cream for groups' fat cats could be corporate poison

by Christina Golding

More than a third of hotel groups that pay the highest salaries to their board directors are in danger of going out of business, says a new report.

The average fee paid to board directors in the hotel industry is £21,700, but there is a big variation, with the top-paying 25% of companies forking out an average director's salary closer to £100,000.

Although 49% of these hotel groups are rated as financially sound, the report said that 34% "need to make changes in their financial structuring to ensure their future viability".

The research follows an independent study by consultant Janet Salmon (Caterer, 9 April, page 7) which also concluded that bosses' salaries are not justified by company performance.

The latest report, by researchers Plimsoll, found that almost half of the hotel groups paying the highest directors' salaries performed worse in the past financial year than the hotel industry in general when measured by sales growth.

But Plimsoll has stopped short of naming bad performers, said a spokesman, because of the defensive nature of large companies. Disclosure of one company's performance in a previous report ended in legal action, he added.

Plimsoll is less shy about naming the good performers, which included Bedruthan Steps Hotel in Newquay and the Nare Hotel in Truro. Both have below average directors' fees and are owned by the same company.

Whitbread shares fell 30p after the group announced its results last week, despite a 12% rise in pre-tax profits.

The drop in price was put down to a warning that trading over a rainy Easter was not as good as the company had hoped, and also because of some analysts' predictions that consumer spending generally will slow. At one point the shares were 50p down, but they staged a modest rally.

Whitbread plans to invest £460m this year and will open 80 restaurants, a similar number of pubs and three new Marriott hotels, at Heathrow, Manchester and the former County Hall, London. Further rapid expansion is also planned for the Travel Inn budget hotel chain, with 25 scheduled to open.

Whitbread continues to prosper despite beer sales falling marginally in its pubs, where customers are drinking less and eating more. People are also drinking more at home.

Whitbread says its investments this year should create 5,000 jobs, although the net increase is likely to be nearer 4,000 because other parts of the business will have lost jobs.

Cliveden's share value has continued to rocket as earlier rumours that it was in talks with a potential buyer have now been confirmed. Shares climbed by 16.35% to 92.50p last week, representing the strongest growth in the sector.

Thistle Hotels, which is seen by the City as another potential takeover target, also enjoyed a substantial surge in its share value, up 11.58%.

The other big winner was Friendly Hotels, which boosted share value by 11.83%. Finance director Ian Rollason attributes the surge to a broker's "buy" recommendation describing the company as undervalued in relation to its net assets and its earnings capacity.

A 5.6% rise at Queens Moat Houses sees the company continuing to benefit from the unveiling of better-than-expected profits (Caterer, 2 April, page 10).

But, despite unveiling record annual profits up 24% to £5.02m towards the end of last month, Ryan Hotels sharesdropped 1.02% in value.