Reports of Punch Taverns' demise "greatly exaggerated", says Thorley

Punch Taverns chief executive Giles Thorley pointed to his group's much anticipated annual results, published today, and claimed news of the pubco's imminent demise had been "greatly exaggerated".

Results in line with expectations and recent moves to reduce debt - by nearly five per cent - were altering the perception of the business, the chief executive argued, with the group's shares rallying in recent weeks as the investment community took on board the steps it was taking.

The UK's largest pubco revealed pre-tax profits for the year to August 23, 2008, "in line with market expectations" at £262m, down 6.9 per cent, on turnover of £1,560.6m, down 8.5 per cent. The group took an exceptional £295m impairment charge on the value of its property estate.

As expected no final dividend is to be paid to shareholders as the group seeks to pay down elements of its £4.5bn debt.

The group said like-for-like rental growth across its 7,560-strong leased and tenanted estate had halved to 2.1 per cent over the year, but that average pub EBITDA had risen four per cent to £64,000. Around nine per cent of rent reviews resulted in a rent reduction, it added.

"Despite the much publicised market challenges, it is extremely pleasing to see we have again been able to improve the quality of the leased estate," the group said. "The majority of our licensees are performing well, with 89 per cent of our pubs being let on substantive agreements." Closed pubs accounted for 3.2 per cent of the leased business, around 240 pubs.

As licensees struggle with the consumer downturn, Punch said its rental and other concessions amounted to £14m. Thorley said his company offered the highest level of support in the industry and would be prepared to offer more if necessary.

"It will be on a case-by-case basis," he said. "Where a licensee has done all they can to improve their pub we will do what we can to help. We will be reluctant to help people who won't help themselves," he said.

Punch meanwhile announced that following a "detailed" review of its estate it had earmarked around 500 pubs for disposal.

The pubs were deemed "unlikely to generate long-term sustainable growth", the group said, and were likely to be sold or converted for alternative use "within the next few years". The group did not offer a timescale for such a sale, nor where these pubs were located.

Punch said its 860-strong managed estate had seen weak trading for the all but the first quarter of the financial year. Trading had been hit by the smoking ban and weak consumer environment, but revamps to a number of retail brands including Chef & Brewer were on track to deliver "greater value across the portfolio".

Current trading "remained extremely challenging", with managed pub sales continuing "broadly in line" with that experienced in the recent financial year, suggesting sales are down around the three per cent mark.

The leased estate had seen drinks volumes decline in line with that witnessed in the second half.

Thorley said notwithstanding the issues facing the pub sector and the wider economy he was optimistic about the group's longer term prospects.

"Recently we've seen a lot of 'Punch set to go bust' stories. We've ignored that and shown that we know a lot more about our debt than some City analysts.

"Even for some of our critics in the City the debt issue has come off the agenda," he added. An external valuation of the group's pub estate came in at £6.5bn, lower than the previous year, it exceeded book value "by more than £100 and provides a current property valuation of £2bn over net debt".

And as the country's pubcos prepare to be grilled by MPs as part of a review of the 2004 Trade & Industry Select Committee (TISC) report, Thorley went on the offensive about the contribution pubcos made to the industry.

"What have we, the pubcos, done since the TISC report that's made the situation worse? We've spent £300m on our pub estate. We've undertaken the licensing process and the subsequent review of licenses for our pubs. We've spent £15m on smoking ban solutions, as well as other things such as gas and electricity certification.

"All this against the kind of background in the industry we've seen in the last few years."

Punch Taverns shares were trading down 7.6 per cent - 14p - at 169.5p.

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Punch Taverns results at-a-glance

Turnover: £1,560.6m (down 8.4 per cent)

EBITDA: £623.4m (down 6.1 per cent)

Operating profit: £560.9m (down 7.6 per cent)

Pre-tax profit: £262.3m (down 6.9 per cent)

Earnings per share: 79.5p (down 3.8 per cent)