Punch Taverns sees leased pub profits fall 12 per cent

Profits across Punch Taverns' leased and tenanted pub estate have slumped 12 per cent in recent months, despite "improved trading" over Christmas.

The size of the decline surprised some, with many in the City expecting a fall in profits of around five per cent.

In an interim management statement today Punch revealed that its leased and tenanted business had witnessed a double digit fall in beer sales in the 20 weeks to January 10, 2009, which accelerated the profits decline.

Punch said it was quadrupling the level of monthly rental concession and product support for licensees to £1.6m, but that capital expenditure for the year would fall £20m, from a previously predicted £50m to £30m.

Across its managed estate, Punch said sales had seen some improvement against the second half of the previous year. Like-for-like sales were down 2.5 per cent in the first 20 weeks, boosted by Christmas and New Year trading, up 1.9 per cent on last year.

The group said it had pumped £25m into improving a number of its managed estate's underperforming formats, including Chef & Brewer, although as with the leased business, capital expenditure for the year would be cut, down £15m to £55m, versus previous estimates.

Punch said it would look to free up cash to pay off some of its £4.5bn debt, with cost-saving initiatives and disposals of non-core assets helping boost the balance sheet.

The group warned that "difficult trading conditions were likely to persist for the foreseeable future and we remain extremely cautious over the near term".

The City took a dim view of Punch's numbers, with one finance expert describing the numbers as "ghastly".

One analyst, Douglas Jack of Numis Securities, downgraded his 2009 earnings forecast for Punch by a whopping 28 per cent.

Alex Paterson of Liberum Capital said: "The poor leased and tenanted performance should outweigh relatively stable trading in the managed business, particularly as margin pressure continues due to changing mix and as rising utility bills and regulatory costs and this is likely to drag Punch down.

"It also bodes poorly for Enterprise Inns and we would not buy either until there was evidence that demand was rising and that the financing requirements and covenants can be met."

Meanwhile Punch executives are likely to face a grilling from the group's shareholders as its hosts its annual general meeting in London today.

Investors will want to know how the pubco plans to reduce debt and improve trading performance. They also harbour concerns about the pay packages of a number of the group's senior directors