Punch Taverns plc 2007 Annual Report and Financial Statements

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Business review Current industry issues Smoke free We hold the view that the smoking ban will have a positive effect on the industry in the medium to long-term. However, it is too early as yet to evaluate any impact of the smoking bans introduced in England and Wales earlier this year. Our experience from Scotland is that a full year's trading, including the winter period when the smoking pubgoers’ resolve will be tested, is needed in order to establish any long-term trends. Nevertheless, our Scottish pubs have now returned to growth and we are fully prepared in terms of smoking solutions in our managed and leased businesses in England and Wales. The ban has provided the industry with an opportunity to attract a different customer base which is reflected in the growth in food sales, up by 6% (to 38% of sales) in 2007 within the core managed estate. Moreover, we have received considerable feedback from our retailers about the improved environment and the positive reaction of customers. Pubs – the home of responsible drinking The British pub is one of the few remaining components unique to the UK’s social culture and yet it is constantly being put under pressure by misguided challenges. We are strongly of the view that the pub is the best place for responsible adults to socialise and enjoy great food, drink and entertainment. We believe that the government should recognise this and make positive efforts to protect the pub industry. However, as the largest operator of pubs in the UK, we also recognise our responsibility to lead on managing issues such as antisocial behaviour and underage drinking. There is a need as an industry to ensure that all pubs trade responsibly and we therefore actively support initiatives such as ‘Challenge 21’, ‘Best Bar None’ and local pub watch schemes. We are also about to introduce a risk assessment review on a pub by pub basis, developed by the British Beer and Pub Association (BBPA) for the industry as a whole, and we will continue to work constructively with local authorities, police forces, government, industry bodies and our retailers and pub managers continue to raise standards within the industry. Changes to legislation The Group operates in an industry which is, and may be in the future, subject to significant changes in many areas of government regulation and legislation. The Group may be significantly affected by changes, which may be outside of its direct control; such as extension of the smoking ban to outside areas, changes to the legal age of drinking from 18 to 21, introduction of alcohol disorder zones, changes to licensing regulations or costs and other financial regulation changes such as rates of taxation. The Group monitors regulatory developments and works very closely with all parties to support industry initiatives. Attracting and retaining the right people Recruiting and retaining good quality people is fundamental to the success of the Group. Competition is strong for retailers with both the financial resources and commercial acumen. The leased business continues to review ways to attract high calibre retailers to our business model by offering in-pub support and Operating strategy Our operating strategy continues to focus upon delivering a high quality pub experience to each of our customers. EFFICIENT INVESTMENT HIGH QUALITY PUBS PROPERTY DEBT RUN SUPPORT CAPABILITY WELL 4 www.punchtaverns.com
award winning training. Our managed business, with its market leading training and competitive remuneration, helps to ensure our pubs are staffed by highly skilled individuals. Succession planning and leadership programmes exist within our head offices to retain the best talent and develop potential leaders for the future. Consumer spending trends The economy has a significant impact on consumer spending levels and any adverse changes to general economic conditions may limit the amount of disposable income for leisure activities, such as visiting the pub. Seasonality and weather also impacts consumer expenditure in our pubs, with the summer and holiday periods, including Christmas and New Year, being busy periods of trading for the Group. Thanks to the quality of our pubs, we are well positioned to make the most of difficult trading times. Hannah, a Team Player at the Fradley Arms, wearing her Challenge 21 badge. p20 More information on how we manage our business risks can be found on page 20 A smoking solution at The Gateshead Arms, Gateshead. High quality pubs We enhance the quality of our customers' environment by continually investing in our key concepts within the managed business, whilst at the same time we have a programme of investment in conjunction with our retailers in the leased business. We also continue to improve the overall quality of our estate by acquiring new pubs and disposing of those that are less sustainable in the long-term. Well run We don’t just invest in property, we invest in people and by recruiting the highest quality Retailers, Pub Managers, Deputy Managers, Chefs and Team Players we maintain our competitive edge. We have robust recruitment procedures and only employ people who share the same passion for pubs as we do. Efficient support capability We provide our teams and our retailers with an extensive support network through our operations team and central support services. We offer award winning training and provide recognition where it is due. In our Punch Taverns leased business we want to create a shared vision with our retailers and add value to their business. In our Spirit managed business we want to drive high standards and create the most compelling offers for our customers. Financing strategy The overriding objective of our financing strategy is to continue to maximise the long-term shareholder value of the Group. Our strategy to date of investment and acquisition has delivered excellent returns for shareholders. The property component of our business is a highly valuable constituent of the model and supports the use of long-term amortising investment grade debt which has continued to demonstrate its robustness during a period when financial markets have tightened. Punch Taverns plc Annual Report and Financial Statements 2007 5
Page 1 and 2: Passionate about our pubs Punch Tav
Page 3 and 4: Punch Taverns: Our Punch Taverns le
Page 5 and 6: Operational highlights • We conti
Page 7: Managed estate: We have significant
Page 11 and 12: Operational review Overview The fin
Page 13 and 14: Whilst the leased and managed estat
Page 15 and 16: Passionate about our people ATTRACT
Page 17 and 18: Corporate social responsibility Com
Page 19 and 20: Our ‘NITA’ award winning retail
Page 21 and 22: Results for the year The financial
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Page 37 and 38: Introduction This report has been p
Page 39 and 40: Annual bonus Policy: maximum bonus
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Punch Taverns plc Annual Report and
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2 Segmental analysis The primary se
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3 Analysis of expenses The followin
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7 Employees and Directors continued
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9 Earnings per share continued The
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12 Goodwill and intangible assets O
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14 Trade and other receivables 18 A
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15 Deferred tax continued Company F
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20 Financial liabilities continued
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25 Share-based payments continued D
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25 Share-based payments continued S
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27 Other reserves Group Equity comp
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28 Net debt continued (c) Reconcili
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30 Disposals On 17 September 2006,
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31 Pensions and other post-retireme
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31 Pensions and other post-retireme
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32 Operating lease commitments - mi
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34 Related party transactions conti
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Five year financial record Group tr
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The paper used in this report is fu
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Punch Taverns plc 2007 Annual Report and Financial Statements

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