International Hotel Investments plc - Full-Year Results
On 26 June 2020, International Hotel Investments plc (“IHI”) published its Annual Report and Financial Statements for the year ended 31 December 2019.
Performance Overview
During 2019, IHI generated revenues of €268.3 million, representing an increase of 4.7% over the previous corresponding period as virtually all of IHI’s business segments reported growth. Revenues from the hotels segment increased by 4.7% to €219.4 million, largely driven by the Corinthia Hotel London which generated €6.06 million in additional revenues to €74.9 million. Similarly, the hotels located in Lisbon (+8.4%) and Budapest (+6.4%) also experienced strong growth. On the other hand, the hotels located in Malta (+0.9%) and Prague (+1.8%) posted more modest growth whilst the hotels located in St. Petersburg (-1.6%) and Tripoli (-16.5%) experienced a decline in revenues.
IHI also generated higher revenues from its catering business (+1.1% to €25.1 million), rental of investment property operations (+6.7% to €13.7 million) and project management (+15.4% to €6.88 million). Conversely, revenues from hotel management eased by 0.3% to €17 million whilst revenue from development operations contracted by 9.1% to €0.83 million.
On the expenditure side, total operating costs increased by almost 6% (or €13.3 million) to €235.3 million including a substantial increase of nearly 9% (or +€7.68 million) in personnel expenses to €94.5 million. Excluding depreciation and amortisation (which amounted to €36.8 million), EBITDA amounted to just under €70 million compared to €67.5 million recorded in the 2018 financial year. When excluding the 50% share of EBITDA generated by the Corinthia Hotel London which is not owned by IHI, and also including the 50% share of EBITDA generated by the Golden Sands Resort, the EBITDA for the year amounted to €60.3 million compared to €61.3 recorded the previous comparable period.
The financial performance of IHI in 2019 was impacted by the various adjustments to the value of assets which, in aggregate, resulted in a positive change in fair value of €3.39 million compared to a higher positive adjustment of €4.21 million recorded in the 2018 financial year. On the other hand, IHI recorded a favourable movement of €4.66 million in net exchange differences on borrowings (on the back of a stronger British Pound Sterling and Russian Rouble exchange rates against the euro currency) compared to a negative exchange difference of €8.03 million in 2018.
Meanwhile, net finance costs increased by 12.4% (or +2.57 million) to €23.2 million largely reflecting higher interest paid on bank borrowings (+€1 million) and bonds (+€0.61 million), the impact from the introduction of accounting rule IFRS 16 on the recognition of lease liabilities (€0.72 million) as well as higher amortisation of transaction costs on borrowings (+€0.54 million). Moreover, in 2019 IHI reported a higher share of net loss from associates and joint-ventures as this amounted to €3.95 million compared to a loss of €1.36 million in 2018. In this respect, the deterioration in performance was due to the Golden Sands Resort as the hotel downsized the scale of its vacation ownership business and shifted towards conventional hotel operations.
Overall, IHI reported a substantial increase in pre-tax profits to €13.9 million compared to €8.47 million in the 2018 financial year. After accounting for a tax expense of €8.79 million and a loss of €1.7 million pertaining to minority interests, the net profit for the year amounted to €5.12 million compared to €8.46 million in 2018.
The Statement of Financial Position as at 31 December 2019 shows that total assets increased by 4.3% to €1.69 billion largely driven by higher amounts of property, plant and equipment (+€30.7 million to €1.18 billion), cash balances (+€22.5 million to €72.7 million), investment property (+€10.6 million to €214.2 million) and financial assets (+€8.83 million). Similarly, total liabilities grew by 6.7% to €790.1 million as total borrowings (including the recognition of lease liabilities amounting to €14 million) increased by 7.3% to €606.6 million whilst trade and other payables climbed by 5.4% to €81 million. Shareholders’ funds expanded by 2.6% to €701 million which, in turn, translates into a net asset value per share of €1.1386 (31 December 2018: €1.1099).
Outlook
In their commentary, the Directors noted that 2019 was another year of growth for IHI as besides the increase in business activity from existing operations, the Group continued to pursue further international expansion through projects which are currently underway as follows:
- Rome: The project remains on track for inauguration in 2022. Design works are progressing as planned, and early strip-out and site preparation works are also underway. Corinthia Developments International Ltd (“CDI”) is contracted to deliver the project, whilst Corinthia Hotels Ltd (“CHL”) is the operator and lessee.
- Brussels: The project experienced delays in 2019 mainly due to intensive re-design and negotiations with various contractors with a view of improving expected returns. Discussions with a selected contractor are now nearing completion and IHI (through NLI Holding Ltd) expects to be in a position to award a main contract in the coming period so that the Corinthia Grand Hotel Astoria will open for business in 2023. CDI is contracted to deliver the project, whilst CHL is the operator.
- Dubai: CHL, as the operator and provider of hotel technical services, stayed closely involved in the construction of the 55-storey flagship project on Jumeirah Beach. Works are now targeted for completion by 2021.
- Doha: CHL has entered into contractual arrangements to provide technical services and manage a luxury hotel, residential serviced villas, a beach club and a yacht club on the iconic Gewan Island, part of the Pearl development in Doha. Design works are well underway and construction has commenced with the targeted opening set for 2023.
- Bucharest: Works will be picking up again on the redevelopment of the landmark Grand Hotel du Bulevard. QP Limited (a wholly-owned subsidiary of IHI) has been entrusted with project management, whilst CHL will be the operator of the property once completed in 2022.
- Moscow: IHI has a 10% stake in this major project which is also located very near to the Kremlin building. The site is being redeveloped behind a retained historic façade and will feature a Corinthia Hotel, high street retail areas and over 100 branded residences. Works on foundations and excavations are underway and the project is expected to be inaugurated in 2023.
Despite the favourable prospects in terms of further international outreach, the Directors highlighted the significant negative impact from ‘COVID-19’ and its effects which are now expected to linger beyond 2020/21. In this respect, IHI explained that as recovery is expected to be gradual, it took several initiatives aimed at reducing costs, suspend/postpone capital expenditure and also benefit from various government-induced assistance programmes. Moreover, IHI conducted negotiations with its bankers (both in Malta and internationally) with a view of deferring payment of capital and interest on loans, and also organised separate lines of credit from various banks and related parties.
In this context, IHI reiterated its confidence that whilst projecting a scenario of little or no income for the foreseeable months (including a breakeven position after the payment of interest on bonds and bank loans as the least adverse possible scenario in 2021), it has sufficient resources and funds in place to maintain all its payment obligations as they arise through the course of the year.