TIDMPUB
RNS Number : 8140O
Punch Taverns PLC
25 September 2013
PUNCH TAVERNS PLC
("Punch" or "the Group")
Preliminary Results for the 52 weeks to 17 August 2013
Underlying financial performance(*) - in line with guidance
-- EBITDA of GBP216 million (2012: GBP238 million)
-- Profit before tax of GBP49 million (2012: GBP64 million)
-- Basic earnings per share of 5.7p (2012: 7.2p)
-- Strong cash position; GBP329 million of cash reserves
-- Net debt decreased by 6% or GBP122 million
Operational KPIs(*)
-- Improving like-for-like trends in net income(**) , with core estate net income
-- up 0.4% in the fourth quarter
-- down 2.4% for the 52 weeks to 17 August 2013 (ahead of guidance of -3% to -4%)
-- Average net income per pub +1.5% across the year
-- 96% of the core estate let on substantive agreements, up from 94% at August 2012
-- 433 pubs disposed for GBP149 million, GBP11 million ahead of
book value and at a multiple of 18 times EBITDA
Operational headlines
-- Continued progress delivering the business plan:
Core estate:
-- Recruitment: 96% of the estate let on substantive agreements,
ahead of our target range of 93% to 95%; letting activity and
applicant numbers up 17% and 28% respectively
-- Investment: Ahead of plan with 476 pubs invested in at an average spend of GBP102,000
-- Food development: Food mix up another 3 percentage points to 27%
-- Increased field support:New Business Development Division to
provide increased support to all newly launched businesses over
their first six months
-- Punch Buying Club: Membership in its fourth year, increased
to c.90%, up from 72% at August 2012
-- Punch Foundation Tenancy: Under this new arrangement we
provide Partners with a newly refurbished pub and a full range of
support. With 48 pubs operating under this agreement, drink sales
have grown c.50% and we plan to extend to c.200 pubs in 2014
Non-core estate:
-- Disposal programme on track, realising total net proceeds of
GBP149 million in the year. Following the improvement in the
performance of a number of pubs in the non-core division, 116 pubs
have been transferred to the core division from the start of the
new financial year.
Capital structure update
-- Punch has continued an extensive process of engagement with a
broad range of stakeholders across the capital structure (including
the ABI Special Committee of noteholders and its advisers) to
discuss feedback, and continue to build a broad base of support for
the restructuring.
-- Whilst the process of engagement has taken longer than
previously anticipated, the Board believes that a consensual
restructuring can be launched in the fourth quarter of the 2013
calendar year and will provide an update on the implementation of
the restructuring in due course.
Stephen Billingham, Executive Chairman of Punch Taverns plc,
commented:
"We have delivered profits for the year in line with our
expectations and returned the core estate to growth in the most
recent quarter.
We have made excellent progress in implementing operational
changes during the course of the year and this is reflected in our
recent financial performance. Pubs in which we have invested have
shown significant improvement in performance and the core division
accounts for over 80% of Group EBITDA.
Expectations of future net income growth for the core estate
remain unchanged from those previously announced, with a return to
like-for-like net income growth of up to 1% expected in the 2014
financial year."
25 September 2013
_______________________
(*) before non-underlying items
(**) net income represents revenue less cost of drink sales (gross profit)
Enquiries
Punch Taverns plc Tel: 01283 501 948
Stephen Billingham, Executive Chairman
Steve Dando, Finance Director
Brunswick Tel: 020 7404 5959
Jonathan Glass, Mike Smith
Forward-looking statements
This report contains certain statements about the future outlook
for Punch. Although we believe our expectations are based on
reasonable assumptions, any statements about future outlook may be
influenced by factors that could cause actual outcomes and results
to be materially different.
The preliminary results presentation will be available on the
Punch website www.punchtaverns.com from 9.00 BST. A webcast of the
presentation will also be available.
PRELIMINARY RESULTS FOR THE 52 WEEKS TO 17 AUGUST 2013
EXECUTIVE CHAIRMAN'S REVIEW
OUR AIM: TO BE THE HIGHEST QUALITY, MOST TRUSTED AND BEST VALUE
LEASED PUB COMPANY
MARKET POSITIONING
Punch is a leading operator of leased and tenanted pubs in the
United Kingdom. At 17 August 2013, the Punch estate comprised 4,096
pubs located across the UK, 96% of which were held on a freehold or
long leasehold basis. In addition, Punch owns 50% of Matthew Clark
(Holdings) Limited, the holding company of the Matthew Clark
business, a leading drinks wholesaler and distributor.
Punch's long-term aim is to become the UK's highest quality,
most trusted and best value leased pub company. Punch's core estate
represents a higher quality, geographically well-located portfolio
of 2,990 pubs at 18 August 2013(1) which is suitably positioned to
adapt to changing market conditions and support sustainable
long-term growth for Punch and our Partners.
The plan for the core division is to build on the platform
created by the Pathway to Partnership programme to drive
sustainable growth. The aim of the core division is to make each
pub the best of its type in its marketplace. The focus is on
attracting the right Partners through new lease offers, investment
to drive sales (including food), an increase in the field support
teams and expansion of the Punch Buying Club.
The plan for the non-core division, which comprised 1,106 pubs
at 18 August 2013(1) , is to maximise short-term returns with a
clear focus on costs and cash flow. Approximately 1,100 non-core
pubs have been disposed of since the division was created in 2011.
The remaining non-core pubs will largely be disposed of over the
next four years with disposals phased to ensure a balance between
the speed of disposal and value achieved. The majority of non-core
pubs are on substantive agreements and will therefore continue to
have access to the same operational support infrastructure as our
core pubs, to assist in driving operational performance until the
decision is made to dispose of them.
BUSINESS REVIEW
Overall profit performance is in line with guidance provided
earlier in the year. In the 52 weeks ended 17 August 2013, Punch
generated EBITDA of GBP216 million (excluding non-underlying
items):
Core Non-core Central Punch
----------------------- -------- --------- --------- --------
17 Aug-13 pub numbers 2,874 1,222 - 4,096
----------------------- -------- --------- --------- --------
Revenue GBP366m GBP92m - GBP458m
----------------------- -------- --------- --------- --------
Net income GBP214m GBP51m - GBP265m
----------------------- -------- --------- --------- --------
EBITDA GBP201m GBP43m GBP(29)m GBP216m
----------------------- -------- --------- --------- --------
Core estate
The core division accounted for 82% of Punch outlet EBITDA with
average net income per pub being more than double that of the
non-core division at c.GBP74,000 per pub.
Trading through the year has benefited from the operational
improvements delivered in the business, ending the year with a
return to like-for-like net income growth of 0.4% in the fourth
quarter, having had three consecutive quarters of improving
like-for-like trends. Like-for-like net income for the full year
declined by 2.4% which represented a 1.3% point improvement on the
previous year.
Positioning the core estate for sustainable growth is being
driven by:
Recruitment: The percentage of core pubs let on substantive
agreements ended the year at 96%, above our target of between 93%
and 95%. With the new recruitment website now firmly embedded, we
are generating high levels of new applicants up 28% on last
year.
Investment: We plan to invest in around two-thirds of the core
estate over the next five years focussing on improving the customer
environment, targeting GBP40 million per annum across 400 schemes
per year. We have exceeded our target this year, investing in 476
pubs at an average spend of GBP102,000. This investment is
transforming the customer offering in these pubs and we are
achieving our target returns for these investments.
Food development: Investments are partly structured to drive
increased food sales which represent a significant opportunity to
our Partners. Our five year target is to increase the food sales
mix from an estimated 22% in 2011 to 35% of Partner revenue. We
estimate that food sales now make up 27% of Partner revenue, up
another 3% points from August 2012. 87% of our Partners now operate
a meaningful food offer, up from 77% in 2011.
Increased field support: From the start of the new financial
year we have launched a dedicated New Business Development team.
This specialist team has been put in place to support all new
Partners with the initial investment, the launch of their pub and
throughout their first six months of trading. We are confident that
the addition of this support to new Partners with a focus on the
retail offer to consumers will help drive sales, improve Partner
profitability and reduce the level of Partner failures. At the same
time we are maintaining the levels of support provided to existing
Partners, now complemented by the mystery visit programme which has
been rolled out across the core estate. The programme offers
detailed feedback from an independent observer, highlighting
operating strengths and development opportunities.
Punch Buying Club: Having launched the Punch Buying Club just
over three years ago, approximately 90% of our core pubs are now
members of the club. Through the Buying Club we have been able to
offer a range of industry leading exclusive offers to our Partners
which included completion of the roll-out of free Wifi across our
estate during the year. We will continue to build on the success of
the Buying Club over the next year as we introduce a wider range of
products and services for the benefit of our Partners.
Punch Foundation Tenancy: The new Foundation Tenancy agreement
(formerly referred to as "Franchise Tenancy") is a fully supported
open book agreement, providing new Partners with a newly
refurbished pub, best practice operating standards, marketing and
pricing support, food and drink menu set up and a range of business
management tools. Whilst still in the early stages of roll-out with
48 pubs operating on the new agreement, we have seen a c.50% growth
in drink volumes in these pubs. This new agreement has now been
rolled out nationally and a significant proportion of the lettings
within the new financial year are expected to be operated on this
new agreement, with the expectation that we will have c.200 pubs
operating on this agreement by the end of 2014.
Non-core estate
The non-core division accounted for 18% of Punch outlet EBITDA
at GBP43 million. These pubs are predominantly small, wet led and
have a much lower profit per pub at c.GBP30,000, with average
profit per pub being down 5% on last year. Given the 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.
Maximising short-term returns: While these non-core pubs remain
in our portfolio, we remain committed to driving operating
performance and maximising the profits from these outlets. Net
income in non-core pubs on substantive agreements declined by 2% in
the year on a like-for-like basis, with the majority of the decline
coming from non-substantive pubs in the process of disposal.
Following the improvement in performance of a number of pubs in
the non-core division, 116 pubs have been returned to the core
division from the start of the new financial year. These pubs have
an average net income per pub of c.GBP59,000 and delivered GBP6
million of outlet EBITDA in the year.
Maximising value on disposal: During the year we sold 433 pubs
(including 60 pubs from the core division), together with other
assets for proceeds of GBP149 million, GBP11 million ahead of book
value. The disposed pubs generated just GBP8 million of EBITDA in
the year to disposal, equating to a disposal multiple of 18x,
demonstrating the accretive nature of these disposals.
Matthew Clark joint venture
Matthew Clark, the 50% joint venture with Accolade, has
performed strongly in the year, in what continues to be a very
competitive market. The post-tax contribution to Punch of GBP4.8
million for the year represents a 40% increase on the prior year.
Matthew Clark has significant scale in its marketplace as the
largest independent drinks wholesaler and distributor to the UK
leisure and hospitality industry, with gross annual turnover of
c.GBP800 million to c.20,000 customers. Turnover increased by 9% in
the joint venture's last financial year and the business has clear
plans for continued growth in market share from which Punch will
benefit.
Regulatory
Punch is committed to developing a responsible approach in
working with our Partners and in the marketplace in which we
operate. We were the first pub company to have its Code of Practice
accredited by BIIBAS following the release of version six of the
industry framework code in March of this year. The Code of Practice
covers everything from starting up and the day-to-day running of a
pub business, to seeking advice and what to do at the end of an
agreement.
On 8 January 2013, the Department for Business, Innovation and
Skills (BIS) announced plans to establish a new statutory code of
practice and an independent adjudicator for the leased and tenanted
pub sector. This was followed by a formal consultation process
launched on 22 April 2013 and which closed on 14 June 2013, in
which we participated. We do not believe that further government
intervention and red tape would benefit the industry. We already
support the two independent complaint review bodies available to
licensees, and these review bodies are working well for all parties
concerned. PIRRS exists to provide low cost resolution for rent
disputes and our Partners are able to take complaints relating to
any other part of our Code of Practice to PICAS.
Pubs play a vital role in the economy providing local employment
particularly for young people and we continue to engage with
Government on the need for investment in the sector as a key part
of the wider growth agenda for the UK economy.
Capital Structure Update
Punch has continued an extensive process of engagement with a
broad range of stakeholders across the capital structure (including
the ABI Special Committee of noteholders and its advisers) to
discuss feedback, and continue to build a broad base of support for
the restructuring. Whilst the process of engagement has taken
longer than previously anticipated, the Board considers that a
consensual restructuring can be launched in the fourth quarter of
the 2013 calendar year and will provide an update on the
implementation of the restructuring in due course.
FINANCIAL REVIEW
Results for the 52 weeks ended 17 August 2013:
Underlying results 2013 2012
GBPm GBPm
Revenue 457.6 491.7
Operating costs (246.8) (257.1)
Share of post-tax profit
from joint venture 4.8 3.4
EBITDA 215.6 238.0
Depreciation and amortisation (12.3) (13.5)
Net finance costs (154.3) (160.5)
Profit before taxation 49.0 64.0
Tax (10.9) (16.0)
Net earnings 38.1 48.0
------------------------------- -------- --------
Basic EPS 5.7p 7.2p
------------------------------- -------- --------
Underlying profit performance is in line with management
expectations with the core estate having returned to like-for-like
net income growth in the most recent quarter. Results have
benefited from the ongoing investment programme but have also been
impacted by the ongoing disposal of non-core pubs and selected
disposals of core pubs.
Underlying results 2013 2012
GBPm GBPm
------------------------ ------- -------
Average pub numbers 4,361 4,791
Year end pub numbers 4,096 4,529
------------------------ ------- -------
Revenue
Drink 329.4 351.4
Rent 117.4 127.3
Machine income & other 10.8 13.0
Total revenue 457.6 491.7
------------------------ ------- -------
Gross margin
Drink 137.7 147.9
Rent 116.9 126.8
Machine income & other 10.8 12.5
------------------------ ------- -------
Total gross margin 265.4 287.2
------------------------ ------- -------
Revenue declined by 7% to GBP458 million with a 9% decline in
underlying EBITDA. This compares to a reduction in the average
estate size of 9%.
Net underlying financing costs decreased by 4% to GBP154 million
primarily due to the reduction in net debt of GBP122 million. The
weighted average interest rate for the Group's borrowings,
including the impact of interest rate swaps, at the balance sheet
date is 6.9%. Underlying profit before tax was GBP49 million, a
decrease of 23% on last year. The tax charge before non-underlying
items of GBP11 million equates to an effective tax rate (excluding
joint venture) of 24.7%.
Non-underlying items
There is a net non-underlying loss after tax of GBP17 million.
This includes a GBP16 million credit arising from the movement in
the fair value of certain interest rate swaps together with a GBP39
million charge relating to the recycling of a proportion of the
hedge reserve, an GBP11 million profit on disposal of properties, a
GBP10 million charge for asset write-downs, a GBP4 million goodwill
charge and an GBP8 million charge for restructuring costs. The tax
effect of all of these items, together with the resolution of prior
year tax matters, gave rise to a tax credit of GBP15 million.
Earnings per share
Underlying basic earnings per share have decreased by 21%. to
5.7p. The basic earnings per share of 3.2p has been impacted by the
non-underlying items detailed above.
Dividends
The Board is not proposing to recommend a final dividend for the
year, and it is unlikely that the Board will be able to recommend
any distributions to shareholders prior to the implementation of a
restructuring.
Cash flow
The Group has been cash generative across the year. Strong cash
generation of GBP188 million at the operational level has enabled
the Group to continue to invest in the Punch estate with GBP58
million of capital investment. Cash flow has been further enhanced
by GBP149 million of cash generated from disposals.
Capital structure
Punch is financed through two whole business securitisations,
the Punch A securitisation (GBP1,449 million of gross debt) and the
Punch B securitisation (GBP884 million of gross debt), as well as
certain cash resources held across the Group. As at 17 August 2013
the Group held GBP329 million of cash resources (of which GBP108
million was held outside the securitisation structures, which
includes GBP31 million held within the Group supply company and
Employee Benefit Trust).
Although the securitisations have generated underlying profits
and positive net cash flow before debt service in the year, they
continue to require financial support through the use of cash
resources held outside of the securitisations to maintain
compliance with their DSCR (Debt Service Cover Ratio) covenants.
Without this support, both the Punch A and Punch B securitisations
would breach their respective DSCR covenant levels.
The Group has provided financial support to the securitisations
in the year to allow the completion of the capital structure
review, identification of a restructuring solution for each
securitisation and discussions with stakeholders in relation to the
proposed restructuring. Net support from cash resources held
outside of the securitisations amounted to GBP23 million for the
year, being GBP88 million of gross support less GBP65 million of
cash payments from the securitisations to the wider Group during
the year. The net cost of continuing financial support in the new
financial year, should this take place, would be expected to be
significantly higher than the level of the cost incurred in the
past year.
The scope for the Group to continue to provide ongoing financial
support to either securitisation is constrained by the financial
linkages between the Punch B securitisation and the Group and the
expectation that the Group, as part of the proposed restructuring
solutions, will commit a substantial majority of its cash resources
to deleveraging the Punch B securitisation.
We expect a consensual restructuring for both securitisations to
be launched in the fourth quarter of the 2013 calendar year.
Failure to effect a restructuring solution for either
securitisation in the near-term may result in a covenant default in
the relevant securitisation.
Going concern
In determining the appropriate basis of preparation of the
Annual Report, the Directors are required to consider whether the
Group can continue as a going concern for the foreseeable future;
that is for at least 12 months from the date of signing of this
Report. After making enquiries, and considering the matters which
are described in note 1 to this announcement, the Directors have
concluded that it is appropriate to prepare the Financial
Statements on a going concern basis. However, the Directors are
making full disclosure, as required by accounting standards, to
indicate the existence of material uncertainties facing parts of
the business. Further details are set out in the note 1 to this
announcement.
Board changes
On 1 February 2013, Roger Whiteside resigned as Chief Executive
Officer to take up the position of Chief Executive of Greggs
plc.
To ensure continuity in the leadership of Punch, particularly
during the ongoing discussions regarding the restructuring
proposals, Stephen Billingham was appointed as Executive Chairman
and Neil Griffiths was appointed as Chief Operating Officer.
Stephen Billingham has been Non-executive Chairman since
September 2011. Neil Griffiths was previously Punch's Property and
Turnaround Director and has been with the Group since 2001. He has
25 years' experience in the leisure and hospitality industry having
held senior management roles in Warner Brothers and Bass.
On 25 October 2012, John Allkins joined the Board as an
Independent Non-executive Director. John brings with him a
significant amount of consumer and business development experience
to the team, having been Group Finance Director of MyTravel Group
plc and Chief Financial Officer of Equant NV. John has considerable
experience in chairing audit committees in a number of public and
private companies.
John replaced Ian Fraser, who retired from the Board in December
2012 having served 8 years as an Independent Non-executive
Director.
Stephen Billingham
Executive Chairman
CONSOLIDATED INCOME STATEMENT
for the 52 weeks ended 17 August 2013
52 weeks to 17 August 2013 52 weeks to 18 August 2012
---------------------------- ------ -------------------------------------- --------------------------------------
Non-underlying Non-underlying
items items
Underlying (note Underlying (note
items 3) Total items 3) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
Revenue 2 457.6 - 457.6 491.7 - 491.7
Operating costs before
depreciation and
amortisation (246.8) (8.3) (255.1) (257.1) (4.0) (261.1)
Share of post-tax
profit from joint
venture 4.8 - 4.8 3.4 - 3.4
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
EBITDA(1) 215.6 (8.3) 207.3 238.0 (4.0) 234.0
Depreciation and
amortisation (12.3) - (12.3) (13.5) - (13.5)
Profit on sale of
property, plant and
equipment and non-current
assets classified
as held for sale - 10.5 10.5 - 1.3 1.3
Impairment - (10.2) (10.2) - (3.4) (3.4)
Goodwill charge - (3.8) (3.8) - (1.1) (1.1)
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
Operating profit
/ (loss) 203.3 (11.8) 191.5 224.5 (7.2) 217.3
Finance income 9.9 3.3 13.2 6.4 7.0 13.4
Finance costs (164.2) (39.9) (204.1) (166.9) - (166.9)
Movement in fair
value of interest
rate swaps - 16.4 16.4 - (11.4) (11.4)
Profit / (loss) before
taxation 49.0 (32.0) 17.0 64.0 (11.6) 52.4
UK income tax (charge)
/ credit 4 (10.9) 14.9 4.0 (16.0) 14.7 (1.3)
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
Profit / (loss) for
the financial period
attributable to owners
of the parent company 38.1 (17.1) 21.0 48.0 3.1 51.1
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
Earnings per share 5
- basic (pence) 5.7 3.2 7.2 7.7
- diluted (pence) 5.7 3.2 7.2 7.7
---------------------------- ------ ----------- --------------- -------- ----------- --------------- --------
(1) EBITDA represents earnings before depreciation and
amortisation, profit on sale of property, plant and equipment and
non-current assets classified as held for sale, impairment,
goodwill charge, finance income, finance costs, movement in fair
value of interest rate swaps and tax of the Group.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 52 weeks ended 17 August 2013
52 weeks 52 weeks
to 17 August to 18 August
2013 2012
GBPm GBPm
------------------------------------------------ --------------- ---------------
Profit for the period attributable to
owners of the parent company 21.0 51.1
------------------------------------------------ --------------- ---------------
Items that are or may be recycled subsequently
to the income statement
Gains / (losses) on cash flow hedges 58.5 (57.4)
Transfers to the income statement on
cash flow hedges 39.1 1.7
Tax relating to components of other
comprehensive income that can be reclassified
into profit or loss (28.1) 7.9
Items that cannot be recycled subsequently
to the income statement
Actuarial (losses) / gains on defined
benefit pension schemes (4.4) 2.4
Tax relating to components of other
comprehensive income that cannot be
reclassified into profit or loss 1.0 (0.7)
Other comprehensive profits / (losses)
for the period 66.1 (46.1)
Total comprehensive income for the period
attributable to owners of the parent
company 87.1 5.0
------------------------------------------------ --------------- ---------------
CONSOLIDATED BALANCE SHEET
at 17 August 2013
17 August 18 August
2013 2012
GBPm GBPm
--------------------------------------- ---------- -----------
Assets
Non-current assets
Property, plant and equipment 2,397.2 2,463.9
Operating leases 5.8 6.0
Other intangible assets 0.4 0.9
Goodwill 176.2 180.0
Investments in joint venture 49.3 44.5
Other investments 5.5 8.8
Deferred tax assets - 2.0
2,634.4 2,706.1
Current assets
Trade and other receivables 35.5 34.1
Current income tax assets 2.1 0.8
Non-current assets classified as held
for sale 76.5 106.9
Cash and cash equivalents 328.6 263.9
Restricted cash 315.0 315.0
--------------------------------------- ---------- -----------
757.7 720.7
Total assets 3,392.1 3,426.8
--------------------------------------- ---------- -----------
Liabilities
Current liabilities
Trade and other payables (116.0) (121.1)
Short-term borrowings (68.1) (62.0)
Cash-backed borrowings (315.0) (315.0)
Derivative financial instruments (40.3) (38.4)
Provisions (3.6) (2.4)
--------------------------------------- ---------- -----------
(543.0) (538.9)
Non-current liabilities
Borrowings (2,304.7) (2,372.9)
Derivative financial instruments (214.0) (293.1)
Deferred tax liabilities (22.0) -
Retirement benefit obligations (4.8) (2.7)
Provisions (8.0) (11.0)
(2,553.5) (2,679.7)
Total liabilities (3,096.5) (3,218.6)
--------------------------------------- ---------- -----------
Net assets 295.6 208.2
--------------------------------------- ---------- -----------
Equity
Called up share capital 0.3 0.3
Share premium 455.0 455.0
Hedge reserve (154.9) (226.1)
Share based payment reserve 7.2 9.7
Retained earnings (12.0) (30.7)
--------------------------------------- ---------- -----------
Total equity attributable to owners
of the parent company 295.6 208.2
--------------------------------------- ---------- -----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 52weeks ended 17 August 2013
Share
based
Share Share Hedge payment Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
Total equity at 20
August 2011 0.3 455.0 (179.7) 12.1 (85.6) 202.1
Profit for the period - - - - 51.1 51.1
Other comprehensive
(losses) / gains
for the period - - (46.4) - 0.3 (46.1)
-------------------------- --------- --------- --------- --------- ---------- --------
Total comprehensive
(loss) / income for
the period attributable
to owners of the
parent company - - (46.4) - 51.4 5.0
Share based payments - - - (2.4) 3.5 1.1
-------------------------- --------- --------- --------- --------- ---------- --------
Total equity at 18
August 2012 0.3 455.0 (226.1) 9.7 (30.7) 208.2
Profit for the period - - - - 21.0 21.0
Other comprehensive
gains / (losses)
for the period - - 71.2 - (5.1) 66.1
-------------------------- --------- --------- --------- --------- ---------- --------
Total comprehensive
income for the period
attributable to owners
of the parent company - - 71.2 - 15.9 87.1
Share based payments - - - (2.5) 2.8 0.3
Total equity at 17
August 2013 0.3 455.0 (154.9) 7.2 (12.0) 295.6
-------------------------- --------- --------- --------- --------- ---------- --------
CONSOLIDATED CASH FLOW STATEMENT
52 weeks 52 weeks
to to
17 August 18 August
2013 2012
GBPm GBPm
----------------------------------------------- ------------ ------------
Cash flows from operating activities
Operating profit 191.5 217.3
Depreciation and amortisation 12.3 13.5
Impairment 10.2 3.4
Goodwill charge 3.8 1.1
Profit on sale of property, plant and
equipment and non-current assets classified
as held for sale (10.5) (1.3)
Share based payment expense recognised
in profit 0.3 1.1
(Increase) / decrease in trade and other
receivables (6.3) 3.2
Decrease in trade and other payables (5.5) (15.4)
Difference between pension contributions
paid and amounts recognised in the income
statement (1.9) (2.7)
Decrease in provisions and other liabilities (0.9) (1.0)
Share of post-tax profit from joint venture (4.8) (3.4)
Cash generated from operations 188.2 215.8
Income tax (paid) / received (0.4) 4.4
----------------------------------------------- ------------ ------------
Net cash from operating activities 187.8 220.2
----------------------------------------------- ------------ ------------
Cash flows from investing activities
Purchase of property, plant and equipment (57.1) (41.2)
Proceeds from sale of property, plant
and equipment 77.7 33.0
Proceeds from sale of operating leases - 0.3
Proceeds from sale of non-current assets
classified as held for sale 70.9 96.8
Purchase of other intangible assets (0.4) (0.6)
Interest received 7.4 5.0
----------------------------------------------- ------------ ------------
Net cash generated from investing activities 98.5 93.3
----------------------------------------------- ------------ ------------
Cash flows from financing activities
Repayment of borrowings (57.4) (67.8)
Repayment of derivative financial instruments - (5.1)
Interest paid (167.4) (171.3)
Repayments of obligations under finance
leases (0.8) (1.3)
Interest element of finance lease rental
payments (0.2) (0.3)
Costs of terminating financing arrangements - (0.3)
Proceeds from sale of shares held in 4.2 -
trust
Net cash used in financing activities (221.6) (246.1)
Net increase in cash and cash equivalents 64.7 67.4
Cash and cash equivalents at beginning
of period 263.9 196.5
Cash and cash equivalents at end of period 328.6 263.9
----------------------------------------------- ------------ ------------
1. ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements presented in this document
have been prepared in accordance with IFRS as adopted by the
European Union. The Company's financial statements have been
prepared in accordance with IFRS as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006. The Company has taken advantage of the exemption provided
under s408 of the Companies Act 2006 not to publish its individual
income statement and related notes.
The financial statements are prepared under the historical cost
convention, as modified by the revaluation of derivative financial
instruments to fair value, and in accordance with those parts of
the Companies Act 2006 applicable to companies reporting under IFRS
as adopted by the European Union. New standards and interpretations
issued by the International Accounting Standards Board (IASB) and
the International Financial Reporting Interpretations Committee
(IFRIC), becoming effective during the year, have not had a
material impact on the Group's financial statements.
The preliminary statement of results was approved by the Board
on 24 September 2013. The preliminary statement is derived from but
does not represent the full Group statutory financial statements of
Punch Taverns plc and its subsidiaries which will be delivered to
the Registrar of Companies in due course. The financial information
for the 52 weeks ended 18 August 2012 has been extracted from the
Annual Report and Financial Statements 2012, as filed with the
Registrar of Companies. The audit reports for both periods
presented were not modified, and did not contain statements under
section 498(2) or (3) Companies Act 2006 or equivalent preceding
legislation.
In the 2013 Annual Report & Accounts of the Group, the
auditor will include an emphasis of matter statement in its audit
report relating to the uncertain outcome of the Directors'
intention to restructure the Group's securitisation structures.
This emphasis of matter was also included in the 2012 Annual Report
& Accounts of the Group.
Going Concern
The financial statements have been prepared on a going concern
basis. The Directors have prepared detailed operating and cash flow
forecasts, which cover a period of more than 12 months from the
date of approval of these financial statements. These show that the
Group has adequate funds for the foreseeable future to meet its
liabilities as they fall due.
The Group is financed through two whole business
securitisations, the Punch A Securitisation (GBP1,449 million of
gross debt secured against 2,356 pubs) and the Punch B
Securitisation (GBP884 million of gross debt secured against 1,675
pubs), as well as certain cash resources held across the Group. At
17 August 2013, the Group's liquidity position was strong with
GBP329 million of cash resources (of which GBP77 million was held
outside of the securitisation structures, excluding supply company
and Employee Benefit Trust cash), compared to loan amortisation due
within 1 year of GBP64 million. The Group is currently in full
compliance with the financial covenants contained in its
securitisation arrangements.
Whilst the securitisations (which together cover 98% of the
Group's pubs) generated underlying profits and positive net cash
flow (before debt repayments) in the year, they required financial
support through the use of cash resources held outside of the
securitisations to maintain compliance with their DSCR (Debt
Service Cover Ratio) covenants. Without this support, both
securitisations would have breached their respective DSCR covenant
levels in the year. Net support from cash resources held outside of
the securitisations amounted to GBP23 million for the year, being
GBP88 million of gross support less GBP65 million of cash payments
from the securitisations to the wider Group during the year.
The ability of the Group's securitisations to continue to comply
with their DSCR covenants in the near term is dependent on the
continuation of group support, other actions open to management
(e.g. the repurchase and cancellation of securitisation debt at a
discount, subject to prevailing market conditions and compliance by
the Group with its regulatory obligations) or reaching agreement
with the relevant stakeholders to amend the terms of the financial
covenants.
The Group has continued an extensive process of engagement with
a broad range of the Group's stakeholders to consider amendments to
the previously announced restructuring proposals to allow each of
the securitisations to be restructured in a consensual way, which
would allow them to comply with amended financial covenants without
the need for ongoing group support.
The Directors of Punch Taverns plc are of the opinion that it is
in the best interests of stakeholders to agree to a consensual
restructuring of both of the securitisations and the Directors are
of the view that a consensual restructuring can be achieved.
However, given the differences in their stakeholder profiles, their
legal and financial structures and the contractual linkages between
them and the wider Group, the optimal restructuring solution may
differ for each securitisation and it may be that no successful
restructuring solution can be achieved for either
securitisation.
If a consensual restructuring of one or both of the Group's
securitisations is not achieved and a covenant breach were to occur
in the relevant securitisation then this would be likely to lead to
circumstances in which the lenders to that securitisation were able
to request early repayment of all outstanding borrowings. Were this
to occur, the relevant securitisation would have insufficient cash
resources to repay all of its borrowings and would cease to be a
going concern, which in turn would result in a significant
reduction in the Group's operations. These circumstances represent
a material uncertainty that casts significant doubt on the ability
of a significant part or substantially all of the Group to continue
as a going concern and, in such circumstances, those parts of the
Group may be unable to realise their assets and discharge their
liabilities in the normal course of business, albeit that the
remaining group (and Punch Taverns plc) could continue as a going
concern.
2. SEGMENTAL ANALYSIS
The Punch business consists of a core estate and a non-core
estate, each having its own clear strategy. Each of these strategic
business units consists of a number of cash generating units
(CGUs), which are individual pubs. These CGUs generate their own
revenues, which are consolidated to give the Group revenue and as a
result, Group revenue is not reliant on one significant
customer.
The Chief Operating Decision Maker, represented by the Board,
reviews the performance of the core and non-core divisions
separately, at an EBITDA level, as included in the internal
management reports.
The Group operates solely in the United Kingdom.
52 weeks to 17 August 2013
Core Non-core Unallocated Total
GBPm GBPm GBPm GBPm
Drink revenue 262.1 67.3 - 329.4
Rental income 96.4 21.0 - 117.4
Other revenue 7.4 3.4 - 10.8
-------------------------------- -------- --------- ------------ --------
Underlying revenue 365.9 91.7 - 457.6
Underlying operating costs(1) (164.5) (48.6) (33.7) (246.8)
Share of post-tax profit
from joint venture - - 4.8 4.8
-------------------------------- -------- --------- ------------ --------
EBITDA before non-underlying
items 201.4 43.1 (28.9) 215.6
-------------------------------- -------- --------- ------------ --------
Underlying depreciation and
amortisation (12.3)
Operating non-underlying
items (11.8)
Net finance costs (190.9)
Movement in fair value of
interest rate swaps 16.4
UK income tax credit 4.0
-------------------------------- -------- --------- ------------ --------
Profit for the financial
period attributable to owners
of the parent company 21.0
-------------------------------- -------- --------- ------------ --------
(1) Unallocated underlying operating costs represent corporate
overheads that are not allocated down to the divisional
performance.
52 weeks to 18 August 2012
Core Non-core Unallocated Total
GBPm GBPm GBPm GBPm
Drink revenue 269.1 82.3 - 351.4
Rental income 99.0 28.3 - 127.3
Other revenue 8.6 4.4 - 13.0
-------------------------------- -------- --------- ------------ --------
Underlying revenue 376.7 115.0 - 491.7
Underlying operating costs(1) (167.3) (57.9) (31.9) (257.1)
Share of post-tax profit
from joint venture - - 3.4 3.4
-------------------------------- -------- --------- ------------ --------
EBITDA before non-underlying
items 209.4 57.1 (28.5) 238.0
-------------------------------- -------- --------- ------------ --------
Underlying depreciation and
amortisation (13.5)
Operating non-underlying
items (7.2)
Net finance costs (153.5)
Movement in fair value of
interest rate swaps (11.4)
UK income tax charge (1.3)
-------------------------------- -------- --------- ------------ --------
Profit for the financial
period attributable to owners
of the parent company 51.1
-------------------------------- -------- --------- ------------ --------
(1) Unallocated underlying operating costs represent corporate
overheads that are not allocated down to the divisional
performance.
3. NON-UNDERLYING ITEMS
In order to provide a trend measure of underlying performance,
profit is presented excluding items which management consider will
distort comparability, either due to their significant
non-recurring nature or as a result of specific accounting
treatments. Included in the income statement are the following
non-underlying items:
52 weeks 52 weeks
to 17 August to 18 August
2013 2012
GBPm GBPm
-------------------------------------------------- --------------- ---------------
Operating non-underlying items
Capital restructuring, redundancy and other
related one-off costs (8.3) (4.0)
Profit on sale of property, plant and equipment
and non-current assets classified as held for
sale 10.5 1.3
Impairment losses (10.2) (3.4)
Goodwill charge(1) (3.8) (1.1)
(11.8) (7.2)
-------------------------------------------------- --------------- ---------------
Finance income
Loan note redemptions(2) - 1.7
Movement in fair value of provision for share
scheme settlement(3) 1.6 1.1
Movement in fair value of Spirit shares held(4) 1.7 1.4
Profit on sale of shares held in trust - 1.7
Other non-underlying finance income - 1.1
-------------------------------------------------- --------------- ---------------
3.3 7.0
-------------------------------------------------- --------------- ---------------
Finance costs
Loss on sale of shares held in trust (0.8) -
Recycling of hedge reserve(5) (39.1) -
-------------------------------------------------- --------------- ---------------
(39.9) -
-------------------------------------------------- --------------- ---------------
Movement in fair value of interest rate swaps(6) 16.4 (11.4)
-------------------------------------------------- --------------- ---------------
Total non-underlying items before tax (32.0) (11.6)
-------------------------------------------------- --------------- ---------------
Tax
Tax impact of non-underlying items 16.2 9.6
Adjustments to tax in respect of prior periods (1.3) 5.1
14.9 14.7
-------------------------------------------------- --------------- ---------------
Total non-underlying items after tax (17.1) 3.1
-------------------------------------------------- --------------- ---------------
(1) Represents the goodwill relating to those core pubs disposed
of in the period.
(2) Represents profit on the purchase of securitised debt
together with the write-off of related deferred issue costs.
(3) Represents movement in fair value of shares held to settle
future share schemes and release of provision for share
schemes.
(4) Represents movement in fair value of shares held as an
investment.
(5) Represents the recycling of the hedge reserve relating to
the Punch B C1 interest rate swap following its reclassification as
ineffective during the financial period, due to the announcement of
the capital restructuring proposals on 7 February 2013.
(6) Represents the movement in the fair value of interest rate
swaps which do not qualify for hedge accounting.
4. TAXATION
The effective rate of tax is different to the full rate of
corporation tax. The differences are explained below:
52 weeks 52 weeks
to 17 August to 18 August
2013 2012
GBPm GBPm
------------------------------------------------ --------------- ---------------
Profit on ordinary activities before tax 17.0 52.4
Tax at current UK tax rate of 23.61% (August
2012: 25.22%) 4.0 13.2
Effects of:
Net effect of expenses not deductible for tax
purposes and non-taxable income (underlying
items) (0.6) (0.1)
Adjustments to tax in respect of prior periods
(non-underlying items) 1.3 (5.1)
Current period non-underlying credits:
Change in standard rate of tax (8.9) (6.0)
Expenses not deductible for tax purposes /
(income not chargeable for tax purposes) 0.2 (0.7)
Total tax (credit) / charge reported in the
income statement (4.0) 1.3
------------------------------------------------ --------------- ---------------
Details of the non-underlying tax credits and charges are
included in note 3.
5. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year, excluding
those held in the employee share trust, which are treated as
cancelled.
Diluted earnings per share is calculated by dividing the
earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year
(adjusted for the effects of dilutive options).
Reconciliations of the earnings and weighted average number of
shares are set out below:
52 weeks to 17 52 weeks to 18
August 2013 August 2012
Per share Per share
Earnings amount Earnings amount
GBPm pence GBPm pence
----------------------------------- ----------- ---------- ----------- ----------
Results attributable to ordinary
shareholders:
Basic earnings per share 21.0 3.2 51.1 7.7
Diluted earnings per share 21.0 3.2 51.1 7.7
Supplementary earnings per share
figures:
Basic earnings per share before
non-underlying items 38.1 5.7 48.0 7.2
Diluted earnings per share before
non-underlying items 38.1 5.7 48.0 7.2
----------------------------------- ----------- ---------- ----------- ----------
The impact of dilutive ordinary shares is to increase weighted
average shares by nil (August 2012: nil) for employee share
options.
52 weeks 52 weeks
to 17 August to 18 August
2013 2012
No. (m) No. (m)
------------------------------------------- --------------- --------------
Basic weighted average number of shares 665.1 662.9
Diluted weighted average number of shares 665.1 662.9
------------------------------------------- --------------- --------------
6. NET DEBT
(a) Analysis of net debt
17 August 18 August
2013 2012
GBPm GBPm
--------------------------------------- ---------- ----------
Secured loan notes (2,332.9) (2,390.3)
Cash-backed borrowings (315.0) (315.0)
Cash and cash equivalents 328.6 263.9
Restricted cash 315.0 315.0
--------------------------------------- ---------- ----------
Nominal value of net debt (2,004.3) (2,126.4)
Capitalised debt issue costs 5.3 6.9
Fair value adjustments on acquisition
of secured loan notes (42.6) (48.1)
Fair value of interest rate swaps (254.3) (331.5)
Finance lease obligations (2.6) (3.4)
--------------------------------------- ---------- ----------
Net debt (2,298.5) (2,502.5)
--------------------------------------- ---------- ----------
Balance sheet:
Borrowings (2,372.8) (2,434.9)
Cash-backed borrowings (315.0) (315.0)
Derivative financial instruments (254.3) (331.5)
Cash and cash equivalents 328.6 263.9
Restricted cash 315.0 315.0
--------------------------------------- ---------- ----------
Net debt (2,298.5) (2,502.5)
--------------------------------------- ---------- ----------
(b) Analysis of changes in net debt
At 20 At 18 At 17
August Cash Non-cash August Cash Non-cash August
2011 flow movements 2012 flow movements 2013
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- -------- ------------ ---------- ------- ------------ ----------
Current assets
Cash at bank
and in hand 196.5 67.4 - 263.9 64.7 - 328.6
Restricted
cash - 315.0 - 315.0 - - 315.0
196.5 382.4 - 578.9 64.7 - 643.6
Debt
Borrowings (2,510.0) 69.1 6.0 (2,434.9) 58.2 3.9 (2,372.8)
Cash-backed
borrowings - (315.0) - (315.0) - - (315.0)
Derivative
financial
instruments (271.6) 5.1 (65.0) (331.5) - 77.2 (254.3)
(2,781.6) (240.8) (59.0) (3,081.4) 58.2 81.1 (2,942.1)
Net debt
per balance
sheet (2,585.1) 141.6 (59.0) (2,502.5) 122.9 81.1 (2,298.5)
---------------- ---------- -------- ------------ ---------- ------- ------------ ----------
Net debt incorporates the Group's borrowings, cash-backed
borrowings, derivative financial instruments and obligations under
finance leases, less cash and cash equivalents and restricted
cash.
Non-cash movements relate to amortisation of deferred issue
costs and premium on loan notes and fair value movement in
derivative financial instruments and profit on the purchase of
securitised debt.
7. OUR KEY RISKS AND UNCERTAINTIES
Market and economic risks
Economic climate
The recent recession and continued uncertain outlook for the UK
economy has affected consumer confidence and discretionary spending
across both the retail and leisure industries. Delays in economic
recovery or further challenges such as further duty increases could
affect consumer expenditure, our Partners' businesses and Punch's
revenue.
Mitigating actions and controls
-- We carry out regular reviews of the impact of economic
conditions on our budget and strategic plans.
-- We provided circa GBP0.5m per period to support our Partners
during the difficult conditions last year resulting in 96% of our
core estate pubs now being on a substantive agreement.
-- We continue to monitor the financial health of our Partners
via a Partner Support Tool, together with analysis to highlight
potential failures, and the Partnership Development Manager roles
have helped grow and diversify our Partners' businesses.
Property valuations
Fluctuations in the UK property market as well as the current
uncertain market conditions could impact the value of Punch's
property portfolio and our ability to dispose of pubs at an
appropriate value.
Mitigating actions and controls
-- We have conducted full estate reviews and regularly update
these to allow us to assess the future strategy for pubs within the
estate.
-- This has allowed us to invest where appropriate; consider
possible alternative use; or dispose of those which no longer fit
our future strategy.
-- We invested GBP58m on developing and improving the quality of our estate during the year.
-- We carry out an annual review for any indicators of impairment.
Increasing costs
Increases in any of our key supply costs due to availability of
products, the economic climate or inflationary price increases is
an ongoing risk to our business.
Mitigating actions and controls
-- We continue to negotiate supplier contracts to protect us
against significant increases in drink costs.
-- Careful cost control processes ensure that costs are
budgeted, closely monitored and subject to appropriate
authorisation.
Financial
Liquidity risk
Punch's capital structure is made up of debt, issued share
capital and reserves.
Punch is financed through two whole business securitisations,
the Punch A Securitisation (GBP1,449 million of gross debt) and the
Punch B Securitisation (GBP884 million of gross debt), as well as
certain cash resources held across the Group. As at the year end,
the Group held GBP329 million of cash resources, of which GBP77
million was held outside the securitisation structures (excluding
the cash held by the Group's drinks supply company and Employee
Benefit Trust).
The key short-term liquidity risk is the requirement to meet
scheduled debt service costs as they fall due. Approximately 80%
(August 2012: 83%) of the capital balance of the secured loan notes
which make up the majority of our financing is repayable after more
than five years.
Mitigating actions and controls
-- Cash flow forecasts are regularly produced to assist
management in identifying liquidity requirements and are
stress-tested for possible scenarios.
-- Cash balances are invested in short-term deposits such that
they are readily available to settle short-term liabilities or fund
capital additions.
Financial covenant and refinancing risk
Both of Punch's securitisation structures have a Debt Service
Cover Ratio (DSCR) and Net Worth financial covenant.
While there was significant headroom in the two Net Worth
financial covenants as at the year end, both securitisations
required financial support through the use of cash resources held
outside of the securitisations to maintain compliance with their
DSCR covenants. Without this support, both securitisations would
have breached their respective DSCR covenant levels in the
year.
Net support from cash resources held outside of the
securitisations amounted to GBP23 million for the year, being GBP88
million of gross support less GBP65 million of cash payments from
the securitisations to the wider Group during the year.
The ability of the securitisations to continue to make cash
payments to the wider Group and to comply with their DSCR covenants
in the near-term is dependent on continuing to receive financial
support from the Group, other actions open to management (e.g. the
repurchase and cancellation of securitisation debt at a discount,
subject to prevailing market conditions and compliance by the Group
with its regulatory obligations) or agreeing with the relevant
securitisation stakeholders to amend the terms of the DSCR
covenants.
If a DSCR covenant breach were to occur in either
securitisation, this would be likely to lead to circumstances in
which the relevant securitisation's lenders were able to request
early repayment of all outstanding borrowings. Were this to occur,
the relevant securitisation would have insufficient cash resources
to repay all of its borrowings.
Mitigating actions and controls
-- Covenants are closely monitored and stress-tested to ensure
that the Group is able to generate sufficient returns to service
its debt and meet its covenant requirements.
-- A Group support mechanism has been in place throughout the
year, whereby cash resources held outside of the securitisations
have been used to lower the cost of drinks purchased by the two
securitisations to maintain compliance with their DSCR
covenants.
-- Additional options available to the Group to improve the
securitisations' DSCR covenant performance could include the
repurchase and cancellation of securitisation debt at a discount
(subject to prevailing market conditions and compliance by the
Group with its regulatory obligations).
-- The Group is continuing an extensive process of engagement
with a broad range of the Group's stakeholders to consider
amendments to allow each of the securitisations to be restructured
in a consensual way, which would allow them to comply with revised
financial covenants without the need for ongoing Group support.
-- The Board is of the opinion that it is in the best interests
of stakeholders to agree to a consensual restructuring of each of
the securitisations and is of the view that a consensual
restructuring can be achieved.
-- The Board expects a consensual restructuring to be launched
in the fourth quarter of the 2013 calendar year.
Interest rate risk
Punch is exposed to interest rate risk from loan notes and
borrows at both fixed and floating rates of interest.
The use of fixed rate borrowings and derivative financial
instruments exposes Punch to fair value interest rate risk such
that Punch would not benefit from falls in interest rates and would
be exposed to unplanned costs, such as breakage costs, should debt
or derivative financial instruments be restructured or repaid
early. As at the year end, the fair value liability of interest
swap agreements was GBP254m.
Mitigating actions and controls
-- Punch employs derivative financial instruments such as
interest rate swaps to generate the desired interest rate
profile.
-- Punch has taken out derivative financial instruments such
that 100% of all external debt (August 2012: 100%) was either at
fixed rates or was converted to fixed rates as a result of swap
arrangements, reducing our exposure to changes in interest
rates
-- Future debt requirements are closely monitored to assist
management in identifying the appropriate strategy for interest
rate hedge arrangements.
Pensions
Punch has a defined benefit pension scheme which must be funded
to meet required benefit payments. The value and funding of the
scheme is subject to risk of changes in life expectancy, actual and
expected price inflation, changes in bond yields and future salary
increases. The difference in value between scheme assets and scheme
liabilities may vary resulting in an increased deficit being
recognised on our balance sheet.
Mitigating actions and controls
-- The defined benefit pension scheme is closed to new members;
instead we operate defined contribution schemes for our
employees.
-- We maintain a close relationship with the trustees of the pension scheme.
Internal financial control
Punch is committed to maintaining a robust internal control
environment. A lack of control could result in financial fraud or
material error in our financial statements.
Mitigating actions and controls
-- Robust internal controls operate over all key processes
including general controls such as segregation of duties and
authorisation of contracts and expenditure.
-- The Internal Audit function reviews and reports on strengths
and weaknesses in the internal control environment.
Operational and People
Change Management
Punch is reliant on the successful implementation of change
programmes to deliver both day-to-day operational improvements and
our strategic plan.
Mitigating actions and controls
-- Formal project management processes are used across the
business to prepare project objectives and plans and to ensure
progress is tracked and results measured.
-- Major projects are well communicated across the business so
that a joined up approach is maintained.
Information systems, technology and security
Punch is reliant upon information systems and technology for
many aspects of its business, which could cause damage if they were
to fail for any length of time.
Mitigating actions and controls
-- An incident management and business continuity plan is in
place for critical business processes to ensure the business is
able to continue operating in the event of a major incident.
-- We have an off-site disaster recovery facility if access to
our support centre, or its systems, is affected.
Product quality
Punch is exposed to product quality risk in relation to drink
which is supplied to us and sold on to our Partners.
Mitigating actions and controls
-- Safety measures are in place to ensure that product integrity
is maintained and that drink products are fully traceable.
-- Our incident management plan is designed so that products can
be recalled quickly if required.
Supply chain management
Punch places reliance on our key suppliers and distributors to
ensure continuous supply of drink and other products into our pubs.
Punch is exposed to the risk of interruption or failure of
suppliers or distributors, resulting in our products not being
delivered on time or to our required standards.
Mitigating actions and controls
-- Punch has reviewed the disaster recovery and business
continuity plans of our key distributors.
-- We monitor product quality closely and consider action which
may be required to provide substitute products or suppliers if
required.
People risks
Failure to recruit, train and successfully retain successful
partners, and high calibre employees for our support teams may
impact the ability to deliver our business plan and operational
objectives.
Mitigating actions and controls
-- We provide industry leading induction training and coaching
programmes for our new Partners.
-- We have improved our succession planning at all levels to
ensure we attract and retain high calibre people.
-- We carry out an annual Employee Engagement Survey and regular
listening groups to obtain direct feedback from our employees.
-- We have a remuneration strategy to ensure our teams are paid fairly and competitively.
Regulatory
Health and safety
A health and safety accident or incident could lead to serious
illness, injury or even loss of life to one of our Partners,
employees or visitors, or significantly impact Punch's
reputation.
Mitigating actions and controls
-- A health and safety management committee meets to consider
all aspects of health and safety across Punch and to report to the
Board of Directors on the status of health and safety.
-- We have formally documented and briefed health and safety
policies for our support centre and field-based teams and carry out
annual risk assessments in key areas.
Changes in legislation
Punch is subject to many different areas of regulation, mainly
due to the high level of control over the sale of alcohol.
Increasing focus in areas such as binge drinking, underage
drinking, and health impacts over recent years also means that the
Government may introduce further regulation which may significantly
affect our business.
Mitigating actions and controls
-- Punch works closely with our Partners and the rest of the
industry to address the key issues facing the pub sector.
-- We ensure that our training covers all aspects of licensing
requirements and have due diligence in place to confirm that our
pubs meet relevant licensing legislation.
-- Punch works closely with local Licensing Authorities, to
ensure individual pub licensing requirements are met and any issues
are highlighted as soon as possible.
-- Punch's Code of Practice exceeds the requirements of the Pub
Industry Framework Code (Version March 2013), with the 5th edition
being accredited by the British Institute of Innkeeping in June
2013. Any amendments to the Code of Practice will be in line with
the Pub Industry Framework Code and will not fall below those
standards. The Punch Code of Practice clearly sets out the promises
we make and exactly how we intend to honour them.
1 following the transfer of 116 pubs from the non-core division
to the core division from the start of the new financial year
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DBGDCRBDBGXS
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