Forte's ability to maintain its dividend is in doubt, putting Mr Forte's own position under the spotlight. The company managed to leave its payout unchanged in the first half, but that was the easy decision. The interim represents only 28 per cent of the total dividend, suggesting that the real debate will be in respect of the final payout.
Last year's payout was uncovered and this year's is bound to require a further dip into reserves, assuming it is maintained. A third year without cover would put huge strains on the company's finances. Borrowings have already risen from pounds 1.22bn in June 1991 to pounds 1.30bn in June this year despite a pounds 29m fall in capital spending and a pounds 21m sale and leaseback. At that level they stand at 44 per cent of shareholders' funds.
To maintain the dividend without a recovery would be sheer folly. Mr Forte knows that, but hopes an upturn will come in time to save him from having to make a painful decision.
Trading profits rose marginally in the first half, but this would have been more impressive had the comparable period not been hit by the effects of the Gulf war on tourism. The best news was from the Happy Eater, Little Chef and Kentucky Fried Chicken chains where spending is rising, helped by heavy advertising.
The second half outlook will be helped by a promised pounds 50m of savings, up from pounds 26m in the first half. This partly reflects Mr Forte's policy of 'branding' the hotels. Running Crest and Posthouse as identifiable chains allows the group to control costs more effectively.
The best hope lies in the foreign exchange markets. The two-dollar pound was appalling news for Forte, so the American currency's recent strengthening has come as a welcome relief. Past experience suggests that the 'American sleep' follows the dollar's movements by two months or so.
The second half has started well. With the shares at 147p, down almost 40 per cent this year, there is recovery potential.
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