Punch stops rentalising machine income

Punch Taverns has begun to stop rentalising machine income in a move that will boost pub income for licensees by around £1,250 per annum.

The initiative is a result of Punch's moving to ensure it complies with Business and Enterprise Committee (BEC) recommendations on transparency in its relationship with licensees.

The company chose 1 August as the date to move away from rentalising licensees' share of machine income on pubs it is re-letting and those subject to a rent review.

The move will be applied to each Punch pub that is re-let or subject to a rent review from now on — it will be five years or so before every Punch leased has undergone a rent review.

Punch has already told analysts that its planned changes to machines are expected to cost it around £2m per annum, with the total cost adding up to between £8m and £10m as revised terms roll through the estate. This cost is based on an average number of 800 rent reviews and 800 re-lets per year.

Kevin Georgel, Punch operations director, said: "We will no longer be rentalising machine income — licensees' machine income is being removed from the hypothetical profit & loss on each pub."

Punch is also working to ensure that licensees are not paying more than the market rate on royalties for machine rental, a project that will be completed later this year.

"The principle here is about ensuring that licensees renting machines through us are not paying above the market rate. We're taking a positive step and trying to do it in the most sensible way we can."

Georgel also stressed that Punch was taking pro-active steps where licensees where genuinely struggling with their rents. The tenanted operator is also expected to unveil a new deal for licensees on insurance later this year and a brand-new lease agreement in Spring 2010.

Conscience of the business​

Punch has appointed former business relationship manager Dave Pawson to a new position — partner relationship manager. His job is to become the "conscience of the business", ensuring that the company's "change programme" is adopted throughout the business.

"We have a far-reaching change programme and we want to make sure it's co-ordinated," said Georgel. Punch field teams are being invited to a meeting on 14 September to be briefed further on the "change programme" and the new behaviours expected in relation to licensees.

The company is also hoping to attract 3,000 licensees to its business-building roadshows this year. The roadshows attracted 2,700 licensees last year, which amounted to double-digit growth in attendance.  

Rent reviews​

The majority of pubs in the Punch leased estate are subject to rent reviews every five years and on the last day of the term and all rents are also adjusted annually by reference to the retail prices index.

Following a rent review, the rent payable under a lease or tenancy agreement may either increase or decrease. The table below shows the number of years remaining until the next rent review for the Punch leased estate as at 7 March 2009: 

Year of review: (no of outlets)​

Financial year ending August 2009: 91 

Financial year ending August 2010: 748 

Financial year ending August 2011: 662 

Financial year ending August 2012: 1,013 

Financial year ending August 2013: 566 

Financial year ending August 2014: 304 

No review, or renewal is post the financial year ending August 2014: 4,102 

Total: 7,486