'Punch tenants earn 70% above average wage'

Punch tenants earn around 70% more than the average full-time adult worker, according to chief executive Giles Thorley.

Britain's largest pubco said its earnings before interest, tax, depreciation and amoritisation (EBITDA) per pub in its leased estate was up 4% to £64,000 on last year, despite the difficult trading conditions.

Overall, profit before tax across the company stood at £262m, down from £282m the year before and EBITDA down to £623m from £664m.

Punch said that the majority of its licensees performed well in the 53 weeks to 23 August but like-for-like contribution was down 3.4% due to the "smoking ban and weaker consumer environment" impacting footfall and spend per visit.

"We estimate that the average income for a Punch licensee operating on a substantive lease agreement is around 70% above that of the average full-time adult worker earnings," said chief executive Giles Thorley.

Punch puts average tenant earnings at £38,000 including a £9,000 live-in benefit.

The pubco spent £14m on helping tenants through the challenging times by way of rent concessions and non-standard discount concessions. A total of £6m of that went on rent concessions. It estimated that just 3% of its pubs were currently closed and 89% of its pubs were let on substantive leases.

"During these challenging times, the strength of the leased and tenanted model has continued to prove its resilience and defensive characteristics by delivering a robust performance," said Thorley.

"We work in close partnership with our licensees, supporting them in every way to maximise the business opportunities open to them. Punch's high quality pub estate continues to attract talented entrepreneurs in the sector. We offer industry-leading support to our licensees and remain confident that both our pubs and our licensees are as well equipped as they can be to weather the current economic downturn."

Punch said rental levels had risen an average 4% rise at rent review and 13% at lease renewal with only 9% resulting in reductions. Overall though, like-for-like rental growth slowed to 2.1% in the year, compared with a growth of 4.2% in 2007.

Business and Enterprise Committee​

Ahead of the Business and Enterprise Committee investigation into how pubcos treat their licensees, Punch said that it was "proud" of the progress it had made since the 2004 Trade and Industry Select Committee inquiry. "The review will give us the opportunity to demonstrate how Punch has positively acted on the recommendations of the original committee report and will reinforce our commitment to safeguard the future of the great British pub," said Thorley.

"It is disappointing that this has come at a time when we are putting significant focus and effort into supporting our licensees. We feel that this will be a distraction for the industry and we would have preferred to focus more on the positive role that the pub plays in our society."

Managed estate​

Overall like-for-like sales at Spirit pubs fell 3.3% on last year but there were signs of improvement in the fourth quarter with a decline of 2.2%. Average EBITDA per pub fell 4%, limited by a number of conversions to the leased estate. Like-for-like food sales were stable on last year.

"Performance has been impacted by the smoking ban and the weaker consumer environment resulting in reduced drinks volumes, and this has had an adverse gross margin impact," said Thorley.

Punch estimates that costs in its managed estate, due to food and fuel rises, will increase by £8m over the next year. It now plans to concentrate on its value deals such as Two-for-One.

Outlook​

Punch said that although it had been given clearance by HM Revenue & Customs to convert to tax efficient Real Estate Investment Trust (Reit) status, its immediate priorities remained maintaining the strength of its balance sheet and to continue investing in its business.

It plans to sell around 500 pubs that it claims are unlikely to generate long-term growth.

Thorley added: "Since the year end, sales comparatives in the managed business have continued broadly in line with that experienced for the 2008 financial year. Operating margins continue to be impacted by a growing proportion of sales coming from food and through regulatory, food and energy cost increases.

"In the leased business, the level of decline in drinks volumes has continued in line with that experienced for the second half of the 2008 financial year. Whilst we continue to see good levels of activity in the leased business, the impact of increased levels of licensee support through rent concessions and non-standard discounts will further impact results.

"Given the current difficult trading environment, we consider it prudent to base management actions on the assumption that there will be no improvement in runrate levels of performance in the near-term. Despite the difficult trading conditions we have exited the year with significant headroom in the key financial covenant tests."