International Hotel Investments plc - Full-Year Results

Monday, April 30th, 2018

On 27 April, International Hotel Investments plc (IHI) published its Annual Report and Financial Statements for the year ended 31 December 2017. It is important to highlight that the corresponding figures for 2016 are not directly comparable given that, as from 2017, IHI is consolidating the performance of NLI Holdings Limited which in turn predominantly owns the Corinthia Hotel & Residences in London. Although IHI owns 50% of this company, the results are being consolidated after obtaining control of the Board in accordance with their co-shareholders LAFICO. 

Performance Overview

During 2017, IHI generated a total revenue figure of €242.4 million compared to €157.9 million in 2016. However, most of this increase (€61.8 million) is attributable to the aforementioned consolidation of NLI Holdings Limited. Nonetheless, it is also important to highlight that the Group generated an additional €22.7 million in revenue from its own properties as well as from the other lines of business.

Similarly, direct costs increased sharply to just over €132 million compared to €87.5 million in 2016 leading to a gross profit figure of €110.4 million (2016: €70.38 million) and a gross profit margin of 45.5% which is only marginally higher the 44.6% achieved in the previous financial year.

Other operating expenses, largely comprising marketing costs and administrative expenses, also reflect similar trends with a 42.7% increase to €46.5 million.

As a result, the Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €63.9 million compared to €37.8 million in 2016. Again, most of this increase (€26.1 million) is attributable to the aforementioned consolidation of NLI Holdings Limited. On an adjusted basis, hence excluding the non-controlling interest in NLI Holdings Limited and adding the share of profits from associates and joint-ventures, the IHI Group’s EBITDA improved by 15.6% to €61.2 million compared to almost €53 million in 2016.

In 2017, IHI recognised a reversal of almost €4 million in previously recognised impairments in the Corinthia Hotel in St. Petersburg compared to the €2.96 million reversal reported in the previous financial year on the same property. Furthermore, the 2017 IHI results were also boosted by the non-recurrence of the €19.7 million fair value loss on the investment property in St. Petersburg, Russia which was incurred in 2016. On the other hand, IHI recognised a €3 million impairment on in its intangibles. In this respect, IHI noted that in view of the negative results achieved to date by Costa Coffee in Spain, IHI impaired the value of this business by €2.5 million. Furthermore, the balance of €0.5 million is linked to a reduction on the value of the Island Caterers brand.

Depreciation and amortisation amounted to €31.1 million compared to €23.3 million in 2016.

Overall, IHI reported an operating profit of €33.5 million compared to an operating loss of €3.5 million in 2016.

Share of profits of associates and joint-ventures amounted to €2.12 million compared to €1.66 million in 2016 (this still included IHI’s share of NLI Holdings Ltd).

Net finance costs amounted to €24.2 million (2016: €4.9 million) and IHI reported a cost of €1.8 million representing the part reclassification of the currency translation reserve to the income statement (after obtaining control of NLI Holdings Ltd). The IHI Group reported a pre-tax profit figure of €9.6 million compared to a pre-tax loss of €6.8 million in 2016.

For the financial year ended 31 December 2017, IHI recognised a tax credit of €5.3 million. Given the aforementioned consolidation of NLI Holdings Ltd, IHI has to deduct the part of the profitability attributable to third parties. For 2017, this amounted to €2.85 million leading to a net profit attributable to shareholders of €12.05 million compared to a net loss attributable to shareholders of €7.66 million in 2016. This translates into an earnings per share of €0.02 compared to a negative €0.012 in 2016.

The Statement of Financial Position as at 31 December 2017 shows total assets of €1.6 billion representing a 31.3% increase over the corresponding figure for the financial year ended 31 December 2016 largely reflecting the aforementioned consolidation of NLI Holdings Ltd which in turn owns the Corinthia Hotel London (valued at €496.1 million) as well as an apartment valued at €43.4 million. Likewise, the consolidation of NLI Holdings Ltd led to a significant increase in liabilities to €717.7 million compared to €573.4 million as at 31 December 2016. Overall, the Group’s equity base increased to €884.6 million (2016: €646.8 million). However, after excluding minority interests of €200.6 million, shareholders’ equity amounted to €684 million representing a 59% increase over the corresponding figure of €646.2 million as at 31 December 2016. This translates into a net asset value per share of €1.111 (Dec 2016: €1.05).

Dividend

The Directors did not recommend the payment of a final dividend. However, in the 2017 Annual Report the Chairman of IHI Mr Alfred Pisani noted that the Group is currently undertaking an exercise to rationalise the parent company’s balance sheet to enable the Group, both from an accounting and cash flow perspective, to issue dividends. Mr Pisani further added that this is being done with the intention of issuing an interim dividend during the course of 2018 although further details will be issued in due course.

Outlook

Looking ahead, IHI has a number of projects in the pipeline as detailed in the 2017 Annual Report. Following the recent acquisition of the Corinthia Palace Hotel in Attard, this is currently undergoing refurbishment. Moreover, various upgrading and refurbishment works are taking place at some of the Group’s owned properties. Through the 50% owned NLI Holdings Limited, IHI is currently in the process of refurbishing the Corinthia Hotel in Brussels which is expected to open its doors in 2020. Through its various subsidiaries, IHI is also regenerating the hotel in Bucharest which will be managed by IHI once it opens in 2019. Similarly, IHI will be taking on the management of two other hotels, one in Dubai and another in Doha, which are scheduled to open in 2020 and 2021 respectively.

The statements referred to above also provide an update on the St. George’s Bay project which is now being split up in different phases. The first phase, which is expected to commence in 2019, will comprise the upgrading and refurbishment of the Corinthia St. George’s Bay Hotel into Malta’s first 6-star hotel. Furthermore, IHI will develop two serviced residential blocks on vacant land located between the Corinthia St. George’s Bay Hotel and the Radisson Blu hotel. Subsequently, IHI will take a view and continue with the rest of the masterplan which also comprises the redevelopment of the Marina Hotel and the Radisson Blu Hotel. Until such time, these two hotels will continue to operate in their current form.

The Chairman of IHI also noted that the Group is also pursuing other projects in cities and resorts as diverse as Cannes, Rome, Moscow, New York and Miami although not all projects will necessarily come to fruition.

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International Hotel Investments plc – 2017 Annual Report and Financial Statements

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