Forte write-down eased by QMH hotel review
JUSTIFYING a bigger-than-expected property write-down might have been a little easier for Forte last week in the wake of the decision of Queens Moat Houses (QMH) to raise its UK hotels' value by 21%.
Forte usually revalues a third of its property every year but this year it undertook a further review of all its property and fixed asset values.
The result was a write-down of ú412m, of which ú324m was set against the revaluation reserve and ú88m charged against the profit and loss account.
Richard Power, communications director of Forte, told Caterer last week that a large chunk of the write-down related to assets in the USA and on the Continent.
"Our view is that when values start falling we have a duty not to mislead shareholders on the value of their assets when we know they are over-valued. We want our values to be conservative," he said.
Forte took the view that hotel values in London have not changed greatly, but devalued its provincial assets by ú152m.
The new figures place a value of ú175,000 per bedroom in London, ú100,000 per bedroom on the Continent and ú53,000 in the UK provinces.
While the write-down may have surprised the finance community and gone against the increased valuation at QMH the week before, it does give Forte more flexibility when selling off surplus property.
During the financial year to 31 January 1994 Forte sold some ú70m-worth of property, excluding the headline-grabbing float of its airport catering division and the sale of 50% of Kentucky Fried Chicken (KFC).
Mr Power said Forte had a list of provincial hotels and other peripheral property which would be sold. The sale of eight pubs last week to Bass, for example, will release around ú4m for converting more pubs to the Harvester brand.
Selling the airports division, KFC, and other small sections contributed ú122m, as an exceptional item, to Forte's pre-tax profit of ú121m for the year (ú164m in 1992).
After stripping out all the figures for acquisitions during the year (Relais autoroute restaurants in France) and discontinued businesses, there was an underlying 7% sales growth at Forte.
Mr Power said Forte had found 1993 to be, once again, a tough year. Trading was "difficult" in continental Europe and provincial UK.
However, in London Forte "probably outperformed the competition". An underlying sales increase in London hotels was 9%, producing a profit increase of 31% to ú47m.
Forte does not divulge bedroom occupancy and room rates.
Around half of Forte's UK hotel profits of ú94m came from London, which demonstrated how important the London market is to companies such as Forte and Mount Charlotte Thistle.
But Forte hotels across the Continent suffered from the economic downturn and sales fell by 2%. Total operating profit there fell ú4m to ú14m.
The joint venture with AGIP in Italy began re- branding and staff training, but the decline in the Italian economy resulted in a small loss for the new undertaking.
In the USA, underlying sales were down 4%, but favourable exchange rates produced a growth of 12%.
Sales at Forte's Restaurant division rose by 3% and operating profits by 8%. A building programme for Little Chef and Happy Eater has been revived and Forte expects to open 20 more restaurants this year.
Expansion will also re-commence on the Travelodge brand.
This summer Travelodge in the UK will pass 100 units, and a further 16 lodges will be opened this year, an increase of 25% of the brand's roomstock.
On the wider expansion front, Mr Power said Forte was attempting to take advantage of opportunities presented such as bidding for Hotels Méridien but he stressed that Forte was more concerned with building its existing business.
"The main focus of the new management team at Forte is getting more out of what we have got, Mr Power explained.
"The new team can really make this business motor now. We want the present business to generate substantially increased earnings," he said.
