Punch Pubs is benefiting from consumer trends like premiumisation, with products such as premium lager offering more profitability, according to CEO Clive Chesser and CFO Steve Dando.

Speaking on an investor call following the publication of Punch’s FY23 results, Chesser and Dando discussed post-pandemic consumer trends as well as the segment of the estate that has pivoted towards a more premium offer.

“We’ve moved some pubs from a mid-market to higher market offering with a changed customer base.

“Therefore you can see our Management Partnership estate moving forward, while the Leased & Tenanted estate is very stable and also performing strongly.

“These premium products are more profitable both for us and our publicans, so [premiumisation] is good news for the industry.”

Total revenue for FY23 was £313.5m, an increase on £284.4m in FY22, with like-for-like growth across all three divisions.

Chesser further updated on Punch’s FY24 performance to date – which has seen profitability “materially ahead” of FY23 – saying the company was seeing “encouraging trends” around Christmas in particular.

“Christmas advance bookings are ahead of this time last year by a multiple of four,” he said. “We’re seeing these in our Management Partnership estate…I think it reflects that we’re progressively improving our capability in running managed pubs.

“It’s not all about the market; we have better platforms and social media driving some of this improvement. The industry is expecting a more positive Christmas than last year.”

In terms of footfall, Punch reflects trends in the wider pub market, Chesser and Dando added.

The business also expects to see continuing fallback in energy costs from their peak in 2022.

“We expect to see costs coming down while being mindful of geopolitical issues, which continue to result in energy prices perhaps staying artificially higher.

“On business rates, we expect some continuation of support from the government but we’ll have to wait and see.”

The operator is also optimistic regarding the cost outlook for further conversions from its Leased & Tenanted to Management Partnership estate. It has identified up to 70 pubs for conversions in FY24.

It broadly expects conversion costs to remain at the rate of £230,000 per pub.

“The cost of conversions has gone up, but this depends on whether you’re substantially changing the offer. We’ll also implement learnings from investments we made previously.”

Despite a rise in overheads in FY23, Punch expects year-on-year benefits going into FY24 due to efficiencies and margin improvements.

Improvements will come from an EBITDA uplift for previous conversions that are now maturing, but also the benefit of inflation falling back both on rental income and drinks margins.

“We’ll see improved sales performance come through in our managed estate…it takes approximately 18 months for a pub to mature in terms of sales and EBITDA.

“We always have the opportunity to make disposals in our freehold estate and cut back on capex if we want to, but we have no intentions or expectations of doing that.

“We’re confident in our internal expectations of growing EBITDA and cash flow.”

While liquidity remains “strong” – with £12.9m of cash and £50m of available revolving credit facilities – Chesser and Dando said they were “conscious” of the high interest rate environment.

“We’re not committing to a profit forecast but we’re acutely aware of the external debt environment and our timing of refinancing.”

Tenant measures remain in line with expectations and also with pre-Covid, with a “stable” leased & tenanted estate and low churn.

“We’ve been able to shelter for our publicans due to the buying power and access we have in markets.”

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