Punch Taverns does dividend u-turn
Punch Taverns is to withhold its final dividend for the 2008 financial year, citing the needs to pay off some of its debt and invest in its pubs, which are currently struggling in the tough consumer environment.
The City has for some time been calling for Punch to freeze its dividend in order to address its debt situation.
The Square Mile has been forecasting a final dividend of around 11p a share; taking this step now is likely to save the group around £40m.
The decision comes as a major u-turn for chief executive Giles Thorley, who a few months ago was stressing that the group's balance sheet was in good enough shape to fund a payment to shareholders at the year's end.
In a pre-close trading update, Punch said it was "prudent not to propose a final dividend for the year ended 23 August, 2008", since it believed "the main priority for the use of cash is to support the repayment of the Group's convertible bonds in spite of the fact that this does not become due until December, 2010.
"Secondly, whilst cash flows remain strong we are mindful of the ongoing challenging market conditions that impact both our licensees and our managed business. It is important that we continue to invest in our pubs alongside our licensees to ensure that we continue to further improve the quality of our pub estate."
The group's leased pubs' like-for-like contribution fell 3.4 per cent in the year to 23 August 2008, against a decline of the same figure reported for the 44 weeks to 21 June 2008.
Punch's managed estate, Spirit, saw like-for-like sales in the core managed estate fall by 3.3 per cent, versus a decline of 3.6 per cent reported for the 44 weeks to 21 June 2008.
The group said the challenges faced by the industry were "well documented" and rent concessions had increased from £4.2m to £6m, although it stressed this still represented only 3.3 per cent of the total rent roll.
"Our performance has continued broadly in line with management's expectations and we also remain confident of delivering full year earnings before exceptional items in line with market expectations," it said in the statement.
Punch also gave notice it had been given clearance by the tax authorities to elect to adopt a real estate investment trust (REIT) structure if it wished to do so.
The group said that it was assessing what was needed to become a REIT, "in the current environment our main priorities are to maintain the strength of our balance sheet and to continue to invest in our business".
Alex Paterson, of City firm Liberum Capital, said the dividend move suggested Punch "is not confident that it can get refinancing, and represents a massive negative for Enterprise Inns as well. Enterprise has £1bn of debt due in the first half of 2011 and passing the dividend would clearly not be enough to repay this capital".
