Punch puts its faith in plan to sell 400 pubs as income falls

PUNCH Taverns, the UK’s largest pubs operator, has seen a decline in trading at is 3,000-strong core estate but said plans to sell off about 400 underperforming sites by the end of the financial year remain on track.

The group, which has about 300 tenanted pubs in Scotland, said net income from its core operations fell 5 per cent during the 16 weeks to 8 December – that compares with a 3.7 per cent like-for-like dip reported for the year to 18 August.

However, Punch said the decline was in line with management’s expectations and it forecast a return to growth next year, by which time it hopes to have offloaded some 400 non-core pubs.

In a first-quarter trading update, Punch said challenging market conditions had continued to affect trade and the level of pub failures remained in line with last year, leaving 176 outlets available for letting, of which 70 have new partners in place awaiting legal completion.

Chief executive Roger Whiteside said: “The non-core estate disposal programme remains on track. Since commencing this programme in 2011 we have realised proceeds of £193 million from 758 pub disposals, slightly ahead of book value.

“We expect to sell about 400 non-core pubs in the current financial year, having disposed of 86 pubs in the current quarter – including 11 pubs from the core estate – for proceeds of £26m.”

Punch currently has around 4,500 leased pubs across the UK, which means it needs to sell 1,500 over the next four years to achieve the target of narrowing its focus to a core estate of 3,000 outlets.

Douglas Jack, analyst at Numis Securities, said: “It should benefit from increasing maturity amongst the quarter of pubs that currently have new tenants – under one year – but it also needs the business failure rate to slow, in our view.”

Numis is forecasting a pre-tax profit of about £45.2 million for the current year, down from £64m last time, and it maintained its “hold” recommendation on Punch’s shares as it awaits the outcome of capital restructuring talks with bondholders.

Punch’s complex debt structure is split into two securitised vehicles, Punch A and Punch B, and the group said in October that it had been forced to tap into its cash reserves to avoid breaching its covenants.

The firm ended its last financial year with a net debt pile of just over £2.1 billion and Whiteside said yesterday that “on the basis of the dialogue with stakeholders to date, the board continues to believe that a restructuring can be successfully implemented”.

He added: “we continue to make good progress with our clear operational plan to return the core estate to growth in the medium term and extract maximum value from our non-core assets.”