J D Wetherspoon plc (LON: JDW) announced today its Q2 business update. The Company’s interim results for the six months ending 26 January 2020 are expected to be announced on 20 March 2020.
Current trading
For the first 12 weeks of the second quarter (to 19 January 2020), like-for-like sales increased by 4.7% and total sales by 4.2%. In the year to date (25 weeks to 19 January 2020), like-for-like sales increased by 5.0% and total sales by 4.9%.
Property and buybacks
Since the start of the financial year, the Company has opened 1 new pub and sold 5 and intends to open a further 10 to 15. It is expected that around £80m will be spent this year on new pubs and pub extensions.
The Company has spent £57m in the year to date buying the freehold reversions of 18 pubs of which it was previously the tenant. Full-year reversion expenditure is expected to be around £85m (2019: £77m).
A total of £320m has been spent on reversions since 2014.
In addition, the company has spent £516m on buying and cancelling 53% of its own shares since the buyback program started in 2003.
The number of shares in issue has been reduced from 221,512,519 to 104,678,395.
Financial position
The Company remains in a sound financial position. Net debt (pre IFRS16) at the end of this financial year is currently expected to be between £780m and £820m, slightly higher than previously anticipated, due to higher than anticipated capital expenditure.
Expenditure on reversions and buybacks, referred to above, approximately equals company debt – if the company had not bought shares or reversions it would be more or less debt-free, having financed dividends, the repayment of 2003 borrowings of approximately £300m and the opening of a net 239 pubs, from free cash flow.
Corporate Governance
Commenting on corporate governance issues, the chairman of J D Wetherspoon, Tim Martin, said:
“In an important high court case involving Wetherspoon, the judge said that he would assume written statements by witnesses were true, unless contradicted by barristers in cross-examination.
“This sensible principle of justice is also implicit in the ‘comply or explain’ provisions of corporate governance guidelines (the ‘code’).
“Comply or explain must mean that the code envisaged flexibility and did not advocate a ‘one-type-suits-all’ approach.
“If shareholders say nothing in response to company explanations, which have been made in order to comply with the code, it is reasonable to assume their assent.
“However, in reality, detailed explanations are ignored by many fund managers and their corporate governance advisers – comply or explain has been corrupted to mean ‘comply or be humiliated in public and voted off the board’ – a risk which most NEDs are understandably reluctant to take.
“A likely reason for ignoring explanations, in defiance of the code, is that it’s simpler and cheaper to apply arbitrary standards such as the ‘nine-year rule’- rather than engaging with companies and considering their explanations.
“Corporate governance adviser PIRC, for example, advertises for temporary staff for the company results’ “season”, and it appears to demand a blanket nine-year rule, almost irrespective of explanations.
“In effect, PIRC purports to impose its own version of the code on companies, with no qualifications, or remit, for that approach.
“In a further illustration of how the code operates in practise, Wetherspoon’s largest shareholder, Columbia Threadneedle (CT), withdrew support for two of our long-serving NEDs for non-compliance with the ‘nine-year rule’, with no advance warning or discussion, shortly before our 2018 AGM.
“CT unilaterally took this action, in spite of detailed explanations in the preceding years in our annual reports.
“CT and fellow shareholder Blackrock’s OWN boards however, very sensibly, do not observe the nine-year rule – both laud ‘independent’ NEDs with longer tenure than nine years.
“In other words, one rule for CT and Blackrock – and another for UK PLC.
“These issues were reviewed in some detail in our November 2019 trading statement (appendix 1). It would be beneficial if all shareholders could read this appendix. It is not boilerplate and the future of companies like Wetherspoon, and many others, is seriously undermined by the operation of the current code.
“As in previous years, there has been no objection or critique whatsoever, in writing or in person, from any shareholder, individual or organisation, of the points raised in our November review.
“It is an unfortunate reflection on complacency in the City and among unaccountable ‘rule-makers’ that institutions like Columbia Threadneedle, Blackrock – and corporate governance adviser PIRC – have not felt the need to issue a proper or detailed response to the serious issues raised by Wetherspoon.
“The main consequence of the current governance system is short-termist and inexperienced boards, which have minimal representation from executives and the workforce – the people who are best placed to understand and run the business.
“These factors are obviously damaging for customers, employees and the economy – as well as for shareholders.
“The UK, of course, needs a sensible system of corporate governance. However, the current system is remote, counterproductive and inflexible, which are also the characteristics of many major shareholding institutions and their advisers.”
Brexit
Commenting on Brexit, Tim Martin, said:
“It is disappointing to note that pro-remain organisations like the CBI and the Food and Drink Federation are, even at this late stage, doubling down on ‘project fear’ stories.
“A dramatic headline on the BBC’s main news website (“Brexit: Price rises warning after chancellor vows EU rules divergence”, 18 January) predicted dire consequences in the event of ‘divergence’ from the EU.
“The article contained a jobs warning from the CBI, which previously promoted the disastrous exchange rate mechanism and the euro, and a food prices warning from the Food and Drink Federation (FDF).
“The CBI’s warnings about job losses and recession in the event of a leave vote in 2016 have proved to be mythical – over a million jobs have been created.
“The FDF’s warnings about food price rises are absurd- the EU is a highly protectionist organisation which imposes tariffs and quotas on about 13,000 non-EU imports including many food and drink products such as bananas, rice, oranges, coffee and wine.
“Elimination of tariffs will obviously reduce prices.
“It is high time these organisations took a wise-up pill and supported the democratic decisions of the UK.”
Outlook
Tim Martin said:
“We continue to anticipate a trading outcome for this financial year in line with our previous expectations.”
