MORE than £100 million was slashed from the value of Punch Taverns yesterday as Britain's biggest pubs group jolted the City by scrapping its final dividend.
Punch, which is also Scotland's largest pubs group with more than 400 outlets, argued that it was "prudent" to conserve cash in "ongoing challenging trading conditions for the industry".
However, group chief executive Giles Thorley denied speculat
ion by some analysts that the company may have been forced into the move to avoid breaching bond conditions – or in anticipation of such a problem.
Punch took out a £300m bond two years ago, which is due for repayment in 2010. Asked about the speculation, Thorley said: "No, that's not the basis for which we're pulling this forward."
The company is expected to save at least £25m from passing on the divi – the amount it paid out last year at the final stage out of a total £40m payout.
Shore Capital Stockbrokers said the divi's re-instatement was unlikely until conditions in the pub industry or the debt markets improved significantly.
The announcement came as Punch said like-for-like sales at its 7,560-strong tenanted pubs fell 3.4 per cent in the year to 23 August. Like-for-like sales at the 864 managed pubs barely did better, down 3.3 per cent.
Punch's shares slumped 16 per cent at one stage yesterday before later closing down 12 per cent, or 38.5p, at 278.25p. This gives the business a stock market value of £742m.
Thorley said it was important in the current testing trading conditions to retain money to invest in pubs.
Punch said trading had not deteriorated since June and that it would meet market expectations.
The company said it had provided more support to licensees through food expertise, promotions and drink discounts.
Thorley added, however, that "although the group has secure, long-term debt and no near-term requirement for funding, the board believes the main priority for the use of cash is to support the repayment of the group's convertible bonds in spite of the fact that this does not become due until December 2010".
Investec Securities said it expected to cut its full-year profit forecast by up to 3 per cent to £268m and reduced the 2009 forecast 14 per cent to £250m.
Thorley confirmed Punch had gained permission from Her Majesty's Revenue and Customs to convert to a real estate investment trust (Reit), but its main focus currently was keeping the balance sheet strong.
Punch's trading news unnerved the sector, with Enterprise Inns shares losing 8 per cent, Mitchells & Butlers off 5 per cent and JD Wetherspoon down 3.7 per cent.
The full article contains 452 words and appears in The Scotsman newspaper.
