Business Analysis: New team plans to return ailing Regent Inns to former glories

Former Scottish & Newcastle executives ride to the rescue of beleaguered pubs group
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The Independent Online

Regent Inns, the struggling high street pubs company behind the Walkabout and Jongleurs brands, yesterday drafted in two former Scottish & Newcastle executives to attempt to revitalise the business.

Regent Inns, the struggling high street pubs company behind the Walkabout and Jongleurs brands, yesterday drafted in two former Scottish & Newcastle executives to attempt to revitalise the business.

Bob Ivell, the former head of Scottish & Newcastle's pubs division, and John Leslie, his former finance director, have agreed to join as executive chairman and chief financial officer. Both have some hard work ahead of them.

In the past six months, Regent's profit margins have collapsed, its share price has nosedived and its chief executive and finance director have departed. Four days after being left without its executive team, Regent's results announcement was suspended while it conducted crisis talks on loan facilities with its banks. The outlook for Regent looked dire and many in the City called time on the company, thinking it would not survive the year.

So when it finally announced its results yesterday, after a six-week delay, there was relief all round that Regent was still in business and that its Walkabout bars were still open for early doors.

Its performance for the year 2003/04 was as disastrous as had been flagged, with the company reporting a loss of £6.6m. Sales for the year were down 5.4 per cent at the end of the year and profits were hit by a £17m impairment charge from poorly performing venues. Margins have been slashed as the company cut prices to lure customers, and investors were told there would be no final dividend this year.

On the more positive side, the company has managed to keep its banks at bay for the time being, and its sales since the start of the new financial year are up 0.9 per cent. This is the first time they have been in positive territory for two years, thanks to the success of student nights and themed party nights in the pubs.

With trading at least beginning to stabilise, the appointment of Mr Ivell and Mr Leslie was seen as a boost for the group. Both are well-regarded in the pubs and drinks industries and shares in Regent yesterday, which have fallen 60 per cent this year, rose4.5p to to close at 42.5p.

Mr Ivell, 52, spent the 1980s building up the Beefeater inns chain before running S&N's pubs, hotels and restaurants division, which was sold to Spirit Group in 2003. Mr Leslie worked alongside Mr Ivell as finance director at S&N's retail division for five years, and previously ran Allied Domecq's international retail business. It is hoped they will build on Regent's sales momentum and end the crippling price cuts that have destroyed its margins and reduce costs.

This time last year, business wasn't too bad for Regent. Sales were not strong but margins were at least holding up. In November 2003, it completed a share placing to raise £18m and planned to use the funds to buy other pub businesses. But as the year wore on, the competition in the high street began to take hold, and bar managers at Walkabout found themselves having to offer steep discounts on drinks to keep customers. Peter Savage, who has been acting as an interim executive chairman since September, said Regent was too slow to realise the damage being done by discounting. While the Government and police rally against the social problems caused by binge drinking, pub operators have been wrestling with their own financial hangover from offering their drinks on the cheap.

By April, Regent, along with rivals JD Wetherspoon and Eldridge Pope, came clean on the extent of its price cutting, warning that profits would be "materially hit" this year. Its operations director left, and the group promised to rein in its capital expansion plans, focusing on its existing estate while trading remained difficult. The boost during Euro 2004 as football fans watched live games in pubs was only a brief respite for the year. Stephen Haupt, the chief executive, and Simon Rowe, the finance director, who both joined in 2000, left four days before its annual results were due.

If this had not been bad enough, Regent's results were then postponed when an accounting error on its loans was detected. It confirmed yesterday that it was in technical breach of its banking covenants, but the banks have agreed to waive calling in their loans in this instance. There are still issues to resolve and Kroll Associates, the corporate investigators, are trawling through Regent's books at the request of its banks. As long as Kroll does not uncover anything more sinister, it should get more secure banking facilities.

That such industry big-hitters as Mr Ivell and Mr Leslie are prepared to spend their time on Regent, with only 73 branded pubs, has given some shareholders hope. Like the majority of analysts covering the stock, analysts at Arbuthnot Securities were previously recommending clients to sell Regent shares. But they were yesterday considering changing Regent to a "speculative buy". They hope Mr Ivell will get Regent back to the shape it was in last year, on the prowl for acquisitions.

Melanie Sharp, at Arbuthnot, said: "Bob Ivell has excellent pedigree. Here we now have a management team from a big company going in to a very small company. Maybe they only have short-term plans but Mr Ivell wouldn't want to damage his reputation with Regent. So perhaps he is looking to use it as a quoted company with which to start consolidation in the pubs sector."

Altium Capital also upped its view on Regent, changing its stance to "hold" from "reduce".

Regent has not been alone in having troubles on the high street. Most operators have been forced in to a price war and some businesses have already been subjected to takeover activity. Yates Group has gone in to private hands, as has Eldridge Pope. The overcapacity of drinking venues in Britain's town centres still exists, and there are a number of distressed operators who are struggling to trade.

Mr Ivell, who will become an executive chairman at Regent, was still coy about his intentions yesterday, but did hint that he had plans for possible acquisitions. He said: "I wouldn't be here if I didn't believe the company had opportunities. It is a good business - the results should prove there isn't a more serious issue at the heart of the company. There is the potential for consolidation in the pubs sector."

But there is still some scepticism about whether Regent can ever recover, regardless of Mr Ivell's reputation. Its debts remain a major issue, and although its new management credibility will help negotiations, it is still at the mercy of its banks. "It has a stretched financial position. Although Regent's capital spend will fall to about £10m in 2005 from £27m in 2004, net debt currently stands at £88m, giving it one of the highest gearing levels in the sector at 123 per cent," analysts at Numis said, despite taking some reassurance from the improvement in current trading.

Price discounting is still going on. The company said that its boost in sales had been "at some cost to gross margin". And while a number of companies are calling an end of steep price cuts - if not least to appease the Government's crackdown on irresponsible drinks promotions - there are still huge pressures on the sector.

Nigel Popham, of Teather & Greenwood, said: "One man is not going to change the business that much. Bob Ivell's experience is mainly in a broader range of pubs and restaurant groups. High street bars are still in a very difficult situation, with high energy costs and wage costs."

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