Wetherspoon (J.D) Regulatory News (JDW)

16 March 2018

J D WETHERSPOON PLC

PRELIMINARY RESULTS

(For the 26 weeks ended 28 January 2018)

* In our pre-close statement of 24 January 2018, we stated that total sales growth was 4.3%. For the purposes of the pre-close statement, we compared weeks 1 to 25 of this financial year with weeks 2 to 26 of the last financial year - the same 25 'calendar weeks'. In the current half-year statement, we compare weeks 1 to 26 of this financial year with weeks 1 to 26 of the previous financial year. The reason for the difference in reference periods is that the year ended 30 July 2017 was a 53-week period.

**Exceptional items as disclosed in account note 7 to the Interim Report 2018.

Commenting on the results, Tim Martin, the Chairman of J D Wetherspoon plc, said:

"There has been a huge debate, since the referendum, about the economic effects of Brexit.

In particular, trade organisations like the CBI and the BRC, supported by the FT, the Sunday Times, the Guardian, the chairmen of Whitbread and Sainsbury's and others, have misled the public by saying that food prices will automatically rise if we leave the EU without a deal.

"This is a fallacy - the EU is a protectionist organisation which imposes high taxes on food, clothing, wine and thousands of other items from non-EU countries - which comprise around 93% of the world's population. Like Monty Python's Dennis Moore, as illustrated by Sam Akaki in appendix 1 below, the EU "….steals from the poor and gives to the rich…".

"In fact, MPs have the power to eliminate these import taxes in March 2019, thereby reducing prices for the public, just as their predecessors achieved the same objective by repealing the Corn Laws almost two centuries ago.

"Two articles I have written on this subject for Wetherspoon News (appendix 1) and

The Independent newspaper (appendix 2) are included below. The issues have also been examined by Matt Ridley in The Times (appendix 3).

"Another frequently repeated Brexit concern is that the much bigger EU economy will be better able to withstand a Mexican standoff than the UK.

"This is also a fallacy. For example, Wetherspoon is one of the biggest customers, or possibly the biggest customer, of the excellent Swedish cider-maker Kopparberg. If trade barriers were imposed, so as to make Kopparberg uneconomic, then Wetherspoon could switch to UK suppliers or those from elsewhere in the world.

"In this case, the principal losers in a trade war would be the inhabitants of a small town in Sweden, where Kopparberg is produced, rather than the UK economy. Unfortunately for the Swedes, the EU negotiators, unlike those of the UK, are not subject to judgement at the ballot box, so Kopparberg's influence on the outcome may be minimal.

"The same principle applies to thousands of EU imports including Prosecco, Champagne and many wines and spirits - in almost all cases there are suitable, and often excellent, alternatives to EU products available elsewhere.

"In fact, the biggest danger for EU producers, whose wine industry, for example, has lost huge market share to the New World, in spite of import taxes, is that UK consumers take umbrage at what they see as the overbearing behaviour of EU negotiators, and decide to favour products which originate elsewhere.

"Provided that the UK parliament votes to eliminate tariffs, EU producers will, in any event, be faced with a far more competitive UK market - since New Zealand wine producers, for example, will be able to compete on an equal, import tax-free basis, for the first time. So, the antagonistic approach of EU negotiators, which risks alienating UK consumers, is extremely unhelpful to businesses within their own bloc.

"Most economists who criticise Brexit use hypothetical arguments, but, in the real world, the UK can eliminate import taxes, improving living standards and simplifying the Byzantine tax system - both of these factors will improve the outlook for consumers and businesses in the UK.

"In the six weeks to 11 March 2018, like-for-like sales increased by 3.8% and total sales increased by 2.6%.

"The company anticipates higher costs in the second half of the financial year, in areas including pay, taxes and utilities. In view of these additional costs, and our expectation that growth in like-for-like sales will be lower in the next six months, the company remains cautious about the second half of the year.

"Nevertheless, as a result of slightly better-than-expected year-to-date sales, we currently anticipate an unchanged trading outcome for the current financial year."

Enquiries:

John Hutson Chief Executive Officer 01923 477777

Ben Whitley Finance Director 01923 477777

Eddie Gershon Company spokesman 07956 392234

Photographs are available at: newscast.co.uk

Notes to editors

1. J D Wetherspoon owns and operates pubs throughout the UK. The Company aims to provide customers with good-quality food and drink, served by well-trained and friendly staff, at reasonable prices. The pubs are individually designed and the Company aims to maintain them in excellent condition.

2. Visit our website jdwetherspoon.com

3. This announcement has been prepared solely to provide additional information to the shareholders of J D Wetherspoon, in order to meet the requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied on by any other party, for other purposes. Forward-looking statements have been made by the directors in good faith using information available up until the date that they approved this statement. Forward-looking statements should be regarded with caution because of inherent uncertainties in economic trends and business risks.

4. The annual report and financial statements 2017 has been published on the Company's website on 15 September 2017.

5. The current financial year comprises 52 trading weeks to 29 July 2018.

6. The next trading update will be issued on 9 May 2018.

CHAIRMAN'S STATEMENT AND OPERATING REVIEW

In the 26 weeks ended 28 January 2018, like-for-like sales increased by 6.1%

with total sales increasing by 3.6% to £830.4m (2017: £801.4m).

Like-for-like bar sales increased by 5.7% (2017: 2.4%), food by 6.9% (2017: 5.1%) and fruit machines by 4.6% (2017: decreased by 2.1%). Like-for-like room sales at our hotels increased by 3.1% (2017: 14.8%). Bar sales were 61.0% of total sales, food 35.3%, fruit machines 2.5% and room sales 1.1%.

Operating profit increased by 13.6% to £74.0m (2017: £65.1m). The operating margin was 8.9% (2017: 8.1%). Profit before tax and exceptional items increased by 20.6% to £62.0m (2017: £51.4m). The improved performance in the period was due mainly to strong sales and the sale of some lower-margin pubs.

Earnings per share, including shares held in trust by the employee share scheme, and before exceptional items, increased by 35.2% to 45.7p (2017: 33.8p). Earnings-per-share growth was higher than profit growth, mainly as a result of share buybacks.

As illustrated in the table in the tax section below, the company paid taxes of £356.1m in the period under review, approximately 30.2% higher than five years ago (2013: £273.5m).

Net interest was covered 5.5 times by profit before interest, tax and exceptional items (2017: 4.6 times). Total capital investment was £61.4m in the period (2017: £102.8m). £7.5m was spent on freehold reversions of properties where Wetherspoon was the tenant (2017: £55.8m), £35.1m on existing pubs (2017: £28.6m) and £18.8m on new pub openings and extensions (2017: £18.4m).

Exceptional items totalled £6.8m (2017: £7.3m). Twelve pubs were sold or closed in the period. There was a £5.9m (2017: £6.6m) loss on disposal and an impairment charge of £1.1m (2017: £5.2m) for closed pubs and pubs which are on the market. The cash effect of the exceptional charges was an inflow of £0.8m from the proceeds of pub disposals.

Free cash flow, after capital investment of £35.0m in existing pubs (2017: £28.4m) and payments of tax and interest, was £36.8m (2017: £49.2m). Free cash flow per share decreased by 21.3% to 34.8p (2017: 44.2p). The decrease was due mainly to increased expenditure on existing pubs, increased corporation tax payments and a

reduction in payables.

Dividends

The board declared an interim dividend of 4.0p per share for the current interim financial period ending 28 January 2018 (2017: 4.0p per share). The interim dividend will be paid on 31 May 2018 to those shareholders on the register at 4 May 2018.

Corporation tax

We expect the overall corporation tax charge for the financial year, including current and deferred taxation, to be approximately 23.4% before exceptional items (30 July 2017: 25.1%). This reduction is due primarily to decreases in the amounts of non-qualifying depreciation and expenditure not allowable for tax purposes.

As in previous years, the company's tax rate is higher than the standard UK tax rate, owing mainly to depreciation which is not eligible for tax relief.

Share buybacks

During the half year, 3,497,500 shares were repurchased by the company for cancellation, representing approximately 3.21% of the issued share capital, at a cost of £36m, including stamp duty, representing an average cost per share of 1,025p.

At the year end, the company had a liability for share purchases of £15.5m which was settled during the half year, ended 28 January 2018.

Financing

As at 28 January 2018, the company's net debt, including bank borrowings and finance leases, but excluding derivatives, was £756.4m, an increase of £60.1m, compared with that of the previous year end (30 July 2017: £696.3m).

The net-debt-to-EBITDA ratio was 3.48 times at the period end (30 July 2017: 3.39). The company has total bank facilities available, excluding finance leases, of £860m (30 July 2017: £860m).

For the foreseeable future, it is intended that the company's net-debt-to-EBITDA ratio will be around 3.5 times. The ratio would rise for a temporary period, if there were, for example, a sudden deterioration in trading, in which instance the company would seek to reduce the level in a timely manner. Insofar as it is possible to generalise, the board believes that debt levels of between 0 and 2 times EBITDA are a sensible long-term benchmark.

As indicated previously, a higher level of debt may be justifiable when interest rates are low and other factors are favourable.

Property

During the period, we opened three new pubs and closed 12, bringing the number open at the period end to 886. Following a review of our estate, in recent years, we placed around 100 pubs on the market, 88 of which have now been sold, are under contract or have been closed.

UK taxes and regulation

Pubs and restaurants pay proportionally far higher levels of UK tax than do supermarkets. The main disparity relates to VAT (value added tax), since supermarkets pay no VAT in respect of their food sales, whereas pubs pay 20%, enabling supermarkets to subsidise their alcoholic drinks prices. Pubs also pay approximately 18p per pint in respect of business rates, while supermarkets pay less than 2p per pint.

In addition, the government has, in recent years, introduced both a 'late-night levy' and additional fruit/slot machine taxes, further reducing the competitive position of pubs in relation to supermarkets.

The tax disparity with supermarkets is unfair. Pubs create significantly more jobs and more taxes per pint or per meal than do supermarkets and it does not make social or economic sense for the UK tax régime to favour supermarkets. We acknowledge the need for companies to pay a reasonable level of taxes, but hope that legislators will make prompt progress in creating a level playing field for all businesses which sell similar products.

The taxes paid by Wetherspoon in the period under review were as follows:

Further progress

As previously highlighted, the company's philosophy is to try continuously to upgrade as many areas of the business as possible.

In November 2015, the government's Food Standards Agency (FSA) issued a report which named Wetherspoon equal top of the largest 20 food chains for hygiene standards over the preceding five years. Currently , 92% of our pubs have obtained the maximum five rating, under the FSA scheme, with 98% of pubs receiving a rating of four or above. This record reflects extremely hard work by our central catering, audit and operations team, as well as by the teams in our pubs.

We have recently been recognised as a 'Top Employer UK' by the Top Employers Institute for 15 consecutive years.

The company has also recently been recognised for the quality of the facilities in its pubs, winning in six categories at the 'loo of the year' awards.

During the period under review, we allocated £21.2m in bonuses and free shares to employees, 97% of which was paid to those below board level and 84% to those working in our pubs.

Current trading and outlook

There has been a huge debate, since the referendum, about the economic effects of Brexit. In particular, trade organisations like the CBI and the BRC, supported by the FT, the Sunday Times, the Guardian, the chairmen of Whitbread and Sainsbury's and others, have misled the public by saying that food prices will automatically rise if we leave the EU without a deal.

This is a fallacy - the EU is a protectionist organisation which imposes high taxes on food, clothing, wine and thousands of other items from non-EU countries - which comprise around 93% of the world's population. Like Monty Python's Dennis Moore, as illustrated by Sam Akaki in appendix 1 below, the EU "….steals from the poor and gives to the rich…".

In fact, MPs have the power to eliminate these import taxes in March 2019, thereby reducing prices for the public, just as their predecessors achieved the same objective by repealing the Corn Laws almost two centuries ago.

Two articles I have written on this subject for Wetherspoon News (appendix 1) and The Independent newspaper (appendix 2) are included below. The issues have also been examined by Matt Ridley in The Times (appendix 3).

Another frequently repeated Brexit concern is that the much bigger EU economy will be better able to withstand a Mexican standoff than the UK.

This is also a fallacy. For example, Wetherspoon is one of the biggest customers, or possibly the biggest customer, of the excellent Swedish cider-maker Kopparberg. If trade barriers were imposed, so as to make Kopparberg uneconomic, then Wetherspoon could switch to UK suppliers or those from elsewhere in the world.

In this case, the principal losers in a trade war would be the inhabitants of a small town in Sweden, where Kopparberg is produced, rather than the UK economy. Unfortunately for the Swedes, the EU negotiators, unlike those of the UK, are not subject to judgement at the ballot box, so Kopparberg's influence on the outcome may be minimal.

The same principle applies to thousands of EU imports including Prosecco, Champagne and many wines and spirits - in almost all cases there are suitable, and often excellent, alternatives to EU products available elsewhere.

In fact, the biggest danger for EU producers, whose wine industry, for example, has lost huge market share to the New World, in spite of import taxes, is that UK consumers take umbrage at what they see as the overbearing behaviour of EU negotiators, and decide to favour products which originate elsewhere.

Provided that the UK parliament votes to eliminate tariffs, EU producers will, in any event, be faced with a far more competitive UK market - since New Zealand wine producers, for example, will be able to compete on an equal, import tax-free basis, for the first time. So, the antagonistic approach of EU negotiators, which risks alienating UK consumers, is extremely unhelpful to businesses within their own bloc.

Most economists who criticise Brexit use hypothetical arguments, but, in the real world, the UK can eliminate import taxes, improving living standards and simplifying the Byzantine tax system - both of these factors will improve the outlook for consumers and businesses in the UK.

In the six weeks to 11 March 2018, like-for-like sales increased by 3.8% and total sales increased by 2.6%.

The company anticipates higher costs in the second half of the financial year, in areas including pay, taxes and utilities. In view of these additional costs, and our expectation that growth in like-for-like sales will be lower in the next six months, the company remains cautious about the second half of the year.

Nevertheless, as a result of slightly better-than-expected year-to-date sales, we currently anticipate an unchanged trading outcome for the current financial year.

Tim Martin

Chairman

15 March 2018

But the modern-day apostles, who evangelise the EU's unelected presidents, unaccountable court and parliament whose MPs can't even initiate legislation, don't hesitate to attribute the referendum result to racism or ignorance. They also have a more immediate motive for the orchestrated campaign to frighten the public about food price rises.

Deal

If the public can be convinced about the necessity of a deal with the EU, they can also be convinced to stay in the EU's 'customs union'.

In effect, this means staying in the EU by stealth, since the UK would then have to obey most EU laws - and would lose the benefits of independence, such as lower food prices and control of fishing rights.

The customs union means that EU countries, which comprise seven per cent of the world's population, charge no food taxes to one another, but charge punitive taxes to the rest of the world, thereby keeping prices at artificially high levels for UK and EU consumers.

The customs union also causes huge damage to African economies, as Sam Akaki emphasises on the opposite page.

And the food taxes on non-EU imports are sent to Brussels, too, rather than being used for the benefit of the UK public. Can you Adam and Eve it? Nice try Carolyn Fairbairn of the CBI, David Tyler of Sainsbury's, Richard Baker of Whitbread and others, but we've rumbled the latest edition of Project Fear. Listen up, big chiefs. The EU is leading most of Europe on a tragic path, away from democracy.Just ask the Greeks.

Einstein, a seriously clever guy who never went to university, said that real genius was knowing what you don't know.

So, when it comes to complex issues like the euro and democracy, take a cue from Einstein and understand that the collective intelligence of the public is infinitely greater than yours. It's painful for big egos to accept, but the public really does know best.

Tim Martin, Chairman

Their comments, hidden in a fog of abuse, abandoned the automatic-price-rise-post-Brexit position and instead said that UK farmers would suffer. That at least, unlike Chuka's position, is a valid argument. Indeed, it was a vexed and divisive debate in the 1830s and 40s, when almost precisely the same issues arose with regard to the Corn Laws. They were created to keep corn prices at a high level, by restricting imports, principally to protect landowners whose views predominated in Parliament at the time. However, their imposition eventually had devastating consequences for the poor, and was felt by many to have had catastrophic consequences in Ireland during the potato famine. When the Corn Laws were eventually abandoned, food prices fell.

The pub industry in the UK was also notorious for "trade protection" for most of the 20th century. Brewers were protected by a licensing system which favoured vested interests, but caused high prices and reduced competition in pubs and restaurants. Nostalgia aside, it is clear to most people that the abandonment of "barriers to entry" has led to a dramatic increase in the number of independent pubs, bars and restaurants, and to greater choice and higher standards than in the past.

There are thousands of examples of the benefits to the public of increased choice and competition. New Zealand farmers, to take one example, were protected by trade barriers in the recent past. There was huge anxiety about the elimination of tariffs there, but free trade has been a great success - farming productivity has surged, living standards have improved and food exports have boomed.

For those with long memories, tariffs and protection also did little to help the British car manufacturing industry - and are unlikely to help British farmers or manufacturers today, especially in the long run.

The CBI and big-business boardrooms, through religious attachment to the EU - which follows their equivalent zeal for the disastrous Exchange Rate Mechanism and the euro - have undoubtedly fooled some of the people some of the time. However, in a democracy the truth will emerge, and Chuka and members of the public who have been duped will quickly see through the cloud of misinformation. In due course, the debate will move on to the question of the validity of the EU's modern-day Corn Laws.

The emergence of the truth about food prices may, or may not, change political positions in the country about the EU, but the existence of the debate shows how democracy works, and why it's the best system. The main argument in favour of Brexit, ill-understood in the echo chamber of Remain, is that the EU's lack of democracy, its distant parliament, unelected presidents and unaccountable court prevent the very debates and direct dialogues with lawmakers, like Chuka, upon which freedom and prosperity depend."

Tim Martin

Take trainers. Britain makes very few such shoes. It imports lots. The average external EU customs union tariff on them is 17 per cent. Four fifths of this money goes straight to the European Commission. Poor people do not necessarily buy more trainers than rich people but trainers are a higher percentage of their spending. Their inflated trainer prices mean they spend less on other things, which hurts other producers, many of them British, affecting jobs and pay. The tariffs are there for pure protectionism: to aid the shoe industry elsewhere in Europe.

The purpose of all production is consumption, said Adam Smith. Or, as the American wit PJ O'Rourke put it, "imports are Christmas morning; exports are January's Mastercard bill". Yet the conversation about the customs union has been conducted almost entirely on behalf of producers, and exporters in particular. Remember, according to the Office for National Statistics in 2016, trade with the EU accounts for only 12 per cent of gross domestic product. It is not unreasonable to put the interests of the other 88 per cent first.

The poor are consumers too. So are businesses, including ones that export. They import raw materials and other goods and the cheaper those are, the more competitive our exporters will be. Outside a customs union, we would not have to cut all tariffs. If we wanted to protect certain British industries then we could, although I hope we would do so sparingly and temporarily.

This argument for free trade is not just a theoretical one. It was demonstrated unambiguously when we flourished after repealing the Corn Laws, which also privileged producers at the expense of consumers, in the mid-19th century. It was demonstrated by the two most free-trading economies in the world, Singapore and Hong Kong, as they roared past us in the prosperity league table from very poor to very rich in recent decades, and more recently by New Zealand and Australia, fast-growing since their turns towards freer trade.

The customs union diverts our trade towards Europe at the expense of poorer countries. Instead of buying ground coffee from African factories with low costs, we buy it from Germany: there is no tariff on coffee beans imported from Africa but a tariff on processed coffee. The customs union is not a free trade area. It would be possible to be in a free trade area with the EU while outside a customs union, like Iceland, Norway and Liechtenstein.

That we voted to leave the customs union should not be in doubt. The Vote Leave organisation made clear that "Britain lacks the power to strike free trade deals with its trading partners outside Europe. Being in the EU means that Brussels has full control of our trade policy . . . if we vote Leave, we can negotiate for ourselves." The government made clear that "a common external trade policy is an inherent and inseparable part of a customs union" and that apart from emulating Turkey's subservient relationship with the EU, "all the alternatives involve leaving the customs union". In 1846, two years before the publication of The Communist Manifesto, Richard Cobden, the campaigning manufacturer and politician whose rational optimism has proved a better guide to subsequent history than the conflict-obsessed dialectic of Karl Marx, made a speech in Manchester. "I believe that the physical gain will be the smallest gain to humanity from the success of this principle [free trade]," he said. "I look farther; I see in the free trade principle that which shall act on the moral world as the principle of gravitation in the universe - drawing men together, thrusting aside the antagonism of race, and creed, and language, and uniting us in the bonds of eternal peace.

"I have looked even farther . . . I believe that the desire and the motive for large and mighty empires; for gigantic armies and great navies - for those materials which are used for the destruction of life and the desolation of the rewards of labour - will die away; I believe that such things will cease to be necessary, or to be used, when man becomes one family, and freely exchanges the fruits of his labour with his brother man."

Give it a try, Jeremy."

INCOME STATEMENT FOR THE 26 WEEKS ENDED 28 January 2018

STATEMENT OF COMPREHENSIVE INCOME FOR THE 26 WEEKS ENDED 28 January 2018

[1] Calculated excluding shares held in trust.

2 Calculated using issued share capital which includes shares held in trust.

CASH FLOW STATEMENT FOR THE 26 WEEKS ENDED 28 January 2018

1 Free cash flow is a measure not required by accounting standards; a definition is provided in our accounting policies.

John Hutson Ben Whitley

Director Director

STATEMENT OF CHANGES IN EQUITY

During the half year, 3,497,500 shares were repurchased by the company for cancellation, representing approximately

3.21% of the issued share capital, at a cost of £36.2m, including stamp duty, representing an average cost per share of 1,025p.

At the year end, the company had a liability for share purchases of £15.5m which was settled during the half year,

ended 28 January 2018.

NOTES TO THE FINANCIAL STATEMENTS

1. General informationJ D Wetherspoon plc is a public limited company, incorporated and domiciled in England and Wales.Its registered office address is: Wetherspoon House, Central Park, Reeds Crescent, Watford,

WD24 4QLThe company is listed on the London Stock Exchange.This condensed half-yearly financial information was approved for issue by the board on 15 March 2018.This interim report does not comprise statutory accounts within the meaning of Sections 434 and 435 of the Companies Act 2006. Statutory accounts for the year ended 30 July 2017 were approved by the board of directors on 14 September 2017 and delivered to the Registrar of Companies. The report of the auditors,

on those accounts, was unqualified, did not contain an emphasis-of-matter paragraph or any statement under Sections 498 to 502 of the Companies Act 2006.There are no changes to the principal risks and uncertainties as set out in the financial statements for the 53 weeks ended 30 July 2017, which may affect the company's performance in the next six months. The most significant risks and uncertainties relate to the taxation on, and regulation of, the sale of alcohol, cost increases and UK disposable consumer incomes. For a detailed discussion of the risks and uncertainties facing the company, refer to the annual report for 2017,pages 41 and 43. 

2. Basis of preparationThis condensed half-yearly financial information of J D Wetherspoon plc (the 'Company'), which is abridged and unaudited, has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting Standards (IAS) 34, Interim Financial Reporting, as adopted by the European Union. This interim report should be read in conjunction with the annual financial statements for the 53 weeks ended 30 July 2017 which were prepared in accordance with IFRSs, as adopted by the European Union.The directors have made enquiries into the adequacy of the Company's financial resources, through a review of the Company's budget and medium-term financial plan, including capital expenditure plans and cash flow forecasts; they have satisfied themselves that the Company will continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going-concern basis in preparing the Company's financial statements.The financial information for the 53 weeks ended 30 July 2017 is extracted from the statutory accounts of the Company for that year.The interim results for the 26 weeks ended 28 January 2018 and the comparatives for 22 January 2017 are unaudited, yet have been reviewed by the independent auditors. A copy of the review report is included at the end of this report. 

3. Accounting policiesWith the exception of tax, the accounting policies adopted in the preparation of the interim report are consistent with those applied in the preparation of the Company's annual report for the year ended 30 July 2017 - and the same methods of computation and presentation are used.

Income taxTaxes on income in the interim periods are accrued using the tax rate which would be applicable to expected total annual earnings. 

Changes in standardsThe following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 31 July 2017 and will have a minimal impact on the financial statements:

n Recognition of deferred tax assets for unrealised losses - amendments to IAS 12

n Disclosure initiative - amendments to IAS 7

n Annual improvements to IFRS 2014 - 2016 cycle

Standards and interpretations which are not yet effective and have not been early adopted by the Company:

On 13 January 2016, the International Accounting Standards Board issued IFRS 16 - 'Leases' which is effective for periods starting on or after 1 January 2019. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a right-of-use asset for lease contracts, subject to exceptions for short-term leases and leases of low-value assets.

The impact of this standard is expected to be material. The choice of transition method is expected to be significant.

The standard gives the option to either fully restate or recognise an asset equal to the value of the liability on the date of transition.

The Company is waiting for clarification on the tax treatment of this change, before selecting the transition method.

On 28 May 2014, the International Accounting Standards Board issued IFRS 15 - 'Revenue from Contracts with Customers' which is effective for periods starting on or after 1 January 2018. The impact of this accounting standard on the Company's accounts is considered immaterial. The Company does not have long-term contractual relationships with its customers.

On 24 July 2014, the International Accounting Standards Board issued IFRS 9 - 'Financial Instruments: Recognition and Measurement' which is effective for periods starting on or after 1 January 2018. IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.

Debt instruments currently classified as 'held to maturity' and measured at amortised cost will meet the conditions for classification at amortised cost under IFRS 9.

The Company believes that its current hedge relationships will qualify as continuing hedges, on the adoption of IFRS 9.

4. Revenue

5. Operating profit - analysis of costs by nature

6. Property (gains)/losses

7. Exceptional items

Disposal programme

The Company has offered several of its sites for sale. During the half year end, 11 pubs had been sold, two were classified as held for sale and two additional pubs had been closed as part of the pub-disposal programme. In the table above, those costs classified as loss on disposal are the loss on sold sites and associated costs to sale.

The costs classified above as impairment of assets held for sale of £1,131,000 relate to the write-down of assets to their assessed recoverable amount for any pubs which the Company has committed to selling. It is the view of management that the Company is committed to selling when a contract for sale has been exchanged.

Other property losses

The onerous lease provision relates to pubs for which future trading profits, or income from subleases, are not expected to cover the rent. The provision takes several factors into account, including the expected future profitability of the pub and also the amount estimated as payable on surrender of the lease, where this is a likely outcome. In the period, £373,000 was charged net in respect of onerous leases.

Property impairment relates to the situation in which, owing to poor trading performance, pubs are unlikely to generate sufficient cash in the future to justify their current book value. In the period, no exceptional charge was incurred in respect of the impairment of property, plant and equipment, as required under IAS 36. All exceptional items listed above generated a net cash inflow of £845,000.

Impairments recognised in last half-year accounts were reclassified as disposal losses in the full-year accounts, if the pub was sold in the second half of the year.

8. Income tax expense

The taxation charge for the 26 weeks ended 28 January 2018 is based on the pre-exceptional profit before tax of £62.0m and the estimated effective tax rate before exceptional items for the 26 weeks ended 28 January 2018 of 22.2% (July 2017: 25.1%). This comprises a pre-exceptional current tax rate of 22.0% (July 2017: 23.9%) and a pre-exceptional deferred tax charge of 0.2% (July 2017: 1.2%).

The UK standard weighted average tax rate for the period is 19% (2017: 19.67%). The current tax rate is higher than

the UK standard weighted average tax rate owing, mainly to depreciation which is not eligible for tax relief.

9. Earnings and free cash flow per share

(a) Weighted average number of shares 

Earnings per share are based on the weighted average number of shares in issue of 105,605,135 (2017: 111,364,354),including those held in trust in respect of employee share schemes. Earnings per share, calculated on this basis, are usually referred to as 'diluted', since all of the shares in issue are included.

Accounting standards refer to 'basic earnings' per share - these exclude those shares held in trust in respect ofemployee share schemes.

The weighted average number of shares held in trust for employee share schemes has been adjusted to exclude those shares which have vested, but which remain in trust.

(b) Earning per share

9. Earnings and free cash flow per share (continued)

(c) Owners' earnings per share 

Owners' earnings measure the earning attributable to shareholders from current activities adjusted for significant non-cash items and one-off items. Owners' earnings are calculated as profit before tax, exceptional items, depreciation

and amortisation and property gains and losses less reinvestment in current properties and cash tax. Cash tax is defined as the current year current tax charge.

The diluted owners' earnings per share increased by 14.5% (year end 2017: decreased by 6.9%).

9. Earnings and free cash flow per share (continued)