Punch takes £663m hit on pub estate value
Punch Taverns has taken a £663m write-down on the value of its leased and managed pub estate.
In its preliminary results for the 52 weeks to 22 August, the pubco recognised impairment losses of £483.4m in its 6,841-strong leased estate and £179.7m in its 853-strong managed estate.
Chief executive Giles Thorley said the writedown in the leased estate was primarily due to the identification of pubs considered unlikely to generate "long-term sustainable growth "following the change in the consumer environment impacting the long-term trading expectations for these pubs"
He said: "These pubs are likely to be sold or converted for alternative use within the next few years and have been written down to their fair value less costs to sell, being management's best estimate of market value following consideration of past experience and the current market environment. A further impairment has been recognised for pubs where their expected future cash flows have fallen to a level such that their value-in-use is below carrying value."
The impairment charge in the managed estate is said tio be due to a reduction in profits bought about by the current tough economic climate. "The impairment has been recognised on pubs where their expected future cash flows have fallen to a level such that their value-in-use is below carrying value." said Thorley.
The company said that included within the writedown are reversals on impairment losses of £50.1m for the leased estate and £46.2m for the managed estate.
The impairment reversals were primarily due to the identification of pubs where expected future cash flows have risen to a level such that value-in-use is now above carrying value.
Results
Punch said results were in line with expectations with net debt having been reduced by £1bn. Earnings before interest, tax, depreciation and amoritisation fell 17.5% to £514m on last year, while profit before tax dropped 39% to £160m.
The pubco has raised £414m from disposals, mostly from the sale of non-core assets in its leased estate. Its loss after exceptional items was £176m.
Thorley added: "Our swift action has reduced the company's net debt by over £1 billion during the year, as we've heeded the challenges facing the economy and the industry. We have strengthened our operational management team; raised equity from our shareholders; stabilised the operating performance and improved significantly our cash flow. We are now shaping the business to deliver a return to long-term sustainable growth and value.
"The trading environment remains challenging and lacks visibility, hence we remain cautious despite the measures undertaken. We are nevertheless confident that the significant progress we are making positions us well for the longer-term opportunities in the sector."
Leased performance
It reported there had been "no material change" in like-for-like EBITDA — down 11% on last year. Its disposals programme has reduced EBITDA by around £6m (£29m annualised), resulting in an overall EBITDA of £412m for the year.
Punch is spending £1.6m a month on extra support for tenants and only 4% of its estate is made up of closed pubs.
During the year, Punch sold one-third (416) of the 1,250 in its "Turnaround division". A further 430 pubs have now been transferred to the division, ear-marked for extra support.
The Turnaround division now makes up 19% of the estate but contributes less than 6% of the operating profit and includes two-thirds of the closed pubs and those operating on tenancy at will basis.
Managed estate
The focus in the managed estate has also been on stabilisation of performance through heightened promotional activity designed to grow sales and margin. Like-for-like sales were down 1.5% for the year — 2.3% in the first half and 0.6% in the second half. Disposal of non-core assets has reduced EBITDA by around £3m (£11m annualised), resulting in an EBITDA of £100m for the year.
In February, it launched its Operational Excellence programme to simplify ways of working, streamline pub structures and have the right people in place doing the right things. It spent £42m on improving the condition of its estate.
Operating margins continue to be impacted by above inflation regulatory, food and energy cost increases together with promotional discounts to drive sales. "Inflationary cost pressures have begun to ease particularly in the area of energy costs where we are now benefiting from reduced prices compared with a year ago," said Thorley.
