EHG.L Regulatory News (EHG)

14 June 2016

Elegant Hotels Group plc

Half Year Results Statement and Trading Update

A solid performance in a challenging trading environment

Elegant Hotels Group plc ("Elegant Hotels", the "Company" or the "Group"), the owner and operator of six upscale freehold hotels and a beachfront restaurant on the island of Barbados, today announces its half year results for the six months ended 31 March 2016.

All currency amounts are in US$ unless otherwise stated.

Highlights

· Revenue up 0.1% to $36.5 million (H1 2015: $36.4 million)

· RevPAR (revenue per available room) up 0.3% to $320 (H1 2015: $319)

· ADR (average daily rate) up 3.1% to $464 from $450

· Adjusted EBITDA up 2.5% to $16.7 million (H1 2015: $16.3 million)

· Adjusted operating profit up 2.6% to $15.1 million (H1 2015: $14.7 million)

· Adjusted EPS of 12.9 cents per share

· Successful completion of the acquisition of Waves Hotel & Spa

· Interim dividend of 3.5 pence per share (interim 2015: 1.75 pence)

· Implied NAV (post Waves acquisition) of 161 pence per share*

* Based on: valuations of the Group's properties, excluding Waves, as at 15 April 2015; the recent valuation of Waves; net debt as at 31 March 2016; and an exchange rate of £1.00:$1.42.

Commenting on the results, Sunil Chatrani, CEO of Elegant Hotels, said:

"This has been a period of solid progress for Elegant Hotels and we were particularly pleased to complete our first acquisition since becoming a public company, in the form of Waves Hotel & Spa. The Group now owns around 29% of the quality leisure tourist room stock in Barbados and our objective remains to continue extending this position while also expanding further into the Caribbean region. Whilst there are currently a number of challenges that are impacting the trading performance of both Elegant Hotels and the wider luxury hotel market in Barbados, we continue to be confident in the Group's long-term growth prospects."

For further information:

NOTES TO EDITORS:

Elegant Hotels owns and operates six luxury hotels and a beachfront restaurant, Daphne's, on the island of Barbados. The Group's portfolio comprises 553 rooms, which represents around 29% of Barbados' quality leisure tourist room stock. Five of the six Group hotels, including the recent acquisition Waves Hotel & Spa, are situated along the prestigious west coast of Barbados commonly known as the "Platinum Coast". The properties are all freehold, with a total aggregate plot size of approximately 22 acres and an aggregate beachfront of 2,500 feet. In the year ended 30 September 2015, the Group achieved revenues of $60.1 million and EBITDA before non-recurring items of $22.2 million.

The Group's shares were admitted to trading on the London Stock Exchange's AIM in May 2015. Its objective now is to leverage its position as a leading hotel operator in Barbados and to expand both on Barbados and further into the Caribbean.

Together, the Group's six hotels - Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach and Waves Hotel & Spa - offer styles encompassing classic and contemporary, family-friendly and adults-only.

Investor website: http://www.eleganthotelsgroup.com/

Commercial website: http://www.eleganthotels.com/ 

Half Year Results Statement and Trading Update 

Revenue and demand

The period under review has been one of solid progress in an increasingly challenging market for Elegant Hotels. Revenue for the first half of the year at $36.5 million was marginally higher than the same period last year (H1 2015: $36.4 million).

There was a small decline in occupancy to 69% from 71% last year, but this was compensated by an increase in ADR which was up 3.1% at $464. This was achieved despite the strength of the US dollar, which was on average up 5% against the pound and 7% against the euro versus the prior period, making holidays in Barbados more expensive for the European traveller. RevPAR was flat for the Group.

Colony Club has again traded well during the period, with revenue and bookings showing the positive impact of the recently completed refurbishment. RevPAR at Colony Club was up 8% for the period. Turtle Beach recovered from the disruption of the refurbishment works at the neighbouring hotel, which affected bookings last year. However, now that the refurbished hotel has opened, its adults-only offer is providing more competition. The House and Tamarind saw RevPAR falls of 7% and 6% respectively because of declines in occupancy. Both hotels will benefit from some targeted refurbishment expenditure next year. Crystal Cove continues to be popular with families and RevPAR was up 2%.

The Company was able to hold its rates during the peak winter trading months as demand for luxury holidays in Barbados remained solid. When demand is high the Company is able to manage yields by increasing headline prices and reducing discounts.

However, while visitor numbers and airlift to the island have continued to increase, and there is good underlying growth in demand for Barbados, most of that growth has been in the villa rental segment and at the lower-cost end of the hotel market. Recent data from Barbados Tourism Marketing Inc. shows that, for the first quarter of calendar 2016, demand for luxury accommodation decreased by 3.7%, while overall arrivals increased by 7.4%.

Profitability

Adjusted EBITDA of $16.7 million (H1 2015: $16.3 million) grew by 2.5%, reflecting increases at Colony Club, Turtle Beach and Crystal Cove. This was offset by modest decreases at The House, Tamarind and Daphne's and by the additional costs of running a listed company.

Adjusted profit before tax increased in the six months to 31 March 2016 to $14.4 million (H1 2015: $12.8 million), up 12.5% on the previous year. The majority of this increase was because of lower interest on reduced net debt levels following the IPO. On the same basis, adjusted EPS was up 9.3% to 12.9 cents per share (H1 2015: 11.8 cents per share).

The Group continues to focus closely on cost control, and the centralised functions that serve its properties - including procurement (giving scale in purchasing), accounting (giving better cost control) and HR (giving improved training and personnel development) - are constantly being refined and made more efficient. The Group is also exploring other ways of reducing costs while not compromising in any way on the quality of its properties or customer service, such as lowering electricity bills by introducing more efficient air-conditioning units across its portfolio. However, central costs have inevitably risen due to the additional costs associated with being a listed company.

Net debt was down $42.0 million to $54.8 million (H1 2015: $96.8 million) due to the use of the IPO proceeds, partially offset by increased borrowings of $20.5 million for Waves Hotel & Spa.

 Expansion strategy

In March 2016, the Group announced that it had acquired Waves Hotel and Spa ("Waves"), its first acquisition since becoming a public company last year. Waves has been independently valued at $22 million by Terra Caribbean. The difference of $4.2 million between the total consideration and the fair value of the assets is shown as a gain on acquisition in the profit and loss account.

Waves is a 4-star, 70-bedroom all-inclusive resort located at Prospect Bay in the parish of St. James in Barbados. It has a prime beachfront location on the popular west coast, or "Platinum Coast", of the island and is close to a number of popular tourist destinations including the areas of Holetown and Bridgetown. The hotel occupies approximately 1.8 acres of freehold land on a beachfront of 178 feet and its facilities include a restaurant, bar, gym and destination spa with 18 treatment rooms.

The process of refurbishing, repositioning and re-pricing Waves is underway and, as planned, it is expected to have a soft opening in the last quarter of FY 2016. The Group expects the transaction to be earnings enhancing for the year ending 30 September 2017.

The Group continues to believe that such acquisitions, both on Barbados and further into the Caribbean, will be key to the long-term growth of Elegant Hotels and remains committed to this strategy.

Dividend

As set out in the Admission Document at the time of IPO, the Board continues to anticipate the Company's first full year dividend payment will be 7.0 pence per share (representing a 7% yield at the placing price on IPO of £1 per share) and is pleased to declare an interim dividend of 3.5 pence per share. This is intended to be followed by a final dividend of 3.5 pence per share in Q1 2017 representing a total of 7.0 pence per ordinary share for the Company's accounts period ending 30 September 2016.

The interim dividend for the period of 3.5 pence per share will be paid on 15 July 2016 to shareholders on the register on 24 June 2016, and the Company's ordinary shares will become ex-dividend on 23 June 2016.

Board

The Board has recently been significantly strengthened by the appointment in April of Richard Jones as Chief Financial Officer. Richard was previously the Chief Financial Officer of Cineworld Group plc and has considerable UK plc experience, as well as in-depth knowledge of the leisure sector which will be invaluable as the Group continues to pursue its long-term expansion plans.

Current trading and outlook

Over the last few months the Group has experienced a variety of challenges. In common with the rest of the luxury hotel market in Barbados, the Group has seen an impact on customer demand as a result of wider issues that are largely beyond its control: the current political uncertainty in the UK has led to a reduction in consumer appetite for luxury holidays, and publicity around the Zika virus has resulted in room cancellations and in substantial competitor discounting, despite the relatively small number of reported cases in Barbados (with none in the Group's hotels). While such factors are clearly unpredictable, the Group is hopeful that their negative impact will be relatively short-term in nature.

Elegant Hotels continues to have firm competitive advantages over its peers. In particular, the Group has stronger negotiating positions with tour operators than others, partly because it is the largest hotel operator on Barbados but also because it benefits from having a specialist revenue team based in Florida. These factors increase the Group's ability to manage yield effectively, meaning it is better equipped to cope with temporary down-turns or quieter periods. However, market competition has increased recently as other operators have been cutting rates and the number of lower-cost accommodation options has grown.

While bookings taken in January, a key period for future bookings, were up on the prior year, these factors have meant that Elegant Hotels has since experienced reduced bookings for the second half of FY 2016 compared with bookings at the same time last year for H2 2015. With the major booking period now over, the Board expects full year like for like sales to be slightly below FY 2015, and consequently adjusted EBITDA for the full year to 30 September 2016 is now expected to be between $20 million and $21 million.

The Group's property, excluding Waves, was valued at $235.5 million by CBRE as at 15 April 2015 which is greater than its value in these financial statements. The Waves Hotel & Spa property was recently valued by Terra Caribbean at $22.0 million which is the fair value used in the accounts. Using these valuations, the Group's properties would be valued at $257.5 million. Based on net debt of approximately $54.8 million as at 31 March 2016, this would equate to an implied net asset value (NAV) of approximately $202.7 million (228 cents per share and, based on an exchange rate of £1.00:$1.42, 161 pence share).

The Group remains committed to its strategy of refurbishing, repositioning and re-pricing its existing portfolio, and plans to invest approximately $1.5 million in the next financial year on making improvements to its hotels, which is over and above the usual 4% of Group revenue that is allocated for this purpose. Considering its highly attractive asset base, resilient business model and firm commitment to a progressive dividend policy, the Group continues to have firm confidence in the long-term outlook for Elegant Hotels and its shareholders.

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the 6 month period ended 31 March 2016 (unaudited)

(expressed in thousands of United States dollars)

Consolidated Statement of Financial Position

as at 31 March 2016 (unaudited)

(expressed in thousands of United States dollars)

Consolidated Cashflow Statement

for the 6 month period ended 31 March 2016 (unaudited)

(expressed in thousands of United States dollars)

Consolidated Statement of Changes in Equity

for the 6 month period ended 31 March 2016 (unaudited)(expressed in thousands of United States dollars)

Notes to the interim financial statements

1. General information

Elegant Hotels Group plc ("Elegant Hotels" or the "Company") is a public limited company incorporated in the United Kingdom. The address of the registered office is 10 Norwich Street, London, EC4A 1BD. The principal activity of the Company and its subsidiaries (collectively the "Group") is the ownership and operation of hotels and a restaurant on the island of Barbados.

2. Basis of preparation

The interim financial information set out above does not constitute statutory accounts within the meaning of the Companies Act 2006. It has been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. Statutory financial statements for the year ended 30 September 2015 were approved by the Board of Directors on 15 December 2015 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified. The interim financial information for the six months ended 31 March 2016 has not been reviewed or audited. The interim financial report has been approved by the Board on 13 June 2016.

Preliminary proforma consolidated interim financial statements for 31 March 2015 have been presented to provide comparative information for the 31 March 2016 financial information and are prepared on the same basis.

Going concern

The Group meets its day-to-day working capital requirements with the assistance of its bank facilities which were renewed on 26 May 2015. The Group's forecasts and projections take account of reasonably possible changes in trading performance and show that the Group should be able to operate within the level of its current facilities, meet future debt repayments and will continue to comply with its banking covenants for at least the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

Accounting estimates

The preparation of preliminary consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing these proforma preliminary consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the 12 months ended 30 September 2015.

The financial information is presented in United States dollars. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

3. Significant accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 September 2015, as described in those annual financial statements. The accounting policies relating to business combinations and to goodwill and intangible assets, which has been applied in relation to the acquisition during the period of Swiss International Ltd, the owner of Waves Hotel and Spa, are as set out below. 

Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the company.

The Company measures goodwill at the acquisition date as:

· the fair value of the consideration transferred; plus

· the recognised amount of any non-controlling interests in the acquiree; plus

· the fair value of the existing equity interest in the acquiree; less

· the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed

When the excess is negative, a gain on acquisition is recognised immediately in profit or loss.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

4. Segmental analysis

Based on the information presented to and reviewed by the entity's Chief Operating Decision Maker, the entire operations of the Elegant Hotels Group are considered as one operating segment being the operation of hotels and restaurants. All of the Group's operational activities are located on the island of Barbados.

5. Acquisition, IPO and listing expenses and other one-off costs

One-off costs incurred during the period principally relate to the acquisition of Swiss International Ltd and share based payments. Costs incurred in the year to 30 September 2015 were primarily IPO and listing expenses.

6. Earnings per share

Basic and diluted earnings per share for each period is calculated by dividing the earnings attributable to ordinary shareholders by the number of ordinary shares in issue during the period. For the period to 31 March 2015 the calculation is based on the number of ordinary shares as if the group had been in existence on 31 March 2015, which was 56,281,433. The adjusted earnings per share calculation is based on the post-IPO shares in issue of 88,815,789.

7. Acquisition of Swiss International Ltd (owner of Waves Hotel and Spa)

On 3 March 2016 the Group acquired 100% of the shares of Swiss International Ltd for $5.5m, satisfied in cash and a vendor loan of US$2.0m which is payable in four equal instalments commencing on 3 September 2016 and then on the anniversary date of each preceding payment. The company owns the freehold property known as Waves Hotel and Spa which is located on the west coast of Barbados.

The acquisition is in line with the Group's stated strategy to expand both on Barbados and further into the Caribbean. In the period immediately following the date of acquisition up to 18 April 2016 the operation of the hotel and spa was licensed back to the former owner to fulfil existing customer reservations. Since that date the property has been closed for renovation and is expected to reopen in the last quarter of the financial year. The business therefore contributed a negligible amount to the net profit of the Group for the period.

Effect of acquisition 

The acquisition had the following effect on the Group's assets and liabilities.

Acquisition related costs

The Company incurred acquisition related costs of $0.9m comprising legal, professional and due diligence fees, stamp duty and renovation/refurbishment project management fees. These costs have been included in administrative expenses in the Company's statement of profit and loss and other comprehensive income. 

Acquired receivables 

The fair value of acquired receivables was US$0.1m. The gross contractual amounts receivable are US$0.1m and, at the acquisition date, all of the contractual cash flows were expected to be received.

8. Adjusted profit