Little to cheer pubco Punch as full-year profits take a hit

MIDLAND pubco Punch Taverns today said it had a “clear operational plan” to return its core estate to growth after unveiling a disappointing set of full-year figures.

The Burton-upon-Trent business has seen EBITDA fall to £238m (2011: £258m), while pre-tax profit declined to £64m (2011: £76m). Basic earnings per share fell to 7.2p (2011: 8.6p), while net debt decreased by £137m.

The company blamed the poor performance on a combination of a long-term decline in drinking-out of approximately 3.5% per annum, changing customer behaviour, relative price positioning and the impact of regulation which meant the number of pubs in the UK was continuing to decline.  

“Whilst we believe the long-term growth in eating-out will continue to support the pub industry, we believe the benefit will favour the larger food led destination pubs and so a disproportionate number of the closures will be from smaller predominantly drinks led pubs,” it said.

Punch said its strategy would be to focus on its core estate of approximately 3,000 pubs, which it said were well positioned to outperform the broader market, overcoming the decline in drink volumes and growing food revenues.

“While net income in the core estate remained in decline this year, and we anticipate a comparable decline in the short-term as we continue to rebalance rents in the coming year, we expect a return to growth the following financial year,” it added.

In the medium term, it said it had a clear operational plan to return the core estate to growth of around 2% per annum in both Partner earnings and Punch net income.

It said the strategy for its non-core estate remained consistent with a focus on maximising cash returns whilst the pubs are let, and then delivering in excess of book value on any disposals.

The disposal programme remains on track and the group said it expected to achieve around £630m from the disposal of the 2,278 pub non-core estate over the next five years. Of this, £172m has already been delivered, through the sale of 683 pubs during the last 18 months – slightly up on a book value of £169m.

Punch said that while these pubs continued to have access to the same operational tools and infrastructure as the core estate, they were expected to continue to suffer volume declines materially greater than the broader market.  

“As a result, we expect these pubs to continue to experience profit declines, albeit with an improving trend as we dispose of the worst performing pubs first,” it said.
 
Trading in the first eight weeks of the new financial year is said to be in line with management expectations.  However, it added that while the UK consumer environment remained challenging in the short-term, it would be setting in place its recovery plan.

It said discussions have been initiated with certain major shareholders and other significant stakeholders to get their input on the range of possible options available to restructure the securitisations.

Roger Whiteside, Punch CEO, said: “We have delivered profits for the year in line with our expectations and are on track with our disposal programme in extracting maximum value from our non-core assets.
 
“We are making good progress towards our long term objective to become the UK’s highest quality, most trusted and best value leased pub company, with record levels of investment in our core pubs and an additional 1,100 Partners joining the Punch Buying Club.
 
“We have completed the review of our capital structure and have initiated discussions with certain major shareholders and certain other stakeholders.  We will engage with our remaining stakeholders, including bondholders, at the appropriate time.  While the options are complex and will take time to conclude we are confident that a consensual restructuring can be successfully implemented in a manner that delivers value for stakeholders.”