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Wed 22nd Jan 2020 - Update: JD Wetherspoon and Hawthorn Leisure trading
JD Wetherspoon reports like-for-likes up 4.7% in second quarter, Tim Martin calls for ‘sensible’ corporate governance system: JD Wetherspoon has reported like-for-like sales increased 4.7% for the 12 weeks to 19 January 2019, with total sales up 4.2%. In the year to date – for the 25 weeks to 19 January 2020 – like-for-like sales rose 5.0% and total sales 4.9%. The company stated: “Since the start of the financial year, the company has opened one pub and sold five and intends to open a further ten to 15. It is expected about £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 about £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. 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.” Commenting on corporate governance issues, chairman 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 non-executive directors (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 annual meeting. 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. 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 such as 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.” Commenting on Brexit, Martin said: “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.” On the company's outlook, Martin said: “We continue to anticipate a trading outcome for this financial year in line with our previous expectations.”

NewRiver reports Hawthorn Leisure like-for-like Ebitda per pub up 4.3% year-to-date: Hawthorn Leisure, the pub operations arm of NewRiver, has reported like-for-like Ebitda per pub is up 4.3% in the year to date. The growth came as a result of the portfolio continuing to benefit from the scale-based synergies secured in the previous financial year and a “solid” Christmas. The rate of growth is expected to moderate following annualisation of the Hawthorn Leisure integration in January 2020. The performance of Hawthorn Leisure formed part of NewRiver's third-quarter trading update. Pub occupancy remained high at 97.9% (September 2019: 96.7%) across the company's 698 community pubs. Bravo Inns was acquired in December 2019 for £17.9m, representing an Ebitda multiple of 6.8 times. The transaction is expected to generate annualised outlet Ebitda of £2.6m across the 44 pubs and grows NewRiver's exposure to the “highly profitable” operator manager pub model. NewRiver chief executive Allan Lockhart said: “In the third quarter, we saw continued stability in our operational metrics with an increase in retail occupancy to 96.1%, footfall outperforming the UK benchmark by 60 basis points and a healthy demand for our retail space. Our Hawthorn Leisure pubs business also delivered growth through the acquisition of Bravo Inns and from strong like-for-like Ebitda per pub growth. Our disposal programme continues apace, with £70.3m of disposals now completed, exchanged or under offer in FY20 to date, at a blended yield of 4.9%. In line with our strategy, we have recycled sales proceeds into £92.6m of retail park and community pub acquisitions in FY20 to date, at a blended net initial yield of 10.1%. With a clear strategy and a portfolio focused around occupiers providing convenience, value and services, we feel well-positioned to navigate our way through these challenging market conditions.”

Five Guys and YO! latest to be linked with Edinburgh St James openings: Better burger brand Five Guys and YO! are among the latest operators to be linked with opening in Edinburgh St James, the new mixed-use scheme in the heart of the Scottish capital. Both brands, plus At Pizza, are named in planning application documents for the scheme, which will feature 850 square foot of retail space, 152 apartments, an Everyman cinema, a W Hotel, restaurants and bars, and anchor tenant John Lewis. Last year, Propel revealed The Alchemist, the Simon Potts-led bar and restaurant concept, was set to make its debut in Scotland this autumn at the scheme. Other operators, including Lane 7, the bowling alley, ping pong and karaoke concept; Indian street food concept Mowgli and game expert Mac & Wild have also been linked to opening at the development.

Oliver’s Fish & Chips secures Soho site: Oliver’s Fish & Chips is to open a site in London’s Soho, after securing a site in St Anne’s Court. The company, which is owned by Mario Budwig, has secured the ex-Bowls unit for its third site in the capital. Oliver’s operates sites in Belsize Park and Whetstone. Budwig founded Millie's Cookies, running more than 100 sites in the UK before selling the business. CDG Leisure acted on the deal.

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