UPDATE 2-Brewer Fuller's sales growth slows, warns on trading

(Adds CEO, analyst comment, share price)

By Matthew Scuffham

LONDON, June 6 (Reuters) - British pubs operator and brewer Fuller, Smith & Turner (FSTA.L) said sales growth had slowed and it faces the toughest trading conditions in memory, sending its shares down nearly 7 percent.

Fuller's, which has over 360 pubs in the UK, also reported adjusted pretax profit for the year to March 29 of 23 million pounds ($45 million), up from 22.1 million in 2006-07 and ahead of the average forecast of 22.9 million according to a Reuters poll of three analysts.

Like-for-like sales at Fuller's managed pubs were up 3.2 percent, implying a slowdown in the fourth quarter as sales in the first 43 weeks had risen 4 percent.

The trend continued in the first nine weeks of the current year, in which comparable sales grew 2.4 percent. Like-for-like sales in the tenanted business increased 0.3 percent.

Pubs in the UK have been hit hard by economic worries, forcing consumers to cut back on spending while also facing rising costs, a hike in beer duty, and a smoking ban.

"The outlook is not that good. It may well be one of the toughest years many of us can remember. The consumer is clearly being hit by inflation and the (rising) cost of their mortgages," Turner said in a telephone interview with Reuters.

However, operators at the top end of the market such as Fuller's and rival Young and Co's Brewery Plc (YNGa.L) have proved more resilient with their customers so far less affected by a weakening economy.

"Whatever the effects are on other people, they will be less on us," said Turner.

Fuller's also runs the last remaining big brewery in London, making beers including London Pride, Discovery, and ESB. Its own beer volumes rose 4 percent over the year.

Turner warned the current inflationary pressures in the UK, particularly on grain, food, and energy, were both pushing up its costs and squeezing customers' disposable incomes.

However, he said the company intends to maintain its gross margin by passing on the increases to customers.

"If we continue to invest and give the consumer a fantastic experience the consumer will be prepared to pay for that. If we don't and the pubs look dowdy, they won't," he said.

Fuller's said its gas and electricity costs alone will rise by at least 1.2 million pounds this year if prices remain at the current level, having already risen by 600,000 pounds over the past year.

Despite rising cost pressures, Fuller's plans to spend about 16 million pounds on its pubs estate this year, as it looks to maintain its status at the top end of the market.

At 1000 GMT, shares in Fuller's were down 6.8 percent at 545 pence. Before Friday, shares had outperformed the FTSE All Share Travel & Leisure Index .FTASX5750 by 12.4 percent this year, as its premium offering enabled it to outperform competitors.

Panmure analyst Douglas Jack trimmed his full-year pretax profit forecast by 2 percent to 23 million pounds due to the higher utility costs but kept his 'buy' recommendation and 675 pence price target unchanged, highlighting the business's low gearing and premium positioning.

Fuller's is paying a final dividend of 6.9 pence, making a total dividend of 9.7 pence, up 7 percent. (Reporting by Matthew Scuffham; Editing by Erica Billingham and Sue Thomas)