Interim Results
September 17 2003 - 3:00AM
UK Regulatory
RNS Number:8438P
C.H.E. Group PLC
17 September 2003
C.H.E. Group PLC
INTERIM REPORT
6 Months to 30 June 2003
Introduction
The first half of this current financial year was difficult for most of the
companies operating in the hospitality sector. Following on from a weakened
market in the latter part of 2002, the build up towards the war with Iraq, the
war itself, and the SARS outbreak which followed, all combined to further weaken
business levels. Revenues did start to improve towards the end of the period
under review, particularly in June, where growth was recorded over the
corresponding month last year.
On a more positive note, the outlook is now better with most hospitality sector
consultants and industry leaders projecting signs of recovery and some growth
from the autumn and on into 2004, a belief also held by your Board.
During the 18 months from the beginning of January 2002 to 30 June 2003, the
Group sold 7 properties, 2 of which were leased back, as part of the Group's
restructuring and strengthening plan, that had commenced in January 2001.
Following completion of the restructuring process the Group now has a net asset
value of #30.0million producing a NAV per share of #1.39.
The disposal of this number of properties during the 18 month period makes
direct comparison of our performance difficult. Overall the Group improved its
performance over the 6 months, reducing its loss on ordinary activities before
taxation by #0.7million to #1.8million (2002: loss of #2.5million). Because of
the restructuring activities over the two comparative six month periods in 2003
and 2002 and before making adjustments for any disposed properties the loss
before tax and exceptional items did increase by #1.9million to #2.4million
(2002: loss of #0.5million).
Operating Review
A more meaningful assessment of the performance of the Group for the period
under review can be made by comparing the results having removed the effect of
those properties disposed of, except the two hotels that were leased back, thus
producing a true like for like comparison. On this basis our turnover for the
half year to June 2003 was the same as last year at #35.4million. This was a
satisfactory result when considering the trading problems identified above.
Included within the total turnover figure were licence and marketing fees at
#2.4million (2002: #2.1million) from the franchise part of our business, an
increase of 14% on last year.
Although turnover was the same as last year some costs in the restructured Group
have increased including agents commissions, as in a difficult trading period
reliance on business via this medium increases. Rental cost has also risen,
mainly due to the two properties that were sold and leased back during last
year, with no corresponding cost in the first half of 2002. Insurance costs were
also higher and payroll & benefits, although up less than 3% on 2002, reflected
additional employers National Insurance, which went up in April and an increase
in the minimum wage last October.
Gross operating profit, representing earnings before charges that are outside
the direct control of individual unit management, such as rent, depreciation,
property tax and insurance, was down #0.6million on last year at #9.5million
(2002: #10.1million).
Operating profit before interest tax and exceptional items on a like for like
basis was down #1.7million on last year resulting in an operating loss of
#0.6million (2002: #1.1million profit). The Group did, however, benefit from a
saving of #0.3million on interest, due to less debt following property sales, as
well as a profit of #0.6million before tax on the disposal of part of our
investment in an Irish joint venture, where we reduced our shareholding from 50%
to 20%. The investment sale benefit was recorded as an exceptional gain.
In the United Kingdom, where nearly 80% of the Group's turnover from unit
operations was generated, our owned and leased hotels, on a like for like basis,
achieved the following operational results. Bedroom occupancy was only 1.4
percentage points down at 60.5% (2002: 61.9%), the average room rate was also
only a little down, dropping 55 pence (1.4%) to #38.02 (2002: #38.57), producing
a yield per available room shortfall of 87 pence (3.6%) to #23.02 (2002:
#23.89). The gross operating profit margin at 32.5% was 3 percentage points down
on last year (2002: 35.7%) mainly due to increased agents commission and the
statutory payroll and benefits increases referred to above, measured against a
lower revenue.
The New Connaught Rooms, our conference and banqueting facility, located near
Covent Garden in London, was also affected by the political and economic
environment, particularly in March and April because of the Iraq war. Turnover
was down #0.2million at #2.5million (2002: #2.7million) but recovered half of
the shortfall, by good cost control, producing a gross operating profit of
#0.8million (2002: #0.9million).
On the Continent, where hotels faced similar trading conditions to those in the
United Kingdom, turnover was in line with last year at #4.0million, on a like
for like basis, but the gross operating profit fell by #0.1million to
#0.8million (2002: #0.9million).
Despite all these trading difficulties, however, 27 new franchises were signed
in the period under review. Reflecting our wish to improve brand standards
across our portfolio, 14 properties were terminated during the period. Including
our owned, leased and managed properties, we now have 383 properties under
franchise.
Directors
On the 1st July 2003, the Board announced the resignation of Michael Finkleman
as Chief Executive. Since he joined the Group in March 2001 the company has been
going through a difficult period of reconstruction and downsizing. Michael
decided to leave owing to the changed dynamics of the Group. The Board
recognises and thanks him for his contribution.
On the 11th July 2003, the Board announced that David Cook was appointed as the
new Chief Executive and that he would also continue as Finance Director, the
position he has held for the last two years, whilst the Board sought a
replacement. The Board are interviewing prospective candidates and will make a
further announcement in due course.
Dividend
The directors are not proposing the payment of a dividend.
Development and Disposals
During the 6 months to June 2003 2 properties, in Edinburgh and Falkirk, were
sold for an aggregate value of #1.6million and of this sum, #1.2million was used
to repay debt. The hotels were sold because in the Board's opinion the
properties would still not have provided a satisfactory return even if
substantial refurbishment costs had been incurred.
The loan facility that formed the new financial package, put in place in January
2003, included some funding for limited refurbishment of our existing portfolio.
During the course of the period under review, through until September, in a
number of our properties, a much needed programme of refurbishment has been
carried out, or is in the process of completion. Further refurbishment and a
number of revenue and profit improving projects, within our existing portfolio,
will be carried out as funds become available.
Some ringfenced funding, from within the loan facility, has also been made
available to progress development of our limited service Sleep Inn product.
Whilst it is not our intention to own these new properties the funding provides
us with the choice of either fitting out the properties ourselves or
alternatively a turnkey, fully fitted out, lease. We are currently in the
process of finalising legal and planning details on five Sleep Inn developments
and hope to have six properties under construction by the end of the year.
Because of the short building programme for this style of hotel, the Group
should start to gain benefit during the second half of 2004.
Our franchise growth, which slowed a little during the settling in period of the
new Head of Franchise Sales and because of a change of Vice President in our
French operation, is now starting to accelerate and we are in the final stages
of the signing and approval process on a number of properties. We shall continue
to ensure that brand standards across the portfolio improve and this may result
in early termination of some franchise agreements.
Another aspect of our business that is starting to grow, is management
contracts, where property owners employ the C.H.E. Group to operate the hotels
on their behalf under the Choice brands. Since the beginning of 2003, three
management arrangements have commenced and we have a further four hotels already
signed up, which will come under our operating umbrella as their existing
contracts come to an end at various times over the next 6 months. We also have
three hotels under contract on the Continent. The growth in this type of
business demonstrates that owners and their funding providers recognise not only
the importance of the Choice branding and the Choice reservation system but also
our ability to enhance profitability under our management.
Outlook
The fact that turnover from hotel operations was only slightly down on the
corresponding period last year, despite such adverse trading conditions,
positions the Group well to take advantage of any economic upturn.
Unsurprisingly, business levels in July and August did not record any growth on
the corresponding months last year. The tourist market, which takes on a more
significant role for our predominately business sector hotels in the summer
holiday months, remained depressed as most people book their summer vacations in
the first quarter of the year during the lead up to and during the Iraq war. As
a result, international tourists from many parts of the world stayed at home
this year.
The Board believes, in line with sector pundits and consultants as well as a
growing number of industry leaders, that there are now positive signs that
recovery and growth in business levels will commence in the autumn and continue
into 2004, always assuming there is no change to the current improving political
climate following the aftermath of the Iraq war. The Group should also benefit
from the refurbishment projects currently being completed. We also anticipate an
increase in franchise agreements and management contracts. The commencement of
our Sleep Inn development programme later this year should start providing
income late in 2004. Whilst all these growth opportunities will not happen
overnight, the Board look forward with cautious confidence.
Peter Catesby
Chairman
17 September 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
for the half year ended 30th June 2003
Restated Audited
30 June 30 June 31 December
2003 2002 2002
half year half year Year
# m # m # m
Turnover: Group and share of joint 37.3 40.5 82.2
venture
Less: Share of joint venture turnover 1.6 3.1 4.2
--------- ---------- ----------
Turnover 35.7 37.4 78.0
Cost of sales 15.3 15.8 33.9
--------- ---------- ----------
Gross profit 20.4 21.6 44.1
Administrative costs
--------- ---------- ----------
- before exceptional items 21.2 20.4 40.5
- exceptional items - 0.3 0.5
--------- ---------- ----------
21.2 20.7 41.0
--------- ---------- ----------
Operating (loss)/profit
--------- ---------- ----------
- before exceptional items (0.8) 1.2 3.6
- exceptional items - (0.3) (0.5)
--------- ---------- ----------
(0.8) 0.9 3.1
Share of operating profit in
Joint venture (0.1) 0.1 0.2
Profit/(loss) on sale of fixed assets
(see 0.6 (1.3) (1.4)
note 5) --------- ---------- ----------
(Loss)/profit on ordinary
activities before interest (0.3) (0.3) 1.9
Interest payable and similar charges
--------- ---------- ----------
- before exceptional items 1.5 1.8 3.5
- exceptional items - 0.4 0.7
--------- ---------- ----------
1.5 2.2 4.2
--------- ---------- ----------
(Loss)/profit on ordinary activities
before taxation --------- ---------- ----------
- before exceptional items (2.4) (0.5) 0.3
- exceptional items 0.6 (2.0) (2.6)
--------- ---------- ----------
(1.8) (2.5) (2.3)
Taxation
- on trading activities 0.1 (0.2) (0.7)
- on sale of investments 0.1 - -
--------- ---------- ----------
Loss for the financial period carried
forward (2.0) (2.3) (1.6)
========= ========== ==========
Loss per share
-Basic (9.6)p (10.4)p ( 7.4)p
-Diluted (9.6)p (10.4)p ( 7.4)p
Adjusted Loss per share
-Basic (12.4)p (1.5)p 4.3p
Dividends per ordinary share 0.0p 0.0p 0.0p
========= ========== ==========
All amounts relate to continuing activities
All recognised gains and losses are included in the profit and loss account.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
as at 30th June 2003
30 June Restated Audited
2003 30 June 31 December
2002 2002
# m # m # m # m # m # m
Fixed Assets
Tangible Assets 73.8 84.0 75.6
Investment in joint venture
-share of gross assets - 2.1 3.0
-share of gross liabilities - (1.6) (2.4)
-------- -------- -------
0.5 0.6
Investment in associate 0.2 - -
------- -------- -------
74.0 84.5 76.2
Current Assets
Stocks 0.9 0.9 0.8
Debtors 9.5 9.0 9.9
Cash at bank and in hand 0.5 1.2 0.8
------- -------- -------
10.9 11.1 11.5
Creditors: Amounts falling
due within one year
Bank overdraft and loans (see 2.5 26.8 19.0
note 7)
Creditors and accruals 17.8 20.5 20.7
------- -------- -------
20.3 47.3 39.7
------- -------- -------
Net current liabilities (9.4) (36.2) (28.2)
------- -------- -------
Total Assets less current
liabilities 64.6 48.3 48.0
Creditors: Amounts falling
due
after more than one year (see 34.1 15.9 15.5
note 7)
Provision for liabilities and 0.5 0.9 0.5
charges ------- -------- -------
Net Assets Employed 30.0 31.5 32.0
======= ======== =======
Capital And Reserves
Called up share capital 2.2 2.2 2.2
-equity
Share premium account 1.2 1.2 1.2
Revaluation reserve 17.8 19.9 18.0
Capital redemption reserve 15.7 15.7 15.7
Profit and loss account (6.9) (7.5) (5.1)
------- -------- -------
Shareholders Funds 30.0 31.5 32.0
======= ======== =======
There are no non equity interests included in Shareholders funds (July 2002 - #
nil m, December 2002- #nil m).
Consolidated Cashflow Statement (UNAUDITED)
for the half year ended 30 June 2003
6 Months 6 Months Year
2003 2002 2002
#m #m #m #m #m #m
Net cash (outflow)/inflow from
operating (2.3) 3.2 7.4
activities
Returns on investment and
servicing
of finance
Interest paid 1.1 1.6 3.9
Finance lease interest 0.1 0.2 0.3
------ ------ -------
Net cash outflow from returns on
investment and (1.2) (1.8) (4.2)
servicing of finance
Taxation
Overseas withholding tax paid (0.2) - -
Capital expenditure
Payments to acquire tangible fixed 1.1 1.4 2.8
assets
Receipts from sale of fixed assets (1.6) (10.3) (17.7)
------ ------ -------
Net cash inflow for capital 0.5 8.9 14.9
expenditure
Acquisitions and Disposals
Receipts from sale of shares in 0.9 - -
joint venture ------ ------- -------
Net cash (outflow)/inflow before
financing
and use of liquid resources (2.3) 10.3 18.1
Management of liquid resources
Decrease in restricted bank account - 0.1 0.1
Financing
New long term bank loans 20.9 - -
Repayment of bank loans (13.7) (9.2) (16.0)
Net repayment of sale and
leaseback arrangements (0.4) (0.5) (0.9)
------ ------ -------
Net cash inflow/(outflow) from 6.8 (9.7) (16.9)
financing ------ ------- -------
Increase in cash 4.5 0.7 1.3
====== ======= =======
Reconciliation of operating profit
to net cash (outflow)/inflow from
operating activities
Operating (loss)/profit (0.8) (0.9) 3.1
Exceptional charges - 0.1 0.1
Adjustment to sale proceeds - (1.3) (1.3)
Restructuring costs - - (1.4)
Depreciation and amortisation 1.2 1.5 2.6
charges
(Increase) /decrease in stocks (0.1) - -
Decrease /(increase) in debtors 0.4 1.5 1.8
(Decrease) /increase in creditors (3.0) 0.5 2.6
Foreign exchange movement - - (0.1)
------ ------- -------
Net cash (outflow)/inflow from
operating (2.3) 3.2 7.4
activities ====== ======= =======
NOTES:
1. The directors have recommended no interim dividend (2002 - nil)
2. The Group adopted Financial Reporting Standard 19 'Deferred Tax'
in 2002. This required full provision to be made for certain
timing differences and during 2002 the directors reconsidered the deferred tax
provision and have amended the June 2002 comparatives accordingly. There have
been no changes to the accounting policies applied in the current period to
those policies stated in the 2002 accounts.
3. The tax charge is based on the estimated effective rate of
tax for the year
4. The comparative figures for the year to 31st December 2002
have been extracted from the full accounts which have been filed with the
Registrar of Companies and on which the auditors gave an unqualified report
pursuant to Section 235 of the Companies Act 1985 and which does not contain a
statement made under sub section (2) or (3) of Section 237 of that Act. These
accounts do not comprise statutory accounts within the meaning of Section 240 of
that Act.
5. The exceptional items of #0.6m included within profit on
sale of fixed assets comprise of:
-a profit of #0.7m relating to the sale of shares in the Irish joint venture
company.
-a loss of #0.1m arising on the disposal of two hotels.
6. The Adjusted Loss per share is calculated using the post
tax result before exceptional items available for ordinary shareholders divided
by the number of ordinary shares (21,610,901) and has been given as it is
considered more representative of the ongoing operational earnings. There are no
potentially dilutive shares in issue.
7. The movements in Bank overdraft and loans and Creditors:
Amounts falling due after more than one year between 31 December 2002 and 30
June 2003 are mainly due to the signing of a new seven year term loan facility
in January 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UNSBRONRKAAR