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Punch cuts debts and heads for profit target

Published 25th Aug 2009

Punch Taverns, the debt-laden pubs group, said today that it was on course to make annual pre-tax profits of an estimated £160 million despite mixed summer weather making a dent on beer sales.

The group, which operates about 7,500 managed and leased pubs, also said it had cut its debt bill by more than £1 billion during the past 12 months.

Analysts expect Punch, which was labouring under a £4.5 billion debt mountain at the beginning of the year, to end the period with borrowings of about £3.5 billion.

The group, which has raised £400 million from selling off its underperforming pubs and in July raised £350 million of fresh equity, also said it would explore further pub sales to bring its debt down further still.

Earlier this year, Punch established a "Turnaround Division" of about 1,250 of its most troublesome pubs. It said that if it failed to turn these outlets around it would sell them off instead.

About a third of these pubs have been sold over recent months, Punch said today, adding that it would add a further 450 to the division.

Punch shares jumped more than 5 per cent in early deals, up 5.4p at 113p as the pubs group pleased investors with its moves to cut debt, despite warning that a patchy summer had made trading difficult.

"While we are confident of the longer term prospects for the group and our expectations for the full year remain unchanged, we remain cautious over the near-term due to the lack of forward visibility on trading outlook," Punch said.

In a trading statement in advance of its full-year results in October, Punch said that profits before tax and special items for the year to last Friday had fallen by about 11 per cent.

It said its asset disposal programme had also cut profits by a further £6 million.

Analysts estimate that this means Punch will make pre-tax profits for the full year of about £160 million.

Punch also said that "varied weather conditions", which saw heavy rainfall in July, had hit trading conditions at its managed estate of about 860 pubs.

Underlying sales for the year are estimated to have fallen by 1.4 per cent, according to Punch, which said that promotions, price deals and new food menus had helped to arrest the decline during the second half of the year.

Like-for-like sales at the managed estate fell 2.3 per cent in the first half, but just 0.6 per cent in the second half, Punch said.

Punch has previously said that it will not pay an annual dividend this year.

Mark Brumby, equity analyst at Astaire Securities, said: "Disposals will continue and Punch is doing everything right. However, the potential for a double dip [recession] is a real one and the outlook for the group remains extremely challenging."

Source: ' Times '

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