Punch boosted by World Cup performance

MIDLAND pubco Punch Taverns has said that unlike the England football team, it has been encouraged by its performance during the World Cup.

The Burton-upon-Trent firm said in an interim management statement for the 44 weeks to June 26 that the good weather during May and June coupled with trading during the World Cup so far, had helped to offset the disappointing trading during the harsh winter.

Overall, the firm said that despite the continuing challenging environment, it remained on track to meet expectations.

In Punch Partnerships, its leased and tenanted division, the percentage of pubs on substantive agreements has increased to 84%.  Only around 200 of its pubs are currently closed, with the majority of these expected to be sold within the next six months.

Financial support to its landlords has remained stable at just under £2m per month and it said it was seeing the benefit of this support with the level of pubs being handed back at its lowest rate for two years.

Average outlet EBITDA per pub is down 5%, benefiting from estate churn and it said it was continuing to invest in the future of its core estate, with planned investment in around 800 outlets by the end of the financial year.

Nevertheless, it said it remained cautious as profits came under pressure from lower drinks margins coupled with reduced rental income. As a result, like-for-like profit decline remains at a similar rate to that reported for the half year.

In Punch Pub Company, its managed division, the firm said like-for-like sales in the 44 week period were 2.7% below last year.  This reflects improved trading from the half year when sales for the first 28 weeks were down 3.4%.  

Operating margins have continued to improve since the half year and remain broadly in line with last year.  

It said its pub investment programme and roll-out of new pub concepts continued and returns on investment continued to be in line with expectations. It said it expected to have invested in more than 200 pubs during the course of the full financial year.

Punch said its estate management strategy over the past four years had resulted in a significant improvement in the quality, sustainability and long term growth opportunities of its pubs.  

This strategy has continued during the period with 748 leased and 29 managed pubs being disposed of. This has generated proceeds of £230m and £33m respectively.

The company said the disposals had achieved book value and at an average multiple of 15 times outlet EBITDA.  Annualised lost EBITDA from disposals amounted to £15m and £2m in the leased and managed divisions respectively.  For the full year Punch said it anticipated net disposal proceeds of around £300m.

The firm it had also made good progress in strengthening its balance sheet.  

Since the start of the financial year it has reduced gross debt by £664m, £638m of which was clawed back ahead of schedule.  Net debt at June 26 stood at £3.2bn.

Following the repayment of a convertible bond, all of the debt is in the form of long term mortgage type finance which has a weighted average life of 17 years, secured on over 6,600 of its pubs. The debt fully repays over terms extending to 25 years and is effectively at a fixed rate of interest of 6.8%.  

The successful equity fund raising in July last year provided the firm with additional resources. As of June 26, the firm had £170m in cash £137m and £137m of bonds.

The financing will be used to underpin the net asset value of the group by protecting the debt structures against default.  

In a statement to the London Stock Exchange, the company said: “While current trading continues to be in line with our expectations, given the challenging market environment there could be circumstances where forecast revenues or cash flows are lower than expected.  

“We remain confident that the action we have taken and continue to take will provide sufficient headroom to allow us to meet our financial covenants going forwards.”