Interim Results

PUNCH TAVERNS PLC

("Punch" or "the Group")

Interim Results for the 28 weeks to 3 March 2012

Underlying financial performance* - in line with expectations

·; EBITDA of £128 million (2011: £139 million)

·; Profit before tax of £33 million (2011: £41 million)

·; Basic earnings per share of 3.8p (2011: 4.7p)

·; £216 million of cash reserves, £102 million held outside of the securitisations

Operational highlights* 

·; Continued growth in average net income** per pub, up 0.8%

·; Pubs on full substantive agreements in profit growth

·; Total core estate like-for-like net income** -2.1%

·; 214 pubs disposed together with other assets for £62 million, £4 million ahead of book value and at a multiple of 20 times EBITDA

·; On track to dispose of between 400 and 500 non-core pubs for the full year

Capital structure

·; Net debt*** reduced by £61 million (3%)

·; Review is ongoing - considering a broad range of options to achieve optimal capital structure

Roger Whiteside, Chief Executive Officer of Punch Taverns plc, commented

"Despite weaker consumer market conditions in recent months our teams have worked hard to contain costs and deliver profits in line with our expectations for the first half and we remain on track to meet our full year profit expectations.

Notwithstanding the continuing challenging climate we have a clear operational plan to return the core estate to growth in the medium-term and extract maximum value from our non-core assets. We are making progress towards our aim to become the UK's highest quality, most trusted and best value leased pub company and are focused on creating value for our shareholders through successful long-term partnerships with our licensees in our core estate of 3,000 of the highest quality, best invested leased pubs in the country."

12 April 2012

_______________________

* before non-underlying items and discontinued operations

** net income represents revenue less cost of drink sales (gross profit)

***par value of net debt

Enquiries

Forward-looking statements

This report contains 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.

The interim results presentation will be available on the Punch website www.punchtaverns.com from 11.00 BST. A live audio cast of the presentation will also be available.

CHIEF EXECUTIVE'S REVIEW

With a core estate of around 3,000 of the best quality leased and tenanted pubs in the market, we remain committed to our goal of becoming the highest quality, most trusted and best value leased pub company in the UK. Our business is built on long-lasting successful partnerships with our lessees, working together to meet constantly changing consumer needs.

While the UK on-trade market is expected to remain challenging with the long-term decline in drinking out in pubs expected to continue, we have a clear operational plan to return the core estate pubs to growth in the medium-term for both Punch and our entrepreneurial Partners.

The plan for the c.1,800 pubs in our turnaround division is to maximise short-term returns ahead of disposing of these pubs, which is planned to be undertaken over a five-year period.

Capital structure

As previously announced, the Board is actively considering a broad range of options with a view to optimising our capital structure and to facilitate our plan to downsize the estate effectively. This review is ongoing and accordingly, we will engage in a dialogue with all stakeholders at the appropriate time.

Whilst evaluating these options, we continued to provide financial support to the securitisations (Punch A and Punch B) during the half year. Without this support the DSCRs (Debt Service Cover Ratio) would have remained below their respective financial covenant levels.

The Group continues to hold significant cash resources, with a period end cash balance of £216 million, of which £102 million of cash is held outside of the securitisation structures.

Business review

Core estate

The core division comprising 2,946 pubs accounts for around 78% of Punch outlet EBITDA. With a net income per pub of approximately £77,000, these pubs are of a much higher quality than the turnaround division, and have demonstrated much greater resilience with a decline in net income of 2.1% in the period.

The vast majority of the estate continues to perform strongly, with pubs on full substantive agreements showing growth in net income over the half year period. Within this, trading in the South of England remains robust and continues to outperform the rest of the UK.

The decline in net income continues to be driven by pubs which have been returned to us after failing and are currently under temporary management. The level of pub failures remains in line with last year and the majority of these pubs will receive investment to reposition their offering in their local marketplace and are currently in the process of being re-let on full substantive agreements.

i) Investing to improve the customer environment and increase food sales: During the half year period we invested in 130 core pubs, spending £12 million with a focus on improving the food offer and enhancing the customer environment in our pubs. There remain significant enhancement opportunities in our estate and we expect to increase the rate of capital investment to c.400 pubs per year and increase the percentage of food sales in our core estate from c.20% to c.35% over time.

ii) Attracting high quality Partners:Completion of the Pathway to Partnership programme has created a platform on which we can set out to attract the best quality Partners to lease our core pubs. New applicant enquiries remain very strong at c.400 enquiries per month, representing a 10% increase compared to the prior year. Within this we are attracting an increased interest from small multiple pub operators and micro brewers.

iii) Driving sales growth:The Punch Buying Club continues to grow in popularity with 35% of our drinks orders now being taken online, up from 21% at August 2011. The Punch Buying Club gives Partners access to exclusive deals and through the Punch Buying Club blog, Partners can provide feedback on issues, seek advice, share best practice and access exclusive marketing and point of sale materials. In addition, we continue to build on the support provided by our in-house specialist teams: doubling the level of 'Design and Print' activity, carrying out over 800 food development site visits and expanding Cask Ale sales with SIBA direct sales up 40% in the period.

iv) Effective Punch support: Partner Development Managers (PDMs) are key to driving the performance of our pubs. We have invested in industry leading training in partnership with the BII, piloting the first Level 4 qualification in Multiple Retail Management, which all of our PDMs will complete by the end of 2012. We successfully launched further support programmes with the 'Mystery Visit Quality Awards' program and the 'Pubwise Accountants' scheme both being rolled out across the estate during the period.

Turnaround estate

The turnaround division comprising 1,844 pubs accounts for around 22% of Punch outlet EBITDA. These pubs have a much lower average net income per pub at approximately £38,000, are predominantly small, with low turnover and are wet led. With limited scope for investment these pubs are more likely to be impacted by the long-term decline in drinking out and as a result are expected in time to generate more value through disposal than retention.

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. Net income in non-core pubs on substantive agreements is stable with all the decline coming from non-substantive pubs in the process of disposal.

Maximising value on disposal: We remain on track to dispose of between 400 and 500 non-core pubs for the full year. During the first 28 weeks of the financial year we sold 214 pubs, together with other assets for proceeds of £62 million, £4 million ahead of book value.  The disposed pubs generated just £3.1 million of EBITDA over the last 12 months, equating to a disposal multiple of 20x, demonstrating the accretive nature of these disposals.

Matthew Clark joint venture

Matthew Clark, the 50% joint venture with Accolade, continues to perform well in a very competitive market providing a post-tax contribution to Punch of £2 million for the period.

Financial Review

Net finance costs:

Net underlying finance costs were down £2 million (2%) at £87 million, reflecting a decrease in borrowings. The Group's average cost of funding was 6.9% (last year 6.8%).

Taxation:

The underlying taxation charge is based on an estimated full year effective tax rate of 26.8% before post-tax earnings from joint ventures. This compares with the UK corporation taxation rate of 25.6% for the financial year ending August 2012.

Earnings per share:

Adjusted basic earnings per share, which excludes the effect of exceptional items, was down 19% at 3.8 pence per share (last year 4.7 pence). The weighted average number of shares in issue during the period was 661.8 million.

Non-underlying items:

During the period costs of £3 million before tax were treated as non-underlying due to their size and nature. These included £2 million of asset impairment, £4 million profit on the disposal of non-current assets, £2 million profit on loan note redemptions, £4 million movement in the values of shares held and a £10 million charge on the mark to market of interest rate swaps. The tax effect of the above items was a £3 million tax credit.

Capital investment and disposals:

We returned a net cash inflow of £48 million in the period, after capital expenditure of £14 million and £62 million of proceeds from pub disposals. The rate of capital expenditure is forecast to increase to an annualised rate of £40 million by the year end as we up-weight the level of investment in our core pub estate.

Cash flow:

Cash flow from operating activities remains strong at £104 million from an EBITDA of £128 million. Due to the timing of the half year date, there is historically a working capital outflow in the first half of the year, with a working capital inflow expected in the second half of the year. Cash flow in the first half of the year was also impacted by c.£10 million of business separation costs settled immediately following the August 2011 year end.

Free Cash Flow (net cash flow before debt repayments and associated costs) amounted to £65 million, which after £46 million of debt repayments and associated costs, resulted in a £19 million increase in the cash balance to £216 million.

Net debt and financial covenants:

The nominal value of net debt at the half year was £2,203 million, a decrease of £61 million from the previous year end. The period end cash balance of £216 million included £102 million of cash held outside the securitisation structures.

The Group is financed through two whole business securitisations, the Punch A Securitisation and the Punch B Securitisation, as well as certain cash resources held outside of these securitisations.

Whilst the securitisations generated underlying profits and positive net cash flow (before debt repayments) in the period, they required support through the use of cash resources held outside of the securitisations to maintain headroom in the DSCR (Debt Service Cover Ratio) covenant. Without this support, both the Punch A and Punch B Securitisations would have fallen below their respective DSCR financial covenant levels in the period. The gross level of support from cash resources held outside of the securitisations, before half year and full year cash upstreams, amounted to £43 million for the half year, this compares with £68 million of gross support provided for the full year to August 2011.

The Group has maintained significant cash resources outside of the securitisations, enabling the Group to continue to provide DSCR support while we evaluate options with a view to optimising our capital structure.

Pensions:

The Group maintains a defined contribution scheme which is open to all employees. The Group has one defined benefit scheme (the Pubmaster pension scheme) which is closed to new entrants. Under IAS19 the net pension liability was £6 million compared with £8 million at the previous balance sheet date.

Board changes

On 31 March 2012, Angus Porter joined the Board as the Senior Independent Non-executive Director. Angus brings with him a significant amount of consumer and business development experience to the team, having held senior leadership roles in BT, Abbey National and Thomas Cook working in changing market environments.

The Board also announced that Mark Pain stepped down from the Board with effect from 31 March 2012. As stated at the time of the demerger of the Spirit business in 2011, Mark's continued service on the Board was for a transitional period.

Our people

Punch employs a talented and hard working team and we firmly believe that the quality of our people is crucial for our long-term success and we aspire to recruit and retain the highest calibre team.

Current trading and outlook

Third quarter trading in 2011 was boosted by exceptional weather and the additional Royal wedding bank holiday. Consequently the third quarter of 2012 is up against strong comparative numbers making trends difficult to interpret. Nevertheless, we have strong plans in place and expect to benefit from the Queen's Diamond Jubilee, the UEFA European football championship and the Olympic Games in the latter half of the year.

CONSOLIDATED CONDENSED INCOME STATEMENT

for the 28 weeks ended 3 March 2012

1 The results for the 28 weeks to 5 March 2011 have been restated to reflect the presentation of the Spirit managed business as discontinued and the Spirit leased business as non-underlying in the period.

2 EBITDA represents earnings before depreciation and amortisation, impairment, goodwill charge, profit on sale of non-current assets, finance income, finance costs, movement in fair value of interest rate swaps and tax of the Group.

CONSOLIDATED CONDENSED INCOME STATEMENT continued

for the 28 weeks ended 3 March 2012

1 EBITDA represents earnings before depreciation and amortisation, impairment, goodwill charge, profit on sale of non-current assets, finance income, finance costs, movement in fair value of interest rate swaps and tax of the Group.

CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME

for the 28 weeks ended 3 March 2012

CONSOLIDATED CONDENSED BALANCE SHEET

at 3 March 2012

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY

for the 28 weeks ended 3 March 2012

CONSOLIDATED CONDENSED CASH FLOW STATEMENT

1 The cash flows for the 28 weeks to 5 March 2011 have been restated to reflect the presentation of the Spirit managed business as discontinued in the period.

NOTES TO THE FINANCIAL STATEMENTS

for the 28 weeks ended 3 March 2012

1. ACCOUNTING POLICIES

Basis of preparation

This condensed set of interim financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU. The Group's Annual Report and Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency rules of the Financial Services Authority, this condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's Annual Report and Financial Statements 2011, and which are expected to apply at 18 August 2012.

This condensed set of interim financial statements have been prepared on a going concern basis. The Directors have prepared detailed operating and cash flow forecasts, which cover a period of more than 12 months from the date of approval of these financial statements. These show that the Group has adequate funds to be able to operate within its agreed facilities and covenants for the foreseeable future. Headroom is maintained over covenants through appropriate cash management, including the Group supply fee arrangement.

The comparative figures for the 52 weeks to 20 August 2011 presented in these interim financial statements are not the Group's statutory accounts for that financial period. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The following amendment is effective for the Group for the financial year beginning 21 August 2011:

·; Amendment to IFRIC 14 'Prepayment of a minimum funding requirement'

The above amendment to the published standard has had no material impact on the results or the financial position of the Group for the 28 weeks to 3 March 2012.

2. SEGMENTAL ANALYSIS

1 Unallocated underlying operating costs represent corporate overheads that are not allocated down to the divisional performance.

There are no sales between the segments. Segment assets include property, plant and equipment, operating leases and non-current assets held for sale, and exclude goodwill, other intangible assets, inventories, receivables, cash, taxation, investments in joint venture and other investments, whilst all liabilities are unallocated.

3. NON-UNDERLYING ITEMS

In order to provide a trend measure of underlying performance, profit is presented excluding items which management consider will distort comparability, either due to their significant non-recurring nature or as a result of specific accounting treatments. In addition, the results of the leased pubs that form part of the Spirit business that was demerged in the previous period are shown as non-underlying. The comparative period has also been restated to show the results of these pubs as non-underlying. Included in the income statement are the following non-underlying items:

1 The prior year amount represents £70.4m write down of goodwill relating to the apportioned value of goodwill allocated to those pubs transferred to the turnaround division in the previous period and subsequently impaired.

2 Represents profit on the purchase of securitised debt together with the write off of related deferred issue costs.

3 Represents movement in fair value of shares held to settle future share schemes and release of provision for share schemes.

4 Represents movement in fair value of shares held as an investment.

5 Represents the movement in the fair value of interest rate swaps which do not qualify for hedge accounting. Whilst the interest rate swaps are considered to be effective in matching the amortising profile of existing or planned floating rate borrowings, they do not meet the definition of an effective hedge due to the relative size of the mark to market difference of the swap at the date of acquisition or inception, or changes in expected future maturity profiles.

4. IMPAIRMENT LOSSES

Property, plant and equipment and operating leases

When any indicators of impairment are identified, property, plant and equipment and operating leases are reviewed for impairment based on each cash generating unit (CGU). The cash generating units are individual pubs. The carrying values of these individual pubs are compared to the recoverable amount of the CGUs, which is the higher of value-in-use (VIU) and fair value less costs to sell (FVLCS).

During the 28 week period to 5 March 2011, the Group commissioned independent market research on the UK eating and drinking out market and its position in it. This review was undertaken as part of a comprehensive review of the Group's strategy, operating performance and capital structure.

This review reinforced the Group's view 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. Conversely, the long term growth in eating out in pubs will continue, driven by economic growth, changing consumer behaviour and improvements in the quality, service and value for money offering in the pub industry.

The outcome of this review led the Group to conclude that, given the structural challenges faced by the leased estate, a more aggressive reduction in the estate size was required. This will enable the Group to move more quickly to a position from which we can deliver sustainable growth in profits and cash flow. This analysis led to the conclusion that our turnaround estate, comprising those properties that can generate more value through disposal than retention, was around 2,400 pubs at the time of the review. It is expected that these pubs will be disposed of over a five year period.

The values of these turnaround pubs were then reviewed, with the carrying value of these individual pubs being written down to the higher of their FVLCS and their VIU. As a result, a £301.7 impairment charge was charged during the 28 week period to 5 March 2011. In addition, a £60.2m impairment charge was incurred on the Spirit leased estate in that period.

During the 28 week period to 3 March 2012 FVLCS of the non-current assets classified as held for sale have been reviewed, and an impairment of £1.8m has been identified.

The impairments recognised in the current and prior periods are as follows:

Cash flows used in the VIU calculation of non-core pubs are based on earnings before interest and taxation. Since non-core pubs have been identified as not having a long-term viable future to Punch as a pub, their VIU has been calculated by extrapolating the earnings of these pubs for a period of three years, and then using the FVLCS at that time as the terminal value at the end of year three. The cash flow forecasts used assume an ongoing trading decline for these pubs. The pre-tax risk adjusted discount rate applied to cash flow projections is 8.0% (March 2011: 8.0%; August 2011: 8.0%). In practice, due to the projected decline in profits in the turnaround estate, the majority of pubs were written down to their FVLCS as their VIU is below this level. Estimates of FVLCS were based on valuations undertaken by in-house property experts.

Included within the above are reversals of impairment losses of property, plant and equipment of £nil (March 2011: £19.7m; August 2011: £27.4m). The impairment reversals were primarily due to the identification of pubs where expected future cash flows have risen to a level such that their VIU is now above carrying value.

Goodwill

Goodwill represents the synergistic benefits of operating a large pub estate and is allocated to groups of CGUs. The estate is organised in separate core and turnaround property structures. No goodwill is allocated to the turnaround estate due to the low value of the properties in the estate and the low level of synergistic benefits.

During the prior period, following the strategic review, a further c.1,400 pubs were transferred in to the turnaround estate, and at that stage goodwill of £72.4m was reallocated to the turnaround estate. The intention to dispose of these turnaround properties in the medium term triggered an impairment review and an impairment charge of £82.7m was taken against this goodwill, which includes a £10.3m charge on goodwill allocated to pubs in the Spirit leased estate. For goodwill impairment purposes, the recoverable amount of the turnaround group of CGUs was based on an aggregate of the higher of the FVLCS and the VIU for the turnaround pubs. The basis of these calculations is set out in the property, plant and equipment and operating lease impairment disclosures above.

5. FINANCE INCOME AND COSTS

6. TAXATION

The effective taxation charge applied in these interim results of 26.8% before non-underlying items and share of post-tax profit from the joint venture, reflects the estimated tax rate for the 52 weeks ending 18 August 2012. The effective rate of taxation for the comparative period was 28.9%.

The total tax charge of £5.7m (March 2011: charge of £17.2m on continuing operations; August 2011: charge of £23.4m on continuing operations) includes a non-underlying tax credit of £2.7m (March 2011: charge of £5.9m; August 2011: charge of £2.1m).

7. DISCONTINUED OPERATIONS

At a General Meeting on 26 July 2011, the Company's shareholders approved the demerger of the Spirit business. On 1 August 2011, the Spirit business was transferred to a non-group company, Spirit Pub Company plc in return for that company issuing its own ordinary shares on a one-for-one basis to the Company's shareholders. In addition to the Spirit business being transferred, Punch Taverns plc also transferred a net £61m of cash to Spirit.

The disclosures below relate only to the demerged Spirit managed business segment. The disclosures do not include the Spirit leased business segment as this segment cannot be classified as discontinued within the definitions of IFRS 5.

The profit / (loss) from discontinued operations shown in the income statement in the prior period is made up as follows:

1 The net assets of the Spirit business demerged includes both the managed and leased businesses.

The value of the dividend in specie represents the fair value of the Spirit business. This has been derived based on the fair value of a subordinated loan advanced by the Group to the Spirit business, the value of Spirit debenture bonds that were funded by Punch Taverns plc and an amount of cash that was transferred to the Spirit business on demerger.

Prior to demerger, the Company allotted shares to cover future outstanding awards under the Long Term Incentive Plan, which are being held in a Trust controlled by the Group. At demerger, a financial asset has been recognised by the Group for the total number of Spirit shares that are being held by the Group, and a provision has been recognised for the number of Punch and Spirit shares that have been allotted in order to satisfy awards that are outstanding to employees now employed by the Spirit group. The £2.0m profit on the recognition of these has been shown above.

8. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust, which are treated as cancelled.

Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options).

Reconciliations of the earnings used in the calculations are set out below:

The impact of dilutive ordinary shares is to increase weighted average shares by nil (March 2011: 2,177,000; August 2011: 28,000) for employee share options.

9. PROPERTY, PLANT AND EQUIPMENT