Crowe partner, Aiden Murphy recently spoke at the Irish Hotels Federation seventh annual Hotel Investment Conference on Profit Sustainability, Financial Planning and Hotel Debt.
Concerns around profit sustainability were addressed. Aiden analysed recent annual profit growth between the years 2012 – 2015 and 2015 – 2018 highlighting a slowing pace of annual profit growth in more recent years.
Aiden highlighted international visitor demand. He focused on the US, UK and Domestic markets and through examples demonstrated the impact these markets have on Ireland hotels profitability.
The possible impact of incoming supply growth on EBITDAR in Dublin hotels was outlined. After the new supply enters the city, a reduction in capacity nights of approximately 50 nights could result in a 6% decrease in EBITDAR. Aiden continued to demonstrate the potential impact of the VAT increase on Dublin, Rest of Ireland and Small (< 50 bedrooms) hotel markets. Small hotels EBITDAR is likely to be impacted by an 11% decrease, almost twice as much as Dublin hotels.
Using Dublin and Rest of Ireland markets as examples, Aiden analysed the impact of a 10% fall in revenue which could potentially lead to a 17% decline in profit in Dublin hotels and 24% decline in Rest of Ireland hotels.
He discussed the areas that need a financial planning focus and how a hotel can ensure consistent operations while maintaining a profit growth, even while the new market challenges of VAT, Brexit and labour cost increases put downward pressure on profits.
To finish, Aiden covered hotel debt considerations, highlighting the value of the hotel sector between 2015 and 2018, while outlining the debt and equity levels in the sector. He used examples to quantify affordable loan levels for the sector across the different markets. He highlighted the available funding in the sector and the issues for consideration when arranging debt facilities.
Overall revenue growth from 2015 to 2018 had been easily attainable and the outlook for 2018 onwards remains positive. However, the impact of the VAT increase and increasing costs in the business will make it difficult to maintain the net profit margins of recent years.