Further supplementary evidence from Punch
Further to my letter of 11 December, I am now
enclosing a follow up note to some of the questions as requested
at the evidence session on 9 December.
These relate to the following:
Question 280 on leased and managed
Question 217 on evictions.
Question 258 on telephone costs.
Question 261 on Brulines equipment.
Please let me have any other questions and also
let me have the detail of any of the 12 complaints from Punch
licensees that you are able to let us see.
As I mentioned in my letter, we would be only
too pleased to arrange some visits for any members of the Committee
so that you can see the pub trade first hand.
280 FROM THE
Q280 Mr Binley: "|your statistics suggest
that the difference between leased pubs and managed pubs, and
I have already made the point about the difference in size of
business, that the leased pub is, on average, about 11.5% of the
take of the managed pub, but I said that the difference between
2006 and 2007 with regard to take is that take is up in tenanted
pubs by 6% and in managed pubs by 10%, but the profitability has
shown a 5% increase in the tenanted estate, but a 20% drop in
the managed estate|." Now, this suggests to me that either
your DMs or your area managers are a total waste of time or you
have got some special costs in there that I do not understand
or you have had a massive improvement with your tenants in your
tenanted estate. My concern is that, if this is used in discussions
on rent reviews, then we do need to understand that difference
because it is an important piece of evidence.
Mr Thorley: "|What I would say though is
that in terms of the profitability of the leased and tenanted
pubs, the number which I do recognise, the 5% increase, reflects
the fact that over the course of the last few years we have sold
more than 2,500 pubs as part of the evolution of our business."
1. Take of Leased pub 11.5% of Managed pub
With reference to our statutory accounts, from
which we believe this statistic was calculated, it should be noted
that the turnover shown for our Leased estate, does not represent
the retail sales of our customers, it merely represents an element
of the drink cost of goods inwards to our customers, and other
income streams to Punch, for example the rent payable by our customers.
(It should also be noted, that the cost of drink sales for our
customers, is often made up from a variety of different suppliers,
for non beer and sometimes cider, alongside Punch). The turnover
for our managed estate, does relate to retail sales over the bar.
Therefore the two numbers are not comparable. Attached is a breakdown
of our income from our statutory accounts to August 08 (Appendix
A), and alongside this, we have shown two typical "average"
retail P&L's for our customers (Appendix B). We hope this
goes some way to help illustrate the different structure of the
AVERAGE PUNCH P&LPER 2008 PRELIMS,
(53 weeks converted pro-rata to 52)
||*(works out to approx 74% of the example customers COS, with 26% of wet COS sales "free")
||£113,312||53 week prelims average
Total Gross Profit
||£74,353||53 week prelims average
||£64,712||53 week prelims average
||£61,939||53 week prelims average
ILLUSTRATIVE LESSEE RETAIL P&L'S
We believe the average profitability of our customers is
c£29k, and with an "allowance" taking into account
the estimated value of accommodation, would deliver the equivalent
"salary" of c£38k. The diagram below illustrates
the relative investment risks and returns of the partnership.
2. Take is up 6% in the Leased Estate, and 10% in the
Managed Estate, whilst profitability in the Leased Estate has
grown by 5% with a drop in the Managed estate of -20%
The leased estate has changed in profile quite dramatically
when comparing the year to August 08 with the year to August 07.
Within our estate, between the two years, we disposed of 973 smaller
pubs, and transferred 583 larger pubs from our managed estate.
With a published "like for like" profit decline of -3.4%
(shown in our preliminary results presentation on our website),
the entire growth in average per pub profit growth has come from
the changing shape of our estate. On average our customers now
have larger pubs, with larger profits than those pubs/customers
we were in partnership with last year. It should also be noted,
that the 5% profit growth shown above, relates to a 53 week year
compared to a 52 week year, the equivalent is 52 week comparison
is 4% growth.
Leased Pub Numbers
Start of Year
|End of Year||4,302
The managed estate has similarly undergone a significant
change in composition between the two years. At the start of FY07
there were 1,410 managed pubs. During the course of FY07 and FY08,
94 pubs were acquired, 583 were transferred to lease and 57 were
sold leaving a closing estate of 864 pubs.
On average 870 pubs were operated during FY08 compared to
1,191 pubs in FY07, a reduction of 27%. The pubs operated in FY08
are generally larger with average sales 10% higher than the FY07
estate, as you have noted. This does not, however, mean that they
were growing sales. Indeed on a like for like (same pub) basis
sales were down 3.3%.
The average operating profit per pub was 17% lower in FY08.
This has similarly been impacted by the change in the make up
of the estate. The retained estate is more biased towards food,
38% of sales related to food in FY08 compared to 33% in FY07.
It also contains a higher proportion of leasehold pubs, average
rent payable was £45k per pub in FY08 and only £38k
in FY07. Both these factors result in lower profit conversion
in the retained estate.
217 FROM THE
With respect to the answer given to Q217 "how many tenants
have you evicted in the last three years?" At the time, we
were unable to provide the answer. We have now reviewed our records
and can confirm that between 1 January 2008 and the 12 December
2008, the number is 109.
258 FROM THE
With respect to the answer given to Q258 "You operate
premium-rate telephone lines for tenants which means effectively
that they have to pay for their particular concerns, queries and
discussions with you. What is your comment? How much do you make
We would like to clarify the answer as follows:
Answer: This is not correct. We currently operate a 0844
number that costs 4p per minute (national landline rate) to call.
Obviously, as with all numbers this cost can vary dependent on
the operator of the line or mobile used by the caller. Punch do
not make any money on this phone line and any volume based, retrospective
discount (up to 0.9p per minute) our provider may provide, would
go towards the cost of us providing a national landline rate for
our customers. However, we do not receive this discount if our
provider's volumes are not met within a full calendar year,
Question: Well, we have been told that.
Answer: We did have an 0870 number which was more expensive
to call, but changed this six months ago to the 0844 number (as
above) so that we could reduce the costs for our Customers. The
volume based, retrospective discount that we negotiated with our
supplier is aimed at keeping our operating costs as low as possible
whilst providing an effective support facility for our Customers.
261 FROM THE
Question: Could we have a technical note on that [Brulines
equipment distinguishing the flow of beer vs pipe cleaning water]
rather than spend time on it now?
Answer: Please see the attached two files containing a line
cleaning overview and examples of the process.
Line cleaning process within the Brulines draught dispense
1. Line cleaning is a practice where water and detergent
are drawn through the beer lines to thoroughly clean them.
2. It is standard accepted industry best practice to
clean all beer lines once a week.
3. By far the most common method of line cleaning is
for the process to be done in a single session outside the normal
trading hours of a pub utilising the line cleaning water ring-main.
4. During this process the licensee will draw the water
used during line cleaning through the equipment provided by the
brewery for this purpose. This equipment which allows all lines
to be cleaned simultaneously is generally a hose which has a number
of keg connectors inserted along its length (this equipment is
generally referred to as the line cleaning ring-main).
5. To identify when water and line cleaning fluid is
used to clean the lines, Brulines install a flow meter in the
line cleaning water ring-main. Unlike the flow meters installed
in the individual beer lines which are calibrated to exact volumes
of beer dispensed, the meter on the ring main is not calibrated,
its purpose is to detect movement not volumes.
6. There are two other methods of line cleaning that
Brulines may have to identify in a public house. These are used
on cask beers or when the water ring main is not operational.
(a) The licensee may clean the lines by drawing water from
another source, most commonly a bucket or other container. If
a licensee is cleaning with detergent this will most commonly
be on one or a number of specific lines (normally cask) and will
generally be done outside trading hours.
(b) The licensee may also occasionally draw water through
the lines during trading hours, this method does not normally
involve the use of a detergent, it is generally done on cask lines
and is not normally a full clean. It is called a "flush through"
and is the process whereby the licensee will draw through a volume
of water (normally one or two buckets) between change of casks.
7. During the line cleaning process it is normal for
three liquid types to be drawn through the Brulines beer flow
meter and the volume detected by that meter. The Brulines meter
does not differentiate between the liquid types. It will record
the total volume of liquid dispensed through each individual meter
in each hour time period.
8. The different liquids drawn through the beer meter
on a standard clean include water, beer and detergent. A standard
beer clean on a beer line would include the following volumes
|Beer held in the line
||Water (also recorded through ring main)
||Line cleaning solution||Water (also recorded through ring main)
9. As the flow meter does not distinguish the difference
between beer, water or line cleaning detergent, all volumes recorded
in the hour of an identified clean are removed. This will mean
the benefit of any doubt on the exact volumes of beer or water
used in the clean are counted in the benefit of the licensee.
10. The dispense volumes from each Brulines installation
are downloaded by Brulines each week, the Brulines in-house software
then scans all the volumes which have passed through the line
cleaning flow meter and the beer meters. It either automatically
identifies certain volumes as cleaning or highlights these events
for manual review.
11. The Data Auditor then evaluates all items raised
for manual review and identifies all volumes that would be considered
line cleaning. The auditor always takes a cautious view during
this review to ensure that any decision is always in the benefit
of the licensee in respect of liquid identified as water in the
line cleaning process. If any volumes are suspected as line cleaning
they are identified as water, all water volumes are transferred
from the beer table to the water stack table.
12. It is a feature of the Brulines data, that none of
the data is lost in the line cleaning process. The liquid flows
identified as line cleaning remain as dispense volumes and are
transferred to another data table called "the water stack
table". This means whilst they are not reported upon in any
beer dispense reports, they are retained so there is a clear audit
trail to the original data downloaded from the system.
13. The events identified by the Brulines system are
(a) If there is any volume detected on the water line in excess
of 5 pints in any hour outside normal trading hours (midnight
to midday), this volume and any dispense volumes on any beer lines
are automatically removed from the beer volume tables and stored
in the water stack tables.
(b) If there is any volume detected on the water line in excess
of 5 pints in any hour during normal trading hours (midday to
midnight), this data is flagged for manual review by the auditor.
If the auditor considers these volumes to be line cleaning, they
are highlighted and removed from the beer volume tables and transferred
to the water stack tables.
(c) If there is any volume detected on any beer keg lines
in excess of 15 pints in any hour, outside normal trading hours
(midnight to midday), this data is flagged for manual review by
the auditor. If the auditor considers these volumes to be line
cleaning, they are highlighted and removed from the beer volume
tables and transferred to the water stack tables.
(d) If there is any volume detected on any beer cask lines
in excess of 10 pints in any hour, regardless of the trading hours,
this data is flagged for manual review by the auditor. If the
auditor decides any of these volumes are cleaning, they are highlighted
and removed from the beer volume tables and transferred to the
water stack tables.
14. Examples of this data and how it is applied to the
beer tables and the water stack tables are enclosed on the attached
appendix (not printed here).
15. The final check is that following line clean the
auditor reviews each site every day for unusual volume flows or
suspected dispense in excess of delivered beer volumes. Any such
activity will be investigated. If there are any volume movements
that look like they may be line cleaning activity then these volumes
are transferred to be stored in the water stack table.