before separately disclosed items (26,710) (21.0) (21.0)
5. Cash used in/generated from operations
Unaudited Unaudited Audited
26 weeks 26 weeks 53 weeks
ended ended ended
29 January 23 January 31 July
2023 2022 2022
£000 £000 £000
Profit/(loss) for the period 36,915 (11,469) 19,267
Adjusted for:
Tax (note 3) 20,038 (1,567) 7,002
Share-based charges 3,125 3,152 5,874
Loss on disposal of property, plant and equipment 3,738 1,485 3,589
Gain on remeasurement of capitalised leases (note 10) (489) (3,449) (7,368)
Gain on disposal of capitalised leases (note 10) (686) - -
Net impairment charge (note 2) 8,613 - 24,430
Interest payable & receivable 24,411 18,949 41,292
Lease interest (note 10) 7,966 9,394 17,655
Separately disclosed Interest (note 2) (64,054) (12,774) (51,859)
Amortisation of bank loan and private placement issue costs 968 1,002 1,983
Depreciation and amortisation 54,847 59,883 116,845
Aborted properties costs 688 2,283 2,947
Cancelled principal payments - (2,250) (4,726)
Foreign exchange movements (3,214) - (1,474)
92,866 64,640 175,457
Change in inventories (6,081) (154) 452
Change in receivables 14,143 (269) (10,810)
Change in payables (16,741) (31,002) 13,524
Cash flow from operating activities 84,187 33,215 178,623
6. Analysis of change in net debt
Audited Audited Unaudited
25 July Cash Other 31 July Cash Other 29 January
2021 flows changes 2022 flows changes 2023
£000 £000 £000 £000 £000 £000 £000
Borrowings
Cash and cash equivalents 45,408 (5,061) - 40,347 6,198 - 46,545
Other loan receivable - before one year - 803 - 803 (401) - 402
Asset-financing obligations - before one year (7,610) 2,473 - (5,137) 813 - (4,324)
Current net borrowings 37,798 (1,785) - 36,013 6,610 - 42,623
Bank loans - due after one year (776,871) (49,808) (1,937) (828,616) 140,033 (945) (689,528)
Asset-financing obligations - after one year (8,633) 4,659 - (3,974) 2,043 - (1,931)
Other loan receivable - after one year - 2,739 - 2,739 - - 2,739
Private placement - after one year (97,768) - (46) (97,814) - (23) (97,837)
Non-current net borrowings (883,272) (42,410) (1,983) (927,665) 142,076 (968) (786,557)
Net debt (845,474) (44,195) (1,983) (891,652) 148,686 (968) (743,934)
Derivatives
Interest-rate swaps asset - after one year - - 61,367 61,367 - (61,041) 326
Interest-rate swaps liability - within one year - - - - - (66) (66)
Interest-rate swaps liability - after one year (37,643) - 35,612 (2,031) - (7,600) (9,631)
Total derivatives (37,643) - 96,979 59,336 - (68,707) (9,371)
Net debt after derivatives (883,117) (44,195) 94,996 (832,316) 148,686 (69,675) (753,305)
Leases
Lease assets - before one year 1,638 (1,423) 1,786 2,001 (826) 38 1,213
Lease assets - after one year 9,890 - (626) 9,264 - 184 9,448
Lease obligations - before one year (65,219) 40,049 (23,301) (48,471) 15,730 (14,668) (47,409)
Lease obligations - after one year (458,596) - 37,014 (421,582) - 15,053 (406,529)
Net lease liabilities (512,287) 38,626 14,873 (458,788) 14,904 607 (443,277)
Net debt after derivatives and lease liabilities (1,395,404) (5,569) 109,869 (1,291,104) 163,590 (69,068) (1,196,582)
The cash movement on bank loans of £140,033k primarily relates to the
repayment of the CLBILs in November 2022 of £100,033k. The remaining
repayment relates to the variable-rate facility which has reduced from
£730,000k to £690,000k from 31 July 2022 to 29 January 2023.
The cash movement on asset-financing of £2,855k is disclosed in the cash flow
statement as 'asset-financing principal payments'.
Lease obligations represent long-term payables, while lease assets represent
long-term receivables - both are, therefore, disclosed in the table above.
Non-cash movements
The non-cash movement in bank loans and the private placement relate to the
amortisation of loan issue costs. These are arrangement fees paid in respect
of new borrowings and are charged to the income statement over the expected
life of the loans.
The movement in interest-rate swaps relates to the termination of the majority
of the interest-rate swaps in place, the change in the 'mark to market'
valuations for the 26 week financial period and the addition of new swaps. See
note 9.
7. Assets held for sale
Unaudited Unaudited Audited
29 January 23 January 31 July
2023 2022 2022
£000 £000 £000
Property, plant and equipment 1,533 2,123 800
These relate to situations in which the company had exchanged contracts to
sell a property, but the transaction is not yet complete. As at 29 January,
one site was classified as held for sale (23 January 2022: three sites and 31
July 2022: two sites).
8. Borrowings
Unaudited Unaudited Audited
29 January 23 January 31 July
2023 2022 2022
£000 £000 £000
Current (due within one year)
Other
Lease liabilities 47,409 50,797 48,471
Asset-financing obligations 4,324 6,740 5,137
Total current borrowings (including lease liabilities) 51,733 57,537 53,608
Non-current (due after one year)
Bank loans
Variable-rate facility 690,000 755,000 730,000
CLBILS - 100,033 100,033
Unamortised bank loan issue costs (472) (2,192) (1,417)
689,528 852,842 828,616
Private placement
Fixed-rate facility 98,000 98,000 98,000
Unamortised private placement issue costs (163) (209) (186)
97,837 97,791 97,814
Other
Lease liabilities 406,529 444,836 421,582
Asset-financing 1,931 5,972 3,974
408,460 450,808 425,556
Total non-current borrowings (including lease liabilities) 1,195,825 1,401,441 1,351,986
Total borrowings (including lease liabilities) 1,247,558 1,458,978 1,405,594
Lease liabilities
The carrying amounts of lease liabilities and the movements during the period
are outlined in note 10.
Asset-financing obligations
These relate to asset finance leases of equipment in pubs.
Variable-rate facility
The secured revolving credit facility is £875m. As at 29 January 2023, £690m
was drawn down (31 July 2022: £730m). There are 14 participating lenders.
£20m matures in February 2024 while £855m matures in February 2025. The
company has hedged its interest-rate liabilities to its banks by swapping the
floating-rate debt into fixed-rate debt, see note 9.
CLBILS
On 14 November 2022, the company repaid the two secured loans under the CLBILS
of £48.3m and £51.7m, respectively. The loans had four participating lenders
and an average fixed-interest charge of 1.94%; they were set to mature in
August 2023.
Unamortised bank loan issue costs
These relate primarily to refinancing, securing and extending the
variable-rate facility.
Private placement
The fixed-rate facility relates to senior secured notes of £98m. The notes
mature in 2026.
The company has an overdraft facility of £10m.
9. Financial instruments
The below table outlines the movements in fair value among the hedging
reserve, comprehensive income and the income statement during the year:
Unaudited Audited
29 January 31 July
2023 2022
Interest-rate swaps £000 £000
Carrying value of derivative financial instruments - Liability (9,697) (2,031)
Carrying value of derivative financial instruments - Asset 326 61,367
Change in fair value of derivatives (68,707) 96,979
Hedge gains recognised in comprehensive income in respect of continuing hedges (50,819) (48,452)
Hedge gains recognised in P&L in respect of hedges held at fair value (49,887) (48,527)
through the profit or loss
Transaction proceeds received in respect of terminated hedges (net of 169,413 -
termination fees)
Hedge ineffectiveness reclassified from the reserve to P&L in respect of - (8,134)
continuing hedges
Amount recognised to P&L relating to terminated swaps 13,290
Amortisation to P&L of cash flow hedge reserve relating to discontinued 1,913 3,802
hedge relationship
Hedging reserve balance in respect of continuing hedges 345 (14,516)
Hedging reserve balance in respect of discontinued hedges (40,674) 899
Hedging Reserve £000 £000
Opening (13,617) 19,452
Hedging gains recognised in comprehensive income (37,529) (48,452)
Hedge ineffectiveness reclassified from the reserve to P&L in respect of - 8,134
continuing hedges
Amortisation to P&L of cash flow hedge reserve relating to discontinued 1,913 (3,802)
hedge relationships
Deferred tax posted to comprehensive income 8,904 11,051
Closing (40,329) (13,617)
The company had eight designated hedge relationships at the beginning of the
reporting period, which each, individually held a number of interest-rate
swaps. As at 29 January 2023, the interest-rate swaps were in a liability
position of £9,371k (31 July 2022: asset position £59,336k). The following
changes have taken place during the six months to 29 January 2023:
On 14 October 2022, the company terminated the majority of the interest-rate
swaps which it had in place with the exception of five individual
interest-rate swaps sitting between two of its hedge relationships. Upon
termination, the company received a cash inflow of £169,413k being proceeds
less termination fees. The terminated interest-rate swaps which were
previously subject to hedge accounting have been treated as discontinued and
an assessment made to determine whether the hedged future cash flows will
still occur.
The hedges terminated are as follows:
· Hedge relationship two contained six interest-rate swaps which
were all terminated, two of which had been previously discontinued due to
novation's. Hedge relationship three contained five interest-rate swaps, one
of which had been previously discontinued due to novation. These interest-rate
swaps were previously hedge accounted for and the future hedged cash flows are
still expected to occur. The fair value in OCI was crystallised at termination
and will be recycled to the P&L in line with the future hedged cash flows.
· Hedge relationships five, six and seven each contained one
interest-rate swap. These hedge relationships were previously discontinued.
Any fair value movements were previously recognised in the P&L and amounts
in OCI recycled to profit or loss at the date of termination.
· Hedge relationship eight was previously not hedge accounted for.
Any fair value movements were previously recognised in the P&L.
The two hedge relationships with active swaps remaining had previously been
hedge accounted for:
· Hedge relationship one contained four interest-rate swaps, all of
which have remained active. Previously the hedge relationship had been
partially discontinued as two of these interest-rate swaps had been novated.
The remaining two interest-rate swaps will be hedge accounted for until
maturity.
· Hedge relationship four had two out of three interest-rate swaps
terminated. On 14 October 2022, the maturity date of the remaining
interest-rate swap was amended from 30 June 2028 to 31 July 2023. As a result
of the above, the hedge has been fully discontinued given that the critical
terms have materially changed.
On 24 October 2022, three new interest-rate swaps were enacted under one new
hedge relationship (hedge relationship nine) with a total nominal value of
£400m. Management elected not to apply hedge accounting to the hedge
relationship from inception as it did not meet the risk strategy for the
company.
Remaining in the hedging reserve, is £345k of fair value relating to
continuing hedges (31 July 2022: -£14,516k) and -£40,674k of fair value
relating to hedges which have been derecognised or discontinued (31 July 2022:
£899k). The fair value of derecognised and discontinued hedges will be
recycled to the income statement over the remaining period of maturity in line
with the hedged cash flows.
10. Leases
The following amounts, relating to lease cash flows, were debited/credited to
the income statement during the period:
Unaudited Unaudited
Rent Cash flow Analysis 29 January 23 January
2023 2022
£000 £000
Cash outflows relating to capitalised leases 24,081 34,787
Expense relating to short term leases 194 375
Expense relating to variable element of concessions 7,665 2,196
Total rent cash outflows for period 31,940 37,358
Cash inflows relating to capitalised leases (1,005) (884)
Income relating to lessor sites (1,188) (757)
Total rent cash Inflows for period (2,193) (1,641)
(a) Right-of-use assets
Set out below are the carrying amounts of right-of-use assets recognised and
the movements during the period:
£000
Cost
As at 31 July 2022 557,262
Additions 11,344
Remeasurement (17,053)
Transfer to property, plant and equipment (5,243)
Disposals and derecognised leases (204)
At 29 January 2023 546,106
Accumulated depreciation and impairment:
As at 31 July 2022 (137,846)
Provided during the period (18,238)
Exchange differences 147
Impairment loss (1,376)
Transfer to property, plant and equipment 996
Remeasurement 10,858
Disposals and derecognised leases 92
At 29 January 2023 (145,367)
Net book amount at 29 January 2023 400,739
During the period, additions related to six new signed lease contracts. 24
leases were remeasured as a result of changes in the agreed payments under the
lease contracts and changes in the lease terms. Exchange differences occur as
a result of translating the capitalised leases in the Republic of Ireland.
Four freehold reversions took place during the period, while one lease was
disposed of. In the year ended 31 July 2022, lease additions totalled £4,458k
and depreciation £42,291k.
10. Leases (continued)
(b) Lease liability
Set out below are the carrying amounts of lease liabilities and the movements
during the period:
Unaudited Audited
29 January 31 July
2023 2022
£000 £000
Lease liability as at commencement of period (470,054) (523,815)
Additions (11,344) (4,458)
Freehold Reversions - 15,740
Transfer to property, plant and equipment 4,623 -
Remeasurements of leases 7,146 (6,742)
Disposals 120 4,514
Cancelled principal payments (due to expedient) - 4,726
Exchange differences (159) (67)
Lease liabilities before payments (469,668) (510,102)
Interest payable in period:
Interest expense within period (discounting element) (8,351) (18,083)
Cancelled interest expense (due to expedient) - 501
(8,351) (17,582)
Total cash outflow for leases in period:
Lease payment commitments for period 24,081 62,857
Cancelled payment commitments (due to expedient) - (5,227)
24,081 57,630
Net principal payments 15,730 40,048
Lease liability as at closing of period (453,938) (470,054)
(c) Lease assets
Unaudited Audited
29 January 31 July
2023 2022
£000 £000
Recognition of Asset liability 11,264 11,528
Additions of leases 225 447
Lease assets before payments 11,489 11,975
Interest due in period 179 228
Total cash Inflow for leases in period (1,005) (884)
Net principal payments (826) (656)
Lease asset 10,663 11,319
11. Going Concern
The directors have made enquiries into the adequacy of the company's financial
resources, through a review of the company's budget and medium-term financial
plan, including capital expenditure plans and cash flow forecasts.
The company has agreed with its lenders to replace normal financial covenant
tests with relaxed leverage covenant tests for the second half of the current
financial year to 30 July 2023. The company is confident that it will be in a
position to return to normal financial covenant tests thereafter.
The company has modelled a base forecast in which, over the next 18 months,
sales, profit and cash flow growth continues at a modest rate. The company has
anticipated within this forecast continued high levels of inflation,
particularly on food products, wages and repairs.
A more cautious scenario has been analysed, in which sales are 5% lower than
the base case over the next 18 months. The company has reviewed, and is
satisfied with, the mitigating actions it could take if such a sales decline
were to occur. Such actions could include reducing discretionary expenditure
and/or implementing price increases.
The company has also reviewed a 'reverse stress test', which has analysed the
additional level of sales decline the company could withstand before covenant
levels would be exceeded in October 2024, when agreed waivers expire.
The directors are satisfied that the company has sufficient resources (e.g.
profitability/liquidity) to withstand adjustments to the base forecast, as
well as the downside and stress test scenarios.
As a result, the directors have satisfied themselves that the company will
continue in operational existence for the foreseeable future. For this reason,
the company continues to adopt the going-concern basis in preparing its
financial statements.
12. Contingent liability
The company is in an on-going contractual dispute with a large supplier. The
outcome of the dispute is yet to be determined and
will be resolved by a legal process. Disclosing any further information at
this stage about the ongoing contractual dispute, its
financial effect (if any) and uncertainties relating to the amount or timing
of any outflow might be prejudicial to the company's
position.
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