Regent shares plunge on profits warning

News Analysis: Stock exchange may investigate fall in price

THE RAPID growth of pub operator Regent Inns came to a dramatic halt yesterday when it issued a profits warning caused by "inconsistencies and inaccuracies" in its accounts and the incorrect calculation of key sales figures. Regent also blamed weaker profits at new branches caused by increased competition and delays in opening new branches.

Regent Inns' shares plunged 44 per cent on the warning, falling 140p to 176.5p. The news dragged down shares in rival pubs companies, such as JD Wetherspoon and Slug & Lettuce, which have been trading on high ratings. There may be a stock exchange inquiry into the steady fall in Regent's shares ahead of yesterday's announcement. Analysts have cut profit estimates for Regent from around pounds 16m to pounds 13m.

Regent Inns said that a review by new finance director Paul Huberman, who joined from Asda Properties in March, had uncovered a number of inconsistencies in various accounting treatments totalling pounds 1.7m. The board has also reviewed the basis of its like-for-like sales and found they had been calculated incorrectly.

Like-for-like sales for the year to date are now said to be running at 1.5 per cent higher than the same period last year. At the time of its half-year profits in February, Regent said its like-for-like sales were 7 per cent ahead.

Regent stressed that its financial results for earlier years were not affected, that there was no "black hole" in the accounts and no evidence of "improper conduct" by directors.

Analysts said the business had been built up as an entrepreneurial company but was now moving towards a more corporate structure and culture as it grew.

Clive Watson, the former finance director, left in February to pursue other interests. Mr Watson, who was finance director of Regent for eight years, issued a statement yesterday to clarify his position. It said: "The current-year budgets were prepared in July 1997 and were approved by the group's executive board. These were reviewed by the full board of Regent Inns in September and the components of the budget received their full endorsement." It is understood he was only informed of the company's impending announcement in the early hours of yesterday morning.

Sector analysts said the trading problems at Regent were not a surprise given the rapid expansion undertaken by all the major pubs groups. Nigel Popham, of Teather & Greenwood, said Regent's problems could be "the tip of the iceberg" as far as other smaller pubs operators were concerned.

"Pub chains have spent vast amounts of money on building up their estates just at a time when consumer demand is slowing and competition in the high street is at its most intense. The statement from Regent doesn't paint too rosy a picture for the industry as a whole," said Mr Popham.

There has been an explosive growth in new themed pubs, including Regent's Australian-themed Walkabout Inns, but this has forced pub rents into a relentless spiral, particularly on the high street where most new bars are located. "There are too many people spending too much money too quickly for people to make an adequate return on their investment," one analyst said. Whitbread says it has been "walking away from more sites than ever" recently, deterred by high rentals.

Whitbread estimates that concept bars such as Bass's All Bar One and its own Hogshead brand have staying power in the longer term, but they question the longevity of so-called "fashion pubs". Pub groups have already cut back on opening Irish themed bars as they feel this sector of market has neared saturation.

Whitbread said: "There has been this mad rush to catch up by some operators, particularly in food pubs where the growth is strongest. Operators have been paying through the nose for available sites, but these costs must be stretching people's models on viability."

Until yesterday, Regent Inns had been one of the stock market's success stories. Floated in 1993, the shares soared eightfold to a high of 388p earlier this year helped by a booming pub market, high margins and a rapid roll-out of new outlets. But critics have warned of over-expansion just when higher interest rates are hitting consumer spending.

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