Charity: Regent finds out just how tough it can get

Up-for-sale Regent Inns has been as hard hit as any by worsening market conditions.

Revealing a 66% drop in first-half profit last week, the company pointed to rising costs, consumer weakness, the effects of the smoking ban and the new licensing regime clipping high-street sales.

But other factors are proving a drag on performance. Old Orleans, the 31-strong restaurant chain acquired from Punch by Regent Inns for £27.4m in October 2006, has been slower in the turnaround than might have been expected.

Regent, according to its 2007 annual report, planned to spend between £4m and £5m refurbishing 20 of the sites.

In October, the company reported it had spent £250,000 per site on eight sites, plus bigger, unquantified spends, on mega-sites Thurrock and Lakeside.

Last week, the spend on 10 sites, aside from mega-sites, had come to £350,000 per site, already bringing total spend to almost £5m.

But how's trading? In October, executive chairman Bob Ivell reported sales up by 20% and 30% at eight refurbished sites - more at Epping and Thurrock.

Last week, though, Regent reported that 10 refurbished sites, excluding Thurrock and Epping, had "achieved an increase in average weekly sales of 17.4% relative to non-refurbished sites". No comparison to the year before, just to unrefurbished sites that may have cratered.

It looks like a lacklustre result.

Regent said it thought refurbished venues "will continue to outperform non-refurbished sites". You'd hope so - and that the investment will show results in the second half.

One worry must be that the £5m capital expenditure on Old Orleans sites meant Walkabout, Regent's drive brand, had been neglected.

Just under £4m was spent by Regent in its first half on smoking solutions and the roll-out of a better till system.

The capital expenditure exceeds the £3.2m incurred in the first half of last year, but some sites have been looking a bit shabby. Sales across the brand are down to £35,000 per venue per week from £39,000 a year ago.

If I was a Regent shareholder I'd be concerned that executive chairman Bob Ivell is reported to have had "approaches" about leading an alternative bid for Mitchells & Butlers.

He has declined to rule out getting involved, saying: "I always keep my options open. I'm taking a plural route these days".

The "plural route" - taking non-executive positions with other companies - has become quite lucrative for Ivell.

In 2006, he earned £228,000 as Regent boss plus benefits of £15,000 supplemented by non-executive earnings of £161,000. Last year, he earned £246,000 plus benefits of £15,000 while boosting his non-executive earnings to £216,000 despite stepping down from Restaurant Group.

Right now, Regent shareholders would hope that Ivell would be undistracted by approaches about other possible jobs.

Sale and leaseback​

There must be concern that Regent is considering the sale-and-leaseback of eight freeholds to raise £25m - the move is aimed at reducing £80m of debts. The company's annual report, though, shows that "onerous" leases keep biting Regent on the bum.

A little-known fact is that Regent was another company to suffer collateral damage from the collapse of discredited London & Edinburgh Swallow Group (LESG), the multiple lessee headed by Alan Bowes.

Regent took a £900,000 hit when a site bounced back after LESG's collapse. There was another £800,000 hit from sites that had been sub-let but where "tenants failed to meet rental obligations".

And for good measure, the 2007 annual report revealed that Regent had spent £1.9m buying a freehold to "extinguish an onerous lease".

The freehold had been sold on for £500,000, a loss "fully provided for in previous years". The sale of Regent's freeholds would, according to one analyst, talking off the record, leave "no food in the fridge".

Analysts at Altium describe Regent's situation as "pretty tough". That Regent's share price is stuck under 20p - a long way off last year's high of 120p - despite bid speculation, reflects just how tough.