Regent Inns: a troubled kingdom?

For some observers Regent Inns exemplifies in microcosm the plight facing much of the on-trade sector in the UK today.

The three 'legs' of its business - High Street/late-night operation Walkabout, comedy venue chain Jongleurs, and restaurant arm Old Orleans - were each lauded by former executive chairman Bob Ivell as pivotal to the group's success going forward but have all taken a hammering in the last year.

The collapse of the late-night market, the pressure on eating out spending and the impact of the credit crunch on corporate entertaining have all combined with considerable effect to put pressure on Regent's overall sales.

Reporting first-half numbers at the end of last month, the company revealed a pre-tax loss of £2.3m for the 26 weeks to December 27, 2008, on like-for-like sales down 12.2 per cent, and Regent's chief executive John Leslie reiterated that the High Street was a tough place to be.

Short-term caution

Things, he mused, were unlikely to change much for the better in the short term.

Indeed, like-for-like sales in the first eight weeks of the second half were 11.7 per cent below last year, he said, and the group remained "cautious about the future and continued to find current market conditions very challenging". As well it might.

"We recognised some time ago that trade would be really tough," Leslie says, "and took steps to address it by taking a lot of cost out of the business and reducing capital expenditure." Such moves included the re-jigging of its head office function, which saw 30 staff made redundant.

A pound saved is a pound saved, says Leslie, "whereas a pound spent to boost sales is a pound speculated". But cutting costs, while it has played its part for the group, is a finite strategy, he adds.

Cashflow has been "managed tightly", Leslie says, while net debt is down, albeit by £500,000 to £78.4m.

Managing cash is "better than aesthetically-pleasing profit and loss accounts", he says. The group's banks were "supportive", and its banking covenants were "fit for purpose".

Then there was the technical issue of whether Regent could continue as a going concern; a situation Leslie said had to be highlighted for reporting reasons.

"The reporting rules say we have to make people aware of this, but a lot of companies are having to do the same," he says.

So where did it all go wrong? Leslie baulks slightly at the question. "It's not that things have necessarily gone wrong, rather that we're in the late-night market and this area has seen a significant reduction in terms of footfall," he says.

"Old Orleans [Regent's restaurant business which it bought from Punch Taverns in 2007] has held its end up.

"We are doing a bit of discounting and promotion, which from our point of view is a better thing to do - certainly better than having an empty restaurant."

Crazy prices?

Some observers believe this "discounting like crazy" strategy will hit margins, however.

But Leslie says some Old Orleans sites are doing "very well", though he admits some poor ones are "hampering progress" across the overall performance of the brand, which was held up at the time of its acquisition by Ivell as being the missing piece in the Regent jigsaw puzzle.

Leslie believes that being in the restaurant game offers a decent enough long-term outlook, but the issue of the High Street is another matter.

Having disposed of a few non-core sites, Leslie is confident that Walkabout, the group's Australian-themed sports and entertainment venue brand, can weather the storm well enough.

"It's not a fashion-led brand. Rather it's a strong brand which has been hit hard by the collapse in consumer confidence," he says.

"There's no need for a huge amount of investment," he adds, which since the group is hacking away at its capex budget - down 85 per cent - is probably just as well.

Meanwhile, Jongleurs, Regent's comedy venue chain, had a torrid Christmas, as companies scotched plans to hold their seasonal shindigs across the business.

"There were many late cancellations from companies who were not prepared to proceed with parties at a time when they were making staff redundant," Leslie says.

So that is the state of trading. But what of the mantra of former chairman Bob Ivell, namely that Regent was a consolidation play? The group has had its chances in the past, but it seems any such activity is unlikely for a while.

"This is off the agenda, certainly while lending is so difficult," says Leslie. "Our focus is currently on generating cash and getting down debt. It's no doubt going to be hard going but we've great people in this business, with great brands.

"You've got to build sales and yes, we have been trying to do that for some time. But we're a resilient operation, and while we're likely to see tough trading for a reasonably long period of time it will bottom out."