Action Hotels plc

Interim financial statements for the six months ended 30 June 2017

Action Hotels plc, the leading owner, developer and asset manager of branded three and four-star hotels in the Middle East and Australia, is pleased to announce its unaudited results for the six months ended 30 June 2017.

Key Highlights and Financial Overview

Year-on-year growth in key financial performance indicators - Revenue (up 10%) and Gross profit (up 6%)

Total reported revenue increased to $28.1m (30 June 2016: $25.6m), driven by new hotel rooms

Gross profit increased to $19.5m (30 June 2016: $18.4m)

Adjusted EBITDA¹ decreased by 6.3% to $6.8m (30 June 2016: $7.2m), mainly due to the full year effect of non-operating expenses in the newly opened hotels as they grow through the maturity stage

Net loss before tax of $5.3m (30 June 2016: Net loss of $3.9m), as expected and primarily driven by the impact of increased financing costs to develop the pipeline and the impact of depreciation newly opened hotels

LTV of 55% (2016: 51%)

Property asset values have increased by $35m to $493m since 31 Dec 2016, resulting in a net asset value (NAV) of $192m at 30 June 2017 (31 December 2016: $195 m)

Adjusted NAV (adding back deferred tax liability and assets) is $201m compared to $206m as at year end.

Adjusted NAV per share was USD 1.36/GBP 1.06 (2016: USD 1.40/GBP 1.09)

Interim dividend of GBP 0.77p, a 1.3% increase on the same period last year

Operational Highlights

2,181 operating rooms at the end of June, a 13% increase from H1 2016 (30 June 2016: 1,928) with the openings of Tulip Inn, Ras Al Khaimah (September 2016) and Mercure Sohar (December 2016)

Strong occupancy levels from our mature hotels², being maintained on a like-for-like basis at 72.7% (30 June 2016: 74.7%)

Average EBITDA breakeven occupancy levels across the portfolio remain low at c. 37% (30 June 2016: 35%)

Continued strong operational and financial performances from the two hotels in Kuwait, ibis Salmiya and ibis Sharq, with both hotels operating over 80% occupancy

Ibis Budget Melbourne Airport also continues to perform strongly with at 90% occupancy (30 June 2016: 91%)

On 2 August 2017 Action's thirteenth hotel, ibis Styles Diplomatic Area, Manama Bahrain with 95 rooms opened, taking the total of operational rooms to 2,276.

Current Trading and Portfolio update

The Board confirms that, current trading remains on track with market expectations, despite certain markets in the Middle East facing headwinds impacting the performance of businesses throughout the region. Growth comes from the newly opened rooms and the occupancy of the Groups seven mature hotels² at 72.7% underpins Action's resilient business model in the economy and midmarket hotel sector, with low break-even levels and the recently opened hotels delivering growth.

After a thorough review of the pipeline, and to efficiently manage the Company's cash and debt position, the board have decided to slightly delay the openings of two of its leasehold hotels in Saudi Arabia, Tulip Inn Modon Jeddah and Mercure Riyadh Olaya. These hotels, which are currently under development, were due to be substantially completed by the end of 2017 but will now be opened towards the end of H1 2018. This minimally impacts the 2017 forecast which is expected to improve the net loss position slightly with the concurrent delay of two hotel pre-opening costs in the region of $0.5-1.0m.

The Board has also taken the decision to remove the 112-key leasehold hotel, Staybridge Suites Abu Dhabi from the pipeline, choosing instead to focus Management's resources on projects offering a better return on capital employed, such as Novotel Melbourne South Wharf, due to open in H1 2018.

Alain Debare, Action Hotels CEO said:

"We are pleased to update the market on a solid first half, with a good performance across the Action Hotels portfolio.  We are seeing good growth from the new rooms, with trading impacted by some headwinds in the Middle East whilst Australia continues to perform strongly. We remain focused on delivering the pipeline and working with our Hotel partners to drive performance at our operating hotels with a special focus on ensuring the early success of our recently opened hotels as they grow within their markets and consolidating the solid performance from our mature hotel portfolio. "

Commenting on the results, Sheikh Mubarak A.M. Al Sabah, Founder and Chairman of Action Hotels said:

"It is my pleasure to announce another six months of growth for Action Hotels on the back of a very positive performance in 2016.  We continue to meet the increasing demand for quality, internationally branded economy and mid-market hotels and have outperformed expectations set out at IPO with regards to the number of rooms operating and in pipeline with rooms totaling 3,090. 

We remain committed to growing our portfolio and are continuously exploring new hotel opportunities on both a freehold and leasehold basis. In May, we announced our partnership with AccorHotels on our second Novotel branded hotel in Melbourne South Wharf, Action's fourth hotel in Australia and being developed on the largest convention center in the Southern hemisphere. We look forward to updating the market on other further developments to our pipeline in due course."

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Notes to Editors

Action Hotels PLC

Action Hotels is a leading owner, developer and asset manager of branded three and four star hotels in the Middle East and Australia. Established in 2005, Action Hotels currently has 13 completed hotels with 2,276 rooms in aggregate across the Middle East and Australia, with further properties in development in both regions.

More information is available at http://www.actionhotels.com/

Notes

1.   Adjusted EBITDA is defined as operating profit before depreciation, amortisation, restructuring and listing costs, gains and losses arising from the disposal of property, plant and equipment and pre-opening costs.

2.   On a like-for-like basis - a comparison of the mature trading hotels; ibis Glen Waverly, ibis Budget Melbourne Airport, ibis Sharq, ibis Salmiya, ibis Amman, Holiday Inn Muscat and ibis Muscat, excluding any currency movements.

3.   Adjusted NAV is the net asset value of the Group adjusted for the deferred tax provision required on the revaluation of properties to the Statement of Financial Position.

All currency amounts are in US $ unless otherwise stated.

This announcement contains unaudited information and forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and undue reliance should not be placed on any such statements because they speak only as at the date of this document and are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Action Hotel's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.  Action Hotels undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Operating performance

Total Portfolio

Consolidated revenues were 10% higher over the period, with contribution from new rooms and Middle East and Australian hotels continuing to contribute strong average occupancies. Total occupancy is lower than the mature (like for like) occupancy by 8.7% (30 June 2016: 9.1%) due to the weighting of lower occupancies in the newly opened hotels as they grow to maturity in their respective markets.

Total operating rooms reached 2,181 as at 30 June 2017, a 13% increase on the same period last year. The opening of ibis Styles Bahrain on the 2^nd August 2017 added a further 95 rooms taking the current operating and completed hotel portfolio to 2,276 rooms.

Despite pressure across the Middle Eastern markets, the Group's seven mature hotels² continue to deliver strong occupancy levels at a combined 72.7%, (30 June 2016: 74.7%) broadly in line with previous years illustrating the resilient business model.

Middle East

In the Middle East, hotels showed a drop-in occupancy of 4.9% and in ADR of 8.1% (on a like for like basis, excludes hotels opened in the last 12 months) due to the headwinds across the Middle East particularly impacting markets in Jordan, Oman and Bahrain.  Kuwait, however, remained strong with an average occupancy of 81.1% across the two hotels. Management is working closely with its hotel operators to ensure that hotels continue to grow their market share and maintain a low-cost base resulting in low breakeven levels.

Australia

The Australian hotels performed well, performing above last year and delivering an increase of 43% in revenue, driven predominantly from the opening of our largest hotel, Ibis Styles Brisbane, which completed one year of operations in March 2017 and continues to show encouraging trading with occupancy at 64.5%. Ibis Budget Melbourne Airport recorded the highest occupancy in the portfolio with year to date occupancy of 89.3%.

Hotel pipeline

Action Hotels now has 13 operating/completed hotels with 2,276 rooms.  The Group's pipeline currently consists of a further four hotels, and a total of 3,090 rooms upon completion of the pipeline hotel developments.

Financial Performance

Adjusted EBITDA amounted to $6.8m, a 6.3% decrease over the same period last year with adjusted EBITDA margin reducing slightly to 24%, mainly due to the full year effect of non-operating expenses of the newly opened hotels as they progress through the maturity cycle.

The operating performance is stable with the growth coming predominantly from the new rooms in Australia and the UAE. The steady central overheads of the Head Office helped to support EBITDA margin at 24%.

Gross Finance costs have increased by $1.18m over the same period versus last year as the company has, as planned, utilised debt facilities to fund the pipeline of hotels, some of the funds are also directed to the operation increasing interest payments reported in the financial statements. With the opening of three hotels in 2016 the Depreciation and Amortisation charge has also increased by $0.6m as expected over last year with the full year effect coming through as the hotels mature. However, the company has been able to reduce pre-opening costs compared to the same period last year (a reduction of $0.7m), with one hotel opening in August 2017.

Net Asset Value

Net asset value reduced by $3m to $192m at 30 June 2017 (2016: $195m), mainly due to the operating loss. NAV will be reviewed at year end as we roll out and fair value our portfolio at the end of the reporting period by certified valuers JLL and CBRE.

Interim Dividend         

The Group is pleased to announce an interim dividend for the six-month period ended 30 June 2017 of GBP 0.77p per share, which is expected to be paid on 1 December 2017. The Company's ordinary shares are expected to be marked entitlement to such dividend on 19 October 2017 and the dividend will be payable to all shareholders on the Company's share register at the close of business on 20 October 2017.

Payment of the dividend will require shareholders approving a number of administrative matters at a general meeting which will be convened in due course.

Outlook

The Group has had a good start to 2017 and the Board remains optimistic about the future as growth in the Middle East is forecast to recover to a 3.1% pace this year (World Bank: Global Economic Prospects 2017: Middle East and North Africa).

The Group has demonstrated execution capabilities that will continue to be applied to the pipeline.