Elegant Hotels : Half-year Report

RNS Number : 0022I

Elegant Hotels Group PLC

14 June 2017

14 June 2017

This announcement contains inside information

Elegant Hotels Group plc - Half Year Results Statement

A strong platform forcontinuedexpansion

Elegant Hotels Group plc("Elegant Hotels", the"Company"or the"Group"), the owner and operator of seven upscale freehold hotels and a beachfront restaurant on the island of Barbados, today announces its unaudited results for the six months ended 31 March 2017.

The Board is pleased to report that the Group continues to trade comfortably in line with market expectations and that the Directors are confident that the Group will meet its full year expectations.

All currency amounts are in US$ unless otherwise stated.

Highlights

· Management agreement signed in October for Hodges Bay Resort in Antigua, the Company's first property outside Barbados

· Agreement signed in March to provide sales and marketing services to The Landings Resort & Spa in St. Lucia

· Room count at 31 March 2017 up 15% to 553 (H1 2016: 483) as a result of the acquisition of Waves, which is performing ahead of the Group's expectations

· Implied Net Asset Value (NAV) of 175 pence per share (219 cents per share*)

· Interim dividend declared at 3.5 pence per share (H1 2016: 3.5 pence per share)

· Post-period end, successful acquisition of Treasure Beach Hotel in Barbados

* based on an exchange rate of £1 : $1.25

As compared to the same period last year, the results for this period have been affected by a number of factors, primarily the weakness in Sterling. Although revenue has been broadly maintained, Average Daily Rate (ADR) and Revenue Per Available Room (RevPar) have both been lower, partly as a result of market factors, and partly as a result of the inclusion of Waves Hotel & Spa at a lower ADR.

Key Financials and Operating Metrics

· Occupancy rates of 66% (H1 2016: 69%)

· ADR of $425 (H1 2016: $464)

· RevPAR of $279 (H1 2016: $320)

· Revenue of $35.8m (H1 2016: $36.5m)

· Adjusted EBITDA* of $15.3m (H1 2016: $16.7m)

· Adjusted profit before tax of $12.2m(H1 2016: $14.4m)

· Adjusted EPS (cents per share) of 11.0c (H1 2016: 12.9c)

* The Group uses adjusted EBITDA as a measure of performance as it better represents underlying performance. Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and one-off costs that are outside the ordinary course of business. Adjusted profit and adjusted EPS reflect the adjusted EBITDA figure.

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

"The business has performed in line with our expectationsfor the first half of the financial year, against the backdrop of a difficult market that has been rebased due to the ongoing weakness of Sterling. Performance was also impacted by the Easter falling after the period end, as well as the closure of Daphne's for refurbishment before Christmas.

Following the period end we were delighted to acquire Treasure Beach Hotel, in Barbados, a 4-star 35-room property that will be a great earnings-enhancing addition to the portfolio once it has been refurbished, repositioned and repriced, in line with our ongoing strategy. Combined with our existing portfolio in Barbados, as well as our new contracts in Antigua and St. Lucia, we believe that we have a strong platform for continued expansion.The Group has continued to trade in line with management expectations since the period end and the strength of our bookings pipeline for the remainder of the financial year is encouraging. As a result, we remain confident in the Group's prospects for FY17 and beyond."

Analyst Presentation

A presentation of the results for analysts and institutional investors will take place at 9.00am today at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS.

For those unable to attend in person, the dial-in details are as follows:

International access	[phone]
UK Toll Free	0808 109 0700
Barbados Toll Free	1 877 562 2218
USA Toll Free	1 866 966 5335
Password	Elegant

For further information:

Elegant Hotels Group plc

Sunil Chatrani, Chief Executive Officer [phone]

Jeff Singleton, Chief Financial Officer

Zeus Capital Limited (NOMAD and Joint Broker)

Dan Bate / Andrew Jones / John Goold [phone]

Liberum Capital Limited (Joint Broker)

Clayton Bush / Chris Clarke / Dominik Götzenberger [phone]

Powerscourt

Rob Greening / Lisa Kavanagh [phone]

Email:[e-mail]

Notes to Editors:

Elegant Hotels owns and operates seven luxury hotels and a beachfront restaurant, Daphne's, on the island of Barbados. The Group's portfolio currently comprises 588 rooms, making it twice as large (by room number) as the closest competitor in the Barbados luxury hotel room market. Six of the seven properties 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 23 acres and an aggregate beachfront of 2,600 feet.

In the year ended 30 September 2016, the Group achieved revenue of $57.0 million and EBITDA before non-recurring items of $19.6 million.

Together, the Group's seven existing hotels - Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach, Waves Hotel & Spa and Treasure Beach - offer styles encompassing classic and contemporary, family-friendly and adults-only. The Group also has a management contract for Hodges Bay Resort in Antigua, which is expected to open at the end of 2017, and a sales and marketing contract for The Landings Resort & Spa in St. Lucia.

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

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

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

BUSINESS REVIEW

Revenue and Demand

Revenue for the first half of the year was $35.8 million,slightly lower than H1 2016 at $36.5 million. The reduction in revenue was driven by reduced occupancy, the closure of Daphne's restaurant for renovations (resulting in a reduction of revenue of circa $0.2m versus the prior comparative period) and a decline in Average Daily Rate (ADR). These factors were partially offset by the inclusion of Waves Hotel & Spa (Waves) in the Group's results following its opening in August 2016.

The3 percentage point decline in occupancy to 66% wasin partdueto the timing of Easter as, in the prior comparative period, Easter was in March, whilst in the current year Easter was in April. The additional room nights sold in the Easter period would have had the effect of increasing occupancy by circa 2 percentage points. At the Group'sH1 2017 ADR, this would have contributed circa $800k to the Group's revenue in the period.

ADR fell in the period from $464 to $425, a decrease of 8%. This movement is due to two main factors:

· Firstly, this period has been the first full period since the decline in the value of Sterling. The Group's rates are priced in USD while the majority of customers are from the UK (around 80% on a room nights basis). The continued weakness of Sterling (average of US$1.25:£1 versus US$1.55:£1 in the same period in the prior year) has had a marked effect both on the rates the Group is currently able to achieve at some of its properties, as well as demand for Barbados as a luxury tourist destination.

While airlift and visitor numbers continue to increase, the trend towards lower cost accommodation continues. This is due in part to the increase in capacity on low-cost airlines which are driving more short-term, value-focused travellers. Recent data from Barbados Tourism Marketing Inc. shows that, for the first quarter of calendar 2017, demand for luxury accommodation from UK travellers decreased while overall arrivals increased.

· Secondly, the inclusion of Waves at a lower average rate has reduced the blended average rate (excluding Waves, ADR was $443, a reduction of 5%).

After several years of continuous ADR growth, the Group has reviewed the pricing strategy for some of its properties in response to the weakening of Sterling. Rates have been discounted on a targeted and tactical basis in certain cases in order to drive occupancy in the context of the rebased market. However, ADR was maintained at The House and Colony Club, the Group's properties with the highest rates. For these properties, which are priced at the higher end of the market, maintaining rates has been a strategic objective in order to maintain differentiation among the hotels in the portfolio. This strategy had the expected corresponding impact on occupancy during in H1 2017.

The performance of Waves has continued to exceed the Group's expectations in H1 2017. It has filled a gap in the market as a contemporary all-inclusive spa resort. As a result of the success of the spa at Waves and the resulting margin improvement of having this type of offering, the Group has reviewed its spa strategy across the portfolio. In the latter half of 2017, the Group's spa propositions will be bolstered by new spas for Colony Club and The House.

Profitability

After adjusting for one-off items, EBITDA was $15.3 million (H1 2016: $16.7 million), 8% lower than the prior period.

During the period, Daphne's restaurant was closed for unforeseen repairs which could not be delayed until the off-peak time of the year. This contributed to a loss of EBITDA of circa $400k versus the prior year for this site. Additionally, the Group increased its corporate costs compared to the prior period with the appointment of a Chief Financial Officer and Group Operations Director. Both of these appointments were necessary in order to fulfil the Group's strategic expansion strategies.

Adjusted EBITDA margin is three percentage points lower than the prior period at 43%, primarily due to the above factors as well as the higher flow-through to EBITDA of reductions in revenue associated with rate.

Adjusted profit before tax decreased in the six months to 31 March 2017 to $12.2 million (H1 2016: $14.4 million), down 15% on the previous year. This reflected increases in depreciation due to the acquisition of Waves, as well as higher interest costs as a result of movements in the US LIBOR rate and additional debt associated with the Waves acquisition.

Cost Reduction

In the light of the reduction in revenue, cost control in the Group has been a key focus. The Group continues to streamline and centralise its functions in order to achieve economies of scale. In addition, the Group is planning to commence direct importation of goods in late 2017. This strategy is expected to deliver significant savings on a large proportion of food and beverage items.

The Group is confident of its ability to continue to reduce costs and efficiencies without compromising the quality of its properties or customer service. The training and development of staff remains a key area of focus, and the rigorous programmes that the Group has in place in this area have been key to improving its guest satisfaction scores, which in turn will lead to a high level of repeat business.

Net Debt and Net Asset Value

The Group's property, excluding Waves, was valued at $235 million by CBRE as at 15 April 2015 and Waves Hotel & Spa was valued by Terra Caribbean at $22 million as at 3 June 2016.

Using these valuations, the Group's properties excluding Treasure Beach, would be valued at $257 million. Based on net debt of $62 million as at 31 March 2017, this would equate to an implied net asset value (NAV) of approximately $195 million (219 cents per share or 175 pence share, based on an exchange rate of £1 : $1.25).

The Group has third party debt with the Bank of Nova Scotia in the form of a loan facility of $62 million. In addition, the Group has an overdraft facility of $10 million, of which $1 million was drawn down at 31 March 2017, and an undrawn revolving credit facility of $5 million. The Group also has a vendor loan in relation to the Waves acquisition of $2 million.

At 31 March 2017, the Group had gross cash, excluding overdraft, of $3 million.

Cash Flow

The Group's free cash flow (defined as cash flow from operations less capital expenditure) was $5 million (H1 2016: $9 million). The decrease in free cash flow largely reflected the reduction in adjusted EBITDA along with increases in working capital primarily as a result of the acquisition of Waves, tax paid and capital expenditure. These decreases were partly offset by a reduction in cash one-off costs.

Delivering on the Expansion Strategy

During the period, the Group added two properties to its portfolio via a management contract and a sales and marketing contract. In October 2016, the Group entered into an agreement to manage Hodges Bay Resort, a new 122-room luxury hotel in Antigua. The hotel is currently under construction and is expected to open its doors in late 2017.

In March 2017, the Group added The Landings Resort and Spa, an 85 villa property in St. Lucia, with an agreement to provide a variety of services across the areas of sales, marketing, reservations, revenue management and public relations across all key feeder markets.

Arrangements of this kind represent a compelling opportunity for the Group to expand beyond Barbados, given they require less capital investment than full ownership.

In May 2017, post-period end, the Group acquired Treasure Beach hotel, a 4-star, 35-room hotel in Barbados. It is the adjoining property to Elegant Hotels' Tamarind hotel. As a result of this acquisition, four of Elegant Hotels' properties will account for a continuous 300 metre stretch of the prestigious west coast, or "Platinum Coast", of Barbados. Treasure Beach occupies around 1.2 acres of land, and its amenities include a swimming pool, spa, and restaurant.

The hotel will be operated under the existing brand until July 2017 whereupon it will be closed. It will be refurbished, repositioned and ultimately repriced before being rebranded as 'Treasure Beach by Elegant Hotels', and it is expected to re-open for business in November 2017. The Group plans to operate Treasure Beach as an adults-only European Plan hotel with an emphasis on a high-quality food offering. Guests of Treasure Beach will also be able to make use of the facilities of the neighbouring Tamarind hotel.

In addition to its expansion plans, refurbishing, repositioning and re-pricing the existing portfolio remains a key part of Elegant Hotels' long-term strategy, and the Group continues to invest in making improvements to all of its properties on an ongoing basis.

The Group is continuously looking for further expansion opportunities, both on and off island. As set out at the time of IPO, the Group's strategy continues to be the pursuit of further hotel acquisitions, as with Waves and Treasure Beach, and signing less capital intensive management contracts, like Hodges Bay and Landings, as it looks for further growth outside of the existing portfolio.

Dividend

The Board is pleased to report that an interim dividend of 3.5 pence per share has been declared.

This dividend for the period will be paid on 14 July 2017 to shareholders on the register on 23 June 2017, and the Company's ordinary shares will be marked ex-dividend on 22 June 2017.

Board

On 1 March 2017, Jeff Singleton was appointed to the Board as an Executive Director. Jeff was appointed as the Group's Interim Chief Financial Officer on 16 December 2016 and has taken over the role on a permanent basis.

On 25 May 2017, after the period end, the Board appointed Luke Johnson as a Non-Executive Director of the Group. Luke Johnson is the Chairman of private equity house, Risk Capital Partners LLP. He has extensive experience in the leisure industry in addition to a proven track record of helping companies achieve their growth plans.

Current Trading and Outlook

The Group has continued to trade comfortably in line with market expectations since the period end, and the strength of its bookings pipeline for the remainder of the financial year is encouraging. As a result, the Group remains confident in its prospects for FY17 and beyond.

Consolidated Statement of Comprehensive Income

for the 6 month period ended 31 March 2017 (unaudited)

(expressed in thousands of United States dollars)

	Note	6 months to	6 months to
		31 March	31 March
		2017	2016
Revenue		35,781	36,481
Cost of sales		(12,330)	(11,887)
Gross profit		23,451	24,594
Selling, general and administrative expenses
- Recurring		(10,794)	(10,014)
- Acquisition, IPO and listing expenses and other one-off costs	5	(721)	(1,545)
- Bargain purchase gain		-	4,180
		(11,515)	(7,379)
Other operating income		667	517
Operating profit		12,603	17,732
Finance income		10	-
Finance expenses		(1,100)	(746)
Finance expenses - net		(1,090)	(746)
Profit before taxation		11,513	16,986
Taxation		(2,303)	(3,397)
Profit for the period and total comprehensive income attributable to equity holders of the Parent Company		9,210	13,589
Earnings per share
Basic earnings per share (cents)	6	10.3	15.3
Diluted earnings per share (cents)	6	10.3	15.3
Adjusted earnings per share
Adjusted basic earnings per share (cents)	6	11.0	12.9
Adjusted diluted earnings per share (cents)	6	11.0	12.9
EBITDA and Adjusted EBITDA
Operating profit		12,603	17,732
Depreciation		1,947	1,594
EBITDA		14,550	19,326
Acquisition, IPO and listing expenses and other one-off costs	5	721	1,545
Bargain purchase gain		-	(4,180)
Adjusted EBITDA		15,271	16,691
Adjusted EBITDA margin		42.7%	45.8%

Consolidated Statement of Financial Position

as at 31 March 2017 (unaudited)

(expressed in thousands of United States dollars)

			As at	As at
			31 March	30 September
			2017	2016
Non-current assets
Property, plant and equipment			173,760	172,788
Deferred tax			4,586	5,138
Total non-current assets			178,346	177,926
Current assets
Inventories			3,330	2,950
Trade and other receivables			7,407	3,618
Short-term investments			67	67
Cash and cash equivalents			2,747	3,704
Total current assets			13,551	10,339
Total assets			191,897	188,265
Current liabilities
Loans and borrowings			(5,789)	(4,969)
Accounts payable and accrued liabilities			(6,884)	(7,554)
Tax payable			(1,970)	(1,678)
Bank overdraft			(636)	-
Total current liabilities			(15,279)	(14,201)
Non-current liabilities
Loans and borrowings			(57,886)	(60,531)
Deferred tax			(473)	(574)
Total non-current liabilities			(58,359)	(61,105)
Total liabilities			(73,638)	(75,306)
Net assets			118,259	112,959
Equity attributable to equity holders of the Parent
Share capital			1,367	1,367
Merger reserve			43,497	43,497
Share based payments reserve			968	909
Retained earnings			72,427	67,186
Total equity			118,259	112,959

Consolidated Cashflow Statement

for the 6 month period ended 31 March 2017 (unaudited)

(expressed in thousands of United States dollars)

	6 months to	6 months to
	31 March	31 March
	2017	2016
Cash flows from operating activities
Profit after taxation	9,210	13,589
Depreciation	1,947	1,594
Income tax expense	2,303	3,397
Interest expense	1,100	746
Share-based payments	59	665
Bargain purchase gain	-	(4,180)
Operating profit before working capital changes	14,619	15,811
Increase in inventories	(380)	(279)
Increase in trade and other receivables	(3,799)	(3,221)
Decrease in accounts payable and accrued liabilities	(900)	(478)
Taxation paid	(1,560)	(598)
Net cash generated from operating activities	7,980	11,235
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	-	(3,424)
Purchase of property, plant and equipment	(2,812)	(2,041)
Net cash used in investing activities	(2,812)	(5,465)
Cash flows from financing activities
Repayment of bank borrowings	(1,325)	(12,226)
Repayment of third party loans	(500)	(1,414)
Receipt of bank and third party loans	-	18,500
Interest paid	(1,072)	(729)
Dividends paid	(3,864)	(4,741)
Net cash used in financing activities	(6,761)	(610)
Net (decrease)/increase in cash and cash equivalents	(1,593)	5,160
Net cash and cash equivalents at the beginning of the period	3,704	5,599
Net cash and cash equivalents at the end of the period	2,111	10,759
Bank overdraft	636	-
Cash and cash equivalents at the end of the period, excluding bank overdraft	2,747	10,759

Consolidated Statement of Changes in Equity

for the 6 month period ended 31 March 2017 (unaudited)
(expressed in thousands of United States dollars)

	Share capital	Merger reserve	Share based payments	Retained earnings	Total equity
6 months to 31 March 2017
Balance at 1 October 2016	1,367	43,497	909	67,186	112,959
Exchange differences on translation of foreign currency operations	-	-	-	(105)	(105)
Profit for the period	-	-	-	9,210	9,210
Total comprehensive income for the period	-	-	-	9,105	9,105
Dividends paid	-	-	-	(3,864)	(3,864)
Share based payments	-	-	59	-	59
Total contributions by and distributions to owners of the parent	-	-	59	(3,864)	(3,805)
Balance at 31 March 2017	1,367	43,497	968	72,427	118,259
6 months to 31 March 2016
Balance at 1 October 2015	1,367	43,497	494	60,483	105,841
Exchange differences on translation of foreign currency operations	-	-	-	2,308	2,308
Profit for the period	-	-	-	13,589	13,589
Total comprehensive income for the period	-	-	-	15,897	15,897
Dividends paid	-	-	-	(4,741)	(4,741)
Share based payments	-	-	665	-	665
Total contributions by and distributions to owners of the parent	-	-	665	(4,741)	(4,076)
Balance at 31 March 2016	1,367	43,497	1,159	71,639	117,662

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 2016 were approved by the Board of Directors on 16 January 2017 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 2017 has not been reviewed or audited. The interim financial report has been approved by the Board on 13 June 2017.

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.

Unless otherwise stated, 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 2016, as described in those annual financial statements.

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 a restaurant. All of the Group's material operational activitiesare currently located on the island of Barbados.

5. One-off costs

One-off costs incurred during the period principally relate to the acquisition of Treasure Beach Limited, redundancy costs, costs of acquiring management contracts and share based payments. Costs incurred in the prior interim period were principally related to the acquisition of Waves Hotel & Spa, IPO and listing costs, and share-based payments.

6. Earnings per share

Earnings per share (EPS) is the amount of profit after tax attributable to each share.

Basic EPS is calculated on the Group profit for the period attributable to equity shareholders of $9.2 million (H1 2016 - $13.6 million) divided by 88,815,789 (H1 2016 - 88,815,719) being the weighted average number of shares in issue during the year.

Diluted EPS takes into account the dilutive effect of all potentially issuable shares.

Adjusted EPS reflects the adjustment for one-off and non-recurring items in order to more accurately show the business performance of the Group in a consistent manner and reflect how the business is managed and measured on a day-to-day basis. Earnings used in adjusted basic and diluted EPS were $9.8m (H1 2016 - $11.5m).

The Company has 2,900,856 potentially issuable shares all of which relate to share options issued to Directors and key management personnel of the Company. The dilutive number of issuable shares is 215,361 for the purposes of calculating the dilutive earnings per share.

7. Subsequent events

On 3 April 2017, the Group entered into a conditional agreement to acquire the entire issued share capital of Treasure Beach Limited, which holds the business, freehold property, and assets of Treasure Beach Hotel in Barbados ("Treasure Beach"). The consideration and renovation costs were expected to be approximately US$10.5 million in aggregate.

The agreement to acquire Treasure Beach was conditional upon completion of a credit agreement with the Group's bankers, the Bank of Nova Scotia. All conditions to purchase Treasure Beach were satisfied in May 2017 and the acquisition was completed.

The consideration and renovation costs are being funded by a combination of operating cashflow and US$8 million from the Group's existing credit agreement with the Bank of Nova Scotia.

8. Reconciliation of non-GAAP measures

	6 months to	6 months to
	31 March	31 March
	2017	2016
	$000	$000
EBITDA and Adjusted EBITDA
Operating profit	12,603	17,732
Depreciation	1,947	1,594
EBITDA	14,550	19,326
Acquisition, IPO and listing expenses and other one-off costs	721	1,545
Bargain purchase gain	-	(4,180)
Adjusted EBITDA	15,271	16,691
Adjusted EBITDA margin	42.7%	45.8%
Adjusted operating profit
Operating profit	12,603	17,732
Acquisition, IPO and listing expenses and other one-off costs	721	1,545
Bargain purchase gain	-	(4,180)
Adjusted operating profit	13,324	15,097

Adjusted profit before tax
Profit before tax	11,513	16,986
Acquisition, IPO and listing expenses and other one-off costs	721	1,545
Bargain purchase gain	-	(4,180)
Adjusted profit before tax	12,234	14,351

This information is provided by RNS

The company news service from the London Stock Exchange

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