Punch clears £1bn worth of net debt

Punch Taverns has reduced its net debt by £1bn or 23% since the beginning of the year, chiefly due to raising £400m through pub disposals.

The pubco said that it had repaid £708m of debt in the 52 weeks to 22 August — £698m of which was ahead of schedule at a cost of £473m. It raised £400m through pub sales with the average multiple of over 10 times earnings being achieved on sales. In addition, it also raised £350m through its share rights issue, which will be used to repay convertible bonds.

However, Punch said it would "continue to look at further opportunities to increase cash flow and repay debt by taking actions to reduce costs and realising value from the disposal of non-core assets".

Astaire analyst Mark Brumby said the debt reduction was a "very good performance" and "greater than expected" but retained his sell recommendation.

"August feels tough and the outlook for rising taxes, interest rates and unemployment is unhelpful," he said. "Although we acknowledge that the group is doing everything within its power to secure its future, we retain our sell recommendation on the shares."

Leased estate​

In its leased estate, Punch said there had been stabilisation with "no material change" in the previously reported 11% drop in like-for-like earnings before interest, tax, depreciation and amoritisation (EBITDA) for the 52 weeks. Disposals of non-core assets had led to a £6m EBITDA reduction (£29m annualised).

It continues to spend £1.6m a month — double last year — on tenant support in the form of rent concessions and extra discounts. It has disposed of around a third of the 1,250 sites in its turnaround division and has identified a further 450 pubs to join the division and receive extra support.

"Trading performance continues to be impacted by a combination of weaker beer volumes and a softening in rents, coupled with the previously reported increase in the levels of licensee support," it said.

Punch added: "Trading results to date continue to reflect the challenging market conditions being faced across the sector. The wider recessionary economic conditions have significantly reduced consumer confidence and impacted the level of disposable income being made available for leisure activities."

The pubco said the rain in late July had been "unhelpful" to the pub trade although June had been good.

Managed pubs​

The focus in the managed estate had also been on stabilisation, said Punch, with heightened promotional activity, sharper pricing, new food menus across all sectors and improved service.

Like-for-like sales for the 52 weeks are estimated to be 1.4% down on last year — 2.3% in the first half and 0.6% in the second half. Disposals of non-core assets have led to a EBITDA reduction of £3m (£11m annualised).

"As detailed at the time of our interim results announcement, operating margins continue to be impacted by above inflation regulatory, food and energy cost increases together with promotional discounts to drive sales," it said.

Punch said it remained "confident" over its longer term prospects but "cautious" in the near term "due to the lack of forward visibility on trading outlook".