Preliminary Results

Action Hotels plc

("Action Hotels" or the "Company")

Maiden results for the year ended 31 December 2013

Action Hotels plc, a company focused on developing and managing branded economy and midscale hotels in the undersupplied markets of the Middle East and in Australia, is pleased to announce its maiden unaudited results for the year ended 31 December 2013. 

All currency amounts are in US $ unless otherwise stated.

 Key highlights 

· Successful admission to AIM and fundraising of $50.0m (before costs) from institutional investors to fully fund the opening of an additional eight hotels, 1,500 rooms

· Opening of Action Hotels' sixth hotel, with Holiday Inn as partner, bringing total room count at year end to 1,004

· Year-on-year growth in revenues, Average Daily Rate (ADR), occupancy and revenue per available room (RevPAR)

· Dividend of GBP 0.96 pence per share declared for 2013 with the Board expecting to follow a progressive dividend policy

 Financial summary

· Total reported revenue increased by 5.4% to $29.8m

· Average Daily Rate (ADR) increased by 5.8% to $105

· Revenue per available room (RevPAR) grew by 8.9% to $81 reflecting strong occupancy and average room rate performance

· Operating profit $4.4m (2012: $4.7m)

· Adjusted EBITDA (pre-exceptional items) $9.1m (2012: $8.8m)1

· Revaluation uplifts (net of deferred tax) of $9.95m on the hotel portfolio (2012: $18.50m)

· Net Asset Value (NAV) of $167.1m (2012: $41.4m), NAV per share of $1.13

Operational highlights

· On a like-for-like basis:

o Year-on-year growth in occupancy (+4%), ADR (+6%), RevPAR (+10%) and revenue (+5%) across the portfolio

o Occupancy rates for 2013 increased by 4% to 78%

o Continuing to operate at occupancy levels significantly beyond breakeven points - average breakeven occupancy across the portfolio is 33%

· Opened our sixth hotel, the only Holiday Inn in Oman, Holiday Inn Seeb, with 185 rooms which has already achieved 66% occupancy for March 2014

· Secured and fully funded pipeline of a further eight hotels, taking total room count to 2,500 (150% growth) by 2016

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

 "2013 has been a transformational year for Action Hotels with our admission to AIM raising $50m before costs and the opening of our sixth hotel, Holiday Inn Seeb Muscat, our first hotel with Intercontinental Hotels Group.

"2014 has started well with occupancy levels remaining strong across the portfolio and encouraging growth in all of our key metrics. Our newest hotel, Holiday Inn Seeb Muscat, which we opened In December 2013, is showing performance to date ahead of our expectations. We remain on track to execute our pipeline of eight additional hotels whilst maintaining the performance of our existing hotel portfolio."

About Action Hotels

www.actionhotels.com

Action Hotels is an owner, developer and asset manager of branded three and four star economy and midscale hotels in the Middle East and Australia. The Group's objective is to become a leading owner, developer and asset manager of branded economy and midscale hotels in key Middle East markets and Australia. Action Hotels has completed six hotels, of which five are in the Middle East and one is in Australia, with a further two hotels under construction (both in the GCC), one hotel expansion and another six Pipeline projects (one in Australia and the remainder in the GCC).

Chairman's statement

It is my pleasure to announce our first set of results as a publicly traded company. For Action Hotels 2013 was a transformational year with the opening of our sixth hotel, our first hotel partnering with Intercontinental Hotels Group, and the successful admission of our shares to trading on the London Stock Exchange AIM market in December 2013. During the IPO process we were very pleased to raise $50m before costs and secure a number of new institutional shareholders.

Our vision of being the market leading developer, owner and manager of economy and midscale hotels primarily focused on the Middle East is well on-track. We anticipate growing our current portfolio of just over 1,000 hotel rooms to 5,000 hotel rooms by 2020. The Group will achieve this ambition by owning and leasing hotels, which will create a strong balance of asset-backing with an ability to scale in a timely manner.

The funds raised at the time of IPO have enabled us to fully fund our current hotel pipeline which will increase our number of rooms by 1,500 by the end of 2016, taking the total to 2,500 rooms (150% growth). We are always looking for additional opportunities that meet the criteria of our strategy, and we hope to be able to update the market on this in due course.

Our current portfolio of six hotels continues to perform well and our low cost base enables us to break-even at lows levels of occupancy. Our hands-on approach to working with our chosen hotel operators has ensured our portfolio of hotels maintain year-on-year growth in our key metrics of occupancy, ADR, RevPAR and revenue.

Middle East

The Middle East hotel market continues to be focused on upper scale and luxury creating further opportunities for us to work with in our core middle market segment with leading brands that have high growth aspirations for the region. The region's current announced pipeline of economy and midscale hotels represents less than 20% of the overall branded hotel supply. This dynamic is well below the levels seen in Europe and North America.

We consider that our contrarian approach to the market, alongside our substantive expertise and regional know-how gives us our major point of differentiation to other hotel groups. Our strategy continues to prove successful as evidenced by the increasing demand for our hotel offering from GCC, Levant and other intra-regional travellers.

Australia

As a region Australia is a more mature hotel market; but for Action Hotels, Australia remains opportunistic and highly attractive. We have been working alongside Accor since 2006 and our ibis Glen Waverley in Melbourne has shown consistent performance year-on-year, as well as having the lowest break-even occupancy level in our current portfolio.

We have already started work on our next hotel in Australia, ibis Brisbane, a 368 room hotel situated in a prime central location. We believe this will be the largest midscale hotel in the region and will be an extremely attractive asset. We look forward to opening this by the end of 2015.

Operating metrics (like for like basis)2

Dividends

The cash flow profile of our business enables us to pay an attractive dividend even during our aggressive growth phase. The declared dividend for 2013 of GBP 0.96p will be paid on 30 May 2014. In accordance with the admission document, Action Group Holdings, whose holding in Action Hotels represents 64.7% of the share capital, has waived its entitlement to this dividend.

As per the Company's progressive dividend policy, we are expecting to pay a higher total dividend in 2014 to be paid as an interim and final dividend.

Employees

On behalf of the Board, I would like to thank all of our dedicated employees for their contribution to the business over the last year, especially with the demands required to get us to our successful AIM admission. We look forward to working with you all in this coming year.

Outlook

The financial year 2014 has started well. Occupancy levels continue to remain strong across the portfolio, and we have already seen encouraging growth in ADR, RevPAR and revenue on 2013 figures.

Our latest hotel, Holiday Inn Seeb Muscat, has shown strong performance in its first three months since opening. For March 2014 occupancy rates averaged at 66% with an ADR of $137, and achieved 100% occupancy for the first time on 17 March 2014.

We reported earlier this year that our ibis Amman, Jordan had been awarded the 'Innovative Award for Tourism 2013' prize by the Jordanian Society of Tourism and Travel and was also ranked first by number of guests in the three star category and fourth overall by all hotels in Jordan. This really does underpin our strategy and demonstrates that we are first movers filling in the gaps within the hotel market in the Middle East.

I would like to take this opportunity to thank the Board for their guidance and all our employees and others involved with the business of Action Hotels plc for their loyalty and hard work during a very busy and challenging year.

Sheikh Mubarak Al Sabah

Chairman

CEO's statement

I'm delighted to report on a year of growth for Action Hotels in its maiden year as an AIM traded company. Our recent admission to AIM is already adding increased recognition to the business and access to capital markets has provided the platform for accelerated growth.

Action Hotels specialises in providing high quality branded economy and midscale accommodation in the key markets of the Middle East. Throughout 2013, our combined portfolio of hotels continued to show growth in our key hotel metrics of ADR, occupancy and RevPAR, and we report solid operating financial results for the Company. We remain focused on our simple strategy: to own, develop and operate branded three and four star hotels, in partnership with leading hotel operators in the key markets of the Middle East.

Our business is underpinned by strong macroeconomic dynamics, as well as a growing population that is driving demand for high quality, economy and midscale hotel rooms in the Middle East. Our Australian hotel, originally opportunistic has proved highly successful with the ibis Glen Waverley generating the highest ADR in the portfolio. Building on this success the company is now engaged on a new development in the centre of Brisbane, due to open by the end of 2015.

Our operational focus has been on building on our first mover advantage and improving the performance of operating hotels. This is being achieved through revenue growth, working with our selected branded hotel operators to maximize performance, optimising commercial opportunities, driving increases in average room rates and reducing operating costs.

Our performance has been strong. Occupancy levels increased, especially in the Middle East where it averaged 80.5% during the year (2012: 76.2%). Across our portfolio we have seen strong RevPAR growth of 9% year on year, resulting from a combination of increases in occupancy (+3%) and daily rate (6%).

Kuwait

Our two hotels in Kuwait, ibis Salmiya and ibis Sharq delivered solid performances. RevPAR grew by 13% and 22% respectively. Along with our revenue growth strategies, operational costs continued to be well managed with the hotels achieving good adjusted gross operating margin (gross operating profit less base management fee) of 63.3% and 60.3% respectively. These hotels demonstrate strong financial and operational performance in a market with high demand and very limited supply in branded economy and midscale sector.

Oman

ibis Muscat enjoyed another strong twelve months with RevPAR growth of 16% in its fourth full year of operation. Occupancy grew 11% to 77.4%, and produced a steady increase of 4.3% in ADR following increased demand from corporates and infrastructure project related companies. Revenue continues to grow into 2014, and along with a well-managed cost base, the hotel has stabilised its GOP margin above 50%.

During December 2013, we also opened our first Holiday Inn, a great addition to our portfolio and the only Holiday Inn in Oman, which contains 185 rooms. This property includes 11 apartments that will become operational in Q2 2014 and will service those travellers requiring a longer stay. The hotel has received very good feedback and has been trading well; Year to March 2014 occupancy was 58.9%. The hotel achieved a breakeven performance in the first full month of operation. It has already enjoyed good ratings on the online travel review platforms and is leading the ratings in the midscale hotel sector in Muscat.

Jordan

The ibis Amman traded well during 2013 with occupancy above 80% and RevPAR growth of 1.8%. The hotel successfully implemented a strategy to build its corporate customers and secure longer-term business. Evidence of success in this strategy is tangible as the hotel enjoys high volumes of business from NGO and international organisations.

Australia

ibis Glen Waverley continued to trade well, producing the highest ADR in the Group hotel portfolio. This hotel, in its fourth full operational year, saw a small contraction in total revenue in 2013. This was mainly driven by a $70k decline in food and beverage revenues, which was partially compensated by room revenue growth of 0.6%. Whilst occupancy dropped by 2.7%, the hotel achieved a 0.8% RevPAR growth following an increase of 3.7% in the average room rate. Whilst performance was stable in Australian dollars, our consolidated results were reduced by the weakening of the Australian dollar against the US dollar.

Partnerships

We only develop and operate hotels with global hotel brands and our strong partnership with selected leading hotel operators is key to our strategy. The hotels are managed by hotel operators under long term management agreements. We enjoy very close relations with Accor's ibis, Intercontinental Hotel Group's Holiday Inn and Whitbread's Premier Inn brands all of which understand the favourable market dynamics and have announced sizeable growth targets in the Middle East. The high barriers to entry, with local ownership restrictions and access to local markets, make Action Hotels an attractive partner for these global operators.

Our hotel partners provide us with powerful brand equity, operational excellence and very strong marketing capabilities that drive a superior guest experience with superior returns. We work alongside them and maintain an active role on both an operational and strategic level on all our hotels, as all revenue and expenses accrue to Action Hotels. It is proving a very powerful combination and the hotel operators are keen to be associated with a specialist and focused hotel owner in the region.

We are delighted that our partners have also received continued recognition through industry accolades. Accor's ibis brand was awarded 'Best Budget Hotel Brand' at the Business Travellers Awards 2013, demonstrating the strong recognition of the brand by the business travel community. During 2013, our ibis Amman received the 'Innovative Award for Tourism 2013' and ibis Kuwait was awarded 'Best Budget Accommodation' by Business Destinations.

The Board has exciting plans for Action Hotels and we remain committed to becoming the leading hotel owner, operator and asset manager of economy and midscale hotels in the Middle East region. Whilst the social and macroeconomics of the Middle East are very supportive with high GDP growth, we have a very contrarian investment style in a region where the hotel landscape is mainly focused on upper upscale and luxury hotels, thus creating a very limited supply of hotels in the economy and midscale sector.

In line with our strategy, a key priority for the company is to drive revenue growth through the successful execution of the development pipeline, and in the process establishing a presence in all key markets of the Middle East. We remain strongly committed to delivering on the eight hotels in the pipeline to 2016, and creating 1,500 more rooms on time and on budget bringing the total room count to over 2,500.

During 2013 we progressed well on our hotels currently under construction and are excited at the prospect of opening three new hotels in 2014 - ibis Seef, Bahrain, Premier Inn Sharjah, UAE and Premier Inn, Bahrain, as well as a 10-room extension to the ibis Salmiya, Kuwait. These projects will add 600 new rooms to the portfolio during 2014.

Our future development plans will continue to capitalise on our reputation and our recognised experience in developing mid-market hotels.

Whilst we have a strong balance sheet with a Net Asset Value (NAV) of $167.1m, we will accelerate our growth through a balance of owned and leased properties, enabling us to rapidly enter target markets with reduced capital commitment, and capitalising on the first mover advantage.

We strive to deliver high growth and high returns for our shareholders. We expect to substantially grow our operating income from the growth in our room count. We also expect to continue benefiting from the development uplift on our freeholds.

The social and macroeconomics of the Middle East are conducive to high GDP growth across all sectors of the region's economy we believe that our focus on the under supplied economy and mid-scale hotels will generate superior returns and higher growth in the medium term. As we continue to explore further opportunities, I hope to announce additions to the pipeline during the course of the 2014.

Current trading

The wider economic outlook remains positive and we aim to deliver continued growth. Our performance in the first few months of this year remains positive, which sets a solid platform for a successful 2014. The recent opening of our new hotel in Muscat will strongly contribute to our expected revenue growth in 2014, and we remain focused on maximising the performance of our operating hotel portfolio. We will continue to pursue our development pipeline and identify new opportunities for future growth.

Alain Debare

Chief Executive Officer

Finance Director's statement

Our five operational hotels performed well during the financial year. We saw improvement in our key performance metrics: occupancy, revenue, RevPAR and ADR. Our sixth hotel opened in December 2013 and I look forward to reporting on its performance in 2014.

On the Balance Sheet, our NAV as at the year-end (2013: $167.1m) (2012: $41.4m) was enhanced by revaluations of hotel assets, the IPO fundraising and conversion of debt into equity at IPO.

Occupancy

Occupancy levels for the year grew by 3% to 77% across our portfolio of hotels. Our four hotels operating in the Middle East in 2013 enjoyed occupancy levels above 80% (2012: 76%). ibis Glen Waverley, our Australian hotel had a slight reduction in occupancy levels to 66.3% (2012: 68.2%), which was partly offset by a higher ADR. ibis Glen Waverley is located close to a business park giving it high weekday occupancy and lower occupancy at weekends but maintains the lowest break-even occupancy level of all the hotels in our portfolio.

Average daily rate

We saw positive growth in room rates across the portfolio. Our occupancy levels are such that we have been actively working with our hotel operators to push up room rates and hence we saw ADR increase by 5.8% passing the $100 per night rate to $105.00 (2012: $99.29). ibis Glen Waverley had an ADR of $146.27 a 3.7% uplift on last year ($141.10) and continues to provide our highest rate per night in the current portfolio. Revenue management remains a key priority for us in 2014.

RevPAR

Following on from the strong performances in occupancy and ADR, our RevPAR for the year, on a like for like basis, increased to $82, an 8.9% increase on the previous year. ibis Sharq in Kuwait, in its third full year of operation, was the top performer in RevPAR growth in the portfolio with an increase of 22.2%.

Revenue

Reported revenue for the period grew 5.4% to $29.8m (2012: $28.2m). The Middle East operating hotels contributed 76% of the total revenue for the year, up from 73% of the portfolio in 2012. With the opening of Holiday Inn Seeb Muscat we expect this percentage to increase in 2014.

Adjusted EBITDA

Adjusted EBITDA fell by 6% to $8.3m (2012: $8.8m).

Adjusted EBITDA in 2013 was adversely impacted by $0.5m of additional costs primarily relating to the company's new status as an AIM listed company.

Loss before tax

As with most hotel development companies in their growth phase, the operating profit/loss figure is impacted by depreciation and finance cost charges whilst revenue ramps up over a three-year period.

The loss before tax of $7.0m (2012: $0.2m loss) is stated after charging $3.5m (2012: nil) of exceptional items relating to restructuring prior to the IPO. We do not anticipate such exceptional items in financial year 2014. It also includes a foreign exchange loss of $3.2m (2012; gain of $0.8m), primarily arising on accounting for the translation of intra-group loans to the Australian properties. 

Taxation

In 2013 as a result of the restructuring of the Company and its different tax status the Company recognized a deferred tax charge of $2.0m in relation to Kuwait deferred tax liabilities.

Dividend

As set out in the Company's admission document dated 17 December 2013, the Board intends to propose a final dividend in respect of the year ended 31 December 2013 of GBP 0.96p per share which is expected to be paid on 30 May 2014, subject to approval of the dividend at the Company's annual general meeting which is expected to occur on 29 May 2014. It is expected that the Company's ordinary shares will be marked ex-entitlement to such dividend on 7 May 2014 and the dividend will be payable to all shareholders on the Company's share register at the close of business on 9 May 2014. Except that, as announced at the time of the Company's admission to trading on AIM, the major shareholder, Action Group Holdings, has waived its entitlement to this dividend. 

Financial position

Net bank debt as at 31 December 2013 was $64.7m (2012: $98.4m). Cash and cash equivalents were $43.63m (2012: $1.99m). Loan tenors range from 3 - 7 years.

\* Total equity (plus partner current account as at 31 December 2012).

Property revaluations

The Board follows an annual revaluation policy and as at 31 December 2013, the carrying value of the hotel assets was $240.7m (2012: $233.5m).

Looking ahead 

We are excited about our growth prospects following our admission to trading on AIM listing. The funds raised fully fund our current pipeline of eight additional hotels which, due to the nature of our operations and our low and early break even points, will contribute to earnings soon after opening. Holiday Inn Seeb Muscat has made an extremely good start with strong occupancy and ADR.

Alaister Murray

Finance Director

Action Hotels plc

Unaudited Consolidated Income Statement

For the year ended 31 December 2013

All operations were continuing throughout the years.

Action Hotels plc

Unaudited Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

Total comprehensive income attributable to equity shareholders arises from continuing operations.

Action Hotels plc

Unaudited Consolidated Statement of Financial Position

As at 31 December 2013

Action Hotels plc

Unaudited Consolidated Statement of Changes in Equity

For the year ended 31 December 2013

Action Hotels plc

Unaudited Consolidated Statement of Cash Flows

For the year ended 31 December 2013

Basis of Preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and IFRIC interpretations. The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain classes of property, plant and equipment. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements will be disclosed in the notes to the financial statements.

A presentational currency of US Dollars has been used on the basis that the functional currency in the majority of jurisdictions in which the Group operates and which represent its primary economic environment are either pegged to the US Dollar, or pegged to a basket of currencies, which include the US Dollar.

The financial statements have been prepared on the going concern basis. The Directors have made this assessment after consideration of the Group's budgeted cash flows and related assumptions, including appropriate stress testing thereof, key risks and uncertainties and debt maturity review and in accordance with the Going Concern and Liquidity Guidance for Directors of UK Companies 2009 published by the Financial Reporting Council. Further information on Group's business activities, cash flows, liquidity and performance are will be set out in the Business review and its objectives, policies and processes for managing its capital and financial risks will be detailed in the notes to the financial statements.

Acquisition of businesses under common control

Action Hotels plc was incorporated in Jersey on 7 May 2013 and took control of the Action Hotels business on 9 December 2013 through the following common control transactions with its shareholder ("the Transaction"). 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, a company incorporated in Dubai International Financial Centre. 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 market of the London Stock Exchange and issued a further 47.6 million 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. Accordingly, the financial statements have been prepared using merger accounting principles. The comparative information prior to the date of Transaction presented in these financial statements therefore represents the consolidated results of the group under its previous parent company. The following accounting treatment has been applied to account for the Transaction:

 - the consolidated assets and liabilities of Action Hotels Company LLC and its subsidiaries ("the Subsidiary group") were recognised and measured at the pre-Transaction carrying amounts, without restatement to fair value;

- the retained earnings and other equity balances recognised in the consolidated statement of financial position reflect the consolidated retained earnings and other equity balances of the Subsidiary group adjusted to reflect the share capital and share premium of the Company at the time of the Transaction.

- the comparative balances as at 31 December 2012 and the results for 2012 and the period from 1 January 2013 to the date of the Transaction, are those of the Subsidiary group.

The contribution of the business and assets of the ibis Salmiya hotel to Action Hotels Company LLC on 1 April 2013 has also been accounted for under merger accounting principles as it was previously under common control.

Operating profit and adjusted EBITDA (Unaudited)

The adjusted EBITDA for the year can be derived as follows

Foreign exchange losses / (gains) (Unaudited)

The loss / (gain) on foreign exchange relates primarily to a loan between the Company and one of its subsidiaries which is denominated in Australian Dollars. The loss / (gain) arose as a result of a significant movement in the exchange rate with the US dollar.

Restructuring and listing costs (Unaudited)

The Group classified costs in connection with its restructuring prior to the public offering and its admission to trading on the AIM market of the London Stock Exchange separately. The costs expensed in the consolidated income statement totalled $3,492k (2012: $nil). Share offering costs of $5,658k were deducted from the share premium account (note 25).

Tax (charge) / credit (Unaudited)

During the year ended 31 December 2013 the Group's head office has changed its domicile from the State of Kuwait to Dubai International Financial Centre (DIFC). The Group's effective tax rate in the country of domicile is 0% (2012: 0%). The Group's tax liabilities arise in other jurisdictions in which it operates which are detailed below:

A deferred tax charge of $1,980k arose in Kuwait in respect of the contribution of the Salmiya lease intangible asset into the Group on 1 April 2013.

The tax charge arising in Australia of $89k consists of a current income tax charge of $98k (2012: $nil) being offset by a deferred tax credit of $9k (2012: $15k). This deferred tax credit arose in respect of timing differences arising from long term employee benefits including retirement benefits have been recognised in the income statement. There are no other significant differences between accounting profits and taxable profits.

No current income tax charge has been suffered in Jordan (2012: $nil). In 2013 and 2012 the Group benefitted from a 25% exemption from corporate income tax in respect of taxable profits arising in Jordan. No tax charge was suffered in respect of the remaining 75% of profits as a result of the utilisation of historical losses. A deferred tax asset has not been recognised in respect of carried forward tax losses of $0.2 million in Jordan at 31 December 2013.

No current income tax has been suffered in Oman (2012: $nil). In 2013 and 2012 the Group benefitted from a tax exemption such that the Group is not required to pay any corporate income tax on the taxable profits arising in Oman. At 31 December 2013, the Group had tax losses carried forward in Oman of $1.5m for which no deferred tax asset has been recognised.

No current income tax has been suffered in Bahrain (2012: $nil), as Bahrain does not levy income tax on the profits of companies apart from companies operating in the oil & gas sector.

No current income tax has been suffered in Jersey as the Group has not generated any taxable gains or profits in that jurisdiction.

At 31 December 2013, the total temporary differences associated with investments in subsidiaries was $nil (2012: $nil), such that there is no unrecognised deferred tax liability in this respect.

In addition to the amounts charged to the statement of income, the following amounts relating to tax have been recognised in other comprehensive income: