FINANCIAL STATEMENTS

Transcription

1 FINANCIAL STATEMENTS for the year ending 31 August 2016

2 (Previously International Hotel Group Ltd) (Incorporated in the British Virgin Islands, company number: ) JSE share code: IHL ISIN: VGG ("IHL" or the "Company" or the "Group") FINANCIAL STATEMENTS FOR THE YEAR ENDING 31 AUGUST 2016

3 (BVI Company number: ) FINANCIAL STATEMENTS FOR THE YEAR ENDING 31 AUGUST 2016 CONTENTS PAGE Group Highlights 3 Chairman's overview 3 Chief Executive Officer's overview 3 Financial review 4 Consolidated Statement of Profit or Loss and Other Comprehensive Income 6 Consolidated Statement of Financial Position 7 Consolidated Statement of Changes in Equity 8 Consolidated Statement of Cash Flows 9 Notes to the Consolidated Financial Statements 10 2

4 GROUP HIGHLIGHTS, CHAIRMAN'S OVERVIEW AND CHIEF EXECUTIVE OFFICER'S OVERVIEW 31 August 2016 GROUP HIGHLIGHTS Underlying distributable earnings of 2.0 million for the year Total dividend declared of 5.50 pence per share A further 52.3 million of equity raised taking total equity raised to 55.0 million Successful acquisition and internalisation of investment and asset management company Acquisition of 6 hotels Completion and opening of the Travelodge Belvedere Hotel RevPAR growth of 12.6% achieved by trading hotels Average RGI (market share of revenue) at 108.5% of competitor set of trading hotels CHAIRMAN'S OVERVIEW The Group s achievements in the past year have been encouraging with significant milestones being reached in establishing a well positioned and focused hotel property investment group that delivers strong value to shareholders. Recent trading has been particularly encouraging. With the ongoing support of cornerstone investors, and following the initial primary listing on the Luxembourg Stock Exchange (LuxSE) and secondary listing this year on the Johannesburg Stock Exchange s (JSE) AltX, a further 52.3 million equity was successfully raised and debt facilities accessed with Banco Santander, enabling the purchase and development of seven hotels in the UK this year. During the year the Group s Investment Manager, RBDL Capital Managers Limited, was acquired from Redefine BDL Hotel Group Limited in order to internalise the investment and asset management functions of the Group and thereby align the interests of the Group s Shareholders and key management. Much is being said about Brexit and its potential impact on the UK economy in particular. Like all periods of change and uncertainty, there are both risks and opportunities. IHL s assets are in good condition and the Group s strong brands provide a defensive strategy against any downturn in the economy. New acquisitions are being sought in mainland Europe, which will spread the geographic distribution and associated risk of only operating in one market. IHL has assembled a very competent Board of Executive and Non-Executive Directors. The appointment of Jon Colley as Chief Executive Officer (CEO) (previously the Group s Chief Investment Officer) has strengthened the management team, given Jon s experience in both banking, hotel branding and development. During the year there were six successful acquisitions and the completion of a development in the mid-tier and budget hotel segment. The portfolio now includes four Travelodge hotels that are leased on long-term leases. Travelodge has a long track record with a best-in-class offering in the market they operate in. They take the trading risk in this group of hotels. The Group has identified value enhancing opportunities to expand hotels by adding rooms and continues to assess hotel acquisition opportunities at the right yield, particularly in the UK. CHIEF EXECUTIVE OFFICER'S REVIEW Over the last year, the Group has turned its hotel portfolio into successful business acquisitions that are generating good returns. Success has been based on key fundamentals and a disciplined approach when reviewing potential acquisitions. The business has continued to raise equity and bank debt when acquiring good quality, internationally-branded hotels in mature, stable UK markets. As with all start-up businesses, there were initial set up costs that negatively impacted on early profits. Recent trading was encouraging and reflects the potential of the portfolio. As a result, the Group paid a maiden dividend of 2.5 pence per share for the six months ending February 2016 and a further 3.0 pence per share for the six months ending August 2016, bringing the first full year dividend to 5.5 pence per share. Trading hotels Three trading hotels were acquired during the financial year which outperformed prior years and their local competitive sets. The UK regional RevPAR performance has helped and this is set to continue through Management s focus on day-to-day asset management of the hotels whilst also working closely with the Group s management partner, Redefine BDL Hotels, has been an important contributor to this success. Exceeding customers expectations by offering a quality guest experience has been an important part of the plan for new hotels and remains a tracked key performance indicator. As such, the IHL board has agreed on a capital investment programme to refurbish all rooms to the latest brand standards in both Holiday Inn Express Southampton and Holiday Inn Express Redditch. Air-conditioning units will be installed to set these hotels apart from their competition, despite this not being a brand standard. Investment hotels Three investment hotels were acquired and one developed during the financial year, all of which are leased to Travelodge, the UK s second largest budget hotel chain with 534 hotels and nearly 40,000 bedrooms. Travelodge has continued to expand and invest over the last two years, refurbishing rooms to a modern, high standard and showing strong performance. 3

5 FINANCIAL REVIEW 31 August 2016 FINANCIAL REVIEW The year to 31 August 2016 has been transformational, with a further 52.3 million of equity raised and the acquisition of a further six hotels, along with the completion of a development. These acquisitions have been partially funded by bank debt with a target loan-to-value (LTV) in the range of 50% 55%. The Group has entered into hedging arrangements on this debt to minimise risk from interest rate movements. This has resulted in a fixed all-in cost of debt of less than 3.4%. The Group s Investment Property and Property, Plant and Equipment values have grown by 4.1% since acquisition, when compared to headline acquisition prices. Capital raising To enable further acquisitions through the year, the Group carried out multiple placements of new ordinary shares, all at 1.00 per share, to generate gross proceeds of 52.3 million: 12,350,000 October ,875,000 October ,125,000 November ,000,000 February ,000,000 March 2016 In addition to these placements, 1,000,000 shares were issued in consideration for the acquisition of RBDL Capital Managers Limited. This has enabled the asset management of the portfolio to be carried out internally, avoiding any income leakage to third parties. Hotel valuations The Group's owned hotels are classified as either Investment Property (where the hotel is leased to a third party), or Property, Plant and Equipment (PP&E) (where the hotel is managed by a third party operator for a fee but the Group retains the trading risk associated with that hotel). Overall the valuation of the hotels at year end is 4.1% higher than the headline purchase prices of those hotels, with the average ownership period in this financial year being 7.8 months. At 31 August 2016 Headline Purchase Price Gain Gain m m m % Investment Property % Property, Plant and Equipment % % Once acquisition costs are taken into account, the overall net gain is 1.0 million. Income statement The income statement is presented under IFRS. The Directors believe it is useful to separately present a table of underlying distributable earnings, after providing for future maintenance, replacement and refurbishment spend at 3% of trading hotel revenue. The 2.0 million in underlying distributable earnings gives a more appropriate indicator of the performance of the business. Of the Group s eight hotels at the year end, three were acquired in November 2015, one in March 2016 and two in April 2016 with the Travelodge Belvedere development being completed in April As a result, the business has not experienced a full year of revenue from the majority of hotels. The prior year is non-comparable as the portfolio only comprised one owned hotel for any significant period of time in that year. The income statement presents Trading Hotel Revenue and related Cost of Sales and Expenses, and Rental Income. Trading Hotel Revenue and Cost of Sales and Expenses are the revenue and operating cost of hotels where the Group takes the trading risk and pays a management fee to an operator to manage the hotel. Rental Income is the revenue related to the hotels that are leased to third parties. The prior year had no Trading Hotel Revenue, as the first such hotel was acquired at the end of the year. The partial year revenues from the four acquired hotels totalled 8.4 million. Rental Income from the leased portfolio increased by 1.0 million over the prior year due to the acquisition of three Travelodge hotels and the completion of the Belvedere development in the year. The prior year rental income related to the Worcester hotel, which was disposed of during the year. Total operating costs in the business were 9.1 million with 5.4 million of those arising as operating costs in the trading hotels. The remaining 3.7 million included 1.3 million of Goodwill Impairment, 0.4 million of Aborted Acquisition Costs, 0.4 million of Third Party Rent, 0.2 million of Foreign Exchange Loss relating to an earlier capital raise and 0.4 million of Fair Value Losses. Net Finance Costs have increased by 1.6 million to 1.6 million, predominantly as a result of the 1.1 million Unrealised loss on the interest rate swaps and cap whilst 0.7 million related to additional debt financing. The Group also earned 0.2 million on loans it provided. 4

6 FINANCIAL REVIEW 31 August 2016 FINANCIAL REVIEW (cont'd) The calculation of underlying earnings available for distribution is as follows: Loss for the year (880,332) Adjustments: Revaluation gain on Investment Property (468,541) Revaluation loss on property, plant and equipment 364,706 Goodwill write-off 1,057,900 Unrealised loss on interest rate swaps/cap 1,082,763 Costs of aborted acquisitions 473,374 Expenses incurred on assumption of net liabilities of Travelodge-owning entities 238,013 Foreign exchange loss 185,703 Amortisation of debt issue costs 49,486 Depreciation 177,160 Fixtures, Fittings and Equipment replacement reserve provision (250,845) Underlying distributable earnings 2,029,387 Underlying distributable earnings per share (pence) 5.02 Debt The Group has targeted an LTV ratio of 50% 55%. At 31 August 2016 there was an overall LTV position of 40%. This was lower than the targeted position due to undrawn facilities on the Gatwick, Leatherhead and Belvedere properties. This delay in drawdown was in order to minimise cash drag on equity raised during the year. It is anticipated that the Group will drawdown this additional debt at the time of the next acquisition as a substitute for seeking additional equity. This will increase the Group s LTV to within the target range. Cash flow The Group s cash balance has increased by 3.8 million since the prior year leaving a closing balance of 4.6 million. This balance includes 1.0 million raised as part of the Group s share placements to cover the cost of refurbishing the bedrooms at Holiday Inn Express Southampton and Holiday Inn Express Redditch to the latest brand standards. The final dividend totalling 1.7 million was paid subsequent to the year end. Dividends The Directors declared a final dividend for the year of 3.0 pence per share payable on 14th October The total dividend paid and payable for the year was 5.5 pence per share. The final dividend was paid on the due date. Under s56 of the BVI Business Companies Act 2004 dividends can be paid on the basis that the Directors are satisfied that the Company passes a solvency test. 5

7 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 August 2016 Continuing operations Restated * Audited Audited Year ended 10 February to 31 August August 2015 Trading hotel revenue 8,361,490 - Rental income 1,111,260 - Total Revenue 9,472,750 - Other income and gains - 11,378 Net fair value gain on Investment Property 468,541 - Trading hotel cost of sales / expenses (5,365,772) - Administrative expenses (3,744,144) (296,184) Operating profit / (loss) 831,375 (284,806) Net finance costs (1,554,956) - Finance income 258,289 61,202 Finance expense (1,813,245) (61,202) Loss before tax from continuing operations (723,581) (284,806) Taxation charge (83,329) - Loss after taxation from continuing operations (806,910) (284,806) Discontinued operation (Loss) / profit after tax for the year from discontinued operation (73,422) 96,414 Loss for the year (880,332) (188,392) Other Comprehensive Income Other comprehensive income that will not be reclassified to profit or loss in subsequent periods: Revaluation of land and buildings, net of tax 1,150,185 - Related deferred tax (229,117) - Other comprehensive income for the period, net of tax 921,068 - Total comprehensive profit / (loss) for the year 40,736 (188,392) Earnings per share Basic loss per share (pence) 1 (2.18) (7.67) Diluted loss per share (pence) 1 (2.18) (7.67) Basic headline earnings / (loss) per share (pence) (8.13) Diluted headline earnings / (loss) per share (pence) (8.13) * The 2015 comparative has been restated as a result of classification of a discontinued operation. 6

8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 August 2016 Audited 31 Aug 2016 Audited 31 Aug 2015 ASSETS Non-current assets 87,683,239 15,554,613 Property, plant and equipment 57,713,520 8,800,000 Goodwill 1,015, ,411 Investment property 28,950,000 5,700,000 Derivatives 3,751 61,202 Current assets 5,952,927 1,160,916 Inventories 31,337 6,299 Trade and other receivables 1,363, ,986 Cash and cash equivalents 4,558, ,631 Total assets 93,636,166 16,715,529 EQUITY Capital and Reserves 52,061,515 2,376,874 Share capital 56,000 2,650 Share premium 55,233,171 2,562,616 Retained Earnings (4,148,724) (188,392) Revaluation reserve 921,068 - LIABILITIES Non-current liabilities 35,963,744 7,433,230 Loans and borrowings 34,150,108 6,608,908 Derivatives 1,025,312 - Deferred tax liabilities 788, ,322 Current liabilities 5,610,907 6,905,425 Trade and other payables 4,891,946 1,064,053 Short term portion of interest-bearing loans and borrowings 549,000 5,761,356 Current tax liabilities 169,961 80,016 Total equity and liabilities 93,636,166 16,715,529-7

9 INTERNATIONAL HOTEL GROUP LTD CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 August 2016 Audited Audited Audited Audited Audited Share capital Share premium Accumulated Revaluation reserve Total equity reserves Balance as at 10 February Issue of shares - 19 March Cancellation of shares - 31 March 2015 (1) (1) Issue of shares - 31 March ,650 2,562, ,565,266 Total comprehensive income Loss for the year - - (188,392) - (188,392) Other comprehensive income Total comprehensive loss for the year - - (188,392) - (188,392) Balance as at 31 August ,650 2,562,616 (188,392) - 2,376,874 Loss for the year - - (880,332) - (880,332) Other comprehensive income for the year , ,068 Total comprehensive profit for the year - - (880,332) 921,068 40,736 Transactions with owners of the Company Issue of shares - 14 October ,350 12,127, ,139,664 Issue of shares - 20 October ,875 13,810, ,823,977 Issue of shares - 20 November ,125 6,069, ,075,765 Issue of shares - 23 February ,000 12,655, ,668,385 Issue of shares - 30 March ,000 6,957, ,964,455 Issue of shares - 28 May ,000 1,050, ,051,659 Dividends Paid and Proposed - - (3,080,000) - (3,080,000) Total transactions with owners of the Company 53,350 52,670,555 (3,080,000) - 49,643,905 Balance as at 31 August ,000 55,233,171 (4,148,724) 921,068 52,061,515 8

10 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 August 2016 Audited Audited Year ended 10 February to 31 August August 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Loss for the year (880,332) (188,392) Adjustments to reconcile loss after tax to net cash flows: Net fair value movement for the year in investment properties (468,541) 183,883 Bargain purchase of subsidiaries - (166,124) Depreciation of property, plant and equipment 177,160 - Net finance costs 1,554,956 27,457 Impairment of goodwill 1,057,900 - Tax charge 83,329 5,901 Fair value losses on property, plant and equipment 364,706 - Loss on sale of discontinued operation 73,422 - Working capital adjustments: (Increase) / Decrease in trade and other receivables and prepayments (16,651) 181,739 Increase in trade and other payables 833, ,410 Increase in inventories (593) - Cash generated from operating activities 2,779, ,874 Interest paid (515,450) (27,457) Interest Received 258,289 - Tax paid (48,176) - Net cash inflow from operating activities 2,473, ,417 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment and net cash flows of related assets (41,305,165) - and liabilities acquired Additions to Investment Property (24,030,093) - Development expenditure on investment property (3,780,882) - Proceeds from the sale of a disposal group (net of cash disposed) 410,392 - Acquisition of a subsidiary, net of cash acquired - 361,214 Net cash (outflow) / inflow from investing activities (68,705,748) 361,214 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans and borrowings 24,217,500 - Repayment of loans and borrowings (6,501,022) (25,000) Transaction costs relating to loans and borrowings (490,251) - Proceeds from issue of share capital 55,000 - Proceeds from issue of share premium 54,945,000 - Transaction costs relating to issue of shares (768,829) - Dividends paid (1,400,000) - Net cash inflow / (outflow) from financing activities 70,057,398 (25,000) Net increase in cash and cash equivalents 3,825, ,631 Balance at the beginning of the period 732,631 - BALANCE AT YEAR END 4,558, ,631 9

11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 August EARNINGS PER SHARE (EPS), HEADLINE EARNINGS PER SHARE (HEPS) AND DIVIDEND PER SHARE (DPS) The following reflects the income and share data used in the basic and diluted EPS computations: Restated * Loss attributable to ordinary equity holders of the parent for basic earnings: Continuing operations (806,910) (284,806) Discontinued operations (73,422) 96,414 Potential dilution - - Loss attributable to ordinary equity holders adjusted for basic and diluted EPS (880,332) (188,392) Number of ordinary shares in issue 56,000,000 2,650,000 Weighted average number of ordinary shares for basic and diluted EPS 40,402,945 2,457,273 Loss per share (pence) - Basic (2.18) (7.67) - Diluted (2.18) (7.67) Headline earnings per share Basic loss per share (pence) (2.00) (11.59) Diluted loss per share (pence) (2.00) (11.59) Loss per share for discontinued operations Basic (loss) / earnings per share (pence) (0.18) 3.92 Diluted (loss) / earnings per share (pence) (0.18) 3.92 Headline earnings per share The following table provides the profit/(loss) amount used to calculate headline earnings per share: Loss attributable to equity holders of the parent for the basic and diluted EPS calculations (880,332) (188,392) Adjustments: Revaluation gain on Investment Property (468,541) - Revaluation loss on property, plant and equipment 364,706 - Goodwill write-off 1,057,900 - Loss on discontinued operations 139,224 - Bargain gain on purchases of subsidiary - (11,378) Headline earnings / (loss) 212,957 (199,770) Headline earnings / (loss) per share (pence): - Basic 0.53 (8.13) - Diluted 0.53 (8.13) Underlying distributable earnings Adjustments to headline earnings: Loss on discontinued operations (139,224) - Unrealised loss on interest rate swaps/cap 1,082,763 - Costs of aborted acquisitions 473,374 46,119 Expenses incurred on assumption of net liabilities of Travelodge-owning entities 238,013 - Foreign exchange loss 185,703 - Amortisation of debt issue costs 49,486 - Depreciation 177,160 - Fixtures, Fittings and Equipment replacement reserve provision [1] (250,845) - Underlying distributable earnings / (loss) 2,029,387 (153,651) Underlying distributable earnings / (loss) per share (pence) 5.02 (6.25) Dividends per share paid and payable (pence) First interim dividend per share (pence) Second interim dividend per share (pence) * The 2015 comparative has been restated as a result of classification of a discontinued operation. [1] The fixtures, fittings and equipment replacement reserve provision is based on 3% of trading hotel revenue. 10

12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 August BASIS OF PREPARATION AND FINANCIAL INFORMATION PRESENTED The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), the listing requirements of the Luxembourg Stock Exchange and the Listings Requirements of the Johannesburg Stock Exchange, to the extent that they apply to the company. The financial information presented here does not amount to statutory financial statements. The Annual Report for the year ended 31 August 2016 will be available on the Company's website ( in early December The auditors, KPMG, have reported on the audited financial statements and their report was unmodified. A copy of their report is available on request from the Company's registered office at Coastal Building, Wickham's Cay II, Road Town, Tortola, British Virgin Islands. 11

13 ( IHL or the Company or the Group ) (Previously International Hotel Group Ltd) (Incorporated in the British Virgin Islands) (Company number: ) JSE share code: IHL ISIN: VGG