Hotel

01 January 2000
Hotel

Ask Queens Moat Houses chief executive Andrew Coppel whether he sees the glass as half-full or half-empty and it is clear that he falls within the definition of an optimist. He looks at the company's £750m debt and does not see a dead weight holding back the company. To him, it represents progress.

"We started off with £1.4b of debt and we are now down to £750m," he says, "so I think that is progress in anybody's book."

It is five years since Coppel took over the helm of the company, which has won an infamous place in British corporate history because of the astronomical level of its indebtedness (see panel). For the 65 banks that had invested in QMH, the rationale for keeping the group afloat as it teetered on the edge of collapse in 1993 was straightforward - better to salvage something from a group which had the potential to trade profitably than sink the entire operation.

Restructuring

Coppel, formerly finance director with Ratners, was brought in by the investors to see through the financial restructuring. Andrew Le Poidevin, a consultant to QMH, was appointed finance director and Michael Cairns, who had retired after a career at Inter-Continental, was brought in as chief operating officer. Andrew Bould was brought in as managing director of the UK hotels division, though that post is now vacant following Bould's departure for Thistle Hotels.

Five years on, Coppel is pleased to say that, to date, the team at QMH has complied with all the covenants made as part of the agreed financial restructure. "We are under no pressure because we have repaid what we said we would repay," he says.

Certainly, the City views QMH in a positive light these days. KPMG hotel consultant William Barney praises QMH for its timing in making disposals. He highlights the recent sale of the group's 11 French and Belgian hotels, which went to the US-based Westmont Hospitality for £42m. "They did it fairly quickly and it went through before all the problems in the markets might have scuppered it," he says.

The sale - which saw QMH concentrate its portfolio on the UK, the Netherlands and Germany - was the latest in a lengthy series of disposals since the financial restructure was agreed. In the years since 1993, the QMH portfolio has slimmed down from 189 hotels to 106, with the proceeds from disposals used to finance debt repayment.

The money raised from the French and Belgian sales has allowed QMH to make early repayment of the bulk of the £45m debt due in June 1999, leaving £5m to pay.

The next key date in the QMH repayment schedule is December 2000, when it will have to pay £165m of senior term debt. With this in view, between 12 and 14 of the company's 34 hotels in Germany have been earmarked for sale, though at this point only four are on the market. "We want to take advantage of market opportunities, but it is not a very liquid market so we are taking our time to achieve acceptable prices," says Coppel, "and because we are not under pressure, we can afford to do that."

More focus

Coppel stresses that the hotels picked for sale have been chosen for strategic reasons, to give more focus to the group, as well as being used to pay debts. An example was the £91.5m sale last year of 25 properties to a management buy-in backed by Hambros European Ventures. The package included six four-star Moat House hotels, but the rest were three-star County Hotels. They varied in size and style and did not fit the Moat House brand, which was relaunched in February 1995 as a primarily three-star value-for-money chain, offering full facilities to guests travelling for both business and leisure.

In the UK, Billesley Manor Hotel near Stratford-upon-Avon is still up for sale, as it does not fit the profile of a Moat House, but again, Coppel says that while there is some interest, the company will not sell it off at an unacceptable price.

The sale of the German properties will complete QMH's disposal programme and leave the company with a portfolio of about 95 properties across three markets. Coppel acknowledges that in the early days of the restructure the initial thoughts were that the entire European operation would be sold and the group reshaped as a UK-only business.

However, he says: "Over the past few years, we have come to appreciate the value of those businesses and we see that there is considerable value and real strength in having a spread of businesses across the three major economies." He adds that, while the UK division may be hit by an oncoming recession, its Dutch and, to a lesser extent, its German divisions are benefiting from economic recovery.

At this point, Coppel says there is no reason to look at introducing a single brand for the hotels which, for historic reasons, trade as Moat House in the UK, Bilderberg in Holland and Queens Hotels in Germany. QMH also has a franchise deal with Holiday Inn which has another four years to run. In practice, having one brand across the three markets is less of an issue as each division relies primarily on its home market.

In the UK, Moat House aims at the same market sector as rivals Stakis, Posthouse and Hilton. Of the 2.5 million customers who stayed at Moat House hotels last year, the vast majority were business travellers who wanted a full-facilities hotel but did not want to pay over the odds for the services offered.

In a bid to stand out from its rivals, Moat House recently introduced a customer service guarantee scheme called Moat House Promises, which applies to every aspect of the hotel stay. Among the promises made to guests is the pledge that, whatever the request, every member of staff is empowered to give or get a solution within 10 minutes. The Moat House Meeting Promise is underpinned by a money-back guarantee if anything goes wrong.

To emphasise the group's focus on service, a recent national billboard campaign for the hotels had the tagline: "Every Moat House delivers every Moat House promise." The group is also investing heavily in leisure facilities to attract weekend business and ensure that its hotels appeal to conference bookers. It now has 27 health and fitness clubs, branded as Club Moativation and open to private members as well as guests.

Brochure

QMH has its own short breaks brochure, Views of Britain, distributed directly to guests, but it also promotes its hotels to the travel trade through the Highlife Breaks programme.

In the first six months of this year, QMH invested £22.6m in its infrastructure. Around 140 rooms will have been added to its room stock by the end of this year, and five new Club Moativation venues are expected to be open next spring.

A particular concern of the current management at QMH has been improving the revenue from the F&B operation of each hotel. Two years ago, Stephen Minall was recruited as F&B director and charged with the task of modernising the hotels' restaurants and pubs. Plans to introduce High Street restaurants and pubs to the hotels have yet to come to fruition. Instead, QMH has focused on modernising its restaurants by introducing a less formal brasserie style.

To encourage customer loyalty, QMH operates schemes such as the Crown Collection Card, which gives regular business travellers discounts on meals and phone calls.

Given QMH's history, forecasting is a risky business. Nevertheless, Coppel is prepared to give his view of what the company will look like in 10 years' time. "I fully expect that we will be a soundly financed leading player in each of our markets," he says, "and we will build from our strength as a European hotel company operating at the upper three-star and increasingly four-star level."

The world may be focusing on QMH's debt mountain, but Coppel keeps his eyes on the steady improvement in the group's trading recovery. "I fervently believe that the group has great potential," he concludes. "The key to that is having a good team, and I believe we have that at Queens Moat Houses."

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