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Punch falls to pre-tax loss as it writes down part of business set for sale to Heineken

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heinekenPunch Taverns has been pushed to a pre-tax loss after having to write down the value of part of the business it is set to sell off.

The UK’s second largest pub group by number of sites suffered a £174.5m loss in its most recent half year, significantly down from the £54.7m profit it made in the same period last year.

The main reason for the profit slump was because it has written down the value of what it calls Punch A, which comprises roughly 1,900 of its 3,227 pubs, within its results as this part of the business is set to be sold to Dutch brewer Heineken as part of a wider £403m deal.

The swoop for Punch was made by Patron Capital’s Vine Acquisitions, which agreed to sell Punch A to Heineken as part of the bid. The Dutch brewer already owns pubs in the UK through its Star Pubs & Bars business.

The Patron/Heineken bid was lower than a rival bid from Emerald Investment Partners, a vehicle set up by Punch’s co-founder and former finance director Alan McIntosh, but was still favoured by the board.

The company said this tussle had created “significant uncertainty” surrounding the sale and potentially contributed to publicans holding off on deciding whether to lease a Punch pub.

It said slack demand from publicans to lease businesses in part because of the confirmation of its sale earlier this year, as well as recently implemented regulations which give publicans the option to just pay their landlord rent rather than also having to buy drinks from them under the historic ‘tied’ model.

Punch said the percentage of pubs available to let in its core estate rose to 10pc, up 3.7 percentage points compared to March 2016.

It added on an adjusted basis, excluding this factor, leased and tenanted like-for-like net income was stable. Adjusted pre-tax profits fell 12pc to £24m for the group.

“While we are confident in our plans to improve this position, we now expect it to take up to 12 months to return to our long-term target of having a core estate of 93pc-95pc let on substantive agreements,” the company said.

Besides this, trading has been challenged with the group eking out a 2pc rise in sales to £217m for the six months to March 4, with like-for-like net income down 1.2pc in its core leased and tenanted division.

The company was upbeat about its new retail division, which has doubled in size to the end of August to 171 pubs. Pubs run under this type of contract pass 100pc of sales to Punch, which then pays the publican a percentage with which to pay staff.

Punch has reduced the cost of its debt, having paid off £65m of borrowings since November last year, and has raised the amount of money it spent on refurbishing its pubs to £41m from £25m in the same period last year.

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