Punch Taverns has this morning reported unchanged trading declines at its leased pub arm and like-for-like sales down -1.6% at its managed house division. Unveiling an interim management statement for the first 16 weeks, the company said that like-for-like profit at its leased division continued to decline at a rate similar to last year’s -11%. At its managed house arm, which comprises just over 800 sites, it said that both its premium food and value food offers had been hit by a weak consumer environment, although its wet-led City pub division was performing strongly with like-for-like sales up 6.7%. The company, led by Giles Thorley, said it had made further inroads into its debt on the back of further pub sales although warned about the current pressure on headroom against certain key debt covenants. In the 16 weeks it had sold 352 pubs – 224 from its turnaround division, 114 from the core leased estate and 14 from its managed arm – raising £127m, which was in line with book value and at an average ebitda multiple of about 11 times. The pubs sold so far this year represented £11m of Punch ebitda, on top of £40m of ebitda it sold last year. It said it now expected to raise £300m in the full year from disposals, although it would only continue to dispose of sites “where such actions are in the best interest of shareholders”. Punch said it had consequently been able to reduce a further £438m of gross debt from its balance sheet, on top of £708m last year. All convertible bonds had now been repaid, leaving £3.35bn of securitised debt, amortising over 26 years. It would require £30m this year and £55m the following year, to meet the scheduled amortisation requirements of this debt. Punch however said that the level of headroom on key financial covenants would be impacted by trading conditions this year and as a consequence, it did not expect the cash upstream ratios to be met this financial year. It said: “While the level of headroom in our covenants will reduce, as previously stated, we remain confident that the action management has taken to date and continues to take will provide sufficient headroom to allow us to meet all of our financial covenants going forward.” Punch said the core focus for the board and management team remained on stabilising the performance of both its divisions. It said that it had raised the value of short-term rent concessions and beer discounts at its leased arm from £1.6m to £2.0m per month to reflect the current trading conditions. It said it was benefiting from this assistance with the number of pubs being returned by licensees down, and also the level of tenancy-at-will properties and closed pubs also down on last year. It continued to make progress in responding to the key themes identified in the BESC Report and was confident that “we can move forward together to bring positive change”. It said it was progressing in its aim to “to build more honest and transparent partnerships with our licensees” with the launch of various initiatives, including lessee profit forecasts on recently-let pubs. It was also reviewing the business relationship manager role, with the aim to “build capability” At its managed arm, formerly Spirit Group, it said margins had been hit by inflationary pressures and increased rents following the return of onerous leases, such as those from the collapsed Regent Inns. It would seek to expand a new initiative called Operational Excellence at its managed arm, which was already delivering encouraging guest satisfaction scores and improving employee retention. Guest feedback on new menus had been “extremely positive” and Punch had seen improved trading in the most recent four weeks. It said it was disappointed by the government’s decision not to reduce duty on beer, and would continue to lobby for fairer treatment of pubs. Concluding, the company said: “Trading into this financial year has as expected remained difficult, and the challenging economic environment and our smaller pub estate will affect profitability in the short term. “Despite these near-term challenges, we continue to invest substantial sums of capital expenditure across the estate. We are confident that the operational strategy that we have set out in both the leased and managed divisions will enable us to deliver solid longer-term operational performance. “Our strategy of rapidly reducing the size of our debt, with over £1.5bn having been repaid since 2006, leaving only long-term amortising securitised debt finance in place, leaves us with a more robust, sustainable financing structure for the future.”