1 © 2011 horwath bastow charleton horwath bastow charleton ihf conference – banking issues 8...
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1© 2011 Horwath Bastow Charleton
Horwath Bastow Charleton
Horwath Bastow CharletonIHF Conference – Banking Issues8 March 2011
Audit | Tax | Advisory
2© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonProfits Under Pressure
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
50% 60% 70%
Occupancy
Then
Now
• Does excess capacity mean higher occupancy levels will be achieved at current room rates?
C
A
B
3© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonLimit to Cash Available to Service Debt
Occ Net Profit
Then
Net Profit
Now
Capital Expenditure
(3%)
Available to Service Debt
–
Now
Interest Capital
50% 11% - €440k 6% - €240k €120k €120k €400k €499k
60% 14% - €560k 10% - €400k €120k €280k €400k €499k
70% 18% - €720k 14% - €560k €120k €440k €400k €499k
• 100 bedroom hotel with turnover of €4m
• Loan of €10m over 15 years at rate of 4%
• Is it the banks that have a problem?
4© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonHotels & the Banking Sector
• How long will it take to return to profit and debt levels similar to 2003?
5© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonOver Investment in the Hotel Sector
6© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonFinancial Institutions
• How do the Banks deal with their problem?
• No appetite for providing working capital
(Certus)
7© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonWhat the Banks Have Learnt
8© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonWhat the Banks Have Learnt
9© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonBanking Strategies
10© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonWhy Banks are forced to appoint Receivers
11© 2011 Horwath Bastow Charleton
Horwath Bastow Charleton
N
• The sustainable level should be c€550k
• A reduction of €400k is therefore required
• This is the equivalent of 1-2 years profit
• Creditors compete with the Banks for payment
• Banks address the problem by appointing a Receiver
Working Capital Problems
Potential Creditor Levels
Trade Creditors €600k
VAT & Payroll Taxes €250k
Rates €100k
Total €950k
12© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonReceiverships
• These 5,000 rooms are likely to have €500m in outstanding loans
• Is 50% in the € a good return for the banks?
• Are there likely to be 100 hotels in Receivership by the end of 2011?
13© 2011 Horwath Bastow Charleton
Horwath Bastow CharletonDiscussion
Winners Opportunists
Losers Survivors
14© 2011 Horwath Bastow Charleton
Horwath Bastow Charleton
Horwath Bastow CharletonChartered Accountants and Business AdvisorsMarine HouseClanwilliam CourtDublin 2Ireland
www.hbc.ie
Aiden MurphyPartner
Horwath Bastow [email protected]
Horwath Bastow Charleton is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and independent legal entity. Horwath Bastow Charleton and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member.