PUBS group Punch Taverns yesterday posted a fall in annual profits and warned of continuing uncertainty in the outlook for trading.

But Punch, which owns around 6,700 leased, tenanted and managed pubs, said “good progress” had been made in strengthening its balance sheet, and an improved trend in trading seen during the final quarter had continued into the current year so far.

Punch reported a headline pre-tax profit for the 52 weeks to August 21 of �130.8million, down from �160.4m the previous year, while at the bottom line there was a loss of �159.1m, resulting from exceptional charges of �289.9m.

These included a �218million impairment charge relating to a write-down in the value of more than 1,300 low-performing pubs identified as non-core which are likley to be sold in the next five years.

Proceeds from disposals during the year totaled �299m and net debt was reduced by �322m during the year to �3.143billion.

Punch said that, for the second year running, the UK on-trade had seen significant decline in beer volumes due to the combined effect of the smoking ban, rising alcohol duties and the wider economic climate. “This volume reduction has been more acute in smaller drink-led pubs where profits have reduced substantially and compromised their sustainability,” it said.

“In response to these market conditions we have taken a series of decisions to stabilise the business.

“We have reduced our debt levels, focussed on a smaller higher quality estate and implemented operational strategies across both sides of the business.

“Some of these decisions, such as increasing financial support to our lessee partners and limiting beer price increases, have put pressure on our short term profitability but will, we believe, help provide the platform for improved profitability in the longer term,” the group added

Punch said it had “continued to evolve” the business model for its leased properties with the aim of achieving long-term sustainable value creation for itself and its tenants.

Support for tenants was now running at just under �2m per month, up from an average of �1.6m a month the previous year, and price rises for a majority of beers had been restricted to an average of 1%, against wholesale market increases of around 3%.

“We are beginning to see the benefit of this assistance with the number of pubs returned from our partners being almost half the previous year’s level,” Punch added.

Recently appointed chief executive Ian Dyson said yesterday: “While we have been encouraged by more recent trends in both the leased and managed business, the economic environment is very difficult and there remains room for improvement across all aspects of our business.

“I have started a comprehensive review of our strategy, operating performance and capital structure with a view to explorting options to create value for our shareholders.”

The Punch estate includes more than 100 pubs in Suffolk and north Essex, largely as a result of the group’s acquisition in 2003 of Pubmaster which included many properties formerly owned by Ipswich brewer Tolly Cobbold.

Mark Francis, area operations manager for Punch in East Anglia, said that the past year had been one of significant change for the group, with a stronger focus on creating value from its higher quality pubs.

There had also been an emphasis on attracting new entrants to the pub trade, including opportunities to take over turnkey “ready for business” operations, a Buying Club enabling tenants to benefit from synergies from purchasing online and a sector-leading code of practice.