Punch announces major downsize and demerger

Punch Taverns has announced plans to separate its managed and leased pub businesses. The move would see the group shed 2,200 pubs, almost a third of its current estate.

The news forms the outcome of a strategic review implemented by chief executive Ian Dyson in October 2010, shortly after he arrived at Punch Taverns from Marks & Spencer.

In order to achieve this, Punch will now carry out a demerger of Spirit, a subsidiary which mainly owns managed houses, to create two independent public companies. This restructuring is expected to be completed before the end of the summer.

Elaborating on this response to the review, Dyson said: “We believe that there is a significant value creation opportunity at Punch, with immediate upside in managed and longer term upside in leased.” He added: “We do not believe that either opportunity can be maximised within the current group structure”.

Outlining the distinction between the demerged companies, Dyson explained: “Spirit will be positioned to deliver market-leading sales and profit growth and to expand with the aim of becoming the UK’s leading managed pub operator.

“Punch will be positioned to drive long term value by downsizing to a core estate of around 3,000 pubs with the aim of becoming the UK’s highest quality and most trusted leased operator.”

The review findings which contributed to this demerger decision include a prediction by Punch that “the long-term decline in drinking out in pubs will continue, driven by changing consumer behaviour, relative price positioning and the impact of regulation.”

The group forecasted a 3.1% per annum decline in pub drinking over the next five years, but estimated a 3.5% increase in food-led pub visits over the same period.

In line with this prediction, Punch now plans to focus on building “key brands”, which it names as the Chef and Brewer, Fayre and Square and Flaming Grill chains. Much of this expansion will take place by converting “between 100 and 150” of the 550 or so leased pubs currently run by Spirit.

Meanwhile, Punch anticipated that the disposals involved in this dramatic downsizing operation are expected to take place “at the rate of around 500 per annum”, a slower pace than the group has been shedding pubs over the past two years.

Gabriel Savage, 29.03.2011