Pubs Group JD Wetherspoon (JDW) reported strong half-year numbers to 26 January with total revenue and like-for-like sales up 5% to £933m and pre-tax profit up 15% to £57.9m. Along with a lot of shares in the leisure sector, the shares enjoyed a relief bounce, shooting up 32% to 738p.
However, in the week to 15 March sales declined by 4.5% and following government advice to avoid pubs, sales have declined at a significant but unquantified rate. In response the company has cancelled the interim dividend (2019:4p) and delayed most capital projects to conserve cash.
The company believes that with the help of the government’s proposals to provide business rates relief and credit guarantee facilities, it has sufficient liquidity to keep the business on an even keel even if sales decline substantially.
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At the period end net debt including finance leases was £804m, which equates to 3.5 times earnings before interest, tax, depreciation and amortisation (EBITDA), up from 3.3 times last year.
The firm extended its borrowing facilities in August 2019 by entering into a new seven-year private placement totalling £993m (£895m). Over the last 10 years the number of freehold properties has been extended and now represents almost 64% of the 874 pubs estate.
Previously management said it expected net debt to EBITDA to be around current levels for the foreseeable future. At the same time the board believes that a net debt to EBITDA ratio of between zero and two times is a sensible, long-term benchmark.
The company believes that if it were to see a sudden deterioration in trading, presumably as it is currently experiencing, it would ‘seek to reduce the debt level in a timely manner.’
Money spent on converting pubs to freehold cost £71m in the first-half, while a further £15m was dished out in dividends and share repurchases. Excluding these items, the business would have produced around £58m of free cash flow, before actions to reduce operating costs.
Chairman Tim Martin said,’ Wetherspoon, like our peers, will be working closely with all parties, including employees, banks, landlords and suppliers, in order to emerge from the situation in the best shape.’
