JD Wetherspoon scraps dividend and cuts capex

Despite announcing positive trading figures over Christmas - news which boosted the group's shares by more than 14 per cent today - managed pub operator JD Wetherspoon said it plans to scrap its dividend and slash investment in new pub openings in order to save cash.

With a $140m (£90m) loan repayment looming this September and cash at a premium, Wetherspoon said the steps were prudent.

"In the light of current uncertainty in the credit markets, the board has decided to reduce substantially capital expenditure on new openings and to cancel future dividend payments in order to ensure the repayment of the private placement from cash flow and existing facilities," it announced in a trading update.

Despite this the group maintained it would open 12 more new pubs by July, having unveiled 21 new sites so far this year. With the growing number of corporate casualties due to the recession, a number of new sites had been bought from receivers, Wetherspoon said, and rents and development costs were lower than had recently been the case.

Wetherspoon said trading in the first 12 weeks of the second quarter to January 18, 2009 saw like-for-like sales up 2.6 per cent, against 1.5 per cent growth in the first quarter.

In the year to date - effectively the 25 weeks to January 18, 2009 - like-for-like sales rose by two per cent, with total turnover, including recently opened pubs, increased by 6.5 per cent.

For the six week Christmas trading period - December 1, 2008 to 11 January 2009 - like-for-like sales growth was 3.7 per cent. Sales in the last two weeks of trading to January 18, 2009, showed like-for-like rises of 6.4 per cent.

As its 99p-a-pint and other promotions kicked in, Wetherspoon said it expected operating margins for the half year ending January 25, 2009, "to be approximately one per cent lower than the same period last year and in line with those in the second half of last year".

The City reacted positively to the group's announcement. Doug Jack of Numis Securities said: "We believe JDW's long-term trading prospects are intact. Before the English smoking ban, it achieved 5.3 per cent average like-for-like sales a year between 1998 and 2007.

"Now better positioned as value casual dining operator, with pub market supply falling, JDW should aspire to its previous track record."

Wetherspoon's shares were up 14 per cent at 313p this morning.