Eden Group: A healthy mix of entertainment and hospitality

The Eden Leisure Group's profit as a whole did reduce in 2008 and 2009 from the record year seen in 2007, however, it is important to point out that the group continued to make a healthy profit and was always able to meet its debt obligation with cash surpluses, according to managing director Ian Decesare.

"To be specific, our audited accounts show EBITDA in 2009 dropping to €4.1 million from the high of 2007 with EBITDA reaching almost €6.5 million; still very healthy considering a recession," he tells The Times Business in an interview.

Mr Decesare says that on a more micro level one has to distinguish between the hospitality and the entertainment sectors.

"During the two-year crisis, we have found that our entertainment business was mostly recession proof. Apart from the arena that was affected negatively by the downturn of conferences to Malta in the last 18 months, we continued to grow the entertainment part of our business.

"In fact last year, Eden Cinemas had a record year with a nine per cent increase in profits over the previous year. The SuperBowl and the Eden Car Park also continued to show healthy growth. Clearly tourism was negatively affected by the global economic crises in 2008 and 2009."

He says the InterContinental started to feel the downturn in the second half of 2008 as conferences "all but dried up". Companies were reluctant to travel while the world was in such turmoil. This had an effect on hotel rates and tourist arrivals which resulted in a dip in both revenue and profits at the hotel.

"While we were among the first to feel the impact, we were also the first to react and with a concentrated effort in market penetration, we ended up with a 10 per cent increase in guest nights in 2009, thanks in part to the increase in seat capacity to the island in the latter part of 2009. The good news is that Malta, including our hotel, is experiencing very positive results this year.

"Conferences are back and we have seen an increase of 450 per cent in this sector compared to last year. The hotel, being the youngest of our operations, has the most potential for growth. We believe from what we are seeing that by 2012, perhaps even earlier, we will be back to our peak year of 2007 when profit from the hotel alone was well in excess of €4 million," he says.

The entertainment sector, he points out, has continued to grow this year particularly the cinemas which have continued to improve profits. The first quarter 2010 shows an improvement of 50 per cent for this outlet and the SuperBowl and Car Park continue to show improvements.

He adds: "Our business is a very healthy equal mix of entertainment and hospitality. It is pertinent to point out that the entertainment side of the business accounted for 51 per cent of our EBITDA last year despite having lower revenues than the hotel. Asset value is also quite evenly split between the two sectors. The InterContinental Malta, Eden Cinemas and 89.7 Bay are the highest contributors to the group's profits," he says.

Mr Decesare says the group is working on a number of small projects "as we speak".

"Our present focus is on improving our existing businesses and making them more profitable. Following an extension of our lease at Numero Uno, we are currently carrying out a major upgrade to this open air club in Ta' Qali which will officially open in early June. We are also working on a major change to the iconic disco club, Axis. This operation closed in January and we are converting the building into five units which will be rented as restaurants in what we believe will be the start of a major upgrade to Paceville.

"We are also about to launch two new radio stations using the Bay brand for a different niche of listeners. We are also about to enter into the field of digital 3-D cinemas. It took us a while to identify the right equipment. Our research found that many systems being used suffered a great deal of light loss when using 3-D glasses. The equipment which we will be installing shortly will greatly minimise this loss."

The company is also working on improving the offer it has on the beach in St George's Bay with a new bar concept providing VIP services for discerning customers on a portion of the beach.

"Of course, we continue with ongoing refurbishment programmes at the hotel where between €600,000 and €1 million is spent annually to keep the hotel fresh and competitive. The funds for this are accumulated contractually as a percentage of revenue to ensure continuity," he says.

Eden Finance plc recently announced a €15 million 6.6 per cent unsecured bond issue. Why did the group not get the required finance from the banks?

"It is very normal and healthy that companies such as ours diversify their debt portfolio. Our current financing is made up of bank borrowings and a public bond of €23 million. This bond will be redeemed by October of this year and replaced by a new issue of a new €15 million bond. Effectively we will continue to reduce our bank borrowings with a regular repayment programme paying off both interest and capital.

"This we feel is a far more healthy approach in our borrowing structure. Over the last six to seven years we have reduced our capital creditors and bank debts by over €26 million. We have also taken a risk averse strategy with regards to fluctuation in interest rates where we have purchased an eight-year interest rate swap on 60 per cent of our bank borrowings essentially shielding us against future rate increases," he says.

Mr Decesare believes the group's track record is a guarantee for the Eden bonds.

"While I believe most bonds are unsecured, the Eden bonds are guaranteed by the Eden Leisure Group. This is a business that has a 45-year track record of expansion from a small 20 roomed hotel in 1966 to today's business mix of entertainment and hospitality that employs some 600 staff, has assets of €87 million, and an annual turnover of around €20 million.

"There is always risk in investments, however, our business is bricks and mortar and has a proven track record. We have hundreds of current bondholders who have invested in our original bond all of whom have been paid regularly every year. We set up an investor relations programme which rewards holders of varying amounts of bonds with a number of Eden Leisure related services such as free cinema, parking and SuperBowl tickets as well as free nights at the InterContinental for those with significant holdings.

"These additional benefits have increased customer loyalty with our investors. Existing Bondholders are being given preference to take up the new bond issue in exchange for relinquishing their existing holdings."

On the prospects for InterContinental hotel this summer, he says there is a direct correlation between airline seat capacity and arrivals to Malta.

"Given that seat capacity this year has increased by 17 per cent over the five per cent increase of last year, we are very confident that arrivals will increase substantially this year. In the first four months of 2010, there have been increases not only in guest nights but, just as importantly, in rates.

"For 2010, InterContinental is forecasting an increase of 50 per cent in profits and I am informed by the hotel management that from business on the books, this forecast has already been reached for the first half of the year and with the large increase in seat availability, which has always resulted in increased arrivals, we have no doubt that summer and the rest of the year will continue to be very positive."