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Morning Briefing for pub, restaurant and food wervice operators

Tue 19th Jan 2021 - JD Wetherspoon to raise as much as £93.7m through further placing, burning £4.1m a week in closure
JD Wetherspoon to raise as much as £93.7m through further placing, burning £4.1m a week in closure: JD Wetherspoon is to raise a further £92.1m to £93.7m through a placing of new ordinary shares of £0.02 each in the capital of the company representing up to 6.95% of the company's existing issued ordinary share capital. The company stated: “The company has reduced costs as much as it reasonably can during each of the closure periods that have taken place since last March. Costs have been reduced in the current closure period approximately as follows. About 37,000 employees, more than 99% of the workforce, have been furloughed. Furloughed employees are paid 80% of pre-lockdown pay levels. The costs of non-furloughed employees, plus the taxes and other costs of furloughed employees, are £800,000 per week during the closure period. There were 37,674 employees on 14 January 2021, compared with 43,741 on 1 March 2020. A total of 378 employees at the head office and airport sites have been made redundant. Repair costs have been reduced from a weekly run rate of approximately £1.6m pre-covid to approximately £0.25m per week during the closure period. Expenditure on utilities, head office, the distribution centre and IT has been reduced from a weekly run rate of £4m pre-covid to approximately £1.1m during the closure period. During the current closure period, the chairman and non-executives’ pay has been reduced by 50%, and the chief executive by 25%. In the financial year to date, to 14 January 2021, £22.0m of capital was spent on the development of a small number of pubs, the completion of a number of freehold reversions and on IT and maintenance projects, a substantial reduction compared to previous years. The equivalent capital expenditure for the same period in FY2020 was £127.5m. The company has paid more than 80% of suppliers in full throughout the pandemic. Deferred payment plans have been agreed with a number of larger suppliers. As at 14 January 2021, the company had £25.2m of deferred payments to suppliers outstanding, reduced from £102.7m when the majority of pubs reopened on 4 July. The company agreed a deferral of rents with approximately 90% of landlords during the first lockdown. Following the additional lockdowns announced by the government, the company has entered further discussions with landlords, with a view to reaching mutually acceptable deferral agreements. As at 14 January 2021 the company has £18.0m of deferred rental payments outstanding. The company has received covenant waivers up to and including the quarters to July 2021. The normal Ebitda-related covenants have been replaced with a minimum liquidity threshold of £75m. The Bank of England has said banks should waive covenant breaches that stem from the covid-19 crisis and the company believes further waivers should be forthcoming, if required. The company has fully drawn down its revolving credit facility. As previously stated, it is the company’s intention the maximum net-debt-to-Ebitda ratio should be around 3.5 times, other than in the short term. Exceptional costs of approximately £10.4m have been incurred in the first five periods of this financial year. £8.2m relates to redundancy and other exceptional employee costs. Other costs relate to protective screens, sanitisers, temporary outside furniture and miscellaneous covid-19 items. The company estimates that owners’ earnings, and therefore cash burn, are around minus £4.1m per week, while pubs are closed. In the absence of a share placing and an additional finance from the Coronavirus Business Interruption Loan Scheme, the company estimates it has sufficient liquidity to the end of the current financial year.” It added: “The company has created four ‘scenarios’, which estimate reopening dates for pubs, their sales performance and costs. A brief summary of the assumptions and the outcome of these estimates is presented below. The company notes that there can be no certainty as to when the pubs will be permitted to reopen, and the assumed reopening dates used in this announcement are for the purpose of the scenarios only. The main assumption in scenario 1a is that the current closure period will be until the end of March 2021. It is assumed that like-for-like sales will be minus 50% upon reopening, increasing by 5% per week, and levelling out at minus 15% in mid-May and for the remainder of the financial year. For FY2022 it is assumed that sales will match the sales of FY2019, and for subsequent years that they will rise by 5% per annum. Like-for-like sales improved by around 5% per week after the majority of pubs reopened in July 2020, before the ‘Eat Out To Help Out’ scheme started. Sales had returned to FY2019 levels by the end of the Eat Out To Help Out period. Scenario 2a represents the company’s view of a ‘reasonable worst case’ set of assumptions. The main assumption in scenario 2a is that the current closure period will be until the end of March 2021. Like-for-like sales will be minus 50% upon reopening and will stay at that level for the rest of the financial year. FY2022 sales will then be 10% lower than those assumed in scenario 1a and FY2023 sales will match the sales of FY2019.” 

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