Longboat Energy Regulatory News (LBE)

29 Mar 2005 07:01

Marylebone Warwick Balfour Grp PLC29 March 2005 FOR IMMEDIATE RELEASE29th March 2005 MARYLEBONE WARWICK BALFOUR GROUP PLC INTERIM RESULTS FOR SIX MONTHS ENDED 31st DECEMBER 2004 HIGHLIGHTS Financial results • Following independent valuation of the property Group's portfolio, Equity Shareholders Funds increase to 115p per share + 16% • EBITDA up to £16.3m + 51% • Gearing down to 245% from 311% Hotels • Now represents 74% of Group asset value • £66.4m acquisition of Hotel du Vin to create UK's largest boutique hotel group • Malmaison occupancy levels rise by 5% to 80% and average room rate increased to almost £100 a night • Malmaison turnover rose 42% to £21.5m producing EBITDA of £6.4m • Hotel du Vin produced EBITDA of £1.7m for three months of ownership • New Malmaison opened in Belfast in December and further openings in Oxford and Liverpool confirmed • New Hotel du Vin opened in Henley-on-Thames in March 2005 • Howard Hotel sold for £75m in November 2004 - above book value Liberty • 11% sales increase during half year with 14% sales surge over Christmas period • Sales increase continued in January with 15% uplift • At EBIT level Liberty is almost at break even as losses reduced to £445,000 • Aim to eliminate all Liberty debt through property sales Business Exchange • Occupancy levels improved to 77% from 67% • Revenue from available workstations up from £5,400 to £5,700 • Further reduction in bank debt to £9m following £13.5m sale of three centres • Average contract term increased from eight to 12 months • Increased focus on Operating and Management Agreements: - Opened 30,000 sq ft OMA business centre in November 2004 at Citigroup's Canary Wharf headquarters - In January 2005 took controlling stake in City Executive Centres which manages 13 buildings under OMAs Conclusion • "The signs across our divisions are encouraging, particularly for our Malmaison and Hotel du Vin hotel operations. All our businesses are making sound progress and we expect to record continuing growth in underlying value per share as we mature our businesses ready for sale. I am confident that further advances will be made by the year end and I therefore look forward to the future success of the Group," Brian Myerson, Chairman. MARYLEBONE WARWICK BALFOUR GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31st DECEMBER 2004 CHAIRMAN'S STATEMENT-------------------- This has been a period of progress in each of our three main operating divisionsof Hotels, Serviced Offices and Liberty. The success has been particularlystrong at Malmaison, our lifestyle hotel group, where the performance hasproduced both asset and earnings growth. Elsewhere in the Group there has been strong growth at the net asset level. Wehave commissioned an independent interim valuation of our property assets whichhas contributed to an increase in equity shareholders funds of some 16% sincethe June 2004 year end and a rise of 40% since the same time a year ago. It is also pleasing to report that the momentum gained in the first half of theyear is being maintained in the second half as a combination of management andoperational restructuring that has been implemented over the last 12 monthscontinues to have a positive impact on the Group results. During the six months ended 31st December 2004 we have been active on thecorporate front as we continue to develop the business to return cash or cashequivalents to shareholders by the end of December 2007. With that in mind wehave been looking hard at our operating divisions to further improveprofitability and performance as well as their future value. During the period under review we made a significant corporate acquisition, onemajor disposal and an important strategic move. In October we acquired theaward-winning hotel business, Hotel du Vin, for £66.4m. This design led hotelgroup complements our Malmaison brand and takes our lifestyle hotels to 15.Today MWB is the UK's leading lifestyle hotel group and the aim is to expand theportfolio to at least 25 hotels by December 2007. Within a few weeks of the Hotel du Vin acquisition we announced the sale of TheHoward Hotel for £75m, a healthy surplus over the 30th June 2004 valuation of£69m. The Howard reflects MWB's philosophy of acquiring assets with potentialfor improvement and thereafter creating an uplift in value through hands onmanagement which we then realise for the benefit of shareholders. In December, MWB Business Exchange, our serviced offices division, signed itsfirst Operating and Management Agreement with Citigroup, the world's largestfinancial services business, for a 30,000 sq ft business centre in the USgroup's Canary Wharf UK headquarters building. This marked the first tangiblestep in our new strategy for MWB Business Exchange, whereby it increasinglyconcentrates resources in securing Operating and Management Agreements, ratherthan taking traditional leases on existing office buildings. It is also worth noting that Liberty, which we own through our 68% holding inRetail Stores Plc, bucked the Christmas trend with a 14% increase in trading inthe flagship store, in comparison to the same period last year. This continuedafter Christmas, through the January sales and into February. I report on thisin more detail below. Over the past year we have continued to simplify the Group's business. Ouractivities are in the three clearly defined areas I have mentioned above andthis enables us to focus resources as well as creating a better understoodbusiness model. We have also spent considerable time and effort in identifyingand installing extremely able and competent management teams in these three mainbusinesses. I am pleased to report that all three divisional management teamsare delivering consistently improving results as the impact of their changes andrestructuring is felt. Results An independent valuation of the Group's properties, which will now be a regularfeature of our interim results, produced a £20.7m surplus, the majority of whichwas from our hotel division. As a result Group equity shareholders' fundsincreased by 16% over the half year to 115p per share, against 99p at the lastyear end. Group EBITDA rose by 51% to £16.3m compared to £10.8m for the same period a yearago. Over half of this growth was produced by Malmaison and Hotel du Vin, withthe remainder generated from our profitable sale of the Howard Hotel. At the pre-tax level there was a further write back of property provisionstotalling £6.2m, principally in our Serviced Office division. These had beencharged to the profit and loss account in previous years and have thereforeincreased profits this period. After this credit of £6.2m, a depreciation chargeof £8.7m and an interest expense of £19.7m, we produced greatly reduced retainedlosses for the six month period of £3.3m against £12.5m for the same period lastyear. I am pleased to report lower gearing, down from 311% at the June 2004 year endto 245% at December 2004. This is a result of the reduction in our Group debtand of an increase in our property values which enhance Group net asset value.We are also committed to reducing operational gearing within the Group over thecoming 12 months. This is being achieved through the controlled sale of assetswhere we are achieving prices well above book values, as seen by the disposal ofthe Howard Hotel. Simultaneously we are developing and maturing our operationalbusinesses in readiness for sale or demerger. Such sales or demergers will beundertaken in the right market conditions in order that disposals of assets takeplace at prices which reflect the full extent of their value. Hotels Our hotel operations are now the Group's largest division, representing 74% ofour asset value. This division comprises our lifestyle hotel business - made upof Malmaison and the newly acquired Hotel du Vin - and three hotel investments:The Park Lane Marriott, The West India Quay Marriott and the Radisson SAS inArgyle Street Glasgow. Malmaison continues to go from strength to strength under the management teamled by Robert Cook, who is responsible for our lifestyle hotel businessincluding the newly acquired Hotel du Vin. During the period we opened our firsthotel in Belfast and confirmed new openings of Malmaison hotels in Oxford laterthis year and Liverpool at the end of 2006. Occupancy levels at Malmaison rose again during the period by 5% to an average80%. The average room rate across the Malmaison hotels was just under £100 pernight, and turnover increased by 42% over the comparable period last year, to£21.5m. There will be an additional boost in the second half from the additionof the new Belfast Malmaison which opened in December. The early signs are veryencouraging and I will report more fully on this at the year end. Importantly, Malmaison produced a positive EBITDA of £6.4m at the half yearcompared to an EBITDA of £3.8m for the same period a year ago. It is alsopleasing to report that Hotel du Vin has produced positive EBITDA of £1.7m inthe first three months of our ownership to 31st December 2004, and this hascontinued in the current year. The acquisition and integration of Hotel du Vin has gone smoothly. We arealready seeing the benefits from cost savings across the enlarged hotel groupthrough centralised booking services as well as goods and services purchased onsignificantly better terms. This month has seen the opening of the seventh Hoteldu Vin at Henley-on-Thames with further opportunities in the pipeline. I have already reported on the successful sale of The Howard Hotel on London'sVictoria Embankment for £75m in November. Since the start of the second half ofthe year we have commenced marketing The Park Lane Marriott and we anticipatethe sale will be completed by this coming Autumn. Over the next two to three years we intend selling our other two hotelinvestments: the West India Quay Marriott and the Radisson SAS in Argyle Street,Glasgow. Once both hotels have become established in their respective markets wewill commence marketing aimed at a controlled disposal programme. Each of these continued to make progress over the six months, increasing bothaverage occupancy levels and room rates. At the Park Lane Marriott, averageoccupancy levels are settling at 85%, whilst room rates have risen over theperiod by around 10%. Our Glasgow property is now becoming established and issuccessfully penetrating the local conference and exhibitions market, alsoseeing a 10% uplift in room rates since June 2004. Our West India Quay Marriottis making progress, despite the fact it only opened in June of last year. It toois securing better occupancy levels and room rates than we reported at the yearend and we are confident this spectacular hotel will become a key landmark inthe Canary Wharf market. Liberty There have been encouraging signs that the management changes and restructuringimplemented by Iain Renwick, Chief Executive, and Fraser Allan, FinanceDirector, are beginning to be translated into improved performance. In the firstsix months we produced 11% sales growth over the comparable period a year ago.This has yet to be reflected in greater profitability as the costs of ourimprovements and planning for the future are expensed, although at the EBITlevel the business is now almost at break-even with a loss of £445,000 beingincurred, an improvement over the loss of £711,000 in the comparable period lastyear. Our increasing investment in marketing and brand development as Libertyre-establishes itself as a destination retailer has held back profits growth.During the period under review, a number of new concepts were introduced andresulted in a sales surge of around 20% during September and October. Men's andLadies fashions were particularly strong with great improvements seen in bothaccessories and beauty. Trading in the run up to Christmas was extremely encouraging with our flagshipstore sales in December up by 14% over the comparable period a year ago. Thepost Christmas sale volumes during the first four weeks in January were aheadagain by more than 15% over last year. I am pleased to report that this upwardtrend has continued into February of this year, and there has been a strongstart to the second half with improved margins and a clean stock position. Taking full advantage of increased awareness of Liberty's new look, the storelaunched its Spring collections at the beginning of February to great acclaimand this has been converted into a rise in sales volume from most departments. Interest charges continue to impact on profitability at Liberty. To that end weare aiming to eliminate its entire £50m bank debt through the sale of thefreehold of Lasenby House and the sale and leaseback of Regent House, so thatLiberty will be transformed into a debt free business capable of generatingimproving levels of profits. Business Exchange As with our other divisions I can report that our serviced offices business isalso making progress, with occupancy levels advancing from 67% at the beginningof the period to 77% at the end of December, a trend which is continuing intothe second half of the year. At the same time revenue generated from availableworkstations ("REVPAW") has risen, up from £5,400 at 30th June 2004 to £5,700 at31st December 2004. However the period has been more important for the implementation of our newstrategy for MWB Business Exchange, to which we have devoted much time andenergy over the last year. This is reflected in the signing of our firstOperating and Management Agreement for a 30,000 sq ft business centre withCitigroup at the US group's Canary Wharf headquarters. As part of this newstrategy, Business Exchange's freehold service office centres at Harrow, Hayesand Kingston were sold for £13.5m. These sales proceeds continued the reductionin Business Exchange's bank debt from £28m a year ago, to £23m at the June 2004year end and only £9m at 31st December 2004. In January 2005, we increased the number of OMAs through the acquisition of acontrolling stake in City Executive Centres which manages 13 buildings covering140,000 sq ft on behalf of landlords under individual OMAs. These servicedoffices provide approximately 1,600 workstations across the UK and enableBusiness Exchange to offer a different level of product aimed at regionalstart-ups and small and medium sized enterprises. This takes the total number ofGroup serviced office centres to 46 and the number of workstations to 10,600. Since the start of the second half of the year there has been a noticeableupturn in leads with a consequent improvement in conversion especially inbusinesses looking for up to 10 workstations. This is underpinning BusinessExchange's strategy of maintaining multiple clients rather than relying on asmaller number of larger clients. I can also report two further positive indicators: firstly, the initial averagecontract term has increased from eight to 12 months and, secondly, pricing hasstabilised at higher levels than we have seen over the last two years. The result of this activity has been an increase in turnover to £28.6m for theperiod against £27.6m for the comparable period last year, after adjusting forthe business centres sold. Last year we appointed John Spencer as Chief Executive of the serviced officesbusiness and I am pleased to report he has made substantial progress instrengthening the management team and improving the culture within BusinessExchange. We see a steady improvement in this division under his leadership andanticipate an increase in its underlying financial returns. Conclusion The signs across our divisions are encouraging, particularly for our Malmaisonand Hotel du Vin hotel operations. All our businesses are making sound progressand we expect to record continuing growth in underlying value per share as wemature our businesses ready for sale. I am confident that further advances willbe made by the year end and I therefore look forward to the future success ofthe Group. Brian MyersonChairman 29th March 2005 ACCOUNTS REVIEWfor the six months ended 31st December 2004------------------------------------------- INTRODUCTION The Chairman's Statement on pages 3 to 8 provides information on the Group'soperations and the Board's expectations for the future. This Accounts Reviewcovers in greater depth the more significant features of the accounts for thesix months ended 31st December 2004, which include an independent valuation ofthe Group's properties at that date. EQUITY SHAREHOLDERS' FUNDS During the six months ended 31st December 2004 there has been an increase inshareholders' funds from £108.9m at 30th June 2004 to £125.8m at 31st December2004. As a result, equity shareholders' funds per share have increased duringthe period by 16p to 115p per share. This is summarised as follows:- 6 months 6 months ended ended 31st December 31st December 2004 2004 pence per £'000 share Equity shareholders' funds at start of financial year 108,873 99pRevaluation surplus on Group properties 20,728 19pRetained loss for the period (3,304) (3p)Purchase of ordinary shares for cancellation and other equity movements (456) - ------- ---Equity shareholders' funds at end of period 125,841 115p ======= === NET ASSET VALUE The net assets of the Group are financed primarily by equity shareholders' fundsand equity minority interests. At 31st December 2004, and at the previous yearend, these sources of finance were as follows:- 31st December 30th June 2004 2004 £'000 £'000 Equity shareholders' funds 125,841 108,873Equity minority interests 45,061 40,753Preference share minority interests 1,193 1,155 ------- -------Net asset value at end of period 172,095 150,781 ======= ======= The analysis of net assets across the Group's operations at 31st December 2004,and at the previous year end is as follows:- Total assets less current Equity liabilities and Minority Shareholders' provisions Net debt Net assets interests fundsAt 31st December 2004 £'000 £'000 £'000 £'000 £'000 Hotels Malmaison and Hotel du Vin 230,061 (159,594) 70,467 - 70,467 Hotel investments 195,388 (141,261) 54,127 (14,561) 39,566Liberty 103,042 (43,878) 59,164 (17,418) 41,746Business Centres 15,776 (18,115) (2,339) - (2,339)West India Quay 50,128 (20,430) 29,698 (14,185) 15,513Group debt, less cash and other assets (1,159) (37,863) (39,022) (90) (39,112) ------- ------- ------- ------ -------At 31st December 2004 593,236 (421,141) 172,095 (46,254) 125,841 ======= ======= ======= ====== ======= Total assets less current Equity liabilities and Minority Shareholders' provisions Net debt Net assets interests fundsAt 30th June 2004 £'000 £'000 £'000 £'000 £'000 Hotels Malmaison 147,767 (91,900) 55,847 - 55,847 Hotel investments 259,453 (184,667) 74,786 (12,520) 62,266Liberty 98,720 (45,229) 53,491 (17,159) 36,332Business Centres 22,180 (28,045) (5,865) - (5,865)West India Quay 91,150 (68,307) 22,843 (12,295) 10,548Group debt, less cash and other assets (219) (50,102) (50,321) 66 (50,255) ------- ------- ------- ------ -------At 30th June 2004 619,051 (468,270) 150,781 (41,908) 108,873 ======= ======= ======= ====== ======= 31st December 2004 30th June 2004 Pence per Pence perEquity Shareholders' funds £'000 share £'000 shareHotels Malmaison and Hotel du Vin 70,467 65p 55,847 50p Hotel investments 39,566 36p 62,266 57pLiberty 41,746 38p 36,332 33pBusiness Centres (2,339) (2p) (5,865) (5p)West India Quay 15,513 14p 10,548 10pGroup debt, less cash and other assets (39,112) (36p) (50,255) (46p) ------- ---- ------- ----Total Equity Shareholders'funds 125,841 115p 108,873 99p ======= ==== ======= ==== REVIEW OF FIXED ASSETS Portfolio analysis by division The Group holds its direct property interests principally as tangible fixedassets, with smaller amounts held as developments in progress and propertiesheld for resale. The Group's property interests are disclosed in theconsolidated balance sheet at 31st December 2004 and at the previous year end,as follows:- 31st December 30th June 2004 2004 £'000 £'000 Tangible fixed assets 593,493 571,598Properties held for resale 21,125 1,113Developments in progress - 21,265 ------- -------Total property interests at end of period 614,618 593,976 ======= ======= The above interests are analysed as follows:- Percentage at 31st December 31st December 30th June 2004 2004 2004 £'000 % £'000Hotels Eight Malmaison hotels 163,930 27 149,534 Seven Hotel du Vin hotels 70,603 11 - Hotel investments at Park Lane, West India Quay and Argyle Street Glasgow* 220,850 36 276,663 ------- --- -------Total hotel portfolio 455,383 74 426,197 ------- --- -------Liberty Liberty store and offices 83,250 14 79,250 Other properties 1,540 - 1,856 ------- --- -------Total Liberty portfolio 84,790 14 81,106 ------- --- ------- Business Centres Total Business Exchange portfolio 49,958 8 60,871 ------- --- -------Asset management Total asset management portfolio 4,512 1 4,537 ------- --- ------- West India Quay 19,975 3 21,265 ------- --- ------- Total property interests at31st December 2004 614,618 100 593,976 ======= === ======= * = 30th June 2004 includes the Howard hotel. Due to the onerous cost of related lease obligations, certain of the Group'sshort leasehold interests in the Business Centres division had negative valuesat 31st December 2004 and at the previous year end. These amounted to £13.2m at31st December 2004 and £14.8m at the previous year end. These are included inprovisions for liabilities and charges on the consolidated Balance Sheet. At 31st December 2004 and at the previous year end, the Group's net interests inproperties in the Business Centre division therefore amounted to £36.8m (30thJune 2004: £46.1m) and are summarised as follows:- 31st December 30th June 2004 2004 £'000 £'000 Property values in table above 49,958 60,871Less provisions for onerous leasehold interests (13,178) (14,799) ------ ------Net interest in Business Centre properties 36,780 46,072 ====== ====== Property revaluation surplus arising in the period A valuation of the Group's fixed asset property portfolio at 31st December 2004was undertaken by DTZ Debenham Tie Leung on the basis of Market Value for theGroup's Investment Properties and Existing Use for the Group's OperationalProperties. A similar valuation at interim as well as final period ends will nowbe a regular feature of the Group's accounts. The net surplus arising from the valuation attributable to shareholders for thesix months ended 31st December 2004 was £27.0m and has been included in theaccounts for the period then ended. Surpluses or temporary deficits arising onvaluation of the Group's investment and operational properties are transferredto revaluation reserve, while impairment of investment and operationalproperties to below their historical cost is charged directly to the profit andloss account. Further details of the revaluation are set out in note 8 to theaccounts. Developments in progress and properties held for resale are recorded at thelower of cost and net realisable value and are therefore not revalued in theGroup accounts. During the years ended 30th June 2002 and 30th June 2003, impairments ofoperational properties, principally in relation to the Group's business centreproperties, totalled £86m. As a result of the revaluation at 31st December 2004referred to above, certain of these impairments which were charged to the profitand loss account in those years have now been reversed, resulting in a credit tothe profit and loss account for the six months ended 31st December 2004 in theBusiness Centre division, totalling £6.2m. Other business centres were valued at31st December 2004 at an amount that is higher than their historical cost butlower than their previous book value, and this resulted in a reduction in therevaluation reserve in respect of those properties of £0.2m. This is amplifiedfurther in the table below. The total valuation surplus credited to the profit and loss account of £6.2m,and the valuation surplus credited to the revaluation reserve of £20.7m, aroseas follows:- Less Net Taken to previous Less surplus profit & Taken to Gross book Gross minority to the loss revaluation valuation value surplus interests Group account reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000Hotels Malmaison 163,569 157,494 6,075 - 6,075 218 5,857 Hotel du Vin 70,584 68,633 1,951 - 1,951 - 1,951Hotel investments 219,700 205,083 14,617 (4,374) 10,243 - 10,243Liberty 83,250 79,020 4,230 (1,340) 2,890 - 2,890Business Centres 36,780 31,147 5,633 - 5,633 5,840 (207)Asset management 4,509 4,354 155 4 159 165 (6) ------- ------- ------ ----- ------ ------ ------ 578,392 545,731 32,661 (5,710) 26,951 6,223 20,728 ======= ======= ====== ===== ======Minority interests - 5,710 ------ ------Gross surplus 6,223 26,438 ====== ======Reflected in the accounts: As an increase in tangible fixed assets in note 8 31,384 As a reduction in provisions in note 11 1,277 ------Gross surplus 32,661 ====== The valuations of the Group's hotel interests include value ascribed for plant,machinery, fixtures and fittings forming part of the service installations ofthe building. They therefore represent a valuation of the total interest of theGroup in those properties and no further amount is included in respect of thebook value of such plant and fittings. In the same manner, the valuation of theGroup's retail interests includes value ascribed for plant, machinery andfittings forming part of the service installation of the building, but excludesmoveable shop fittings. The Group's business centres are of a type normally sold as fully equipped andoperational entities and are therefore required by the RICS Valuation Manual tobe valued by reference to their trading potential. These values include land andbuildings and also trade fixtures, fittings, furniture, furnishings andequipment at the properties, rather than valuing the property separately andincluding an additional element for the net book value of the fixtures andequipment. The valuation excludes consumables and stock in trade that form partof the present occupation of the properties. REVIEW OF FUNDING AND LOAN FACILITIES Net debt The Group's loans, borrowings and cash are included in the consolidated balancesheet at 31st December 2004, and at the previous year end, as follows:- 31st December 30th JuneComposition at period end 2004 2004 £'000 £'000 Total loans and overdrafts in note 10 459,403 509,800Hire purchase and leasing contracts in notes 9 and 10 5,727 7,485 ------- -------Total loans 465,130 517,285Less cash (43,989) (49,015) ------- -------Total net debt at period end 421,141 468,270 ======= ======= The Group's loans, borrowings and cash at 31st December 2004, and at theprevious year end had the following maturity profiles:- 31st December 30th June 2004 2004 £'000 £'000Repayable: Within one year or on demand 6,921 57,063 Between one and two years 18,183 43,516 Between two and five years 292,650 296,035 After more than five years 147,376 120,671 ------- -------Total loans 465,130 517,285Less cash (43,989) (49,015) ------- -------Total net debt at period end 421,141 468,270 ======= ======= Movement in net debt during the period The decrease in total net debt during the six months ended 31st December 2004arose as follows:- Six months Year ended ended 31st December 30th June 2004 2004 £'000 £'000 Total net debt at start of the period 468,270 432,796Debt drawn down/(repaid) on West India Quay development (34,043) 57,957Debt drawn down on acquisition of Hotel du Vin 63,307 -Debt drawn down in hotel division 5,361 36,003Net proceeds received on sale of properties (88,071) (71,443)Net cash inflow from other Group operations during the period 6,317 (2,043)Increase in listed Unsecured Loan Stock - 15,000 ------- -------Total net debt at period end 421,141 468,270 ======= ======= Net debt attributable to Equity Shareholders' Funds Certain elements of the Group's net debt have been drawn by subsidiaries thatare not wholly owned by the Group. These principally comprise the Group's ParkLane hotel, West India Quay, Liberty and Business Exchange. The net debtattributable to Equity Shareholders' Funds at 31st December 2004 amounted to£355m (30th June 2004: £366m), calculated as follows:- Six months Year ended ended 31st December 30th June 2004 2004 £'000 £'000 Total net debt as above 421,141 468,270Less net debt attributable to minority interests (66,521) (102,043) ------- -------Total net debt attributable to Equity Shareholders' Funds 354,620 366,227 ======= ======= Gearing Gearing at 31st December 2004 was 245% based on net assets, and 282% based onEquity Shareholders' Funds, calculated as follows:- Six months Year ended ended 31st December 30th June 2004 2004 £'000 £'000 Total net debt 421,141 468,270Net assets 172,095 150,781Gearing based on net assets 245% 311% ======= =======Total net debt attributable to Equity Shareholders' Funds 354,620 366,227Equity Shareholders' Funds 125,841 108,873Gearing based on Equity Shareholders' Funds 282% 336% ======= ======= REVIEW OF EARNINGS Earnings before interest, taxation, depreciation and amortisation ("EBITDA") ofthe Group The Board's prime measure of return used to monitor the results of each divisionis the level of earnings before interest, taxation, depreciation andamortisation, or EBITDA. The EBITDA of the Group for the year six months ended31st December 2004, with comparatives for the previous periods, was as follows:- Six months Six months Year ended ended ended 31st December 31st December 30th June 2004 2003 2004 £'000 £'000 £'000Malmaison Operating income 6,355 3,817 8,568Hotel du Vin Operating income (3 months from October 2004) 1,747 - -Hotel investments Operating income 7,157 6,409 11,147 Pre-opening costs (470) (547) (995) Sale of Howard Hotel 3,545 - - Apartment sales - 92 109Liberty Operating income 1,000 542 (1,047)Business Centres UK operating income (258) 3,472 4,692 Sale of UK Centres (383) - -Asset management 442 2,812 10,253West India Quay 487 (196) 21,373Head office administration (3,337) (5,582) (9,929) ------ ------ ------EBITDA for the period 16,285 10,819 44,171 ====== ====== ====== Summary of earnings Profit/(loss) Total on ordinary recognised Group activities gains andSix months ended 31st turnover EBITDA EBIT before tax lossesDecember 2004 £'000 £'000 £'000 £'000 £'000 Malmaison 21,471 6,355 4,501 1,087 6,949Hotel du Vin 6,310 1,747 1,421 247 2,198(3 months from October 2004)Hotel investments Operating income 22,521 7,157 4,564 (3,298) 7,910 Pre-opening costs - (470) (470) (470) (470) Sale of the Howard Hotel - 3,545 3,545 3,545 3,545Liberty 24,379 1,000 (445) (2,039) 1,418Business Centres Operating results 28,602 (258) 4,825 4,222 3,888 Sale of UK Centres - (383) (383) (383) (383)Asset Management 962 442 530 666 778West India Quay 6,520 487 487 444 (78)Group debt less cash and other assets 1,542 - - (5,112) (4,972) ------- ------ ------ ----- ------ 112,307 19,622 18,575 (1,091) 20,783Head office administration - (3,337) (3,374) (3,374) (3,374) ------- ------ ------ ----- ------ 112,307 16,285 15,201 (4,465) 17,409 ======= ====== ====== ===== ====== Notes 1. Total recognised gains and losses comprise the revaluation surplus on theGroup's fixed assets for the period, less the retained loss in the Profit andLoss Account for the period.2. EBITDA = Earnings before interest, taxation, depreciation and amortisation3. EBIT = Earnings before interest and tax Profit/(loss) Total on ordinary recognised Group activities gains andSix months ended 31st turnover EBITDA EBIT before tax lossesDecember 2003 £'000 £'000 £'000 £'000 £'000 Malmaison 15,136 3,817 2,097 (1,686) (1,333)Hotel investments Operating income 15,633 6,409 4,897 (490) (1,161) Pre-opening costs - (547) (547) (547) (547) Apartment sales 1,904 92 92 92 92Liberty 21,924 542 (711) (2,029) (1,690)Business Centres Operating results 30,496 3,472 454 (1,204) (1,088)Asset management 3,980 2,812 2,592 1,058 1,310West India Quay - (196) (196) (186) 243Group debt less cash and other assets 1,761 - - (4,473) (3,457) ------ ------ ----- ------ ------ 90,834 16,401 8,678 (9,465) (7,631)Head office administration - (5,582) (5,763) (5,763) (4,789) ------ ------ ----- ------ ------ 90,834 10,819 2,915 (15,228) (12,420) ====== ====== ===== ====== ====== Profit/(loss) Total on ordinary recognised Group activities gains and turnover EBITDA EBIT before tax lossesYear ended 30th June 2004 £'000 £'000 £'000 £'000 £'000 Malmaison 32,628 8,568 4,802 (2,766) (879)Hotel investments Operating income 32,136 11,147 7,961 (3,779) 7,212 Pre-opening costs - (995) (995) (995) (995) Apartment sales 2,590 109 109 109 109Liberty 40,891 (1,047) (3,492) (6,266) (2,478)MWB Business Exchange Operating results 58,625 4,692 (1,290) (4,566) (9,545) Previous write-downs of properties now written back - - 5,546 5,546 5,546Asset management 5,980 10,253 9,590 6,415 6,813West India Quay 64,713 21,373 21,373 21,390 18,029Group debt less cash and other assets 3,347 - - (8,203) (7,112) ------- ------ ------ ------ ------ 240,910 54,100 43,604 6,885 16,700Head office administration - (9,929) (10,658) (10,168) (10,168) ------- ------ ------ ------ ------ 240,910 44,171 32,946 (3,283) 6,532 ======= ====== ====== ====== ====== Interest payable Net interest payable by the Group during the six months ended 31st December 2004was £21.5m. Of this amount, £1.8m was capitalised in respect of developmentexpenditure, leaving a net charge to the profit and loss account of £19.7m. The average cost of borrowing on the Group's loans at 31st December 2004,inclusive of margin, was 7.4% per annum; slightly lower than the rate of 7.6% at30th June 2004 due to the lower rate secured on the facility for the acquisitionof Hotel du Vin in October 2004. Taxation The net tax charge of £0.1m for the six months ended 31st December 2004 (year to30th June 2004: (a credit of £1.1m) primarily reflects the tax incurred on theprofits of Liberty's operations in Japan referred to below, reduced by a £0.1mcredit in relation to prior years. The tax incurred on the Liberty Japanese operations amounted to £0.2m (year to30th June 2004 £0.7m). Of this amount, 49% is incurred by the minority interestin the Japanese operations of Liberty, who participate in the after tax profitsof these operations. The Group has a 68% interest in Liberty and thus the netcost to the Group is only 68% of this net share, or £0.1m (year to 30th June2004: £0.2m). Earnings per share The loss per share for the six months ended 31st December 2004 was 3.0p pershare, compared with a loss of 10.7p per share for the year ended 30th June2004. Details of the calculation are set out in note 7 to the accounts. Dividend As referred to in the circulars to shareholders in May 2002 and February 2004,the previous dividend policy of the Company ceased once the proposals set out inthe May 2002 circular had been approved by Shareholders in May 2002. The Boardis continuing to direct disposal proceeds to the repayment of debt until netdebt levels have been reduced to lower levels. Thereafter, the Directors willcontinue the Cash Distribution Programme approved by Shareholders at the May2002 Extraordinary General Meeting, involving the distribution of surplus fundsto shareholders under share buy-backs, cash distributions and similar valuedistribution programmes. Cash flow The consolidated cash flow statement on page 26 shows the funds generated by theGroup, those raised from external sources, the investments made and the effectthereof on the Group's net debt. During the six months ended 31st December 2004 the Group spent £14.7m (yearended 30th June 2004: £33.5m) on the purchase of fixed assets and a further£64.7m on the acquisition of Hotel du Vin. The profitable sale of the HowardHotel for £75m comprises the majority of the disposals totalling £88.1m for thesix months ended 31st December 2004. Net debt was reduced by £47.1m to £421.1m during the six months ended 31stDecember 2004. Further details of the Group's loans and the principal componentsof this decrease are set out in the section entitled "Review of Funding and LoanFacilities" on pages 15 to 17 above. International Financial Reporting Standards The reporting of accounts by listed companies in accordance with InternationalFinancial Reporting Standards ("IFRS") came into effect for accounting periodscommencing on or after 1st January 2005. The first audited accounts of the Group prepared in accordance with IFRS will bethose for the year ending 30th June 2006. These will include information forthat year and for the comparatives for the year ending 30th June 2005 preparedin accordance with IFRS. The unaudited interim accounts for the six monthsending 31st December 2005 will also be prepared in accordance with IFRS. The Group's IFRS Committee has identified the additional information requiredfor the further disclosure and new accounting treatments arising under IFRS. Weexpect to report more fully on the effect of this implementation in our accountsfor the year ending 30th June 2005, which will be the last consolidated auditedaccounts of the Group to be prepared under UK GAAP. Andrew Blurton JOINT FINANCE DIRECTORLondon 29th March 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTfor the six months ended 31st December 2004 Six months Six months Year ended ended ended 31st December 31st December 30th June 2004 2003 2004 Notes £'000 £'000 £'000------------------------------------------------------------------------------Turnover 2 112,307 90,834 240,910 Cost of sales (94,362) (79,639) (199,387)------------------------------------------------------------------------------Gross profit 17,945 11,195 41,523 Administrative expenses (6,038) (8,280) (15,429)------------------------------------------------------------------------------Total operating profit 11,907 2,915 26,094 Profit on disposal ofinvestment properties andother fixed assets 3 3,294 - 6,852------------------------------------------------------------------------------Profit on ordinary activitiesbefore interest 15,201 2,915 32,946 Net interest payable andsimilar items 4 (19,666) (18,143) (36,229)------------------------------------------------------------------------------Loss on ordinary activitiesbefore taxation 2 (4,465) (15,228) (3,283) Taxation (charge)/credit onloss on ordinary activities 5 (89) 1,611 1,066------------------------------------------------------------------------------Loss on ordinary activitiesafter taxation (4,554) (13,617) (2,217) Equity minority interests 6 1,289 1,077 (9,608)Non-equity minority interests (39) 80 65------------------------------------------------------------------------------Loss attributable to ordinaryshareholders retained for theperiod (3,304) (12,460) (11,760)============================================================================== Loss per share 7 (3.0p) (11.3p) (10.7p)============================================================================== All results relate to continuing operations. CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESfor the six months ended 31st December 2004 Six months Six months Year ended ended ended 31st December 31st December 30th June 2004 2003 2004 £'000 £'000 £'000------------------------------------------------------------------------------Loss retained for the financialperiod (3,304) (12,460) (11,760) Net revaluation surplus on fixedassets credited to revaluationreserve 20,728 - 18,290 Currency translation differenceson foreign currency netinvestments (15) 40 2------------------------------------------------------------------------------Total recognised gains and lossesfor the period 17,409 (12,420) 6,532============================================================================== All recognised gains and losses are attributable to equity shareholders'interests. RECONCILIATIONS OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDSfor the six months ended 31st December 2004 Six months Six months Year ended ended ended 31st December 31st December 30th June 2004 2003 2004 £'000 £'000 £'000------------------------------------------------------------------------------Opening equity shareholders' funds 108,873 102,341 102,341 Loss for the financial period (3,304) (12,460) (11,760) Net revaluation surplus on fixedassets for the period credited torevaluation reserve 20,728 - 18,290 Currency translation differenceson foreign currency netinvestments (15) 40 2 Purchase of own shares forcancellation during the period (441) - -------------------------------------------------------------------------------Closing equity shareholders' funds 125,841 89,921 108,873============================================================================== CONSOLIDATED BALANCE SHEETat 31st December 2004 31st December 31st December 30th June 2004 2003 2004 Notes £'000 £'000 £'000------------------------------------------------------------------------------Fixed assetsIntangible asset 18,200 18,200 18,200Tangible assets 8 593,493 609,921 571,598------------------------------------------------------------------------------ 611,693 628,121 589,798------------------------------------------------------------------------------Current assetsDevelopments in progress - 42,156 21,265Properties held for resale 21,125 1,705 1,113Stocks 9,455 6,463 7,054Debtors: amounts fallingdue- after more than one year 1,059 1,309 1,126- within one year 42,756 42,593 90,637Cash 43,989 46,158 49,015------------------------------------------------------------------------------ 118,384 140,384 170,210Creditors: amounts fallingdue within one year 9 (79,562) (101,793) (126,633)------------------------------------------------------------------------------Net current assets 38,822 38,591 43,577------------------------------------------------------------------------------Total assets less currentliabilities 650,515 666,712 633,375 Creditors: amounts fallingdue after more than one year 10 (458,255) (524,369) (462,013) Provisions for liabilitiesand charges 11 (20,165) (27,964) (20,581)------------------------------------------------------------------------------Net assets 172,095 114,379 150,781