Interim Results

Peel Hotels PLC 23 October 2006 Peel Hotels PLC Interim Results For the 28 week period ended 27 August 2006 • Turnover up 8.7% to £8,687,161 (2005: £7,925,848) • Operating Profit down 24.5% to £1,244,743 (2005: £1,649,598) • Profit before tax decreased 47.9% to £521,180 (2005: £1,000,568) • Earnings per share + •Basic 3.0p (2005 5.9p ) + •Diluted 2.9p (2005 5.7p ) • Planning granted for construction of 99 Apartments, office space and associated parking, on our Salem Street site in Bradford on 13 October 2006. • Contracts exchanged for £2,050,000 for sale of Aire House in Leeds on 19 October 2006. 'Flat growth in comparable sales has not enabled us to absorb a savage increase in costs in the first half year and consequently the outcome is disappointing. We have begun the process of selling non-core assets enabling us to accelerate the repayment of debt and thereby lessening the interest burden. There is good reason for optimism going forward and the company should be able, at least, to maintain its dividend' Further Information Robert Peel 020 7266 1100 Monday 23 October 2006 CHAIRMAN'S STATEMENT RESULTS In the twenty eight weeks to 27 August 2006 turnover grew by 8.7% to £8,687,161 and operating profit decreased by 24.5% to £1,244,743. Earnings before interest, tax, depreciation and amortisation (EBITDA) decreased by 16% to £1,834,367. Profit before tax decreased by 47.9% to £521,180. We had budgeted to report decreased profits at the Interim stage with the three leasehold hotels purchased from Grace Hotels in the accounts from 13 February 2006, which is the quietest period, as opposed to from 16 May 2005 in the previous half year result. However we fell short of our expectations against a background of flat sales growth and very aggressive cost pressures, particularly energy. This on its own has put a burden of some £250,000 annualised cost increase (or 50%) on to our profit and loss account at current contract rates. In comparative terms the half year result does not include any management income compared with £63,608 that we benefited from last year but does include an additional £53,500 in financial charges in regard to the 'Cap and Collar' on £7 million of debt. Our original portfolio of six hotels increased sales by 2.9% and accommodation revenue per available room (revpar) by 0.3% with average room rate up by 4.8% and occupancy down 4.3%. Gross profit on these hotels decreased 8%. Out of the three leasehold hotels purchased in May last year the Strathdon in Nottingham has had a poor first half with gross profit £84,403 down on the previous year. We expect to improve on this unsatisfactory position in the second half with a new General Manager in position. Group overheads increased 4.0% to £412,016 whilst depreciation and amortisation increased by £54,681. Tax has been provided at 30% less the discount on the deferred tax liabilities giving an effective rate of 25%. Basic earnings per share were 3.0p compared with 5.9p in the comparative period on 12,844,123 shares in issue. 32,000 employee share options were exercised in the period. FINANCE On 27 August 2006 net debt stood at £17,471,045 representing loans totalling £17,010,697 (including an additional £400,000 drawn down to finance the redevelopment of the ballroom at the Midland Hotel in Bradford) and an overdraft of £698,068 less £237,720 cash at bank. Gearing on shareholders' funds was 111.8% with interest covered 1.7 times. Net debt increased £406,258 compared with the previous year end. The LIBOR rate on our 'Cap and Collar' on £7 million of our debt has been set on 11 October 2006 at 5.22%. This is above the 'Cap' of 4.99% and consequently we will benefit by 1.77% on £7 million for a period of six months until the next fixing date in April 2007. Following the adoption of FRS21, dividends are now accounted for in the period in which they are paid rather that the period for which they are declared. As a result, the dividend declared in respect of the year end 12 February 2006, is disclosed as a deduction from shareholders' funds in the interim period to 27 August 2006. CAPITAL EXPENDITURE £1,099,612 was spent in the period of which £497,850 was spent on the Avon Gorge Hotel on the redevelopment of the old restaurant, cocktail bar and top kitchen. Now renamed The Bridge Cafe, it has quickly established itself as one of Bristol's most popular restaurants. All of the pre-opening costs were absorbed within the hotel's profit and loss account which consequently impacted on its profitability in the first half. We expect to recoup the shortfall in the second half of the financial year and show a satisfactory return on the capital invested. The five separate planning applications for the redevelopment of the Avon Gorge Hotel continue to be lodged with the Bristol City Council and were submitted on 31 January 2006! All the planning applications should have been dealt with by 13 April 2006. All have missed their target and the planning officers now inform us that the applications will be considered on 8 November 2006. Shareholders should bear in mind that we have already achieved an important planning gain, namely permission for ten additional bedrooms to be constructed under the terrace overlooking the Clifton Suspension Bridge. We took the opportunity, before the autumn season started, to refurbish and modernise the Princes ballroom at the Midland Hotel in Bradford at a cost of £400,000. This sum of money was additional to our annual capital expenditure budget and the Board elected to arrange a special loan for this expenditure. The result is one of the most stunning ballrooms in the United Kingdom and already we are experiencing a material increase in reservations and enquiries. At this stage we do not intend to spend any material capital expenditure until the new financial year. NON-CORE ASSETS In last year's annual report we mentioned that the sale of non-core assets would enable us to accelerate the repayment of debt thereby lessening the interest burden and give us additional cash to further upgrade our portfolio. On 19 October 2006 we exchanged contracts to sell Aire House, a freehold property adjacent to the Golden Lion Hotel Leeds, for £2,050,000. On 13 October 2006 we received planning permission, for 99 new apartments, office space and associated parking on our Salem Street site and will commence the marketing process immediately to dispose of this piece of land in the centre of Bradford. We expect to achieve significant one off profits on both of these properties and hope to have completed at least one transaction by the end of the current financial year. SHAREHOLDERS We urge all shareholders to visit our hotels and see for themselves the major improvements we are making to the portfolio each year and to take advantage of our shareholders' discount scheme. All shareholders are entitled to a 30% discount, using the special reservation number, 0207 266 1100 or e-mail info@peelhotel.com. Shareholders can identify our hotels by using the directory at the back of the interim report. THE FUTURE Flat growth in comparable sales has not enabled us to absorb a savage increase in costs in the first half year and consequently the outcome is disappointing. However there is good reason for optimism going forward. Capital expenditure spent in the first half should produce returns in the second half, we have stabilised our problems at the Strathdon Hotel, forward energy tariffs are trending downwards and turnover has grown 4.9% in the first period of the second half of the year. We have benefited from the current upward trend of higher interest rates on our 'Cap and Collar' at the fixing date on 11 October and finally we expect a successful outcome on both our non-core asset sales. In these circumstances, your company should be in good shape at the year end, and able at least, to maintain its dividend. Robert Peel Chairman 23 October 2006 DIRECTORS AND ADVISORS Directors Robert Edmund Guy Peel Executive Chairman Clement John Govett Non-executive Director Keith Peter Benham Non-executive Director Norbert Paul Gottfried Petersen Chief Operating Officer John Perkins Finance Director Secretary Sabretooth Law Ltd 1 Berkeley Street, Mayfair, London W1J 8DJ Registered Office 4th Floor, 111 Old Broad Street, London EC2N 1PH Company registration number 3473990 Auditors Grant Thornton UK LLP No. 1 Whitehall Riverside, Leeds, LS1 4BN Bankers Royal Bank of Scotland Plc 280 Bishopsgate, London EC2M 4RB Registrars Computershare Services Plc PO Box No. 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH Solicitors Sabretooth Law Ltd 1 Berkeley Street, Mayfair, London W1J 8DJ Stockbrokers KBC Peel Hunt Ltd 4th Floor, 111 Old Broad Street, London EC2N 1PH PROFIT AND LOSS ACCOUNT For the period ended 27 August 2006 28 weeks 28 weeks Year ended ended ended 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited Note £ £ £ £ £ £ __________________________________________________________________________________ Turnover Original group 6,986,772 6,790,513 12,400,841 3 Hotels acquired 16/5/2005 1,700,389 1,135,335 2,482,642 __________________________________________________________________________________ Continuing Operations 8,687,161 7,925,848 14,883,483 Discontinued business - 63,608 63,608 Total turnover 8,687,161 7,989,456 14,947,091 __________________________________________________________________________________ Cost of Sales (6,440,778) (5,408,816) (10,806,273) __________________________________________________________________________________ Gross profit Original group 2,047,337 2,214,410 3,709,512 3 Hotels acquired 16/5/2005 199,046 302,622 367,698 __________________________________________________________________________________ Continuing Operations 2,246,383 2,517,032 4,077,210 Discontinued business - 63,608 63,608 Total gross profit 2,246,383 2,580,640 4,140,818 __________________________________________________________________________________ Administrative expenses Depreciation (589,624) (534,943) (1,010,509) Other (412,016) (396,099) (692,559) (1,001,640) (931,042) (1,703,068) Operating profit Original group 1,216,676 1,372,446 2,219,778 3 Hotels acquired 16/5/2005 28,067 213,544 154,364 __________________________________________________________________________________ Continuing Operations 1,244,743 1,585,990 2,374,142 Discontinued business - 63,608 63,608 Total operating profit 1,244,743 1,649,598 2,437,750 Interest payable & similar charges (723,563) (649,030) (1,255,759) __________________________________________________________________________________ Profit on ordinary activities before taxation 521,180 1,000,568 1,181,991 Taxation 2 (130,295) (250,142) (293,288) __________________________________________________________________________________ Profit for the period 390,885 750,426 888,703 __________________________________________________________________________________ Earnings per share 3 Basic 3.0p 5.9p 7.0p Diluted 2.9p 5.7p 6.8p __________________________________________________________________________________ There are no recognised gains and losses other than stated above. Accordingly, no statement of total recognised gains and losses is given. BALANCE SHEET AS AT 27 AUGUST 2006 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited Note £ £ £ __________________________________________ Fixed assets 36,030,457 35,362,717 35,520,467 __________________________________________ Current assets Stocks 126,416 123,111 116,997 Debtors 1,096,658 1,107,321 965,574 Cash at bank and in hand 237,720 250,478 159,622 __________________________________________ 1,460,794 1,480,910 1,242,193 Creditors (due within one year) (3,967,387) (3,256,382) (3,336,634) __________________________________________ Net current liabilities (2,506,593) (1,775,472) (2,094,441) __________________________________________ Total assets less current liabilities 33,523,864 33,587,245 33,426,026 Creditors (due after one year) (16,268,427) (16,586,912) (15,981,828) Provisions for liabilities and charges (1,630,492) (1,346,778) (1,630,492) __________________________________________ Net assets 15,624,945 15,653,555 15,813,706 __________________________________________ Capital and reserves Called up share capital 1,284,412 1,278,712 1,281,213 Share premium account 9,058,876 9,013,772 9,033,145 Profit and loss account 5,281,657 5,361,071 5,499,348 __________________________________________ Equity shareholders' funds 4 15,624,945 15,653,555 15,813,706 __________________________________________ CASH FLOW STATEMENT For the period ended 27 August 2006 28 weeks 28 weeks Year ended ended ended 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited Note £ £ £ £ £ £ __________________________________________________________________________ Net cash inflow from operating activities 4 2,051,459 2,697,407 3,957,772 Returns on investments and servicing of finance Interest paid (766,860) (634,335) (1,195,137) _________ _________ _________ Net cash outflow from returns on investments and servicing of finance (766,860) (634,335) (1,195,137) Taxation UK corporation tax received/ (paid) - 8,190 (24,140) __________ _________ Tax received/ (paid) - 8,190 (24,140) Capital expenditure Purchase of tangible fixed assets (1,099,612) (3,239,867) (3,873,183) _________ _________ _________ Net cash outflow from capital expenditure (1,099,612) (3,239,867) (3,873,183) Equity dividend paid (608,576) (545,421) (545,421) _________ _________ _________ Net cash outflow before financing (423,589) (1,714,026) (1,680,109) ______________________________________________________________________________ Financing Issue of ordinary 28,930 599,999 621,873 share capital Share issue expenses - (39,038) (39,038) New long term loans 400,000 2,500,000 2,500,000 Less loan arrangement fees - - (25,000) Loan repayments (125,000) (496,135) (1,113,405) _________ _________ _________ Net cash inflow from financing 303,930 2,564,826 1,944,430 _____________________________________________________________________________ (Decrease)/ increase in cash 5 (119,659) 850,800 264,321 _____________________________________________________________________________ Reconciliation of net debt (Decrease)/ increase in cash in the period (119,659) 850,800 264,321 Cash inflow from increase in debt (275,000) (2,003,865) (1,361,595) _________ _________ _________ Change in net debt resulting from cashflows (394,659) (1,153,065) (1,097,274) Non cash changes (11,599) 6,367 (30,819) _________ _________ _________ Increase in net debt in the period (406,258) (1,146,698) (1,128,093) Net debt at beginning of period (17,064,787) (15,936,694) (15,936,694) _____________________________________________________________________________ Net debt at end of period 5 (17,471,045) (17,083,392) (17,064,787) _____________________________________________________________________________ NOTES TO THE INTERIM ACCOUNTS For the period ended 27 August 2006 1. Basis of accounting The interim financial information has been prepared on the basis of the accounting policies consistent with those applied in the last Annual Report. The financial information set out in respect of the year ended 12 February 2006 does not constitute the company's statutory accounts for that year but is derived from those accounts. Statutory accounts for that year have been delivered to the Registrar of Companies. The auditors reported on those accounts and their report was unqualified. The interim financial statements have been reviewed by the company's auditors and a copy of the auditor's review report is attached to this interim report. 2. Taxation Tax has been provided at a rate of 25% which represents the expected effective rate for the full year. The company has continued to discount its deferred tax liability. 3. Earnings per share Earnings per share are based on the profit after taxation, and on the weighted average number of shares in issue during the period. 28 weeks 28 weeks Year ended ended Ended 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited ________________________________________________ Average No. shares - Basic 12,828,035 12,620,457 12,625,196 - Diluted 13,431,446 13,056,409 13,109,618 ________________________________________________ 4. Reconciliation of movements in shareholders' funds 28 weeks 28 weeks Year ended ended Ended 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited ___________________________________ Profit for the period 390,885 750,426 888,703 Dividend paid relating to previous year (608,576) (545,421) (545,421) Issue of shares less expenses 28,930 560,961 582,835 ___________________________________ Net (decrease)/ increase in shareholders' funds (188,761) 765,966 926,117 Shareholders' funds at 13/02/06 15,813,706 14,887,589 14,887,589 ___________________________________ Shareholders' funds at 27/08/06 15,624,945 15,653,555 15,813,706 ___________________________________ 5.Reconciliation of operating profit to net cash inflow from operating activities 28 weeks 28 weeks Year ended ended Ended 27/8/2006 28/8/2005 12/2/2006 Unaudited Unaudited Audited £ £ £ ___________________________________ Operating profit 1,244,743 1,649,598 2,437,750 Depreciation 589,624 534,943 1,010,509 Decrease in stocks (9,419) (29,382) (23,268) (Increase)/decrease in debtors (131,089) (58,234) 82,169 Increase in creditors 357,600 600,482 450,612 ___________________________________ Net cash inflow from operating activities 2,051,459 2,697,407 3,957,772 ___________________________________ NOTES TO THE INTERIM ACCOUNTS For the period ended 27 August 2006 6. Analysis of net debt At beginning At end of period Non cash of period 13/2/2006 Cash flow changes 27/8/2006 £ £ £ ________________________________________________ Cash at bank and in hand 159,622 78,098 - 237,720 Bank overdraft (500,311) (197,757) - (698,068) ________________________________________________ (340,689) (119,659) - (460,348) Debt due within one year (742,270) - - (742,270) Debt due after one year (15,981,828) (275,000) (11,599) (16,268,427) ________________________________________________ Total (17,064,787) (394,659) (11,599) (17,471,045) ________________________________________________ 7. Financing The bank loans existing at the beginning of the period are repayable by semi-annual instalments plus a final payment on 11 April 2014. The company has a collar agreement on £7 million which caps the company interest cost at 6.99% plus margin. The minimum interest cost is 4.99% plus margin, up to 12 October 2009, except where LIBOR falls below 4.99% between 24 June 2003 and 12 October 2009; in which case an additional 2% of interest is payable. In addition, the company has an interest rate swap agreement on the outstanding loan balances which are not covered by the collar agreement, commencing on 11 April 2003 to 11 April 2014 with an option for the Royal Bank of Scotland to terminate the agreement from 11 October 2009. Under the terms of this agreement the company receives interest at LIBOR plus 1.25% and pays interest at a fixed rate of 7.08%. On 8 August 2006 the original loan was increased by £400,000 to help finance capital projects. This amount has been added to the final repayment on 11 April 2014 and interest on it will be charged at LIBOR plus 1.25%. The loan of £2.5 million, which part financed the acquisition of the 3 new hotels, is repayable over 10 years, with the final payment due on 31 March 2015. Interest is currently charged at 1.25% over LIBOR. INDEPENDENT REVIEW REPORT TO PEEL HOTELS PLC Introduction We have been instructed by the company to review the financial information for the 28 weeks ended 27 August 2006 which comprises the profit and loss account, the balance sheet, the cash flow statement, the reconciliation of net debt and the related notes 1 to 7. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Our responsibilities do not extend to any other information. This report is made solely to the company's members, as a body in accordance with guidance contained in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review work has been undertaken so that we might state to the company's members those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. They are responsible for preparing the interim report and ensuring that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the 28 weeks ended 27 August 2006. Grant Thornton UK LLP Chartered Accountants Leeds 23 October 2006 HOTEL DIRECTORY PEEL HOTELS PLC 19 Warwick Avenue London W9 2PS Telephone: 020 7266 1100 FAX: 020 7289 5746 Location Hotel Rating Rooms Telephone Facsimile Bradford Midland Hotel **** 90 01274 735735 01274 720003 Bristol Avon Gorge Hotel **** 76 0117 973 8955 0117 923 8125 Carlisle Crown & Mitre Hotel **** 94 01228 525491 01228 514553 Dunfermline King Malcolm Hotel **** 48 01383 722611 01383 730865 Leeds Golden Lion Hotel **** 89 0113 243 6454 0113 242 9327 Newcastle Upon Tyne Caledonian Hotel **** 89 0191 281 7881 0191 281 6241 Nottingham Strathdon Hotel **** 68 0115 941 8501 0115 948 3725 Peterborough Bull Hotel **** 118 01733 561364 01733 557304 Wallingford George Hotel **** 39 01491 836665 01491 825359 711 For reservations at any Peel Hotel call 020 7266 1100 Or dial into our web site on www.peelhotel.com e-mail - info@peelhotel.com This information is provided by RNS The company news service from the London Stock Exchange

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