Forte slashes payout as disposals inflate profits: Scrip alternative to dividend could save the company 60m pounds

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The Independent Online
FORTE, the hotels and restaurant group, slashed its final dividend payment by a third and announced provisions and property write-downs of pounds 385m along with a rise from pounds 59m to pounds 164m in reported pre-tax profits, which were significantly inflated by profits on disposals.

Rocco Forte, executive chairman, said that the dividend had been cut to a level that would be sustainable even if there was no upturn in trading and that would provide the basis for future growth in payments.

'We don't expect to get any help from the UK economy this year because there are no signs of any increase in demand from commercial or business users of our hotels. In London, however, we have seen a strong upturn in US demand because of sterling's devaluation. Business was 25 per cent up in the past two months and forward bookings are looking very good.'

Forte's final dividend, the first cut for more than 20 years, has been reduced from 7.16p to 4.75p leaving the full-year total 25 per cent lower at 7.5p.

The dividend cut was smaller than some in the City had been expecting. Forte shares closed 6.5p up at 188.5p.

Mark Finnie, an analyst with NatWest Securities, said the cut was too small and would lead to a rights issue at some stage.

'If you exclude capital items but include exceptional items as trading items then Forte made a pounds 2m loss last year. There was also an underlying outflow of cash from the business of pounds 100m.'

To soften the dividend blow Forte has joined the recent trend among companies towards enhanced scrip dividends.

Shareholders can choose to receive new Forte shares with a value 50 per cent higher than the cash dividend. Under the scrip alternative UBS and Barclays de Zoete Wedd Securities will offer to buy the new shares in order to provide an assured return for shareholders.

The scheme will not only save Forte cash - up to pounds 60m if all shareholders opt for shares rather than a dividend - but will also alleviate its problems with advance corporation tax caused by paying too high a rate of dividend in the past in relation to its taxable UK profits.

Mr Forte, his father and company president, Lord Forte, and his sister Olga Polizzi, managing director of building and design, together have a beneficial interest in 47.4 million Forte shares worth pounds 90m. Income from these holdings is set to fall by over pounds 1m after the dividend cut.

Forte's reported figures for the year to 31 January, prepared under the forthcoming FRS3 accounting standard, were boosted by a pounds 257m profit on the sale of Forte's Gardner Merchant contract catering subsidiary last December.

This profit offset a pounds 91m charge for write-downs on properties either sold or earmarked for disposal together with a further pounds 73m of exceptional charges.

The charge included pounds 29m for reorganisation costs, a pounds 32m item to cover an accelerated write-off of costs arising from Forte's 'rebranding' of its hotels since 1991 and pounds 12m faster depreciation of restaurant computer software.

Trading profits from Forte's continuing hotel and restaurant business rose by 17 per cent, before exceptional charges, to pounds 169m. A pounds 75m cost-cutting programme boosted margins and produced a 33 per cent increase in trading profits in the second half.

Pre-tax profits before property and exceptional items and a pounds 1m loss from Forte's shareholding in The Savoy Hotel rose by 3 per cent from pounds 70m to pounds 72m.

Hotels were a large beneficiary of cost-cutting, reporting a 17 per cent improvement in trading profits to pounds 89m on flat sales. Provincial occupancy rates held and room rates rose a little. In London the occupancy rate rose 4 percentage points but room rates fell by 3 per cent.

Restaurants, which include Little Chef, Happy Eater and Harvester, increased profits by 10 per cent to pounds 69m on sales 4 per cent higher.

Including the proceeds of the Gardner Merchant sale and a pounds 129m adverse effect from translating foreign currency borrowings at a lower rate for sterling, net borrowings fell by pounds 16m to pounds 1.28m. Debt rose from 44.3 per cent to 48.4 per cent of shareholders' funds.

Forte's underlying borrowings have risen steadily because of an extensive programme of hotel refurbishment. Mr Forte said that capital spending would be cut back this year and he expected borrowings to be lower by next January.

An annual valuation of one third of Forte's properties has led to a pounds 155m reduction in the group's accumulated revaluation surplus. But because of the state of the hotel market, highlighted by the recent plight of Queens Moat Houses, a more extensive valuation has thrown up a further deficit of pounds 189m, making a total shortfall of pounds 344m taken through the company's reserves.

(Photograph and chart omitted)

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