Analysts have predicted that at least 10,000 pubs - about one in seven - will be forced out of business by the turn of the century.
'The fall-out from the ill-judged Beer Orders imposed on the industry in 1989 continues to affect all companies in the beer and pub trade,' said Sir Paul Nicholson, chairman. 'We predicted that the consumer would suffer a reduction in choice of pubs and beers and an increase in prices. These processes are continuing, with stability still a long way off.'
He said there were signs of consumer resistance to beer prices. A pint of bitter in a Vaux pub costs pounds 1.25, and the pressure on prices is rising: male unemployment in the company's home town of Sunderland is set to jump from 16 to 19 per cent.
In addition, the company is feeling the effects of the price war raging between the big brewers on wholesale beer as they attempt to win market share.
Frank Nicholson, managing director of Vaux Breweries, described the discounts of pounds 75 to pounds 100 a barrel offered by brewers such as Bass and Courage as 'suicidal'.
Despite the problems in the brewing industry and the pub trade, Vaux yesterday reported a 7.1 per cent increase in pre-tax profits to pounds 26.6m, excluding the previous year's property deals, in the 12 months to 30 September.
Profits, after including property transactions, other disposals and asset write-downs, climbed 31 per cent from pounds 20.4m to pounds 26.6m.
Sir Paul, though, is cautious about prospects. 'It's tough out there, particularly in the North. We think we are doing as well as anyone, and if the economy picks up we are well positioned.'
Vaux's 994 pubs, of which 866 are tenancies and the rest managed, lifted trading profits by 3.4 per cent to pounds 4.9m. The value of the pub estate has been written down by pounds 6m to pounds 160m.
The Vaux and Wards breweries turned in a stronger performance, producing 575,000 barrels and lifting profits by 10.2 per cent to pounds 21.5m.
Swallow hotels made pounds 13.8m, up from pounds 12.4m, despite continuing to suffer from almost monthly swings in occupancy levels. Average occupancy rose by 4 percentage points to 62 per cent, but the decline in nightly room rates was restricted to 2.6 per cent to pounds 40.50.
The 22 residential homes, trading as St Andrews, increased profits by 12.1 per cent to pounds 4.6m. Six more homes are under construction.
Vaux's results were in line with analysts' expectations and the shares firmed 1p to 280p. The final dividend is 6.25p, up from 6.1p, lifting the total payout by 1.6 per cent to 9.5p.
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