Is SnOasis a viable project or could be another Onslow business failure?
| While previous business business failures by Mr Spanner do not preclude SnOasis from being a success, it does mean that the underlying business case behind the proposals should be carefully examined. Mid Suffolk District Council and other groups in the region commissioned a report from consultants DTZ Pieda Consulting into the viability of the development. This provides an interesting insight into the financial viability of the scheme and leaves some major question marks. |
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The report is available for download by clicking here. At the very beginning and throughout the report, the DTZ consultants make clear that they have not had sufficient financial data on which to make a full financial commentary. For example:
"OSL" (Onslow Suffolk Ltd, the SnOasis developers) "do not expect to develop a full business plan until after the planning application has been determined. The absence of a full business plan has limited the degree to which DTZ have been able to undertake a full assessment of viability."
"DTZ have reviewed the head line financial information made available by OSL to establish a view on the viability of the project. However, OSL have not made available to DTZ the full financial model, data book, and the assumptions that underpin their financial model. Therefore, DTZ has not been able to validate the appropriateness of all the assumptions or the overall financial model used to prepare the headline results for SnOasis."
These statements are very important since they essentially mean that the report is not a full analysis of the projects viability, something that is significant and material to the process of granting planning permission for the development. Nevertheless, the headline figures used by DTZ leads them to the following statement:
"On the basis of these figures SnOasis is expected to generate a financial surplus of over £23 million per annum. The return on capital is 6.6%. Comparison with a number of industry benchmarks shows that although the return for the project is reasonable, developments of this nature would normally expect a return between 9% and 10%."
However, this lower than average return masks the fact that the figures presented do not take interest or tax into account since the DTZ report further states: "It is worth noting that this net financial position represents earnings before interest, taxation, depreciation and amortisation. At present, information on these variables is not available."
The report states that the overall development cost of SnOasis is expected to total some £355 million. While we have no solid information, this money will most probably be raised as a mixture of equity (investment by shareholders) and debt (lending from major banks etc.) Both shareholders and lenders will expect either dividends or interest. If we took a scenario of a 1/3rd equity, 2/3rd debt model, this would produce an annual interest charge of around £11.7M if interest were charged at 5%. Such a charge is significant when looked at in terms of an overall profitability predicted by DTZ since interest alone would reduce the annual rate of return by roughly half to around 3%. Investors could get a better rate of return in the Post Office.
However, interest is not the only area where the business case causes concern. The consultants predict activity operating costs (i.e. costs of running the ski-slope, hotel etc.) at £9.3m. Since the facility is expected to consume over 6 Megawatts of electricity, energy costs must be a significant feature of this operating cost. Energy costs have doubled since the scheme was first conceived and may well do so again before the facility is built. Running costs are therefore likely to increase above the levels considered so far, thus further reducing the viability of SnOasis.
The track record of major UK construction projects meeting their budgets is not good. One only has to look at projects such as Wembley Stadium ( the only larger leisure project in the UK that is larger than SnOasis); the Millenium Dome, and the Scottish Parliament building to realise that the predicted and actual costs of the project may be very different. In our opinion, this raises significant doubt about the financial viability of the project.
Mid Suffolk District Council's role. We are further concerned that the DTZ report into the business viability of SnOasis was commissioned by Mid Suffolk District Council (MSDC). the track record of this council's planning department is very poor. In their assessment of their performance in Febuary 2006, on a scale from zero to three stars the Audit Commission inspection team gave the service no stars. It said the Council was not aware of the needs of its customers; gave poor service and had uncertain prospects for improvement. Read more
Given that at the MSDC planning hearing held in April 2006, the developer stated that " it was not our original idea to build a winter sports complex on the proposed site. This was suggested to us by Mid Suffolk District Council", we are concerned that as promoter of this development, MSDC is not sufficiently competent or independent to assess the project or it's viability.
We therefore strongly urge a fully independent assessment of the financial viability of the SnOasis proposal as part of the forthcoming Public Inquiry.