No Pain, No Gain: Why I'm calling time on Food & Drink Group

These are sobering times for Food & Drink Group, which runs the Jamies watering holes in the City as well as the Henry J Bean's bars. Last year's results bitterly disappointed the stock market. Now it has admitted that the current year is unlikely to offer much solace.

The group seems to have suffered a number of misadventures. No wonder the shares have been subjected to a ferocious pounding. Its City reputation is in tatters and the possible merger or takeover chairman Stephen Thomas alluded to in January appears to be the only way FDG can escape its misery.

Thomas, who also heads the Luminar night-club chain, said the group was "sub-scale" and needed a "substantial corporate transaction". There is gossip, which has been denied, that he intends to take Luminar private. Maybe FDG could head that way, too.

The No Pain, No Gain portfolio alighted on the shares early last year. At that time the company seemed to be doing well. It appeared to have put its unfortunate past behind it and was expanding cautiously. The year's pre-tax profits had emerged at £928,000 and a maiden dividend paid.

The City confidently anticipated profits of more than £1m in the year ended September. And the shares hit 287.5p but then shaded as worries surfaced about consumer spending cutbacks.

Still, in October FDG said trading had been satisfactory with sales up 2.4 per cent and year's results would be in line with expectations. Then it all started to unravel. In December, the figures were delayed because finance director Urvashi Parekh was on compassionate leave. But profits would, confirmed the company, be in line with estimates.

It was, however, a further delay that really set alarm bells ringing. Suddenly it emerged that unexpected costs had been identified and profits would be around the £600,000 mark. In the event they came out at £561,000 (including property profits of £402,000) and, of course, the dividend was scrapped.

Last week came the hardest blow. "Worsening trading conditions" were taking their toll and although things were expected to improve, this year's profits would be "significantly below" stock market hopes which, at one time, were around £1.2m.

So what has gone wrong? The current year was bound to be difficult but it is last year's dismal performance that has caused dismay and seriously damaged the group's City reputation. From October to January, profits went from satisfactory to poor. Parekh has not returned from leave and has resigned. Stephen Smith has taken her place.

With redundancies an everyday fact of life in the City, the group's Jamies bars were clearly under threat in its current year. In the good times, Jamies and other chains increased their City exposure. Now they have fewer customers to tap and those still in work will not be quite so free spending as in the past. Even where job losses are not an influence, the general impact of the credit crisis is likely to hit FDG and other drink retailers.

At one time FDG was known as Hartford. It enjoyed quite a glamorous stock market run with some big-name backers. The portfolio scored when it bid successfully for one of its constituents, a restaurant company called Montana. Its then high-flying shares priced Montana at 340p a share. But the takeover heralded more difficult times. Its shares started a long decline. The portfolio managed to escape at 285p, achieving a £2,800 profit.

If it had accepted Hartford shares it would probably have suffered an even more wounding setback than it is now enduring.

Besides a change of name, FDG's revival included a massive consolidation with one share replacing no fewer than 136.

The shares are now around 32p compared with the portfolio's 241.5p buying price. I cannot, I feel, tolerate another laggard. The portfolio was caught out badly when Lennox shares were suspended and is suffering a substantial loss on Wyatt. So I have decided to wave a not-so-fond farewell to FDG, swallowing a rather unpalatable loss. I can only apologise to any investor who followed the portfolio into such a disastrous investment.

Indeed, the whole affair represents a double whammy. For the £2,800 profit so gleefully banked when Montana, a little Plus-traded company running American-style restaurants, was absorbed, has been comprehensively eliminated by FDG's performance.