Tearing pages from his book: Richard Koch

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The Independent Online
WHEN a self-proclaimed management guru buys and destroys a profitable business, losing at least half a million pounds of his own money in the process, it is hard not to laugh. When that man is Richard Koch, rescuer of the Filofax, the fat black personal organiser and 1980s emblem that said 'I'm in control, I'm in charge, and I'm making more money than you,' it is almost too good to be true.

In the wake of the Filofax rescue, Koch, 43, became the company's biggest shareholder - with a pounds 5m stake - and a director. Last week, Filofax announced the pounds 5m purchase of the Ling greeting card company.

Koch operates principally as a management consultant and investment pundit, writing chatty investment and management guides and occasionally lecturing on business strategy at Cambridge. His London restaurant, Belgo, is a success: last year, it made an operating profit of pounds 240,000 on turnover of pounds 1.1m.

However, Koch has had his fair share of failures. His involvements with Lowndes Queensway and Tranwood, the corporate finance boutique, both ended in high-profile collapse.

And then there is his investment in hotels. In 1989, Koch left LEK, the management consultancy he and two others had set up six years earlier, clutching pounds 6m. He promptly ploughed pounds 1.2m into the Saffron, a half-timbered, 20-room family-run hotel in Saffron Walden, Essex. His explanation that he was 'looking for something asset-backed and reasonably safe' might not have jarred then. It should perhaps have sounded alarm bells when he actually completed the deal well into the property slump, in November 1990.

Koch had wanted a hotel because he was determined to get 'rollover relief' and avoid paying tax on part of his LEK gains. It was a perfect example of why you should never invest primarily for tax reasons - a basic investment rule that Koch, author of titles such as the forthcoming FT Guide to Management and Finance might have been expected to follow.

The next step taken by the author of The Successful Boss's First 100 Days was to put in a couple of friends without relevant experience to run the show. Then he tore out the place where the locals used to come in for a comfortable drink and put in a conservatory. 'The old clientele reckoned it had become a fancy London-style restaurant and didn't take to it at all,' he recalls ruefully.

The hotel sector had boomed in the 1980s on easy lending and inflated property values. But in recession, room rates and occupancy fell. In 1992 the previously profitable hotel lost pounds 127,000. 'It came as a bit of a shock.'

Banks everywhere were foreclosing on hotels and Koch could not sell out. So in desperation he handed it over to Management Services International, a newly formed team of specialist hotel managers. They offered free meeting rooms to local businesses to win the post-meeting drinks and meals trade, improved financial controls, sacked inept staff and retrained the ones that remained.

The Saffron has now had three profitable months, though it is worth barely more than half the original pounds 1.2m. Koch, meanwhile, liked MSI's performance so much that he bought 25 per cent of the company.

MSI is a child of slump. Its main clients have been the banks - especially Barclays - and receivers who ended up with scores of hotels on their hands during the recession.

It is highly profitable - accounts for the year to March show pre-tax profits of pounds 156,000 on turnover of pounds 544,000, in only its second year of operation.

But is Koch's latest interest not a bit like owning a flock of vultures? 'It's not as though we drive people out and put ourselves in. The banks do that,' he says. But he admits that it is tough for hoteliers who did not predict the recession and senses the irony of it all. 'After all, I didn't see it coming myself.'

Far from abandoning hotel ownership after his experience with the Saffron, Koch is now using MSI as a vehicle to buy and turn around hotels that are too small for the big chains such as Forte. Jointly with MSI, he bought the 50-room Westcliff in Southend out of receivership for pounds 900,000 last year and installed MSI to run it. The Westcliff has increased turnover by 43 per cent, and Koch reckons that its value next year, on a multiple of eight times prospective profits of pounds 250,000, will be pounds 2m.

The company is spending pounds 1.15m on a second acquisition in Torquay and is negotiating on three more hotels for a sum, including refurbishment costs, of around pounds 5.5m. About two- thirds of the purchase price is typically debt, gearing up the equity investment for potentially spectacular rates of return.

Thanks to the banks' readiness to lend once more, the wheel has come full circle. Koch is doing 1980s-style, highly geared, asset-backed deals and the risks have risen accordingly. MSI clearly needs to diversify because its core activity, running hotels on behalf of receivers, is a self-defeating business - the better the hotel does, the sooner it will be sold to someone who will take over its management. Anyway, fewer hotels are going bust, and competitors note that MSI has lost a founding partner, Richard Edwards.

But from the look of the most recent economic growth figures, Koch may now have got his timing right.

(Photograph omitted)

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