Macdonald profits edge up despite tough times

Macdonald Hotels increased pre-tax profits by 7% during the six months to 4 October, despite tough trading conditions that saw room yields in its newly acquired Heritage hotels fall by 5%.

Turnover during the period rose by a massive 81% to £70.4m, from £38.9m during the same period last year. This was largely the result of two acquisitions: Heritage and the remaining 50% of Macdonald's Barratt Resorts joint venture.

Profit before tax went up by 7% from £7m to £7.5m, but the company said its underlying profits were 20% ahead of last year.

Chief executive Donald Macdonald said: "We, like the rest of the hospitality industry, have experienced mixed trading conditions over the past few months, particularly in the South-East.

"However, I am pleased that we have shown strong resilience, turning in an excellent performance, particularly in our wholly-owned hotels, which have a wide business mix."

The 48-strong Heritage chain was bought from Compass in April for £235m, in a joint venture with Bank of Scotland.

Macdonald said: "Around a third of total revenues are in hotels located around the M25 and these have been hit by the economic slowdown and in particular from a drop in US commercially generated business.

A further 15% of revenues are generated in locations popular with US tourists, such as Stratford, Oxford, Winchester and Lincoln, and again these have suffered a downturn in trading, particularly since 11 September.

In the early summer months a number of rural hotels, for example in the Lake District, were also affected by foot-and-mouth disease, but any negative impacts on the business have since abated."

The effects were heightened by the narrow mix of business in the hotels, Macdonald said, with about 54% of sales coming from bedrooms.

The overall impact on Heritage was a 4% reduction in occupancy to 70%. Room rates held firm at £71.43, but room yields were down by 5% to £50.07.

Macdonald Hotels and Bank of Scotland now plan to invest £60m in Heritage over the next five years, adding at least 500 new bedrooms, 10 business centres, 10 conference suites and about 15 leisure clubs, as well as refurbishing bedrooms and public areas.

They will be re-branded as Macdonald Hotels over the next six months.

Results in the company's 25 wholly-owned hotels, most of which are in the Midlands, the North-west of England and Scotland, were more positive.

Room yields increased by 13% to £41.59. Occupancies were up by 4% to 66% and room rates by 7% to £62.85.

The company said the strength of these hotels was their business mix, with only 42% of revenues coming from rooms and 47% from food and beverage.

But up to five "non-core" hotels are in the process of being sold off. The Macdonald Royal Derwent, a small hotel near Durham, was sold in September for £1.4m and another hotel is under offer.

In Macdonald's managed hotels, turnover from management fees increased by 83% to £4.1m, but earnings actually fell by 5% to £800,000. This was due to the early termination in April of the management contract with Hand Picked Hotels and to one-off management costs incurred as a result of the integration of Heritage.

The company said trading had remained "mixed" during the first nine weeks of the new financial year, but forecasts for December were slightly more encouraging.