Licensee support hits profits, says Punch

Punch Taverns said today that its short term profitability had been hit in part by its decision to increase financial support for its licensees and limit beer price increases.

The UK's largest pubco reported first half operating profits down nearly £43m to £198.7m on turnover of £676.6m, down more than £90m. Group pre-tax profits fell by nearly £16m to £66.4m.

Across its leased estate the group said it had seen "no material change in the rate of like-for-like EBITDA decline in the period, being down by 11 per cent". It did not elaborate on the financial trading performance of its leased pubs.

Punch said support for its partners had risen from £1.6m a month at the same point last year to £2m, but had not increased since the end of 2009.

524 leased pubs had been sold during the first six months of the year, nearly three quarters of which the group described as non-core.

"Management actions have had a positive impact on stabilising the estate, consistent with our focus on long term sustainability; however, profits remain under pressure due to ongoing beer volume decline in the on-trade, lower rental income from returned pubs and increased levels of partner support," Punch said.

The group said it planned to cut the number of pubs per business relationship manager (BRM), although it did not outline how many pubs its BRMs would ultimately be responsible for.

Punch added that a number of new leases agreements, part of what it called the 'Punch Buying Club', were to be rolled out, offering its pubs the option of free of tie pricing and freedom to source local ales covered by progressive beer duty.

Across its managed estate Punch said efforts had been focused on stabilising business performance, with an emphasis on cracking down on costs and improving margins.

"As a result of these actions and despite continued inflationary cost pressures and higher rents after the return of leases following third party insolvencies, operating margins for the half year have improved by 0.3 percentage points.

"Like for like sales for the half year were down 3.4 per cent, impacted by adverse weather in December and January. Consequently, on a like for like basis, EBITDA in the half year was broadly flat," it added.

Punch said it had reduced its net debt by five per cent in the first half to £3.28bn. The group said it planned to raise up to £300m over the course of the current financial year through disposals of non-core pubs.

Trading since the half year has continued in line with management's expectations, it added: "Trading over the Easter holiday period was good and slightly ahead of last year in the managed estate.

"While we remain on track to meet our expectations for the full financial year we are mindful that market conditions remain challenging and are likely to continue to be so for the near-term."

Meanwhile the search continues for a new chief executive to replace Giles Thorley, who recently announced he was stepping down from the company.

Both Roger Whiteside, who heads up Punch's leased pub business, and Mike Tye, who controls its managed operation, have applied for the job. Whiteside said today he did not know when the decision would be made, only that the process was "well advanced".

Punch paid tribute to Thorley, expressing "its gratitude to Giles for the incredible commitment and drive that he has brought to Punch during his time with the business.

"His dedication has not waivered and he will leave a business poised to benefit from an improvement in economic conditions."