Interim Financial Statements

Action Hotels plc

Interim financial statements for the six months ended 30 June 2015

Action Hotels plc ("Action Hotels", the "Company" or the "Group"), the leading owner, developer and asset manager of branded three and four-star hotels in the Middle East and Australia, is pleased to announce its unaudited results for the six months ended 30 June 2015. 

Financial Highlights

· Total reported revenue increased by 11% to $21.7m (30 June 2014: $19.5m)

· Adjusted Gross Operating Profit (AGOP) increased by 11% to $11.0m (30 June 2014: $9.9m)

· Adjusted EBITDA 1 increased 24% from the same period in 2014 and adjusted EBITDA margin increased 12%

· EBITDA grew to $5.2m (30 June 2014: $4.7m)

· Property asset values increased by $20.9m to $293.6m since 31 Dec 2014, resulting in a net asset value (NAV) of $178.2m at 30 June 2015 (31 December 2014: $185.9m)

· Interim dividend of GBP 0.74p, 3% higher than the same period last year

Operating Highlights

· Strong occupancy levels being maintained on a like-for-like basis of 76.7% (30 June 2014: 78.4%)

· Like-for-like RevPAR 2 increased 1.3% to $85.42 on a currency neutral basis from H1 2014 (30 June 2014: $84.32)

· Exceptional operational and financial performances from the two hotels in Kuwait, ibis Salmiya and ibis Sharq, with occupancies exceeding 88%

· Addition to development pipeline of a 130 room hotel in Saudi Arabia, introducing Accor's Mercure brand into Action Hotels' brand stable

· Acquisition of the 73-room ibis Budget Melbourne Airport - already operational and trading, due for completion in Q4 2015

· Net growth of 484 rooms in H1 2015 to 1,488 rooms, a 48% increase from H1 2014

· Committed 203 new rooms during H1 2015 into the development pipeline, which now stands at 1,405 rooms and nine hotels

Alain Debare, Action Hotels CEO said:

"We are very pleased with the continuing growth of Action Hotels. Our half-year adjusted EBITDA at $6.1m reflects the continued solid performance from the mature hotels and the improvements we have made at various properties. We are also pleased to report a considerable growth of 48% in the number of operating rooms with the openings of ibis Seef (Bahrain) and Premier Inn Sharjah (UAE). On the development side of our business, we continued to invest into the portfolio to accelerate its growth.

"We have had a good start to 2015 and anticipate our results to be in line with our expectations. Looking forward, we remain very focused on delivering strong returns and generating value for our shareholders as we pursue the execution of the pipeline and explore further growth opportunities."

Commenting on the results, Sheikh Mubarak A.M. Al Sabah, Founder and Chairman of Action Hotels said:

"Following our positive end of year results for 2014, it is my pleasure to announce another solid six months of growth for Action Hotels. Our operational hotels continue to deliver strong performances as we see a continued demand for quality, internationally branded economy and mid-market hotels. With this in mind I am pleased to declare an interim dividend for 2015.

"The Group has seen significant growth with two recent openings and we have also announced new additions to the group with the acquisition of the ibis Budget Melbourne airport and the addition of Mercure Riyadh. We are continuously exploring new hotel opportunities on both a freehold and leasehold basis and we look forward to updating the market with new additions to the pipeline in due course."

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Notes to Editors

Action Hotels PLC

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 8 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

1. Adjusted 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.

2. On a like-for-like basis - a comparison of the trading hotels that have been operating for at least 12 months excluding any currency movements.

3. Adjusted EBITDAR is defined as adjusted EBITDA before rent.

4. Adjusted NAV is the net asset value of the Group adjusted for the deferred tax provision required on the revaluation of properties to the Statement of Financial Position.

All currency amounts are in US $ unless otherwise stated.

Cautionary Statement

This announcement contains unaudited information and forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts and undue reliance should not be placed on any such statements because they speak only as at the date of this document and are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Action Hotel's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Action Hotels undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Operating performance

Consolidated revenues for the six months ended 30 June 2015 were $21.7m, 11% higher than last year by $2.2m primarily driven by the opening of new hotels combined with improved performance at operating hotels. 34% of revenues generated during the period were from Kuwait, 34% from Oman, 14% from Australia, 9% from Jordan and 9% from Bahrain.

Occupancy was maintained at a solid 76.7% slightly down on the same period last year due to the 2015 Ramadan period falling into the first six months of the year.

RevPAR and ADR on a like-for-like and currency neutral basis increased by 1.3% and 3.5% respectively, driven by effective revenue management in the stabilised operational hotels.

Kuwait continues to report exceptional operational and financial performances. The two hotels in Kuwait, ibis Salmiya and ibis Sharq, saw occupancies exceeding 88% following high demand from business and government. Management expect this trend to continue, even more so with the recent announcement of increased airport capacity as demand outstrips supply.

Fully funded hotel pipeline

The Group's fully funded pipeline currently consists of nine hotels with a total of 1,405 rooms expected to be completed by 2017.

The Company announced in April 2015 the addition of a second hotel in Saudi Arabia to the pipeline and the Group's first partnership with Accor Hotels' Mercure brand, Mercure Riyadh Olaya. This 130-bedroom four star hotel has been signed on a 20 year operating lease agreement and is being developed by the conversion of an existing office building in a prime location in Riyadh, Saudi.

Three hotels with more than 500 rooms are expected be completed by the end of 2015. Most notably, ibis Brisbane, which will be the largest hotel in Action Hotel's portfolio and the largest ibis branded hotel in Australia. These three properties will bring the total completed rooms in the portfolio to over 2,000 by December 2015 and will become operational by Q1 2016, significant progress towards the Company's stated IPO objective of 2,516 rooms by 2016 and goal of 5,000 rooms by 2020.

Financial Performance

Adjusted EBITDA, after lease costs and central costs, amounted to $6.1m, a 24% increase over the same period last year. EBITDA margin increased by 12% to 28% (30 June 2014: 25%) driven by increased performance and control of overhead costs.

Profit before tax during the period was impacted by higher pre-opening expenses of $0.9m being two new hotels, higher depreciation charge from the larger freehold portfolio and increased finance costs from increased debt, resulting in a loss before tax of $0.5m.

Investment and financing

The growth in additional rooms is being funded from cash and debt available to the Group through the refinancing of various hotel assets. The Board is monitoring the debt levels to ensure that each hotel has the ability to service its obligations whilst maximising shareholders equity.

Net asset value was $178m at 30 June 2015 (30 June 2014: $186m) following an increase in aggregate debt levels to $140.9m to fund the hotels in the Group's pipeline (31 December 2014: $109.9m). The Board expect the increase in value to be reflected when the hotels are completed.

Adjusted NAV per share for the period ended 30 June 2015 was $1.29 (31 December 2014: $1.31p per share).

Interim Dividend

The Group is pleased to announce an interim dividend for the six month period ended 30 June 2015 of GBP 0.74p per share which is expected to be paid on 30 November 2015. The Company's ordinary shares are expected to be marked ex-entitlement to such dividend on 17 September 2015 and the dividend will be payable to all shareholders on the Company's share register at the close of business on 18 September 2015.

Outlook

The Group has had a good start to 2015 with continued demand in its markets. The second half of 2015 is an important period for the Group as three hotels with a total of 544 rooms are expected to be completed by the end of 2015. The Board anticipates the Group's full year results to be in line with their expectations.

Action Hotels plc

Condensed Consolidated Interim Income Statement

For the six months ended 30 June 2015

Action Hotels plc

Condensed Consolidated Interim Statement of Comprehensive Income

For the six months ended 30 June 2015

Action Hotels plc

Condensed Consolidated Interim Statement of Financial Position

For the six months ended 30 June 2015

Action Hotels plc

Condensed Consolidated Interim Statement of Changes in Equity

For the six months ended 30 June 2015

* As reported within the consolidated financial statements for the year ended 31 December 2014

Action Hotels plc

Condensed Consolidated Interim Statement of Cash Flows

For the six months ended 30 June 2015

Action Hotels plc

Notes to the Condensed Consolidated Interim Financial Information

For the six months ended 30 June 2015

General information

Action Hotels plc ("the Company") is a public company limited by shares and 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 principal activities of the Company and its subsidiaries (collectively known as "the Group") are owning, developing and operating hotels in the Middle East. The Group's principal administrative subsidiary, Action Hotels Limited, is domiciled in the Dubai International Financial Centre, which is its principal place of business.

The half year results and condensed consolidated financial statements for the six months ended 30 June 2015 ("the interim financial statements") comprise the results for the Group.

These consolidated condensed interim financial statements were approved for issue on 7 September 2015.

These consolidated condensed interim financial statements have been reviewed, not audited.

1. Basis of preparation

The interim financial statements have been prepared in accordance with IAS 34 'Interim financial reporting'. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRIC interpretations.

Going Concern

The Group has reported accumulated losses of USD 33,470,000 (2014 Audited: USD 29,489,000) as at 30 June 2015, and as of that date, the Group's current liabilities exceed its current assets by USD 9,164,000 (2014 Audited: USD 8,781,000). Total assets continue to exceed total liabilities by USD 178,238,000 (2014 Audited: USD 185,989,000).

Notwithstanding this, the financial statements have been prepared on the going concern basis. The Directors have made this assessment after consideration of the Group's expenditure commitments, current financial projections and expected future cash flows, together with the available cash resources and undrawn committed borrowing facilities.

2. Accounting policies

The accounting policies adopted are consistent with those of the financial statements for the year ended 31 December 2014, except as described below.

(a) The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2015, but do not have a material impact to the Group or are not currently relevant for the Group.

· IAS 19,'Employee benefits', amendments regarding defined benefit plans (effective from 1 February 2015);

· Annual improvements 2010 - 2012. These include changes to, IFRS 2, 'Share based payments'; IFRS 3, 'Business Combinations'; IFRS 8, 'Operating segments'; 'IAS 16, 'Property plant and equipment' and IAS 24, 'Related Party Disclosures'; and

· Annual improvements 2011 - 2013. These include changes to, IFRS 3, 'Business Combinations'; IFRS 13, 'Fair Value Measurement'; and IAS 40, 'Investment Property', effective from January - February 2015.

3. Accounting policies continued

(b) The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2015 and have not been early adopted:

· IFRS 9, 'Financial instruments', (effective 1 January 2018), subject to EU endorsement;

· IFRS 11 'Joint arrangements', amendments relating to acquisition of an interest in a joint operation, (effective 1 January 2016), subject to EU endorsement;

· IFRS 14 'Regulatory deferral accounts', (effective 1 January 2016), subject to EU endorsement;

· IFRS 15 'Revenue from contracts with customers', (effective 1 January 2017), subject to EU endorsement;

· IFRS 10 'Consolidated Financial Statements' and IAS 28 'Investments in Associates and Joint Ventures, amendments on investment entities applying the consolidation exception, (effective 1 January 2016), subject to EU endorsement;

· IAS 1, 'Presentation of financial statements', amendments on the disclosure initiative, (effective 1 January 2016), subject to EU endorsement;

· IAS 16, 'Property, Plant and Equipment, amendments relating to method of depreciation, (effective 1 January 2016), subject to EU endorsement;

· IAS 16, 'Property, Plant and Equipment', and IAS 41, 'Agriculture', amendments, regarding bearer plants (effective 1 January 2016), subject to EU endorsement;

· Amendments to IAS 27, 'Separate financial statements' on the equity method, (effective 1 January 2016), subject to EU endorsement;

· IAS 38, 'Intangible Assets', amendments relating to method of amortisation (effective 1 January 2016), subject to EU endorsement; and

· Annual improvements 2014 - 2015. These include changes to, IFRS 5, 'Non-current assets held for sale and discontinued operations' regarding methods of disposal; IFRS 7, 'Financial instruments: Disclosures', (with consequential amendments to IFRS 1) regarding servicing contracts; IAS 19, 'Employee benefits' regarding discount rates; and IAS 34, 'Interim financial reporting' regarding disclosure of information effective from 1 July 2016.

4. Critical judgements and accounting estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014, with the exception of changes in estimates that are required in determining the provision for income taxes.

5. Business and geographical segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker at the reporting date. 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 operating segments are its individual hotels. These have been aggregated into two reportable segments, as each operating segment within these reportable segments provide similar hospitality services to a common customer base using similar methods.

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.

5. Business and geographical segments continued

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.

5. Business and geographical segments continued

Segmental assets

For the purposes of monitoring segment performance and allocating resources between segments, the Group's management monitors 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.

Geographical information - Revenue

The place of domicile for the Group's head office is the Dubai International Financial Centre. The table below shows the revenue from external customers split between those attributed to the place of domicile, Kuwait and all other foreign countries.

5. Business and geographical segments continued

Geographical information - Non-current assets

The place of domicile for the Group's head office is the Dubai International Financial Centre. The table below shows the non-current asset split between those attributed to the place of domicile and all foreign countries.

6. Restructuring and listing costs

For the year ended 31 December 2013, The Group classified costs in connection with its restructuring in the period up to and shortly following the public offering and its admission to trading on the AIM division of the London Stock Exchange separately. The costs expensed in the consolidated income statement totalled US$ 187,000 in the period June 2014.

7. Earnings per share

Basic and diluted loss per share is calculated by dividing the loss attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.

There are no dilutive potential ordinary shares in Action Hotels plc.

7. Earnings per share continued

8. Property, plant and equipment

8. Property, plant and equipment continued

Hotels in operation and under construction are carried at fair value as determined by an independent valuer. The capitalisation method has been used by the independent professionally qualified valuers, which is explained as follows.

The capitalisation method represents a method of determining the value of the asset by calculating the net present value of expected future earnings. The valuation method adopted is based on inputs not based on observable data (that is, unobservable inputs - level 3).

At 30 June 2015, had the land and buildings of the Group been carried at historical cost less accumulated depreciation and impairment losses, their carrying amount would have been USD 214,078,000 (2014: USD 188,219,000). The revaluation surplus is disclosed in the Consolidated Statement of Changes in Equity. The revaluation surplus cannot be distributed due to legal restrictions.

Undeveloped land with a carrying value of USD 3,918,000 relating to Action Hotel Sohar has been transferred to "Hotels under construction". Total assets in the course of construction as at 30 June 2015 for this hotel amounted to USD 4,638,000 (2014: USD Nil). The remaining assets in the course of construction related to Elizabeth Street USD 33,606,000 (2014: 24,302,000) and Premier Inn Sharjah USD 27,163,000 (2014: 22,120,000)

The land, buildings and fixtures and fittings of operational hotels and hotels under construction with a carrying amount of USD 283,117,000 (2013: USD 267,175,000) have been pledged to secure borrowings of the Group. The Group is not allowed to pledge these assets as security for other borrowings or to sell them to another entity.

9. Related party transactions

The Group has entered into various transactions with related parties in the normal course of its business concerning financing and other 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 (formerly described as "Partner"):

9. Related party transactions continued

Due from related parties

Due to related parties

9. Related party transactions continued

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

9. Related party transactions continued

Remuneration of Key Management Personnel

10. Bank borrowings

The group has sufficient headroom to enable it to conform to covenants on its existing borrowings. The Group has undrawn financing facilities of USD 48,472,000 as at 30 June 2015 (2014: USD 1,688,000).

Bank facilities are secured by the Group's counter indemnities for guarantees issued on their behalf, the Group's corporate guarantees, letter of undertakings, certain property, plant and equipment, movable assets, insurance policy, leasehold rights for land and personal guarantees from certain directors or shareholders.

The carrying amounts of borrowings approximate their fair value.

11. Share capital and Share premium account

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 £0.64 as part of its listing on the AIM market of the London Stock Exchange.

12. Merger and other reserves

* As reported within the consolidated financial statements for the year ended 31 December 2014

13. Dividends

A Final dividend of GBP 0.96 (US$ 1.54) per share for the year 2014 was paid on 1 June 2015, totalling US$ 3,302,000.

14. Financial risk management

The group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the group's annual financial statements as at 31 December 2014. There have been no changes in the risk management department or in any risk management policies since the year end.

15. Income Taxes

In certain of the jurisdictions that the Group operates in, foreign ownership of its assets or business is either prohibited or could lead to additional tax liabilities. Management is confident that the corporate structure put in place as part of the Company's admission to the AIM division of the London Stock Exchange mitigates the risks posed in this respect. Management has therefore concluded that no material tax exposure exists in these jurisdictions.

Should the Group's business in these jurisdictions become subject to tax under the current structure, Management estimate that USD 123,000 of income tax would potentially be assessed on the Group for the year ended 30 June 2015.

16. Fair value measurements of non-current assets

The change in fair value measurements of investment properties and hotels in operation or construction for the six months ended 30 June 2015 was immaterial in comparison to the carrying value of these assets. Therefore no fair value adjustments have been made to the carrying value of these assets.

The Directors' believe that these valuations, on the basis of current use, represent the highest and best use of the respective assets.

The valuation technique has remained unchanged from 31 December 2014 and the Directors of the Group review the valuation process undertaken and consider whether it remains appropriate.

The Group uses the following hierarchy for determining the fair value of assets and liabilities held at fair value by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs which have significant effect on the recorded fair value are observable, either directly or indirectly; and

Level 3: techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data.

The fair value measurements of property, plant and equipment and investment properties are classified as Level 3 in the fair value hierarchy in their entirety, due to the fact that significant unobservable inputs are used in arriving at an appropriate fair value.

The fair value measurement is sensitive to changes in unobservable inputs. The discount and yield rates used by the independent valuers to establish a net present value for each separately valued property are as follows and if changed, could result in a materially different fair value.

16. Fair value measurements of non-current assets continued

The future forecast results represent an unobservable input for each property. Each separate property valuation is directly dependent on the forecast results and hence a significant/ sustained decrease in expected future results would result in a similar proportional reduction in the fair value measurement related to the property.

17. Commitments on properties under construction

At 30 June 2015, the Group had entered into contractual commitments on construction costs of hotels under construction amounting to USD 35,242,000 (2013: USD 45,000,000).

18. Operating lease arrangements

At 30 June 2014 the Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

The above amounts represent the Salmiya and the DIFC office lease costs.

19. Prior period restatement

The condensed consolidated interim financial information include a prior period restatement, primarily in relation to certain expenses associated with the Company's restructuring and its listing on AIM, which took place on 23 December 2013. Given the proximity of the Company's listing to the year-end, management identified expenses amounting to $187,000 during the current period, associated with the Company's restructuring and listing process. In addition, arising from completion of the Company's subsidiary entity audits, which were finalised after the Company published its annual report and financial statements for the year ended 30 June 2014, a number of adjustments totalling $325,000 have been identified, which also relate to 2014.

In the condensed interim financial statements as at 30 June 2014, the consolidated income statement and balance sheet for the year ended 31 December 2013 were restated. Further adjustments were made to the opening position at 1 January 2014 within the consolidated financial statements for the year ended 31 December 2014. The amounts

presented as at 31 December 2013 and 1 January 2014 within these interim financial statements are consistent with those disclosed within the consolidated financial statements for the year ended 31 December 2014.

The adjustments which impact the six month period ended 30 June 2014 have been accounted for by way of a prior period restatement, in order to present a fairer view of the results for the period and to align with the results presented for the year ended 31 December 2014.

The adjustments are of a non-cash nature and have no impact on the Group's cash and net debt position.

The adjustments primarily relate to the following: 

a. Restatement of tax

In certain jurisdictions that the Group operates in, foreign ownership of its assets or business is either prohibited or could lead to certain tax liabilities. Management are confident that the corporate structure put in place as part of the Company's admission to the AIM division of the London Stock Exchange mitigates the risks posed in this respect. Management has therefore concluded that the condition at the previous balance sheet date is such that no material tax exposure exists. Applicable amounts have been adjusted accordingly, reducing the tax charge in the income statement by USD 324,000 and reducing the opening deferred tax liability by USD 3,583,000.

This is a significant judgement as referred to within notes 3 and 32 of the consolidated financial statements for the year ended 31 December 2014.

b. Restructuring and listing costs

Reclassification of restructuring and listing costs from administrative and distribution expenses amounting to USD 187,000.

c. Other adjustments

The remaining adjustments relate to the alignment of the Company's subsidiary financial statements with the consolidated financial statements.

Further details on these adjustments can be found within Note 36 of the consolidated financial statements for the year ended 31 December 2014.

19. Prior period restatement continued

Consolidated statement of financial position (Restated)

19. Prior period restatement continued

Consolidated statement of comprehensive income for the year ended 30 June 2014 (Restated)