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Elegant Hotels Group Plc

Elegant Hotels Group PLC Q&A: Preliminary Results (LON:EHG)

Elegant Hotels Group PLC (LON:EHG) Chief Executive Officer Sunil Chatrani caught up with DirectorsTalk for an exclusive interview to discuss their preliminary results for the year ended 30th September 2017.

 

Q1: This morning we saw the announcement of your preliminary results for the year ended 30th September 2017 in which you mentioned a rebased market. Sunil, can you talk us through what you meant by that?

A1: For the financial year 2017, this was the full year a rebased Sterling/US dollar exchange rate which impacted demand from UK travellers for Barbados as a luxury tourist destination. As a result, it has been necessary to discount rates at certain properties on a targeted basis which has inevitably affected profit margins of the business. However, we believe that the pricing environment is now more stable and that this is the new norm.

 

Q2: What are the measures that you’ve taken as a result of these changed market conditions?

A2: In response to the weakening of the Sterling, the pricing strategy has been reviewed at some properties, we discounted some on a targeted and tactical basis in order to drive occupancy while holding rates at other areas for example, The House and Colony, in order to maintain differentiation in the portfolio. The US-based revenue team remained disciplined and cautious with their discounting, leveraging our strong relationships with our tour operators as well as our strength due to our size.

We took several actions to expand the target markets which included both the sales team, both in the US and the UK, and launched a new website in January 2017 to improve direct bookings from the US and North America in general which saw an increase of 14% in 2016 to 17% in 2017, of our total business. Also, increasing our focus on the important millennial segment, for example the marketing of Waves which has seen a tremendous increase in arrivals from the US as well as millennials coming to stay at that particular property. There is also the ongoing focus on cost controls, the impact of implemented measures would be expected in 2018.

 

Q3: Can you tell us a bit more about the Treasure Beach acquisition? What was the strategic rationale for it and how does it fit in with the rest of your portfolio?

A3: Treasure Beach is a 35 all-suite hotel located next to Tamarind Hotel on the platinum west coast and if you remember Tamarind is located next to Daphne’s as well as The House, so we now have four properties connected on that platinum coast.

It fits our long-held acquisition criteria of being a property that complements our portfolio and will benefit from our scale. Along with being a great geographic fit, it was an under-performing hotel that could be refurbished, re-positioned and repriced in line with our enhancement strategy. It reopened in December, middle of December, following a $2.8 million refurbishment and we’re delighted with the outcome. It means that our total room count now on island is 588 rooms, compared to 483 rooms at the time of the IPO, this is now more than twice the nearest competitor in Barbados and gives us significant influence and leverage over our tour operators.

 

Q4: How different is the operating environment in Antigua, given what you’ve seen since signing the Hodges Bay management contract?

A4: We’re confident in the Elegant Hotels’ strategy and way of working is transferrable into Antigua. We have strong relationships locally there and we have a team on the ground who understand both the island as well as Elegant’s approach. There are more similarities than differences and we believe that the synergies and opportunities there are significant for us.

 

Q5: In terms of the underlying portfolio, has anything changed in terms of the strategy you outlined at the time of the IPO?

A5: No, we’ve been very consistent although we have had to be more flexible on rate in some instances given the change in market, we are still pursuing a refurbish, reposition and repricing strategy. In addition to the regular capex where we spent 4% of our hotels’ revenue, we also spent an additional $1.5 million on special projects as planned, all these remains consistent with our strategy as outlined at IPO. The close and renovation of The House resulted in a 9% increase in business on the books since reopening which is a great example of the strategy working and in addition, the food and beverage offered to Turtle Beach and Crystal alongside targeted discounting led to increased year-on-year occupancy. Waves is another great example of the success of the underlying strategy.

 

Q6: Can we see more in terms of M&A and other expansion initiatives in FY18?

A6: Yes, whilst we can’t comment on specifics, we are continually assessing potential acquisition opportunities, both in Barbados and throughout the wider Caribbean. The Board has recently been in advanced discussions, at this point of time, with a specific opportunity and hope to be in a position to note something very soon. Along with that, we see a number of other compelling opportunities ahead of us and are constantly managing our cash flow and that availability in order to ensure we can take advantage of them as they present themselves.

 

Q7: How do you think the current year started for Elegant Hotels Group?

A7: Trading, since start of the new financial year, has remained in line with market expectations and bookings are currently trading ahead for the same period last year. I’m confident in its prospects for 2018 and beyond as Barbados is a fundamentally attractive destination where we have most of our rooms now.