Six Continents mulls £1bn cash return to investors

The hotel and pubs group Six Continents yesterday pledged to return £1bn to shareholders by the end of the year if it failed to spend its substantial cash pile on a major hotel company.

The group, which owns the InterContinental and Holiday Inn hotel brands, said it was biding its time until hotel valuations had stabilised but intended to act before hotel asset prices recovered. Its shares initially rose 24p on the prospect of the share buyback but closed just 1p higher at 730p.

"Given the sensitivity of private and public valuations to the pace of recovery we believe that there will be opportunities to seek the right investments in a fragmented hotel market," Sir Ian Prosser, the chairman, said.

Richard North, the finance director, said the group had up to £2bn to spend following the sale of its brewing business, Bass, to Belgium's Interbrew in 2000 before it would need to tap the equity markets. He said there was scope to buy back up to £1bn worth of shares if no acquisition could be identified.

Six Continents, which renamed itself last summer, has come under pressure from institutional investors lead by the activist fund manager Hermes to expand its hotels portfolio after last year's takeover talks with Wyndham International, the US hotels group, came to nothing. The group, which also owns more than 2,000 pubs and restaurants, is eventually expected to demerge either its hotels or pubs division and has held talks with Scottish & Newcastle, Britain's biggest brewer, about combining their pub estates.

Analysts were sceptical that Six Continents would find the right deal. "Hotel ratings pretty much recovered by December 2001 so they have missed the boat," said one leisure analyst.

Six Continents yesterday signalled that prospects in the hotel sector had started to recover, reporting stronger trading in March and April driven by growth in business travel. The group predicted that room revenues, which fell by as much as 23 per cent in the first half, would recover by September.

"We have been encouraged by the pace of the recovery in March and April. Although there are short-term problems in long-haul areas such as to key European cities, we have seen a strong uptick in US domestic travel," Tim Clarke, the chief executive, said. The group reported pre-tax profits for the six months to 31 March of £242m compared with £303m the previous year, beating market expectations. Turnover on continuing operations fell to £1.8bn from £2.1bn.

The retail pubs and restaurants division, which includes the All Bar One, O'Neills and Harvester brands, reported an 8 per cent rise in operating profits to £146m. However, analysts said that an underlying sales increase of just 0.2 per cent was "disappointing".

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