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Action Hotels PLC (AHCG)

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Friday 29 June, 2018

Action Hotels PLC

FY17 Results & Notice of AGM

RNS Number : 9845S
Action Hotels PLC
29 June 2018
 

This announcement contains inside information

 

Action Hotels PLC

("Action Hotels" with its subsidiaries the "Group")

 

Audited Results for the year ended 31 December 2017

and Notice of Annual General Meeting

 

Action Hotels plc, a leading owner, developer, and asset manager of three and four-star hotels in the Middle East and Australia, is pleased to announce its final results for the year ended 31 December 2017. 

 

All currency amounts are in US million $ unless otherwise stated.

 

2017 Key Highlights and Financial Overview

·     Opening and operation of a new hotel in Bahrain, taking total operational room count at year end to 2,276, a 4% increase from last year (2016: 2,181 operational rooms) and an increase of 118% since IPO.

·     Year-on-year Revenue growth up 10% to $58.3m (2016: $53.1m) mainly due to the full year effect of new hotel openings in 2016.

·     Net Asset Value (NAV) increased by 4% to $202m (2016: $195m). Net Asset Value per share USD 1.37/GBP 1.01 (2016: USD 1.32/GBP 1.03)

·     Net Debt increase to $320m (2016: $228m)

·     LTV across the portfolio of 58% (2016: 51%)

·     Adjusted EBITDA1 of $14.2m (2016: $18.5m), reduction due to no recognition in this financial year of land revaluations (2016: land revaluation gain $4.5m)

·     Net loss before tax of $14.1m (2016: $6.3m), primarily driven by the impact of pre-opening, financing costs and depreciation of new hotels

·     Average EBITDA breakeven occupancy levels across the portfolio remained low at 37% (2016: 37%)

 

2018 Current Trading

·     Trading in Q1 2018 sees total revenue up c.11% over the same period as last year due to the impact of new hotel openings.

·     Stable performances continue from our mature operating hotels2, with average occupancy increasing vs. last year to 81% (Q1 2017: 77%) while Average Daily Rate ("ADR") decreased by a smaller amount leading to an increase in Revenue Per Available Room ("RevPAR") of 1.8%.

·     Opening of Action Hotel's flagship hotel, 347 room, Novotel Melbourne South Wharf ahead of schedule

·     The Group is currently in the process of securing further funding from refinance of existing loans and approaching new lenders.

 

Dividend

The Board has listened to many of its shareholders and given the Company cash flow, Action Hotels as a development company, should be focusing on investing cash resources for completion of projects rather than paying dividends. Therefore, the Board has recommended that the GBP 0.77p interim dividend announced 19 September 2017 remains as the full and final dividend for the financial year resulting in a yield of 4.8% at 26 Jun 18 (2016: GBP 2.26 pence per share).

 

Update on Going Concern

In the Auditors Report, our auditors have drawn attention to Note 2.1 in our consolidated financial statements regarding uncertainty to the going concern but have not modified their opinion in this regard.  Since our trading statement of 8 March 2018, our trading and financial performance has remained broadly in line with the Board's expectations with the opening of Novotel Melbourne South Wharf and year-on-year growth of revenue due to the new hotel openings. Successful management actions on cash generation; including on 3 April 2018 an additional related party loan, have strengthened the cash position of the Group.

 

However, reflecting the more challenging trading environment experienced across the Middle East and our current financing costs and costs of capital expenditure putting pressure on cash flows, we are working with our financing partners with respect to our financing needs for the remainder of FY18, FY19 and beyond. We forecast our borrowings to increase towards the limit of our total committed and non-committed facilities at various points from the signing of the financial statements and may require additional waivers of certain financial covenants. We are also exploring additional sources of financing to support and maintain the momentum of our growth. All these discussions are ongoing.

 

The Company's major shareholder and a shareholder are highly supportive of the business and may continue to support the business and cash requirements going forward, as they have been doing, should alternative financing options not materialize. The Company also continues to hold unencumbered investment land in its portfolio.

 

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

 

"We remain focused on driving performance at our operating hotels and our full year results reflect the solid performance of our mature2 hotel portfolio, as well as the encouraging success of our newest hotels as they gain traction in their respective markets. 

 

We have a pipeline of a further two hotels in development, with the Company's current expectation of 16 operating hotels by the end of 2019."

 

The Annual Report will be posted to shareholders and made available on the Company's website, www.actionhotels.com from 30 June 2018 and will contain a notice of the Company's Annual General Meeting, which will be held on 19 July 2018 in London, UK.

 

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

 

2 Mature hotels consist of: Glen Waverley, Kuwait (two), Jordan, ibis Budget Melbourne Airport (acquired as an already operational hotel) and Oman (ibis and Holiday Inn).

 

 

For more information contact:

 

For more information:

Action Hotels PLC

Andrew Lindley, Chief Financial Officer
Katie Shelton, Director of Corporate Affairs

Tel: +44 (0) 20 7907 9663

 

WH Ireland Limited

Adrian Hadden
Jessica Cave

Alex Bond

Tel: +44 (0) 20 7220 1666

 

 

 

 

 

 

 

 

 

Chairman's Statement

 

Dear Shareholders,

 

It is my pleasure to report to you the progress made during the 12-month period to 31 December 2017.

 

2017 was a year of growth, investment and resilience for Action Hotels as we progress our development pipeline and continue to drive growth despite the headwinds caused by the challenging economic climate across the Middle East. 

 

The aftermath from the decline in the oil price and geopolitical context have impacted the Middle East economies, resulting in less government spending including less infrastructure projects which, to date, have been a driving force of the non-oil related sector growth across the region.  Having said that, I am pleased to say that whilst we have seen these pressures, Action Hotel's strategy of exclusively focusing on branded economy and midscale hotels has proved to be resilient as occupancy our mature Middle Eastern hotels remains strong with 64% for FY 2017.

 

Our diversification in Australia has proved to be a good balance with the Australian hospitality industry being one of the biggest growth regions on the planet[1]. Growth in market KPI's can be attributed to an increase in leisure demand from domestic and international markets, stimulated by a lower Australian dollar and stronger economic activity underpinned by construction and infrastructure projects.  Ibis Styles Brisbane (opened March 2016) in its first full year of operations is contributing over USD 3.4m to the operating profit for FY 2017, driving a growth of 28% in gross operating profit.

 

This has resulted in growth in total revenue for the Group from 2016 of 10% to USD 58.3m and resulting in Adjusted EBITDA of USD 14.2m with a net loss for 2017 of $12.6m (2016: net loss $5.9m).

 

Operational rooms, pipeline, and investment land

We also completed the conversion works at our hotel in Sharjah and focused on supporting the operational hotels with appropriate performance support to maintain a low-cost base and keep occupancy above our competitive set.

 

During the period, we continued to invest into our portfolio and opened the ibis Styles Bahrain, our second hotel in the Kingdom of Bahrain. Our pipeline is robust and weighted to 4-star properties.

 

Given the current market conditions in the Middle East, and a focus on our two largest assets, the Board has also taken the decision to re-allocate resources with the rescheduling of the opening of Mercure Riyadh Hotel to Q1 2019. The Board has also taken the decision to remove the 121- key leasehold hotel, Tulip Inn Jeddah 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, which opened in March 2018.

 

We expect revenue from the new hotels to contribute to the growth.

 

Current trading and outlook

We are experiencing a respectable start to 2018 with growth in revenue up 11% in Q1, mainly driven by new revenues coming in from the recently opened hotels.

 

Whilst the debt levels are approaching their peak during the current year, the Board are looking at alternative financing options and are always reviewing existing finance facilities. The build programme also continues to reduce, with only two hotels currently in the pipeline which will also alleviate cash requirements and hence reduce the debt burden going forward.

 

Board and employees

I reiterate again this year my sincere gratitude to my fellow Board members who have delivered professionalism and experience during this challenging year and made the necessary decisions in the best interests of all shareholders.

 

Along with the Board, I also reach out to all our employees across our head office and in the hotels themselves to thank them for their continued hard work and efforts during the year.

 

I also want to thank Alain Debare, who has been with us at Action Hotels for almost ten years. We wish him every success in his future endeavours.

 

Shareholder Value

Our share price performance has certainly been disappointing, considering the Company is clearly delivering growth, with a 18% increase in rooms (operational and pipeline) since IPO in December 2013 and with no additional equity.

 

The Company remains focused to deliver value and growth for its shareholders with a cautious approach to valuations. Our NAV is USD 202m, 4% increase on last year. 

 

Our investment case is backed by good properties and a robust active development pipeline.  We expect revenue from the new hotels to significantly contribute to the growth and believe that our marketplace conditions are stabilizing after volatile conditions in the Middle East that will see the Company deliver the expected growth.

 

Whilst the depressed share price has not allowed for an equity fundraise, management have still delivered growth, by negotiating and securing additional debt whilst remaining within the LTV levels set by the Board. We are working closely with our retained advisors to address this discrepancy and hope that 2018 will see a share price adjustment to reflect the true value of the Company.

 

Dividend

The Board has listened to many of its shareholders and given the Company cash flow, Action Hotels as a development company, should be focusing on investing cash resources for completion of projects rather than paying dividends. Therefore, the Board has recommended that the GBP 0.77p interim dividend announced 19 September 2017 remains as the full and final dividend for the financial year resulting in a yield of 4.8% at 26 Jun 18 (2016: GBP 2.26 pence per share).

 

 

 

Sheikh Mubarak A M Al-Sabah

Founder and Chairman

 

 

 

Chief Executive Officer's review

 

Overview

2017 was challenging year but a year of resilience, we continued to build on the foundations of continued growth and progressed our development pipeline.

 

Operations

Total revenue grew by 10% to USD 58.3 million (2016: USD 53.1 million) with additional income coming from our new hotel rooms and a full year contribution from our 2016 hotels in Brisbane, Ras al Khaimah and Sohar. Total Gross Operating Profit (GOP) also grew by 8.1% maintaining a healthy level of 40.9% across the portfolio.

 

Revenue from our 7 'mature' hotels was impacted by pressure on average daily rates, caused by the challenging current economic climate in the Middle East, however these hotels still maintained solid performances with average occupancy of 74.9%, up by 2% on last year. This highlights the resilient business model, and our team continues to work closely with the hotel operators to ensure that no opportunity is lost and efficiencies and synergies within the operation are exploited such as sharing employees between two hotels in the same country, thereby driving synergies.

 

Revenue from our recently opened hotels increased 45% on last year to USD 21.1m resulting in reduction of the Operating Loss by USD$2.6m as a result of the new hotels maturing and delivering improved returns.

 

Total (consolidated) GOP grew by 8.1% even against the economic challenges as a result of the income being derived from the new hotels.

 

Adjusted EBITDA declined 23% to USD 14.2 million (2016: USD 18.5 million) mainly as a result of not being able to account for any gains from investment land as we did during 2016. (2016: USD 4.5 million). As we continue to be in development phase, as expected, the additional investment and financing of the pipeline has materially impacted our net profit/loss position and for 2017 we delivered a net loss of $12.6m (2016: net loss $5.9m).

 

Our total assets increased by 26% to USD 609m from the delivery of the new hotels and the associated development valuation uplift. Adjusted Net Asset Value (ANAV increased by USD 18.2m taking the figure for 2017 to USD 224.5m (2016: USD 206.3m).

 

New Hotels

2017 was also a year of continued investment as we actively progressed some of our best properties in the portfolio.

 

In August, we opened the ibis Styles Bahrain. This hotel has had a good start and we expect it to do well as it builds a larger base of corporate demand, coming from the Business and Diplomatic travelers segment, as well as yielding higher rates within the leisure segment during strong demand periods (weekends, holidays etc).

 

After the year end, we welcomed our first guests to the 347 room Novotel Melbourne South Wharf, on 16th March 2018.  This opening was ahead of schedule and the hotel took advantage of Melbourne's season, including the Melbourne Formula 1 Grand Prix event. Early bookings at this hotel are highly encouraging, with over USD $3.5m of bookings taken so far (as at March 2018). Centrally positioned, the hotel will also benefit from its proximity to the growing Docklands precinct, Etihad Stadium, Melbourne Central Business District and Melbourne South Wharf, a highly sought-after leisure destination. Novotel Melbourne South Wharf is Action Hotel's flagship hotel and expected to be a significant contributor to the revenue and profits.

 

We also completed some conversion works at our hotel in Sharjah, the 168-bedroom hotel is currently managed by AccorHotels (since January 2018) with a full rebranding expected in due course. This rebranding underpins the proactive nature of our asset management team to identify key issues and provide solutions for optimised performance.

 

Development Pipeline

The 220 room Novotel Dubai Creek located within the Dubai's Health Care City zone is another exciting development, which is well underway, with completion expected during H1 2019. Construction is progressing well, and structural works have been completed.  This new property is the only announced 4-star hotel located in Dubai Health Care City precinct and is expected to perform well addressing the growing healthcare tourism market in Dubai and serviced by the hospitals, surgeries, consultants and healthcare specialists located in the direct vicinity of the hotel.

 

We also hold a prime piece of real estate in the Innovation hub of the Dubai Media City.  The Board has not yet decided on the final development of this land and are looking at various options, which will be announced in due course.

 

Whilst our mature hotels are profit making, our maturing assets and development hotels under construction do impact the P&L during the development phase. Naturally we expect that the income from the hotels will cover for the expenses and finance costs as the hotels open and mature, resulting in a healthy net profit on maturity.

 

Balance Sheet, Asset Values and Debt Position

The Group's Balance Sheet remains heavily geared, but firmly asset backed as the newly opened hotels move towards maturity, the operating hotels continue to perform and stabilise in the challenging economic conditions [in the Middle East] and we continue to invest in the development projects.  Adjusted Net Asset Value during the year increased by 9% to US $224m (2016: US $206m).

 

As the business continues to require significant investment to fund the pipeline, we continue to use asset secured debt as a low-cost way to finance material parts of our development.  As we progress the development pipeline the debt is expected to rise, however our loan-to-value level remains reasonable at 58%.

 

Current Trading and Outlook

Revenue for the first quarter of 2018 saw an increase of 11% year on year driven from new hotel rooms and strong performances from the Australian hotels compensating for the challenging conditions being experienced in the Middle East hotels.  The new Novotel Melbourne South Wharf successfully opened ahead of schedule on 16 March 2018 and has generated over A$833k revenue in its 1st month and we are optimistic for its future performance.

 

 

A Special Thank You

Fiscal year 2017 was my last year as CEO of Action Hotels. I am extremely honored to have led Action Hotels for the past ten years. I shall continue to perform my role as Chief Executive Officer for up to six months from 5 Apr 2018, in order to facilitate an orderly transition process and allow the Company's operations to continue without interruption.

 

The last ten years at Action Hotels has been a time of great intensity, excitement, growth and achievement. During this period, it has been my honor and privilege to serve the Company including, latterly, as its CEO, a role that I have been passionate about from the outset and enjoyed immensely. It has afforded me an unparalleled opportunity to pursue both my hospitality and real estate development ambitions at the highest level, for which I shall be forever grateful to our Chairman Sheikh Mubarak Al Sabah.

 

I am immensely proud of what the team at Action Hotels has accomplished during my tenure with the Company, particularly during the last 4 years whilst it has been a public listed Company. The Company now has a scalable business with 14 operational hotels in 6 countries, with delivery of the rest of the current pipeline well in hand. I am convinced that Action Hotels will be an increasingly strong player in the regional hotel industry and am very optimistic that the Company will continue to thrive and deliver the growth.

 

As CEO, I have had the pleasure of working alongside a very dynamic and exceptionally dedicated and skilled team of executives and managers who I believe are some of the most talented people in our business.

 

I would like to take this opportunity to thank you, our share holders, for your support during my tenure as CEO. I have greatly valued and enjoyed engaging with you over this period. Thank you for giving me the opportunity to serve as you CEO these past 4 years. I wish you all, and the Company, every success in the future.

 

 

 

Alain Debare

Chief Executive Officer and Director

 

 

 

 

Finance Review

 

Key Financial Highlights and Introduction

 

·     Total Revenue increased by 10% to $58.3m (2016: $53.1m)

·     Total Adjusted EBITDA decreased by 23% to $14.2m (2016: $18.5m)

·     Net loss before tax of $14.1m (2016: Loss Before Tax of $6.3m), primarily driven by impact of pre-opening, financing costs and depreciation of new hotels

·     Total non-current fixed assets grew by $117m to $576m (2016: $459m)

·     Total debt increased by $98.4m investing in the pipeline of hotels

·     Adjusted Net Asset Value increased to $224m

·     The "mature" hotels2 are stable, generating consistent revenue and continue to deliver underlying net profitability

·     Our "newly opened" hotels3 are establishing themselves in their respective markets and progressing through their maturity cycle, contributing to revenue growth and typically achieving operational break-even in the first 3 months of operation

 

 

 

Year ended

Year ended

 

31 December

31 December

 

2017

2016

 

 

USD'000

USD'000

 

 

 

 

Revenue

58,280

53,096

 

 

 

 

 

Adjusted EBITDA1

14,244

18,508

 

Operating profit

2,707

6,430

 

 

 

 

 

Loss before tax

(14,074)

(6,344)

 

 

 

 

 

Tax gain

1,441

452

 

 

 

 

Loss for the year attributable to owners of the company

(12,633)

(5,892)

 

 

 

 

 

 

 

 

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  Mature hotels consist of: ibis Glen Waverley, ibis Sharq, ibis Salmiya, ibis Amman, ibis Muscat, Holiday Inn Muscat and ibis Budget Melbourne Airport.

Newly opened hotels (by year of opening) consist of: 2015: ibis Seef and Al Majaz Sharjah. 2016: ibis Styles Brisbane, Tulip Inn Ras Al Khaimah and Mercure Sohar. 2017: ibis Styles Bahrain

 

 

 

 

Revenue

Reported total revenue for the year increased by 10% to USD 58.3m (2016: USD $53.1m) with USD 0.8m coming from the opening of the new ibis Styles in Bahrain.

 

Mature Hotel Portfolio2

The mature hotels are expected to provide a stable performance from year to year with little or no growth as they have reached their optimum operational capability. The seven mature hotels across Action's portfolio, which includes the recently acquired (2015) and already operational, ibis Budget Melbourne Airport saw a decrease in revenue of 3% due mainly to the economic and political instability in the Middle East of which Amman and Oman contributed the major decline. However, they contributed a relatively stable Operating Profit in 2017, down 6% on 2016 mainly due to the full year effect of depreciation on the property revaluation in 2016.

 

 

 

 

Year ended

Year ended

% variation

 

31 December

31 December

 

 

 

2017

2016

 

 

 

USD

USD

 

 

 

 

 

 

 

Total Revenue

$37.2m

$38.5m

-3%

 

 

 

 

 

 

Adjusted EBITDA1

$12.9m

$13.7m

-6%

 

 

 

 

 

Operating profit

$8.0m

$8.9m

-10%

 

 

 

 

 

 

Total Asset Value

$199m

$197m

1%

 

 

 

 

 

 

 

 

 

Newly Opened Hotel Portfolio3

As we are in a period of accelerated growth, having opened four new hotels over the past 24 months, the main driver of revenue increase is from this group of hotels. Our newly opened hotels increased revenue by 45% and Adjusted EBITDA by 113% and halving the Operating Loss compared to last year as the hotels mature and generate growing and more stable earnings.

 

 

 

 

Year ended

Year ended

% variation

 

31 December

31 December

 

 

 

2017

2016

 

 

 

USD

USD

 

 

 

 

 

 

 

Total Revenue

$21.1m

$14.6m

45%

 

 

 

 

 

 

Adjusted EBITDA1

$3.2m

$1.5m

113%

 

 

 

 

 

Operating Loss

($2.7m)

($5.3m)

50%

 

 

 

 

 

 

Total Asset Value

$194m

$184m

5%

 

 

 

 

 

 

 

 

Total portfolio

The opening of the 95 room ibis Styles Bahrain and a full year trading from the recently opened Mercure Sohar, Tulip Inn Ras Al Khaimah and ibis Styles Brisbane, increased the percentage of revenue from Australia, which accounted for 31% (2016: 27%) of total revenue. Occupancy and average room rate ('ADR') for the total portfolio saw declines by 0.1% and 5% respectively resulting in a RevPAR reduction of 5%. However, these declines were less than the market demonstrating the resilience of the economy and midscale brands to absorb market pressure and still outperform, even with tourism being impacted adversely by global economic and political uncertainty.

 

 

Operating profit and Adjusted EBITDA

Operating profit decreased by USD 3.7m to USD 2.7m and Adjusted EBITDA decreased by 23% to USD 14.2m, mainly due to not recognising any valuation gains this year on the investment land (2016: 4.5m).

 

 

 

Year ended

Year ended

 

 

31 December

31 December

 

 

2017

2016

 

 

USD'000

USD'000

 

Adjusted EBITDA

 

14,244

 

18,508

Depreciation and amortisation

 

(10,360)

 

(9,236)

Pre-opening expenses

 

(655)

 

(2,014)

Other expenses - net

 

(522)

 

(828)

Operating profit

 

2,707

 

6,430

             

 

 

2017 was a year of resilience and accelerating hotel development of the Novotel South Wharf in Melbourne and Novotel Dubai Health Care City as well as opening ibis Styles Bahrain, our number of operational rooms increased by 95 or 4.4% during the year to 2,276 (2016: 2,181 operational rooms). Whilst the opening of new hotels brings positive contribution to revenue, and with our low average break even occupancy conveying early contribution to EBITDA, there are various charges to the Consolidated Income Statement, which occur below the EBITDA line that must be applied. These charges do heavily impact the Operating Profit position.

 

The material costs associated with opening the hotels, namely pre-opening costs of USD 0.7m (2016: USD 2.0m), depreciation charges and finance costs are applied as if the hotel is operating at a more mature capacity. The negative impact of these charges on reported profit are disproportional during the hotels development towards full maturity.

 

Pre-opening costs (such as; costs of Senior Management (General Manager and Financial Controller) and other hotel operational employees preparing the hotel for operational readiness, final cleaning, stationary, marketing and sales preparation costs) average around USD $0.6m per hotel opening (depending on the number of rooms). Depreciation and amortisation are charged from the day the hotel is capable of operating.

 

EBITDA margin for the year reduced by 900bp on last year to 26% (2016: 35%) mainly due to no recognition of revaluation gains in 2017 vs. 2016 and partially to a drop of 1% (2016: 3%) at the Gross operating Profit level flowing through to EBITDA.

 

Our investment land in Dubai Media City, acquired in February 2016, remained at its value of USD 14.7m (Acquisition cost: USD 10.2m) as part of the annual management assessment. This acquisition underpins our strategy of acquiring land and property in prime locations and the ability of Action Hotels to access such attractive opportunities. We will continue to hold this land for investment until a suitable opportunity is presented, assessed, and approved by the Board of Directors.

 

Profit/(Loss) after Tax

Year ended

Year ended

31 December

31 December

2017

2016

USD'000

USD'000

Operating profit

 

2,707

 

6,430

 

Finance income

 

241

 

270

 

Finance costs

 

(17,022)

 

(13,044)

 

Finance costs - net

 

(16,781)

 

(12,774)

 

(Loss)/Profit before income tax

 

(14,074)

 

(6,344)

 

Income tax expense

 

            -

 

(144)

 

Deferred tax income / (expense)

 

1,441

 

596

 

(Loss)/Profit for the year

 

(12,633)

 

(5,892)

 

             

 

 

 

Finance costs have increased as the Company has, as planned, utilised debt facilities to fund the pipeline of hotels with the opening of ibis Styles Bahrain plus a full year effect of hotels opened in the latter half of 2016 this has contributed to the net loss for the year of USD 12.6m.

 

 

Financial Position

Due to the material investment and acceleration of the pipeline during the year, total bank debt as at 31 December 2017 increased to USD 331 million (2016: USD 233 million) with cash and cash equivalents at USD 11.4 million. Total gearing at the year-end was 159% (2016: 117%) and Loan to Value ("LTV") was 58% (2016: 51%).

 

 

 

Year ended

Year ended

 

31 December

31 December

 

2017

2016

 

USD'000

USD'000

 

 

 

Bank loans

311,578

228,430

Loans due to related party

19,765

4,287

 

 

 

Less: Cash and bank balances

11,400

4,526

 

 

 

Net debt

319,943

228,191

 

 

 

Total equity

201,833

194,788

 

 

 

Total capital resources

521,776

422,979

 

 

 

Net debt to equity ratio

159%

117%

 

 

 

Loan to Value (LTV)1

58%

51%

 

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

 

 

Update on Going Concern

In the Auditors Report, our auditors have drawn attention to Note 2.1 in our consolidated financial statements regarding uncertainty to the going concern but have not modified their opinion in this regard.  Since our trading statement of 8 March 2018, our trading and financial performance has remained broadly in line with the Board's expectations with the opening of Novotel Melbourne South Wharf and year-on-year growth of revenue due to the new hotel openings. Successful management actions on cash generation; including on 3 April 2018 an additional related party loan, have strengthened the cash position of the Group.

 

However, reflecting the more challenging trading environment experienced across the Middle East and our current financing costs and costs of capital expenditure putting pressure on cash flows, we are working with our financing partners with respect to our financing needs for the remainder of FY18, FY19 and beyond. We forecast our borrowings to increase towards the limit of our total committed and non-committed facilities at various points from the signing of the financial statements and may require additional waivers of certain financial covenants. We are also exploring additional sources of financing to support and maintain the momentum of our growth. All these discussions are ongoing.

 

The Company's major shareholder and a shareholder are highly supportive of the business and may continue to support the business and cash requirements going forward, as they have been doing, should alternative financing options not materialize. The Company also continues to hold unencumbered investment land in its portfolio.

 

Property revaluations

Independent property valuations were prepared by CBRE on both our Middle Eastern and Australian properties, and management assessment on our investment land. The valuations of the operational freehold hotels are included in the Consolidated Statement of Financial Position at fair value, which is assessed and revalued annually.

 

Net Asset Value and adjusted Net Assets

Reported Net Asset Value for the Group grew by 4% to USD 202 million as we continued to progress our hotel pipeline. Adjusted Net Asset Value is the net asset value of the Group adjusted for the deferred tax provisions on the revaluation on our properties. The net deferred tax provisions at the year-end amounted to USD 22.6 million and would only become payable if these revalued assets were sold.

 

As at 31 December 2017 the Adjusted net asset value was USD 224 million, (2016: USD 206.3 million) and an adjusted net asset value per share of GBP 1.01 pence per share (2016: GBP 1.09 pence Sterling per share).

 

 

2017

2016

 

USD'000

USD'000

 

 

 

Net assets

201,833

194,788

Deferred tax liabilities - net

22,627

11,469

 

 

 

Adjusted net asset value

224,460

206,257

 

 

 

Number of shares

147,637

147,637

Adjusted net asset value per share ($)

1.52

1.40

 

 

 

 

 

Dividend

In line with the Board's awareness to many of its shareholders and given the Company cash flow, Action Hotels as a development company, should be focusing on investing cash resources for completion of projects rather than paying dividends. Therefore, the Board has recommended that the GBP 0.77p interim dividend announced 19 September 2017 remains as the full and final dividend for the financial year resulting in a yield of 4.8% at 26 Jun 18 (2016: GBP 2.26 pence per share).

 

 

Looking ahead

The first quarter of 2018 has started in line with expectations with revenue for the quarter up 11% on the same period last year, as our new hotel matures. We also celebrate the opening of our flagship property; Novotel South Wharf, Melbourne which welcomed its first guests on 16th March 2018 and benefitted from the Melbourne Grand Prix weekend demand with occupancy for that weekend over 95%. We look forward to updating on financial progress at our 2018 interim results later this year.

 

 

Andrew Lindley

Finance Director

 

 

 

 

Consolidated income statement

 

 

 

Year ended 31 December

 

 

Notes

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Revenue

4

58,280

 

53,096

Cost of sales

 

(17,581)

 

(15,562)

Gross profit

 

40,699

 

37,534

General and administrative expenses

 

(37,992)

 

(31,104)

Operating profit

 

2,707

 

6,430

Adjusted EBITDA

5

14,244

 

18,508

Depreciation and amortisation

12, 14

(10,360)

 

(9,236)

Pre-opening expenses

 

(655)

 

(2,014)

Other expenses - net

 

(522)

 

(828)

Operating profit

5

2,707

 

6,430

 

Finance income

 

8

241

 

270

Finance costs

9

(17,022)

 

(13,044)

Finance costs - net

 

(16,781)

 

(12,774)

Loss before income tax

 

(14,074)

 

(6,344)

Current tax expense

10

-   

 

(144)

Deferred tax income

10

1,441

 

596

Loss for the year

 

(12,633)

 

(5,892)

Loss is attributable to:

 

 

 

 

Owners of Action Hotels plc

 

(12,287)

 

(5,184)

Non-controlling interests

 

(346)

 

(708)

 

 

(12,633)

 

(5,892)

Loss per share attributable to equity holders of the Company:

 

 

 

 

Basic loss per share

11

(8.3) c

 

(3.5) c

Diluted loss per share

11

(8.3) c 

 

(3.5) c

 

 

 

 

 

Loss per share attributable to the Group:

 

 

 

 

Basic loss per share

11

(8.6) c

 

(4.0) c

Diluted loss per share

11

(8.6) c

 

(4.0) c

           

 

All operations were continuing throughout the years.

 

 

Consolidated statement of comprehensive income

 

 

 

Year ended 31 December

 

Notes

2017

 

2016

 

 

 

USD'000

 

USD'000

 

 

 

 

 

 

 

Loss for the year

 

(12,633)

 

(5,892)

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

 

 

Gains on revaluation of land and buildings

14

28,182

 

11,106

 

Tax charge relating to revaluation

10

(12,597)

 

(1,708)

 

 

 

15,585

 

9,398

 

Items that may be reclassified to profit or loss:

 

 

 

 

 

Exchange differences on translation of foreign operations

 

23

5,474

 

(276)

 

Other comprehensive income for the year - net of tax

 

21,059

 

9,122

 

Total comprehensive income for the year

 

8,426

 

3,230

 

 

 

 

 

 

 

Total comprehensive income/(loss) for the year is attributable to:

 

 

 

 

 

Owners of Action Hotels plc

 

8,627

 

4,140

 

Non-controlling interests

 

(201)

 

(910)

 

 

 

8,426

 

3,230

 

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

 

 

Consolidated statement of financial position

 

 

 

As at 31 December

 

Notes

2017

 

2016

 

 

USD'000

 

USD'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

12

15,950

 

15,382

Investment properties

13

14,725

 

14,725

Property and equipment

14

538,545

 

427,561

Deferred tax assets

 21

3,084

 

809

Cash and bank balances

15

3,201

 

175  

 

 

575,505

 

458,652

Current assets

 

 

 

 

Cash and bank balances

15

8,199

 

4,351

Trade and other receivables

16

14,160

 

8,182

Due from related parties

17

10,459

 

8,720

Inventories

 

267

 

247

 

 

33,085

 

21,500

Total assets

 

608,590

 

480,152

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

18

30,580

 

24,167

Due to related parties

17

6,470

 

4,344

Borrowings

19

183,779

 

75,939

Loan due to related parties

17

-

 

4,287

Finance lease liabilities

30

518

 

544

 

 

221,347

 

109,281

Net current liabilities

 

(188,262)

 

(87,781)

 

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings

19

127,799

 

152,491

Loan due to related parties

17

19,765

 

-

Trade and other payables

18

2,076

 

1,703

Provision for end of service benefits

20

1,123

 

999

Derivative financial liabilities

9

501

 

-

Deferred tax liabilities

21

25,711

 

12,278

Finance lease liabilities

30

8,435

 

8,612

 

 

185,410

 

176,083

Total liabilities

 

406,757

 

285,364

Net assets

 

201,833

 

194,788

 

 

 

 

 

EQUITY

 

 

 

 

Share capital

22

24,102

 

24,102

Share premium

22

24,479

 

24,479

Revaluation reserve

 

99,341

 

84,123

Merger and other reserves

23

(3,939)

 

(9,417)

Retained earnings

 

39,417

 

55,861

Net equity attributable to owners of Action Hotels plc

 

183,400

 

179,148

Non-controlling interests

 

18,433

 

15,640

Net equity

 

201,833

 

194,788

 

The consolidated financial statements were approved by the Board of Directors and authorised for issue on June 2018. They were signed on its behalf by:

 

_____________________________                                      _____________________________

Alain Debare                                                                            Andrew Lindley

Chief Executive Office/Board Director                                   Finance Director                                              

 

Consolidated statement of cash flows

 

 

 

Year ended 31 December

 

 

2017

 

2016

 

Notes

USD'000

 

USD'000

Cash flows from operating activities:

 

 

 

 

Loss before income tax

 

(14,074)

 

(6,344)

Adjustments for:

 

 

 

 

Finance costs

9

17,022

 

13,044

Finance income

8

(241)

 

(270)

Provision for impairment of trade receivables

16

(18)

 

(22)

Depreciation of property and equipment

14

9,700

 

8,702

Amortisation of intangible assets

12

660

 

534

Provision for end of service benefits

20

588

 

513

Net gain from fair valuation of investment property

13

-

 

(4,506)

Operating cash flows before payments of employees' end of service benefits and changes in working capital and tax paid

 

13,637

 

11,651

Payment of employees end of service benefits

20

(473)

 

(317)

 

Changes in working capital:

 

 

 

 

Trade and other receivables

 

(5,822)

 

10,443

Due from related parties

 

981

 

(8,103)

Inventories

 

(19)

 

(74)

Trade and other payables

 

5,717

 

6,068

Due to related parties

 

(160)

 

3,816

Cash generated from operations

 

13,861

 

23,484

Tax paid

 

-

 

(205)

Net cash generated from operating activities

 

13,861

 

23,279

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Interest received

8

241

 

270

Proceeds from sale of investment property

13

-

 

13,623

Purchase of investment property

13

-

 

(10,619)

Movements in deposit with original maturity of more than three months

 

(3,022)

 

261

Capital expenditure from restricted cash

 

1,487

 

2,416

Transfers to restricted cash

 

(1,679)

 

(1,436)

Increase in lease liabilities

 

-

 

8,721

Purchase of intangible assets

12

(757)

 

(701)

Purchase of property and equipment

14

(81,295)

 

(63,863)

Disposal of property and equipment

 

1,004

 

89

Net cash used in investing activities

 

(84,021)

 

(51,239)

 

 

 

Consolidated statement of cash flows (continued)

 

 

 

Year ended 31 December

 

Notes

2017

 

2016

 

 

 

USD'000

 

USD'000

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

Repayment of borrowings

 

(120,779)

 

(29,392)

 

Drawdown of borrowings

 

197,355

 

65,484

 

Contribution from non-controlling interest

 

2,994

 

-

 

Loan due to related parties

 

15,043

 

4,424

 

Finance costs paid

 

(16,420)

 

(11,676)

 

Dividends paid

 

(4,379)

 

(4,559)

 

Net cash generated from financing activities

 

73,814

 

24,281

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

3,654

 

(3,679)

 

Cash and bank balances at the beginning of the year

15

3,595

 

7,365

 

Effect of exchange rate changes

 

(22)

 

(91)

 

Unrestricted cash and cash equivalents at end of the year

15

7,227

 

3,595

 

Restricted cash and cash equivalents

15

972

 

756

 

Cash and cash equivalents at the end of the year

15

8,199

 

4,351

 

 

 

Notes:

 

1.   Revenue

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Rooms

46,675

 

42,861

Food and beverage

9,810

 

8,476

Others

1,795

 

1,759

 

58,280

 

53,096

 

The Group's revenue arises from hotel operations, including the rental of rooms, food and beverage sales and other services from owned and leased hotels. The geographical split of revenue is disclosed in note 6.

 

 

 

 

 

2.  Operating profit and adjusted EBITDA

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Operating profit for the period is stated after charging/(crediting):

 

 

 

Depreciation of property and equipment (note 14)

9,700

 

8,702

Amortisation of intangible assets (note 12)

660

 

534

Pre-opening expenses

655

 

2,014

Share-based payments (note 24)

4

 

136

Operating lease rentals (note 30)

3,025

 

2,738

Gain on disposal of investment property

-

 

(1,000)

Unrealised gain on investment properties (note 13)

-

 

(4,506)

Legal expenses for potential acquisition

-

 

1,000

Employee costs (note 7)

14,052

 

13,130

 

The adjusted EBITDA for the year is derived as follows:

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Operating profit

2,707

 

6,430

Depreciation of property and equipment (note 14)

9,700

 

8,702

Amortisation of intangible assets (note 12)

660

 

534

Pre-opening expenses

655

 

2,014

Other net non-recurring expenses

522

 

828

Adjusted EBITDA

14,244

 

18,508

 

Pre-opening expenses include staff costs and related expenses, administration expenses and marketing expenses incurred as part of the pre-opening and soft opening phase of the hotel. The soft opening phase can last for a period of up to 6 months depending on the size of the hotel and agreed opening strategy. Following this, expenses are included within general and administrative expenses.

 

 

3.  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 particular 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.

 

 

(a)      Segmental revenue and results

 

The following is an analysis of the Group's revenue and results by reportable segments:

 

 

Middle East

 

Australia

 

Total

 

USD'000

 

USD'000

 

USD'000

2017

 

 

 

 

 

Revenue

40,287

 

17,993

 

58,280

Adjusted EBITDA - hotel operations

15,949

 

7,508

 

23,457

Central management and other costs

 

 

 

 

(20,750)

Operating profit

 

 

 

 

2,707

Finance income

 

 

 

 

241

Finance costs

 

 

 

 

(17,022)

Loss before income tax

 

 

 

 

(14,074)

 

 

 

 

 

 

 

Middle East

 

Australia

 

Total

 

USD'000

 

USD'000

 

USD'000

2016

 

 

 

 

 

Revenue

38,841

 

14,255

 

53,096

Adjusted EBITDA - hotel operations

16,554

 

5,449

 

22,003

Central management and other costs

 

 

 

 

(15,573)

Operating profit

 

 

 

 

6,430

Finance income

 

 

 

 

270

Finance costs

 

 

 

 

(13,044)

Loss before income tax

 

 

 

 

(6,344)

 

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 income tax.

 (b)    Segmental assets

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Middle East hotel operations

280,814

 

287,585

Australia hotel operations

123,037

 

110,636

Hotels under construction (note 14)

176,037

 

57,585

Undeveloped land sites (note 13)

14,725

 

14,725

Not allocated

13,977

 

9,621

 

608,590

 

480,152

 

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

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Additions and contributions to property and equipment

 

 

 

Middle East hotel operations

2,024

 

23,980

Australia hotel operations

213

 

1,443

Hotels under construction (note 14) *

79,307

 

58,699

 

81,544

 

84,122

 

* This includes an amount of USD 2,640,000 (2016: USD 10,404,000) pertaining to hotels which started operations during the year.

 

(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.

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

UAE

4,130

 

2,932

Kuwait

13,509

 

13,678

Oman

14,856

 

12,912

Bahrain

5,093

 

5,661

Jordan

2,699

 

3,658

Australia

17,993

 

14,255

 

58,280

 

53,096

 

 

(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.

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

UAE

88,589

 

79,291

KSA

16,542

 

16,512

Kuwait

49,482

 

49,553

Oman

107,080

 

113,141

Bahrain

55,168

 

55,406

Jordan

15,545

 

19,635

Australia

243,099

 

125,114

 

575,505

 

458,652

 

 

4.  Loss per share

 

(a)        Basic loss per share

 

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

 

 

2017

 

2016

Loss per share attributable to equity holders of the company:

 

 

 

Loss for the year (USD'000)

(12,287)

 

(5,184)

Weighted average number of shares

147,637,195

 

147,637,195

Basic loss per share (USD)

(0.083)

 

(0.035)

 

 

 

 

Loss per share attributable to the Group:

 

 

 

Loss for the year (USD'000)

(12,633)

 

(5,892)

Weighted average number of shares

147,637,195

 

147,637,195

Basic loss per share (USD)

(0.086)

 

(0.040)

 

(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 Company has two categories of dilutive potential ordinary shares, share options and share warrants.

 

 

2017

 

2016

 

 

 

 

Loss for the year (USD'000)

(12,287)

 

(5,184)

Weighted average number of shares used for calculating basic earnings

147,637,195

 

147,637,195

Weighted average number of shares for calculating diluted earnings per share

147,637,195

 

147,637,195

Diluted loss per share (USD)

(0.083)

 

(0.035)

 

The 5,179,116 options (2016: 5,179,116 options) are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 31 December 2017 and 2016. These options could potentially dilute basic earnings per share in the future.

 

(b)            Diluted loss per share (continued)

The 3,690,930 warrants (2016: 3,690,930 warrants) are not included in the calculation of diluted earnings per share because they are anti-dilutive for the year ended 31 December 2017 and 2016. These options could potentially dilute basic earnings per share in the future.

 

 

 

 

5.   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 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 Company K.S.C.C:

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Due from related parties

10,459

 

8,720

Due to related parties

(6,470)

 

(4,344)

 

3,989

 

4,376

 

Due from related parties

 

Name of related party

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Real Estate Co. Dubai

Shareholder

8,740

 

7,971

Action Real Estate Co. KSA

Shareholder

971

 

-

Action Realty Australia Pty Ltd

Others

542

 

456

Action Business Center Ltd

Others

206

 

274

Action Group Holding Company K.S.C.C

Shareholder

-   

 

14

Other

Others

-   

 

5

 

 

10,459

 

8,720

 

Interest is charged on amounts due from related parties in Australia at a rate of 6% (2016: 6%). The total interest income of USD 47,000 (2016: USD 124,000) is included within note 8.

 

Interest is charged on the advance paid to Action Real Estate Co. Dubai entered in March 2016 and amounting to USD 4,045,000 (2016: USD 3,714,000) at a rate of 5% (2016: 5%). The total interest income of USD 188,000 (2016: USD 143,000) is included within note 8.

 

In 2017, the Group received rent income from related parties for leasing of premises amounting to USD 182,000 (2016: USD 130,000).

 

During the year, the Group transferred its hotel under construction in Jeddah to Action Real Estate KSA of USD 971,000 (note: 14) (2016: nil)

 

 

Due to related parties

 

Name of related party

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Group Holding Company K.S.C.C

Shareholder

1,224

 

284

Action Real Estate Co. K.S.C.C.

Others

4,650

 

1,329

Action Group Holding Company Oman

Others

49

 

63

Action Business Center Ltd

Others

-   

 

62

Action Real Estate Co. Dubai

Shareholder

-   

 

2,428

Others

Others

547

 

178

 

 

6,470

 

4,344

 

Related party transactions

 

In 2016, the Group sold an investment property to Action Group Holding Company K.S.C.C for an amount of USD 14,650,000.

 

In 2016, the Group wrote off related party balances amounting to USD 590,000.

 

In 2016, Action Real Estate Co. Dubai contributed an amount of USD 7,463,000 towards its share of commitments in Tulip Inn Ras Al Khaimah project.

 

 

Expenditure incurred on services provided by related parties:

 

 

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Group Holding Company K.S.C.C

Shareholder

299

 

170

Action Real Estate Co. K.S.C.C.

Others

3,570

 

4,162

Waterfront

Others

221

 

-

Others

 

-

 

25

 

 

4,090

 

4,357

 

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

 

 

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Real Estate Co. K.S.C.C.

Others

210

 

126

Action Group Holding Company K.S.C.C

Shareholder

17

 

39

Action Group Holding Company (Oman)

Others

1

 

63

Action Business Center Ltd

Others

-

 

62

 

 

228

 

290

 

 

Related party transactions (continued)

 

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

 

 

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Real Estate Co. K.S.C.C.

Others

105

 

90

Action Group Holding Company (Oman)

Others

3

 

7

Action Group Holding Company K.S.C.C

Shareholder

1

 

14

 

 

109

 

111

 

Related party guarantees

One of the shareholder of the Group and the ultimate owner of the Group 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 year end and no outflow of resources embodying economic benefits in relation to these guarantees is expected by the Group.

 

 

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Group Holding Company K.S.C.C

Others

819

 

284

Dr. Suad M. S. Al Sabah*

Others

235

 

325

Sheikh Mubarak Al Sabah

Shareholder

135

 

-

 

 

1,189

 

609

*This represents guarantee fee paid to Dr. Suad M. S. Al Sabah for the loans for various group entities.

 

Related party interest

 

Related party interest income and expense are set out in notes 8 and 9 respectively.

 

Transactions and agreements with related parties

 

The Group does not have ownership of the A shares of Action Hotels Limited, its principal subsidiary, which carry the voting rights, and are held by Action Group Holding Company K.S.C.C, the principal shareholder. The Group therefore entered into the following agreements with Action Group Holding Company K.S.C.C. to safeguard its control over the subsidiary:

 

(a)      a relationship agreement dated 17 December 2013 between the Company and Action Group Holding Company K.S.C.C. (the "Relationship Agreement") pursuant to which Action Group Holding Company K.S.C.C. has agreed that:

 

(i)       the Group will be able to operate independently of Action Group Holding Company K.S.C.C. and its Associates (as defined in the Relationship Agreement). This will include a majority of the Board being independent of Action Group Holding Company K.S.C.C. at all times. For clarity, for these purposes, the concept of independence can include the executive Directors. The agreement further provides that any transactions or arrangements to be entered into between Action Group Holding Company K.S.C.C. (or its Associates) and the Group will require the approval of the Directors who are independent of Action Group Holding Company K.S.C.C.;

 

 

Transactions and agreements with related parties (continued)

 

(ii)      it will not (and will procure so far as it is able that its Associates will not) compete with the business of the Group (being budget/mid-market hotels worldwide);

 

(iii)      the Group will have a 'right of first refusal' on any real estate assets held by it and which may be made available for hotels;

 

(iv)     it will transfer any property, rights, assets or services held by it (or its Associates) and intended for use or required to be used by the Group to the Group;

 

(v)      it will cooperate with the Company in the event that a restructuring is required to comply with local laws; and

     

(vi)     the agreement will terminate if Action Group Holding Company K.S.C.C.'s (and its Associates)      holding in the Company drops to below 30%.

 

 (b)     a call option agreement between the Company and Action Group Holding Company K.S.C.C. dated 9 December 2013 pursuant to the terms of which Action Group Holding Company K.S.C.C. has granted the Company an option to acquire the A ordinary shares in the capital of Action Hotels Limited for a nominal amount.

 

(c)      a management agreement dated 16 December 2013 between the Company, Action Hotels Limited and Action Group Holding Company K.S.C.C. pursuant to the terms of which the Company exercises management control of Action Hotels Limited. The management agreement provides that:

 

(i)       the Company has the sole right to manage Action Hotels Limited, and all operational decision-making power is vested exclusively with the Company;

 

(ii)       the Company has the sole right to appoint and replace the Directors of Action Hotels Limited;

 

(iii)      the Company has the right to receive 100% of all distributions that are declared by Action Hotels Limited including on a liquidation; and

 

(iv)      Action Group Holding Company K.S.C.C. shall not encumber (which includes creating any mortgage, charge, right to acquire or right of pre-emption) the A ordinary shares in Action Hotels Limited.

 

(d)      the Power of Attorney granted by Action Group Holding Company K.S.C.C. to the Company to exercise the voting rights attached to the A ordinary shares in Action Hotels Limited.

 

Remuneration of Key Management Personnel

 

 

2017

 

2016

 

USD'000

 

USD'000

 

 

 

 

Salaries and consultancy fees

1,011

 

974

Other benefits

321

 

393

Share-based payments (note 24)

4

 

136

 

1,336

 

1,503

 

In 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 3,714,000 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 (non-current)

 

Relationship

2017

 

2016

 

 

USD'000

 

USD'000

 

 

 

 

 

Action Real Estate Company Kuwait

Others

15,855

 

1,892

Water Front Place Development Trust

Others

1,989

 

2,161

Action Group Holding Company K.S.C.C

Shareholder

1,921

 

-   

Action Group Australia

Others

-   

 

234

 

 

19,765

 

4,287

 

During 2017, the Group obtained additional loans amounting to USD 15,478,000 mainly from Action Real Estate Kuwait and Action Group Holding K.S.C.C to fund the construction of a hotel in Australia (2016: USD 4,287,000). These loans are repayable at various dates within 18 months from the date of the drawdown. The loans carry an interest rate of 9.9% (2016: 9.9%) per annum. As at 31 December 2017, there is no material variance between the carrying value of the loans and their fair value. In 2017, the Group incurred interest on these loans amounting to USD 1,514,000 (2016: USD 9,000) out of which an amount of USD 613,000 (2016: nil) was expensed out as part of the finance cost.

 

 

 

 

6.   Share capital and share premium

 

 

Number of

 

USD'000

Share capital

shares

 

 

 

 

 

 

At 1 January 2016

147,637,195

 

24,102

At 31 December 2016

147,637,195

 

24,102

At 31 December 2017

147,637,195

 

24,102

 

 

 

USD'000

Share premium

 

At 1 January 2016

124,479

Transfer to retained earnings during 2016

(100,000)

At 31 December 2016 and 2017

24,479

 

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 GBP 0.64 as part of its listing on the AIM division of the London Stock Exchange.

 

The authorised share capital of the Company is GBP 40 million divided into 400 million shares of 10 pence each. They entitle holders to participate in dividends and to share proceeds of winding up of the company in proportion to the number and of amounts paid on the shares held.

During 2016, the Shareholders authorised the transfer of USD 100,000,000 from the share premium account to accumulated losses.

 

 

 

 

7.  Ultimate controlling party

 

Action Group Holding Company K.S.C.C., which is under the control of Dr. Suad Al Sabah was the principal shareholder at 31 December 2017 and 2016. It held 64.7% of Action Hotel plc's shares. In accordance with the relationship agreement with Action Group Holding Company K.S.C.C, Action Hotels plc is able to operate independently of Action Group Holding Company K.S.C.C. and its associates and hence there is no ultimate controlling party.

 

Subsequent to the year end, on 5 April 2018, Blakeney LLP sold 9,715,463 shares in Action Hotels Plc to Action Real Estate Co. K.S.C.C, thereby increasing the overall shareholding of Dr. Suad Al Sabah to 72.49%.


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