Thistle warns of lingering weak trade as profits fall 32%

Thistle Hotels, whose biggest shareholder BIL International is considering making an offer for the group, warned yesterday it had seen no respite from tough trading conditions as it announced profits had fallen by a third.

Revenues in Thistle's 18 owned or leased hotels, most of which are in London, were up just 1 per cent in the first eight weeks of the current year.

"We've seen the January figures for the industry and we think our performance for January was better than the market. But it's a pretty marginal improvement at the end of the day," said Ian Burke, chief executive.

Thistle said there had been "no perceptible improvement" in economic conditions during the early months of 2003 while the possibility of conflict in Iraq added to the uncertainty. "It is clear that these factors are having a negative impact across the travel, tourism and hospitality industries generally," it said.

In the year to 29 December, Thistle's pre-tax profits fell by £21.2m to £27.9m after it sold 37 hotels to Orb, a Jersey-based investment group for almost £600m. Stripping out the effect of exceptional items, profits fell 32 per cent to £30.9m.

The company, which has been heavily criticised for failing to decide what to do with the cash from the sale of those hotels, said that following discussions with its two biggest shareholders, it had decided to keep the cash in the business "for the time being". BIL, a Singapore-based investment group and the Singapore Government, who together have 66 per cent of Thistle's equity, are thought to have insisted that the company keeps the cash.

"Many boards are criticised for not consulting with shareholders on major decisions. We consulted with our two major shareholders and they each felt that for the time being we should retain the cash on the balance sheet," Mr Burke said.

But Thistle vowed yesterday to reconsider its decision once BIL had revealed its hand. BIL said last month that it was considering making an offer at "a modest premium" to Thistle's then share price of around 100p. The stock closed up 5 per cent at 118p last night.

Thistle also said yesterday that legal proceedings against Orb, from whom it is trying to recover around £14.6m in connection with the hotel deal, were still ongoing. Orb has served up a counterclaim to try to recover around £54m. Thistle believes its claim will be successful and that Orb's counterclaim could be "successfully resisted".