INTERVIEW:Despite posting losses, Moran Bewleys Hotel group owners are looking at the positives
ON WEDNESDAY morning, the car park at the Moran’s Red Cow complex in southwest Dublin is virtually full. A distinctive Christmas buzz permeates the lobby of the four-star hotel, where a large cardboard cutout of veteran entertainer June Rodgers stares back at customers.
Posters on the front door promote room rates of as little as €59 a night. It’s a sign of the times and the cut-throat competition in the Irish hotel market at present.
Behind the scenes, Limerick-born owner Tom Moran and finance director Pat Power are working hard to keep the hotel chain moving forward.
Latest accounts for T&S Taverns Ltd, which runs the 10 Moran and Bewleys hotels in Ireland and Britain, show that it made a loss of €48.6 million in the year to the end of January 31st, 2011.
This was €3.8 million more than in the previous year and reflects the ongoing hefty interest payments relating from Moran’s €570 million purchase of Bewleys hotels in 2008, just before the economy crashed.
Interest payments last year amounted to €37.5 million, while its net debt was almost €687 million. It also took an impairment charge of €3.9 million on buildings in the year.
Turnover in 2010 was flat at €80.5 million.
In spite of the glum figures, both Moran and Power are sanguine about the hotel group’s financial position.
Power highlights its healthy 30 per cent Ebitda (earnings before interest, tax, depreciation and amortisation) margin and passes me a spreadsheet that shows that its revenues up to December 11th were more than €2 million ahead of last year.
Its room occupancy and RevPar, a standard industry measure, are also both ahead of last year.
About 7,000 people will attend Rodgers’s show at the Red Cow, while its two hotels in London are operating at almost full capacity, Power adds.
“The thing that’s killing us is drink sales,” says Moran. “It’s kaput.”
That’s a combination of tougher drink-driving laws and cheap booze in off-licences tempting people to stay and home and drink.
Moran and Power have also been busy addressing the high costs associated with servicing its debts. The debt is held with a syndicate of banks comprising Bank of Ireland, AIB, Ulster Bank and RBS.
The company last year paid a fee of €14 million to break out of its term sheet and move to a variable rate of interest. Power estimates that this will have the effect of reducing its interest bill to about €24 million annually.
The company has also appointed Deloitte to advise it on drawing up a new five-year business plan. A new term sheet is due to be agreed with the banks in January 2013.
“We want to stay ahead of the posse and be in a position to present the banks with our plan,” Power said, stressing that it had not breached its banking covenants.
He expects to receive a first draft from Deloitte in mid January and said all options would be “explored”.
Moran has ruled out selling any of its assets in the current depressed climate, as a means of reducing its borrowings. “It’s just not a good time to be selling assets. The banks are not lending.”
He reckons the Bewleys business has fallen in value by about 50 per cent since he bought it. “It would be foolish to tell you any different.”
Does he regret the deal? “Not in the least. I regret the price paid, but it was a good price at the time. I could have invested my money in other things and lost out, too.”
Moran prefers to look at the positives. All of the properties are well located and all of them are profitable. A very tidy profit, as indicated by its Ebitda margin.
Moran is also looking at taking on management contracts for distressed hotels on behalf of receivers or even the National Asset Management Agency.
“It’s something we might do . . . we’ve had some approaches.”
He won’t take anything with a golf course. “It’s not our scene.”
The company would be in clover were it not for the overhang of the Bewleys purchase.
“These are tough times but we’re weathering the storm and we’ll work our way out of it.”
Moran has six hotels in Ireland and four in England. He describes Ireland as “very challenging” and oversubscribed with hotels.
“The next two years will be very tough.” Leeds is described as “difficult”, Manchester is “holding up”, while they haven’t got enough rooms to service demand in the two London properties.
None of the properties earns less than €6 million in revenues, while its best performer is the 466-room Bewleys at Dublin Airport, which takes in €12 million to €13 million annually.
“I think we’re going to work ourselves out of this,” Moran says. “It won’t be easy but we’re confident about the business.”