Punch warns of renewed profits slide

PUNCH Taverns has warned that profits will be hit again after reporting a fall in sales at its managed pubs in the past four months.

The company, which has a net debt of £3.3bn, said that looming VAT rises and the continuing affect on trade of the recession were taking their toll.

It has been pumping £2m each month into pubs where landlords are struggling to make ends meet, putting a major strain on its resources.

In the 16 weeks to 12 December sales fell by 1.6 per cent compared with the same period last year, the bleak interim management report said.

It said the profits fall would be in line with the same period last year – at 11 per cent.

Shares in the company fell by three per cent at one stage yesteday after the report.

The company offloaded 352 pubs over the period – netting £127m in a bid to reduce its debt.

Punch said in a statement: “While management actions have had a positive impact on stabilizing the estate, profits remain under pressure due to ongoing beer volume decline in the on-trade and lower rental income from licensee pub returns and increased levels of partner support.”

Punch, which has more than 7,000 pubs across Britain, is now pinning its hopes on generating more income through pub meals.

The statement said: “We have recently introduced new food menus across our estate and our continued focus on quality offerings at an affordable price delivered with an excellent guest service will be the key drivers to delivering an improved sales performance.” The company has repaid £1,5bn of debt since 2006, it said. All of its debt pile is secured on pub properties and the majority is to be paid back over 18 years.

Punch’s debt reduction continues to impress but trading is not good and the management of decline is by definition finite. The group is aiming to stabilize its performance but stabilization at minus 11 per cent will not be sufficient to rescue the group. More pubs will be sold but the securitisations will lock down this year. The group is pulling the correct levers but faces an uncertain future.

Punch Taverns is acting in a sound way in repaying its debt. However, it looks like it will take longer than first anticipated to pay back. The outlook for the share price in the short term is negative but in the medium term things should improve. They have a solid base and are doing the right things in difficult times. There will be better news ahead.

Nothing has materially changed as a result of this – it’s in line with what was expected. Obviously things are tough out there but Punch is reducing its debt and that can only be a good thing. I don’t see much change in the near future but Punch is working well to get that debt down and that can only be positive. As for share price I can’t see there being any significant change.