PUNCH Taverns has announced a sharp drop in half-year profits, with the recession and successive increases in alcohol duties combining with the continuing impact of the smoking ban to take their toll on the struggling pubs sector.

PUNCH Taverns has announced a sharp drop in half-year profits, with the recession and successive increases in alcohol duties combining with the continuing impact of the smoking ban to take their toll on the struggling pubs sector.

Punch, the UK's biggest pub owner with an estate of more than 8,300 leased, tenanted and managed houses across the country, reported a pre-tax profit, before exceptional items, of �82million for the 28 weeks to March 7, down from �133million at last year's half-way stage.

However, exceptional charges of �184million, including a �147million impairment charge relating to the value of its pubs, resulted in a bottom-line pre-tax loss of �122million.

Punch - whose estate includes more than 150 pubs in Suffolk and north Essex, where trading was said yesterday to have largely mirrored the national picture - described the results as “in line with management expectations”.

The group said there had been tentative signs of improved trading conditions so far during the second half, but it remained cautious about the short-term outlook.

However, it said that strong cash generation had enabled it to reduce its gross debt by �318million, or 7%, since the start of the current year, while asset disposals totalled �91million, in line with book values.

Punch added that the repayment of debt had helped “maintain headroom” against its financial covenants and it had no refinancing requirements before December 2010.

Chief executive Giles Thorley said: “Given the ongoing challenges in the external operating environment, I am pleased to report that we remain on track to meet our expectations for the financial year.”

However, he added: “While we have seen a modest improvement in our performance since the half year, the weak UK consumer environment is likely to persist throughout the remainder of the year. Consequently, we remain very cautious over near-term trading prospects and we will continue to focus on taking prudent steps to further strengthen our balance sheet.”

Mr Thorley dismissed recent criticism of the power of large pub companies over their licensees as “a divisive, non-productive distraction from the core underlying issues” which “ignores the impact of the recession, tax and regulation on small businesses like pubs”.

Ian Ronayne, Punch's regional operations director for the south and south east, said the “bigger picture” was the Government's failure to recognise pubs as small businesses and as a fundamental part of the country's heritage and culture.

The recession and the smoking ban were making it hard enough for pubs without the impact of the 18% increase duties imposed by the Government over the past year, with a further 2% increase announced in last week's Budget, he added.