Punch: Spirit to demerge, leased sell off
Punch Taverns has confirmed it is to demerge its managed pub division before the end of the summer and downsize its leased arm to 3,000 "high quality" pubs.
Its leased estate will be reduced by 500 pubs per year, according to Punch's long-awaited strategic review.
The company has said it will separate the managed and leased businesses by the demerger of Spirit, the managed arm, from Punch before the end of the summer, leading to the creation of two independent public companies.
Punch has revealed six conclusions following the strategic review, which was announced in October 2010 under new chief executive Ian Dyson:
• Operating momentum in both the managed and leased businesses provides a solid foundation for the strategic review
• The group's current strategy is not sustainable with structural change required to drive value
• The managed business requires investment and development to accelerate its operational turnaround and drive growth
• The leased business needs to be repositioned to maximise the long term value within the estate by downsizing to a core of around 3,000 high quality pubs
• There are limited synergies between the managed and leased businesses
• The group's structure and financial position are barriers to realising value.
Dyson said: "Change at the top of an organisation and a strategic review can provide a distraction from day to day operations and I am proud that this has not been the case at Punch.
"Our Q2 trading statement clearly shows that we have continued to build operating momentum over the last six months and this provides a solid foundation for our strategic review.
"We believe that there is a significant value creation opportunity at Punch, with immediate upside in managed and longer term upside in leased.
"We do not believe that either opportunity can be maximised within the current Group structure and accordingly, we propose that the two businesses be separated. This will be achieved by the demerger of Spirit and the creation of two independent public companies.
"A demerger will provide the platform to enable both businesses to focus on the very different strategies required to deliver shareholder value and will provide choice and liquidity for investors.
"Spirit will be positioned to deliver market leading sales and profit growth and to expand with the aim of becoming the UK's leading managed pub operator.
"Punch will be positioned to drive long term value by downsizing to a core estate of around 3,000 pubs with the aim of becoming the UK's highest quality and most trusted leased operator."
Leased pub restructure
Punch will re-structure its leased estate into two divisions — core and turnaround — with each having separate operational teams.
The pubco hopes the core of 3,000 pubs will drive "sustainable long-term growth". The core pubs account for 75% of profit (EBITDA) and produced an average net income per pub of £80,000 for the year to August 2010.
In the core division, the plan is to attract high quality licensees through its new lease options, including a new turnover based agreement being trialled, and develop the skills of its business development managers to help grow food revenues.
The focus of the turnaround division will be to "maximise short term results with a clear focus on costs and cash flow" while they are waiting to be sold. Pubs will have access to the same support structures as the core division.
"In essence, we are shifting the emphasis of the leased business from quantity to quality," said Dyson.
