Despite the challenging economic environment, this has been another busy and successful year for our Malmaison and Hotel du Vin operations. A further four hotels have been opened – three Hotel du Vin and one Malmaison – while our Brighton and Harrogate Hotel du Vin were extended, reflecting a total investment for the year of some £49m and taking the group total to 26.

As we have already reported, the first half started extremely well, and the economic downturn has only really made an impact on our business in the last four months of the year as food and beverage sales slowed and room rates came under pressure. However, we produced a 13% increase in revenue, up from £95m in 2007 to £108m this year. Operating EBITDA rose to a record £26m, up from £24m last time.

The revenue uplift reflects a contribution from hotels opened during the year as well as increased performance from those opened during 2007 that have now become well established in their locations. All our new hotels opened during 2008 were launched in the last four months of the year and, therefore, their full impact will be felt during 2009.

Even taking into account the new properties, occupancy over the year was maintained across both brands. At Malmaison, occupancy rose from 78% to 79% while Hotel du Vin maintained levels at 81%. Room rates reflected the tougher market conditions and these eased back slightly, down from £113 to £112 at Malmaison and from £124 to £120 at Hotel du Vin.

It is pleasing to note that our new hotels which opened in the second half of the year all performed extremely well. Poole (September 2008) is broadly on budget and is showing strong income from its popular bistro. Aberdeen (November 2008) has started very strongly and continues to perform well. Our Newcastle Hotel du Vin (October 2008) has recorded impressive food and beverage figures but is taking a little longer to establish itself in the corporate market than originally planned, due to recessionary effects on some major corporates in the area. Our Edinburgh Hotel du Vin opened in December 2008, with its second tranche of rooms coming on stream at the end of January 2009; it has got off to a good start despite competition in the city. Only Poole, which tends to be subject to a more seasonal demand base, has had a tougher start to the new year but nevertheless is ahead of budget.

Of our established hotels, a particular mention should be made of our Belfast Malmaison which recorded an excellent year as it benefited from the impact of the newly opened Victoria Square shopping centre.

There is no doubt that 2009 is going to be a challenging year for the business as we seek to maintain market share both from a rooms perspective and from food and beverage. We believe we recognised the warning signs early on and by the start of the second half of 2008 we had already implemented our major cost savings programme, the full impact of which will be felt over the course of 2009. Overhead reductions included better rates and discounts on everything from utilities to a broad range of consumables.

Our strategy for the current year is one of consolidation. As a result there will be no major capital expenditure during 2009, thus preserving cashflow. Instead we are ensuring the new hotels become well established in their individual markets and building the group brand in their catchment areas.

As well as cutting costs we have generated new revenue streams and expanded our potential customer base through a series of food and beverage led promotions aimed at attracting new clients to our hotels. These promotions are already underway and are proving very successful and bringing new customers to both Malmaison and Hotel du Vin.

In addition we are using our website to offer room promotions aimed at both existing and new customers through an expanded database. Wherever we can, we are cutting out, or severely reducing, third party costs through on line booking facilities and other means of reaching our customers directly.

In a fiercely competitive market, Malmaison and Hotel du Vin have always offered customers more than simply value for money. As one of the early pioneers of the four star boutique hotel market we have always believed our hotels should provide a total experience to our customers. Everything from the reception and housekeeping staff to the food and wine, as well as the rooms themselves, keep us ahead of our competition. In these tougher market conditions we continue to differentiate our brands from other hotel groups to ensure customers return to us time after time.

As part of this strategy we continue to invest in the development of our staff throughout the business. It has always been our policy to develop and promote staff from within Malmaison and Hotel du Vin. We have a number of General Managers who have progressed through the company with a thorough working knowledge not only of the hospitality business but also the way we deliver service to our customers, and this stands us in good stead for the years ahead.

Our principal objective for 2009 is to protect and maintain both market position and price points. We recognise that we have to work hard to maintain our position as market leaders in the boutique hotel market but I believe we have the experience and the product to achieve our goals. 2009 is not going to be an easy year but it has started well and we relish the challenge provided by the present market conditions and I believe we have both the people and the service to meet that challenge.

Robert B. Cook
Chief Executive
Malmaison and Hotel du Vin Group
28 April 2009