It’s not been an easy time for the UK’s Hotels and Hospitality sector. First Brexit in 2020 cut off the sector’s supply of cheap, flexible labour from the EU, which was swiftly followed by two years of Coronavirus lockdowns that prevented domestic and international visitors staying at British hotels.
2020 was a record year of revenue decline with turnover falling 70% and jobs cut by around one-third. Many hotels that closed during the lockdown never opened up again.
According to a report by the British Hospitality Association, over 500 hotel groups in the UK closed following the Coronavirus lockdown in 2020. This represented about 10% of all hotel groups in the country. The same report also found that the number of jobs in the hotel and hospitality sector fell by over 200,000 in 2020. This was the largest decline in employment in the sector since records began.
The pandemic had a devastating impact on the sector in the UK with the closure of hotels and the loss of jobs having a significant impact on local economies and communities.
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However, one group that survived and has even prospered is the Dalata Hotel Group [LON:DAL], a Dublin-headquartered hospitality group operating hotels in the UK and Ireland, and one in Germany. The sector is slowly recovering, but it is likely to take some time for it to return to its pre-pandemic levels. The ongoing pandemic, the cost-of-living crisis, and the war in Ukraine are all factors that could continue to impact the sector in the coming months and years.
That said, Dalata is confident going forward and is due to publish its 2023 Half Year Results next Tuesday (29th August). The group was founded in 2007 by Pat McCann with investment support from TVC Holdings, an unquoted investment holding company and clients of Davy Property Holdings. Dalata’s first job was the acquisition of a group of properties from Choice Hotels in Ireland.
Dual listing
Seven years later Dalata listed on the ESM market of the Irish Stock Exchange and AIM in London and in the following two years raised over EUR850m (GBP725m) in debt and equity, which it deployed on an acquisition spree to build up the group, the largest during this period the flagship Moran Bewley’s Group for around EUR450m.
By 2016, nine years after foundation, Dalata had developed enough scale for the London Stock Exchange to lift the hotels group out of AIM and promote it to the Main Market which was accompanied by the Irish Stock Exchange promoting Dalata from ESM to a Premium Listing.
Up until that point Dalata had been predominantly concerned with creating market share in Ireland, but in 2018 the group was ready to expand into the UK and opened five new hotels in on the other side of the Irish Sea, having three hotels in London and 44 hotels in its total portfolio. Despite lockdown, the group opened a new hotel in Glasgow in 2021, and continued to look for growth opportunities that emerged from the embers of the Covid-19 crisis.
European expansion
Last year the group opened a further seven hotels and made its first foray outside the British Isles into Continental Europe cutting the ribbon on Clayton Hotel Düsseldorf. Dalata’s growth strategy has to date been focused on organic growth and acquisitions. The company has acquired a number of hotel brands, including the Maldron Hotels brand and the Clayton Hotels brand. Dalata has also opened several new hotels under its own brands. Earlier this summer the hotel operator announced the purchase of the 89-room Apex Hotel London Wall for GBP53.4m.
The company now has 52 hotels under management and its target markets are business travellers, the city-break/mini-break leisure segment and hosting and accommodating conference delegates. Its short- to mid-term objective is to gain primacy in the Irish market – it already successfully operates Ireland’s two largest hotel brands, the Clayton and the Maldron Hotels – and aims to become a significant player in the UK. It is keen on continental expansion, and its long-term aim is the rather ambitious desire to become the best hotel operator in the world. The company is well-positioned for future growth, with a strong portfolio of hotels and a clear growth strategy.
For now, though, in its last results to end-December 2022, Dalata reported revenues of EUR558.3m with a profit after tax of EUR96.7m, and would expect an improvement on this position in the next round of results.
Cautiously optimistic
In its preliminary results in February, Dermot Crowley, chief executive said: “The group remains cautiously optimistic on its outlook for 2023. […] Engagement with corporate customers and tour operators on demand and pricing has been positive. There are also positive demand indicators in Ireland and the UK, including on the resumption of more normalised conference and events business levels and the continuing return of international travellers, in particular from the US market. We continue to monitor the macro-economic backdrop and any potential for a slowdown, most notably in domestic leisure demand. However, we are not seeing any such indicators in our trade levels to date.”
To mitigate the spike in fuel costs in 2022 Dalata entered into fixed priced contracts for over 85% of its projected gas and electricity consumption in 2023 and at the 2022 calendar year’s end had cash and undrawn facilities of EUR455.7m, up from EUR298.5m in 2021.
At the end of 2022, the group had loans and borrowings of EUR193.5m and undrawn committed debt facilities of EUR364.4m. Loans and borrowings decreased from EUR313.5m at the end of 2021 mainly due to net loan repayments totalling EUR105.9m and foreign exchange movements which decreased the translated value of the loans drawn in Pound Sterling by EUR12.3m. The group’s hotel assets are worth EUR1.4bn.
Scale and ambition
Crowley, who became CEO in November 2021 added: “We have emerged from the pandemic and its after-effects with a business that has grown in scale and ambition. We are proud to have recently opened our 50th hotel with the completion of Clayton Hotel Glasgow City, to have added seven hotels to the group’s portfolio during the year and to have exceeded EUR0.5bn in revenues for the first time. We understand that the group’s performance was achieved through the contributions of all our stakeholders whom we continue to place at the heart of all we do.”
After a good half-year, with memories of Covid becoming vaguer by the day, the company expects to start paying out dividends in 2H23, something it had not entertained in 2022 or 2021.There is a definite recovery in the hospitality sector under way, but it remains to be seen how long and sustainable the recovery is, especially given the economic harbingers of doom who warn about global economic slowdown especially in developed economies.
However, Dalata came out of Brexit and Covid punching, and wasn’t scared to invest – especially into a wounded sector, where opportunities for aggressive, well-backed buyers proliferated.
The company opened trading at 358p on 22nd August. Dalata has offered a year-to-date return of 21.4%, roughly the same return offered over one year, giving the company a market capitalisation of GBP813.3m.
