Fri 13th Mar 2015 - Hutson – JDW has already hired extra labour in anticipation of greater breakfast trade Hutson – JDW has already hired extra labour in anticipation of greater breakfast trade: JD Wetherspoon has already taken on more staff in anticipation of greater breakfast trade from its move to offer filter coffee, with free refills, at 99p or under, at approximately 880 pubs, chief executive John Hutson revealed today. Speaking after the company unveiled its half-year results for the period to 25 January, he said: "We already have a substantial breakfast trade, but it's a growing market, and as well as we have done we believe we can do an awful lot better in future years. We're targeting Pret, we're targeting the guys who go to the cafe in the supermarket before they do their shopping, we're targeting the high street generally. If we do triple our volumes, we'll more than make up for what we discount on price. There is a bit more labour involved and we've had to put additional labour into the pubs in advance of anticipated volume increases. The costs go in first and you hope the volumes pick up quickly. But we've been there in the past so we're fairly confident it's the right move in the long term. How well it does and how quickly is does well is slightly more open. We're quite relaxed about people who just come in and pay 99p for a coffee and nothing else – at the end of the day pubs are about atmosphere, and with more customers about, it's a more attractive place to be." Hutson also revealed that the price cuts revealed earlier by company chairman Tim Martin on Magners Cider and BrewDog's Punk IPA to £1.99 a bottle, "broadly supermarket levels", will also be seen on other products, including Jim Beam, Disaronna Amaretto and Captain Morgan's Spiced Rum. He said: "It's our perception that competition among supermarkets has stepped up, and we think this was one of the factors in our own like-for-like slowdown during the second quarter." Like-for-like sales were up 6.3% in the first quarter of the half-year, finance director Ben Whitley revealed, but 2.7% in the second, to give an overall rise of 4.5%, a slowdown from the 5.2% seen in the first half of 2014. The rise was driven by a rise in food like-for-likes of just over 10% and bar like-for-likes at 1.5%. Machine sales for the period were up just over 1%. Like-for-like pub profits increased by 0.9%. In current pubs that have been trading for at least five years, the like-for-like food sales in the first half have increased by more than 50% over that same five-year period.   Pub sales record: Average sales per pub have risen to their highest ever level of £36,900 per pub per week  (including VAT)– "that's 23% higher than it was five years ago," Whitley said. The company's operating margin was down from 8.2% to 7.4% while the pub profit margin excluding repairs has decreased from 21.2% of sales to 19.9%, though the absolute figure has risen 2% from £145,000 for the half year to £148,000. "That's been largely driven by an increase in pub-based wages, both in absolute terms and through the increasing food sales mix that we've seen in pubs, which is generally more labour-intensive. We expect our full-year operating margin to be in the range of 7.3% to 7.8%" against 7.4% for the first half of 2015 and 8.2% for the first half of 2014, Whiteley said. "The biggest inflationary pressure we face is increased taxation, and compared to the first half of last year we've seen increases in VAT through the increased sales, excise duty, carbon tax, business rates and machine gaming duty. The cost of bar and food supplies have increased in the region of 2% versus last year, driven either by inflation or, in the case of food, general commodity pricing. But also we've taken the opportunity to upgrade the spec of some of our food dishes and product lines. We've continued our investment in staffing our pubs in large part to support the catering side of the business, which has experienced strong growth." Capex increased in first half to £106m from £91m, driven by the purchase of freehold sites where Wetherspoon used to be the leasehold tenant, and buying and developing a greater proportion of freehold properties, so that 11 of the 12 pub openings in the first half were freehold properties. Wetherspoon spent £12.8m on freehold reversions in the first half, up from £7.1m for the same period in 2014, and £59.6m on acquisitions and development costs, up from £50.9m. Whitley said he expected the total spend for the current financial year on new openings and freehold reversions to be between £130m and £140m, up from £121m last year. The company spent £21.4m on reinvestment, down from £24.7m in the first half of 2014, though over the full year it expects the spend to be similar to last year's £56m. Free cashflow for the half was £44.9m, an increase from £42.6m in the first half of last year. Total bank borrowings at the end of the half -year were £597m, an increase of just under £41m in the six months. Whitley said the company expects net debt to increase by between £50m and £70m this year. In February Wetherspoon completed an amendment and extension of its existing banking facility, increasing it by £100m, with associated fees of approximately £3.5m, which will be amortised across the length of the loan. However, he said, despite the additional fees, the underlying interest costs will reduce, even though net borrowings may possibly be higher. The company's average interest rate fell by around 1% during the period, as a result of the expiry of some fixed interest rate swaps. The interest charge for this year is expected to be between £33m and £35m.   Higher development costs Wetherspoon started the year with 927 trading pubs, up from 886 at the start of 2014, opened 12 and sold three, to give 936 at the end of the half-year. It had 19% higher development costs per pub in the half for the 12 pubs that were opened, at £1.9m a time, partly because two of the 12 were hotels, together with an expensive freehold in Preston, partly because of a continued improvement in the new pubs, including better beer gardens, better kitchens and better staff facilities. The company expects to see 30 openings this year and "in the region of" 30 to 40 openings next year, Hutson said. Wetherspoon has around 34,000 employees now, up from 20,588 in 2007, and staff retention is now at its highest ever, with the average for pub managers at ten years and five months, and for kitchen managers six years and eight months. Around 10,000 employees are now shareholders in the company, and it gave all pub-based staff a 5% pay rise in October. "The people we have working for us work very hard, the company has been doing well over the past two or three years, and it's important to invest in your business," Hutson said. In 2003 average sales per pub were around £25,000 a week, with 71.6% from the bar, 23.2% from food and 5.2% machine sales and other income. Today they are £37,000 a week, and pubs take more at the bar on average now than they took in total in 2003, but the sales mix has changed to 59.5% bar sales, 36.5% food – about £13,500 per pub per week – and 3.9% machines and other. Wetherspoon estimates it will pay £144.8m in the half just in VAT, up from £133.6m for the first half of 2014 The total tax take is estimated at £305.3m, up from £290.7m in 2014, leaving profit after tax, excluding exceptionals, for the half down slightly at £27.8m from £27.9m. "We continue to campaign for more of a level playing field for restaurants and bars against supermarkets on VAT,” Hutson said.