Gresham Hotels will not allow its assets or shareholders to be acquired by stealth, the group chief executive Mr Patrick Coyle warned yesterday as he once again challenged dissident 28 per cent shareholder Red Sea to make an offer for the company.

Red Sea, an Israeli group, has demanded radical changes in the composition of the Gresham board and has threatened to requisition an extraordinary general meeting to push through its demands. Red Sea wants the right to nominate three directors, including the chairman, but this has been rejected by Gresham as an effort to gain control of the group without making an offer to all shareholders.

Mr Coyle said Gresham had offered board representation to Red Sea and also equal membership of a strategy review committee, but this had been rejected by the Israeli group two weeks ago.

Mr Coyle renewed his attack on Red Sea as Gresham reported a sharp fall in profits for the year to the end of January, mainly due to the impact of foot-and-mouth disease, the general slowdown in economic activity and the impact of the September 11th bombings. But there was a note of cautious optimism in the statement accompanying the results, with chairman Mr Sean Henneberry stating: "There are emerging signs from the domestic leisure and corporate markets which, if they continue, will benefit the group particularly in the second half."

But the Gresham results drew a savage attack from Red Sea director Mr Amos Pickel. Mr Pickel said: "These results are absolutely shocking. Shareholders - large and small - have been well and truly disenfranchised. Despite turnover remaining much the same over the past two years, profits have plummeted. The board now has a fiduciary duty to explain to all shareholders why costs have rocketed and profits have been completely eroded."

Turnover was marginally lower at €55.2 million, but a severe squeeze on margins meant that operating profits tumbled from €13.5 million to €7.7 million. When a series of exceptional charges are excluded, after-tax profits of €3 million were broadly in line with market forecasts. The one surprise in the results was the 5 per cent increase in the dividend to 4.5 cents per share - most analysts had expected the dividend to be maintained at the 2000 level.

The exceptional items include almost €6 million in respect of a downward revaluation of the Carat Hotel in Hamburg, almost €1 million against the rebranding of the group and €877,000 against the sale and leaseback of the Royal Marine Hotel in Dún Laoghaire. The sale and leaseback arrangement has, however, resulted in a sharp fall in Gresham's gearing - from 73 per cent to 53 per cent. Net asset value has risen from €1.62 to €1.74 a share - almost double the current value of Gresham's share price.