April 2011

Company Watch analyses the Von Essen hotels group, which owns 31 luxury hotels in the UK and France, as it enters administration

The Von Essen hotels group went into administration on 20th April 2011, just before the extended Easter and Royal Wedding break, having been unable to service interest payments on an estimated £250m debt owed to Barclays and the Lloyds Banking Group. Summarised accounts taken from the company's website show assets of £430m, sales of £74.2m and operating profit of £24.9m for the year ending December 2010; the company's portfolio includes such prestigious luxury and country house hotels as The Royal Crescent in Bath, Amberley Castle in West Sussex and, of course, the legendary Cliveden in Berkshire.

The company has reported steady increases in sales over the past five years, assisted by its growing portfolio of properties. However, despite reasonable operating profits of £24.9m in 2010, this was reduced to barely breakeven once exceptionals of £6m coupled with interest costs of £17m were taken into account. An appetite for acquisitions (The Forbury in 2009, Llangoed Hall in 2010) has left the group with substantial debt of £250m, which went short in 2010. This weakening of the balance sheet coupled with its break-even earnings position gave it a very weak health profile (with an H-Score of just 8, i.e. deep into Company Watch's Warning Area) and it is not surprising that the company was forced into administration.

Our modelling tool shows that if the group's bankers were agreeable to restructure the debt to long - which would, no doubt, need to be backed by a belief that the group could generate operating cash flows sufficient to cover interest payments, the Von Essen group would emerge from the Warning Area and could return to reasonable financial health.