What now for Regent Inns?

It would seem that 'crunch time' for Regent Inns and its 100-odd bars, restaurants and comedy clubs is fast approaching.

Following the Jongleurs and Walkabout operator's recent admission that pre-tax profits for the year ended June 28, 2008, would be 'minimal' the group's shares plummeted by more than 40 per cent to settle at 3.75p, an all-time low.

Regent's shares have fallen 95 per cent in the past year, a collapse described by one City analyst as being "dot.com-esque" in its scale.

The 4p low is a far cry from 1998 when its shares were at an all-time - and ne'er to be repeated - high of 383p.

So what's gone wrong? John Leslie, the group's new chief executive, declined to be interviewed for this article, but 'Regent watchers' paint a picture of problems within and beyond its control combining to deadly effect.

Following controversy surrounding the reporting of like-for-like sales in 1998 and the bottom falling out of the high-street bar sector in 2002 the appointment of Bob Ivell to the post of executive chairman in October 2004 was designed to turn Regent's fortunes around. As well as tackling Regent's cost base with gusto, the highly experienced former Scottish & Newcastle Retail boss talked of the group being a "consolidation play", whether as a buyer or seller, to deliver the best value for shareholders.

It was a theme to which he would return regularly. A failed attempt to buy Tiger Tiger operator Urbium in the summer of 2005 dented Ivell's ambitions, but in April 2006 the group announced it was in talks with a potential bidder for the company, only for discussions to end two months later.

Old Orleans

June 2006 also saw Regent announce it had paid Punch Taverns £26m for its 31-site Old Orleans restaurant chain, Ivell stressing the acquisition would afford the group "significant" opportunities in the casual dining market, a crucial area in the new smoke-free environment.

However, many viewed the deal as a costly mistake. Analysts believe Ivell's familiarity with the brand swayed both the decision to buy it and pay what many regard as a high price. Old Orleans' progress was hindered by lease problems and the chain's slower-than-expected trading recovery led to a profit warning in May 2007.

The group's shares promptly fell 20 per cent. Then in December 2007 its shares dived a further 40 per cent to 25p as another profits warning was issued.

In January this year another set of takeover talks pushed Regent's shares up 47 per cent, albeit from a low of 15p. But the shares soon trailed off, a proposed sale and leaseback deal on six of its Walkabout freehold sites doing little to stimulate investors - neither has a 10.9 per cent slump in recent like-for-like sales.

Then last week the market absorbed the news that the group would make virtually no profit in the financial year just ended. Regent's shares sank to their lowest level yet.

With Ivell now in a non-executive role, new chief executive Leslie's challenge is an unenviable one.

Bruised and battered, Regent is trying to swim in the market's most troubled waters to date.

The Walkabout sale and leaseback effort is back on, but observers wonder who in this market will put their hand up.

Meanwhile, one City observer believes trading is down across the Walkabout chain to the extent that it is because there had been a "chronic lack of investment" in individual sites. "The estate isn't in great shape, basically," he added.

Market shift

Licensing Act reforms opened up the potential for late-night drinking throughout the country's pubs, which hasn't helped either. "You've gone from 4,000 late-night venues to potentially 44,000," said another analyst. "It doesn't matter how good you are, with such a market shift you're going to face problems."

The group's debt, said to be up to £120m including off-balance sheet items, is another headache. "Regent is making almost no money and Bob had taken out almost all the costs he could," added the analyst. "The group says it wants to cut more costs but where are these to come from? A massive turnaround in Old Orleans is required, but I just don't see that happening right now."

Another suggested that Ivell's obsession with consolidation prevented him from focusing on running the business properly.

So what are Regent's options? Some observers are resigned to Regent suffering a slow, lingering death and ultimate break-up, which is unfortunate for staff and shareholders alike.

Others hold out hope for asset disposals to generate some cash to put the group back on a firmer footing in what is a terribly tough market environment.

Few countenance a pre-packaged administration deal similar to that put through by Robert Tchenguiz for his Laurel Pub Company.

Meanwhile, although Regent expects to "announce certain amendments to its banking arrangements" in connection with its proposed Walkabout sale and leaseback deal, its financiers are said to remain "supportive".

At this point it would appear they have little choice…