Elegant Hotels Group PLC (LON:EHG) Chief Executive Officer Sunil Chatrani caught up with DirectorsTalk to discuss their half-year results, acquisition of Waves, further acquisitions, strategy and competitive advantages
Q1: Now you’ve just published your half-year results which were pretty impressive given the challenging backdrop, what’s driven the increase in profit during the period?
A1: It’s a combination of things, we have a great brand, the Elegant brand is well recognised and our relationships with the tour operators certainly helps us both on and off island. In terms of the tour operators, those relationships has grown over the years, we have really good relationships due to the fact that we do what we promise and the tour operators have that level of confidence with us that certainly in renovations and so in the past we’ve always opened on time, we have delivered on the product and the consistency and the service. The relationships certainly help us drive the volumes but our yield management office, our US office which has all our yield management, what they do is we have 13 people and day in, day out all they’re looking at is what is being advertised in the marketplace, what the discounts are and their yielding and mom and pop type operations don’t have that benefit. When we do have a slowdown in sales and if our revenue is not what we expected to be then we have the cost levers as the professional management team, we’ve done well with this, we have systems and processes and the discipline to pull back when we need to so we’re able to deliver on the profits on a combination of those things.
Q2: Can you talk us through the rationale for acquiring Waves and what was it in particular that made it an attractive target for the Elegant Hotels Group portfolio?
A2: The acquisition strategy has always been the same, from the time we listed we said we’d be looking at small mom and pop type operations, 4*/5* products, things that were under-invested but has the potential to grow and where we feel we can fit it in sensibly into our portfolio. Waves actually ticked all of those boxes, Waves is on the platinum coast of Barbados and it was important to do the first acquisition in Barbados because we wanted to make sure and to get the confidence from our investors so that they can see what we can do with a product and being on island it enables us to actually jump in and manage it fairly quickly and turn it around fairly quickly. So in less than 10 months we actually have the acquisition, right now it’s under renovation and it will be opening in the last quarter of this financial year and what’s good about it is it’s on the west coast, it’s a 4* product, it’s a really nice niche and it’s the only hotel on the island that has a destination, it has 18 treatment rooms, it’s spa-focussed. That fits into Elegant Hotels’ portfolio quite nicely because it doesn’t compete with anything else that we have, the position was actually quite easy in the sense that we didn’t have to spend a lot of time trying to figure that one out and it fits into the portfolio and adds an additional services to the rest of the hotels as well.
Q3: Are Elegant Hotels Group continuing to assess further acquisition targets?
A3: Yes, that’s an interesting one. Acquisition opportunities are there, quite a few actually but we have to be sensible in how we approach this so we’re looking at them carefully but what’s also interesting is the fact that management contracts opportunities are being opened to us fairly regularly as well. Having gone public and being in the limelight a little bit more we have a lot more opportunity from investors, developers that like Elegant, looking at our information that is out there on the stock market, like our performance and are interested in working with us. So whilst there are opportunities to invest or to buy outright there’s also the opportunity to do more management contracts. We haven’t done a management contract yet but it’s certainly one that is quite appealing because it doesn’t require a lot of capital so those opportunities are there and we’re exploring those.
Q4: Now you say that Colony Club has traded particularly well due to the recent refurbishment, is that a deliberate strategy to keep improving properties in order to drive performance?
A4: Yes, it is. What we do in terms of our capex programme is that we will provisionally our hotels will spend between 3.5% – 4% of their revenue and capex just to keep it up to par, most hotels in the Caribbean don’t do that because they don’t have that discipline but we have that, we’ve done and continue to do it. On top of that, we spend an additional percentage point or so in what we call special projects as we’ve done here for Colony so in the last couple of years special projects have been targeted towards Colony and we’ve seen the results for that. What we’re doing now is we’re increasing that special projects fund by a couple of hundred thousand dollars, it’s not a lot money but with the addition of Waves we’ve going to spend in total in absolute dollars $1.5 million a year in addition to the 4% of total revenue that we would normally spend, the difference now is that we’re putting those funds and targeting it towards one or two hotels more specifically rather than spreading it so that we actually get a bigger bang for the buck.
Q5: You mentioned the competitive advantages that Elegant Hotels Group have over your peers, what exactly are they then?
A5: Well, being a larger portfolio we have 29% now of the quality room stock on the island, we are the largest operator in Barbados, that certainly goes a long way with the tour operators in terms of our negotiations with them and our reputation as well in terms of deliverance service. Having the systems and processes and being able to invest in that, having the diversity of product on the island and eventually in the Caribbean as well, the size and the professional management makes the difference, mom and pops typically don’t have those kind of things available at their fingertips and we’re a brand that is now being recognised in the marketplace and has been recognised by the tour operators or the trade but now we’re getting more into the consumer branding where the consumers are being able to recognise the brand a lot more as well.
