Punch Taverns, the leased and tenanted operator, has reported its first growth (0.9%) in average net income per pub for three years as it continues to downsize its estate from 5,000 to 3,000 pubs. Underlying EBITDA at Punch, which demerged from Spirit in 1 August this year, dropped from £291m to £258m with underlying profit before tax falling 15% from £90m to £76m on last year for the 52 weeks to 20 September. Revenue declined by 7% to £522m with the estate reducing by around 10%. A revalutaion of the pub estate by GVA Humberts Leisure on 20 August valued the estate at £2,832m against a book value of £2,674m. Chief executive Roger Whiteside said that following the demereger, Punch remains a “highly leveraged business” but had “significant cash resources” (£113m as of 7 October) held outside of securitisation structures to help maintain covenant headroom. Punch continues to be financed through two securitisations — Punch A and Punch B. During the year, Punch had to divert a net cash resource of £8m to stop it breaching the covenants in the securitisations. “There are a number of constraints as a result of our debt structure and we are actively looking at all options to optimise Punch’s capital structure to help facilitate delivery of value,” he said. The 2,951-strong core estate accounted for 76% of Punch EBITDA with an average net income per pub of £78,000 and demonstarted greater resilience with a net income decline of 2.1%, compared to a fall of 5% last year. It invested in 327 core pubs at a cost of £38m over the year, ranging from small projects to transformation spends of up to £350,000. It expects to invest in a further 400 core pubs in the coming year. Around 95% of core pubs are let on substantive agreements, with 150 available to let new partners with strong interest reported from multiple operators and microbrewers. Punch has decreased the number of pubs per Partner Development Manager (PDM) and has recruited a RICS qualified team of Rental Valuation Surveyors to carry out all rent valuations. Punch will focus on four areas as part of its Reaching for Growth initiative — investment to improve customer environment and increase food sales, attracting high quality partners, driving sales growth and effective support to improve pub performance. The 2,053-strong turnaround estate accounts for around 24% of Punch EBITDA with a lower average net income per pub of £39,000. “With 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,” said Whiteside. A total of 64% of turnaround pubs are on substantive agreements, generating £44,000 of net income per pub. There are currently 128 pubs closed. The rate of net income decline has slowed from 17% to 13% on last year. Punch has sold 398 pubs over the year for £108m with two-thirds remaining as pubs. The disposed pubs generated just £4m over the previous 12 months. Whiteside said the company had been disappointed at the Business, Innovation and Skills Committee’s decision to recommend a statutory code of practice. He said: “As a company Punch recognised the need for change and made fundamental changes to the way in which we do business in response to the committee’s original recommendations. “Naturally therefore we are disappointed at the committee’s decision to recommend intervention in an industry already overburdened with red tape. Working with the BBPA (British Beer and Pub Association), we will continue to work with the government to demonstrate the progress made by the sector.” Punch’s wholesale Matthew Clark joint venture performed “satisfactorily” providing a post-tax contribution of £4m, together with a special cash dividend payment of £8m. Whiteside added: “I am pleased to report a year of good progress, which has seen the business deliver underlying results in line with market expectations. “These results have been achieved despite the challenging UK economic, regulatory and fiscal conditions, which continue to impact on the licensed trade sector. “It has been a year of significant change for the business driven by the Group’s strategic review and the subsequent demerger of the Spirit business. The demerger was completed on schedule and with minimum disruption, allowing us to maintain focus on our goals as a solely leased and tenanted business. “Our aim now is to become the UK’s highest quality, most trusted and best value leased pub company. We are focused on creating value for our shareholders through successful long-term partnerships with our licensees in our core estate of 3,000 of the highest quality, best invested leased pubs in the country.”