Interim Financial Statements

Action Hotels plc

Interim financial statements for the six months ended 30 June 2017

Action Hotels plc, 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 2017.

Key Highlights and Financial Overview

Year-on-year growth in key financial performance indicators - Revenue (up 10%) and Gross profit (up 6%)

Total reported revenue increased to $28.1m (30 June 2016: $25.6m), driven by new hotel rooms

Gross profit increased to $19.5m (30 June 2016: $18.4m)

Adjusted EBITDA1 decreased by 6.3% to $6.8m (30 June 2016: $7.2m), mainly due to the full year effect of non-operating expenses in the newly opened hotels as they grow through the maturity stage

Net loss before tax of $5.3m (30 June 2016: Net loss of $3.9m), as expected and primarily driven by the impact of increased financing costs to develop the pipeline and the impact of depreciation newly opened hotels

LTV of 55% (2016: 51%)

Property asset values have increased by $35m to $493m since 31 Dec 2016, resulting in a net asset value (NAV) of $192m at 30 June 2017 (31 December 2016: $195 m)

Adjusted NAV (adding back deferred tax liability and assets) is $201m compared to $206m as at year end.

Adjusted NAV per share was USD 1.36/GBP 1.06 (2016: USD 1.40/GBP 1.09)

Interim dividend of GBP 0.77p, a 1.3% increase on the same period last year

Operational Highlights

2,181 operating rooms at the end of June, a 13% increase from H1 2016 (30 June 2016: 1,928) with the openings of Tulip Inn, Ras Al Khaimah (September 2016) and Mercure Sohar (December 2016)

Strong occupancy levels from our mature hotels2, being maintained on a like-for-like basis at 72.7% (30 June 2016: 74.7%)

Average EBITDA breakeven occupancy levels across the portfolio remain low at c. 37% (30 June 2016: 35%)

Continued strong operational and financial performances from the two hotels in Kuwait, ibis Salmiya and ibis Sharq, with both hotels operating over 80% occupancy

Ibis Budget Melbourne Airport also continues to perform strongly with at 90% occupancy (30 June 2016: 91%)

On 2 August 2017 Action's thirteenth hotel, ibis Styles Diplomatic Area, Manama Bahrain with 95 rooms opened, taking the total of operational rooms to 2,276.

Current Trading and Portfolio update

The Board confirms that, current trading remains on track with market expectations, despite certain markets in the Middle East facing headwinds impacting the performance of businesses throughout the region. Growth comes from the newly opened rooms and the occupancy of the Groups seven mature hotels2 at 72.7% underpins Action's resilient business model in the economy and midmarket hotel sector, with low break-even levels and the recently opened hotels delivering growth.

After a thorough review of the pipeline, and to efficiently manage the Company's cash and debt position, the board have decided to slightly delay the openings of two of its leasehold hotels in Saudi Arabia, Tulip Inn Modon Jeddah and Mercure Riyadh Olaya. These hotels, which are currently under development, were due to be substantially completed by the end of 2017 but will now be opened towards the end of H1 2018. This minimally impacts the 2017 forecast which is expected to improve the net loss position slightly with the concurrent delay of two hotel pre-opening costs in the region of $0.5-1.0m.

The Board has also taken the decision to remove the 112-key leasehold hotel, Staybridge Suites Abu Dhabi from the pipeline, choosing instead to focus Management's resources on projects offering a better return on capital employed, such as Novotel Melbourne South Wharf, due to open in H1 2018.

Alain Debare, Action Hotels CEO said:

"We are pleased to update the market on a solid first half, with a good performance across the Action Hotels portfolio. We are seeing good growth from the new rooms, with trading impacted by some headwinds in the Middle East whilst Australia continues to perform strongly. We remain focused on delivering the pipeline and working with our Hotel partners to drive performance at our operating hotels with a special focus on ensuring the early success of our recently opened hotels as they grow within their markets and consolidating the solid performance from our mature hotel portfolio. "

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

"It is my pleasure to announce another six months of growth for Action Hotels on the back of a very positive performance in 2016. We continue to meet the increasing demand for quality, internationally branded economy and mid-market hotels and have outperformed expectations set out at IPO with regards to the number of rooms operating and in pipeline with rooms totaling 3,090. 

We remain committed to growing our portfolio and are continuously exploring new hotel opportunities on both a freehold and leasehold basis. In May, we announced our partnership with AccorHotels on our second Novotel branded hotel in Melbourne South Wharf, Action's fourth hotel in Australia and being developed on the largest convention center in the Southern hemisphere. We look forward to updating the market on other further developments to our pipeline in due course."

For more information, contact:

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 has 13 completed hotels with 2,276 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 mature trading hotels; ibis Glen Waverly, ibis Budget Melbourne Airport, ibis Sharq, ibis Salmiya, ibis Amman, Holiday Inn Muscat and ibis Muscat, excluding any currency movements.

3. 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.

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

Total Portfolio

Consolidated revenues were 10% higher over the period, with contribution from new rooms and Middle East and Australian hotels continuing to contribute strong average occupancies. Total occupancy is lower than the mature (like for like) occupancy by 8.7% (30 June 2016: 9.1%) due to the weighting of lower occupancies in the newly opened hotels as they grow to maturity in their respective markets.

Total operating rooms reached 2,181 as at 30 June 2017, a 13% increase on the same period last year. The opening of ibis Styles Bahrain on the 2nd August 2017 added a further 95 rooms taking the current operating and completed hotel portfolio to 2,276 rooms.

Despite pressure across the Middle Eastern markets, the Group's seven mature hotels2 continue to deliver strong occupancy levels at a combined 72.7%, (30 June 2016: 74.7%) broadly in line with previous years illustrating the resilient business model.

Middle East

In the Middle East, hotels showed a drop-in occupancy of 4.9% and in ADR of 8.1% (on a like for like basis, excludes hotels opened in the last 12 months) due to the headwinds across the Middle East particularly impacting markets in Jordan, Oman and Bahrain. Kuwait, however, remained strong with an average occupancy of 81.1% across the two hotels. Management is working closely with its hotel operators to ensure that hotels continue to grow their market share and maintain a low-cost base resulting in low breakeven levels.

Australia

The Australian hotels performed well, performing above last year and delivering an increase of 43% in revenue, driven predominantly from the opening of our largest hotel, Ibis Styles Brisbane, which completed one year of operations in March 2017 and continues to show encouraging trading with occupancy at 64.5%. Ibis Budget Melbourne Airport recorded the highest occupancy in the portfolio with year to date occupancy of 89.3%.

Hotel pipeline

Action Hotels now has 13 operating/completed hotels with 2,276 rooms. The Group's pipeline currently consists of a further four hotels, and a total of 3,090 rooms upon completion of the pipeline hotel developments.

Financial Performance

Adjusted EBITDA amounted to $6.8m, a 6.3% decrease over the same period last year with adjusted EBITDA margin reducing slightly to 24%, mainly due to the full year effect of non-operating expenses of the newly opened hotels as they progress through the maturity cycle.

The operating performance is stable with the growth coming predominantly from the new rooms in Australia and the UAE. The steady central overheads of the Head Office helped to support EBITDA margin at 24%.

Gross Finance costs have increased by $1.18m over the same period versus last year as the company has, as planned, utilised debt facilities to fund the pipeline of hotels, some of the funds are also directed to the operation increasing interest payments reported in the financial statements. With the opening of three hotels in 2016 the Depreciation and Amortisation charge has also increased by $0.6m as expected over last year with the full year effect coming through as the hotels mature. However, the company has been able to reduce pre-opening costs compared to the same period last year (a reduction of $0.7m), with one hotel opening in August 2017.

Net Asset Value

Net asset value reduced by $3m to $192m at 30 June 2017 (2016: $195m), mainly due to the operating loss. NAV will be reviewed at year end as we roll out and fair value our portfolio at the end of the reporting period by certified valuers JLL and CBRE.

Interim Dividend

The Group is pleased to announce an interim dividend for the six-month period ended 30 June 2017 of GBP 0.77p per share, which is expected to be paid on 1 December 2017. The Company's ordinary shares are expected to be marked entitlement to such dividend on 19 October 2017 and the dividend will be payable to all shareholders on the Company's share register at the close of business on 20 October 2017.

Payment of the dividend will require shareholders approving a number of administrative matters at a general meeting which will be convened in due course.

Outlook

The Group has had a good start to 2017 and the Board remains optimistic about the future as growth in the Middle East is forecast to recover to a 3.1% pace this year (World Bank: Global Economic Prospects 2017: Middle East and North Africa).

The Group has demonstrated execution capabilities that will continue to be applied to the pipeline.

Review report on the condensed interim consolidated financial information to the shareholders of Action Hotels plc

Introduction

We have reviewed the accompanying condensed interim consolidated statement of financial position of Action Hotels plc and its subsidiaries (together "the Group") as at 30 June 2017 and the related condensed interim consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended and other explanatory notes. Management is responsible for the preparation and presentation of this condensed interim consolidated financial information in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted for use in the European Union. Our responsibility is to express a conclusion on this condensed interim consolidated financial information based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted for use in the European Union.

PricewaterhouseCoopers

19 September 2017

Note:

The maintenance and integrity of Action Hotels plc's website is the responsibility of the directors; the work carried out by the independent auditors does not involve consideration of these matters and, accordingly, the independent auditors accept no responsibility for any changes that may have occurred to the condensed interim consolidated financial statements and half-yearly report since they were initially presented on the website.

Condensed interim consolidated income statement

All operations were continuing throughout the periods. The accompanying notes on pages 7 to 24 are an integral part of this condensed interim consolidated financial information.

Condensed interim consolidated statement of comprehensive income

Total comprehensive income attributable to equity shareholders arises from continuing operations. The accompanying notes on pages 7 to 24 are an integral part of this condensed interim consolidated financial information.

Condensed interim consolidated statement of financial position

The accompanying notes on pages 7 to 24 are an integral part of these condensed interim consolidated financial information. The condensed interim consolidated financial information was approved by the Board of Directors and authorised for issue on 19 September 2017. They were signed on its behalf by:

............................................. .............................................

Alain Debare Andrew Lindley

Chief Executive Officer Finance Director

Condensed interim consolidated statement of changes in equity

The accompanying notes on pages 7 to 24 are an integral part of this condensed interim consolidated financial information.

Condensed interim consolidated statement of cash flows

The notes on pages 7 to 24 are an integral part of this condensed interim consolidated financial information

1 General information

Action Hotels plc ("the Company") is incorporated in Jersey under the Companies (Jersey) Law 1991 with the registered number 112945. The address of the registered office is 5th Floor, 37 Esplanade, St Helier Jersey, JE 12TR.

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, operating and managing hotel assets in the Middle East and Australia. The Group's principal administrative subsidiary, Action Hotels Limited, is domiciled in Dubai International Financial Centre, which is its principal place of business.

Action Hotels plc was incorporated in Jersey on 7 May 2013 and took control of the Action Hotels business on 9 December 2013 through a common control transaction with its shareholder. The Company issued 100 million shares to its shareholder in return for 100% of the beneficial interest in and voting control over the issued share capital of Action Hotels Limited. Action Hotels Limited in turn acquired 100% of the issued share capital of Action Hotels Company LLC, a company incorporated in Kuwait, through a share for share exchange.

Action Hotels plc was subsequently admitted to trading on the AIM division of the London Stock Exchange and issued a further 47,637,195 shares on 23 December 2013.

Pursuant to the transaction, Action Hotels Company LLC, which had previously been the parent company of the Group became a subsidiary of Action Hotels plc and the existing shareholder of Action Hotels Company LLC became the shareholder in Action Hotels plc.

The half year results and condensed interim consolidated financial information for the six months ended 30 June 2017 (the "interim financial statements") comprise the results of the Group.

These interim financial statements have been reviewed, not audited.

2 Basis of preparation

The interim financial statements have been prepared in accordance with IAS 34 'Interim financial reporting' as adopted by the European Union. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and IFRS Interpretation Committee interpretations as adopted by the European Union and the Companies (Jersey) law 1991.

The interim financial statements have been prepared on the going concern basis. The Directors have made this assessment for a period of at least twelve months from the date of the approval of these interim financial statements 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 Basis of preparation (continued)

The Group prepares detailed forward cash flow projections for future periods. There are number of assumptions and estimates involved in calculating these future projections, including Management's expectations of increase in gross sales from maturing hotels and hotels still due to open from the pipeline; growth in EBITDA; timing and quantum of future capital expenditure; the estimation of future funding and the cost of such funding. In arriving at their going concern assessment, the Directors have also taken account of agreed term-sheets for additional bank borrowings totalling USD 20,000,000.

Management is also in the process of refinancing existing and negotiating further new funding facilities, in addition to the term-sheets noted above. The principal shareholder and a shareholder have also confirmed their intention to provide continued financial support to the Group so as to enable the Group both to meet its liabilities as and when they fall due and to carry on its business without significant curtailment of operations for a period of at least twelve months from the date of the approval of these interim financial statements.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for adoption of new and amended standard as set out below:

(a) New and amended standard adopted by the Group

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial period beginning 1 January 2017, but do not have a material impact to the Group.

· Recognition of deferred tax assets for unrealised losses - amendments to IAS 12 (effective 1 January 2017);

· Disclosure initiative - amendments to IAS 7 (effective 1 January 2017); and

· Annual Improvements to IFRSs 2014-2016 cycle: amendments to IFRS 12 (effective 1 January 2017).

(b) Impact of standards issued but not yet applied by the Group 

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial period beginning 1 January 2017 and have not been early adopted.

· IFRS 9, 'Financial instruments' (effective 1 January 2018);

· IFRS 15 'Revenue from contracts with customers' (effective 1 January 2018); and

· IFRS 16 'Leases' (effective 1 January 2019).

Management is currently assessing the above standards and amendments which are likely to have an impact on the Group's interim financial statements.

3 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 2016. There have been no changes in the risk management department or in any risk management policies since the year end.

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 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 Group's annual consolidated financial statements for the year ended 31 December 2016.

5 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 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.

5 Segments information (continued)

(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

5 Segment information (continued)

(b) Segmental assets (continued)

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.

5 Segment information (continued)

(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.

6 Loss per share

(a) Basic loss per share

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

6 Loss per share (continued)

(b) Diluted loss per share

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

The 5,179,116 options (30 June 2016: 5,179,116 options) are not included in the calculation of diluted earnings per share because they are antidilutive for the period ended 30 June 2017 and 2016. These options could potentially dilute basic earnings per share in future.

The 3,690,930 warrants (30 June 2016: 3,690,930 warrants) are not included in the calculation of diluted earnings per share because they are antidilutive for the period ended 30 June 2017 and 2016. These options could potentially dilute basic earnings per share in future.

7 Investment property

At 30 June 2017 and 31 December 2016, investment property represent the Group's interest in land held for undetermined use situated in the UAE. Investment properties are carried at fair value. The valuation method adopted to determine the fair value is based on inputs not based on observable data (that is, unobservable inputs - level 3).

8 Property and equipment

8 Property and equipment (continued)

Leased assets

Buildings includes the following amounts where the Group is a lessee under a finance lease (note 16):

Hotels in operation and under construction are carried at fair value. The valuation method adopted to determine the fair value is based on inputs not based on observable data (that is, unobservable inputs - level 3).

At 30 June 2017, 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 317,573,000 (31 December 2016: USD 312,928,000). The revaluation surplus is disclosed in the condensed interim consolidated statement of changes in equity. The revaluation surplus cannot be distributed due to legal restrictions.

Total assets under construction as at 30 June 2017 include a hotel in Dubai Healthcare City, amounting to USD 25,177,000 (31 December 2016: USD 23,774,000), hotels in the Kingdom of Saudi Arabia amounting to USD 8,530,000 (31 December 2016: USD 7,649,000), a hotel in Bahrain amounting to USD 8,037,000 (31 December 2016: USD 6,278,000) and a hotel in Australia amounting to USD 41,187,000 (USD 16,313,000).

Land, buildings and fixtures and fittings of operational hotels and hotels under construction with a carrying amount of USD 413,520,000 (31 December 2016: USD 341,591,000) 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 balances and 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:

9 Related party balances and transactions (continued)

Due from related parties

Interest is charged on amounts due from related parties in Australia at a rate of 6%. The total interest charge is of USD 24,000 (30 June 2016: USD 23,000).

Interest is charged on the advance paid to Action Real Estate Co. Dubai amounting to USD 3,714,000 (31 December 2016: USD 3,714,000) at a rate of 5% (30 June 2016: 5%). The total interest charged during the period amounted to USD 93,000 (30 June 2016: nil).

During the period, the Group received rent from related parties for leasing of premises amounting to USD 86,000 (30 June 2016: USD 46,000).

9 Related party balances and transactions (continued)

Due to related parties

Expenditure incurred on services provided by related parties:

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

9 Related party balances and transactions (continued)

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 end of the period and no outflow of resources embodying economic benefits in relation to these guarantees is expected by the Group.

During 2016, 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 period, the Group obtained loans amounting to USD 11,326,000 (31 December 2016: USD 4,287,000) from various related parties for investment in the Group's development pipeline and general working capital purposes repayable at various dates within 6 months from the date of draw down. In June 2017, the loans were extended by mutual agreement and are now repayable within 13 months from the date of the interim financial statements. The loans carry an interest rate of 9.9% (31 December 2016: 9.9%) per annum. As at 30 June 2017, there is no material variance between the carrying value of the loans and their fair value.

9 Related party balances and transactions (continued)

During the period, the Group paid an interest on these loans amounting to USD 428,000 (30 June 2016: nil).

At 30 June 2017, the Group had total undrawn borrowing facilities from a related party amounting to USD 9,036,000 (31 December 2016: nil).

Remuneration of Key Management Personnel:

10 Borrowings

The table below analyses the borrowings into relevant maturity groupings based on the remaining period as at the condensed interim consolidated statement of financial position date to the contractual maturity date.