Punch aims to play fair
Punch, the UK's second largest pub landlord, has announced its results - and things seem to be going to plan. Mark Stretton reports.
As well as owning more than 4,500 pubs, Punch Taverns must own a rainforest judging by the amount of paper it threw in the general direction of analysts and journalists last week.
There was enough information to break a donkey's back. Along with the customary slides of revamped pubs and dull accounts, Punch went to great lengths to explain and educate how the business works and about the differences compared to other pub companies.
All too often the stock market likens companies such as Punch and Enterprise to others like JD Wetherspoon or Mitchells & Butlers, when the trading models are chalk and cheese.
When Punch floated last year, its advisers wanted a very low-profile debut. This was a mistake as not enough people understood what Punch was and the float was nearly cancelled altogether.
Now 12 months later and unveiling results, Britain's second biggest leased pub company seemed committed to stopping the confusion. In the light of its public status, chief executive Giles Thorley said it was important people understood the business.
"This is a new story and we are the new kids on the block," he said.
Models, graphs, market segments and a plethora of analysis was dissected by the Punch boss, aided by finance director Robert McDonald and the now public-facing Francis Patton. "We have delivered on all fronts," said Mr Thorley. "These are a very strong set of results."
Indeed they were strong but the question has always been, and will continue to be, at what cost? More profits for Punch and co means less for the "retailers", doesn't it?
Punch is seen as one of the big bad boys but it appears to be moving in the right direction towards the most important people in its business - licensees.
In June it will launch a retailer charter, a single document designed to set out all major aspects of the retailer relationship including, most notably, its responsibilities to licensees.
It has set up Frontline - a helpline - for all licensee enquiries and complaints. Any problems not resolved will reach the chief executive within three days.
Over 200 publicans have attended Punch forums across the country and more are planned. This has given those at the frontline a chance to air views and opinions face-to-face with the management.
The company will also recognise the best people in its 4,500 pubs through a national awards scheme.
Punch still has along way to go and there are undoubtedly still problems but to give Mr Thorley his due, he does seem to be affecting change.
Punch is known for its aggressive approach to rent reviews but the company said only eight had gone to arbitration in the six months. "There is a negotiation that takes place," said Mr Thorley. "It's a pragmatic process - we have to get to a position where we agree."
The average rent in the Punch business is £26,000. It has 256 rent concessions in place.
The company has 9,517 registered website users and 1,420 potential retailers in a talent bank. It is also advertising on the Job Channel on Sky Digital and will monitor results.
Since August, 438 retailers have attended training courses. An independent evaluation of the effectiveness of that training showed 70 per cent reported a profits increase in their pubs and 85 per cent would recommend the programme to another licensee.
In the last 12 months, Punch has taken 440 new licensees and 320 leases have been assigned to another retailer.
Under government plans, lessees will be hit with higher stamp duty fees. "We are willing to work with retailers to reduce the cost of stamp duty," said Mr Thorley. This could see a number of lessees switch down to seven-year leases to avoid the increase in duty.
Punch recently sold its 1,000th Growth Lease - licensees pay more in rent but get bigger discounts per barrel for the more beer they sell.
The company has negotiated a better supply contract with Coors and an improved distribution contract with Carlsberg-Tetley. It grew beer profits by eight per cent to £67.4m.
It said smaller suppliers had helped to develop a niche in cask ale, offering 47 different brands. Under a promotion called Finest Cask, it introduced 20 new products to the estate including beers from Camerons, Hook Norton and Hydes.
In the six months to March, Punch bought 218 pubs to take its estate to 4,496, including packages from Greene King, Honeycombe Leisure and Spirit Group.
Last week it also announced a deal to buy 13 pubs from Western Castle for £3.9m and since its half-year ended its estate numbers have exceeded the 4,500-pub mark. It has spent £92m buying pubs since August 2002.
Punch spent £12m improving 168 existing outlets.
Mr Thorley also took the opportunity to announce the company would look at the up-for-sale Eldridge Pope business. It is not clear how long his attention span will last as most other operators seem to be thinking of lots of reasons why not to do the deal. Punch has identified 141 pubs for disposal because the sites have a higher alternative use value, while 676 underperforming pubs have been earmarked as turnaround situations through targeted investment and recruitment. Asked about large-scale acquisitions and the continued rumours linking Punch to Pubmaster, Mr Thorley said: "Because Enterprise has done a couple of big deals there is a perception that we should do the same. "The key responsibility we have is to grow the business organically and by acquisition. It [Pubmaster] is not even on the radar.
"There is so much happening at the moment. There will probably be 500 managed pubs to convert to lease as a result of Mitchells & Butlers being taken out."
Pictured: Giles Thorley (left) and finance director Robert McDonald
Estate tenure
- Freehold: 91 %
Long leashold (>50 yrs): 6%Short leashold ( 3%
Punch estate by origin
- Allied Domecq: 1,794
Bass: 1,408Inn Business: 646Individuals: 384Conquest/GK/Spirit/Honeycombe: 144Commer/White Rose: 120
Half-year results at a glance
- Group turnover up six per cent to £218m
- Profits before tax up 17 per cent to £56m
- Earnings per share up 19 per cent to 19.4p
- Beer profits rose eight per cent to £67.4m
- Like-for-like pub contribution up five per cent
- 218 acquisitions taking the estate to 4,496 pubs (since exceeded 4,500)
Improving relations
Punch has been plagued by bad publicity surrounding its relationships with licensees.
Chief executive Giles Thorley is the first to admit the company did deserve a fair share of the criticism but does appear to be addressing the issue.
In addition to making Francis Patton responsible for all external relations, he has launched a series of forums with lessees and tenants across the UK.
Punch directors have so far met with 200 "retailers" and more meetings are in the pipeline.
The company has also launched Frontline, a telephone helpline for all licensee enquiries, and will shortly unveil its Punch Retailer Charter, outlining responsibilities to its licensees.
The share price climbs
Although Punch floated at 230p last May, the share price had suffered with the rest of the stock market, bombing to a low of 153p earlier in 2003. However last week, off the back of a strong set of numbers, the price had ticked up almost back to the initial launch price. It migh
