Although some aspects of running a hotel chain will obviously come under a reasonable amount of control, there are others that can easily be left to drift.
And when you decide to pull them back in again, it can be an almighty task, especially when you have to contend with mounting corporate debts and a slump in the industry.
Ian Ferguson is vice president of finance at Le Meridien Hotels and Resorts Ltd. He works under chief financial officer David Maloney and it has been one of his tasks to centralise the finance functions of the chain. This is not an easy job given that the group operates 144 hotels across the globe, with each one acting as a unique stand-alone entity.
Ferguson joined the business in June 2002 in his current position. Prior to that, he had worked as group treasurer and director of corporate finance at Thomson Travel.
He has also during his career spent time at British Aerospace, Arlington, and at what was then Touche Ross specialising in property. This is also where he qualified as a chartered accountant through the ICAEW.
His background in both property and the leisure industry seems to have destined him for a role in the hotel business and it is with Le Meridien that he faces one of his toughest roles.
‘No doubt since I joined, one of the biggest challenges I have been set is to create a central head office function. We now have a central treasury department but there’s still a long way to go. We had to create a central payment function from scratch, our internal audit was handled by Andersen so obviously we want to bring that back in-house. We also need to look at cash pooling and debt management.’
This process will continue throughout 2003. ‘In reality these are really big projects and you can’t do everything at once. This year we’ll be looking at gaining efficiencies in capital management and have a think about the group tax structure. When you’re a group that works in 57 countries, things like this and just getting all of the cash together are not easy jobs.’
Being so spread across the globe has also provided significant obstacles in other areas according to Ferguson. ‘The different laws, languages and cultures that you come across in this business feature among the most challenging aspects of the role. They can also be the most enjoyable.’
As with so many of its competitors though, things haven’t been plain sailing recently. Almost two years on and the terrorist attack on the World Trade Center continues to affect tourism and with fewer people travelling, there are fewer people requiring hotels.
Ferguson estimates that while 11 September didn’t cause panic in terms of the company going out of business, ‘it probably cost us a year in terms of where we were going with our strategy as there was less cash available to upgrade stock’.
Of course this has not been the end of the troubles for the group. The war in Iraq and panic over the SARS virus have caused a further slump in trade and Le Meridien is now in serious financial trouble.
Nomura was the company that led the consortium that bought Le Meridien in a £1.9bn deal two years ago. In the hands of Guy Hands the Japanese bank invested £123m of equity on the transaction along with the Royal Bank of Scotland, which invested around £100m, Abbey National and Alchemy Partners.
Hands’ private equity firm Terra Firma still manages the chain of luxury hotels but what had been seen as a triumph has now turned literally into a disaster, that has dealt a major blow to Hands’ reputation as a deal maker.
All four investors have now accepted that their foray into the hotel chain was not successful and that they will not be getting their money back. The investment in Le Meridien has been written off by the consortium.
Control has now been given over to a new consortium of 20 banks still owed money by the group. This includes RBS, Lehman Brothers, Merrill Lynch and CIBC World Markets.
The company is currently valued at only £700m while having debts of around £1bn, breaching banking covenants. This year earnings before interest, tax, depreciation and amortisation have stumbled to around £70m.
This does not compare favourably to figures in the pre-September 11 era when operating profit for 2000 was in the region of £170m. Over 2,000 staff have been sacked over the past year in moves to cut costs while a new management team has been sent in led by Stephen Alexander, who replaced Juergen Bartels as chief executive in March. The new management team is expected to present a rescue plan to the lender banks on 19 May. This plan, if successful, should provide the company with a greater degree of stability than it has had recently and help get projects back on track.
The company has also been going through a sale and leaseback process, where it has sold several of its hotels to the Royal Bank of Scotland to free up capital for expansion in other areas but continues to manage the properties.
This plan wasn’t so badly hit by the downturn in business and in the UK, RBS has bought up 11 of the hotels including Grosvenor House where a significant refurbishment plan is now underway. ‘Our hotels fall into two main categories,’ says Ferguson. ‘The old and elegant hotels and the newer, more modern hotels.’
In addition to this several classic properties are receiving significant updates in key areas. ‘Places like the Cumberland will be retaining the original facade but a thousand rooms in the hotel will be converted into what we call art and tech rooms. They will be ultra-modern with fittings such as 360 degree power showers.’
The sale and leaseback plan continues unabated with many properties in several different countries due to be handed over to new owners.
However, more recent moves in this country have seen the company selling off properties to rival chains rather than to those wishing to lease the hotel back to them as a sacrifice to its burgeoning debts.
For instance in March, Le Meridien Warwick near Coventry and Le Meridien Queens in Leeds were sold to rival Paramount Hotel Group and Le Meridien Chester was forfeited to Feathers Group for more than £45m.
The hotel chain is likely to look further at many other properties that it has on its books throughout the year. ‘Some of our facilities expire in 2004 so we will have to think about how we are going to refinance them this year,’ says Ferguson.
Corporate governance is also a key issue for Ferguson, despite the company not being listed on an exchange. ‘Just because Le Meridien is a private company, doesn’t mean that we won’t abide by best practice. ‘It is a big company with turnover approaching £1bn a year. Our major shareholders are big institutions and they will expect our corporate governance to be as good as theirs,’ adds Ferguson.
As for Ferguson’s future, that is still unclear at the moment.
‘I really haven’t been in this job for very long and I still have a lot I want to achieve before I can think of anything else,’ he says.
‘I think I have one more job left in me after this one but where will that be? Who knows.’
DISEASE, TERRORISM AND AN ECONOMIC DOWNTURN
9/11: The catastrophic terrorist attacks on the World Trade Center in New York and the Pentagon have had the western world held in a grip of fear ever since. Immediately following the attacks there was concern that the next event was just around the corner. People simply refused to fly and if people aren’t flying anywhere they aren’t going to want anywhere to stay when they get there. Airlines have had a bad time of it since 11 September but hotels have been hit just as hard.
World economy: The world economy was starting on a downward cycle before the terrorist attacks but this has exasperated the problem. In the US and large parts of Europe and Asia economic growth has ground to a halt and is declining in some areas. In situations like these people holiday less and business travel is reduced to a minimum as everyone looks to reduce their costs.
Iraq: Almost connected to 9/11. President Bush’s war on terror stopped briefly at Afghanistan before moving swiftly onto the oil-rich country of Iraq, controlled by dictator Saddam Hussein and alleged producer of weapons of mass destruction. Many quarters saw the military action and its build-up as an attack on the Muslim world, prompting fears of more terrorist action and general instability in many nations across the globe. Although the worst now seems to be over, travel has been cut to a minimum during this period of unrest.
SARS: The latest in a long line of setbacks for all those involved in the travel industry. The deadly virus that seemed to spring up from nowhere has already proved its ability to travel the world well and many fear that sitting on an aeroplane with its constantly recycled air is an ideal way to catch the killer bug. In addition the virus has hit hard in South East Asia and many countries have now been declared off limits by the World Health Organisation.
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