QMH looking for lift to the top

By the turn of the millennium leisure analysts in the City might start appending the words "recovery play" to circulars about Queens Moat Houses, the beleaguered hotel group.

But the company, which is close to ending a two-year suspension on dealing in its shares, and to finalising a complicated £1.3bn refinancing package with 74 lenders, still has much to do to get there.

Andrew Coppel, drafted in as chief executive in 1993 to sort out the mess left behind by the old guard, was convivial and upbeat yesterday as he openly displayed QMH's books for the financial year to 1 January.

"We are starting to get in right across the group in terms of operating performance," was his opening shot. His conclusion: "Many people had written us off. These results show we are back in business, and a force to be reckoned with."

What the results show is that QMH virtually doubled operating profits from £18.4m to £35.2m.

Given the advance was achieved on sales growth of 20 per cent to £426.6m, the underlying message is that management has moved mountains on the cost front but has yet to enjoy the trading gains of its competitors.

To the credit of Mr Coppel, and the other members of the new management, it is now possible to identify a clearly defined strategy. The problem is that the company has been unable to spend adequately on rejuvenating its hotels, and will be late to the recovery.

While the likes of Forte were able to absorb the pain of recession and maintain and even increase capital spending, QMH could not. QMH had to cut, and capital expenditure of £15m last year was less than half the depreciation charge of £36.7m.

Spending this year should exceed £30m but, even at this higher level, only 50 per cent of QMH's core UK room stock will be brought up to scratch by the end of this year. And having the decorators in when demand is increasing can only further hinder QMH's pace of recovery. As one analyst said yesterday: "The only way QMH can compete at the moment is on price. Taking rooms out of action when the rooms could be full means that they could miss out on building up customer loyalty."

Precise numbers on QMH's rate rooms rates are not being divulged, although it is known that the company's charges are pitched at about 12 per cent below those of its main competitors. Its room occupancy of 63 per cent in the UK also slightly lags the market.

"Although the trading climate has not yet returned to buoyancy, operating profit margins have improved significantly. Our achieved operating profit of £7,400 per room is above the industry average," Mr Coppel said about QMH's performance in the UK.

The same cannot be said about the Continent, where the historical folly of trying to build an extensive network without centralised management control has yet to be unravelled.

A current European spread comprising 38 hotels in Germany, 24 in the Netherlands, six each in France and Belgium, five in Austria and one in Switzerland is likely to be refined considerably in the next couple of years.

Disposals will undoubtedly form the main plank of the strategy to raise the European business from its knees. Running parallel to that, the company will have to focus on moving forward in Europe with the German hotels and with a large part of the Dutch portfolio. France, as other companies have testified, is a nightmare.