STRONG FIRST HALF PERFORMANCE AS PORTFOLIO GROWTH CONTINUES

Transcription

1 STRONG FIRST HALF PERFORMANCE AS PORTFOLIO GROWTH CONTINUES ISE: DHG LSE: DAL Dublin and London 4 September 2018: Dalata Hotel Group plc ( Dalata or the Group ), the largest hotel operator in Ireland with a growing presence in the United Kingdom, announces its results for the six months ended 30 June Results Summary - million H H Variance Revenue % Segments EBITDAR % Adjusted EBITDA % Profit before tax % Basic EPS 16.6 cent 15.5 cent 1.1 cent Adjusted diluted EPS cent 15.0 cent 2.2 cent Key performance indicators (reflect hotel performance for the period owned by the Group) Occupancy % 82.1% 80.2% 190 bps Average room rate ( ) % RevPAR 2 ( ) % STRONG OPERATING PERFORMANCE Strong revenue growth of 10.6% to million Revenue per available room 2 (RevPAR) up 7.1% to Adjusted EBITDA 2 up 12.0% to 50.3 million Adjusted diluted EPS up 14.7% to 17.2 cent STRONG BALANCE SHEET SUPPORTING FUTURE GROWTH Hotel assets 2 over 1.1 billion Net upward property revaluation gain of 58.5 million Net Debt to Adjusted EBITDA 2 of 2.5x 570 new rooms opened to date in Dublin, Belfast and Galway creating over 230 new jobs Pipeline of over 2,800 rooms delivering between now and 2021 ANNOUNCING TODAY The Board has declared an interim dividend of 3.0 cent per share payable on 12 October 2018 Signed an agreement to lease a new 276 room Maldron Hotel to be built in the centre of Manchester 1 Revenue and cost of sales have been restated for the period ending 30 June 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss 2 See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 1

2 STRATEGIC AND OPERATING HIGHLIGHTS Over 1,500 new rooms opening throughout 2018: o Successfully opened Maldron Hotel Belfast City in March 2018 and Maldron Hotel Kevin Street, Dublin in July Completed and opened extensions at Clayton Hotel Dublin Airport, Maldron Hotel Sandy Road, Galway and Clayton Hotel Ballsbridge, Dublin o Clayton Hotel Aldgate, London with 212 rooms is scheduled to open in December 2018 o Three new hotels and one extension totalling 670 rooms on target to open in Dublin, Cork and Newcastle in Q4 2018, delivering a total of 250 new jobs across three cities Additional 1,070 rooms added to pipeline in 2018 in London, Birmingham, Manchester and Bristol 10.8 million was invested in capital refurbishment across all areas of the Group s hotels with 823 rooms refurbished in the first half of 2018 We have reached an agreement, subject to Board approval, to extend the Ballsbridge Hotel lease in Dublin until March 2020 The Group have signed an agreement with CEPF II, a fund administered by Catalyst Capital, to lease a new 4 star Maldron Hotel to be built in Manchester. The 276 room hotel is ideally located in the centre of the city. It is adjacent to the latest large scale mixed use development in Manchester, Circle Square due for completion by The construction of the hotel is subject to the receipt of planning permission from Manchester City Council. It is expected that the hotel will open in the first half of 2021 Demolition of the Tara Towers Hotel will commence in the final quarter of this year to make way for a new 140-bedroom hotel branded Maldron Hotel Merrion Road, 69 residential units and an underground car park. Dalata will manage the construction of the entire development, retain ownership of the hotel and are in exclusive negotiations to forward sell the residential units As announced previously, the Board has adopted a progressive dividend policy with payment based on a percentage of profit after tax. The Board has declared an interim dividend of 3.0 cent per share payable on 12 October 2018 to all ordinary shareholders on the share register at the close of business on the record date of 14 September

3 OUTLOOK With continued expansion across our regions and strong market dynamics, the outlook for the Group remains positive. The outlook for the Dublin market remains strong. While performance of our Dublin hotels has been robust in July and August, occupancy levels in the second half of 2017 were very high and this impacts our ability to grow RevPAR at the same pace in the second half of 2018 as that achieved in the first half of The outlook for our Regional Ireland hotels remains positive. Trading has been marginally ahead of last year in July and August. We remain very positive about the opportunity presented by the fragmented nature of the hotel market in our target UK regional cities. Trading across our UK hotels has been mixed but broadly in line with our expectations given the challenging market conditions in some cities. The balance of the year should be broadly similar to performance levels in the year to date. As we continue to explore opportunities in the UK and Irish hotel markets, we remain very confident that we can further build an attractive pipeline of rooms. The reduction in the VAT rate has been hugely positive for the hotel industry as a whole. However, should the rate increase in Ireland from 9% to 13.5%, we estimate this could reduce Group revenues by up to 2.0% for a full trading year. 3

4 Commenting on the results, Pat McCann, Dalata Group CEO, said: I am delighted to report that we have delivered another period of strong earnings growth. Our Dublin hotels continued to outperform the market achieving a RevPAR growth of 10.7% versus the city as a whole of 8.9%. Our hotels in Regional Ireland also performed well achieving a RevPAR growth of 8.1%. I am particularly pleased with our performance in the UK as our London hotels and regional UK hotels located in Cardiff, Manchester, Birmingham and Leeds all outperformed the market. As I have said before, this strong performance is attributable to Dalata s decentralised model and the bespoke strategies for revenue management at each hotel. As I highlighted in February, our EBITDAR margin 1 will decrease in 2018 due to the impact of pre-opening costs, some major hotel extension projects and new build hotels which will initially operate at a lower margin. We are very focused on staying in tune with our customers and understanding their perceptions of our current offering. In 2018 we have received over 72,000 reviews, 86% of which were positive. Our customers commend our great service, warm reception, cleanliness and the location of our hotels but we will never stop trying to increase that 86% further. To complement our Click on Clayton, we launched Make it Maldron in March which gives our customers the opportunity to sign up to our closed user group and receive discounts. We are continuously investing in our physical product to ensure it meets and exceeds the expectations of our customers. In the first half of 2018 we invested 10.8 million refurbishing 823 rooms, public areas, meeting rooms and back of house areas. I firmly believe that our culture at Dalata is paramount to our success and our ability to achieve our strategy. We are an organisation who strive to be fair and respectful. Our work ethic is intense and we recognise that there is always room for improvement. We are dedicated to offering our employees an opportunity to build a fulfilling career and our pipeline of new hotels will ensure that there are always new prospects available to our employees. So far in 2018, we have opened two new hotels in Dublin and Belfast representing a total investment of 50 million. We also completed significant redevelopment projects incorporating 233 additional bedrooms, meeting facilities and upgraded food and beverage facilities across three hotels representing a combined investment of 34.9 million. Completing extensive refurbishment projects and extensions is not an easy task, especially with a busy hotel to run. I am delighted to say that our teams managed these projects excellently with minimal disruption to our customers. This is a fantastic achievement and demonstrates our people s hunger to deliver what is promised. 1 See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 4

5 I am pleased to announce the development of another new Maldron Hotel in a great location in the centre of Manchester. This will be our third hotel in Manchester as we already successfully operate a Clayton Hotel at Manchester Airport and are developing a new Clayton Hotel at Portland Street. We also announced last week that we have secured a new hotel in Aldgate, London. I am really excited about this opportunity as this hotel gives us a presence in a key central location within the city and is ideally located for both corporate customers and leisure guests who want to be close to the City of London. The hotel is projected to be earnings per share enhancing from its first year of operation. We said in February that we were very encouraged by the reaction of developers and potential investors to the strength of our balance sheet covenant and operational expertise. Since that date, we have announced new hotel projects in London, Bristol, Manchester and Birmingham totalling 1,070 rooms. All of the new hotels will be located in key central locations within these cities. Our investment in a new hotel in London is particularly exciting as we are performing very well in this market but it has been a location within which it has been difficult to secure new opportunities. The hotel projects secured in our pipeline together with the strong performance of our existing regional UK hotels demonstrates our ability to deliver on our regional UK strategy of rolling out both our Maldron and Clayton brands across the major cities of the UK. I am monitoring the ongoing speculation about the possibility of the VAT rate in Ireland for hospitality services increasing from 9% to 13.5%. I believe that the reduction in the VAT rate has been hugely positive for the tourism industry and has been a very significant factor in the additional 79,100 1 jobs created in the sector since the lower rate was introduced in July I also note that annual VAT income to the exchequer from the tourism industry is expected to increase from 630 million in 2012 to 1.04 billion 1 by the end of has been very positive to date for Dalata through a combination of strong earnings growth and the opening of a significant number of new hotel rooms. We are on track to meet our target of announcing an additional 1,200 rooms to our pipeline. I am looking forward to the remainder of 2018 when we will strive to ensure that the strong momentum of the first eight months continues as well as being fully prepared for 2019 and the years beyond. ENDS 1 ITIC - Competitiveness and Investment: Preparing for Tourism s Future Budget

6 About Dalata Dalata Hotel Group plc is Ireland's largest hotel operator with a growing presence in the United Kingdom. The Group s current portfolio consists of 39 hotels with over 8,200 rooms and approximately an additional 2,800 rooms are currently being developed. Dalata successfully operates Ireland's two largest hotel brands, Clayton Hotels and Maldron Hotels across Ireland and the UK, as well as managing a small portfolio of partner properties. 28 of the hotels are owned by Dalata, nine hotels are operated under lease agreements and two are operated under management agreements. For the six month period ended 30 June 2018, Dalata reported revenue of million and a profit after tax of 30.5 million. Dalata is listed on the Main Market of the Euronext Dublin (DHG) and the London Stock Exchange (DAL). For further information visit: Conference Call Details Analysts & Institutional Investors Management will host a conference call for analysts and institutional investors at 08:30 BST, today 4 September 2018, and this can be accessed using the contact details below. From Ireland dial: From the UK dial: From the USA dial: From other locations dial: Participant PIN code: # Contacts Dalata Hotel Group plc Tel Pat McCann, CEO investorrelations@dalatahotelgroup.com Dermot Crowley, Deputy CEO, Business Development & Finance Sean McKeon, Company Secretary and Head of Risk and Compliance Joint Company Brokers Davy: Anthony Farrell Tel Berenberg: Ben Wright T: Investor Relations and PR FTI Consulting Tel Melanie Farrell dalata@fticonsulting.com Note on forward-looking information This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority. 6

7 H Financial Performance H H million million Revenue Segments EBITDAR Rent (16.2) (16.3) Segments EBITDA Central overheads (4.3) (4.8) Share-based payment expense (1.2) (0.7) Other income / costs Adjusted EBITDA Acquisition-related costs - (0.1) Net revaluation movements through profit or loss (1.6) 0.7 Group EBITDA Depreciation and amortisation charge (9.3) (7.6) Operating profit Finance costs (4.0) (5.2) Profit before tax Tax (4.9) (4.4) Profit for the period Basic earnings per share 16.6 cent 15.5 cent Diluted earnings per share 16.4 cent 15.4 cent Adjusted diluted earnings 2 per share 17.2 cent 15.0 cent Segments EBITDAR margin % 40.6% 1 Revenue and cost of sales have been restated for the period ending 30 June 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss 2 See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 7

8 Hotel performance overview The Group achieved revenue growth of 10.6% to million and increased adjusted EBITDA by 12.0% to 50.3 million in the period. Revenue increased by 17.3 million largely due to acquisition activity and the strong performance of the existing business. The full period impact of the 2017 acquisitions contributed an additional 10.0 million while the opening of Maldron Hotel Belfast City in March 2018 contributed 2.1 million. The Group also achieved a like for like increase in revenues of 10.1 million from the existing business. These increases were offset by the disposal of the leasehold interest in the Croydon Park Hotel and a reduction in the number of management contracts in line with expectations, resulting in a combined loss of revenue of 4.3 million. Adverse foreign exchange movements in the value of sterling also decreased revenue from the UK portfolio by 0.6 million versus the previous period. EBITDAR margin decreased from 40.6% to 39.8% due to the impact of (i) the new build hotel at Maldron Hotel Belfast City which will initially operate at a lower margin (ii) pre-opening costs of 0.7 million and (iii) hotels undertaking major extensions during Excluding the results from Maldron Hotel Belfast City and the impact of pre-opening costs Segments EBITDAR margin is in line with H There is no significant change in the rent charge at 16.2 million for the period. The full period impact of the purchase of long leasehold interests in Clayton Hotel Cardiff Lane during 2017, the purchase of the freehold interest of Maldron Hotel Portlaoise in May 2017 and the disposal of the leasehold interest in Croydon Park Hotel resulted in a combined saving of 2.8 million. These savings were offset by (i) increased performance related rents (ii) the sale and leaseback of Clayton Hotel Cardiff in June 2017 and (iii) the addition of the leased Clayton Hotel Birmingham. The total number of rooms operated by the Group increased from 7,674 at 31 December 2017 to over 8,080 at period end, as a result of the opening of Maldron Hotel Belfast City and the completion of two large extensions at existing hotels in Ireland. Geographical split at 30 June 2018 Dublin Regional Ireland UK Managed Hotels Hotel numbers Room numbers 4,146 1,706 1, % of revenue 59% 20% 21% - % of segments EBITDAR 69% 12% 18% 1% % of segments EBITDA 64% 15% 20% 1% Central overheads The Group continues to increase resources across all central functions to ensure the team can support the growing portfolio and seek out new opportunities to develop further. Central overheads have decreased by 0.5 million compared to the same period last year due to differences in the timing and type of projects. We expect that central overheads for the year will increase. 8

9 Adjusting items to EBITDA Management disclose adjusted EBITDA to show the underlying operating performance of the Group excluding the effects of revaluation movements through profit or loss and items considered by management to be non-recurring or unusual in nature. The Group adopts a revaluation policy for its hotel property assets. For the first half of 2018 the Group recorded revaluation losses of 2.4 million and a reversal of prior year revaluation losses of 0.8 million through profit or loss. There were no acquisition costs in the period. Depreciation The depreciation charge increased by 1.7 million compared to first six months of In 2018 there is additional depreciation due to the opening of Maldron Hotel Belfast City, the acquisition of Clayton Hotel Liffey Valley and the acquisition of the freehold interest of certain elements of Clayton Hotel Cardiff Lane. Finance Costs H H million million Interest expense on loans Impact of interest rate swaps and caps Other finance costs Net exchange (gain)/loss on loans, borrowings and cash (0.1) 0.1 Interest capitalised to property, plant and equipment (1.2) (0.7) Finance costs Finance costs decreased by 1.2 million in the first half of 2018 largely due to an increase of 0.5 million in the amount of interest capitalised to property, plant and equipment. In line with accounting standards, the Group has capitalised interest on loans and borrowings which finance the construction of the new hotels in Ireland and the United Kingdom. Other finance costs, which include the amortisation of debt capitalised costs and commitment fees on loans and borrowings, decreased by 0.3 million as the impact from the amortisation of debt costs decreases over time under the effective interest method. Tax charge The Group s effective tax rate 1 increased from 13.3% for the first half of 2017 to 13.9% for the first half of The effective tax rate was lower in H due to the benefit of tax losses from previous acquisitions to which no value had been initially attributed. Furthermore, the rate in H is higher as the net losses on revaluation are not an allowable deduction when calculating the corporation tax charge. 1 See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 9

10 Adjusted EBITDA bridge The table below highlights the growth in earnings due to acquisition activity and a strong performance increase in the existing business. The combination of lower revenue growth and cost increases across all regions have resulted in a lower conversion on a like for like basis than in previous periods. Dublin Regional Ireland United Kingdom Full million 30 June 2017 Full period impact of properties acquired in New builds 2 Impact of renegotiated leases & rent review 3 Like for Like increase period impact of freeholds acquired in Like for Like increase Full period impact of properties acquired in New builds 6 Disposal of hotel 7 Effect of FX Like for Like increase Net reduction in income from management contracts Movement in Group income and expenses 8 30 June 2018 Revenue (3.7) (0.6) 1.3 (0.6) Segments (0.4) EBITDAR (1.0) (0.3) 0.5 (0.6) Rent (16.3) (0.4) (0.6) 0.2 (0.1) (1.5) (0.1) - - (16.2) Segments EBITDA (0.4) (0.4) (0.5) (0.3) 0.4 (0.6) Rental income (0.3) 0.1 Central costs (4.8) (4.3) Share based payments (0.7) (0.5) (1.2) expense Adjusted EBITDA (0.4) (0.4) (0.5) (0.3) 0.4 (0.6) (0.3) 50.3 Segments EBITDAR margin 40.6% 48.6% 37.5% 38.5% 39.8% 1. Includes the step acquisition of Clayton Hotel Liffey Valley beginning in August 2017 and the rent saving due to the acquisition of the freehold interest of certain elements of Clayton Hotel Cardiff Lane in various transactions 2. Includes the pre-opening costs relating to Maldron Hotel Kevin Street which opened in July 2018 and Clayton Hotel Charlemont due to open in November Includes the impact of the re-negotiated leases at two properties and the rent review for another property 4. Includes the acquisition of the Maldron Hotel Portlaoise freehold (May 2017) 5. Includes the acquisition and subsequent sale and leaseback of Clayton Hotel Birmingham (formerly Hotel La Tour, Birmingham) in August 2017 and the increased rent from the sale and leaseback of Clayton Hotel Cardiff in June Includes the results and pre-opening expenses relating to Maldron Hotel Belfast City which opened in March Includes the disposal of a non-core asset at Croydon Park Hotel in June Group income and expenses include rental income, central overheads and share-based payments expense 10

11 Performance Review Segmental Analysis The following section analyses the results from the Group s portfolio of hotels in Dublin, Regional Ireland and United Kingdom. 1. Dublin Hotel Portfolio EBITDA up 5.8 million million 6 months ended 30 June months ended 30 June Room revenue Food and beverage revenue Other revenue Total revenue EBITDAR Rent (13.6) (14.2) EBITDA EBITDAR margin % 46.1% 47.1% Performance statistics 6 months ended 30 June months ended 30 June 2017 Occupancy 86.2% 82.3% Average room rate ( ) RevPAR ( ) RevPAR increase 10.7% Performance statistics reflect full six-month performance of the hotels in this portfolio for both periods regardless of when acquired. Dublin owned & leased portfolio 6 months ended 30 June months ended 30 June 2017 Hotels Room numbers 4,146 3,699 The fifteen hotels in the Group s Dublin portfolio consists of six Maldron hotels, six Clayton hotels, the Ballsbridge Hotel, Tara Towers Hotel and The Gibson Hotel. Since 30 June 2017, Dalata have acquired the majority of Clayton Hotel Liffey Valley through multiple transactions and completed the extension at Clayton Hotel Dublin Airport. The Dublin market performed strongly in the first half of Dalata s Dublin hotels recorded a RevPAR growth of 10.7% in H1 2018, outperforming Dublin market growth of 8.9%. In line with management s expectations the Group s Dublin hotels outperformed the market growth in occupancy but were slightly behind the market growth in average room rate. The Group s revenue strategy was focused on driving occupancy in the first quarter of 2018 and increasing the level of base business at the hotels with new extensions. Occupancy at Dalata s Dublin hotels increased by 390 basis points to 86.2% for the first half of EBITDAR from the Dublin hotels increased by 5.2 million to 49.4 million for the first half of The full period impact of the acquisition of Clayton Hotel Liffey Valley in 2017, together with the additional suites acquired during 2018 contributed an additional EBITDAR of 2.1 million. The existing 1 Revenue and cost of sales have been restated for the period ending 30 June 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss 11

12 Dublin hotels achieved a like for like EBITDAR increase of 3.5 million, reflecting a 48.6% conversion of additional revenue. EBITDAR margin for Dublin hotels decreased from 47.1% to 46.1% due to the impact of the newly acquired Clayton Hotel Liffey Valley which operates at a lower margin, hotels where major extensions were ongoing during 2018 and pre-opening costs. The results for Dublin include pre-opening costs of 0.4 million relating to the new Maldron Hotel Kevin Street and Clayton Hotel Charlemont. Additionally, we continue to invest time and funds implementing the Dalata procedures and structures at Clayton Hotel Liffey Valley and bringing the hotel to full operational capacity as we acquire additional rooms. Excluding Clayton Hotel Liffey Valley and the pre-opening costs the Dublin EBITDAR margin increased to 47.3% on a like for like basis. Rent decreased by 0.6 million in the first half of 2018 due to a number of factors such as increases in performance related rents, the reduction in rent under an existing lease, rent review increases and the acquisition of certain elements of Clayton Hotel Cardiff Lane. 2. Regional Ireland Hotel Portfolio Maintaining performance of existing business million 6 months ended 30 June months ended 30 June Room revenue Food and beverage revenue Other revenue Total revenue EBITDAR Rent (0.5) (0.6) EBITDA EBITDAR margin % 24.0% 23.4% Performance statistics 6 months ended 30 June months ended 30 June 2017 Occupancy 72.1% 71.5% Average room rate ( ) RevPAR ( ) RevPAR increase 8.1% Performance statistics reflect full six-month performance of the hotels in this portfolio for both periods regardless of when acquired. Regional Ireland owned & leased portfolio 6 months ended 6 months ended 30 June June 2018 Hotels Room numbers 1,706 1,643 The twelve hotels in Regional Ireland comprise six Maldron hotels and six Clayton hotels. Since 30 June 2017 Dalata has opened the new extension comprising 63 rooms at Maldron Hotel Sandy Road in Galway. 1 Revenue and cost of sales have been restated for the period ending 30 June 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss 12

13 The Group s hotels in Cork, Galway and Limerick generate 70% of revenue and 74% of EBITDAR in the Regional Ireland portfolio. Dalata s hotels in Regional Ireland achieved a RevPAR growth of 8.1% on the first half of RevPAR in our Cork hotels grew by 13.7% versus market growth of 14.8%. Maldron Hotel Shandon Cork City and Clayton Hotel Silver Springs outperformed the market. However, RevPAR growth at Clayton Hotel Cork City was lower as this hotel already achieves a RevPAR at the higher end of the market leaving less scope for growth year on year. RevPAR in our Galway hotels grew by 5.0% versus the market growth of 9.4%. Maldron Hotel Sandy Road was behind market growth due to the impact from the construction of the new extension and refurbishment of public areas. Furthermore, the market RevPAR growth statistics are distorted by the re-opening of a high end hotel in Galway in 2018 that had not traded for The Group s Limerick hotels grew RevPAR by 5.9% versus the market growth of 9.3%. Occupancy decreased at the Group s hotels in Limerick as a significant amount of project business did not reoccur in the first half of EBITDAR increased by 0.6 million in the first six months of 2018 driven by the existing hotels in Regional Ireland. EBITDAR margin increased from 23.4% to 24.0% due to good conversion of additional room sales. However, the margin will always be lower in Regional Ireland hotels compared to Dublin due to lower average room rates and the higher mix of food and beverage revenue. 3. United Kingdom Hotel Portfolio Growing the portfolio and outperforming the market Local currency - million 6 months ended 30 June months ended 30 June Room revenue Food and beverage revenue Other revenue Total revenue EBITDAR Rent (1.8) (1.3) EBITDA EBITDAR margin % 36.0% 37.6% Performance statistics 6 months ended 30 June months ended 30 June 2017 Occupancy 83.1% 81.1% Average room rate ( ) RevPAR ( ) RevPAR increase 3.8% Performance statistics reflect full six-month performance of the hotels in this portfolio for both periods regardless of when acquired. UK owned & leased portfolio 6 months ended 6 months ended 30 June June 2018 Hotels 9 7 Room numbers 1,968 1,557 1 Revenue and cost of sales have been restated for the period ending 30 June 2017 as a result of the retrospective application of IFRS 15. The impact is limited to a reclassification between revenue and cost of sales in profit or loss 13

14 The Group s UK hotel portfolio comprises seven Clayton hotels and two Maldron hotels with two hotels situated in London, four hotels in regional UK and three hotels in Northern Ireland. The increase in room numbers since 30 June 2017 is driven by the acquisition of the leasehold interest in Clayton Hotel Birmingham (174 rooms) in July 2017 and the new Maldron Hotel Belfast City (237 rooms) which opened in March Altogether the Group s UK portfolio achieved a RevPAR growth of 3.8% for the six months ended 30 June While the London market saw a decline in RevPAR of 1.4%, Dalata s hotels only experienced a decrease of 1.0% due to the robust revenue strategies in place. London remains challenging predominately around the weekend periods where London is seeing a decline in leisure business leading to reduced rates being offered to attract customers. Performance was mixed amongst the rest of the UK market. However, all of Dalata s hotels in regional UK outperformed the market in terms of RevPAR growth. The strong performance of our hotels in regional UK is attributable to Dalata s decentralised model and the bespoke revenue management strategies at each hotel. Dalata s continued strong performance in regional UK further supports our strategy to increase our presence in our top twenty cities in regional UK. EBITDAR increased by 0.6 million to 11.7 million in the first half of This was predominately driven by (i) the significant cost savings at Clayton Hotel Birmingham as the Dalata structures and processes continue to be implemented and (ii) the disposal of Croydon Park Hotel in June 2017 which operated at a lower margin. The existing UK business continues to be impacted by cost pressures from increased pay rates. However, Dalata has maintained strong cost control given these challenging circumstances. As anticipated, Dalata s ability to grow EBITDAR margin is constrained in the short term due to the impact of new hotels opening and pre-opening costs. It takes approximately two to three years for a new hotel to reach its peak operating performance. As a result, the Group s UK performance is constrained this period by the new hotels with lower EBITDAR margins and pre-opening costs which are approximately 0.4 million per new hotel. Excluding the results from the new Maldron Hotel Belfast City and pre-opening costs, the EBITDAR margin for the UK hotels would be in line with the first six months of Rent has increased by 0.5 million due to the sale and leasebacks of Clayton Hotel Cardiff in June 2017 and Clayton Hotel Birmingham in August This was partially offset by the saving from the disposal of the previously leased Croydon Park Hotel in June

15 Strong operating cash flows re-invested in the business The Group s portfolio of hotels generated strong operating cash flow during the period with free cash flow of 31.4 million. The Group re-invested this cash in the business through hotel refurbishment projects and further acquisitions. 6 months ended 30 June months ended 30 June 2017 Net debt to Adjusted EBITDA 1 2.5x 1.9x Free cash flow 1 - million Free cash flow conversion % 57.5% The Group defines free cashflow as net cash from operating activities including cash outflows for finance costs, refurbishment capital expenditure and excluding adjusting cash items. Adjusting cash items are added back to show how much cash would be generated on a normalised basis. The Group allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio remains fresh for our customers and adheres to brand standards. Free cash flow conversion was lower at 57.5% for the first six months last year due to the impact of a rental prepayment for Clayton Hotel Burlington Road. Net Debt to Adjusted EBITDA 1 remained relatively low at 2.5x at 30 June See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 15

16 Dalata s strong balance sheet helps support future growth 30 June Dec 2017 million million Non current fixed assets Property, plant and equipment 1, Goodwill and intangible assets Other non-current assets Current assets Trade receivables, inventory and other Cash Total assets 1, ,101.1 Equity Loans and borrowings Trade and other payables Other liabilities Total equity and liabilities 1, ,101.1 Loan to value ratio % 26.3% Return on capital employed % 11.4% Return on adjusted capital employed % 12.5% The Group is committed to maintaining a strong balance sheet with an appropriate level of gearing to ensure it can withstand any unforeseen shocks to the business and that it retains a strong covenant to attract potential landlords and investors, vital for the Group s leasing strategy for expansion in the United Kingdom. This period Dalata achieved an adjusted return on capital employed of 12.4%. This figure excludes the investment of million in future openings and new hotels that came into use just before June See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ( APM ) and other definitions 16

17 Property, plant and equipment The value of the Group s property, plant and equipment exceeded 1.1 billion at 30 June Property, plant and equipment increased by million primarily due to additions ( 66.7 million), and a net gain on the revaluation of land and buildings ( 58.5 million), offset by the depreciation charge of 9.3 million. A detailed breakdown of the 66.7 million additions is outlined in the table below. H million H million Hotel assets acquired Expenditure on assets under construction Refurbishment capital expenditure Development capital expenditure Additions to property, plant and equipment During the period, the Group purchased a further 29 suites (39 rooms) at Clayton Hotel Liffey Valley, Dublin for a total cost of 6.9 million, including acquisition related costs of 0.6 million. Expenditure on assets under construction included 24.2 million on new hotel builds and 20.8 million on extensions to existing hotels. The Group also spent 10.8 million in refurbishment capital expenditure in the first half of 2018 which included 5.4 million spent on refurbishing 823 bedrooms and 5.4 million invested in on-going maintenance to refurbish public areas, upgrade technology and ensure the Group continues to adhere to health and safety standards. A further 4.0 million was spent bringing new hotels in line with brand standards. Financial Structure million Loans and borrowings at 31 December New facilities drawn down 58.0 Capital repayment (21.9) Effect of foreign exchange movements 0.3 Amortisation of debt costs 0.6 Loans and borrowings at 30 June The Group had bank debt of million at 30 June 2018, of which million ( million) was denominated in sterling. As at 30 June 2018, the Group had drawn 47 million from the multicurrency revolving credit facility, leaving undrawn facilities of 55.2 million of which 33 million was in the form of a revolving credit facility and 22.2 million of a term loan facility. On 24 August 2018, the Group entered into an additional 100 million revolving credit facility with the existing club of banks. The current debt facilities are due to mature in early However, the Group is currently reviewing its refinancing options and strategies with banking partners and expects to have a new facility in place within the next six months. 17

18 Current pipeline of over 2,800 rooms including 1,070 rooms announced in 2018 Planning granted Construction started Estimated opening Rooms Dublin Hotels and Extensions Clayton Hotel Charlemont 189 x x Nov 2018 Extension at Maldron Hotel Parnell Square 53 x x Dec 2018 Maldron Hotel Merrion Road 140 x Q Regional Ireland Hotels Maldron Hotel South Mall, Cork 163 x x Dec 2018 UK Hotels Maldron Hotel, Newcastle 265 x x Dec 2018 Clayton Hotel Aldgate, London 212 x x Dec 2018 Clayton Hotel, Bristol 252 Q Maldron Hotel, Glasgow 300 Q Clayton Hotel, Glasgow 294 Q Maldron Hotel, Birmingham 330 Q Clayton Hotel, Manchester 329 x Q Maldron Hotel Manchester 276 Q Total pipeline 2,803 Dalata completed and opened over 570 new rooms to date in The Group is committed to growing its portfolio of hotels with over 2,800 new rooms in its pipeline, of which 1,070 were announced during The development of the hotels in Ireland and the UK remain on track and on budget. Clayton Hotel Charlemont in Dublin and Maldron Hotel South Mall in Cork are scheduled to open at the end of Maldron Hotel Newcastle will open earlier than originally expected in December Construction of Clayton Hotel Aldgate, London is scheduled to be completed later this year. Planning has been approved for the new Clayton Hotel Manchester on Portland Street and construction is expected to commence within the next month. Formal planning applications have been submitted for our new hotels in Scotland, Clayton Hotel Glasgow with 294 rooms and Maldron Hotel Glasgow with 300 rooms. The demolition of the Tara Towers Hotel in Dublin will begin in the final quarter of this year to make way for a new 140-bedroom hotel branded Maldron Hotel Merrion Road and 69 residential units. Dalata will manage the construction of the entire development, retain ownership of the hotel and are in negotiations to forward sell the residential units. During 2018, Dalata also signed agreements to lease two new Maldron hotels in Birmingham and Manchester and a new Clayton hotel in Bristol. Preparations for the planning processes are currently underway. 18

19 IFRS 15 Revenue from Contracts with Customers The Group applied IFRS 15, which was effective for the first time for the Group from 1 January 2018, in the condensed consolidated interim financial statements for the six months ended 30 June Under IFRS 15, all revenue from customer contracts must be recorded on a gross basis with commissions deducted separately as cost of sales. The impact is limited to a reclassification between revenue and cost of sales in profit or loss, with no overall effect on EBITDAR or profit. As a result of the impact of IFRS 15, room revenue within total revenue includes an additional 2.2 million as it is presented on a gross basis and cost of sales has also increased by 2.2 million due to the inclusion of commissions. The Group has restated the comparative numbers for the period ended 30 June 2017 resulting in an increase to revenue of 1.5 million and an increase in cost of sales of 1.5 million. IFRS 15 also affects a number of key performance metrics which are based on revenue. RevPAR for the group and individual hotels has increased as average room rates are now presented gross for all customer contracts. The EBITDAR margin for the Group and the reported segments has decreased as it is calculated as a percentage of a higher revenue number. All prior period comparatives have been restated to include the impact of IFRS 15. Note two of the attached condensed consolidated interim financial statements contains further information. IFRS 16 Leases Under IFRS 16, which will become effective on 1 January 2019, the distinction between operating and finance leases is removed for lessees and almost all leases are reflected in the statement of financial position. As a result, an asset (the right-of-use of the leased item) and a financial liability to pay rental expenses are recognised. Fixed rental expenses will be removed from profit or loss and replaced with finance costs on the lease liability and depreciation on the right-of-use asset. Despite the significant impact of the accounting change in the financial statements the Group foresees no impact on strategy and no impact on commercial negotiations for leases. The UK tax authorities announced in July that they will allow tax deductions in line with the revised accounting treatment. Given the front-loading impact of expenses under IFRS 16, this treatment means there will be a positive cash flow impact. The Irish tax authorities have not yet announced their approach. Bank covenants as currently calculated under existing debt arrangements will not be impacted as their calculation is based on GAAP on date of entry into the agreements. 19

20 Principal Risks and Uncertainties The Group s principal risks and uncertainties for the remainder of 2018 are: Geo-political events could result in uncertainty and have an impact on general economic activity in the UK and Ireland and further afield which in turn could impact on the numbers of people looking to stay at hotels in both countries A significant reduction in the value of sterling would also make Ireland a more expensive destination for UK visitors which in turn could impact on the number of UK residents staying in Irish hotels. UK visitors are an important part of our business in Ireland but approximately 86% of our rooms in Dublin were sold to either domestic consumers or visitors from countries other than the UK in the first half of Approximately 7% of our rooms sold in our Regional Ireland hotels in the first half of the year were to UK customers A very significant proportion of EBITDA is generated by the Dublin hotel portfolio, and therefore any downturn in the Dublin market is likely to have a material impact on the Group's performance. There is also risk associated with an increase in supply of rooms in the Dublin market in the future. However, demand for hotel rooms in Dublin continues to grow and the Group believes the market can support increases in supply. Additionally, the UK expansion strategy will reduce the proportion of EBITDA produced out of Dublin over time The opening of the six new hotels and four hotel extensions in 2018 presents an operational risk that expected earnings may not materialise. The Group is minimising this risk by having teams in place and contracting business with corporates and tour operators well in advance of the hotels opening dates. Senior management have considerable past experience and a strong track record of success at opening new hotels. The two hotels already completed are performing well and have opened successfully As Dalata expands there is a risk that the organisation s unique culture and values could be damaged or it fails to retain key expertise and develop talent within the Group. The rollout of the Dalata business model is dependent on the availability of key people to manage the hotels and the retention of its strong culture. The Group is actively managing these risks through the development of the "Dalata Way" values programme and a sustainable development strategy, together with strong communication and training to all employees There is ongoing speculation that the VAT rate on hospitality services in Ireland may increase from 9% to 13.5%. Management do not know at this point if such an increase will occur. If the rate were to increase, management estimate that, all other things remaining equal, Group revenue could fall by up to 2.0% in a full trading year 20

21 Supplementary Financial Information Alternative Performance Measures ( APM ) and other definitions The Group reports certain alternative performance measures ( APMs ) that are not required under International Financial Reporting Standards ( IFRS ) which represent the generally accepted accounting principles ( GAAP ) under which the Group reports. The Group believes that reporting these APMs provides useful supplemental information which, when viewed in conjunction with our IFRS financial information, provides investors with a more meaningful understanding of the underlying financial and operating performance of the Group and its operating segments. These APMs are primarily used for the following purposes: to evaluate the historical and planned underlying results of our operations; and to discuss and explain the Group s performance with the investment analyst community. None of the APMs should be considered as an alternative to financial measures derived in accordance with GAAP. The APMs can have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. These performance measures may not be calculated uniformly by all companies and therefore may not be directly comparable with similarly titled measures and disclosures of other companies. The principal APMs used by the Group, together with reconciliations where the non-gaap measures are not readily identifiable from the financial statements, are as follows: (i) EBITDA EBITDA is a non-gaap measure representing earnings before interest, tax, depreciation and amortisation. A reconciliation is presented in note 4 to the condensed consolidated financial statements for the six months ended 30 June (ii) Segments EBITDA Segments EBITDA represents the EBITDA for the Group s reportable segments: Dublin, Regional Ireland, United Kingdom and Managed Hotels. A reconciliation is presented in note 4 to the condensed consolidated financial statements for the six months ended 30 June (iii) Segments EBITDAR Segments EBITDAR is a non-gaap measure representing earnings before rent, interest, tax, depreciation and amortisation for each of the reportable segments: Dublin, Regional Ireland, United Kingdom and Managed Hotels. Refer to note 4 to the condensed consolidated financial statements for the six months ended 30 June 2018 for the reconciliation. (iv) Segments EBITDAR margin Segments EBITDAR margin represents Segments EBITDAR as a percentage of the total revenue for the Group s segments, Dublin, Regional Ireland and United Kingdom. 21

22 (v) Adjusted EBITDA Adjusted EBITDA is a non-gaap measure representing earnings before interest, tax, depreciation and amortisation adjusted for revaluation movements and other items considered by management to be non-recurring or unusual in nature. A calculation is presented in note 4 to the condensed consolidated financial statements for the six months ended 30 June (vi) Adjusted diluted earnings per share (EPS) Adjusted Diluted EPS is a non-gaap measure representing the underlying operating performance of the Group excluding the tax adjusted effects of revaluation movements and other items considered by management to be non-recurring or unusual in nature. The calculation is presented in note 22 to the condensed consolidated financial statements for the six months ended 30 June (vii) Net Debt to Adjusted EBITDA Net Debt to Adjusted EBITDA represents loans and borrowings less cash and cash equivalents divided by the Adjusted EBITDA for a twelve month period. The calculation at 30 June 2018 is based on the Group s adjusted EBITDA for the period from 1 July 2017 to 30 June Calculation Reference in Financial Statements 30 June December 2017 Loans and borrowings Note , ,139 Add back: Deferred issue costs repayable within 1 year Note 18 1,046 1,094 Deferred issue costs repayable after 1 year Note ,077 Gross loans and borrowings 298, ,310 Less: cash and cash equivalents Statement of Financial Position (22,657) (15,745) Net debt 276, ,565 Adjusted EBITDA: For 12 months ended 31 December 2017 See below (xiii) - 104,873 For 12 months ended 30 June 2018 See below (xiii) 110,259 - Net debt to Adjusted EBITDA 2.5x 2.4x (viii) Effective tax rate The Group s effective tax rate represents the annual tax charge divided by the profit before tax presented in the condensed consolidated statement of profit or loss and other comprehensive income for the six months ended 30 June Calculation Reference in Financial Statements 6 months ended 30 June months ended 30 June 2017 Tax charge Statement of Comprehensive 4,924 4,360 Profit before tax Income 35,374 32,707 Effective tax rate 13.9% 13.3% 22

23 (ix) Free cash flow (after interest and tax payments) Free cash flow is presented to show the cash available to fund acquisitions, development expenditure and loan repayments. The Group calculates free cash flow as net cash from operating activities, less amounts paid for interest, finance costs and refurbishment capital expenditure and after adding back cash paid in respect of adjusting items to EBITDA. Adjusting cash items in 2017 represent acquisitionrelated costs and are added back to show how much cash would be generated on a normalised basis. The Group allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio remains fresh for its customers and adheres to brand standards. Calculation Reference in Financial Statements 6 months ended 30 June months ended 30 June 2017 Net cash from operating activities Cashflow Statement 43,268 37,460 Less cash outflows: Interest and finance costs Cashflow Statement (4,646) (4,829) Refurbishment capital expenditure* (7,223) (6,472) Add back adjusting cash items: Acquisition-related costs Note 5-71 Free cashflow 31,399 26,230 * For interim reporting refurbishment capital expenditure is calculated as 4% of total revenue for the six-month period (x) Free cash flow conversion Free cash flow conversion is presented to show the proportion of the Group s adjusted EBITDA, after adding back non-cash items, that is converted to free cash flow. The accounting cost of the LTIP and SAYE are excluded as they do not have an impact on cash. Calculation Reference in Financial Statements 6 months ended 30 June months ended 30 June 2017 Adjusted EBITDA Note 4 50,277 44,891 Add back non-cash items: Share based payment expense Note 4 1, Adjusted Cash EBITDA 51,472 45,619 Free cash flow Per above (ix) 31,399 26,230 Free cash flow conversion 61.0% 57.5% (xi) Return on capital employed (ROCE) Return on capital employed represents adjusted EBIT (see (xiii) below) expressed as a percentage of the Group s average capital employed. Capital employed is defined as total assets less total liabilities and excludes the accumulated revaluation gains/losses included in property, plant and equipment, net debt, derivative financial instruments and taxation related balances. The Group s net assets are also adjusted to reflect the average level of acquisition investment spend and the average level of working capital for the accounting period. The average capital employed is the simple average of the opening and closing balance sheet figures. 23

24 Adjusted EBIT represents the Group s adjusted earnings before interest and tax excluding the effect of revaluation movements and items considered by management to be non-recurring or unusual in nature. Calculation Reference in Financial Statements 12 months ended 30 June months ended 31 Dec 2017 Net assets at balance sheet date Statement of Financial Position 822, ,393 Revaluation uplift in Property, Plant and Equipment* (231,717) (173,177) Net deferred tax liabilities Note 19 35,332 28,287 Current tax liabilities Statement of Financial Position 1, Derivatives Statement of Financial Position 1,072 1,777 Net debt See above (vii) 276, ,565 Capital employed 905, ,196 Average capital employed 873, ,143 Adjusted EBIT See below (xiii) 92,831 89,139 Return on average capital employed 10.6% 11.4% * Includes the combined net revaluation uplift included in property, plant and equipment since the revaluation policy was adopted in 2014 or in the case of hotel assets acquired after this date, since the date of acquisition (xii) Adjusted return on capital employed (ROCE) Adjusted return on capital employed is presented to show the Group s return on capital excluding the impact of investment in future hotel openings. Calculation Reference in Financial Statements 12 months ended 30 June months ended 31 Dec 2017 Capital employed See above (xi) 905, ,196 Less assets under construction at period end Note 11 (94,134) (97,365) Assets recently completed in the period* Note 11 (49,530) - Adjusted capital employed 761, ,831 Average adjusted capital employed 752, ,028 Adjusted EBIT excluding pre-opening costs and results from recently completed hotels ** 93,349 89,139 Adjusted return on average capital employed 12.4% 12.5% * Assets recently completed in the period include Maldron Hotel Belfast City (March 2018), the extensions at Clayton Hotel Dublin Airport (June/July 2018) and Maldron Hotel Sandy Road, Galway (June 2018) and part of the extension at Clayton Hotel Ballsbridge, Dublin, which completed during 2018 and therefore did not benefit from a full twelve months of trading ** Amount represents Adjusted EBIT excluding the pre-opening costs of 0.7 million (2017: nil) and earnings from new build hotel recently completed in the period of 0.2 million (2017: nil) which are excluded in adjusted capital employed to ensure consistent comparability 24

25 (xiii) Calculation of adjusted EBITDA and adjusted earnings before interest and tax (adjusted EBIT) for a twelve month period ending 30 June 2018 The table below calculates the adjusted EBITDA and adjusted EBIT for a twelve month period ending 30 June 2018 for use in the calculation of Net Debt to Adjusted EBITDA in (vii) and return on capital employed in (xi) above. Calculation * Page 120 of the Annual report and accounts 2017 (xiv) Loan to value ratio Loan to value ratio is presented to show the Group s degree of leverage. Calculation Reference in Financial Statements 30 June Dec 2017 Property, plant & equipment Note 11 1,116, ,812 Gross loans and borrowings See above (vii) 298, ,310 Loan to value ratio 26.8% 26.3% Other definitions: (i) Revenue per available room (RevPAR) Revenue per available room is calculated as total rooms revenue divided by number of available rooms, which is also equivalent to the occupancy rate multiplied by the average daily room rate achieved. (ii) Hotel assets Reference in Financial Statements Depreciation and amortisation Adjusted EBITDA Adjusted EBIT Twelve months ended 31 December 2017 * 104,873 (15,734) 89,139 Six months ended 30 June 2017 Note 4 (44,891) 7,631 (37,260) Six months ended 31 Dec ,982 (8,103) 51,879 Six months ended 30 June 2018 Note 4 50,277 (9,325) 40,952 Twelve months ended 30 June ,259 (17,428) 92,831 Hotel assets represents the value of property, plant and equipment per the condensed consolidated statement of financial position at 30 June

26 Statement of directors responsibilities For the half year ended 30 June 2018 The Directors are responsible for preparing this interim management report in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007 ( Transparency Directive ), and the Transparency Rules of the Central Bank of Ireland. In preparing the interim financial information, the directors are required to: prepare and present the interim financial information in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007 ( Transparency Directive ), and the Transparency Rules of the Central Bank of Ireland; ensure the interim financial information has adequate disclosures; select and apply appropriate accounting policies; and make accounting estimates that are reasonable in the circumstances. The directors are responsible for designing, implementing and maintaining such internal controls as they determine is necessary to enable the preparation of the interim financial information that is free from material misstatement whether due to fraud or error. We confirm that to the best of our knowledge: (1) the condensed set of financial statements in the half-yearly financial report of Dalata Hotel Group plc ( the Company ) for the six months ended 30 June 2018 ( the interim financial information ) which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes, have been presented and prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union. (2) The interim financial information presented, as required by the Transparency (Directive 2004/109/EC) Regulations 2007, includes: a. an indication of important events that have occurred during the first 6 months of the financial year, and their impact on the condensed set of financial statements; b. a description of the principal risks and uncertainties for the remaining 6 months of the financial year c. related party transactions that have taken place in the first 6 months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and d. any changes in the related party transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first 6 months of the current financial year. On behalf of the board John Hennessy Director 3 September 2017 Pat McCann Director 26

27 Unaudited condensed consolidated interim financial statements for the six months ended 30 June