SFI Group, owner of the Bar Med and Slug & Lettuce brands, revealed this morning it was in breach of some of its banking covenants, as it scrapped its final dividend, cancelled all remaining new openings and issued a profits warning.

The news immediately sent the company's shares plunging 55% to just 35p, barely a fifth of their price at the beginning of September before it was revealed that SFI was suffering cash flow problems that meant it was putting pressure on creditors to wait for payment.

SFI, which runs some 180 outlets, currently has a market capitalisation of just £26.3m, and around £120m of debt.

In a statement for this morning's company AGM, SFI said it has been granted temporary waivers "relating to certain breaches of existing banking facilities." SFI said it was working with its bankers to agree revised facilities, which it hoped to have in place by the end of this year. However, it said, the board would not now be recommending the planned final dividend of 1.87p a share.

SFI said because of the group's cash position, caused by its "significant" site opening programme in the past year and the current tough trading environment, the board had decided to cut back still further the site opening programme: of the planned 12 site openings in the year to 2003, five have now opened, and three sites have undergone major refurbishments, but only one further opening is now planned.

The company said in the past few weeks it had sold £5.2m of non-core and under-performing properties, and exchanged contracts on assets that should sell for another £2.3m. However, it said, it was taking its table-dancing clubs, For Your Eyes Only, off the market after being unable to secure a sale at "an acceptable value".

It warned that profits in the current year are likely to be below market expectations. Analysts had been forecasting pre-tax profits of £23m for the year to the end of May, against £19.5m the previous year.

SFI said its new finance director, Tim Andrews, was conducting a full review of the group's financial position focusing in particular on reviewing cash flow controls.

In the first 18 weeks of the financial year sales overall were up 20%, the company said, but like-for-like sales were up only 1.3%, "reflecting the much tougher trading environment that is now facing the industry".

It said: "The directors remain confident about the long term prospects for the business which has strong and successful brands that generate significant operational cash flow."