Splitting its operations will help pub giant punch above its weight

PUNCH Taverns, Scotland's largest pubs operator, yesterday confirmed it will trade as two separate groups from next month in a major shake-up to deal with its huge debts.

Under the restructuring, the Staffordshire-based group's Chef & Brewer and Fayre & Square managed outlets - the better-performing part of the business - will be moved into a new pub business, Spirit.

Spirit will have an initial 1,372 pubs, all focused on the fast-growing eating-out sector of the market, and will be headed by current Punch chief executive Ian Dyson.

Dyson said the split, which roughly divides the group into its managed and tenanted portfolios, will enable it to invest in growing its managed pub estate.

The focus of the remaining Punch operation will be to reduce the tenanted business from its current estate of 5,080 to a core of 3,000 quality pubs through the disposal of 2,000 pubs over the next five years. The separate managed and leased businesses will begin trading on the 1 August.

Dyson, who joined Punch in September last year from Marks & Spencer, said the aim was for Spirit to resume dividend payments next year. Punch has not made a payment to shareholders since 2008, when the recession that followed the credit crunch exposed the weaknesses of its debt-fuelled expansion charge.

The group, which has 400 Scottish outlets including the Malt Shovel in Edinburgh and Glasgow's Beechwood, still has debts of about 3.1 billion, despite a steady disposal programme that saw almost 900 pubs sold last year.

As part of the demerger, Spirit will take on debts of about 800 million, while 2.3bn will remain with Punch.

Analysts broadly welcomed the move. Paul Hickman at Peel Hunt said he believed it was "a good solution to what looked like an intractable problem only six months ago".

Greg Johnson of Shore Capital believes the move also presents investors with opportunities.

"The proposed demerger of Spirit allows investors to focus on the attractive 800-strong managed pub business. Not only is the food-led operation well positioned structurally, we believe that there is significant scope for margin recovery after several years of underperformance."

Last month the company reported that it had benefitted from good spring weather which had pushed up sales across the group. Like-for-like sales across its managed pubs climbed 7.3 per cent in the 12 weeks to 28 May and the company said the good weather had "undoubtedly helped trading".

Shares in Punch closed down 0.65p at 73.35p.