British firm buys Swiss ski resort for one Swiss franc

A snowHead

A British company has been awarded the contract to run the Swiss ski resort, Ernen, for just one Swiss franc. The contract to run Ernen and its ski lifts was advertised last march for the peppercorn amount.
However, the company, Summerleaze Ltd, has had to guarantee the cost of the 2007/2008 season - estimated at around 300,000 francs. ...It also had to come up with an investment plan to modernise the resort. The deal apparently attracted interest from around 100 countries all over the world.

From: http://www.earthtimes.org/articles/show/122084.html

A snowHead

Bargain. How much is the debt book?

Well, the person's real but it's just a made up name, see?

el Hen, blast, if only I'd known, I actually have TWO francs in my pocket.....

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It's a damn good paraphrase. Wink

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I’ve heard of Summerleaze before – they’re an aggregate and waste management company. Seams odd for them to get into this contract?

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A British firm, blimey!

Hopefully, for the Swiss, they'll prove a trice more successful at running ski uplift than a certain company in Scotland (hint: they have a funicular on their mountain)!

You never know actually, if they prove a success they could even take over at said Scottish ski area once the current lot go bust Twisted Evil

After all it is free

Hi guys,

My name is Bruno. I'm a Director of Summerleaze, and the one who is going to be dealing mostly with our investment in Ernen. If you want to ask me some questions, fire away. I'll try to remember to check back occasionally, though I'm away quite a lot at the moment, for obvious reasons.

Kersh is right, but a bit out-of-date (I've done a couple of seasons in Badgastein a long time ago, so I wonder if that's how he/she came across the company, or if that's just coincidence). Our core business is gravel, and we've done a bit of waste management over the years, but the largest part of our business for the last few years has been renewable energy. We sold off the largest part of our renewable energy business (which I was running) in February, with a view to reinvesting in less mature sectors. Some of that reinvestment has been and will continue to be in the areas of renewable energy, innovative waste-management solutions, and other sustainable technologies in the UK (e.g. anaerobic digestion, green hydrogen and biomass heating). But we are worried that the UK economy is a basket-case, that these sorts of technologies are very vulnerable to political whim and fashion, and that the Government's (energy and environment) policies are bonkers and getting worse, so we were keen to diversify both out of the UK and out of the sector, to hedge our risks.

I can't say that we particularly had ski resorts in mind as a diversification route, but when The Times reported on Ernen's problems not long after we had sold the landfill-gas business, we thought it was at least worth a look. As it happens, it ticks many of the boxes. Nowhere is perfect, but Switzerland appears (from what we can see) to run its economy more sensibly than we do in the UK. We like their more devolved political system, their more balanced attitude to debt, the encouragement given at a cantonal level to businesses generally and inward investors in particular, and that they manage to deliver a better quality-of-life on the back of a relatively low burden of government and taxation (see the Heritage Foundation's Index of Economic Freedom at http://www.heritage.org/index/ for details). It is outside the EU and therefore not bound to implement every detail of every dirigiste, bureaucratic, micro-managing directive that spews out of Brussels (I realise they do not have complete freedom from Europe, but some flexibility is better than none). And unlike many of the other alternatives to investing in Europe, your property is as secure in Switzerland as it is in the EU (if not more so).

We appear to have "won the prize" by virtue of being (effectively) the last man standing. The resort has lost money every year since it opened in 1981, and is likely to lose another CHF 300,000,- this winter, as el Hen reported. There is no reason to think that it would do anything other than carry on losing money without major investment and redevelopment. Unfortunately, because you need concessions and permits from the cantonal and national governments to redevelop lift systems, and there is no certainty that these concessions and permits will be forthcoming, investors have no security that they will be able to implement their plans, even assuming a plan could be drawn up to enable the resort to make a satisfactory return on investment. The money this winter therefore represents a stab in the dark, with a strong risk that it is simply money down the drain. We were willing to take that risk in exchange for an opportunity to see if something can be made of the resort in future years, where other investors appear not to have been willing. It may be foolhardy, or it may prove to have been worth it, but on balance we thought it was worth a relatively modest amount of risk capital to keep the resort operating (and the money coming in to the local businesses and employees) this winter, see what it is about, and have a chance to do something with it. It could have been you, Frosty, but it would have cost you CHF 300,002 this winter, not 2 Franks, and millions more if you wanted any chance of ever getting your money back from the first season (and no great likelihood even then)! wink

There's a reason they were giving the resort away, and that very few people wanted it even at that price.

The reason I think there is a possibility of turning the resort around with suitable investment is that the mountain and the area have a lot going for them. They are surrounded by many of the great mountains of the Alps, with clear views of the Aletschhorn and the Finsteraarhorn acros the Aletsch and Fiesch glaciers, with the Jungfrau/Moench/Eiger massif behind, and the Matterhorn, Weisshorn, etc dominating the horizon from the other side of the valley. There are a series of ski areas close to each other along this part of the Upper-Rhone valley, most of whose skiing is above 1800m, and whose combined mileage would rival many of the better-known middle-ranking Swiss resorts, if they put their heads together and cooperate properly. The main area, opposite Erner Galen, is the Riederalp/Bettmeralp/Fiescheralp Aletsch area with 99km, next to which in one direction is the excellent but little-known, high-altitude resort of Belalp (55km), and in the other direction the sunny slopes of Bellwald (31km). Opposite Belalp is the pretty village of Rosswald (25km) and its smaller neighbour Rothwald. Add in Erner Galen with (hopefully) an area expanded from its current 20km, and you've got over 200km of skiing. Just by cooperating on the lift-pass and with some development of the smaller areas, you could offer a Zillertal-type package. But over time, many of these areas are so close that they ought to be connecting them, which would put the linked area into the big league.

None of which would be relevant to the investment if Erner Galen itself didn't have potential. But when I walked the plateau, I thought it had real potential as a beginners' area. The existing lifts take you (via an old 2-man chair and a very long T-bar, which can't help to pull in the crowds) to the lowest point on the plateau (around 2300m). All the existing skiing runs off the plateau, either back to the mid-station on the North side, or down to another T-bar on the South-West side. The plateau itself remains unused, but it is clear from walking over it that it is perfect for very gentle, snow-sure, green/easy-blue slopes, upto 3 km in length. There are also bowls on the north side that look like they offer very attractive skiing but with limited vertical (250 - 400m), and spurs between the bowls, several of which offer moderate (red with the odd bit of black) gradients to around 1800-2000m, and testing gradients through the trees to the valley (I'm told the locals enjoy these as off-piste routes). Unfortunately, I am told that you would be unlikely to get concessions/permits to open up more than a small amount of this north-face skiing. It's not even certain that you would get the necessary approvals for the skiing on the plateau. But without a reasonable amount of additional skiing at the top, there is no way that you could justify the investment needed to upgrade the existing lift-system, in which case we wouldn't invest any more and the resort would die.

Our job in the next couple of months is to try to put together a proposal that is both acceptable to the various government bodies, and viable economically. The broad idea is to try to create the ideal friendly area for families with younger children, groups with tentative beginners, and boomers who want to take it easy as they SKI (Spend the Kids' Inheritance). Whether it will come off, and whether the resort lives or dies as a ski destination, will be dependent partly on the financial models, but largely on whether we can get concessions/permits for sufficient additional lifts and runs that it justifies the investment. That is not clear at this stage, but we will be doing our best to persuade the canton and national governments, and asking them what else they expect local people to do, and how they expect to retain/attract the younger generations to live in the area, if they don't allow the development of tourist facilities that are sufficiently attractive to pull in the visitors.

Incidentally, when Glencoe and Glenshee came up for sale a couple of years ago, it crossed our minds for a minute or two to have a look at them, before sanity returned. Is there really any rational reason to invest in Scottish skiing? I wouldn't be too harsh on the companies running the resorts - it must be a Herculean task trying to make a viable proposition out of skiing in Scottish conditions, when the Alps are almost as accessible for most of us. I don't think you'll find us rushing to have a go, however it goes in Switzerland.

Nice entrance!
Welcome to snowHeads bgp

There was talk a while back of a requirement to spend a pretty substantial sum (£600k?) on some health and safety matters before anything else?
Is this still the case or has the matter been covered somehow?

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bgp, Welcome to snowHead

I'm sure all will join me in wishing you the very best of luck in this mammouth project Very Happy

snowHeads are a friendly bunch.

£600k was to do work to the existing lift-system so that they could run for the remaining ten years of the concession, replace the piste-bashers and replace the lift-pass system with something compatible with the neighbouring areas. The CHF 300,000 is simply to do enough to run for this year. It isn't worth spending more than the minimum necessary for this season at this point, as the existing system has proved that it can't break even, so the only hope of keeping the resort open after this year is a substantial improvement to the system.

snow reports

bgp, Firstly a warm welcome and the best of luck.
Should the snow vanish then the valley will make a great land fill site and you can get back into the gas recovery game again, but please don't grind the mountain down. Toofy Grin

bgp, Welcome to snowHeads.
Having been in a similar position a few years ago - but on a much smaller scale, we walked away having decided that the 'rules and regulations' were far more stringent than in the UK and there was little local enthusiasm for tourism projects, along with local antagonism to foreigners owning prime (local landmark) assets Sad

May you have the very best of British luck with this new project. Very Happy

You know it makes sense.

Hi Bruno - great post Smile

Otherwise you'll just go on seeing the one name:

Thanks to everyone for the best wishes.

Roga - all good points. I guess I shouldn't dismiss it before I try it. Scotland is a great place for all sorts of other reasons (and they even seem to have remembered how to play rugby a bit). In fact, we're looking at an investment in Scotland, but it's got nothing to do with skiing (can't say more than that, I'm afraid). But on balance, I'd still rather be skiing in Switzerland... wink

boredsurfin - you may well be right. Certainly, if you are talking about ownership of properties, many rural Swiss have the same attitude as many rural Brits towards city-dwellers' second homes. I'd rather people were free to spend their money how they like, but I understand how people feel in an area where property prices are being driven out of the reach of locals by outsiders who spend hardly any time in their second homes. I believe it is rather different if you are talking about investing in lift-systems, hotels and other developments that will offer employment to locals. I have not so far experienced any hostility - in fact, one of the attractions is the friendliness of the local people. The great uncertainty is not so much the attitude of the locals, but of the environmental lobby (who are often outsiders), and the various government bodies whose authorisation we need. We may indeed be caught by their rules and regulations, but initial indications are that the canton (at least) is keen to see skiing continue at Erner Galen, and will do what it can to help if we can put together an acceptable proposal.

A snowHead

bgp, just got back onto this post. First off, welcome to Snowheads!!

Really great to here your plans in Switzerland and all the best with it.

Sorry to get my facts wrong earlier. I've worked in the waste management industry for the last 8 years and I knew i'd come across you guys somewhere before - it was your landfill gas section. Who did you sell to?

So getting out of the uk waste industry to get to a Swiss ski resort ... not a bad swap! NehNeh

Cheers
Kersh

A snowHead

Kersh, We've probably come across each other then, as I was running the LFG business. We sold it to Infinis, which is part of Guy Hands' Terra Firma private-equity group. Infinis are aiming to be the largest independent renewable-electricity business in the UK - based initially on the power-generation at WRG's sites. LFG, as you know, is now a fairly mature technology, which means there are strong pressures for agglomeration to squeeze additional margins through economies of scale. That is an area more suitable to businesses like Terra Firma, whereas smaller independent companies like Summerleaze are better suited to development of less-mature, riskier businesses. Erner Galen may not be immature, as it's been around since 1981, but it is certainly undeveloped and risky. Interesting project, and, as you say, a nice change from waste. But we're far from out of the UK waste industry - our AD business (Andigestion) produces around 70% of the electricity from non-sewage AD in the country, and we are likely to invest more in that and related sectors than we are in the Swiss ski resort.

Sorry for the long gap before replying. I've been in Switzerland for the past week or so, working on where and what sort of lifts we will want (amongst other things). It's looking positive, although we have yet to receive the quotes. Many of the professionals that we have to employ to put together the proposal for the local and national governments had never been on Erner Galen, and they were as pleasantly surprised as I was when I first walked over the mountain by how much potential it has for skiing. Much more than you'd expect for a 3km ridge, as the ridge is actually a plateau almost 1 km wide, most of which is suitable for skiing - not as flat as it looks from the other side of the valley. If we were sensible and measured ski areas by area (like the Americans), rather than km (to suit the French motorway resorts), we'd probably be talking about more than 400 acres on the plateau alone, plus the runs off it. Even in km, we've upgraded our expectations of how much we can get on there with very few additional lifts, and that despite the fact that we don't intend to do the usual cheat where people are trying to squeeze as much mileage as possible into an area and put a honeycomb of runs onto the mountain. We will put enough runs to offer variety for beginners/early-intermediates, but we will leave plenty of space in between, for off-piste where suitable, or simply to preserve the sense of space.

Well, the person's real but it's just a made up name, see?

bgp, from that account, i'm sure we have come across each other before. I've worked quite heavily with WRG in the past and dealt with the LFG at Poplars in the last few years - I think that was Summerleaze.

Either way, all the best Erner Galen. Preserving the sence of space is a good idea - I like the feeling of skiing in the middle of nowhere even if it's on a piste. As you know from your time in Gastein, I think that's something they've done quite well in places. Runs H1 and H2 off Hohe Scharte to Hofgastein are just great - I could ski that run all day!!!

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Fascinating. bgp, please keep us up to date. A good piste map of the whole area is
http://www.belalp.ch/panoramapisten/aletsch_pano_winter.jpg

I would imagine there must be some scope for summer tourism with a gondola up the mountain and easy walking or biking with good views at the top.

Anyway, snowHeads is much more fun if you do.

Kersh, Yes, Poplars was us - you'll have dealt mostly with Mike at our end, I imagine. As for wide open spaces at Gastein, I'd put the route from Sportgastein to Heilstollen right up there with any remote route in the Alps.

Nessy, Thanks for the link. That looks like the official map used by the Brig and Aletsch regions. We'll have to do something about it, as Erner Galen is cut-off at the ankles because it faces in an inconvenient direction for this sort of plan. Would be ironic if Belalp and Bellwald are visible on the Aletsch piste map and we are not, when none of those resorts will work together (yet, give me time), whereas we should be sharing a lift-pass with Aletsch. Still, the map is useful to show how much skiing there is in close proximity, and how crazy they would be not eventually to get together on the lift-pass - the combined pistes would put them in the major league in the Alps. In the meantime, I hope we can offer, 3-from-5 or 4-from-6 day options on the combined Aletsch/Ernen pass, so people can visit the other resorts on day passes. Belalp, in particular, is well-worth a visit.

As for summer, we're working on the plans, and certainly intending to offer activity-options (we've asked Garawenta to quote for mountain-bike cradles for the chairlift above the gondola, for example). I think the terrain on the plateau would be superb for downhill mountain-biking - it's very varied and rolling, but gentle enough on average to be able to belt down it at a good lick, while the slopes off the plateau are steep enough to satisfy advanced mountain-bikers. To be realistic though, every ski resort in the Alps wants to develop the activity market to boost its summer occupancy, and there aren't that many mountain-bikers, etc to go round. The average age of visitor to the Alps in summer is much older than in winter. Ernen has plenty of potential for this market too, being famous for its summer music and literature workshops and festival. We'll be looking to offer a mix of active and sedate options for summer - the older (but still active) crowd may well enjoy walking on the gentle gradients on the plateau, with its panoramic views of the 4000ers all around, having used the gondola to avoid the worst impact of the steep sections on one's knees, before coming down to the valley for a concert in the evening.

All of which assumes that we can make the numbers stack up. I am optimistic, but it remains to be seen.

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bgp - fantastic contribution and a very interesting diversification play I wish you every success. It will be fascinating to see how this develops. If you are looking to build a family friendly resort it may well be worth looking at Puy St Vincent and a company called snowbizz for some ideas. They have an intergrated mountain, accomodation, childcare and ski tuition offering which works fantastically well for young families. It also seems to be a UK company that has fully integrated itself with the local population/businesses.

brian

bgp, excellent ! I shall add you to my planned list of obscure resorts of the Walliser alps. Hoping to complete my Anniviers set with Vercorin and get to Leukerbad and Graechen this season.

On the Scotland v Switzerland thing, as much as I love skiing at home I can hardly criticise given that our search for a holiday home/investment started off on cottages around Boat of Garten and Nethybridge and ended up with a piste side apartment in the Valais Embarassed

Anyway, best of luck and I hope you keep coming back to tell us how it's going.

brian

Haggis_Trap, with direct flights to Geneva, Milan, Munich and Zurich, the alps are a viable weekend proposition from Edinburgh now, albeit you need a day or 2 off work but at least you can plan it in advance.

snowHeads are a friendly bunch.

Agreed Brian,

My, main point, was that Erner Galen might be a nice little swiss resort (good luck to them, its a great story)

However there is obviously lots more (serious) competition in the local area... ?
Weekend trips from Scotland are possible - but there are not cheap when you add in total cost of flights, transfers, ski carriage, hotel, taxi to airport etc.

Its not just the Scottish resorts that are suffering from global warming either.
Several of the smaller / lower altitude French & Swiss resorts are also clearly feeling the pinch in recent years.

http://pistehors.com/news/ski/comments/0753-ski-resort-operator-transmontagne-bankrupt/

D.

brian

Haggis_Trap,yes, that's true.

Erner Galen and the Scottish resorts have more in common economically than you might think. Like many smaller Swiss resorts, it has been caught by the "cold bed" phenomenon, where most of the local accommodation is 2-4 bed chalets that have been bought by people wanting a weekend retreat. Consequently, it gets upto 500 people some weekends and public holidays, and only dozens most of the rest of the time. Reliance on weekend business is a problem for a lift company. It's bad enough that you only have around 16 weeks a year to get a return on your capital. If you narrow that down further to only around 40 days when you are putting enough people up the lifts to cover your running costs, you are in trouble. If the weather then plays a part and narrows that down further to 20 or 30, you are stuffed.

I'm not being critical of Scottish skiing. I'm sure it's glorious on a sunny weekday. I am just suggesting that it's hard to make the economics of any lift company stack up, let alone ones facing the challenges that the Scottish companies face. Resorts need lots of full-week or fortnight skiers and generally reliable weather to get enough skiers through the turnstiles over the season to cover the enormous capital cost of the equipment, and operating costs such as wages and energy. Even with visitors more evenly distributed over the days, they may not make money, but it will minimize their losses.

To have the best chance of a viable proposition, you want to integrate the accommodation with the lift business, because much of the economic benefit of the lifts is enjoyed by hoteliers and other property-owners rather than by the lift company itself.

In the absence of these conditions, it is understandable, though frustrating I am sure, that CML seems reluctant to invest. It may be that lift systems in these circumstances would be better run as cooperatives or some other mutualised/socialised structure, where people simply accept that any return on investment may be slow-to-non-existent, rather than trying to struggle on as a commercial enterprise. But so long as it is commercial, you have to allow for the operators making hard-nosed decisions.

To give you an example, we are probably looking at around £10-12 million to develop a lift system to serve around 40 km of piste. We should easily be able to put over 1,000 people on the mountain on busy days without much in the way of queues (we'll probably have combined uplift capacity in the region of 4-5,000/hour), but realistically, we may have to settle for an average number of skiers on the mountain (across the season) of between 500 and 800. If we were only selling passes for the local area, we couldn't get away with much more than £80 for a week's pass, and would probably want a significantly lower price in low season to attract customers. Obviously, not everyone will be on week passes, but it is reasonable to use for a first-order guesstimate, as some people will be on cheaper rates (those on season or fortnight passes) and some will be on higher rates (day-passes). If we take the higher figures (800 people on average, and £80/week), gross revenues will be just over £1,000,000 over a 16-week season. Operating costs of the current, limited lift-system are around £200,000 a year, so let's say (optimistically) that the operating costs of the improved and extended system are double that: £400,000. In very broad-brush terms, that gives us an operating profit of £600,000. Not a good return. Even the gross revenue, if we had no costs, would not offer an exciting return on a discounted cash-flow model. And that's if we get decent numbers and can charge a decent price for the pass.

If we were offering a combined lift-pass, we could probably charge getting on for 50% more for the passes (£120 - 140 seems to be the going rate for week passes in the better-known mid-sized resorts this winter). All the resorts would probably have more visitors, because of the increased attractiveness of the offer. There would be barely any impact on operating costs. It makes a big difference to the economics, for both lift-companies and hotels in the resorts.

What is certainly true is that Erner Galen faces a lot of serious competition. We are realistic about the difficulties - if we cannot put together a credible financial model, we will not develop the lift-system and the resort will die after this season. We do enjoy some of the advantages mentioned above, which is why I am reasonably optimistic - optimistic enough to take a flyer this year. But I agree that it will still be hard to compete with the bigger resorts, which is why I am particularly keen to see the resorts in the area cooperate on a joint pass, with a view to eventually connecting. Technically it shouldn't be a problem, and economically it's a no-brainer, but we have to contend with local politics on sharing the lift-pass, and planning constraints on connections. Our view on how likely we are to crack this will play a major part in our decision whether to go ahead with the big investment next year. As there is already a good relationship and cooperation on passes with the largest neighbouring ski area - Aletsch - we are off to a good start (around 140 km combined if we develop the lift-system as planned). But it would be better if we could add in Bellwald, Belalp, Rosswald and the other neighbouring resorts. The area would then be as serious as most of the competition - not quite up there with Zermatt and Verbier, but bigger than Crans-Montana, Saas Fee, Andermatt, Adelboden, Arosa, Lenzerheide (even after they are linked), Engelberg and many other better-known resorts.

Thanks again for all the good wishes and tips. All advice is very welcome. I will certainly have a look at Puy St Vincent and snowbizz.

You know it makes sense.

Snowbizz is I believe run by a couple. Mrs Snowbizz runs the UK side. Mr Snowbizz is a French ski instructor and runs the ski school

Otherwise you'll just go on seeing the one name:

bgp, Puy St Vincent is a good model of a holiday/resort intgrated business.

We have skied there a lot and from what I know, the owner is French and essentially a "local". He is married to an English woman and the company are based up near Cambridge. He now also co-owns the local ski school.

From the UK perspective, Snowbizz the holiday company offers a service which appeals to a certain type of skier (family orientated, looking for a family holiday with the children not one where you leave you children so you can ski). The resort itself is not massive, but since all the runs end at the same point, near the accomodation it feels safe for families. Also since no other operator goes there (one other used to) anyone English there tends to be treated as a Snowbizz client and as such there is a greater sense of community amongst those on holiday there. Without Snowbizz, I'm not sure we would go to PSV, as nice as it is, I doubt we would have considered it.

I think there is a good case for integration with tour operator, ski school, family services (childcare etc) in your resort. Although I imagine this is a lot easier said than done. I suspect much of this will come down to how you market yourself, who your target market actually is, what type of skiers you are planning on attracting and what you are offering them that is different from what's on offer elsewhere.

I have a good contact on the Times travel desk . . . so if you have a holiday story to tell.

A snowHead

Like all business, it's 80% marketing and 20% goods.

A snowHead

bgp, Good Luck with the project !
The Swiss resort where my Grandads ashes are scattered is also closing as it can't compete with the larger ones Sad

Hope you will keep us updated

Well, the person's real but it's just a made up name, see?

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bgp -- Welcome. Great info.

Have you formulated any marketshare estimates for your project?

Got any plans for the Spring, Summer and Fall seasons in Ernen?

In terms of feedback:

1. Brand -- The ski area will need a catchy, memorable name that resonates with global and local consumers in several languages. 'Ernen' sounds a bit rubbish. It needs changing.

2. Product -- Mileage, size, height and snowmaking will be everything in the future. The more of those 4 boxes you can tick, the better.

3. Distribution -- How far, by train or car, is Ernen from Geneva, Milan, Turin etc.?

4. Online -- A good website, with instantly-bookable accommodation, is critical. See zermatt.ch for best global practice. See cairngormmountain.com for worst practice.

Good luck.

Anyway, snowHeads is much more fun if you do.

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After all it is free

You can't move the mountain to the city.

But you can move the people from the city to the mountain, especially with the help of a powerful TO.

It's not "how far" from the transport hub, it's "how long" or "how much".

You can even move the airport to the mountain, given enough demand. But that's a much longer term change.

Heh.. that was cheap. One goddamn CHF..

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British firm buys Swiss ski resort for one Swiss franc

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