Dalata Hotel Gp Regulatory News (DAL)

Building for the Future - People and Property

ISE: DHG LSE: DAL

Dublin and London | 26 February 2019: Dalata Hotel Group plc ("Dalata" or "the Group"), the largest hotel operator in Ireland with a growing presence in the United Kingdom, announces its results for the year ended 31 December 2018.

STRONG OPERATING PERFORMANCE

· Strong revenue growth of 11.8% to €393.7 million

· Revenue per available room2 (RevPAR) increased 4.7% to €94.13

· Adjusted EBITDA2 increased 14.0% to €119.6 million

· Adjusted basic EPS2 increased 11.7% to 42.8 cent

· Strong free cash flow2 of €86.6 million

STRONG BALANCE SHEET SUPPORTING FUTURE GROWTH

· Hotel assets2 of c. €1.2 billion including 2018 net upward property revaluation gain of €99.8 million

· Net Debt to Adjusted EBITDA2 of 2.3x

· Over 1,150 new rooms opened in Dublin, Belfast, Cork, Galway and Newcastle

· Pipeline of over 2,190 rooms in excellent locations delivering between now and 2021

ANNOUNCING TODAY

· The Board has proposed a final dividend of 7.0 cent per share

· Acquisition of a site adjacent to Clayton Hotel Cardiff Lane in Dublin for €5.5 million and plan to redevelop the area into circa 70 rooms and ancillary facilities

STRATEGIC AND OPERATING HIGHLIGHTS

· Over 1,150 new rooms opened during 2018:

o Opened Clayton Hotel Charlemont in Dublin and four new Maldron hotels in Dublin, Cork, Belfast and Newcastle

o Completed four extensions to existing hotels in Dublin (Clayton Hotel Dublin Airport, Maldron Hotel Parnell Square and Clayton Hotel Ballsbridge) and Maldron Hotel Sandy Road in Galway

· Met target of adding 1,200 new rooms to pipeline in 2018:

o 3 new leased hotels in Manchester, Bristol and Birmingham

o 2 new owned hotels, Clayton Hotel City of London (which opened on 24 January 2019) and Maldron Hotel Merrion Road in Dublin

· Continuing to grow in 2019 - announced a new leased hotel with 200 rooms at Spencer Place, Dublin and the purchase of a building adjacent to Clayton Hotel Cardiff Lane, Dublin (circa 70 bedrooms)

· €15.9 million invested in capital refurbishment across all areas of the Group's hotels with 830 rooms refurbished in 2018

· Agreed a new €525 million debt facility completing the refinance of previous debt facilities. The new facilities are on improved terms and include increased flexibility which will support Dalata in delivering its growth strategy

· Commenced the payment of dividends with an interim dividend of 3.0 cent per share paid on 12 October 2018. The Board has proposed a final dividend of 7.0 cent per share

OUTLOOK

Trading across our three regions is in line with our expectations for the first quarter of 2019. We are confident in our outlook and we note the positive economic projections for Ireland and the increasingly strong tourist numbers. We continue to monitor the ongoing uncertainty surrounding Brexit but we have seen no impact on trading.

We are very happy with trading at the hotels opened in the second half of last year. We fully expect them to contribute positively to earnings in 2019.

We continue to seek opportunities to expand our portfolio in the UK and Ireland. We are very confident that we will meet our target of announcing 1,200 new rooms in 2019 through new build hotels, extensions of our existing hotels and opportunistic acquisitions which fit our strategic and operational criteria. We are delighted to have already announced in 2019 two new projects in Dublin which will deliver circa 270 rooms.

Commenting on the results, Pat McCann, Dalata Group CEO, said:

"I am delighted to report that 2018 was another year of record earnings growth with Adjusted EBITDA increasing 14% to €119.6 million and Adjusted basic EPS increasing 11.7% to 42.8 cent. As I reflect on 2018, I am very pleased with our performance and achievements which required a tremendous amount of hard work. Together, we opened over 1,150 new rooms, executed valuable deals and delivered a strong operating performance. These results embody the innovative and ambitious spirit of our people at Dalata and their dedication to excel at everything they do.

The operating performance of the business continues to be very strong with 'like for like' RevPAR growth of 8.8%3 in Dublin outperforming the market growth of 7.2%. Our hotels in Regional Ireland and the UK also performed strongly with 'like for like' RevPAR growth of 5.2%3 and 3.1%3 respectively.

Our Segments EBITDAR margin for the Group increased from 42.4% to 42.8%. I am very pleased with this increase given that the new hotels opened in 2018 initially operate at a lower margin until revenues and costs hit normalised levels. Additionally, those hotels that were extended would have faced challenges in both revenue generation and cost control during construction.

We opened over 1,150 new rooms, all on time and on budget. Maldron Hotel Belfast City and Maldron Hotel Kevin Street in Dublin opened in March and July respectively and these hotels continue to perform very strongly. We also opened three hotels in the final quarter of 2018, Clayton Hotel Charlemont in Dublin, Maldron Hotel Newcastle and Maldron Hotel South Mall in Cork. These hotels are performing in line with expectations and will be earnings enhancing in 2019. We completed four extensions to existing properties in Dublin (x3) and Galway and we continue to see a strong return on these investments.

We continue to grow our pipeline and over the last twelve months, we entered into agreements to lease three new hotels in Bristol, Birmingham and Manchester. We completed the acquisition of the Clayton Hotel City of London at the start of January 2019. It opened on January 24th and I am particularly excited about the potential of this hotel. I am also delighted that we were able to secure such a valuable asset in London. I am hopeful it will lead to further opportunities for us in London.

We are always looking at different ways in which we can extract value from our existing portfolio. I am very pleased with the way we have forward sold 69 residential units to be developed on the site of the former Tara Towers hotel which helps us fund a brand new Maldron Hotel as part of a mixed-use development.

Our customers continue to be at the centre of everything we do. We refurbished 830 rooms to ensure our product is of a high standard for our guests. In 2018, we received approximately 134,000 customer reviews and achieved a proprietary customer satisfaction survey result of 84%. We continue to listen to our customers' feedback and take action to address areas of weakness and build upon our areas of strength.

To complement our 'Click on Clayton', we launched 'Make it Maldron' in March 2018 which gives our customers the opportunity to sign up to our closed user group and receive discounts. We continue to see a strong take up of 'Click on Clayton' and 'Make it Maldron'.

We continue to invest in our people at Dalata. I am delighted to report that 305 people were promoted internally at our hotels. All of the General Managers of the hotels opened in the last twelve months have been appointed from within, while the majority of the senior management positions were filled by internal candidates. Our strong dedication to training and the pipeline of new hotels means our people have the tools and opportunities to develop further.

We also successfully agreed a new €525 million debt facility on improved terms and with greater flexibility that will support the Group as it continues to grow. Last month we announced that we have agreed to lease a new 200 room hotel superbly located in Spencer Place, Dublin. Due to the quality and quantity of deals we are seeing, I am confident we will meet our target of announcing 1,200 new rooms in 2019.

In line with our commitment last year, we commenced the payment of dividends in 2018. Subject to approval of the final dividend by shareholders, we will pay a total dividend per share of 10 cent for 2018. This represents c. 25% of our profit after tax. This dividend level reflects our commitment to drive returns for our shareholders and the Board's confidence in the prospects of the business.

Dalata continues to grow its presence and profitability across Ireland and the UK. We monitor and assess the potential challenges from the eventual Brexit outcome but we do not let it distract us from continuing to develop our people, serve our customers and deliver strong returns to our shareholders".

ENDS 

Principal Risks and Uncertainties

The Group's principal risks and uncertainties for 2019 are:

· The manner and impact of the UK's departure from the European Union remains uncertain. Brexit may have a negative impact on both the UK and Irish economies. This, in turn, could impact on demand for hotel rooms in both countries

· Other geo-political events could result in uncertainty and have an impact on general economic activity in the UK and Ireland and further afield which in turn could impact the number of people looking to stay at hotels in both countries

· Significant fluctuations in exchange rates can make destinations more expensive or cheaper for potential customers to visit. The current uncertainty around Brexit has caused notable fluctuations in the value of sterling versus other currencies. A significant reduction in the value of sterling would make Ireland a more expensive destination for UK visitors which in turn could impact on the number of UK residents staying in Irish hotels. While UK visitors are an important part of our business in Ireland, 85% of our rooms in Dublin are sold to either domestic consumers or visitors from countries other than the UK. Only 9% of our rooms sold in our Regional Ireland hotels are to UK customers. Additionally, the reduction in UK visitors to Ireland is currently being more than offset by the growth in visitors from other markets such as North America and Europe

· A very significant proportion of EBITDA is generated by the Dublin hotel portfolio, and therefore any downturn in the Dublin market is likely to have a material impact on the Group's performance. There is also risk associated with an increase in the supply of rooms in the Dublin market in the future. However, demand for hotel rooms in Dublin continues to grow and the Group believes the market can support increases in supply. Additionally, our UK expansion strategy will reduce the proportion of EBITDA produced out of Dublin over time

· The opening of new hotels presents an operational risk that expected earnings may not materialise. The Group is minimising this risk by having teams in place and contracting business with corporates and tour operators well in advance of the hotels' opening dates. Senior management have considerable past experience and a strong track record of success in opening new hotels

· As Dalata expands there is a risk that the organisation's unique culture and values could be damaged. The rollout of the Dalata business model is dependent on the retention of its strong culture. The Group is actively managing this risk by focusing on the behaviours of executive management and through its employee engagement programme

· Dalata's business model is built on the ability to grow and retain expertise. There is a risk to the Group's ongoing and future success if it fails to retain key people and develop new talent within the Group. To minimise this risk the Group invests in training and development programmes and reviews market remuneration trends

About Dalata

Dalata Hotel Group plc was founded in August 2007 and listed as a plc in March 2014. Dalata has a strategy of owning or leasing its hotels and also has a small number of management contracts. The Group's portfolio consists of 30 owned hotels, ten leased hotels and three management contracts with a total of 9,046 bedrooms. In addition to this, the Group is currently developing eight new hotels with a total of 2,193 bedrooms and these will open over the next three years. This will bring the total number of bedrooms in Dalata to over 11,000. Dalata now has close to 5,000 employees. For the full year 2018, Dalata reported revenue of €393.7 million and a profit after tax of €75.2 million. Dalata is listed on the Main Market of Euronext Dublin (DHG) and the London Stock Exchange (DAL). For further information visit: www.dalatahotelgroup.com.

Conference Call Details | Analysts & Institutional Investors

Management will host a conference call for analysts and institutional investors at 08:30 GMT (03:30 ET), today 26 February 2019, and this can be accessed using the contact details below.

From Ireland dial: (01) 4311252

From the UK dial: (0044) 333 300 0804

From the USA dial: 631 913 1422

From other locations dial: +353 1 4311252

Participant PIN code: 18870216#

Contacts

Note on forward-looking information

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.

Full Year 2018 Financial Performance

Summary of hotel performance

In 2018, Dalata delivered a revenue increase of 11.8% to €393.7 million and a Segments EBITDA increase of 14.1% to €135.4 million. €24.8 million of the revenue growth was due to better performance in the existing hotel portfolio, €13.2 million due to the full year impact of new hotels acquired during 2017 and €9.6 million due to the opening of five new hotels in 2018. These gains were offset by a loss of revenue of €3.7 million due to the sale of the Croydon Park hotel in June 2017, €0.9 million due to the closure of Tara Towers Hotel in September 2018 and €0.9 million due to the reduction in the number of management contacts.

The additional revenue was converted strongly to the bottom line with Segments EBITDAR increasing by €18.8 million. Segments EBITDAR margin for the Group increased by circa 40 bps. This is a strong result as four hotels were managing disruptions caused by building work on extensions and the five newly opened hotels were operating at lower initial margins.

The significant increase in segments EBITDA of €16.7 million can largely be attributed to the strong conversion at the existing hotel portfolio which accounted for €11.4 million of the increase. The full year impact of hotels acquired in 2017 contributed €4.2 million to the increase in EBITDA. Newly opened hotels contributed a further €3.2 million.

Adjusted EBITDA bridge

The table below shows by region how Adjusted EBITDA has grown from €104.9 million in 2017 to €119.6 million in 2018.

Performance Review - Segmental Analysis

The following section analyses the results from the Group's portfolio of hotels in Dublin, Regional Ireland and United Kingdom.

1. Dublin Hotel Portfolio - Continuing to outperform the market, RevPAR growth of 8.8%4

Our sixteen hotels in the Group's Dublin portfolio consists of seven Maldron hotels, seven Clayton hotels, the Ballsbridge Hotel and The Gibson Hotel. Maldron Hotel Kevin Street (137 rooms) opened in July 2018, Clayton Hotel Charlemont (177 rooms open at year end) opened in November 2018 and three extensions to existing hotels were completed, altogether adding 182 rooms. The Tara Towers Hotel closed in September 2018 to allow the building of the new Maldron Hotel Merrion Road to commence, resulting in a loss of 109 rooms.

2018 was another excellent year where the Dublin hotels achieved a 'like for like' RevPAR growth of 8.8%4 versus the market growth of 7.2% (STR). All of the Dublin hotels achieved growth on 2017 which was a very positive result given the extra capacity arising from the extensions at Clayton Hotel Ballsbridge, Clayton Hotel Dublin Airport and Maldron Hotel Parnell Square and the disruption caused by works at these hotels. On a 'like for like' basis occupancy at our Dublin hotels increased by 250 bps to 88.1% compared to the market occupancy of 83.8%.

Food and beverage revenue increased by €4.4 million due to the additional capacity at Clayton Hotel Dublin Airport, the full year impact of Clayton Hotel Liffey Valley and the opening of Maldron Hotel Kevin Street.

EBITDAR in Dublin increased by €15.0 million to €114.0 million primarily driven by the strong performance of the existing portfolio (€10.6 million). The full year impact of the acquisition of Clayton Hotel Liffey Valley in various transactions added €3.2 million. Maldron Hotel Kevin Street and Clayton Hotel Charlemont, which opened in 2018, contributed EBITDAR of €1.7 million and negative EBITDAR of €0.1 million respectively.

Our Dublin hotels continue to convert additional sales strongly to the bottom line. The EBITDAR margin in 2018 has decreased principally due to the full year impact of Clayton Hotel Liffey Valley which was acquired in August 2017. Excluding the impact of this acquisition the EBITDAR margin would have increased to 49.0%. The EBITDAR margin at this hotel is lower than the average Dublin hotel margin due to its location and the high proportion of food and beverage revenue.

Rent increased by €1.2 million due to increases of €1.8 million in performance related rent, €0.3 million due to a rent review at one property during 2018 and the fact that the 2017 rent charge included a €2.0 million release of estimated accruals and liabilities. These increases were offset by the rent saving of €2.3 million due to acquisitions of elements of Clayton Hotel Cardiff Lane in various transactions during 2017 and 2018 and the full year impact of a revised lease for one property which resulted in a saving of €0.6 million.

2. Regional Ireland Hotel Portfolio - Maintaining performance but opportunities for improvement exist

Our thirteen hotels in the Regional Ireland portfolio comprise seven Maldron hotels and six Clayton hotels located in Cork (x4), Galway (x3), Limerick (x2), Wexford (x2), Portlaoise and Sligo. In 2018, Dalata added 154 rooms with the opening of Maldron Hotel South Mall, Cork in December (93 rooms open at year end) and the completion of the extension at Maldron Hotel Sandy Road, Galway in June (net 61 rooms).

Dalata's hotels in Cork, Galway and Limerick account for 71% of rooms and generate 70% of revenue and 73% of EBITDAR in the Regional Ireland portfolio.

'Like for like' RevPAR increased by 5.2% in 2018. Our hotels in Regional Ireland were broadly in line with the market in Cork and behind in Galway and Limerick. The additional capacity of 61 rooms at Maldron Hotel Sandy Road decreased our RevPAR growth for Galway in 2018. Excluding this hotel our RevPAR growth in Galway was 3.2%.

Food and beverage revenue was flat year on year. There will be a focus on improving food and beverage revenue and profitability in 2019.

EBITDAR margin increased by 40 bps to 28.5%. If we exclude the early trading losses for Maldron Hotel South Mall, Cork the EBITDAR margin would have been 28.7%. There are opportunities to increase this further in 2019.

3. UK Hotel Portfolio - Strong operating performance underpins growth strategy

At the end of 2018, our UK hotel portfolio comprised seven Clayton hotels and three Maldron hotels with two hotels situated in London, five hotels in regional UK and three hotels in Northern Ireland. In 2018, Dalata opened two new hotels, Maldron Hotel Belfast City (237 rooms) in March 2018 and Maldron Hotel Newcastle (265 rooms) in December 2018. Clayton Hotel City of London opened in January 2019.

2018 was another positive year for our UK hotels with RevPAR increasing by 3.1%. Dalata had a very strong year in Manchester and Cardiff. Clayton Hotel Chiswick significantly outperformed its local competitive set (comp set) with RevPAR growth of 3.7% while Clayton Crown Hotel had a more challenging year due to a decrease in demand and increased competition in its area of London.  

The additional revenue was converted strongly with EBITDAR increasing by 13.9% to £27.0 million. EBITDAR margin increased by 60 bps to 39.0% despite the impact of two new hotels opening in 2018. Excluding the impact of Maldron Hotel Newcastle and Maldron Hotel Belfast City, which initially operate at lower margins, the EBITDAR margin would have been 39.7% in 2018. Clayton Hotel Chiswick in London achieved a very strong conversion of additional sales.

Central costs and share-based payments expense

In 2018, central costs increased by 7.5% to €13.3 million due to pay increases and additional headcount across all central office functions.

The share-based payments expense increased by €1.1 million mainly as a result of a higher cost being attributed to the 2017 and 2018 LTIP grants for accounting purposes due to the EPS related performance condition attracting a higher fair value. In addition, there were more employees in the LTIP and SAYE schemes.

Adjusting items to EBITDA

Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group. Consequently, items which are not reflective of normal trading activities or distort comparability either 'year on year' or with other similar businesses are excluded.

The Group received a commercial settlement amounting to €2.6 million from an insurance claim as a result of a fire which destroyed a vacant building located at Clayton Hotel Silver Springs, Cork. The proceeds have been recorded within other income in the profit or loss account.

In 2018, the Group incurred pre-opening expenses amounting to €2.5 million for six new hotels which opened in 2018 and early 2019. Pre-opening expenses typically include staff training costs, wages and salaries of the core hotel management team and sales and marketing expenses. They are incurred in advance of a newly built hotel becoming operational.

€2.3 million of the €3.1 million revaluation loss on land and buildings is related to Clayton Hotel Silver Springs in Cork. The large investment to address structural and fire safety issues, in addition to investing in the conference centre and bedrooms, has not yet been reflected in the capital value of the hotel. €1.0 million relates to Clayton Whites Hotel in Wexford which has traded behind our expectations despite capital investment.

Depreciation

Depreciation increased by €4.0 million to €19.7 million driven by the completion of five new hotels and four extensions to existing properties (€2.0 million) and the acquisition of certain elements of Clayton Hotel Liffey Valley and Clayton Hotel Cardiff Lane (€0.6 million). The remaining increase relates to the depreciation of refurbishment capital expenditure which replaced items that had already been fully depreciated in previous accounting periods.

Finance Costs

Finance costs are in line with 2017 despite the write off of certain original facility unamortised costs at the date of refinance (€0.9 million). The weighted average interest rate for 2018 was 2.94% (2017: 3.16%), of which 2.15% (2017: 2.42%) related to margin.

Tax charge

The Group's effective tax rate2 increased from 11.6% in 2017 to 13.8% in 2018 largely due to the non-recurring benefit in 2017 of tax losses from previous acquisitions to which no value had been initially attributed.

Earnings per share

The Group's strong operating performance has translated into an increase in basic earnings per share and adjusted basic earnings per share of 9.9% and 11.7% respectively.

Strong operating cash flows re-invested in the business

Cash conversion was very strong in 2018 and increased by 350 bps. Cash conversion is marginally higher than a normalised 2017 due to the cash inflow from working capital (including from newly opened hotels) offset by the additional finance costs paid relating to the refinance of debt facilities and the timing of rent payments. There are a number of other different factors impacting the movement year on year. The conversion in 2017 was lower due to the non-cash release of €2.0 million of estimated accruals and liabilities relating to the successful conclusion of negotiations on a number of leased properties. The 2017 conversion would have been 70.5% excluding the impact of these items.

Balance Sheet

Dalata's strong balance sheet is vital as it will help support future growth. Maintaining a strong covenant with well-located property assets and low levels of gearing allows Dalata to attract and partner with strong fixed income investors and enter into leases at relatively low yields. This is critical for the Group's strategy of expanding in the UK using the leasing model.

Dalata remains lowly geared with Net Debt to Adjusted EBITDA of 2.3x. Post year end, the Group completed the acquisition of Clayton Hotel City of London which increased pro-forma Net Debt to EBITDA to 3.0x. This still remains below our guided upper level of 3.5x and is projected to fall again during 2019.

Dalata also monitor a ratio, referred to as our 'Debt and Lease Service Cover2', to assess the Group's ability to meet interest, rent and capital repayment commitments. At the end of 2018, this ratio amounted to a very strong 2.2x. Under the new debt facility, following the refinancing, the term debt is a non-amortising facility. This ratio would have been 2.7x if we excluded the quarterly capital repayments (prior to refinancing) which totalled €12.6 million in 2018.

In 2018, Dalata achieved a return on capital employed2 of 11.2%. Excluding the capital cost and trading impact of the five new hotels which opened during 2018 and assets under construction at year end, the normalised return on capital employed2 was marginally ahead of 2017 at 12.6%.

Property, plant and equipment

Property, plant and equipment was almost €1.2 billion at the end of 2018. The increase of €177.5 million since 2017 is driven by additions of €105.5 million, a net revaluation gain of €99.8 million, capitalised borrowing costs of €1.8 million, offset by the depreciation charge of €19.7 million and adverse foreign exchange movements which decreased the value of the UK hotel assets by €1.8 million. €8.1 million was also reclassified from property, plant and equipment to contract fulfilment costs within non-current assets representing the value attributable to the portion of the Merrion Road site (formerly the site of the Tara Towers hotel) which will be developed into residential units.

In 2018, Dalata acquired 34 suites in the Clayton Hotel Liffey Valley, Dublin and two suites in Clayton Hotel Cardiff Lane, Dublin for €8.3 million and €0.9 million respectively.

The Group typically allocates 4% of revenue to refurbishment capital expenditure. In 2018, €6.1 million was spent refurbishing bedrooms and a further €9.8 million was spent on public areas and completing health and safety works. €31.9 million was spent in 2018 on the construction of the new restaurant, meeting rooms and additional bedrooms at Clayton Hotel Ballsbridge, the additional bedrooms at the three other hotel extensions and the development work commenced at Clayton Hotel Burlington Road. A further €44.2 million was spent on the construction of four new hotels in Belfast, Dublin (x2) and Cork.

Capital Structure

Dalata are committed to carefully managing our capital structure to ensure it has the right mix of leases, bank debt and equity. We aim to generate strong returns for shareholders without excessive leverage.

1. Debt

On 26 October 2018, Dalata successfully agreed a €525 million debt facility on improved terms, completing the refinance of the previous debt facilities due to expire in February 2020. The new financing package ensures Dalata has sufficient funding and flexibility to deliver its growth strategy in the period to October 2023 in addition to benefitting from savings in margin and fees.

The existing banking partners, AIB Bank, Bank of Ireland, Barclays Bank and Ulster Bank, have been joined by HSBC Bank and Banco de Sabadell, demonstrating the growing attraction of Dalata to international lending institutions.

The new five-year multicurrency facility agreement consists of a €200 million term loan facility and €325 million revolving credit facility (RCF). The Group has the ability to extend the facilities for a further two years and also avail of an accordion facility to obtain an additional €175 million subject to approval by the lenders at the time. The term loan facility is fully repayable at the end of the five years in October 2023.

The Group limits its exposure to foreign currency by using sterling term debt to act as a natural hedge against the impact of sterling rate fluctuations on the euro value of the Group's UK assets. These borrowings amounted to £176.5 million (€197.3 million) at 31 December 2018 (2017: £174.4 million (€196.5 million)) and are designated as net investment hedges.

The Group is also exposed to floating interest rates on its debt obligations and uses hedging instruments to mitigate the risk associated with interest rate fluctuations. This is achieved by entering into interest rate swaps and an interest rate cap which hedge the variability in cash flows attributable to the interest rate risk. As at 31 December 2018, the interest rate risk on approximately 99% of our sterling denominated borrowings was hedged by interest rate swaps.

2. Leases

IFRS 16 became effective on 1 January 2019 and will result in almost all leases being reflected in the statement of financial position. As a result, an asset (the right-of-use of the leased item) and a financial liability to pay rental expenses are recognised. Fixed rental expenses will be removed from profit or loss and replaced with finance costs on the lease liability and depreciation of the right-of-use asset.

As companies are adopting a variety of transition approaches (fully retrospective and modified retrospective) which, coupled with normal commercial and timing differences, this will make comparison difficult. As previously indicated, Dalata will operate the modified retrospective approach.

The Group is finalising the work on the discount rates of individual leases. The discount rate will be largely based upon the incremental borrowing rate and, with the vast majority of leasehold commitments guaranteed by Group, this should be closely aligned with recently refinanced bank borrowing rates as adjusted for tenor and asset specific considerations. Based on the work completed to date, we expect the discount rate not to be considerably different to the notional rate of 5% used for illustrative purposes in our financial statements and our Capital Markets Day (November 2017) presentation on IFRS 16.

Using an indicative discount rate of 5% would result in the recognition of a lease liability of circa €350 million and a corresponding right-of-use asset of circa €350 million. Profit after tax would decrease by circa €7 million. As the Group has entered into most of its leases relatively recently, there are significant unexpired terms. This together with the fact that they are guaranteed by the Group means the impact of front loading finance costs under IFRS 16 is more pronounced compared to companies with a more mature lease portfolio.

IFRS 16 will have no impact on strategy, commercial negotiations on leases or calculation of covenants which per the terms of the facility agreements are based on GAAP calculated without the application of IFRS 16.

3. Equity

In 2018, Dalata announced it has adopted a progressive dividend policy with the level of payment based on a percentage of profit after tax. An interim dividend for 2018 of 3.0 cent per share was paid on 12 October 2018 on the ordinary shares in Dalata Hotel Group plc amounting to €5.5 million. On 25 February 2019, the Board proposed a final dividend of 7.0 cent per share. Subject to shareholders' approval at the Annual General Meeting on 2 May 2019, the payment date will be 8 May 2019 for the final dividend to shareholders registered on the record date 12 April 2019.

2. See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ("APM") and other definitions

3. RevPAR growth reflects full twelve-month performance of hotels regardless of when acquired and excludes the new hotels opened during 2018 and the Tara Towers Hotel which closed in September 2018. In Dublin, Clayton Hotel Dublin Airport is also excluded due to the significant extension completed during 2018 which distorts comparability.

Supplementary Financial Information

Alternative Performance Measures ('APM') and other definitions

The Group reports certain alternative performance measures ('APMs') that are not required under International Financial Reporting Standards ('IFRS'), which is the framework under which the condensed consolidated financial statements are prepared. These are sometimes referred to as 'non-GAAP' measures.

The Group believes that reporting these APMs provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its operating segments.

These APMs are primarily used for the following purposes:

· to evaluate the historical and planned underlying results of our operations; and

· to discuss and explain the Group's performance with the investment analyst community.

The APMs can have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results in the condensed consolidated financial statements which are prepared under IFRS. These performance measures may not be calculated uniformly by all companies and therefore may not be directly comparable with similarly titled measures and disclosures of other companies.

The definitions of and reconciliations for certain APMs are contained within the condensed consolidated financial statements. A summary definition of these APMs together with the reference to the relevant note in the condensed financial statements where they are reconciled is included below. Also included below is information pertaining to certain APMs which is not mentioned within the consolidated financial statements but which are referred to in other sections of this announcement. This information includes a definition of the APM in addition to a reconciliation of the APM to the most directly reconcilable line item presented in the condensed consolidated financial statements. References to the condensed consolidated financial statements are included as applicable.

(i) EBITDAR and Segments EBITDAR

EBITDAR is a non-GAAP measure representing earnings before rent, interest and finance costs, tax, depreciation and amortisation. A reconciliation is presented in note 2 to the condensed consolidated financial statements for the year ended 31 December 2018.

Segments EBITDAR is a non-GAAP measure representing earnings before rent, interest and finance costs, tax, depreciation and amortisation of intangible assets for each of the reportable segments: Dublin, Regional Ireland, United Kingdom and Managed Hotels. Refer to note 2 to the condensed consolidated financial statements for the year ended 31 December 2018 for the reconciliation.

(ii) EBITDA and Segments EBITDA

EBITDA is a non-GAAP measure representing earnings before interest and finance costs, tax, depreciation and amortisation of intangible assets. A reconciliation is presented in note 2 to the condensed consolidated financial statements for the year ended 31 December 2018.

Segments EBITDA represents the EBITDA for the Group's reportable segments: Dublin, Regional Ireland, United Kingdom and Managed Hotels. A reconciliation is presented in note 2 to the condensed consolidated financial statements for year ended 31 December 2018.

(iii) Segments EBITDAR margin

Segments EBITDAR margin represents "Segments EBITDAR" as a percentage of the total revenue for the following Group segments: Dublin, Regional Ireland and United Kingdom.

(iv) Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure representing earnings before interest and finance costs, tax, depreciation and amortisation of intangible assets adjusted to show the underlying operating performance of the Group and excludes items which are not reflective of normal trading activities or distort comparability either 'year on year' or with other similar businesses. A calculation is presented in note 2 to the condensed consolidated financial statements for the year ended 31 December 2018.

(v) Adjusted basic earnings per share (EPS)

Adjusted Basic EPS is a non-GAAP measure representing EPS adjusted to show the underlying operating performance of the Group excluding the tax adjusted effects of items which are not reflective of normal trading activities or distort comparability either 'year on year' or with other similar businesses. The calculation is presented in note 12 to the condensed consolidated financial statements for the year ended 31 December 2018.

(vi) Net Debt to Adjusted EBITDA

Net Debt to Adjusted EBITDA represents loans and borrowings (gross of unamortised debt costs) less cash and cash equivalents divided by the "Adjusted EBITDA" for the year. See note 9 to the condensed consolidated financial statements for the year ended 31 December 2018.

(vii) Effective tax rate

The Group's effective tax rate represents the annual tax charge divided by the profit before tax presented in the condensed consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018.

(viii) Free cash flow

Free cash flow is presented to show the cash available to fund acquisitions, development expenditure and dividends. The Group calculates free cash flow as net cash from operating activities, less amounts paid for interest, finance costs and refurbishment capital expenditure and after adding back cash paid in respect of adjusting items to EBITDA. The adjusting items which have a cash effect are added back to show how much cash would be generated by the underlying operating performance of the Group. The Group allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio remains fresh for its customers and adheres to brand standards.

1 Reconciliation of refurbishment capital expenditure:

(ix) Free cash flow conversion

Free cash flow conversion is presented to show the proportion of the Group's Adjusted EBITDA, after adding back non-cash adjusting items, that is converted to free cash flow. The accounting cost of the LTIP and SAYE are excluded from Adjusted EBITDA as these items do not have an impact on cash.

(x) Return on capital employed (ROCE)

Return on capital employed represents adjusted EBIT (see calculation at (xii) below) expressed as a percentage of the Group's average capital employed. The Group defines capital employed as total assets less total liabilities and excludes the accumulated revaluation gains/losses included in property, plant and equipment, net debt, derivative financial instruments and taxation related balances. The Group's net assets are also adjusted to reflect the average level of acquisition investment spend and the average level of working capital for the accounting period. The average capital employed is the simple average of the opening and closing capital employed figures.

Adjusted EBIT represents the Group's adjusted earnings before interest, finance costs and tax and excludes items which are not reflective of normal trading activities or distort comparability either 'year on year' or with other similar businesses.

2 Includes the combined net revaluation uplift included in property, plant and equipment since the revaluation policy was adopted in 2014 or in the case of hotel assets acquired after this date, since the date of acquisition. The value of property plant and equipment at 31 December 2018 was €1,077.2 million (2017: €848.8 million) and the corresponding value under the cost model as disclosed in note 7 to the condensed financial statements was €803.4 million (2017: €677.6 million). Therefore, the revaluation uplift included in property plant and equipment is €273.8 million (2017: €171.2 million).

(xi) Normalised return on capital employed (ROCE)

Normalised return on capital employed is presented to show the Group's return on capital excluding the impact of the investment in future hotel openings or hotels which have not traded for a full twelve months.

3 Assets recently completed in the year include the cost of constructing the five new hotels which opened during 2018: Maldron Hotel Belfast City (March 2018), Maldron Hotel Kevin Street, Dublin (July 2018), Clayton Hotel Charlemont, Dublin (November 2018), Maldron Hotel Newcastle (December 2018) and Maldron Hotel South Mall, Cork (December 2018) which completed during 2018 and therefore did not benefit from a full twelve months of trading.

4 Amount represents Adjusted EBIT of €99.8 million (2017: €89.1 million) as calculated in (xii) below and excludes EBIT of €2.1 million from new build hotels recently completed during the year, Maldron Hotel Belfast City, Maldron Hotel Kevin Street, Clayton Hotel Charlemont, Maldron Hotel Newcastle and Maldron Hotel South Mall which are also excluded from "normalised capital employed" to ensure consistent comparability.

(xii) Adjusted earnings before interest and tax (Adjusted EBIT)

Adjusted EBIT comprises profit before tax as reported in the condensed consolidated statement of profit or loss and other comprehensive income, before interest and finance costs, and excludes items which are not reflective of normal trading activities or distort comparability either 'year by year' or with similar businesses. The table below calculates the adjusted EBIT for the year ending 31 December 2018 and 31 December 2017 for use in the calculation of return on capital employed in (x) and (xi) above.

(xiii) Calculation of debt and lease service cover

Debt and lease service cover is presented to show the Group's ability to meet its debt and lease commitments. It is calculated as free cash flow calculated in (viii) above before rent, interest and finance costs divided by the total amount paid for interest and finance costs, rent and committed loan repayments.

Other definitions:

Revenue per available room (RevPAR)

Revenue per available room is calculated as total rooms revenue divided by number of available rooms, which is also equivalent to the occupancy rate multiplied by the average daily room rate achieved.

Hotel assets

Hotel assets represents the value of property, plant and equipment per the condensed consolidated statement of financial position at 31 December 2018.

*Revenue and cost of sales have been restated for the year ended 31 December 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss (note 1).

On behalf of the Board:

John Hennessy Patrick McCann

Chairman Director