Introduction:
It is always sad news when a business runs in to commercial trouble, but the Almond Resorts car crash was well telegraphed. It is clear that the so-called all-inclusive business model, although attractive in theory in that it gives consumers a rough guide as to how much they will spend, in practice it is untenable because providers see it as a good area in which to cut costs, stretch revenue streams and, more worrying, they need to fabricate a story of social pathology on the outside to terrify customers in to staying within their walls.

As a model for producing sound cash flow and profitability, the jury is still out; and as for being a model built on fear, that is a matter for governments. Even so, this negative policy not only denies visitors from enjoying the real hospitality of local people, it also gives the operators the freedom to manage the supply of ‘free’ food and drink by conveniently running out of supplies at the most inconvenient times and limiting the other services offered to their captive customers as a central part of business practice.

In tax terms, payments are often made outside the local jurisdiction and drip fed in to the local business as and when required. This means that in terms of the company’s revenue and profit and loss, this can easily be manipulated by the firm’s accountants to the advantage of its shareholders and executives. Almond Beach Village may not indulge in all or any of these practices, but as a 400-bed facility with reported debt of about Bds$100m, something has gone seriously wrong.

One business model the owners could now consider is the commercial sale of a lease hold on each room, with a management company retaining the overall running of the operation. So, for example, the sale of each room to local and overseas investors at a price of about $275,000 should bring in a cash return of about $110m, more than enough to clear the outstanding debt and cover the cost of refurbishing the site for a re-launch. With low yields on investment in most developed markets, this should be an attraction to a number of overseas investors, especially those with self-invested personal pensions from the UK, and wealthy and mass affluent local people. Let us assume that the average room would be void for 65 days of the year, leaving 300 days of commercial activity at a modest occupancy rate of about $800 a night, bringing in about $240000 a year, inclusive of VAT. Again let us assume that the management company would charge about 35 per cent of revenue, before non-VAT taxation, about $84000, leaving the leaseholder with a pre-tax figure of about $156000 a year, or over $64m in total for all investors. With a ten year lease, that would give a broad overall figure of about $1.56m each, and on a 25 year lease of about $3.9m. Of course these are make-believe figures, but such returns would be magical in a low-interest, low-yielding investment environment. Even if the void period went beyond two months and some charges, such as the share of utilities (electricity, water, domestic chores, security and telephone usage etc were higher than anticipated) the profitability would still be stellar compared with similar investments in Europe or North America.

Due Diligence:
Whatever the style or business model, the important thing about investing in a company is that due diligence should be carried out. The first thing in any due diligence, apart from making sure the books are accurate, is stress-testing the business for debt servicing. What is the worst-case scenario? What is the best-case scenario? Would the business be able to cope in either extreme? In any case, it is important that the moderately paid employees of Almond Resorts do not use their life savings to invest in a business that may be on its last legs. Investments call for heads, not hearts; sentiment has no place in a rational investment strategy. Protecting jobs is a noble cause, but it is not the basis for personal investments. Whatever the situation, it is important that people do not borrow money from banks to invest, not even in good companies.

Fundamentally, the difference in investing in a company, as against a commodity, is that due diligence is not only about looking at the books, forward-bookings, etc. It is also about looking at the business environment for that firm, including macro-economic tailwinds, such as the source of core business and the medium and long-term future of that business. In the case of Barbadian tourism, that core business is the UK market. I am yet to see a proper local analysis of the UK market, even from the central bank. The fact is, to cut out the background noise, the OECD has just announced that the UK economy is heading back in to recession. When measured against the eurozone sovereign crisis and the continuing spectacular story of the leading developing economies, any investments in the tourism and leisure sectors in Barbados call for profound judgement.

Remember that if Four Seasons goes ahead, and it looks as if it will, there will be enormous competition at the top end for accommodation; and if new players enter the market and other existing ones upgrade their facilities, competition will be robust. The economic outlook in the eurozone is at best modest, at worst it is not yet out of the woods. Investors who have an unrealistic expectation of the UK tourism market must remember that UK banks have a huge exposure to French banks and the French are heavily leveraged to southern European economies.

Equally, with the US not yet out of the woods, there is the risk of great contamination for Chinese and other Asian and Latin American banks with their huge exposure to US treasuries. China alone has an exposure of over US$3 trn, so a further down-grading of the Greenback would impact equally as heavily on the Yuan. And there is no likelihood of the over-cautious, saving obsessed Germans flocking to Barbadian beaches in a hurry. In any case, German economic success is built upon the hard-pressed southern Europe economies. There is simply no way out.

Given all these factors, due diligence is still the key: the business’ competitive advantage, costs, potential to grow market share, quality of management and service delivery, and future earnings streams, in short, the total returns, apart from local knowledge gathered as employees.

Conclusion and Analysis:
Almond Village, of the three sites, is the one with the greatest commercial potential, both in terms of a holiday destinations and as an entertainment venue for locals and Caricom citizens. How this is exploited depends on the decision-makers, who they consult, and the quality of that consultation.

Over and above the particularity of the Almond Resort crisis, which can be attributed to poor management, the issue is a reflection of the wider crisis in the need to deepen commercial development in Barbados, moving away from government intervention in the business sector, and the need for wider and more diversified financialisation. However, fundamentally the crisis in local tourism is on the demand side as there is more than enough slack on the supply side.

There are other flies in the ointment: rising oil prices, the air passenger duty (APD), the restructuring of the global economy – all these and more can influence the flow of visitors to the island. Even so, the outcome of the Almond crisis can be divided in two: on the micro level, it is a problem for Almond shareholders, executives, employees and other stakeholders, although in this economic climate no sensitive person would wish unemployment on anyone. But it is on the macro level that the real significance addresses policymakers and the rest of the nation.

First, it says a lot about the absence of a national land use policy, which I have raised in this forum before, which has never been properly addressed by any post-independence government. This comes as there are further reports of outline planning permission being given for the development of 95 acres of East Coast land for even more hotel use. The danger in this laissez faire approach is that Barbadians will wake up one morning to find they do not have a view, or access, to the very sea which is the nation’s pride.

Further, the queue of foreigners with fat cheque books ready to buy prime land in Barbados is an easy cop out for policymakers from the more intellectual policy challenge of formulating a broader and longer-lasting leisure and tourism strategy with ordinary Barbadians and fellow Caricom citizens at its very core, and which would be offered unselfishly to visitors from the rest of the world. What remains a mystery is that Almond Resorts is (was) listed on the Barbados Stock Exchange and yet there was very little reaction from the market. There was no discount for Almond shares, no attempt by any of the institutional investors, including the investment managers at the national insurance scheme, to build up a portfolio of equities in the business, and even now it is not clear if trading in Almond Resort shares has been suspended, apart from a report that the exchange was keeping a watchful eye on developments. To my mind all this amounts to collective failure: of the stock exchange and its operational rules and controls, of the investment community in Barbados and the rest of Caricom and, most of all, of regulation.

Interestingly, in terms of wealth creation, it would have been much better had government, advised by the central bank, not encouraged ordinary people to buy state bonds (debt) with their hard-earned money, rather than invest in Almond Resort and other stock exchange equities. The other disappointment is that the trade unions are not taking a more active role in the drama, given that one issue to be decided is how the pensions contributions and other benefits, if any, of the workers will be managed in future. Trade union leaders believe that confrontation and negotiating through the local press is what trade unionism is all about. Failed companies cannot just be allowed to curl up and die, unions must take a central role in the inquest.

Finally, let me end on an issue that may at first appear marginal, but goes to the heart of the matter. If it is true that Tony Marshall, the former chairman of the NIS, resigned rather than agree to a ministerial demand to ‘lend’ Four Seasons a $10m cashflow, it shows two things. First, that that money could be used to kick start some small and medium businesses, which is where future job creation will come from; and, such a casual use of taxpayers’ money should be challenged in court. This is a clear case for a judicial review; the process of decision-making can surely not be legal to my mind and, in any case, in no investment strategy can this be an ‘investment’ in the best interest of beneficiaries and future beneficiaries. The NIS has a duty of care to its members.

In a funny way, the $180m air marked for Four Seasons could be better used to buy Almond Village which could be used for the tourism industry and Barbadians generally.