JD Wetherspoon chairman Tim Martin has warned that rising taxes are creating a “pincer movement” that will close pubs. Speaking to M&C Report following Wetherspoons’ Q1 trading update this morning, Martin said a bigger issue for the company than rising costs is “the cumulative effect of tax increases”. “I think the industry is slowly working up to this. Pubs are going to close down and supermarkets are going to open up if we pay 20% vat on food and they pay nothing. That force on the pub business, combined with excise duty rates that are amongst the highest in Europe and going up, is a pincer movement that will close down pubs week by week.” In its most recent financial year, JDW’s bill for the increase in duty and VAT alone was £50m, more than its total pre-tax profit (£46m). Martin said he hoped that Wetherspoons’ membership of the Association of Licensed Multiple Retailers, announced yesterday, would strengthen the trade association’s lobbying voice against tax rises. He also hit out at the forthcoming late-night levy. “I think the problem with the pub business is its one thing after another. We already pay such horrendous taxes. The fact they think about the late night levy shows how out of touch they are.” Asked about concerns of price inflation in food and utilities, Martin said: “There seems to be a lot of price increases coming through in many different areas.” The company’s like-for-like sales increases 1.1% in Q1, with total sales up 7.3%, although operating margin fell 0.2 percentage points to 9.3%. Geoff Collyer of Deutsche Bank downgraded his target price for Wetherspoons by 15p to 415p, saying the firm is “at the bottom of the sector table” when looked at over the aggregate of the latest period and comparables. Like-for-likes are “below the peer group and the industry average”, said Collyer, who also assumed that its rate of openings would halve to 25 pubs per year. “Management thinks that +1.1% would be a good outturn for the year, as would the 9.3% ebita margin, which is 15 bps below our forecast and around 25 bps below consensus. “[Chief executive John Hutson] said that it has been able to pass duty increases on to its customers but cannot cover all of the inflationary pressures with price increases.” On Martin’s criticism of the tax regime, Collyer said: “He has a point, but not one he is likely to win in our view. The IMS statement maintains the 50 pubs target roll out for current year, but beyond FY’12, the rollout is under review. The rollout programme is the only growth engine at the company at the moment, with margins under pressure.” Last month Martin told Bloomberg that the company may have to scale back its expansion programme if the tax burden on pubs isn’t reduced. Collyer, who reiterated his Hold recommendation, also lowered his profit before tax and earnings per shares forecasts by 2% for this year and 3% for next year and the year after. On a more positive note, Paul Hickman at Peel Hunt issued a Buy recommendation for JDW and said: “On the evidence of 2008-9, we see Wetherspoon as one of the most promising operators going into what are likely to be highly competitive conditions in the sector. “Strong leadership, clear strategy, and a strong balance sheet helped it then and should help it now. Positive trading in Q1 is encouraging and if sustained, should allow Wetherspoon to beat our lowball forecast.” Wetherspoon shares closed up 4p to 426p today.