Final Results

11 May 2015

Action Hotels plc

("Action Hotels" or the "Company")

Audited Results for the year ended 31 December 2014

Annual Report 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 audited full year financial results for the year ended 31 December 2014. 

All currency amounts are in US $ unless otherwise stated.

2014 Key highlights 

· Completion of two new freehold hotels taking total room count at year end to 1,488, a 48% increase (2013:1,004 rooms)

· Addition of 300 new rooms to the pipeline, bringing the total to 1,332 rooms, a 29% increase (2013:1,032 rooms)

· Year-on-year growth in all operational key performance indicators - like-for-like occupancy, average daily rate (ADR) and revenue per available room (RevPAR)

· $1.9m reported net profit - ahead of management expectations (2013 restated: $7.8m loss)

· Increase in Net Asset Value per share of 9.6% to USD 1.26/GBP 0.83 (2013 restated: USD 1.15/GBP 0.76)

· Final dividend increase of 126% to GBP 1.45 pence per share, bringing the total dividend for the year to GBP 2.17 pence per share (2013: GBP 0.96 pence per share), a yield (as at 11 May 2015) of 3.7%

2014 Financial highlights

· Total reported revenue increased by 26% to $37.6m (2013: $29.8m)

· Adjusted EBITDA1 increased by 34% to $11.3m (2013 restated: $8.4m)

· Operating profit increased to $6.1m (2013 restated: $0.3m)

· Increase in reported Net Asset Value (NAV) of $15.5m to $186m (2013 restated: $170.5m)

· Adjusted NAV2 increased 8% to $194.8m (2013 restated: $179.6m)

· Loan to value (LTV)3 reduced to 37% (2013 restated: 45%)

2014 Operational highlights

· On a like-for-like basis average occupancy increased to 78% (2013: 77%)

· Year-on-year growth in ADR of 9% to $113 (2013: $105) and RevPAR 5% to $84 (2013: $79)

· Average EBITDA breakeven occupancy across the portfolio remains low at 35%

· Completion of two additional hotels, ibis Seef Bahrain and Premier Inn Sharjah, as well as an extension to ibis Salmiya, increasing our operating rooms by 48% to 1,488

· Committed and fully funded pipeline of a further eight hotels, taking total room count to 2,820 (90% growth) by 2017

· Full first year of trading at Holiday Inn Muscat, which was EBITDA positive from the first full month of operation, continues to perform well

2015 current trading

· Positive start to Q1 2015 with a 3% growth in ADR to $111 (2014: $108) and increased revenue by 22% on the same period last year

· Hotel adjusted gross operating profit (AGOP) increased by 22% to $6m (Q1 2014: $4.8m)

· New hotel Ibis Seef, Bahrain is trading profitably in its third month since opening

· Premier Inn Sharjah was completed on schedule but experienced a slight delay in opening due to slower than expected connection to power supply. All issues are now resolved with early business enquiries encouraging

· All eight of the pipeline hotels are progressing well, with the majority under construction or conversion

· Appointment of new Group Chief Financial Officer, Krish Sundaresan, who will join the team later this month

· Further new hotel development opportunities in advanced discussions

· Appointment of Investec Bank plc as Broker and Nominated Advisor

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

"2014 has been a year of continued solid growth, improved operational performance and significant investment into new hotel developments. We also remained focused on progressing the pipeline, with two additional hotels being completed bringing our current total (operational and pipeline) room count to 2,820. We remain on course to achieving our objective of 5,000 rooms by 2020."

For more information contact:

Notes to editors:

Action Hotels is a leading owner, developer and asset manager of branded three and four star hotels in the Middle East and Australia. Established in 2005, Action Hotels currently operates eight hotels with 1,488 rooms in aggregate across the Middle East and Australia, with further properties in development in both regions.

More information is available at http://www.actionhotels.com/

Notes:

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

2Adjusted net asset value is the net asset value of the Group adjusted for the deferred tax provision that is required on the revaluation of properties to the Statement of Financial Position. The deferred tax provision as at 31 December 2014 is $8.7m (2013 restated: $9.1m) and would only become payable if these revalued properties were sold

3Loan to value (LTV) has been defined as total debt as a percentage of total non-current assets. Professional independent valuations for the year ended 31 December 2014 were prepared by Jones Lang LaSalle and CBRE.

Chairman's statement

Our strategy to become the leading developer, owner and asset manager of three and four star hotels across the Middle East continues at full pace. 2014 has been an exciting period for us not only being Action Hotel's first full year as a publicly listed company, but also seeing the completion of two new hotels in two new countries taking our operating portfolio to eight hotels, with 1,488 rooms across six countries. In addition to the projected number of pipeline rooms stated at the time of our IPO, I am pleased to report that we have added 300 new rooms taking the total committed pipeline to 1,332, an increase of 29%, without requiring the need for the issuance of equity, further enhancing shareholder value.

Middle East

The macro-economic conditions in the region continue to underpin our strategy of focusing only on the economy and midscale segments of the hotel sector. The growth of intra-regional travellers, both business and leisure, and their associated demand for affordable, consistent, value-for-money accommodation continues to accelerate. This is all supported by increasing per capita incomes, ease and availability of air travel within the region.

The recent oil price volatility presents Action Hotels with further opportunities as more business travellers seek less expensive hotel accommodation without sacrificing quality.

Operational and Financial performance

At an operational level, Action Hotel's operating hotel portfolio of 1,488 rooms continues to deliver, with year-on-year growth in average daily rate (ADR) and revenue per available room (RevPAR) of 9% and 5% respectively resulting in total revenue growth of 26% and operating profit growth of 37%.

I am also delighted to report that we exceeded our own expectations at the profit after tax (net profit) level coming in at $1.9 million (2013 restated: $7.8 million loss) and the net asset value (NAV) which increased by 9% to $186.0 million, increasing NAV per share by 9.6% to $1.26.

Board, management and colleagues

Across the Group, we run a lean operation with carefully selected colleagues experienced in their respective fields such as finance, development, design and operations. During 2014, we strengthened the team with some key hires in technical, operations and finance. Along with the Board of Directors and management team, I am delighted to have the team that will take us to our goal of over 5,000 rooms by 2020 and send a sincere thank you to all of Action's colleagues for their efforts during 2014 and 2015 to date. I would also like to thank the staff working in our operating hotels for their hard work in servicing our customers and delivering superior performance.

I continue to be impressed by the experience, involvement and support of all Board members and their contribution on an operational and strategic level. During the year we welcomed Rawaf Bourisli to the board, who brings a wealth of experience in design and construction and who as Development Director will oversee the construction and delivery of our pipeline of hotels. In November 2014 we said farewell to our Finance Director ,Alaister Murray, who left due to personal reasons and I wish him well for the future. I would also like to welcome Krish Sundaresan as Chief Financial Officer of Action Hotels. Krish is a highly accomplished finance professional and I am delighted he will join us later this month.

We are mindful that the execution of our hotel pipeline remains one of our key priorities. In recognition of this, your Board established a dedicated Development Committee with the sole purpose of constant monitoring of the progress of our development programme. This committee meets twice a month and is chaired by my Deputy Chairman, Stefan Allesch-Taylor. This Committee enables the Board to have full visibility of each development on a regular basis and allows immediate action where and when required.

Dividends

All of our operating hotels to date have positively contributed to EBITDA shortly after opening, and even though we continue to accelerate our hotel developments of both greenfield sites and conversions, the profitability and cash profile of our operating business enables a dividend to be paid to shareholders. I am delighted to announce that the board is recommending a final dividend of GBP 1.45 pence per share for 2014, resulting in a full year dividend of GBP 2.17 pence per share (2013: GBP 0.96 pence per share). The Board is confident of maintaining a progressive dividend policy and look forward to confirming the interim dividend for the six months ended 30 June 2015 at the publication of the 2015 interim results.

Outlook

The first four months of 2015 have been encouraging. Our existing hotel portfolio continues to perform well. Ibis Seef, our first hotel in Bahrain has started positively, breaking even in its first month of operation. Our other hotels continue to perform in line with our expectations and collectively contributed a 22% increase in Gross Operating Profit on the same period last year.

We are also actively working towards new hotel developments, which we will report on in due course.

Sheikh Mubarak A M Al-Sabah

Founder and Non-Executive Chairman

Chief Executive Officer's Review

Overview

2014 was a year of improved operational performance and significant investment into new hotel developments as we began to deploy the funds raised at the time of our IPO towards our objective to be the leading company in economy and midscale hotels across the Middle East.

On a reported financial basis we saw material growth in revenue (26%), Adjusted EBITDA (34%) and a maiden net profit of $1.9m (2013 restated: $7.8m loss). We also continued to further strengthen our asset backed position with a 9% increase in net asset value to $186m for the year.

During 2014 we remained focused on progressing the pipeline, ensuring that we complete our hotels on time and on budget as well as maximising the performance of our six operational hotels and creating new development opportunities.

We were delighted to announce the completion of two new freehold hotels, both in new countries for us. Ibis Seef Bahrain is our sixth hotel partnering with Accor, and Premier Inn Sharjah, our first hotel partnership with Premier Inn and a first management agreement for Premier Inn outside of the UK. On an operational room basis we added 484 new rooms, which takes us to eight hotels with 1,488 rooms, a 48% increase on last year.

The performance of our operating hotels has continued to improve as the number of business and leisure travellers within the region continues to increase. Our hotels cater for all types of travellers, however business customers remain our focus, which accounted for 77% of total revenue in 2014. Revenue per available room (RevPAR) increased by 5.4% to $84 (2013: $79).

Focused strategy

Our strategy remains focused on branded economy and midscale hotels in the key cities in the Middle East and Australia, which is an under supplied segment of the hotel market. Our partnership with the leading hotel brands and operators along with our development expertise is a powerful combination for success.

The completion of an additional two hotels during 2014 and 2015 to date takes the number of operational hotels now to eight. Our committed pipeline is currently made up of a further eight properties, which will take us to 2,820 rooms by the end of 2017 and on course to achieving our objective of 5,000 rooms by 2020.

Hotel partnerships

We continue to strengthen our relationships with the leading hotel operators, which see the Middle East as a major area for growth especially in the economy and midscale sector, where demand continues to outgrow a limited supply. STR Global, the global leader in hotel industry data, reported that only 13% of the total supply of rooms in the region falls into this segment. We work closely with our hotel operators to select the brand that will have the best fit for each project. During the operator selection process, we are able to create competitive tension between the operators and obtain attractive terms. Hotel operators have identified the strong opportunity within the economy and midscale segments and are keen to find opportunities for new hotels. High barriers to entry in the Middle East make us a partner of choice for economy and midscale hotels.

Leading operators are actively looking for hotel owners like Action Hotels to partner with and we are in various discussions with them about potential new hotels.

Pipeline additions

During the year, we announced the addition to the portfolio of the 104 room Tulip Inn Ras Al Khaimah, which will be Action's first hotel within the Emirate and its first brand partnership with Golden Tulip. In April 2015 we also announced a new 130-room hotel in Riyadh, Saudi Arabia. We are actively pursuing new opportunities, the funding of which will be determined on a case-by-case basis, which we will update our shareholders of in due course.

Operating portfolio performance

Our operational hotels delivered another year of strong performance. During 2014 the portfolio consisted of five stabilised hotels (beyond third year of operation) and the Holiday Inn Muscat in its first full year. The objective to increase the financial performance of our stabilised operational hotels was achieved by a 5% increase in RevPar as a result of active revenue management positively impacting room rates.

Kuwait

Kuwait continues to be one of our strongest markets, evident by our operating hotels ibis Salmiya and ibis Sharq, both contributing the highest occupancy rates across the portfolio of above 80% and an average increase in RevPAR of 5%. Adjusted Gross Operating Profit (AGOP) margins grew by 7.3%, as we worked with our operators to further improve efficiency and synergies in the hotels. Whilst Kuwait has experienced a 13.9% CAGR in business tourism arrivals between 2004 and 2013 (Alpen Capital 2014), the economy and midscale hotel market remains largely underserved with Action Hotels the market leader in this segment.

Oman

Ibis Muscat performed well, in its fifth year of operation with an 8.6% increase in RevPAR supported by strong demand from business travellers driving up the rates.

We are also pleased to report a good first year of trading at the Holiday Inn Muscat. The new hotel (which opened in December 2013) broke even at an EBITDA level in its first month of operation, and has seen progressive growth during 2014, with a first year average occupancy of 57% and an ADR of USD 140. The hotel is receiving positive feedback and currently ranks number 6 out of the 39 hotels in Muscat on Tripadvisor.

Jordan

Ibis Amman maintained a solid occupancy of 79% for 2014 as a result of increased corporate groups and meetings, conferences and events (MICE). On the back of a strong demand for MICE, we further utilised hotel space to create two additional conference rooms and the addition of a hotel bar, which has contributed to the 30% growth in food and beverage revenues, partially compensating for accelerating energy costs in the country.

Bahrain

In December 2015 we completed our first hotel in Bahrain, Ibis Seef, on schedule and on budget. The hotel, which comprises of 304 rooms including 18 apartments, is well positioned to attract families and business travellers. Since opening we have seen a strong demand in tourism from Saudi Arabia. We continue to be positive on the outlook for tourism in Bahrain, which is forecast to increase, underpinned by a stabilised political system and the return of the Grand Prix since 2012. During its first three months of opening, Ibis Seef achieved an average occupancy rate above 50%, breaking even in its first month.

United Arab Emirates

We have also completed the construction of our first hotel in the UAE with Premier Inn in Sharjah. The 168-room hotel, located on the central King Faisal Street in Sharjah, which was completed on schedule, experienced a slight delay in opening due to slower than anticipated connection to the power supply. All issues are now resolved and early business enquiries are encouraging.

Australia

Ibis Glen Waverley continues to be a strong performer within our portfolio, with a year on year increase across all operating metrics driven predominantly from corporate business. Ibis Glen Waverley will be joined by our second property in Australia later in the year, ibis Brisbane, which is currently under construction and will be the largest ibis hotel in Australia.

Hotel pipeline

We are pleased to report that we continue to increase the number of rooms in our development pipeline, which now stands at 1,332 rooms taking our total room count to 2,820 rooms, a 13% increase across the total portfolio on last year.

The Board is also actively evaluating new development opportunities towards our target of 5,000 rooms by 2020.

Current trading update

The first quarter of 2015 started well with an increase in ADR of 3% to USD 111 (2014: USD 108), reflecting an increase in revenue across the portfolio up 22% to USD 11.3m (2014: USD 9.3m). Hotel AGOP increased by an impressive 25% to USD 6m (2014: USD 4.8m). On the development side, we are progressing all eight of the pipeline hotels, the majority of which are under construction or conversion. Our largest hotel, ibis Brisbane, remains on schedule and we expect completion by the end of 2015. Tulip Inn Ras Al-Khaimah, Ibis Styles Sohar and Premier Inn Jeddah are also under active construction or conversion, with other properties in the pipeline scheduled to commence construction or conversion later this year.

I am also delighted to welcome Krish Sundaresan to our senior management team as group Chief Financial Officer. Krish has substantial financial and strategic experience particularly in real estate and hospitality. I look forward to him joining the team on 17 May 2015 and introducing him to our shareholders in due course.

Alain Debare

Chief Executive Officer

Finance Review

Overview

Our six hotels performed well during 2014, with all our operating key performance indicators improving on a like for like basis. On the financial KPI's we saw growth across both revenue and profit and we are pleased to report a maiden positive net profit figure ahead of management expectations.

Operational Key Performance Indicators - Occupancy, ADR and RevPAR

Occupancy for the year was 74% (2013: 77%) a slight decline on last year as we included Holiday Inn Muscat's first year of trading. However on a like for like basis across the stabilised five hotels, occupancy increased to 78% (2013: 77%). Our Middle East based hotels continued to contribute average occupancies of above 80%. Holiday Inn Muscat delivered a strong first year with average occupancy at 57%.

Ibis Glen Waverley saw a 3% increase in occupancy, which is a very pleasing result for a stabilised hotel in its seventh year of operation.

Average Daily Rates for the year increased 9% to USD 113, positively impacted by the inclusion of our first four star hotel, Holiday Inn Muscat, into the mix.

RevPAR increased by 5% compared to last year, the reason being strong ADR performance and stabilised occupancy.

Prior period restatement

In the condensed interim information as at 30 June 2014, the consolidated statement of comprehensive income and consolidated statement of financial position for the year ended 31 December 2013 were restated. Further adjustments have been made to the opening position as at 1 January 2014 within these financial statements.

Revenue

Reported revenue for the period grew 26.2% to $37.6 million (2013: $29.8 million). The Middle East operating hotels contributed 82% of the total revenue for the year, with a revenue growth of 35% as a result of improved performance and the first year of Holiday Inn Muscat.

Operating profit, Adjusted EBITDA and Profit after tax

Operating profit increased from $0.3 million (restated) to $6.1 million and Adjusted EBITDA increased by 34% to $11.3 million. Stonger performances from our existing hotels in addition to a first full year of trading from Holiday Inn Muscat contributed to 37% of the increase in operating profit with the remaining largely attributable to a reduction in restructuring and listing costs (relating to our 2013 IPO).

This increase in operational performance and reduction in costs contributed to an improvement at the profit after tax level. We achieved a maiden net profit of $1.9 million for the year, significantly ahead of last year (2013 restated: $7.8 million loss) and our forecasted break even figure.

Dividends

The Board intends to propose a final dividend in respect of the year ended 31 December 2014 of GBP 1.45 pence sterling per share, taking the total dividend for the year to GBP 2.17 pence sterling per share. The dividend is expected to be paid on 1 June 2015, subject to approval of the dividend at the Company's annual general meeting, which is expected to occur on 28 May 2015. It is expected that the company's ordinary shares will be marked with ex-entitlement to such dividend on 21 May 2015, and the dividend will be payable to all shareholders on the Company's share register at the close of business on 22 May 2015.

Financial position

Total bank debt as at 31 December 2014 remained pretty much constant at USD 109.9 million (2013: USD 108.3 million). Cash and cash equivalents decreased as we began investing the proceeds from our equity fundraising into the development of new hotels. Net debt increased by 59% as we accelerated expenditure on assets under-construction and other hotel developments during the year. Total gearing at the year end was 55% (2013 restated: 38%) and Loan to Value (LTV)2 decreased to 37% (2013 restated: 45%).

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

2Loan to Value is defined as total debt as a percentage of non-current assets

Property revaluations

Independent professional valuations were prepared by CBRE on our Middle Eastern properties and Jones Lang Lasalle on our Australian properties as at 31 December 2014.

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

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration receivable excluding discounts, rebates and other sales taxes or value added taxes.

Net Asset Value and adjusted Net Assets

Reported Net Asset Value for the Group increased by 9% to $186 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 of our properties. The deferred tax provisions at the year end amounted to $8.7 million and would only become payable if these revalued assets were sold.

As at 31 December 2014 the adjusted net asset value was $194.8 million an increase of 8.4% on 2013 (2013 restated: $179.6 million) and an adjusted net asset value per share of GBP 1.32 pence per share (2013: GBP 1.22 pence per share).

Shady Remeily

Financial Controller

Consolidated Income Statement

For the year ended 31 December 2014

Consolidated Statement of Financial Position

For the year ended 31 December 2014

Consolidated Statement of Cash Flows

For the year ended 31 December 2014

Consolidated Statement of Changes in Equity

For the year ended 31 December 2014

Notes to the consolidated financial statements

For the year ended 31 December 2014

General information

Action Hotels plc ("the Company") is incorporated in Jersey under the Companies (Jersey) Law 1991. The address of the registered office is 1st Floor, 17 Bond Street, St Helier, Jersey, JE2 3NP, Channel Islands. The Company is a public limited company and has its primary listing on the AIM division of the London Stock Exchange. The principal activities of the Company and its subsidiaries ("the Group") are owning, developing and operating hotels in the Middle East. The Group's principal administrative subsidiary, Action Hotels Limited, is domiciled in Dubai International Financial Centre, which is its principal place of business.

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRS Interpretation Committee interpretations as adopted by the European Union. The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain classes of property, plant and equipment and investment properties.

The preliminary announcement has been agreed with the company's auditors for release.

Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit / (loss) for the year by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit/(loss) for the year by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Dividend distribution

Dividend distributions to the company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders.

Business and geographical segments

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's reportable segments are the operational hotels in the Middle East and in Australia, hotels under construction and undeveloped land sites which are managed and reported to the Board as separate distinct business units.

The Group's operating segments are its individual hotels. These have been aggregated into two reportable segments, as each operating segment within these regions has similar economic characteristics.

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.