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meeson · Site Admin Joined: 26 Feb 2007 Posts: 615

Punch's profits plummet

UK's largest pubco warns it may have to seek alternative financing methods

Punch Taverns has announced its pre-tax profits for the 28 weeks to March 7, 2009 slumped by more than a third.

Earnings before interest, tax, depreciation and amortisation (EBITDA) came in above analysts forecast, however, at £275m.

Pre-tax profits fell from £133m to £82m on turnover down nearly £40m at £767.9m, which was also above what the City was expecting.

After exceptional charges of £184m, including pub impairment charges of £147m, the group made a loss of £122m.

Punch warned that while it was confident regarding the longer-term prospects for the group and that its expectations for the full year remain unchanged, “we remain very cautious over the near-term due to the lack of forward visibility on trading outlook”.

The UK’s largest pub operator also signalled that despite its confidence that it would hit its earnings forecast targets for the current financial year, it may have to look at different ways to finance its business.

“Given the lack of visibility over future trading and the very uncertain economic environment, there could be circumstances where forecast revenues or cash flows are lower than expected," it said.

“In the event that these cannot be covered by existing covenant headroom or that insufficient cash is generated at the plc level to meet the remainder of the convertible bond repayment, then the group would need to consider alternative methods of financing.”

A spokesmand for Punch said the statement about financing was a legal requirement and that group had no plans for a rights issue, although with its capitalisation at around £100m Punch was always unlikely to make this sort of move.

Punch said it had paid back £66m of the £275m convertible bond, due to be redeemed in December next year, and that it would continue to sell pubs from its unsecuritised estate, around 200 sites. The group also suggested it expected to be able to flow cash from its 'A' and 'B' securitisation vehicles to fund debt repayments.

In its leased estate, Punch said EBITDA fell 11.3 per cent in the first half to £227m.

The group said closed pubs accounted for around five per cent of the portfolio – up to 400 sites – and that it was providing £1.6m a month in support for lessees, versus a figure of £400,000 a month this time last year.

Punch said it was encouraged by the level of new lets across the business, although noted that the majority were short term agreements, since newcomers were “less willing to sign-up to long-term agreements in the current climate”.

The group said its disposal programme of some 500 underperforming pubs was “progressing well”, and it had generated £91m from sales of its pubs in the period. It also announced it had just sold the Round House, a freehold pub in London's Covent Garden, to Fuller, Smith & Turner, for £3.3m.

Of its managed estate, Punch said the downturn in revenue had slowed to 0.9 per cent in the second quarter, versus a 2.5 per cent decline for the first 20 weeks.

Capital expenditure had been nearly halved, to £57m.

Punch’s chief executive Giles Thorley warned that consumer confidence remained under pressure and the group remained “very cautious” over its near term prospects.

Thorley also took a swipe, without naming it, at anti-beer tie group Fair Pint.

“Punch Taverns’ business is dependent on the sustainable future of the British pub,” he said.

“Despite the economic challenges, we have responded quickly to provide assistance to our licensees and to protect the future of as many of our pubs as possible.

“During these challenging times we believe that arguments put forward by some that the beer tie is the cause of the problems facing the industry is a divisive, non-productive distraction from the core underlying issues and ignores the impact of the recession, tax and regulation on small businesses like pubs.”