Conviviality Retail Regulatory News (CVR)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

PUNCH TAVERNS PLC 

Proposed disposal of 50% interest in Matthew Clark (Holdings) Limited for £100.7 million in cash

Summary

· Punch Taverns plc (the "Company" or "Punch" or the "Group") today announces that it has entered into an agreement to sell the Group's 50% shareholding in Matthew Clark (Holdings) Limited ("Matthew Clark") to Conviviality Brands Limited, a wholly-owned subsidiary of Conviviality Retail Plc (the "Disposal"). The total consideration for the Disposal is £100.7 million in cash.

· The total consideration includes a dividend of £1.5 million that will be paid by Matthew Clark to Punch Finco prior to Completion.

· Completion is subject to, amongst other conditions, the approval of shareholders of Punch and Conviviality Retail Plc. Subject to the satisfaction of these conditions, Completion is expected to take place on or around 2 October 2015.

· The Matthew Clark business is a 50/50 joint venture between the Group and Hertford Cellars Limited, a subsidiary of Accolade Wines Limited. As part of the same transaction, Hertford Cellars Limited will sell its 50% shareholding in Matthew Clark to Conviviality Brands.

· The Group equity accounts for the Matthew Clark joint venture. The unaudited value of the investment on the Group's balance sheet as at 22 August 2015 was £52.3 million (FY14 audited: £50.5 million). The unaudited share of post-tax profit attributable to the Group's 50% shareholding in Matthew Clark for the financial year ended 22 August 2015 was £7.8 million (FY14 audited: £6.2 million).

· Net cash proceeds of the Disposal, after transaction costs and expenses, amount to approximately £98.7 million. The sale will enhance the Group's financial flexibility to pursue its strategic objectives.

· At Completion, the Group will enter into a 10 year non-exclusive drinks supply contract with Matthew Clark Wholesale Limited. Under this supply agreement, Matthew Clark Wholesale Limited will supply selected wines and spirits drinks products for sale to members of the Group at agreed pricing levels.

The Disposal is a Class 1 transaction for the Company under the Listing Rules and is therefore conditional, amongst other things, upon the approval of Shareholders. A circular containing further details of the Disposal and a notice convening a general meeting is expected to be sent to Shareholders on or around 11 September 2015.

Duncan Garrood, Chief Executive Officer of Punch Taverns plc, commented:

"We are pleased to have agreed the disposal of our investment in Matthew Clark and at a significant premium to our current book value. The sale of a non-core business will enhance our financial flexibility to pursue our strategic objectives for our core activities.

At the same time, we will enter into a 10 year drinks supply agreement with Matthew Clark for the supply of wines and spirits into the Punch estate."

This summary should be read in conjunction with the full text of this announcement.

Enquiries:

Forward Looking Statements

Certain statements contained in this announcement, including any targets, forecasts, projections, descriptions or statements regarding the possible future results of operations, any statement preceded by, followed by or that includes the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", or the negative of such terms or other similar expressions, and other statements that are not historical facts, are or may constitute "forward-looking statements". Because such statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include but are not limited to (i) risks and uncertainties relating to the United Kingdom economy, the United Kingdom pub industry, consumer demand, beer consumption levels and government regulation and (ii) such other risks and uncertainties detailed herein. All written and oral forward-looking statements attributable to the Group or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth in this paragraph. Investors are cautioned not to put undue reliance on such forward-looking statements. No obligation is assumed (except as required by the Listing Rules, the Disclosure and Transparency Rules, the rules of the London Stock Exchange and by law) to publish any revisions to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this announcement.

Disclaimer

Numis Securities Limited ("Numis"), which is authorised in the United Kingdom by the Prudential Regulatory Authority and regulated in the United Kingdom by the FCA and the Prudential Regulatory Authority, is acting exclusively for the Company and no one else in relation to the Disposal, and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Disposal and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Numis, or for giving advice in relation to the Disposal or any transaction, arrangement or other matter referred to in this document. No person shall be treated as a client of Numis solely by virtue of receiving this document.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

PUNCH TAVERNS PLC

Proposed disposal of 50% interest in Matthew Clark (Holdings) Limited

1. Introduction

Punch today announces that it has entered into an agreement to sell the Group's 50% shareholding in Matthew Clark to Conviviality Brands, a wholly-owned subsidiary of Conviviality Retail Plc, for a total consideration of £100.7 million in cash. The total consideration includes a dividend of £1.5 million that will be paid by Matthew Clark to Punch Finco prior to Completion.

The Matthew Clark Business is a 50/50 joint venture between the Group and Hertford Cellars, which is a subsidiary of Accolade Wines Limited. As part of the same transaction, Hertford Cellars will also be disposing of its 50% shareholding in Matthew Clark to Conviviality Brands, so that following Completion Matthew Clark will be wholly owned by Conviviality Brands.

The Disposal, because of its size in relation to the Company, is a Class 1 transaction under the Listing Rules and is therefore conditional, amongst other things, upon the approval of Shareholders. Subject to Shareholder approval and the satisfaction of the other conditions, Completion is expected to take place on or around 2 October 2015.

2. Information on Matthew Clark

The Matthew Clark Business is a leading drinks wholesaler and distributor in the UK, delivering to approximately 17,000 on-trade premises. Matthew Clark (Holdings) Limited is the holding company for Matthew Clark Wholesale Limited, Matthew Clark (Scotland) Limited and The Wine Studio Limited. The Matthew Clark Business is headquartered in Bristol and operates a national network of distribution depots and a fleet of vehicles with extensive reach across the British Isles.

Matthew Clark reported consolidated revenue of £811.2 million and profit before tax of £17.0 million for its last financial year, ended 28 February 2015. As at 28 February 2015 the Matthew Clark Group had approximately 1,400 employees. Matthew Clark had consolidated gross assets of £161.3 million as at 28 February 2015.

The Group's 50% interest in the Matthew Clark joint venture, which it acquired in April 2007, is held by its wholly-owned subsidiary Punch Finco. The Group equity accounts for the Matthew Clark joint venture. The unaudited value of the investment on the Group's balance sheet as at 22 August 2015 was £52.3 million (FY14 audited: £50.5 million). The unaudited share of post-tax profit attributable to the Group's 50% shareholding in Matthew Clark for the financial year ended 22 August 2015 was £7.8 million (FY14 audited: £6.2 million).

In the financial year ended 23 August 2014, the Company received a dividend of £5.0 million from Matthew Clark, which represented the first dividend since April 2011. Punch received a further dividend of £6.0 million in the 52 week period ended 22 August 2015.

3. Background to and reasons for the Disposal

The Group is a leading operator of leased and tenanted pubs in the United Kingdom. As at 22 August 2015, the Group's estate comprised 3,588 pubs located across the UK, 96% of which were held on a freehold or long leasehold basis. Following a strategic review in 2011, the Group's pub business was fundamentally restructured through: (i) the separation of its leased and tenanted business into a Core Estate and a Non-Core Estate; and (ii) the demerger of Spirit Pub Company plc on 1 August 2011, which at the time comprised the entirety of the Group's managed pub business.

The Group's core estate represents a higher quality, geographically well-located portfolio of 2,872 pubs at 22 August 2015. The core estate aims to drive sustainable growth by making each pub the best of its type in its marketplace. The focus is on recruiting the best partners, investment to optimise sales, and the provision of field support to partners.

The focus for the non-core estate (which comprised 716 pubs as at 22 August 2015) is on maximising short-term returns prior to disposal. These pubs are predominantly small, wet led and have a much lower average net income per pub. Given the limited scope for investment, these pubs are more likely to be impacted by the long-term decline in drinking out and as a result are expected in time to generate more value through disposal than retention. All non-core pubs have access to the same operational support infrastructure as our core pubs, to assist in driving operational performance until the decision is made to dispose of them.

Consistent with this strategy, the Company announced on 24 August 2015 that it had reached agreement to sell 158 pubs which are not core to Punch's estate for £53.5 million to NewRiver Retail, a leading real estate investment trust

The pub sector is currently the subject of regulatory changes. The Small Business, Enterprise and Employment Act 2015, which includes the provision of a Statutory Code, independent adjudicator and a Market Rent Only option, received Royal Assent on 26 March 2015. Whilst it is currently anticipated that the statutory consultation process regarding Secondary Legislation to implement this legislation will not be completed until 2016, the Group has already begun to take a number of operational actions to address the potential implications on the Group of the implementation of the legislation, including:

· a review of new managed and franchised pub operating formats on a select number of sites;

· modernisation of our pub tenancy and lease agreements; and

· new commercial free-of-tie lease agreements and operating model.

In addition to the Group's strategic focus set out above, it remains the Group's objective to further reduce net debt following the capital restructuring in October 2014 and meet a £200 million deleveraging target over the three years following completion of the restructuring. The Group has no bank debt and there are no term repayments under its amortising bonds until 2021.

It is against the above background that the Directors determined to consider the disposal of the Group's 50% interest in Matthew Clark. Matthew Clark is managed wholly independently and whilst it has performed well, the Group is not deriving any significant synergistic benefits from its joint venture interest. The Directors are pleased with the price achieved for the Disposal following a competitive sale process and consider that the Disposal will strengthen the Group's balance sheet and enhance its financial flexibility to pursue its strategic objectives.

4. Principal terms of the Disposal

Under the Sale and Purchase Agreement, Punch Finco has agreed to sell all of the shares it holds in Matthew Clark (being 50% of the entire issued share capital of Matthew Clark) to Conviviality Brands for a total consideration of £100.7 million in cash. This amount includes a dividend of £1.5 million that will be paid by Matthew Clark to Punch Finco prior to Completion and £2.9 million representing Punch's share of notional profit from 1 July 2015 to the day prior to Completion (on the basis of an anticipated Completion date of 2 October 2015). The actual amount received in respect of Punch's share of notional profit may be more or less than £2.9 million depending on the date on which Completion actually occurs. The total consideration (other than the dividend of £1.5 million payable by Matthew Clark prior to Completion) is payable in cash on Completion. The pre-Completion dividend from Matthew Clark to Punch Finco of £1.5 million is expected to be paid whether or not the Disposal completes. 

This Disposal is conditional on: (i) the approval of the Disposal by Shareholders; (ii) the approval of the acquisition of Matthew Clark by shareholders of Conviviality Retail Plc; (iii) the admission of certain new shares of Conviviality Retail Plc to trading on AIM becoming effective; (iv) finalisation of certain arrangements relating to the apportionment of pension costs between Accolade Wines Limited and Matthew Clark; and (v) the assignment of certain IT licences to Matthew Clark.

The Sale and Purchase Agreement will terminate if the above conditions are not met or waived by 30 October 2015. 

In the event that the Disposal does not complete due to non-satisfaction of the conditions relating to Conviviality Retail Plc shareholders' approval and for admission of the new shares to trading on AIM, Conviviality Brands will pay to Punch Finco and Hertford Cellars a break fee of £2 million (of which Punch Finco's share will be £1 million). In the event that the Disposal does not complete due to the non-satisfaction of any other conditions, each of Punch Finco and Hertford Cellars will pay to Conviviality Brands a break fee of £1 million (£2 million in aggregate). The non-disposal undertaking between Punch Finco, Hertford Cellars and Conviviality Retail Plc entered into on 13 August 2015 in connection with the Disposal has been terminated.

Under the Sale and Purchase Agreement Punch Finco has given customary warranties, indemnities and covenants to Conviviality Brands which are subject to limitations.

Upon Completion of the Disposal, the Group will enter into a 10 year non-exclusive drinks supply contract with Matthew Clark Wholesale Limited. Under this supply agreement, Matthew Clark Wholesale Limited will supply selected wines and spirits drinks products for sale to members of the Group at agreed pricing levels.

5. Use of proceeds and financial effects of the Disposal

The net cash proceeds of the Disposal (including the pre-Completion Dividend), amounting to approximately £98.7 million after transaction costs and expenses, are expected to be used:

· to support the Group's strategic objectives;

· to maintain an appropriate level of net debt; or

· for general corporate purposes.

The Disposal is expected to be dilutive to earnings per share prior to any reinvestment of the proceeds of the Disposal.

The unaudited share of post-tax profit attributable to the Group's 50% shareholding in Matthew Clark for the financial year ended 22 August 2015 was £7.8 million (FY14 audited: £6.2 million). Such profits and dividends from the Group's shareholding in Matthew Clark will accordingly not be received by the Group following the Disposal.

6. Current trading and prospects

As announced on 1 September 2015, overall profit performance for the 52 week financial year ended 22 August 2015 was in line with management expectations and previous guidance and the Company expects to report underlying EBITDA of between £193 million and £200 million.

As announced on 24 August 2015, the Company reached agreement to sell 158 pubs which are not core to Punch's estate for £53.5 million to NewRiver Retail, a Real Estate Investment Trust focused on the UK retail sector. The pubs being disposed generated earnings before interest and tax of £7.3 million over the last twelve months and had at the date of Exchange a current book value of £52.5 million. This disposal comprised 150 pubs from the non-core estate and 8 pubs from the core estate that no longer met the Company's criteria as a core pub, and is consistent with the Company's strategy to sell the non-core estate at a rate of approximately 200 pubs per year.

Following completion of the sale, the core estate will comprise approximately 2,900 pubs, and the non-core estate will have approximately 550 pubs.

7. General Meeting

A circular containing further details of the Disposal and a notice convening a General Meeting at which a resolution to approve the Disposal will be proposed is expected to be sent to Shareholders on or around 11 September. Subject to Shareholder approval and the satisfaction of the other conditions, Completion of the Disposal is expected to take place on or around 2 October 2015.

8. Recommendation

The Board considers the Disposal to be in the best interests of the Company and the Shareholders taken as a whole. Accordingly, the Board intends unanimously to recommend that Shareholders vote in favour of the resolution approving the Disposal to be proposed at the General Meeting.

Definitions

The following definitions apply throughout this announcement unless the context requires otherwise:

In this announcement, references to £ are to the currency of the UK.

-ENDS-