Punch Taverns: profits down 18%

Profit at tenanted and managed pub operator Punch Taverns dropped 18% for the 28 weeks to 6 March on last year as it warned conditions remained challenging.

Earnings Before Interest, Tax, Depreciation and Amoritisation (EBITDA) fell from £275m a year ago to £225m.

Profit before tax was down 19.5% on last year to £66m for the period. Punch raised £198m from the sale of 524 pubs (74% of which were non-core) — achieved at an average of 13 x EBITDA and ahead of book value, it said.

The company said it continued to pay down debt and expected to raise a total of £300m in the current year through the sale of pubs.

"Some of the decisions we have taken, such as increasing financial support to our lessee partners and limiting beer price increases have put pressure on short term profitability," it said.

"However, we are confident that these decisions will provide the platform for improved profitability in the longer term and it is pleasing to see that our interim results are in line with our expectations."

Punch said it was committing a further £60m "toward enhancing and developing community pubs over the course of the next year" in addition to the £20m it is spending on helping its tenants through extra discounts and rent reductions.

Leased estate​

EBITDA fell 11% on last year to £183m in its leased estate with disposals further reducing EBITDA by £2m (around £13m annualised).

Monthly support of tenants, in the form of rent concessions and extra discounts has increased to £2m a month — up from £1.6m a month last year.

"We are beginning to see the benefit of this assistance with the number of pubs returned from our partners being materially down on the previous year and the number of closed and Tenancy at Will properties available for let also down on last year," it said.

"Moreover, over the last few years the level of discount provided on beer to our partners on secure lease agreements has been rising consistently and it now stands at an average of in excess of £65 per barrel off the brewers national wholesale price.

"We believe that this compares favourably to the free market where discounts and supply deals have been declining, particularly when taking into account the extensive range of beers we provide from all of the major brewers in the UK."

Punch announced that it is to trial new leases in September that offer licensees free-of-tie prices and a free-of-tie option on cask ale produced by smaller brewers (Punch to trial free-of-tie prices​).

Managed estate​

Sales at its managed pubs were down 3.4% after being hit by adverse weather in December and January. With a focus on stablising the performance of its 800 or so managed outlets, it had eschewed discounting with emphasis moving toward trading the business more profitably through cost efficiencies and better control over gross margins.

To that end, and despite inflationary cost pressures and the return of leases following third party insolvencies, margins had improved by 0.3 percentage points.

It said EBITDA was broadly flat on a like-for-like basis. Due to the ongoing disposal programme, ebitda at its managed pubs had fallen £1m (£2m annualised) to £40m.

Following the trialling of several new and improved formats the company was preparing several rollout programmes, such as taking the new Chef & Brewer concept to 50 sites by August 2010.

It said capital expenditure in the managed business would total £50m this year.

Debt​

Net debt at the group now stands at £3.277bn, £188m lower than August 2009. Following the repayment of a convertible bond, all of its debt was now in the form of long term "mortgage type" finance, secured against its freehold property.

There was no news on a replacement for outgoing chief executive Giles Thorley, who announced last month that he would step down once a successor had been found.