LONDON (Alliance News) - Punch Taverns PLC Wednesday reiterated its full-year earnings guidance after reporting a small drop in operating earnings in the first half, but revised up its disposal proceeds guidance after it moved ahead of target in disposing of the pubs it no longer wants to run.
The pub operator, which has emerged in a healthier financial position after a drawn-out restructuring of its debts, also said it has started to adapt its business model ahead of the implementation of new laws that prevent pub companies from tying their tenants to buying beer and drinks from their landlords.
Punch reported closely-watched earnings before interest, tax, depreciation and amortisation excluding one-off items of GBP105 million for the 28 weeks to March 7, down just slightly from GBP108 million a year earlier, as revenue declined to GBP221.7 million from GBP233.5 million but this was partly offset by lower operating and finance costs.
It reiterated its full-year underlying Ebitda guidance of between GBP193 million and GBP200 million, saying trading in the first six weeks of the second half has been in line with its expectations. It is expecting a drop in like-for-like sales in the second half because it got a major boost from the 2014 football World Cup and good summer weather last year.
The company swung to a pretax profit of GBP348.5 million, from a loss of GBP174.9 million a year earlier, as it booked a GBP375 million profit thanks to its capital restructuring and a GBP12 million profit on disposals.
Punch currently has 3,653 leased and tenanted pubs across the UK, but only 2,894 of those are in its so-called core estate, which are pubs it thinks it can grow. Its non-core estate, which it is trying to sell, comprises 759 pubs. These are the pubs it thinks are most exposed to a long-term trend of declining drinking out in the UK.
It sold 151 pubs during the period, including 37 from the core estate, as well as other assets for proceeds of GBP57 million, GBP12 million ahead of book value. It had been targeting GBP60 million of proceeds for the year as a whole, but is now targeting GBP80 million because the programme is running ahead of target.
It said like-for-like net income growth, a gross profit measure, in the core estate during the half was 0.5%.
The company said it has further cut its debt by GBP53 million since it completed its massive capital restructuring on October 8, and remains on track to meet its GBP200 million deleveraging target over the next three years.
"Group debt has materially reduced following the completion of the capital restructuring on 8 October 2014 and we have delivered strong cash flow generation during the first half. All of our debt is long-term securitised debt with no short-term bank debt and we have a clear path to further debt reduction," Chairman Stephen Billingham said in a statement.
Despite the need to cut its debt, Punch is continuing to invest in modernising its core pubs and completed 122 investments in the first half of the year at an average spend of GBP106,000 a pub. Its total capital investment spend was GBP22 million, down 23% from the first half of its last financial year and slightly below the company's target as it scaled back investments ahead of the introduction of the new laws breaking the ling between pub operators and their tenants for drink supplies.
The whole sector is facing a major shakeup due to the new rules, which it heavily opposed warning of a swathe of new pub closures across the country as profitability was reduced. Analysts expect the operators to become more like property companies, managing their large property portfolios to generate returns to make up for the revenue shortfall that's likely to be caused as tenants shop around for their drinks supplies.
The new laws are set to be implemented after next months General Election in the UK, and Punch said it has already started to review new managed and franchised pub operating formats on a select number of sites, modernise its pub tenancy and lease agreements, as well as to defer some capital investments.
Punch is about to be led by a new chief executive. The company had announced in March that Duncan Garrood will start in the role on or before mid-June. Executive Chairman Billingham will then become non-executive chairman.
Punch Taverns shares were down 0.4% at 103.00 pence Wednesday morning.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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