Tourists undeterred by strong pound, but profits still suffer

The hotel and leisure trade sustained business well during the final quarter of 1997, when the strong pound hit the profitability of industry generally, claims the latest Corporate Health Check report from research group Experian.

Associate director Peter Brooker said that the strength of sterling had not deterred high numbers of tourists from visiting the UK, although they may have spent less. Meanwhile, the home market was busy, especially corporate hospitality and conferences.

But the industry is still among the least profitable of the 22 surveyed, languishing in 18th position, with liquidity low and debt levels alarmingly high.

In the last quarter, its debt gearing ratio climbed to 109% (it was 62.5% a year before) against an average among all industries of 39%.

While average return on capital was static at 13% during the final quarter, the figure for hotels and leisure rose from 9.58% in the third quarter to 9.62%, still well down on the 11% achieved at the end of 1996.

Brooker believes that profitability has peaked and that 1998 will prove to be a tough year, although he is hoping for a "soft landing" rather than a "hefty bump".

Problems include the Asian financial crisis, the millennium bug, the launch of the euro, worsening skills shortages, and an expected slowdown in consumer spending after March's tax rises.

• Copies of the report are available for £175 from Peter Brooker on 0115-934 4548.