STAKIS was firing on all cylinders in the first six months as the Glasgow-based hotels, casinos and health clubs business drove into the City with profits above expectations.

Profits before tax and exceptional items leapt 61% to #35.6m, although the more important figure as a guide to progress was the 37% rise in earnings per share to 3.85p.

The difference is due to dilution caused by the #222m rights issue in late 1996 which financed the acquisition of Metropole Hotels from Lonrho.

Shareholders are rewarded with a 19% rise in the interim dividend to 1.25p.

In the markets, the shares responded by gaining 4p to 143p.

On the board, Richard Cole-Hamilton is standing down as chairman and will be succeeded by Robert Smith, the present deputy chairman. Anthony Harris has become deputy chief executive and retains his position as managing director of Stakis Hotels.

The bulk of the profits gain came from hotels, with a 58% advance to #35.1m on a much smaller increase in turnover to #136m.

There was a substantial increase in occupancy helped by the 80% or so hike at the London Metropole.

Of equal importance is the occupancy rise in the out-of-London hotels from 67.5% to 73.7%. That compares with overall occupancy of 69.4% at the Vaux-owned Swallow Hotels.

Stakis saw a large gain in the yield per room. Chief executive David Michels said that there was further scope to increase provincial room yields.

Less profitable hotels have been sold. Lost capacity is to be replaced by an opening at Strathclyde Business Park later this year.

The company is launching its Assured Meetings concept throughout the UK, which will offer the business user 255 identical rooms.

The hotels will enjoy the bulk of capital expenditure, led by the #90m being spent on the London Metropole creating the largest conference hotel in Europe in 2000.

Some #45m is being spent in the group in the closing six months, and #70m in 1998-1999.

The policy is to open three new hotels each year - with a target of between 80 and 100 - before deciding whether to move into Europe. But with 52 hotels in the portfolio at present, Stakis seems to be firmly rooted in the British Isles.

It is opening in Belfast soon which, along with its Dublin operation, will give the company a dry run at operating in ''Euroland''.

The casinos will receive about #3m of capital investment this year, but #14m in1998-1999.

Stakis is upgrading its 22 properties, including those in the Isle of Man and Gibraltar, through better staff training and public relations.

The division, which had been struggling, has benefited from an increase in attendances - with the Riverboat in Glasgow and the Maybury in Edinburgh finding it difficult some nights to cope with the numbers of customers - and cost control which includes a reduced spend on complimentary food.

These resulted in casino profits improving by almost 75% to #6.6m, although the croupiers' win percentage, at 16.8%, is below the long-term average.

Stakis now has 61 Livingwell health and fitness clubs with a total of 55,000 members. It is planned to increase customer numbers to 100,000 by the end of next year, which will need the opening of as many as another 15 clubs.

Six are under construction, including those at Strathclyde Business Park, Edinburgh Airport and Newcraighall.

The company sold the St Ermin's Hotel in London, in March, to Strategic Hotel Capital Incorporated for #48m, but has retained the management contract. That disposal helped contain gearing to 39%.

Andrew Burnett at Charterhouse Tilney is a Stakis fan. He said the company had found a format that appeals in all three activities while also proving adept at cost control.

Given the company's strong growth prospects, he has upgraded his current year profits forecast from #72m to #75m, which points to the shares trading at 18 times likely earnings.

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