Nov. 4 (Bloomberg) -- Punch Taverns Plc, the U.K.'s largest pub owner, posted an annual loss as Britain's slumping economy forced the company to write down property values and cut rents, and said sales were ``challenging'' in September and October.

The net loss was 64.7 million pounds ($101.5 million), or 24.2 pence a share, in the 53 weeks ended Aug. 23, the Burton- Upon-Trent, England-based company said today. Punch had a so- called impairment charge of 295 million pounds and a 31 million- pound charge for interest rate swaps.

The shares fell 7.3 percent in London. Like main competitor Enterprise Inns Plc, Punch leases most of its pubs to managers who run the properties, and assistance to those tenants rose to 14 million pounds, including 6 million pounds of rental discounts. Chief Executive Officer Giles Thorley said the company will dispose of 500 more pubs over the coming years.

``Visibility on 2010 numbers remains poor,'' Tej Randhawa, an analyst at Merrill Lynch & Co. with a ``buy'' recommendation on Punch, said in a report today. He cut his earnings-per-share estimates by 9 percent, citing falling rents and beer sales.

Punch also said it expects above-inflation cost increases of about 8 million pounds in the next fiscal year as a result of higher prices for gas and electricity. The pub industry has suffered as England imposed a smoking ban in 2007, expenses rose and more drinkers opted to stay home with discounted beer bought from supermarkets.

The full-year loss compared with a profit of 278.4 million pounds, or 101.2 pence, in the previous 12 months. Pretax profit before one-time items fell 7 percent to 262 million pounds. Annual revenue fell 8.4 percent to 1.56 billion pounds.

Stock Slides

Punch fell 13.5 pence to 170 pence, paring gains of more than 50 percent during the last four trading days. Today's decline was the fourth-biggest in the FTSE All-Share Index.

Punch remains confident that it will be able to repay 224 million pounds of convertible bonds due in 2010, Thorley said today. Gross debt was 4.5 billion pounds at the end of the year, down 7.5 percent from March 1. The company is trying to whittle away debt that's 10 times more than its market value, and scrapped its dividend in September to help fund bond buybacks.

The impairment charge is ``a pragmatic response to the current difficult climate,'' Deutsche Bank AG analyst Geoff Collyer said in a note. ``The best news is that it now looks almost certain that Punch will be able to repay the convertible on time.'' Collyer has a ``hold'' rating on the stock.

Loan Outlook

Volume sales of beer dropped 7.2 percent in the third quarter, the British Beer and Pub Association said in October. In the year to September, sales fell 9 percent in bars, pubs and restaurants, while increasing 2.1 percent in stores and supermarkets, according to the industry group's figures.

Punch saved about 21 million pounds last month by buying back almost a quarter of a class of convertible bonds for 49.5 million pounds. It also offered during the month to repurchase debt in two different classes of bonds.

The pub owner has renewed a 50 million-pound bank facility until 2010 and said today it had maintained ``significant headroom'' in its so-called financial covenant tests.

Punch owns 8,424 pubs, of which 7,560 are leased out and 864 managed by Punch. Rental growth at pubs open at least a year slowed to 2.1 percent in the year from 4.2 percent in 2007.

Punch has identified 500 pubs to be sold in the next few years to improve the quality of its outlets, the CEO said. The properties generate about 10 million pounds of profit.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

Last Updated: November 4, 2008 11:57 EST