Fortunes of pubs group highlight sector problems

Sep 4 2008 by Alex Turner, Liverpool Daily Post

PROBLEMS in the pubs sector were reinforced yesterday as Britain’s biggest landlord, Punch Taverns, announced a fall in annual sales of 3.4%.

The group has 8,400 pubs in the UK, of which 90% are leased, and 149 of them are in Merseyside.

The company said it would not pay a dividend to shareholders after seeing sales fall over the year to August in a move that analysts believe will save the company about £30m.

Punch, led by chief executive Giles Thorley, stressed its balance sheet remained strong, but said it was mindful of challenging market conditions and the need to invest in its pub estate.

The update saw Punch shares close down 12%, and rival Enterprise Inns fell 9%.

In June, Punch was forced to reassure over its balance sheet after shares slumped 17% because of rumours it may need to reorganise its debt.

Its difficulties reflect the problems across the sector caused by the smoking ban and the credit crunch, which has seen costs rise and customer spending decrease.

Last month, Punch took back the 20 pubs it had leased to Cains when the Liverpool brewer went into administration.

Although six of those were shut by the administrators, PricewaterhouseCoopers, Punch Taverns is in the process of reopening at least four of the pubs.

Punch said it had responded to licensees’ difficulties by providing more support through food expertise, promotions and drink discounts.

The value of rent concessions also increased to £6m, representing around 3% of the company’s rent roll.

The update showed that trading stabilised in the final nine weeks of the company’s financial year, with figures little changed on the performance seen in the 44 weeks to June 21.

It said: “Our performance has continued broadly in line with management’s expectations and we also remain confident of delivering full year earnings before exceptional items in line with market expectations.”

It added that developments over the past year had led directors to review the group’s use of cash.

It said: “In the current financing market environment, the board considers it prudent to retain cash and further strengthen the balance sheet ahead of returning cash to shareholders through distributions.”

It said it would look to use cash to support the repayment of its convertible bonds, even though they are not due until December, 2010.

alex.turner