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Sat 14th Sep 2013 - Breaking News - Results special: Tim Martin on VAT, openings and his son
JD Wetherspon founder and chairman Tim Martin attended his first company results meeting since 2003 yesterday. His appearance was to publicise Tax Parity Day on Wednesday 25 September, when prices will be cut at JD Wetherspoon pubs – and a large number of other pub and restaurant companies – by 7.5% to highlight the benefits to consumers of lowering VAT in the foodservice sector. Martin believes that the pub sector is facing an unsustainable future unless the tax disparity with supermarkets on food can be reduced – supermarkets pay no VAT whilst pubs and restaurants pay 20%. Below, Propel, reports what Martin had to say on the current tax regime and a host of Wetherspoon operational issues.

Tim Martin on paying £632,000 in tax per pub: “It’s only a matter of time before all three of us (he was seated with chief executive John Hutson and finance director Kirk Davis) are knighted for efforts on behalf of the country. We like to pay taxes. We love it – it’s a good thing to do. We paid £551.1m in tax this year. We aspire to pay £1bn a year in tax but we think we should be paying the same as supermarkets. We think it’s time everybody woke up to the fact that the pub industry has lost 50% of its beer sales and 15% of pubs have closed down. There is a decision for the country. It doesn’t matter what Andrew Griffiths (MP for Burton who has publicly fallen out with Martin over the campaign to reduce VAT) or George Osborne think. Anybody who has visited Sweden knows how boring it is without a pub – (it’s the reason why) there are more Swedes here in the UK pro rata than Poles. The closure of pubs is not fast enough for people to panic – it’s not like a car factory closing down. (But) there is a big movement away from pubs – we’ve lost a lot of students and pensioners. I think it’s the price differential (with the supermarkets) that’s causing the change.” Martin reported coming home to find his son drinking Budweiser bought from Tesco with his friends. He reported using Anglo Saxon language to urge him to go down the pub. He later told The Telegraph: “This (tax) disparity enables supermarkets to subsidise their alcohol drink sales to the detriment of pubs and, indeed, restaurants. This serious economic disadvantage has contributed to the closure of many thousands of pubs.”

Tim Martin on margins: “We’ve managed to increase sales over the years but we haven’t always managed to increase margins. The difficult thing in the pub business is to remain competitive. We have increased Earnings Per Share 60% since 2007 – on this measure we’ve done better than most. Our pre-tax margin was 8.7% – dropped from 9% last year. Our peak operating margin was in 2007 when it was 10.3%. So since 2007 earnings are up 60% and there’s been a slight margin decline. Since the smoking ban we’ve added on new types of business – like breakfast. We were probably not making much money at the start but as time has gone on we’ve started to make a buck. I think people are too fixated on margin.” 

Tim Martin on profits: “Like-for-for like sales are up 17% since the smoking ban but like-for-like profits are flat. It’s what you have to do in the pub business – you have to run very, very fast indeed to stay where you are. We’ve done pretty well – had a solid year. But I think the industry itself is under threat and there’s an unsustainable tax regime.” 

Tim Martin on the company’s exceptional items: There was an £15,510,000 impairment on 30 pub sites. “There are a few sites not doing so well for us,” he said. A further £3,278,00 exceptional item came from onerous leases and a loss of £971,000 came from three pubs that have been sold.

Tim Martin on operational progress: Martin said the company’s pub openings had slowed down dramatically during the boom years before the credit crunch and it had increased the pace of openings from the time of the credit crunch onwards. “We try not to follow the crowd,” he said. He reported that food sales at each Wetherspoon pub has increased from around £1,150, 10% of average weekly takings of £11,500 per week in 1992 on flotation, to around £11,000 per week per pub now on average weekly takings per pub of £34,000 (including VAT). Average food takings vary dramatically. A total of 75% of sales at the company’s pub in Fort William now come from food – the figure is 70% at its pubs in Louth, Lincolnshire and Lymington.

Tim Martin on the company’s approach to product lines: Martin said the company philosophy was ‘Every Item Best in Class’. “Coining that corny phrase has resonated within the company. It doesn’t mean, though, that we won’t swap Red Bull for Monster if we can get a better deal – as long as the substituted product is just as good in quality.”

Tim Martin on Scores on the Doors: The company’s average Score on the Doors figure is 4.86 with 87% of pubs achieving the maximum score of five. Martin said: “Scores on the Doors is a good proxy of standards. We’re by far the highest pub company in terms of average scores. You haven’t got a brand, you’ve got a reputation – it’s much more fragile.”

Tim Martin on expansion: “There are lots of towns we’re not in. There are still opportunities for us to allow people to have breakfasts in a town where we are not or buy coffee for a quid.” Last year, average population within two miles of new JD Wetherspoon openings dropped to an all-time low of 30,000 – the figure in 2005 was 64,000. The company had even opened a pub in the town of Perranporth in Cornwall last year, which has a population of just 3,006. The pub is near a large beach and has high demand in the summer and low demand in the winter. “It’s a bit of an experiment,” said chief executive John Hutson.

Tim Martin on overseas expansion: Martin reported that the company had looked at opening pubs in Lille, Calais and Dunkirk a decade or so ago before changing its mind. Now the company wanted to open in Eire. “We want to open three or four quickly if we can get the sites,” he said. 

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