JD Wetherspoon (JDW), the high street pub retailer, has this morning announced it will cut the amount of money spent on new openings and suspend its dividend in attempt to conserve cash amid refinancing concerns. The news came as the group unveiled strong Christmas trading.
In a half-year pre-close update the company, which operates 719 managed houses, said that given uncertainty in credit markets and that its US$140m private placement was due for renewal in September 2009 it had decided to “reduce substantially capital expenditure on new openings and to cancel future dividend payments in order to ensure repayment of the private placement from cash flow and existing facilities”.
It said that although in normal conditions a refinancing of the private placement could be relied upon “in the present economic climate a refinancing cannot be taken for granted”.
JDW said it had strong cashflows and that in the past 12 months – despite opening 34 new pubs, paying dividends of £17m and funding £6m of buybacks – it had been able to reduce borrowings by £20m.
Updating shareholders on trading, the group said that like-for-like sales (LFLs) over a six-week Christmas trading period to 11 January had risen 3.7% and were ahead 2.0% in the first half of its year. In the first 12 weeks of the second quarter LFLs were up 2.6%.
The company had seen a strong reaction to its January sale, which has seen pints of beer as low as 99p and five main meals priced at £2.99 with LFLs in the last two weeks of trading to 18 January up 6.4%.
JDW said that overall sales, including newly opened pubs, were ahead 6.5% for the half year.
It expected operating margins for the half year to be around 1% lower than the same period last year – and in line with those of the second half of last year.
During the first six months the group opened 21 pubs and sold one. It expected to open a further 12 pubs by July 2009. It said: “A considerable number of new openings have been purchased from receivers and both rents and development costs are substantially lower than historic trends”.
It concluded: “Our sales performance and cash flow have proved to be extremely resilient in the current economic environment and a number of cost increases experienced during 2008 are starting to abate.
“For example, the company has recently agreed a new electricity supply contract from February to September 2009, which is approximately half the rate per megawatt of the previous contract from October 2008 to January 2009.
“As a result of these encouraging circumstances, we remain confident of the company's prospects for the financial year ending July 2009.”
