Can Walkabout operator Regent Inns survive?
Just before Christmas, Regent Inns held a meeting with its worried suppliers to stress it was not on the verge of going bust.
The company was not about to go belly-up or stuff creditors with a cheeky pre-pack administration was the message. Indeed, reports of Regent's imminent death (or a shot-gun marriage to Chicago Rock Cafe operator 3D Entertainment) have been greatly exaggerated.
Regent Inns is still fighting for its life in intensive care, but it's vital signs have stabilised somewhat. Banking facilities, for example, were successfully re-negotiated last year and its net debt actually reduced a tad by £2.1m to £78.4m, leaving it with a fair degree of headroom within its total faclity of £96.5m.
"We don't have to ask the banks for anything," says John Leslie, who took control of the company last July in the wake of the departure of executive chairman Bob Ivell. "There's risk around for the future, but there's nothing new in that. There's a determination to get through — a real Dunkirk spirit among the staff here."
To give further credit where it's due, Leslie and his team have managed to chop out more than 10% of the company's operating overhead since last July, reducing its cost base from £55m to £48m in the first half (there's £9m of fixed property costs in there that can't be touched).
Nevertheless, Regent has more problems than most in the managed sector. The company is, it should be remembered, essentially a multiple leasehold operator, with a minimal freehold element.
It has a major toxic property threat hanging over it. Last week, the company provided a count of the number of leases that could bounce back on reversion. In the year since its first assignment in around 1993, the company has sub-let or assigned no fewer than 82 venues.
Not all of these sites are rotten — there's a fair few quality venues operated by Marston's courtesy of its acquisition of Wizard Inns, for example. But if the economy continues to deteriorate, there's every chance that Regent's tail could be added to in the wake of pub operator collapses. (The three sites that bounced back last year are all in London and proved reasonably easy to re-let).
Added to a potentially cancerous property legacy is six Walkabout and six Old Orleans leasehold venues that Regent Inns needs to sell — at the moment, there are sales pending on just three of them. (With one of these, the Walkabout on London's Shaftesbury Avenue, which has sales of £2.5m per annum but a thumping rent of £1m per annum, it's hard to imagine any buyer stepping up).
Wilting sales
It's worth remembering that Regent Inns is a company turning over around £130m a year (bigger than regional brewers like SA Brain's and St Austell) from slightly fewer than 100 venues — that's an average of around £26,000 per week per site.
But its three major brands — Walkabout, Jongluers and Old Orleans — each have their own problems. Walkabout's sales are still wilting, with like-for-like sales down by around 12%. There's a north-south divide opened up with venues in the south performing much better than those in the north.
Leslie ascribes the under-performance in the north to the continued opening of newer late-night venues. There is now a focus on marketing strategies with 140,000 Boomerang discount cards sold. Sales in February were reasonable, especially given how atrocious the weather was. The next major challenge will lie in re-investing in sites — there's plenty out there starting to look distinctly shabby.
Regent is currently only spending maintenance capex and Leslie concedes that major refubishment investment at Walkabout can only put off for a further year or so. The worst performer within Regent in its most recent half-year was the Jongleurs comedy chain. But here there were exceptional circumstances clipping Christmas business. Non-executive chairman Jim Glover said: "There were many late cancellations from companies who were not prepared to proceed with parties at a time when they were making staff redundant."
Old Orleans headache
Old Orleans, the restaurant chain acquired from Punch in 2007, has been a bit of a headache from the start. Comparatively, performance seems to reasonable in the company's first-half with sales stable although Regent has had to join the discounting herd which has hurt margins.
Nevertheless, Old Orleans profit after central overheads is running at around £1m, a long way off the £3m per annum it was turning in on acquisition. "Where Old Orleans is in a strong location it's still performing very well," says Leslie. Maybe, but Old Orleans has not been proven anyone's idea of the Deal of the Century.
Regent made a loss before tax of £2.3m on sales of £67.6m in the 26 weeks ended 27 December 2008. The company stated in its result announcement that the future success of Regent "will depend on re-building sales".
To pick up on Leslie's description of staff morale, Regent's position is not dissimilar to the tens of thousands of troops stranded on the Dunkirk beaches. An escape is possible, but it will need a degree of good fortune.
