Ultimate Leisure blames lack of investment for profits downturn

The troubled nightclubs operator Ultimate Leisure spooked the market with a profits warning yesterday, which led its house broker to slash the groups profits forecasts by two-thirds.

Ultimate, which is based in Newcastle and runs 33 bars and nightclubs in the North-east, said trading over the Christmas and new year period had been "difficult", blaming fierce competition and a long-standing lack of investment in its outlets.

Some clubs saw a slump in sales and door income where new competitors opened and had to be closed. The group therefore expects a "material shortfall" in sales against current forecasts. Oriel Securities, Ultimate's broker, slashed its forecast for pre-tax profits in the year to 30 June to £1.6m from £5.2m.

The company saw a management shake-out last August when a shareholder revolt led to the resignations of its chairman, chief executive and three directors. Mark Jones, a former chief executive of Yates Group, and Colin Rowlinson, another former Yates director, were parachuted in to take the helm.

Mr Jones, the executive chairman, admitted he has a tough task on his hands. He said: "We're suffering from a real lack of investment. We have bars and nightclubs that haven't been invested in for 10 years. What we need to do is start refurbishing them. It's a very competitive sector." His aim is to refurbish 15 bars over the next year and to improve customer service and marketing. "By this time next year, we hope to see the signs of recovery," he said.

The company is spending £4m on club refurbishments in the current financial year and has put aside £2m for the year after.

The company suffered another setback recently when it lost out in the bidding for Inventive Leisure, which runs the Revolution vodka-bars chain, which was snapped up by the private-equity firm Alchemy Partners for £42.5m.

On the bright side, recent acquisitions - the Prohibition brand and Glasgow's Destiny Nightclub - are performing well, and the company pledged to maintain the interim dividend. As part of the new management's review of the business, Ultimate's assets have also been revalued to £80m, from £66m.

Ultimate operates clubs under four brands, Prohibition, Chase, Blubambu and Coyote Wild. Mr Jones wants to expand into new areas and plans to open the group's first nightclubs in London's West End and the City, under the Prohibition brand. Up to five Prohibition openings are planned for the next 12 months.

Shares in Ultimate Leisure fell 6p to 245p yesterday.