Punch Taverns plc announces its Interim Management Statement for the 40 weeks from the start of the financial year on 24 August 2008.

The Group has also announced today that Punch proposes to raise approximately £350 million by way of a Firm Placing and Placing and Open Offer, as well as the intention to make a tender offer to purchase any or all of the outstanding Convertible Bonds at a purchase price of not less than 95 per cent. (as a percentage of the nominal principal amount outstanding).

TRADING PERFORMANCE

Trading results to date reflect the challenging market conditions being faced by the sector. The wider recessionary economic conditions have significantly reduced consumer confidence and impacted the level of disposable income being made available for leisure activities.

Although we anticipate that demand levels are unlikely to improve in the near term, we are on track to meet our expectations for the financial year. Trading performance in the third quarter of the financial year shows early indications that our actions to stabilise performance are seeing some success. Improved trading during March and April benefited from softer comparatives, principally due to a later Easter this year and a poor, early Easter last year. Trading during May has been more mixed given tougher, weather driven comparatives a year ago.

Leased Estate

The focus throughout the year to date has been upon stabilising performance which has seen us arrest the rate of decline reported across the first quarter of the financial year. Like for like EBITDA for the 40 weeks ended 30 May was down 11.2%, being of a similar level to that reported for the 28 weeks to 7 March 2009.

Trading performance continues to be impacted by a combination of weaker beer volumes and a softening in rents, coupled with the previously reported increase in the levels of licensee support.
 
In this difficult economic environment, we continue to believe it is important to proactively support our licensees in the form of rent concessions and increased product discounts. Levels of financial support have remained relatively steady for the past 6 months, with an average of £1.6 million in the year to date, up from an average of c.£0.5 million per month a year ago.

Managed Estate

As with the Leased estate, management actions have been focused on stabilising business performance principally through a strengthening of our value proposition and improved food menus across all sectors underpinned by the rollout of our new Operational Excellence programme.

Emphasis has been placed on trading the business more actively through heightened promotional activity which has been designed to grow sales and margin. Business performance has started to see a measure of improvement with like for like sales for the 40 weeks ended 30 May down by 1.2%, continuing the improving trend across the year with third quarter sales being 1.0% up on the same period of last year.

As detailed at the time of our interim results announcement, operating margins continue to be impacted by above inflation regulatory, food and energy cost increases together with promotional discounts to drive sales. However, due to our improved trading performance and tighter cost control, operating margin for the year to date is estimated to be down by 3.5% compared to being down 4.0% at the half year.

CAPITAL STRUCTURE

In the light of the challenging trading conditions we will continue to look at further opportunities to increase cash flow and repay debt by taking actions to reduce costs and realising value from the disposal of non core assets. Disposal proceeds in the 40 weeks to 30 May 2009 amounted to £171 million and were immediately earnings accretive after retiring Group debt.

Our strong cash flow has enabled us to reduce gross debt by £404 million since the start of the financial year, representing 8% of the nominal value of the Group’s debt at a cost of £258 million. These actions have helped maintain headroom in all of our financial covenants and of the debt repaid to date, £398 million was paid ahead of schedule.

Despite the announcement of the proposed Firm Placing and Placing and Open Offer today, the Group continues to believe that generating cash at the plc level is in the best interests of shareholders. We expect to generate cash reserves to support this objective by realising value from the unsecuritised estate together with realising cash from the Punch A and Punch B securitisations in this financial year.

OUTLOOK

While we are confident of the longer term prospects for the Group and our expectations for the full year remain unchanged, we remain very cautious over the near-term due to the lack of forward visibility on trading outlook.

ENQUIRIES:

Forward-looking statements

This announcement may contain 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.

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