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Fri 10th Mar 2017 - JD Wetherspoon boss warns on increased costs, slams Budget
JD Wetherspoon boss warns on increased costs, slams Budget: JD Wetherspoon has reported sales rose 1.4% to £801.4m in the 26 weeks to 22 January 2017. Like-for-like sales rose 3.3%. Profit before tax was up 42.8% to £51.4m. Tim Martin, chairman of JD Wetherspoon said: “The biggest danger to the pub industry is the continuing tax disparity between supermarkets and pubs, in respect of VAT and business rates. As previously indicated, we understand the need for the government to raise taxes. However, there should be a sensible rebalancing of the taxes paid by pubs and supermarkets, if the pub industry is to survive in the long term. Last Wednesday’s budget was presented by the Chancellor as providing tax relief of approximately £1,000 per pub, for pubs with a rateable value of less than £100,000. In fact, that sum is dwarfed by tax and regulatory increases. For example, costs to Wetherspoon will increase by approximately the following amounts in the next year: business rates: £7m, electricity taxes: £4m, excise duty: £7m, Apprenticeship Levy: £2m. In addition, the proposed sugar tax will cost approximately £4m from April 2018 and there will be further electricity tax increases of around £5m by 2020. Companies like Wetherspoon, on examination of the fine print of the budget, are not, in fact, eligible for the £1,000 per annum decrease in business rates, in any event. The company has previously emphasised the far-higher taxes per meal or per pint that pubs pay compared to supermarkets. For example, supermarkets pay less than 2p per pint for business rates, whereas pubs pay around 18p per pint. The increase in business rates per pint for pubs from next month will be around 2p, further exacerbating the tax gap. Pubs also pay VAT of 20% in respect of food sales, but supermarkets pay almost nothing, enabling supermarkets to subsidise the price of alcoholic drinks. An article written for the trade press on this subject can be found below. Wednesday’s budget will weigh far more heavily on pubs than supermarkets, especially since wage costs per pint or meal are approximately ten times higher in pubs. The Chancellor was less-than-frank in his budget speech, since he did not spell out the duty increases, giving the impression to many that there would be no increase. In effect, this was a budget for dinner parties, no doubt the preference of the Chancellor and his predecessor – dinner parties will suffer far less from the taxes outlined above, whereas many people prefer to go to pubs, given the choice. In the six weeks to 5 March 2017, like-for-like sales increased by 2.7% and total sales decreased by 0.2%. As previously announced, the company intends to increase the level of capital investment in existing pubs from £34m in 2015/6 to around £60m in the current year. As outlined above, the company also anticipates significantly higher costs in the second half of the financial year. In view of these additional costs and our expectation that like-for-like sales will be lower in the next six months, the company remains cautious about the second half of the year. Nevertheless, as a result of modestly better-than-expected year-to-date sales, we currently anticipate a slightly improved trading outcome for the current financial year, compared with our expectations at the last update.” He added: “During the period, we opened two new pubs and closed 22 pubs, bringing the number of pubs open at the period end to 906. Following a review of our estate, we have placed around 100 pubs on the market in the last two years or so. Eighty-three of these pubs have now been sold, are under contract or have been closed.”

C&C Group provides 12 month trading update: Drink company C&C Group, has issued its pre-close trading update for the 12 months to 28 February, 2017 and reported operating profit is expected to be in the region of €94-€96m. Second half profit was broadly level year on year, despite the adverse impact of currency movements. The company stated: “FY17 volume performance in the three principal brands of Bulmers, Magners and Tennent’s was resilient and a significant improvement on FY16. Bulmers is expected to post volume growth of +3% for the full year (FY16:-13%) and Magners +7% (FY16:-6%). Tennent’s volumes will be flat year on year (FY16:-4%) and growing share in the key independent free trade channel. Niche & Speciality volume, including Heverlee, Menebrea and Chaplin & Cork’s will be up 50%+ in the year and now constitutes 2% of group owned brand volume. The major factor in the decline of group operating profit was the devaluation of sterling. The cost reduction plans announced in October 2015 completed as planned in the second half. The benefits, however, were outweighed by incremental brand investment and price deflation attributable to changes in channel and pack mix across the group. Our wholesale business stabilised in the second half of the year but did not recover the margin losses. Cider in Ireland continued to grow its share of long alcohol drinks as a generation of younger drinkers entered the category. Bulmers brand growth slowed slightly in the second half and volume is likely to be +3% for the full financial year. The brand ceded share of cider in draught but the volume loss was offset by growth in pint bottle and small pack. The first activity linked to the upweighted Bulmers plans for FY18 will be visible in March with the launch of Outcider, by Bulmers. In Scotland, Tennent’s grew volume and share in the IFT channel in the second half and across the full year, outperforming the overall UK beer market which declined -1%1. Pricing was stable in the second half. The Magners brand in the UK maintained a strong performance with volume expected to be up 11% for the full year (H1:+11%), picking up share in a cider category that is -0.5%2. However, the negative pressures on pricing and on pack and channel mix evident in the first half of the year remain unchanged. The large grocery retailers taking share from impulse and convenience and the shift from glass to aluminium are both negative dynamics for brands like Magners. The continued yield pressures and consolidation activity currently taking place in the on and off premise channel further reinforces the strategic rationale for the AB InBev partnership announced in December 2016. Our cider brands in the UK transferred into the AB InBev portfolio on March 1 as planned. In our Export business, overall volumes are likely to be up in the low single digits for the full year with Tennent’s in double-digit growth. In the US, the cider category remains in double-digit decline. Performance of the Magners brand improved considerably in the last quarter and returned to modest growth in the North Eastern states but our domestic US cider brands are lagging behind the category. The carrying value of the US assets will be reviewed as part of our full year end close process. The volume performance of our core brands and our growing niche/speciality portfolio was robust in FY17, despite challenging trading conditions. However, the impact of currency, negative market pressures on pricing and pack/channel mix have impacted the group’s profitability. In FY18 we will continue to invest in our core brands to deliver long term growth, remain disciplined on costs and look to strengthen our route-to-market where possible. Given market dynamics and consumer concerns we remain cautious on the outlook for our domestic markets and are not anticipating improved trading conditions in the short term. We have maintained capital discipline over the last 12 months, returning €66m to shareholders through a combination of share buy backs and dividend. Cash generation remains strong and there is no change to previous guidance targeting leverage of 2x net debt to Ebitda by the end of FY18. Our share buy-back programme has reduced our weighted average number of shares by c.7% year-on-year and should result in modest EPS growth on a constant currency basis.”

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