Forte recovery hides leisure sector doubts
September was a good month for Forte. The Savoy saga took a turn for the better, Air France opted to sell the company its Méridien subsidiary and the best half-year results for a long time brought cheer to the City.
National newspaper headlines told their own story: "Roaring Forte" (The Times); "Forte leaps 62% to £60m" (Financial Times); and "Forte rockets to £60m" (Daily Mail) headed three of the many gushing reports.
Yet only a few months ago City analysts were sceptical about the strength of Forte's recovery. In July stockbroker BZW advised investors to sell their Forte shares because of weak cash flow, a stretched balance sheet and a fear that the Méridien bid would fail.
Some doubts still remain about cash flow and the balance sheet, but the profits result and the Méridien deal has left analysts and investors much more bullish. That is good news for Forte and also excellent news for the rest of the industry, although the cheer must be tempered by the patchy nature of the recovery.
London hotels and the business market in general are clearly at the leading edge. With high and increasing occupancy levels, Forte's London hotels pushed up achieved room rates by 6% in the first half of the year. But sluggish recovery in consumer spending led to a 1% reduction in achieved room rates in the provinces, despite a 6% rise in occupancy. And Forte's performance has been better than many of its competitors.
Figures from the Horwath-English Tourist Board Occupancy Survey show occupancies in hotels outside London hovering at only 48% this summer, down by between 2% and 4% on a year ago. This compares with a 6% rise to 65% in London.
This difference in performance goes a long way towards explaining Forte's future investment strategy for the UK. While expansion is clearly the name of the game for roadside and business traveller-targeted hotels and restaurants, a number of hotels dependent on the leisure market look set to be sold.
The latest results from Forte are the best sign yet that the recession is over. From that we can all take heart. But the varying performances of the different parts of the group tell another story - that some sectors of the industry still need a shake-out, with the permanent removal of thousands of beds, before they can profit from the economic upturn.
