EZH.L Regulatory News (EZH)

6 December 2018

easyHotel plc

FINAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2018

Transformational year delivering strong revenue and earnings performance

Accelerated pipeline growth with increased focus on European expansion

easyHotel plc ("easyHotel") ("the Group") (AIM: EZH) the owner, developer and operator of super budget branded hotels, today announces its final results for the financial year ended 30 September 2018.

Financial highlights

Business highlights

Significantly accelerated development pipeline with growing European focus

Commenting, Guy Parsons, Chief Executive Officer of easyHotel plc said:

"This has been a transformational year for the Group. We have increased our portfolio of rooms by 42%, in 27 cities across the UK, Continental Europe and the Middle East, making excellent progress towards our target of being the market leader in "super budget" hotels.

"Despite the wider macro-economic uncertainty that continues to impact consumer confidence, particularly in the UK, we have grown market share for the third consecutive year. The continued outperformance of our hotels reflects the growing strength of the easyHotel brand.  Our simple, stylish but highly affordable offer resonates exceptionally well with today's cost-conscious traveller, giving us confidence to continue developing owned hotels.

"The successful placing completed in March 2018 has allowed us to accelerate our growth plans further, in line with our strict investment criteria. We see a number of exciting opportunities for the brand, not only in the UK but increasingly in Europe where we have recently opened our first owned European hotel in Barcelona. We have added a further 1,160 rooms to our development pipeline over the course of the year and invested behind our team to expand our presence in Europe, where we believe there is significant opportunity for the brand, particularly in Spain, France and Germany.

"With funds available for future hotel development, we believe easyHotel is well positioned for long-term growth, and will continue to outperform its competitors.

"I would like to take this opportunity to thank the entire team for their hard work and commitment over what has been an incredibly busy year and look forward to building on this progress in 2019."

A conference call for analysts will be held today, 6 December 2018 at 09.30 am. Dial-in details are below. A presentation is available to download at https://ir.easyhotel.com/ 

Analyst Call Dial in Details:

United Kingdom Toll-Free: 08003589473 PIN: 18468265#United Kingdom Toll: +44 3333000804 PIN: 18468265#

For international dial in details please contact Houston PR

Enquiries:

Notes to Editors:

www.easyhotel.com http://ir.easyhotel.com 

easyHotel is the owner, developer, operator and franchisor of branded hotels. Its strategy is to target the super budget segment of the hotel industry by marketing "clean, comfortable and safe" hotel rooms to its customers.

Operating hotels

easyHotel's ten owned hotels currently comprise 1,130 rooms, and it has a further 24 franchised hotels with 2,039 rooms.

Owned hotels:

United Kingdom: Old Street (London), Glasgow, Croydon, Birmingham, Manchester, Liverpool, Newcastle*, Leeds, Sheffield.

Spain: Barcelona

Franchise locations:

United Kingdom: Edinburgh, London Heathrow, Central London, Luton, Reading and Belfast.

Europe: Belgium (Brussels), Bulgaria (Sofia), Germany (Berlin, Frankfurt), Hungary (Budapest), The Netherlands (Amsterdam: City, Arena & Zaandam, Rotterdam, The Hague, The Hague Scheveningen Beach, Maastricht), Portugal (Lisbon), Switzerland (Basel, Zurich).

International: UAE (Dubai).

Hotel development pipeline

The Company's committed development pipeline of owned and franchised hotels currently consists of:

Owned hotels:

United Kingdom: Ipswich, Milton Keynes, Chester, Cardiff, Oxford*. Subject to planning consent: Cambridge*, Blackpool, Bristol

Europe: Ireland (Dublin).

Franchise hotels:

Europe: Germany (Bernkastel-Kues), Spain (Malaga), Switzerland (Zurich, Basel), Netherlands (Amsterdam Schiphol Airport).

International: Iran, Sri Lanka, Turkey (Istanbul), UAE (Dubai).

*Hotels under an operating lease.

CHAIRMAN'S STATEMENT

I am delighted to report that easyHotel has continued making excellent progress with its strategy for growth. Like for like revenue growth out-performed our competitive set and performance at our new and refurbished hotels clearly demonstrates the value of our model. Following our successful share placing and negotiations to extend our bank facilities, we are well placed to leverage the full potential of our strong development pipeline.

Strategy

Our strategy is underpinned by a clear vision of the key locations where we want to establish an owned hotel. To date these locations have predominantly been in the UK but exciting opportunities also exist elsewhere in Europe. To this end we are actively pursuing an expansion policy in selected countries in mainland Europe, financed through the fundraising activities we undertook this year.

Our first owned hotel in mainland Europe was opened in Barcelona in September 2018. This flagship hotel demonstrates the quality of our design. The success of our new brand standards is also reflected in strong trading at other hotels opened or refurbished in the period.

Our franchised network has also been extended, with new hotels opened by our partners in Belfast, Reading, Scheveningen Beach and Maastricht.

Through our combined network, the easyHotel brand is now represented by 34 hotels in 28 cities and we expect to build further upon this success in 2019. We have announced seven new owned hotels planned for Bristol, Milton Keynes, Cardiff, Chester, Cambridge, Dublin and Blackpool together with seven new franchised hotels across Switzerland, Spain and the Netherlands.

Our sleep easy promise - that easyHotel customers will enjoy a good night's sleep at an easy price - is the cornerstone of our brand. easyHotel has always offered clean, comfortable and safe facilities but, with our new look designs, customers can now benefit from even higher standards.

We have already refurbished two of our three legacy hotels - Croydon and Glasgow - and the post-refurbishment trading of these two assets provides the Board with confidence that the investment in refreshing our older hotels has been well made.

We now intend to incorporate similar improvements into our Old Street hotel, which was temporarily closed on 3 December 2018 for extensive works to be carried out. To maximise value, Old Street will incorporate, alongside an 89-bedroom hotel, new self-contained 15,500 sq. ft office facilities which will be let to maximise revenues. Those revenues are expected to offset the costs of our new head office which provides an excellent workplace for our talented team.

Dividend

An interim dividend of 0.07p per ordinary share was paid on the enlarged share capital, maintaining the aggregate distribution at an equivalent amount to that paid in 2017. We are now pleased to recommend a final dividend of 0.15p per share. Subject to shareholder approval at our AGM, this dividend will be paid on 15 February 2019 to shareholders on the register on 25 January 2019.

Board and management team

The Board would like to thank all members of easyHotel's team for their outstanding contribution. Pleasingly, our ShareSave Plan, launched in 2017, attracted even greater participation in 2018 meaning more colleagues can now share in the success they are working so hard to achieve for this business.

I am fortunate to lead a talented and dedicated Board. Chief Executive Officer, Guy Parsons, continues to do an exceptional job in steering this business. We have recently been pleased to announce the appointment of a new Chief Financial Officer, Gary Burton, to succeed Marc Vieilledent who will now lead our important European development strategy. As we welcome Gary to the business, it is appropriate to take this opportunity to thank Marc, on behalf of the whole Board, for all that he has done to contribute to our success so far. We have no doubt that he will bring energy and skill to driving our European strategy. The appointment of Harm Meijer, Managing Director of ICAMAP, as an additional Non-Executive Director earlier in the year is enhancing our understanding of our key shareholder's views and priorities but his wider contribution to the Board's work is also equally valued. I would also like to thank my fellow independent Non-Executive Director, Scott Christie, for the qualities and commitment he brings to the governance of the business and for his skilled and thoughtful chairmanship of our Audit and Remuneration Committees.

Outlook

Looking ahead, ongoing political and economic uncertainty is likely to affect hotel demand in the UK over the next 12 months. By contrast, the hotel market was much stronger across Europe during 2018 with Revpar growth balanced between occupancy and rate, suggesting growth should continue into 2019, and beyond. The Board remains confident that the easyHotel brand will continue to outperform the hotel sector as consumers seek out the best value for money.

We have continued to strengthen our business, its brand and resources. Early trading at our new and refurbished hotels encourages us to believe that our business model and strategy are sound and that scope to expand and develop our offering both in the UK and Europe is considerable. The Board's long-term strategy for growth is ambitious but, with our experienced management team and strong development pipeline, the outlook to achieve that growth is both realistic and exciting.

CHIEF EXECUTIVE'S REVIEW

Strategy

This is a very exciting time for easyHotel. The growing strength of the brand's simple "no frills" super budget offer is well aligned to the needs of today's discerning and value conscious traveller and the year has seen the Group make excellent progress as we continue to build momentum against our ambitious growth plans.

Our owned hotels out-performed the market for the third successive year and impressive like-for-like sales growth was achieved across our franchise hotel network. We opened nine new hotels during the year in our stylish new format, all of which have traded strongly from opening. Together with our continued focus on improving operational efficiencies and our commitment to customer service, the increase in sales and new openings have produced a significant increase in our profits.

The long-term structural growth drivers in the international branded budget hotel sector remain strong and the year has seen us take steps to accelerate our expansion plans. The successful equity fundraise in March 2018 is enabling us to develop more owned hotels and we have also increased our resource and exposure to Continental Europe to take advantage of the attractive opportunities for the brand in this market, balancing the number of UK and European openings. Our ongoing investment in the brand and our network is also continuing to support the development of new franchisee partnerships.

With the increasingly experienced team we now have in place, continued high levels of staff engagement and improving customer satisfaction, we are in an excellent position to leverage the easyHotel brand and deliver improving returns for our shareholders.

Trading review 

Total system sales grew by 26% to £37.3m (2017: £29.7m), and our Company revenues by 34% to £11.3m. This was achieved by an increase in owned hotel Revpar (up 11.4%), franchise hotel revenue (up 12.1%) and by the opening of new hotels in Liverpool, Newcastle, Leeds, Sheffield, The Hague Scheveningen Beach, Maastricht, Belfast, Reading and Barcelona. Occupancy for all owned and franchised hotels was 82.4% (2017: 79.8%). All the new hotels have traded very strongly since opening; achieving mature occupancy within 12 weeks of opening. Our strong sales performance led to a 29% increase in adjusted EBITDA to £2.96m.

Owned hotels 

Alongside a busy opening programme, which saw us increase our owned hotel network of rooms by 42%, we also completed the refurbishment of our hotels in Croydon and Glasgow. This investment has been immediately earnings enhancing, seeing an 8.8% increase in Revpar at these hotels. 

Our owned hotels continued to win market share, with those that have been opened 12 months or more outperforming their competitive set (as measured by STR) throughout the year by +5.6%pts**[1] resulting in a third consecutive year of outperformance across the estate.

The hotels opened during the financial year have performed particularly strongly, mirroring the strong performance seen by both our Birmingham and Manchester hotels opened in 2017. There were ten owned hotels operating in our portfolio at the end of the financial year.

Franchise partners

Like-for-like revenue across our franchised hotels increased by 12.1% during the financial year, with total sales flat versus the previous year, following the closure of Earl's Court. Four franchised hotels opened during the period with the hotels in the Benelux region performing particularly strongly. There were 23 franchised hotels operating in our portfolio at the end of the financial year.

Market outlook

It was always going to be difficult for the UK 2018 hotel market to be as strong as 2017. The year has been held back by slower economic growth, significant increased supply and reported weaker business travel volumes. This is despite the weak pound and events such as the Royal Wedding and the biennial Farnborough Airshow which have helped keep leisure demand strong.

Looking ahead, ongoing political and economic uncertainty is likely to affect hotel demand in the UK over the next 12 months. However, the Board remains confident that the easyHotel brand will continue to outperform the hotel sector as consumers seek out the best value for money.

By contrast, the hotel market was much stronger across Europe during 2018 with Revpar growth balanced between occupancy and rate, suggesting growth should continue into 2019, and beyond.

Development review

The Group continues to target carefully selected locations to expand its portfolio of owned and franchised hotels. We believe that the opportunity to develop our owned hotel portfolio in key gateway European cities is significant and have decided to increase both our resource and exposure to mainland Europe, to balance our development pipeline more evenly between UK and Continental Europe, accelerating our presence in these markets.

For owned hotels, the Group believes there is potential for approximately 12,000 easyHotel rooms primarily in the UK, Spain, France and Germany with an additional opportunity for approximately 15,000 franchised easyHotel rooms across the UK, Europe and the Middle East.

Development of owned hotels

Our pipeline of hotels under development, continues to grow. During the year, we completed the acquisition of four new hotel sites:

Our 180-room hotel in Oxford, where we are taking a 25-year lease is currently under construction and is expected to open in 2020. As previously announced, the Group will also be undertaking a full refurbishment of its property at 80 Old Street, to bring this hotel up to our new brand standards. The Board has taken the decision to shut the entire building from December 2018 instead of a rolling refurbishment programme and expects to re-open the building as an 89-bedroom hotel with 15,500 sq. ft of separate office accommodation in the second half of 2019. The total cost for the Old Street development is expected to be approximately £7m and the Board is confident that this investment will maximise the value from the property for the long-term benefit of shareholders.

Following a busy period of hotel openings, at the end of the financial year the Group currently has 2,974 rooms under development totalling capital commitments of £40.7m. The Group has a strong balance sheet and the successful £50m (gross) equity placing in March 2018, together with the additional £10m corporate debt and £23m corporate accordion facility, ensure we have appropriate headroom and capacity to finance up to 9 additional new projects from the Group's identified owned hotel development pipeline.

Development of franchised hotels

In addition to the four recently-opened franchised hotels mentioned above, the Group has also signed new franchise agreements to develop further hotels in the Benelux region, Malaga and Switzerland. The 300-room hotel in Bur Dubai will open in 2019. These hotel openings will enhance our position as the super budget hotel brand of scale, in the UK, Europe and the Middle East.

Development pipeline

We have opened some really exciting hotels in the last 3 years, and this will continue in the coming months. Conscious of our wider social and environmental responsibilities, our hotels are built to BREEAM very good standards. We are thoughtful in the choice of materials we use in construction and are also harnessing smart technology as we develop new hotels in order to reduce energy consumption.

Despite a number of rising costs - build costs, wage costs, utility costs, rates - we have taken a series of management actions, including value engineering, which together with the accelerated maturity of our recent openings, mean that our expected Group ROCE remains unaffected.

Capability, organisation and culture

It is essential that we continue to build the capability of the business to enable it to grow at speed.During the last 12 months we have appointed Richard Kiersey, an experienced Property Director to manage the growing number of hotels under development. On 13 August 2018 we were also pleased to confirm the appointment of Marc Vieilledent as Group Development Director to drive the development of our owned hotels in Europe. Gary Burton joined the Board on 29 October 2018, replacing Marc Vieilledent as Chief Financial Officer. Gary joins the Group from Nuffield Health bringing a wealth of commercial and international experience and I am confident that he will be a valuable addition to our team.

The series of appointments we have made both this year and in the prior year, will ensure that we have the talent in place to accelerate and deliver on our growth plans. The strong culture we are building here at easyHotel is incredibly important to us and we continue to place great emphasis on ensuring that all of our colleagues feel valued, that achievements and success are recognised and that all our teams are focused on the opportunities available to them in the business and have the support to reach their full potential.

With such an exciting future, it is perhaps not surprising that the staff engagement score was 79% during the year. At the year end the Group employed 90 staff (2017: 56).

Technology

Our hotels benefit from our day-to-day hotel management expertise, whilst having access to some of the world's most powerful marketing and distribution systems. The benefits are significant and include: robust e-commerce platforms; global digital marketing expertise and activities; public relations and tactical marketing; customer relationship marketing aimed at travel agents, meeting planners, travel bookers and guests; and a highly sophisticated revenue management infrastructure.

Although we continue to sell a controlled number of rooms via on-line travel agents (OTAs), we remain focused on driving bookings via our own website. As part of our focus on improving our customers' journey we launched our new website in January 2018. Since then we have seen an average 10% increase in the conversion rate from customer visits to completed bookings.

Our new booking engine has allowed us to launch a new website and mobile App. It will also enable us to introduce automated check-in kiosks, to improve every stage of the customer experience - on-line and at our hotels. Our marketing campaigns will be further refined to maximise the traffic to our website and improve the return on our marketing investment. With a new revenue management system in place, we will be in an excellent position to make further improvements to our customers' web journey, as well as introduce a more dynamic pricing strategy to further drive Revpar growth. By offering our customers a good night's sleep at a super price and a quick and easy way to make a booking, we believe that we will attract new customers and encourage significant repeat visits.

Our values

At easyHotel we run the business based on our four values: We Care For You; We Keep Things Simple; We're Always The Best Value For Money; We Do What We Say. We believe in providing our teams with an opportunity to build a great career, in providing our customers with a truly super budget stay and giving our shareholders a great return on their investment.

Charity Work

During the last 12 months we asked our staff to nominate a charity for us to support for the next two years across the business and they voted, overwhelmingly to support Parkinson's UK.

We are raising money for Parkinson's UK via our website, using The Pennies Foundation, as well as through guest donations at front desk and via the actions of our staff. These have ranged from a team member sky diving to a sponsored walk around Leeds castle, to a World Cup sweepstake and sponsored Half Marathon.

We finished the year having raised 20% more than we had originally targeted and have a further year of fundraising still to go.

I want to take this opportunity to thank every colleague and our business partners for making this business as good as it is. I am confident that, together, we can continue to deliver on our strategic objectives in the months and years ahead.

CHIEF FINANCIAL OFFICERS REVIEW

Revenue

Total revenue increased by 33.7% to £11.3m (2017: £8.4m) driven by continued owned market outperformance (up 5.6% pts), and the new opening of five owned and four franchised hotels.

Total revenue from our owned hotels was up 43.0% to £9.4m (2017: £6.6m). This was despite the closure of 70 rooms at easyHotel Old Street, representing a 43% fall in capacity, and closure of easyHotel Earl's Court franchisee (Dec 2017)[2].

Total average occupancy was 82.4% (2017: 79.8%) and the average daily rate (ADR) was £51.3 per room (2017: £47.8).

Like-for-like revenue for franchised hotels was up 12.1%. Total franchised revenue was up 8.8% to £1.81m, recognising the prior year benefitted from a one-off exit fee from the Earl's Court franchisee. Like-for-like average occupancy in franchised hotels was 81.3% (2017: 77.7%) and average daily rate per room was £53.9 (2017: £49.7).

Adjusted EBITDA

Adjusted EBITDA (before share based payments and other adjusting items) increased by 28.6% to £2.96m (2017: £2.30m) and adjusted EBITDAR[3] margin of 29.6% was up by 2.1% pts (2017: 27.5%).

The economy and sector continues to experience macroeconomic challenges, driven by Brexit and political uncertainty. easyHotel's value engineering initiatives and continuing growth are helping to mitigate market challenges and cost pressures.

Profit before tax

Profit before tax was up 1.4% to £0.87m (2017: £0.86m).

Depreciation and amortisation increased 80.7% to £1.50m (2017: £0.83m), driven by easyHotel Manchester (opening in the second half of the prior year), easyHotel Liverpool (opening early in the year), and an IT investment in a new property management system in the prior year.

The total of adjusting items is 38% lower of £0.25m (2017: £0.40m), driven by prior year losses on disposal arising from the part-closure of easyHotel Old Street.

Total pre-opening and development costs of £0.25m were broadly flat, versus prior year, with more openings in the year at a lower average opening cost per hotel.

Share based payments expense of £0.28m (2017: £0.17m) increased proportionately with 2018 being the third year of the scheme.

A Finance income, net of foreign exchange gains/losses, of £0.30m (2017: £0.27m) represents interest income on financial assets that more than offset a financial expense of £0.12m (2017: £0.09m) related to interest on borrowings incurred during the year, net of borrowing costs attributable to the construction of new owned hotels capitalised as required by IAS 23.

Taxation

The effective tax rate for the period was 26% (2017: 25%).

Earnings per share and dividend

Profit for the year was £0.65m (2017: £0.64m), with basic earnings per share maintained at 0.5p (2017: 0.7p) even after raising £50m of new equity. The Board is proposing a final dividend of 0.15p per ordinary share on the enlarged share base, or a total dividend for the financial year of 0.22p (2017: 0.33p), including the interim dividend of 0.07p (2017: 0.11p) paid on 29 June 2018, this will maintain the total cash pay-out to investors year-on-year.

Cash flow and Balance Sheet

Net cash generated from operations was £2.65m (2017: £2.22m) with total cash and cash equivalents on 30 September 2018 of £41.4m (2017: £33.3m).

Net cash used in investment activities was £47.4m. Net cash generated from financing activities was £52.9m (2017: £40.6m), driven by the placing of new ordinary shares in March 2018.

The Group ended the financial year with net assets of £119.64m (2017: £70.18m), of which £41.4m comprised cash and cash equivalents (2017: £33.3m). At year end, total bank borrowings were £16.5m (2017: £12.0m) and 1,125,000 ordinary shares in the Company were held by the Employee Benefit Trust (2017: 1,125,000).

Post-balance sheet events

80 Old Street shuts from December 2018 for a full refurbishment and is expected to re-open as a 89-bedroom hotel and 15,500 sq ft of office accommodation in the second half of 2019. A central freehold site in Bristol has been acquired with the potential to develop a 145-bedroom freehold easyHotel. Planning permission has been granted for the development of a new purpose-built 180-room hotel in Oxford on a 25-year lease. Lastly, a new 154-bedroom franchised hotel will be developed at Amsterdam Schiphol Airport, the main international airport in the Netherlands.

Additional Notes

1. General Information

easyHotel PLC is incorporated in England and Wales under the Companies Act. The address of the registered office is 52 Grosvenor Gardens, London SW1W 0AU.

The nature of the Group's operations and its principal activities are the owner, developer, operator and franchisor of "super budget" "easyHotel" branded hotels.

2. Basis of Preparation

The financial information presented in this preliminary announcement has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The principal accounting policies adopted in the preparation of the financial information in this preliminary announcement are unchanged from those used in the company's financial statements for the year ended 30 September 2017 and are consistent with those that the company has applied in its financial statements for the year ended 30 September 2018.

The financial information does not constitute the company's statutory accounts, within the meaning of Section 435 of the Companies Act 2006, for the years ended 30 September 2018 or 30 September 2017 but is derived from those accounts. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under the Companies Act 2006, s498(2) or (3).

Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018, prepared under IFRS, will be delivered in due course.

3. Revenue

4. Operating Profit and Adjusted EBITDA

5. Segment Information

Reconciliation of reportable segment revenues, profit before tax, assets and liabilities to the Group's corresponding amounts is shown below:

6. Finance Income

7. Finance Expense

8. Earnings per share

Options granted to executives under the company's Performance Share Plan are not included in the calculation of diluted earnings per share as they don't have a material impact on the diluted earnings per share.

Earnings consists of profit for the period attributable to the shareholders amounting to £646,504 (2017: £642,861).

9. Dividends

Interim cash dividend of 0.07p per ordinary share (£101,380) was paid by the Group during the period under review (2017: £109,312).

Final cash dividend of 0.15p per ordinary share (£218,626) is proposed by the Group during the period under review (2017: £228,000).

10. Contingencies and Commitments

There are no contingencies or commitments of a material nature at the date of approval of these financial statements that the Directors believe are necessary to draw attention to.

11. Events after the reporting date

80 Old Street will shut from December 2018 and to reopen as an 89-bedroom hotel and 15,500 sq ft of office accommodation in the second half of 2019. A central freehold site in Bristol has been acquired to potentially develop a 145-bedroom freehold easyHotel. Planning permission has been granted for the development of a new purpose-built 180-room hotel in Oxford, on a 25-year lease. easyHotel has announced the development of a new 154-bedroom franchised hotel will be developed at Amsterdam Schiphol Airport, the main international airport in the Netherlands.

There are no other matters that occurred between the reporting date and the date of approval of these financial statements that the Directors believe are necessary to draw attention to.