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Major debt reduction and profits growth at Macdonald Hotels

Ruaridh Macdonald, deputy chief executive
Macdonald Hotels, the UK’s largest independent hotel group, has announced it has increased profits and turnover in the last financial year and has effectively reduced debt by almost £100 million by December 2015.  
The group, which has 55 hotels and resorts in the UK, Ireland, Spain and Portugal, published its annual results for the year to 2 April 2015 which showed:   
  • Group turnover up 7% (£10.2m) to £155.7m
• Total operating profit up 11% (£1.6m) to £16.9m
• Profit after tax up £2.5m to £6.1m
• Bank debt effectively reduced by over £96m at December 2015  

Ruaridh Macdonald, deputy chief executive said: “We have enjoyed significant benefit from major events including The Ryder Cup, the Commonwealth Games, The Open Golf Championship and the Farnborough Air show, with like-for-like hotel sales up by 7% and hotel operating profit up by 10%. We have seen increases across our commercial, conference and leisure segments, resulting in a 2 percentage point growth in occupancy and a 6% increase in average room rate.   

“Ensuring that our estate is continually refreshed is essential and during the year we invested a further £16m in capital projects, including refurbishing 261 bedrooms at our Macdonald Aviemore Resort, a new £1.8m leisure club and spa at the Macdonald Craxton Wood Hotel, Chester, as well as major bedroom refurbishment programmes at the Macdonald Holyrood Hotel, Edinburgh, the Macdonald Randolph Hotel, Oxford and the Macdonald Bath Spa Hotel, Bath.”  

Gordon Fraser, deputy chairman and group finance director, said: “Profit before interest of £17.4m was £2.2m (15%) above last year, however higher interest charges due to the accounting treatment of the Randolph finance lease (£2.3m) and a 1% increase in our interest margin £(1.2m) resulted in a profit before tax of £2.7m, £928k below last year.  

“A deferred tax credit of £3.3m has been recognised this year due to the forecasted profits for the year ended March 2016 arising from the £58.8m gain from the disposal of land at Botley Park.  In total, profit after tax of £6.1m is £2.5m above last year.”  

Commenting on current trading, Ruaridh Macdonald said: “We are continuing to perform strongly in the current year, building on the growth in 2014/15 with like-for-like sales and profits up by 6% and 7% respectively. There has been continued growth from both the commercial and leisure segments, with occupancy up a further 3 percentage points and average room rates up by 5%. It is particularly encouraging that, on both these measures, we are outstripping the industry comparatives by 2% as reported by HOTSTATS Hospitality Intelligence.  

“The group has continued its strong capital investment programme, with £9m already invested and a further £5m committed in capital projects in the current financial year, with continuing major bedroom refurbishment programmes at the Macdonald Randolph Hotel, Oxford, the Macdonald Bath Spa Hotel, Bath as well as at the Macdonald Bear Hotel at Woodstock. Over the last two years we have invested over £1m in our hotel IT infrastructure and in our website.”  

Ruaridh Macdonald added: “Hospitality is at the very heart of our business and our people remain central to delivering the warmest of welcomes and exemplary service to all our guests. For that reason, we have introduced the Macdonald Pride Programme, which is focused on further enhancing customer service and rewarding our staff for exceptional performance.  

“In addition to our existing graduate programme we have launched our Spa Academy with 17 full-time apprentices now working across our estate. It is a unique partnership with the International School of Beauty, and one which we hope to build upon in the coming year.  We are also in the process of launching our Chef Academy with a target of training 50 new apprentices in the next year.  

“We reported in April 2015 that the 5 star Macdonald Randolph Hotel in Oxford had suffered fire damage to 32 of the 151 bedrooms as well as to the kitchen and restaurant.  The hotel was able to resume trading in May 2015 and will be fully operational in all respects from February 2016 including the launch of the new Acanthus Restaurant and with 128 refurbished bedrooms.”  

Commenting on the banking facilities, Gordon Fraser said: “On the 24 July 2015 we completed the sale of land at the Macdonald Botley Park Hotel, Southampton to a consortium of developers for £58m.  The first payment has been received, to be followed by further payments over the next four years in full settlement of our C Facility with Lloyds Banking Group.   

“By the end of 2015 we will also have repaid £42m of our restated £50m B Facility from cash flow and from the sale of the Macdonald Old England Hotel, Windermere and the Macdonald Marine Hotel, North Berwick, both to Macdonald family controlled entities which gives us the opportunity to buy these back in the future.   

“The repayment of our B Facility and the settlement of our C Facility will leave only our core A Facility of £193.6m plus £2.5m revolving credit. This is a very substantial reduction compared to the position in March this year, where our total bank borrowings were £301m.  Following our privatisation in 2003 and before the global financial crisis, our gross debt was over £700m, which demonstrates the extent of our debt reduction over the years and without destroying any significant enterprise of the business.

“The group has significant non-hotel assets and we have received a number of offers totalling over £30m for development land.  We are currently assessing how best to maximise value from our land bank throughout the estate with a view to further reducing our debt and accelerating the reinvestment in our hotels over and above our existing capital expenditure facility.  

”The strong trading performance, our substantial continued investment in our estate, good headroom on our banking facility, which is in place until September 2018,  and our reducing debt continue to underline the sound financial strength of the business.  

“The group’s resort business has also undergone significant change during the year. Eight of the nine clubs have held AGMs and all have voted overwhelmingly to convert from traditional fixed-week arrangements to points clubs.  This change preserves the resort product for those wishing to remain in the system whilst providing an exit for those owners who do not - a ground-breaking development, not just for Macdonald Resorts but for the industry as a whole, in addressing the issue of in-perpetuity contracts.”

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