Punch Taverns' profits to get boost from 'sunshine factor'

Punch Taverns said profits for the current financial year would be "marginally ahead" of previous forecasts of around £128.5m, thanks to factors including recent good weather and a series of pub refurbishments.

In a pre-close update issued today the pubco said trading progress across its estate was being maintained thanks to recent good summer weather, better operating standards in its pubs and the benefits of ongoing refurbishments across the estate.

Punch said profits across its leased operation, Punch Partnerships, would "remain under pressure as a result of lower drinks margin coupled with reduced rental income from returned pubs".

The group said the decline in its profits would be "broadly in line with the rate reported at the half year", around five per cent.

Phil Dutton, Punch's finance director, said the failure rate for its leased pubs had halved, and the percentage of pubs on substantive agreements was running at 86 per cent, versus 84 per cent at the half year mark.

The number of pubs being handed back to the group was running at around 50 to 60 a month, versus the 100 a month figure of a year ago, he said.

Financial support for stricken lessees had stabilised at just short of £2m a month, Dutton said, with around 1,000 pubs receiving help. Some pubs would get assistance worth up to £10,000 a year, he said.

"We are assessing the profitability of our Partnership pubs and skewing support to those earning profits of between £20,000 and £30,000," he added.

Punch still aimed to have a leased estate numbering around 5,000 pubs, Dutton said, versus the 6,000 leased sites it currently owned, so disposals would continue. The group had sold £300m-worth of non-core assets during the year, he added, at an average EBITDA multiple of 16 times.

Of its Punch Pub Company, the group's managed pub arm, Dutton said turnover across the year was two per cent down on 2009, when sales were 1.4 per cent down on the year before that. However the group had seen a 2.6 per cent rise in turnover in the last quarter, he added.

Operating margins were said to have improved since the half year point and were due to be in line with the previous year, when they were 370 basis points lower than in 2008.

Dutton said he was pleased with the momentum taking place in the managed division, particularly the impact of the refurbishment programme of around £50m per year, which was as "aggressive and ambitious as any in my three years with Punch", he added.

The group had "significant resources outside the debt structure" to see the group through for the long term, he said. Net debt now stood at £3.1bn, down £684m, or 17 per cent.

Punch shares were up nine per cent at 89p. The group announces its full year results on October 12, 2010.