Punch feels the pinch

Tough times for Punch Taverns has seen the pub group announce a 23% fall in pre-tax annual profit this morning.

The economic environment has badly affected the British pub company, which has already cut over 20% of its premises in the UK, bringing the number of pubs it runs down to 4000. The company has done this in conjunction with a concerted effort to tackle its debt. Currently Punch Taverns has around £2 billion of debt, and over the course of 2012 it was able to chip away £122 million from that figure. But with the financial state of the UK population still fragile, it will be difficult to increase this rate of change.

Ultimately, the biggest issue that Punch Taverns has to deal with is the dwindling spending power of UK consumers. Inflation has been steadily moving higher and income growth has stagnated. This essentially means that there is less money around to be spent in pubs. Against this fiscal backdrop, the firm has announced it will be publishing a fresh company plan before the end of 2013. It currently envisages returning to a 1% growth rate in income by 2014, which is not the sort of message that will inspire the markets.

In the first half-hour of trading the shares are off 7.5%. Punch Taverns has not recommended a final dividend for 2013, and it will not recommend a dividend structure until there is some improvement in the current economic environment.

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