Punch unveils more bad news

15th January 2009, 11:03am

Analysts have predicted that Punch Taverns could be on its way to breaching covenants regarding its high levels of debt, unless the pub company takes a look at its financial model.

The company announced worrying profits which saw like-for-like sales drop 12% in the 20 weeks to 10th January 2009 and currently has levels of debt, which top £4bn.

In a statement Punch highlighted how 2009 will be a critical year for the company: "Despite improved trading over the Christmas period, trading over the period since 4 November has remained challenging with the economic outlook deteriorating for the UK consumer."

Beers sales experienced double digit volume declines as the downward trend in beer consumption continues.

The pub company also said that it was increasing its commitment to licensees by boosting rent concessions and product discounts from £400,000 to £1.6m.

Despite this increased support for licensees, a report in The Telegraph said that Punch must now turn its attention to its debt as cash which is trapped in securitisations may prevent the firm from paying back a £224m bond, which matures next year.

Matthew Gerard, an analyst with Investec told the newspaper: "With trading continuing to deteriorate there is clearly a risk all three securitisations are cash-trapped in the 2010 and 2011 financial years, meaning Punch would require a capital injection to redeem the convertible."

A Morgan Stanley analyst added that a "…debt-for-equity swap is increasingly likely."

Punch commented on its outlook which focuses on the short term: "Whilst we remain confident of the longer term prospects for the company and the sector, difficult trading conditions are likely to persist for the foreseeable future and we remain extremely cautious over the near-term."

Related Articles:

• 25 Aug 2009 - Punch blames poor trading on lack of sunshine
• 15 May 2009 - Corkin wine prices at Punch pubs
• 29 Apr 2009 - Punch Taverns offloads pubs worth £91m
• 27 Mar 2009 - Punch Taverns sells six of its pubs to Fuller's
• 26 Mar 2009 - Punch Taverns sells six of its pubs to Fuller's

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