Pub operator's profit up after smoking ban trials

British pubs operator JD Wetherspoon reported a 24 per cent boost in profit yesterday for a year during which it has experimented with restricting smoking ahead of a national ban.

Wetherspoon alarmed investors last year by banning smoking in some of its pubs, but tight cost control and a broader range of drinks at its city-centre pubs more than offset the negative impact from its non-smoking pubs.

Scotland banned smoking in pubs in March, and England and Wales are expected to follow suit in mid-2007.

"It's ironic that in the year where we opened all the non-smoking pubs we ended up with record results, which I don't think we would have predicted ourselves," chief executive officer John Hutson said.

Profit before tax was £58.4 million in the year to July 30, compared with estimates in a range of 53 million to 57 million in a Reuters poll. Wetherspoon said its new financial year had started well.

Hutson said the group had boosted bar sales by widening its range of beers to include Polish and Czech beers.

Wetherspoon shares rose 1.5 per cent to 457 pence by 0724 GMT, valuing the group around £700 million.

"We converted 17 pubs in England and Wales to non-smoking in the first half of the period under review and their sales declined by 6.5 per cent on a like-for-like basis in the second half of the year," said the group.

But the pubs that were converted to non-smoking earlier fared better.

"Overall, we believe that sales started to improve in those pubs after the initial 12 months, but remain below the levels of two years ago," it said.

In Wetherspoon's 39 pubs in Scotland, like-for-like sales fell 0.3 per cent in May, June and July, following the Scottish smoking ban on March 26. But pub operating profits fell by 11 per cent.

Mr Hutson said the decline in operating profit reflected the fact that improved food sales in a non-smoking environment have not made up for the loss of high-margin sales from the bar, cigarette machines and gambling machines. "Food sales have a lower margin, with higher labour costs," he said.

Rival Greene King has reported a 2.4 per cent sales decline in Scotland since the ban, while Punch said latest sales were flat at its managed pubs and down 0.5 per cent at its leased pubs.

Analyst Wayne Brown at Altium Securities said that if Wetherspoon's sales in England fell by more than they had in Scotland, operating profit could fall by around 15 per cent. Mr Hutson said: "The big question we had was: Is JD Wetherspoon a viable proposition in a non-smoking world? And the answer to that is yes."

"This trial has given us confidence," he added. "But you can't get away from the fact that it's going to be a difficult transition for the first year or so."