More tales from the crypt ...

Roger Whiteside - CEO Punch Taverns plc ?

As Hallowe'en approaches I thought I'd bring you some spine-chilling tales from zombie pubco Punch Taverns, but first let me remind you of the dictionary definition of a zombie: 

  

“the body of a dead person given the semblance of life, but mute and will-less, by a supernatural force, usually for some evil purpose”

I use the word zombie because this behemoth of the pub trade is currently in debt to the tune of £3,665,800,000 or to use the far less visually impressive common parlance £3.665 billons. ( Source Punch Prelimiary Results for the 52 weeks to August 18th 2012 ) Which is 76 times their annual profit ... which is an impressive profit to debt ratio by any reckoning! Scared yet? As an investor I would be, especially with today's share price. If you bought shares in January 2008 at about £1.25 a share they would be worth 6.55p each today, where as if you'd invested elsewhere in the "Travel & Leisure" sector your initial share value would have stayed just about the same. Surely you must be a little frit by now?

Punch Share Performance (Source www.punchtaverns.com)

OK then let's look at in terms of the tenants of this debt-whale ... Punch is proud to say that it is going to divest itself of 1,595 pubs in the staggeringly misnamed "Turnaround Division" ... the strategy for which is quite blatant in its remit ...

    "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."

Anybody else think the only thing missing is the corollary of "... by all means possible and at whatever cost to the tenant"?

The time scale for disposing of these "non-core" assets? For the "sell now/sell later" category (1,029 pubs) it's 1 to 3 years until it's 'goodnight Vienna' and for the "protect and grow" segment if you're in one of these 566, congratulations you're not scheduled for the garbage chute for 3 to 5 years. Either way don't make any long-term plans ...

Ready for some really shocking reading? Then if you're sitting comfortably ...

Number of pubs in turnaround: 1,595, gross margin on drinks revenue totals £34,639,072 or £51,598 per pub, which on drinks sales to you tenants of £82,300,000 equates to 42% gross margin. Not bad for just placing a few telephone calls and taking your orders, no deliveries to be seen in or pipes to be cleaned either!

Which leads neatly on to the total gross margin (drinks, rent and machines) they make on turnaround pubs which is £67,058,686 or £42,043 per pub ...


Now how about you 2,934 tenants in the core estate ... how's it looking for you? Well Punch sold you a whopping £269,100,000 worth of drinks from which it derived it's customary 42% profit of £113,260,928 ... which on average is £91,717 per pub. The total gross margin they achieved was £220,141,313 or £75,031 per pub.
  
The really scary language though is saved for the creditors ... 

"Both securitisations are over levered and unsustainable in their current form; Significant amendments to each of the Punch A and Punch B securitisation structures are necessary, including one or more of a material reduction in debt, an increase in the maturities of the debt and changes to the financial covenants; "

Or put in lay terms "We can't pay what we owe you, it's impossible, can you let me off some of the debt or change my credit terms?" ... something many of you may have asked Punch for ... no need to take a poll on what their probable response was.