Hotel group Dalata considers European expansion

Revenue and earnings up as businesses perform well despite tougher Irish market

Dalata chief executive Pat McCann:  ‘I remain encouraged by the strong forecasts for the Irish economy.’ Photograph: Maxwells

Dalata chief executive Pat McCann: ‘I remain encouraged by the strong forecasts for the Irish economy.’ Photograph: Maxwells

 

Dalata Hotel Group, which reported strong full-year financial results on Tuesday morning, is mulling expanding the business beyond Ireland and Britain.

Pat McCann, the group’s founder and chief executive, said the company has appointed a London-based consulting team from Deloitte to examine the possibility of a further geographical expansion of the business, which operates 44 hotels in Ireland and Britain, with another 11 under development.

Deloitte’s findings will be presented at a company strategy day in June, Mr McCann indicated. He confirmed that Deloitte is examining the feasibility of expansion into continental Europe and will report on this.

Brands

It is also likely that the consultants examine the possibility of taking the group even further afield. Mr McCann declined to comment on whether Dalata could eventually take its brands to the US.

He stressed that no decisions on further geographical expansion have yet been taken and that the group will not do it until growth “bottoms out” in its existing markets, with growth in Britain still the immediate focus.

“Dalata needs to be certain of every move it makes,” he said. But he concluded that 2020 will be a crucial year in planning the next moves at the group, which he founded in 2007.

In its results, Dalata, which owns the Clayton and Maldron brands, said revenue and earnings rose in 2019, with Ireland and Britain performing well.

It effectively shrugged off a VAT rate increase on the hospitality industry, although its revenue per available room, a key industry metric, declined by 3.1 per cent in Dublin as the market softened in the capital with more supply.

Total revenue for 2019 rose 9.3 per cent to €429.2 million. Dalata has added 1,692 rooms in the past two years in Dublin, Cork, Galway, Belfast, Newcastle, Cambridge and London.

Earnings per share were 7.5 per cent higher at 46 cent. Costs were also lower, with the company’s investment in technology paying off in payroll savings and an increase in food and beverage margins for the year.

“I am delighted that we generated over €100 million in free cash flow for the first time in the history of the group,” said Mr McCann.

Impact

He said he expects any impact on the industry of the coronavirus outbreak to be “short lived and recovery rapid”.

He said the outbreak would be of greater concern if the UK becomes badly affected. Dalata told investors on Tuesday that its UK business will be as large as its Dublin operation by 2022.

Immediate future expansion will include a push into prime areas of the city centre of London, Mr McCann said. “That will be a new departure for Dalata.”

He said it is examining five potential projects, although not all of them will go ahead. Dalata last year acquired a site for a hotel in the trendy London district of Shorteditch.

He confirmed that the group does not need to tap shareholders to fund any future expansion. Neither will excess cash be returned to shareholders.

“I have so much use for that money. Our continued strong cash generation and our strong balance sheet allows us to fund acquisitions and development . . . It also allows us to fund a progressive dividend policy,” Mr McCann earlier told shareholders.

“We are mindful that Dalata is exposed to global headwinds that can impact the hospitality sector,” he said.

“We expect approximately another 1,900 hotel rooms will open in Dublin during 2020 and the digestion of this new supply will have an impact on the market. However, I remain encouraged by the strong forecasts for the Irish economy, further job creation by multinational companies and the continued demand for bedrooms.”