Wetherspoon still at the mercy of Whitehall

"Pubs have been at the forefront of business closures during the pandemic, at great cost to the industry – but at even greater cost to the Treasury.” That was the year-end lament of Tim Martin, the chairman of J D Wetherspoon (JDW) and one of the fiercest critics of the government’s response to the pandemic. His ire was also directed at the government’s tax treatment of licensed premises and the iniquity of Scotland’s business rate regime.

To no-one’s real surprise, the pub chain slumped to a record loss for its 2021 year-end. An operating loss of £105m stands in contrast to a profit of £132m booked at the last year-end prior to the outbreak.

Management makes a valid point that it is difficult to arrive at meaningful comparisons because pubs were closed for 19 weeks, as well as what is described as a “bewildering range of national and local restrictions”. Then there’s the effect of the IFRS 16 accounting standard on financial reporting for leasehold premises.

We can say, however, that net debt (ex-lease liabilities) stands at £845m, a relatively modest 15 per cent increase from the 2019 accounting year-end. The group has also raised around £235m through share placings since the initial disruption to trading. The group closed out the year with £45m in cash, although that stands against a free cash outflow of £83.3m, or a negative 67.8p a share.

Martin isn’t a voice in the wilderness where government policy is concerned. Last November, The Campaign for Real Ale expressed dissatisfaction because pubs were facing harsher lockdown restrictions than gyms and shops under the controversial tier system. And it would not be surprising if shareholders shared the chairman’s frustration given the chain recorded no outbreaks of the virus in the second half of 2020.

Ironically, it was previous government policy, when the beer tax increase was pitched annually at 2 per cent above the rate of inflation, that helped the value-for-money enterprise steadily build the size of its estate, revenue and profits. Remarkably, the chain's long-run success was achieved in the face of a secular decline in pub numbers across the country.

Unfortunately, infection rates are now higher than they were a year ago, despite the vaccination programme. So, it would be unrealistic to rule out further lockdowns during the northern winter, although perhaps a more important long-term consideration is whether the social habits of pub-goers have been permanently altered by the pandemic – only time will tell. For now, it would be premature to assess prospects for earnings given the uncertain clinical situation. Hold

Last IC view: Hold, 1,304p, 19 Mar 2021