Punch: tenanted pub profit under pressure

Punch has warned that profits from its leased and tenanted division remain under pressure due to lower drinks margins and reduced rental income.

Despite seeing some improvements in performance, EBITDA per pub is down 5% and profit decline for the 44 weeks to 26 June 2010 remains at a similar level reported for the half year — 11%.

Since the half year, it said that the level of pubs being returned was now less than half the rate experienced for the last two years, largely due to its on-going financial support of £2m a year for its tenants.

The pubco said that only 200 of its pubs were currently closed — the majority of which will be sold in the next six months.

"We continue to invest in the future of our core estate and are on target to invest in over 800 pubs by the financial year end," it said.

"Management actions have had a positive impact in strengthening the estate with a more stable partner base and fewer closed pubs; however profits remain under pressure as lower drinks margin coupled with reduced rental income from returned pubs impacts profit."

Managed pubs​

At Punch Pub Company, its managed division, like-for-like sales in the 44 week period were 2.7% below last year — reflecting improved trading from the half year when sales were down 3.4%.

"Our pub investment programme and trial and roll-out of new pub concepts continue apace and returns on investment continue to be in line with our expectations," it said. "We expect to have invested in over 200 pubs during the course of the full financial year to August 2010."

Punch has now disposed of 748 leased and 29 managed pubs this year bringing in £230m and £33m respectively. The disposals have achieved book value and at an average multiple of 15 times outlet EBITDA.

Annualised lost EBITDA from disposals amounts to £15m and £2m in the leased and managed divisions respectively. It expects net disposal proceeds to top £100m be the end of the financial year.

Debt​

Since the start of the finacial year, Punch has reduced gross debt by £664m with net debt now standing at £3.2bn. Following the repayment of its convertible bond, all of its debt is now in the form of a long term mortgage type finance with an average life of 17 years at a fixed interest rate of 6.8%, secured on its 6,600 pubs. Consequently it has no refinancing requirements at present.

It said it would use £170m of free cash and £137m worth of bonds to underpin the net assety value of the group and protect debt structures from defaulting.

Caution​

"We expect the trading outlook in the near term to continue to be uncertain. The tax rises and reduction in public spending announced in the recent budget will inevitably put further pressure on unemployment levels, reduce disposable incomes and constrain consumer confidence.

"Against this backdrop, we believe it is sensible to plan cautiously and have prepared our financial plans accordingly."