International Hotel Investments plc - 2014 Unaudited Highlights & 2015 Budget

Tuesday, February 17th, 2015

On 17 February, International Hotel Investments plc issued an announcement to update the market on its performance given the extraordinary events unfolding in Libya and Russia.

Events at Tripoli Hotel

Following the attack on the hotel in Tripoli, Libya on 27 January 2015, the announcement explains that repair works at the hotel have commenced and are expected to cost around €1 million. Going forward, in view of the decline in demand for hotel accommodation in Tripoli, IHI will be further downsizing its operational costs to a bare minimum. Meanwhile, the announcement highlighted the fact that the adjacent Commercial Centre was not affected and has continued to operate uninterruptedly.

As a result, the hotel in Tripoli is expected to register a gross operating loss of €1.2 million in 2014 and the performance is not expected to improve throughout 2015. However, this is expected to be offset by the rental income from the adjacent Commercial Centre which is projected to exceed €5.5 million in 2015.

Impact of sanctions and economic factors on St. Petersburg Hotel

The hotel in Russia has managed to maintain occupancy levels and room rates as quoted in Russian Roubles given that the client base of this hotel is predominantly Russian. Nonetheless, the sanctions imposed on the country as well as the devaluation of the currency is expected to lead to a 42.7% drop in the earnings before interest, tax, depreciation and amortisation (EBITDA) of the Corinthia Hotel St. Petersburg and Commercial Centre in Russia. Meanwhile, this figure is expected to increase by 2.9% to €4.1 million during 2015 largely due to an expected improvement in the performance of the hotel on the back of the improved marketing initiatives and consolidated senior management team.

Overall performance for 2014 and budget for 2015 

As explained in the company announcement dated 11 December 2014, the geographical spread of the IHI Group with not a single property now accounting for more than 17% of EBITDA, mitigated some of the challenges present at the properties in Tripoli and Russia. The downward pressure in profitability at these two properties wwas partly offset with record results at each of the hotels in Malta, Prague, Budapest, Lisbon and London.

In fact, excluding Tripoli and St. Petersburg, the unaudited results for 2014 show that the Group’s gross operating profit (GOP) increased by 34%. These improved results are largely related to the restructuring programme in CHI Limited, the hotel management arm of the Group, that started in 2012 on the basis of four pillars: (i) increased focus on quality service, (ii) marketing efforts at the core of management strategies, (iii) incentive packages for management tied to profit and service targets and (iv) maintaining hotel properties in pristine condition.

On a consolidated basis, including the 50% share of the London hotel, the Group’s EBITDA for 2014 will drop by circa 16% to €34.1 million whilst a rebound to €39.4 million is projected for 2015 as all hotels, with the exception of Tripoli, are forecasted to register improved performances.

Outlook 

Looking ahead, the announcement noted that the IHI Group faces 2015 with confidence.

The damages incurred at the Tripoli hotel will be repaired and the hotel will be re-opened with a product and service that is calibrated to match at least a break-even position at the hotel operation. The Directors of IHI are of the view that Libya will no doubt achieve stability at some point in the future.

Similarly, in Russia, the hotel has been able to mitigate exchange rate losses to some degree. Indeed, data suggests that this hotel made inroads in market share in recent months. IHI is following developments in Russia with interest, but is mostly concerned with the price of oil on international markets, which in itself underpins the Russian economy and the Rouble exchange rate.

Meanwhile, the outlook for the remaining hotels remains positive for 2015, and whilst budgets have been ambitiously set, the Company remains focused on reaching all its targets in 2015 including the repayment of all funding commitments as and when these fall due and which remain well within industry parameters for debt-service coverage ratios.

Island Hotels Group Holdings plc

The announcement also reiterated the Company’s intention to acquire the entire issued share capital of Island Hotels Group Holdings plc (IHG). In this respect, IHI is about to commence a due diligence exercise on IHG subject to IHG’s shareholder approval. This deal is expected to maximize synergies in the respective Malta operations. Additionally, IHI intends to enhance development opportunities by redeveloping the combined land plots in St. Julian’s – a project that will be spanned over several years. Further details on this sizeable project will be announced in due course.

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2014 Preliminary unaudited results and 2015 budget (IHI Company Announcement dated 17 February 2015)

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