Pubs group JD Wetherspoon - owner of the Square Peg on Corporation Street, Birmingham - has decided to scrap plans to put a halt to smoking in all its pubs within the next three months.
In a surprise announcement, the group yesterday said it would put off a ban unil the introduction of new legislation preventing smoking in the workplace, due to come into force in 2007.
Unveiling the move - alongside a 21 per cent rise in half-year profits to #27.4 million - chairman Tim Martin said the goalposts had moved after the Government decided to bring forward a national ban by 18 months.
In addition, sales at the 49 pubs that JD Wetherspoon converted into non-smoking outlets, including the Briar Rose in Birmingham city centre and the Abraham Darby at Merry Hill, have fallen - down 7.6 per cent in the three months to January 22 as customers spent less at the bar and playing the fruit machines.
While food sales in the pubs had gone up by about ten per cent, bar sales had fallen in excess of that, Mr Martin said.
"It's going to take a couple of years to recover, so we're going to keep our gunpowder dry until the full smoking ban comes in," he added.
Mr Martin said the group was introducing products such as cappuccinos to offset the expected impact of the smoking ban. Its food sales in the last few years have gone from about five per cent of sales to 25 per cent.
Wetherspoon is also increasing capital investment in existing pubs to about four per cent from about two per cent of sales in recent years, spending more on refurbishments, gardens, kitchen equipment and IT systems.
Although Mr Martin accepted that a smoking ban remained "the main issue for the future", he believed sales would recover over time, pointing to evidence from Ireland, California and New York.
He said the conversion process was a good learning experience that had given JD Wetherspoon extra kudos, but added: "We had hoped that people who didn't like smoking would come flocking to our pubs but they've flocked elsewhere, it seems."
Mr Martin also sounded an upbeat note on licensing legislation introduced in November which allows pubs to open later.
Fears of binge-drinking were wide of the mark and sales figures showed that it had not led to an average increase in consumption, Mr Martin said.
The profits performance for the six months to January 22 was ahead of City expectations of around #25.5Emillion and was achieved on the back of a one per cent increase in turnover to #406.3Emillion.
While overall like-for-like sales in the half fell by 0.3 per cent against the same period a year ago, the group said like-for-like sales last month increased by 1.9 per cent, in comparison with a decline of the same amount in February 2005.
It said profits and cash flows continued to be enhanced by cost reductions outlined in its results announcement last March.
However, Wetherspoon reiterated that the imminent Scottish smoking ban, combined with the potential impact of the football World Cup in June and July, meant it was taking a "cautious" view of the possible outcome for the second half.
The ban on smoking in Scotland is due to take place on March 26 and will result in a further 36 of the group's pubs becoming non-smoking.
Wetherspoon, formerly known for shunning televisions and music in its pubs, has now started installing TVs to take advantage of trade generated by major football, rugby and other sporting tournaments.
It took a hit from not having televisions in its pubs during previous soccer World Cup competitions.
Mr Martin said screens had now been installed in the majority of its outlets, but that did not necessarily mean they would always show football.
Wetherspoon has a large number of outlets in the West Midlands, including pubs in Dudley, Wolverhampton, Cradley Heath, Walsall, West Bromwich and Stourbridge. The group is currently looking for additional sites in the region.
The interim dividend is increased by ten per cent to 1.6 pence.