Interim Results for the 28 weeks to 5 March 2016

PUNCH TAVERNS PLC

("Punch" or "the Group")

Interim Results for the 28 weeks to 5 March 2016

Performance in line with management expectations:

§ Continued growth from a higher quality pub estate:

§ Average profit per pub across the entire estate up 3.0%

§ Core estate like-for-like net income* growth of 1.6%

§ Total estate (including non-core) in like-for-like outlet EBITDA growth

§ Underlying EBITDA of £94 million (March 2015: £105 million); reflecting the impact of £288 million of strategic disposals completed over the last 18 months

§ £59 million non-underlying profit on asset disposals in the period

Strengthened balance sheet:

§ Nominal net debt reduced by £191 million (14%) in the half year and by £293 million since the October 2014 refinancing

§ £235 million of cash on the balance sheet, no bank debt and low scheduled amortisation at c.£36 million per year over the next five years

§ Disposal programme ahead of target with £199 million of net proceeds:

§ £47 million - individual property and land sales; £12 million above book value

§ £53 million - package disposal of 158 non-core pubs (previously announced)

§ £99 million - disposal of 50% holding in Matthew Clark (previously announced)

§ Loan to value reduced to 59% (August 2015: 64%)

§ £847 million of property in excess of nominal net debt; equivalent to 382 pence per share

Good operational progress:

§ Retail division operating ahead of expectations:

§ 121 pubs identified to operate under the Retail contract (50 pubs open at April 2016)

§ On track to have c.100 pubs open by the year end

§ Underlying profit and sales are ahead of management expectations

§ Anticipated pub EBITDA of between £90,000 and £110,000, representing a profit uplift of between £15,000 and £25,000 as compared to historical EBITDA under the tied tenanted and leased model

§ Mercury pub division formed to manage lower profitability sites under a reduced cost operating model. Targeting like-for-like growth in this division from the end of 2017 as we sign-up pubs on more flexible tenancy agreements

§ Growing commercial free-of-tie lease division with 41 pubs in operation with an average rent of £72,000

§ Strategic disposal programme is now substantially complete, with focus now on realising additional value from the non-trading parts of our extensive freehold property and land estate

Duncan Garrood, Chief Executive Officer of Punch Taverns plc, commented:

"We are already making good progress delivering on the strategy we set out in November 2015. We have launched new operating models, renewed our focus on customer service and delivered improved support to our publicans.

The roll-out of our new Retail contract is progressing well with underlying profit and sales post conversion being ahead of our initial expectations.

The combination of our growing cash balances, strong cash flow and limited scheduled amortisation over the next five years puts the Group in a stronger financial position going forward."

20 April 2016

* Core estate like-for-like net income represents revenue less cost of drink sales (gross profit) for all pubs in the Core estate other than those operated under the Retail division.

Enquiries:

A presentation for equity and debt analysts on the interim results will be held today at 9.00am at The Lincoln Centre, 18 Lincoln's Inn Fields, London, WC2A 3ED.

A live web cast and slide presentation of this event will be available on our website, www.punchtavernsplc.com and subsequently available on demand. We recommend you register at 8.50am.

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.

CHIEF EXECUTIVE'S REVIEW

MARKET POSITIONING

Punch is a leading operator of pubs in the United Kingdom, with the second largest pub estate by number of pubs. As at 5 March 2016, the Punch estate comprised 3,330 pubs located across the UK, 96% of which are held on a freehold or long leasehold basis. The Group has been actively disposing of less profitable non-core sites and expects over time to reduce in size to a high quality pub estate comprising c.2,800 pubs.

Punch operates its pubs predominantly under the tied leased and tenanted model, with a small but growing number of pubs operated under both a retail operating model and as free of tie commercial leases.

Improved consumer confidence has facilitated a continuing growth in eating out and the trend for consumers to select premium drink brands. Our increasing focus on the food offer and development of a wider premium drinks proposition, position us well to capitalise on these trends. Our ability to offer the widest drinks range available in our sector through the Punch Buying Club enables us and our publicans to stay on top of evolving consumer tastes.

PERFORMANCE SUMMARY

We are pleased to report interim results which are in line with our expectations and having made good progress towards implementing the strategy we set out at the time of our full year results in November 2015. The strategic disposal programme is now substantially complete and this has greatly enhanced the strength of the Group's balance sheet.

In the 28 weeks ended 5 March 2016, Punch generated underlying EBITDA of £94 million (March 2015: £105 million), which reflects the impact of £288 million of strategic disposals completed over the last 18 months.

We have continued to improve the quality of the estate with average profit per pub across the entire estate up 3.0%, benefiting from the disposal of non-core pubs. The core pub estate delivered like-for-like net income growth of 1.6% (having benefited from the transfer of 240 lower profit pubs to the Mercury division), with the total estate, including non-core, in like-for-like outlet EBITDA growth.

We are pleased with the progress we have made with the roll-out of our new Retail contract which continues to progress well with underlying profit and sales post conversion being ahead of our initial expectations.

We have an extensive largely freehold property and land portfolio which has a value of £847 million in excess of nominal net debt. Our focus on lowering our net debt through selective disposals at high disposal multiples has substantially improved our loan to value ratio which now stands at 59%, down from 64% at August 2015.

The strength of the balance sheet has been significantly enhanced following the effective completion of the strategic disposal programme, and we now benefit from £235 million of cash on the balance sheet, no bank debt and low scheduled amortisation at c.£36 million per year over the next five years.

The Board will continue to review the most effective use of cash resources ahead of October 2016, being the earliest date from which we can, at Punch's option, refinance the junior securitisation notes at par.

While we do not underestimate the challenges we and our industry face in light of the coming legislative changes, the actions we have taken to date put us in a stronger position to address the structural changes impacting our market.

STRATEGIC AND OPERATIONAL REVIEW

Our strategy was updated following my appointment as Chief Executive Officer in June 2015, and communicated to the market in November 2015.

Our strategy enables us to maximise the value in our properties through a phased, lower risk approach to meeting consumer needs in an evolving pub market by taking greater control of the property and retail offer, but without the added overhead that comes with directly employing pub staff.

We have a clear set of plans which will help drive sales and profit by realising previously untapped growth opportunities and which unlock significant additional value from our under-utilised property portfolio.

Development of the Punch model

1. Deliver a clear and consistent bespoke consumer offer, relevant to each pub

In recent years we have led the leased and tenanted pub sector in dedicating resources to help our publicans deliver outstanding customer offers and service, from before the launch of their pub and throughout their first six months of trading.

More recently we have developed and trialled a small number of retail concepts through our in-house concept development and innovation team. We have exciting new concepts ready for launch over the coming months to add to the existing portfolio of retail concepts of Champs sports bar, Mighty Local community drinks led pubs, and Brewed & Baked high street coffee shop and bar. Sales uplifts on conversion of pubs over to our retail concepts have been strong and give us confidence in realising additional growth opportunities as we develop our concepts further.

In addition to developing our own brands and concepts, we recognise the need for a different approach to certain areas of our business such as premium food destination pubs and hotel sites, which require a specialised and unique operation to maximise the trading potential in these sites. Recognising this, we are working with partners such as Harry Ramsden's and Neil Morrisey to develop and expand their brands across the Punch estate.

A full update on progress in this area will be provided at the full year results.

2. Broad range of operating models in line with an evolving market

While approximately 56% of the core Punch estate is leased to publicans on long-term leases, the vast majority of agreements will be coming to the end of their lease at their next rent review or have five or less years remaining on their lease at their next rent review. Only around 7% of the core Punch estate will have ten or more years remaining on their lease at their next rent review.

In recent years we have seen a significant shift away from long-term fully repairing leases towards shorter-term tenancy agreements where the external building repair obligations remain the responsibility of the pub company. There has also been a marked shift away from fixed rent agreements towards variable turnover linked agreements.

In addressing these changing market dynamics, we have already introduced a number of new operating formats including:

§ Managed 'houses of excellence';

§ Retail contracts;

§ Commercial free-of-tie leases; and

§ Flexible short-term tenancies.

Managed 'houses of excellence':

Our first fully managed pub opened in October 2015 and we plan on having three sites operating as fully managed pubs by August 2016. While we do not anticipate building a significant managed house pub presence, these 'houses of excellence' will provide centres of training for our colleagues and publicans as well as providing support for the development of new consumer offers.

Retail contracts:

Under the Retail contract, Punch retains 100% of the sales and cost of sales (akin to a traditional managed house operation) and pub costs (excluding staff costs), and pays the retailer (the publican) a percentage of the retail sales, out of which the retailer pays their staff costs.

The Retail contract has proved to be extremely popular with prospective and new publicans and sales and profit uplifts are currently running ahead of our initial expectations. We have already identified 121 pubs available to roll-out to the Retail contract with 50 pubs open as at April 2016. We are on track to have c.100 pubs operating under the Retail contract by August 2016.

The increase in sales from these first pub conversions is expected to be between 20% and 30%, with an expected pub EBITDA of between £90,000 and £110,000, which would represent an uplift of between £15,000 and £25,000 as compared to historic pub EBITDA under the tied tenanted and leased model.

As a result of the positive results from these initial trials and the positive reaction from publicans, we now expect approximately one in three new lettings to be on the Retail contract.

Commercial free-of-tie leases:

We have a small but growing commercial free-of-tie operation with a number of fixed rent and variable turnover-linked leases in operation. As at March 2016 we had 41 such commercial leases in operation with an average rent of £72,000.

Since the start of the year we have introduced a suite of new commercial lease agreements, including profit-linked arrangements, and expect the number of such agreements to grow over time, particularly in the premium and destination food led segments of our estate.

Flexible short-term tenancies:

Given the market preference for more flexible shorter-term tenancy agreements over that of long-term fully repairing leases, we now expect the vast majority of new lettings to be on either short-term tenancies or Retail contracts.

Short-term tenancies can provide publicans with the benefit of having a six month notice term should they wish to reduce the term of their agreement, the added benefit of external building repair obligations residing with the pub company and the availability of greater operational support through our fully supported open book tenancy agreements.

3. Refocussing of management resources to drive improved support, innovation and operational delivery

Following the creation of the retail pub and commercial lease divisions which was completed towards the end of the last financial year, we have now completed a full review of our tied tenanted and leased divisions.

As a result of this review, we have created a new operating division ('Mercury') that will sit alongside the core business (which encompasses the Punch tenanted and leased pubs, Retail contracts and free-of-tie commercial leases).

Mercury will be a combination of all the pubs from the Turnaround (non-core) division; (499 pubs) and 240 lower profit pubs from the core division for which capital investment opportunities are considered limited. As such, the previous Turnaround division no longer exists.

The purpose for creating the Mercury division is linked to the recent success of the Turnaround (non-core) division, which has demonstrated the ability to deliver like-for-like growth in an estate of lower profitability sites under a reduced cost operating model.

We have a clear target to deliver like-for-like growth in this division from the end of 2017 supported by the sign-up of pubs on more flexible tenancy agreements.

Across the wider business we have a clear focus on improving customer service and have reviewed all of our key processes to ensure we put the customer (our publican) at the heart of everything we do.

4. Delivering value to our publicans through an enhanced Punch Buying Club

The Punch Buying Club continues to provide a real point of differentiation to our publicans. Approximately 75% of Punch's drinks orders are placed through the on-line buying club which compares to around 30% for the rest of the tenanted and leased sector.

In addition to supplying over 3,000 drinks brands from 660 different brewers, we leverage our Group buying power to provide a range of free services (including commercial WiFi, publican and pub staff training, marketing materials and legal helplines) and access to cheaper goods and services.

We have recently launched a scheme through the Buying Club for our publicans to benefit from the group purchase of electricity and gas supply, this scheme alone should deliver savings to our publicans of many thousands of pounds each per year.

We have continued to build on the success of our industry leading on-line buying club by evolving the Punch Buying Club and expect to include in the near-term, market information tailored to the publican's region and suggested ordering designed to help optimise the publican and Punch's margin.

5. Releasing significant additional value from our under-utilised property portfolio and land bank

We have now substantially completed the strategic disposal programme that has realised £288 million in proceeds over the last 18 months.

Moving forward our focus will be on realising additional value from the non-trading parts of our extensive freehold property and land estate, which is not currently recognised in the external property valuation.

In the half year we realised £5 million of proceeds from unlicensed property and land sales. We operate a small portfolio of unlicensed properties with a rent roll of £1.2m which we expect to grow over time as we develop additional rental income streams from upper floor areas and excess land.

While sales of core 'gold brick' properties will be scaled back, we anticipate selling up to 100 non-core pubs per year from the Mercury division.

REGULATORY CHANGES

The Government's response to the Pubs Code and Pubs Code Adjudicator consultation, which forms part of the Small Business, Enterprise and Employment Act 2015 was announced on 14 April 2016. The legislation will come into effect from 26 May this year. The legislation has three aspects, a statutory code, the appointment of an independent adjudicator and a Market Rent Only (MRO) option.

The Market Rent Only option enables some occupational lessees to elect to opt-out of the drinks supply tie at certain points during the term of their lease agreement and therefore occupy the premises on a standard commercial property lease, paying rent only.

With limited financial impact in our current financial year, in our 2017 financial year we expect up to 370 potential MRO event triggers in the core estate and up to 270 event triggers per year in the following four years. In the event that a lessee elected to invoke the MRO option, whilst our income derived from the supply of tied drinks products would be partially offset by increases in rent, we are aware of the potential for our total income to be adversely affected.

While the take-up of the MRO option will only become clear over time through the cycle of five yearly rent reviews and renewals, our current expectations are that the majority of the estate will continue to operate under, and enjoy the benefits of the tied-drinks model.

FINANCIAL REVIEW - Results for the 28 weeks to 5 March 2016:

1During the period the Group has reassessed its segments, based on how the Group's operations are reviewed and managed. The business has been restructured into Core and Mercury divisions, each having its own clear strategy. The results for the current and prior periods have been restated to reflect these revised segments.

Underlying Outlet EBITDA was down 5.6% on last year to £112.2 million, in line with our expectations and reflecting the impact of an 8.4% reduction in the size of the estate, through the strategic disposal programme, which has realised net proceeds of £288 million over the last 18 months. The disposal programme included the sale of our 50% shareholding in Matthew Clark, which provided a contribution of £3.9 million in the prior period.

Like-for-like net income (which reflects rental income and net income from the sale of drinks and other products to our publicans) in the core division, after adjusting for the impact of disposals, was 1.6% up on last year. Including the 240 pubs which were transferred to the Mercury division, the like-for-like net income growth was 0.7%.

The new Mercury division was formed in the year through the combination of all the pubs from the Turnaround (non-core) division; (499 pubs) and 240 lower profit pubs from the core division for which capital investment opportunities are considered limited. As such, the previous Turnaround division no longer exists and the prior period segmental results have been restated to reflect the revised segments.

Profits in the Mercury division have declined by £5.5 million, the majority of which, £4.2 million, is due to the disposal programme. Excluding the impact of disposals, the underlying profit decline of £1.3 million largely relates to reduced profits in the 240 pubs transferred from the core division.

While we have continued to maintain a tight control on costs, central costs have increased by £1.2 million in the period principally due to the additional resource in setting up the Retail division nationally across the UK, coupled with the creation of our in-house concept development and innovation teams.

The Matthew Clark joint venture which was disposed of in the period provided a contribution prior to disposal of £0.4 million compared to £3.9 million for the full period in the prior year.

Underlying net finance costs reduced by £6.9 million to £62.1 million, reflecting the benefit of the capital restructuring that completed on 8 October 2014, combined with the reduction in gross debt delivered subsequent to the refinancing.

Taxation:

The underlying taxation charge is based on an estimated full year effective tax rate of 19.3% before post-tax earnings from joint ventures. This compares with the UK corporation taxation rate of 20.0% for the financial year ending August 2016.

The availability of sizeable capital allowance pools amounting to c.£230 million (generated from our investment programme in community pubs) at the half year, together with other tax assets is expected to result in no corporation tax payments being due in the current year.

Non-underlying items:

A number of non-underlying items were recognised during the period amounting to a net credit of £36.3 million, resulting in a net profit after tax of £58.4 million. The principal items are set out below:

· £12.8 million profit on disposal of properties;

· £(2.2) million impairment costs;

· £46.1 million profit on disposal of the Matthew Clark joint venture;

· £(13.4) million goodwill charge on the transfer and disposal of core pubs; and

· £(15.6) million charge on the mark-to-market movement in value of interest rate swaps.

The tax effect of all of these items, together with the resolution of prior year tax matters, gave rise to a tax credit of £8.9 million.

Cash flow:

Cash flow before the benefit of the strategic disposals amounted to £17.6 million for the half year and £53.5 million for the last 12 months.

Net cash flow available for debt reduction, after including the benefit of the strategic disposal proceeds amounted to £197.7 million for the half year and £253.0 million for the last 12 months.

A small proportion of the annual interest charge is in the form of payment-in-kind (PIK) interest, which accrues and is then capitalised at each quarter end. The PIK interest amounted to £6.5 million for the half year and £12.6 million for the last 12 months.

Financing and capital structure

The nominal value of net debt (excluding the mark-to-market of interest rate swaps) reduced by £191 million in the period and by £293 million since the October 2014 refinancing to £1,215 million.

The strength of the balance sheet has been significantly enhanced following the effective completion of the strategic disposal programme, and we now benefit from £235 million of cash on the balance sheet, no bank debt and low scheduled amortisation at c.£36 million per year over the next five years.

We have an extensive largely freehold property and land portfolio which has a value of £847 million in excess of nominal net debt. Our focus on lowering our net debt through selective disposals at high disposal multiples has substantially improved our loan to value ratio which now stands at 59%, down from 64% at August 2015.

CONSOLIDATED CONDENSED INCOME STATEMENT

for the 28 weeks ended 5 March 2016

1 EBITDA represents earnings before depreciation and amortisation, profit on sale of property, plant and equipment and non-current assets classified as held for sale, profit on disposal of joint venture, impairment, movement in valuation of properties, goodwill charge, 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 5 March 2016

1 EBITDA represents earnings before depreciation and amortisation, profit on sale of property, plant and equipment and non-current assets classified as held for sale, profit on disposal of joint venture, impairment, movement in valuation of properties, goodwill charge, 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 5 March 2016

CONSOLIDATED CONDENSED BALANCE SHEET

at 5 March 2016

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY

for the 28 weeks ended 5 March 2016

CONSOLIDATED CONDENSED CASH FLOW STATEMENT

for the 28 weeks ended 5 March 2016

NOTES TO THE FINANCIAL STATEMENTS

for the 28 weeks ended 5 March 2016

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 Conduct 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 2015, and which are expected to apply at 20 August 2016.

This condensed set of interim financial statements has 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.

The comparative figures for the 52 weeks to 22 August 2015 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 (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain statements under section 498(2) or (3) Companies Act 2006.

Amendments to IAS 19 Defined benefit plans - Employee contributions: The amendments introduce a relief that will reduce the complexity and burden of accounting for certain contributions from employees or third parties. The Group has considered the impact of this amendment for the current period and future periods on profit, earnings per share and net assets. The adoption of this standard has had no significant impact.

At present, there are no other new standards, amendments to standards or interpretations mandatory for the first time for the year ending 20 August 2016. 

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

2. SEGMENTAL ANALYSIS

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

2 During the period the Group has reassessed its segments, based on how the Group's operations are reviewed and managed. The business has been restructured into Core and Mercury divisions, each having its own clear strategy. The results for the 28 weeks to 7 March 2015 and the 52 weeks to 22 August 2015 have been restated to reflect these revised segments.

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

1 During the period the Group has reassessed its segments, based on how the Group's operations are reviewed and managed. The business has been restructured into Core and Mercury divisions, each having its own clear strategy. The results for the 28 weeks to 7 March 2015 and the 52 weeks to 22 August 2015 have been restated to reflect these revised segments.

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

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

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. Included in the income statement are the following non-underlying items:

1 The movement in valuation of properties of £483.8m comprises a downward valuation of £523.8m where the fair value of an asset is less than the net book value, offset by a credit of £40.0m where the fair value of an asset is greater than the net book value and the credit reverses a previous charge to the income statement for impairment.

2 Represents the goodwill relating to those core pubs disposed of in the period and also the goodwill relating to pubs transferred to Mercury.

3 Represents the movement in the fair value of interest rate swaps which do not qualify for hedge accounting.

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

4. CAPITAL RESTRUCTURING

Completion of restructuring

On 8 October 2014 Punch Taverns plc announced the successful completion of restructuring proposals for the Punch A and Punch B securitisations. The impact of the restructuring reduced total net debt (including mark-to-market on interest rate swaps) by £0.6 billion. The Group also issued a total of 3,771,151,200 new ordinary shares in connection with the restructuring proposals, of which 1,273,005,000 was a firm placing at 3.93 pence per share.

On 13 October 2014 Punch Taverns plc announced the consolidation of its ordinary shares, as described in the combined circular and prospectus dated 18 August 2014, had become effective. As a result of the share consolidation, the existing ordinary shares in Punch Taverns plc have been consolidated into consolidated ordinary shares on the basis of one consolidated ordinary share for every 20 existing ordinary shares.

Punch A debt structure

Immediately following completion of the restructuring, the revised debt structure of the Punch A securitisation was as set out below:

1 An interest rate swap is in place to swap the Libor interest rate on the Class M3 floating rate note to a fixed rate of 5.954%

Punch B debt structure

Immediately following completion of the restructuring, the revised debt structure of the Punch B securitisation was as set out below:

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

Profit on capital restructuring

The £196.5m equity consideration comprised 2,498,146,197 shares issued at 7.86p. The firm placing of 1,273,005,000 shares at 3.93p generated £50.0m of cash to be used in the restructuring. Three new Ordinary shares were issued to the Company Secretary to facilitate a 1 for 20 share consolidation.

Further details of the debt structure of the Punch A and Punch B securitisations following completion of the restructuring can be found on the Punch Taverns website www.punchtavernsplc.com.

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

5. 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).

In the 28 week period to 5 March 2016 the FVLCS of the assets transferring into the non-current assets classified as held for sale category have been reviewed and an impairment of £1.7m has been identified. In addition, the FVLCS of assets already classified as held for sale were reviewed and an impairment of £0.5m was identified. During the 52 week period to 22 August 2015, the FVLCS of the non-current assets classified as held for sale, and the remaining assets in the wider non-core estate, were reviewed, and an impairment of £13.1m was identified, of which £9.0m had been recognised during the 28 week period to 7 March 2015.

The Group has adopted a policy of revaluing its property portfolio during the second half of the financial year ending 22 August 2015 with properties now stated at open market value and hence lease premium intangible assets are no longer separately carried, resulting in a £3.3m charge to the income statement.

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

Goodwill

Goodwill includes the synergistic benefits of operating a large pub estate and is allocated to groups of CGUs. The leased estate is organised into two groups of CGUs; Core and Mercury. No goodwill is allocated to the Mercury division given the low value of the properties in the estate and the low level of synergistic benefits.

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

6. FINANCE INCOME AND COSTS

7. TAXATION

The effective taxation charge before non-underlying items and share of post-tax profit from the joint venture is 19.3%. The effective rate of taxation for the comparative period was 21.1%.

The total tax credit of £3.7m (March 2015: credit of £3.4m; August 2015: credit of £22.6m) includes a non-underlying tax credit of £8.9m (March 2015: credit of £9.0m; August 2015: credit of £34.0m).

NOTES TO THE FINANCIAL STATEMENTS continued

for the 28 weeks ended 5 March 2016

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).

The weighted average number of ordinary shares outstanding during the prior year has been adjusted for the impact of the consolidation of ordinary shares as announced on 13 October 2014 following successful completion of restructuring proposals. The ordinary shares of 0.04786p in Punch Taverns plc were consolidated into ordinary shares of 0.9572p in Punch Taverns plc on a one for 20 basis.

As part of the restructuring proposals the Group issued 3,771,151,200 new ordinary shares on 8 October 2014, prior to the share consolidation. The weighted average number of ordinary shares outstanding in the periods leading up to the share issue has not been retrospectively adjusted for as per IAS 33: Earnings per share. The share issue resulted in an increase in cash resources and as the share issue was not offered to all existing shareholders it was deemed that there was no bonus element associated with this issue.

The adjustment to the weighted average number of ordinary shares outstanding impacts the current and prior period.

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