Audited Results for the year ended 31 December 16

This announcement contains inside information

Action Hotels PLC

("Action Hotels" with its subsidiaries the "Group")

Audited Results for the year ended 31 December 2016

and Notice of Annual General Meeting

Action Hotels plc, a leading owner, developer and asset manager of three and four-star hotels in the Middle East and Australia, is pleased to announce its final results for the year ended 31 December 2016. 

All currency amounts are in US million $ unless otherwise stated.

2016 Key Highlights and Financial Overview

· Opening and operation of three new hotels in three countries, taking total operational room count at year end to 2,181, a 40% increase from last year (2015: 1,561 operational rooms) and an increase of 117% since IPO.

· Year-on-year growth in key financial performance indicators - Revenue (up 22%) and adjusted EBITDA (up 16%)

· Net Asset Value (NAV) remained stable at $195m (2015: $196m), Net Asset Value per share USD 1.40/GBP 1.09 (2015: USD 1.40/GBP 0.95)

· Total reported revenue increased by 22% to $53.1m (2015: $43.5m)

· Adjusted EBITDA1 increased by 16% to $18.5m (2015: $16m)

· Net loss before tax of $6.3m (2015: PBT of $2.9m), primarily driven by impact of pre-opening, financing costs and depreciation of new hotels

· LTV of 51% (2015: 49%)

· Final dividend increase of 2.0% to GBP 1.50 pence per share, bringing the total dividend for the year to GBP 2.26 pence per share (2015: GBP 2.21 pence per share), a yield (as at 1 May 2017) of 6.1%

2016 Operational Highlights

· Average EBITDA breakeven occupancy levels across the portfolio remained low at 37% (2015: 35%)

· Opening of three new hotels, ibis Styles Brisbane Elizabeth Street, Tulip Inn Ras Al Khaimah and Mercure Sohar increased the number of operational rooms by 40% to 2,181 (2015: 1,561).

2017 Current Trading

· Trading in Q1 2017 is solid with total revenue up c.14% over the same period as last year.

· Stable performances continue from our mature operating hotels2, with average occupancy in line with last year 76% (Q1 2016: 77%).

 Commenting on the results, Alain Debare, Chief Executive Officer, Action Hotels said:

"We remain focused on driving performance at our operating hotels and our full year results reflect the solid performance of our mature2 hotel portfolio, as well as the encouraging success of our newest hotels as they gain traction in their respective markets.

We have a solid pipeline of hotels in development with the Company's current expectation of 17 operating hotels by 2019."

The Annual Report will be posted to shareholders and made available on the Company's website, http://www.actionhotels.com/ at a later date and will contain a notice of the Company's Annual General Meeting, which will be held on 13 June 2017 in London, UK.

1 Adjusted EBITDA has been defined as operating profit before depreciation, amortisation, restructuring and listing costs, gains and losses arising from the disposal of property, plant and equipment, pre-opening costs and other non-recurring expenses.

2 Mature hotels consist of: Glen Waverley, Kuwait (two), Jordan, ibis Budget Melbourne Airport (acquired as an already operational hotel) and Oman (ibis and Holiday Inn).

For more information contact:

Chairman's Statement 

I am pleased to report another year of encouraging growth at Action Hotels. As one of the first movers focused exclusively on the development and operations of three and four star hotels in prime locations across the Middle East and Australia, we maintain a dominant position in the sector.

Our strategy of developing and asset managing high quality, value for money, economy and midscale hotels, located in five star locations, operated by world leading hotel brands, continues to deliver results as the demand for this type of hotel accommodation materially exceeds supply.

With the Middle East region experiencing some macro-economic and political headwinds, we have incurred some delays in the opening of new hotels, resulting in slower growth than we anticipated. This in turn will have a knock on effect to the speed at which we are able to fully implement our strategy. Despite these market challenges, we have seen year-on-year growth across our key metrics, revenue and EBITDA, which increased by 22% and 16% respectively on the previous year.

We remain committed to building upon our existing high quality hotel portfolio and pipeline, with a clear focus on active asset management and working closely with our internationally branded operators to maximise the performance of our hotels, in addition to the delivery of the announced development pipeline on time and on budget.

Employees

The performance and dedication of Action Hotel's employees across the six countries in which we operate impressed me again this year. I thank you all very much for your hard work and commitment during 2016 and look forward to working with you to deliver further growth in 2017.

In June 2016, the senior management team welcomed Andrew Lindley as Finance Director. Andrew is a Chartered Management Accountant with 20 years' experience with international companies in the UK, Middle East and Africa, and wide-ranging financial expertise across various industries.

Dividend

With the mature portfolio continuing to deliver stable performance and a solid commercial foundation, we are delighted to announce that the board is proposing a final dividend of GBP 1.50 pence per share for 2016, resulting in a full year dividend of GBP 2.26 pence per share (2015: GBP 2.21 pence per share). This dividend reflects the solid profits from our mature hotels and our confidence in the longer-term outlook for the business. The Board are confident of maintaining a progressive dividend policy and look forward to confirming the interim dividend for 2017 at the publication of the 2017 interim results.

Outlook

Whilst travel and tourism has been adversely impacted by global economic and political uncertainties, our investment strategy of focusing exclusively on the economy and midscale hotel sector in key gateway locations is delivering resilient returns and also presenting opportunities as increasing numbers of business travellers are becoming more budget-conscious and staying in economy and midscale hotels rather than luxury equivalents.

Sheikh Mubarak A M Al Sabah

Chairman  

Chief Executive Officer's review

2016 was another busy year for Action Hotels in which significant milestones were achieved. Our mature estate of hotels has delivered a robust performance and we continue to progress our development pipeline, which saw the opening of three new hotels during the year, taking our total number of operational hotels to 12.

Reported total revenue grew by 22% to USD 53.1 million (2015: USD 43.5 million) and EBITDA increased by 16% to USD 18.5 million (2015: USD 16 million). This growth was driven mainly by the contribution from new hotel openings (+620 new rooms) and continued stable performance at our existing operating hotels. Although this growth was lower than anticipated, it still represents real progress over the prior year and demonstrates the effectiveness of the Group's business model.

As we are continuing to grow the business and execute our development plans, the business is still in its development phase. Whilst we are seeing material year-on-year growth in revenue and EBITDA, our net profit position is impacted by the start-up costs of new hotels with pre-opening expenses, the impact of depreciation and increasing financing costs. Reported loss before tax was USD 5.9 million (2015: profit before tax USD 2.8 million). Reporting a net loss is to be expected during our development years, as we fulfil our pipeline. Until that time, our focus is on ensuring the continued performance of our operating hotels and the more relevant measures of delivering growth in revenue and EBITDA. Total assets increased by 14% to USD 480m from the delivery of the new hotels, the associated development uplift and revaluations from the existing operational hotels, resulting in Net Asset Value (NAV) for 2016 of USD 194.8m (2015 USD 195.9m).

Operational Performance - Continued Growth

Despite challenging market conditions across the Middle East as a result of global macro-economic and political uncertainty, we delivered solid performances across our trading hotels, underpinning the resilience of our focused strategy on the economy and mid-market hotel sectors.

Reported RevPAR decreased to USD 61.5 (2015: USD 71.1), a result of the introduction of the new hotels into the portfolio and pricing strategy to maintain high occupancy.

We continue to work closely with our hotel brands on the day-to-day asset management of the hotels, overseeing performance, driving revenue generation and maintaining efficient cost control to ensure that our hotel investments are operating at their maximum potential and resulting in accelerated traction in each market. The Ibis Budget at Melbourne Airport, which we acquired in October 2015 and which is now a mature hotel, is a testament to this, with year-on-year revenue and operating profit increasing by 5.5% and 9.2% respectively.

New Hotels

Three new hotels were opened in 2016 (2016: 620 rooms, 2015: 545 rooms) and we made solid progress on the pipeline and a major addition to the pipeline, the 347 room Novotel Melbourne South Wharf at Melbourne Convention and Exhibition Centre (a further increase of 30 rooms over the original 317 rooms previously announced for this hotel).

The opening of the 367 room ibis Styles Brisbane, our largest hotel, was inaugurated by our Founder and Chairman Sheikh Mubarak A M Al Sabah in March 2016. The hotel has been designed to the brand's highest specifications. Feedback has been very positive and we believe it will be a major contributor to the Group's growth going forward.

The opening of Tulip Inn Ras Al Khaimah (August 2016) and Mercure Sohar (December 2016) have added a further 252 rooms with encouraging early business enquiries.

Development Pipeline

The Group's expansion continues to progress and we expect at least another 3 hotel completions during 2017, Ibis Styles Bahrain and our first two hotels in Saudi Arabia, adding a further 354 rooms to the portfolio.

Construction has started at Novotel Dubai Creek with the hotel expected to open during 2019 and we are progressing construction at Novotel Melbourne South Wharf, with opening planned during early 2018.

Since our IPO just over three years ago, we have continued to secure new and exciting development opportunities as we grow our portfolio. To date we have added 696 rooms (+27.6%) over what we promised at the time of IPO, with a current total of 3,214 rooms without the need to raise additional equity finance. Whilst our focus is now on completing the announced pipeline, we are always on the lookout for attractive opportunities in the Middle East and Australia.

Debt Refinancing

During the year, we welcomed Andrew Lindley to the management team as Finance Director, who has successfully completed the restructuring of several long-term and short-term financing facilities.

Our business model requires significant capital investment, which the Group leverages by borrowing from well-known regional banks within a 50%-65% loan-to-value ratio. The Group also relies on its extensive experience and relationships for refinancing its assets, even when met with challenging market conditions.

Our balance sheet remains robust as we continue to invest in our pipeline as well as looking for further growth opportunities. With an LTV at 51% we are comfortable with the management of debt as we continue to grow the portfolio.

Current Trading and Outlook

It has been a busy year and regional and industry changes have presented both opportunities and challenges. We believe that our focus on delivering continued strong performance at our hotels will deliver revenue, EBITDA and NAV growth in the future.

As we benefit from our new room inventory, revenues are expected to strengthen significantly over 2017 and 2018. We have revised down our expectations for the period based on the levels achieved for 2016. In the longer term we expect to reach the same levels of profitability, albeit between one and two years later than previously anticipated.

For the first quarter of 2017, trading for year to date is in line with our expectations. Our hotels continue to trade well against some pressure on travel and tourism, especially in the Middle East. We continue, however, to target locations and enter new markets where the demand for economy and midscale hotel accommodation significantly exceeds supply.

Longer term, demand is expected to continue to grow, with the emergence of regional travel and the diversification of regional economies away from oil and gas. This increasing demand combined with our proven low cost hotel operation model and working with leading hotel operating brands, continues to deliver highly profitable hotels in a short time from opening.

We remain focused and committed to the delivery of shareholder value by becoming the leading hotel company in the economy and mid-market hotels sector in the Middle East and Australia.

Alain Debare

Chief Executive Officer and Director

Finance Review

Key Financial Highlights and Introduction

· Total Revenue increased by 22% to $53.1m (2015: $43.5m)

· Total Adjusted EBITDA increased by 16% to $18.5m (2015: $16.0m)

· Net loss before tax of $6.3m (2015: PBT of $2.9m), primarily driven by impact of pre-opening, financing costs and depreciation of new hotels

· Total fixed assets grew by $62m to $459m (2015: $397m)

· Total debt increased by $39m (20%) as a result of the accelerating pipeline of hotels

· Adjusted Net Asset Value remains stable at $206m

· The "mature" hotels are stable, generating consistent revenue and continue to deliver underlying net profitability

· Our "newly opened" hotels are progressing swiftly through their maturity cycle, contributing early revenues and typically achieving operational break-even in the first 3 months of operation

· Continued investment in the Development hotels and pipeline projects which gather positive momentum as they approach their openings and will add to the portfolio in due course

After joining Action Hotels in June 2016, I undertook a thorough review of the operational, financial structure and future projects and I am enthusiastic about the outlook for the Group.

During 2016, Action Hotels experienced another year of growth across its key financial indicators, Revenue and Adjusted EBITDA, as a result of continued growth and maturity across the hotel portfolio and in particular the first full year of contribution from the three hotels opened or acquired in 2015, and a partial year contribution from those opened during the current financial year.

Revenue

Reported total revenue for the year increased by 22% to USD $53.1m (2015: USD $43.5m) with USD $9.3m coming from the openings of the new hotels Tulip Inn, Ras Al Khamiah, Mercure Sohar, Oman and our largest hotel ibis Styles Brisbane, Australia.

Mature Hotel Portfolio2

The mature hotels are expected to provide a stable performance from year to year with little or no growth as they have reached their optimum operational capability. The seven mature hotels across Action's portfolio, which includes the recently acquired (2015), already operational, ibis Budget Melbourne Airport saw an increase in revenue of 1% and contributing a stable Operating profit on 2015, down 6% on 2015 mainly due to the full year effect of depreciation on the property revaluation in 2015.

Newly Opened Hotel Portfolio3

As we are in a period of accelerated growth, having opened six new hotels over the past 24 months, the main driver of revenue increase is from this group of hotels. Our newly opened hotels increased revenue by 275%.

Total portfolio

The opening of the 367 room ibis Styles Brisbane Elizabeth Street and a full year trading from the acquired, ibis Budget Melbourne Airport increased the percentage of revenue from Australia which accounted for 27% (2015: 14%) of total revenue.

Occupancy and average room rate ('ADR') for the total portfolio saw declines by 4% and 9% respectively resulting in a RevPAR reduction of 14%. However, these declines were less than the market demonstrating the resilience of the economy and midscale brands to absorb market pressure and still outperform even with tourism being impacted adversely by global economic and political uncertainty.

1 Adjusted EBITDA has been defined as operating profit before depreciation, amortisation, restructuring and listing costs, gains and losses arising from the disposal of property, plant and equipment, pre-opening costs and other non-recurring expenses.

2 Mature hotels consist of: Glenn Waverly, Kuwait (two), Jordan, ibis Budget Melbourne Airport (acquired as an already operational hotel)

3 Newly opened hotels consist of (1) in 2015: ibis Seef and Al Majaz Sharjah and (2) in 2016: newly opened in 2015 plus ibis Styles Brisbane, Tulip Inn Ras Al Khaimah and Mercure Sohar.

Operating profit and Adjusted EBITDA

Operating profit decreased by USD $2.4m to USD $6.4m and Adjusted EBITDA increased by 16% to USD $18.5m, driven by new hotel additions along with strong performances from our existing hotels.

2015 and 2016 were years of accelerated hotel development, increasing our number of operational rooms by 46.6%, (2014: 1,488 operational rooms, 2016: 2,181 operational rooms). Whilst the opening of new hotels brings positive contribution to revenue, and with our low average break even occupancy bringing early contribution to EBITDA, there are various charges to the Consolidated Income Statement, which occur below the EBITDA line that must be applied. These charges do heavily impact the Operating Profit position. The material costs associated with opening the hotels, namely pre-opening costs of USD $2.0m (2015: USD $1.1m), depreciation charges and finance costs are applied as if the hotel is operating at a more mature capacity. The negative impact of these charges on reported profit are disproportional during the hotels development towards full maturity. Pre-opening costs (such as; costs of Senior Management (General Manager and Financial Controller) and other hotel operational employees preparing the hotel for operational readiness, final cleaning, stationary, marketing and sales preparation costs) average around USD $0.6m per hotel opening (depending on the number of rooms). Depreciation and amortisation are charged from the day the hotel is capable of operating.

EBITDA margin for the year reduced by 2% on last year to 35% (2015: 37%) mainly due to a drop of 3% at the Gross operating Profit level flowing through to EBITDA.

Our investment land in Dubai Media City, acquired in February 2016, improved Adjusted EBITDA by USD $4.5m as a result of the increase in its value to USD $14.7m (Acquisition cost: USD $10.2m) as part of the annual assessment by independent valuers Hamptons. This acquisition underpins our strategy of acquiring land and property in prime locations and the ability of Action Hotels to access such attractive opportunities. We will continue to hold this land for investment until a suitable opportunity is presented, assessed, and approved by the Board of Directors.

Profit/(Loss) after Tax

Finance costs have increased as the Company has, as planned, utilised debt facilities to fund the pipeline of hotels with the opening of ibis Styles Brisbane, Tulip Inn Ras Al Khaimah and the Mercure in Sohar plus a full year effect of hotels opened in the latter half of 2015 this has contributed to the net loss for the year of USD $5.9m.

Dividends

In line with the Board's intentions to pay a progressive dividend to shareholders, it proposes a final dividend in respect of the year ended 31 December 2016 of GBP 1.50 pence sterling per share, taking the total dividend for the year to GBP 2.26 pence sterling per share. The dividend is expected to be paid on 15 June 2017, subject to the approval of the dividend at the Company's annual general meeting, which is expected to occur on 13 June 2017. It is expected that the Company's ordinary shares will marked ex-entitlement to such dividend on 25 May 2017, and the dividend will be payable to all shareholders on the Company's share register at the close of business on 26 May 2017.

Financial Position

Due to the material investment and acceleration of the pipeline during the year, total bank debt as at 31 December 2016 increased to USD $228 million (2015: USD $194 million) with cash and cash equivalents at USD $4.5 million. Total gearing at the year-end was 117% (2015: 94%) and Loan to Value ("LTV") was 51% (2015: 49%).

1 Loan to Value is defined as total debt as a percentage of non-current assets

Property revaluations

Independent property valuations were prepared by CBRE on our Middle Eastern properties, Jones Lang LaSalle and CBRE on our Australian properties and Hamptons International on our investment land.

The valuations of the operational freehold hotels are included in the Consolidated Statement of Financial Position at fair value, which is assessed and revalued annually.

Net Asset Value and adjusted Net Assets

Reported Net Asset Value for the Group remained flat at USD $195 million as we continued to progress our hotel pipeline. Adjusted Net Asset Value is the net asset value of the Group adjusted for the deferred tax provisions on the revaluation on our properties. The deferred tax provisions at the year-end amounted to USD $12.3 million and would only become payable if these revalued assets were sold.

As at 31 December 2016 the Adjusted net asset value was USD $206.3 million, (2015: USD $206.3 million) and an adjusted net asset value per share of GBP 1.09 pence per share (2015: GBP 0.95 pence Sterling per share).

Looking ahead

The first quarter of 2017 has started in line with expectations with revenue for the quarter up 14% on the same period last year, as our new hotels mature.

We look forward to updating on financial progress at our 2017 interim results later this year.

Andrew Lindley

Finance Director

Consolidated Income Statement

All operations were continuing throughout the years.

Consolidated Statement of Financial Position 

Consolidated statement of cash flows

Consolidated statement of cash flows (continued)

Notes:

1 Revenue

The Group's revenue arises from hotel operations, including the rental of rooms, food and beverage sales and other services from owned and leased hotels.

2 Operating profit and adjusted EBITDA

The adjusted EBITDA for the year is derived as follows:

Pre-opening expenses include staff costs and related expenses, administration expenses and marketing expenses incurred as part of the pre-opening and soft opening phase of the hotel. The soft opening phase can last for a period of up to 6 months depending on the size of the hotel and agreed opening strategy. Following this, expenses are included within general and administrative expenses.

3 Segment information

The Board of Directors of the Group is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance of the Group.

The Group is organised within two geographical regions, Middle East and Australia excluding central functions. These geographical regions along with hotels under construction and undeveloped land sites comprise the Group's four reportable segments. No operating segments have been aggregated to form these reportable segments.

Central management costs represent the head office and management costs incurred at the Group level, which have not been subsequently allocated to any particular operating segment. Each of the geographical segments derives its revenue from the ownership and management of hotel operations.

The Board of Directors use a measure of adjusted EBITDA to assess performance.

(a) Segmental revenue and results

The following is an analysis of the Group's revenue and results by reportable segments:

The revenue of each segment for each period arises wholly from external sales.

Adjusted EBITDA for hotel operations represent the profit earned by each segment without allocation of central administration costs including Directors' salaries, pre-opening costs, investment revenue and finance costs, and tax.

 (b) Segmental assets

For the purposes of monitoring segment performance and allocating resources between segments, the Group's management monitor the tangible, intangible and financial assets attributable to each segment. Assets classed as not allocated represent the current assets attributable to the central management function of the business and mainly relate to head office cash balances and certain balances with related parties.

Other segmental information

(c) Geographical information - Revenue

The country of domicile for the Group's head office is United Arab Emirates (UAE); the table below shows the revenue from external customers split between those attributed to the country of domicile and all other foreign countries.

(d) Geographical information - Non-current assets

The country of domicile for the Group's head office is United Arab Emirates (UAE); the table below shows the non-current asset split between those attributed to the country of domicile and all foreign countries.

4 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the (loss)/profit attributable to the equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

(b) Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares, share options and share warrants.

The 5,179,116 options (2015: 5,179,116 options) are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 31 December 2016 and 2015. These options could potentially dilute basic earnings per share in the future.

The 3,690,930 warrants (2015: 3,690,930 warrants) are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 31 December 2016 and 2015. These options could potentially dilute basic earnings per share in the future.

5 Related party balances and transactions

The Group has entered into various transactions with related parties in the normal course of its business concerning financing and related services. Prices and terms of payment are approved by the Group's management. All significant related party transactions and balances are listed below and are principally with entities under control of the Group's principal shareholder, Action Group Holding Co. KSCC:

Due from related parties

Interest is charged on amounts due from related parties in Australia at a rate of 6% (2015: 6%). The total interest income was USD 124,000 (2015: USD 207,000).

Interest is charged on the advance paid to Action Real Estate Co. Dubai amounting to USD 3,714,000 (2015: nil) at a rate of 5% (2015: nil). The total interest income was USD 143,000 (2015: nil).

In 2016, the Group received rent income from related parties for leasing of premises amounting to USD 130,000 thousand (2015: USD 170,000 thousand).

Due to related parties

Related party transactions

During the year, the Group sold an investment property to Action Group Holding Company K.S.C.C for an amount of USD 14,650,000 (2015: Nil).

During the year, the Group wrote off related party balances amounting to USD 590,000 (2015: Nil).

During the year, Action Real Estate Co. Dubai contributed an amount of USD 7,463,000 (2015: USD 402,000) towards its share of commitments in Tulip Inn Ras Al Khaimah project.

Expenditure incurred on services provided by related parties:

Expenditure incurred by related parties on behalf of the Group and subsequently recharged:

Expenditure incurred by the Group on behalf of the related parties and subsequently recharged:

Related party guarantees

Further, one of the shareholders of the Group and the ultimate owner of the shareholder have provided performance guarantees on behalf of the Group for certain borrowings. These guarantees, issued in the normal course of business, are outstanding at the year end and no outflow of resources embodying economic benefits in relation to these guarantees is expected by the Group.

Transactions and agreements with related parties

The Group does not have ownership of the A shares of Action Hotels Limited, its principal subsidiary, which carry the voting rights, and are held by Action Group Holding Company K.S.C.C, the principal shareholder. The Group therefore entered into the following agreements with Action Group Holding Company K.S.C.C. to safeguard its control over the subsidiary:

(a) a relationship agreement dated 17 December 2013 between the Company and Action Group Holding Company K.S.C.C. (the "Relationship Agreement") pursuant to which Action Group Holding Company K.S.C.C. has agreed that:

(i) the Group will be able to operate independently of Action Group Holding Company K.S.C.C. and its Associates (as defined in the Relationship Agreement). This will include a majority of the Board being independent of Action Group Holding Company K.S.C.C. at all times. For clarity, for these purposes, the concept of independence can include the executive Directors. The agreement further provides that any transactions or arrangements to be entered into between Action Group Holding Company K.S.C.C. (or its Associates) and the Group will require the approval of the Directors who are independent of Action Group Holding Company K.S.C.C.;

(ii) it will not (and will procure so far as it is able that its Associates will not) compete with the business of the Group (being budget/mid-market hotels worldwide);

(iii) the Group will have a 'right of first refusal' on any real estate assets held by it and which may be made available for hotels;

(iv) it will transfer any property, rights, assets or services held by it (or its Associates) and intended for use or required to be used by the Group to the Group;

(v) it will cooperate with the Company in the event that a restructuring is required to comply with local laws; and

(vi) the agreement will terminate if Action Group Holding Company K.S.C.C.'s (and its Associates) holding in the Company drops to below 30%.

(b) a call option agreement between the Company and Action Group Holding Company K.S.C.C. dated 9 December 2013 pursuant to the terms of which Action Group Holding Company K.S.C.C. has granted the Company an option to acquire the A ordinary shares in the capital of Action Hotels Limited for a nominal amount.

(c) a management agreement dated 16 December 2013 between the Company, Action Hotels Limited and Action Group Holding Company K.S.C.C. pursuant to the terms of which the Company exercises management control of Action Hotels Limited. The management agreement provides that:

(i) the Company has the sole right to manage Action Hotels Limited, and all operational decision-making power is vested exclusively with the Company;

(ii) the Company has the sole right to appoint and replace the Directors of Action Hotels Limited;

(iii) the Company has the right to receive 100% of all distributions that are declared by Action Hotels Limited including on a liquidation; and

(iv) Action Group Holding Company K.S.C.C. shall not encumber (which includes creating any mortgage, charge, right to acquire or right of pre-emption) the A ordinary shares in Action Hotels Limited.

(d) the Power of Attorney granted by Action Group Holding Company K.S.C.C. to the Company to exercise the voting rights attached to the A ordinary shares in Action Hotels Limited.

Remuneration of Key Management Personnel

During the year, the Group entered into a conditional agreement with Sheikh Mubarak Al Sabah to purchase his interest in Action Hotels FZ-LLC. An amount of USD 3,700,000 was paid as refundable advance against this agreement. Further in December 2016, Sheikh Mubarak Al Sabah transferred his interest in Action Hotels FZ-LLC together with the advance to Action Real Estate Co. Dubai. The amount of advance paid has been included within due from related parties above.

Loans due to related parties

During the year, the Group obtained loans amounting to USD 4,287,000 from various related parties to fund the construction of a hotel in Australia. The loans are repayable at various dates within 6 months from the date of the drawdown. The loans carry an interest rate of 9.9% (2015: nil) per annum. As at 31 December 2016, there is no material variance between the carrying value of the loans and their fair value.

In 2016, the Group incurred interest on these loans amounting to USD 8,900 (2015: nil).

6 Share capital and share premium

On incorporation the Company had 1,000 £1 ordinary shares, which on 8 November 2013 were split into 10,000 ordinary shares of nominal value of 10p. On 9 December 2013, the Company issued a further 99,990,000 shares and performed a share for share exchange with its shareholder in return for 100% of the beneficial interest in and voting control over the issued share capital of Action Hotels Limited.

On 23 December 2013, the Company issued 47,637,195 new ordinary shares at GBP 0.64 as part of its listing on the AIM division of the London Stock Exchange.

The authorised share capital of the Company is GBP 40 million divided into 400 million shares of 10 pence each. They entitle holders to participate in dividends and to share proceeds of winding up of the company in proportion to the number and of amounts paid on the shares held.

During 2016, the Shareholders authorised the transfer of USD 100,000,000 from the share premium account to accumulated losses.

7 Ultimate controlling party

Action Group Holding Company K.S.C.C., which is under the control of Dr. Suad Al Sabah was the principal shareholder at 31 December 2015 and 2016. It held 64.7% of Action Hotel plc's shares. In accordance with the relationship agreement with Action Group Holding Company K.S.C.C, Action Hotels plc is able to operate independently of Action Group Holding Company K.S.C.C. and its associates and hence there is no ultimate controlling party.