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Holiday Inns Acquisition Helps Bass Profit, But Outlook Cloudy

December 5, 1990

LONDON (AP) _ The acquisition of Holiday Inns has helped Bass PLC post a 23 percent jump in annual profits, but the U.S. hotel industry’s downturn now is clouding the outlook for the world’s largest hotel operator.

Bass Chairman Ian Prosser told a news conference Wednesday, ″Overall, we are finding trading conditions difficult.″

In a statement, Prosser warned that ″unless there is a swift change in economic conditions leading to improved business confidence and an increase in consumer spending, we expect those conditions to prevail for most of 1991.″

Bryan Langton, chief executive of the company’s Holiday Inn division, told reporters that U.S. hotels have been pressured by a slowdown in demand from both business travelers and vacationers.

Langton cited the U.S. recession, but declined to quantify the effect on the company.

Bass acquired the North American assets of Holiday Corp. for $1.98 billion in February after paying $475 million for its international hotels in 1988.

The second purchase was clinched as the U.S. economy slowed. A glut of hotel rooms in the United States - whose 40,000 hotels make it the world’s largest hotel market - now is forcing operators to cut rates to attract business.

Langton maintained that Holiday Inns could weather a slowdown, citing Bass’ strategy of segmenting the Holiday Inn product. It has been developing Holiday Inn Express, targeting the upper level of the economy class, for example.

As many as 1,450 of Bass’ hotels are located in North America rather than faster growing areas elsewhere in the world, making Bass vulnerable.

But Langton said that fact that 1,365 of its 1,605 hotels are franchised rather than owned or operated will help insulate the company.

Bass also has better financing and is not as indebted as some of its competitors, and Holiday Inns is a strong brand name, he said.

″Our relative strength gives us the opportunity to outperform the market,″ Langton said.

Bass said its net profit for the year ended Sept. 30 came to 470 million pounds, or $808 million, compared with 382 million pounds, or $657 million, in the same period a year earlier.

Earnings per share came to 109.6 pence, or $1.89, compared with 92.7 pence, or $1.59.

Pre-tax profit rose 15 percent to 535 million pounds, or $920 million, from 465 million pounds, or $800 million.

Revenue climbed 10.5 percent to 4.46 billion pounds, or $7.67 billion, from 4.04 billion pounds, or $6.95 billion dollars.

The group’s hotel operations saw operating profit jump 69 percent to 127 million pounds, or $218 million, from 75 million pounds, or $129 million.

Holiday Inns accounted for 103 million pounds, or $177 million, of that 1990 profit. Bass didn’t provide the year-ago figure.

Langton said Holiday Inns’ profit had met the company’s expectations, and he said Holiday Inns’ performance improved over the year.

Holiday Inns occupancy rate increased 0.9 percent over the previous year, and outperformed its competitors in the middle of the market, he said.

Bass’ brewing operations also experienced strong growth, rising 21 percent to 177 million pounds, or $304 million, from 146 million pounds, $251 million. Its brands include Carling Black Label, Lamot Pils, and Tennents.

The company said it had 108 million pounds, or $186 million, of one-time costs because of the British government’s decision to force brewers to focus either on brewing or pub operations.

The decision, aimed at fostering more competition in brewer-owned pubs that sell their own beers, means Bass will have to sell or free up 2,680 pubs by November 1992.

Bass’ 6,886 pubs make the company Britain’s largest pub owner. The company also has smaller interests in betting and soft drinks.

Bass didn’t break out results for the latest quarter or second half of the year. It isn’t required to under British law.

The figures were converted at company-provided exchange rate of $1.72 to the pound.

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